Exhibit 10.2
JOINT
OPERATING AGREEMENT
BETWEEN
GRYPHON EXPLORATION COMPANY
AS OPERATOR
AND
MARINER ENERGY, INC.
AND
RIDGEWOOD ENERGY CORPORATION
AS NON-OPERATORS
COVERING
N/2 SW/4 and S/2 SW/4
XXXXXXXXX XXXX, XXXXX 000-X
XXXXXXXX XXXXX
DATED
August 1, 2004
JOINT OPERATING AGREEMENT
THIS AGREEMENT is made effective the 1st day of August, 2004, by the
signers hereof, herein referred to collectively as "Parties" and individually as
"Party".
WITNESSETH:
WHEREAS the PARTIES are owners of or have contracted for the right to earn
an interest in the oil and gas lease(s) identified in Exhibit "A", and the
Parties desire to explore, develop, produce and operate said lease(s).
NOW THEREFORE, in consideration of the premises and of the mutual agreement
herein, it is agreed as follows:
ARTICLE I
APPLICATION
1.1 APPLICATION TO BOTH LEASES. If more than one oil and gas lease is
identified in Exhibit "A", this Agreement shall apply to both Leases and both
such Leases shall be considered as being covered by the operating agreement.
ARTICLE II
DEFINITIONS
2.1 AFE. An Authorization for Expenditure prepared by a Party for the
purpose of estimating the costs to be incurred in conducting an operation
hereunder.
2.2 CASING POINT. That point at which a well drilled hereunder, has reached
the proposed objective depth or zone, logged and logs distributed to the
PARTICIPATING PARTIES and any tests have been made which are necessary to reach
the decision whether to run casing.
2.3 DEVELOPMENT OPERATIONS. Operations on the LEASES other than EXPLORATORY
OPERATIONS as defined in Section 2.5 below.
2.4 DEVELOPMENT WELL. Any well proposed as a DEVELOPMENT OPERATION.
2.5 EXPLORATORY OPERATIONS. Operations on the LEASES, which are scheduled
for an objective zone, horizon or formation:
(1) which has not been established as producible on the LEASES under
2.18 below; or,
(2) which is already established as producible on the Leases under
2.18 below, but such objective zone, horizon or formation will be
penetrated at a location more than 2,000 feet from the nearest
bottom hole location on the Lease at which such objective has
been proved producible, or such objective is mutually agreed to
be in a separate fault block.
2.6 EXPLORATORY WELL. Any well proposed as an EXPLORATORY OPERATION.
2.7 FACILITIES. All lease equipment beyond the wellhead connections
acquired pursuant to this Agreement including any platform(s) necessary to carry
out the operation.
2.8 LEASES. The oil and gas leases identified in Exhibit "A" and the lands
affected thereby.
2.9 NON-CONSENT OPERATIONS. DEVELOPMENT or EXPLORATORY OPERATIONS conducted
by fewer than all Parties.
2.10 NON-CONSENT PLATFORM. A drilling or production platform owned by fewer
than all PARTIES.
2.11 NON-CONSENT WELL. A DEVELOPMENT or EXPLORATORY WELL owned by fewer
than all PARTIES.
2.12 NON-OPERATOR. Any PARTY to the Agreement other than the OPERATOR.
2.13 NON-PARTICIPATING PARTY. Any PARTY other than a PARTICIPATING PARTY.
2.14 NON-PARTICIPATING PARTY'S SHARE. The PARTICIPATING INTEREST a NON-
PARTICIPATING PARTY would have had if all PARTIES had participated in the
operation.
2.15 OPERATOR. The PARTY designated under this Agreement to conduct all
operations.
2.16 PARTICIPATING INTEREST. A PARTICIPATING PARTY'S percentage of
participation in an operation conducted pursuant to the Agreement.
2.17 PARTICIPATING PARTY. A PARTY who joins in an operation conducted
pursuant to this agreement.
2.18 PRODUCIBLE WELL. A well producing oil or gas, or if not producing oil
or gas, a well either declared or capable of being declared producing in
accordance with any applicable government authority or by agreement of all of
the Parties.
2.19 WORKING INTEREST. The ownership of each PARTY to and to the LEASES as
set forth in Exhibit "A".
ARTICLE III
EXHIBITS
3.1 EXHIBITS. Attached hereto are the following exhibits which are
incorporated herein by reference:
3.1.1 Exhibit A. Description of Leases and Working Interest
3.1.2 Exhibit B. Insurance Provision
3.1.3 Exhibit C. Accounting Procedure
3.1.4 Exhibit D. Nondiscrimination Provision
3.1.5 Exhibit E. Gas Balancing Agreement
ARTICLE IV
OPERATOR
4.1 OPERATOR. Gryphon Exploration Company is hereby designated as OPERATOR.
OPERATOR shall not have the right to assign or transfer any rights, duties or
obligations of OPERATOR to another PARTY subject to the provisions herein.
4.2 RESIGNATION. OPERATOR may resign at any time by giving notice to the
PARTIES. Such resignation shall become effective at 7:00 a.m. on the first day
of the month following a period of ninety (90) days after said notice, unless a
successor OPERATOR has assumed the duties of OPERATOR prior to that date.
4.3 REMOVAL OF OPERATOR. OPERATOR may be removed if (1) OPERATOR becomes
insolvent or unable to pay its debts as they mature or makes an assignment for
the benefit of creditors or commits any act of bankruptcy or seeks relief under
laws providing for the relief of debtors; or (2) a receiver is appointed for
OPERATOR or for substantially all of its property and/or affairs; or (3)
OPERATOR or its designee no longer owns an interest in the property or divest
itself of more than fifty percent (50%) or more of the interest owned by it in
the Lease at the time it was designated OPERATOR; or (4) OPERATOR has committed
a material breach of any substantive provision hereof or fails to perform its
duties hereunder in a reasonable and prudent manner, or failed to rectify such
default within sixty (60)
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days after notice from another PARTY to do so. The PARTY giving notice to the
OPERATOR of a default shall also furnish a copy of such notice to the other
PARTIES. In such event, the OPERATOR may be removed by an affirmative vote of
two (2) or more PARTIES having a combined WORKING INTEREST of fifty percent
(50%) in the LEASE.
4.4 SELECTION OF SUCCESSOR. Upon resignation or removal of OPERATOR, a
successor OPERATOR shall be selected by an affirmative vote of two (2) or more
PARTIES having a combined WORKING INTEREST of fifty-one percent (51%) or more;
however, if the removed or resigned OPERATOR fails to vote or votes only to
succeed itself, the successor OPERATOR shall be selected by an affirmative vote
of the PARTIES having a combined WORKING INTEREST of fifty-one percent (51%) or
more of the remaining WORKING INTEREST after excluding the WORKING INTEREST of
the removed or resigned OPERATOR.
4.5 DELIVERY OF PROPERTY. Prior to the effective date of resignation or
removal, OPERATOR shall deliver promptly to successor OPERATOR the possession of
everything owned by the PARTIES pursuant to this Agreement.
ARTICLE V
AUTHORITY AND DUTIES OF OPERATOR
5.1 EXCLUSIVE RIGHT TO OPERATE. Unless provided, OPERATOR shall have the
exclusive right and duty to conduct all operations pursuant to the Agreement.
5.2 WORKMANLIKE CONDUCT. OPERATOR shall conduct all operations in a good
and workmanlike manner, as would a prudent OPERATOR under the same or similar
circumstances. OPERATOR shall not be liable to the PARTIES for losses sustained
or liabilities incurred except such as may result from its gross negligence or
willful misconduct. Unless otherwise provided, OPERATOR shall consult with the
PARTIES and keep them informed of all important matters.
5.3 LIENS AND ENCUMBRANCES. OPERATOR shall endeavor to keep the LEASE and
equipment free from all liens and encumbrances occasioned by operations
hereunder, except those provided for in Section 8.5.
5.4 EMPLOYEES. OPERATOR shall select employees and determine their number,
hours of labor and compensation. Such employees shall be employees of OPERATOR.
5.5 RECORDS. OPERATOR shall keep accurate books, accounts and records of
operations hereunder which, unless otherwise provided for in this Agreement,
shall be available to NON-OPERATOR pursuant to the provisions contained in
Exhibit "C".
5.6 COMPLIANCE. OPERATOR shall comply with and require all agents and
contractors to comply with all applicable laws, rules, regulations and orders of
any governmental agency having jurisdiction.
5.7 DRILLING. OPERATOR shall have all drilling operations conducted by
qualified and responsible independent contractors under competitive contracts.
However, OPERATOR may employ its equipment and personnel in the conduct of such
operations, but its charges therefor shall not exceed the then prevailing rates
in the area and such work shall be performed pursuant to a written agreement
among the PARTICIPATING PARTIES.
5.8 REPORTS. OPERATOR shall make reports to governmental authorities that
it has a duty to make as OPERATOR and shall furnish copies of such reports to
the PARTIES. OPERATOR shall give timely written notice to the PARTIES of all
litigation and hearings affecting the LEASES or operations hereunder.
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5.9 INFORMATION TO PARTICIPATING PARTIES. OPERATOR shall furnish all
PARTICIPATING PARTIES hereto the following information pertaining to each well
being drilled:
(a) copy of application for permit to drill and all amendments
thereto;
(b) daily drilling reports by telephone followed by written reports
(or by FACSIMILE);
(c) complete report of all core analyses;
(d) two (2) copies of any logs or surveys as run;
(e) two (2) copies of any well test results, bottom-hole pressure
surveys, gas and condensate analyses or similar information;
(f) one (1) copy of reports made to regulatory agencies; and
(g) twenty-four (24) hour notice of logging, coring and testing
operations;
(h) upon request prior to resumption of drilling operations, samples
of cuttings and cores marked as to depth, to be packaged and
shipped to the requesting PARTY at their expense.
(i) all other reasonable information, available to OPERATOR,
pertaining to any well drilled pursuant to this Agreement.
ARTICLE VI
VOTING AND VOTING PROCEDURES
6.1 DESIGNATION OF REPRESENTATIVE. The name and address of the
representative and alternate authorized to represent and bind each PARTY for
operations provided in Article IX, shall be as shown on Exhibit "A". The
designated representative or alternate may be changed by written notice to the
other PARTIES.
6.2 VOTING PROCEDURES. Unless otherwise provided, any matter requiring
approval of the PARTIES shall be determined as follows:
6.2.1 Voting Interest. Each PARTY shall have a voting interest equal
to its WORKING INTEREST or its PARTICIPATING INTEREST as applicable.
6.2.2 Vote Required. Except as may be specifically provided elsewhere
herein, if there are three or more Parties to this agreement, any proposal
requiring approval of the PARTIES shall be decided by an affirmative vote of two
(2) or more PARTIES having a combined voting interest of fifty-one percent (51%)
or more. If there are only two parties to this agreement, any proposal requiring
approval of the Parties, other than the proposals described in Article 12.7 and
Article 13.1, shall be decided by an affirmative vote of one (1) or more Parties
having a combined voting interest of fifty-one percent (51%) or more.
6.2.3 Votes. The PARTIES may vote at meetings, by telephone, confirmed
in writing to OPERATOR; or by letter, telegram, telex or telecopies. However,
any PARTY not attending a meeting must vote prior to the meeting in order to be
counted. Provided, however, no vote shall be taken in a meeting in which all
Parties are not present unless such vote was specifically set out in the formal
agenda. OPERATOR shall give prompt notice of the results of such voting to each
PARTY.
6.2.4 Meetings. Meetings of the PARTIES may be called by OPERATOR upon
its own motion or at the request of one (1) or more PARTIES having a combined
voting interest of not less than ten percent (10%). Except in the case of
emergency or except when agreed by unanimous consent, no meeting shall be called
on less than five (5) days advance written notice, (including the agenda for
such meeting). The OPERATOR shall be chairman of each meeting.
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ARTICLE VII
ACCESS
7.1 ACCESS TO LEASE. Each PARTY shall have access to the LEASE as its sole
risk and expense at all reasonable times to inspect operations and records and
data pertaining thereto.
7.2 REPORTS. OPERATOR shall furnish to a requesting PARTY any information
to which such PARTY is entitled hereunder. The costs of gathering and furnishing
information not otherwise furnished under Article V shall be charged to the
requesting PARTY.
7.3 CONFIDENTIALITY. Except as provided in Section 7.4 and except for
necessary disclosures to governmental agencies, no PARTY shall release any
geological, geophysical or reservoir information or any logs, surveys or other
information pertaining to the progress, tests or results of any well or status
of the LEASE unless agreed to by the PARTICIPATING PARTIES. At such time as the
PARTIES mutually agree such information is non-confidential, it may be publicly
released. Unless otherwise provided, OPERATOR shall initially release the same
subsequent to approval of its content by the PARTIES. OPERATOR shall have the
exclusive right to designate certain xxxxx as "tight" for the competitive
protection of the PARTIES.
7.4 LIMITED DISCLOSURE. Any PARTY may make confidential data available to
affiliates, to reputable engineering firms and gas transmission companies for
hydrocarbon reserve and other technical evaluations, to reputable financial
institutions for study prior to commitment of funds and to bonafide purchasers
of all of a PARTY'S interest in the LEASE. Any third party permitted such access
shall first agree in writing neither to disclose such data to others nor to use
such data except for the purpose for which it is disclosed. Each PARTY shall be
furnished with copies of third parties execution of the same.
ARTICLE VIII
EXPENDITURES
8.1 BASIS OF CHARGE TO THE PARTIES. Subject to other provisions of this
Agreement, OPERATOR shall pay all costs and each PARTY shall reimburse OPERATOR
in proportion to the PARTICIPATING INTEREST. All charges, credits and accounting
for expenditures shall be pursuant to the Accounting Procedure attached hereto
as Exhibit "C". The provisions of this Agreement shall prevail in the event of
conflict with Exhibit "C".
8.2 AUTHORIZATION. OPERATOR shall neither make any single expenditure nor
undertake any project costing in excess of Seventy-five Thousand Dollars
($75,000.00) without prior approval of the PARTIES. OPERATOR shall furnish a
written AFE, for information purposes only, to the PARTIES on any expenditures
in excess of Twenty-five Thousand Dollars ($25,000.00) or when costs are
anticipated to exceed 120% of a previously approved AFE. Subject to any election
provided in Article X and XI, approval of a well operation shall include
approval of a all necessary expenditures through installation of the wellhead.
In the event of an emergency, OPERATOR may immediately make such expenditures as
in its opinion are required to deal with the emergency. OPERATOR shall report to
the PARTIES, as promptly as possible, the nature of the emergency and action
taken.
8.3 ADVANCE XXXXXXXX. OPERATOR shall have the right to require each PARTY
to advance its respective share of estimated expenditures pursuant to Exhibit
"C". As to any party who fails to pay its share of said advance payment within
fifteen (15) days after receipt of such statement and invoice, Operator will
notify such affected
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party of its default by certified mail, return receipt requested and if such
party fails to cure the default within ten (10) days from the date of receipt of
Operator's Notice, by payment in full of the outstanding invoices for advance
payment, at Operator's election, the affected Party shall be deemed non-consent
as to the proposed well attributable thereto.
8.4 COMMINGLING OF FUNDS. Funds received by OPERATOR under this Agreement
may be commingled with its own funds.
8.5 SECURITY RIGHTS. In addition to any other security rights and remedies
provided by law with respect to services rendered or materials and equipment
furnished under this Agreement, OPERATOR shall have a first lien upon each
PARTY'S PARTICIPATING and/or WORKING INTEREST, including the production and
equipment credited thereto, in order to secure payment of charges against such
PARTY, together with interest thereon at the rate set forth in Exhibit "C" or
the maximum rate allowed by law, whichever is less, plus attorneys' fees, court
costs and other related collection costs. If any PARTY does not pay such charges
when due, OPERATOR shall have the additional right to collect from the purchaser
the proceeds from the sale of such PARTY'S share of production until the amount
owed has been paid. Each purchaser shall be entitled to rely on OPERATOR'S
statement concerning the amount owed. Each NON-OPERATOR shall have comparable
security rights on OPERATOR'S PARTICIPATING and/or WORKING INTEREST.
8.6 UNPAID CHARGES. If any PARTY fails to pay the charges due hereunder,
including xxxxxxxx under Section 8.3, within thirty (30) days after payment is
due, the PARTICIPATING PARTIES shall have the obligation, upon OPERATOR'S
request, to pay the unpaid amount in proportion to their interest. Each PARTY so
paying its share of the unpaid amount shall be subrogated to OPERATOR'S security
rights to the extent of such payment.
8.7 DEFAULT. If any PARTY does not pay its share of the charges when due,
or prior to commencement of the approved operation for which it is billed,
whichever is the earlier, OPERATOR may give such PARTY notice that unless
payment is made within fifteen (15) DAYS, such PARTY shall be in default. Any
PARTY in default shall have no further access to the maps, cores, logs, surveys,
records, data, interpretations or other information obtained in connection with
said operation. A defaulting PARTY shall not be entitled to vote on any matter
until such time as PARTY'S payments are current. The voting interest of each
non-defaulting PARTY shall be in the proportion its PARTICIPATING INTEREST bears
to the total non-defaulting PARTICIPATING INTEREST. As to any operation approved
or commenced during the time a PARTY is in default, such PARTY shall be deemed
to be a NON-PARTICIPATING PARTY.
8.8 CARVED-OUT INTERESTS. Subject to the reservations set out in Article
16.1, any overriding royalty, production payment, net proceeds interest, carried
interest or any other interest carved-out of the WORKING INTEREST in the LEASES
after the effective date of this Agreement shall be subject to the rights of the
PARTIES to this Agreement, and any PARTY whose WORKING INTEREST is so encumbered
shall be responsible therefor. If a PARTY does not pay its share of expenses and
the proceeds from the sale of production under Section 8.5 are insufficient for
that purpose, the security rights provided for therein may be applied against
the carved-out interests with which such WORKING INTEREST is burdened. In such
event, the rights of the owner of such carved-out interest shall be subordinated
to the security rights granted by Section 8.5.
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ARTICLE IX
NOTICES
9.1 GIVING AND RECEIVING NOTICES. All notices shall be in writing and
delivered in person or by mail, telex, telegraph, TWX, telecopier or cable;
however, if a drilling rig is on location at time of proposal and standby
charges are accumulating, such notices shall be given by telephone and
immediately confirmed in writing. Notice shall be deemed given only when
received by the PARTY to whom such notice is directed, except that any notice by
certified mail or equivalent, telegraph or cable properly addressed, pursuant to
Section 6.1, and with all postage and charges prepaid shall be deemed given
seventy-two (72) hours after such notice is deposited in the mail or twenty-four
(24) hours after such notice is sent by facsimile (receipt confirmed), or when
filed with an operating, telegraph or cable company for immediate transmission.
9.2 CONTENT OF NOTICE. Any notice which requires a response shall indicate
the maximum response time specified in Section 9.3 If a proposal involves a
Platform or Facility, the notice shall contain a description of same, including
location and the estimated costs of fabrication, transportation and
installation. If a proposal involves a well operation, the notice shall include
the estimated commencement date, the proposed depth, the objective zone or zones
to be tested, the surface and bottom-hole locations and the estimated costs of
the operation including all necessary expenditures through installation of the
wellhead.
9.3 RESPONSE TO NOTICES. Each PARTY'S response to a proposal shall be in
writing to OPERATOR, with copies to the other PARTIES. Except for those notices
in Articles X, XI, XV and XVI, the maximum response time shall be as follows:
9.3.1 Platform Construction. When any proposal for operations involves
the construction of a platform, the maximum response time shall be forty-five
(45) days.
9.3.2 Proposal Without Platform. When any proposal for operations does
not require construction of a platform, maximum response time shall be thirty
(30) days; however, if a drilling rig is on location and standby charges are
accumulating, the maximum response time shall be forty-eight (48) hours.
9.3.3 Other Matters. For all other matters requiring notice, the
maximum response time shall be thirty (30) days.
9.4 FAILURE TO RESPOND. Failure of any PARTY to respond to a notice within
the required period shall be deemed to be a negative response.
9.5 RESTRICTIONS ON MULTIPLE WELL PROPOSALS. Unless otherwise agreed by the
PARTIES, no more than one well shall be drilling or completing for the account
of the Parties on the Lease at the same time. Well proposals made under the
terms hereof shall be limited to one well each and except as provided below, no
PARTY shall be required to make an election under more than one well proposal at
the same time or while a well is drilling or completing. This paragraph shall
not limit the right of a PARTY to propose a well while another is drilling or
completing, however, the time to elect under such a proposal shall be deferred
until (a) thirty (30) days after the previous well has been completed or plugged
and abandoned or (b) twenty-four (24) hours from receipt of notification that
the drilling rig has been moved to the new location and standby charges are
being accumulated, whichever is earlier.
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ARTICLE X
EXPLORATORY XXXXX
10.1 OPERATIONS BY ALL PARTIES. Any PARTY may propose an EXPLORATORY WELL
by notifying the other PARTIES. If all the PARTIES agree to participate in
drilling the proposed well, OPERATOR shall drill same for the benefit of all
PARTIES.
10.2 SECOND OPPORTUNITY TO PARTICIPATE. If fewer than all PARTIES elect to
participate, OPERATOR shall inform all PARTIES of the elections made, whereupon
any PARTY originally electing not to participate may then elect to participate
by notifying the OPERATOR within forty-eight (48) hours after receipt of such
information.
10.3 OPERATIONS BY FEWER THAN ALL PARTIES. If fewer than all but one (1) or
more PARTIES owning not less than twenty percent (20%) WORKING INTEREST elect to
participate in and agree to bear the cost and risk of drilling the proposed
well, OPERATOR, even if OPERATOR is a NON-PARTICIPATING PARTY, shall have the
option of drilling such well for the PARTICIPATING PARTIES under this Agreement.
OPERATOR, immediately after expiration of the applicable notice period, shall
advise the PARTICIPATING PARTIES of (a) the total interest of the PARTIES
approving such operation, and (b) its recommendation as to whether the
PARTICIPATING PARTIES should proceed with the operation as proposed. Each
PARTICIPATING PARTY, within forty-eight (48) hours (inclusive of Saturday,
Sunday or legal holidays) after receipt of such notice, shall advise the
proposing PARTY of its desire to (a) limit participation to such PARTY'S
interest as shown on Exhibit "A", or (b) carry its proportionate part of
NON-PARTICIPATING PARTIES' interest, or (c) participate with a lesser percentage
than its proportionate part of the NON-PARTICIPATING PARTIES' interest. The
proposing PARTY, at its election, may withdraw such proposal if there is
insufficient participation and shall promptly notify all PARTIES of such
decision. If the well is commenced within ninety (90) days after the date of the
last applicable election date and is drilled as proposed in accordance with this
Agreement, any PARTY electing not to participate shall be deemed to have
relinquished its operating rights in such well as if it were a NON-CONSENT WELL.
However, in the situation in which a rig is on location and standby charges are
accumulating, thus precipitating a forty-eight (48) hour response period, the
well must be commenced within fifteen (15) days. If no operations are begun
within such time period, the effect shall be as if the proposal had not been
made. Operations shall be deemed to have commenced (a) on the date the contract
for a new platform is let, if the notice indicated the need for such platform;
or (b) the date rigging-up operations on the well are commenced. Recoupment of
costs shall be determined by Sections 12.2 and 12.5, if applicable, and the
drilling of such well shall be governed by Article XII as applicable; however,
percentages under Section 12.2 shall be as follows:
12.2.1a) Eight hundred percent (800%)
12.2.1b) Three hundred percent (300%)
12.2.1c) One hundred percent (100%)
12.2.1d) One hundred percent (100%)
Provided however, if the proposed EXPLORATORY WELL is the initial well drilled
by the PARTIES on the LEASE, then any NON-PARTICIPATING PARTY shall permanently
assign its entire interest in the LEASE to the PARTICIPATING PARTIES and the
recoupment of cost provision of this Article and Article XII shall not apply,
but the NON-PARTICIPATING PARTY shall not be relieved of any obligation accruing
prior to such assignment.
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10.4 COURSE OF ACTION AFTER DRILLING TO INITIAL OBJECTIVE DEPTH
10.4.1 Casing Point Election. After an Exploratory Well has been
drilled for all Parties to the objective depth, and all authorized logging and
testing has been completed, OPERATOR shall immediately notify the PARTIES of
OPERATOR'S proposal to either;
(a) further log or test the well,
(b) complete the well as originally planned,
(c) plug-back and complete the well in a shallower zone in
ascending order,
(d) deepen the well within a previously approved objective zone,
in descending order,
(e) deepen the well below the deepest approved objective zone or
zones,
(f) sidetrack the well to a new bottom hole location within the
approved objective zone,
(g) other operations in the well, or
(h) plug and abandon the well.
Within forty-eight (48) hours after receipt of OPERATOR'S proposal, the other
PARTIES shall respond thereto by either approving it or making a
counter-proposal. If a counter-proposal is made, the PARTIES shall have an
additional forty-eight (48) hours to respond thereto. If all PARTIES approve a
proposal or counter-proposal, OPERATOR shall conduct the operation at the
PARTICIPATING PARTIES cost and risk. A proposal to complete, rework or
recomplete a well at a particular depth will take precedence over proposal to
complete, rework or recomplete the well above such depth, with a deeper proposal
for such operations always taking precedence over a shallower proposal.
Proposals for such operations at any depth will take precedence over proposals
to deepen the well below its originally proposed total depth or to sidetrack the
well once it has reached such depth. However, upon reaching the AFE total depth
as initially proposed, should OPERATOR determine that the well is still in pay,
then before any subsequent proposal is made and approved by the PARTIES,
OPERATOR shall notify the PARTIES accordingly. At that point should competing
proposals to deepen and complete be made, a vote by two or more with combined
voting interest of fifty percent (50%) will determine whether deepening or
completing the well will take priority. Proposals of the same type shall be
given precedence in the order in which they are made. No action shall be
required on a proposal while there is pending a proposal, with precedence being
on the same well on which the parties have not acted or on which work has not
been completed. If fewer than all, but one (1) or more, Parties having a Working
Interest of 40% or more approve a proposal or counterproposal made under Section
10.4 and agree to bear the cost and risk thereof, Operator shall conduct the
same pursuant to Article 12.
ARTICLE XI
DEVELOPMENT WELL OPERATIONS
11.1 OPERATIONS BY ALL PARTIES. Any PARTY may propose a DEVELOPMENT
OPERATION, including any platform required by such operations, by notifying the
other PARTIES. If all PARTIES elect to participate in the proposed operation,
OPERATOR shall conduct such operation for the benefit of the PARTIES at their
cost and risk.
11.2 SECOND OPPORTUNITY TO PARTICIPATE. If fewer than all PARTIES elect to
participate, the OPERATOR shall inform the PARTIES of the elections made,
whereupon any PARTY originally electing not to participate may then elect to
participate by notifying the OPERATOR within forty-eight (48) hours after
receipt of such information. Thereafter, if fewer than all PARTIES elect to
participate, the PARTICIPATING PARTIES shall be afforded the alternatives as set
out under Article 10.3.
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11.3 OPERATIONS BY FEWER THAN ALL PARTIES. Except for a DEVELOPMENT WELL(S)
under Section 12.7, if fewer than all PARTIES, but one (1) or more PARTIES
having a combined WORKING INTEREST of twenty percent (20%) or more approve a
DEVELOPMENT OPERATION; OPERATOR shall conduct such operation pursuant to Article
XII. If such operations are to be conducted from an existing platform, the
operations participated in by all of the PARTIES shall have preference, unless
otherwise agreed to by the PARTIES hereto.
11.4 TIMELY OPERATIONS. Operations shall be commenced within ninety (90)
days following the date upon which the last applicable election may be made. If
no operations are begun within such time period, the effect shall be as if the
proposal had not been made. Operations shall be deemed to have commenced (a) on
the date the contract for a new platform is let, if the notice indicated the
need for such platform; or (b) on the date rigging-up operations are commenced
on an existing platform.
11.5 COURSE OF ACTION AFTER DRILLING TO INITIAL OBJECTIVE DEPTH. After any
DEVELOPMENT WELL has reached its objective depth, the identical procedures and
alternatives provided under Article 10.4 shall apply.
11.6 DEEPER DRILLING. If a well is proposed to be drilled below the deepest
producible zone penetrated by a PRODUCIBLE WELL on the LEASE any PARTY may elect
to participate either in the well as proposed or to the base of the deepest
producible zone. A PARTY electing to participate in such well to the base of
said zone shall bear its proportionate part of the cost and risk of drilling to
said zone including completion or abandonment. All operations below the depth to
which such PARTY agreed to participate shall be governed by Article X.
ARTICLE XII
NON-CONSENT OPERATIONS
12.1 NON-CONSENT OPERATIONS. OPERATOR shall conduct NON-CONSENT OPERATIONS
at the sole risk and expense of the PARTICIPATING PARTIES, in accordance with
the following provisions;
12.1.1 Non-Interference. NON-CONSENT OPERATIONS shall not interfere
unreasonably with operations being conducted by all PARTIES.
12.1.2 Multiple Completion Limitation. NON-CONSENT OPERATIONS shall
not be conducted in a well having multiple completions unless: (a) each
completion is owned by the same PARTIES in the same proportions; (b) the well is
incapable of producing from any of its current completions; or (c) all
PARTICIPATING PARTIES in the well consent to such operations.
12.1.3 Metering. In NON-CONSENT OPERATIONS, production need not be
separately metered but may be determined on the basis of well test.
12.1.4 Liens. In the conduct of NON-CONSENT OPERATIONS, the
PARTICIPATING PARTIES shall keep the LEASE free and clear of liens and
encumbrances.
12.1.5 Non-Consent Well. Operations on a NON-CONSENT WELL shall not be
conducted in any producible zone penetrated by a PRODUCIBLE WELL without
approval of each NON-PARTICIPATING PARTY unless; (a) such zone shall have been
designated in the notice as a completion zone; (b) completion of such well in
said zone will not increase the well density governmentally prescribed or
approved for such zone; and (c) the horizontal
11
distance between the vertical projections of the midpoint of the zone in such
well and any existing well in the same zone will be a least one thousand (1,000)
feet if an oil-well completion or two thousand (2,000) feet if a gas-well
completion. Subject to the foregoing provisions of this Article, until the
PARTICIPATING PARTIES in a NON-CONSENT WELL have recouped the amount to which
they are entitled hereunder, they may conduct any reworking operation on such
well which they may desire, including plugging back to a shallower zone but only
if such shallower zone is subject to NON-CONSENT elections in the original
proposal. In this event, the cost of such reworking operation shall be subject
to the penalty provisions of Section 12.2.1.
12.1.6 Cost-Information. OPERATOR shall, within one hundred twenty
(120) days after completion of a NON-CONSENT WELL, furnish the PARTIES an
inventory and an itemized statement of the cost of such well and equipment
pertaining thereto. OPERATOR shall furnish to the PARTIES a monthly statement
showing operating expenses and the proceeds from the sale of production from the
well for the preceding month.
12.1.7 Completions. For the purposes of determinations hereunder, each
completion shall be considered a separate well.
12.2 RELINQUISHMENT OF INTEREST. Upon commencement of NON-CONSENT
OPERATIONS, each NON-PARTICIPATING PARTY'S interest and leasehold operating
rights in the NON-CONSENT OPERATION and title to production there from shall be
owned by and vested in each PARTICIPATING PARTY in proportion to its
PARTICIPATING INTEREST for as long as the operations originally proposed are
being conducted or production is obtained, subject to Sections 12.2.1 and
12.2.2.
12.2.1 Production Reversion Penalties. Except as to such operations
conducted pursuant to Section 12.7 or for the initial EXPLORATORY WELL referred
to in Section 10.3, such interest, rights and title shall revert to each
NON-PARTICIPATING PARTY when the PARTICIPATING PARTIES have recouped out of the
proceeds of production from such NON-CONSENT OPERATIONS an amount equal to the
sum of the following:
(a) Six hundred percent (600%) of the cost of drilling,
completing, recomputing, sidetracking, deepening, deviating
or plugging back each NON-CONSENT WELL and equipping it
through the wellhead connections, reduced by any
contribution received under Section 21.1; plus,
(b) Three hundred percent (300%) of the cost of FACILITIES
necessary to carry out the operation; plus,
(c) One hundred percent (100%) of the cost of using any
FACILITIES already installed determined pursuant to Section
12.6 below; plus,
(d) One hundred percent (100%) of the cost of operating
expenses, royalties and severance, gathering, production and
windfall profit taxes.
Recoupment of costs shall be in the order listed above. Upon the recoupment of
such costs, a NON-PARTICIPATING PARTY shall become a PARTICIPATING PARTY in such
operations.
