Exhbibit 10.4
Exhibit "B"
Attached to and made a part of that certain Participation Agreement covering
High Island Block 53 Prospect, dated August 25, 2004, by and between Millennium
Offshore Group, Inc., and Ridgewood Energy Corporation.
OFFSHORE OPERATING AGREEMENT
High Island Block 53 Prospect
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TABLE OF CONTENTS
Table of Contents 1-4
ARTICLE 1
APPLICATIONS
Preliminary Recitals 5
1.1 Application to Each Lease 5
ARTICLE 2
DEFINITIONS
2.0A AFE 5
2.0B Casing Point Election 5
2.1 Development Operations 5
2.2 Development Well 5
2.3 Exploratory Operations 5
2.4 Exploratory Well 5
2.5 Facilities 5
2.6 Lease 5
2.7 Non-Consent Operations 5
2.8 Non-Consent Platform 5
2.9 Non-Consent Well 5
2.10 Non-Operator 5
2.11 Non-Participating Party 6
2.12 Non-Participating Party's Share 6
2.13 Operator 6
2.14 Participating Interest 6
2.15 Participating Party 6
2.16 Producible Well 6
2.18 Working Interest 6
2.18 Affiliate 6
2.19 Sidetrack or Sidetracking 6
2.20 Platform 6
2.21 Reservoir 6
ARTICLE 3
EXHIBITS
3.1 Exhibits 6
3.1.1 Exhibit "A" Leases, Parties, Working Interests,
Addresses & Representatives 6
3.1.2 Exhibit "B" Insurance Provisions 6
3.1.3 Exhibit "C" Accounting Procedure 6
3.1.4 Exhibit "D" Non-Discrimination 6
3.1.5 Exhibit "E" Gas Balancing Agreement 6
3.1.6 Exhibit "F" Memorandum of Operating Agreement &
Financing Statement 6
ARTICLE 4
OPERATOR
4.1 Operator 6
4.2 Resignation 7
4.3 Removal of Operator 7
4.4 Selection of Successor 7
4.5 Delivery of Property 7
ARTICLE 5
AUTHORITY AND DUTIES OF OPERATOR
5.1 Exclusive Right to Operate 7
5.2 Workmanlike Conduct 7
5.3 Liens and Encumbrances 7
5.4 Employees 7
5.5 Records 7
5.6 Compliance 7
5.7 Drilling 7
5.8 Reports 7
5.9 Permits and Licenses 8
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5.10 Information to Participating Parties 8
5.11 Information to Non-Participating Parties 8
ARTICLE 6
VOTING AND VOTING PROCEDURES
6.1 Designation of Representatives 8
6.2 Voting Procedures 8
6.2.1 Voting Interest 8
6.2.2 Vote Required 8
6.2.3 Votes 8
6.2.4 Meetings 9
ARTICLE 7
ACCESS
7.1 Access to Lease 9
7.2 Reports 9
7.3 Confidentiality 9
7.4 Limited Disclosure 9
7.5 Press Releases 9
7.6 Media Releases 9
ARTICLE 8
EXPENDITURES
8.1 Basis of Charge to the Parties 10
8.2 Authorization 10
8.3 Advance ▇▇▇▇▇▇▇▇ 10
8.4 Failure to Commence Operations Timely 10
8.5 Refund of Excess Funds 10
8.6 Commingling Funds 10
8.7 Security Rights 10
8.8 Unpaid Charges 11
8.9 Default 11
8.10 Carved-Out Interests 11
ARTICLE 9
NOTICES
9.1 Giving and Receiving Notices 11
9.2 Content of Notice 11
9.3 Response of Notices 12
9.3.1 Platform Construction 12
9.3.2 Proposal Without Platform 12
9.3.3 Other Matters 12
9.4 Failure to Respond 12
9.5 Timely Operations 12
9.6 Restrictions on Multiple Well Proposals 12
ARTICLE 10
EXPLORATORY ▇▇▇▇▇
10.1 Operations by All Parties 12
10.2 Second Opportunity to Participate 12
10.3 Operations by Fewer Than All Parties 13
10.3.1 Subsequent Exploratory ▇▇▇▇▇ 13
10.3.2 Subsequent Exploratory ▇▇▇▇▇/Non-Production Reversion 14
10.4 Course of Action After Drilling to the Initial Objective Depth 14
ARTICLE II
DEVELOPMENT OPERATIONS
11.1 Operations By All Parties 15
11.2 Second Opportunity to Participate 15
11.3 Operations By Fewer Than All Parties 15
11.4 Timely Operations 16
11.5 Course of Action After Drilling to Initial Objective Depth 16
11.6 Deeper Drilling 16
ARTICLE 12
NON-CONSENT OPERATIONS
12.1 Non-Consent Operations 16
12.1.1 Non-Interference 16
12.1.2 Multiple Completion Limitation 16
12.1.3 Liens 16
12.3.4 Metering 16
12.1.5 Platform Salvage 16
12.1.6 Non-Consent Well 16
12.1.7 Cost Information 17
12.2 Penalties 17
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12.3 Recoupment and Salvage 18
12.4 Deepening of Non-Consent ▇▇▇▇▇ 18
12.5 Operations from Non-Consent Platform 18
12.6 Discovery of Extension from Mobile Drilling Operations 18
12.7 Allocation of Platform Costs to Non-Consent Operations 18
12.7.1 Charges 19
12.7.2 Operating and Maintenance Charges 19
12.7.3 Payments 19
12.8 Retention of Lease by Non-Consent Well 19
12.9 Non-Consent Drilling to Maintain Lease 19
12.10 Allocation of Costs (Single Completion) 20
12.11 Allocation of Costs Between Zones (Multiple Completions) 20
12.12 Allocation of Costs Between Zones (Dry Hole) 20
12.13 Intangible Drilling and Completion Allocations 21
ARTICLE 13
FACILITIES
13.1 Approval 21
13.2 Ownership 21
13.3 Contracts 21
13.2 Other Facilities 21
ARTICLE 14
ABANDONMENT AND SALVAGE
14.1 Platform Salvage and Removal Costs 21
14.2 Abandonment of Producible Well 21
14.3 Assignment of Interest 22
14.4 Abandonment Operations Required by Governmental Authority 22
14.5 Operator Purchase of Salvage Materials 22
14.6 Non-Operator Purchase of Salvage Materials 22
ARTICLE 15
WITHDRAWAL
15.1 Withdrawal 22
15.2 Limitations of Withdrawal 23
ARTICLE 16
RENTALS, ROYALTIES, AND OTHER PAYMENTS
16.1 Creation of Overriding Royalty 23
16.2 Payment of Rentals and Minimum Royalties 23
16.3 Non-Participation in Payments 23
16.4 Royalty Payments 23
ARTICLE 17
TAXES
17.1 Property Taxes 24
17.2 Contest of Property Tax Valuation 24
17.3 Production and Severance Taxes 24
17.4 Other Taxes and Assessments 24
ARTICLE 18
INSURANCE
18.1 Insurance 24
ARTICLE 19
LIABILITY, CLAIMS AND LAWSUITS
19.1 Individual Obligations 24
19.2 Notice of Claim or Lawsuit 24
19.3 Settlements 24
19.4 Legal Expense 24
19.5 Liability for Losses, Damages, Injury or Death 24
19.6 Indemnification 24
ARTICLE 20
INTERNAL REVENUE PROVISIONS
20.1 Election of Partnership Provisions 25
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ARTICLE 21
CONTRIBUTIONS
21.1 Notice of Contributions Other Than Advances for Sale of
Production 25
21.2 Cash Contributions 25
21.3 Acreage Contributions 25
ARTICLE 22
DISPOSAL OF PRODUCTION
22.1 Facilities to Take In Kind 26
22.2 Duty to Take In Kind 26
22.3 Failure to Take In Kind 26
22.4 Expenses of Delivery In Kind 26
22.5 Gas Balancing Agreement 26
ARTICLE 23
APPLICABLE LAW
23.1 Applicable Law 26
ARTICLE 24
LAWS, REGULATIONS AND NON-DISCRIMINATION
24.1 Laws and Regulations 26
24.2 Non-Discrimination 26
ARTICLE 25
FORCE MAJEURE
25.1 Force Majeure 26
25.2 Notice 26
ARTICLE 26
SUCCESSORS, ASSIGNS AND AREA OF MUTUAL INTEREST
26.1 Successors and Assigns 27
26.2 Area of Mutual Interest 27
26.3 Transfer of Interest 27
26.4 Assignments 27
ARTICLE 27
▇▇▇▇
▇▇.▇ ▇▇▇▇ ▇▇ ▇▇
ARTICLE 28
EXECUTION
28.1 Counterpart Execution 28
Signatures 28
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OFFSHORE OPERATING AGREEMENT
THIS AGREEMENT, made effective the 25th day of August, 2004, by the
signatories hereof, herein referred to collectively as "Parties" and
individually as "Party".
WITNESSETH:
WHEREAS, the Parties are owners of the one or more oil and gas leases
identified in Exhibit "A", and desire to explore, develop, produce and operate
said leases.
NOW THEREFORE, in consideration of the premises and of the mutual
agreements herein, it is agreed as follows:
ARTICLE 1
APPLICATIONS
1.1 Application to Each Lease. If more than one oil and gas lease is
identified in Exhibit "A", this Agreement shall apply separately to each such
lease.
ARTICLE 2
DEFINITIONS
2.0.A AFE. An Authorization for Expenditure prepared by a Party for the
purpose of estimating the costs to be incurred in conducting an operation
hereunder
2.0.B Casing Point. The point in time when the well, Substitute Well or any
Exploratory and/or Development Well has been drilled to its proposed Objective
Depth, or mutually agreed to lesser depth, and all tests included in the
approved Authority of Expenditure ("AFE"), have been performed unless waived by
mutual agreement of the Parties and a recommendation is made by Operator to: (i)
set casing and complete the well (ii) plug and abandon the well or (iii) conduct
other operations as provided for in Articles 10.5.
2.1 Development Operations. Drilling Operations (a well to be drilled,
recompleted, deepened, or plugged back) on the Lease scheduled for an objective
zone, horizon or formation which, as a result of previous drilling, has been
established as producible under 2.16 below.
2.2 Development Well. Any well proposed as a Development Operation.
2.3 Exploratory Operations. Drilling Operations on the Lease which are:
a) Scheduled for an objective zone, horizon or formation which has not
been established as producible on the Lease under 2.16 below; or
b) Scheduled for an objective zone, horizon or formation already
established as producible on the Lease under 2.16 below, but the vertical
projection of the midpoint of such objective will be penetrated at a
location which is more than 3,000' from the vertical projection of the
midpoint of the same objective in the nearest well on the Lease which has
been proven to be producible, or such objective is agreed by all Parties to
be in a separate reservoir not in communication with a well proven to be
producible.
2.4 Exploratory Well. Any well proposed as an Exploration Operation.
2.5 Facilities. All lease equipment beyond the wellhead connections
including but not limited to equipment for gathering, storage, treating,
compression, and production handling. Facilities shall not include Pipelines
used for transporting and marketing oil and/or gas produced from the Lease.
2.6 Lease. Each oil and gas lease identified in Exhibit "A" and the lands
affected thereby.
2.7 Non-Consent Operations. Exploratory or Development Operations conducted
by fewer than all Parties.
2.8 Non-Consent Platform. A drilling or production Platform owned by fewer
than all Parties.
2.9 Non-Consent Well. An Exploratory or Development Well owned by fewer
than all Parties.
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2.10 Non-Operator. Any Party to this Agreement other than the Operator.
2.11 Non-Participating Party. Any Party other than a Participating Party.
2.12 Non-Participating Party's Share. The Participating Interest a
Non-Participating Party would have had if all Parties had participated in the
operation.
2.13 Operator. The Party designated under this Agreement to conduct
Exploratory and Development Operations.
2.14 Participating Interest. A Participating Party's percentage of
participation in an operation conducted pursuant to this Agreement.
2.15 Participating Party. A Party who joins in an operation conducted
pursuant to this Agreement
2.16 Producible Well. A well producing oil or gas, or, if not producing oil
or gas, a well determined to be capable of producing in paying quantities
pursuant to any applicable order issued by appropriate governmental authority.
2.17 Working Interest. The ownership of each Party in and to the Lease as
set forth in Exhibit "A".
2.18 Affiliate. In relation to any of the Parties, shall mean any company
which is a subsidiary of such Party or of which such Party is a subsidiary or
which is a subsidiary of a company of which such Party is a subsidiary. For the
purpose of this definition, the term "subsidiary" shall mean a company
controlled directly or indirectly by another company which holds or controls
sufficient voting shares of the former to elect the majority of its board of
directors.
2.19 Sidetrack or Sidetracking. Any proposal to directionally control or
intentionally deviate a well so as to change the bottom hole location from that
as originally proposed and shall not refer to operations undertaken to
straighten the hole or to drill around junk in the hole or because of other
mechanical difficulties.
2.20 Platform. A structure to be installed offshore for drilling or
production operations on the Lease. Including, but not limited to jackets,
caissons and subsea templates.
2.21 Reservoir. An underground accumulation of hydrocarbon and minerals
comprising a single, separate, naturally contained system characterized by a
single pressure.
ARTICLE 3
EXHIBITS
3.1 Exhibits. Attached hereto are the following exhibits, which are
incorporated herein by reference:
3.1.1 Exhibit "A". Description of Leases, Working Interest of the
Parties in each Lease, the Parties' addresses and Designated Representatives.
3.1.2 Exhibit "B". Insurance Provisions.
3.1.3 Exhibit "C". Accounting Procedure.
3.1.4 Exhibit "D". Non-Discrimination Provisions.
3.1.5 Exhibit "E". Gas Balancing Agreement.
3.1.6 Exhibit "F". Memorandum of Operating Agreement and Financing
Statement
ARTICLE 4
OPERATOR
4.1 Operator. Millennium Offshore Group. Inc. is hereby designated as
Operator. Operator shall not have the right to assign or transfer any rights,
duties or obligations of Operator to another Party.
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4.2 Resignation. Operator may resign at any time by giving written notice
to the Parties. Such resignation shall become effective at 7:00 a.m. on the
first day of the month following a period of ninety (90) days after the date of
said notice, unless a successor Operator has assumed the duties of Operator
prior to such date.
4.3 Removal of Operator. Should Operator or any successor Operator
hereunder (1) dissolve, liquidate or terminate its corporate existence, (2)
become insolvent, bankrupt or subject to receivership, (3) be unable to pay its
bills as they come due, it shall thereupon cease to be Operator hereunder, or
should it commit a substantial breach of a material provision of this agreement
and fail to cure within 90 days after notice of breach, or should it fail to
perform its duties hereunder, it may be removed as Operator by an affirmative
vote of two (2) or more Parties having a combined Working Interest of fifty-one
percent (51%) or more after excluding the Working Interest of Operator.
4.4 Selection of Successor. Upon resignation or removal of Operator, a
successor Operator shall be selected by an affirmative vote of two (2) or more
Parties having a combined Working Interest of fifty-one (51%) or more after
excluding the Working Interest of the removed or resigned Operator.
4.5 Delivery of Property. Prior to the effective date of resignation or
removal, Operator shall deliver promptly to successor Operator the possession of
everything owned by the Parties pursuant to this Agreement.
ARTICLE 5
AUTHORITY AND DUTIES OF OPERATOR
5.1 Exclusive Right to Operate. Unless otherwise provided, Operator shall
have the exclusive right and duty to conduct all operations pursuant to this
Agreement. Operator shall not be deemed or hold itself out as the agent or
fiduciary of the non-operators.
5.2 Workmanlike Conduct. Operator shall conduct all operations in a good
and workmanlike manner, as would a prudent operator under the same or similar
circumstances. Operator shall not be liable to the Parties for losses sustained
or liabilities incurred except such as may result from its gross negligence or
willful misconduct. Unless otherwise provided, Operator shall consult with the
Parties and keep them informed of all important matters.
5.3 Liens and Encumbrances. Operator shall endeavor to keep the Lease and
equipment free from all liens and encumbrances occasioned by operations
hereunder, except those provided for in Section 8.5.
5.4 Employees. Operator shall select employees and determine their number,
hours of labor and compensation. Such employees shall be employees of Operator.
5.5 Records. Operator shall keep accurate books, accounts and records of
operations hereunder which, unless otherwise provided for in this Agreement,
shall be available at reasonable times to each Party or its authorized
representatives.
5.6 Compliance. Operator shall comply with and require all agents and
contractors to comply with all applicable laws, rules, regulations and orders of
any governmental agency having jurisdiction.
5.7 Drilling. Operator shall have all drilling operations including
mobilization and demobilization, conducted by qualified and responsible
independent contractors under competitive contracts then prevailing. However,
Operator may employ its own equipment and personnel in the conduct of such
operations, but such work shall be performed by Operator acting as an
independent contractor under a written contract containing the terms and
conditions and at rates as are customary and then prevailing in competitive
contracts of independent contractors who are doing work of a similar nature and
pursuant to a written agreement among the Participating Parties.
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5.8 Reports. Operator shall make reports to governmental authorities that
it has a duty to make as Operator and shall furnish copies of such reports to
Participating Parties. Operator shall give timely written notice to the Parties
of all litigation and hearings affecting the Lease or operations hereunder.
5.9 Permits and Licenses. Operator shall secure any and all permits and/or
licenses required by all applicable laws, rules, regulations or orders of any
governmental agency that it has a duty to secure, as Operator, and shall furnish
copies of same to each Participating Party.
5.10 Information to Participating Parties. Operator shall furnish each
Participating Party the following information pertaining to each well being
drilled:
a) copy of application for permit to drill and all amendments thereto,
along with a copy of permit issued;
b) copy of plat of well location;
c) daily drilling reports, workover and daily production by telephone,
telecopy, or facsimile followed by weekly written reports;
d) complete report of all core analysis;
e) copies of any logs or surveys as run;
f) copies of any well test results, bottom-hole pressure surveys, gas
and condensate analysis or similar information;
g) copies of reports made to regulatory agencies; and
h) (1) twenty-four [24] hour notice of logging, coring and testing
operations; and (2) samples of cuttings and cores marked as to depth, to be
packaged and shipped at the expense of the requesting Party;
i) upon written request, any other pertinent information available to
Operator and relative thereto.
Each Participating Party shall furnish Operator, in wilting, the names,
addresses, telephone and/or telecopy numbers of persons to whom such information
and notices shall be given.
5.11 Information to Non-Participating Parties. Operator shall furnish to
each Non-Participating Party copies of all non-confidential reports made to
regulatory agencies, with concurrence of participating parties.
ARTICLE 6
VOTING AND VOTING PROCEDURES
6.1 Designation of Representatives. The names and addresses of the
representative and alternate, who are authorized to represent and bind each
Party with respect to operations hereunder, are set forth in Exhibit "A". The
designated representative or alternate may be changed by written notice to the
other Parties.
6.2 Voting Procedures. Unless otherwise provided, any matter requiring
approval of the Parties shall be determined as follows:
6.2.1 Voting Interest. Each Party shall have a voting interest equal
to its Working Interest or its Participating Interest, as applicable.
6.2.2 Vote Required. Proposals requiring approval of the parties shall
be decided by an affirmative vote of one (1) or more Parties having a combined
voting interest of fifty percent (50%) or more.
6.2.3 Votes. The Parties may vote at meetings; by telephone, promptly
confirmed in writing to Operator; or by letter, telegram, telex or telecopier.
Operator shall give prompt notice of the results of such voting to each Party.
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6.2.4 Meetings. Meetings of the Parties may be called by Operator upon
its own motion or at the request of one (1) or more Parties having a combined
voting interest of not less than ten percent (10%). Except in the case of an
emergency, no meeting shall be called on less than ten (10) days advance notice,
with meeting agenda attached. The representative of Operator shall be chairman
of each meeting.
ARTICLE 7
ACCESS
7.1 Access to Lease. Each Party shall have access to the Lease at its sole
risk and expense at all reasonable times to inspect operations and ▇▇▇▇▇ in
which it participates and records and data pertaining thereto.
7.2 Reports. Except as is otherwise provided in this Agreement, Operator
shall furnish to a Party, upon written request, any information to which such
Party is entitled hereunder. The costs of gathering and furnishing information
not otherwise furnished under Article 5 shall be charged to the requesting
Party.
7.3 Confidentiality. Except as provided in Section 7.4 and except for
necessary disclosures to governmental agencies, no Party shall release any
geological, geophysical, reservoir, engineering, production costs or technical
information or any logs or other information pertaining to the progress, tests,
or results of any well unless agreed to by the Participating Parties.
7.4 Limited Disclosure. Any Party may make confidential data available to
reputable engineering firms and gas transmission companies for hydrocarbon
reserve and other technical evaluations, and to reputable financial institutions
for study prior to commitment of funds and to third parties with which a Party
is engaged in a bona fide effort to sell its interest in the Lease. The
confidential data made available shall not be removed from the custody or
premises of the party making such data available. Any third party permitted such
access shall first agree, in writing, to be bound by the confidentiality
provisions of this Agreement. Provided, however, in no event shall confidential
data be made available to any third party or an Affiliate thereof who is also an
interest owner in an offsetting block without the consent of all Parties to this
Agreement being first obtained.
7.5 Press Releases. The foregoing provisions of this Article 7
notwithstanding, any releases to the news media concerning operations on the
Lease shall be made in accordance with the provisions of this Section 7.5 and
7.6. Any Participating Party may originate such releases, subject to the
Parties' rights set forth below. Only the following information may be included
in any such release:
a) name of the well;
b) location of the well, specifying block, area and adjacent state;
c) date the Lease was acquired and bonus paid;
d) intervals tested;
e) test results;
f) development or confirmation plans; and
g) Participating Parties and their Participating Interests.
Any proposed release shall be delivered to all Participating Parties forty-eight
(48) hours before being issued to the news media. Any Participating Party
desiring its name to be excluded from such new release shall so advise the
originating Party within said forty-eight (48) hour period. Notwithstanding the
foregoing, no news release shall be issued without the approval of one (1) or
more Participating Parties owning at least fifty percent (50%) of the
Participating Interests in the subject well unless such Party is required by law
to release such information.
7.6 Media Releases. Except as agreed by all Participating Parties or
otherwise permitted by this Article, no party shall issue a news or media
release about operations on the Lease. In an emergency involving extensive
property or environmental damage, operations failure, loss of human life, or
other clear emergency,
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and for which there is sufficient time to obtain the prior approval of the
Parties, Operator may furnish the minimum, strictly factual, information
necessary to satisfy the legitimate public interest of the media, the rules of a
stock exchange on which a Party's or it's Affiliate's shares or other securities
are traded and governmental authorities having jurisdiction. Operator shall then
promptly advise the other Parties of the information furnished in response to
the emergency. Any Party shall always have the right to remove its name from any
proposed press release.
ARTICLE 8
EXPENDITURES
8.1 Basis of Charge to the Parties. Operator shall pay all costs incurred
hereunder and each Party shall reimburse Operator on a timely basis for such
costs in proportion to its Participating Interest. All charges, credits and
accounting for expenditures shall be pursuant to Exhibit "C". The provisions of
this Agreement shall prevail in the event of conflict with Exhibit "C".
8.2 Authorization. Operator shall neither make any single expenditure nor
undertake any project costing in excess of Seventy-five Thousand Dollars
($75,000.00) without prior approval of the Participating Parties. Operator shall
furnish written information to all the Participating Parties on any expenditure
in excess of Twenty-five Thousand Dollars ($25,000.00). Subject to any election
provided in Articles 10 and 11, approval of a well operation shall include
approval of all necessary expenditures through installation of the wellhead.
Notwithstanding the provisions of this Section, in the event of an emergency,
Operator may immediately make such expenditures as in its opinion are required
to safeguard life and property in dealing with the emergency. Operator shall
report to the Parties, as promptly as possible, the nature of the emergency and
action taken.
8.3 Advance ▇▇▇▇▇▇▇▇. Operator shall have the right to require each Party
to advance its respective share of estimated expenditures pursuant to Exhibit
"C"; provided, however, that if the operations during the next succeeding month
involves a major operation, such as spudding, drilling, sidetracking,
completing, major workover, etc., Operator shall be required to demand and
receive payment no later than five (5) days prior to commencing operations of
each Party's proportionate share of the AFE amount (dry hole and plugging and
abandonment in the case of a well proposal) for such major operation; and
provided further, if any Party fails to timely pay its share of such estimated
costs, Operator shall give notice referring to this provision to said Party via
certified mail, and if said Party does not pay its share of such costs within
five (5) days of receipt of said notice, said Party shall, at the option of the
Consenting Parties, be deemed a Non-Consenting Party as to such operation.
8.4 Failure to Commence Operations Timely. In the event a proposed
operation for which funds are advanced to the Operator is not commenced timely
in accordance with the terms of this Agreement, Operator shall, no later than
ten (10) days after the last date provided herein for the commencement of such
operation, remit to each Non-Operator an amount of money equal to the amount, if
any, each Non-Operator had theretofore advanced to Operator for the proposed
operation.
8.5 Refund of Excess Funds. Not later than ninety (90) days after the
completion of an operation proposed hereunder, Operator shall remit to each
Non-Operator participating in such operation, an amount of money equal to the
amount of cash theretofore advanced to Operator by each Non-Operator for the
operation that was not used, if any, by Operator in connection with such
completed operation.
8.6 Commingling Funds. Funds received by Operator under this Agreement may
be commingled with its own funds.
8.7 Security Rights. In addition to any other security rights and remedies
provided by law with respect to services rendered or materials and equipment
furnished under this Agreement, for and in
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consideration of the covenants and mutual undertakings of the Operator and the
Non-Operators herein, the Parties shall have the following security rights:
8.7.1 Mortgage in Favor of the Operator. Each Non-Operator hereby
grants to the Operator a mortgage, hypothecate, and pledge of and over all of
its rights, titles, and interests in and to (a) the Lease, (b) the hydrocarbons
in, on, under, and that may be produced from the lands within the Lease, and (c)
all other immovable property susceptible of mortgage situated within the Lease.
