DEVELOPMENT AGREEMENT
EXHIBIT
10.1
THIS
DEVELOPMENT AGREEMENT (“Agreement”), made and entered into effective as of
October 1, 2006 (the “Effective Date”), by and between BP
AMERICA PRODUCTION COMPANY
(“BP”),
a Delaware corporation, with an office at 000 Xxxxxxxx Xxxx Xxxxxxxxx, Xxxxxxx,
Xxxxx 00000, and TRUE NORTH ENERGY CORP. (“Company”), a Nevada corporation, with
an office at 0000 Xxxxx Xxxxxx, 00xx Xxxxx, Xxxxxxx, Xxxxx 00000 (individually,
a “Party” and collectively, the “Parties”).
WITNESSETH:
WHEREAS,
BP owns those certain oil, gas and mineral leases set forth in Exhibit “A” (the
"Leases") covering the Contract Area; and
WHEREAS,
subject to the terms, provisions and conditions set forth below, Company
will
pay a disproportionate 16.67% of the Drilling Costs for the BP America
Production Company - X. Xxxxxxx Heirs No. 1 well (the “Initial Well”) being
drilled at the location shown on the plat attached as Exhibit “C”, and in return
BP will assign to Company a 12.5% interest in the Initial Well and the BP
Interests, limited as to those depths between the surface and the stratigraphic
equivalent of the Objective Zone, all as further provided in this
Agreement
NOW,
THEREFORE, in consideration of the premises and of the mutual covenants and
agreements hereinafter contained, to be kept and performed by the Parties,
it is
hereby agreed by and between the Parties as follows:
ARTICLE
I
DEFINITIONS
Each
capitalized term in this Agreement has the meaning given to it in this Article.
All defined terms include the singular and the plural. All references to:
Articles and Sections refer to Articles and Sections in this Agreement, and
Exhibits refer to Exhibits attached to this Agreement.
1.1 “A/B
Shale”
means
that stratum of shale deeper than the base of the Tuscaloosa A sands, being
the
stratigraphic equivalent of the shale seen deeper than the base of the deepest
Tuscaloosa A sand as seen at 20,730 feet (electrical log measurement) for
the
Chevron U.S.A. Inc. - Xxxxxx-Xxxxxxx No. 2 well, located in Section 00, Xxxxxxxx
0 Xxxxx, Xxxxx 9 East, Pointe Coupee Parish, Louisiana.
1.2 “Additional
Well”
means
a
well, other than the Initial Well or a Substitute Well, drilled on the Contract
Area after Company earns its proportionate share of the BP Interests in
accordance with Section 4.1.
1.3 “Affiliate”
of
a
Party means (i) the parent company thereof or (ii) any Person directly or
indirectly controlled by, controlling, or under common control with that
party
(for the purposes of this definition, ownership of fifty percent (50%) or
more
of the stock, equity or property of such Person, or having the right to appoint
fifty percent (50%) or more of the members or owner representatives of such
Person are examples of forms of control).
1.4 “AFE”
means
an Authority for Expenditure prepared by a Party for the purpose of estimating
the costs to be incurred in conducting an operation on a well subject to
this
Agreement and for providing such other information as may be specifically
set
forth elsewhere in this Agreement.
1.5 “Agreement”
has
the
meaning given to it in the preamble.
1.6 “BP”
has
the
meaning given to it in the preamble.
1.7 “BP
Interests”
means
the Leases and BP’s right to obtain, acquire or otherwise earn certain interests
in the Contract Area pursuant to that certain Farmout Agreement, dated April
18,
2006, by and between Chesapeake Investments, Chesapeake Louisiana, L.P.,
TLW
Investments, Inc., and BP, a copy of which is attached hereto as Exhibit
“I”.
1.8 “BP
GROUP”
means
the following Persons, individually and collectively: BP and its Affiliates
and
the officers, directors, employees, agents, and representatives of all of
those
Persons.
1.9 “Carried
Interests”
has
the
meaning given to it in Section 5.7.
1.10 “Casing
Point”
means
the time when (a) a well has been drilled to the Objective Zone, (b) all
logs,
tests, and evaluations have been completed and the results thereof have been
furnished to the Parties, and (c) a recommendation has been made whether
to run
and set production casing and attempt to Complete the well as a producer
or to
abandon the well as a dry hole.
1.11 “Company”
has
the
meaning given to it in the preamble.
1.12 “Complete”
or
“Completion”
or
“Completing”
means
a
single operation intended to complete a well as a producer of oil and/or
gas in
one or more Zone(s), including, but not limited to, the setting of
pipe/production lining and casing tie-back, installing tubing, wellhead and
tree, perforating, plugging back, well stimulation, and testing.
1.13 “Completion
Costs”
means
the actual costs and expenses incurred in Completing a well subject to this
Agreement.
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1.14 “Contract
Area”
means
the geographic area (covering all depths) defined by the following Units
or
proposed Units, when and if they may be approved: (a) the 640-acre Xxxxx
Xxxx
Field 18,100’ TUSC XX XXX, created by the State of Louisiana Office of
Conservation Order No. 1063, effective May 1, 1979, as it may be amended
from
time to time; (b) the 1280-acre Judge Digby Field U TUSC RA SUM, created
by
State of Louisiana Office of Conservation Order No. 1046-A-4, effective November
20, 1984, as it may be amended from time to time; and (c) the proposed 1280-acre
Judge Digby Field U TUSC XX XXX, as set forth in BP’s application dated July 18,
2006, to create such Unit (among others) and pending before the Commissioner
of
the Office of Conservation within the State of Louisiana Department of Natural
Resources. The “Contract
Area”,
as it
exists now, is outlined in red on the plat attached as Exhibit “B”, but in the
event of any conflict between the definition set forth in the preceding sentence
and Exhibit “B”, the definition set forth in the preceding sentence shall govern
and control.
1.15 “Data”
means
3D seismic data, in whatever form (reels, paper, film, tape, magnetic or
electronic, covering the Contract Area.
1.16 “Data
Owner”
means
a
Third Party who owns the Data.
1.17 “Deep
Test Well”
has
the
meaning given to it in Section 6.1.