12.2.2 Non-Production Reversion. If such NON-CONSENT OPERATIONS fail
to obtain production or such operations result in production which ceases prior
to recoupment by the PARTICIPATING PARTIES of the penalties provided for above,
such operating rights shall revert to each NON-PARTICIPATING PARTY except that
all NON-CONSENT xxxxx, platforms and FACILITIES shall remain vested in the
PARTICIPATING PARTIES; however, any salvage in excess of the sum remaining under
Section 12.2.1 shall be credited to all PARTIES.
12
12.3 DEEPENING OR SIDETRACKING OF NON-CONSENT WELL. If any PARTICIPATING
PARTY proposes to deepen or sidetrack a NON-CONSENT WELL, a NON-PARTICIPATING
PARTY may participate by notifying the OPERATOR within fifteen (15) days after
receiving the proposal (48 hours if a rig is on location) that it will join in
the (deepening or sidetracking) operations, and by paying to the PARTICIPATING
PARTIES an amount equal to such NON-PARTICIPATING PARTY'S share of the actual
costs of drilling and casing such well to the point at which such deepening or
sidetracking operation is commenced. The PARTICIPATING PARTIES shall continue to
be entitled to recoup the full sum specified in Section 12.2.1 applicable to the
NON-CONSENT WELL, less the amount paid under this section, out of the proceeds
of production from the NON-CONSENT portion of the well.
12.4 OPERATIONS FROM NON-CONSENT PLATFORMS. Subject to the following, a
PARTY which did not originally participate in a platform proposed pursuant to
the terms herein, shall be a NON-PARTICIPATING PARTY as to ownership therein
and all operations thereon until the PARTICIPATING PARTIES as to such platform
have recouped the full sum specified in Section 12.2.1 applicable to such
NON-CONSENT PLATFORM and the NON-CONSENT OPERATIONS which resulted in the
setting of such PLATFORM and other NON-CONSENT OPERATIONS thereon or therefrom.
However, an original NON-PARTICIPATING PARTY may participate in additional
operations from such PLATFORM by notifying the OPERATOR within thirty (30) days
after receiving a proposal for operations from such PLATFORM (48 hours if a rig
is on location and standby rig charges are being incurred) that it will join in
such proposed operations by paying to the PARTICIPATING PARTIES in such PLATFORM
an amount equal to 300% of such NON-PARTICIPATING PARTY'S share of the actual
cost of such PLATFORM, less any recoupment therefor previously obtained.
Thereafter, such original NON-PARTICIPATING PARTY in the PLATFORM shall own its
proportionate share thereof. The PARTICIPATING PARTIES in such NON-CONSENT
PLATFORM shall continue to be entitled to recoup the full sum specified in
Section 12.2.1 applicable to any other NON-CONSENT OPERATIONS thereon or
therefrom.
12.5 DISCOVERY OR EXTENSION FROM MOBILE DRILLING OPERATIONS. If a NON-
CONSENT WELL drilled from a mobile drilling rig or floating drilling vessel
results in the discovery or extension of productive formations and, if within
one (1) year from the date the drilling equipment is released, a platform or
other fixed structure is ordered and if its location is within one thousand
(1,000) feet from an oil well or three thousand (3,000) feet if gas, from the
vertical projection of the bottom-hole location of any such well (unless limited
by surface restrictions), the recoupment of amounts applicable to such well
under Section 12.2.1 shall be out of such original NON-PARTICIPATING PARTY'S
SHARE of all production from such NON-CONSENT WELL and one-half of its share of
production from all other xxxxx on the platform or other fixed structure drilled
to develop reserves resulting from the discovery or extension of productive
formations in said NON-CONSENT WELL in which the NON-PARTICIPATING PARTY in such
NON-CONSENT WELL has a PARTICIPATING INTEREST.
12.6 ALLOCATION OF PLATFORM COSTS TO NON-CONSENT OPERATIONS. NON-CONSENT
OPERATIONS shall be subject to further conditions as follows:
12.6.1 Charges. If a NON-CONSENT WELL is drilled from a platform (and
is producible or the slot is otherwise rendered unusable), the PARTICIPATING
PARTIES in such well shall pay to the OPERATOR for credit to the owners of such
platform a charge (due upon completion of operations for such NON-CONSENT WELL)
for
13
the right to use the platform and its FACILITIES as follows:
(a) Such PARTICIPATING PARTIES shall pay a sum equal to that
portion of the total cost of the platform (including, but
not by way of limitation, costs of design, materials,
fabrication, transportation, installation and other costs
associated therewith, plus any repairs and maintenance
expense resulting from the drilling of such well not
provided in Section 12.6,2), which one platform slot bears
to the total number of slots on the platform. If the
NON-CONSENT WELL is abandoned, the right of the
PARTICIPATING PARTIES to use that platform slot shall
terminate unless such PARTIES commence drilling a substitute
well from the same slot within ninety (90) days after
abandonment.
(b) If the NON-CONSENT WELL production is handled through
existing FACILITIES, the PARTICIPATING PARTIES shall pay the
owners of the facilities a sum equal to that portion of the
total cost of such FACILITIES which the number of
completions in said NON-CONSENT WELL bears to the total
number of completions utilizing the FACILITIES.
12.6.2 Operating and Maintenance Charges. The PARTICIPATING PARTIES
shall pay all costs necessary to connect a NON-CONSENT WELL to the FACILITIES
and that proportionate part of the expense of operating and maintaining the
platform and other FACILITIES applicable to the NON-CONSENT WELL, including the
cost of insurance thereon or in connection therewith, whether by insurance
policy of self-insurance by each PARTY for its interest or by OPERATOR for the
joint account. Platform operating and maintenance expenses shall be allocated
equally to all completions served and operating and maintenance expenses for the
other FACILITIES shall be allocated equally to producing completions.
12.6.3 Payments. Payments of sums pursuant to Section 12.6.1 is not a
purchase of an additional interest in the platform or other FACILITIES. Such
payments shall be included in the total amount, which the PARTICIPATING PARTIES
are entitled to recoup out of production from the NON-CONSENT WELL.
12.7 NON-CONSENT DRILLING TO MAINTAIN LEASE. A lease maintenance operation
is defined for the purposes of this paragraph as one required to maintain the
joint LEASE or a portion thereof, at its expiration date or otherwise. This
shall include, but not be limited to, a well proposed to be and actually
commenced and drilled during the last year of the primary term of the LEASE, or
subsequent thereto, when: (a) the LEASE, or affected portion thereof, is not
otherwise being held by operations or production; (b) a PRODUCIBLE WELL(S)
thereon has not established sufficient reserves, as determined by one (1) or
more PARTICIPATING PARTIES owning fifty percent (50%) working interest in the
well, to justify a platform; or (c) any governmental agency having jurisdiction
requires the same to avoid loss or forfeiture of all or any portion of the
LEASE. Any PARTY may propose and carry out a lease maintenance operation and any
PARTY(S) electing not to participate in such an operation will assign to the
PARTICIPATING PARTIES in the proportions in which they participate therein, all
of its rights, titles and interest in such LEASE block, or the affected portion
thereof, free and clear of any burdens thereon occurring since the effective
date of this Agreement as provided herein, retaining, however, its interest in
previously completed xxxxx which are
14
producing, shut-in or temporarily abandoned. Such assignment, effective upon
commencement of lease maintenance operations, will be promptly signed before
witnesses, acknowledged and delivered to the PARTICIPATING PARTIES. If only a
portion of the LEASE is involved, the PARTICIPATING PARTIES at their election
may require an assignment of operating rights in lieu of the assignment of all
interest. Upon acceptance by assignees, the assigning PARTY will thereupon cease
to be1 a PARTY hereto as to the assigned interest, subject to final accounting
between the PARTIES. If such assignment is not accepted by the Assignees, they
shall promptly prepare a release of such affected LEASE or portion thereof which
shall be executed by all PARTIES. However, nothing herein contained will be
construed to permit any PARTY to refuse to pay in cash its share of the cost and
expense of any operation required on the joint LEASE block by final order of any
governmental authority or court having jurisdiction.
12.7.1 Retention of Lease by Non-Consent Well. If a NON-CONSENT WELL
is the only well on the LEASE(S) and is serving to perpetuate the LEASE(S),
within thirty (30) days after expiration of the LEASE(S) primary term, each
NON-PARTICIPATING PARTY shall elect one of the following;
(a) Immediately assign its entire interest in the LEASE(S) to
the PARTICIPATING PARTIES in the proportions in which the
NON-CONSENT OPERATION was conducted; or
(b) Immediately pay to the PARTICIPATING PARTIES its share of
all costs associated with such well, less any recoupment
therefore previously obtained, such payment to be credited
against the total amount to be recovered out of its share of
production by the PARTICIPATING PARTIES pursuant to Article
X or XII, whichever is applicable.
12.8 ALLOCATION OF COSTS (SINGLE COMPLETION). For the purpose of allocating
costs on any well in which the ownership is not the same for the entire depth,
the cost of drilling, completing or equipping such well shall be allocated on
the following basis;
(a) Intangible drilling, completion and material costs (including
casing and tubing costs) from the surface to a depth one hundred
(100) feet below the base of the completed zone shall be charged
to the owners or the PARTIES participating in that zone.
(b) Intangible drilling, completion, casing string and material
costs, other than tubing costs, from a depth one hundred (100)
feet below the base of the completed zone to total depth shall be
charged to the owners or the PARTIES participating in the costs
to total depth.
12.9 ALLOCATION OF COSTS (MULTIPLE COMPLETIONS). For the purpose of
allocating costs on any well completed in dual or multiple zones in which the
ownership is not the same for the entire depth or the completions thereof, the
cost of drilling, completing and equipping such well shall be allocated on the
following basis:
(a) Intangible drilling, completion (including wellhead equipment),
casing string and material costs, other than tubing costs, from
the surface to a depth one hundred (100) feet below the base of
the upper completed zone shall be divided equally between the
completed zones and charged to the owners thereof or the PARTIES
participating in such zone.
(b) Intangible drilling, completion, casing string and material
costs, other than tubing costs, from
15
a depth one hundred (100) feet below the base of the upper
completed zone to a depth one hundred (100) feet below the base
of the second completed zone shall be divided equally between the
second and any other zone completed below such depth and charged
to the owners thereof or to the PARTIES participating in each
zone. If the well is completed in additional zones, the costs
applicable to each such zone shall be determined and charged to
the owners thereof in the same manner as prescribed by the dual
zones completion.
(c) Intangible drilling, completion, casing string and material costs
other than tubing costs, from a depth one hundred (100) feet
below the base of the lower completed zone to total depth shall
be charged to the owners or the PARTIES participating in the
costs to total depth.
(d) Costs of tubing strings serving each separate zone shall be
charged to the owners or the PARTIES participating in each zone.
(e) For the purposes of allocating tangible and intangible costs
between zones that occur at less than one hundred (100) foot
intervals, the costs for the distance between the base of the
upper zone to the top of the next lower zone shall be allocated
equally between zones.
12.10 ALLOCATION OF COSTS (DRY HOLE). For the purpose of allocating costs
on any well determined to be a dry hole, in which the ownership is not the same
for the entire depth or the completion thereof, the cost of drilling, plugging
and abandoning such well shall be allocated on the following basis:
(a) Costs to drill, plug and abandon a well proposed for completion
in single, dual, or multiple zones shall be charged to the
PARTICIPATING PARTIES in the same manner as if the well were
completed as a producing well in all zones as proposed.
(b) Plugging and abandoning of any well following any deepening,
completion attempt or other operation shall be at the sole risk
and expense of the PARTICIPATING PARTIES in such operation,
subject however to the provisions of Section 10.4.
12.11 INTANGIBLE DRILLING AND COMPLETION ALLOCATIONS. For the purpose of
calculations hereunder, intangible drilling and completion costs, including
non-controllable material costs, shall be allocated between zones, including the
interval from the lower completed zones to total depth, on a drilling day ratio
basis beginning on the day the rig arrives on location and terminating when the
rig is released.
12.12 OPERATED XXXXX. The designated OPERATOR hereunder shall operate all
xxxxx drilled pursuant to the NON-CONSENT provision of this Agreement. However,
notwithstanding anything herein to the contrary, if the NON-CONSENT WELL is
drilled from a mobile drilling rig and if the designated OPERATOR is a
NON-PARTICIPATING PARTY therein, the PARTICIPATING PARTY owning the largest
PARTICIPATING INTEREST shall serve as Operator for the drilling and completion
of such well, unless the PARTICIPATING PARTIES agree otherwise. Upon completion
of any such well as a productive well (completion through the wellhead), the
well shall be turned over to the designated OPERATOR for further operations.
16
ARTICLE XIII
FACILITIES
13.1 APPROVAL. Any PARTY may propose the installation of FACILITIES by
notice to the other PARTIES with information adequate to describe the proposed
FACILITIES and the estimated costs. The affirmative vote of one (1) or more
PARTIES having a combined PARTICIPATING INTEREST of forty percent (40%) or more
in the xxxxx to be served shall be required before such FACILITIES may be
installed. If such required approval is obtained, the PARTICIPATING PARTIES
therein shall proceed with the installation of such FACILITIES at their sole
cost, risk and expense and the NON-PARTICIPATING PARTIES in such FACILITIES
shall have no rights with respect thereto, subject to recoupment of amounts set
forth under Article 12.2.1 from the completions served thereby. Each PARTIES'
share shall be calculated by multiplying the total cost of the FACILITIES by a
fraction, the numerator of which is that PARTY'S number of PRODUCIBLE WELL
completions served by the FACILITIES and the denominator of which is the total
number of PRODUCIBLE WELL completions served by the FACILITIES. Nothing
hereunder shall limit a PARTY'S rights under Section 22.1; however, a PARTY
acting thereunder shall not be required to pay for joint account FACILITIES that
duplicate its FACILITIES constructed pursuant to Section 22.1
ARTICLE XIV
ABANDONMENT AND SALVAGE
14.1 PLATFORM SALVAGE AND REMOVAL COSTS. When the PARTIES owning FACILITIES
consisting of a platform, mutually agree to dispose of such platform it shall be
disposed of by the OPERATOR as approved by such PARTIES. The costs, risks and
net proceeds, if any, resulting from such disposition shall be shared by such
PARTIES in proportion to their PARTICIPATING INTEREST. To secure the
availability and sufficiency of funds for the dismantling, abandonment and
removal of such platform, the PARTICIPATING PARTIES, prior to the construction,
shall assign to a trustee of a bank (the "Assignee") an overriding royalty
interest equal to one-half percent (1/2%) of the whole of the oil, gas and other
minerals produced, saved and marketed from the LEASE. The assignee shall be
selected by an affirmative vote of two or more parties having a combined
PARTICIPATING INTEREST of fifty percent (50%) or more. The assigned overriding
royalty interest shall burden the interest of the PARTIES in proportion to their
participation in the platform. The Assignee, who shall have no interest in the
overriding royalty interest, shall receive the proceeds and place same in an
interest bearing account or in insured certificates of deposit (the "Abandonment
Fund"). If a platform is not constructed within one year of the date of
overriding royalty interest is assigned, the overriding royalty shall terminate
and the Assignee shall reassign the interest and properly disburse the
Abandonment Fund to the appropriate Parties. Any proposal to construct a
platform shall provide estimated cost of dismantling, abandonment and removal of
same. At such time as the Abandonment Fund equals these estimated costs, the
overriding royalty shall be assigned to the PARTICIPATING PARTIES by the
Assignee. Similarly, any excess Abandonment Funds after complete dismantling,
abandonment and removal costs are paid shall be disbursed to the PARTICIPATING
PARTIES in proportion to their interest. A PARTICIPATING PARTY's interest in the
Abandonment Fund may only be assigned or transferred in conjunction with an
assignment or transfer of the subject Lease(s). In lieu of an assignment of
overriding royalty interest, any PARTICIPATING PARTY may elect to furnish an
irrevocable letter
17
of credit in favor of the Assignee, or proof of coverage under adequate plugging
and abandonment bonds, subrogated in favor of the OPERATOR, to provide for that
PARTY's estimated proportionate share of platform dismantling, removal and
abandonment costs. The letter of credit or plugging and abandonment bonds shall
provide that either instrument shall remain in force in the event of a transfer
or assignment of the PARTY's interest until such time as the transferee or
assignee provides a similar irrevocable letter of credit or plugging and
abandonment bonds.
14.2 PURCHASE OF SALVAGE MATERIALS. OPERATOR shall give all PARTIES written
notice when it is determined under Section 14.1 that FACILITIES or other
materials are not needed for further operations and may be moved from the LEASE.
Within fifteen (15) days after receipt of such notice any PARTY desiring to
acquire such materials shall give OPERATOR written notice of such fact. If more
than one PARTY desires to acquire such materials, OPERATOR shall designate a
time and place at which each PARTY may submit written bids for such materials.
If only one PARTY desires to acquire such materials, it may do so on the basis
of the value thereof as determined in accordance with the provisions of Exhibit
"C", with prefabricated materials being valued on the basis of cost including
but not limited to cost of fabrication. All materials removed from the LEASE
shall be removed at the expense of the PARTIES unless purchased hereunder, then
at the expense of the acquiring PARTY. In the event no PARTY desires to purchase
said materials, the materials shall be disposed of in accordance with the
provisions of Exhibit "C".
14.3 ABANDONMENT OF PRODUCING WELL. Any PARTY may propose the abandonment
of a well by notifying the other PARTIES, who shall have the time period set
forth in Section 9.3.2 from receipt thereof within which to respond. No well
shall be abandoned without the mutual consent of the PARTICIPATING PARTIES. The
PARTICIPATING PARTIES not consenting to the abandonment shall pay to each
PARTICIPATING PARTY desiring to abandon its share of the current value of the
well's salvageable material and equipment as determined pursuant to Exhibit "C",
less the estimated current costs of salvaging same and of plugging and
abandoning the well as determined by the PARTICIPATING PARTIES. Provided,
however, if such salvage value is less than such estimated current costs, then
each PARTICIPATING PARTY desiring to abandon shall pay to OPERATOR for the
benefit of the PARTICIPATING PARTIES not consenting to abandonment a sum equal
to its share of such deficiency.
14.4 ASSIGNMENT OF INTEREST. Each PARTICIPATING PARTY desiring to abandon a
well pursuant to Section 14.3 shall assign effective as of the last applicable
election date, to the non-abandoning PARTIES, in proportion to their
PARTICIPATING INTERESTS, its interest in such well and the equipment therein and
its ownership in the production of such well. Any PARTY so assigning shall be
relieved from any further liability with respect to said well except as to any
accrued liability.
14.5 ABANDONMENT OPERATIONS REQUIRED BY GOVERNMENTAL AUTHORITY. Any well
abandonment or platform removal required by a governmental authority shall be
accomplished by OPERATOR with the costs, risks and net proceeds, if any, to be
shared by the PARTIES owning such well or platform in proportion to their
PARTICIPATING INTEREST.
18
ARTICLE XV
WITHDRAWAL
15.1 WITHDRAWAL. Any PARTY may withdraw from this Agreement and thereby be
relieved of all responsibilities with respect to the LEASE by giving notice to
the other PARTIES of such desire together with an offer to convey at no cost by
a recordable instrument, without warranty, express or implied, except for its
own acts, all of its interest in and to the LEASE, the oil and gas, and the
property and equipment owned hereunder. Any such conveyance or assignment shall
be free and clear of any overriding royalties, production payments or other
burdens on production created after the effective date of this Agreement and
shall be subject to the LEASE provisions and to the rules and regulations of the
lessor. If any PARTY(S) desires to acquire such interest and to assume the
obligations of the assigning PARTY under this Agreement and the LEASE, the
withdrawing PARTY shall deliver such conveyance or assignment ratably to the
acquiring PARTIES, unless the acquiring PARTIES agree otherwise. If no PARTY
desires to acquire such interest, the PARTY desiring to withdraw may do so only
by paying to those PARTIES not desiring to withdraw its pro-rata share of the
estimated costs of plugging and abandoning all xxxxx and removal of all
platforms, structures and other equipment on the LEASE, less any salvage value
approved under the voting procedure hereof, and such withdrawing PARTY shall
remain liable for any costs, expenses or damages theretofore accrued or arising
out of any event occurring prior to such PARTY'S withdrawal. Thereafter, the
withdrawing PARTY shall assign its entire interest ratably to the remaining
PARTIES. If the remaining PARTIES do not wish to continue operations on the
LEASE, all PARTIES shall proceed with abandoning and surrendering the same.
15.2 LIMITATIONS ON WITHDRAWAL. No PARTY shall be relieved of its
obligations hereunder during a well or platform fire, blowout or other emergency
thereon, but may withdraw from this Agreement and be relieved of such
obligations after termination of such emergency, provided such PARTY shall be
and remain liable for its full share of all costs arising out of said emergency,
including without limitation, the drilling of a relief well, containment and
cleanup of oil spill and pollution and all costs of platform debris removal made
necessary by the emergency.
ARTICLE XVI
RENTALS, ROYALTIES AND OTHER PAYMENTS
16.1 CREATION OF OVERRIDING ROYALTY. If after the effective date of this
Agreement, any PARTY creates any overriding royalty, production payment or other
burden payable out of production attributable to such PARTY'S WORKING INTEREST
in the LEASE owned and if any other PARTY(S) becomes entitled to an assignment
pursuant to the provisions of this Agreement (except for Paragraph 26.2) or as a
result of NON-CONSENT OPERATIONS hereunder becomes entitled to receive the
WORKING INTEREST otherwise belonging to a NON-PARTICIPATING PARTY in such
operations, the PARTY entitled to receive the assignment from or the WORKING
INTEREST production of such NON-PARTICIPATING PARTY shall receive same free and
clear of such burdens, and the NON-PARTICIPATING PARTY creating such burdens
shall save the PARTICIPATING PARTIES harmless with respect to the receipt of
such assigned interest or such WORKING INTEREST production. Notwithstanding the
provisions herein, the Parties agree to bear their proportionate share of the
overriding royalty interests set out on Exhibit "A".
19
16.2 PAYMENT OF RENTALS AND MINIMUM ROYALTIES. OPERATOR shall pay all
rentals, minimum royalties, or similar payments accruing under the terms of the
LEASE and submit evidence of such payment to the PARTIES. As to any production
delivered in kind by OPERATOR to any NON-OPERATOR or to another for the account
of such NON-OPERATOR, said NON-OPERATOR shall provide OPERATOR with information
as to the proceeds or value of such production in order that the OPERATOR may
make payment of any minimum royalty due. The amount of such payment for which
each PARTY is responsible shall be charged by the OPERATOR to such PARTIES.
OPERATOR shall diligently attempt to make proper payment, but shall not be held
liable to the PARTIES in damages for the loss of any LEASE or interest therein
of through mistake or oversight any rental or minimum royalty payment is not
paid for or is erroneously paid. The loss of any LEASE or interest therein which
results from a failure to pay or an erroneous payment of rental or minimum
royalty shall be a joint loss and there shall be no readjustment of interest.
16.3 NON-CONCURRENCE IN PAYMENTS. Should any PARTY(S) not concur in the
payment of any rental, minimum royalty or similar payment, such PARTY(S) shall
notify OPERATOR and all other owners in writing at least sixty (60) days prior
to the date on which such payment is due or accrues; and, in this event OPERATOR
shall make such payment for the benefit of all concurring PARTIES. In such event
the non-concurring PARTY(s) shall, upon request of any concurring PARTIES,
assign to the concurring PARTIES in the ratio that each concurring PARTY'S
interest at the time bears to the total interest of all concurring PARTIES,
without warranty, except for its own acts, such portions of its interest in and
to the LEASE or portion thereof involved as would be maintained by such payment.
That assignment shall be free and clear of any overriding royalties, production
payments or other burdens on production created after the effective date hereof.
Thereafter, the LEASE, or portion thereof, involved shall no longer be subject
to this Agreement. The PARTIES then owning such LEASE or portion thereof agree
to operate said LEASE or portion thereof under a separate agreement in the same
form as this Agreement.
16.4 ROYALTY PAYMENTS, Each PARTY shall pay, deliver or cause to be paid or
delivered its pro- rata share of LEASE royalties, overriding royalties, payments
out of production or other amounts or charges which may be or become payable out
of its share of production and shall hold the other PARTIES free from any
liability therefore. Each Party, electing to pay his share of royalties pursuant
to the terms of the Lease, shall promptly notify Operator of said election and
shall thereafter provide to Operator a detailed accounting of revenue received
and value paid to the Lessor for such Party's share of production produced,
marketed and sold. Monthly reports shall be submitted to Operator within
forty-five days of actual receipt of the previous month's production revenue.
During any time in which PARTICIPATING PARTIES in a NON-CONSENT OPERATION are
entitled to receive a NON-PARTICIPATING PARTY'S share of production, the
PARTICIPATING PARTIES shall bear the LEASE royalty due with respect to such
share of production and shall hold the NON-PARTICIPATING PARTIES harmless from
liability in connection therewith. Any PARTY acting under the provisions of the
Article shall never be liable for a standard of performance in making such
payments or deliveries in excess of a good faith effort to pay or deliver same
prior to the due date and no liability (other than the liability to correct such
payment) shall be incurred for failure through error or omissions of the
employees of any such PARTY to make payment or delivery within the time, in the
manner and for the amounts due
16.5 FEDERAL OFFSHORE OIL POLLUTION COMPENSATION FUND FEE. Each PARTY
agrees to pay and bear the Federal Offshore Oil Pollution Compensation Fund Fee
payable on its share of oil produced,
20
such fee being required by Section 302 of the Outer Continental Shelf Lands Act
Amendment of 1971 and any regulation lawfully promulgated pursuant thereto;
provided, however, should the oil owned by a PARTY be reported by another PARTY,
it shall be the obligation of such reporting PARTY and such reporting PARTY is
specifically authorized to an agrees to pay the Federal Offshore Oil Pollution
Compensation Fund Fee on those volumes which it reports for the benefit of the
non-reporting PARTY, and such reporting PARTY may charge such non-reporting
PARTY for the payments so made.
ARTICLE XVII
TAXES
17.1 PROPERTY TAXES. OPERATOR shall render property covered by tills
Agreement as may be subject to ad valorem taxation and shall pay such property
taxes for the benefit of each PARTY. OPERATOR shall charge each PARTY its share
of such tax payments. If the OPERATOR is required hereunder to pay ad valorem
taxes based in whole or in part upon separate valuation of each PARTY'S WORKING
INTEREST, then notwithstanding anything to the contrary herein, charges to the
Joint Account shall be made and paid by the PARTIES hereto in accordance with
the percentage of tax value generated by each PARTY'S WORKING INTEREST.
17.2 CONTEST OF PROPERTY TAX VALUATION. OPERATOR shall timely and
diligently protest to a final determination any valuation it deems unreasonable.
Pending such determination, OPERATOR may elect to pay under protest. Upon final
determination, OPERATOR shall pay the taxes and any interest, penalty or cost
accrued as a result of such protest. In either event, OPERATOR shall charge each
PARTY its share.
17.3 PRODUCTION AND SEVERANCE TAXES. Each PARTY shall pay, or cause to be
paid, all production, severance and other taxes due on any production, which it
received pursuant to the terms of this Agreement.
17.4 OTHER TAXES AND ASSESSMENTS. OPERATOR shall pay other applicable taxes
or assessments and charge each PARTY its share.
ARTICLE XVIII
INSURANCE
18.1 INSURANCE. OPERATOR shall obtain the insurance provided in Exhibit "B"
and charge each PARTICIPATING PARTY its proportionate share of the cost of such
coverage.
ARTICLE XIX
LIABILITY, CLAIMS AND LAWSUITS
19.1 INDIVIDUAL OBLIGATIONS. The obligations, duties and liabilities of the
PARTIES shall be several and not joint or collective; and nothing contained
herein shall ever be construed as creating a partnership of any kind, joint
venture, association or other character of business entity recognizable in law
for any purpose. Each PARTY shall hold all the other PARTIES harmless from liens
and encumbrances on the LEASE arising as a result of its acts.
19.2 NOTICE OF CLAIM OR LAWSUIT. If a claim is made against any PARTY or if
any PARTY is sued on account of any matter arising from operations hereunder,
such PARTY shall give prompt written notice to the other PARTIES.
21
19.3 SETTLEMENTS. OPERATOR may settle any single damage claim or suit
involving operations hereunder if the expenditure does not exceed Ten Thousand
Dollars ($10,000.00), if the claim is not covered by Exhibit "B" and if the
payment is in complete settlement of such claim or suit.
19.4 LEGAL EXPENSE. Legal Expenses shall be handled pursuant to the
provisions of Exhibit "C".
19.5 LIABILITY FOR LOSSES, DAMAGES, INJURY OR DEATH. Liability for losses,
damages, injury or death arising from operations under this Agreement shall be
borne by the PARTIES in proportion to their PARTICIPATING INTERESTS in the
operations out of which such liability arises, except when such liability
results from the gross negligence or willful misconduct of any party, in which
case such PARTY shall be liable.
19.6 INDEMNIFICATION. The PARTICIPATING PARTIES agree to hold the NON-
PARTICIPATING PARTIES harmless and to indemnify and protect them against all
claims, demands, liabilities and liens for property damage or personal injury,
including death, caused by or otherwise arising out of NON-CONSENT OPERATIONS,
and any loss and costs suffered by any NON-PARTICIPATING PARTY as an incident
thereof.
ARTICLE XX
INTERNAL REVENUE PROVISION
20.1 INTERNAL REVENUE PROVISION. Notwithstanding any provisions herein that
the rights and liabilities hereunder are several and not joint or collective or
that this Agreement and the operations hereunder shall not constitute a
partnership, if for Federal Income Tax purposes this Agreement and the
operations hereunder are regarded as a partnership, then for Federal Income Tax
purposes each PARTY elects to be excluded from the application of all the
provisions of Subchapter K, Chapter 1, Subtitle A, Internal Revenue Code of
1986, as permitted and authorized by Section 761 of said Code and the
regulations promulgated thereunder. OPERATOR is hereby authorized and directed
to execute on behalf of each PARTY such evidence of this election as may be
required by the Federal Internal Revenue Service including specifically, but not
by way of limitation, all of the returns, statements and data required by
Federal Regulations 1.761.1 and 1.761.2. Should there be any requirement that
each PARTY further evidence this election, each PARTY agrees to execute such
documents and furnish such other evidence as may be required by the Federal
Internal Revenue Service. Each PARTY further agrees not to give any notices or
take any other action inconsistent with the election made hereby. If any present
or future income tax law of the United States of America or any state contains
provisions similar to those contained in Subchapter K, Chapter 1, Subtitle A of
the Internal Revenue Code of 1986, under which an election similar to that
provided by Section 761 of said Subchapter K is permitted, each PARTY makes such
election or agrees to make such election as may be permitted by such laws. In
making this election, each PARTY states that the income derived by it from the
operations under this Agreement can be adequately determined without the
computation of partnership taxable income.
ARTICLE XXI
CONTRIBUTIONS
21.1 NOTICE OF CONTRIBUTIONS OTHER THAN ADVANCES FOR SALE OF PRODUCTION.
Each PARTY shall promptly notify the other PARTIES of all contributions, which
it may obtain, or is
22
attempting to obtain, concerning the drilling of any well on the LEASE. Payments
received as consideration for entering into a contract for sale of production
from the LEASE, loans and other financing arrangements shall not be considered
contributions for the purposes of the Article. No PARTY shall release or
obligate itself or release information in return for a contribution from an
outside party toward the drilling of a well without prior written consent of the
other PARTICIPATING PARTIES therein.
21.2 CASH CONTRIBUTIONS. In the event a PARTY receives a cash contribution
toward the drilling of a well, said cash contribution shall be paid to OPERATOR
and OPERATOR shall credit the amount thereof to the PARTIES in proportion to
their PARTICIPATING INTEREST.
21.3 ACREAGE CONTRIBUTIONS. In the event a PARTY receives an acreage
contribution toward the drilling of a well, said acreage contribution shall be
shared by each PARTICIPATING PARTY who accepts in proportion to its
PARTICIPATING INTEREST in the well.
ARTICLE XXII
DISPOSITION OF PRODUCTION
22.1 FACILITIES TO TAKE IN KIND. Any PARTY shall have the right, at its
sole risk and expense, to construct FACILITIES for taking its share of
production in kind, provided that such FACILITIES at the time of installation do
not interfere with continuing operations on the LEASE and adequate space is
available therefore.
22.2 DUTY TO TAKE IN KIND. Each PARTY shall have the right and duty to take
in kind or separately dispose of its share of the oil and gas produced and saved
from the LEASE.
