August 22, 1996
Xx. Xxxxx X. Xxxxxx
Delta Petroleum Corp.
000 00xx Xx.. Xxxxx 0000
Xxxxxx, XX 00000
RE: Yolo Bypass Prospect Participation Agreement Yolo County,
California
Gentlemen:
In this Participation Agreement, Xxxxxxx Exploration
Company, Inc., a Kansas Corporation d/b/a Xxxxxx X. Xxxxxxx
Exploration Company, Inc. within the State of California,
shall hereinafter be referred to as "Xxxxxxx" and Delta
Petroleum Corp. shall hereinafter be referred to as "Delta".
The terms of this agreement are as follows:
1.1 Xxxxxxx and Sunset Exploration, Inc. (hereinafter referred to
as "Sunset") have entered into an agreement dated effective
August 29, 1996, (herein, "The Sunset Agreement"). This
agreement is attached hereto as Exhibit "1". Delta, through
Xxxxxxx, will acquire an undivided 12% interest in The Sunset
Agreement, subject to the terms as set out herein. As
consideration for acquiring this interest, Delta agrees to be
bound by the terms and provisions of The Sunset Agreement, and
to bear its proportionate 12% share of the obligations
incurred by Xxxxxxx and created by such agreement. Xxxxxxx
shall be responsible for the remaining 88% of such obligations
and will hold Delta harmless therefrom.
2. Xxxxxxx, through Sunset, owns an interest in the following
agreements attached hereto, to which Delta will acquire a 12%
interest:
Exhibit "2A" Seismic Option and Lease Option Agreement dated
effective March 15, 1996, with "Glide/Colby".
Exhibit "2B" Seismic Survey and Oil and Gas Lease Option
Agreement dated effective August 1, 1996, with the X.X. Xxxxxx
Foundation.
Exhibit "2C" Assignment and Xxxx Of Sale from Enerfin
Resources Northwest dated effective July 1, 1996.
3. Upon execution of this agreement, Delta will reimburse
Xxxxxxx $10,800 for leasehold costs to date within Yolo
Bypass Prospect. Delta will reimburse Xxxxxxx for all
additional leasehold and geophysical costs incurred in this
prospect on the basis of cost plus 35%, so that Delta
actually pays 16.20% of these costs. Xxxxxxx and Sunset
anticipate collecting and processing approximately 40 square
miles of 3D seismic at an unpromoted cost of approximately
$30,000 per square mile. Xxxxxxx agrees to pay the
remaining 83.80% of these costs or to find other
participants to pay such costs. The estimated cost of the
3D survey will be placed in escrow prior to commencement;
otherwise, reimbursement for leasehold and seismic costs
will be made to Xxxxxxx by Delta within 30 days from receipt
of an invoice.
4. An Area of Mutual Interest ("AMI") is hereby established
consisting of lands lying within Townships 7 and 8 North,
Range 3 East, Yolo County, California. The AMI will be
comprised of all lands located within the boundaries of the
3D seismic survey that is being conducted under the terms of
this agreement. When available, an outline of the survey,
and thus the AMI, will be attached hereto as Exhibit "5".
This AMI shall remain in effect for the term of any oil and
gas leases which become subject to this agreement, whether
by acquisition, extension or renewal, and shall thereafter
terminate unless production is established on any portion of
said lands through this agreement, and shall then continue
so long as there is production. If additional leasehold or
leasehold interest is acquired after the date of this
agreement, Xxxxxxx will promptly notify Delta in writing of
such acquisition, describing same and the cost thereof.
Delta will have 20 days from receipt of such notice to elect
whether or not to participate for its proportionate share of
such acquisition, insofar only as same covers lands in the
subject AMI. The failure of Delta to reply positively
within the 20 day time period will be deemed an election not
to participate in the acquisition. Delta shall not acquire
any interest within this AMI except through this agreement,
while in effect, without the express written consent of
Xxxxxxx.
5. Xxxxxxx shall be responsible for payment of all delay
rentals, minimum and shut-in royalties, as well as any other
payments required to maintain leases in full force and
effect. Xxxxxxx shall not be liable for failure to properly
make such payments, in the absence of gross negligence.
Upon receipt of an invoice, Delta shall, within 30 days,
reimburse Xxxxxxx for its proportionate share of such
payments, or, at Delta' election, notify Xxxxxxx that it no
longer desires to hold an interest in the applicable
lease(s), in which case Delta's interest shall be
relinquished to Xxxxxxx.