1.18 “Drilling
Costs”
means
the actual costs and expenses incurred in drilling a well subject to this
Agreement beginning with the initiation of preliminary site preparation
activities through and including logging, testing and evaluating the well
prior
to recommending whether to attempt a Completion. Drilling Costs shall include,
but shall not be limited to, the costs and expenses associated with permitting,
preparing the site, drilling to the Objective Zone, and evaluating any Zone(s)
in such well to which a Completion may be attempted. Drilling Costs shall
also
include brokerage, abstracting, and reasonable attorney fees related to the
preparation of drilling title opinions for such well. Drilling Costs shall
not
include the cost to plug and abandon any well, including a dry hole, and
shall
not include any Completion Costs.
1.19 “Earned
Zone”
has
the
meaning given to it in Section 4.1.
1.20 “Estimated
Drilling Costs”
has
the
meaning given to it in Section 2.1.
1.21 “Effective
Date”
has
the
meaning given to it in the preamble.
1.22 “Exhibits”
has
the
meaning given to it in Section 17.6.
1.23 “Force
Majeure”
has
the
meaning given to it in Section 10.1.
1.24 “Initial
Well”
has
the
meaning given to it in the recitals.
1.25 “Insurance
Requirements”
has
the
meaning given to it in Exhibit “G”.
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1.26 “Intermediate
Casing Point”
means
the time when (a) the Initial Well has been drilled to the A/B Shale, (b)
all
logs, tests, and evaluations have been completed and the results thereof
have
been furnished to the Parties, and (c) a recommendation has been made whether
to
continue drilling the Initial Well to the Objective Zone or to abandon the
Initial Well as a dry hole.
1.27 “Leases”
has
the
meaning given to it in the recitals.
1.28 “Objective
Zone”,
with
respect to the Initial Well, means the base of the Tuscaloosa B-1 sand, being
the stratigraphic equivalent of the base of the Tuscaloosa B-1 sand as seen
at
20,706 feet (electrical log measurement) for the Amoco Production Company
-
Parlange No. 8 well, located in Section 45. Township 5 South, Range 9 East,
Pointe Coupee Parish, Louisiana, or twenty-one thousand two hundred fifty
feet
measured depth (21,250’ MD), whichever occurs first in the Initial Well. The
term “Objective
Zone”,
with
respect to any Substitute Well or Additional Well, means the deepest Zone
to
which the Substitute Well or Additional Well is proposed to be drilled as
provided in the relevant AFE for such well.
1.29 “Operating
Agreement”
has
the
meaning given to it in Section 5.5.
1.30 “Partial
Assignment”
has
the
meaning given to it in Section 4.1.
1.31 “Partial
Interest”
has
the
meaning given to it in Section 4.2.
1.32 “Party”
and
“Parties”
have
the meaning given to them in the preamble.
1.33 “Person”
means
any individual or entity, in the broadest sense possible, including but not
limited to a corporation, partnership, limited partnership, limited liability
company, trust, trustee, association or unincorporated
organization.
1.34 “Plants”
has
the
meaning given to it in Section 5.6.
1.35 “Properties”
mean
all of BP’s right, title and interest (real or immovable, personal or movable,
mixed, contractual or otherwise), as of the Effective Date, in, to and under
or
derived from the following:
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(a)
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the
Leases, as well as the production of oil, gas or other hydrocarbon
substances attributable thereto;
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(b)
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all
unitization, communitization and pooling declarations, orders and
agreements (including all units formed by voluntary agreement and
those
formed under the rules, regulations, orders or other official acts
of any
governmental entity or tribal authority having jurisdiction) to
the extent
they relate to the Initial Well and
any
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Additional
Well, or the production of oil, gas or other hydrocarbon substances attributable
thereto;
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(c)
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all
product sales contracts, processing contracts, gathering contracts,
transportation contracts, easements, rights-of-way, servitudes,
surface
leases, subsurface leases, farm-in and farm-out contracts, areas
of mutual
interest, operating agreements, balancing contracts and other contracts,
agreements and instruments to the extent they relate to the Initial
Well
and any Additional Well, or the production of oil, gas or other
hydrocarbon and non-hydrocarbon substances attributable
thereto;
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(d)
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all
personal or movable property, improvements, fixtures and other
appurtenances, to the extent situated upon and exclusively used,
or
situated upon and held exclusively for use in connection with ownership,
operation, maintenance or repair of the interests described in
the Leases,
or production of oil, gas or other hydrocarbon and non-hydrocarbon
substances attributable thereto, including all xxxxx (whether producing,
shut-in, injection, disposal, water supply or plugged and abandoned),
gathering and processing systems, platforms, buildings, pipelines,
compressors, meters, tanks, equipment, machinery, tools, utility
lines,
permits, licenses, imbalances and suspense funds;
and
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(e)
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all
partnerships (tax, state law or otherwise) affecting any of the
items
enumerated above.
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1.36 “Rig
Release Date”
has
the
meaning given to it in Section 3.2.
1.37 “Seismic
Use Agreements”
means
those agreements between BP and the Data Owner governing BP’s rights and
obligations concerning the Data.
1.38 “Substitute
Well”
means
a
well proposed within one (1) year of the Rig Release Date and drilled by
BP
within the Contract Area, all in accordance with Section 3.2.
1.39 “Third
Party”
means
a
Person other than a Party or an Affiliate of a Party.
1.40 “Unit”
means
a
compulsory unit established by the Commissioner
of the Office of Conservation within the State of Louisiana Department of
Natural Resources
pursuant
to Chapter
39 of Part XIX of Title 43 of the Louisiana Administrative Code, as same
may be
amended from time to time.
1.41 “Well
Information”
has
the
meaning give to it in Section 2.2
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1.42 “Zone”
or
“Zone(s)”
means
a
stratum of earth containing or thought to contain a common accumulation of
oil
and/or gas separately producible from any other common accumulation of oil
and/or gas.
ARTICLE
II
DRILLING
AND COMPLETING THE INITIAL WELL
2.1
BP
has
commenced drilling operations for the Initial Well, and, except as provided
elsewhere in this Agreement, BP shall continue drilling the Initial Well
with
due diligence to the Objective Zone and perform all logging and testing
operations to which the Parties agree. Company shall pay 16.67% of the Drilling
Costs of the Initial Well, regardless of whether the Initial Well is
successfully drilled to the Objective Zone. BP has estimated that Drilling
Costs
will be approximately FIFTEEN MILLION, SEVEN HUNDRED THOUSAND DOLLARS
($15,700,000) (the “Estimated Drilling Costs”) for the Initial Well. Company
shall pay its share of Estimated Drilling Costs, being TWO MILLION, SIX HUNDRED
SEVENTEEN THOUSAND, ONE HUNDRED NINETY DOLLARS ($2,617,190) at execution
of this
Agreement via wire transfer according to the wiring instructions set forth
in
Exhibit “J”, but Company will pay its share of actual Drilling Costs in
accordance with this Article II and Section 5.4.