22.3 FAILURE TO TAKE IN KIND. If any PARTY fails to take in kind or dispose
of its share of the oil and condensate, OPERATOR may either (a) purchase oil or
condensate at OPERATOR'S posted price or, in the absence of a posted price, in
no event less than the price prevailing in the area for oil of the same kind,
gravity and quality, or (b) sell such oil or condensate to others at the best
price obtainable by OPERATOR, subject to revocation by the non-taking PARTY upon
thirty (30) days advance notice. All contracts of sale by OPERATOR of any
PARTY'S share of oil or condensate shall be only for such reasonable periods of
time as are consistent with the minimum needs of the industry under the
circumstances, but in no event shall any contract be for a period in excess of
one (1) year. Proceeds of all sales made by OPERATOR pursuant to this Section
shall be paid to the PARTIES entitled thereto. Unless required by governmental
authority or judicial process, no PARTY shall be forced to share an available
market with any non-taking PARTY.
22.4 EXPENSES OF DELIVERY IN KIND. Any cost incurred by OPERATOR in making
delivery of any PARTY'S share of oil and condensate, or disposing of same
pursuant to Section 22.3, shall be borne by such PARTY.
22.5 GAS BALANCING PROVISIONS. Attached hereto is Exhibit "E" entitled "Gas
Balancing Agreement", containing an agreement of the PARTIES, which is
incorporated into this Agreement as if copied at length herein.
23
ARTICLE XXIII
APPLICABLE LAW
23.1 APPLICABLE LAW. This Agreement shall be interpreted according to the
laws of the State of Texas.
ARTICLE XXIV
LAWS, REGULATIONS AND NON-DISCRIMINATION
24.1 LAWS AND REGULATIONS. This Agreement and operations hereunder are
subject to all applicable laws, rules, regulations and orders, and any provision
of the Agreement found to be contrary to or inconsistent with any such law,
rule, regulation or order shall be deemed modified accordingly.
24.2 NON-DISCRIMINATION. In the performance of work under the Agreement,
the PARTIES agree to comply, and OPERATOR shall require each independent
contractor to comply, with the governmental requirements set forth in Exhibit
"D" and with all of the provisions of Section 202(1) to (7), inclusive, of
Executive Order No. 11246, as amended.
ARTICLE XXV
FORCE MAJEURE
25.1 NOTICE. If any PARTY is rendered unable, wholly or in part, by force
majeure to carry out its obligations under this Agreement, other than the
obligation to make money payments, that PARTY shall give to all other PARTIES
prompt written notice of the force majeure with reasonably full particulars
concerning it; thereupon, the obligations of the PARTY giving the notice, so far
as they are affected by the force majeure, shall be suspended during, but no
longer than, the continuance of the force majeure. The affected PARTY shall use
reasonable diligence to remove the force majeure as quickly as possible.
25.2 STRIKES. The requirement that any force majeure shall be remedied with
all reasonable dispatch shall not require the settlement of strikes.
25.3 FORCE MAJEURE. The term "force majeure" as herein employed shall mean
an act of God, strike, lockout, or other industrial disturbance, act of the
public enemy, war, blockade, public riot, lightning, fire, storm, flood,
explosion, governmental restraint, 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 suspension.
ARTICLE XXVI
SUCCESSORS, ASSIGNS AND PREFERENTIAL
RIGHT TO PURCHASE
26.1 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and inure
to the benefit of the PARTIES and their respective heirs, successors,
representatives and assigns and shall constitute a covenant running with the
LEASE. Each PARTY shall incorporate in any assignment of an interest in the
LEASE a provision that such assignment is subject to this Agreement.
26.2 NOTICE OF TRANSFER. Should any PARTY desire to sell, farmout or
otherwise dispose al all or any part of its Working Interest in the Lease, it
shall promptly give written notice to the other PARTIES giving complete
information relative to the proposed disposition. The other PARTIES shall have
the right for a period of fifteen (15)
24
days after receipt of the notice to attempt to purchase or acquire the interest,
which the PARTY proposes to sell, farmout or otherwise dispose. A transfer of
interest hereunder shall not become effective as to the PARTIES until the first
day of the month following delivery to OPERATOR of an original (or copies
thereof) instrument of transfer approved by the proper governmental authority
and conforming to the requirements of this Section. No such transfer shall
relieve the transferring PARTY of any obligations or liabilities accrued
hereunder prior to such effective date. This Section shall not apply when a
PARTY wishes to mortgage its interest or to dispose of its interest by merger,
reorganization, consolidation, assignment of production payment, sale of all or
substantially all of its assets, or sale or transfer of its interest to an
affiliate.
26.2.1 A PARTY may sell, transfer or assign all or any part of its
interest in the property or this Agreement without the consent of any other
PARTY hereto, provided that:
(a) Any such sale, transfer or assignment shall be made only to
a financially responsible PARTY or PARTIES.
(b) Such PARTY shall give the other PARTIES written notice of
such sale, transfer or assignment at least thirty (30) days
prior to executing any instrument(s) evidencing the sale,
transfer or assignment (such notice to include the name of
each proposed transferee and the interests) to be
transferred).
(c) Such PARTY shall incorporate in each instrument evidencing
the sale, transfer or assignment a provision making the same
expressly subject to the Operating Agreement and shall
obtain (and furnish to the other PARTIES) such transferee's
written consent to be bound by all the provisions of the
Operating Agreement.
(d) If the original interest of any PARTY is at any time
transferred to two (2) or more transferees, OPERATOR may, at
its discretion, require such transferees to appoint a single
trustee with full authority to receive notices and payments,
approve expenditures and pay the share of costs, which are
chargeable against such transferees.
26.2.2 The Provisions of this Article shall not, however, apply to and
it shall not be necessary to obtain the consent of any party in connection with;
(a) Any mortgage or other pledge, including without limitation
the granting of any lien or security interest and any
assignment of production executed as further security for
the debt secured by any such mortgage or pledge, by a Party
hereto of its interest or any portion thereof in the joint
leases, or the Agreement, or any judicial, trustee's or
other sales to foreclose the same;
(b) Any transfer or disposition of the interest of a PARTY
hereto by corporate merger or consolidation or by any sale
or sales of substantially all of its oil and gas properties;
or
(c) Any sale, merger, consolidation or other transfer by a PARTY
hereto of any part of its interest to or with any
"affiliate" (as such term is defined in Regulation C, issued
under the Securities Act of 1933).
25
(d) Any mortgage, pledge, transfer, sale, merger or any other
disposition enumerated in subparagraphs (a), (b) or (c) of
this Paragraph shall be made expressly subject to this
Agreement. Any assignment under this provision shall be
effective upon approval of the lessor or at such earlier
date as agreed to by the lessor.
26.3 ASSIGNMENTS. Any assignment, vesting or relinquishment of interest
between the PARTIES shall be without warranty of title, except as to overrides,
production payments, liens, encumbrances or similar burdens on the interest
assigned. Any assignment to a Third Party or a Working Interest herein shall not
be effective until approved by the Minerals Management Service.
ARTICLE XXVII
TERM
27.1 TERM. This Agreement may be amended only in writing and only by mutual
consent of all PARTIES. This Agreement shall remain in effect so long as the
LEASE shall remain in effect and thereafter until all claims, liabilities and
obligations incurred in operations hereunder have been settled; however, all
property belonging to the PARTIES shall be disposed of and final settlement
shall be made under this Agreement.
ARTICLE XXVIII
AREA OF MUTUAL INTEREST
28.1 AREA OF MUTUAL INTEREST. The PARTIES hereby create an Area of Mutual
Interest ("AMI") identified on Exhibit "A-1" attached hereto and made a part
hereof. This AMI shall remain in force and effect as long as any leases lying
within the AMI are being maintained by the parties hereto. Any acquisition of
any right, title or interest acquired in, to and under any oil or gas lease or
any other interest in oil or gas, including, without limitation, contractual
rights, which confer on the holder thereof the right to share, or acquire the
right to share, in the production or the proceeds of production of oil and gas
within the AMI (the "Acquisition") by a PARTY herein shall be for the mutual
benefit of the PARTIES. Each PARTY shall have the right to participate in any
such Acquisition in the same proportion as such PARTY'S WORKING INTEREST in and
to the LEASE as set forth in Exhibit "A". The PARTY making the Acquisition (the
"Acquiring Party") shall notify each of the other PARTIES in writing within
thirty (30) days of such Acquisition and shall furnish a copy of all executed
agreements pertaining thereto and such title information as the Acquiring PARTY
has, stating the cost of such acquisition or the obligations that must be
assumed in connection therewith. Each of the other PARTIES shall have a period
of fifteen (15) working days (48 hours exclusive of Saturdays, Sundays and legal
holidays in the event that a well is being drilled within the AMI) after receipt
of such notice within which to elect and notify the Acquiring PARTY whether or
not it desires to participate in such Acquisition. Failure to timely respond to
the Acquiring PARTY'S notice or reimburse the Acquiring PARTY for the
proportionate share of the acquired interest shall be deemed an election not to
acquire such interest. Upon election and payment to the Acquiring PARTY of a
non-acquiring PARTY'S share of the cost of such acquisition, such non-acquiring
PARTY shall be entitled to an assignment of its proportionate share in such
Acquisition.
26
If fewer than all PARTIES elect to participate in the Acquisition within
the AMI, the Acquiring PARTY shall inform all PARTIES who have elected to
participate in the Acquisition, in writing, of the elections made. Each PARTY
receiving notice, within forty-eight (48) hours (inclusive of Saturday, Sunday
or legal holidays) after receipt of such notice, shall advise the Acquiring
PARTY of its desire to (a) limit participation to its WORKING INTEREST, or (b)
acquire its proportionate share of the interest of the non-participating
PARTY(IES), or (c) participate for a percentage of the interest of the
non-participating PARTY(IES).
The interest of any PARTY who elects to participate in any acquisition
within the AMI shall be subject to and be burdened by the obligations set forth
on Exhibit "A" with respect to the leases.
ARTICLE XXIX
HEADINGS AND EXECUTION
29.1 TOPICAL HEADINGS. The topical headings used herein are for convenience
only and shall not be construed as having any substantive significance or as
indicating that all of the provisions of this Agreement relating to any topic
are to be found in any particular Section.
29.2 COUNTERPART EXECUTIONS. This Agreement may be signed in counterparts,
and shall be binding upon the PARTIES and upon their successors, representatives
and assigns.
GRYPHON EXPLORATION COMPANY
BY: /s/ Xxxxxxx X. Xxxx
------------------------------------
Xxxxxxx X. Xxxx
Vice President-Land
MARINER ENERGY, INC.
BY:
------------------------------------
NAME:
----------------------------------
TITLE:
---------------------------------
RIDGEWOOD ENERGY CORPORATION
BY: /s/ W. Xxxx Xxxxx
------------------------------------
NAME: W. XXXX XXXXX
TITLE: EXEC. VICE PRESIDENT
00
XXXXX XX Xxxxx
XXXXXX XX Xxxxxx
XX THIS 9th day of September, 2004, before me appeared X.X. Xxxx, to me
personally known, who, being by me duly sworn, did say that he is the Vice
President for Gryphon Exploration Company, and that the foregoing instrument was
signed in behalf of said corporation by authority of its Board of Directors, and
said X.X. Xxxx acknowledges said instrument to be a free act and deed of said
corporation.
----------------------------
[SEAL] XXXXX X. XXXXXX
MY COMMISSION EXPIRES /s/ Xxxxx X. Xxxxxx
DECEMBER 6, 2007 -------------------------------------
---------------------------- Notary Public in and for State of
Texas
STATE OF TEXAS
COUNTY OF XXXXXX
ON THIS 9th day of September, 2004, before me appeared W. XXXX XXXXX, to me
personally known, who, being by me duly sworn, did say that he is the Vice
President for RIDGEWOOD ENERGY CORPORATION, and that the foregoing instrument
was signed in behalf of said corporation by authority of its Board of Directors,
and said W. XXXX XXXXX acknowledges said instrument to be a free act and deed of
said corporation.
------------------------------
XXXXXXXX X. XXXXXX
[SEAL] MY COMMISSION EXPIRES /s/ Xxxxxxxx X. Xxxxxx
June 16, 2005 -------------------------------------
------------------------------ Notary Public in and for
STATE OF
COUNTY OF
ON THIS ____ day of _________, 2004, before me appeared ___________, to me
personally known, who, being by me duly sworn, did say that he is the
____________ for ________________, and that the foregoing instrument was signed
in behalf of said corporation by authority of its Board of Directors, and said
__________ acknowledges said instrument to be a free act and deed of said
corporation.
-------------------------------------
Notary Public in and for
28
If fewer than all PARTIES elect to participate in the Acquisition within
the AMI, the Acquiring PARTY shall inform all PARTIES who have elected to
participate in the Acquisition, in writing, of the elections made. Each PARTY
receiving notice, within forty-eight (48) hours (inclusive of Saturday, Sunday
or legal holidays) after receipt of such notice, shall advise the Acquiring
PARTY of its desire to (a) limit participation to its WORKING INTEREST, or (b)
acquire its proportionate share of the interest of the non-participating
PARTY(IES), or (c) participate for a percentage of the interest of the
non-participating PARTY(IES).
The interest of any PARTY who elects to participate in any acquisition
within the AMI shall be subject to and be burdened by the obligations set forth
on Exhibit "A" with respect to the leases.
ARTICLE XXIX
HEADINGS AND EXECUTION
29.1 TOPICAL HEADINGS. The topical headings used herein are for convenience
only and shall not be construed as having any substantive significance or as
indicating that all of the provisions of this Agreement relating to any topic
are to be found in any particular Section.
29.2 COUNTERPART EXECUTIONS. This Agreement may be signed in counterparts,
and shall be binding upon the PARTIES and upon their successors, representatives
and assigns.
GRYPHON EXPLORATION COMPANY
BY: /s/ Xxxxxxx X. Xxxx
---------------------------------
Xxxxxxx X. Xxxx
Vice President-Land
MARINER ENERGY, INC.
BY: /s/ Xxxx X. van den Bold
---------------------------------
NAME: Xxxx X. van den Bold
TITLE: Vice President - Exploration
RIDGEWOOD ENERGY CORPORATION
BY:
---------------------------------
NAME:
-------------------------------
TITLE:
------------------------------
00
XXXXX XX Xxxxx
XXXXXX XX Xxxxxx
XX THIS 9th day of September, 2004, before me appeared X.X Xxxx, to me
personally known, who, being by me duly sworn, did say that he is the Vice
President for Gryphon Exploration Company, and that the foregoing instrument was
signed in behalf of said corporation by authority of its Board of Directors, and
said X.X. Xxxx acknowledges said instrument to be a free act and deed of said
corporation.
------------------------------
XXXXX X. XXXXXX
[SEAL] MY COMMISSION EXPIRES /s/ Xxxxx X. Xxxxxx
DECEMBER 6, 2007 -------------------------------------
------------------------------ Notary Public in and for State of
Texas
STATE OF TEXAS
COUNTY OF XXXXXX
ON THIS 9TH day of SEPTEMBER, 2004, before me appeared XXXX X. VAN DEN BOLD, to
me personally known, who, being by me duly sworn, did say that he is the VICE
PRESIDENT for MARINER ENERGY and that the foregoing instrument was signed in
behalf of said corporation by authority of its Board of Directors, and said XXXX
X. VAN DEN BOLD acknowledges said instrument to be a free act and deed of said
corporation.
------------------------------------
XXXXX X. XXXXXXX
[SEAL] NOTARY PUBLIC, STATE OF TEXAS
MY COMMISSION EXPIRES /s/ Xxxxx X. Xxxxxxx
SEPT. 2, 2007 -------------------------------------
------------------------------------ Notary Public in and for State of
Texas
STATE OF
COUNTY OF
ON THIS ____ day of _________, 2004, before me appeared ___________, to me
personally known, who, being by me duly sworn, did say that he is the
____________ for ________________, and that the foregoing instrument was signed
in behalf of said corporation by authority of its Board of Directors, and said
_________________ acknowledges said instrument to be a free act and deed of said
corporation.
-------------------------------------
Notary Public in and for
30
EXHIBIT "A"
Attached to and made a part of that certain Joint Operating Agreement
dated effective August 1, 2004 by and between GRYPHON EXPLORATION COMPANY,
as Operator, and MARINER ENERGY, INC., et al, as Non-Operators
OIL AND GAS LEASES:
1. Lease No. M-000000 by and between the Commissioner of the General Land
Office of the State of Texas, as Lessor, and Gryphon Exploration
Company, as Lessee, effective April 9, 2002, covering the North
One-Half of the Southwest One-Quarter (N/2 of SW/4) of Tract 000-X,
Xxxx xx Xxxxxx, Xxxxxxxxx Xxxxxx, Xxxxx, containing approximately 720
acres as shown on the official map of the Gulf of Mexico on file in
the Texas General Land Office, Austin, Texas, and recorded on May 29,
2002 under File No. ###-##-#### of the records of Galveston County,
Texas.
2. Lease No. M-102438 by and between the Commissioner of the General Land
Office of the State of Texas, as Lessor, and Gryphon Exploration
Company, as Lessee, effective April 9, 2002, covering the South
One-Half of the Southwest One-Quarter (S/2 of SW/4) of Tract 000-X,
Xxxx xx Xxxxxx, Xxxxxxxxx Xxxxxx, Xxxxx, containing approximately 720
acres as shown on the official map of the Gulf of Mexico on file in
the Texas General Land Office, Austin, Texas, and recorded on May 29,
2002 under File No. ###-##-#### of the records of Galveston County,
Texas.
PARTICIPANTS AND ADDRESSES:
Gryphon Exploration Company
0000 Xxxxx Xxxxxx
Xxxxx 0000
Xxxxxxx, Xxxxx 00000
Attention: Land Department
Phone: (000) 000-0000
FAX: (000) 000-0000
Mariner Energy, Inc.
0000 Xxxxxxxx Xxxx., Xxxxx 0000
Xxxxxxx, Xxxxx 00000-0000
Attention: Mr. Xxxx Xxxxx
Phone: (000) 000-0000
FAX: (000) 000-0000
Ridgewood Energy Corporation
0000 Xxxxxxxx Xxxxx, Xxxxx 0000
Xxxxxxx, Xxxxx 00000
Attn: Xx. Xxxx Xxxxx
Phone: (000) 000-0000
Fax: (000) 000-0000
WORKING INTEREST
To Casing Point* At Casing Point*
---------------- ----------------
Gryphon Exploration Company 33.33333% 40.00000%
Mariner Energy, Inc. 40.00000% 40.00000%
Ridgewood Energy Corporation 26.66667% 20.00000%
--------- ---------
100.00000% 100.00000%
*The working interest of Gryphon Exploration Company and Ridgewood
Energy Corporation to Casing Point and at Casing Point is subject to the
terms and conditions of that certain Participation Agreement dated
September 2, 2004 between said parties.
The above leases, including any leases acquired by virtue of the Area of
Mutual Interest provisions of Article XXVIII hereof, are burdened by the
following overriding royalty interests:
Jebco Seismic, L.P. 7.5% of 1.0% of 8/8ths
Multi Klient Invest AS 92.5% of 1.0% of 8/8ths
Gryphon Exploration Company 2.0% of 8/8ths
31
EXHIBIT "A-l"
AREA OF MUTUAL INTEREST
Attached to and made a part of that certain Joint Operating Agreement
dated effective August 1, 2004 by and between GRYPHON EXPLORATION COMPANY,
as Operator, and MARINER ENERGY, INC., et al, as Non-Operators
The Area of Mutual Interest is comprised of the SW/4 of Tract 246-L and the
SE/4 of Tract 000-X, Xxxx xx Xxxxxx, Xxxxxxxxx Xxxxxx, Xxxxx.
32
EXHIBIT "B"
INSURANCE
Attached to and made a part of that certain Joint Operating Agreement dated
effective August 1, 2004, by and between GRYPHON EXPLORATION COMPANY, as
Operator, and MARINER ENERGY, INC., et al, as Non-Operators
Operator shall, at all times while conducting operations on the Contract Area
and/or Assigned Premises, carry or cause to be carried insurance for the
following coverage's and in at least the minimum amounts noted.
1. Workers' Compensation and Occupational Disease insurance in accordance
with the statutory requirements of the state in which work is to be
performed, the state in which the Operator, herein "Contractor", or
any of Operator's contractor(s) or sub-contractor(s), employees reside
and the state in which the Contractor is domiciled; Employer's
Liability insurance with limits of not less than $1,000,000. These
coverage's shall include:
a. Protection for liabilities under the Federal Longshoremen's and
Harbor Worker's Compensation Act and the Outer Continental Shelf
Lands Act.
b. Coverage for liability under the Merchant Marine Act of 1920,
commonly known as the Xxxxx Act; the Admiralty Act; and the Death
on the High Seas Act with limits of not less than $1,000,000 per
accident.
c. Protection against liability of employer to provide
transportation, wages, maintenance and cure to maritime employees
and a Voluntary Compensation Endorsement.
d. Coverage amended to provide that a claim In Rem shall be treated
as a claim against the employer.
e. Territorial extension shall cover all work areas.
2. Comprehensive General Liability insurance, written on any occurrence
reported basis with limits of $1,000,000 per occurrence Bodily Injury
and Property Damage, combined single limits, an annual aggregate of no
less than $2,000,000 (if applicable), including the following
coverage's:
a. Premises and Operations coverage's.
b. Independent Contractor's Contingent coverage.
c. Contractual Liability covering liabilities assumed under this
Contract.
d. Products and Completed Operations coverage.
e. Coverage for explosion, collapse and underground resources and
property damage under both Premises/Operations and Contractual
Liability coverage parts, where applicable.
f. Broad Form Property Damage Liability endorsement.
g. Personal Injury Liability.
h. In Rem endorsement.
i. Territorial extension shall cover all work areas.
j. Where applicable, coverage for liability resulting from the
consumption of food prepared or served by contractor or
subcontractor.
k. Watercraft exclusion deleted or Protection & Indemnity provided
as per 4.B.
l. Coverage is provided for "Action Over" suits.
m. Coverage is silent as respects Punitive Damages.
3. Automobile Liability insurance covering owned, hired and non-owned
vehicles with limits of $1,000,000 per occurrence Bodily Injury and
Property Damage combined single limits.
33
4. Where the work described by this Contract involves the use of marine
equipment. Operator will require the contractor to provide the
following insurance:
a. Full Form Hull and Machinery insurance, with coverage equal to
that provided by the American Institute Hull Clauses including
collision liability, with the sister ship clause unamended, with
limits of liability at least equal to the full value of the
vessel and with navigational limitations adequate for Contractor
to perform the contracted work. Where the vessels engage in
towing operations, said insurance shall include full tower's
liability with the sister ship clause unamended.
b. Protection and indemnity insurance coverage in an amount at least
equal to the full value of each vessel employed under the
Contract. Protection and indemnity insurance shall include full
coverage for all crew liabilities if coverage for maritime
employees is not provided under Coverage B, Employers Liability
for Admiralty Jurisdiction.
c. Excess Protection and Indemnity insurance, including Collision
and Tower's (where applicable) Liability in an amount at least
equal to the value of each vessel covered or the difference
between the full value of each vessel and $1,000,000 per
occurrence.
d. Voluntary Removal of Wreck and/or Debris insurance covering
Contractor's operations in an amount of not less than $1,000,000
per occurrence.
All of the marine coverage's cited above shall name Operator and all its
subsidiary and affiliated companies as additional insured's as their interests
may appear, to the extent of contractor's obligations to defend and indemnify
the Parties.
5. Aircraft Liability insurance (for contracts involving use of aircraft
or helicopters) with combined single limit coverage for public
liability, passenger liability and property damage liability of not
less than $5,000,000 covering all owned and non-owned aircraft used by
Contractor in connection with work to be performed.
6. Umbrella Liability insurance written on an occurrence basis with no
claims made features with a minimum combined single limit of $
15,000,000 each occurrence/aggregate where applicable, to be excess of
the coverage's and limits required in 1, 2, 3,4 and 5 above.
7. OPERATOR shall carry or cause to be carried the following coverage's
for the benefit of and at the expense of the Joint Account, however,
proportionate coverage may be carried individually by each NON-
OPERATOR, subject to proper evidence of such proportionate coverage
being provided to Operator at least fifteen (15) days prior to
commencement of operations for the drilling of the initial EXPLORATORY
WELL.
a. Operator's Extra Expense Insurance, including control of well and
redrilling of the well (full restoration redrill), including, but
not limited to, Seepage and Pollution and Containment and
Evacuation Expense with a limit of liability of $30,000,000.
b. Physical Damage and Removal of Wreck Coverage for facilities
hereunder, with limits not less than the replacement value
thereof. Notwithstanding the foregoing, this coverage to be
provided fifteen(15) days prior to placement of such facilities.
34
XXXXX - 1986 - OFFSHORE
Recommended by the Council
of Petroleum Accountants
Societies
EXHIBIT "C"
Attached to and made a part of that certain Joint Operating Agreement
dated effective August 1, 2004, by and between GRYPHON EXPLORATION COMPANY,
as Operator, and MARNIER ENERGY, INC., et al, as Non-Operators.
ACCOUNTING PROCEDURE
OFFSHORE JOINT OPERATIONS
I. GENERAL PROVISIONS
1. Definitions
"Joint Property" shall mean the real and personal property subject to the
agreement to which this Accounting Procedure is attached.
"Joint Operations" shall mean all operations necessary or proper for the
development, operation, protection and maintenance of the Joint Property.
"Joint Account" shall mean the account showing the charges paid and credits
received in the conduct of the Joint Operations and which are to be shared
by the Parties.
"Operator" shall mean the party designated to conduct the Joint Operations.
"Non-Operators" shall mean the Parties of this agreement other than the
Operator.
"Parties" shall mean Operator and Non-Operators.
"First Level Supervisors" shall mean those employees whose primary function
in Joint Operations is the direct supervision of other employees and/or
contract labor directly employed on the Joint Property in a field operating
capacity.
"Technical Employees" shall mean those employees, professional consultants,
or contract personnel having special and specific engineering, geological
or other professional skills, and whose primary function in Joint
Operations is the handling of specific operating conditions and problems
for the benefit of the Joint Property.
"Personal Expenses" shall mean travel and other reasonable reimbursable
expenses of Operator's employees or professional consultants.
"Material" shall mean personal property, equipment or supplies acquired or
held for use on the Joint Property.
"Controllable Material" shall mean Material which at the time is so
classified in the Material Classification Manual as most recently
recommended by the Council of Petroleum Accountants Societies.
"Shore Base Facilities" shall mean onshore support facilities that during
drilling, development, maintenance and producing operations provide such
services to the Joint Property as receiving and transshipment point for
supplies, materials and equipment; debarkation point for drilling and
production personnel and services; communication, scheduling and
dispatching center; other associated functions benefiting the Joint
Property.
"Offshore Facilities" shall mean platforms and support systems such as oil
and gas handling facilities, living quarters, offices, shops, cranes,
electrical supply equipment and systems, fuel and water storage and piping,
heliport, marine docking installations, communication facilities,
navigation aids, and other similar facilities necessary in the conduct of
offshore operations.
2. Statement and Xxxxxxxx
Operator shall xxxx Non-Operators on or before the last day of each month
for their proportionate share of the Joint Account for the preceding month.
Such bills will be accompanied by statements which identify the authority
for expenditure, lease or facility, and all charges and credits summarized
by appropriate classifications of investment and expense except that items
of Controllable Material and unusual charges and credits shall be
separately identified and fully described in detail.
3. Advances and Payments by Non-Operators
A. Unless otherwise provided for in the agreement, the Operator may
require the Non-Operators to advance their share of estimated costs to
be incurred for the succeeding month's operation within fifteen (15)
days after receipt of the billing or by the first day of the month for
which the advance is required, whichever is later. Operator shall
adjust each monthly billing to reflect advances received from the
Non-Operators.
B. Each Non-Operator shall pay its proportion of all bills within fifteen
(15) days after receipt. If payment is not made within such time, the
unpaid balance shall bear interest monthly at the prime rate in effect
at Bank One, Texas, Houston, Texas on the first day of the month in
which delinquency occurs plus 1% or the maximum contract rate
permitted by the applicable usury laws of the jurisdiction in which in
the the Joint Property is located, whichever is the lesser, plus
attorney's fees, court costs, and other costs in connection with the
collection of unpaid amounts.
4. Adjustments
Payment of any such bills shall not prejudice the right of any Non-Operator
to protest or question the correctness thereof; provided, however, all
bills and statements rendered to Non-Operators by Operator during any
calendar year shall conclusively be presumed to be true and correct after
twenty-four (24) months following the end of any such calendar year, unless
within the said twenty-four (24) month period a Non-Operator takes written
exception thereto and makes claim on
1
Operator for adjustment. No adjustment favorable to Operator shall be made
unless it is made within the same prescribed period. The provisions of this
paragraph shall not prevent adjustments resulting from a physical inventory
of Controllable Material as provided for in Section V.
5. Audits
A. A Non-Operator, upon notice in writing to Operator and all other
Non-Operators, shall have the right to audit Operator's accounts and
records relating to the Joint Account for any calendar year within the
twenty-four (24) month period following the end of such calendar year;
provided, however, the making of an audit shall not extend the time
for the taking of written exception to and the adjustments of accounts
as provided for in Paragraph 4 of this Section I. Where there are two
or more Non-Operators, the Non-Operators shall make every reasonable
effort to conduct a joint audit in a manner which will result in a
minimum of inconvenience to the Operator. Operator shall bear no
portion of the Non-Operators' audit cost incurred under this paragraph
unless agreed to by the Operator. The audits shall not be conducted
more than once each year without prior approval of Operator, except
upon the resignation or removal of the Operator, and shall be made at
the expense of those Non-Operators approving such audit.
B. The Operator shall reply in writing to an audit report within 180 days
after receipt of such report.
6. Approval By Non-Operators
Where an approval or other agreement of the Parties or Non-Operators is
expressly required under other sections of this Accounting Procedure and if
the agreement to which this Accounting Procedure is attached contains no
contrary provisions in regard thereto, Operator shall notify all
Non-Operators of the Operator's proposal, and the agreement or approval of
a majority in interest of the Non-Operators shall be controlling on all
Non-Operators.
II. DIRECT CHARGES
Operator shall charge the Joint Account with the following items:
1. Rentals and Royalties
Lease rentals and royalties paid by Operator for the Joint Operations.
2. Labor
A. (1) Salaries and wages of Operator's field employees and
contract personnel directly employed on the Joint Property
in the conduct of Joint Operations.
(2) Salaries and wages of Operator's employees or contract personnel
directly employed on Shore Base Facilities or other Offshore
Facilities serving the Joint Property if such costs are charged
under Paragraph 7 of this Section II.
(3) Salaries of First Level Supervisors in the field.
(4) Salaries and wages and fees of Technical Employees or
professional consultants directly employed on the Joint Property
if such charges are excluded from the overhead rates.
(5) Salaries and wages of Technical Employees either temporarily or
permanently assigned to and directly employed in the operation of
the Joint Property if such charges are excluded from the overhead
rates.
B. Operator's cost of holiday, vacation, sickness and disability benefits
and other customary allowances paid to employees whose salaries and
wages are chargeable to the Joint Account under Paragraph 2A of this
Section II. Such costs under this Paragraph 2B may be charged on a
"when and as paid basis" or by "percentage assessment" on the amount
of salaries and wages chargeable to the Joint Account under Paragraph
2A of this Section II. If percentage assessment is used, the rate
shall be based on the Operator's cost experience.
C. Expenditures or contributions made pursuant to assessments imposed by
governmental authority which are applicable to Operator's costs
chargeable to the Joint Account under Paragraphs 2A and 2B of this
Section II.
D. Personal Expenses of those employees whose salaries and wages are
chargeable to the Joint Account under Paragraph 2A of this Section II.
3. Employee Benefits
Operator's current costs of established plans for employees' group life
insurance, hospitalization, pension, retirement, stock purchase, thrift,
bonus, and other benefit plans of a like nature, applicable to Operator's
labor cost chargeable to the Joint Account under Paragraphs 2A and 2B of
this Section II shall be Operator's actual cost not to exceed the percent
most recommended by the Council of Petroleum Accountants Societies.
4. Material
Material purchased or furnished by Operator for use on the Joint Property
as provided under Section IV. Only such Material shall be purchased for or
transferred to the Joint Property as may be required for immediate use and
is reasonably practical and consistent with efficient and economical
operations. The accumulation of surplus stocks shall be avoided.
5. Transportation
Transportation of employees and Material necessary for the Joint Operations
but subject to the following limitations:
A. If Material is moved to the Joint Property from the Operator's
warehouse or other properties, no charge shall be made to the Joint
Account for a distance greater than the distance from the nearest
reliable supply store where like material is normally available or
railway receiving point nearest the Joint Property unless agreed to by
the Parties.
B. If surplus Material is moved to Operator's warehouse or other storage
point, no charge shall be made to the Joint Account for a distance
greater than the distance to the nearest reliable supply store where
like material is normally available, or railway receiving point
nearest the Joint Property unless agreed to by the Parties. No charge
shall be made to the Joint Account for moving Material to other
properties belonging to the Operator, unless agreed to by the Parties.
