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EXHIBIT 10.36
UNITED STATES OF AMERICA
OFFSHORE LOUISIANA
BAY XXXXXXXX BLOCK 2 FIELD
FARMOUT AGREEMENT
THIS AGREEMENT, entered into effective August 15, 1998, is by and between
Chevron U.S.A. Inc., a Pennsylvania corporation ("Farmoutor"), and
Xxxxxx-Xxxxx, L.L.C., a Delaware limited liability company
("Farmoutee"). The signers of this Agreement are hereinafter sometimes
referred to individually as "Party" and collectively as "Parties".
WITNESSETH:
For and in consideration of the mutual advantages and benefits accruing to the
Parties hereto, the sufficiency of which is hereby acknowledged, the Parties
hereby agree that this document (this "Agreement") shall constitute the
agreement between Farmoutor and Farmoutee concerning the development of the
Farmout Area:
1. EXHIBITS
Attached hereto, made a part hereof and incorporated herein by
reference are certain Exhibits, as follows:
1.1. EXHIBIT A
Farmout Leases
1.2. EXHIBIT X-0
Xxxxxxx xx Xxxxxxx Xxxx 0 (OCS)
1.3. EXHIBIT X-0
Xxxxxxx xx Xxxxxxx Xxxx 0 (#60 Prospect in State of
Louisiana Offshore)
1.4. EXHIBIT A-3
Outline of Farmout Area 3 (1500' B in State of Louisiana
Offshore)
1.5. EXHIBIT X-0
Xxxxxxx xx Xxxxxxx Xxxx 0 [Exploration Prospect (OCS)]
1.6. EXHIBIT A-5
Outline of Conditional Area (OCS)
1.7. EXHIBIT A-6
Outline of Excluded 4900' Reservoir "D" Area
1.8 EXHIBIT A-7
Outline of Excluded 7300' Reservoir "00" Area
1.9. EXHIBIT A-8
Outline of Excluded Area Down to 7600' Lower Sand (OCS)
1.10. EXHIBIT A-9
Xxxxx Available to Farmoutee
1.11. EXHIBIT B
Geological and Well Informational Requirements
1.12. EXHIBIT C
Tax Partnership Provisions
1.13. EXHIBIT D
Executive Order 11246
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1.14. EXHIBIT E
Form of Assignment
1.15. CONFLICTS
In the event of conflict between the text of this Agreement
and any of the Exhibits or any of the agreements to be
entered into pursuant to this Agreement, this Agreement
shall control.
2. DEFINITIONS
2.1. ADVERSE EVENTS
Deaths, injuries, illnesses, accidents, fires, explosions,
ruptures, spills, pollution, instances of non-compliance, and
incurred damages.
2.2. CONDITIONAL AREA
The area of Lease OCS 0166 within the bold, black outline on
Exhibit A-5.
2.3. CONTRACT FEES
Subject to the further terms and limitations of Section 7,
the Contract Fees are as follows:
2.3.1. $5,000 per calendar month per well, subject to annual
XXXXX adjustment pursuant to Section 7, for Contract
Operations of each Farmout Well producing from the
Earned Areas for all or any portion of such
applicable month.
2.3.2. $500 per calendar month per well, subject to annual
XXXXX adjustment pursuant to Section 7, for Contract
Operations of each Farmout Well completed in the
Earned Areas by or on behalf of Farmoutee pursuant to
this Agreement, but non-producing for all of such
applicable month, and not plugged and abandoned
(meaning the well itself is not abandoned and
permanent cement surface plugs have not been set)
prior to the end of such month, except that in the
case of either (i) a Farmout Well on or from a
surface structure hereafter installed to serve that
well or (ii) a Farmout Well on or from a single well
caisson, said fee shall apply until that well is
permanently plugged and abandoned, the surface
location is cleared, and the surface structure or
well caisson is removed.
2.4. CONTRACT OPERATIONS
Subject to the further terms and limitations of Section 7, the
Contract Operations are (i) normal and routine operations and
minor maintenance, but limited to normal and routine
operations and minor maintenance typically and routinely
performed by Farmoutor's operating personnel in the field in a
mutually agreeable manner as would a prudent operator, of each
Farmout Well and associated production equipment after
completion and hook up for production by or on behalf of
Farmoutee including, but not limited to, routine choke
changes, routine safety checks, routine well tests, routine
well gauging, related gas and liquid meter calibrations, and
related field metering services (LESS AND EXCEPT any downhole
well work and LESS AND EXCEPT any wellhead work other than
said routine choke changes and gauging), (ii) marine and air
transportation for Farmoutor's operations personnel performing
the normal and routine operations and minor maintenance
itemized in item (i) above, (iii) administrative work
typically done in the field, and (iv) field supervision of
items (i) through (iii).
2.5. EFFECTIVE DATE
The date first written hereinabove.
2.6. EARNED AREAS
Those portions of the Farmout Area in which Farmoutee earns
or has earned an interest pursuant to Section 5.1, as
follows:
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2.6.1. Depths and areas in Farmout Area 1 and Farmout Area 2
(except depths and areas governed by Farmout
Workovers):
That portion of each reservoir penetrated by, behind
pipe in and within 750' of that certain portion of
any well bore of any Earning Well drilled, or
sidetracked, and completed for production in paying
quantities by or on behalf of Farmoutee pursuant to
and meeting the earning requirements of Section 5.1
IF AND ONLY IF the entirety of said portion of said
reservoir does not encroach on the Excluded Portions
of Reservoirs.