This mortgage is given to secure the complete and timely performance of and
payment by each Non-Operator of all obligations and indebtedness of every kind
and nature, whether now owed by such Non-Operator or hereafter arising, pursuant
to this Agreement. To the extent susceptible under applicable law, this mortgage
and the security interests granted in favor of the Operator herein shall secure
the payment of all costs and other expenses properly charged to such Party,
together with (A) interest on such indebtedness, costs, and other expenses at
the rate set forth in Exhibit "C" attached hereto (the "Accounting Procedure")
or the maximum rate allowed by law, whichever is the lesser, (B) reasonable
attorneys' fees, (C) court costs, and (D) other directly related collection
costs. If any Non-Operator does not pay such costs and other expenses or perform
its obligations under this Agreement when due, the Operator shall have the
additional right to notify the purchaser or purchasers of the defaulting
Non-Operator's Hydrocarbon production and collect such costs and other expenses
out of the proceeds from the sale of the defaulting Non-Operator's share of
Hydrocarbon production until the amount owed has been paid. The Operator shall
have the right to offset the amount owed against the proceeds from the sale of
such defaulting Non-Operator's share of Hydrocarbon production from the Lease.
Any purchaser of such production shall be entitled to rely on the Operator's
statement concerning the amount of costs and other expenses owed by the
defaulting Non-Operator and payment made to the Operator by any purchaser shall
be binding and conclusive as between such purchaser and such defaulting Non-
Operator. The maximum amount for which the mortgage herein granted by each
Non-Operator shall be deemed to secure the obligations and indebtedness of such
Non-Operator to the Operator as stipulated herein is hereby fixed in an amount
equal to $25,000,000.00 (the "Limit of the Mortgage of each Non-Operator").
Notwithstanding the foregoing Limit of the Mortgage of each Non-Operator, the
liability of each Non-Operator under this Agreement and the mortgage and
security interest granted hereby shall be limited to (and the Operator shall not
be entitled to enforce the same against such Non-Operator for, an amount
exceeding) the actual obligations and indebtedness [including all interest
charges, costs, attorneys' fees, and other charges provided for in this
Agreement or in the Memorandum of Operating Agreement and Financing Statement,
as such term is defined in Article 8.7.5 (Recordation) hereof] outstanding and
unpaid and that are attributable to or charged against the interest of such
Non-Operator pursuant to this Agreement.
8.7.2 Security Interest in Favor of the Operator. To secure the
complete and timely performance of and payment by each Non-Operator of all
obligations and indebtedness of every kind and nature, whether now owed by such
Non-Operator or hereafter arising, pursuant to this Agreement, each Non-Operator
hereby grants to the Operator a continuing security interest in and to all of
its rights, titles, interests, claims, general intangibles, proceeds, and
products thereof, whether now existing or hereafter acquired, in and to (a) all
hydrocarbons produced from the lands or offshore blocks covered by the Lease or
attributable to the Lease when
11
produced, (b) all accounts receivable accruing or arising as a result of the
sale of such hydrocarbons (including, without limitation, accounts arising from
gas imbalances or from the sale of hydrocarbons at the wellhead), (c) all cash
or other proceeds from the sale of such hydrocarbons once produced, and (d) all
Platforms and Development Facilities, ▇▇▇▇▇, fixtures, other corporeal property,
whether movable or immovable, whether now or hereafter placed on the lands or
offshore blocks covered by the Lease or maintained or used in connection with
the ownership, use or exploitation of the Lease, and other surface and
sub-surface equipment of any kind or character located on or attributable to the
Lease and the cash or other proceeds realized from the sale, transfer,
disposition or conversion thereof. The interest of the Non-Operators in and to
the oil and gas produced from or attributable to the Lease when extracted and
the accounts receivable accruing or arising as the result of the sale thereof
shall be financed at the wellhead of the well or ▇▇▇▇▇ located on the Lease. To
the extent susceptible under applicable law, the security interest granted by
each Non-Operator hereunder covers: (A) all substitutions, replacements, and
accessions to the property of such Non-Operator described herein and is intended
to cover all of the rights, titles and interests of such Non-Operator in all
movable property now or hereafter located upon or used in connection with the
Lease, whether corporeal or incorporeal; (B) all rights under any gas balancing
agreement, farmout rights, option farmout rights, acreage and cash
contributions, and conversion rights of such Non-Operator in connection with the
Lease, or the hydrocarbons produced from or attributable to the Lease, whether
now owned and existing or hereafter acquired or arising, including, without
limitation, all interests of each Non-Operator in any partnership, tax
partnership, limited partnership, association, joint venture, or other entity or
enterprise that holds, owns, or controls any interest in the Lease; and (C) all
rights, claims, general intangibles, and proceeds, whether now existing or
hereafter acquired, of each Non-Operator in and to the contracts, agreements,
permits, licenses, rights-of-way, and similar rights and privileges that relate
to or are appurtenant to the Lease, including the following:
(1) all of its rights, titles, and interests, whether now owned
and existing or hereafter acquired or arising, in, to, and under
or derived from any present or future operating, farmout,
bidding, pooling, unitization, and communitization agreements,
assignments, and subleases, whether or not described in Exhibit
"A," to the extent, and only to the extent, that such agreements,
assignments, and subleases cover or include any of its rights,
titles, and interests, whether now owned and existing or
hereafter acquired or arising, in and to all or any portion of
the Lease, and all units created by any such pooling,
unitization, and communitization agreements and all units formed
under orders, regulations, rules, or other official acts of any
governmental authority having jurisdiction, to the extent and
only to the extent that such units cover or include all or any
portion of the Lease;
(2) all of its rights, titles, and interests, whether now owned
and existing or hereafter acquired or arising, in, to, and under
or derived from all presently existing and future advance payment
agreements, and oil, casinghead gas, and gas sales, exchange, and
processing contracts and agreements, including, without
limitation, those contracts and agreements that are described on
Exhibit "A," to the extent, and only to the extent, those
contracts and agreements cover or include all or any portion of
the Lease; and
(3) all of its rights, titles, and interests, whether now owned
and existing or hereafter
12
acquired or arising, in, to, and under or derived from all
existing and future permits, licenses, rights-of-way, and similar
rights and privileges that relate to or are appurtenant to the
Lease.
8.7.3 Mortgage in Favor of the Non-Operators. The Operator hereby
grants to each Non-Operator a mortgage, hypothecate, and pledge of and over all
of its rights, titles, and interests in and to (a) the Lease; (b) the
hydrocarbons in, on, under, and that may be produced from the lands within the
Lease; and (c) all other immovable property or other property susceptible of
mortgage situated within the Lease. This mortgage is given to secure the compete
and timely performance of and payment by the Operator of all obligations and
indebtedness of every kind and nature, whether now owed by the Operator or
hereafter arising, pursuant to this Agreement. To the extent susceptible under
applicable law, this mortgage and the security interests granted in favor of
each Non-Operator herein shall secure the payment of all costs and other
expenses properly charged to the Operator, together with (A) interest on such
indebtedness, costs, and other expenses at the rate set forth in Exhibit "C" or
the maximum rate allowed by law, whichever is the lesser, (B) reasonable
attorneys' fees, (C) court costs, and (D) other directly related collection
costs. If the Operator does not pay such costs and other expenses or perform its
obligations under this Agreement when due, the Non-Operators shall have the
additional right to notify the purchaser or purchasers of the Operator's
Hydrocarbon production and collect such costs and other expenses out of the
proceeds from the sale of the Operator's share of Hydrocarbon production until
the amount owed has been paid. The Non-Operators shall have the right to offset
the amount owed against the proceeds from the sale of the Operator's share of
Hydrocarbon production from the Lease. Any purchaser of such production shall be
entitled to rely on the Non-Operators' statement concerning the amount of costs
and other expenses owed by the Operator and payment made to the Non-Operators by
any purchaser shall be binding and conclusive as between such purchaser and the
Operator. The maximum amount for which the mortgage herein granted by the
Operator shall be deemed to secure the obligations and indebtedness of the
Operator to all Non-Operators as stipulated herein is hereby fixed in an amount
equal to $25,000,000.00 in the aggregate (the "Limit of the Mortgage of the
Operator"). Notwithstanding the foregoing Limit of the Mortgage of the Operator,
the liability of the Operator under this Agreement and the mortgage and security
interest granted hereby shall be limited to (and the Non-Operators shall not be
entitled to enforce the same against the Operator for, an amount exceeding) the
actual obligations and indebtedness [including all interest charges, costs,
attorneys' fees, and other charges provided for in this Agreement or in the
Memorandum of Operating Agreement and Financing Statement, as such term is
defined in Article 8.7.5 (Recordation) hereof] outstanding and unpaid and that
are attributable to or charged against the interest of the Operator pursuant to
this Agreement.
8.7.4 Security Interest in Favor of the Non-Operators. To secure the
complete and timely performance of and payment by the Operator of all
obligations and indebtedness of every kind and nature, whether now owed by the
Operator or hereafter arising, pursuant to this Agreement, the Operator hereby
grants to each Non-Operator a continuing security interest in and to all of its
rights, titles, interests, claims, general intangibles, proceeds, and products
thereof, whether now existing or hereafter acquired, in and to (a) all
hydrocarbons produced from the lands
13
or offshore blocks covered by the Lease or included within the Lease or
attributable to the Lease when produced, (b) all accounts receivable accruing or
arising as a result of the sale of such hydrocarbons (including, without
limitation, accounts arising from gas imbalances or from the sale of
hydrocarbons at the wellhead), (c) all cash or other proceeds from the sale of
such hydrocarbons once produced, and (d) all Platforms and Development
Facilities, ▇▇▇▇▇, fixtures, other corporeal property whether movable or
immovable, whether now or hereafter placed on the offshore blocks covered by the
Lease or maintained or used in connection with the ownership, use or
exploitation of the Lease, and other surface and sub-surface equipment of any
kind or character located on or attributable to the Lease and the cash or other
proceeds realized from the sale, transfer, disposition or conversion thereof.
The interest of the Operator in and to the hydrocarbons produced from or
attributable to the Lease when extracted and the accounts receivable accruing or
arising as the result of the sale thereof shall be financed at the wellhead of
the well or ▇▇▇▇▇ located on the Lease. To the extent susceptible under
applicable law, the security interest granted by the Operator hereunder covers:
(A) all substitutions, replacements, and accessions to the property of the
Operator described herein and is intended to cover all of the rights, titles and
interests of the Operator in all movable property now or hereafter located upon
or used in connection with the Lease, whether corporeal or incorporeal; (B) all
rights under any gas balancing agreement, farmout rights, option farmout rights,
acreage and cash contributions, and conversion rights of the Operator in
connection with the Lease, the hydrocarbons produced from or attributable to the
Lease, whether now owned and existing or hereafter acquired or arising,
including, without limitation, all interests of the Operator in any partnership,
tax partnership, limited partnership, association, joint venture, or other
entity or enterprise that holds, owns, or controls any interest in the Lease;
and (C) all rights, claims, general intangibles, and proceeds, whether now
existing or hereafter acquired, of the Operator in and to the contracts,
agreements, permits, licenses, rights-of-way, and similar rights and privileges
that relate to or are appurtenant to the Lease, including the following:
(1) all of its rights, titles, and interests, whether now owned
and existing or thereafter acquired or arising, in, to, and under
or derived from any present or future operating, farmout,
bidding, pooling, unitization, and communitization agreements,
assignments, and subleases, whether or not described in Exhibit
"A," to the extent, and only to the extent, that such agreements,
assignments, and subleases cover or include any of its rights,
titles, and interests, whether now owned and existing or
hereafter acquired or arising, in and to all or any portion of
the Lease, and all units created by any such pooling,
unitization, and communitization agreements and all units formed
under orders, regulations, rules, or other official acts of any
governmental authority having jurisdiction, to the extent and
only to the extent that such units cover or include all or any
portion of the Lease;
(2) all of its rights, titles, and interests, whether now owned
and existing or hereafter acquired or arising, in, to, and under
or derived from all presently existing and future advance payment
agreements, and oil, casinghead gas, and gas sales, exchange, and
Development contracts and agreements, including, without
limitation, those contracts and agreements that are described on
Exhibit "A," to the extent, and only to the extent, those
contracts and agreements cover or include all or any portion of
the Lease; and
14
(3) all of its rights, titles, and interests, whether now owned
and existing or hereafter acquired or arising, in, to, and under
or derived from all existing and future permits, licenses,
rights-of-way, and similar rights and privileges that relate to
or are appurtenant to any of the Lease.
8.7.5 Recordation. To provide evidence of, and to further perfect the
Parties' security rights created hereunder, upon request, each Party shall
execute and acknowledge the Memorandum of Operating Agreement and Financing
Statement attached as Exhibit "F" (the "Memorandum of Operating Agreement and
Financing Statement in multiple counterparts as appropriate. The Parties
authorize the Operator to file the Memorandum of Operating Agreement and
Financing Statement in the public records set forth below to serve as notice of
the existence of this Agreement as a burden on the title of the Operator and the
Non-Operators to their interests in the Lease and for purposes of satisfying
otherwise relevant recording and filing requirements of applicable law and to
attach an original of the Memorandum of Operating Agreement and Financing
Statement to a standard UCC-1 in mutually agreeable forms for filing in the UCC
records set forth below to perfect the security interests created by the Parties
in this Agreement. Upon the acquisition of a leasehold interest in the Lease,
the Parties shall, within five business days following request by one of the
Parties hereto, execute and furnish to the requesting Party for recordation such
a Memorandum of Operating Agreement and Financing Statement describing such
leasehold interest. Such Memorandum of Operating Agreement and Financing
Statement shall be amended from time to time upon acquisition of additional
leasehold interests in the Lease, and the Parties shall, within five business
days following request by one of the Parties hereto, execute and furnish to the
requesting Party for recordation any such amendment. The Memorandum of Operating
Agreement and Financing Statement is to be filed or recorded, as the case may
be, in (a) the conveyance records of the county or counties adjacent to the
lands or offshore blocks covered by the Lease or contained within the Lease, (b)
the mortgage records of such county or counties, and (c) the appropriate Uniform
Commercial Code records.
8.7.6 Millennium Platform and Facilities. With respect to Millennium
Offshore Group, Inc. ("Millennium"), the mortgage and the security interest will
not apply to the existing platform and production facilities owned by Millennium
on the Lease.
8.8 Default. If any Party does not pay its share of the charges authorized
under this Agreement when due, the Operator may give the defaulting Party notice
that unless payment is made within thirty (30) days from delivery of the notice,
the non-paying Party shall be in default. A Party in default shall have no
further access to the rig, Platform or Development Facilities, any Confidential
Data or other maps, records, data, interpretations, or other information
obtained in connection with activities or operations hereunder or be allowed to
participate in meetings. A Party in default shall not be entitled to vote or to
make an election until such time as the defaulting Party is no longer in
default. The voting interest of each non-defaulting Party shall be counted in
the proportion its Participating Interest share bears to the total
non-defaulting Participating Interest shares. As to any operation approved
during the time a Party is in default, such defaulting Party shall be deemed to
be a Non-participating Party, except where such approval is binding on all
Parties or Participating Parties, as applicable. In the event a Party believes
that such statement of charges is incorrect, the Party shall nevertheless pay
the amounts due as provided herein, and the Operator shall attempt to resolve
the issue as soon is practicable, but said attempt shall be made no later than
sixty (60) days after receiving notice from the Party of
15
such disputed charges.
8.9 Unpaid Charges. If any Participating Party fails to pay its share of
the costs and other expenses authorized under this Agreement in accordance with
Exhibit "C" or to otherwise perform any of its obligations under this Agreement
when due, the Party to whom such payment is due, in order to take advantage of
the provisions of this Article 8, shall notify the other Party by certified or
registered U.S. Mail that it is in default and has thirty (30) days from the
receipt of such notice to pay. If such payment is not made timely by the non-
paying Party after the issuance of such notice to pay, the Party requesting such
payment may take immediate steps to diligently pursue collection of the unpaid
costs and other expenses owed by such Participating Party and to exercise the
mortgage and security rights granted by this Agreement. The bringing of a suit
and the obtaining of a judgment by any Party for the secured indebtedness shall
not be deemed an election of remedies or otherwise affect the security rights
granted herein. In addition to any other remedy afforded bylaw, each Party shall
have, and is hereby given and vested with, the power and authority to foreclose
the lien, mortgage, pledge, and security interest established hereby in its
favor in the manner provided by law, to exercise the Power of Sale provided for
herein, if applicable, and to exercise all rights of a secured party under the
Uniform Commercial Code as adopted by the state in which the Lease is located or
such other states as such Party may deem appropriate. The Operator shall keep an
accurate account of amounts owed by the nonperforming Party (plus interest and
collection costs) and any amounts collected with respect to amounts owed by the
nonperforming Party. In the event there become three or more Parties to this
Agreement, then if any nonperforming Party's share of costs remains delinquent
for a period of sixty (60) days, each other Participating Party shall, upon the
Operator's request, pay the unpaid amount of costs in the proportion that its
Working Interest bears to the total non-defaulting Working Interests. Each
Participating Party paying its share of the unpaid amounts of a nonperforming
Party shall be subrogated to the Operator's mortgage and security rights to the
extent of the payment made by such Participating Party.
8.10 Carved-out Interests. Any agreements subsequent to the date hereof
creating any overriding royalty, production payment, net proceeds interest, net
profits interest, carried interest or any other interest carved out of a Working
Interest in the Lease shall specifically make such interests inferior to the
rights of the Parties to this Agreement. If any Party whose Working Interest is
so encumbered does not pay its share of costs and other expenses authorized
under this Agreement, and the proceeds from the sale of its Hydrocarbon
production pursuant to this Article 8 are insufficient to pay such costs and
expenses, the security rights provided for in this Article 8 may be applied
against the carved-out interests with which the defaulting or non-performing
Party's interest in the Lease is burdened. In such event, the rights of the
owner of such carved-out interest shall be subordinated to the security rights
granted by this Article 8.
ARTICLE 9
NOTICES
9.1 Giving and Receiving Notices. Except as specifically provided otherwise
herein, all notices shall be in writing and delivered in person or by mail,
telegram, telegraph, telecopier or cable, postage or charges prepaid; however,
if a drilling rig is on location and standby charges are accumulating, such
notices shall be given by telephone and immediately confirmed in writing. Notice
shall be deemed given only when received by the Party to whom such notice is
directed, except that any notice by certified mail or equivalent, telegraph, or
cable properly addressed, pursuant to Section 6.1, and with all postage and
charges prepaid shall be deemed given seventy-two (72) hours after such notice
is deposited in the mail or twenty-four (24) hours after such notice is filed
with an operating telegraph or cable company for immediate transmission.
16
9.2 Content of Notice. Any notice which requires a response shall indicate
the maximum response time specified in Section 9.3. If a proposal involves a
Platform, Pipeline, or Facility, the notice shall contain a description of same,
including location and the estimated costs of fabrication, transportation and
installation. If a proposal involves a well operation, the notice shall include
the proposed depth, the objective zone or zones to be tested, the surface,
objective and bottom-hole locations, applicable details regarding directional
drilling, the type of equipment to be used (such as a mobile drilling unit,
floating drilling vessel, or platform), and the estimated costs of the operation
including all necessary expenditures through installation of the wellhead.
9.3 Response to Notices. Each Party's response to a proposal shall be in
writing to all other Parties. Except for those notices in Articles 10,11,15, and
16, the maximum response time shall be as follows:
9.3.1 Platform Construction. When a proposal for well operations
involves the construction of a Platform, the maximum response time shall be
ninety (90) days.
9.3.2 Proposal Without Platform. When any proposal for well operations
does not require construction of a Platform, maximum response time shall be
thirty (30) days; however, if a drilling rig is on location and standby charges
are accumulating, the maximum response time shall be forty-eight (48) hours.
9.3.3 Other Matters. For all other matters requiring notice, the
maximum response time shall be thirty (30) days.
9.4 Failure to Respond. Failure of any Party to respond to a notice within
the required period shall be deemed to be a negative response.
9.5 Timely Operations. All operations conducted pursuant to this Agreement
shall be commenced within one hundred eighty (180) days following the date upon
which the last applicable election may be made. If no operations are begun
within such time period, the effect shall be as if the proposal had not been
made. Operations shall be deemed to have commenced (a) on the date design or
material procurement commences or the contract for a Platform and/or Facilities
is let, if the notice involved construction of a Platform or Facilities; or (b)
on the date that charges begin accruing according to the terms of the drilling
contract.
9.6 Restrictions on Multiple Well Proposals. Unless otherwise agreed to by
the Parties hereto, no more than one well shall be drilling or completing at the
same time. Well proposals made under the terms hereof shall be limited to one
well each and except as provided below, no Party shall be required to make an
election under more than one well proposal at the same time or while a well is
drilling or completing. This paragraph shall not limit the right of a Party to
propose a well while another is drilling or completing, however, the time to
elect under such proposal shall be deferred until (a) thirty (30) days after the
previous well has been completed or plugged and abandoned or (b) twenty four
(24) hours from receipt and notification that the drilling rig has been moved to
the new location and standby charges are being accumulated, whichever is
earlier.
ARTICLE 10
EXPLORATORY ▇▇▇▇▇
10.1 Operations by All Parties. Any Party may propose the drilling of an
Exploratory Well by notifying the other Parties. If all of the Parties agree to
participate in the drilling of the proposed well, Operator shall proceed to
drill such well for the account of all Parties.
10.2 Second Opportunity to Participate. If fewer than all but one (1) or
more Parties having a combined Working Interest of fifty percent (50%) or more
elect to participate, the proposing Party shall immediately notify each of the
Parties of the elections made, whereupon any such Party originally electing not
to participate may elect to participate as if it had originally elected to
participate by so notifying the proposing Party within forty-eight (48) hours
after receipt of such second notice. If, after said second notice, all Parties
agree to
17
participate in the drilling of the proposed well, Operator shall proceed to
drill such well for the account of all Parties.
10.3 Operations by Fewer Than All Parties. If, after the second notice
provided for in Section 10.2 above, fewer than all but one (1) or more Parties
having a combined Working Interest of fifty percent (50%) or more still elect to
participate in the drilling of the proposed well, the proposing Party shall
immediately notify each of the Parties electing to participate of the elections
made and such Parties shall, within five (5) days after receipt of such notice
(twenty-four [24] hours if a rig is on location), notify the proposing Party
what portion, if any, of the total non-participating interest it wishes to
acquire; each such Party being entitled to acquire the non-participating
interest in the ratio that such Party's Working Interest at the time the
original proposal was made bears to the total Working Interest of all Parties
electing to participate. If the Parties electing to participate subscribe to all
of the non-participating interest so as to permit payment for one hundred
percent (100%) of the cost of the well, Operator, or the largest interest owner
participating in such operations if Operator is not a Participating Party, shall
proceed to drill such well for the account of the Participating Parties in
accordance with the procedure including the recoupment of cost provisions of
Article 10.3.1 set forth below; provided, if operations are being conducted from
a Platform, then Operator shall conduct such operations. If one hundred percent
(100%) of the cost of the well is not subscribed to, then such well shall not be
drilled and it shall be as if no proposal had been made.
Operations by the Participating Parties shall be commenced within one
hundred eighty (180) days following the date on which the last applicable
election must be made under Section 10.2 above. If no operations are commenced
within such time period, it shall be as if the proposal had not been made. If
the proposed well is commenced within such one hundred eighty (180) days period,
then the following provisions shall apply:
10.3.1 Subsequent Exploratory ▇▇▇▇▇. If the proposed well is the
second or subsequent Exploratory Well to be drilled on the Lease, each
Non-Participating Party shall be deemed to have relinquished its operating
rights, along with its interest in production, in and to such Exploratory Well
in the manner provided for in Section 12.2. Recoupment of costs shall be
determined by Section 12.2 and the drilling of such well shall be governed by
the provisions of Article 12; however, percentages under Section 12.2 shall be
as follows:
12.2a) Eight Hundred Percent (800%)
12.2b) Three Hundred Percent (300%)
12.2c) Three Hundred Percent (300%)
12.2d) Two Hundred Percent (200%)
Further, with respect to Exploratory Operations which result in a well completed
as a producer or which otherwise qualifies as producible under the provisions of
Section 2.16 hereof, the above amounts shall be recoverable out of the
Non-Participating Party's share of production as follows:
i) If the said well is completed as a producer, then the above
amounts shall be recoverable, with respect to said well, not only
out of the Non-Participating Party's share of production
therefrom, but also out of fifty percent (50%) of such
Non-Participating Party's share of production attributable to the
productive reservoir(s) encountered in said well in any and all
▇▇▇▇▇ subsequently drilled on the Lease and completed in such
reservoir(s);
ii) If the said well is not completed as a producer, but
otherwise qualifies as producible under the provisions of Section
2.16 hereof, then the above amounts shall be recoverable with
respect to said well out of fifty percent (50%) of the
Non-Participating Party's share of production attributable to the
productive reservoir(s) encountered in said well in any and all
▇▇▇▇▇ subsequently drilled on the lease and completed in such
reservoir(s); and the above-stated provisions for the
relinquishment and reverting of Non-Participating
18
Party's operating rights and production shall also apply with
respect to such fifty percent (50%) interest, to said
subsequently drilled well or ▇▇▇▇▇.
10.3.2 Subsequent Exploratory ▇▇▇▇▇ - Non-Participating Reversion. If
such Non-Consent Operations under Section 10.3.2 do not result in a well
determined to be capable of producing in paying quantities pursuant to Section
2.16 and said well is plugged and abandoned; and provided that such well does
not result in a decision, within sixty (60) days from rig release date, to set a
Platform or drill another well within 3,000 feet from the vertical projection of
the bottom-hole location of such well, such operating rights in the Lease shall
revert to each Non-Participating Party except that all Non-Consent ▇▇▇▇▇,
equipment, Platforms and Facilities shall remain vested in the Participating
Parties.
10.4 Course of Action After Drilling to the Initial Objective Depth:
10.4.1 Casing Point Election.
a) At such time as an Exploratory Well been drilled to the objective
depth asset forth in the notice, and has been logged and tested and copies
of the logs and results furnished to each Participating Party, but before
any production pipe has been set, Operator shall notify the Participating
Parties by telephone or telecopy, setting forth Operator's recommendation
with respect to further operations. Each Participating Party shall, within
forty-eight (48) hours after receipt of such notice, notify Operator and
the other Participating Parties by telephone (promptly confirmed in
writing) or telecopy whether it accepts Operator's recommendation or make
additional recommendations as to further operations with respect to such
well. If additional recommendations are made, the Participating Parties
shall have an additional twenty-four (24) hours to respond. Any party may
request additional time beyond the herein specified time, in order to make
an election; however, all costs associated to such standby rig time shall
be at the expense of the Party or Parties requesting such additional time.