2.2 When
Intermediate Casing Point is reached in the Initial Well, BP shall give written
notice to Company of such occurrence, and such notice shall state whether
BP
will continue drilling the Initial Well to the Objective Zone or whether
BP will
abandon the Initial Well as a dry hole. The notice shall be accompanied by
all
well information and data set forth in Exhibit “D” (the “Well Information”),
unless such information has been previously furnished to Company. If BP reaches
Intermediate Casing Point and proposes to abandon the Initial Well as a dry
hole, (i) BP shall plug and abandon the Initial Well in accordance with Section
2.7, and (ii) Company shall have no right or option to takeover the Initial
Well.
2.3 When
and
if Casing Point is reached in the Initial Well, BP shall give written notice
to
Company of such occurrence, and such notice shall state whether BP proposes
to
attempt to Complete the Initial Well as a producer, whether in the Objective
Zone or in a shallower Zone, or to abandon the Initial Well as a dry hole.
The
notice shall be accompanied by all Well Information, unless such information
has
been previously furnished to Company.
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(A)
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If
BP reaches Casing Point and proposes to Complete the Initial Well
as a
producer, whether in the Objective Zone or in a shallower Zone,
such
notice shall also include a completion AFE. The completion AFE
shall
include, at a minimum, an estimate of Completion Costs for the
Initial
Well. Company shall have forty-eight (48) hours (exclusive of Saturday,
Sunday and holidays) from receipt of the notice to elect, by written
notice, whether it will participate in accordance with Section
2.4. BP
shall not Complete
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the
Initial Well until Company has notified BP in writing whether or not it will
participate or until forty-eight (48) hours (exclusive of Saturday, Sunday
and
holidays) have elapsed since Company’s receipt of BP’s notice. Failure to
respond within the time period allowed shall be deemed to be an election
not to
participate in the Completion of the Initial Well.
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(B)
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If
BP reaches Casing Point and proposes to abandon the Initial Well
as a dry
hole, (i) BP shall plug and abandon the Initial Well in accordance
with
Section 2.7, and (ii) Company shall have no right or option to
takeover
the Initial Well.
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2.4 If
BP
proposes to Complete the Initial Well and Company timely elects to participate
in such Completion attempt in accordance with Section 2.3(A), Company shall
pay
12.5% of the Completion Costs associated with the Initial Well and 12.5%
of the
cost of any newly acquired surface equipment associated with the Initial
Well
beyond the wellhead connections (including but not limited to stock tanks,
separators, treaters, pumping equipment, piping, and metering
devices).
2.5 If
BP
proposes to Complete the Initial Well and Company elects not to participate
in
such Completion attempt, or is deemed not to participate, BP may nonetheless
continue with such operation and carry Company’s proportionate part of
Completion Costs. If the Completion attempt is ultimately not successful,
BP
shall abandon the Initial Well in accordance with Section 2.7 or propose
to
Complete the Initial Well in another Zone under the provisions of Section
2.3
(and Company shall be given another election to participate in such newly
proposed Completion). If the Completion attempt results in the production
of oil
and/or gas in paying quantities, the Initial Well shall be operated by BP
at the
expense and for the account of BP and other parties who agreed to participate
in
the Completion attempt. By electing not to participate in any Completion
attempt, or being deemed not to participate in any Completion attempt, Company
shall be deemed to have relinquished to BP, and BP shall own and be entitled
to
receive, all of Company’s interest in the Initial Well and share of production
therefrom until the proceeds of the sale of such share, calculated at the
well,
or market value thereof if such share is not sold (after deducting applicable
ad
valorem, production, severance, windfall profits, and excise taxes, royalty,
overriding royalty and other interests payable out of or measured by the
production from the Initial Well accruing with respect to such interest until
it
reverts), shall equal the total of the following:
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(A)
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thirty-seven
and one-half percent (37.5%) of the Completion Costs associated
with the
Initial Well and thirty-seven and one-half percent (37.5%) of the
cost of
any newly acquired surface equipment beyond the wellhead connections
(including but not limited to stock tanks, separators, treaters,
pumping
equipment, piping and metering devices) (i.e.,
300% non-consent penalty on a non-promoted basis);
and
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(B)
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twelve
and one-half percent (12.5%) of the cost of operation of the Initial
Well
commencing with first production and continuing until Company’s interest
shall revert to it in accordance with this Section 2.5 (i.e.,
100% non-consent penalty on a non-promoted
basis).
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2.6 Company
shall bear its proportionate part, being twelve and one-half percent (12.5%),
of
any severance, production and gathering taxes and any other taxes imposed
or
measured by the volume or value of production from the Initial Well, including,
but only by way of illustration, excise taxes and windfall profit taxes,
whether
enacted by federal, state or local authority.
2.7 The
Initial Well shall be plugged and abandoned in accordance with applicable
regulations and at the cost, risk and expense of the parties who participated
in
the cost of drilling the Initial Well. Company’s proportionate share of the
cost, risk and expense to plug and abandon the Initial Well shall be twelve
and
one-half percent (12.5%).
ARTICLE
III
SUBSTITUTE
XXXXX
3.1
If,
prior
to reaching Casing Point in the Initial Well, BP should encounter geological
or
mechanical conditions which render further operations impracticable or
economically infeasible, in the sole reasonable opinion of BP, BP shall (i)
give
written notice of such occurrence to Company, and (ii) such notice shall
state
whether BP proposes to attempt to Complete the Initial Well in a shallower
Zone
or to abandon the Initial Well as a dry hole.
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(A)
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If
BP proposes to Complete the Initial Well without reaching the Objective
Zone, such notice shall also include a completion AFE. The completion
AFE
shall include, at a minimum, an estimate of Completion Costs for
the
Initial Well. Company shall have forty-eight (48) hours (exclusive
of
Saturday, Sunday and holidays) from receipt of the notice to elect,
by
written notice, whether it will participate in accordance with
Section
2.4. BP shall not Complete the Initial Well until Company has notified
BP
in writing whether or not it will participate or until forty-eight
(48)
hours (exclusive of Saturday, Sunday and holidays) have elapsed
since
Company’s receipt of BP’s notice. Failure to respond within the time
period allowed shall be deemed to be an election not to participate
in the
Completion of the Initial Well. If BP proposes to Complete the
Initial
Well and Company elects not to participate in such Completion attempt,
or
is deemed not to participate, BP may nonetheless continue with
such
operation and carry Company’s proportionate part of Completion Costs in
accordance with Section 2.5.