2.6.2. Depths and areas in Farmout Area 3 (except depths and
areas governed by Farmout Workovers):
All of Farmout Area 3 IF AND ONLY IF an Earning Well
is drilled and completed for production in paying
quantities from Farmout Area 3 by or on behalf of
Farmoutee pursuant to and meeting the earning
requirements of Section 5.1 BUT LESS AND EXCEPT the
Excluded Portions of Reservoirs.
2.6.3. Depths and areas in Farmout Area 4, the Exploration
Prospect (except depths and areas governed by Farmout
Workovers):
That portion of each reservoir penetrated by, behind
pipe in and within 1,100' of that certain portion of
any well bore drilled, or sidetracked, and completed
for production in paying quantities by or on behalf
of Farmoutee pursuant to and meeting the earning
requirements of Section 5.1 IF AND ONLY IF the
entirety of said portion of said reservoir does not
encroach on any Excluded Portions of Reservoirs.
2.6.4. Depths and areas governed by Farmout Workovers:
That portion of each reservoir penetrated by and
within 750' of the well bore of any Earning Well
completed for production in paying quantities from
such reservoir through a Farmout Workover by or on
behalf of Farmoutee pursuant to and meeting the
earning requirements of Section 5.1 IF AND ONLY IF
the entirety of said portion of said reservoir does
not encroach on any Excluded Portions of Reservoirs.
2.7. EARNING XXXXX
Those Obligation Xxxxx and those Optional Xxxxx, if any, under
which Farmoutee earns an interest in the Earned Areas, if any,
pursuant to and meeting the requirements of Section 5.1.
2.8. EXCLUDED PORTIONS OF RESERVOIRS
2.8.1. That portion of each reservoir penetrated by, behind
pipe at or above the completion(s) and within certain
distances of any well bore producing from such
reservoir as of the Effective Date as follows: Said
certain distances are 750' in depths above the base
of the 9800' Sand in the Farmout Area, except that a
250' distance around La. State Lease 1367 Well # 18
shall be excluded from this Agreement in Farmout Area
3 whether or not La. State Lease 1367 Well # 18 is
producing as of the Effective Date. (There are no
xxxxx producing below the base of the 9800' Sand in
the Farmout Area as of the Effective Date.)
2.8.2. That portion of each reservoir penetrated by, behind
pipe at, above or below the completion(s) in and
within certain distances of any well bore which
produces from such reservoir pursuant to an operation
in which Farmoutee elects not to participate or is
deemed to have elected not to participate under
Section 4.1.3.1, as follows: Said certain distances
are 750' in depths above the base of the 9800' Sand
in the Farmout Area and
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1,100' in depths below the 9800' Sand in the Farmout
Area, LESS AND EXCEPT any previously Earned Areas
above, at or below the base of the 9800' Sand.
2.9. EXCLUDED XXXXX
All xxxxx except (i) any new xxxxx drilled by or on behalf of
Farmoutee under the terms of this Agreement, (ii) any xxxxx
proposed by Farmoutor or a third party under Section 4.1.3,
(iii) any xxxxx listed on Exhibit A-9, and (iv) any well or
xxxxx which Farmoutor agrees to make available to Farmoutee by
a subsequent written agreement amending this Agreement.
2.10. EXPLORATION PROSPECT
The area contained within the bold, black outline on Exhibit
A-4 INSOFAR AND ONLY INSOFAR AS the stratigraphic equivalent
of depths below the base of the 9800' Sand.
2.11. EXPLORATION WELL
That certain new well to be drilled or sidetracked to
evaluate the Exploration Prospect down to lesser of the base
of the 11800' Sand, salt or impenetrables under the
Geological and Well Informational Requirements attached
hereto.
2.12. FARMOUT LEASES
The oil and gas leases listed and described on Exhibit A.
2.13. FARMOUT AREA
Farmout Area 1, Farmout Area 2, Farmout Area 3 and Farmout
Area 4, collectively, LESS AND EXCEPT the Excluded Portions
of Reservoirs and the Excluded Xxxxx.
2.14. FARMOUT AREA 1
The area contained within the bold, black outline on Exhibit
A-1 LESS AND EXCEPT the following:
2.14.1. The Exploration Prospect;
2.14.2. The stratigraphic portion of Leases OCS 369 and
370 within the bold, black outline on Exhibit A-6
from the top of the 4900' Sand to the base of the
4900' Sand;
2.14.3. The stratigraphic portion of Lease OCS 369 within
the bold, black outline on Exhibit A-7 from the
top of the 7300' Sand to the base of the 7300'
Sand; and
2.14.4. The stratigraphic portion of Lease OCS 0386
within the bold, black outline on Exhibit A-8
from the surface of the earth to the base of the
7600' Lower Sand.
2.15. XXXXXXX XXXX 0
The stratigraphic portion of State of Louisiana Lease 1366
within the bold, black outline on Exhibit A-2 from the top to
the bottom of all sands seen in La. State Lease 1366 Well 49
between 3516' MD and 4726' MD.
2.16. XXXXXXX XXXX 0
The stratigraphic portion of State of Louisiana Lease 1367
within the bold, black outline on Exhibit A-3 from the top
of the 1500' Sand to the base of the 1500' Sand.
2.17. FARMOUT AREA 4
The Exploration Prospect.
