EX-99.2
3
v120238_ex99-2.htm
CONTRACT
OPERATING AGREEMENT
THIS
CONTRACT OPERATING AGREEMENT
(this
“
Contract
Operating Agreement”
or
this
“Agreement”)
is
entered into on the 18th day of July to be effective as of the 23rd day of
June, 2008 (“Effective
Date”),
between and among Sonterra
Resources, Inc.,
a
Delaware corporation, Sonterra
Operating, Inc.,
a
Texas corperation, and Sonterra
Oil & Gas, Inc., a
Texas corporation (individually
or collectively, “Sonterra”),
Party
of the First Part for which the Services are to be performed, and South
Texas Oil Company,
a
Nevada corporation (“South
Texas”),
including its subsidiaries, STO
Operating Company,
a
Texas
corporation (“STO
Operating”)
and
STO
Drilling Company,
a
Texas
corporation (“STO
Drilling”),
any or
all of which subsidiaries of South
Texas may be referred to as “Subsidiaries”
and South
Texas,
together with such Subsidiaries, individually or collectively, may be referred
to herein as “STO”,
all of
which collectively constitute the Party of the Second Part performing the
Services for the Party of the First Part, with Sonterra and STO sometimes herein
being referred to together as the “Parties”
and
individually as a “Party.”
WHEREAS,
Sonterra is an owner and the operator of various oil, gas and mineral leases
located within certain Areas of Mutual Interest (“AMIs”)
lying
and being situated in State of
Texas waters, all as more fully defined in
Paragraph 1 below and more fully described in Exhibit
“A”
attached
hereto and made a part hereof (the “Matagorda
Bay Properties”)
and
has developed certain prospects on said Matagorda Properties all as more fully
defined in Paragraph 1 below and more fully described in Exhibit
“B”
attached
hereto and made a part hereof (the “Matagorda
Bay Prospects”);
WHEREAS,
Sonterra
has certain leasehold contractual obligations with respect to the Matagorda
Bay Properties
(individually or collectively, “Contractual
Obligations”)
under
various contracts and agreements (individually or collectively, “Applicable
Contracts”)
more
fully described in Exhibit
“C”
attached
hereto and made a part hereof;
WHEREAS,
Sonterra and STO desire that, for the duration of the Contract Operating Term,
Sonterra shall continue to act as operator of record for all Matagorda Bay
Properties described on Exhibit “A” attached hereto;
WHEREAS,
Sonterra and STO desire that STO shall perform certain Operating Services (as
defined in Paragraph 2 below) for any Xxxxx
currently producing and now operated by Sonterra (“Operated
Properties”)
as
well as for any xxxxx hereafter drilled by STO as Contract Operator on the
Matagorda Bay Properties from the Effective Date for
the
duration of the Contract Operating Term (including any extension thereof),
in
each case in the manner and to the extent that such Operating Services are
(i)
currently being performed by Sonterra; (ii) appropriate for the safe, efficient,
and productive operation of the business of Sonterra; (iii) consistent with
best
industry practices; (iv) in accordance with applicable Federal and State laws;
(v) in accordance with applicable Securities and Exchange Commission rules
and
regulations; (vi) in accordance with applicable Financial Accounting Standards
Board (“FASB”)
publications and guidance; (vii) consistent with being a reasonable prudent
operator as such term is commonly used in the oil and gas industry; and (viii)
in accordance with the terms and conditions of this
Contract Operating Agreement
(all of which standards enumerated in (i), (ii), (iii), (iv), (v), (vi), (vii),
and (viii) above shall be individually or collectively, as applicable, referred
to herein as “Applicable
Operating Standards”);
and
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WHEREAS,
the
parties desire
that STO participate in, drill, and operate as Contract Operator of one or
more
exploratory xxxxx on the Matagorda Bay Prospects, commencing with the drilling
of the State Xxxxx 000 Xx. 0 Xxxx (XXX No. 42-057-31770), covered by the Term
Pooling Agreement Sydney 150 Deep Prospect, together with the operation of
the
State Tract 150 No. 1 Well (API No. 42-057-31600) and the State Tract 150 No.
2
Well (API No. 42-057-31692), under the terms and conditions set forth in this
Contract Operating Agreement in fulfillment of Contractual Obligations and
in
accordance with Applicable Operating Standards.
NOW,
THEREFORE,
for and
in consideration of the mutual covenants herein, the Parties stipulate and
agree
as follows:
1.
DEFINITIONS.
Unless
otherwise defined in this
Contract Operating Agreement, capitalized terms
used
herein have the meanings given to such terms below.
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A.
|
The
term “AFE”
shall mean Authorization for
Expenditure;
|
| |
B.
|
The
term “Contract”
shall mean any joint operating agreement (“JOA”),
Marketing Contract, or other contractual agreement to which Sonterra
was a
party prior to the Effective Date or which Sonterra enters into after
the
Effective Date; and
|
| |
C.
|
The
terms “Operated
Properties”
or “Properties”
shall consist of the Matagorda Bay Properties, whether described
under
named Xxxxx or as properties within an AMI, but not yet in a unit,
on
attached Exhibit
“A.”
|
2.
SCOPE
OF SERVICES.
As of
the Effective Date, STO will begin overseeing daily operations, in the name
of,
on behalf of, and for the benefit of Sonterra, by providing Operating Services
and Accounting Services for the Operated Properties as an independent contractor
acting in the role of Contract Operator, subject to the terms, conditions,
and
limitations set forth in this
Contract Operating Agreement (as the context
indicates, individually or collectively, the “Operating
Services”,
“Accounting
Services”,
or the
“Services”).