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(B)
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If
BP proposes to abandon the Initial Well as a dry hole, (i) BP shall
plug
and abandon the Initial Well in accordance with Section 2.7, and
(ii)
Company shall have no right or option to takeover the Initial Well.
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3.2 If
BP
does not drill the Initial Well to the Objective Zone, Company shall have
the
right, but not the obligation, for a period of one (1) year from the date
the
drilling rig used to drill the Initial Well is removed from the well site
location for the Initial Well (the “Rig Release Date”), to participate in the
drilling of a Substitute Well. BP shall have no obligation to drill a Substitute
Well, and Company shall have no right to propose a Substitute Well. If and
when
BP elects to drill a Substitute Well, BP shall provide Company with an AFE
for
the Substitute Well. The AFE for the Substitute Well shall include, at a
minimum, the surface and bottomhole location of the Substitute Well, the
Objective Zone, and the estimated costs for the Substitute Well as a dry
hole
and as a producer. Company shall have thirty (30) days from receipt of such
written notice to elect whether it shall participate in such Substitute Well.
Failure to respond within the time period allowed shall be deemed to be an
election not to participate in the Substitute Well.
3.3 If
BP
proposes to drill a Substitute Well and Company timely elects to participate
in
such Substitute Well in accordance with Section 3.2, such Substitute Well
shall
be treated for all purposes herein as the Initial Well (including, but not
limited to, Company’s obligation to pay 16.67% of the Drilling Costs for such
Substitute Well), except that the Objective Zone for such Substitute Well
shall
be governed by the AFE for such Substitute Well.
3.4 If
Company elects not to participate in a Substitute Well, or is deemed not
to
participate in a Substitute Well, this Agreement shall terminate; provided,
however, (i) BP and Company shall first enter into an operating agreement
in the
form of the Operating Agreement, except that Exhibit “A” of such operating
agreement shall be limited to the Partial Interest, and (ii) the expiration
or
termination of this Agreement shall not release any of the Parties from any
obligation or liability which accrued prior to such expiration or termination
(including the costs to plug and abandon any well drilled pursuant to this
Agreement) or which, by the terms hereof, is intended to survive such expiration
or termination, including but not limited to Articles I, XI, XII, XIII, XIV,
XV,
XVI, and XVII and Sections 5.1 and 5.6, which terms shall survive indefinitely.
ARTICLE
IV
EARNING
RIGHTS
4.1 When
and
if the Initial Well is drilled to the Objective Zone and successfully Completed
as a well capable of producing oil and/or gas in paying quantities, BP shall
assign to Company, by partial assignment in the form attached hereto as Exhibit
“E”(the “Partial Assignment”) a twelve and one-half percent
(12.5%)
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working
interest in the Initial Well and a twelve and one-half percent (12.5%) interest
in the BP Interests, but limited as to those depths between the surface and
the
stratigraphic equivalent of the base of the Objective Zone (the “Earned Zone”),
plus one hundred feet (100’) vertical easement for operational purposes
only.
4.2 If
the
Initial Well is not drilled to the Objective Zone, for any reason (including
but
not limited to a decision at Intermediate Casing Point or a decision in
accordance with Section 3.1), but the Initial Well is successfully Completed
as
a well capable of producing oil and/or gas in paying quantities, BP shall
assign
to Company, by partial assignment in the form of the Partial Assignment,
a
twelve and one-half percent (12.5%) working interest in the Initial Well
and a
twelve and one-half percent (12.5%) interest in the BP Interests, but limited
as
to the geographic boundaries of the Unit in which the Initial Well is located
and further limited as to those depths between the surface and the stratigraphic
equivalent of the deepest Zone penetrated in the Initial Well (the “Partial
Interest”). BP and Company shall conduct operations with respect to such Initial
Well as if they have entered into the Operating Agreement until such well
or a
Substitute Well is drilled to the Objective Zone or until this Agreement
is
terminated; provided, however, if this Agreement is to be terminated without
Company earning its proportionate share of the BP Interests in accordance
with
Section 4.1, then the Parties shall enter into an operating agreement in
the
form of the Operating Agreement but the contract area of such operating
agreement shall be limited to the Partial Interest.
4.3
When and
if (i) Company timely elects to participate in a Deep Test Well in accordance
with Section 6.1, and (ii) such Deep Test Well is drilled to the Objective
Zone
and successfully Completed as a well capable of producing oil and/or gas
in
paying quantities, BP shall assign to Company, by partial assignment in the
form
of the Partial Assignment, a twelve and one-half percent (12.5%) working
interest in the Deep Test Well and a twelve and one-half percent (12.5%)
interest in the BP Interests, but limited as to those depths between the
base of
the Earned Zone and the stratigraphic equivalent of the base of the Objective
Zone, plus one hundred feet (100’) vertical easement for operational purposes
only.
ARTICLE
V
JOINT
OPERATIONS
5.1
BP
does
not own but has a limited non-exclusive right to use the Data in accordance
with
the Seismic Use Agreements. Under the Seismic Use Agreements, BP may not
sell,
assign, copy, transfer, display, exhibit or in any way reveal the Data, except
as authorized by and in compliance with the provisions of the Seismic Use
Agreements. Therefore, Company’s access to the Data shall be limited, and may be
prohibited all together upon execution of this Agreement, unless Company
obtains
the consent or otherwise enters into a seismic license or seismic use agreement
with the Data Owner. BP
does not represent or warrant in any way, and expressly disclaims any
representations or warranties, of any kind, express, implied
or
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otherwise,
that it owns the Data or otherwise has the right to provide all or any portion
of the Data to Company.
5.2 BP
shall
deliver to Company the Well Information derived from or attributable to the
Initial Well and any Substitute Well and Additional Well, if such Well
Information is acquired, obtained, or performed by BP.