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2.18. FARMOUT XXXXX
All xxxxx in the Farmout Area which are drilled, sidetracked,
deepened, reworked, completed or recompleted by or on behalf
of Farmoutee under the terms of this Agreement or in which
other downhole operations are performed by or on behalf of
Farmoutee to commence or restore production under the terms
of this Agreement, LESS AND EXCEPT the Excluded Xxxxx.
2.19. FARMOUT WORKOVERS
Major Operations or Minor Operations consisting of re-entries
for the purposes of conducting workovers, recompletions and
other downhole operations performed by or on behalf of
Farmoutee to commence or restore production in original or
sidetrack portions of well bores INSOFAR AND ONLY INSOFAR AS
those portions thereof which are or were drilled by Farmoutor
or another operator, but excluding any portions thereof
drilled by or on behalf of Farmoutee pursuant to this
Agreement.
2.20. GAS RESERVOIR BELOW 9800' SAND
Any reservoir which produces with a gas-oil ratio of 10,000
scf/bbl or greater upon first production.
2.21. INDEX PRICE
The daily average, per calendar month, of the posted price
(unadjusted for gravity, other quality or transportation of
any kind) for South Louisiana Sweet (Onshore) oil at 40.0
degree API gravity offered by Chevron Products Company as
published in Crude Oil Price Bulletins from the Crude
Marketing Division of Chevron Logistics and Trading.
2.22. MAJOR OPERATION
Any Well Operation actually costing $500,000 or more as
accounted for under the Accounting Procedure attached to the
Operating Agreement and performed by or on behalf of
Farmoutee pursuant to this Agreement whether the Well
Operation ends successfully with a Farmout Well completed
through hook-up for production in paying quantities or by
termination of Farmoutee's diligent, but unsuccessful,
attempt to complete a Farmout Well through hook-up for
production in paying quantities; provided, however,
recompletion of OCS 0390 Well # X-l ST downhole of its
existing completion on the Effective Date for less than
$500,000 by or on behalf of Farmoutee pursuant to this
Agreement shall qualify as a Major Operation if said
recompletion is successfully placed on production in paying
quantities.
2.23. MINOR OPERATION
2.23.1. Any Well Operation estimated to cost $200,000 or
more (but less than $500,000) as accounted for
under the Accounting Procedure attached to the
Operating Agreement and conducted by or on
behalf of Farmoutee in an Optional Well; and
2.23.2. Any Well Operation actually costing less than
$200,000 conducted by or on behalf of Farmoutee
in an Optional Well as accounted for under the
Accounting Procedure attached to the Operating
Agreement; provided, however, that Farmoutor has
furnished its prior written approval for said
operation to proceed as a Well Operation in an
attempt to earn an interest pursuant to Section
5.1.
2.24. OBLIGATION XXXXX
Eight (8) Major Operations to evaluate the Farmout Area
under the Geological and Well Informational Requirements
attached hereto. Subject to Section 4.2, said eight (8)
Major Operations shall consist of the following:
2.24.1. That certain OCS 0370 Well # N-5 ST to be
sidetracked and drilled to the 7900' Sand at the
approximate location of X = 2,373,673, Y =
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139,685 and expected depth of 4,944' subsea, and
on down to the lesser of 6,200' subsea, cap rock,
salt or impenetrables at the approximate location
of X = 2,373,480, Y = 139,513.
2.24.2. One (1) new well or sidetrack of Farmoutee's
choice in Farmout Area 1 excluding depths below
the 9800' Sand, excluding all of Lease OCS 0166,
excluding all of any "participating area" (as per
the Operating Agreement) which includes any
portion of Lease OCS 0166, and excluding all of
the Conditional Area,
2.24.3. Three (3) other Major Operations of Farmoutee's
choice in Farmout Area 1 excluding depths below
the 9800' Sand, excluding all of Lease OCS 0166,
excluding all of any "participating area" (as per
the Operating Agreement) which includes any
portion of Lease OCS 0166, and excluding all of
the Conditional Area,
2.24.4. The # 60 Prospect Well in Farmout Area 2 or a new
well or sidetrack of Farmoutee's choice in Farmout
Area I or Farmout Area 4 excluding all of Lease
OCS 0166, excluding all of any "participating
area" (as per the Operating Agreement) which
includes any portion of Lease OCS 0166, and
excluding all of the Conditional Area,
2.24.5. The 1500 B Prospect Well in Farmout Area 3, and
2.24.6. The Exploration Well in Farmout Area 4 excluding
all of Lease OCS 0166, excluding all of any
"participating area" (as per the Operating
Agreement) which includes any portion of Lease OCS
0166, and excluding all of the Conditional Area.
2.25. OPTIONAL XXXXX
All Farmout Xxxxx on which Farmoutee elects to and does
perform (whether by or on behalf of Farmoutee) Well Operations
in the Farmout Area pursuant to Section 4.3, including but not
limited to Farmout Workovers.
2.26. OPERATING AGREEMENT
As provided for in Section 5.10.
2.27. PAYOUT
That point in time when gross production proceeds received by
Farmoutee from or attributable to its operating rights
interest or Working interest in a particular Earning Well,
less its share of operating expenses, lessor's royalties,
additional tax royalties, processing fees, monthly well
contract operating fees, transportation fees, severance taxes
and production taxes (unless reimbursed to Farmoutee by the
purchaser of such production) equals Farmoutee's cost
(including but not limited to drilling, testing, completing,
sidetracking, reworking, equipping and connecting) of said
well, and its cost of producing said Farmout Well, including
its cost associated with all facilities, equipment,
connections and pipelines.