In
the
performance of the Services contemplated hereunder, STO shall perform (or shall
cause the employees, consultants, and representatives of STO to perform) the
Services in the name of Sonterra and in accordance with Applicable Operating
Standards, which Services shall consist of the following duties to the extent
and only to the extent such Services are rendered in conjunction with the
contract operatorship of the Properties:
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(a)
Operating
the Operated Properties; provided, however, that Sonterra will remain as
the
operator of record for the Operated Properties and that Sonterra will continue
to be responsible under law and in fact for the performance of certain functions
and activities for which Sonterra is not responsible as described in Paragraph
5;
(b)
Performing
all functions in the name of Sonterra and, except as limited in Paragraph
5
below, in the role of a Contract Operator as generally understood in the
oil and
gas industry and in accordance with Applicable Operating Standards and duties
imposed under any Contracts to which Sonterra is a party, including without
limitation performing the duties of Operator under any JOA or as Operator
in a
manner consistent with JOA standards in the event that Sonterra has no partners
in particular xxxxx and leases (“Contract
Operator”);
(c)
Overseeing
marketing, nominations, gas control, and other similar services under existing
contracts entered into by Sonterra to gather, transport, market, store, or
sell
the oil and gas production from the Properties (individually or collectively,
“Marketing
Contracts”)
or
under Marketing Contracts hereafter entered into on a spot or month-to-month
basis and (with Sonterra’s prior written approval) to receive proceeds from (i)
the sale of production attributable to the Properties (to the extent not
paid by
the purchasers of production directly to Sonterra); (ii) gathering, compressing,
transporting, drilling, or other services rendered by STO on behalf of Sonterra;
and/or (iii) payments not encompassed within (i) or (ii) immediately above,
such
as gas balancing payments in lieu of in kind volumes, overpayments of AFEs,
cash
calls, insurance, taxes or items similar or dissimilar to those enumerated
in
(e)
below in
which Sonterra is entitled to payment, or other payments for the benefit
of
Sonterra or for which Sonterra is responsible;
(d)
Overseeing
land administration, xxxxxxx, regulatory compliance, production reporting,
geoscience, technical, operational, secretarial, and other duties and
responsibilities performed by Sonterra personnel, including its employees,
consultants, contractors, and subcontractors, regardless of whether it would
otherwise by encompassed within the general and administrative overhead of
Sonterra;
(e)
Administering
the books, records and accounts associated with ownership of the Properties,
including, but not limited to, providing Sonterra with copies of daily drilling,
workover and safety incident reports; preparing and filing all appropriate
forms
and reports for governmental agencies; and preparing and sending reports,
change
of operator notices or designations to third party co-owners as
necessary;
f)
Causing
to be paid severance, production and similar taxes, lease rentals, shut-in
royalties, minimum royalties, payments in lieu of production, royalties,
overriding royalties, production payments, net profit payments and other
similar
burdens associated with the ownership of the Properties, to the extent that,
prior to Effective Date, such amounts were paid directly by Sonterra and
not by either the operators of the Properties or by the purchasers of production
from the Properties;
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(g)
Paying
operating costs associated with ownership of the Properties or the operation
of
the Operated Properties;
(h)
Sending
joint interest xxxxxxxx and cash calls to owners of the Operated Properties
and
receive cash calls and xxxxxxxx from joint interest owners attributable to
the
Operated Properties;
(i)
Submitting
reports regarding royalty payments to federal or state authorities concerning
the Properties, as appropriate;
(j)
Submitting
production and severance tax reports with respect to the Operated Properties
to
federal or state authorities, with contemporaneous copies to Sonterra concerning
the Properties, as appropriate; and
(k)
Preparing
a Contract Operating Term Final Report that summarizes, with copies of
appropriate supporting documentation, STO’s activities on behalf of Sonterra
during the Contract Operating Term within not more than ninety (90) days
after
the expiration of the Contract Operating Term.
Services
described in clauses
(a),
(b),
(c),
(d),
and
(e),
except
to the extent that a portion of such Services also constitute Accounting
Services, shall be referred to herein as “Operating
Services.”
Services
described in clauses (f),
(g),
(h),
(i),
(j), and
(k)
shall be
referred to herein as “Accounting
Services.”
As used
in this Agreement, the "Contract
Operating Term Final Report"
shall
mean the final report that will be prepared by STO based upon all actual
production, sales proceeds, joint interest xxxxxxxx, and cash calls attributable
to Sonterra, all actual expenses and costs attributable to Sonterra pursuant
to
this
Contract Operating Agreement, and all other amounts attributable to
Sonterra that are accrued or owed, but are not yet paid or payable during the
Contract Operating Term. As soon as practicable, but in any event within thirty
(30) days after receipt of the Contract Operating Term Final Report, STO shall
prepare and deliver a written response either: (1) acknowledging receipt of
and
agreement with the Contract Operating Term Final Report or (2) containing any
proposed changes to the Contract Operating Term Final Report, together with
an
explanation of any such changes and the reasons therefore. To the extent that
Sonterra may suggest changes to the Contract Operating Term Final Report with
which STO does not agree, the Parties shall endeavor in good faith to reconcile
their respective divergent positions with respect to such Report.
3.
XXXXXXXX
TO OTHERS.
During
the Contract Operating Term, (a) STO shall oversee, prepare and send, in the
name of and on behalf of Sonterra, all joint interest xxxxxxxx for the Operated
Properties to joint interest owners of the Operated Properties;
(b)
If
STO
receives any subsequent invoices that pertain to the operations of the Operated
Properties after the Contract Operating Term, and those invoices pertain to
charges subsequent to the expiration of the Term, STO shall forward all such
invoices to Sonterra for payment by Sonterra;
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(c)
Sonterra
shall reimburse STO for all invoices paid by STO, if any, on behalf of Sonterra,
incurred hereunder within ten (10) business days of receipt of notice of
such
payments and supporting documentation; and
(d)
The
Parties contemplate that all monies to be paid or received during the Contract
Operating Term shall be paid or received by and in the name of Sonterra,
but STO
agrees to promptly turn over any funds it inadvertently may receive in the
course of performing Services hereunder and Sonterra agrees to reimburse
STO for
any funds, if any, that STO has paid on Sonterra’s behalf.
4.
CONTRACT
OPERATING TERM AND EARLY TERMINATION.
This
Agreement commences as of the Effective Date and shall continue for a period
of
one (1) year from the Effective Date and, with respect to each individual
well
drilled on any of the Properties, for one or more extended periods of three
(3)
calendar months each and thereafter on an evergreen basis following completion
as a commercially viable producing well through plugging and abandoning of
any
such well, unless terminated by either Party upon written notice sent by
overnight courier not less than thirty (30) days prior to the expiration
of the
Contract Operating Term or any extension thereof, or unless otherwise earlier
terminated by mutual agreement of Sonterra and STO. STO shall secure and
thereafter retain possession and control in its office of all records and
files
of Sonterra at such time as STO deems desirable or reasonably necessary for
providing Operating Services and Accounting Services, and STO shall be provided
with immediate electronic access to and furnish physical access to and/or
copies
of all records and files to Sonterra as deemed desirable or necessary by
STO or
Sonterra to perform the Services contemplated under this
Contract Operating
Agreement.