5.3
The
Initial Well and each Substitute Well and Additional Well shall be under
the
exclusive control of BP and the operation thereof shall be conducted in a
prudent and workmanlike manner. BP shall conduct all its activities under
this
Agreement as a reasonable prudent operator, in a good and workmanlike manner,
with due diligence and dispatch, in accordance with good oilfield practice,
and
in compliance with applicable law and regulation, but in no event shall BP
have
any liability to Company for losses sustained or liabilities or obligations
incurred except such as may result from BP’s gross negligence or willful
misconduct.
5.4 Except
as
otherwise specifically provided in this Agreement, BP shall promptly pay
and
discharge expenses incurred in drilling the Initial Well and each Substitute
Well and Additional Well pursuant to this Agreement and shall charge Company
with its proportionate shares upon the expense basis provided in Exhibit
“C” to
the Operating Agreement, whether or not such Operating Agreement has been
executed by the Parties. BP shall keep an accurate record, in accordance
with
generally accepted accounting principles, showing expenses incurred and charges
and credits made and received.
5.5 When
and
if the Initial Well is drilled to the Objective Zone and successfully Completed
as a well capable of producing oil and/or gas in paying quantities, BP and
Company shall enter into an operating agreement attached hereto as Exhibit
“F”
(the “Operating Agreement”) covering the Contract Area, including those depths
below the Earned Zone. The Operating Agreement shall be executed
contemporaneously with the Partial Assignment but shall be effective on April
1,
2006. The Operating Agreement shall apply to all Additional Xxxxx. In
the event of any conflict between the Operating Agreement and this Agreement,
this Agreement shall govern.
5.6 Unless
Company elects by thirty (30) days’ prior written notice to BP either to take in
kind or to separately dispose of its share of oil, gas and other hydrocarbons,
BP shall in good faith, to the extent it can do so, cause Company’s share of
production from the Initial Well and each Substitute Well and Additional
Xxxxx
to be marketed and sold to either a Third Party or to an Affiliate of BP
in a
commercially reasonable manner, which terms shall not be less than on the
same
terms and conditions as BP’s share of production from such xxxxx are sold. It is
recognized by the Parties that BP, or its predecessor, has provided at its
cost
or made arrangements with Third Parties to provide certain facilities beyond
the
wellhead (the “Plants”) needed for producing, storing, separating, gathering,
treating, processing and delivering production from the Initial Well and
each
Substitute Well and Additional Well. It is agreed that BP will
-11-
continue
to make the Plants (as they or any contractual arrangements related thereto
may
be modified, changed or upgraded) proportionately available to handle BP,
Company and Third Party production from the Contract Area. It is understood
that
a proportionate share of the cost of maintaining and operating the Plants,
including depreciation or rental in lieu of depreciation and actual Third
Party
costs, whether on a cash fee basis or on a retained volume basis, will be
allocated to the Parties on a “throughput” basis (being that portion of such
costs relating to the production volumes from the Initial Well or, if drilled,
any Substitute Well or Additional Well, as each may bear to the total production
volumes handled by the Plants, including any Third Party or BP volumes not
produced from the Initial Well or, if drilled, any Substitute Well or Additional
Well). Nothing
herein shall be construed to impart, transfer or convey any ownership interest
in the Plants to Company.
5.7 If
any
lands within the Contract Area contain an interest which is unleased or leased
to a Third Party and such interest must be carried in order to conduct
operations consistent with this Agreement (such Third Party interest being
a
“Carried Interest”), Company shall bear twelve and one-half percent (12.5%) of
the Carried Interests in order to conduct such operations.
5.8 At
all
times while this Agreement is in effect, Company shall carry insurance of
the
types and in the minimum amounts set forth in Exhibit “G”. All such insurance
set forth in Exhibit “G” shall specifically name BP as an additional insured or
provide that the insurer shall waive all rights of subrogation against BP.
ARTICLE
VI
DEEP
TEST XXXXX
6.1 BP
shall
have the right, but not the obligation, at any time after Company earns its
proportionate share of the BP Interests in accordance with Section 4.1, to
propose and drill an Additional Well to a proposed depth deeper than the
base of
the Earned Zone (a “Deep Test Well”). When and if BP elects to drill a Deep Test
Well, BP shall provide Company with an AFE for the Deep Test Well. The AFE
for
the Deep Test Well shall include, at a minimum, the surface and bottomhole
location of the Deep Test Well, the Objective Zone, and the estimated costs
for
the Deep Test Well as a dry hole and as a producer. Company shall have thirty
(30) days from receipt of such written notice to elect whether it shall
participate in such Deep Test Well in accordance with Section 6.3 or make
a
separate election to participate in such Deep Test Well if and when BP may
propose to Complete the Deep Test Well within the Earned Zone in accordance
with
Section 6.2. Failure to respond within the time period allowed shall be deemed
to be an election to make a separate election to participate in such Deep
Test
Well if and when BP may propose to Complete the Deep Test Well within the
Earned
Zone in accordance with Section 6.2.
6.2 Unless
Company timely elects to participate in drilling the Deep Test Well to the
Objective Zone in accordance with Section 6.1, (i) BP shall drill such Deep
Test
-12-
Well
at
its sole cost, risk and expense, and (ii) Company shall have no interest
in the
Deep Test Well, or any right to production therefrom, unless and until such
Deep
Test Well is successfully Completed within the Earned Zone. If and when BP
elects, at its sole decision, to propose a Completion of such Deep Test Well
within the Earned Zone, Company shall be given an opportunity to participate
in
such Completion attempt according to the Operating Agreement, but only after
Company pays to BP a well cost adjustment equal to Company’s interest in the
Zone(s) to be Completed multiplied by the total depreciated value of the
Deep
Test Well (including casing and tubing, downhole and wellhead equipment,
and
newly acquired surface equipment associated with the Deep Test Well beyond
the
wellhead connections). The depreciated value of the Deep Test Well shall
be
calculated in accordance with Exhibit “C” of the Operating
Agreement.
6.3 If
BP
proposes to drill and Company timely elects to participate in drilling the
Deep
Test Well to the Objective Zone in accordance with Section 6.1, Company shall
pay 16.67% of the Drilling Costs in such Deep Test Well to Casing Point.