2.28. PROCESSING
Subject to the further terms and limitations of Section 7, the
Processing is the field handling and field processing of
Farmoutee's production from the Farmout Area through
Farmoutor's facilities, equipment and pipelines existing as of
the Effective Date in or adjacent to the Farmout Area upstream
of delivery to Chevron Pipe Line Company or other regulated
common carrier pipelines and facilities, and without any
additions, modifications or improvements thereto, all in a
manner similar to the processing of Farmoutor's production
from the Farmout Area through same as of the Effective Date.
The Processing does not include any hydrocarbon or produced
water transportation for which a tariff does or should apply.
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2.29. PROCESSING FEES
Subject to the further terms and limitations of Section 7
(including but not limited to subject to annual XXXXX
adjustment pursuant to Section 7), the Processing Fees are as
follows:
2.29.1. $.10/MSCFG for Farmoutee's share of high pressure
natural gas production volumes processed through
Farmoutor's existing or future facilities and
$.15/MSCFG for Farmoutee's share of all low
pressure natural gas requiring compression and
processed through Farmoutor's existing or future
facilities. Farmoutor's share of such high and low
pressure natural gas volumes shall include, but
not be limited to, Farmoutee's allocated share of
gas lift gas, fuel and flare processed by the
Processing through Farmoutor's existing or future
facilities.
2.29.2. $.40/barrel for Farmoutee's share of all liquid
hydrocarbons processed by the Processing through
Farmoutor's existing or future facilities; and
2.29.3. $.10/barrel of Farmoutee's share of water
processed by the Processing through Farmoutor's
existing or future facilities.
2.30. SUBSEQUENT WELL OPERATIONS
Well Operations (except Farmout Workovers) (i) conducted in
Earning Xxxxx after completion and hook up for production in
paying quantities or (ii) conducted in one (1) or more other
Farmout Xxxxx to further explore and/or develop any Earned Area
after Farmoutee has earned an interest in said Earned Area.
2.31. SUBSEQUENT WORKOVERS
Those Subsequent Well Operations consisting of re-entries for
the purposes of conducting workovers, recompletions and other
downhole operations to commence or restore production in
original or sidetrack portions of well bores INSOFAR AND ONLY
INSOFAR AS those portions thereof which are or were drilled by
or on behalf of Farmoutee under the terms of this Agreement.
2.32. TERMS FOR CONTRACT OPERATIONS AND PROCESSING
As set forth in Section 7.
2.33. WELL OPERATIONS
All drilling, sidetracking, deepening, reworking, completing,
recompleting and other downhole operations performed by or on
behalf of Farmoutee to commence or restore production in well
bores of Farmout Xxxxx under the terms of this Agreement.
2.34. 1500 B PROSPECT WELL
That certain new horizontal well which is to be drilled to and
into Farmout Area 3 to evaluate same under the Geological and
Well Informational Requirements attached hereto.
2.35. 1500' SAND
That certain sand seen in La. State Lease 1367 Well #18 between
1674' MD and 1940' MD.
2.35. 4900' SAND
That certain sand seen in OCS 0369 Well # 23 ST1 between 5495'
MD and 5580' MD.
2.36. 7300' SAND
That certain sand seen in OCS 0369 Well # CG-73 between 7586'
MD and 7703' MD.
2.37. 7600' LOWER SAND
That certain sand seen in OCS 0386 Well #SD-17 ST3 between
8065' MD and at 8108' MD.
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2.38. 7900' SAND
That certain 7900' Sand as seen in OCS 0370 Well # K-6 between
6910' MD and 6978' MD.
2.39. 9800' SAND
That certain sand seen in OCS 0387 Well # U-1 between 9,860'
MD and 9874' MD, in OCS 0392 Well # 21 between 13246' MD and
13368' MD, in OCS 0000 Xxxx # XX-0 between 11831' MD and 11926'
MD, and in OCS 0392 Well # X-x between 11174' MD and 11214' MD.
2.40. 11800' SAND
That certain sand seen in Well OCS 0392 # Y-28 ST between
14658' MD and 14794' MD.
2.41. # 60 PROSPECT WELL
That certain La. State Lease 1366 Well #60 which is to be
sidetracked and drilled to and into Farmout Area 2 to evaluate
same, under the Geological and Well Informational Requirements
attached hereto, down to the lesser of the base of the deepest
sand included in Farmout Area 2, salt or impenetrables.
3. TRANSFER OF RIGHTS DURING FARMOUTEE'S WELL OPERATIONS
3.1. During any time that Farmoutee is engaged in Well Operations
in any Farmout Well on the Farmout Area pursuant to the terms
of this Agreement, Farmoutee shall own, and Farmoutor hereby
transfers to Farmoutee, all of Farmoutor's right, title and
interest in and to the operating rights in each such well and
its appurtenances, if any, and except any proportionate share
of such Well Operations in which Farmoutor has elected to
participate under the terms of this Agreement, and Farmoutee
shall have exclusive charge, control, and supervision of such
well during such Well Operations subject, however, to any
proposals or elections which any participants therein, whether
Farmoutor and/or other participants, therein have the right to
make.
3.2. Upon completion of each such Well Operation for which
Farmoutor transferred operating rights to Farmoutee pursuant
to Section 3.1, Farmoutee shall thereupon be deemed to have
re-transferred to Farmoutor, and Farmoutor will thereupon once
again own, all right, title, and interest in and to the
operating rights interest in such Farmout Well and its
appurtenances, if any, which were transferred by Farmoutor to
Farmoutee pursuant to Sections 3.1 or 3.3 except those
operating rights and portions thereof earned by Farmoutee
pursuant to Section 5.1.