5.
LIMITATION
ON SERVICES.
The
following limitations apply with respect to the Services contemplated hereunder
in connection with performing the Operating Services:
(a)
Other
than this
Contract Operating Agreement, Sonterra shall not enter into any
Contract in its own name or on its own behalf having a duration in excess
of
three (3) calendar months and/or with respect to any proposed capital
expenditures in excess of $25,000.00 with respect to the operations of the
Operated Properties during the Contract Operating Term without the prior
consent
of STO, but rather STO shall be obligated to secure, for formal execution
by
Sonterra upon STO’s recommendation, all Contracts reasonably acceptable to STO
and Sonterra that may be necessary for the operation of the Operated Properties
or to otherwise perform the Services. Each of STO and Sonterra agree to consult
with the CEO of the other Party with respect to any Contract having a duration
in excess of three (3) calendar months and/or with respect to any proposed
capital expenditures in excess of $25,000.00, with the final decision to
be made
in any event by the Board of Directors of Sonterra in the event that the
CEO of
Sonterra and the CEO of STO do not concur on the decision with respect to
such
matter. Upon request, STO agrees to join with Sonterra in the execution of
any
Contract requiring STO’s joinder, if any, that may be necessary for the
operation of the Operated Properties during the Contract Operating Term of
this
Contract Operating Agreement; provided,
however, that STO shall have no contractual liability under any such Contract
and shall be entitled to indemnification from Sonterra pursuant to Paragraph
7(c) below;
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(b)
The
scope
of Operating Services shall include, but STO shall not be responsible for
the
results of or any liability associated with, providing in good faith any
technical evaluation regarding any drilling, reworking or other capital
expenditure projects. STO shall be responsible for timely forwarding notices
to
Sonterra to enable Sonterra to make informed responses and to direct STO
to make
such responses on Sonterra's behalf. After receiving STO's written
recommendations, Sonterra shall be responsible for making, or directing STO
to
make, any response or non-responses to any elections (including AFEs) pertaining
to the Operated Properties, but STO shall have no responsibility or liability
therefore if STO does not receive Sonterra's directions regarding an election
to
be made by STO. STO
(including for all purposes hereunder its officers, directors, employees,
agents, consultants, or representatives) shall not be responsible for the
accuracy of any information furnished in good faith by STO or any of its
Subsidiaries to Sonterra, and shall not be liable to Sonterra or to any third
parties for any (i) claims based upon the inclusion of any inaccurate
information furnished by STO to Sonterra and used by Sonterra in any reports
or
(ii) results obtained from any other use by Sonterra of any inaccurate
information so furnished. Sonterra
acknowledges and agrees that its employees and the employees of STO's
Subsidiaries shall be required to, and will in fact, devote substantial time
in
assist STO in the performance of Services to Sonterra and its Subsidiaries
to
enable STO to continue the operation of the Properties and the performance
of
the Operating Services and Accounting Services in the same manner as Sonterra
did immediately prior to Commencement Date or as otherwise required by Contract
or applicable law. Sonterra also acknowledges that the employees of STO
providing the Services have, and will continue to have, responsibilities
with
respect to the business of STO to which said STO personnel will be required
to
devote substantial time and effort, in addition to the business of STO and
its
Affiliates, other than the operation of the Operated and Non-Properties and
the
Operating and Accounting Services to be performed hereunder;
and
(c)
In
the STO drills any well as a Contract Operator or undertakes any other drilling,
workover or other capital expense operations (individually or collectively,
“Drilling Operations”) with respect to any Operated Properties in which STO
either owns an interest, or will earn an interest, in the Properties, STO’s
actions shall continue to be governed by this Contract Operating Agreement
as
between Sonterra and STO, but STO shall also be subject to the terms of any
JOA,
Participation Agreement, farmout agreement and/or other agreement to which
STO
and/or the Properties are subject in the course of performing Operating Services
with respect to the requested drilling, workover or other capital expense
operations, including without limitation the Applicable Contracts. If such
Drilling Operations are conducted on Properties in which STO does not own,
and
is not acquiring, an interest in the Properties and such Drilling Operations
are
being conducted on the Properties at the request of Sonterra, then the parties
agree that STO shall not be exposed to, and Sonterra agrees to protect, defend,
and hold STO harmless from, any liability or responsibility for any acts
or
failures to act on the part of STO with respect to any such operations
undertaken by STO at Sonterra’s request, all of which operations shall be at
Sonterra’s sole risk and expense.
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6.
COMPENSATION,
EXPENSES, AND PARTICIPATION RIGHTS.
As and
for compensation for Services to be rendered hereunder, STO shall be entitled
to
receive the following:
(a)
With
respect to any existing xxxxx as well as to Sonterra’s retained non-operating
working interest in any of the Xxxxx in any of the Matagorda Bay Prospects,
Sonterra’s proportionate share of XXXXX fees and reimbursable expenses shall be
calculated under the XXXXX provisions of any Exhibit C and payable under
any JOA
or other Applicable Contract that would otherwise be payable to Sonterra
as
Operator shall instead be paid to STO as Contract Operator;
(b) If
and to
the extent not covered by XXXXX fees as contemplated in (a) above, the sum
of
$5,000.00 per month for Operating Services and Accounting Services that would
not be performed for the other non-operating participating parties under
any
XXXx constituting part of the Applicable Contracts;
(c)
If
and to
the extent not covered by XXXXX or otherwise as contemplated in (a) and (b)
above, reimbursement from Sonterra for all of its out-of-pocket costs and
expenses, provided that all and all expenses anticipated to be incurred by
STO
in connection with its performance hereunder in excess of $1,000 per item,
or
$5,000 for a series of related items, shall be pre-approved by Sonterra’s CEO as
a condition of reimbursement;
(d)
Participation
Rights for up to fifty percent (50.0%) of Sonterra’s working interest, including
its proportionate share of non-consenting working interests, in any exploratory
well drilled on the Matagorda Bay Prospects (“Sonterra Matagorda Bay WI”),
subject to proportionate reduction and the following terms and
conditions:
(1) An
absolute right to participate for a minimum of 50% of the available Sonterra
Matagorda Bay WI and, in exchange for that right, Sonterra shall have, in the
initial well in each Prospect only, a quarter (25%) of STO’s working interest as
a back-in working interest after payout, with payout being hereinafter defined
in subparagraph (5) below, meaning that, for example, (a) if Sonterra elects
to
participate for a 50% working interest and STO elects to participate for a
50%
working interest share in the initial well in a Prospect, then STO would be
entitled to participate for a 50% working interest in each well in that Prospect
and Sonterra would be entitled to participate for a 50% working interest in
each
well in that Prospect; provided, however, that in the initial Prospect well
only, Sonterra would also be entitled to back-in for a 12.5% working interest
after payout in STO’s 50% working interest in said initial Prospect well only or
(b) if Sonterra does not elect to participate for any of its 50% working
interest share in the initial well in a Prospect, then STO would be entitled
to
a 100% working interest in each well in a Prospect and Sonterra would back-in
for a 25% working interest of STO’s working interest after payout in each well
in said Prospect.