When
and if Casing Point is reached in the Deep Test Well, BP shall give written
notice to Company of such occurrence, and such notice shall state whether
BP
proposes to attempt to Complete the Deep Test Well as a producer, whether
in the
Objective Zone or in a shallower Zone, or to abandon the Deep Test Well as
a dry
hole. The notice shall be accompanied by all Well Information, unless such
information has been previously furnished to Company.
|
(A)
|
If
BP reaches Casing Point and proposes to Complete the Deep Test
Well as a
producer, whether in the Objective Zone or another Zone, such notice
shall
also include a completion AFE. The completion AFE shall include,
at a
minimum, an estimate of Completion Costs for the Deep Test Well.
Company
shall have forty-eight (48) hours (exclusive of Saturday, Sunday
and
holidays) from receipt of the notice to elect, by written notice,
whether
it will participate in accordance with Section 6.4. BP shall not
Complete
the Deep Test Well until Company has notified BP in writing whether
or not
it will participate or until forty-eight (48) hours (exclusive
of
Saturday, Sunday and holidays) have elapsed since Company’s receipt of
BP’s notice. Failure to respond within the time period allowed shall
be
deemed to be an election not to participate in the Completion of
the Deep
Test Well.
|
|
(B)
|
If
BP reaches Casing Point and proposes to abandon the Deep Test Well
as a
dry hole, (i) BP shall plug and abandon the Deep Test Well in the
same
manner as the Initial Well in accordance with Section 2.7, and
(ii)
Company shall have no right or option to takeover the Deep Test
Well.
|
6.4 If
BP
proposes to Complete the Deep Test Well and Company timely elects to participate
in such Completion attempt in accordance with Section 6.3(A),
-13-
Company
shall pay 12.5% of the Completion Costs associated with the Deep Test Well
and
12.5% of the cost of any newly acquired surface equipment associated with
the
Deep Test Well beyond the wellhead connections (including but not limited
to
stock tanks, separators, treaters, pumping equipment, piping, and metering
devices). Company shall also bear its proportionate part, being twelve and
one-half percent (12.5%), of any severance, production and gathering taxes
and
any other taxes imposed or measured by the volume or value of production
from
the Deep Test Well, including, but only by way of illustration, excise taxes
and
windfall profit taxes, whether enacted by federal, state or local
authority.
6.5 If
BP
proposes to Complete the Deep Test Well and Company elects not to participate
in
such Completion attempt, or is deemed not to participate, BP may nonetheless
continue with such operation and carry Company’s proportionate part of
Completion Costs. If the Completion attempt is ultimately not successful,
BP
shall abandon the Deep Test Well in the same manner as the Initial Well in
accordance with Section 2.7 or propose to Complete the Deep Test Well in
another
Zone under the provisions of Section 6.3 (and Company shall be given another
opportunity to participate in such newly proposed Completion). If the Completion
attempt results in the production of oil and/or gas in paying quantities,
the
Deep Test Well shall be operated by BP at the expense and for the account
of BP
and other parties who agreed to participate in the Completion attempt. By
electing not to participate in any Completion attempt, or being deemed not
to
participate in any Completion attempt, Company shall be deemed to have
relinquished to BP, and BP shall own and be entitled to receive, all of
Company’s interest in the Deep Test Well (but
not
the Initial Well) and
share
of production therefrom until the proceeds of the sale of such share, calculated
at the well, or market value thereof if such share is not sold (after deducting
applicable ad valorem, production, severance, windfall profits, and excise
taxes, royalty, overriding royalty and other interests payable out of or
measured by the production from the Deep Test Well accruing with respect
to such
interest until it reverts), shall equal the total of the following:
|
(A)
|
thirty-seven
and one-half percent (37.5%) of the Completion Costs associated
with the
Deep Test Well and thirty-seven and one-half percent (37.5%) of
the cost
of any newly acquired surface equipment beyond the wellhead connections
(including but not limited to stock tanks, separators, treaters,
pumping
equipment, piping and metering devices) (i.e.,
300% non-consent penalty on a non-promoted basis);
and
|
|
(B)
|
twelve
and one-half percent (12.5%) of the cost of operation of the Deep
Test
Well commencing with first production and continuing until Company’s
interest shall revert to it in accordance with this Section 6.5
(i.e.,
100% non-consent penalty on a non-promoted
basis).
|
-14-
ARTICLE
VII
TERM
AND TERMINATION
7.1 Except
as
provided in Sections 7.2 and 7.3, this Agreement shall terminate one (1)
year
from the Rig Release Date, if such has not been terminated sooner pursuant
to
the provisions hereof; provided, however, the expiration or termination of
this
Agreement shall not release any of the Parties from any obligation or liability
which accrued prior to such expiration or termination (including the costs
to
plug and abandon the Initial Well and any Substitute Xxxxx and Additional
Xxxxx)
or which, by the terms hereof, is intended to survive such expiration or
termination, including but not limited to Articles I, XI, XII, XIII, XIV,
XV,
XVI, and XVII and Sections 5.1 and 5.6, which terms shall survive
indefinitely.
7.2 Notwithstanding
Section 7.1, if the Initial Well is drilled to the Objective Zone and
successfully Completed as a well capable of producing oil and/or gas in paying
quantities, this Agreement shall continue for so long as the Operating Agreement
remains in full force and effect.
7.3
Notwithstanding Section 7.1, this Agreement shall remain in full force and
effect for so long as Company participates in the drilling of a Substitute
Well
in accordance with Section 3.2.
ARTICLE
VIII
ASSIGNMENT;
PREFERENTIAL RIGHTS
8.1
The
rights and obligations created by this Agreement may not be assigned by Company,
in whole or in part, without first obtaining BP’s written consent under this
Agreement, such consent not to be unreasonably withheld. If BP consents to
an
assignment by Company of all or part of its rights and obligations under
this
Agreement, it is nevertheless understood and agreed that any such consent
shall
not relieve Company of its primary liability for the performance of and
compliance with the terms and provisions hereof, and shall not have the effect
nor be construed to have the effect of waiving this limitation as to future,
further, or additional assignments. Any assignment of the rights and obligations
under this Agreement by Company without the consent of BP shall be voidable
by
BP.
8.2 Notwithstanding
anything to the contrary in any other agreement, including the Operating
Agreement, should Company desire to sell all or any part of its interest
in the
Initial Well, the BP Interests, or any Substitute Well or Additional Well,
Company shall promptly give written notice to BP, with full information
concerning its proposed disposition, which shall include the name and address
of
the prospective transferee (who must be ready, willing and able to purchase),
the purchase price, a legal description sufficient to identify the property,
and
all other terms of the offer. BP shall then have an optional prior right,
for a
period of fifteen (15) days after receipt of such
-15-
written
notice, to purchase for the stated consideration on the same terms and
conditions the interest which Company proposes to sell.