2
C. In the application of subparagraphs A and B above, the option to
equalize or charge actual trucking cost is available when the actual
charge is $400 or less excluding accessorial charges. The $400 will be
adjusted to the amount most recently recommended by the Council of
Petroleum Accountants Societies.
6. Services
The cost of contract services, equipment and utilities provided by outside
sources, except services excluded by Paragraph 9 of Section II and
Paragraph i, ii, and iii, of Section III. The cost of professional
consultant services and contract services of technical personnel directly
engaged on the Joint Property if such charges are excluded from the
overhead rates. The cost of professional consultant services or contract
services of technical personnel directly engaged in the operation of the
Joint Property shall be charged to the Joint Account if such charges are
excluded from the overhead rates.
7. Equipment and Facilities Furnished By Operator
A. Operator shall charge the Joint Account for use of Operator-owned
equipment and facilities, including Shore Base and/or Offshore
Facilities, at rates commensurate with costs of ownership and
operation. Such rates may include labor, maintenance, repairs, other
operating expense, insurance, taxes, depreciation, and interest on
gross investment less accumulated depreciation not to exceed Ten
percent (10%) per annum. In addition, for platforms only, the rate may
include an element of the estimated cost of platform dismantlement.
Such rates shall not exceed average commercial rates currently
prevailing in the immediate area of the Joint Property.
B. In lieu of charges in paragraph 7A above, Operator may elect to use
average commercial rates prevailing in the immediate area of the Joint
Property. For automotive equipment, Operator may elect to use rates
published by the Petroleum Motor Transport Association.
8. Damages and Losses to Joint Property
All costs or expenses necessary for the repair or replacement of Joint
Property made necessary because of damages or losses incurred by fire,
flood, storm, theft, accident, or other cause, except those resulting from
Operator's gross negligence or willful misconduct. Operator shall furnish
Non-Operator written notice of damages or losses incurred as soon as
practicable after a report thereof has been received by Operator.
9. Legal Expense
Expense of handling, investigating and settling litigation or claims,
discharging of liens, payments of judgements and amounts paid for
settlement of claims incurred in or resulting from operations under the
agreement or necessary to protect or recover the Joint Property, except
that no charge for services of Operator's legal staff or fees or expense of
outside attorneys shall be made unless previously agreed to by the Parties.
All other legal expense is considered to be covered by the overhead
provisions of Section III unless otherwise agreed to by the Parties, except
as provided in Section I, Paragraph 3.
10. Taxes
All taxes of every kind and nature assessed or levied upon or in connection
with the Joint Property, the operation thereof, or the production
therefrom, and which taxes have been paid by the Operator for the benefit
of the Parties. If the ad valorem taxes are based in whole or in part upon
separate valuations of each party's working interest, then notwithstanding
anything to the contrary herein, charges to the Joint Account shall be made
and paid by the Parties hereto in accordance with the tax value generated
by each party's working interest.
11. Insurance
Net premiums paid for insurance required to be carried for the Joint
Operations for the protection of the Parties. In the event Joint Operations
are conducted at offshore locations in which Operator may act as
self-insurer for Workers' Compensation and Employers' Liability, Operator
may include the risk under its self-insurance program in providing coverage
under State and Federal laws and charge the Joint Account at Operator's
cost not to exceed XXXXX recommended rates.
12. Communications
Costs of acquiring, leasing, installing, operating, repairing and
maintaining communication systems, including radio and microwave facilities
between the Joint Property and the Operator's nearest Shore Base Facility.
In the event communication facilities systems serving the Joint Property
are Operator-owned, charges to the Joint Account shall be made as provided
in Paragraph 7 of this Section II.
13. Ecological and Environmental
Costs incurred on the Joint Property as a result of statutory regulations
for archaeological and geophysical surveys relative to identification and
protection of cultural resources and/or other environmental or ecological
surveys as may be required by the Bureau of Land Management or other
regulatory authority. Also, costs to provide or have available pollution
containment and removal equipment plus costs of actual control and cleanup
and resulting responsibilities of oil spills as required by applicable laws
and regulations.
14. Abandonment and Reclamation
Costs incurred for abandonment of the Joint Property, including costs
required by governmental or other regulatory authority.
15. Other Expenditures
Any other expenditure not covered or dealt with in the foregoing provisions
of this Section II, or in Section III and which is of direct benefit to the
Joint Property and is, incurred by the Operator in the necessary and proper
conduct of the Joint Operations.
3
III. OVERHEAD
As compensation for administrative, supervision, office services and
warehousing costs, Operator shall charge the Joint Account in accordance
with this Section III.
Unless otherwise agreed to by the Parties, such charge shall be in lieu of
costs and expenses of all offices and salaries or wages plus applicable
burdens and expenses of all personnel, except those directly chargeable
under Section II. The cost and expense of services from outside sources in
connection with matters of taxation, traffic, accounting or matters before
or involving governmental agencies shall be considered as included in the
overhead rates provided for in this Section III unless such cost and
expense are agreed to by the Parties as a direct charge to the Joint
Account. Costs and fees associated with representation on matters before or
involving governmental affairs shall be a direct charge to the Joint
Account. Costs and fees associated with representation on matters before or
involving governmental affairs shall be a direct charge to the Joint
Account.
i. Except as otherwise provided in Paragraph 2 of this Section III, the
salaries, wages and Personal Expenses of Technical Employees and/or
the cost of professional consultant services and contract services of
technical personnel directly employed on the Joint Property:
|_| shall be covered by the overhead rates.
|X| shall not be covered by the overhead rates.
ii. Except as otherwise provided in Paragraph 2 of this Section III, the
salaries, wages and Personal Expenses of Technical Employees and/or
the costs of professional consultant services and contract services of
technical personnel either temporarily or permanently assigned to and
directly employed in the operation of the Joint Property:
|X| shall be covered by the overhead rates.
|_| shall not be covered by the overhead rates.
1. Overhead - Drilling and Producing Operations
As compensation for overhead incurred in connection with drilling and
producing properties, Operator shall charge on either:
|X| Fixed Rate Basis, Paragraph 1A, or
|_| Percentage Basis, Paragraph 1B
A. Overhead - Fixed Rate Basis
(1) Operator shall charge the Joint Account at the following rates
per well per month.
Drilling Well Rate $35,000 (Prorated for less than a full month)
Producing Well Rate $3,500
(2) Application of Overhead - Fixed Rate Basis for Drilling Well Rate
shall be as follows:
(a) Charges for drilling xxxxx shall begin on the date when
drilling or completion equipment arrives on location and
terminate on the date the drilling or completion equipment
moves off location or rig is released, whichever occurs
first, except that no charge shall be made during suspension
of drilling operations for fifteen (15) or more consecutive
calendar days.
(b) Charges for xxxxx undergoing any type of workover or
recompletion for a period of four (4) consecutive work days
or more shall be made at the drilling well rate. Such
charges shall be applied for the period from date workover
operations, with rig or other units used in workover,
commence through date of rig or other unit release, except
that no charge shall be made during suspension of operations
for fifteen (15) or more consecutive calendar days.
(3) Application of Overhead - Fixed Rate Basis for Producing Well
Rate shall be as follows:
(a) An active well either produced or injected into for any
portion of the month shall be considered as a one-well
charge for the entire month.
(b) Each active completion in a multi-completed well in which
production is not commingled down hole shall be considered
as a one-well charge providing each completion is considered
a separate well by the governing regulatory authority.
(c) An inactive gas well shut in because of overproduction or
failure of purchaser to take the production shall be
considered as a one-well charge providing the gas well is
directly connected to a permanent sales outlet.
(d) A one-well charge shall be made for the month in which
plugging and abandonment operations are completed on any
well. This one-well charge shall be made whether or not the
well has produced except when drilling well rate applies.
(e) All other inactive xxxxx (including but not limited to
inactive xxxxx covered by unit allowable, lease allowable,
transferred allowable, etc.) shall not qualify for an
overhead charge.
(4) The well rates shall be adjusted as of the first day of April
each year following the effective date of the agreement to which
this Accounting Procedure is attached. The adjustment shall be
computed by multiplying the rate currently in use by the
percentage increase or decrease in the average weekly earnings of
Crude Petroleum and Gas Production Workers for the last calendar
year compared to the calendar year preceding as shown by the
index of average weekly earnings of Crude Petroleum and Gas
Production Workers as published by the United States Department
of Labor, Bureau of Labor Statistics, or the equivalent Canadian
index as published by Statistics Canada, as applicable. The
adjusted rates shall be the rates currently in use, plus or minus
the computed adjustment.
4
B. Overhead - Percentage Basis
(1) Operator shall charge the Joint Account at the following rates:
(a) Development
________________ Percent (____%) of the cost of Development of
the Joint Property exclusive of costs provided under Paragraph 9
of Section II and all salvage credits.
(b) Operating
________________ Percent (____%) of the cost of Operating the
Joint Property exclusive of costs provided under Paragraphs 1 and
9 of Section II, all salvage credits, the value of injected
substances purchased for secondary recovery and all taxes and
assessments which are levied, assessed and paid upon the mineral
interest in and to the Joint Property.
(2) Application of Overhead - Percentage Basis shall be as follows:
For the purpose of determining charges on a percentage basis
under Paragraph 1B of this Section III, development shall include
all costs in connection with drilling, redrilling, deepening of
any or all xxxxx, and shall also include any remedial operations
requiring a period of five (5) consecutive work days or more on
any or all xxxxx; also, preliminary expenditures necessary in
preparation for drilling and expenditures incurred in abandoning
when the well is not completed as a producer, and original costs
of construction or installation of fixed assets, the expansion of
fixed assets and any other project clearly discernible as a fixed
asset, except Major Construction as defined in Paragraph 2 of
this Section III. All other costs shall be considered as
Operating except that catastrophe costs shall be assessed
overhead as provided in Section III, Paragraph 3.
2. Overhead - Major Construction
To compensate Operator for overhead costs incurred in the construction and
installation of fixed assets, the expansion of fixed assets, and any other
project clearly discernible as a fixed asset required for the development
and operation of the Joint Property, or in the dismantling for abandonment
of platforms and related production facilities, Operator shall either
negotiate a rate prior to the beginning of construction, or shall charge
the Joint Account for overhead based on the following rates for any Major
Construction project in excess of $ 25,000.00
A. If the Operator absorbs the engineering, design and drafting costs
related to the project:
(1) 6% of total costs if such costs are more than $25,000.00 but less
than $100,000; plus
(2) 4% of total costs in excess of $100,000 but less than $l,000,000;
plus
(3) 2% of total costs in excess of $1,000,000.
B. If the Operator charges engineering, design and drafting costs related
to the project directly to the Joint Account:
(1) 3% of total costs if such costs are more than $25,000.00 but less
than $100,000; plus
(2) 2% of total costs in excess of $100,000 but less than $1,000,000;
plus
(3) 1% of total costs in excess of $1,000,000.
Total cost shall mean the gross cost of any one project. For the purpose of
this paragraph, the component parts of a single project shall not be
treated separately and the cost of drilling and workover xxxxx and
artificial lift equipment shall be excluded.
On each project, Operator shall advise Non-Operator(s) in advance which of
the above options shall apply. In the event of any conflict between the
provisions of this paragraph and those provisions under Section II,
Paragraph 2 or Paragraph 6, the provisions of this paragraph shall govern.
3. Catastrophe Overhead
To compensate Operator for overhead costs incurred in the event of
expenditures resulting from a single occurrence due to oil spill, blowout,
explosion, fire, storm, hurricane, or other catastrophes as agreed to by
the Parties, which are necessary to restore the Joint Property to the
equivalent condition that existed prior to the event causing the
expenditures, Operator shall either negotiate a rate prior to charging the
Joint Account or shall charge the Joint Account for overhead based on the
following rates:
(1) 3% of total costs through $100,000; plus
(2) 2% of total costs in excess of $100,000, but less than
$1,000,000; plus
(3) 1% of total costs in excess of $1,000,000.
Expenditures subject to the overheads above will not be reduced by
insurance recoveries, and no other overhead provisions of this Section III
shall apply.
4. Amendment of Rates
The overhead rates provided for in this Section III may be amended from
time to time only by mutual agreement between the Parties hereto if, in
practice, the rates are found to be insufficient or excessive.
IV. PRICING OF JOINT ACCOUNT MATERIAL PURCHASES, TRANSFERS AND
DISPOSITIONS
Operator is responsible for Joint Account Material and shall make proper and
timely charges and credits for all Material movements affecting the Joint
Property. Operator shall provide all Material for use on the Joint Property;
however, at Operator's option, such Material may be supplied by the
Non-Operator. Operator shall make timely disposition of idle and/or surplus
Material, such disposal being made either through sale to Operator or
Non-Operator, division in kind, or sale to outsiders. Operator may purchase, but
shall
5
be under no obligation to purchase, interest of Non-Operators in surplus
condition A or B Material. The disposal of surplus Controllable Material not
purchased by the Operator shall be agreed to by the Parties.
1. Purchases
Material purchased shall be charged at the price paid by Operator after
deduction of all discounts received. In case of Material found to be
defective or returned to vendor for any other reasons, credit shall be
passed to the Joint Account when adjustment has been received by the
Operator.
2. Transfers and Dispositions
Material furnished to the Joint Property and Material transferred from the
Joint Property or disposed of by the Operator unless otherwise agreed to by
the Parties, shall be priced on the following basis exclusive of cash
discounts:
A. New Material (Condition A)
(1) Tubular Goods Other than Line Pipe
(a) Tubular goods, sized 2-3/8 inches OD and larger, except line
pipe, shall be priced at current new prices effective as of
date of movement plus transportation cost using the 80,000
pound carload weight basis to the railway receiving point or
shore based facilities nearest the Joint Property for which
published rail rates for tubular goods exist. If the 80,000
pound rail rate is not offered, the 70,000 pound or 90,000
pound rail rate may be used.
(b) For grades which are special to one mill only, prices shall
be computed at the mill base of that mill plus
transportation cost from that mill to the railway receiving
point or shore based facilities nearest the Joint Property
as provided above in Paragraph 2.A.(1)(a).
(c) Special end finish tubular goods shall be priced at the
lowest published out-of-stock price, f.o.b., Houston, Texas,
plus transportation cost, using Oil Field Haulers
Association interstate 30,000 pound truck rate, to the
railway receiving point or shore based facilities nearest
the Joint Property.
(d) Macaroni tubing (size less than 2-3/8 inch OD) shall be
priced at the lowest published out-of-stock prices f.o.b.
the supplier plus transportation costs, using the Oil Field
Haulers Association interstate truck rate per weight of
tubing transferred, to the railway receiving point or shore
based facilities nearest the Joint Property.
(2) Line Pipe
(a) Line pipe movements (except size 24 inch OD and larger with
walls 3/4 inch and over) 30,000 pounds or more shall be
priced under provisions of tubular goods pricing in
Paragraph A.(1)(a) as provided above.
(b) Line pipe movements (except size 24 inch OD and larger with
walls 3/4 inch and over) less than 30,000 pounds shall be
priced at current new prices effective as of date of
shipment plus 20 percent, plus transportation costs based on
freight rates as set forth under provisions of tubular goods
pricing in Paragraph A.(1)(a) as provided above.
(c) Line pipe 24 inch OD and over and 3/4 inch wall and larger
shall be priced f.o.b. the point of manufacture at current
CEPS prices plus transportation cost to the railway
receiving point nearest the Joint Property.
(d) Line pipe, including fabricated line pipe, drive pipe and
conduit not listed on published price lists shall be priced
at quoted prices plus freight to the railway receiving point
or shore based facilities nearest the Joint Property or at
prices agreed to by the Parties.
(3) Other Material shall be priced at the current new price, in
effect at date of movement, as listed by a reliable supply store
nearest the Joint Property, or point of manufacture, plus
transportation costs, if applicable, to the railway receiving
point or shore based facilities nearest the Joint Property.
(4) Unused new Material, except tubular goods, moved from the Joint
Property shall be priced at the current new price, in effect on
date of movement, as listed by a reliable supply store nearest
the Joint Property, or point of manufacture, plus transportation
costs, if applicable, to the railway receiving point or shore
based facilities nearest the Joint Property. Unused new tubulars
will be priced as provided above in Paragraph 2.A.(1) and (2).
B. Good Used Material (Condition B)
Material in sound and serviceable condition and suitable for reuse
without reconditioning:
(1) Material moved to the Joint Property At seventy-five percent
(75%) of current new price as determined by Paragraph A.
(2) Material used on and moved from the Joint Property
(a) At seventy-five percent (75%) of current new price as
determined by Paragraph A., if Material was originally
charged to the Joint Account as new Material or
(b) At sixty-five percent (65%) of current new price as
determined by Paragraph A., if Material was originally
charged to the Joint Account as used Material.
(3) Material not used on and moved from the Joint Property
At seventy-five percent (75%) of current new price as determined
by Paragraph A.
The cost of reconditioning, if any, shall be absorbed by the
transferring property.
C. Other Used Material
(1) Condition C
Material which is not in sound and serviceable condition and not
suitable for its original function until after reconditioning
shall be priced at fifty percent (50%) of current new price as
determined by Paragraph A. The cost of reconditioning shall be
charged to the receiving property, provided Condition C value
plus cost of reconditioning does not exceed Condition B value.
6
(2) Condition D
Material, excluding junk, no longer suitable for its original
purpose, but usable for some other purpose shall be priced on a
basis commensurate with its use. Operator may dispose of
Condition D Material under procedures normally used by Operator
without prior approval of Non-Operators.
(a) Casing, tubing, or drill pipe used as line pipe shall be
priced as Grade A and B seamless line pipe of comparable
size and weight. Used casing, tubing or drill pipe utilized
as line pipe shall be priced at used line pipe prices.
(b) Casing, tubing or drill pipe used as higher pressure service
lines than standard line pipe, e.g. power oil lines, shall
be priced under normal pricing procedures for casing,
tubing, or drill pipe. Upset tubular goods shall be priced
on a non-upset basis.
(3) Condition E
Junk shall be priced at prevailing prices. Operator may dispose
of Condition E Material under procedures normally utilized by
Operator without prior approval of Non-Operators.
D. Obsolete Material
Material which is serviceable and usable for its original function but
condition and/or value of such Material is not equivalent to that
which would justify a price as provided above may be specially priced
as agreed to by the Parties. Such price should result in the Joint
Account being charged with the value of the service rendered by such
Material.
E. Pricing Conditions
(1) Loading or unloading costs may be charged to the Joint Account at
the rate of twenty-five (25CENTS) per hundred weight on all
tubular goods movements, in lieu of actual loading or unloading
costs sustained at the stocking point. The above rate shall be
adjusted as of the first day of April each year following January
1, 1985 by the same percentage increase or decrease used to
adjust overhead rates in Section III, Paragraph 1.A.(4). Each
year, the rate calculated shall be rounded to the nearest cent
and shall be the rate in effect until the first day of April next
year. Such rate shall be published each year by the Council of
Petroleum Accountants Societies.
(2) Material involving erection costs shall be charged at applicable
percentage of the current knocked-down price of new Material.
3. Premium Prices
Whenever Material is not readily obtainable at published or listed prices
because of national emergencies, strikes or other unusual causes over which
the Operator has no control, the Operator may charge the Joint Account for
the required Material at the Operator's actual cost incurred in providing
such Material, in making it suitable for use, and in moving to the Joint
Property; provided notice in writing is furnished to Non-Operators of the
proposed charge prior to billing Non-Operators for such Material. Each
Non-Operator shall have the right, by so electing and notifying Operator
within ten days after receiving notice from Operator, to furnish in kind
all or part of his share of such Material suitable for use and acceptable
to Operator.
4. Warranty of Material Furnished By Operator
Operator does not warrant the Material furnished. In case of defective
Material, credit shall not be passed to the Joint Account until adjustment
has been received by Operator from the manufacturers or their agents.
V. INVENTORIES
The Operator shall maintain detailed reports of Controllable Material.
1. Periodic Inventories, Notice and Representation
At reasonable intervals, inventories shall be taken by Operator of the
Joint Account Controllable Material. Written notice of intention to take
inventory shall be given by Operator at least thirty (30) days before any
inventory is to begin so that Non-Operators may be represented when any
inventory is taken. Failure of Non-Operators to be represented at an
inventory shall bind Non-Operators to accept the inventory taken by
Operator.
2. Reconciliation and Adjustment of Inventories
Adjustments to the Joint Account resulting from the reconciliation of a
physical inventory shall be made within six months following the taking of
the inventory. Inventory adjustments shall be made by Operator to the Joint
Account for overages and shortages, but, Operator shall be held accountable
only for shortages due to lack of reasonable diligence.
3. Special Inventories
Special inventories may be taken whenever there is any sale, change of
interest, or change of Operator in the Joint Property. It shall be the duty
of the party selling to notify all other Parties as quickly as possible
after the transfer of interest takes place. In such cases, both the seller
and the purchaser shall be governed by such inventory. In cases involving a
change of Operator, all Parties shall be governed by such inventory.
4. Expense of Conducting Inventories
A. The expense of conducting periodic inventories shall not be charged to
the Joint Account unless agreed to by the Parties.
B. The expense of conducting special inventories shall be charged to the
Parties requesting such inventories, except inventories required due
to change of Operator shall be charged to the Joint Account.
7
EXHIBIT "D"
Attached to and made a part of that certain Joint Operating Agreement dated
effective August 1, 2004, by and between GRYPHON EXPLORATION COMPANY,
as Operator, and MARINER ENERGY, INC., et al, as Non-Operators
CERTIFICATION OF NONSEGREGATED FACILITIES
Contractor certifies that it does not maintain or provide for its employees any
segregated facilities at any of its establishments and that it does not permit
its employees to perform their services at any location, under its control,
where segregated facilities are maintained. Contractor certifies further that it
will not maintain or provide for its employees any segregated facilities at any
of its establishments and that it will not permit its employees to perform their
services at any location, under its control, where segregated facilities are
maintained. Contractor agrees that a breach of this certification is a violation
of the Equal Opportunity Clause in any Government contract between Contractor
and Corporation. As used in this certification, the term "segregated facilities"
means any waiting rooms, work areas, rest rooms and wash rooms, restaurants and
other eating areas, time clocks, locker rooms and other storage or dressing
areas, parking lots, drinking fountains, recreation or entertainment areas,
transportation, and housing facilities provided for employees which are
segregated by explicit directive or are in fact segregated on the basis of race,
color, religion, or national origin, because of habit, local customs or
otherwise. Contractor further agrees that (except where it has obtain identical
certifications from proposed subcontractors for specific time periods) it will
obtain identical certifications from proposed subcontractors prior to the award
of subcontracts exceeding $10,000 which are not exempt from the provisions of
the Equal Opportunity Clause; that it will retain such certifications in its
files; and that it will forward the following notice to such proposed
subcontractors (except where the proposed subcontractors have submitted
identical certifications for specific time periods):
NOTICE TO PROSPECTIVE SUBCONTRACTORS OF REQUIREMENT FOR CERTIFICATIONS OF
NONSEGREGATED FACILITIES. A Certification of Non-segregated Facilities, as
required by the May 9, 1967, order on Elimination of Segregated Facilities, by
the Secretary of Labor (32 Fed. Reg. 7439, May 19, 1967), must be submitted
prior to the award of a subcontract exceeding $10,000, which is not exempt from
the provisions of the Equal Opportunity Clause. The certification may be
submitted either for each subcontract or for all subcontracts during a period
(i.e., quarterly, semi-annually or annually). (1968 MAR.) (Note: The penalty for
making false statements in offers is prescribed in 18 U.S.C. 1001.)
Whenever used in the foregoing Section, the term "contractor" refers to each
party to this agreement.
35
Exhibit "E"
GAS BALANCING AGREEMENT
Attached to and made a part of that certain Joint Operating Agreement
dated effective August 1, 2004, by and between GRYPHON EXPLORATION
COMPANY, as Operator, and MARINER ENERGY, INC., et al, as Non-Operators
I. Definitions
A. "Agreement" shall mean this Gas Balancing Agreement.
B. "Balanced" is that condition which occurs when a party hereto has
taken the same percentage of the cumulative volume of Gas production
it is entitled to take pursuant to the terms of the Operating
Agreement.
C. "Gas" includes natural gas produced from a Well that produces Gas Well
Gas, including all constituent parts of such natural gas except liquid
hydrocarbons and condensate recovered by primary separation equipment.
D. "Gas Well Gas" is gas produced from a Well classified as a gas well by
the regulatory body having jurisdiction.
E. "Overproduced" is the status of a party when the percentage of the
cumulative volume of Gas taken by that party exceeds that party's
percentage interest of the volume of cumulative Gas production of all
parties to the Operating Agreement under and pursuant to the terms of
the Operating Agreement.
F. "Underproduced" is the status of a party when the percentage of
cumulative volume of Gas taken by that party is less than that party's
percentage interest of the volume of cumulative Gas production of all
parties to the Operating Agreement under and pursuant to the terms of
said Operating Agreement.
G. "Well" is defined as each well subject to the Operating Agreement that
produces Gas Well Gas. If a single Well is completed in two or more
reservoirs, such Well shall be considered a separate Well with respect
to, but only with respect to, each reservoir from which the Gas
produced is not commingled in the well bore.
II. Application of this Agreement
The parties to the Operating Agreement own the working or operating
interests in the Gas underlying the Contract Area covered by the Operating
Agreement and are entitled to share in the percentages therein stated in
the Operating Agreement.
In accordance with the terms of the Operating Agreement, each party is
responsible for marketing it's share and shall take its full share of Gas
produced from the Contract Area and market or otherwise dispose of same. In
the event a party hereto elects in writing not to take in kind or market
its full share of Gas or has contracted to sell its share of Gas produced
from the Contract Area to a purchaser which, at any time while this
Agreement is in effect, fails to take the share of Gas attributable to the
interest of such party, the terms of this Agreement shall automatically
become effective.
The Operator is responsible for administering the provisions of this Gas
Balancing Agreement and as such shall have the sole option of administering
all reporting of the same for the Parties or retaining the services of
third party professionals for this specific purpose. The costs of such
third party services by Operator shall be considered as included in the
overhead rates. The Operator shall cause deliveries to be made to the Gas
purchasers at such rates as may be required to give effect to the extent
practicable, to be or become Balanced.
The provisions of this agreement shall be applied to the Contract Area,
regardless of the number of xxxxx.
III. Storing and Making Up Gas Production
A. Right to Take and Market Gas
During any periods or periods when any party hereto does not take, has
no market for, or the market of a party is not sufficient to take,
that party's full share of the Gas produced from any Well located on
the Contract Area, or such party's purchaser otherwise fails to take
such party's share of Gas produced from any such Well located on the
Contract Area, resulting in such party becoming Underproduced (such
party being herein referred to as an "Underproduced Party"), the other
party or parties shall be entitled, but not required, to produce from
said Well on the Contract Area (and take or deliver to their
respective purchaser(s)), each month all or a part of that portion of
the allowable Gas production assigned to such Well by the regulatory
body having jurisdiction. Any party so taking or delivering Gas which
results in such party becoming Overproduced is herein referred to as
an "Overproduced Party".
36
Those parties which are capable of taking and/or marketing quantities
of Gas allocable to an Underproduced Party, in the absence of any
other agreement between them, shall each take a share of the Gas
attributed to the Underproduced Party or Parties in the direct
proportion that their respective interests bear to the total interest
of all parties taking Gas which are also considered Overproduced.
All parties hereto shall share in and own the liquid hydrocarbons
recovered from such Gas by primary separation equipment in accordance
with their respective interests and subject to the terms of the
above-described Operating Agreement, whether or not such parties are
actually taking and/or marketing Gas at such time.
B. Making Up Underproduction
Any Underproduced Party shall endeavor to bring its taking of Gas into
a Balanced condition. Upon thirty (30) days prior written notice to
the Operator, any Underproduced Party may thereafter begin taking or
delivering to its purchaser its full share of the Gas produced from a
Well (less any used in operations, vented or lost). To allow for the
recovery of Gas in storage and to balance the Gas account of the
parties in accordance with their respective interests, Underproduced
Party shall be entitled to take or deliver to a purchaser its full
share of Gas produced from such Well (less any used in operations,
vented or lost) plus, (i) for the months of March, April, May, June,
July, August, September and October only of any calendar year during
which this agreement may be in place, an amount up to an additional
fifty percent (50%) of the monthly quantity of Gas attributable to the
Overproduced Party or Parties, or (ii) for the months of November,
December, January and February only of any calendar year or years
during which this agreement may be in place, an amount up to an
additional twenty-five percent (25%) of the monthly quantity of Gas
attributable to the Overproduced Party or Parties. If more than one
Underproduced Party is entitled to take additional Gas, they shall
divide the additional Gas in proportion to their respective
Underproduced accounts. The first Gas made up shall be assumed to be
the first Gas Underproduced.
C Gas Balance Reporting
Each party taking will promptly provide to the Operator any data
required by the Operator for preparation of the statements required
hereunder. Operator shall not be required to adjust its Gas accounting
statements reflecting a different Gas purchaser until the first day of
the month following the month in which such notice is received by the
Operator. The Operator will maintain appropriate accounting on a
monthly and cumulative basis of the quantities of Gas each party is
entitled to take and/or market and the quantities of Gas taken and/or
marketed by each of the parties to their respective Gas purchasers.
Within ninety (90) days after the end of each producing calendar
month, the Operator shall furnish each party a statement showing the
status of the Overproduced and Underproduced accounts of all parties.
To determine respective volumes of Gas taken by separate gas pipelines
connected to the Well, measurement of Gas for overproduction and
underproduction shall be accomplished by use of sales meters and lease
measurement equipment, which shall be in accordance with AGA
requirements.
Each party to this Agreement agrees that it will not utilize any
information obtained hereunder for any purpose other than implementing
or administering the terms of this Agreement.
D. Royalty and Production Tax
At all times while Gas is produced from the Contract Area, unless
otherwise required by any State or Federal law or regulations, each
party shall pay or cause to be paid all royalty due and payable on the
actual volumes of gas taken for its account. Each party agrees to hold
each other party harmless from any and all claims for royalty payments
asserted by its royalty owners. The term "royalty owner" shall include
owners of royalty, overriding royalties, production payments and
similar interests payable out of production.
Each party producing or taking or delivering Gas to its Gas purchaser
shall pay, or cause to be paid, all production and severance taxes due
on all volumes of Gas actually taken or sold by such party.
IV. Cash Settlement
A Volume/Value
If, at the permanent termination of production of Gas from a Well
located on the Contract Area, an imbalance exists between the parties,
a cash settlement of the imbalance between the parties relative to
such Well shall be made. The amount of the cash settlement will be
limited to the proceeds actually received by the Overproduced Party or
Parties at the time of overproduction, less transportation and
applicable treating charges and production and severance taxes paid on
such overproduction. Royalty shall only be deducted from such proceeds
attributable to the overproduction if actually paid to royalty owners
by the Overproduced Party or Parties. No interest shall be added to
any cash settlement hereunder. If there is more than one Overproduced
Party, the cash settlement shall be based on a weighted average of the
proceeds actually received as above described by all Overproduced
Parties.
37
B. Collection and Distribution
Operator shall provide to all parties hereto within sixty (60) days of
permanent determination of Gas production a final accounting of the
Gas balance. Overproduced Parties, within thirty (30) days of receipt
of the final accounting of the Gas balance, shall pay their respective
shares of the above described cash settlement to the Underproduced
Parties in that proportion that each such Underproduced Party's volume
of gas in storage bears to the total of all Underproduced Parties'
volumes of gas in storage.
V. Miscellaneous
A. Term
This Agreement shall remain in force and effect as long as the
Operating Agreement to which it is attached remains in force and
effect, and thereafter until the Gas balance accounts between the
parties are settled in full, and shall inure to the benefit of and be
binding upon the parties hereto, their heirs, successors, legal
representatives and assigns.
B. Expenses
Nothing herein shall change or affect each party's obligations to pay
its proportionate share of all costs and liabilities incurred in
operations on the Contract Area as its share thereof is set forth in
the Operating Agreement to which this Agreement is attached.
C. Well Tests
Nothing herein shall be construed to deny any party the right, from
time to time, to produce and take or deliver to its Gas purchaser up
to one hundred percent (100%) of the entire Well stream to meet the
deliverability test required by its Gas purchaser, provided that such
tests are reasonable in light of overall industry standards.
D. Monitoring of Takes of Production
Each party shall, at all times, use its best efforts to regulate its
takes and deliveries from each Well on said Contract Area so that no
Well will be shut-in for overproducing the allowable assigned thereto
by the regulatory body having jurisdiction. Additionally, each party
shall communicate, as necessary, the contents of this agreement to its
respective Gas purchaser(s) or transporter(s) and shall monitor its
deliveries to its respective Gas purchaser(s) or transporter(s) so as
to ensure to the greatest extent practicable that its Gas purchaser(s)
or transporter(s) does not take Gas in excess of the quantities
provided for herein.