The extension of additional time shall not exceed a forty-eight (48) hours
period.
b) Any recommendation concurred to by a majority of Participating
Interests shall take precedence over any other proposal. In the event no
recommendation receives such majority support, then the recommendation to
be followed shall be determined as follows:
1) proposals to do additional testing, coring or logging.
2) proposals to attempt completions at the initial objective
depth.
3) proposals to plug back and attempt completions in ascending
order.
4) proposals to deepen the well.
5) proposals to sidetrack the well to another bottom hole
location no deeper than the stratigraphic equivalent of the
initial objective depth.
6) proposals to perform other operations.
7) proposals to temporarily abandon the well.
8) proposals to plug and abandon the well.
In the event a recommendation to plug and abandon the well receives
majority support, any Participating Party not concurring in said
recommendation shall have the right to have the Operator perform such
additional operation with respect to such well as it desires and such
operations shall be performed in accordance with the provisions of Section
10.4.c) below.
If the decision as to the further operation is other than to plug and
abandon the well, any Party electing not to participate therein shall be
relieved of any further obligations and liabilities as to such operation,
but shall pay to Operator its proportionate part of the cost, as estimated
by Operator, of plugging
19
and abandoning the well at the initial objective depth. The Parties
participating in such further operations shall be entitled to recover from
any Parties not participating therein, the amounts set forth in Section
10.3.2 as to costs incurred subsequent to the initial objective depth
having been reached and after the decision respecting such further
operations is made. Furthermore, the amounts to be recouped by the Parties
participating in such further operations shall also be recoverable out of a
Non-Participating Party's share of production attributable to the
productive reservoir(s) encountered in such further operations in any and
all ▇▇▇▇▇ subsequently drilled on the Lease and completed in such
reservoir(s) or qualifying as producible under Section 10.3.2i) and ii)
above.
c) Operator shall conduct such further operations at the sole risk and
expense of the Parties participating therein, subject to the
Non-Participating Parties' reversionary rights as provided in Section 12.2
below, and such Parties shall acquire the interest of the Parties not
participating in such further operations and all production resulting
therefrom in the proportion that the interest of each Party participating
therein bears to the total interest of all Parties participating therein.
If the well is not completed as a Producible Well, Operator shall plug and
abandon such well at the cost of the Parties participating in such further
operation, less those estimated costs paid previously by Parties not
participating in such further operation for plugging and abandoning at the
initial objective depth.
ARTICLE 11
DEVELOPMENT OPERATIONS
11.1 Operations by All Parties. Any Party may propose that a well be
drilled, recompleted, deepened, or plugged back as a Development Operation by
notifying the other Parties. If all Parties elect to participate in the proposed
operation, Operator shall conduct such operation for the account of all Parties.
11.2 Second Opportunity to Participate. If fewer than all, but one (1) or
more Parties having a combined Working Interest of twenty five percent (25%) or
more elect to participate, the proposing Party shall immediately notify each of
the Parties of the elections made, whereupon any such Party originally electing
not to participate may elect to participate as if it had originally elected to
participate by so notifying the proposing Party within forty-eight (48) hours
after the receipt of such second notice. If, after said second notice, all
Parties agree to participate, Operator shall proceed with such operations for
the account of all Parties.
11.3 Operations by Fewer Than All Parties. If, after the second notice
provided for in Section 11.2 above, fewer than all but one (1) or more Parties
owning twenty five percent (25%) or more interest in the Lease still elect to
participate in the proposed operation, each of the Parties electing to
participate shall notify the other Parties so electing what portion, if any, of
the total non-participating interest it wishes to acquire; each such Party being
entitled to acquire the non-participating interest in the ratio that such
Party's Working Interest at the time the original proposal was made bears to the
total Working Interest of all Parties electing to participate. If the Parties
electing to participate subscribe to all of the non-participating interest so as
to permit payment for one hundred percent (100%) of the cost of such operation,
then Operator or the largest interest owner participating in such operation if
Operator is not a Participating Party, shall proceed to conduct such operation
in accordance with Article 12 below; provided, however, if operations are being
conducted from a Platform, then Operator shall conduct such operation. If one
hundred percent (100%) of the cost of such operation is not subscribed to, then
such operation shall not be conducted and it shall be as if no proposal had been
made.
11.4 Timely Operations. Operations by Participating Parties shall be
commenced within one hundred eighty (180) days following the date on which the
last applicable election must be made. If no operations are begun within such
time period, it shall be as if the proposal had not been made. If a Platform is
necessary for
20
Non-Consent Operations, and the notice so indicated that necessity, operations
shall be deemed to have commenced on the date the contract for design of the
Platform is let, or on the date rigging-up operations are commenced on an
existing Platform.
11.5 Course of Action After Drilling to Initial Objective Depth. After any
Development Well has reached Casing Point, the identical procedures and
alternatives provided under Article 10.4 shall apply.
11.6 Deeper Drilling. If a well is proposed to be drilled below the deepest
producible zone penetrated by a Producible Well, any Party hereto may elect
either; a) to participate in the well as proposed, or b) to participate in the
well to the base of the deepest producible zone penetrated by a Producible Well.
If a Party elects to participate in the proposed well to the base of the deepest
producible zone penetrated by a Producible Well, such Party shall bear its
proportionate part of the cost of such operations, including completion or
abandonment, only to the depth to which such Party agreed to participate. In the
event the well is completed below the depth to which such Party agreed to
participate, all costs incurred in the operations for that portion of the well
below the agreed depth shall be governed by the provisions of Section 10.3.2.
ARTICLE 12
NON-CONSENT OPERATIONS
12.1 Non-Consent Operations. Operator shall conduct Non-Consent Operations
at the sole risk and expense of the Participating Parties, in accordance with
the following provisions:
12.1.1 Non-Interference. Non-Consent Operations shall not interfere
unreasonably with operations being conducted by all Parties.
12.1.2 Multiple Completion Limitation. Non-Consent Operations shall
not be conducted in a well having multiple completions unless: (a) each
completion is owned by the same Parties in the same proportions; (b) the well is
incapable of producing from any of its completions; or (c) all Participating
Parties in the well consent to such operations.
12.1.3 Liens. In the conduct of Non-Consent Operations, the
Participating Parties shall keep the Lease free and clear of liens and
encumbrances.
12.1.4 Metering. In Non-Consent Operations, separate metering devices
shall not be required to measure production but such production may be
determined on a well test basis.
12.1.5 Platform Salvage. Provided that no further drilling or
production is proposed from a Non-Consent Platform, the Participating Parties
shall be responsible for dismantling and clearing away said Platform and shall
be entitled to all the salvage realized therefrom.
12.1.6 Non-Consent Well. A Non-Consent Well shall not be completed,
recompleted, reworked, deepened, or plugged back in any zone(s) then productive,
or then known to be capable of production (as determined pursuant to Section
2.16 above) of oil or gas from any other well on the Lease without the written
approval of the Non-Participating Party(ies), unless: (a) said zone(s) shall
have been designated in the notice as an objective zone or one of the objective
zones for the completion of such well; (b) completion of such well in said
zone(s) will not increase the well density theretofore mutually agreed upon by
the Parties for said zone(s) or the density pattern with respect to said zone(s)
as theretofore prescribed by the State or Federal authorities having
jurisdiction of the premises, whichever is applicable; and (c) the horizontal
distance between the vertical projections of the midpoint of the zone within a
reservoir that is in communication with the completion zone in such well and any
existing well in the same zone of the non-consent well will not be less than one
thousand three hundred and twenty (1,320) feet if an oil-well completion or two
thousand six hundred and forty (2,640) feet if a gas-well completion. The terms
"oil well completion" and "gas well completion" as used in this Article shall
have
21
the same meaning as those terms are defined in 30 CFR 250.170 Gulf Coast
approved by the Chief, Conservation Division, Geological Survey, United States
Department of the Interior, effective July 1, 1993, as same may from time to
time be amended. Subject to the foregoing provisions of this Article, until the
Party(ies) participating in a Non-Consent Well has recouped out of the
production therefrom the amounts to which it is entitled hereunder, the
Participating Party(ies) shall be entitled to conduct any reworking operations
in the well which it may desire, including plugging back the hole to a shallower
reservoir. The cost of such reworking operations shall not be subject to the
penalty provisions provided in Section 12.2 or Section 10.3, as the case may be.
12.1.7 Cost Information. Operator shall, within one hundred twenty
(120) days after completion of a Non-Consent Well, furnish all other Parties
with a statement of well costs prepared in accordance with Exhibit "C" or with a
copy of the monthly billing furnished to the Participating Parties. The Parties
shall keep such cost information confidential. Operator shall furnish to all
Parties a monthly statement showing operating expenses and the proceeds from the
sale of production from the well for the preceding month.
12.2 Penalties. Upon commencement of Non-Consent Operations, each
Non-Participating Party's operating rights in the well and its interest in
production therefrom shall be relinquished (without the execution of any
instrument evidencing a transfer) to the Participating Parties in the
proportions that each Participating Party's Interest bears to the total of the
Participating Parties' Interest for as long as the operations originally
proposed are being conducted or production in paying quantities is obtained (or
is capable of being obtained); provided that such operating rights and interest
in production shall revert to each Non-Participating Party when the
Participating Parties have received out of the proceeds of the production from
such Operations an amount equal to the sum of the following:
a) Six hundred percent (600%) of the Non-Participating Party's Share
of the cost of drilling, completing, recompleting, deepening, sidetracking,
reworking or plugging back the well, as the case may be, and equipping it
through the wellhead connection; plus
b) Four hundred percent (400%) of the Non-Participating Party's Share
of the cost of any Facilities necessary to carry out the operations; plus
c) Four hundred percent (400%) of the Non-Participating Party's Share
of the cost of any Non-Consent Platform which must be installed to carry
out the operations; plus
d) Two hundred percent (200%) of the Non-Participating Party's Share
of the cost of using any Platform already installed; plus
e) Two hundred percent (200%) of the Non-Participating Party's share
of the cost of Pipelines utilized to transport production from the Lease;
plus
f) Non-Participating Party's Share of operating expenses, royalties,
and gathering, windfall profit, severance, production, and other taxes
imposed on production, other than income and ad valorem taxes. Upon the
recoupment of such costs, a Non-Participating Party shall become a
Participating Party in such operations.
12.3 Recoupment and Salvage. If a Non-Consent Well results in a dry hole or
ceases to produce in paying quantities before the Participating Parties recoup
the amount to which they are entitled, and provided a proposal to deepen the
Non-Consent Well is not made in accordance with Section 12.4, the well shall be
abandoned and plugged at the sole risk and expense of the Participating Parties.
Any sum realized from salvage in excess of the amounts to be recouped from the
well shall be credited to all Parties.
12.4 Deepening of Non-Consent ▇▇▇▇▇. If any Participating Party proposes to
deepen a Non-Consent Well, except for a Non-Consent Well drilled under Section
12.9 or the first Exploratory Well as contemplated in
22
Section 10.3.1, a Non-Participating Party may participate in the proposed
deepening operation by notifying the Operator within thirty (30) days (48 hours
if a rig is on location) after receiving the proposal that it will join in the
deepening operation and by paying to the Participating Parties an amount equal
to such Non-Participating Party's share of the actual costs incurred in the
drilling and casing of such well to the point at which such deepening operation
is commenced. The Participating Parties shall continue to be entitled to recoup
the full sum provided for in Section 10.3.2 or Section 12.2 applicable to the
non-consent portion of the well, less the amount paid under this Section.
Provided, however, in the event the payment specified in this Section 12.4 would
then cause the amount of money recouped by the Participating Parties to exceed
the full sum provided for in Section 10.3.2 or Section 12.2, whichever is
applicable, then such payment shall be reduced by an amount so that such full
sum shall not then be exceeded.
12.5 Operations from Non-Consent Platforms. A Party which did not
originally participate in a Platform shall be a Non-Participating Party as to
all operations from such Platform and shall be subject to the provisions of
Section 12.2 above. Reversion shall occur only after the original Participating
Parties have recouped the sum set forth in said Section 12.2 for the Platform
and the Non-Consent Operations thereon; provided, however, that such
Non-Participating Party shall have the right at any time to pay to the
Participating Parties in such Platform an amount, in cash, equal to said
Non-Participating Party's share of the unrecovered balance of the recoupment
account attributable to such Platform under Section 12.2 and thereby become a
Participating Party with regard to such Platform and subsequent operations
therefrom.
12.6 Discovery or Extension from Mobile Drilling Operations. If a
Non-Consent Well (other than a subsequent Exploratory Well) drilled from a
mobile drilling rig or floating drilling vessel results in the discovery or
extension of a productive formation with a Producible Well and if within one
year from the date the drilling equipment is released from such Well, a Platform
is ordered or constructed and if the horizontal distance between the Platform
location and the vertical projection of the midpoint of any producible zone
penetrated by such well is three thousand (3,000) feet or less, the recoupment
of amounts applicable to any such Well shall be recovered out of the proceeds
from production as follows:
a) If the Non-Consent Well is completed and produced from the
Platform, recoupment shall be out of all the proceeds of production from
the Non-Consent Well and one-half of Non-Participating Party's share of the
proceeds from production from all subsequently drilled ▇▇▇▇▇ completed on
the Platform and attributable to such newly discovered or extended portion
of the productive formation.
b) If the Non-Consent Well is abandoned after having qualified as a
Producible Well, recoupment shall be out of the proceeds from production of
one-half of Non-Participating Party's share from all subsequently drilled
▇▇▇▇▇ completed on the Platform and attributable to such newly discovered
or extended portion of the productive formation.
12.7 Allocation of Platform Costs to Non-Consent Operations. Non-Consent
Operations shall also be subject to the following conditions:
12.7.1 Charges. If a Non-Consent Well is drilled from a Platform, the
Participating Parties in such well shall pay to the Operator for credit to the
owners of the Platform a charge for the right to use the Platform and its
Facilities as follows:
a) Such Participating Parties shall pay a sum equal to that portion of
the total cost of the Platform, which one Platform slot bears to the total
number of utilized slots on the Platform. If the Non-Consent Well is
abandoned, the right of Participating Parties to use that Platform slot
shall terminate, unless such Parties commence drilling a substitute well
from the same slot within ninety (90) days after abandonment.
23
b) If the Non-Consent Well production is handled from the Facilities,
the Participating parties shall pay a sum equal to that portion of the
total cost of such Facilities which one well bears to the total number of
▇▇▇▇▇ utilizing the Facilities.
12.7.2 Operating and Maintenance Charges. The Participating Parties
shall pay all costs necessary to connect the Non-Consent Well to the Facilities
and that proportionate part of the expense of operating and maintaining the
Platform and Facilities applicable to the Non-Consent Well. Platform operating
and maintenance expenses shall be allocated equally to all ▇▇▇▇▇ served, and
operating and maintenance expenses for the Facilities shall be allocated equally
to all producing ▇▇▇▇▇.
12.7.3 Payments. Payment of sums pursuant to Section 12.7.1 is not a
purchase of any additional interest in the Platform or Facilities. Such payments
shall be included in the total amount which the Participating Parties are
entitled to recoup out of production from the Non-Consent Well.
12.8 Retention of Lease by Non-Consent Well. If, at the expiration of the
primary term of the Lease, a Non-Consent Well is the only well on the Lease and
is serving to perpetuate the Lease, then within thirty (30) days after
expiration of the primary term, each Non-Participating Party shall elect one of
the following:
a) immediately assign its entire interest in the Lease to the
Participating Parties in the proportions in which the Non-Consent Operation
was conducted; or
b) immediately pay to the Participating Parties its share of the
unrecovered balance of the recoupment account under Section 10.3.2 or 12.2,
whichever may be applicable.
12.9 Non-Consent Drilling to Maintain Lease. If it becomes necessary to
drill a well (whether an Exploratory Well or a Development Well) on the Lease in
order to maintain the Lease or a portion thereof in full force and effect, or if
at any time after commencement of the last year of the primary term of the
Lease, the drilling of a well (whether an Exploratory Well or a Development
Well) is proposed or is required and said well is thereafter drilled pursuant to
this Agreement and there is no other operation or condition which would
perpetuate the Lease beyond the end of the primary term, as to all or a portion
of the leased premises on which such well is proposed or required to be drilled,
then any Party or Parties electing to participate in the drilling thereof shall
have the right to do so regardless of their number or combined Working Interests
and any Non-Participating Party as to such well shall assign unto the
Participating Parties all of its right, title and interest in and to such Lease
or such affected portion thereof. Any Party so assigning shall be relieved from
any future liability or obligation with respect to said well, but such Party
shall remain liable for any liabilities or obligations which have arisen (or
which arise) out of operations occurring prior to the effective date of such
assignment. If more than one well should be proposed and drilled, either of
which would maintain the Lease or such jeopardized portion thereof, an
assignment shall not be required from any Party participating in any one of such
▇▇▇▇▇, but as to those ▇▇▇▇▇ in which it fails to participate such failure shall
be governed by the non-consent provisions of Section 10.3 or Section 12.2,
whichever may be applicable.
12.10 Allocation of Costs (Single Completion). For the purpose of
allocating costs on any well completed in only one zone in which the ownership
is not the same for the entire depth or the completion thereof, the cost of
drilling, completing and equipping such well shall be allocated on the following
basis:
a) Intangible drilling, completion and material costs from the surface
to a depth one hundred (100) feet below the base of the completed zone
shall be charged to the owners or the Parties participating in that zone.
b) Intangible drilling, completion, casing string and material costs,
other than tubing costs, from a depth of one hundred (100) feet below the
base of the completed zone to total depth shall be charged to the owners or
the Parties participating in the costs to total depth.
24
12.11 Allocation of Costs Between Zones (Multiple Completions). For the
purpose of allocating costs on any well completed in dual or multiple zones in
which the ownership is not the same for the entire depth or the completion
thereof, the costs of drilling, completing and equipping such well shall be
allocated on the following basis:
a) Intangible drilling, completion and material costs other than
tubing costs, from the surface to a depth one hundred (100) feet below the
base of the upper completed zone shall be divided equally between the
completed zones and charged to the owners thereof or to the Parties
participating in such zone.
b) Intangible drilling, completion, casing string and material costs,
other than tubing, from a depth of one hundred (100) feet below the base of
the upper completed zone to a depth one hundred (100) feet below the base
of the second completed zone shall be divided equally between the second
and any other zone completed below such depth and charged to the owners
thereof or to the Parties participating in each such zone. If the well is
completed in additional zones, the costs applicable to each such zone shall
be determined and charged to the owners thereof in the same manner as
prescribed by the dual zones completion.
c) Intangible drilling, completion, casing string and material costs,
other than tubing costs, from a depth one hundred (100) feet below the base
of the lower completed zone to total depth shall be charged to the owners
or to the Parties participating in the costs to total depth.
d) Costs of tubing strings serving each separate zone shall be charged
to the owners or to the Parties participating in each zone.
e) For the purposes of allocating tangible and intangible costs
between zones that occur at less than one hundred (100) foot intervals, the
distance between the base of the upper zone to the top of the next lower
zone shall be allocated equally between zones.
12.12 Allocation of Costs Between Zones (Dry Hole). For the purpose of
allocating costs on any well determined to be a dry hole, in which the ownership
is not the same for the entire depth or the completion thereof, the cost of
drilling, plugging and abandoning such well shall be allocated on the following
basis:
a) Costs to drill, plug and abandon a well proposed for completion in
single, dual or multiple zones shall be charged to the Participating
Parties in the same manner as if the well were completed as a producing
well in all zones as proposed.
b) Plugging and abandoning of any well following any deepening,
completion attempt or other operation shall be at the sole risk and expense
of the Participating Parties in such operation, subject however to the
provisions of Section 11.5.
12.13 Intangible Drilling and Completion Allocations. For the purpose of
calculations under Section 12.10, 12.11 and 12.12, intangible drilling and
completion costs, including non-controllable material costs, shall be allocated
between zones, including the interval from the lowest completed zone to total
depth, on a drilling day ratio basis where the factor for each zone is
determined by a fraction for which the numerator is the number of drilling and
completion days applicable to that zone and the denominator is the total number
of days spent on the well, beginning on the day the rig arrives on location and
terminating when the rig is released.
ARTICLE 13
FACILITIES
13.1 Approval. Any Party may propose the installation of Facilities by
notice to the other Parties with information adequate to describe the proposed
Facilities and the estimated costs. Facilities shall require approval of two (2)
or more Parties owning sixty-five percent (65%) or more interest in the ▇▇▇▇▇ to
be served; provided,
25
however, if such required approval is not obtained, then any party may install
its own Facilities subject to the provisions of Section 22.1 below.
13.2 Ownership. Facilities constructed shall be owned in proportionate
shares or other sharing arrangement as agreed to in writing by the Participating
Parties. All cost, risk and expense incurred with respect to these Facilities
shall be charged to the Participating Parties. Any Party not voting in favor of
a Facility so authorized for the Lease shall relinquish, in writing, to the
Parties participating in such Facility, all of its operating rights and interest
in all production from ▇▇▇▇▇ shared by this Facility until such time as the
penalties provided for in Section 12.2b) have been recovered. Unless otherwise
agreed to by the Participating Parties, each Participating Party shall acquire
the interest of the Non-Participating Party in the ratio that a Participating
Party's interest bears to the total interest of all Participating Parties.
13.3 Contracts. Subject to the other provisions hereof, the Operator shall
install or construct Facilities which may be required for the operations agreed
upon. Operator may enter into contracts with independent contractors for the
Facilities and, insofar as is reasonable, shall utilize competitive bidding.
Further, Operator may employ its own equipment and personnel for the selection,
installation and/or construction of the Facilities, but if so, such work shall
be performed by Operator or its Affiliate acting as an independent contractor
under a written contract containing terms and conditions and at rates which are
customary and prevailing in competitive contracts of independent contractors who
are doing work of a similar nature and who have as a primary source of business
the construction of Facilities and pursuant to a written agreement among the
Participating Parties.
13.4 Other Facilities. Without prior written consent of all Parties to this
Agreement, no Facilities shall be constructed on the Lease other than those
installed solely for operations on such Lease.
ARTICLE 14
ABANDONMENT AND SALVAGE
14.1 Platform Salvage and Removal Costs. When the Parties owning a Platform
mutually agree to dispose of such Platform, it shall be disposed of by
the Operator as approved by such Parties. The costs, risks and net proceeds, if
any, resulting from such disposition shall be shared by such Parties in
proportion to their Participating Interests. Any Party owning an interest in the
Platform will have the right to match the purchase price resulting in disposal
of the Platform and take over the salvage and removal costs at its own risk and
expense.
14.2 Abandonment of Producible Well. Any Party may propose the abandonment
of a well or zone by notifying the other Parties. No well shall be abandoned
without the mutual consent of the Participating Parties. The Participating
Parties not consenting to the abandonment shall pay to each Participating Party
desiring to abandon its share of the current value of the well's salvageable
material and equipment as determined pursuant to Exhibit "C", less the estimated
costs of salvaging same and of plugging and abandoning the well as determined by
the Participating Parties.
14.3 Assignment of Interest. Each Participating Party desiring to abandon a
well pursuant to Section 14.2 shall assign, effective as of the date on which
the last applicable election must be made, to the non-abandoning Participating
Parties, in proportion to their Participating Interests, its interest in such
well and the equipment therein and its ownership in the production from such
well. Any Party so assigning shall be relieved from any future liability or
obligation with respect to said well, but such Party shall remain liable for any
liabilities or obligations which have arisen (or which arise) out of operations
occurring prior to the effective date of such assignment.
14.4 Abandonment Operations Required by Governmental Authority. Any well
abandonment or Platform removal required by a governmental authority shall be
accomplished by Operator with the costs, risks and
26
net proceeds, if any, to be shared by the Parties owning such well or Platform
in proportion to their Participating Interests.
14.5 Operator Purchase of Salvage Materials. Operator shall have the
preferred right and option to purchase all materials not needed for further
operations and which have been removed from the Lease at the expense of the
Parties so long as the price paid is equal to or greater than highest price that
could have been otherwise obtained. Such option shall be exercised within sixty
(60) days after such removal or, as the case may be, after final determination
that such Platform or Facilities will not be used in further operations on the
Lease. Said materials shall be paid for on the basis of the value thereof as
determined in accordance with the provisions of Exhibit "C". Prefabricated
material shall be valued on the basis of cost including, but not limited to,
cost of fabrication.
14.6 Non-Operator Purchase of Salvage Materials. Should Operator fail to
exercise the purchase option described in Section 14.5 above, such materials may
be purchased by a Non-Operator on the same basis as provided in such Section. If
more than one Non-Operator desires to exercise the purchase option, the matter
shall be decided among them by drawing of lots. If neither Operator nor
Non-Operators desire to purchase said materials, the materials shall be disposed
of in accordance with the provisions of Exhibit "C".
ARTICLE 15
WITHDRAWAL
15.1 Withdrawal. A Party may withdraw from this Agreement as to a Lease by
assigning, to the other Parties who do not desire to withdraw, all its interest
in such Lease and the ▇▇▇▇▇, Platforms and Facilities used in operations on such
Lease; provided that such assignment shall not relieve such Party from any
obligation or liability which has arisen (or which arises) out of operations
occurring prior to the first day of the month following the receipt of the
assignment by Operator. The assigned interest shall be owned by the assignees in
proportion to their respective Participating Interests. The assignees, in
proportion to the respective interests so acquired, shall pay the assignor for
its interest in the ▇▇▇▇▇, Platforms and Facilities the current salvage value
thereof less its share of the estimated current cost of salvaging same, plugging
and abandoning of ▇▇▇▇▇, and removal of all Platforms and Facilities, as
determined by the Parties. In the event such withdrawing Party's interest in
such salvage value is less than such Party's share of the estimated costs, the
withdrawing Party shall pay the Operator, for benefit of the non-withdrawing
Parties, a sum equal to the deficiency. Within sixty (60) days after receiving
notice of the assignment, Operator shall render a final statement to the
withdrawing Party for its share of all expenses incurred through the first day
of the month following the date of receipt of the assignment by Operator, plus
any deficiency in salvage value. Providing all such expenses, including any
deficiency hereunder, due from the withdrawing Party have been paid within
thirty (30) days after the rendering of such final statement, the assignment
shall be effective as of the first day of the month following its receipt by
Operator, and the withdrawing Party shall thereafter be relieved from all
further obligations and liabilities with respect to such Lease, except those
obligations and liabilities which have arisen (or which arise) out of operations
occurring prior to such effective date.