3.3. In order to accommodate the efforts of Farmoutee to perform
Well Operations in each Farmout Well, Farmoutee shall
prepare, obtain all necessary executions and approvals of and
file all the necessary forms with the Minerals Management
Service ("MMS") [or with the pertinent regulatory agency(ies)
of the State of Louisiana in the case of Farmout Area 2 and
Farmout Area 3] in advance (i) for Farmoutee to conduct the
Well Operations in said well as the operator of record with
the MMS [or with the pertinent regulatory agency(ies) of the
State of Louisiana in the case of Farmout Area 2 and Farmout
Area 3] and (ii) for Farmoutor to be designated or
redesignated as operator of record with the MMS [or with the
pertinent regulatory agency(ies) of the State of Louisiana in
the case of Farmout Area 2 and Farmout Area 3] upon
Farmoutee's completion of the Well Operations in said well;
provided, however, that Farmoutor shall provide Farmoutee with
Farmoutor's execution of such forms upon presentation by
Farmoutee for Farmoutor's execution and that Farmoutee shall
be responsible for acquiring any and all executions thereof
as necessary from Farmoutor's co-owners.
3.4. The operator (whether Farmoutor, Farmoutee or a successor to
either) of each operation performed pursuant to this Agreement
shall be required to hold, shall
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assure it holds and shall hold all necessary authority to, and
acquires all right and permit(s) necessary to conduct each
such operation, including approvals from any and all third
party co-owners, prior to and during any time it engages in
each such operation and said operator shall comply with all
applicable regulatory bonding requirements prior to and during
any time it engages in each such operation.
4. XXXXX
4.1. AFEs FOR OBLIGATIONS XXXXX AND OPTIONAL XXXXX
4.1.1. At least twenty (20) days [or forty-eight (48) hours
if a drilling rig is on location accumulating standby
charges] prior to commencement of each Well Operation
proposed by Farmoutee for an Obligation Well or an
Optional Well, Farmoutee shall make a prospect
presentation to Farmoutor and present Farmoutor with
a written AFE with full details of the scope of work,
well path, objectives, proposed drilling schedule and
estimated total cost for said Well Operation.
Notwithstanding the foregoing, upon or prior to
signing this Agreement, Farmoutee shall present or
shall have presented to Farmoutor a written AFE with
the details of the scope of work, well path,
objectives, proposed drilling schedule and estimated
total cost for each Well Operation for Obligation
Well(s) which Farmoutee proposes to commence within
twenty (20) days of the Effective Date.
For any Well Operation in any Obligation Well or
Optional Well by or on behalf of Farmoutee on Lease
OCS 0166 or within any "participating area" (as per
the Operating Agreement) which includes any portion
of Lease OCS 0166, Farmoutee shall perform all of the
operator's duties and responsibilities towards
Farmoutor's co-owners in Lease OCS 0166 under the
Operating Agreement including, but not limited to,
the AFE provisions and other provisions in Articles
VI. VII., VIII., IX., and XVI. of the Operating
Agreement. Upon proposing the first AFE proposal to
each of Farmoutor's co-owners in Lease OCS 0166
pursuant to the foregoing, Farmoutee shall give each
of Farmoutor's co-owners in Lease OCS 0166 a
reasonable opportunity to farmout its interest in
Lease OCS 0166 to Farmoutee on the same terms
applicable to farmout of Farmoutor's interest therein
to Farmoutee under this Agreement except, of course,
that there would not necessarily be any Obligation
Xxxxx in such a farmout by any of Farmoutor's
co-owners in. Lease OCS 0166 and that the Farmout
Area of such a farmout by any of Farmoutor's
co-owners in Lease OCS 0166 would not necessarily
exceed the area of Lease OCS 0166 and any
"participating area" (as per the Operating Agreement)
which includes any portion of Lease OCS 0166.
4.1.2. For each AFE proposed by Farmoutee under Section
4.1.1, (i) Farmoutee shall consider any concerns or
objections of Farmoutor as to the scope of work, well
path, objectives, proposed drilling schedule or
estimated total cost and Farmoutee shall not
unreasonably refuse to make changes to resolve or
mitigate such concerns or objections as long as
Farmoutee anticipates no additional cost, risk,
liability, or expense in Farmoutee's sole opinion on
a case by case basis, and (ii) Farmoutor shall have
the option, AFE by AFE, (a) to elect to participate
therein at up to 25% (or up to 45% if any objective
of the operation contemplated by the AFE is in depths
below the 9800'S and in the Farmout Area) of
Farmoutor's interest, in which case, Farmoutee's
participation therein under Section 4.2 or 4.3,
whichever is applicable, shall be the balance of
Farmoutor's interest, or (b) to elect to have
Farmoutee participate to the full extent of
Farmoutor's interest therein under Section 4.2 or
4.3, whichever is applicable. Farmoutor shall have
twenty (20) days [or forty-eight (48) hours if a
drilling rig is on location accumulating standby
charges] after AFE receipt [or until commencement of
the Well Operations for Obligations Xxxxx proposed to
commence within twenty (20) days of the Effective
Date] to
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provide Farmoutee with Farmoutor's written election
with respect to each such AFE. In the event that
Farmoutor fails to provide Farmoutee with Farmoutor's
written election within the required period,
Farmoutee shall participate to the full extent of
Farmoutor's interest therein under Section 4.2 or
4.3, whichever is applicable.