E. Liquefiable Hydrocarbons Not Covered Under Agreement
The parties shall share proportionately in and own all liquid
hydrocarbons recovered with the gas by lease equipment in accordance
with their respective interests.
38
EXHIBIT "B"
Attached to and made a part of that certain Participation Agreement
dated May 25, 2004 by and between Gryphon Exploration
Company and Ridgewood Energy Corporation
JOINT
OPERATING AGREEMENT
BETWEEN
GRYPHON EXPLORATION COMPANY,
AS OPERATOR,
And
RIDGEWOOD ENERGY CORPORATION,
AS NON-OPERATOR,
COVERING
XXXX XXXXXXX XXXX, XXXXX 000
XXXXXXXX XXXXXXXXX
DATED
May 25, 2004
JOINT OPERATING AGREEMENT
THIS AGREEMENT is made effective the 25th day of May, 2004 by the signers
hereof, herein referred to collectively as "Parties" and individually as
"Party".
WITNESSETH:
WHEREAS the PARTIES are owners of or have contracted for the right to earn
an interest in the oil and gas lease(s) identified in Exhibit "A", and the
Parties desire to explore, develop, produce and operate said lease(s).
NOW THEREFORE, in consideration of the premises and of the mutual agreement
herein, it is agreed as follows:
ARTICLE I
APPLICATION
1.1 APPLICATION TO BOTH LEASES. If more than one oil and gas lease is
identified in Exhibit "A", this Agreement shall apply separately to each Lease
and each Lease shall be considered as being covered by the operating agreement.
ARTICLE II
DEFINITIONS
2.1 AFE. An Authorization for Expenditure prepared by a Party for the
purpose of estimating the costs to be incurred in conducting an operation
hereunder.
2.2 CASING POINT. That point at which a well drilled hereunder, has reached
the proposed objective depth or zone, logged and logs have been distributed to
the PARTICIPATING PARTIES and any tests have been made which are necessary to
reach the decision whether to run casing.
2.3 DEVELOPMENT OPERATIONS. Operations on the LEASES other than EXPLORATORY
OPERATIONS as defined in Section 2.5 below.
2.4 DEVELOPMENT WELL. Any well proposed as a DEVELOPMENT OPERATION.
2.5 EXPLORATORY OPERATIONS. Operations on the LEASES, which are scheduled
for an objective zone, horizon or formation:
(1) which has not been established as producible on the LEASE under
2.18 below; or,
(2) which is already established as producible on the LEASE under
2.18 below, but such objective zone, horizon or formation will be
penetrated at a location more than 2,000 feet from the nearest
bottom hole location on the LEASE at which such objective has
been proved producible, or such objective is mutually agreed to
be in a separate fault block.
2.6 EXPLORATORY WELL. Any well proposed as an EXPLORATORY OPERATION.
2.7 FACILITIES. All lease equipment beyond the wellhead connections
acquired pursuant to this Agreement including any platform(s) necessary to carry
out the operation.
2.8 LEASE. The oil and gas leases identified in Exhibit "A" and the lands
affected thereby.
2.9 NON-CONSENT OPERATIONS. DEVELOPMENT or EXPLORATORY OPERATIONS conducted
by fewer than all Parties.
2.10 NON-CONSENT PLATFORM. A drilling or production platform owned by fewer
than all PARTIES.
2.11 NON-CONSENT WELL. A DEVELOPMENT or EXPLORATORY WELL owned by fewer
than
2
all PARTIES.
2.12 NON-OPERATOR. Any PARTY to the Agreement other than the OPERATOR.
2.13 NON-PARTICIPATING PARTY. Any PARTY other than a PARTICIPATING PARTY.
2.14 NON-PARTICIPATING PARTY'S SHARE. The PARTICIPATING INTEREST a NON-
PARTICIPATING PARTY would have had if all PARTIES had participated in the
operation.
2.15 OPERATOR. The PARTY designated under this Agreement to conduct all
operations.
2.16 PARTICIPATING INTEREST. A PARTICIPATING PARTY'S percentage of
participation in an operation conducted pursuant to the Agreement.
2.17 PARTICIPATING PARTY. A PARTY who joins in an operation conducted
pursuant to this agreement.
2.18 PRODUCIBLE WELL. A well producing oil or gas, or if not producing oil
or gas, a well either declared or capable of being declared producing in
accordance with any applicable government authority or by agreement of all of
the Parties.
2.19 WORKING INTEREST. The ownership of each PARTY in and to the LEASES as
set forth in Exhibit "A".
ARTICLE III
EXHIBITS
3.1 EXHIBITS. Attached hereto are the following exhibits which are
incorporated herein by reference:
3.1.1 Exhibit A. Description of Leases and Working Interest
3.1.2 Exhibit B. Insurance Provision
3.1.3 Exhibit C. Accounting Procedure
3.1.4 Exhibit D. Nondiscrimination Provision
3.1.5 Exhibit E. Gas Balancing Agreement
ARTICLE IV
OPERATOR
4.1 OPERATOR. Gryphon Exploration Company is hereby designated as OPERATOR.
OPERATOR shall not have the right to assign or transfer any rights, duties or
obligations of OPERATOR to another PARTY except in accordance with the
provisions herein.
4.2 RESIGNATION. OPERATOR may resign at any time by giving notice to the
PARTIES. Such resignation shall become effective at 7:00 a.m. on the first day
of the month following a period of ninety (90) days after said notice, unless a
successor OPERATOR has assumed the duties of OPERATOR prior to that date.
4.3 REMOVAL OF OPERATOR. OPERATOR may be removed if (1) OPERATOR becomes
insolvent or unable to pay its debts as they mature or makes an assignment for
the benefit of creditors or commits any act of bankruptcy or seeks relief under
laws providing for the relief of debtors; or (2) a receiver is appointed for
OPERATOR or for substantially all of its property and/or affairs; or (3)
OPERATOR or its designee no longer owns an interest in the property or divest
itself of more than fifty percent (50%) or more of the interest owned by it in
the Lease at the time it was designated OPERATOR; or (4) OPERATOR has committed
a material breach of any substantive provision hereof or fails to perform its
duties hereunder in a reasonable and prudent manner, or failed to rectify such
default within sixty (60)
3
days after notice from another PARTY to do so. The PARTY giving notice to the
OPERATOR of a default shall also furnish a copy of such notice to the other
PARTIES. In such event, the OPERATOR may be removed by an affirmative vote of
two (2) or more PARTIES having a combined WORKING INTEREST of fifty percent
(50%) in the LEASE.
4.4 SELECTION OF SUCCESSOR. Upon resignation or removal of OPERATOR, a
successor OPERATOR shall be selected by an affirmative vote of two (2) or more
PARTIES having a combined WORKING INTEREST of fifty-one percent (51%) or more;
however, if the removed or resigned OPERATOR fails to vote or votes only to
succeed itself, the successor OPERATOR shall be selected by an affirmative vote
of the PARTIES having a combined WORKING INTEREST of fifty-one percent (51%) or
more of the remaining WORKING INTEREST after excluding the WORKING INTEREST of
the removed or resigned OPERATOR.
4.5 DELIVERY OF PROPERTY. Prior to the effective date of resignation or
removal, OPERATOR shall deliver promptly to successor OPERATOR the possession of
everything owned by the PARTIES pursuant to this Agreement.
ARTICLE V
AUTHORITY AND DUTIES OF OPERATOR
5.1 EXCLUSIVE RIGHT TO OPERATE. Unless otherwise provided herein, OPERATOR
shall have the exclusive right and duty to conduct all operations pursuant to
the Agreement.
5.2 WORKMANLIKE CONDUCT. OPERATOR shall conduct all operations in a good
and workmanlike manner, as would a prudent OPERATOR under the same or similar
circumstances. OPERATOR shall not be liable to the PARTIES for losses sustained
or liabilities incurred except such as may result from its gross negligence or
willful misconduct. Unless otherwise provided, OPERATOR shall consult with the
PARTIES and keep them informed of all important matters.
5.3 LIENS AND ENCUMBRANCES. OPERATOR shall endeavor to keep the LEASE and
equipment free from all liens and encumbrances occasioned by operations
hereunder, except those provided for in Section 8.5.
5.4 EMPLOYEES. OPERATOR shall select employees and determine their number,
hours of labor and compensation. Such employees shall be employees of OPERATOR.
5.5 RECORDS. OPERATOR shall keep accurate books, accounts and records of
operations hereunder which, unless otherwise provided for in this Agreement,
shall be available to NON-OPERATOR pursuant to the provisions contained in
Exhibit "C".
5.6 COMPLIANCE. OPERATOR shall comply with and require all agents and
contractors to comply with all applicable laws, rules, regulations and orders of
any governmental agency having jurisdiction.
5.7 DRILLING. OPERATOR shall have all drilling operations conducted by
qualified and responsible independent contractors under competitive contracts.
However, OPERATOR may employ its equipment and personnel in the conduct of such
operations, but its charges therefor shall not exceed the then prevailing rates
in the area and such work shall be performed pursuant to a written agreement
among the PARTICIPATING PARTIES.
5.8 REPORTS. OPERATOR shall make reports to governmental authorities that
it has a duty to make as OPERATOR and shall furnish copies of such reports to
the PARTIES. OPERATOR shall give timely written notice to the PARTIES of all
litigation and hearings affecting the LEASES or operations hereunder.
4
5.9 INFORMATION TO PARTICIPATING PARTIES. OPERATOR shall furnish all
PARTICIPATING PARTIES hereto the following information pertaining to each well
being drilled:
(a) copy of application for permit to drill and all amendments
thereto;
(b) daily drilling reports by facsimile or e-mail;
(c) complete report of all core analyses;
(d) two (2) copies of any logs or surveys as run;
(e) two (2) copies of any well test results, bottom-hole pressure
surveys, gas and condensate analyses or similar information;
(f) one (1) copy of reports made to regulatory agencies; and
(g) twenty-four (24) hour notice of logging, coring and testing
operations;
(h) upon request prior to resumption of drilling operations, samples
of cuttings and cores marked as to depth, to be packaged and
shipped to the requesting PARTY at their expense.
(i) all other reasonable information, available to OPERATOR,
pertaining to any well drilled pursuant to this Agreement.
ARTICLE VI
VOTING AND VOTING PROCEDURES
6.1 DESIGNATION OF REPRESENTATIVE. The name and address of the
representative and alternate authorized to represent and bind each PARTY for
operations provided in Article IX, shall be as shown on Exhibit "A". The
designated representative or alternate may be changed by written notice to the
other PARTIES.
6.2 VOTING PROCEDURES. Unless otherwise provided, any matter requiring
approval of the PARTIES shall be determined as follows:
6.2.1 Voting Interest. Each PARTY shall have a voting interest equal
to its WORKING INTEREST or its PARTICIPATING INTEREST as applicable.
6.2.2 Vote Required. Except as may be specifically provided elsewhere
herein, if there are three or more Parties to this agreement, any proposal
requiring approval of the PARTIES shall be decided by an affirmative vote of two
(2) or more PARTIES having a combined voting interest of fifty-one percent (51%)
or more. If there are only two parties to this agreement, any proposal requiring
approval of the Parties, other than the proposals described in Article 12.7 and
Article 13.1, shall be decided by an affirmative vote of one (1) or more Parties
having a combined voting interest of fifty-one percent (51%) or more.
6.2.3 Votes. The PARTIES may vote at meetings, by telephone, confirmed
in writing to OPERATOR; or by letter, telegram, e-mail or telecopies. However,
any PARTY not attending a meeting must vote prior to the meeting in order to be
counted. Provided, however, no vote shall be taken in a meeting in which all
Parties are not present unless such vote was specifically set out in the formal
agenda. OPERATOR shall give prompt notice of the results of such voting to each
PARTY.
6.2.4 Meetings. Meetings of the PARTIES may be called by OPERATOR upon
its own motion or at the request of one (1) or more PARTIES having a combined
voting interest of not less than ten percent (10%). Except in the case of
emergency or except when agreed by unanimous consent, no meeting shall be called
on less than five (5)
5
days advance written notice, (including the agenda for such meeting). The
OPERATOR shall be chairman of each meeting.
ARTICLE VII
ACCESS
7.1 ACCESS TO LEASE. Each PARTY shall have access to the LEASE as its sole
risk and expense at all reasonable times to inspect operations and records and
data pertaining thereto.
7.2 REPORTS. OPERATOR shall furnish to a requesting PARTY any information
to which such PARTY is entitled hereunder. The costs of gathering and furnishing
information not otherwise furnished under Article V shall be charged to the
requesting PARTY.
7.3 CONFIDENTIALITY. Except as provided in Section 7.4 and except for
necessary disclosures to governmental agencies, no PARTY shall release any
geological, geophysical or reservoir information or any logs, surveys or other
information pertaining to the progress, tests or results of any well or status
of the LEASE unless agreed to by the PARTICIPATING PARTIES. At such time as the
PARTIES mutually agree such information is non-confidential, it may be publicly
released. Unless otherwise provided, OPERATOR shall initially release the same
subsequent to approval of its content by the PARTIES. OPERATOR shall have the
exclusive right to designate certain xxxxx as "tite" for the competitive
protection of the PARTIES.
7.4 LIMITED DISCLOSURE. Any PARTY may make confidential data available to
affiliates, to reputable engineering firms and gas transmission companies for
hydrocarbon reserve and other technical evaluations, to reputable financial
institutions for study prior to commitment of funds and to bonafide purchasers
of all of a PARTY'S interest in the LEASE. Any third party permitted such access
shall first agree in writing neither to disclose such data to others nor to use
such data except for the purpose for which it is disclosed. Each PARTY shall be
furnished with copies of third parties execution of the same. Any Party may make
limited releases of confidential data to the Offshore Oil Scouts Association to
the extent and only to the extent such data satisfies the minimum requirements
for membership in the Offshore Oil Scouts Association.
ARTICLE VIII
EXPENDITURES
8.1 BASIS OF CHARGE TO THE PARTIES. Subject to other provisions of this
Agreement, OPERATOR shall pay all costs and each PARTY shall reimburse OPERATOR
in proportion to the PARTICIPATING INTEREST. All charges, credits and accounting
for expenditures shall be pursuant to the Accounting Procedure attached hereto
as Exhibit "C". The provisions of this Agreement shall prevail in the event of
conflict with Exhibit "C".
8.2 AUTHORIZATION. OPERATOR shall neither make any single expenditure nor
undertake any project costing in excess of Seventy-five Thousand Dollars
($75,000.00) without prior approval of the PARTIES. OPERATOR shall furnish a
written AFE, for information purposes only, to the PARTIES on any expenditures
in excess of Twenty-five Thousand Dollars ($25,000.00). When costs are
anticipated to exceed 120% of a previously approved AFE, OPERATOR shall issue a
Supplemental AFE for information purposes only Subject to any election provided
in Article X and XI, approval of a well operation shall include approval of all
necessary expenditures through installation of the wellhead. In the event of an
emergency, OPERATOR may immediately make such expenditures as in its opinion are
6
required to deal with the emergency. OPERATOR shall report to the PARTIES, as
promptly as possible, the nature of the emergency and action taken.
8.3 ADVANCE XXXXXXXX. OPERATOR shall have the right to require each PARTY
to advance its respective share of estimated expenditures pursuant to Exhibit
"C". As to any party who fails to pay its share of said advance payment within
fifteen (15) days after receipt of such statement and invoice, Operator will
notify such affected party of its default by certified mail, return receipt
requested and if such party fails to cure the default within ten (10) days from
the date of receipt of Operator's Notice, by payment in full of the outstanding
invoices for advance payment, at Operator's election, the affected Party shall
be deemed non-consent as to the proposed operation attributable thereto.
8.4 COMMINGLING OF FUNDS. Funds received by OPERATOR under this Agreement
may be commingled with its own funds.
8.5 SECURITY RIGHTS. In addition to any other security rights and remedies
provided by law with respect to services rendered or materials and equipment
furnished under this Agreement, OPERATOR shall have a first lien upon each
PARTY'S PARTICIPATING and/or WORKING INTEREST, including the production and
equipment credited thereto, in order to secure payment of charges against such
PARTY, together with interest thereon at the rate set forth in Exhibit "C" or
the maximum rate allowed by law, whichever is less, plus attorneys' fees, court
costs and other related collection costs. If any PARTY does not pay such charges
when due, OPERATOR shall have the additional right to collect from the purchaser
the proceeds from the sale of such PARTY'S share of production until the amount
owed has been paid. Each purchaser shall be entitled to rely on OPERATOR'S
statement concerning the amount owed. Each NON-OPERATOR shall have comparable
security rights on OPERATOR'S PARTICIPATING and/or WORKING INTEREST. Such offset
rights shall not apply to amounts owing that are in dispute.
8.6 UNPAID CHARGES. If any PARTY fails to pay the charges due hereunder,
including xxxxxxxx under Section 8.3, within thirty (30) days after payment is
due, the PARTICIPATING PARTIES shall have the obligation, upon OPERATOR'S
request, to pay the unpaid amount in proportion to their interest. Each PARTY so
paying its share of the unpaid amount shall be subrogated to OPERATOR'S security
rights to the extent of such payment.
8.7 DEFAULT. If any PARTY does not pay its share of the charges when due,
or prior to commencement of the approved operation for which it is billed,
whichever is the earlier, OPERATOR may give such PARTY notice that unless
payment is made within fifteen (15) DAYS, such PARTY shall be in default. Any
PARTY in default shall have no further access to the maps, cores, logs, surveys,
records, data, interpretations or other information obtained in connection with
said operation. A defaulting PARTY shall not be entitled to vote on any matter
until such time as PARTY'S payments are current. The voting interest of each
non-defaulting PARTY shall be in the proportion its PARTICIPATING INTEREST bears
to the total non-defaulting PARTICIPATING INTEREST. As to any operation approved
or commenced during the time a PARTY is in default, such PARTY shall be deemed
to be a NON-PARTICIPATING PARTY.
8.8 CARVED-OUT INTERESTS. Subject to the reservations set out in Article
16.1, any overriding royalty, production payment, net proceeds interest, carried
interest or any other interest carved-out of the WORKING INTEREST in the LEASES
after the effective date of this Agreement shall be subject to the rights of the
PARTIES to this Agreement, and any PARTY whose WORKING INTEREST is so encumbered
shall be responsible therefor. If a
7
PARTY does not pay its share of expenses and the proceeds from the sale of
production under Section 8.5 are insufficient for that purpose, the security
rights provided for therein may be applied against the carved-out interests with
which such WORKING INTEREST is burdened. In such event, the rights of the owner
of such carved-out interest shall be subordinated to the security rights granted
by Section 8.5.
ARTICLE IX
NOTICES
9.1 GIVING AND RECEIVING NOTICES. All notices shall be in writing and
delivered in person or by mail, telex, telegraph, TWX, telecopier or cable;
however, if a drilling rig is on location at time of proposal and standby
charges are accumulating, such notices shall be given by telephone and
immediately confirmed in writing. Notice shall be deemed given only when
received by the PARTY to whom such notice is directed, except that any notice by
certified mail or equivalent, telegraph or cable properly addressed, pursuant to
Section 6.1, and with all postage and charges prepaid shall be deemed given
seventy-two (72) hours after such notice is deposited in the mail or twenty-four
(24) hours after such notice is sent by facsimile (receipt confirmed), or when
filed with an operating, telegraph or cable company for immediate transmission.
9.2 CONTENT OF NOTICE. Any notice which requires a response shall indicate
the maximum response time specified in Section 9.3. If a proposal involves a
Platform or Facility, the notice shall contain a description of same, including
location and the estimated costs of fabrication, transportation and
installation. If a proposal involves a well operation, the notice shall include
the estimated commencement date, the proposed depth, the objective zone or zones
to be tested, the surface and bottom-hole locations and the estimated costs of
the operation including all necessary expenditures through installation of the
wellhead.
9.3 RESPONSE TO NOTICES. Each PARTY'S response to a proposal shall be in
writing to OPERATOR, with copies to the other PARTIES. Except for those notices
in Articles X, XI, XV and XVI, the maximum response time shall be as follows:
9.3.1 Platform Construction. When any proposal for operations involves
the construction of a platform, the maximum response time shall be forty-five
(45) days,
9.3.2 Proposal Without Platform. When any proposal for operations does
not require construction of a platform, maximum response time shall be thirty
(30) days; however, if a drilling rig is on location and standby charges are
accumulating, the maximum response time shall be forty-eight (48) hours.
9.3.3 Other Matters. For all other matters requiring notice, the
maximum response time shall be thirty (30) days.
9.4 FAILURE TO RESPOND. Failure of any PARTY to respond to a notice within
the required period shall be deemed to be a negative response.
9.5 RESTRICTIONS ON MULTIPLE WELL PROPOSALS. Unless otherwise agreed by the
PARTIES, no more than one well shall be drilling or completing for the account
of the Parties on the Lease at the same time. Well proposals made under the
terms hereof shall be limited to one well each and except as provided below, no
PARTY shall be required to make an election under more than one well proposal at
the same time or while a well is
8
drilling or completing. This paragraph shall not limit the right of a PARTY to
propose a well while another is drilling or completing, however, the time to
elect under such a proposal shall be deferred until (a) thirty (30) days after
the previous well has been completed or plugged and abandoned or (b) twenty-four
(24) hours from receipt of notification that the drilling rig has been moved to
the new location and standby charges are being accumulated, whichever is
earlier.
ARTICLE X
EXPLORATORY XXXXX
10.1 OPERATIONS BY ALL PARTIES. Any PARTY may propose an EXPLORATORY WELL
by notifying the other PARTIES. If all the PARTIES agree to participate in
drilling the proposed well, OPERATOR shall drill same for the benefit of all
PARTIES.
10.2 SECOND OPPORTUNITY TO PARTICIPATE. If fewer than all PARTIES elect to
participate, OPERATOR shall inform all PARTIES of the elections made, whereupon
any PARTY originally electing not to participate may then elect to participate
by notifying the OPERATOR within forty-eight (48) hours after receipt of such
information.
10.3 OPERATIONS BY FEWER THAN ALL PARTIES. If fewer than all but one (1) or
more PARTIES owning not less than forty percent (40%) WORKING INTEREST elect to
participate in and agree to bear the cost and risk of drilling the proposed
well, OPERATOR, even if OPERATOR is a NON-PARTICIPATING PARTY, shall have the
option of drilling such well for the PARTICIPATING PARTIES under this Agreement.
OPERATOR, immediately after expiration of the applicable notice period, shall
advise the PARTICIPATING PARTIES of (a) the total interest of the PARTIES
approving such operation, and (b) its recommendation as to whether the
PARTICIPATING PARTIES should proceed with the operation as proposed. Each
PARTICIPATING PARTY, within forty-eight (48) hours (inclusive of Saturday,
Sunday or legal holidays) after receipt of such notice, shall advise the
proposing PARTY of its desire to (a) limit participation to such PARTY'S
interest as shown on Exhibit "A", or (b) carry its proportionate part of
NON-PARTICIPATING PARTIES' interest, or (c) participate with a lesser percentage
than its proportionate part of the NON-PARTICIPATING PARTIES' interest. The
proposing PARTY, at its election, may withdraw such proposal if there is
insufficient participation and shall promptly notify all PARTIES of such
decision. If the well is commenced within ninety (90) days after the date of the
last applicable election date and is drilled as proposed in accordance with this
Agreement, any PARTY electing not to participate shall be deemed to have
relinquished its operating rights in such well as if it were a NON-CONSENT WELL.
However, in the situation in which a rig is on location and standby charges are
accumulating, thus precipitating a forty-eight (48) hour response period, the
well must be commenced within fifteen (15) days. If no operations are begun
within such time period, the effect shall be as if the proposal had not been
made. Operations shall be deemed to have commenced (a) on the date the contract
for a new platform is let, if the notice indicated the need for such platform;
or (b) the date rigging-up operations on the well are commenced. Recoupment of
costs shall be determined by Sections 12.2 and 12.5, if applicable, and the
drilling of such well shall be governed by Article XII as applicable; however,
percentages under Section 12.2 shall be as follows:
12.2.1a) Eight hundred percent (800%)
12.2.1b) Three hundred percent (300%)
12.2.1c) One hundred percent (100%)
12.2.1d) One hundred percent (100%)
9
Provided however, if the proposed EXPLORATORY WELL is the initial well drilled
by the PARTIES on the LEASE, then any NON-PARTICIPATING PARTY shall permanently
assign its entire interest in the LEASE to the PARTICIPATING PARTIES and the
recoupment of cost provision of this Article and Article XII shall not apply,
but the NON-PARTICIPATING PARTY shall not be relieved of any obligation accruing
prior to such assignment.
10.4 COURSE OF ACTION AFTER DRILLING TO INITIAL OBJECTIVE DEPTH
10.4.1 Casing Point Election. After an Exploratory Well has been
drilled for all Parties to the objective depth, and all authorized logging and
testing has been completed, OPERATOR shall immediately notify the PARTIES of
OPERATOR'S proposal to either;
(a) further log or test the well,
(b) complete the well as originally planned,
(c) plug-back and complete the well in a shallower zone in
ascending order,
(d) deepen the well within a previously approved objective zone,
in descending order,
(e) deepen the well below the deepest approved objective zone or
zones,
(f) sidetrack the well to a new bottom hole location within the
approved objective zone,
(g) other operations in the well, or
(h) plug and abandon the well.
Within forty-eight (48) hours after receipt of OPERATOR'S proposal, the other
PARTIES shall respond thereto by either approving it or making a
counter-proposal. If a counter-proposal is made, the PARTIES shall have an
additional forty-eight (48) hours to respond thereto. If all PARTIES approve a
proposal or counter-proposal, OPERATOR shall conduct the operation at the
PARTICIPATING PARTIES cost and risk. A proposal to complete, rework or
recomplete a well at a particular depth will take precedence over proposal to
complete, rework or recomplete the well above such depth, with a deeper proposal
for such operations always taking precedence over a shallower proposal.
Proposals for such operations at any depth will take precedence over proposals
to deepen the well below its originally proposed total depth or to sidetrack the
well once it has reached such depth. Proposals of the same type shall be given
precedence in the order in which they are made. No action shall be required on a
proposal while there is pending a proposal, with precedence being on the same
well on which the parties have not acted or on which work has not been
completed. If fewer than all, but one (1) or more, Parties having a Working
Interest of 25% or more approve a proposal or counter-proposal made under
Section 10.4 and agree to bear the cost and risk thereof, Operator shall conduct
the same pursuant to Article 12.
ARTICLE XI
DEVELOPMENT OPERATIONS
11.1 OPERATIONS BY ALL PARTIES. Any PARTY may propose a DEVELOPMENT
OPERATION, including any platform required by such operations, by notifying the
other PARTIES. If all PARTIES elect to participate in the proposed operation,
OPERATOR shall conduct such operation for the benefit of the PARTIES at their
cost and risk.
11.2 SECOND OPPORTUNITY TO PARTICIPATE. If fewer than all PARTIES elect to
participate, the OPERATOR shall inform the PARTIES of the elections made,
whereupon any PARTY originally electing not to participate may then elect to
participate by notifying the OPERATOR within forty-eight (48) hours after
receipt of such information. Thereafter, if fewer than all PARTIES elect to
participate, the PARTICIPATING PARTIES shall be afforded the alternatives as set
out under Article 10.3.
10
11.3 OPERATIONS BY FEWER THAN ALL PARTIES. Except for a DEVELOPMENT WELL(S)
under Section 12.7, if fewer than all PARTIES, but one (1) or more PARTIES
having NOT LESS THAN forty percent (40%) WORKING INTEREST approves a DEVELOPMENT
OPERATION; OPERATOR shall conduct such operation pursuant to Article XII. If
such operations are to be conducted from an existing platform, the operations
participated in by all of the PARTIES shall have preference, unless otherwise
agreed to by the PARTIES hereto.
11.4 TIMELY OPERATIONS. Operations shall be commenced within ninety (90)
days following the date upon which the last applicable election may be made. If
no operations are begun within such time period, the effect shall be as if the
proposal had not been made. Operations shall be deemed to have commenced (a) on
the date the contract for a new platform is let, if the notice indicated the
need for such platform; or (b) on the date rigging-up operations are commenced
on an existing platform.
11.5 COURSE OF ACTION AFTER DRILLING TO INITIAL OBJECTIVE DEPTH. After any
DEVELOPMENT WELL has reached its objective depth, the identical procedures and
alternatives provided under Article 10.4 shall apply.
11.6 DEEPER DRILLING. If a well is proposed to be drilled below the deepest
producible zone penetrated by a PRODUCIBLE WELL on the LEASE any PARTY may elect
to participate either in the well as proposed or to the base of the deepest
producible zone. A PARTY electing to participate in such well to the base of
said zone shall bear its proportionate part of the cost and risk of drilling to
said zone including completion or abandonment. All operations below the depth to
which such PARTY agreed to participate shall be governed by Article X.
ARTICLE XII
NON-CONSENT OPERATIONS
12.1 NON-CONSENT OPERATIONS. OPERATOR shall conduct NON-CONSENT OPERATIONS
at the sole risk and expense of the PARTICIPATING PARTIES, in accordance with
the following provisions;
12.1.1 Non-Interference. NON-CONSENT OPERATIONS shall not interfere
unreasonably with operations being conducted by all PARTIES.
12.1.2 Multiple Completion Limitation. NON-CONSENT OPERATIONS shall
not be conducted in a well having multiple completions unless: (a) each
completion is owned by the same PARTIES in the same proportions; (b) the well is
incapable of producing from any of its current completions; or (c) all
PARTICIPATING PARTIES in the well consent to such operations.
12.1.3 Metering. In NON-CONSENT OPERATIONS, production need not be
separately metered but may be determined on the basis of well test.
12.1.4 Liens. In the conduct of NON-CONSENT OPERATIONS, the
PARTICIPATING PARTIES shall keep the LEASE free and clear of liens and
encumbrances.
12.1.5 Non-Consent Well. Operations on a NON-CONSENT WELL shall not be
conducted in any producible zone penetrated by a PRODUCIBLE WELL without
approval of each NON-PARTICIPATING PARTY unless; (a) such zone shall have been
designated in the notice as a completion zone; (b) completion of such well in
said zone will not increase the well density governmentally prescribed or
approved for such zone; and (c) the horizontal
11
distance between the vertical projections of the midpoint of the zone in such
well and any existing well in the same zone will be a least one thousand (1,000)
feet if an oil-well completion or two thousand (2,000) feet if a gas-well
completion. Subject to the foregoing provisions of this Article, until the
PARTICIPATING PARTIES in a NON-CONSENT WELL have recouped the amount to which
they are entitled hereunder, they may conduct any reworking operation on such
well which they may desire, including plugging back to a shallower zone but only
if such shallower zone is subject to NON-CONSENT elections in the original
proposal. In this event, the cost of such reworking operation shall be subject
to the penalty provisions of Section 12.2.1.
12.1.6 Cost-Information. OPERATOR shall, within one hundred twenty
(120) days after completion of a NON-CONSENT WELL, furnish the PARTIES an
inventory and an itemized statement of the cost of such well and equipment
pertaining thereto. OPERATOR shall furnish to the PARTIES a monthly statement
showing operating expenses and the proceeds from the sale of production from the
well for the preceding month.
12.1.7 Completions. For the purposes of determinations hereunder, each
completion shall be considered a separate well.
12.2 RELINQUISHMENT OF INTEREST. Upon commencement of NON-CONSENT
OPERATIONS, each NON-PARTICIPATING PARTY'S interest and leasehold operating
rights in the NON-CONSENT OPERATION and title to production there from shall be
owned by and vested in each PARTICIPATING PARTY in proportion to its
PARTICIPATING INTEREST for as long as the operations originally proposed are
being conducted or production is obtained, subject to Sections 12.2.1 and
12.2.2.
12.2.1 Production Reversion Penalties. Except as to such operations
conducted pursuant to Section 12.7 or for the initial EXPLORATORY WELL, or
subsequent EXPLORATORY WELL referred to in Section 10.3, such interest, rights
and title shall revert to each NON-PARTICIPATING PARTY when the PARTICIPATING
PARTIES have recouped out of the proceeds of production from such NON-CONSENT
OPERATIONS an amount equal to the sum of the following:
(a) Six hundred percent (600%) of the cost of drilling,
completing, recompleting, sidetracking, deepening, deviating
or plugging back each NON-CONSENT WELL and equipping it
through the wellhead connections, reduced by any
contribution received under Section 21.1; plus,
(b) Three hundred percent (300%) of the cost of FACILITIES
necessary to carry out the operation; plus,
(c) One hundred percent (100%) of the cost of using any
FACILITIES already installed determined pursuant to Section
12.6 below; plus,
(d) One hundred percent (100%) of the cost of operating
expenses, royalties and severance, gathering, production and
windfall profit taxes.