ARTICLE
IX
NOTICE
9.1 All
notices and other communications required or desired to be given hereunder
must
be in writing and sent (properly addressed as set forth below) by (a) certified
or registered U.S. mail, return receipt requested, with all postage and other
charges fully prepaid, (b) hand or courier delivery, or (c) facsimile
transmission. Date of service by mail and delivery is the date on which such
notice is received by the addressee and by facsimile is the date sent (as
evidenced by fax machine generated confirmation of transmission); provided,
however, if such date received is a Saturday, Sunday or legal holiday, then
date
of receipt will be on the next date that is not a Saturday, Sunday or legal
holiday, and if a facsimile is received after 5:00 pm local time, then date
of
receipt will be the next date that is not a Saturday, Sunday or legal holiday.
Each Party may change its address by notifying the other Party in writing
of
such address change, and the change will be effective thirty (30) days after
such notification is received by the other Party.
FOR
COMPANY:
0000
Xxxxx Xxxxxx, 00xx Xxxxx
Xxxxxxx,
Xxxxx 00000
Attention: ______________
Fax
No.: (000)
000-0000
FOR
BP:
|
|
BP
America Production Company
|
000
Xxxxxxxx Xxxx Xxxxxxxxx
Xxxxxxx,
Xxxxx 00000
Attention:
Tuscaloosa Area Land Negotiator
Fax
No.(000) 000-0000
ARTICLE
X
FORCE
MAJEURE
10.1 If
either
Party is rendered unable, wholly or in part, by Force Majeure to carry out
its
obligations under this Agreement, upon such Party giving notice and reasonably
full particulars of such Force Majeure in writing to the other Party within
a
reasonable time after the occurrence of the cause relied upon, the obligations
of such Party, upon giving said notice, so far as such Party’s ability to
perform such obligations are materially affected by such Force Majeure, shall
be
suspended during the continuance of any inability so caused, and the cause
of
the Force Majeure as far as
-16-
possible
shall be remedied with all reasonable dispatch. The term "Force Majeure"
means
one or a set of circumstances such as an act of God, strike, lockout or other
industrial disturbances, act of the public enemy, war, terrorism, blockade,
riot, lightning, fire, storm, freezing, flood, explosion, governmental action,
delay, restraint or inaction (whether said government's jurisdiction or
authority be actual or assumed), including without limitation, governmental
action or inaction relating to the permitting of xxxxx, and any other cause,
circumstance or condition (except financial) whether of the kind herein
enumerated or otherwise, not reasonably within the control of the Party claiming
Force Majeure. The above requirement that any Force Majeure shall be remedied
with all reasonable dispatch shall not require the settlement of strikes,
lockouts or other labor difficulty by acceding to the demands of opponents
therein when such course is inadvisable in the discretion of the Party claiming
Force Majeure.
ARTICLE
XI
RELATIONSHIP
OF THE PARTIES; TAX PARTNERSHIP
11.1 This
Agreement does not create, and shall not be construed to create, a partnership,
association, joint venture or fiduciary relationship of any kind or character
between the Parties, and shall not be construed to impose any duty, obligation,
or liability arising from such a relationship by or with respect to any Party.
11.2 For
federal and state income tax purposes only, the Parties shall be governed
by the
terms and provisions of the Caribou Prospect Tax Partnership provisions attached
as Exhibit “H”.
ARTICLE
XII
ENTIRE
AGREEMENT AND CORPORATE AUTHORITY
12.1 When
executed by the duly authorized representatives of Company and BP, this
Agreement shall constitute the entire agreement between the Parties regarding
the subject matter herein and shall supersede and replace any and all other
writings, understandings, letters of intent or memorandums of understanding
entered into or discussed prior to the execution date hereof.
12.2 The
Parties hereto represent that, as of the date of the execution hereof, they
are
corporations duly authorized, validly existing and in good standing under
the
laws of the state of their incorporation and are qualified and authorized
to do
business in the State of Louisiana and that all requisite corporate power
and
authority to duly execute, deliver and effectuate this Agreement have been
duly
obtained.
ARTICLE
XIII
LAWS
AND REGULATIONS; GOVERNING LAW
-17-
13.1 Each
Party shall comply with and conduct its operations hereunder in accordance
with
the Leases, and if applicable, assignment(s) and other agreements relating
to
the Properties, and all applicable laws, ordinances, rules, regulations,
and
orders of all federal, state and local governmental authorities having
jurisdiction over the operations.
13.2 This
Agreement and all matters pertaining hereto shall be governed by and construed
under the laws of the State of Louisiana, except to the extent that the conflict
of law rules of said state would require that the laws of another state would
govern its validity, construction, or interpretation.
ARTICLE
XIV
DISCLAIMERS
AND LIMITATION OF LIABILITY
14.1 BP
hereby expressly disclaims any and all representations and warranties associated
with the Properties, express, statutory, implied or otherwise, including
without
limitation: (a) warranty of title, except as expressly provided in the Partial
Assignment, (b) existence of any and all prospects, (c) geographic, geologic
or
geophysical characteristics associated with any and all prospects, (d)
existence, quality, quantity or recoverability of hydrocarbon and
non-hydrocarbon substances associated with the Properties, (e) costs, expenses,
revenues, receipts, accounts receivable, accounts payable, suspense fund
or gas
imbalances associated with the Properties, (f) contractual, economic or
financial information and data associated with the Properties, (g) continued
financial viability or productivity of the Properties, (h) environmental
or
physical condition of the Properties, (i) federal or state income or other
tax
consequences associated with the Properties, (j) absence of patent or latent
defects, (k) safety, (l) state of repair, (m) merchantability, and (n) fitness
for a particular purpose; and Company (on behalf of itself and its Affiliates
and each of their officers, directors, agents, employees, successors and
assigns) irrevocably waives any and all claims it may have against BP GROUP
with
respect to the matters set forth in this Section 14.1.
14.2 Each
of the Parties expressly waives and agrees not to seek indirect, consequential,
punitive or exemplary damages of any kind with respect to any dispute arising
out of or relating to this Agreement or breach hereof.