4.1.3. Subject to the terms hereof, Farmoutor shall have the
independent right, at all times, to propose drilling,
sidetracking, deepening, reworking, completing,
recompleting and other downhole operations in any
well or xxxxx to explore, develop and/or produce the
Farmout Area. In the event that Farmoutor (or a third
party by, through or under Farmoutor or owning
interests in the Farmout Area and having the right to
do so) proposes any AFE or AFEs for any such
operations which are to and actually commence between
the Effective Date and the termination of Farmoutee's
rights in all or the directly relevant portion of the
Farmout Area pursuant to 4.3.1.6, 4.3.1.7, 4.3.1.8
and/or 4.3.1.9, Farmoutor shall provide Farmoutee
with written notice of the details thereof, including
but not limited to a copy of the AFE and certain
terms shall apply as follows:
4.1.3.1.
Farmoutee shall have the option, AFE by
AFE, (i) to elect to participate therein
under Section 4.3 at 75% (or 55% if any
objective of the operation contemplated
by the AFE is in depths below the
9800'Sand or more if Farmoutor so elects
under 4.1.3.2) of Farmoutor's interest,
or (ii) to elect not to participate
therein. Farmoutee shall have twenty (20)
days [forty-eight (48) hours if a
drilling rig is on location accumulating
standby charges; or ten (10) days for any
proposed Well Operation on Lease OCS 0166
or within any "participating area" (as
per the Operating Agreement) which
includes any portion of Leases OCS 0164,
0165 or 0166] after AFE receipt to
provide Farmoutor with Farmoutee's
written election with respect to each
such AFE. In the event that Farmoutee
fails to provide Farmoutor with
Farmoutee's written election within the
required period, Farmoutee shall be
deemed to have elected not to participate
therein.
4.1.3.2. For each AFE in which Farmoutee elects to
participate under Section 4.1.3.1 above,
Farmoutor shall have the option (i) to
elect to participate therein at up to
25% (or up to 45% if any objective of the
operation contemplated by the AFE is in
depths below the 9800'Sand) of
Farmoutor's interest, in which case
Farmoutee's participation therein under
Section 4.2 or 4.3, whichever is
applicable, shall be the balance of
Farmoutor's interest, or (ii) to elect to
have Farmoutee participate in all of
Farmoutor's interest therein under
Section 4.2 or 4.3, whichever is
applicable. Farmoutor shall have twenty
(20) days [forty-eight (48) hours if a
drilling rig is on location accumulating
standby charges; or ten (10) days for any
proposed Well Operation on Lease OCS 0166
or within any "participating area" (as
per the Operating Agreement) which
includes any portion of Leases OCS 0164,
0165 or 0166] after receipt of Farmoutee
election under 4.1.3.1 above to provide
Farmoutee with Farmoutor's written
election with respect to said AFE. In the
event that Farmoutee has timely notified
Farmoutor that Farmoutee elects to
participate under Section 4.1.3.1 above
and Farmoutor fails to provide Farmoutee
with Farmoutor's written election within
the required period, Farmoutee shall
participate to the full extent of
Farmoutor's interest therein under
Section 4.2 or 4.3, whichever is
applicable.
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4.1.3.3. In the event that Farmoutee elects not
to or is deemed to have elected not to
participate in an AFE pursuant to
Section 4.1.3.1 above, the operation
contemplated by said AFE may proceed
(if it proceeds) without participation
by Farmoutee. Farmoutee shall have no
right to earn any interest in the
Farmout Area pursuant to said
operation or in any well drilled or
sidetracked under said AFE, and
Farmoutor shall have the option to
non-consent the AFE if proposed by a
third party or to participate in the
operation whether proposed by
Farmoutor or a third party. Any
election or deemed election by
Farmoutee not to participate in an
operation under an AFE pursuant to
Section 4.1.3.1 above shall be limited
to only that operation and shall not
require Farmoutee to forfeit any
rights Farmoutee may have previously
earned.
4.2. OBLIGATION XXXXX
Farmoutee hereby obligates itself to (i) diligently perform
(within a period of one (1) year after the Effective Date,
in a xxxxxxx like manner as a reasonably prudent operator
and whether through successful completion of an Obligation
Well hooked-up for production in paying quantities or by
termination of Farmoutee's diligent, but unsuccessful,
attempt to complete an Obligation Well through hook-up for
production in paying quantities) all eight (8) of the Major
Operations set forth in the definition of the Obligation
Xxxxx subject to the further requirements of this Section
4.2.
4.2.1. On or before September 1,1998, Farmoutee (or
Farmoutor on behalf of Farmoutee pursuant to
Section 4.6) shall commence the Major Operation for
the Obligation Well specified in Section 2.24.1,
and Farmoutee shall thereafter continuously
perform the Major Operations for the Obligation
Xxxxx continuously one (1) after another in the
order of Farmoutee's choosing with no more than
thirty (30) days delay for drilling rig and/or
equipment moves between each such Major Operation
for the Obligation Xxxxx; provided, however,
Farmoutee shall commence, on or before September 1,
1998, simultaneously performance of two (2) Major
Operations at a time for the Obligation Xxxxx, and
further provided that Farmoutee shall thereafter
simultaneously and continuously perform said
Major Operations two (2) at a time until all of the
Major Operations have been performed for the
Obligation Xxxxx.