Recoupment of costs shall be in the order listed above. Upon the recoupment of
such costs, a NON-PARTICIPATING PARTY shall become a PARTICIPATING PARTY in such
operations.
12.2.2 Non-Production Reversion. If such NON-CONSENT OPERATIONS fail
to obtain production or such operations result in production which ceases prior
to recoupment by the PARTICIPATING PARTIES of the penalties provided for above,
such operating rights shall revert to each NON-PARTICIPATING PARTY except that
all NON-CONSENT xxxxx, platforms and FACILITIES shall remain vested in the
PARTICIPATING PARTIES; however, any salvage in excess of the sum remaining under
Section 12.2.1 shall be credited to all PARTIES.
12.3 DEEPENING OR SIDETRACKING OF NON-CONSENT WELL. If any PARTICIPATING
12
PARTY proposes to deepen or sidetrack a NON-CONSENT WELL, a NON-PARTICIPATING
PARTY may participate by notifying the OPERATOR within fifteen (15) days after
receiving the proposal (48 hours if a rig is on location) that it will join in
the (deepening or sidetracking) operations, and by paying to the PARTICIPATING
PARTIES an amount equal to such NON-PARTICIPATING PARTY'S share of the actual
costs of drilling and casing such well to the point at which such deepening or
sidetracking operation is commenced. The PARTICIPATING PARTIES shall continue to
be entitled to recoup the full sum specified in Section 12.2.1 applicable to the
NON-CONSENT WELL, less the amount paid under this section, out of the proceeds
of production from the NON-CONSENT portion of the well.
12.4 OPERATIONS FROM NON-CONSENT PLATFORMS. Subject to the following, a
PARTY which did not originally participate in a platform proposed pursuant to
the terms herein, shall be a NON-PARTICIPATING PARTY as to ownership therein and
all operations thereon until the PARTICIPATING PARTIES as to such platform have
recouped the full sum specified in Section 12.2.1 applicable to such NON-CONSENT
PLATFORM and the NON-CONSENT OPERATIONS which resulted in the setting of such
PLATFORM and other NON-CONSENT OPERATIONS thereon or therefrom. However, an
original NON-PARTICIPATING PARTY may participate in additional operations from
such PLATFORM by notifying the OPERATOR within thirty (30) days after receiving
a proposal for operations from such PLATFORM (48 hours if a rig is on location
and standby rig charges are being incurred) that it will join in such proposed
operations by paying to the PARTICIPATING PARTIES in such PLATFORM an amount
equal to 300% of such NON-PARTICIPATING PARTY'S share of the actual cost of such
PLATFORM, less any recoupment therefor previously obtained. Thereafter, such
original NON-PARTICIPATING PARTY in the PLATFORM shall own its proportionate
share thereof. The PARTICIPATING PARTIES in such NON-CONSENT PLATFORM shall
continue to be entitled to recoup the full sum specified in Section 12.2.1
applicable to any other NON-CONSENT OPERATIONS thereon or therefrom.
12.5 DISCOVERY OR EXTENSION FROM MOBILE DRILLING OPERATIONS. If a NON-
CONSENT WELL drilled from a mobile drilling rig or floating drilling vessel
results in the discovery or extension of productive formations and, if within
one (1) year from the date the drilling equipment is released, a platform or
other fixed structure is ordered and if its location is within one thousand
(1,000) feet from an oil well or three thousand (3,000) feet if gas, from the
vertical projection of the bottom-hole location of any such well (unless limited
by surface restrictions), the recoupment of amounts applicable to such well
under Section 12.2.1 shall be out of such original NON-PARTICIPATING PARTY'S
SHARE of all production from such NON-CONSENT WELL and one-half of its share of
production from all other xxxxx on the platform or other fixed structure drilled
to develop reserves resulting from the discovery or extension of productive
formations in said NON-CONSENT WELL in which the NON-PARTICIPATING PARTY in such
NON-CONSENT WELL has a PARTICIPATING INTEREST.
12.6 ALLOCATION OF PLATFORM COSTS TO NON-CONSENT OPERATIONS. NON-CONSENT
OPERATIONS shall be subject to further conditions as follows:
12.6.1 Charges. If a NON-CONSENT WELL is drilled from a platform (and
is producible or the slot is otherwise rendered unusable), the PARTICIPATING
PARTIES in such well shall pay to the OPERATOR for credit to the owners of such
platform a charge (due upon completion of operations for such NON-CONSENT WELL)
for the right to use the platform and its FACILITIES as follows:
13
(a) Such PARTICIPATING PARTIES shall pay a sum equal to that
portion of the total cost of the platform (including, but
not by way of limitation, costs of design, materials,
fabrication, transportation, installation and other costs
associated therewith, plus any repairs and maintenance
expense resulting from the drilling of such well not
provided in Section 12.6.2), which one platform slot bears
to the total number of slots on the platform. If the
NON-CONSENT WELL is abandoned, the right of the
PARTICIPATING PARTIES to use that platform slot shall
terminate unless such PARTIES commence drilling a substitute
well from the same slot within ninety (90) days after
abandonment.
(b) If the NON-CONSENT WELL production is handled through
existing FACILITIES, the PARTICIPATING PARTIES shall pay the
owners of the facilities a sum equal to that portion of the
total cost of such FACILITIES which the number of
completions in said NON-CONSENT WELL bears to the total
number of completions utilizing the FACILITIES.
12.6.2 Operating and Maintenance Charges. The PARTICIPATING PARTIES
shall pay all costs necessary to connect a NON-CONSENT WELL to the FACILITIES
and that proportionate part of the expense of operating and maintaining the
platform and other FACILITIES applicable to the NON-CONSENT WELL, including the
cost of insurance thereon or in connection therewith, whether by insurance
policy of self-insurance by each PARTY for its interest or by OPERATOR for the
joint account. Platform operating and maintenance expenses shall be allocated
equally to all completions served and operating and maintenance expenses for the
other FACILITIES shall be allocated equally to producing completions.
12.6.3 Payments. Payments of sums pursuant to Section 12.6.1 is not a
purchase of an additional interest in the platform or other FACILITIES. Such
payments shall be included in the total amount, which the PARTICIPATING PARTIES
are entitled to recoup out of production from the NON-CONSENT WELL.
12.7 NON-CONSENT DRILLING TO MAINTAIN LEASE. A lease maintenance
operation is defined for the purposes of this paragraph as one required to
maintain the joint LEASE or a portion thereof, at its expiration date or
otherwise. This shall include, but not be limited to, a well proposed to be and
actually commenced and drilled during the last year of the primary term of the
LEASE, or subsequent thereto, when: (a) the LEASE, or affected portion thereof,
is not otherwise being held by operations or production; (b) a PRODUCIBLE
WELL(S) thereon has not established sufficient reserves, as determined by one
(1) or more PARTICIPATING PARTIES owning fifty percent (50%) working interest in
the well, to justify a platform; or (c) any governmental agency having
jurisdiction requires the same to avoid loss or forfeiture of all or any portion
of the LEASE. Any PARTY may propose and carry out a lease maintenance operation
and any PARTY(S) electing not to participate in such an operation will assign to
the PARTICIPATING PARTIES in the proportions in which they participate therein,
all of its rights, titles and interest in such LEASE block, or the affected
portion thereof, free and clear of any burdens thereon occurring since the
effective date of this Agreement as provided herein, retaining, however, its
interest in previously completed xxxxx which are
14
producing, shut-in or temporarily abandoned. Such assignment, effective upon
commencement of lease maintenance operations, will be promptly signed before
witnesses, acknowledged and delivered to the PARTICIPATING PARTIES. If only a
portion of the LEASE is involved, the PARTICIPATING PARTIES at their election
may require an assignment of operating rights in lieu of the assignment of all
interest. Upon acceptance by assignees, the assigning PARTY will thereupon cease
to be a PARTY hereto as to the assigned interest, subject to final accounting
between the PARTIES. If such assignment is not accepted by the Assignees, they
shall promptly prepare a release of such affected LEASE or portion thereof which
shall be executed by all PARTIES. However, nothing herein contained will be
construed to permit any PARTY to refuse to pay in cash its share of the cost and
expense of any operation required on the joint LEASE block by final order of any
governmental authority or court having jurisdiction.
12.7.1 Retention of Lease by Non-Consent Well. If a NON-CONSENT WELL
is the only well on the LEASE(S) and is serving to perpetuate the LEASE(S),
within thirty (30) days after expiration of the LEASE(S) primary term, each
NON-PARTICIPATING PARTY shall elect one of the following;
(a) Immediately assign its entire interest in the LEASE(S) to
the PARTICIPATING PARTIES in the proportions in which the
NON-CONSENT OPERATION was conducted; or
(b) Immediately pay to the PARTICIPATING PARTIES its share of
all costs associated with such well, less any recoupment
therefore previously obtained, such payment to be credited
against the total amount to be recovered out of its share of
production by the PARTICIPATING PARTIES pursuant to Article
X or XII, whichever is applicable.
12.8 ALLOCATION OF COSTS (SINGLE COMPLETION). For the purpose of allocating
costs on any well in which the ownership is not the same for the entire depth,
the cost of drilling, completing or equipping such well shall be allocated on
the following basis:
(a) Intangible drilling, completion and material costs (including
casing and tubing costs) from the surface to a depth one hundred
(100) feet below the base of the completed zone shal1 be charged
to the owners or the PARTIES participating in that zone.
(b) Intangible drilling, completion, casing string and material
costs, other than tubing costs, from a depth one hundred (100)
feet below the base of the completed zone to total depth shall be
charged to the owners or the PARTIES participating in the costs
to total depth.
12.9 ALLOCATION OF COSTS (MULTIPLE COMPLETIONS). For the purpose of
allocating costs on any well completed in dual or multiple zones in which the
ownership is not the same for the entire depth or the completions thereof, the
cost of drilling, completing and equipping such well shall be allocated on the
following basis:
(a) Intangible drilling, completion (including wellhead equipment),
casing string and material costs, other than tubing costs, from
the surface to a depth one hundred (100) feet below the base of
the upper completed zone shall be divided equally between the
completed zones and charged to the owners thereof or the PARTIES
participating in such zone.
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(b) Intangible drilling, completion, casing string and material
costs, other than tubing costs, from a depth one hundred (100)
feet below the base of the upper completed zone to a depth one
hundred (100) feet below the base of the second completed zone
shall be divided equally between the second and any other zone
completed below such depth and charged to the owners thereof or
to the PARTIES participating in each zone. If the well is
completed in additional zones, the costs applicable to each such
zone shall be determined and charged to the owners thereof in the
same manner as prescribed by the dual zones completion.
(c) Intangible drilling, completion, casing string and material
costs, other than tubing costs, from a depth one hundred (100)
feet below the base of the lower completed zone to total depth
shall be charged to the owners or the PARTIES participating in
the costs to total depth.
(d) Costs of tubing strings serving each separate zone shall be
charged to the owners or the PARTIES participating in each zone.
(e) For the purposes of allocating tangible and intangible costs
between zones that occur at less than one hundred (100) foot
intervals, the costs for the distance between the base of the
upper zone to the top of the next lower zone shall be allocated
equally between zones.
12.10 ALLOCATION OF COSTS (DRY HOLE). For the purpose of allocating costs
on any well determined to be a dry hole, in which the ownership is not the same
for the entire depth or the completion thereof, the cost of drilling, plugging
and abandoning such well shall be allocated on the following basis:
(a) Costs to drill, plug and abandon a well proposed for completion
in single, dual, or multiple zones shall be charged to the
PARTICIPATING PARTIES in the same manner as if the well were
completed as a producing well in all zones as proposed.
(b) Plugging and abandoning of any well following any deepening,
completion attempt or other operation shall be at the sole risk
and expense of the PARTICIPATING PARTIES in such operation,
subject however to the provisions of Section 10.4.
12.11 INTANGIBLE DRILLING AND COMPLETION ALLOCATIONS. For the purpose of
calculations hereunder, intangible drilling and completion costs, including
non-controllable material costs, shall be allocated between zones, including the
interval from the lower completed zones to total depth, on a drilling day ratio
basis beginning on the day the rig arrives on location and terminating when the
rig is released.
12.12 OPERATED XXXXX. The designated OPERATOR hereunder shall operate all
xxxxx drilled pursuant to the NON-CONSENT provision of this Agreement. However,
notwithstanding anything herein to the contrary, if the NON-CONSENT WELL is
drilled from a mobile drilling rig and if the designated OPERATOR is a
NON-PARTICIPATING PARTY therein, the PARTICIPATING PARTY owning the largest
PARTICIPATING INTEREST shall serve as Operator for the drilling and completion
of such well, unless the PARTICIPATING PARTIES agree otherwise. Upon completion
of any such well as a productive well (completion through the wellhead), the
well shall be turned over to the designated OPERATOR for further operations.
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ARTICLE XIII
FACILITIES
13.1 APPROVAL. Any PARTY may propose the installation of FACILITIES by
notice to the other PARTIES with information adequate to describe the proposed
FACILITIES and the estimated costs. The affirmative vote of one (1) or more
PARTIES having a combined PARTICIPATING INTEREST of forty percent (40%) or more
in the xxxxx to be served shall be required before such FACILITIES may be
installed. If such required approval is obtained, the PARTICIPATING PARTIES
therein shall proceed with the installation of such FACILITIES at their sole
cost, risk and expense and the NON-PARTICIPATING PARTIES in such FACILITIES
shall have no rights with respect thereto, subject to recoupment of amounts set
forth under Article 12.2.1 from the completions served thereby. Each PARTY'S
share shall be calculated by multiplying the total cost of the FACILITIES by a
fraction, the numerator of which is that PARTY'S number of PRODUCIBLE WELL
completions served by the FACILITIES and the denominator of which is the total
number of PRODUCIBLE WELL completions served by the FACILITIES. Nothing
hereunder shall limit a PARTY'S rights under Section 22.1; however, a PARTY
acting thereunder shall not be required to pay for joint account FACILITIES that
duplicate its FACILITIES constructed pursuant to Section 22.1
ARTICLE XIV
ABANDONMENT AND SALVAGE
14.1 PLATFORM SALVAGE AND REMOVAL COSTS. When the PARTIES owning FACILITIES
consisting of a platform, mutually agree to dispose of such platform it shall be
disposed of by the OPERATOR as approved by such PARTIES. The costs, risks and
net proceeds, if any, resulting from such disposition shall be shared by such
PARTIES in proportion to their PARTICIPATING INTEREST.
14.2 PURCHASE OF SALVAGE MATERIALS. OPERATOR shall give all PARTIES written
notice when it is determined under Section 14.1 that FACILITIES or other
materials are not needed for further operations and may be moved from the LEASE.
Within fifteen (15) days after receipt of such notice any PARTY desiring to
acquire such materials shall give OPERATOR written notice of such fact. If more
than one PARTY desires to acquire such materials, OPERATOR shall designate a
time and place at which each PARTY may submit written bids for such materials.
If only one PARTY desires to acquire such materials, it may do so on the basis
of the value thereof as determined in accordance with the provisions of Exhibit
"C", with prefabricated materials being valued on the basis of cost including
but not limited to cost of fabrication. All materials removed from the LEASE
shall be removed at the expense of the PARTIES unless purchased hereunder, then
at the expense of the acquiring PARTY. In the event no PARTY desires to purchase
said materials, the materials shall be disposed of in accordance with the
provisions of Exhibit "C".
14.3 ABANDONMENT OF PRODUCING WELL. Any PARTY may propose the abandonment
of a well by notifying the other PARTIES, who shall have the time period set
forth in Section 9.3.2 from receipt thereof within which to respond. No well
shall be abandoned without the mutual consent of the PARTICIPATING PARTIES. The
PARTICIPATING PARTIES not consenting to the abandonment shall pay to each
PARTICIPATING PARTY desiring to abandon its share of the current value of the
well's salvageable material and equipment as determined
17
pursuant to Exhibit "C", less the estimated current costs of salvaging same and
of plugging and abandoning the well as determined by the PARTICIPATING PARTIES.
Provided, however, if such salvage value is less than such estimated current
costs, then each PARTICIPATING PARTY desiring to abandon shall pay to OPERATOR
for the benefit of the PARTICIPATING PARTIES not consenting to abandonment a sum
equal to its share of such deficiency.
14.4 ASSIGNMENT OF INTEREST. Each PARTICIPATING PARTY desiring to abandon a
well pursuant to Section 14.3 shall assign effective as of the last applicable
election date, to the non-abandoning PARTIES, in proportion to their
PARTICIPATING INTERESTS, its interest in such well and the equipment therein and
its ownership in the production of such well. Any PARTY so assigning shall be
relieved from any further liability with respect to said well except as to any
accrued liability.
14.5 ABANDONMENT OPERATIONS REQUIRED BY GOVERNMENTAL AUTHORITY. Any well
abandonment or platform removal required by a governmental authority shall be
accomplished by OPERATOR with the costs, risks and net proceeds, if any, to be
shared by the PARTIES owning such well or platform in proportion to their
PARTICIPATING INTEREST.
ARTICLE XV
WITHDRAWAL
15.1 WITHDRAWAL. Any PARTY may withdraw from this Agreement and thereby be
relieved of all responsibilities with respect to the LEASE by giving notice to
the other PARTIES of such desire together with an offer to convey at no cost by
a recordable instrument, without warranty, express or implied, except for its
own acts, all of its interest in and to the LEASE, the oil and gas, and the
property and equipment owned hereunder. Any such conveyance or assignment shall
be free and clear of any overriding royalties, production payments or other
burdens on production created after the effective date of this Agreement and
shall be subject to the LEASE provisions and to the rules and regulations of the
lessor. If any PARTY(S) desires to acquire such interest and to assume the
obligations of the assigning PARTY under this Agreement and the LEASE, the
withdrawing PARTY shall deliver such conveyance or assignment ratably to the
acquiring PARTIES, unless the acquiring PARTIES agree otherwise. If no PARTY
desires to acquire such interest, the PARTY desiring to withdraw may do so only
by paying to those PARTIES not desiring to withdraw its pro-rata share of the
estimated costs of plugging and abandoning all xxxxx and removal of all
platforms, structures and other equipment on the LEASE, less any salvage value
approved under the voting procedure hereof, and such withdrawing PARTY shall
remain liable for any costs, expenses or damages theretofore accrued or arising
out of any event occurring prior to such PARTY'S withdrawal. Thereafter, the
withdrawing PARTY shall assign its entire interest ratably to the remaining
PARTIES. If the remaining PARTIES do not wish to continue operations on the
LEASE, all PARTIES shall proceed with abandoning and surrendering the same.
15.2 LIMITATIONS ON WITHDRAWAL. No PARTY shall be relieved of its
obligations hereunder during a well or platform fire, blowout or other emergency
thereon, but may withdraw from this Agreement and be relieved of such
obligations after termination of such emergency, provided such PARTY shall be
and remain liable for its full share of all costs arising out of said emergency,
including without limitation, the drilling of a relief well, containment and
cleanup of oil spill and pollution and all costs of platform debris removal made
necessary by the emergency.
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ARTICLE XVI
RENTALS, ROYALTIES AND OTHER PAYMENTS
16.1 CREATION OF OVERRIDING ROYALTY. If after the effective date of this
Agreement, any PARTY creates any overriding royalty, production payment or other
burden payable out of production attributable to such PARTY'S WORKING INTEREST
in the LEASE owned and if any other PARTY(S) becomes entitled to an assignment
pursuant to the provisions of this Agreement (except for Paragraph 26.2) or as a
result of NON-CONSENT OPERATIONS hereunder becomes entitled to receive the
WORKING INTEREST otherwise belonging to a NON-PARTICIPATING PARTY in such
operations, the PARTY entitled to receive the assignment from or the WORKING
INTEREST production of such NON-PARTICIPATING PARTY shall receive same free and
clear of such burdens, and the NON-PARTICIPATING PARTY creating such burdens
shall save the PARTICIPATING PARTIES harmless with respect to the receipt of
such assigned interest or such WORKING INTEREST production. Notwithstanding the
provisions herein, the Parties agree to bear their proportionate share of the
overriding royalty interests set out on Exhibit "A".
16.2 PAYMENT OF RENTALS AND MINIMUM ROYALTIES. OPERATOR shall pay all
rentals, minimum royalties, or similar payments accruing under the terms of the
LEASE and submit evidence of such payment to the PARTIES. As to any production
delivered in kind by OPERATOR to any NON-OPERATOR or to another for the account
of such NON-OPERATOR, said NON-OPERATOR shall provide OPERATOR with information
as to the proceeds or value of such production in order that the OPERATOR may
make payment of any minimum royalty due. The amount of such payment for which
each PARTY is responsible shall be charged by the OPERATOR to such PARTIES.
OPERATOR shall diligently attempt to make proper payment, but shall not be held
liable to the PARTIES in damages for the loss of any LEASE or interest therein
of through mistake or oversight any rental or minimum royalty payment is not
paid for or is erroneously paid. The loss of any LEASE or interest therein which
results from a failure to pay or an erroneous payment of rental or minimum
royalty shall be a joint loss and there shall be no readjustment of interest.
16.3 NON-CONCURRENCE IN PAYMENTS. Should any PARTY(S) not concur in the
payment of any rental, minimum royalty or similar payment, such PARTY(S) shall
notify OPERATOR and all other owners in writing at least sixty (60) days prior
to the date on which such payment is due or accrues; and, in this event OPERATOR
shall make such payment for the benefit of all concurring PARTIES. In such event
the non-concurring PARTY(s) shall, upon request of any concurring PARTIES,
assign to the concurring PARTIES in the ratio that each concurring PARTY'S
interest at the time bears to the total interest of all concurring PARTIES,
without warranty, except for its own acts, such portions of its interest in and
to the LEASE or portion thereof involved as would be maintained by such payment.
That assignment shall be free and clear of any overriding royalties, production
payments or other burdens on production created after the effective date hereof.
Thereafter, the LEASE, or portion thereof, involved shall no longer be subject
to this Agreement. The PARTIES then owning such LEASE or portion thereof agree
to operate said LEASE or portion thereof under a separate agreement in the same
form as this Agreement.
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16.4 ROYALTY PAYMENTS. Each PARTY shall pay, deliver or cause to be paid or
delivered its pro-rata share of LEASE royalties, overriding royalties, payments
out of production or other amounts or charges which may be or become payable out
of its share of production and shall hold the other PARTIES free from any
liability therefore. Each Party, electing to pay his share of royalties pursuant
to the terms of the Lease, shall promptly notify Operator of said election and
shall thereafter provide to Operator a detailed accounting of revenue received
and value paid to the Lessor for such Party's share of production produced,
marketed and sold. Monthly reports shall be submitted to Operator within
forty-five days of actual receipt of the previous month's production revenue.
During any time in which PARTICIPATING PARTIES in a NON-CONSENT OPERATION are
entitled to receive a NON-PARTICIPATING PARTY'S share of production, the
PARTICIPATING PARTIES shall bear the LEASE royalty due with respect to such
share of production and shall hold the NON-PARTICIPATING PARTIES harmless from
liability in connection therewith. Any PARTY acting under the provisions of the
Article shall never be liable for a standard of performance in making such
payments or deliveries in excess of a good faith effort to pay or deliver same
prior to the due date and no liability (other than the liability to correct such
payment) shall be incurred for failure through error or omissions of the
employees of any such PARTY to make payment or delivery within the time, in the
manner and for the amounts due.
16.5 FEDERAL OFFSHORE OIL POLLUTION COMPENSATION FUND FEE. Each PARTY
agrees to pay and bear the Federal Offshore Oil Pollution Compensation Fund Fee
payable on its share of oil produced, such fee being required by Section 302 of
the Outer Continental Shelf Lands Act Amendment of 1978 and any regulation
lawfully promulgated pursuant thereto; provided, however, should the oil owned
by a PARTY be reported by another PARTY, it shall be the obligation of such
reporting PARTY and such reporting PARTY is specifically authorized to an agrees
to pay the Federal Offshore Oil Pollution Compensation Fund Fee on those volumes
which it reports for the benefit of the non-reporting PARTY, and such reporting
PARTY may charge such non-reporting PARTY for the payments so made.
ARTICLE XVII
TAXES
17.1 PROPERTY TAXES. OPERATOR shall render property covered by this
Agreement as may be subject to ad valorem taxation and shall pay such property
taxes for the benefit of each PARTY. OPERATOR shall charge each PARTY its share
of such tax payments. If the OPERATOR is required hereunder to pay ad valorem
taxes based in whole or in part upon separate valuation of each PARTY'S WORKING
INTEREST, then notwithstanding anything to the contrary herein, charges to the
Joint Account shall be made and paid by the PARTIES hereto in accordance with
the percentage of tax value generated by each PARTY'S WORKING INTEREST.
17.2 CONTEST OF PROPERTY TAX VALUATION. OPERATOR shall timely and
diligently protest to a final determination any valuation it deems unreasonable.
Pending such determination, OPERATOR may elect to pay under protest. Upon final
determination, OPERATOR shall pay the taxes and any interest, penalty or cost
accrued as a result of such protest. In either event, OPERATOR shall charge each
PARTY its share.
17.3 PRODUCTION AND SEVERANCE TAXES. Each PARTY shall pay, or cause to be
paid, all production, severance and other taxes due on any production, which it
received pursuant to the terms of this Agreement.
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17.4 OTHER TAXES AND ASSESSMENTS. OPERATOR shall pay other applicable taxes
or assessments and charge each PARTY its share.
ARTICLE XVIII
INSURANCE
18.1 INSURANCE. OPERATOR shall obtain the insurance provided in Exhibit "B"
and charge each PARTICIPATING PARTY its proportionate share of the cost of such
coverage.
ARTICLE XIX
LIABILITY, CLAIMS AND LAWSUITS
19.1 INDIVIDUAL OBLIGATIONS. The obligations, duties and liabilities of the
PARTIES shall be several and not joint or collective; and nothing contained
herein shall ever be construed as creating a partnership of any kind, joint
venture, association or other character of business entity recognizable in law
for any purpose. Each PARTY shall hold all the other PARTIES harmless from liens
and encumbrances on the LEASE arising as a result of its acts.
19.2 NOTICE OF CLAIM OR LAWSUIT. If a claim is made against any PARTY or if
any PARTY is sued on account of any matter arising from operations hereunder,
such PARTY shall give prompt written notice to the other PARTIES.
19.3 SETTLEMENTS. OPERATOR may settle any single damage claim or suit
involving operations hereunder if the expenditure does not exceed Ten Thousand
Dollars ($10,000.00), if the claim is not covered by Exhibit "B" and if the
payment is in complete settlement of such claim or suit.
19.4 LEGAL EXPENSE. Legal Expenses shall be handled pursuant to the
provisions of Exhibit "C".
19.5 LIABILITY FOR LOSSES, DAMAGES, INJURY OR DEATH. Liability for losses,
damages, injury or death arising from operations under this Agreement shall be
borne by the PARTIES in proportion to their PARTICIPATING INTERESTS in the
operations out of which such liability arises, except when such liability
results from the gross negligence or willful misconduct of any party, in which
case such PARTY shall be liable.
19.6 INDEMNIFICATION. The PARTICIPATING PARTIES agree to hold the NON-
PARTICIPATING PARTIES harmless and to indemnify and protect them against all
claims, demands, liabilities and liens for property damage or personal injury,
including death, caused by or otherwise arising out of NON-CONSENT OPERATIONS,
and any loss and costs suffered by any NON-PARTICIPATING PARTY as an incident
thereof.
ARTICLE XX
INTERNAL REVENUE PROVISION
20.1 INTERNAL REVENUE PROVISION. Notwithstanding any provisions herein that
the rights and liabilities hereunder are several and not joint or collective or
that this Agreement and the operations hereunder shall not constitute a
partnership, if for Federal Income Tax purposes this Agreement and the
operations hereunder are regarded as a partnership, then for Federal Income Tax
purposes each PARTY elects to be excluded from the application of all the
provisions of Subchapter K, Chapter 1, Subtitle A, Internal Revenue Code of
1986, as permitted and authorized by
21
Section 761 of said Code and the regulations promulgated thereunder. OPERATOR is
hereby authorized and directed to execute on behalf of each PARTY such evidence
of this election as may be required by the Federal Internal Revenue Service
including specifically, but not by way of limitation, all of the returns,
statements and data required by Federal Regulations 1.761.2. Should there be any
requirement that each PARTY further evidence this election, each PARTY agrees to
execute such documents and furnish such other evidence as may be required by the
Federal Internal Revenue Service. Each PARTY further agrees not to give any
notices or take any other action inconsistent with the election made hereby. If
any present or future income tax law of the United States of America or any
state contains provisions similar to those contained in Subchapter K, Chapter 1,
Subtitle A of the Internal Revenue Code of 1986, under which an election similar
to that provided by Section 761 of said Subchapter K is permitted, each PARTY
makes such election or agrees to make such election as may be permitted by such
laws. In making this election, each PARTY states that the income derived by it
from the operations under this Agreement can be adequately determined without
the computation of partnership taxable income.
ARTICLE XXI
CONTRIBUTIONS
21.1 NOTICE OF CONTRIBUTIONS OTHER THAN ADVANCES FOR SALE OF PRODUCTION.
Each PARTY shall promptly notify the other PARTIES of all contributions, which
it may obtain, or is attempting to obtain, concerning the drilling of any well
on the LEASE. Payments received as consideration for entering into a contract
for sale of production from the LEASE, loans and other financing arrangements
shall not be considered contributions for the purposes of the Article. No PARTY
shall release or obligate itself or release information in return for a
contribution from an outside party toward the drilling of a well without prior
written consent of the other PARTICIPATING PARTIES therein.
21.2 CASH CONTRIBUTIONS. In the event a PARTY receives a cash contribution
toward the drilling of a well, said cash contribution shall be paid to OPERATOR
and OPERATOR shall credit the amount thereof to the PARTIES in proportion to
their PARTICIPATING INTEREST.
21.3 ACREAGE CONTRIBUTIONS. In the event a PARTY receives an acreage
contribution toward the drilling of a well, said acreage contribution shall be
shared by each PARTICIPATING PARTY who accepts in proportion to its
PARTICIPATING INTEREST in the well.
ARTICLE XXII
DISPOSITION OF PRODUCTION
22.1 FACILITIES TO TAKE IN KIND. Any PARTY shall have the right, at its
sole risk and expense, to construct FACILITIES for taking its share of
production in kind, provided that such FACILITIES at the time of installation do
not interfere with continuing operations on the LEASE and adequate space is
available therefore.
22.2 RIGHT TO TAKE IN KIND. Each PARTY shall have the right to take in kind
or separately dispose of its share of the oil and gas produced and saved from
the LEASE.
22.3 FAILURE TO TAKE IN KIND. If any Party fails to take in kind or dispose
of its share of the gas, oil and/or condensate produced from a Prospect Area, at
the request of such Party, the Operator will market that Party's share of
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production from the Contract Area ratably with Operator's own production in a
manner maintaining as near as practicable a zero gas imbalance at the end of
each production month. With regard to oil and/or condensate, Operator may either
(a) purchase the non-taking Party's share of the oil and/or condensate
production at the Operator's, or a third party's posted price or, in the absence
of a posted price or a disagreement as to Operator's or the third party's posted
price, at the price no less than the price prevailing in the area for oil and/or
condensate of similar kind subject to adjustments for gravity, quality, and less
transportation to market, or, with regard to gas, oil and/or condensate, (b)
sell such gas, oil and/or condensate to others under the same terms and
conditions as Operator is selling its own share of production (including any
applicable taxes, fees and costs deducted by the purchaser or transporter or
paid to third parties for marketing arrangements and consultation), provided
that if the production is sold to an affiliate of Operator the price received
shall not be less than the price prevailing in the area for gas, oil, or
condensate of the same kind, gravity and quality. All contracts of sale by
Operator of any Party's share of gas, oil, or condensate shall be only for such
reasonable periods of time as are consistent with the minimum needs of the
industry under the circumstances, but in no event shall any contract be for a
period in excess of three (3) months. Proceeds of all sales made by Operator
pursuant to this Section shall be paid to the Parties entitled thereto.
22.4 EXPENSES OF DELIVERY IN KIND. Any third party cost incurred by
OPERATOR in making delivery of any PARTY'S share of gas, oil and condensate, or
disposing of same pursuant to Section 22.3, shall be borne by such PARTY.
22.5 GAS BALANCING PROVISIONS. Attached hereto is Exhibit "E" entitled "Gas
Balancing Agreement", containing an agreement of the PARTIES, which is
incorporated into this Agreement as if copied at length herein.