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(2) The
qualified right to participate in the Sonterra Matagorda Bay WI in any other
Matagorda Bay Prospects on the same back-in basis to the extent that such
additional Sonterra Matagorda Bay WI is available after taking into account
any
such working interest retained by Sonterra up to 50% of the Sonterra Matagorda
Bay WI, it being understood and agreed that all of the Sonterra Matagorda Bay
WI
available to STO and to Sonterra under the terms hereunder shall be retained
by
Sonterra on a non-promoted cost basis and/or conveyed to STO on the initial
Prospect well quarter back-in basis and/or sold by either STO or Sonterra to
third parties on some type of promoted interest basis mutually agreeable to
STO,
Sonterra, and said participating third parties;
(3) If
either
STO or Sonterra subsequently sell any working interests carved out of the
Sonterra Matagorda Bay WI to third parties on some type of promoted interest
basis, then STO and Sonterra shall share such “promote” on an equal 50%/50%
basis or as otherwise proportionate to the actual sharing ratio of the available
Sonterra Matagorda Bay WI taken by STO and Sonterra, respectively;
(4) With
respect to the initial well on the Sydney/150 Deep Prospect (being the State
Tract 127-1 Unit Well), STO shall participate for 70% and Sonterra shall
participate for 30% of the available Sonterra Matagorda Bay WI, together with
corresponding proportionate shares of the available non-consent working
interests, on a non-promoted basis, and Sonterra shall be obligated to pay
its
proportionate working share of monies under (a) and (b) above. In addition,
Sonterra is entitled to its quarter back-in after payout as to STO’s 70% of the
available Sonterra Matagorda Bay WI, including its corresponding proportionate
share of the non-consent working interests, all as set out more fully on Exhibit
D.
(5) The
term
“payout” as defined herein shall apply to each well individually and shall be
7:00 o’clock a.m. on the first day of the month following the day the last
payout occurs under the pre-existing agreements set out as Applicable Contracts
on Exhibit “C” hereto.
7.
DISCLAIMER
OF WARRANTIES/INDEMNIFICATION.
(a)
Notwithstanding
any other term of this Agreement to the contrary, STO makes no, and in fact
expressly disclaims any and all, representations and warranties, express,
implied or statutory, with respect to the performance or results of the
Services, except that STO shall perform the Services during the term of this
Agreement in a manner consistent with best industry practice, or as otherwise
required by Contract or applicable law.
(b)
Each
Party hereby agrees to defend, indemnify, release, and hold the other Party
harmless, including its respective officers, directors, employees, agents,
representatives, contractors or subcontractors, from and against any and all
claims, demands, lawsuits, or other legal or contractual liability, including
any damages, expenses, costs, interest, and attorneys’ fees associated therewith
(individually or collectively, “Liabilities”) on account of personal injury,
bodily injury or death to its own personnel and representatives to the extent
such injury, death, damage or loss arises out of or is attributable to the
performance of, or failure to perform Operating Services, Accounting Services,
or the performance of its obligations hereunder by any of such party’s
respective officers, directors, employees, agents, representatives, contractors
or subcontractors, regardless
of whether such Liabilities are allegedly or deemed to be caused by, in whole
or
in part, the joint, several, active, passive, sole or concurrent negligent
acts
or omissions or the strict liability (statutory or otherwise) or other legal
fault attributable to such party, but if and only to the extent any such
Liabilities are caused by willful misconduct of such
party.
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(c)
The
provisions of Paragraph (b) and (d) shall not be applicable to any Liabilities
arising out of the performance of any duties and responsibilities performed
by
STO at Sonterra’s request pursuant to Paragraph 5 (c) if STO neither owns, nor
is performing Drilling Operations in order to earn, an interest in such
Properties and, accordingly, Sonterra hereby agrees to defend, indemnify,
release, and hold STO harmless, including its respective officers, directors,
employees, agents, representatives, contractors or subcontractors, from and
against any and all Liabilities with respect to such Drilling Operations on
the
Properties undertaken by STO at Sonterra’s request if STO neither owns, nor is
performing Drilling Operations in order to earn, an interest in such
Properties.
(d)
The
mutual indemnification obligations in Paragraph 7(b) are intended to comply
with
applicable “knock-for-knock” oilfield anti-indemnity laws or similar Laws. To
the extent such indemnification provisions are found to violate any applicable
Law, or in the event any applicable Law is enacted or amended that would cause
these provisions to be in violation of such Law, then this Agreement shall
automatically be amended to provide that the indemnification provided hereunder
shall extend only to the maximum extent permitted by the applicable Law. Any
person or entity entitled to indemnification shall be deemed to be a STO
Indemnified Party or Sonterra Indemnified Party, as applicable.
8.
FORCE
MAJEURE.
(a) If any Party is rendered unable, wholly or in part, by an event of
force majeure to carry out its obligations under this Agreement, other than
obligations to make money payments which shall not be affected by any such
event, that Party shall give the non-affected Party prompt written notice of
the
force majeure event with reasonably full particulars of the event and its
consequent inability to carry out its obligations, whereupon the obligations
of
the Party giving notice, to the extent affected by the event of force majeure,
shall be suspended during, but no longer than, the duration of the event of
force majeure. The affected Party shall use all reasonable diligence to remedy
the inability to perform its obligation caused by the event of force majeure
as
quickly as reasonably possible under the circumstances.