15.2 Limitations on Withdrawal. No party shall be relieved of its
obligations hereunder during a blowout, a fire or other emergency, but may
withdraw from this Agreement after termination of such emergency, provided such
Party shall remain liable for its share of all costs arising from said
emergency, including, but not limited to, the drilling of relief ▇▇▇▇▇,
containment and cleanup of oil spill and pollution, and all costs of Platform
debris removal made necessary by the emergency.
27
ARTICLE 16
RENTALS, ROYALTIES AND OTHER PAYMENTS
16.1 Creation of Overriding Royalty. If any Party has heretofore created or
hereafter creates any overriding royalty, production payment, or other burden
payable out of production which is not jointly borne and if any other Party
becomes entitled to an assignment of such Party's Working Interest under the
provisions of this agreement or, as a result of Non-Consent Operations, becomes
entitled to receive the Working Interest belonging to a Non-Participating Party
in such operations, the Party entitled to receive the assignment from or the
Working Interest of such Non-Participating Party shall receive same free and
clear of such burdens, and the Non-Participating Party creating such burdens
shall save the Participating Parties harmless from such burdens.
16.2 Payment of Rentals and Minimum Royalties. Operator shall pay in a
timely manner all rentals, minimum royalties, or similar payments accruing under
the terms of the Lease and submit evidence of each such payment to the Parties.
Operator shall not be held liable to the other Parties in damages for the loss
of the Lease or interest therein if, through mistake or oversight, any rental,
minimum royalty, or other payment is not paid or is erroneously paid, unless
such error results from gross negligence or willful misconduct.
16.3 Non-Participation in Payments. Should any Party elect not to pay its
share of any rental, minimum royalty, or similar payment, such Party shall
notify the other Parties, in writing, at least sixty (60) days prior to the date
on which such payment is due; and, in this event, Operator shall make such
payment for the benefit of all the Participating Parties. In such event, the
Non-Participating Party shall, upon the request of the Participating Parties,
assign to them such portions of its interest in the Lease as would be maintained
by such payment. Unless otherwise agreed, such assigned interest shall be owned
by each Participating Party in proportion to its Participating Interest. Such
assignment shall be free and clear of any overriding royalties, production
payment or other burdens on production which is not jointly borne. Thereafter,
the Lease or portion thereof involved shall no longer be subject to this
agreement. The Parties then owning the Lease, or portion thereof, agree to
operate said Lease, or portion thereof, under a separate agreement in the same
form as this agreement.
16.4 Royalty Payments. Each Party shall pay or cause to be paid all royalty
and other amounts payable out of its share of production. During any time in
which the Participating Parties in a Non-Consent Operation are entitled to
receive a Non-Participating Party's share of production, the Participating
Parties shall bear the Lease royalty and other jointly borne burdens on such
production.
ARTICLE 17
TAXES
17.1 Property Taxes. Operator shall render property covered by this
agreement as may be subject to ad valorem taxation, and shall pay such property
taxes for the benefit of each Party. Operator shall charge each Party its share
of such tax payments.
17.2 Contest of Property Tax Valuation. Operator shall timely and
diligently protest to a final determination any valuation it deems unreasonable.
Pending such determination, Operator may elect to pay under protest. Upon final
determination, Operator shall pay the taxes and any interest, penalty, or cost
accrued as a result of such protest. In either event, Operator shall charge each
Party its share.
17.3 Production and Severance Taxes. Each Party shall pay, or cause to be
paid, all production and severance taxes due on any production which it receives
pursuant to the terms of this Agreement.
17.4 Other Taxes and Assessments. Operator shall pay other applicable taxes
(other than income taxes) or assessments and charge each Party its proportionate
share.
28
ARTICLE 18
INSURANCE
18.1 Insurance. Each Party shall comply with the provisions of Exhibit "B".
ARTICLE 19
LIABILITY, CLAIMS, AND LAWSUITS
19.1 Individual Obligations. The obligations, duties and liabilities of the
Parties shall be several and not joint or collective; and nothing contained
herein shall ever be construed as creating a partnership of any kind, joint
venture, association, or other character of business entity recognizable in law
for any purpose. Each Party shall hold all the other Parties harmless from liens
and encumbrances on the Lease arising as a result of its acts.
19.2 Notice of Claim or Lawsuit. If a claim is made against any Party or if
any Party is sued on account of any matter arising from operations hereunder,
such Party shall give prompt written notice to the other Parties.
19.3 Settlements. Operator may settle any single damage claim or suit
involving operations hereunder if the expenditure does not exceed Twenty
Thousand and no/100 Dollars ($20,000.00) and if the payment is in complete
settlement of such claim or suit. If the amount required for settlement exceeds
such amount, the Parties shall determine the further handling of the claim or
suit.
19.4 Legal Expense. Legal expenses shall be handled pursuant to Exhibit
"C".
19.5 Liability for Losses, Damages, Injury or Death. To the extent allowed
by law, liability for losses, damages, injury, or death arising from operations
under this Agreement and to the extent such liability exceeds the insurance
carried by Operator under Section 18.1 shall be borne by the Parties in
proportion to their Participating Interests in the operations out of which such
liability arises, except when such liability results from the gross negligence
or willful misconduct of a Party, in which case such Party shall be liable.
19.6 Indemnification. To the extent allowed by law, the Participating
Parties agree to hold the Non-Participating Parties harmless and to indemnify
and protect them against all claims, demands, liabilities, and liens for
property damage or personal injury, including death, caused by or otherwise
arising out of Non-Consent Operations, and any loss and cost suffered by any
Non-Participating Party as an incident thereof.
ARTICLE 20
INTERNAL REVENUE PROVISIONS
20.1 Election of Partnership Provisions. Notwithstanding any provisions
herein that the rights and liabilities hereunder are several and not joint or
collective or that this Agreement and the operations hereunder shall not
constitute a partnership, if for Federal Income Tax purposes this Agreement and
the operations hereunder are regarded as a partnership, then for Federal Income
Tax purposes each Party elects to be excluded from the application of all the
provisions of Subchapter K, Chapter 1, Subtitle A, Internal Revenue Code of 1986
as amended, as permitted and authorized by Section 761 of said Code and the
regulations promulgated thereunder; Operator is hereby authorized and directed
to execute on behalf of each Party such evidence of this election as may be
required by the Federal Internal Revenue Service including specifically, but not
by way of limitation, all of the returns, statements, and data required by
Federal Regulation 1.761.1. Should there be any requirement that each Party
further evidence this election, each Party agrees to execute such documents and
furnish such other evidence as may be required by the Federal Internal Revenue
Service. Each Party further agrees not to give any notices or take any other
action inconsistent with the election made hereby. If any present or future
income tax law of the United States of America or any state in which the area
covered by the Lease is located contains provisions similar to those contained
in Subchapter K, Chapter 1, Subtitle A of the Internal Revenue Code of 1986 as
amended, under which an election similar to that provided by Section 761 of said
Subchapter K is permitted, each Party makes such election or agrees to make such
election as may be permitted by such laws. In making this election, each Party
29
states that the income derived by it from the operations under this Agreement
can be adequately determined without the computation of partnership taxable
income.
ARTICLE 21
CONTRIBUTIONS
21.1 Notice of Contributions Other Than Advances for Sale of Production.
Each Party shall promptly notify the other Parties of all contributions that it
may obtain, or is attempting to obtain, concerning the drilling of any well on
the Lease. Payments received as consideration for entering into a contract for
sale of production from the Lease, loans and other financing arrangements shall
not be considered contributions for the purpose of this Article. No Party shall
release information in return for a contribution from an outside party toward
the drilling of a well without the prior written consent of all the Parties
hereto.
21.2 Cash Contributions. In the event a Party receives a cash contribution
toward the drilling of a well, said cash contribution shall be paid to Operator
and Operator shall credit the amount thereof to the Parties in proportion to
their Participating Interest in such well. If such well is a Non-Consent Well,
the amount of the contribution shall be deducted from the cost specified in
Section 12.2.a.
21.3 Acreage Contributions. In the event a Party receives an acreage
contribution toward the drilling of a well, said acreage contribution shall be
shared by each Participating Party who accepts in proportion to its
Participating Interest in the well and said acreage shall become subject to the
terms and conditions of this Agreement. If such well is a Non-Consent Well,
there shall be no deduction from the costs to be recouped by the Participating
Parties under Section 10.3.2 or Section 12.2.a, whichever is applicable, because
of such acreage contribution.
ARTICLE 22
DISPOSITION OF PRODUCTION
22.1 Facilities to Take in Kind. Any Party shall have the right, at its
sole risk and expense, to construct Facilities for taking its share of
production in kind, provided that such Facilities at the time of installation do
not interfere with continuing operations on the Lease.
22.2 Duty to Take in Kind. Each Party shall take in kind or separately
dispose of its share of the oil and gas produced and saved from the Lease.
22.3 Failure to Take in Kind. If any Party fails to take in kind or dispose
of its share of the oil and gas, Operator may, at any time and from time to
time, either (a) purchase oil or gas at Operator's posted price, or in the
absence of a posted price, at the price prevailing in the area for oil or gas of
the same kind, gravity, an quality; or (b) sell such oil or gas to others at the
best price obtainable by Operator, subject to revocation at will by the
non-taking Party upon thirty (30) days advance written notice. All contracts of
sale by Operator of any Party's share of oil or gas shall be only for such
reasonable periods of time as are consistent with the minimum needs of the
industry under the circumstances, but in no event shall any contract be for a
period in excess of one (1) year. Notwithstanding the foregoing, Operator shall
not make a sale of any Party's share of gas production without giving such Party
at least thirty (30) days' prior written notice of the intended sale. Proceeds
of all sales made by Operator pursuant to this Section shall be paid to the
Parties entitled thereto.
22.4 Expenses of Delivery in Kind. Any cost incurred by Operator in making
delivery of any Party's share of oil and gas, or disposing of same pursuant to
Section 22.3, shall be borne by such Party.
22.5 Gas Balancing Agreement. Notwithstanding Section 22.3, the Parties
agree that gas balancing shall be handled in accordance with Exhibit "E".
30
ARTICLE 23
APPLICABLE LAW
23.1 Applicable Law. This Agreement shall be interpreted according to the
laws of the State of Texas.
ARTICLE 24
LAWS, REGULATIONS AND NON-DISCRIMINATION
24.1 Laws and Regulations. This Agreement and operations hereunder are
subject to all applicable laws, rules, regulations, and orders, and any
provisions of this Agreement found to be contrary to or inconsistent with any
such law, rule, regulation, or order shall be deemed modified accordingly.
24.2 Non-Discrimination. In the performance of work under this Agreement,
the Parties agree to comply, and Operator shall require each independent
contractor to comply with the governmental requirements set forth in Exhibit "D"
and with all of the provisions of Section 202(1) to (7), inclusive, of Executive
Order No. 11246, as amended.
ARTICLE 25
FORCE MAJEURE
25.1 Force Majeure. All obligations imposed by this Agreement on each
Party, except for the payment of money, shall be suspended while compliance is
prevented, in whole or in part, by a labor dispute, fire, flood, war, civil
disturbance, or act of God; by laws; by governmental rules, regulations, or
orders; by inability to secure materials; or by any other cause, whether similar
or dissimilar, beyond the reasonable control of the said Party; provided,
however, that performance shall be resumed within a reasonable time after such
cause has been removed; and provided further that no Party shall be required
against its will to settle any labor dispute.
25.2 Notice. Whenever a Party's obligations are suspended under Section
25.1, such Party shall immediately notify the other Parties, in writing, and
give full particulars of the reason for such suspension.
ARTICLE 26
SUCCESSORS AND ASSIGNS, AREA OF MUTUAL INTEREST AND TRANSFERS
26.1 Successors and Assigns. This Agreement shall be binding upon and inure
to the benefit of the Parties and their respective successors, representatives,
and assigns and shall constitute a covenant running with the Lease. Each Party
shall incorporate in any assignment of an interest in the Lease a provision that
such assignment is subject to this Agreement.
26.2 Area of Mutual Interest. - None
26.3 Transfer of Interest. No sale or transfer of interest shall be made
unless the transfer is expressly made subject to this Agreement, and the
transferee is financially responsible and agrees in writing to assume all
obligations hereunder as to the interest assigned. A transfer of interest
hereunder shall not become effective as to the Parties until the first day of
the month following delivery to Operator of an original (or copies thereof)
instrument of transfer approved by the proper governmental authority and
conforming to the requirements of this Section. No such sale or transfer shall
relieve the transferring Party of any obligations or liabilities which have
arisen (or which arise) out of operations occurring prior to such effective
date.
26.4 Assignments. Any assignment, vesting, or relinquishment of interest
between the Parties shall be without warranty of title express or implied,
except for the claims arising from Assignor's own actions, or the claims of
those holding by, through, or under Assignor, but not otherwise".
ARTICLE 27
TERM
27.1 Term. This Agreement shall remain in effect so long as the Lease shall
remain in effect; however, all property belonging to the Parties shall be
disposed of and final settlement shall be made under this Agreement. This
Agreement shall remain in effect from the effective date and for so long as the
Lease shall remain
31
in effect as to any acreage covered thereby, whether by production or otherwise,
or until all assets and Operations have been turned over to a single Working
Interest owner. Termination of this Agreement shall not relieve any Party from
any costs or liability accrued or incurred prior to the termination of this
Agreement, and the provisions of this Agreement shall continue in force for such
additional time as necessary until:
(a) all ▇▇▇▇▇ have been plugged and abandoned;
(b) all property and equipment on and for the Lease area belonging to
the Parties are disposed of by the Operator and all claims or lawsuits have
been settled or otherwise disposed of; and,
(c) a final accounting and settlement has been made under this
Agreement (including settlement of any gas imbalances pursuant to Exhibit
"E").
The Operator shall have a reasonable period of time after the occurrence of
an event of termination in which to conclude the administration of joint
Operations and to make a distribution of assets. During this period of time, the
Operator shall continue to have and shall exercise all powers granted and meet
all duties imposed by this Agreement until all provisions of this Agreement are
fully executed.
ARTICLE 28
EXECUTION
28.1 Counterpart Execution. This Agreement may be executed by signing the
original or a counterpart thereof. If this Agreement is executed in
counterparts, all counterparts taken together shall have the same effect as if
all the Parties had signed the same instrument.
WITNESSES: OPERATOR:
Millennium Offshore Group, Inc.
/s/ Illegible By: /s/ Illegible
-------------------------------------- -----------------------------------
[Illegible] Its: Executive Vice President
--------------------------------------
WITNESSES: NON-OPERATORS:
Ridgewood Energy Corporation
/s/ Illegible By: /s/ Illegible
-------------------------------------- -----------------------------------
[Illegible] Its: EXEC. VICE PRESIDENT
--------------------------------------
▇▇
▇▇▇▇▇ ▇▇ ▇▇▇▇▇
▇▇▇▇▇▇ ▇▇ ▇▇▇▇▇▇
▇▇ this 3rd day of September, 2004, before me, appeared, D. ▇▇▇▇ ▇▇▇▇▇▇▇▇▇
to me personally known, who, being by me duly sworn, did say that he is the
Executive V.P. of Millennium Qffshore Group, Inc., a Texas corporation, and that
the foregoing instrument was signed on behalf of the corporation by authority of
its Board of Directors, and that he acknowledged the instrument to be the free
act and deed of the corporation.
/s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
--------------------------------------------
Notary Public, State of Texas
My Commission Expires: _____________________
[SEAL]
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
NOTARY PUBLIC, STATE OF TEXAS
MY COMMISSION EXPIRES
FEB. 20, ▇▇▇▇
▇▇▇▇▇ ▇▇ ▇▇▇▇▇
▇▇▇▇▇▇ ▇▇ ▇▇▇▇▇▇
▇▇ this 3rd day of September, 2004, before me, appeared, W. ▇▇▇▇ ▇▇▇▇▇ to
me personally known, who, being by me duly sworn, did say that he is the
Executive V.P. of Ridgewood Energy Corporation, a Delaware corporation, and that
the foregoing instrument was signed on behalf of the corporation by authority of
its Board of Directors, and that he acknowledged the instrument to be the free
act and deed of the corporation.
/s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
--------------------------------------------
Notary Public in and for the State of Texas
My Commission Expires: _____________________
[SEAL]
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
NOTARY PUBLIC, STATE OF TEXAS
MY COMMISSION EXPIRES
FEB. 20, 2005
33
EXHIBIT "A"
Attached to and made a part of that certain Offshore Operating Agreement
covering High Island Block 53 Prospect, dated August 25, 2004, by and between
Millennium Offshore Group, Inc., as Operator, and Ridgewood Energy Corporation,
as Non-Operator.
I. CONTRACT AREA: The lands and waterbottoms within the High Island Block 53,
insofar as same covers the lands subject to the lease described below, less
and except the W/2 of the W/2 of the SW/4.
II. RESTRICTIONS AS TO DEPTH, FORMATIONS or STRUCTURE: Rights from the surface
of the earth down to the stratigraphic equivalent of the base of the
deepest productive reservoir found in the Test Well.
III. PARTIES & OWNERSHIP INTERESTS:
Test Well and Subsequent ▇▇▇▇▇
Ridgewood Energy Corporation 72.00000%
Millennium Offshore Group, Inc. 28.00000%
---------
100.00000%
IV. OIL, GAS & MINERAL LEASES SUBJECT TO THIS AGREEMENT: Oil and Gas Lease of
Submerged Lands bearing Serial No. OCS-G 20658 dated effective December 1,
1998, by and between the United States of America, as Lessor, and Forest
Oil Corporation, as Lessee, covering the portions of Block 53, High Island
Area, OCS Leasing Map, TX 7.
V. ADDRESSES OF THE PARTIES FOR NOTICES: For the purposes hereof, notices may
be delivered by the U.S. Mail service, overnight delivery service and/or
telecopier as provided below:
OPERATOR:
Millennium Offshore Group, Inc.
▇▇▇▇ ▇▇▇▇▇▇▇▇, ▇▇▇. ▇▇▇▇
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: ▇▇. ▇▇▇▇ ▇▇▇▇▇▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
NON-OPERATORS:
Ridgewood Energy Corporation Ridgewood Energy Corporation
▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇ 5300 Memorial, Ste. 1070
Ridgewood, New Jersey 07450 ▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: Mr. ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ Attn: Mr. W. ▇▇▇▇ ▇▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇ Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇ Fax: (▇▇▇) ▇▇▇-▇▇▇▇
VI. BURDENS ON PRODUCTION:
The total burdens on production affecting the interests of the Parties
equals 28.00000% of 6/6ths and consist of the following burdens: 16.66667%
Royalty, 13.33333% of 6/6ths Overriding Royalty in favor of Forest Oil
Corporation, et al created under the Farmout Agreement dated effective July
10, 2004, between Forest Oil Corporation, as Farmor, and Millennium
Offshore Group, Inc., as Farmee.
34
EXHIBIT "B"
Attached to and made a part of that certain Offshore Operating Agreement
covering High Island Block 53 Prospect, dated August 25, 2004, by and between
Millennium Offshore Group, Inc., as Operator, and Ridgewood Energy Corporation,
as Non-Operator.
INSURANCE
Each party, for its own account shall carry, pay for and maintain throughout the
term of this Offshore Operating Agreement policies of insurance, providing the
following coverages relative to Operator's activities hereunder.
(a) General Public Liability and Property Damage Insurance endorsed to
include offshore operations, covering operations conducted hereunder
by Operator for the Parties with a combined single limit each
occurrence of $1,000,000 for bodily injury and property damage. It is
understood that Operator will not provide pollution coverage.
(b) Automobile Public Liability and Property Damage Insurance covering
operations conducted hereunder by Operator for the Participating
Interest Account with a combined single limit each occurrence of
$1,000,000 for bodily injury and property damage.
(c) Aviation Liability Insurance with a limit of $10,000,000 each
occurrence to provide coverage on non-owned aircraft.
(d) Charterer's Legal Liability Insurance provided with a limit of
$1,000,000 any one claim to provide coverage arising out of the use of
any chartered barges or vessels.
(e) Excess General Public Liability Insurance with a minimum limit of
$10,000,000 to include coverage for pollution liability.
(f) Energy Exploration and Development Insurance / Operator's Extra
Expense Insurance which shall cover well control, redrilling,
pollution and contamination with a minimum limit of $35,000,000 in the
aggregate for one well.
Each Party shall provide the other Parties with a certificate of insurance
evidencing the coverages set forth above. Said certificate of insurance shall
specifically provide that the insurer shall waive all rights of subrogation
against the other Parties to the extent of the liabilities assumed hereunder by
such Party.
Operator shall use every reasonable effort to have its contractors and
subcontractors comply with applicable Workers Compensation laws and to carry
such insurance in such amounts as Operator deems necessary.
▇▇▇▇▇-1986-OFFSHORE
Recommended by the
Council of petroleum
Accountants Societies
[LOGO OF ▇▇▇▇▇]
EXHIBIT "C"
Attached to and made a part of that certain Offshore Operating Agreement
covering High Island Block 53 Prospect, dated August 25, 2004, by and between
Millennium Offshore Group, Inc., as Operator, and Ridgewood Energy Corporation,
as Non-Operator.
ACCOUNTING PROCEDURE
OFFSHORE JOINT OPERATIONS
I. GENERAL PROVISIONS
1. Definitions:
"Joint Property" shall mean the real and personal property subject to the
Agreement to which this Accounting Procedure is attached.
"Joint Operations" shall mean all operations necessary or proper for the
development, operation, protection and maintenance of the Joint Property.
"Joint Account" shall mean the account showing the charges paid and credits
received in the conduct of the Joint Operations and which are to be shared by
the Parties.
"Operator" shall mean the party designated to conduct the Joint Operations.
"Non-Operators" shall mean the Parties of this Agreement other than the
Operator. "Parties" shall mean Operator and Non-Operators.
"First Level Supervisors" shall mean those employees whose primary function in
Joint Operations is the direct supervision of other employees and/or contract
labor directly employed on the Joint Property in a field operating capacity.
"Technical Employees" shall mean those employees having special and specific
engineering, geological or other professional skills, and whose primary function
in Joint Operations is the handling of specific operating conditions and
problems for the benefit of the Joint Property
"Personal Expenses" shall mean travel and other reasonable reimbursable expenses
of Operator's employees.
"Material" shall mean personal property, equipment or supplies acquired or held
for use on the Joint Property.
"Controllable Material" shall mean Material which at the time is so classified
in the Material Classification Manual as most recently recommended by the
Council of Petroleum Accountants Societies.
"Shore Base Facilities" shall mean onshore support facilities that during
drilling, development, maintenance and producing operations provide such
services to the Joint Property as receiving and transshipment point for
supplies, materials and equipment; debarkation point for drilling and production
personnel and services; communication, scheduling and dispatching center; other
associated functions benefiting the Joint Property.
"Offshore Facilities" shall mean platforms and 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.
2. Statements and ▇▇▇▇▇▇▇▇
Operator shall ▇▇▇▇ Non-Operators on or before the last day of each month for
their proportionate share of the Joint Account for the preceding month. Such
bills will be accompanied by statements which identify the authority for
expenditure, lease or facility, and all charges and credits, summarized by
appropriate classifications of investment and expense except that items of
Controllable Material and unusual charges and credits shall be separately
identified and fully described in detail.
3. Advances and Payments by Non-Operators
A. Unless otherwise provided for in the Agreement, the Operator may
require the Non-Operators to advance their share of estimated cash
outlay for the succeeding month's operation within fifteen (15) days
after receipt of the billing or by the first day of the month for
which the advance is required, whichever is later. Operator shall
adjust each monthly billing to reflect advances received from the
Non-Operators.
B. Each Non-Operator shall pay its proportion of all bills within fifteen
(15) days after receipt. If payment is not made within such time, the
unpaid balance shall bear interest monthly at the prime rate in effect
at Chase Manhattan Bank, New York City. New York on the first day of
the month in which delinquency occurs plus 1% or the maximum contract
rate permitted by the applicable usury laws of the jurisdiction in
which the Joint Property is located, whichever is the lesser, plus
attorney's fees, court costs, and other costs in connection with the
collection of unpaid amounts.
4. Adjustments
Payment of any such bills shall not prejudice the right of any Non-Operator to
protest or question the correctness thereof; provided, however, all bills and
statements rendered to Non-Operators by Operator during any calendar year shall
conclusively be presumed to be true and correct after twenty-four (24) months
following the end of any such calendar year, unless within the said twenty-four
(24) month period a Non-Operator takes written exception thereto and makes claim
on Operator for adjustment. No adjustment favorable to Operator shall be made
unless it is made within the same prescribed period. The provisions of this
paragraph shall not prevent adjustments resulting from a physical inventory of
Controllable Material as provided for in Section ▇.
▇▇▇▇▇-1986-OFFSHORE
Recommended by the
Council of petroleum
Accountants Societies
5. Audits
A. A Non-Operator, upon notice in writing to Operator and all other
Non-Operators, shall have the right to audit Operator's accounts and
records relating to the Joint Account for any calendar year within the
twenty-four (24) month period following the end of such calendar year;
provided, however, the making of an audit shall not extend the time
for the taking of written exception to and the adjustments of accounts
as provided for in Paragraph 4 of this Section I. Where there are two
or more Non-Operators, the Non-Operators shall make every reasonable
effort to conduct a joint audit in a manner which will result in a
minimum of inconvenience to the Operator. Operator shall bear no
portion of the Non-Operators(1) 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 Operator,
except upon the resignation or removal of the Operator, and shall be
made at the expense of those Non-Operators approving such audit.
B. The Operator shall reply in writing to an audit report within 180 days
after receipt of such report.
6. Approval by Non-Operators
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, 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.
II. DIRECT CHARGES
Operator shall charge the Joint Account with the following items:
1. Rentals and Royalties
Lease rentals and royalties paid by Operator for the Joint Operations.
2. Labor
A. (1) Salaries and wages of Operator's field employees directly
employed on the Joint Property in the conduct of Joint
Operations.
(2) Salaries and wages of Operator's employees directly employed on
Shore Base Facilities or other Offshore Facilities serving the
Joint Property if such costs are not charged under Paragraph 7 of
this Section II.
(3) Salaries of First Level Supervisors in the field.
(4) Salaries and wages of Technical Employees directly employed on
the Joint Property if such charges are excluded from the Overhead
rates.
(5) Salaries and wages of Technical Employees either temporarily or
permanently assigned to and directly employed in the operation of
the Joint Property if such charges are excluded from the overhead
rates.