ARTICLE XXIII
APPLICABLE LAW
23.1 APPLICABLE LAW. This Agreement shall be interpreted according to the
laws of the State of Texas.
ARTICLE XXIV
LAWS, REGULATIONS AND NON-DISCRIMINATION
24.1 LAWS AND REGULATIONS. This Agreement and operations hereunder are
subject to all applicable laws, rules, regulations and orders, and any provision
of the Agreement found to be contrary to or inconsistent with any such law,
rule, regulation or order shall be deemed modified accordingly.
24.2 NON-DISCRIMINATION. In the performance of work under the Agreement,
the PARTIES agree to comply, and OPERATOR shall require each independent
contractor to comply, with the governmental requirements set forth in Exhibit
"D" and with all of the provisions of Section 202(1) to (7), inclusive, of
Executive Order No. 11246, as amended.
ARTICLE XXV
FORCE MAJEURE
25.1 NOTICE. If any PARTY is rendered unable, wholly or in part, by force
majeure to carry out its obligations under this Agreement, other than the
obligation to make money payments, that PARTY shall give to all other PARTIES
prompt written notice of the force majeure with reasonably full particulars
concerning it; thereupon, the obligations of the PARTY giving the notice, so far
as they are affected by the force majeure, shall be suspended during, but no
longer than, the continuance of the force majeure. The affected PARTY shall use
reasonable diligence to remove the force majeure as quickly as possible.
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25.2 STRIKES. The requirement that any force majeure shall be remedied with
all reasonable dispatch shall not require the settlement of strikes.
25.3 FORCE MAJEURE. The term "force majeure" as herein employed shall mean
an act of God, strike, lockout, or other industrial disturbance, act of the
public enemy, war, blockade, public riot, lightning, fire, storm, flood,
explosion, governmental restraint, 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 suspension.
ARTICLE XXVI
SUCCESSORS AND ASSIGNS
26.1 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and inure
to the benefit of the PARTIES and their respective heirs, successors,
representatives and assigns and shall constitute a covenant running with the
LEASE.
26.2 NOTICE OF TRANSFER. Should any PARTY desire to sell, farmout or
otherwise dispose al all or any part of its Working Interest in the Lease, it
shall promptly give written notice to the other PARTIES giving complete
information relative to the proposed disposition. The other PARTIES shall have
the right for a period of fifteen (15) days after receipt of the notice to
attempt to purchase or acquire the interest, which the PARTY proposes to sell,
farmout or otherwise dispose. A transfer of interest hereunder shall not become
effective as to the PARTIES until the first day of the month following delivery
to OPERATOR of an original (or copies thereof) instrument of transfer approved
by the proper governmental authority and conforming to the requirements of this
Section. No such transfer shall relieve the transferring PARTY of any
obligations or liabilities accrued hereunder prior to such effective date.
26.2.1 The Provisions of this Section 26.2 shall not, however, apply to and
it shall not be necessary to obtain the consent of any Party in connection with;
(a) Any mortgage or other pledge, including without limitation
the granting of any lien or security interest and any
assignment of production executed as further security for
the debt secured by any such mortgage or pledge, by a Party
hereto of its interest or any portion thereof in the Lease,
or the Agreement, or any judicial, trustee's or other sales
to foreclose the same;
(b) Any transfer or disposition of the interest of a PARTY
hereto by corporate merger or consolidation or by any sale
or sales of substantially all of its oil and gas properties;
or
(c) Any sale, merger, consolidation or other transfer by a PARTY
hereto of any part of its interest to or with any
"affiliate" (as such term is defined in Regulation C, issued
under the Securities Act of 1933).
(d) Any mortgage, pledge, transfer, sale, merger or any other
disposition enumerated in subparagraphs (a), (b) or (c) of
this Paragraph shall be made expressly subject to this
Agreement.
26.3 RIGHT TO TRANSFER. Subject to the terms and conditions of Section
26.2, a PARTY may sell, transfer or assign all or any part of its interest in
the property or this Agreement without the consent of any other PARTY
24
hereto, provided that:
(a) Any such sale, transfer or assignment shall be made only to a
financially responsible PARTY or PARTIES.
(b) If the original interest of any PARTY is at any time transferred
to two (2) or more transferees, OPERATOR may, at its discretion,
require such transferees to appoint a single trustee with full
authority to receive notices and payments, approve expenditures
and pay the share of costs, which are chargeable against such
transferees.
26.4 ASSIGNMENTS. Each PARTY shall incorporate in any assignment of an
interest in the LEASE a provision that such assignment is subject to this
Agreement. Any assignment, vesting or relinquishment of interest between the
PARTIES shall be with special warranty of title by, through and under the
assignor, but not otherwise, and shall be subject to the terms and conditions of
Section 16.1. Any assignment to a Third Party of a Working Interest herein shall
not be effective as to the Parties until the first day of the month following
the delivery to Operator of a copy of the instrument evidencing the sale or
assignment, approved by the proper governmental authority, and conforming to the
requirements of this Article.
ARTICLE XXVII
TERM
27.1 TERM. This Agreement may be amended only in writing and only by mutual
consent of all PARTIES. This Agreement shall remain in effect so long as the
LEASE shall remain in effect and thereafter until all claims, liabilities and
obligations incurred in operations hereunder have been settled; however, all
property belonging to the PARTIES shall be disposed of and final settlement
shall be made under this Agreement.
ARTICLE XXVIII
AREA OF MUTUAL INTEREST
28.1 AREA OF MUTUAL INTEREST. The PARTIES hereby create an Area of Mutual
Interest ("AMI") identified on Exhibit "A-l" attached hereto and made a part
hereof. This AMI shall remain in force and effect as long as any leases lying
within the AMI are being maintained by the parties hereto. Any acquisition of
any right, title or interest acquired in, to and under any oil or gas lease or
any other interest in oil or gas, including, without limitation, contractual
rights, which confer on the holder thereof the right to share, or acquire the
right to share, in the production or the proceeds of production of oil and gas
within the AMI (the "Acquisition") by a PARTY herein shall be for the mutual
benefit of the PARTIES. Each PARTY shall have the right to participate in any
such Acquisition in the same proportion as such PARTY'S WORKING INTEREST in and
to the LEASE as set forth in Exhibit "A". The PARTY making the Acquisition (the
"Acquiring Party") shall notify each of the other PARTIES in writing within
thirty (30) days of such Acquisition and shall furnish a copy of all executed
agreements pertaining thereto and such title information as the Acquiring PARTY
has, stating the cost of such acquisition or the obligations that must be
assumed in connection therewith. Each of the other PARTIES shall have a period
of fifteen (15) working days (48 hours exclusive of Saturdays, Sundays and legal
holidays in the event that a well is being drilled within the AMI) after receipt
of such notice within
25
which to elect and notify the Acquiring PARTY whether or not it desires to
participate in such Acquisition. Failure to timely respond to the Acquiring
PARTY'S notice or reimburse the Acquiring PARTY for the proportionate share of
the acquired interest shall be deemed an election not to acquire such interest.
Upon election and payment to the Acquiring PARTY of a non-acquiring PARTY'S
share of the cost of such acquisition, such non-acquiring PARTY shall be
entitled to an assignment of its proportionate share in such Acquisition.
If fewer than all PARTIES elect to participate in the Acquisition within
the AMI, the Acquiring PARTY shall inform all PARTIES who have elected to
participate in the Acquisition, in writing, of the elections made. Each PARTY
receiving notice, within forty-eight (48) hours (inclusive of Saturday, Sunday
or legal holidays) after receipt of such notice, shall advise the Acquiring
PARTY of its desire to (a) limit participation to its WORKING INTEREST, or (b)
acquire its proportionate share of the interest of the non-participating
PARTY(IES), or (c) participate for a percentage of the interest of the
non-participating PARTY(IES).
The interest of any PARTY who elects to participate in any acquisition
within the AMI shall be subject to and be burdened by the obligations set forth
on Exhibit "A" with respect to the leases.
ARTICLE XXIX
HEADINGS AND EXECUTION
29.1 TOPICAL HEADINGS. The topical headings used herein are for convenience
only and shall not be construed as having any substantive significance or as
indicating that all of the provisions of this Agreement relating to any topic
are to be found in any particular Section.
29.2 COUNTERPART EXECUTIONS. This Agreement may be signed in counterparts,
and shall be binding upon the PARTIES and upon their successors, representatives
and assigns.
GRYPHON EXPLORATION COMPANY
BY: /s/ Xxxxxxx X. Xxxx
----------------------------------
Xxxxxxx X. Xxxx
Vice President-Land
RIDGEWOOD ENERGY CORPORATION
BY: [Illegible]
----------------------------------
00
XXXXX XX XXXXX
XXXXXX XX XXXXXX
XX THIS ___ day of ___________, 2004, before me appeared Xxxxxxx X. Xxxx, to me
personally known, who, being by me duly sworn, did say that he is the Vice
President - Land for Gryphon Exploration Company and that the foregoing
instrument was signed in behalf of said corporation by authority of its Board of
Directors, and said Xxxxxxx X. Xxxx acknowledges said instrument to be a free
act and deed of said corporation.
-------------------------------------------
Notary Public in and for the State of Texas
STATE OF TEXAS
COUNTY OF
-------
ON THIS____ day of _____________, 2004, before me, to me personally known, who,
being by me duty sworn, did say that he is the _____________ of _____________
and that the foregoing instrument was signed in behalf of said corporation, and
said acknowledges said instrument to be a free act and deed of said corporation.
-------------------------------------------
Notary Public in and for the State of Texas
Notary page to Joint Operating Agreement dated May 25, 2004 covering West
Cameron Area, Block 103.
27
EXHIBIT "A"
Attached to and made a part of that certain Joint Operating Agreement dated
effective May 25, 2004 by and between GRYPHON EXPLORATION COMPANY, as Operator,
and RIDGEWOOD ENERGY CORPORATION, as Non-Operator
OIL AND GAS LEASE:
Oil and Gas Lease dated May 1, 2001, from the United States Department of the
Interior, Minerals Management Service, as Lessor, to Samson Offshore Company and
Gryphon Exploration Company, as Lessees, covering all of Block 103, West Cameron
Area, OCS Leasing Map, Louisiana Map No. 1, containing approximately 5,000
acres, more or less, and bearing Serial Number OCS-G 22511.
PARTICIPANTS AND ADDRESSES:
Gryphon Exploration Company
0000 Xxxxx Xxxxxx, Xxxxx 0000
Xxxxxxx, XX 00000
Attn: Xx. Xxx Xxxxxx
Phone: (000) 000-0000
Fax: (000) 000-0000
Ridgewood Energy Corporation
0000 Xxxxxxxx Xxxxx, Xxxxx 0000
Xxxxxxx, Xxxxx 00000
Attn: Xx. Xxxx Xxxxx
Phone: (000) 000-0000
Fax: (000) 000-0000
WORKING INTEREST
To Casing Point* At Casing Point*
---------------- ----------------
Gryphon Exploration Company 20% 40%
Ridgewood Energy Corporation 80% 60%
--- ---
100% 100%
* As more specifically set forth in that certain Participation Agreement dated
May 25, 2004 between Gryphon Exploration Company and Ridgewood Energy
Corporation
The lease above is burdened by the following overriding royalty interest:
Fairfield 2% of 8/8ths
Gryphon Exploration Company 2% of 8/8ths
28
EXHIBIT "A-1"
Attached to and made a part of that certain Joint Operating Agreement dated
effective May 25, 2004 by and between GRYPHON EXPLORATION COMPANY, as Operator,
and RIDGEWOOD ENERGY CORPORATION, as Non-Operator
The Area of Mutual Interest is comprised of all of Blocks 103 and 104, West
Cameron Area.
29
EXHIBIT "B"
INSURANCE
Attached to and made a part of that certain Joint Operating Agreement dated
effective May 25, 2004 by and between GRYPHON EXPLORATION COMPANY, as Operator,
and RIDGEWOOD ENERGY CORPORATION, as Non-Operator
Operator shall, at all times while conducting operations on the Contract Area
and/or Assigned Premises, carry or cause to be carried insurance for the
following coverage's and in at least the minimum amounts noted.
1. Workers' Compensation and Occupational Disease insurance in accordance
with the statutory requirements of the state in which work is to be
performed, the state in which the Operator, herein "Contractor", or
any of Operator's contractor(s) or sub-contractor(s), employees reside
and the state in which the Contractor is domiciled; Employer's
Liability insurance with limits of not less than $1,000,000. These
coverage's shall include:
a. Protection for liabilities under the Federal Longshoremen's and
Harbor Worker's Compensation Act and the Outer Continental Shelf
Lands Act.
b. Coverage for liability under the Merchant Marine Act of 1920,
commonly known as the Xxxxx Act; the Admiralty Act; and the Death
on the High Seas Act with limits of not less than $1,000,000 per
accident.
c. Protection against liability of employer to provide
transportation, wages, maintenance and cure to maritime employees
and a Voluntary Compensation Endorsement.
d. Coverage amended to provide that a claim In Rem shall be treated
as a claim against the employer.
e. Territorial extension shall cover all work areas.
2. Comprehensive General Liability insurance, written on any occurrence
reported basis with limits of $1,000,000 per occurrence Bodily Injury
and Property Damage, combined single limits, an annual aggregate of no
less than $2,000,000 (if applicable), including the following
coverage's:
a. Premises and Operations coverage's.
b. Independent Contractor's Contingent coverage.
c. Contractual Liability covering liabilities assumed under this
Contract.
d. Products and Completed Operations coverage.
e. Coverage for explosion, collapse and underground resources and
property damage under both Premises/Operations and Contractual
Liability coverage parts, where applicable.
f. Broad Form Property Damage Liability endorsement.
g. Personal Injury Liability.
h. In Rem endorsement.
i. Territorial extension shall cover all work areas.
j. Where applicable, coverage for liability resulting from the
consumption of food prepared or served by contractor or
subcontractor.
k. Watercraft exclusion deleted or Protection & Indemnity provided
as per 4.B.
l. Coverage is provided for "Action Over" suits.
m. Coverage is silent as respects Punitive Damages.
3. Automobile Liability insurance covering owned, hired and non-owned
vehicles with limits of $1,000,000 per occurrence Bodily Injury and
Property Damage combined single limits.
30
TRANSITION ENERGY, LLC 3% WI BPO 2.4% WI APO
000 Xxxx Xxxx - Xxxxx 000
Xxxxxxx, XX 00000
Attn: Xxxxxxx X. Xxxxxxxx
Tax ID#
------------------------
Telephone: 000-000-0000
Fax:
---------------------------
EMAIL: xxxxxxxxx@xxxxxxx.xxx
XXXX PARTNERS, L.P. 5% WI BPO 4% WI APO
000 X. Xxxx Xxxxxx, Xxxxx 000
Xxxxxxx, Xxxxx 00000
Attn: Xxx X. Xxxxxx
Tax ID#
------------------------
Telephone: 000-000-0000
Fax:
---------------------------
EMAIL: xxxxxxxxx@xxxxxx.xxx
EXCESS ENERGY LTD. 5% WI BPO 4% WI APO
00000 Xx. Xxxx'x Xxxx, Xxxxx 000
Xxxxxxx, XX 00000
Attn: Xxxxxx Xxxxxxxxx
Tax ID# 00-0000000
Telephone: 000-000-0000
Fax:
---------------------------
EMAIL: xxxxxxxxxx@xxxxxxx.xxx
4. Where the work described by this Contract involves the use of marine
equipment. Operator will require the contractor to provide the
following insurance:
a. Full Form Hull and Machinery insurance, with coverage equal to
that provided by the American Institute Hull Clauses including
collision liability, with the sister ship clause unamended, with
limits of liability at least equal to the full value of the
vessel and with navigational limitations adequate for Contractor
to perform the contracted work. Where the vessels engage in
towing operations, said insurance shall include full tower's
liability with the sister ship clause unamended.
b. Protection and indemnity insurance coverage in an amount at least
equal to the full value of each vessel employed under the
Contract. Protection and indemnity insurance shall include full
coverage for all crew liabilities if coverage for maritime
employees is not provided under Coverage B, Employers Liability
for Admiralty Jurisdiction.
c. Excess Protection and Indemnity insurance, including Collision
and Tower's (where applicable) Liability in an amount at least
equal to the value of each vessel covered or the difference
between the full value of each vessel and $1,000,000 per
occurrence.
d. Voluntary Removal of Wreck and/or Debris insurance covering
Contractor's operations in an amount of not less than $1,000,000
per occurrence.
All of the marine coverage's cited above shall name Operator and all its
subsidiary and affiliated companies as additional insured's as their interests
may appear, to the extent of contractor's obligations to defend and indemnify
the Parties.
5. Aircraft Liability insurance (for contracts involving use of aircraft
or helicopters) with combined single limit coverage for public
liability, passenger liability and property damage liability of not
less than $5,000,000 covering all owned and non-owned aircraft used by
Contractor in connection with work to be performed.
6. Umbrella Liability insurance written on an occurrence basis with no
claims made features with a minimum combined single limit of
$15,000,000 each occurrence/aggregate where applicable, to be excess
of the coverage's and limits required in 1, 2, 3,4 and 5 above.
7. OPERATOR shall carry or cause to be carried the following coverage's
for the benefit of and at the expense of the Joint Account, however,
proportionate coverage may be carried individually by each NON-
OPERATOR, subject to proper evidence of such proportionate coverage
being provided to Operator at least fifteen (15) days prior to
commencement of operations for the drilling of the initial EXPLORATORY
WELL.
a. Operator's Extra Expense Insurance, including control of well and
redrilling of the well (full restoration redrill), including, but
not limited to, Seepage and Pollution and Containment and
Evacuation Expense with a limit of liability of $30,000,000.
b. Physical Damage and Removal of Wreck Coverage for facilities
hereunder, with limits not less than the replacement value
thereof. Notwithstanding the foregoing, this coverage to be
provided fifteen(15) days prior to placement of such facilities.
31
XXXXX - 1986 - OFFSHORE
Recommended by the Council
of Petroleum Accountants
Societies
EXHIBIT "C"
Attached to and made a part of that certain Joint Operating Agreement dated
effective May 25, 2004 by and between GRYPHON
EXPLORATION COMPANY, as Operator, and
RIDGEWOOD ENERGY CORPORATION, as Non-Operator
ACCOUNTING PROCEDURE
OFFSHORE JOINT OPERATIONS
I. GENERAL PROVISIONS
1. Definitions
"Joint Property" shall mean the real and personal property subject to the
agreement to which this Accounting Procedure is attached.
"Joint Operations" shall mean all operations necessary or proper for the
development, operation, protection and maintenance of the Joint Property.
"Joint Account" shall mean the account showing the charges paid and credits
received in the conduct of the Joint Operations and which are to be shared
by the Parties.
"Operator" shall mean the party designated to conduct the Joint Operations.
"Non-Operators" shall mean the Parties of this agreement other than the
Operator.
"Parties" shall mean Operator and Non-Operators.
"First Level Supervisors" shall mean those employees whose primary function
in Joint Operations is the direct supervision of other employees and/or
contract labor directly employed on the Joint Property in a field operating
capacity.
"Technical Employees" shall mean those employees, professional consultants,
or contract personnel having, special and specific engineering, geological
or other professional skills, and whose primary function in Joint
Operations is the handling of specific operating conditions and problems
for the benefit of the Joint Property.
"Personal Expenses" shall mean travel and other reasonable reimbursable
expenses of Operator's employees or professional consultants.
"Material" shall mean personal property, equipment or supplies acquired or
held for use on the Joint Property.
"Controllable Material" shall mean Material which at the time is so
classified in the Material Classification Manual as most recently
recommended by the Council of Petroleum Accountants Societies.
"Shore Base Facilities" shall mean onshore support facilities that during
drilling, development, maintenance and producing operations provide such
services to the Joint Property as receiving and transshipment point for
supplies, materials and equipment; debarkation point for drilling and
production personnel and services; communication, scheduling and
dispatching center; other associated functions benefiting the Joint
Property.
"Offshore Facilities" shall mean platforms and support systems such as oil
and gas handling facilities, living quarters, offices, shops, cranes,
electrical supply equipment and systems, fuel and water storage and piping,
heliport, marine docking installations, communication facilities,
navigation aids, and other similar facilities necessary in the conduct of
offshore operations.
2. Statement and Xxxxxxxx
Operator shall xxxx Non-Operators on or before the last day of each month
for their proportionate share of the Joint Account for the preceding month.
Such bills will be accompanied by statements which identify the authority
for expenditure, lease or facility, and all charges and credits summarized
by appropriate classifications of investment and expense except that items
of Controllable Material and unusual charges and credits shall be
separately identified and fully described in detail.
3. Advances and Payments by Non-Operators
A. Unless otherwise provided for in the agreement, the Operator may
require the Non-Operators to advance their share of estimated cash
outlays for the succeeding month's operation within fifteen (15) days
after receipt of the billing or by the first day of the month for
which the advance is required, whichever is later. Operator shall
adjust each monthly billing to reflect advances received from the
Non-Operators.
B. Each Non-Operator shall pay its proportion of all bills within fifteen
(15) days after receipt. If payment is not made within such time, the
unpaid balance shall bear interest monthly at the prime rate in effect
at Bank One, Texas, Houston, Texas on the first day of the month in
which delinquency occurs plus 1% or the maximum contract rate
permitted by the applicable usury laws of the jurisdiction in which in
the Joint Property is located, whichever is the lesser, plus
attorney's fees, court costs, and other costs in connection with the
collection of unpaid amounts.
4. Adjustments
Payment of any such bills shall not prejudice the right of any Non-Operator
to protest or question the correctness thereof; provided, however, all
bills and statements rendered to Non-Operators by Operator during any
calendar year shall conclusively be presumed to be true and correct after
twenty-four (24) months following the end of any such calendar year, unless
within the said twenty-four (24) month period a Non-Operator takes written
exception thereto and makes claim on
1
Operator for adjustment. No adjustment favorable to Operator shall be made
unless it is made within the same prescribed period. The provisions of this
paragraph shall not prevent adjustments resulting from a physical inventory
of Controllable Material as provided for in Section V.
5. Audits
A. A Non-Operator, upon notice in writing to Operator and all other
Non-Operators, shall have the right to audit Operator's accounts and
records relating to the Joint Account for any calendar year within the
twenty-four (24, month period following the end of such calendar year;
provided, however, the making of an audit shall not extend the time
for the taking of written exception to and the adjustments of accounts
as provided for in Paragraph 4 of this Section I. Where there are two
or more Non-Operators, the Non-Operators shall make every reasonable
effort to conduct a joint audit in a manner which will result in a
minimum of inconvenience to the Operator. Operator shall bear no
portion of the Non-Operators' audit cost incurred under this paragraph
unless agreed to by the Operator. The audits shall not be conducted
more than once each year without prior approval of Operator, except
upon the resignation or removal of the Operator, and shall be made at
the expense of those Non-Operators approving such audit.
B. The Operator shall reply in writing to an audit report within 180 days
after receipt of such report.
6. Approval By Non-Operators
Where an approval or other agreement of the Parties or Non-Operators is
expressly required under other sections of this Accounting Procedure and if
the agreement to which this Accounting Procedure is attached contains no
contrary provisions in regard thereto, Operator shall notify all
Non-Operators of the Operator's proposal, and the agreement or approval of
a majority in interest of the Non-Operators shall be controlling on all
Non-Operators.
II. DIRECT CHARGES
Operator shall charge the Joint Account with the following items:
1. Rentals and Royalties
Lease rentals and royalties paid by Operator for the Joint Operations.
2. Labor
A. (1) Salaries and wages of Operator's field employees and contract
personnel directly employed on the Joint Property in the conduct
of Joint Operations.
(2) Salaries and wages of Operator's employees or contract personnel
directly employed on Shore Base Facilities or other Offshore
Facilities serving the Joint Property if such costs are charged
under Paragraph 7 of this Section II.
(3) Salaries of First Level Supervisors in the field.
(4) Salaries and wages and fees of Technical Employees or
professional consultants directly employed on the Joint Property
if such charges are excluded from the overhead rates.
(5) Salaries and wages of Technical Employees either temporarily or
permanently assigned to and directly employed in the operation of
the Joint Property if such charges are excluded from the overhead
rates.
B. Operator's cost of holiday, vacation, sickness and disability benefits
and other customary allowances paid to employees whose salaries and
wages are chargeable to the Joint Account under Paragraph 2A of this
Section II. Such costs under this Paragraph 2B may be charged on a
"when and as paid basis" or by "percentage assessment" on the amount
of salaries and wages chargeable to the Joint Account under Paragraph
2A of this Section II. If percentage assessment is used, the rate
shall be based on the Operator's cost experience.
C. Expenditures or contributions made pursuant to assessments imposed by
governmental authority which are applicable to Operator's costs
chargeable to the Joint Account under Paragraphs 2A and 2B of this
Section II.
D. Personal Expenses of those employees whose salaries and wages are
chargeable to the Joint Account under Paragraph 2A of this Section II.
3. Employee Benefits
Operator's current costs of established plans for employees' group life
insurance, hospitalization, pension, retirement, stock purchase, thrift,
bonus, and other benefit plans of a like nature, applicable to Operator's
labor cost chargeable to the Joint Account under Paragraphs 2A and 2B of
this Section II shall be Operator's actual cost not to exceed the percent
most recommended by the Council of Petroleum Accountants Societies.
4. Material
Material purchased or furnished by Operator for use on the Joint Property
as provided under Section IV. Only such Material shall be purchased for or
transferred to the Joint Property as may be required for immediate use and
is reasonably practical and consistent with efficient and economical
operations. The accumulation of surplus stocks shall be avoided.
5. Transportation
Transportation of employees and Material necessary for the Joint Operations
but subject to the following limitations:
A. If Material is moved to the Joint Property from the Operator's
warehouse or other properties, no charge shall be made to the Joint
Account for a distance greater than the distance from the nearest
reliable supply store where like material is normally available or
railway receiving point nearest the Joint Property unless agreed to by
the Parties.
B. If surplus Material is moved to Operator's warehouse or other storage
point, no charge shall be made to the Joint Account for a distance
greater than the distance to the nearest reliable supply store where
like material is normally available, or railway receiving point
nearest the Joint Property unless agreed to by the Parties. No charge
shall be made to the Joint Account for moving Material to other
properties belonging to the Operator, unless agreed to by the Parties.
2
C. In the application of subparagraphs A and B above, the option to
equalize or charge actual trucking cost is available when the actual
charge is $400 or less excluding accessorial charges. The $400 will be
adjusted to the amount most recently recommended by the Council of
Petroleum Accountants Societies.
6. Services
The cost of contract services, equipment and utilities provided by outside
sources, except services excluded by Paragraph 9 of Section II and
Paragraph i, ii, and iii, of Section III. The cost of professional
consultant services and contract services of technical personnel directly
engaged on the Joint Property if such charges are excluded from the
overhead rates. The cost of professional consultant services or contract
services of technical personnel directly engaged in the operation of the
Joint Property shall be charged to the Joint Account if such charges are
excluded from the overhead rates.
7. Equipment and Facilities Furnished By Operator
A. Operator shall charge the Joint Account for use of Operator-owned
equipment and facilities, including Shore Base and/or Offshore
Facilities, at rates commensurate with costs of ownership and
operation. Such rates may include labor, maintenance, repairs, other
operating expense, insurance, taxes, depreciation, and interest on
gross investment less accumulated depreciation not to exceed Ten
percent (10%) per annum. In addition, for platforms only, the rate may
include an element of the estimated cost of platform dismantlement.
Such rates shall not exceed average commercial rates currently
prevailing in the immediate area of the Joint Property.
B. In lieu of charges in paragraph 7A above, Operator may elect to use
average commercial rates prevailing in the immediate area of the Joint
Property. For automotive equipment, Operator may elect to use rates
published by the Petroleum Motor Transport Association.
8. Damages and Losses to Joint Property
All costs or expenses necessary for the repair or replacement of Joint
Property made necessary because of damages or losses incurred by fire,
flood, storm, theft, accident, or other cause, except those resulting from
Operator's gross negligence or willful misconduct. Operator shall furnish
Non-Operator written notice of damages or losses incurred as soon as
practicable after a report thereof has been received by Operator.
9. Legal Expense
Expense of handling, investigating and settling litigation or claims,
discharging of liens, payments of judgements and amounts paid for
settlement of claims incurred in or resulting from operations under the
agreement or necessary to protect or recover the Joint Property, except
that no charge for services of Operator's legal staff or fees or expense of
outside attorneys shall be made unless previously agreed to by the Parties.
All other legal expense is considered to be covered by the overhead
provisions of Section III unless otherwise agreed to by the Parties, except
as provided in Section I, Paragraph 3.
10. Taxes
All taxes of every kind and nature assessed or levied upon or in connection
with the Joint Property, the operation thereof, or the production
therefrom, and which taxes have been paid by the Operator for the benefit
of the Parties. If the ad valorem taxes are based in whole or in part upon
separate valuations of each party's working interest, then notwithstanding
anything to the contrary herein, charges to the Joint Account shall be made
and paid by the Parties hereto in accordance with the tax value generated
by each party's working interest.
11. Insurance
Net premiums paid for insurance required to be carried for the Joint
Operations for the protection of the Parties. In the event Joint Operations
are conducted at offshore locations in which Operator may act as
self-insurer for Workers' Compensation and Employers' Liability, Operator
may include the risk under its self-insurance program in providing coverage
under State and Federal laws and charge the Joint Account at Operator's
cost not to exceed manual rates.
12. Communications
Costs of acquiring, leasing, installing, operating, repairing and
maintaining communication systems, including radio and microwave facilities
between the Joint Property and the Operator's nearest Shore Base Facility.
In the event communication facilities systems serving the Joint Property
are Operator-owned, charges to the Joint Account shall be made as provided
in Paragraph 7 of this Section II.
13. Ecological and Environmental
Costs incurred on the Joint Property as a result of statutory regulations
for archaeological and geophysical surveys relative to identification and
protection of cultural resources and/or other environmental or ecological
surveys as may be required by the Bureau of Land Management or other
regulatory authority. Also, costs to provide or have available pollution
containment and removal equipment plus costs of actual control and cleanup
and resulting responsibilities of oil spills as required by applicable laws
and regulations.
14. Abandonment and Reclamation
Costs incurred for abandonment of the Joint Property, including costs
required by governmental or other regulatory authority.
15. Other Expenditures
Any other expenditure not covered or dealt with in the foregoing provisions
of this Section II, or in Section III and which is of direct benefit to the
Joint Property and is, incurred by the Operator in the necessary and proper
conduct of the Joint Operations.
3
III. OVERHEAD
As compensation for administrative, supervision, office services and
warehousing costs, Operator shall charge the Joint Account in accordance
with this Section III.
Unless otherwise agreed to by the Parties, such charge shall be in lieu of
costs and expenses of all offices and salaries or wages plus applicable
burdens and expenses of all personnel, except those directly chargeable
under Section II. The cost and expense of services from outside sources in
connection with matters of taxation, traffic, accounting or matters before
or involving governmental agencies shall be considered as included in the
overhead rates provided for in this Section III unless such cost and
expense are agreed to by the Parties as a direct charge to the Joint
Account. Costs and fees associated with representation on matters before or
involving governmental affairs shall be a direct charge to the Joint
Account. Costs and fees associated with representation on matters before or
involving governmental affairs shall be a direct charge to the Joint
Account
i. Except as otherwise provided in Paragraph 2 of this Section III, the
salaries, wages and Personal Expenses of Technical Employees and/or
the cost of professional consultant services and contract services of
technical personnel directly employed on the Joint Property:
|_| shall be covered by the overhead rates.
|X| shall not be covered by the overhead rates,
ii. Except as otherwise provided in Paragraph 2 of this Section III, the
salaries, wages and Personal Expenses of Technical Employees and/or
the costs of professional consultant services and contract services of
technical personnel either temporarily or permanently assigned to and
directly employed in the operation of the Joint Property:
|X| shall be covered by the overhead rates.
|_| shall not be covered by the overhead rates.
I. Overhead - Drilling and Producing Operations
As compensation for overhead incurred in connection with drilling and
producing properties, Operator shall charge on either:
|X| Fixed Rate Basis, Paragraph 1A, or
|_| Percentage Basis, Paragraph 1B
A. Overhead - Fixed Rate Basis
(1) Operator shall charge the Joint Account at the following rates
per well per month.
Drilling Well Rate $31,960 (Prorated for less than a full month)
Producing Well Rate $3,196
(2) Application of Overhead - Fixed Rate Basis for Drilling Well Rate
shall be as follows:
(a) Charges for drilling xxxxx shall begin on the date when
drilling or completion equipment arrives on location and
terminate on the date the drilling or completion equipment
moves off location or rig is released, whichever occurs
first, except that no charge shall be made during suspension
of drilling operations for fifteen (15) or more consecutive
calendar days.