(b)
The
requirement that any event of force majeure shall be remedied with all
reasonable dispatch shall not require the settlement of strikes, lockouts,
or
other labor difficulty by the Party involved in a manner or on terms contrary
to
such Party’s wishes, and the handling and resolution of such labor difficulties
shall be entirely within the discretion of the Party concerned.
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(c)
The
term
“event
of force majeure”
shall
mean an act of God, strike, lockout, or other industrial disturbance, act of
the
public enemy, war, blockade, terrorism, public riot, lightning, fire, storm,
flood, explosion, governmental action, governmental delay, restraint or
inaction, unavailability of equipment, and any other cause, whether of the
kind
specifically enumerated above or otherwise, which is not reasonably within
the
control of the Party claiming the inability or suspension of
performance.
9.
ASSIGNABILITY.
This
Agreement may not be assigned by STO without the prior written consent of
Sonterra, and STO may not delegate its duties or responsibilities hereunder
to a
third party without the prior written consent of Sonterra. No assignment of
any
rights hereunder by Sonterra shall relieve STO of any obligations and
responsibilities hereunder.
10.
GOVERNING
LAW; JURISDICTION, VENUE; JURY WAIVER. THIS
AGREEMENT AND THE LEGAL RELATIONS AMONG THE PARTIES SHALL BE GOVERNED AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF
TEXAS, EXCLUDING ANY
CONFLICTS OF LAW RULE OR PRINCIPLE THAT MIGHT REFER CONSTRUCTION OF SUCH
PROVISIONS TO THE LAWS OF ANOTHER JURISDICTION. ALL OF THE PARTIES HERETO
CONSENT TO THE EXERCISE OF JURISDICTION IN PERSONAM BY THE COURTS OF THE STATE
OF TEXAS FOR ANY ACTION ARISING OUT OF THIS AGREEMENT. ALL ACTIONS OR
PROCEEDINGS WITH RESPECT TO, ARISING DIRECTLY OR INDIRECTLY IN CONNECTION WITH,
OUT OF, RELATED TO, OR FROM THIS AGREEMENT SHALL BE EXCLUSIVELY LITIGATED IN
COURTS HAVING A SITUS IN SAN ANTONIO, BEXAR COUNTY, TEXAS. EACH PARTY HERETO
WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY
HAVE
TO A TRIAL BY JURY IN RESPECT OF ANY ACTION, SUIT OR PROCEEDING ARISING OUT
OF
OR RELATING TO THIS AGREEMENT.
11.
COUNTERPARTS.
This
Agreement may be executed in any number of counterparts, and each such
counterpart hereof shall be deemed to be an original instrument, but all of
such
counterparts shall constitute for all purposes one agreement. Any signature
hereto delivered by a Party by facsimile transmission shall be deemed an
original signature hereto.
12.
INDEPENDENT
CONTRACTOR.
In
their
performance of the Services, STO shall be considered an independent contractor,
and in no event shall either Party be deemed a partner, co-venturer or agent
of
the other Party. None of the persons utilized by STO in the performance of
Services hereunder shall be deemed to be an employee of Sonterra nor entitled
to
any benefits available to a Sonterra employee. Compensation required to be
paid
to such persons engaged by STO to perform any Services hereunder shall be the
sole responsibility of XXX.
00
00.
NO
RESTRICTIONS.
Sonterra
recognizes that STO is not performing the Services under this Agreement on
an
exclusive basis and agrees that STO is only obligated to devote such time under
this Agreement as is reasonably necessary to perform the Services in the same
manner as Sonterra performed such Services immediately prior to the Commencement
Date. Nothing contained in this Agreement shall prevent either Sonterra or
STO
from engaging in any other business activities.
14.
NOTICES.
(a) All
notices and communications required or permitted to be given hereunder shall
be
in writing and shall be delivered personally, or sent by bonded overnight
courier, or mailed by U.S. Express Mail or by certified or registered United
States Mail with all postage fully prepaid, or sent by facsimile transmission
(provided any such facsimile transmission is confirmed either orally or by
written confirmation), addressed to the appropriate Party, as
follows:
| If to STO: |
| STO Operating Company LLC |
|
|
|
000
Xxxx Xxxxxxxx Xxxx., Xxxxx 0000
|
|
|
|
Xxx
Xxxxxxx, XX 00000
|
|
|
|
Fax:
000-000-0000
|
|
|
|
Attention:
Xxxxxxx X. Xxxxxxx, CEO
|
| With a copy to: |
| Xxx X. Xxxxxx, Xx., Esq. |
|
|
|
6
Xxxxxxx’x Xxxxx Xxxx
|
|
|
|
Xxxxxxxxxx,
XX 00000-0000
|
|
|
|
xxxxxxxx@XxxxXxxxxXxxxxxxxx.xxx
|
| If to Sonterra: |
|
Sonterra
Resources, Inc.
|
|
|
|
P.
O. Xxx 0000
|
|
|
|
Xxxxxxx,
XX 00000
|
|
|
|
Fax:
000-000-0000
|
|
|
|
Attention:
Xxxxxx X. Xxxxxxxxxx, CEO
|
|
With a copy to:
|
| Sonterra Resources, Inc. |
|
|
|
P.
O. Xxx 0000
|
|
|
|
Xxxxxxx,
XX 00000
|
|
|
|
Fax:
000-000-0000
|
|
|
|
Attention:
Xxxx X. Xxxxxxxxx, Vice President
|
(b)
Any notice given in accordance herewith shall be deemed to have been given
when delivered to the addressee in person, or by courier, or transmitted
by
facsimile transmission during normal business hours, or upon actual receipt
by
the addressee after such notice has either been delivered to an overnight
courier or deposited in the United States Mail, as the case may be. The parties
hereto may change the address, telephone numbers, and facsimile numbers to
which
such communications are to be addressed by giving written notice to the other
parties in the manner provided in this Paragraph
145.
11
15.
INSURANCE.
(a) Each
party, at its expense, shall procure and maintain, effective as of the date
hereof, insurance in accordance with Exhibit “D” to the Joint Operating
Agreements included among the Applicable Agreements covering its indemnification
and other responsibilities under this Agreement.