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 Paragraph 2A of this
Section II. Such costs under this Paragraph 2B 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 Paragraph
2A of this Section II. 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 which are applicable to Operator's costs
chargeable to the Joint Account under Paragraphs 2A and 2B of this
Section II.
D. Personal Expenses of those employees whose salaries and wages are
chargeable to the Joint Account under Paragraph 2A of this Section II.
3. Employee Benefits
Operator's current costs of established plans for employees' group life
insurance, hospitalization, pension, retirement, stock purchase, thrift, bonus,
and other benefit plans of a like nature, applicable to Operator's labor cost
chargeable to the Joint Account under Paragraphs 2A and 2B of this Section II
shall be Operator's actual cost not to exceed the percent most recently
recommended by the Council of Petroleum Accountants Societies.
4. Material
Material purchased or furnished by Operator for use on the Joint Property as
provided under Section IV. Only such Material shall be purchased for or
transferred to the Joint Property as may be required for immediate use and is
reasonably practical and consistent with efficient and economical operations.
The accumulation of surplus stocks shall be avoided.
5. Transportation
Transportation of employees and Material necessary for the Joins Operations but
subject to the following limitations:
A. If Material is moved to the Joint Property from the Operator's
warehouse or other properties, no charge shall be made to the Joint
Account for a distance greater than the distance from the nearest
reliable supply store where like material is normally available or
railway receiving point nearest the Joint Property unless agreed to by
the Parties.
B. If surplus Material is moved to Operator's warehouse or other storage
point, no charge shall be made to the Joint Account for a distance
greater than the distance to the nearest reliable supply store where
like material is normally available, or railway receiving point
nearest the Joint Property unless agreed to by the Parties. No charge
shall be made to the Joint Account for moving Material to other
properties belonging to Operator, unless agreed to by the Parties.
C. In the application of subparagraphs A and B above, the option to
equalize or charge actual trucking cost is available when the actual
charge is $400 or less excluding accessorial charges. The $400 will be
adjusted to the amount most recently recommended by the Council of
Petroleum Accountants Societies.
▇▇▇▇▇-1986-OFFSHORE
Recommended by the
Council of petroleum
Accountants Societies
6. Services
The cost of contract services, equipment and utilities provided by outside
sources, except services excluded by Paragraph 9 of Section II and Paragraphs i
and ii of Section III. The cost of professional consultant services and contract
services of technical personnel directly engaged on the Joint Property if such
charges are excluded from the overhead rates. The cost of professional
consultant services or contract services of technical personnel directly engaged
in the operation of the Joint Property shall be charged to the Joint Account if
such charges are excluded from the overhead rates.
7. Equipment and Facilities Furnished by Operator
A. Operator shall charge the Joint Account for use of Operator-owned
equipment and facilities, including Shore Base and/ or Offshore
Facilities, at rates commensurate with costs of ownership and
operation. Such rates may include labor, maintenance, repairs, other
operating expense, insurance, taxes, depreciation and interest on
gross investment less accumulated depreciation not to exceed ten
percent (10%) per annum. In addition, for platforms only, the rate may
include an element of the estimated cost of platform dismantlement.
Such rates shall not exceed average commercial rates currency
prevailing in the immediate area of the Joint Property.
B. In lieu of charges in Paragraph 7A above, Operator may elect to use
average commercial rates prevailing in the immediate area of the Joint
Property less twenty percent (20%). For automotive equipment, Operator
may elect to use rates published by the Petroleum Motor Transport
Association.
8. Damages and Losses to Joint Property
All costs or expenses necessary for the repair or replacement of Joint Property
made necessary because of damages or losses incurred by fire, flood, storm,
theft, accident, or other causes, except those resulting from Operator's gross
negligence or willful misconduct. Operator shall furnish Non-Operator written
notice of damages or losses incurred as soon as practicable after a report
thereof has been received by Operator.
9. Legal Expense
Expense of handling, investigating and settling litigation or claims,
discharging of liens, payments of judgements and amounts paid for settlement of
claims incurred in or resulting from operations under the Agreement or necessary
to protect or recover the Joint Property, except that no charge for services of
Operator's legal staff or fees or expense of outside attorneys shall be made
unless previously agreed to by the Parties. All other legal expense is
considered to be covered by the overhead provisions of Section III unless
otherwise agreed to by the Parties, except as provided in Section I, Paragraph
3.
10. Taxes
All taxes of every kind and nature assessed or levied upon or in connection with
the Joint Property, the operation thereof, or the production therefrom, and
which taxes have been paid by the Operator for the benefit of the Parties. 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.
11. Insurance
Net premiums paid for insurance required to be carried for the Joint Operations
for the protection of the Parties. In the event Joint Operations are conducted
at offshore locations in which Operator may act as self-insurer for Workers'
Compensation and Employers' Liability, Operator may include the risk under its
self-insurance program in providing coverage under State and Federal laws and
charge the Joint Account at Operator's cost not to exceed manual rates.
12. Communications
Costs of acquiring, leasing, installing, operating, repairing and maintaining
communication systems including radio and microwave facilities between the Joint
Property and the Operator's nearest Shore Base Facility. In the event
communication facilities systems serving the Joint Property are Operator-owned,
charges to the Joint Account shall be made as provided in Paragraph 7 of this
Section II.
13. Ecological and Environmental
Costs incurred on the Joint Property as a result of statutory regulations for
archaeological and geophysical surveys relative to identification and protection
of cultural resources and/or other environmental or ecological surveys as may be
required by the Bureau of Land Management or other regulatory authority. Also,
costs to provide or have available pollution containment and removal equipment
plus costs of actual control and cleanup and resulting responsibilities of oil
spills as required by applicable laws and regulations.
14. Abandonment and Reclamation
Costs incurred for abandonment of me Joint Property, including costs required by
governmental or other regulatory authority.
15. Other Expenditures
Any other expenditure not covered or dealt with in the foregoing provisions of
this Section II, or in Section III 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.
▇▇▇▇▇-1986-OFFSHORE
Recommended by the
Council of petroleum
Accountants Societies
III. OVERHEAD
As compensation for administrative, supervision, office services and warehousing
costs, Operator shall charge the Joint Account in accordance with this Section
III.
Unless otherwise agreed to by the Parties, such charge shall be in lieu of costs
and expenses of all offices and salaries or wages plus applicable burdens and
expenses of all personnel, except those directly chargeable under Section II.
The cost and expense of services from outside sources in connection with matters
of taxation, traffic, accounting or matters before or involving governmental
agencies shall be considered as included in the overhead rates provided for in
this Section III unless such cost and expense are agreed to by the Parties as a
direct charge to the Joint Account.
i. Except as otherwise provided in Paragraph 2 of this Section III, the
salaries, wages and Personal Expenses of Technical Employees and/or
the cost of professional consultant services and contract services of
technics personnel directly employed on the Joint Property:
( ) shall be covered by the overhead rates.
(X) shall not be covered by the overhead rates.
ii. Except as otherwise provided in Paragraph 2 of this Section III, the
salaries, wages and Personal Expenses of Technical Employees and/or
costs of professional consultant services and contract services of
technical personnel either temporarily or permanently assigned to and
directly employed in the operation of the Joint Property:
(X) shall be covered by the overhead rates.
( ) shall not be covered by the overhead rates.
1. Overhead - Drilling and Producing Operations
As compensation for overhead incurred in connection with drilling and
producing operations, Operator shall charge on either:
(X) Fixed Rate Basis, Paragraph 1A, or
( ) Percentage Basis, Paragraph IB
A. Overhead - Fixed Rate Basis
(1) Operator shall charge the Joint Account at the following rates
per well per month:
Drilling Well Rate $29.000.00 (Prorated for less than a full
month)
Producing Well Rate $2.900.00
(2) Application of Overhead - Fixed Rate Basis for Drilling Well Rate
shall be as follows:
(a) Charges for drilling ▇▇▇▇▇ shall begin on the date when
drilling or completion equipment arrives on location and
terminates on the date the drilling or completion equipment
moves off location or rig is released, whichever occurs
first, except that no charge shall be made during suspension
of drilling operations for fifteen (15) or more consecutive
calendar days.
(b) Charges for ▇▇▇▇▇ undergoing any type of workover or
recompletion for a period of five (S) consecutive work days
or more shall be made at the drilling well rate. Such
charges shall be applied for the period from date workover
operations, with rig or other units used in workover,
commence through date of rig or other unit release, except
that no charge shall be made during suspension of operations
for fifteen (15) or more consecutive calendar days.
(3) Application of Overhead - Fixed Rate Basis for Producing Well
Rate shall be as follows:
(a) An active well either produced or injected into 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 in which
production is not commingled down hole shall be considered
as a one-well charge providing each completion is considered
a separate well by the governing regulatory authority.
(c) An inactive gas well shut in because of overproduction or
failure of purchaser to take the production shall be
considered as a one-well charge providing the gas well is
directly connected to a permanent sales outlet.
(d) A one-well charge shall be made for the month in which
plugging and abandonment operations are completed on any
well. This one-well charge shall be made whether or not the
well has produced except when drilling well rate applies.
(e) All other inactive ▇▇▇▇▇ (including but not limited to
inactive ▇▇▇▇▇ covered by unit allowable, lease allowable,
transferred allowable, etc.) shall not qualify for an
overhead charge.
(4) The well rates shall be adjusted as of the first day of April
each year following the effective date of the agreement to which
this Accounting Procedure is attached. The adjustment shall be
computed by multiplying the rate currently in use by the
percentage increase or decrease in the average weekly earnings of
Crude Petroleum and Gas Production Workers for the last calendar
year compared to the calendar year preceding as shown by the
index of average weekly earnings of Crude Petroleum and Gas
Fields Production Workers as published by the United States
Department of Labor, Bureau of Labor Statistics, or the
equivalent Canadian index as published by Statistics Canada, as
applicable. The adjusted rates shall be the rates currently in
use, plus or minus the computed adjustment.
B. Overhead - Percentage Basis
(1) Operator shall charge-the Joint Account at the following rates:
(a) Development
______ Percent ( %) of cost of Development of the Joint
Property exclusive of costs provided under Paragraph 9 of
Section II and all salvage credits.
(b) Operating
______ Percent (%) of the cost of Operating the Joint
Property exclusive of costs provided under Paragraphs 1 and
9 of Section II, all salvage credits, the value of injected
substances purchased for secondary recovery and all taxes
and assessments which are levied, assessed and paid upon the
mineral interest in and to the Joint Property
▇▇▇▇▇-1986-OFFSHORE
Recommended by the
Council of Petroleum
Accountants Societies
(2) Application of Overhead - Percentage Basis shall be as follows:
For the purpose of determining charges on a percentage basis under
Paragraph 1B of this Section III, development shall include all costs
in connection with drilling, redrilling, or deepening of any or all
▇▇▇▇▇, and shall also include any remedial operations requiring a
period of five (5) consecutive work days or more on any or all ▇▇▇▇▇;
also, preliminary expenditures necessary in preparation for drilling
and expenditures incurred in abandoning when the well is not completed
as a producer, and original cost of construction or installation of
fixed assets, the expansion of fixed assets and any other project
clearly discernible as a fixed asset, except Major Construction as
defined in Paragraph 2 of this Section III. All other costs shall be
considered as Operating except that catastrophe costs shall be
assessed overhead as provided in Section III, Paragraph 3.
2. Overhead - Major Construction
To compensate Operator for overhead costs incurred in 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 dismantling for abandonment of
platforms and related production facilities, Operator shall either negotiate a
rate prior to the beginning of construction, or shall charge the Joint Account
for Overhead based on the following rates for any Major Construction project in
excess of $ 25,000.00.
A. If the Operator absorbs the engineering, design and drafting costs
related to the project:
(1) 5% of total costs if such costs are more than $10,000.00; but
less than $100,000; plus
(2) 3% of total costs in excess of $100,000 but less than $1,000,000;
plus
(3) 1% of total costs in excess of $1,000,000.
Expenditures subject to the overheads above will not be reduced by
insurance recoveries, and no other overhead provisions of this Section
III shall apply.
B. If the Operator charges engineering, design and drafting costs related
to the project directly to the Joint Account:
(1) 3% of total costs if such costs are more than $10,000.00 but less
than $100,000; plus
(2) 2% of total costs in excess of $100,000 but less than $1,000,000;
plus
(3) 1% 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 project shall not be
treated separately and the cost of drilling and workover ▇▇▇▇▇ and
artificial lift equipment shall be excluded. On each project, Operator
shall advise Non-Operator(s) in advance which of the above options shall
apply. In the event of any conflict between the provisions of this
paragraph and those provisions under Section II, Paragraph 2 or Paragraph
6, the provisions of this paragraph shall govern.
3. Overhead - Catastrophe
To compensate Operator for overhead costs incurred in the event of expenditures
resulting from a single occurrence due to oil spill, blowout, explosion, fire,
storm, hurricane, or other catastrophes as agreed to by the Parties, which are
necessary to restore the Joint Property to the equivalent condition that existed
prior to the event causing the expenditures, Operator shall either negotiate a
rate prior to charging the Joint Account or shall charge the Joint Account for
overhead based on the following rates:
(1) 3% of total costs through $100,000; plus
(2) 2% of total costs in excess of $100,000 but less than $1,000,000;
plus
(3) 1% of total costs in excess of $1,000,000.
Expenditures subject to the overheads above will not be reduced by insurance
recoveries, and no other overhead provisions of this Section III shall apply.
4. Amendment of Rates
The Overhead rates provided for in this Section III may be amended from time to
time only by mutual agreement between the Parties hereto if, in practice, the
rates are found to be insufficient or excessive.
IV. PRICING OF JOINT ACCOUNT MATERIAL PURCHASES, TRANSFERS AND DISPOSITIONS
Operator is responsible for Joint Account Material and shall make proper and
timely charges and credits for all Material movements affecting the Joint
Property. Operator shall provide all Material for use on the Joint Property;
however, at Operator's option, such Material may be supplied by the
Non-Operator. Operator shall make timely disposition of idle and/or surplus
Material, such disposal being made either through sale to Operator or
Non-Operator, division in kind, or sale to outsiders. Operator may purchase, but
shall be under no obligation to purchase, interest of Non-Operators in surplus
condition A or B Material. The disposal of surplus Controllable Material not
purchased by the Operator shall be agreed to by the Parties.
1. Purchases
Material purchased shall be charged at the price paid by Operator after
deduction of all discounts received. In case of Material found to be defective
or returned to vendor for any other reasons, credit shall be passed to the Joint
Account when adjustment has been received by the Operator.
2. Transfers and Dispositions
Material furnished to the Joint Property and Material transferred from the Joint
Property or disposed of by the Operator, unless otherwise agreed to by the
Parties, shall be priced on the following basis exclusive of cash discounts:
A. New Material (Condition A)
(1) Tubular Goods Other than Line Pipe
▇▇▇▇▇-1986-OFFSHORE
Recommended by the
Council of Petroleum
Accountants Societies
(a) Tubular goods, sized 2-3/8 inches OD and larger except line
pipe, shall be priced at Eastern mill published carload base
prices effective as of date of movement plus transportation
cost using the 80,000 pound carload weight basis to the
railway receiving point nearest the Joint Property for which
published rail rates for tubular goods exist. If the 80,000
pound rail rate is not offered, the 70,000 pound or 90,000
pound rail rate may be used. Freight charges for tubing will
be calculated from Lorain, Ohio and casing from Youngstown,
Ohio.
(b) For grades which are special to one mill only, prices shall
be computed at the mill base of that mill plus
transportation cost from that mill to the railway receiving
point nearest the Joint Property as provided above in
Paragraph 2A.(l)(a). For transportation cost from points
other than Eastern ▇▇▇▇▇, the 30,000 pound Oil Field Haulers
Association interstate truck rate shall be used.
(c) Special end finish tubular goods shall be priced at the
lowest published out-of-stock price, f.o.b. Houston, Texas,
plus transportation cost, using Oil Field Haulers
Association interstate 30,000 pound truck rate, to the
railway receiving point nearest the Joint Property.
(d) Macaroni tubing (size less than 23/8 inch OD) shall be
priced at the lowest published out-of-stock prices f.o.b.
the supplier plus transportation costs, using the Oil Field
Haulers Association interstate truck rate per weight of
tubing transferred, to the railway receiving point nearest
the Joint Property.
(2) Line Pipe
(a) Line pipe movements (except size 24 inch OD and larger with
walls 3/4 inch and over) 30,000 pounds or more shall be
priced under provisions of tubular goods pricing in
Paragraph A.(l)(a) as provided above. Freight charges shall
be calculated from Lorain, Ohio.
(b) Line pipe movements (except size 24 inch OD and larger with
walls 3/4 inch and over) less than 30,000 pounds shall be
priced at Eastern mill published carload base prices
effective as of date of shipment, plus 20 percent, plus
transportation costs based on freight rates as set forth
under provisions of tubular goods pricing in Paragraph
A.(l)(a) as provided above. Freight charges shall be
calculated from Lorain, Ohio.
(c) Line pipe 24 inch OD and over and 3/4 inch wall and larger
shall be priced f.o.b. the point of manufacture at current
new published prices plus transportation cost to the railway
receiving point nearest the Joint Property.
(d) Line pipe, including fabricated line pipe, drive pipe and
conduit not listed on published price lists shall be priced
at quoted prices plus freight to the railway receiving point
nearest the Joint Property or at prices agreed to by the
Parties.
(3) Other Material shall be priced at the current new price, in
effect at date of movement, as listed by a reliable supply store
nearest the Joint Property, or point of manufacture, plus
transportation costs, if applicable, to the railway receiving
point nearest the Joint Property.
(4) Unused new Material, except tubular goods, moved from the Joint
Property shall be priced at the current new price, in effect on
date of movement, as listed by a reliable supply store nearest
the Joint Property, or point of manufacture, plus transportation
costs, if applicable, to the railway receiving point nearest the
Joint Property. Unused new tubulars will be priced as provided
above in Paragraph 2.A. (1) and (2).
B. Good Used Material (Condition B)
Material in sound and serviceable condition and suitable for reuse
without reconditioning:
(1) Material moved to the Joint Property
At seventy-five percent (75%) of current new price, as determined
by Paragraph A.
(2) Material used on and moved from the Joint Property
(a) At seventy-five percent (75%) of current new price, as
determined by Paragraph A, if Material was originally
charged to the Joint Account as new Material or
(b) At sixty-five percent (65%) of current new price, as
determined by Paragraph A, if Material was originally
charged to the Joint Account as used Material.
(3) Material not used on and moved from the Joint Property
At seventy-five percent (75%) of current new price as determined
by Paragraph A. The cost of reconditioning, if any, shall be
absorbed by the transferring property.
C. Other Used Material
(1) Condition C
Material which is not in sound and serviceable condition and not
suitable for its original function until after reconditioning
shall be priced at fifty percent (50%) of current new price as
determined by Paragraph A. The cost of reconditioning shall be
charged to the receiving property, provided Condition C value
plus cost of reconditioning does not exceed Condition B value.
(2) Condition D
Material, excluding junk, no longer suitable for its original
purpose, but usable for some other purpose shall be priced on a
basis commensurate with its use. Operator may dispose of
Condition D Material under procedures normally used by Operator
without prior approval of Non-Operators.
(a) Casing, tubing, or drill pipe used as fine 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.
(b) 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.
(3) Condition E
Junk shall be priced at prevailing prices. Operator may dispose
of Condition E Material under procedures normally utilized by
Operator without prior approval of Non-Operators.
▇▇▇▇▇-1986-OFFSHORE
Recommended by the
Council of Petroleum
Accountants Societies
D. Obsolete Material
Material which is serviceable and usable for its original function but
condition and/or value of such Material is not equivalent to that
which would justify a price as provided above may be specially priced
as agreed to by the Parties. Such price should result in the Joint
Account being charged with the value of the service rendered by such
Material. E. Pricing Conditions
(1) Loading or unloading costs may be charged to the Joint Account at
the rate of twenty-five cents (25 CENTS) per hundred weight on
all tubular goods movements, in lieu of actual loading or
unloading costs sustained at the stocking point. The above rate
shall be adjusted as of the first day of April each year
following January 1, 1985 by the same percentage increase or
decrease used to adjust overhead rates in Section III, Paragraph
1 .A(4). Each year, the rate calculated shall be rounded to the
nearest cent and shall be the rate in effect until the first day
of April next year. Such rate shall be published each year by the
Council of Petroleum Accountants Societies.
(2) Material involving erection costs shall be charged at applicable
percentage of the current knocked-down price of new Material.
3. Premium Prices
Whenever Material is not readily obtainable at published or listed prices
because of national emergencies, strikes or other unususal causes over
which the Operator has no control, the Operator may charge the Joint
Account for the required Material at the Operator's actual cost incurred in
providing such Material, in making it suitable for use, and in moving it to
the Joint Property; provided notice in writing is furnished to
Non-Operators of the proposed charge prior to billing Non-Opetators for
such Material. Each Non-Operator shall have the rights by so electing and
notifying Operator within ten days after receiving notice from Operator, to
furnish in kind all or part of his share of such Material suitable for use
and acceptable to Operator.
4. Warranty of Material Furnished By Operator
Operator does not warrant the Material furnished. In case of defective
Material, credit shall not be passed to the Joint Account until adjustment
has been received by Operator from the manufacturers or their agents.
V. INVENTORIES
The Operator shall maintain detailed records of Controllable Material.
1. Periodic Inventories, Notice and Representation
At reasonable intervals, inventories shall be taken by Operator of the
Joint Account Controllable Material. Written notice of intention to take
inventory shall be given by Operator at least thirty (30) days before any
inventory is to begin so that Non-Operators may be represented when any
inventory is taken. Failure of Non-Operators to be represented at an
inventory shall bind Non-Operators to accept the inventory taken by
Operator.
2. Reconciliation and Adjustment of Inventories
Adjustments to the Joint Account resulting from the reconciliation of a
physical inventory shall be made within six months following the taking of
the inventory. Inventory adjustments shall be made by Operator to the Joint
Account for overages and shortages, but, Operator shall be held accountable
only for shortages due to lack of reasonable diligence.
3. Special Inventories
Special inventories may be taken whenever there is any sale, change of
interest, or change of Operator in the Joint Property. It shall be the duty
of the party selling to notify all other Parties as quickly as possible
after the transfer of interest takes place. In such cases, both the seller
and the purchaser shall be governed by such inventory. In cases involving a
change of Operator, all Parties shall be governed by such inventory.
4. Expense of Conducting Inventories
A. The expense of conducting periodic inventories shall not be charged to
the Joint Account unless agreed to by the Parties.
B. The expense of conducting special inventories shall be charged to the
Parties requesting such inventories, except inventories required due
to change of Operator shall be charged to the Joint Account
EXHIBIT "D"
Attached to and made a part of that certain Offshore Operating Agreement
covering High Island Block 53 Prospect, dated August 25, 2004, by and between
Millennium Offshore Group, Inc., as Operator, and Ridgewood Energy Corporation,
as Non-Operator.
EQUAL EMPLOYMENT OPPORTUNITY
While performing under this Agreement, Operator agrees to the following
additional terms and conditions to the extent they may be applicable to the work
to be performed under such Farmout Agreement in accordance with the provisions
of the following described Executive Orders:
A. E.0. 11246, as amended by E.0. 11375 (Race, Color, Religion, Sex and
National Origin):
1. If the contract is in excess of $10,000, Operator agrees to comply
with the provisions of Section 202 of such Order (the "Equal
Opportunity Clause"), which Clause is incorporated herein by reference
pursuant to the regulations promulgated under such Order [41 C.F.R.
Sec. 60-1.4(d)].
2. If the contract is in excess of $10,000, the certifies that it does
not maintain or provide nor will it maintain or provide for its
employees any segregated facilities at any of its establishments, and
that it does not permit nor will it permit its employees to perform
their services at any location, under its control, where segregated
facilities are maintained.* OPERATOR agrees that a breach of this
certification is a violation of the Equal Opportunity Clause of
Executive Order 11246. Operator further agrees that (except where it
has obtained identical certifications from proposed subcontractors for
specific time periods) it will obtain identical certifications from
proposed subcontractors prior to the award of subcontracts exceeding
$10,000 which are not exempt from the provisions of the Equal
Opportunity Clause; that it will retain such certifications in its
files; and that it will forward the prescribed notice to such proposed
subcontractors (except where the proposed subcontractors have
submitted identical certifications for specific time periods).**
3. If the contract is in excess of $50,000 and Operator has more than 50
employees, Operator agrees (a) to file annually, on or before March 31
of each year, (or within 30 days after the award of such contract if
not filed within 12 months preceding the date of the award), complete
and accurate reports on Standard Form 100 (EEO-1) with the appropriate
governmental agency, in accordance with the regulations issued by the
Secretary of Labor (41 C.F.R. Sec. 60-1.7), and (b) to develop a
written affirmative action compliance program for each of its
establishments in accordance with the regulations issued by the
Secretary of Labor (41 C.F.R. Sec. 60-1.40).
* As used in this certification, the term "segregated facilities" means any
waiting rooms, work areas, rest rooms and wash rooms, restaurants and other
eating areas, time clocks, locker rooms and other storage or dressing
areas, parking lots, drinking fountains, recreation or entertainment areas,
transportation and housing facilities provided for employees which are
segregated by explicit directive or are in fact segregated on the basis of
race, color or national origin because of habit, local custom or otherwise.
** The form of the prescribed notice is as follows: NOTICE TO PROSPECTIVE
SUBCONTRACTORS OF REQUIREMENT FOR CERTIFICATIONS OF NONSEGREGATED
FACILITIES. A Certificate of Nonsegregated Facilities as required by the
May 9, 1967, order on Elimination of Segregated Facilities, by the
Secretary of Labor (32 Fed. Reg. 7439, May 19, 1967), must be submitted
prior to the award of a subcontract exceeding $10,000 which is not exempt
from the provisions of the Equal Opportunity Clause. The certification may
be submitted either for each subcontract or for all subcontracts during a
period (i.e., quarterly, semiannually, or annually). Note: The penalty for
making false statements in offers is prescribed in 18 U.S.C. 1001.
B. E. 0. 11701 (Employment of Veterans)
If the contract is in excess of $10,000, Operator agrees to comply
with the affirmative action clause and regulations promulgated under such
Order (41 C.F.R. Part 60-250) which clause is incorporated herein by
reference pursuant to Section 60-250.22 of such regulations.