(b) Charges for xxxxx undergoing any type of workover or
recompletion for a period of four (4) consecutive work days
or more shall be made at the drilling well rate. Such
charges shall be applied for the period from date workover
operations, with rig or other units used in workover,
commence through date of rig or other unit release, except
that no charge shall be made during suspension of operations
for fifteen (15) or more consecutive calendar days.
(3) Application of Overhead - Fixed Rate Basis for Producing Well
Rate shall be as follows:
(a) An active well either produced or injected into for any
portion of the month shall be considered as a one-well
charge for the entire month.
(b) Each active completion in a multi-completed well in which
production is not commingled down hole shall be considered
as a one-well charge providing each completion is considered
a separate well by the governing regulatory authority.
(c) An inactive gas well shut in because of overproduction or
failure of purchaser to take the production shall be
considered as a one-well charge providing the gas well is
directly connected to a permanent sales outlet.
(d) A one-well charge shall be made for the month in which
plugging and abandonment operations are completed on any
well. This one-well charge shall be made whether or not the
well has produced except when drilling well rate applies.
(e) All other inactive xxxxx (including but not limited to
inactive xxxxx covered by unit allowable, lease allowable,
transferred allowable, etc.) shall not qualify for an
overhead charge.
(4) The well rates shall be adjusted as of the first day of April
each year following the effective date of the agreement to which
this Accounting Procedure is attached. The adjustment shall be
computed by multiplying the rate currently in use by the
percentage increase or decrease in the average weekly earnings of
Crude Petroleum and Gas Production Workers for the last calendar
year compared to the calendar year preceding as shown by the
index of average weekly earnings of Crude Petroleum and Gas
Production Workers as published by the United States Department
of Labor, Bureau of Labor Statistics, or the equivalent Canadian
index as published by Statistics Canada, as applicable. The
adjusted rates shall be the rates currently in use, plus or minus
the computed adjustment.
4
B. Overhead - Percentage Basis
(1) Operator shall charge the Joint Account at the following rates:
(a) Development
___________ Percent (____%) of the cost of Development of the
Joint Property exclusive of costs provided under Paragraph 9 of
Section II and all salvage credits.
(b) Operating
___________________ Percent (_____%) of the cost of Operating the
Joint Property exclusive of costs provided under Paragraphs 1 and
9 of Section II, all salvage credits, the value of injected
substances purchased for secondary recovery and all taxes and
assessments which are levied, assessed and paid upon the mineral
interest in and to the Joint Property.
(2) Application of Overhead - Percentage Basis shall be as follows:
For the purpose of determining charges on a percentage basis
under Paragraph 1B of this Section III, development shall include
all costs in connection with drilling, redrilling, deepening of
any or all xxxxx, and shall also include any remedial operations
requiring a period of five (5) consecutive work days or more on
any or all xxxxx; also, preliminary expenditures necessary in
preparation for drilling and expenditures incurred in abandoning
when the well is not completed as a producer, and original costs
of construction or installation of fixed assets, the expansion of
fixed assets and any other project clearly discernible as a fixed
asset, except Major Construction as defined in Paragraph 2 of
this Section III. All other costs shall be considered as
Operating except that catastrophe costs shall be assessed
overhead as provided in Section III, Paragraph 3.
2. Overhead - Major Construction
To compensate Operator for overhead costs incurred in the construction and
installation of fixed assets, the expansion of fixed assets, and any other
project clearly discernible as a fixed asset required for the development
and operation of the Joint Property, or in the dismantling for abandonment
of platforms and related production facilities, Operator shall either
negotiate a rate prior to the beginning of construction, or shall charge
the Joint Account for overhead based on the following rates for any Major
Construction project in excess of $25,000.00
A. If the Operator absorbs the engineering, design and drafting costs
related to the project:
(1) 6% of total costs if such costs are more than $25,000.00 but less
than $100,000; plus
(2) 4% of total costs in excess of $100,000 but less than $
1,000,000; plus
(3) 2% of total costs in excess of $1,000,000.
B. If the Operator charges engineering, design and drafting costs related
to the project directly to the Joint Account:
(1) 3% of total costs if such costs are more than $25,000.00 but less
than $100,000; plus
(2) 2% of total costs in excess of $100,000 but less than $1,000,000;
plus
(3) 1% of total costs in excess of $1,000,000.
Total cost shall mean the gross cost of any one project. For the purpose of
this paragraph, the component parts of a single project shall not be
treated separately and the cost of drilling and workover xxxxx and
artificial lift equipment shall be excluded.
On each project, Operator shall advise Non-Operator(s) in advance which of
the above options shall apply. In the event of any conflict between the
provisions of this paragraph and those provisions under Section II,
Paragraph 2 or Paragraph 6, the provisions of this paragraph shall govern.
3. Catastrophe Overhead
To compensate Operator for overhead costs incurred in the event of
expenditures resulting from a single occurrence due to oil spill, blowout,
explosion, fire, storm, hurricane, or other catastrophes as agreed to by
the Parties, which are necessary to restore the Joint Property to the
equivalent condition that existed prior to the event causing the
expenditures, Operator shall either negotiate a rate prior to charging the
Joint Account or shall charge the Joint Account for overhead based on the
following rates:
(1) 3% of total costs through $100,000; plus
(2) 2% of total costs in excess of $100,000, but less than
$1,000,000; plus
(3) 1% of total costs in excess of $1,000,000.
Expenditures subject to the overheads above will not be reduced by
insurance recoveries, and no other overhead provisions of this Section III
shall apply.
4. Amendment of Rates
The overhead rates provided for in this Section III may be amended from
time to time only by mutual agreement between the Parties hereto if, in
practice, the rates are found to be insufficient or excessive.
IV. PRICING OF JOINT ACCOUNT MATERIAL PURCHASES, TRANSFERS AND DISPOSITIONS
Operator is responsible for Joint Account Material and shall make proper and
timely charges and credits for all Material movements affecting the Joint
Property. Operator shall provide all Material for use on the Joint Property;
however, at Operator's option, such Material may be supplied by the
Non-Operator. Operator shall make timely disposition of idle and/or surplus
Material, such disposal being made either through sale to Operator or
Non-Operator, division in kind, or sale to outsiders. Operator may purchase, but
shall
5
be under no obligation to purchase, interest of Non-Operators in surplus
condition A or B Material. The disposal of surplus Controllable Material not
purchased by the Operator shall be agreed to by the Parties.
1. Purchases
Material purchased shall be charged at the price paid by Operator after
deduction of all discounts received. In case of Material found to be
defective or returned to vendor for any other reasons, credit shall be
passed to the Joint Account when adjustment has been received by the
Operator.
2. Transfers and Dispositions
Material furnished to the Joint Property and Material transferred from the
Joint Property or disposed of by the Operator unless otherwise agreed to by
the Parties, shall be priced on the following basis exclusive of cash
discounts:
A. New Material (Condition A)
(1) Tubular Goods Other than Line Pipe
(a) Tubular goods, sized 2-3/8 inches OD and larger, except line
pipe, shall be priced at current new prices effective as of
date of movement plus transportation cost using the 80,000
pound carload weight basis to the railway receiving point or
shore based facilities nearest the Joint Property for which
published rail rates for tubular goods exist. If the 80,000
pound rail rate is not offered, the 70,000 pound or 90,000
pound rail rate may be used.
(b) For grades which are special to one mill only, prices shall
be computed at the mill base of that mill plus
transportation cost from that mill to the railway receiving
point or shore based facilities nearest the Joint Property
as provided above in Paragraph 2.A.(l)(a).
(c) Special end finish tubular goods shall be priced at the
lowest published out-of-stock price, f.o.b. Houston, Texas,
plus transportation cost, using Oil Field Haulers
Association interstate 30,000 pound truck rate, to the
railway receiving point or shore based facilities nearest
the Joint Property.
(d) Macaroni tubing (size less than 2-3/8 inch OD) shall be
priced at the lowest published out-of-stock prices f.o.b.
the supplier plus transportation costs, using the Oil Field
Haulers Association interstate truck rate per weight of
tubing transferred, to the railway receiving point or shore
based facilities nearest the Joint Property.
(2) Line Pipe
(a) Line pipe movements (except size 24 inch OD and larger with
walls 3/4 inch and over) 30,000 pounds or more shall be
priced under provisions of tubular goods pricing in
Paragraph A.(l)(a) as provided above.
(b) Line pipe movements (except size 24 inch OD and larger with
walls 3/4 inch and over) less than 30,000 pounds shall be
priced at current new prices effective as of date of
shipment plus 20 percent, plus transportation costs based on
freight rates as set forth under provisions of tubular goods
pricing in Paragraph A.(l)(a) as provided above.
(c) Line pipe 24 inch OD and over and 3/4 inch wall and larger
shall be priced f.o.b. the point of manufacture at current
CEPS prices plus transportation cost to the railway
receiving point nearest the Joint Property.
(d) Line pipe, including fabricated line pipe, drive pipe and
conduit not listed on published price lists shall be priced
at quoted prices plus freight to the railway receiving point
or shore based facilities nearest the Joint Property or at
prices agreed to by the Parties.
(3) Other Material shall be priced at the current new price, in
effect at date of movement, as listed by a reliable supply store
nearest the Joint Property, or point of manufacture, plus
transportation costs, if applicable, to the railway receiving
point or shore based facilities nearest the Joint Property.
(4) Unused new Material, except tubular goods, moved from the Joint
Property shall be priced at the current new price, in effect on
date of movement, as listed by a reliable supply store nearest
the Joint Property, or point of manufacture, plus transportation
costs, if applicable, to the railway receiving point or shore
based facilities nearest the Joint Property. Unused new tubulars
will be priced as provided above in Paragraph 2.A.(l)and(2).
B. Good Used Material (Condition B)
Material in sound and serviceable condition and suitable for reuse
without reconditioning:
(1) Material moved to the Joint Property
At seventy-five percent (75%) of current new price as determined
by Paragraph A.
(2) Material used on and moved from the Joint Property
(a) At seventy-five percent (75%) of current new price as
determined by Paragraph A., if Material was originally
charged to the Joint Account as new Material or
(b) At sixty-five percent (65%) of current new price as
determined by Paragraph A., if Material was originally
charged to the Joint Account as used Material.
(3) Material not used on and moved from the Joint Property
At seventy-five percent (75%) of current new price as determined
by Paragraph A.
The cost of reconditioning, if any, shall be absorbed by the
transferring property.
C. Other Used Material
(1) Condition C
Material which is not in sound and serviceable condition and not
suitable for its original function until after reconditioning
shall be priced at fifty percent (50%) of current new price as
determined by Paragraph A. The cost of reconditioning shall be
charged to the receiving property, provided Condition C value
plus cost of reconditioning does not exceed Condition B value.
6
(2) Condition D
Material, excluding junk, no longer suitable for its original
purpose, but usable for some other purpose shall be priced on a
basis commensurate with its use. Operator may dispose of
Condition D Material under procedures normally used by Operator
without prior approval of Non-Operators.
(a) Casing, tubing, or drill pipe used as line pipe shall be
priced as Grade A and B seamless line pipe of comparable
size and weight. Used casing, tubing or drill pipe utilized
as line pipe shall be priced at used line pipe prices.
(b) Casing, tubing or drill pipe used as higher pressure service
lines than standard line pipe, e.g. power oil lines, shall
be priced under normal pricing procedures for casing,
tubing, or drill pipe. Upset tubular goods shall be priced
on a non-upset basis.
(3) Condition E
Junk shall be priced at prevailing prices. Operator may dispose
of Condition E Material under procedures normally utilized by
Operator without prior approval of Non-Operators.
D. Obsolete Material
Material which is serviceable and usable for its original function but
condition and/or value of such Material is not equivalent to that
which would justify a price as provided above may be specially priced
as agreed to by the Parties. Such price should result in the Joint
Account being charged with the value of the service rendered by such
Material.
E. Pricing Conditions
(1) Loading or unloading costs may be charged to the Joint Account at
the rate of twenty-five (25CENTS) per hundred weight on all
tubular goods movements, in lieu of actual loading or unloading
costs sustained at the stocking point. The above rate shall be
adjusted as of the first day of April each year following January
1, 1985 by the same percentage increase or decrease used to
adjust overhead rates in Section III, Paragraph 1 .A.(4). Each
year, the rate calculated shall be rounded to the nearest cent
and shall be the rate in effect until the first day of April next
year. Such rate shall be published each year by the Council of
Petroleum Accountants Societies.
(2) Material involving erection costs shall be charged at applicable
percentage of the current knocked-down price of new Material.
3. PremiumPrices
Whenever Material is not readily obtainable at published or listed prices
because of national emergencies, strikes or other unusual causes over which
the Operator has no control, the Operator may charge the Joint Account for
the required Material at the Operator's actual cost incurred in providing
such Material, in making it suitable for use, and in moving to the Joint
Property; provided notice in writing is furnished to Non-Operators of the
proposed charge prior to billing Non-Operators for such Material. Each
Non-Operator shall have the right, by so electing and notifying Operator
within ten days after receiving notice from Operator, to furnish in kind
all or part of his share of such Material suitable for use and acceptable
to Operator.
4. Warranty of Material Furnished By Operator
Operator does not warrant the Material furnished. In case of defective
Material, credit shall not be passed to the Joint Account until adjustment
has been received by Operator from the manufacturers or their agents.
V. INVENTORIES
The Operator shall maintain detailed reports of Controllable Material.
1. Periodic Inventories, Notice and Representation
At reasonable intervals, inventories shall be taken by Operator of the
Joint Account Controllable Material. Written notice of intention to take
inventory shall be given by Operator at least thirty (30) days before any
inventory is to begin so that Non-Operators may be represented when any
inventory is taken. Failure of Non-Operators to be represented at an
inventory shall bind Non-Operators to accept the inventory taken by
Operator.
2. Reconciliation and Adjustment of Inventories
Adjustments to the Joint Account resulting from the reconciliation of a
physical inventory shall be made within six months following the taking of
the inventory. Inventory adjustments shall be made by Operator to the Joint
Account for overages and shortages, but, Operator shall be held accountable
only for shortages due to lack of reasonable diligence.
3. Special Inventories
Special inventories may be taken whenever there is any sale, change of
interest, or change of Operator in the Joint Property. It shall be the duty
of the party selling to notify all other Parties as quickly as possible
after the transfer of interest takes place. In such cases, both the seller
and the purchaser shall be governed by such inventory. In cases involving a
change of Operator, all Parties shall be governed by such inventory.
4. Expense of Conducting Inventories
A. The expense of conducting periodic inventories shall not be charged to
the Joint Account unless agreed to by the Parties.
B. The expense of conducting special inventories shall be charged to the
Parties requesting such inventories, except inventories required due
to change of Operator shall be charged to the Joint Account.
7
EXHIBIT "D"
Attached to and made a part of that certain Joint Operating
Agreement dated effective May 25, 2004 by and between
GRYPHON EXPLORATION COMPANY, as Operator, and
RIDGEWOOD ENERGY CORPORATION, as Non-Operator
CERTIFICATION OF NONSEGREGATED FACILITIES
Contractor certifies that it does not maintain or provide for its employees any
segregated facilities at any of its establishments and that it does not permit
its employees to perform their services at any location, under its control,
where segregated facilities are maintained. Contractor certifies further that it
will not maintain or provide for its employees any segregated facilities at any
of its establishments and that it will not permit its employees to perform their
services at any location, under its control, where segregated facilities are
maintained. Contractor agrees that a breach of this certification is a violation
of the Equal Opportunity Clause in any Government contract between Contractor
and Corporation. As used in this certification, the term "segregated facilities"
means any waiting rooms, work areas, rest rooms and wash rooms, restaurants and
other eating areas, time clocks, locker rooms and other storage or dressing
areas, parking lots, drinking fountains, recreation or entertainment areas,
transportation, and housing facilities provided for employees which are
segregated by explicit directive or are in fact segregated on the basis of race,
color, religion, or national origin, because of habit, local customs or
otherwise. Contractor further agrees that (except where it has obtain identical
certifications from proposed subcontractors for specific time periods) it will
obtain identical certifications from proposed subcontractors prior to the award
of subcontracts exceeding $10,000 which are not exempt from the provisions of
the Equal Opportunity Clause; that it will retain such certifications in its
files; and that it will forward the following notice to such proposed
subcontractors (except where the proposed subcontractors have submitted
identical certifications for specific time periods):
NOTICE TO PROSPECTIVE SUBCONTRACTORS OF REQUIREMENT FOR CERTIFICATIONS OF
NONSEGREGATED FACILITIES. A Certification of Non-segregated Facilities, as
required by the May 9, 1967, order on Elimination of Segregated Facilities, by
the Secretary of Labor (32 Fed. Reg. 7439, May 19, 1967), must be submitted
prior to the award of a subcontract exceeding $10,000, which is not exempt from
the provisions of the Equal Opportunity Clause. The certification may be
submitted either for each subcontract or for all subcontracts during a period
(i.e., quarterly, semi-annually or annually). (1968 MAR.) (Note: The penalty for
making false statements in offers is prescribed in 18 U.S.C. 1001.)
Whenever used in the foregoing Section, the term "contractor" refers to each
party to this agreement.
32
Exhibit "E"
GAS BALANCING AGREEMENT
Attached to and made a part of that certain Joint Operating
Agreement dated effective May 25, 2004 by and between
GRYPHON EXPLORATION COMPANY, as Operator, and
RIDGEWOOD ENERGY CORPORATION, as Non-Operator
I. Definitions
A. "Agreement" shall mean this Gas Balancing Agreement.
B. "Balanced" is that condition which occurs when a party hereto has
taken the same percentage of the cumulative volume of Gas production
it is entitled to take pursuant to the terms of the Operating
Agreement.
C. "Gas" includes natural gas produced from a Well that produces Gas Well
Gas, including all constituent parts of such natural gas except liquid
hydrocarbons and condensate recovered by primary separation equipment.
D. "Gas Well Gas" is gas produced from a Well classified as a gas well by
the regulatory body having jurisdiction.
E. "Overproduced" is the status of a party when the percentage of the
cumulative volume of Gas taken by that party exceeds that party's
percentage interest of the volume of cumulative Gas production of all
parties to the Operating Agreement under and pursuant to the terms of
the Operating Agreement.
F. "Underproduced" is the status of a party when the percentage of
cumulative volume of Gas taken by that party is less than that party's
percentage interest of the volume of cumulative Gas production of all
parties to the Operating Agreement under and pursuant to the terms of
said Operating Agreement.
G. "Well" is defined as each well subject to the Operating Agreement that
produces Gas Well Gas. If a single Well is completed in two or more
reservoirs, such Well shall be considered a separate Well with respect
to, but only with respect to, each reservoir from which the Gas
produced is not commingled in the well bore.
II. Application of this Agreement
The parties to the Operating Agreement own the working or operating
interests in the Gas underlying the Contract Area covered by the Operating
Agreement and are entitled to share in the percentages therein stated in
the Operating Agreement.
In accordance with the terms of the Operating Agreement, each party is
responsible for marketing it's share and shall take its full share of Gas
produced from the Contract Area and market or otherwise dispose of same. In
the event a party hereto elects in writing not to take in kind or market
its full share of Gas or has contracted to sell its share of Gas produced
from the Contract Area to a purchaser which, at any time while this
Agreement is in effect, fails to take the share of Gas attributable to the
interest of such party, the terms of this Agreement shall automatically
become effective.
The Operator is responsible for administering the provisions of this Gas
Balancing Agreement and as such shall have the sole option of administering
all reporting of the same for the Parties or retaining the services of
third party professionals for this specific purpose. The costs of such
third party services by Operator shall be considered as included in the
overhead rates. The Operator shall cause deliveries to be made to the Gas
purchasers at such rates as may be required to give effect to the extent
practicable, to be or become Balanced.
The provisions of this agreement shall be applied to the Contract Area,
regardless of the number of xxxxx.
III. Storing and Making Up Gas Production
A. Right to Take and Market Gas
During any periods or periods when any party hereto does not take, has
no market for, or the market of a party is not sufficient to take,
that party's full share of the Gas produced from any Well located on
the Contract Area, or such party's purchaser otherwise fails to take
such party's share of Gas produced from any such Well located on the
Contract Area, resulting in such party becoming Underproduced (such
party being herein referred to as an "Underproduced Party"), the other
party or parties shall be entitled, but not required, to produce from
said Well on the Contract Area (and take or deliver to their
respective purchaser(s)), each month all or a part of that portion of
the allowable Gas production assigned to such Well by the regulatory
body having jurisdiction. Any party so taking or delivering Gas which
results in such party becoming Overproduced is herein referred to as
an "Overproduced Party".
33
Those parties which are capable of taking and/or marketing quantities
of Gas allocable to an Underproduced Party, in the absence of any
other agreement between them, shall each take a share of the Gas
attributed to the Underproduced Party or Parties in the direct
proportion that their respective interests bear to the total interest
of all parties taking Gas which are also considered Overproduced.
All parties hereto shall share in and own the liquid hydrocarbons
recovered from such Gas by primary separation equipment in accordance
with their respective interests and subject to the terms of the
above-described Operating Agreement, whether or not such parties are
actually taking and/or marketing Gas at such time.
B. Making Up Underproduction
Any Underproduced Party shall endeavor to bring its taking of Gas into
a Balanced condition. Upon thirty (30) days prior written notice to
the Operator, any Underproduced Party may thereafter begin taking or
delivering to its purchaser its full share of the Gas produced from a
Well (less any used in operations, vented or lost). To allow for the
recovery of Gas in storage and to balance the Gas account of the
parties in accordance with their respective interests, Underproduced
Party shall be entitled to take or deliver to a purchaser its full
share of Gas produced from such Well (less any used in operations,
vented or lost) plus, (i) for the months of March, April, May, June,
July, August, September and October only of any calendar year during
which this agreement may be in place, an amount up to an additional
fifty percent (50%) of the monthly quantity of Gas attributable to the
Overproduced Party or Parties, or (ii) for the months of November,
December, January and February only of any calendar year or years
during which this agreement may be in place, an amount up to an
additional twenty-five percent (25%) of the monthly quantity of Gas
attributable to the Overproduced Party or Parties. If more than one
Underproduced Party is entitled to take additional Gas, they shall
divide the additional Gas in proportion to their respective
Underproduced accounts. The first Gas made up shall be assumed to be
the first Gas Underproduced.
C. Gas Balance Reporting
Each party taking will promptly provide to the Operator any data
required by the Operator for preparation of the statements required
hereunder. Operator shall not be required to adjust its Gas accounting
statements reflecting a different Gas purchaser until the first day of
the month following the month in which such notice is received by the
Operator. The Operator will maintain appropriate accounting on a
monthly and cumulative basis of the quantities of Gas each party is
entitled to take and/or market and the quantities of Gas taken and/or
marketed by each of the parties to their respective Gas purchasers.
Within ninety (90) days after the end of each producing calendar
month, the Operator shall furnish each party a statement showing the
status of the Overproduced and Underproduced accounts of all parties.
To determine respective volumes of Gas taken by separate gas pipelines
connected to the Well, measurement of Gas for overproduction and
underproduction shall be accomplished by use of sales meters and lease
measurement equipment, which shall be in accordance with AGA
requirements.
Each party to this Agreement agrees that it will not utilize any
information obtained hereunder for any purpose other than implementing
or administering the terms of this Agreement.
D. Royalty and Production Tax
At all times while Gas is produced from the Contract Area, unless
otherwise required by any State or Federal law or regulations, each
party shall pay or cause to be paid all royalty due and payable on the
actual volumes of gas taken for its account. Each party agrees to hold
each other party harmless from any and all claims for royalty payments
asserted by its royalty owners. The term "royalty owner" shall include
owners of royalty, overriding royalties, production payments and
similar interests payable out of production.
Each party producing or taking or delivering Gas to its Gas purchaser
shall pay, or cause to be paid, all production and severance taxes due
on all volumes of Gas actually taken or sold by such party.
IV. Cash Settlement
A. Volume/Value
If, at the permanent termination of production of Gas from a Well
located on the Contract Area, an imbalance exists between the parties,
a cash settlement of the imbalance between the parties relative to
such Well shall be made. The amount of the cash settlement will be
limited to the proceeds actually received by the Overproduced Party or
Parties at the time of overproduction, less transportation and
applicable treating charges and production and severance taxes paid on
such overproduction. Royalty shall only be deducted from such proceeds
attributable to the overproduction if actually paid to royalty owners
by the Overproduced Party or Parties. No interest shall be added to
any cash settlement hereunder. If there is more than one Overproduced
Party, the cash settlement shall be based on a weighted average of the
proceeds actually received as above described by all Overproduced
Parties.
34
B. Collection and Distribution
Operator shall provide to all parties hereto within sixty (60) days of
permanent determination of Gas production a final accounting of the
Gas balance. Overproduced Parties, within thirty (30) days of receipt
of the final accounting of the Gas balance, shall pay their respective
shares of the above described cash settlement to the Underproduced
Parties in that proportion that each such Underproduced Party's volume
of gas in storage bears to the total of all Underproduced Parties'
volumes of gas in storage.
V. Miscellaneous
A. Term
This Agreement shall remain in force and effect as long as the
Operating Agreement to which it is attached remains in force and
effect, and thereafter until the Gas balance accounts between the
parties are settled in full, and shall inure to the benefit of and be
binding upon the parties hereto, their heirs, successors, legal
representatives and assigns.
B. Expenses
Nothing herein shall change or affect each party's obligations to pay
its proportionate share of all costs and liabilities incurred in
operations on the Contract Area as its share thereof is set forth in
the Operating Agreement to which this Agreement is attached.
C. Well Tests
Nothing herein shall be construed to deny any party the right, from
time to time, to produce and take or deliver to its Gas purchaser up
to one hundred percent (100%) of the entire Well stream to meet the
deliverability test required by its Gas purchaser, provided that such
tests are reasonable in light of overall industry standards.
D. Monitoring of Takes of Production
Each party shall, at all times, use its best efforts to regulate its
takes and deliveries from each Well on said Contract Area so that no
Well will be shut-in for overproducing the allowable assigned thereto
by the regulatory body having jurisdiction. Additionally, each party
shall communicate, as necessary, the contents of this agreement to its
respective Gas purchaser(s) or transporter(s) and shall monitor its
deliveries to its respective Gas purchaser(s) or transporter(s) so as
to ensure to the greatest extent practicable that its Gas purchaser(s)
or transporter(s) does not take Gas in excess of the quantities
provided for herein.
E. Liquefiable Hydrocarbons Not Covered Under Agreement
The parties shall share proportionately in and own all liquid
hydrocarbons recovered with the gas by lease equipment in accordance
with their respective interests.
35
Gryphon Exploration Co.
0000 Xxxxx, Xxxxx 0000
Xxxxxxx, Xxxxx 00000
(000) 000-0000
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INITIALS - DATE
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LAND DEPT. [Illegible]
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FIN. DEPT. [Illegible]
-----------
LEGAL DEPT.
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EXPL. DEPT. [Illegible]
-----------
EXHIBIT "C" ENGR. DEPT. [Illegible]
Attached to and made a part of that certain -----------
Participation Agreement dated May 25, 2004
by and between Gryphon Exploration EXEC. DEPT. [Illegible]
Company and Ridgewood Energy Corporation -----------
-----------------------
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Operator: Gryphon Exploration Co. AFE No.: D04003 Property Number: WC10300001
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Lease: OCS-G 22511 Well No.: 1 Blk/Prospect: West Cameron Block 103
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PTD: 17,500' TVD/MD Field: Wildcat Formation Objective: Marg A
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State: Louisiana CO / PH: Federal Offshore Contractor: TODCO 203
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Location: PSL: 4,500' FNL & 566' FEL of WC Xxx 000 (X= 1,449,918 & Y= 330,258) [Illegible]
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Remarks:
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This request for AFE will serve to document the turnkey costs required by ADTI to drill a straight hole to 17,500' TVD/ MD.
It is anticipated a 7-5/8" drilling liner will be run before reaching turnkey depth. Completion costs will be presented under
a seperate AFE after final evaluation.
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Intangible Drilling Cost
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Acct Line Drilling Pre-Completion Total Well
Code Item Rate Days Days Cost Cost Cost
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215 101 Location Permit & Surveys $ 10,000 $ 10,000
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215 103 Cuttings Disposal, Boat Cleaning $ 0
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215 201 Rig Move (Demobilization only) $ 150,000 $ 150,000
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215 301 Drilling Rig (Daywork, Labor, Meals, etc) 0 $ 0
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215 304 Primary Turnkey to 17,500' TVD/MD $6,934,000 $6,934,000
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215 304 Run 7-5/8" drilling liner before reaching PTD $ 985,000 $ 985,000
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215 401 Fuel, Lubes and Water 0 $ 0
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215 404 Cementing (Materials, Equip & Personnel) $ 0
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404 P&A Cement (Materials, Equip & Personnel) $ 303,000 $ 303,000
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215 405 Open Hole Cement Plugs $ 0
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215 406 Bits, Stabilizers, Reamers $ 0
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215 407 Misc. Materials & Supplies $ 0
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215 501 Marine Transportation (Crew & Supply Boats) 0 $ 0
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215 502 Air Transportation $ 0
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215 503 Land Transportation 0 $ 0
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215 504 Diving Services $ 0
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215 507 Optional Open Hole Logging Services $ 0
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507 LWD Formation Evaluation $ 0
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215 508 Mud Logging Services 0 $ 0
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215 509 Correction Runs @ $152,000 $ 152,000 $ 152,000
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215 510 Fishing Tools & Pipe Recovery $ 0
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510 Coil Tbg & Nitrogen Services $ 0
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510 Pipe Cutting for P&A $ 0
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215 511 Rental Equipment 0 $ 0
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215 512 Surface Well Test Equipment & Personnel $ 0
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512 Sub-Surface Well Test Equipment & Personnel $ 0
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215 513 Pipe Inspection (Casing, Drill Pipe, BHA's) $ 0
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215 514 Casing Tools & Hammer Services $ 0
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215 515 Contract Labor $ 0
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215 516 Shorebase & Dock Facilities 0 $ 0
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215 517 Communications $ 23,000 $ 23,000
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215 518 Well Control Insurance @ $20.40 /ft @ 50% $ 179,000 $ 179,000
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215 602 Engineering / On Site Logging $ 0
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215 603 Well Site Supervision Services $900 75 $ 67,500 $ 67,500
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603 Dispatching Services 0 $ 0
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215 701 Overhead (XXXXX) $ 75,000 $ 75,000
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215 $ 0
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215 999 Contingency (10.0% of IDC's) $ 888,000 $ 888,000
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Subtotal - Intangible Drilling Cost $9,766,500 $0 $9,766,500
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Tangible Drilling Cost
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Csg Cost
Footage ($/ft)
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225 801 Drive Pipe: 30" x 1" 340 $0.00 $ 0
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225 802 Conductor Casing: 18-5/8" 800 $0.00 $ 0
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225 803 Surface Casing: 13-3/8" 4,500 $0.00 $ 0
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225 804 Intermediate Casing: 9-5/8" 13,800 $0.00 $ 0
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225 805 Drilling Liner: 7-5/8" 16,000 $0.00 $ 0
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225 805 Drilling Liner: $ 0
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225 808 Liner Hanger & Liner Top Packers $ 0
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225 901 Casing Head, Hanger & Valves $ 0
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901 Casing Spool(s), Hanger(s) & Valves(s) $ 0
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225 902 Mudline Suspension Equipment $ 0
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225 904 Access Equip (Nav-Aids, Boat Landing, etc) $ 0
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225 P/F Conductor Guide for 30" $ 0
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225 999 Contingency (15% of TDC's) $ 0
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Subtotal - Tangible Drilling Cost $ 0 $0 $ 0
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Total Dry Hole Cost (Tangible & Intangible) $9,766,500 $0 $9,766,500
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Working Interest Working Interest Owner Share
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Working Interest Owner Dry Hole (BCP) Completion (ACP) Dry Hole Completion Total Producer
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Gryphon Exploration 20.00000% 40.00000% $1,953,300.00 $0.00 $1,953,300.00
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Ridgewood Energy Corporation 80.00000% 60.00000% $7,813,200.00 $0.00 $7,813,200.00
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$ 0.00
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$ 0.00
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$ 0.00
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Prepared Xxxx X. Xxxxxxxx Joint Interest Approval
By /s/ Xxxx X. Xxxxxxxx Date: 6/7/2004 Company:
---------------------------
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Approved Approved
By /s/ [Illegible] Date: 6/7/2004 By
---------------------------
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Note: It is recognized that the amounts herein are estimated only and approval
of the authorization shall extend to the actual costs incurred in
conducting the operations specified, whether more or less than that herein
set out.