(b)
All
insurance policies obtained and maintained as required hereunder shall name
the
other Party (and include all of said Party’s Indemnified Parties and the
contractors and subcontractors of the Indemnified Parties) as additional
insureds, and shall also include a waiver of subrogation by the insurers in
favor of the Indemnified Parties (including the contractors and subcontractors
of the Indemnified Parties). Such insurance shall be primary to any insurance
maintained by said Party with respect to matters for which the other Party
is
responsible under this Agreement.
16.
AMENDMENT.
This
Agreement may be amended only by a formal written instrument duly executed
by
the CEOs of both Parties hereto.
17.
WAIVER;
RIGHTS CUMULATIVE.
Any of
the terms, covenants, representations, warranties, or conditions hereof may
be
waived only by a formal written instrument executed by or on behalf of the
Party
hereto waiving compliance. No course of dealing on the part of Sonterra and
STO,
nor by their respective officers, employees, agents, or representatives, nor
any
failure by Sonterra or STO to exercise any of its rights under this Agreement
shall operate as a waiver thereof nor affect in any way the right of such Party
at a later time to enforce the performance of such provision. No waiver by
any
Party of any condition, or any breach of any term, covenant, representation,
or
warranty contained in this Agreement, in any one or more instances, shall be
deemed to be or construed as a further or continuing waiver of any such
condition or breach or a waiver of any other condition or of any breach of
any
other term, covenant, representation, or warranty. The rights of Sonterra and
STO under this Agreement shall be cumulative, and the exercise or partial
exercise of any such right shall not preclude the exercise of any other
right.
18.
SEVERABILITY.
If any
term or other provision of this Agreement is invalid, illegal, or incapable
of
being enforced by any rule of law or public policy, all other conditions and
provisions of this Agreement shall nevertheless remain in full force and effect
so long as the economic or legal substance of the transactions contemplated
hereby is not affected in any adverse manner to any Party. Upon such
determination that any term or other provision is invalid, illegal, or incapable
of being enforced, the Parties hereto shall negotiate in good faith to modify
this Agreement so as to effect the original intent of the Parties as closely
as
possible in an acceptable manner to the end that the transactions contemplated
hereby are fulfilled to the extent possible.
12
19.
PARTIES
IN INTEREST.
Except
for the Parties hereto, no other person shall have any right, benefit, priority,
or interest hereunder or as a result hereof or have standing to require
satisfaction of the provisions hereof in accordance with their terms; provided
that the indemnity and defense provisions in Paragraph 7(b) shall inure to
the
benefit of the Sonterra Indemnified Parties and the STO Indemnified Parties
as
provided therein. Any claim for defense, indemnity or hold harmless hereunder
on
behalf of a member of the Sonterra Indemnified Parties or the STO Indemnified
Parties must be made and administered by Sonterra and STO,
respectively.
20.
PREPARATION
OF AGREEMENT.
Both
Sonterra and STO and their respective counsel participated in the preparation
of
this Agreement. In the event of any ambiguity in this Agreement, no presumption
shall arise based on the identity of the primary draftsman of this
Agreement.
21.
ENTIRE
AGREEMENT; CONFLICTS.
THIS
AGREEMENT CONSTITUTES THE ENTIRE AGREEMENT AMONG SONTERRA AND STO PERTAINING
TO
THE PROVISION OF THE SERVICES AND SUPERSEDES ALL PRIOR AGREEMENTS,
UNDERSTANDINGS, NEGOTIATIONS, AND DISCUSSIONS, WHETHER ORAL OR WRITTEN, OF
THE
PARTIES PERTAINING TO THE PROVISION OF THE SERVICES. THERE
ARE NO WARRANTIES, REPRESENTATIONS, OR OTHER AGREEMENTS AMONG THE PARTIES
RELATING TO THE SUBJECT MATTER HEREOF EXCEPT AS SPECIFICALLY SET FORTH IN THIS
AGREEMENT, AND NEITHER STO NOR SONTERRA SHALL BE BOUND BY OR LIABLE FOR ANY
ALLEGED REPRESENTATION, PROMISE, INDUCEMENT, OR STATEMENTS OF INTENTION NOT
SO
SET FORTH.
22.
JOINT
AND SEVERAL LIABILITY.
The
covenants made by each Party are joint and several.
23.
BONDING
REQUIREMENTS.
Sonterra
shall continue to comply with the bonding requirements of the applicable
governmental agency and other governmental authorities, together with any
bonding or other security requirements provided for in any Contracts, as they
relate to the Operated Properties.
The
Parties have caused their duly authorized representatives to execute this
Agreement as of the day and year first set forth above.
13
PARTY
OF THE FIRST PART:
SONTERRA:
SONTERRA
RESOURCES, INC.
| By:
| /s/
Xxxxxx X. Xxxxxxxxxx | |
Name:
Xxxxxx X. Xxxxxxxxxx
Title:
Chief Executive Officer and Officer
SONTERRA
OPERATING, INC.
| By:
| /s/
Xxxxxx X. Xxxxxxxxxx | |
Name:
Xxxxxx X. Xxxxxxxxxx
Title:
Chief Executive Officer and Officer
SONTERRA
OIL & GAS, INC.
| By:
| /s/
Xxxxxx X. Xxxxxxxxxx | |
Name:
Xxxxxx X. Xxxxxxxxxx
Title:
Chief Executive Officer and Officer
PARTY
OF THE SECOND PART:
STO:
SOUTH
TEXAS OIL COMPANY
| By:
| /s/
Xxxxxxx X. Xxxxxxx | |
Name:
Xxxxxxx X. Xxxxxxx
Title:
Chief Executive Officer and Officer
STO
OPERATING COMPANY
|
By:
| /s/
Xxxxxxx X. Xxxxxxx | |
Name:
Xxxxxxx X. Xxxxxxx
Title:
Chief Executive Officer and Officer
STO
DRILLING COMPANY
| By:
| /s/
Xxxxxxx X. Xxxxxxx | |
Name:
Xxxxxxx X. Xxxxxxx
Title:
Chief Executive Officer and Officer
14
EXHIBIT
“A”
TO
SOUTH
TEXAS OIL COMPANY
MATAGORDA
BAY
CONTRACT
OPERATING AGREEMENT
OIL
AND GAS LEASES
(All
subject to existing depth restrictions and leasehold burdens)
1.