6. To the extent that Xxxxxxx may acquire leases within this
AMI through farmin, Xxxxxxx shall hold contractual rights
under said farmin agreements beneficially for Delta' 12%
interest, and Delta shall be subrogated to the rights of
Xxxxxxx under said farmin agreements to the extent of Delta'
12% interest, until such time as an assignment is earned by
Xxxxxxx. Xxxxxxx shall, at that time, make an assignment to
Delta. Where Xxxxxxx has the ready ability to do so (no
"consent to assignment" required), Xxxxxxx will assign to
Delta its' 12% interest in all leases subject to this
agreement upon receipt of any money due, and upon request by
Delta. Xxxxxxx will retain Delta's proportionate share of
title to any remaining leasehold beneficially for Delta
until such time as a well is drilled and completed, and a
pooling agreement, if required, has been filed. Xxxxxxx
will then deliver an assignment to Delta of its
proportionate share of leasehold in the revenue sharing unit
for the well, subject to obtaining any required consent to
assign under the provisions of the lease and/or farmin
agreements. If such consent to assign cannot be readily
obtained, Xxxxxxx shall hold title to the leasehold and
agreements on behalf of Delta. All leasehold acquired by
any method under this agreement (whether by Xxxxxxx or
Delta) will be subject to a proportionately reduced 3.00% of
8/8ths overriding royalty interest in favor of Xxxxxxx and
Sunset employees.
7. It is anticipated that Xxxxxxx will propose xxxxx to be
drilled within this AMI on an ongoing basis. At the time of
proposal, Xxxxxxx will provide Delta with written notice of
its intended operation, specifying the location of the well,
estimated spud date, the depth and formation(s) to be
drilled, and an Authorization For Expenditure ("AFE")
setting out estimated dry hole and completion costs, and any
other pertinent information. It is expressly understood
that Xxxxxxx will make best efforts to insure that its AFEs
represent actual anticipated costs. Upon receipt of notice
of a proposed well, Delta shall have 20 days within which to
notify Xxxxxxx, in writing, of its election to participate.
The failure of Delta to so elect within the time specified
shall be deemed an election by Delta not to participate in
the proposed well. If Delta elects not to participate in a
proposed well, or is deemed to have so elected, it shall
forfeit all of its interest in the leasehold, farmins,
options, etc. covering the lands within the revenue sharing
unit for the proposed well. Excepted from this forfeiture
would be any area then established as a revenue sharing unit
for a producing well, or for a well which is drilling or
which has not spud, but in which Delta has committed to
participate.
Should Delta elect to participate in a well, it will be
obligated to participate in the entire proposed operation to
casing point. An election to participate will also obligate
Delta to acquire its proportionate share of all interest
acquired by Xxxxxxx in the well through lease acquisition,
farmin acreage and/or non-consent interest. In order to be
entitled to the benefits of this numbered paragraph, Xxxxxxx
shall, within 90 days from expiration of the initial notice
period, spud the proposed well. The parties agree to make
any and all assignments necessary to accomplish the above
provisions. Except in the case of an expiring lease,
farmout agreement, farmout option agreement or similar
circumstance, only one well proposal may be made every 20
days under the terms of this numbered paragraph. In all
instances within this numbered paragraph, the names Xxxxxxx
and Delta may be interchanged so that either party may
propose xxxxx. It is recognized that there are additional
working interest owners in this prospect that have ongoing
working interest capabilities in each proposed well.
8. Delta shall pay a $1,200 spud fee to Xxxxxxx for each well
drilled under the terms of this agreement, in which it
participates. All xxxxx drilled under this agreement shall be
subject to a proportionate 5% back-in working interest after
payout, in favor of Xxxxxxx.
9. An Operating Agreement in the form attached hereto as Exhibit
"3" will be executed for each well drilled under the terms of
this agreement. The Contract Area for each Operating -
Agreement will be comprised of the designated revenue sharing
unit for the well. In the event of a conflict between the
terms of this agreement and any such Operating Agreement, the
terms of this agreement shall prevail.
10. It is understood that the parties hereto may be required to
negotiate operating agreements with third parties. The
parties agree that if there are any conflicts between the
Operating Agreement attached hereto and any third party
operating agreement, the terms of the Operating Agreement
attached hereto shall control the relationship between Xxxxxxx
and Delta.
11. An Escrow Agreement in the form attached hereto as Exhibit "4"
shall be entered into between Xxxxxxx and Delta for each well
drilled under the terms of this agreement. Article I of the
Escrow Agreement provides a date by which the participants in
the well will deposit their funds into the Escrow Account. Such
date will be established by Xxxxxxx to be approximately 10 days
prior to spud of each well. If Delta fails to deposit its share of
the applicable costs, including its spud fee as set out in paragraph
8 of this agreement, by this date, it will be assumed that Delta
does not wish to participate in the well. In this event, Xxxxxxx
shall give Delta notice that it has not received its funds and Delta
will either deliver such funds to Xxxxxxx by 1:00 PM MST on the next
business day or be subject to the provisions of paragraph 7 of this
agreement, relative to non participation. Xxxxxxx shall be
obligated to place funds received from all participants in the same
escrow account, in pro rata amounts based on their share of costs.