4.2.2. Farmoutee shall be allowed no more than thirty (30)
days delay for drilling rig and/or equipment moves
between each Major Operation for the Obligation
Xxxxx under the single continuous Well Operations
requirement pursuant to Section 4.2.1 and the
simultaneous dual continuous Well Operations
requirement pursuant to Section 4.2.1.
4.2.3. The foregoing time requirements of Section 4.2 for
commencing, continuously performing and completing,
the Major Operations for Obligation Xxxxx are
subject to drilling rig and/or equipment
availability at market rates and permitting, both
of which Farmoutee shall pursue with all reasonable
diligence.
4.2.4. The foregoing time requirements of Section 4.2 for
commencing, continuously performing and completing,
the Major Operations for Obligation Xxxxx shall be
temporarily suspended during any periods of force
majeure (including but not limited any delays
caused by Farmoutor's co-owners in Lease OCS 0166
or any actual or attempted removal of Farmoutor as
operator under the Operating Agreement) or
mechanical problems which prevent compliance
therewith provided that Farmoutee pursues
elimination of such force majeure and mechanical
problems with all reasonable diligence, and further
provided that Farmoutee shall not be
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12
required to settle any labor dispute against its best
interests in order to eliminate said force majeure.
4.2.5. In the event that the Index Price falls to $11.00 or
less per barrel prior to Farmoutee having fulfilled its
obligation to perform any or all of the Major
Operations for the Obligation Xxxxx, certain terms and
conditions shall apply as follows:
4.2.5.1. Farmoutee shall have the right to notify
Farmoutor in writing that Farmoutee elects
to thereby terminate its rights to earn any
further interests pursuant to this Agreement
and its rights to perform any further Major
Operations and Minor Operations in
Obligation Xxxxx and Optional Xxxxx provided
the Index Price for the current or prior
calendar month is $11.00 or less per barrel
at the time the termination notice is
furnished to Farmoutor.
4.2.5.2. Farmoutee shall have the right to suspend
operations on, and the foregoing time
requirements of Sections 4.2 for commencing,
continuously performing and completing, the
Major Operations for Obligation Xxxxx during
all or any part of a calendar month if the
Index Price is $11.00 or less per barrel for
that calendar month or for the prior
calendar month; provided, however, (i) that
Farmoutee furnishes Farmoutor with prior
written notice of each such suspension, (ii)
that no such suspension shall exceed six (6)
continuous calendar months, and (iii) that
the one (1) year period within which to
perform all eight (8) Major Operations for
Obligation Xxxxx shall not be extended
beyond three (3) years after the Effective
Date. On or before the end of each such
suspension period, Farmoutee shall either
(i) elect to and recommence Major Operations
for Obligation Xxxxx subject to the time
requirements of Sections 4.2.1, 4.2.2, 4.2.3
and 4.2.4 (except as to the suspension
period) and so notify Farmoutor in writing
or (ii) notify Farmoutor in writing that
Farmoutee elects to thereby terminate its
rights to thereafter earn any additional
interests pursuant to this Agreement and its
rights to thereafter perform any Major
Operations and Minor Operations in
Obligation Xxxxx and Optional Xxxxx.
4.2.5.3. Farmoutee shall be relieved of and
released from any and all unfulfilled
obligation to perform Major Operations for
the Obligation Xxxxx provided that Farmoutee
provides Farmoutor with timely termination
notice pursuant to and has otherwise
substantially met the material requirements
of Section 4.2.5.1 or 4.2.5.2 and further
provided that Farmoutee has otherwise
substantially complied with the material
terms of Section 4.2, 4.2.1, 4.2.2, 4.2.3,
and 4.2.4 and all other material terms of
this Agreement through the point of
suspension under 4.2.5.2, if applicable, and
through the point of termination under
Section 4.2.5.1 or 4.2.5.2, whichever is
applicable.
4.2.6. Farmoutee's rights and obligations to perform any
unfulfilled Major Operations for Obligations Xxxxx
shall terminate upon the earlier of (i) Farmoutor's
receipt of termination notice from Farmoutee
pursuant to Section 4.2.5.1 or 4.2.5.2 or (ii) any
substantial failure of Farmoutee, through no fault
of Farmoutor, to timely comply with the material
requirements of the foregoing provisions of Section
4.2 through 4.2.5.2 (inclusive). In the event of
such termination, Farmoutee shall be obligated to
pay, upon receipt of invoice from Farmoutor, certain
liquidated damages to Farmoutor for each unfulfilled
(whether all or part thereof) Major Operation for an
Obligation Well except any from
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13
which Farmoutee has been relieved and released
pursuant to Section 4.2.5.3. Said certain liquidated
damages are as follows:
No. of Unfulfilled Liquidated Total
Major Operations Damages Liquidated
For Obligation Xxxxx Per Well Damages
-------------------- ---------- ----------
8 $ 300,000 $ 2,400,000
7 $ 300,000 $ 2,100,000
6 $ 200,000 $ 1,200,000
5 $ 200,000 $ 1,000,000
4 $ 150,000 $ 600,000
3 $ 150,000 $ 450,000
2 $ 150,000 $ 300,000
1 $ 150,000 $ 150,000
0 $ 0 $ 0
The requirement for payment of liquidated damages as
provided for hereinabove shall become null and void
and of no force an effect if Farmoutor sells all of
its right, title and interest in and to the Farmout
Area prior to the earlier of (i) Farmoutor's receipt
of termination notice from Farmoutee pursuant to
Section 4.2.5.1 or 4.2.5.2 or (ii) any substantial
failure of Farmoutee, through no fault of Farmoutor,
to timely comply with the material requirements of
the foregoing provisions of Section 4.2 through
4.2.5.2 (inclusive).