Oil
and Gas Lease dated July 1, 2003, from the State of Texas, by and through the
Commissioner of the General Land Office of the State of Texas, as Lessor, to
LLOG Exploration Texas, L.P., as Lessee, covering Oil and Gas Lease Number
M-103191, being the South One-Half (S/2) of Xxxxx 000, Xxxxxxxxx Xxx, Xxxxxxx
Xxxxxx, Xxxxx, containing approximately 320 acres as shown on the applicable
Official Submerged Area Map on file in the Texas General Land Office, Austin,
Texas, and recorded in the Official Records of Xxxxxxx County, Texas, as File
No.0081324, Volume 344, Page 882.
2.
Oil
and Gas Lease dated July 1, 2003, from the State of Texas, by and through the
Commissioner of the General Land Office of the State of Texas, as Lessor, to
LLOG Exploration Texas, L.P., as Lessee, covering Oil and Gas Lease Number
M-103190, being the North One-Half (N/2) of Xxxxx 000, Xxxxxxxxx Xxx, Xxxxxxx
Xxxxxx, Xxxxx, containing approximately 320 acres as shown on the applicable
Official Submerged Area Map on file in the Texas General Land Office, Austin,
Texas, and recorded in the Official Records of Xxxxxxx County, Texas, as File
No. 00081323, Volume 344, Page 875.
3.
Oil
and Gas Lease dated July 1, 2003, from the State of Texas, by and through the
Commissioner of the General Land Office of the State of Texas, as Lessor, to
LLOG Exploration Texas, L.P., as Lessee, covering Oil and Gas Lease Number
M-103192, being the North One-Half (N/2) of Xxxxx 000, Xxxxxxxxx Xxx, Xxxxxxx
Xxxxxx, Xxxxx, containing approximately 320 acres as shown on the applicable
Official Submerged Area Map on file in the Texas General Land Office, Austin,
Texas, and recorded in the Official Records of Xxxxxxx County, Texas, as File
No. 00081325, Volume 344, Page 889.
15
4.
Oil
and Gas Lease dated July 6, 2004, from the State of Texas, by and through the
Commissioner of the General Land Office of the State of Texas, as Lessor, to
LLOG Exploration Texas, L.P., as Lessee, covering Oil and Gas Lease Number
M-104022, being the North One-Half (N/2) of Xxxxx 000, Xxxxxxxxx Xxx, Xxxxxxx
Xxxxxx, Xxxxx, containing approximately 320 acres as shown on the applicable
Official Submerged Area Map on file in the Texas General Land Office, Austin,
Texas, and recorded in the Official Records of Xxxxxxx County, Texas, as File
No. 00088242, Volume 381, Page 433.
5.
Oil
and Gas Lease dated July 1, 2003, from the State of Texas, by and through the
Commissioner of the General Land Office of the State of Texas, as Lessor, to
LLOG Exploration Texas, L.P., as Lessee, covering Oil and Gas Lease Number
M-103195, being the South One-Half (S/2) of Xxxxx 000, Xxxxxxxxx Xxx, Xxxxxxx
Xxxxxx, Xxxxx, containing approximately 320 acres as shown on the applicable
Official Submerged Area Map on file in the Texas General Land Office, Austin,
Texas, and recorded in the Official Records of Xxxxxxx County, Texas, as File
No. 00081326, Volume 344, Page 896.
6.
Oil
and Gas Lease dated July 19, 2005, from the State of Texas, by and through
the
Commissioner of the General Land Office of the State of Texas, as Lessor, to
LLOG Exploration Texas, L.P., as Lessee, covering Oil and Gas Lease Number
M-105372, being the South One-Half (S/2) of Xxxxx 000, Xxxxxxxxx Xxx, Xxxxxxx
Xxxxxx, Xxxxx, containing approximately 320 acres as shown on the applicable
Official Submerged Area Map on file in the Texas General Land Office, Austin,
Texas, and recorded in the Official Records of Xxxxxxx County, Texas, as File
No. 00095163, Volume 420, Page 166.
7.
Oil
and Gas Lease dated July 1, 2003, from the State of Texas, by and through the
Commissioner of the General Land Office of the State of Texas, as Lessor, to
Cinco Natural Resources Corporation, as Lessee, covering Oil and Gas Lease
No.
M-103194, being the South One-Half (S/2) of Xxxxx Xxxxx 000, Xxxxxxxxx Xxx,
Xxxxxxx Xxxxxx, Xxxxx, containing approximately 320.0 acres, recorded in File
No. 82095, Volume 349, Page 1 of the Official Records of Xxxxxxx County,
Texas.
16
EXHIBIT
“B”
TO
SOUTH
TEXAS OIL COMPANY
MATAGORDA
BAY
CONTRACT
OPERATING AGREEMENT
MATAGORDA
BAY PROSPECTS
MATAGORDA
AND XXXXXXX COUNTIES, TEXAS
A. SYDNEY/150
DEEP XXXXXXXX
XXXXX
XXXXXXX
X/0
XX 000 , 000.0 Acres, Xxxxxxx County,
TX
X/0
XX 000 , 000.0 Xxxxx, Xxxxxxx Xxxxxx,
TX
N/2
ST 000 , 000.0 Xxxxx, Xxxxxxx Xxxxxx,
XX
X/0
XX 000, 000.0 Xxxxx, Xxxxxxx Xxxxxx, TX
X/0
XX 000, 000.0 Xxxxx, Xxxxxxx Xxxxxx, TX
X/0
XX 000, 000.0 Xxxxx, Xxxxxxx Xxxxxx, TX
S/2
ST 154 , 320.0 Acres, Xxxxxxx County,
TX
17
B. BARRACUDA
PROSPECT
BLOCK
NUMBERS
X/0
XX 00, 000.0 Xxxxx, Xxxxxxx Xxxxxx, Xxxxx
X/0
XX 00, 000.0 Xxxxx, Xxxxxxx Xxxxxx, Xxxxx
C. STARFISH
PROSPECT
BLOCK
NUMBERS
X/0
XX 00, 000.0 Xxxxx, Xxxxxxx Xxxxxx, Xxxxx
X/0
XX 000, 000.0 Xxxxx, Xxxxxxx Xxxxxx, Texas
D. MACKERAL
PROSPECT
BLOCK
NUMBERS
N/2
ST 175, 320.0 Acres, Xxxxxxx and Matagorda Counties,
Xxxxx
X/0
XX 000, 000.0 Xxxxx, Xxxxxxxxx Xxxxxx, Xxxxx
S/2
ST 176, 320.0 Acres, Xxxxxxx and Matagorda Counties, Texas
00
X.