12. Delta's representatives shall have free access to any well in which
it participates at all times and to all records pertaining thereto.
In addition, all geological information obtained in the drilling of
any well, in which Delta participates, shall be made available.
Delta may provide a list of its geological requirements to Xxxxxxx,
which shall be provided by Xxxxxxx, as reasonable.
13. If Xxxxxxx terminates its legal existence, transfers its interest
to a successor and no longer owns an interest in the Yolo Bypass
Prospect, or becomes insolvent or bankrupt, or is placed in
receivership, it shall cease to be Operator without any action by
Delta or Xxxxxxx'x other Non-Operating partners, except the
selection of a successor. Xxxxxxx may be removed if it fails or
refuses to carry out its duties hereunder or is no longer capable
of serving as Operator by the affirmative vote of Delta and
Xxxxxxx'x other Non-Operating partners owning a majority interest
based on ownership in the Yolo Bypass Prospect, after excluding the
voting interest of Xxxxxxx. Such resignation or removal shall not
become effective until 7:00 o'clock A.M. on the first day of the
calendar month following the expiration of 60 days after the giving
of notice of resignation by Xxxxxxx or action by the Non-Operators
to remove Xxxxxxx, unless a successor Operator has been selected and
assumes the duties of Operator at an earlier date. Xxxxxxx, after
the effective date of resignation or removal, shall be bound by the
terms hereof as Non-Operator. A change of a corporate name or
structure of Xxxxxxx or transfer of Xxxxxxx'x interest to any single
subsidiary or parent corporation shall not be the basis for removal
of Xxxxxxx.
Upon the resignation or removal of Xxxxxxx, a successor Operator
shall be selected by the affirmative vote of Delta and Xxxxxxx'x
other Non-Operating partners owning a majority interest based on the
ownership in the Yolo Bypass Prospect. The successor Operator shall
be selected from the parties owning an interest in the Yolo Bypass
Prospect at the time such successor Operator is selected. If
Xxxxxxx is removed or is deemed to have resigned, fails to vote or
votes only to succeed itself, the successor Operator shall be
selected by the affirmative vote of Delta and Xxxxxxx'x other Non-
Operating partners in the Yolo Bypass Prospect owning a majority
interest, and after excluding the voting interest of Xxxxxxx.
This provision shall also apply to the resignation or removal of any
successor Operators.
14. The parties hereto agree that all disputes between them arising out
of, or in connection with, this Agreement shall be resolved by
arbitration as provided herein. This agreement to arbitrate shall
survive the rescission or termination of this contract. All
arbitration shall be conducted pursuant to the Commercial
Arbitration Rules of the American Arbitration Association. If
available, the panel used shall be selected from arbitrators having
at least 10 years of oil and gas experience and employed by the
American Arbitration Association and the decision of the arbitrators
shall be final and binding on all parties. All arbitration shall
be undertaken pursuant to the Federal Arbitration Act, where
applicable, and the decision of the arbitrators shall be enforceable
in any court of competent jurisdiction.
15. Delta shall be an equity owner for its proportionate 12% share of
the 3D seismic data. If such data is ever sold, Delta will be
entitled to 12% of the proceeds of such sale. Delta will not trade
the data without Xxxxxxx'x express written consent.
16. All notices required herein shall be considered given when delivered
personally or when sent by facsimile or deposited in the U.S. Mail
properly addressed as follows:
Xxxxxxx Exploration Company, Inc. Delta Petroleum Corp.
0000 Xxxxxxxx, Xxxxx 0000 000 00xx Xx., Xxxxx 0000
Xxxxxx, XX 00000 Xxxxxx, XX 00000
FAX: (000) 000-0000 FAX: (000) 000-0000
17. The liabilities of the parties shall be several and not joint or
collective, and each party shall be responsible only for its share
of the costs and liabilities incurred as provided herein. It is not
the purpose or intention of this agreement to create any
partnership, mining partnership or association, and neither this
agreement nor the operations herein shall be construed or considered
as creating any such legal relationship.
18. The terms and covenants hereof shall extend to, and be binding on,
the parties hereto, their heirs, successors, legal representatives
and assigns; however, Delta will not assign its interest in this
agreement without the express written consent of Xxxxxxx. Such
consent shall not be unreasonably withheld. This agreement sets
forth the entire agreement between the parties hereto, and there are
no oral agreements not set out herein in writing.
If the foregoing correctly sets forth our understanding, please
execute and return one copy of this agreement.
Very Truly Yours,
s/Xxxxx Xxxxxxx
Xxxxx Xxxxxxx
District Xxxxxxx
AGREED TO AND ACCEPTED THIS 26th DAY OF AUGUST, 1996.
DELTA PETROLEUM CORP.
BY: /Xxxxx X. Xxxxxx, President