C. E.0. 11625 (Minority Business Enterprises)
1. If the contract is in excess of $10,000, Operator agrees to use its
best efforts to provide minority business enterprises with the maximum
practicable opportunity to participate in the performance of such
contract to the fullest extent consistent with the efficient
performance thereof [41 C.F.R. Sec. 1-1.1310-2(a)].
2. If the contract is in excess of $500,000, Operator agrees to comply
with the Minority Business Enterprises Subcontracting Program Clause
promulgated under such Order [41 C.F.R. Sec. l-1.1310-2(b)], which
clause is incorporated herein by reference.
D. E.O. 11758 (Employment of Handicapped Persons)
If the contract is in excess of $2,500, Operator agrees to comply with
the affirmative action clause and the regulations promulgated under such
Order (41 C.F.R. Part 60-741), which clause is incorporated herein by
reference pursuant to Section 60-741.22 of such regulations.
EXHIBIT "E"
Attached to and made a part of that certain Offshore Operating Agreement
covering High Island Block 53 Prospect, dated August 25, 2004, by and between
Millennium Offshore Group, Inc., as Operator, and Ridgewood Energy Corporation,
as Non-Operator.
GAS BALANCING AND STORAGE AGREEMENT
The Parties hereto own and are entitled to share in the oil and
gas production from the Lease in accordance with their respective interests as
set forth in the Operating Agreement, dated March 15, 2003, by and between the
signatories hereof ("Party or Parties"). Each Party has made or will make
arrangements to sell or utilize its share of the gas production however, it is
recognized that one or more of the Parties may be unable from time to time to
take in kind or otherwise dispose of its interest in the gas production. In
order to permit each party to produce and dispose of its interest in the gas
production with as much flexibility as possible, the Parties hereto agree as
follows:
1. From and after the date of initial delivery of gas from the Lease,
during any period when a Party is taking less than its full share of the
gas production, any other Party may produce from the Lease and take or
deliver to a purchaser, each month, all or a part of that portion of the
allowable gas production which is not produced by a Party taking less than
its full share. The Parties hereto shall share in and own the liquid
hydrocarbons recovered from such gas in accordance with their respective
interests in the Lease as set forth in said Operating Agreement, whether or
not such Parties are taking their full share of gas.
2. On a cumulative basis, a Party taking less than its full share of the
gas produced shall be credited with gas in storage equal to its full share
of the total gas produced, less such Party's share of the gas used in
operations on the Lease or vented or lost, and less that portion of the gas
such Party took or delivered to its purchaser. Operator will maintain an
account of the gas balance between the Parties hereto and will furnish each
Party monthly statements showing the total quantity of gas produced, the
portion thereof used in operations on the Lease, vented or lost, the total
quantity of gas taken by each Party, and the monthly and cumulative
over-and-under delivery of each Party, within sixty (60) days of the end of
each month of production.
3. After written notice to the Operator, a Party may begin taking its full
share of the gas produced (less such Party's share of the gas used in
operations on the Lease, vented or lost). To allow the recovery of gas in
storage and to balance the gas account of the Parties, a Party with gas in
storage shall be entitled to take its current share of the gas produced
(less such Party's share of the gas used in operations on the Lease, vented
or lost), plus a share of gas not to exceed its gas in storage determined
by multiplying (i) fifty percent (50%) by (ii) the interest of the Party or
Parties having taken more than their share of cumulative gas production
from the Lease by (iii) a fraction, the numerator of which is the interest
in the Lease of such Party with gas in storage and the denominator of which
is the total percentage interest in the Lease of all Parties currently
recovering gas in storage. Makeup volumes of gas produced shall be applied
against the gas balance account of the Parties on a first-in-first-out
basis. It is specifically agreed that no underproduced Party will be
allowed to take make-up gas during the months of November, December,
January or February ("The Winter Period"). However, gas make-up will be
allowed during The Winter Period if the underproduced Party has taken at
least eighty percent (80%) of the make-up gas to which it is entitled
during the six (6) consecutive months immediately prior to The Winter
Period.
4. Upon written notice to Operator, any Party may deliver to its purchaser
its full share of the allowable gas production to meet the deliverability
tests required by its purchaser; provided that such tests shall not exceed
seventy-two (72) hours duration.
5. Each Party shall pay all production or severance taxes, excise taxes,
royalties, overriding royalties, production payments and other such
payments for which it is obligated by law or by lease or by contract
(including other provisions of said Operating Agreement), and nothing in
these gas balancing provisions shall be construed as affecting such
obligations. Each Party hereto shall indemnify and hold harmless the other
Parties hereto against all claims, losses or liabilities arising out of its
failure to fulfill such obligations.
6. Should production of gas from the Lease be permanently discontinued
before the gas account is balanced or if sufficient reserves do not exist
to physically balance the gas account of the Parties or if no gas is
produced from the Lease for six (6) months, a cash settlement (without
interest) will be made between the underproduced and overproduced Parties.
Such settlement shall be coordinated by Operator. Underproduced and
overproduced Parties are those Parties who have received credit for a
lesser and a greater quantity, respectively, than their share of the
cumulative unit gas production (less such Party's share of the gas used in
operations on the Lease, vented or lost) at such time as production is
permanently discontinued or at such time as it is determined that
sufficient reserves do not exist to physically balance the gas account of
the Parties. In making such settlement, the underproduced Party or Parties
will be paid a sum of money by the overproduced Party or Parties
attributable to the overproduction which said overproduced Party or Parties
received, at the weighted average price, subject to the further provisions
of this Paragraph 6, received by the overproduced Party or Parties at the
time and from time to time when the overproduced Party or Parties delivered
and sold that portion of gas production from the Lease that was
attributable to the interest of the underproduced Party or Parties, minus
payments made by the overproduced Party or Parties for Lessor's royalties
and production taxes on such overproduction. In determining the
overproduced volumes for which settlement is due, the following rule shall
be used: When an overproduced party takes less gas than its current share
of production, only the volume less than its current share shall be applied
to reduce prior overproduction, in the order of accrual of such
overproduction. In the event the overproduced Party or Parties took such
gas in kind or sold or transferred such gas to
an affiliate, the price basis shall be the prevailing wellhead price in the
field of the gas utilized by the overproduced Party or Parties at the time
when gas was so utilized, sold or transferred. As used herein, "affiliate"
means an entity which controls, is controlled by or is under common control
with the Party selling or transferring gas to it. For gas sold subject to a
contingent refund obligation, the price shall be the rate collected, from
time to time, which is not subject to possible refund as provided by the
FERC (or its successor) or any other governmental authority pursuant to
final order or settlement applicable to the gas produced from the Lease and
sold by the overproduced Party, plus any additional collected amount which
is not ultimately required to be refunded by order of the FERC (or its
successor) or any other governmental authority having jurisdiction in the
premises, such additional collected amount to be accounted for at such time
as final determination is made with respect thereto.
Notwithstanding the foregoing, should the underproduced Party elect to
receive such additional collected amount which is subject to possible
refund pending the issuance of such final order, such underproduced Party
shall be entitled to the payment of such additional collected amount from
the overproduced Party upon the underproduced Party delivering to such
overproduced Party a bond or irrevocable letter of credit (or such other
assurances as may be required by such overproduced Party) in which the
underproduced Party agrees to repay the overproduced Party the amount so
paid that is required by said final order to be refunded, plus interest
thereon as specified by order of the FERC (or its successor) or other
governmental authority having jurisdiction.
7. This Agreement shall remain in full force and effect for a term
concurrent with the term of the Operating Agreement to which this Agreement
is attached and as long thereafter as is necessary to carry out the final
settlement of the gas account of the Parties hereto.
8. This Agreement shall be deemed to be a separate agreement for each
separate category of gas produced and sold from the Lease as determined
under the provisions of the Natural Gas Policy Act of 1978 and applicable
regulations thereunder.
9. Nothing herein shall change or affect each Party's obligation to pay its
proportionate share of all costs and liabilities incurred in operations on
the Lease, as its share thereof is set forth in the Operating Agreement to
which this Agreement is attached.
EXHIBIT "F"
Attached to and made a part of that certain Offshore Operating Agreement
covering High Island Block 53 Prospect, dated August 25, 2004, by and between
Millennium Offshore Group, Inc., as Operator, and Ridgewood Energy Corporation,
as Non-Operator.
MEMORANDUM OF OPERATING AGREEMENT
AND FINANCING STATEMENT
To be filed in the conveyance records and in the mortgage records and as a
non-standard financing statement in accordance with Paragraph 6.0 herein.
1.0 This Memorandum of Operating Agreement and Financing Statement (this
"Memorandum") is effective as of the effective date of the Operating Agreement
referred to in Paragraph 2.0 below and is executed by the following undersigned
duly authorized representative of Millennium Offshore Group, Inc., a ______
Texas corporation, whose taxpayer identification number is _____________ and
whose address is ▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇ (the
"Operator"); and the undersigned duly authorized representative of Ridgewood
Energy Corporation, a ___________ corporation, whose taxpayer identification
number is ______________ and whose address is ▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇, ▇▇▇
▇▇▇▇▇▇ ▇▇▇▇▇, (individually "Non-Operator" and collectively "Non-Operators").
The Operator and the Non-Operators may be referred to herein individually as a
"Party" and collectively as the "Parties".
2.0 The Parties have entered into that certain Operating Agreement dated August
25, 2004 (the "Operating Agreement") which provides for the exploration,
development and production of crude oil, natural gas and associated substances
from the OCS blocks, or portions thereof, described in Exhibit "A" of the
Operating Agreement and in Attachment "1" to this Memorandum, or covered by the
Lease (hereinafter called the "Contract Area") and which designates Millennium
Offshore Group, Inc., as the Operator of certain ▇▇▇▇▇ located in OCS blocks, or
portions thereof, described in Exhibit "A" of the Operating Agreement and in
Attachment "1" hereof, to conduct such operations for itself and the
Non-Operators as permitted or required by and within the terms of the Operating
Agreement. All OCS federal oil and gas leases (or portions thereof) described in
Exhibit "A" of the Operating Agreement and in Attachment "1" to this Memorandum
are hereinafter called the "Lease." The liability of the Parties under the
Operating Agreement shall be several and not joint or collective. Each Party
shall only be responsible for its obligations and shall only be liable for its
proportionate share of costs and expenses.
As used in this Memorandum, the following terms have the following meanings:
a. "Costs" shall mean the monetary amount of all expenditures (or
indebtedness) incurred by the Operator and the Non-Operators for (or
on account of) any and all operations conducted pursuant to the
Operating Agreement and determined pursuant to the Operating
Agreement, including the Accounting Procedure.
b. "Development Systems" means:
(i) systems to develop and produce Hydrocarbons, including (1)
offshore surface structures, whether fixed, compliant or floating, (2)
offshore subsea structures or templates, whether capable of
accommodating one or multiple ▇▇▇▇▇, (3) any combination of (1) and
(2), (4) any other type of system designed to develop and produce
Hydrocarbons, and (5) all associated components of any of the above;
and
(ii) associated production equipment beyond the wellhead connections
that is installed on or outside the Contract Area pursuant to the
Operating Agreement in order to handle or process Hydrocarbon
production, including, but not limited to, injection and disposal and
disposal ▇▇▇▇▇ and the flowlines and gathering lines that transport
Hydrocarbons from the wellhead.
c. "Hydrocarbon(s)" means oil and gas and associated liquid and gaseous
by-products (except helium) from a wellbore located on the Contract
Area.
Unless otherwise defined herein, all other capitalized terms shall
have the meaning ascribed to them in the Operating Agreement.
3.0 Among other provisions, the Operating Agreement (a) provides for certain
liens, mortgages, pledges and security interests (collectively "Security
Rights") to secure payment by the parties of their respective share of costs and
performance of other obligations under the Operating Agreement, (b) contains an
"Accounting Procedure", which establishes, among other things, interest to be
charged on indebtedness, certain costs, and other expenses under the Operating
Agreement at the rate set forth therein, (c) includes non-consent clauses which
establish that parties who elect not to participate in certain operations shall
(i) be deemed to have relinquished their interest in production until the
consenting parties recover their costs of such operations plus a specified
amount or (ii) forfeit their interest in certain Lease or portions thereof
involved in such operations, (d) grants each party to the Operating Agreement
the right to take in kind its proportionate share of all oil and gas produced
from the Contract Area, and (e) includes a volumetric Gas Balancing Agreement
which is attached as Exhibit "D" to the Operating Agreement.
4.0 The Operator hereby certifies that a true and correct copy of the Operating
Agreement is on file and is available for inspection by third parties at the
offices of the Operator at the address set forth in paragraph 1.0 and Attachment
"1" of this Memorandum.
5.0 In addition to any other security rights and remedies provided for by law
with respect to services rendered or materials and equipment furnished under the
Operating Agreement and/or this Memorandum, for good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, and in
consideration of the covenants and mutual undertakings of the Operator and the
Non-Operators herein, the Parties hereby agree as follows:
5.1 Mortgage and Pledge: Each Non-Operator mortgages, pledges, affects, and
hypothecates to Operator, and Operator mortgages, pledges, affects, and
hypothecates to each Non-Operator, all of its respective rights, title, and
interest in and to the following:
(a) the Lease and any interest therein, and all accounts, gas imbalance
accounts, contract rights, inventory, and general intangibles relating
thereto or arising therefrom;
(b) all property and fixtures, moveable or immovable, corporeal or
incorporeal, attached to or located on or off the Contract Area, which
are acquired by the Parties pursuant to the Operating Agreement and/or
this Memorandum;
(c) all of the oil, gas and associated substances in, on, or under the
Lease and that may be produced from the Lease and the proceeds
attributable to the sale of such oil, gas and associated substances;
and
(d) all property, moveable or immovable, corporeal or incorporeal, that is
used, obtained or constructed (or under construction) for use, in
connection with the Lease and operations thereon pursuant to the
Operating Agreement and/or this Memorandum.
5.2 Security Interests. Each Non-Operator hereby grants to the Operator, and the
Operator hereby grants to each Non-Operator, a continuing security interest in
and to all of its respective rights, titles, interests, claims, general
intangibles, proceeds, and products thereof, whether now existing or hereafter
acquired, in and to (a) all oil and gas produced from the offshore blocks
covered by the Lease or the Contract Area or attributable to the Lease or the
Contract Area when produced, (b) all accounts receivable accruing or arising as
a result of the sale of such oil and gas (including, without limitation,
accounts arising from gas imbalances or from the sale of oil and gas at the
wellhead), (c) all cash or other proceeds from the sale of such oil and gas once
produced, and (d) all Development Systems, platforms, ▇▇▇▇▇, facilities,
fixtures, tools, tubular goods and other corporeal property, whether movable or
immovable, whether now or hereafter placed on the offshore blocks covered by the
Lease or the Contract Area or maintained or used in connection with the
ownership, use, or exploitation of the Lease or the Contract Area, and other
surface and sub-surface equipment of any kind or character located on or
attributable to the Lease or the Contract Area, and the cash or other proceeds
realized from the sale, transfer, disposition or conversion thereof. The
interest of the Parties in and to the oil and gas produced from or attributable
to the Lease or the Contract Area when extracted and the accounts receivable
accruing or arising as the result of the sale thereof shall be financed at the
wellhead of the well or ▇▇▇▇▇ located on the Lease or the Contract Area. To the
extent susceptible under applicable law, the security interest granted by each
Party hereunder covers (i) all substitutions, replacements, and accessions to
the property of such Party described herein and is intended to cover all of the
rights, titles, and interests of such Party in all movable property now or
hereafter located upon or used in connection with the Contract Area, whether
corporeal or incorporeal, (ii) all rights under any gas balancing agreement,
farmout rights, option farmout rights, acreage and cash contributions, and
conversion rights of such Party in connection with the Lease or the Contract
Area, or the Hydrocarbons produced from or attributable to the Lease or the
Contract Area, whether now owned and existing or hereafter acquired or arising,
including, without limitation, all interests of each Party in any partnership,
tax partnership,
limited partnership, association, joint venture, or other entity or enterprise
that holds, owns, or controls any interest in the Contract Area, and (iii) all
rights, claims, general intangibles, and proceeds, whether now existing or
hereafter acquired, of each Party in and to the contracts, agreements, permits,
licenses, rights-of-way, servitudes and similar rights and privileges that
relate to or are appurtenant to the Lease and/or the Contract Area, including
the following:
(a) all of its rights, titles, and interests, whether now owned and
existing or hereafter acquired or arising, in, to, and under or
derived from any present or future operating, farmout, bidding,
pooling, unitization, and communitization agreements, assignments, and
subleases, whether or not described in Attachment "1," to the extent,
and only to the extent, that such agreements, assignments, and
subleases cover or include any of its rights, titles, and interests,
whether now owned and existing or hereafter acquired or arising, in
and to all or any portion of the Lease or the Contract Area, and all
units created by any such pooling, unitization, and communitization
agreements, and all units formed under orders, regulations, rules, or
other official acts of any governmental authority having jurisdiction,
to the extent and only to the extent that such units cover or include
all or any portion of the Lease and/or the Contract Area;
(b) all of its rights, titles, and interests, whether now owned and
existing or hereafter acquired or arising, in, to, and under or
derived from all presently existing and future advance payment
agreements, and oil, casinghead gas, and gas sales, exchange, and
processing contracts and agreements, including, without limitation,
those contracts and agreements that are described on Attachment "1,"
to the extent, and only to the extent, those contracts and agreements
cover or include all or any portion of the Lease and/or the Contract
Area; and
(c) all of its rights, titles, and interests, whether now owned and
existing or hereafter acquired or arising, in, to, and under or
derived from all existing and future permits, licenses, rights-of-way,
servitudes and similar rights and privileges that relate to or are
appurtenant to any of the Lease and/or the Contract Area.
5.3 The Security Rights granted herein are given to secure the complete and
timely performance of and payment by each Party of all of its obligations and
indebtedness of every kind and nature, whether now owed by such Party or
hereafter arising pursuant to the Operating Agreement and this Memorandum. To
the extent susceptible under applicable law, the mortgage and the security
interest granted herein shall secure the payment of Costs and other expenses
properly charged to such Party together with (a) interest on such indebtedness,
Costs, and other expenses at the rate set forth in the Accounting Procedure or
the maximum rate allowed by law, whichever is the lesser, (b) reasonable
attorneys' fees, (c) court costs, and (d) other directly related collection
costs.
5.4 The maximum amount for which the mortgage herein granted by each
Non-Operator shall be deemed to secure the obligations and indebtedness of such
Non-Operator to the Operator as stipulated herein is hereby fixed in an amount
equal to $25,000,000.00 (the "Limit of the Mortgage of each Non-Operator"), and
the maximum amount for which the mortgage herein granted by the Operator shall
be deemed to secure the obligations and indebtedness of the Operator to all
Non-Operators as stipulated herein is hereby fixed in an amount equal to
$25,000,000.00 in the aggregate (the "Limit of the Mortgage of the Operator")..
Except as provided in the preceding sentence (and then only to the extent such
limitations are required by law), the entire amount of obligations and
indebtedness of each Party is secured hereby without limitation. Notwithstanding
the foregoing Limit of the Mortgage of each Non-Operator and Limit of the
Mortgage of the Operator, the liability of each Party and the mortgage and
security interest granted hereby shall be limited to (and no Party shall be
entitled to enforce the same against another Party for an amount exceeding) the
actual obligations and indebtedness (including all interest charges, Costs,
attorneys' fees, and other charges provided for in this Memorandum or in the
Operating Agreement) outstanding and unpaid and that are attributable to or
charged against the interest of such Party pursuant to the Operating Agreement
and/or this Memorandum.
5.5 If Operator seeks to enforce the mortgage granted it hereunder against a
Non-Operator, Operator shall have the right to appoint a keeper of such
Non-Operator's property, or any part thereof. If any Non-Operator seeks to
enforce the mortgage granted it hereunder against Operator, such Non-Operator
shall have the right to appoint a keeper of Operator's property or any part
thereof.
5.6 Each Party represents and warrants to the other Parties hereto that the
mortgage, pledge and security interests granted by such Party to the other
Parties in this Agreement shall be a first and prior mortgage, pledge and
security interest, and each Party hereby agrees to maintain the priority of said
mortgage, pledge and security interest against all persons acquiring an interest
in the Lease or the Contract Area by, through or under such Party. All Parties
acquiring an interest in the Lease or the Contract Area, whether by assignment,
merger, mortgage, operation of law, or otherwise, shall be deemed to have taken
subject to the mortgages, pledge rights and security interests hereunder as to
all obligations attributable to such interest hereunder whether or not such
obligations arise before or after such interest is acquired.
5.7 If performance of any obligation under the Operating Agreement or payment of
any indebtedness created thereunder does not occur or is not made when due under
the Operating Agreement or upon default of any covenant or condition of the
Operating Agreement, in addition to any other remedy afforded by law, each Party
to the Operating Agreement and any successor to such party by assignment,
operation of law, or otherwise, shall have, and is hereby given and vested with,
the power and authority to foreclose the mortgage, pledge, and security interest
established in its favor herein and in the Operating Agreement in the manner
provided by law and to exercise all rights of a secured party under the Uniform
Commercial Code. If any Party does not pay such Costs and other expenses or
perform its obligations under the Operating Agreement when due, the Operator (or
the Non-Operators if the defaulting Party is the Operator) shall have the
additional right to notify the purchaser or purchasers of the defaulting Party's
Hydrocarbon(s) production and collect such Costs and other expenses out of the
proceeds from the sale of the defaulting Party's share of Hydrocarbon(s)
production. Any purchaser of such production shall be entitled to rely on the
Operator's (or the Non-Operators if the defaulting Party is the Operator)
statement concerning the amount of Costs and other expenses owed by the
defaulting Party and payment made to the Operator (or the Non-Operators if the
defaulting Party is the Operator) by any purchaser shall be binding and
conclusive as between such purchaser and such defaulting Party.
5.8 If any Party does not perform all of its obligations hereunder, and the
failure to perform subjects such Party to foreclosure or execution proceedings
pursuant to the provisions herein, 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 property covered
by the mortgage, pledge and security interest created hereunder prior to sale,
any available right to stay execution or to require a marshalling of assets, and
any required bond in the event a receiver is appointed.
5.9 Each Party agrees that the other Parties shall be entitled to utilize the
provisions of oil and gas lien law or privilege or other lien law or privilege
of any state adjacent to the Contract Area, or that is otherwise applicable, to
enforce the rights and remedies of each Party hereunder. Without limiting the
generality of the foregoing, to the extent allowed by applicable law, the
Operator may invoke and use the mechanics' and materialmens' lien law to secure
the payment to the Operator of any sum due hereunder for services performed or
materials supplied by the Operator.
5.10 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 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.
6.0 Recording/Filing. To provide notice of, and to further perfect the Parties'
Security Rights created hereunder, this Memorandum (including a carbon,
photographic, or other reproduction thereof and hereof) shall constitute a
non-standard form of financing statement under the terms of the U.C.C. (the
"Uniform Commercial Code," as adopted in the State of Texas) and, as such, may
be filed by any Party for record in the office of the County Clerk of any county
in the State of Texas, with the filing Party being the secured Party and the
other Parties being the debtors with respect to such filing. Each Party filing
this Memorandum may attach thereto, or file separately, any standard UCC
financing statement necessary to effectuate perfection of the security interests
described herein. Upon request, each debtor Party hereunder agrees to execute
and deliver to each secured Party a UCC-1 or other UCC form reflecting the
Security Rights granted herein.
7.0 Upon expiration of the Operating Agreement and the satisfaction of all
obligations and indebtedness arising thereunder, the Party(ies) filing this
Memorandum shall file of record an appropriate release and termination of all
security and other rights created under the Operating Agreement and this
Memorandum executed by all parties to the Operating Agreement. Upon the filing
of such release and termination instrument, all benefits and obligations under
this Memorandum shall terminate as to all parties who have executed or ratified
this Memorandum. In addition, at any time prior to the filing of such release
and termination instrument, each of the Operator and the Non-Operators shall
have the right to (i) file a continuation statement pursuant to the Uniform
Commercial Code with respect to any financing statement filed in their favor
under the terms of this Memorandum and (ii) reinscribe this act in the
appropriate mortgage records.
8.0 It is understood and agreed by the Parties hereto that if any part, term, or
provision of this Memorandum is held by the courts to be illegal or in conflict
with any law of the state where made, the validity of the remaining portions or
provisions shall not be affected, and the rights and obligations of the Parties
shall be construed and enforced as if the Memorandum did not contain the
particular part, term, or provision held to be invalid.
9.0 This Memorandum shall be binding upon and shall inure to the benefit of the
Parties hereto and their respective legal representatives, successors and
permitted assigns. The failure of one or more persons owning an interest in the
Contract Area to execute this Memorandum shall not in any manner affect the
validity of the Memorandum as to those persons who execute this Memorandum.
10.0 A party having an interest in the Contract Area may ratify this Memorandum
by execution and delivery of an instrument of ratification, adopting and
entering into this Memorandum, and such ratification shall have
the same effect as if the ratifying party had executed this Memorandum or a
counterpart thereof. By execution or ratification of this Memorandum, such Party
hereby consents to its ratification and adoption by any party who acquires or
may acquire any interest in the Contract Area.
11.0 This Memorandum may be executed or ratified in one or more counterparts and
all of the executed or ratified counterparts shall together constitute one
instrument. The respective addresses of the Operator, as both secured Party and
debtor, and the Non-Operators, as both debtors and secured Parties, at which
information with respect to the security interests created in the Operating
Agreement and this Memorandum may be obtained, are set forth in Paragraph 1.0
and Attachment "1" of this Memorandum.
12.0 The Operator and the Non-Operators hereby agree to execute, acknowledge and
deliver or cause to be executed, acknowledged and delivered, any instrument or
take any action necessary or appropriate to effectuate the terms of the
Operating Agreement, this Memorandum, and any Exhibit, instrument, certificate
or other document pursuant thereto.
13.0 Whenever the context requires, reference herein made to the single number
shall be understood to include the plural, and the plural shall likewise be
understood to include the singular, and specific enumeration shall not exclude
the general, but shall be construed as cumulative.
EXECUTED on the dates set forth below each signature but effective as of the
25th day of August, 2004.
OPERATOR:
Millennium Offshore Group, Inc.
WITNESSES:
By:
------------------------------------ -------------------------------------
(Printed Name of Witness) Printed Name:
---------------------------
Title:
----------------------------------
Date:
------------------------------------ -----------------------------------
(Printed Name of Witness)
ACKNOWLEDGMENT - OPERATOR:
STATE OF TEXAS
COUNTY OF ▇▇▇▇▇▇
On this _________________ day of _________, _________ before me, appeared
_______________________________ to me personally known, who, being by me duly
sworn, did say that he is the _____________________________________________ of
Millennium Offshore Group, Inc., a Texas corporation, and that the foregoing
instrument was signed on behalf of the corporation by authority of its Board of
Directors and that _________________________________ acknowledged the instrument
to be the free act and deed of the corporation.