14.3 Company:
(a) waives all rights in redhibition pursuant to Louisiana Civil Code Articles
2520, et
seq.;
(b) acknowledges that this express waiver shall be considered a material
and
integral part of this Agreement and the consideration thereof; and (c)
acknowledges that this waiver has been brought to the attention of Company,
has
been explained in detail and that Company has voluntarily and knowingly
consented to this waiver of warranty of fitness and warranty against redhibitory
vices and defects for the Properties.
-18-
14.4 To
the extent applicable to the Properties, Company hereby waives the provisions
of
the Louisiana Unfair Trade Practices and Consumer Protection Law (La. R.S.
51:1402, et
seq.).
Company warrants and represents that it: (a) is experienced and knowledgeable
with respect to the oil and gas industry generally and with transactions
of this
type specifically; (b) posses ample knowledge, experience and expertise to
evaluate independently the merits and risks of the transactions herein
contemplated; and (c) is not in a significantly disparate bargaining
position.
ARTICLE
XV
NOT
CONSTRUED AGAINST DRAFTER
15.1 The
Parties acknowledge that they have had an adequate opportunity to review
each
and every provision contained in this Agreement, including the opportunity
to
submit the same to legal counsel for review and comment. Based on said review
and consultation, the Parties agree with each and every term contained in
this
Agreement. Based on the foregoing, the Parties agree that the rule of
construction that a contract be construed against the drafter, if any, shall
not
be applied in the interpretation and construction of this
Agreement.
ARTICLE
XVI
CONSPICUOUSNESS
OF PROVISIONS
16.1 The
Parties acknowledge that the provisions contained in this Agreement that
are set
out in “bold” satisfy any requirement at law or in equity that provisions
contained in a contract be conspicuously marked or
highlighted.
ARTICLE
XVII
MISCELLANEOUS
PROVISIONS
17.1 The
terms
and conditions of this Agreement (including the Exhibits) shall be binding
upon
and inure to the benefit of the Parties and their successors and permitted
assigns, and the terms, covenants and conditions shall be covenants running
with
the Properties and with each transfer or assignment of the Properties, or
portion thereof.
17.2 If
any
provision of this Agreement is declared invalid or unenforceable, such
declaration shall not affect the validity of the other provisions of this
Agreement, which other provisions shall continue and remain in full force
and
effect.
17.3 This
Agreement may be executed in any number of counterparts, each of which shall
be
considered an original for all purposes.
-19-
17.4 The
article headings in this Agreement are inserted for convenience and
identification only, and are in no way intended to describe, interpret, define,
extend or limit the scope or intent of this Agreement or any provisions
hereof.
17.5 This
Agreement may be amended, modified, changed, altered or supplemented only
by
written instrument (not electronic) duly executed by the parties hereto which
specifically refers to this Agreement.
-20-
17.6 The
following constitute all of the exhibits to this Agreement (the “Exhibits”) and
are attached hereto and incorporated by reference herein:
Exhibit
“A” Lease
Schedule
Exhibit
“B” Map
of
the Contract Area
Exhibit
“C” Plat
of
the Initial Well
Exhibit
“D” Well
Information Requirements
Exhibit
“E” Form
of
Partial Assignment
Exhibit
“F” Form
of
Operating Agreement
Exhibit
“G” Insurance
Requirements
Exhibit
“H” Caribou
Prospect Tax Partnership Provisions
Exhibit
“I” Copy
of
Farmout Agreement
Exhibit
“J” Wiring
Instructions
EXECUTED
by the Parties on the date(s) indicated in the acknowledgments below, but
effective as of the Effective Date.
|
BP
AMERICA PRODUCTION COMPANY
|
||
|
/s/
Xxxxx Xxxx Xxxxxx
|
||
|
Witness
|
||
|
Xxxxx
Xxxx Xxxxxx
|
||
|
Full
Name (Typed or Printed)
|
||
|
By:
/s/
Xxxxx X. Xxxxxx
|
||
|
Xxxxxx
X. Xxxxxx
|
||
|
/s/
Xxxxxx X. Xxxxxxxx
|
Attorney-in-Fact
|
|
|
Witness
|
||
|
Xxxxxx
X. Xxxxxxxx
|
||
|
Full
Name (Typed or Printed)
|
||
|
/s/
Xxxxx Xxxx Xxxxxx
|
||
|
Witness
|
||
|
Xxxxx
Xxxx Xxxxxx
|
||
|
Full
Name (Typed or Printed)
|
||
|
By:
/s/
Xxxx Folnovic
|
||
|
/s/
Xxxxxx X. Xxxxxxxx
|
Name:
Xxxx
Folnovic
|
|
|
Witness
|
||
| Title: President and CEO | ||
|
Xxxxxx
X. Xxxxxxxx
|
||
|
Full
Name (Typed or Printed)
|
-00-
XXXXXXXXXXXXXXX
|
XXXXX
XX XXXXX
|
§
|
|
§
|
|
|
COUNTY
OF XXXXXX
|
§
|
On
this
6th day of October, 2006, before me appeared XXXXXX X. XXXXXX, to me personally
known, who, being by me duly sworn, did say that he is Attorney-in-Fact
for BP
AMERICA PRODUCTION COMPANY, and that said instrument was signed on behalf
of
said corporation.
Given
under my hand and seal this 6th day of October, 2006
|
My
Commission Expires:
|
4/19/2010
|
/s/
Xxxxxxx X. Xxxxx Xx.
|
|
Notary
Public, State of Texas
|
||
|
Xxxxxxx
X. Xxxxx Xx.
|
||
|
Name
(Typed or Printed)
|
||
|
00470667-9
|
||
|
Notary’s
Identification Number
|
|
STATE
OF TEXAS
|
§
|
|
§
|
|
|
COUNTY/PARISH
OF XXXXXX
|
§
|
On
this
6th day of October, 2006, before me appeared Xxxx Folnovic, to me personally
known, who, being by me duly sworn, did say that he or she is Chief Executive
Officer of or for TRUE NORTH ENERGY CORP., and that said instrument was
signed
on behalf of said corporation.
Given
under my hand and seal this 6th day of October, 2006
|
My
Commission Expires:
|
4/19/2010
|
/s/
Xxxxxxx X. Xxxxx Xx.
|
|
Notary
Public, State of Texas
|
||
|
Xxxxxxx
X. Xxxxx Xx.
|
||
|
Name
(Typed or Printed)
|
||
|
00470667-9
|
||
|
Notary’s
Identification Number
|
-22-