XXX XXXXXXXX
XXXXX
NUMBERS
S/2
ST 175, 320.0 Acres, Xxxxxxx and Matagorda Counties, Xxxxx
X/0
XX 000, 000.0 Xxxxx, Xxxxxxxxx Xxxxxx, Xxxxx
X/0
XX 000, 000.0 Xxxxx, Xxxxxxxxx Xxxxxx, Xxxxx
19
EXHIBIT
“C”
TO
SOUTH
TEXAS OIL COMPANY
MATAGORDA
BAY
CONTRACT
OPERATING AGREEMENT
APPLICABLE
CONTRACTS
A. PURCHASE
AND SALE AGREEMENTS
| 1. |
Purchase
and Sale Agreement dated effective May 1, 2007, with Flash Gas and
Oil
Southwest, Inc.;
|
| 2. |
Purchase
and Sale Agreement dated effective May 1, 2007, with Cinco Natural
Resources Corporation; and
|
| 3. |
Purchase
and Sale Agreement dated effective October 30, 2007, with Rainier
Exploration, L.P.
|
B. PROJECT
PARTICIPATION AGREEMENTS
| 1. |
Project
Participation Agreement dated effective May 1, 2008, with Arbol Resources,
Inc.;
|
| 2. |
Project
Participation Agreement dated effective May 1, 2008, with JHN Family
Investments, LLC;
|
| 3. |
Project
Participation Agreement dated effective December 1, 2007, with BOSS
Exploration & Production
Corporation;
|
| 4. |
Project
Participation Agreement dated effective December 1, 2007, with Cinco
Natural Resources Corporation;
|
| 5. |
Project
Participation Agreement dated effective December 1, 2007, with Gasco,
L.P.;
|
| 6. |
Project
Participation Agreement dated effective December 1, 2007, with Hardrock
Partners, Ltd.; and
|
| 7. |
Project
Participation Agreement dated effective December 1, 2007, with Xxx
Exploration, Ltd.
|
20
C. JOINT
OPERATING AGREEMENTS
| 1. |
Joint
Operating Agreement dated effective May 1, 2008, with Arbol Resources,
Inc.;
|
| 2. |
Joint
Operating Agreement dated effective May 1, 2008, with JHN Family
Investments, LLC;
|
| 3. |
Joint
Operating dated effective December 1, 2007, with BOSS Exploration
&
Production Corporation;
|
| 4. |
Joint
Operating Agreement dated effective December 1, 2007, with Cinco
Natural
Resources Corporation;
|
| 5. |
Joint
Operating Agreement dated effective December 1, 2007, with Gasco,
L.P.;
|
| 6. |
Joint
Operating Agreement dated effective December 1, 2007, with Hardrock
Partners, Ltd.;
|
| 7. |
Joint
Operating Agreement dated effective December 1, 2007, with Xxx
Exploration, Ltd.; and
|
| 8. |
Joint
Operating Agreement dated effective November 1, 2007, with Rainier
Exploration, L.P.
|
D. POOLING
AGREEMENTS
| 1. |
Term
Pooling Agreement dated December 26, 2007, with the General Land
Office.
|
21
EXHIBIT
“D”
TO
SOUTH
TEXAS OIL COMPANY
MATAGORDA
BAY
CONTRACT
OPERATING AGREEMENT
127-1
UNIT WELL, XXXXXXX COUNTY, TEXAS
SONTERRA
RESOURCES, INC. PARTICIPATION
|
WORKING
INTEREST
| |
WI%
BPO Non-Consent
| |
WI%
ACP but BPO of
| |
WI%
APO
| |
APO
WI%
| | | |
|
OWNER
| |
To
Casing Point
| |
N/C
& Rainier’s BI
| |
Rainier’s
BI
| |
Non-Consent
| |
| |
| | | | | | | | | | | | |
|
70%
STO Share:
| | |
18.510000
| | |
22.710000
| | |
21.652555
| | |
21.652555
| | | | |
|
STO
% Share of N/C
| | |
1.459886
| | |
1.459886
| | |
1.459886
| | | | | | | |
|
Total
STO WI
| | |
19.969886
| | |
24.169886
| | |
23.112441
| | | | | | | |
|
STO
Cost to Casing Point:
| |
STO
Cost After Casing Point:
|
| | | |
|
19.969886%
x
| |
24.169886
% x
|
|
$6,308,950
= $1,259,890
| |
$1,499,335
= $362,388
|
|
30%
Sonterra Share:
| | |
7.932857
| | |
9.732857
| | |
9.279666
| | |
9.279666
| |
|
Sonterra
% Share of N/C
| | |
.625666
| | |
.625666
| | |
.625666
| | | | |
|
Total
Sonterra WI
| | |
8.558523
| | |
10.358523
| | |
9.905332
| | | | |
|
Sonterra
Cost to Casing Point:
| |
Sonterra
Cost After Casing Point:
|
| | | |
|
8.558523%
x
| |
10.358523%
x
|
|
$6,308,950
= $539,953
| |
$1,499,335
= $155,309
|
|
WI%
APO Rainier and N/C - Sonterra 25% Back In:
| | | |
| | | | |
|
25%
x STO WI% 21.652555 = 5.413139
| | | |
| | | | |
|
STO
WI % = 21.652555 - 5.413139 =
| | |
16.239416
|
%
|
|
Sonterra
WI% = 9.279666 + 5.413139 =
| | |
14.692805
|
%
|
| | | |
30.932221
|
%
|
| Legend: |
| BPO |
| = |
| Before Payout |
|
| | APO | | = | | After Payout |
|
| | N/C | | = | | Non-Consent |
|
| | ACP | | = | | At Casing Point (Completion) |
|
| | BI | | = | | Back-in |
|
| | WI | | = | | Working
Interest |
22