-----------------------------------------
NOTARY PUBLIC in and for the
State of Texas
My Commission expires:
NON-OPERATOR:
Ridgewood Energy Corporation
WITNESSES:
By:
------------------------------------ -------------------------------------
(Printed Name of Witness) Printed Name:
---------------------------
Title:
----------------------------------
Date:
------------------------------------ -----------------------------------
(Printed Name of Witness)
ACKNOWLEDGMENT - NON-OPERATOR:
STATE OF ___________
COUNTY OF __________
On this ___________ day of __________, __________, before me, appeared
__________________________________ to me personally known, who, being by me duly
sworn, did say that he is the ______________________________________________ of
Ridgewood Energy Corporation, a ____________ corporation, and that the foregoing
instrument was signed on behalf of the corporation by authority of its Board of
Directors and that ____________________________ acknowledged the instrument to
be the free act and deed of the corporation.
-----------------------------------------
NOTARY PUBLIC in and for the
State of ___________
My Commission expires:
ATTACHMENT "1" TO EXHIBIT "F"
Attached to and made a part of the Memorandum of Operating Agreement and
Financing Statement, dated effective August 25, 2004, by and between Millennium
Offshore Group, Inc., as Operator, and Ridgewood Energy Corporation, as
Non-Operator.
I. DESCRIPTION OF LANDS AND LEASES WITHIN THE CONTRACT AREA:
Oil and Gas Lease of Submerged Lands bearing Serial No. OCS-G 20658 dated
effective December 1, 1998, by and between the United States of America, as
Lessor, and Forest Oil Corporation, as Lessee, covering the portions of
Block 53, High Island Area, OCS Leasing Map, TX 7
The mortgage, pledge and security rights created in the Operating Agreement
and this Memorandum do not apply to the Parties' interest and rights in the
existing platform and production facilities on the Lease as of the
effective date of the Operating Agreement. Subsequent to the effective date
of the Operating Agreement, such mortgage, pledge and security rights shall
apply to the Parties' interests and rights in such existing platform and
production facilities only to the extent such interest and rights arise out
of the Operating Agreement.
II. OPERATOR:
Millennium Offshore Group, Inc.
III. PARTIES, REPRESENTATIVES. ADDRESSES, AND INTERESTS CONTRIBUTED:
Millennium Offshore Group, Inc.
▇▇▇▇ ▇▇▇▇▇▇▇▇, ▇▇▇. ▇▇▇▇
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: ▇▇. ▇▇▇▇ ▇▇▇▇▇▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Fax:(▇▇▇)▇▇▇-▇▇▇▇
28.00000% WI, 19.60000% NRI
Ridgewood Energy Corporation Ridgewood Energy Corporation
▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇ 5300 Memorial, Suite 1070
Ridgewood, New Jersey 07450 ▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Attn: Mr. ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ Attn: Mr. W. ▇▇▇▇ ▇▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇ Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Fax: (▇▇▇)▇▇▇-▇▇▇▇ Fax:(▇▇▇)▇▇▇-▇▇▇▇
72.00000% WI, 50.40000% NRI
Exhibit "C"
Attached to and made a part of that certain Participation Agreement
covering High Island Block 53 Prospect, dated August 25, 2004, by and
between Millennium Offshore Group, Inc. and Ridgewood Energy Corporation.
ASSIGNMENT OF OPERATING RIGHTS
OFFSHORE TEXAS }
}
OUTER CONTINENTAL SHELF } KNOW BY ALL THESE PRESENTS:
}
UNITED STATES OF AMERICA }
THAT, Millennium Offshore Group, Inc., ▇▇▇▇ ▇▇▇▇▇▇▇▇, ▇▇▇. ▇▇▇▇, ▇▇▇▇▇▇▇,
▇▇▇▇▇ ▇▇▇▇▇, hereinafter called "Assignor", for and in consideration of the sum
of Ten Dollars ($10.00) and other good and valuable consideration to it paid by
Ridgewood Energy Corporation, whose address is ▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇,
▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇, hereinafter called "Assignee", the receipt and full
sufficiency of which is hereby acknowledged, does hereby grant, convey, transfer
and assign unto Assignee, its heirs, successors and assigns, an undivided
72.00000% operating rights interest in and to the oil and gas mineral lease
identified below (hereafter called "Subject Lease"), to wit:
That certain Oil and Gas Lease of Submerged Lands bearing Serial No. OCS-G
20658 dated effective December 1, 1998, by and between the United States of
America, as Lessor, and Forest Oil Corporation, as Lessee, covering the
portions of Block 53, High Island Area, OCS Leasing Map, TX 7, INSOFAR AND
ONLY INSOFAR as said OCS-G 20658 covers the depths from the surface of the
earth down to the stratigraphic equivalent of the base of the __________
sand found at _________ feet in the electric log for the Millennium
Offshore Group OCS-G 20658 No. _____________ Well.
This assignment is made subject to all of the terms of express and implied
covenants and conditions of the Subject Lease, the Lessor's royalties and,
further, shall bear and assume its proportionate share of that certain
overriding royalties interest affecting the Subject Lease as set forth in that
certain Participation Agreement, dated August 25, 2004, by and between
Millennium Offshore Group, Inc. and Ridgewood Energy Corporation (the
"Participation Agreement").
This assignment is also made subject to and shall bear and assume its
proportionate share of any and all burdens, obligations, limitations and
responsibilities created by the following listed agreements, of which all terms,
conditions and reservations of said agreements are incorporated herein by
reference:
(a) The Participation Agreement dated August 25, 2004, between Millennium
Offshore Group, Inc. and Ridgewood Energy Corporation.
(b) The Farmout Agreement dated effective July 10, 2004, between Forest
Oil Corporation, as Farmor, and Millennium Offshore Group, Inc., as
Farmee.
Further, Assignee hereby agrees to be bound by all the terms and conditions
of the Participation Agreement and the said Farmout Agreement.
THIS ASSIGNMENT OF OPERATING RIGHTS IS EXECUTED BY ASSIGNOR WITHOUT
WARRANTY OF TITLE, EITHER EXPRESSED OR IMPLIED, EXCEPT AS TO ACTS BY, THROUGH
AND UNDER ASSIGNOR.
IN WITNESS WHEREOF, this assignment is executed effective as of _____________,
2004, subject to approval by the Minerals Management Service.
WITNESSES: ASSIGNOR:
Millennium Offshore Group, Inc. (2383)
-------------------------------------
By:
------------------------------------- ------------------------------------
WITNESSES: ASSIGNEE:
Ridgewood Energy Corporation (1308)
-------------------------------------
By:
------------------------------------- ------------------------------------
▇▇▇▇▇ ▇▇ ▇▇▇▇▇
▇▇▇▇▇▇ ▇▇ ▇▇▇▇▇▇
▇▇ this ______ day of ________________, 2004, before me, appeared, D. ▇▇▇▇
▇▇▇▇▇▇▇▇▇, personally known, who, being by me duly sworn, did say that he is the
Vice President of Millennium Offshore Group. Inc.. a Texas corporation, and that
the foregoing instrument was signed on behalf of the corporation by authority of
its Board of Directors, and that he acknowledged the instrument to be the free
act and deed of the corporation.
----------------------------------------
Notary Public, State of Texas
My Commission Expires: __________
STATE OF __________
COUNTY OF _________
On this _____ day of ________________, 2004, before me, appeared, _____________,
personally known, who, being by me duly sworn, did say that he is the
______________ of Ridgewood Energy Corporation, a Delaware corporation, and that
the foregoing instrument was signed on behalf of the corporation by authority of
its Board of Directors, and that he acknowledged the instrument to be the free
act and deed of the corporation.
----------------------------------------
Notary Public, State of ______________
My Commission Expires: _____________
EXHIBIT "D"
Attached to and Illegible a part of that certain Participation Agreement
covering High Island Block 53 Prospect, dated August 25, 2004, by and between
Millennium Offshore Group, Inc. and Ridgewood Energy Corporation.
FARMOUT AGREEMENT
UNITED STATES OF AMERICA Section
OUTER CONTINENTAL SHELF LANDS Section
OFFSHORE GULF OF MEXICO Section
EFFECTIVE the 10th day of July, 2004, FOREST OIL CORPORATION, a Colorado
corporation, ("Forest") whose address is ▇▇▇▇ ▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇,
▇▇▇▇▇▇▇▇ ▇▇▇▇▇ (hereinafter referred to as "Farmor") as owner of the record
title interest in the following described Oil and Gas Lease of submerged lands,
and MILLENNIUM OFFSHORE GROUP, INC., a Texas corporation, ("Millennium") whose
address is ▇▇▇▇ ▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇ (hereinafter referred
to as "Farmee"), hereby enter into this Farmout Agreement ("Agreement"),
covering the following described Oil and Gas Lease, and agree as hereinafter set
forth, to-wit:
I
LEASES
1.1 Lease. This Agreement shall cover Farmor's Operating Rights interest as
hereinafter defined in the following described Oil and Gas Lease:
Oil and Gas Lease of Submerged Lands bearing Serial No. OCS-G 20658 dated
effective December 1, 1998, by and between the United States of America, as
Lessor, and Forest Oil Corporation, as Lessee, covering the whole area of
Block 53, High Island Area, OCS Leasing Map, TX 7, hereinafter referred to
as the "Lease".
1.2 Operating Rights. "Operating Rights" as the term is used in this Agreement
shall mean full and complete right to explore for oil and gas in, on and
under the Lease and to develop, produce, own, transport and market said oil
and gas, in accordance with and pursuant to the terms and provisions of
said Lease.
II
FARMOUT AREA AND FARMOUT WELL
2.1 Area. The area covered by this Agreement, herein called the "Farmout Area",
shall consist of the lands covered by ▇▇▇-▇ ▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇ 53,
LESS AND EXCEPT the W/2W/2SW/4.
2.2 Initial Well. Farmee, on or before October 5, 2004, shall commence or cause
to be commenced operations for the drilling of a test well herein called
the "Initial Well". The Initial Well will be drilled at a location of
Farmee's choice. The Initial Well shall be
drilled to a depth of 13,600' or depth sufficient to test the Lentic
hanseni sand whichever is the lesser ("Contract Depth"). It is understood
and agreed by the parties hereto that Farmee may apply for a Suspension of
Operations ("SOO") or a Suspension of Production ("SOP") from the Minerals
Management Service ("MMS") in an effort to obtain additional time in which
to commence the Initial Well hereunder. Farmor agrees to support any
application made by Farmee for an SOO or SOP and further agrees that the
commencement date cited above may be changed to a later date due to the
granting of an SOO or SOP by the MMS and such change of the commencement
date for the Initial Well, if granted by the MMS, is hereby approved by
Farmor.
Farmee's only penalty for not timely commencing, or causing to be
commenced, the Initial Well will be the loss of its rights to earn an
assignment under this Agreement. However, except as expressly provided for
herein, nothing shall absolve Farmee from Farmee's complete responsibility
for any damage, claim or cause of action arising out of operations
hereunder, and Farmee shall indemnify and hold Farmor harmless therefrom.
2.3 Substitute Well. If the Initial Well results in a dry hole or, if, prior to
reaching Contract Depth, Farmee encounters a formation or other physical
condition in the well which renders further drilling impractical, so called
"Gulf Coast" conditions, Farmee shall have the option to drill a substitute
well subject to the provisions of this Agreement applicable to the Initial
Well, as follows:
(a) Farmee shall give Farmor written notice describing the status of the
well and stating whether or not Farmee elects to drill a substitute well.
Such notice shall be given while the drilling rig or completion unit is on
the well, or within ten days after its release. Failure to timely make such
an election shall be deemed to be an election by Farmee not to drill a
substitute well. Farmee's only penalty for not electing to drill a
substitute well will be the loss of its rights to earn an assignment.
(b) If Farmee elects to drill a substitute well, Farmor shall advise Farmee
in writing within 24 hours after receipt of Farmee's notice to either plug
the original well or turn it over to Farmor as provided in Section 9.1
below, and to proceed with the substitute well, it is provided, however,
that Farmor shall not be required to make a takeover election until all of
the notices and information, including but not limited to logs and test
data, have been received as provided in Exhibit "A" attached hereto. If
Farmor elects not to take over the well or fails to make an election,
Farmee shall promptly plug and abandon the well.
(c) If Farmee elects not to drill a substitute well, or if Farmee has
waived its right to do so as hereinabove provided, Farmor shall advise
Farmee in writing within 24 hours after receipt of Farmee's notice whether
or not Farmor elects to take over the well pursuant to Section 9.1 below;
it is provided, however, that Farmor shall not be required to make a
takeover election until all of the notices and information, including but
not limited to logs and test data, have been received as provided in
Exhibit "A" attached hereto. If Farmor elects not to take over the well or
fails to make an election, Farmee shall promptly plug and abandon the well
and restore the surface. In the event Farmee elects not to drill a
substitute well, Farmee shall have no right to drill a substitute well in
order to earn an assignment hereunder.
(d) A substitute well drilled hereunder shall be spudded within 90 days
after Farmee's election to drill it and the well shall be drilled, tested
and completed or plugged and abandoned in accordance with all of the
requirements specified herein for the Initial Well
2
and with the same consequences. In like manner, Farmee shall have the
continuing right to drill substitute ▇▇▇▇▇ in accordance with the foregoing
terms, conditions and provisions in order to earn an assignment of the
Farmout Area. Reference herein to the Initial Well shall include its
substitute well(s).
2.4 Commencement of Operations. Operations for drilling shall be deemed to have
commenced on the date, and not earlier than such date, on which the
drilling rig arrives on location.
2.5 Completion or Abandonment. After timely commencement, the Initial Well will
be drilled to Contract Depth in a workmanlike manner and without cessation
of operations until it is completed or temporarily abandoned as a well
capable of producing oil and/or gas in paying quantities (as determined by
the application of 30 CFR Section 250.116 or any successor regulation) or
until Farmee plugs and abandons the well as a dry or lost hole, subject
however to Farmor's right to take over said well as described in this
Article II and in Article IX.
2.6 Shallower Completion. In the event Farmee encounters Gulf Coast conditions
in the Initial Well and is unable to reach Contract Depth, Farmee shall
have the right, but not the obligation, to complete such well at a depth
shallower ("shallower completion") than Contract Depth. Should such
shallower completion satisfy the requirements of 30 CFR Section 250.116 or
any successor regulation, Farmee shall earn an Assignment of Operating
Rights in the Farmout Area from the surface down to the stratigraphic
equivalent of the total depth drilled and logged plus one hundred feet.
Farmee shall have the right to drill a substitute well to Contract Depth
pursuant to the provisions of Section 2.3 to earn additional rights in the
Farmout Area.
2.7 Cost and Liabilities. All operations conducted or caused to be conducted by
Farmee shall be conducted at Farmee's sole cost, risk and expense and shall
be subject to the indemnity provisions of Article VII below. Farmor shall
not be liable for any costs, expenses or damages accrued, relating to, or
in any way arising out of this Agreement or operations hereunder.
2.8 Farmout ▇▇▇▇▇. The Initial Well and any other ▇▇▇▇▇ drilled pursuant to
this Agreement may be referred to herein collectively as "Farmout ▇▇▇▇▇" or
individually as "Farmout Well".
III
DRILLING, WELL DATA AND CONFIDENTIALITY
3.1 Access. Farmor shall have access at its sole cost, risk and expense to the
rig floor at all times and shall be entitled to all information free of
cost relative to the drilling, testing, completing, equipping and operating
of all ▇▇▇▇▇, to include the Initial Well drilled by
3
Farmee pursuant to the terms of this Agreement. It is understood and agreed
that in connection with the drilling of ▇▇▇▇▇ by Farmee pursuant to the
terms of this Agreement, Farmee shall furnish Farmor with the notices and
information listed on Exhibit "A", which notices and information shall be
promptly furnished to Farmor free of cost and shall become the property of
Farmor in sufficient time for its representatives to be present at the well
when such operations are conducted.
3.2 Performance Standards. During the drilling of any well pursuant to this
Agreement, Farmee shall conduct its operations hereunder in a diligent and
workmanlike manner as would a reasonably prudent operator under the same or
similar circumstances, and in accordance with all applicable federal, state
and local laws, regulations, rules and orders. Farmee shall evaluate all
oil and/or gas shows encountered in any well drilled hereunder and shall
use its best efforts to complete the well as a producer of oil and/or gas
in paying quantities. If any well is not capable of producing oil and/or
gas (as determined by the application of 30 CFR Section 250.116 or any
successor regulation), Farmee agrees, subject to Farmor's election as
provided in Articles II and IX, to plug and abandon same in accordance with
the laws, regulations, rules and orders of the regulatory authorities and
to promptly furnish Farmor a copy of the plugging report filed with such
authorities.
IV
ASSIGNMENT OF INTEREST
4.1 Prerequisites to Assignment of Interest in the Lease. Farmee shall be
entitled to an Assignment of Operating Rights, down to and including the
Contract Depth, upon fulfilling the following to Farmor's satisfaction:
(a) Qualifying the Initial Well, to include a substitute therefore, as a
well capable of producing oil and/or gas in paying quantities under
OCS regulations found in 30 CFR Section 250.116, Gulf of Mexico
determination of well producibility, to include any successor
regulation; or mutual agreement of the parties in writing that the
Initial Well is a well which would satisfy the criteria of said 30 CFR
Section 250.116; and
(b) Furnishing Farmor copies of any completion reports filed with
governmental agencies and all reports and other data required by
Exhibit "A" and
(c) Compliance with all other provisions of this Agreement.
In the event the Initial Well, to include its substitute, satisfies and
fulfills the conditions as set forth above, it shall be termed and deemed
the "Earning Well" for the Farmout Area.
4
4.2 Preparation of Assignment. Farmor shall prepare any assignment of Operating
Rights in the Farmout Area within thirty (30) days after receipt by Farmor
of written notice from Farmee that the Earning Well has been determined by
the Minerals Management Service ("MMS") to be a well capable of producing
oil and/or gas in paying quantities under 30 CFR Section 250.116. or within
thirty (30) days from the date that the parties agree in writing that the
Earning Well is capable of satisfying the criteria of 30 CFR Section
250.116.
4.3 Effective Date. The effective date of any assignment of Operating Rights
made hereunder shall be the date the Earning Well is determined by the MMS
to be qualified as a well capable of producing oil and/or gas in paying
quantities under 30 CFR Section 250.116 or the date on which the parties
agree in writing that the Earning Well is capable of satisfying the
criteria of 30 CFR Section 250.116.
4.4 Warranty. Any assignment made by Farmor pursuant to this Agreement shall be
without warranty of title, express or implied, except that Farmor shall
warrant title to the Lease to Farmee against anyone claiming an interest in
the Lease by, through or under Farmor, but not otherwise.
4.5 Depth Limitation. Notwithstanding anything to the contrary contained
herein, unless the Initial Well is drilled to the Contract Depth, any
assignment of Operating Rights made hereunder as a result of having drilled
and completed the Initial Well, to include its substitute, as a producer of
oil and/or gas in paying quantities, shall be limited to 50,000' below the
surface of the earth.
4.6 Liens. It is understood and agreed that prior to the delivery of the
assignment described herein, Farmor shall be furnished sufficient evidence
by Farmee that no liens or other encumbrances exist against Lease OCS-G
20658 for unpaid mechanic's and materialmen's services or for any other
outstanding obligations or expenditures as a result of Farmee's operations
pursuant to this Agreement except for liens and/or security interests to
financial institutions as part of a financing arrangement. It is further
understood and agreed that if any such liens are attached against the
Lease, Farmee will indemnify Farmor therefrom, including all costs and
expenses, and promptly discharge and pay same to the satisfaction of Farmor
before such assignment is executed and delivered to Farmee.
4.7 Reassignment:
If production in paying quantities (subsequent to initial production to
sales) ceases from all of Farmee's completions for 120 consecutive days
during which period of time Farmee has not (i) conducted operations in
pursuit of reestablishing production (such as workover, recompletion,
drilling, construction, repair or other operations) or notified
5
Farmor that it intends to commence operations within 180 days, or (ii)
applied for a lease protective order by the MMS (SOO, SOP, etc.), prior to
termination of this Agreement, Farmee will endeavor to notify Farmor of
said termination, and upon Farmee's receipt of Farmor's written request for
a reassignment (at Farmor's sole election) within thirty (30) days thereof,
and prior to lease termination, Farmee will assign or reconvey to Farmor
all rights in and to the Farmout Lands. Farmee shall not be liable to
Farmor for lost income, punitive damages, lost production or lost reserves
in the event Farmee fails to notify Farmor. Such reassignment shall be free
and clear of all liens, claims, mortgages and other encumbrances against
the Lease created by Farmee and shall be free and clear of any overriding
royalty interest, production payment and other similar burdens of any kind,
created by Farmee, with the exception of lessor's royalty pursuant to the
Lease terms covering such Farmout Lands and such other burdens that existed
at the time Farmee earned an assignment of the Farmout Lands. This
provision regarding the reassignment of the Farmout Lands to Farmor in the
event of cessation of production as described above shall apply for as long
as Farmee, its successors and assigns, owns an interest in the Farmout
Lands pursuant to this Agreement.
V
ELECTION AND INTEREST
5.1 Reservation of Overriding Royalty in Farmout Area. In any assignment of
Operating Rights made hereunder, Farmor will reserve the following
overriding royalty interest in production attributable to the assigned
interests and renewals and extensions thereof:
(a) On oil, including condensate and other liquid hydrocarbons, an
overriding royalty equal to the difference between thirty percent
(30%) and existing leasehold burdens as of the date of this agreement
of that produced and saved from or attributable to the assigned
interests, to be delivered free of costs at the well(s) or to the
credit for Farmor into the pipeline to which the well(s) may be
connected.
(b) On all gas, including casinghead gas or other gaseous substance,
produced from or attributable to the assigned interests and sold or
used for purposes other than the exercise of Operating Rights in
connection with the well(s) (including any gas utilized in the
manufacture of gasoline or other products), an overriding royalty
equal to the difference between thirty percent (30%) and existing
leasehold burdens as of the date of this agreement.
(c) On sulfur produced with oil and/or gas, an overriding royalty equal to
the difference between thirty percent (30%) and existing leasehold
burdens as of the date of this agreement.
In the event that the Farmor, at any time, declines or otherwise fails to
take its overriding royalty interest share of the production in kind,
Farmee shall be obligated as a reasonable
6
and prudent operator to market Farmor's overriding royalty share of
production. Said overriding royalty interest shall be computed and paid at
the same time and in the same manner as royalties are computed and paid to
the Lessor under the terms of the Lease. Such overriding royalty interest
shall be free and clear of all other royalty, overriding royalty and other
burdens affecting said Lease and shall be free of all costs of exploring,
operating, developing, producing, marketing and maintaining said Lease in
force and effect, except the proportionate share of severance, production
and other like taxes applicable to such overriding royalty interest.
VI
LEASES OBLIGATIONS AND PERMITS
6.1 Assumption of Obligations. Farmee shall assume all obligations of Lessee
under the Lease and any other agreement which affects the Farmout Area
insofar as the Farmout Area is covered, and shall comply with all
provisions of said Lease or other agreement, express or implied, and shall
conduct Farmee's operations as would a reasonably prudent operator.
6.2 Permits and Reports. As between Farmor and Farmee, Farmee shall assume all
duties, responsibilities, and liabilities in connection with securing and
complying with the terms of all necessary permits, and Farmee shall file
any information and shall make any and all reports necessary in connection
with the drilling, completing and the plugging and abandoning of any well
or ▇▇▇▇▇ drilled under the terms of this Agreement.
6.3 Subsequently Created Burdens. Farmee, its successors and assigns, shall be
solely responsible for bearing and paying: (a) all overriding royalty
interests, production payments, liens, and other burdens and encumbrances,
if any, that affect the Lease and are created or claimed by, through, or
under Farmee; and (b) the overriding royalty interest reserved by Farmor in
this Agreement.
6.4 Payment of Royalty. As between Farmor and Farmee, Farmee shall be
responsible for the payment of all royalties (to include minimum royalty
payments) and overriding royalties due from production obtained or
attributable to the assigned rights and within forty-five (45) days prior
to the anniversary date of the Lease shall provide Farmor with notice of
the amount of royalty actually paid during the prior twelve (12) month
period.
6.5 Pipelines and Facilities. Farmor currently has a pipeline on the Lease
under Right-of-Way OCS-G 25263, Segment No. 14221 which ties in to the
High Island 52 "A" Platform. Should Farmee earn as assignment as provided
herein, Farmee shall have the right to tie-in to Farmors' pipeline if it so
desires. Should Farmee tie-in to said pipeline, then Farmor shall have the
option to assign said Right-of-Way OCS-G 25263 to Farmee and Farmee shall
have the responsibility and liability to abandon said pipeline. Farmor
7
shall also have the option to assign and convey to Farmee any facilities
owned by Farmor on the High Island 52 "A" Platform and Farmee shall have
the responsibility and liability to abandon said facilities.
VII
INDEMNITY AND INSURANCE
7.1 INDEMNITY. FARMEE AGREES TO ASSUME RESPONSIBILITY FOR AND INDEMNIFY, HOLD
HARMLESS AND DEFEND FARMOR, ITS SUCCESSORS AND ASSIGNS, FROM AND AGAINST
ANY OBLIGATIONS, LOSSES, DAMAGES, CLAIMS, DEMANDS, SUITS, COSTS, EXPENSES,
PENALTIES, FINES, LIENS AND LIABILITIES WHATSOEVER (INCLUDING REASONABLE
ATTORNEY'S FEES AND EXPENSES), ACCRUING OR IN ANY WAY RELATING TO THE
OWNERSHIP, DEVELOPMENT, EXPLORATION, OPERATION AND MAINTENANCE OF THE LEASE
AS TO THE FARMOUT AREA (A "LIABILITY"), INCLUDING BUT NOT LIMITED TO ANY
LIABILITY ASSOCIATED WITH OIL AND GAS ▇▇▇▇▇, EQUIPMENT, PLATFORMS,
FACILITIES, PIPELINES, FIXTURES AND OTHER APPURTENANCES (COLLECTIVELY, THE
"FACILITIES") LOCATED THEREON WHICH FARMEE INSTALLED OR USED TO PRODUCE,
PROCESS, TRANSPORT OR OTHERWISE HANDLE HYDROCARBONS PRODUCED FROM THE
FARMOUT AREA AND INCLUDING ANY LIABILITY WHETHER DIRECT OR INDIRECT, KNOWN
OR UNFORESEEN, THAT MAY ARISE UNDER ANY LAW OR REGULATION APPLICABLE
THERETO INCLUDING, WITHOUT LIMITATION, THE OIL POLLUTION ACT OF 1990, THE
COMPREHENSIVE ENVIRONMENTAL RESPONSE, COMPENSATION AND LIABILITY ACT OF
1980, AS AMENDED (42 U.S.C. Sections 6901 ET SEQ.), THE RESOURCE
CONSERVATION AND RECOVERY ACT OF 1976, (42 U.S.C. Sections 6901 ET SEQ.),
THE CLEAN WATER ACT (33 U.S.C. Sections 466 ET SEQ.), THE SAFE DRINKING
WATER ACT (14 U.S.C. Sections 1401-1450), THE HAZARDOUS MINERALS
TRANSPORTATION ACT (49 U.S.C. Sections 1801 ET SEQ.), THE TOXIC SUBSTANCE
CONTROL ACT (15 U.S.C. Sections 2601-2629), THE CLEAN AIR ACT, AS AMENDED
(49 U.S.C. Sections 7401 ET SEQ.), THE CLEAN AIR ACT AMENDMENTS OF 1990 AND
ANY OTHER APPLICABLE FEDERAL, STATE OR LOCAL LAW..
7.2 Abandonment. If Farmee elects to abandon any well drilled on the Farmout
Area and Farmor does not exercise its takeover option as described in
Article II and Article IX, Farmee shall remain responsible for all costs,
risks, expenses and other liabilities associated with plugging and
abandonment of the well and restoration of the premises. Notwithstanding
anything found in this Agreement to the contrary, other than with respect
to a well conveyed to Farmor pursuant to Article II and Article IX, Farmee
agrees to assume all plugging, abandonment and restoration obligations with
regard to its operations on the Farmout Area, including any platforms
and/or facilities it has installed on the Farmout Area, and Farmee agrees
to indemnify, defend and hold Farmor harmless
8
from any and all costs, expenses, liabilities, claims, demands, or causes
of action of every kind or character brought by or on behalf of any person
or entity with respect to such plugging, abandonment and restoration
obligations.
7.3 Insurance. Farmee shall, at all times while this Agreement is in force and
effect, carry insurance set forth on Exhibit "B" attached hereto and made a
part hereof and shall include coverage for all claims under the United
States Longshoremen's and Harbor Workers' Act, the ▇▇▇▇▇ Act, and the Outer
Continental Shelf Lands Act. All such policies (except Worker's
Compensation coverage) shall name Farmor, its officers, directors,
employees and agents, as additional insureds and to waive its right of
subrogation, and to cause its insurers to waive their rights of
subrogation, against the Farmor and others noted above.
VIII
FAILURE TO PERFORM
8.1 Reports and Information. In the event of Farmee's failure to make reports
and/or furnish information as required by this Agreement or to comply with
the other covenants and conditions of this Agreement, Farmor shall notify
Farmee in writing of such failure, and Farmee shall have fifteen (15) days,
exclusive of Saturdays, Sundays, and federal holidays, from the receipt
thereof to comply with this Agreement. If Farmee fails to timely comply
with respect to such reports and information after receipt of the notice,
Farmor shall, in addition to other legal remedies it may have, be relieved
of its obligation to make an assignment to Farmee and may, at its option,
terminate this Agreement, however, Farmee shall continue to be responsible
for all obligations accrued or assumed by Farmee prior to such default.
8.2 Operations. In the event of Farmee's failure to commence or cause to be
commenced and complete the drilling of the Initial Well or a substitute
therefore in the time and manner herein provided, this Agreement shall
terminate; however, Farmee shall continue to be responsible for all
obligations accrued or assumed by Farmee prior to such default.
8.3 Notice of Termination. Farmor shall give Farmee written notice of
termination; however, in the event Farmee fails to commence and complete
the drilling of the Initial Well or substitute therefor within the time
frame herein provided, termination shall occur automatically and no such
notice shall be required to effectuate the termination.
IX
OPTION TO TAKE OVER WELL
9.1 Option to Take Over Well. If the Initial Well results in a dry hole, or if
prior to reaching Contract Depth Farmee encounters Gulf Coast Conditions
and elects to abandon the well,
9
Farmor will have the right and option as set out in Article II above to
take over said well, at its sole cost, risk, expense and liability, and to
perform such additional tests and/or drilling as it chooses. If Farmor
performs additional tests or performs any operation in the well, the cost
of plugging and abandoning the well and restoring the premises shall be
borne by Farmor.
X
NOTICES
10.1 Notices. Unless otherwise provided for, all notices and information
provided for herein shall be delivered to the following addresses:
(a) if to Farmor:
Forest Oil Corporation
▇▇▇▇ ▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇, ▇▇▇▇▇
Attn: Gulf Region Land Manager
Telephone: (▇▇▇)▇▇▇-▇▇▇▇
Telecopier: (▇▇▇)▇▇▇-▇▇▇▇
(b) if to Farmee
Millennium Offshore Group, Inc.
▇▇▇▇ ▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇. ▇▇▇▇▇ ▇▇▇▇▇▇▇
Ph. #: (▇▇▇)▇▇▇-▇▇▇▇
Fax #: (▇▇▇)▇▇▇-▇▇▇▇
Notices and information shall be deemed delivered when deposited in the
United States Mail or at the office of a courier or telegraph service, or
upon transmittal by telex, telecopy or facsimile, or when personally
delivered to the party notified.
XI
INTERNAL REVENUE PROVISION
11.1 Internal Revenue Provision. Notwithstanding any provisions herein that the
rights and liabilities hereunder are several and not joint or collective or
that the Agreement and the operations hereunder shall not constitute a
partnership, each party elects to be excluded from the application of all
or any part of the provisions of Subchapter K Chapter 1, Subtitle A,
Internal revenue Code of 1986, as amended, or similar provisions of any
applicable state laws.
10
XII
LAW
12.1 Law. The Agreement and the legal relationship between the parties shall be
interpreted and construed under the laws of the State of Texas without
regard to principles of choice of laws, unless Federal Maritime Law
applies, in which case Federal Maritime Laws shall govern. All terms and
provisions of this Agreement are hereby expressly made subject to all
applicable Federal and State Laws and to all orders, rules, and regulations
of any duly constituted authority having jurisdiction over the premise. It
is the intent of the parties that the provisions contained in this
Agreement be severable. Should the whole or any portion of an Article
hereof be held void or invalid, such holding shall not affect the other
portions which can be given effect without the invalid or void portion.
12.2 Compliance. All the terms and provisions of this Agreement are hereby
expressly made subject to all applicable Federal and State Laws and to all
orders, rules and regulations of any duly constituted authority having
jurisdiction over the premises. No party shall suffer a forfeiture and be
liable in damages for failure to comply with any of the provisions of this
Agreement if such compliance is prevented by or if such failure results
from compliance with any such law, order, rule, or regulation.
XIII
EMPLOYMENT
13.1 Equal Opportunity Employment. Farmor and Farmee are Equal Opportunity
Employers. To the extent that this Agreement may be subject to Executive
Order 11246, as amended, the equal opportunity provisions at 41 CFR 60-1
are incorporated herein by reference. If the provisions of 30 CFR 271 apply
to this Agreement, these provisions are also incorporated herein by
reference.
13.2 Affirmative Action. To the extent required by applicable laws and
regulations, this Agreement also includes and is subject to the affirmative
action clauses concerning disabled veterans and veterans of the Vietnam era
(41 CFR 60-250) and the affirmative action clauses concerning employment of
the handicapped (41 CRF 60-741), which clauses are incorporated herein by
reference.
13.3 Non-Segregated Facilities. In the performance of work under this Agreement,
Farmor and Farmee shall comply, and Operator shall require each independent
contractor to comply, with the governmental requirements set forth in
Exhibit "C" attached hereto, pertaining to non-segregated facilities.
XIV
ASSIGNMENT OF FARMOUT AGREEMENT
11
14.1 Consent. This Agreement is binding upon the parties hereto, their
successors, and assigns, provided no assignment of this Agreement or the
rights and interests that are earned and assigned hereunder, except for
assignments to Affiliates (hereafter defined), may be made without Farmor's
prior written consent, which shall not be unreasonably withheld. It is
specifically provided hereunder that Farmee may assign a portion of its
rights hereunder to Ridgewood Energy Corporation and Ridgewood Energy
Corporation will be subject to all of the terms, provisions and conditions
contained herein. Any assignment which is not in compliance with the terms
of this Article shall be voidable at Farmor's option. Consent by Farmor to
any such assignment shall not relieve Farmee nor any assignee from the
timely and proper performance of any of Farmee's obligations hereunder. In
the event of an assignment, Farmee and any assignee shall be bound with
said third person for all obligations that may arise out of this Agreement
including any assignment earned hereunder, and Farmor may hold Farmee or
any assignee liable for full and complete compliance and performance of all
of the obligations of Farmee under this Agreement. For the purpose of this
provision, an "Affiliate" shall refer to any corporation, partnership,
joint venture or other entity that is directly or indirectly controlling,
controlled by, or under common control with, Farmee.
XV
EXHIBITS
15.1 Exhibits. The exhibits referred to in this Agreement are attached hereto
and made a part hereof for all purposes.
XVI
TERM
16.1 Term. This Agreement shall terminate when and if the Initial Well or a
substitute therefore is not drilled and completed and qualified as a well
capable of producing oil and/or gas in paying quantities as provided in
Section 4.1 (a); otherwise this Agreement, unless sooner terminated by
agreement of the parties or as provided elsewhere herein, shall remain in
full force and effect so long as the Operating Rights are continued in
force and until all obligations under Article VII have been fully
satisfied. In all cases, Farmee's obligations under or arising out of this
Agreement shall survive the termination of this Agreement.
XVII
ARTICLE HEADINGS
17.1 Article Headings. The underlined headings in this Agreement are used for
convenience and shall not be considered in construing this Agreement.
12
XIX
AGREEMENT AND COUNTERPART EXECUTION
18.1 Agreement. This Agreement is not intended to benefit or create any rights
in any entity not a party to this Agreement. This instrument contains the
final and entire agreement of the parties with respect to the matters
covered by this Agreement and as such supersedes all prior written or oral
communications and agreements in his regard. This Agreement may not be
modified or changed except by written amendment signed by all of the
parties.
18.2 Timely Execution. If the terms, provisions, conditions, reservations and
elections set forth and contained herein correctly reflect the
understanding of our agreement, please so indicate Farmee's acceptance of
same by signing in the space provided and returning an executed original of
this Agreement to Farmor within twenty (20) days of your receipt. Should
you fail to sign and return within the time period so provided, Farmor may,
at its sole option, grant you additional time in which to execute and
return this Agreement, or this offer shall automatically terminate.
18.3 Counterpart Execution. This Agreement may be executed in counterparts, no
one of which needs to be executed by all parties to this Agreement. When
all parties have executed a counterpart of this Agreement, it shall be
binding upon all parties with the same force and effect as if all parties
had signed the same document.
This Agreement is executed the 24th day of August 2004, effective as of
July 10, 2004.
FARMOR:
Forest Oil Corporate
By: /s/ ▇. ▇. ▇▇▇▇▇▇ Date: 8/24/04
--------------------------------
Name: ▇. ▇. ▇▇▇▇▇▇
Title: Senior Vice President
Gulf Coast Region
FARMEE:
Millennium Offshore Group, Inc.
By: /s/ D. ▇▇▇▇ ▇▇▇▇▇▇▇▇▇ Date: 8/25/04
--------------------------------
Name: D. ▇▇▇▇ ▇▇▇▇▇▇▇▇▇
Title: Executive Vice President
▇▇
▇▇▇▇▇▇▇▇▇▇▇▇▇▇▇
▇▇▇▇▇ ▇▇ ▇▇▇▇▇
▇▇▇▇▇▇ ▇▇ ▇▇▇▇▇▇
▇▇ this 25th day of August, 2004, before me, appeared D. ▇▇▇▇ ▇▇▇▇▇▇▇▇▇, to
me personally known, who, being by me duly sworn, did say that he is the
Executive Vice President of Millennium Offshore Group, Inc. and that the
foregoing instrument was signed on behalf of that corporation by authority of
its Board of Directors and acknowledged the instrument to be the free act and
deed of that corporation.
/s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
-----------------------------------------
Notary Public, State of Texas
My Commission expires:
[SEAL]
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
NOTARY PUBLIC, STATE OF TEXAS
MY COMMISSION EXPIRES
FEB. 20, ▇▇▇▇
▇▇▇▇▇ ▇▇ ▇▇▇▇▇▇▇▇
▇▇▇▇▇▇ ▇▇ ▇▇▇▇▇▇
▇▇ this 24th day August, 2004, before me, appeared ▇. ▇. ▇▇▇▇▇▇, to me
personally known, who, being by me duly sworn, did say that he/she is the Gulf
Region Vice President of Forest Oil Corporation, a New York corporation and that
the foregoing instrument was signed on behalf of that company by authority of
its Board of Directors and acknowledged the instrument to be the free act and
deed of that company.
/s/ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
-----------------------------------------
Notary Public, State of Colorado
My Commission expires:
My Commission expires Nov. 14, 2005
[SEAL]
▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
NOTARY PUBLIC
STATE OF COLORADO
14
EXHIBIT "A"
Attached to and made a part of that certain Farmout Agreement dated
effective July 10, 2004 and between Forest Oil Corporation, as Farmor, and
Millennium Offshore Group, Inc. as Farmee.
FOREST OIL CORPORATION HIGH ▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇
▇▇▇▇ ▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇ ▇▇▇-▇ 20658
▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
(▇▇▇) ▇▇▇-▇▇▇▇
FOREST OIL'S DISTRIBUTION GEOLOGY FAX # (▇▇▇) ▇▇▇-▇▇▇▇
REPORTS AND LOGS GEOLOGY OFF # (▇▇▇) ▇▇▇-▇▇▇▇
3 Copies 1. Final Drilling Reports.
ATTN: ▇▇▇▇▇▇▇ ▇▇▇▇▇
3 Copies 2. Drilling & Production items (ie.
ATTN: ▇▇▇▇▇▇▇ ▇▇▇▇▇ Production reports, summary
reports, gov't forms files pursuant
to USGS regs, well programs,
workover recommendations spill or
blowout notices, formation tests.)
ATTN: ▇▇▇▇ ▇▇▇▇▇▇▇ 3. Plans of Exploration and/or
Development with any accompanying
geological or geophysical maps and
sections.
1 Copy
ATTN: ▇▇▇▇ ▇▇▇▇▇▇▇ 4. Daily Mud Logs.
3 Copies
ATTN: ▇▇▇▇ ▇▇▇▇▇▇▇ 5. Final Mud Logs.
3 Copies 6. Paleo Reports, Core Reports, and
ATTN: JackSlechta Directional Surveys.
1 Copy
ATTN: ▇▇▇▇ ▇▇▇▇▇▇▇ 7. LOGNET/DATREX/TELECOPY LOGS.
3 Copies 8. Field Copies of Wireline Logs,
ATTN: ▇▇▇▇ ▇▇▇▇▇▇▇ and/or LWD (Open & Cased hole).
5 Copies 9. Final Copies of Wireline Logs,
ATTN: ▇▇▇▇ ▇▇▇▇▇▇▇ and/or LWD (Open & Cased hole).
3 Copies
ATTN: ▇▇▇▇ ▇▇▇▇▇▇▇ 10. Velocity Survey.
1 Copy
ATTN: ▇▇▇▇ ▇▇▇▇▇▇▇ 11. 3 1/2" Diskette LAS format of
wireline logs.
I. LOGNET/DATREX NOTIFICATIONS:
1) ▇▇▇▇ ▇▇▇▇▇▇▇: Office: (▇▇▇)▇▇▇-▇▇▇▇
Fax: (▇▇▇)▇▇▇-▇▇▇▇
Office e-mail: ▇▇▇▇▇▇▇▇▇@▇▇▇▇▇▇▇▇▇.▇▇▇
or
Alternate
▇▇▇▇▇ ▇▇▇▇▇: Office: (▇▇▇)▇▇▇-▇▇▇▇
Fax: (▇▇▇)▇▇▇-▇▇▇▇
Office e-mail: ▇▇▇▇▇▇▇@▇▇▇▇▇▇▇▇▇.▇▇▇
II. DAILY DRILLING REPORTS:
1) ▇▇▇▇▇▇▇ ▇▇▇▇▇: Office: (▇▇▇)▇▇▇-▇▇▇▇
Fax: (▇▇▇)▇▇▇-▇▇▇▇
Office e-mail: ▇▇▇▇▇▇▇@▇▇▇▇▇▇▇▇▇.▇▇▇
15
EXHIBIT "B"
Prior to commencing operations, Farmee shall procure at its expense insurance as
set forth below to cover all operations performed under this Agreement:
A. Worker's compensation Insurance to comply with all applicable laws of the
jurisdiction where operations are conducted and Employers' Liability
Insurance of not less than $1,000,000 any one accident. This insurance
shall include:
1. Coverage under the U.S. Longshoremen's and Harbor Workers'
Compensation Act, including its extension for Outer Continental Shelf
Lands Operations;
2. Extension of coverage to include liability under Admiralty
Jurisdiction, including the ▇▇▇▇▇ Act, with Marine and Voluntary
Compensation Endorsement and an Endorsement for Transportation,
Maintenance, Wages and Cure with a limit of not less than $1,000,000
any one accident;
3. Endorsement to provide that a claim "in rem" will be treated the same
as a claim "in personam".
If, under the laws of the jurisdiction in which operations are conducted,
Farmee is authorized to be a self-insurer as to the above coverage, Farmee
may elect to be a self-insurer under such laws.
B. Comprehensive General Liability Insurance (including Contractual Liability
Coverage to insure the indemnity and hold harmless provisions of this
Agreement) with a combined single limit of not less than $1,000,000 any one
occurrence for bodily injury and/or property damage. This policy shall
contain an "In Rem Endorsement" for offshore operations.
C. Automobile Liability Insurance covering all automotive equipment, if any,
used in performing operations under this Agreement with a combined single
limit of $1,000,000 any one accident for bodily injury and/or property
damage.
D. Umbrella Liability Insurance in the minimum amount of $25,000,000 excess of
all primary limits.
E. As required by the OCS Lands Act of 1978, insurance coverage required to
meet the $35,000,000 net worth (Financial Responsibility) requirement under
said Act. This coverage will be amended as necessary upon issuance of the
regulations of the Oil Pollution Act of 1990.
All of the above policies to the extent permitted by law shall contain
provisions whereby Farmee and its insurers waive all rights of subrogation
against Farmors. Farmee shall furnish Farmors a Certificate of Insurance as
evidence of such coverage and containing the following statement:
"Farmee shall endeavor in good faith to provide written notice to
Farmors thirty (30) days prior to the effective date of the
cancellation of or reduction in any coverage".
Farmee, at its option, may elect to be a self-insurer as to the above
coverage. For any or all of the above coverage, it is understood and agreed
that Farmee will indemnify and hold harmless Farmors from and against any
and all claims to the extent Farmors would have been protected if insurance
had been purchased.
16
EXHIBIT "C"
EXECUTIVE ORDER NO, 11246 AS AMENDED BY EXECUTIVE ORDER 11375
NONDISCRIMINATION IN EMPLOYMENT
Attached to and made a part of that certain Farmout Agreement dated effective
________________, 2004, by and between Noble Energy, Inc., as Farmor, and Forest
Oil Corporation, as Farmee.
During the performance of this Contract, the CONTRACTOR (meaning and
referring separately to each party hereto) agrees as follows:
(1) The Contractor will not discriminate against any employee or applicant
for employment because of race, religion, color, sex, disability or perceived
disability or national origin. The Contractor will take affirmative action to
ensure that applicants are employed, and the employees are treated during
employment, without regard to their race, religion, color, sex, disability or
perceived disability, or national origin, such action shall include, but not be
limited to the following: employment, upgrading, demotion, or transfer;
recruitment or recruitment advertising; layoff or termination; rates of pay or
other forms of compensation; and selection for training, including
apprenticeship. The Contractor agrees to post in conspicuous places, available
to employees and applicants for employment, notices to be provided by the
contracting officer setting forth the provision of this nondiscrimination
clause.
(2) The Contractor will, in all solicitations or advertisements for
employees placed by or on behalf of the Contractor, state that all qualified
applicants will receive consideration for employment without regard to race,
religion, color, sex, disability or perceived disability, or national origin.
(3) The Contractor will send to each labor union or representative or
workers with which he has a collective bargaining Agreement or other contract or
understanding, a notice to be provided by the agency contracting officer,
advising the labor union or worker's representative of the Contractor's
commitments under Executive Order 11246 as amended by Executive Order 11375 and
shall post copies of the notice in conspicuous places available to employees and
applicants for employment.
(4) The Contractor will comply with all provisions of Executive Order 11246
as amended by Executive Order 11375 and of the rules, regulations, and relevant
orders of the Secretary of Labor.
(5) The Contractor will furnish all information and reports required by
Executive Order 11246 as amended by Executive Order 11375, and by the rules,
regulations and orders of the Secretary of Labor, or pursuant thereto, and will
permit access to his books, records, and accounts by the contracting agency and
the Secretary of Labor for the purposes of investigation to ascertain compliance
with such rules, regulations and orders.
(6) In the event of the Contractor's noncompliance with the
nondiscrimination clauses of this Contract or with any such rules, regulations,
or orders, this Contract may be canceled, terminated, or suspended in whole or
in part, and the Contractor may be declared ineligible for further Government
contracts in accordance with procedures authorized in Executive Order 11246 as
amended by Executive Order 11375 and such other sanctions may be imposed and
remedies invoked, or by rules, regulations, or orders of the Secretary of Labor,
or as otherwise provided by law.
(7) The Contractor will include the provisions of Paragraphs (1) through
(7) in every subcontract or purchase order unless exempted by rules,
regulations, or orders of the Secretary of Labor issued pursuant to Section 204
of Executive Order 11246 so that such provisions will be binding upon each
subcontractor or vendor. The Contractor will take such action with respect to
any subcontract or purchase order as the contracting agency may direct as a
means of enforcing such provisions including sanctions for noncompliance:
provided, however, that in the event that Contractor becomes involved in, or is
threatened with, litigation with a subcontractor or vendor
17
as a result of such direction by the contracting agency, the Contractor may
request the United States to enter into such litigation to protect the interests
of the United States.
Contractor acknowledges that it may be required to file Standard Form 100
(EEO-1) promulgated jointly by the Office of Federal Contract Compliance, the
Equal Employment Opportunity Commission, and Plans for Progress with Joint
Reporting Committee, Federal Depot, Jeffersonville, Indiana, within thirty (30)
days of the date of contract award if such report has not been filed for the
current year and otherwise comply with or file such other compliance reports as
may be required under Executive Order 11246 as amended by Executive Order 11375.
Contractor further acknowledges that it may be required to develop a
written affirmative action compliance program as required by the Rules and
Regulations approved by the Secretary of Labor under authority of Executive
Order 11246 as amended by Executive Order 11375 and supply the other party
hereto with a copy of such program if such party so requests.
The provisions hereof are subject to the exemptions, qualifications and
limitations contained in and which Contractor may claim under 41 CFR Chapter 60,
and such provisions are qualified to the extent and so that Contractor shall
have the full benefit thereof. The terms used herein shall have the meanings
specified in 41 CFR Section 1 -12, 802.
AFFIRMATIVE ACTION FOR HANDICAPPED WORKERS
The regulations issued under the Rehabilitation Act of 1973 in Title 41,
Chapter 60, Part 60-741 of the Code of Federal Regulations are incorporated
herein by reference unless this Agreement is exempt by Federal law, rules,
regulations or orders of the Secretary of Labor issued pursuant to said
Rehabilitation Act of 1973. The provisions for the Americans with Disabilities
Act of 1990, 42 U.S.C.A. Section 12101 et seq., and the implementing
regulations, are incorporated herein by reference.
AFFIRMATIVE ACTION FOR DISABLED VETERANS AND VETERANS OF THE VIETNAM ERA
The regulations issued under the Vietnam Era Veterans Readjustment
Assistance Act of 1971 in Title 41, Chapter 60, part 60-250 of the Code of the
Federal Regulations are incorporated herein by reference unless this Agreement
is exempted by Federal law, rules, regulations or orders of the Secretary of
Labor issued pursuant to said Vietnam Era Veterans Readjustment Assistance Act
of 1974.
MINORITY BUSINESS ENTERPRISES
The regulations issued under C41 CFR 1-1.1310-2; Executive Order 11625, are
incorporated herein by reference unless this Agreement is exempted by Federal
law, rules, regulations or orders of the Secretary of Labor issued pursuant to
said Executive Order.
18
CERTIFICATE OF NON-SEGREGATED FACILITIES
Each of the parties to the Contract to which this Certificate is attached
as an Exhibit do hereby assure the other (the "assured") that it does not and
will not maintain or provide for its employees any segregated facilities at any
of its establishments, and that it does not and will not permit its employees to
perform their service at any location, under its control, where segregated
facilities are maintained. For this purpose, it its understood that the phrase
"segregated facilities" includes facilities which are in fact segregated on a
basis of race, color, religion, or national origin, because of habit, local
custom, or otherwise. It is further understood and agreed that maintaining or
providing segregated facilities for its employees or permitting its employees to
perform their services at any location under its control where segregated
facilities are maintained is a violation of the equal opportunity clause
required by Executive Order 11246 of September 24, 1965.
Each of the parties further understands and agrees that a breach of the
assurance herein contained subjects to the provisions of the Order at 41 CFR
Chapter 60 of the Secretary of Labor dated May 21, 1968, and the provisions of
the equal opportunity clause enumerated in contracts between the United States
of America and the assured.
Whoever knowingly and willfully makes any false, fictitious, or fraudulent
representation may be liable to criminal prosecution under 18 U.S.C. Par. 1001.
Each of the parties reserves to itself the benefit of all exemptions,
qualifications and limitations contained in and which it may claim under 41 CFR
Chapter 60 and this certification is qualified to the extent and so that the
undersigned shall have the full benefit thereof.
19