4.3. OPTIONAL XXXXX
4.3.1. Provided that certain requirements are met as
hereafter provided in this Section 4.3.1, Farmoutee
shall have the rights and options to perform Major
Operations, Minor Operations and Farmout Workovers
in (i) both Farmout Area 1 and Farmout Area 2 for a
period not to exceed three (3) years after the
Effective Date, (ii) Farmout Area 3 for a period not
to exceed one (1) year after the Effective Date, and
(iii) Farmout Area 4 for a period not to exceed
three (3) years after the Effective Date. Said
certain requirements are as follows:
4.3.1.1. At least one (1) Major Operation in an
Optional Well must be commenced on or
prior to sixty (60) days after
completion of all the Major Operations
for the Obligation Xxxxx; provided,
however, no Optional Well shall be
commenced to depths below the 9800' Sand
in the Farmout Area within ninety (90)
days after first production from the
first Farmout Well (whether the
Exploration Well or an Optional Well, if
any) which is or will be completed for
production in paying quantities from
depths below the 9800' Sand in the
Farmout Area, nor shall Farmoutor be
required to make a decision with respect
to participation in any Optional Well to
depths below the 9800' Sand in the
Farmout Area within said period.
4.3.1.2. Commencing sixty (60) days after
completion of all the Major Operations
for Obligation Xxxxx, Major Operations
in Optional Xxxxx must be performed
continuously with no more than thirty
(30) days delay for drilling rig and/or
equipment moves between each Major
Operation in an Optional Well and the
next Major Operation in an Optional
Well. Notwithstanding the foregoing,
Farmoutee shall be entitled to one (1)
sixty (60) day delay between Major
Operations in Optional Xxxxx each time
that the four (4) most recent
consecutive Major Operations have been
performed without any delay except
drilling rig and/or equipment moves
between the said most recent four (4) or
more consecutive Major Operations in
Optional Xxxxx.
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4.3.1.3. The time requirements for commencing and
continuously performing Major Operations
for Optional Xxxxx as provided in
Sections 4.3.1.1 and 4.3.1.2 are subject
to drilling rig and/or equipment
availability at market rates and
permitting, both of which Farmoutee
shall pursue with all reasonable
diligence.
4.3.1.4. The time requirements for commencing
and continuously performing Major
Operations for Optional Xxxxx as
provided in Sections 4.3.1.1 and 4.3.1.2
shall be temporarily suspended during
any periods of force majeure (including
but not limited any delays caused by
Farmoutor's co-owners in Lease OCS 0166
or any actual or attempted removal of
Farmoutor as operator under the
Operating Agreement) or mechanical
problems which prevent compliance
therewith provided that Farmoutee
pursues elimination of such force
majeure and mechanical problems with all
reasonable diligence, and further
provided that Farmoutee shall not be
required to settle any labor dispute
against its best interests in order to
eliminate said force majeure.
4.3.1.5. Notwithstanding the terms of Section
4.3.1.3 and 4.3.1.4, no time requirement
for commencing or continuously
performing Major Operations for Optional
Xxxxx on a timely basis as provided in
Sections 4.3.1.1 and 4.3.1.2 shall be
extended more than ninety (90) days for
any reason without Farmoutor's express
written consent which shall not be
unreasonably withheld.
4.3.1.6. Farmoutee's rights and options to
perform Major Operations, Minor
Operations and Farmout Workovers in
Optional Xxxxx shall terminate in depths
above the base of the 9800' Sand in
Farmout Area 1 upon the earlier of (i)
termination of Farmoutor's rights
pursuant to Section 4.2.6, (ii) any
substantial failure, through no fault of
Farmoutor, to timely comply with the
material requirements of Sections 4.3.1
through 4.3.1.5 (inclusive), or (iii)
the end of that certain three (3) year
period which shall commence on the
Effective Date.
4.3.1.7. Farmoutee's rights and options to
perform Major Operations, Minor
Operations and Farmout Workovers in
Optional Xxxxx shall terminate in
Farmout Area 2 upon the earlier of (i)
termination of Farmoutor's rights
pursuant to Section 4.2.6, (ii) any
substantial failure, through no fault of
Farmoutor, to timely comply with the
material requirements of Sections 4.3.1
through 4.3.1.5 (inclusive), (iii) the
end of that certain three (3) year
period which shall commence on the
Effective Date, or (iv) any failure,
through no fault of Farmoutor, of
Farmoutee to earn an operating rights
interest in Earned Areas in at least
some portion of Farmout Area 2 within a
period not to exceed six (6) months
after the Effective Date; provided,
however, Farmoutee's rights and options
to perform Major Operations, Minor
Operations and Farmout Workovers in
Optional Xxxxx shall terminate in
non-producing and undeveloped portions
of Farmout Area 2 upon the earlier of
any occurrence of any of items (i)
through (iv) (inclusive) or sixty (60)
days (or sooner if needed by Farmoutor
to satisfy the State of Louisiana) after
Farmoutee's receipt of notice from
Farmoutor that the State of Louisiana
has requested drilling on or release of
non-producing or undeveloped portions of
Louisiana State Lease 1367, except of
course, if Farmoutee commits to,
commences and drills a well on
non-producing or o undeveloped portions
of Farmout
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15
Area 2 within the time necessary to
satisfy that request from the State of
Louisiana.
4.3.1.8. Farmoutee's rights and options to
perform Major Operations, Minor
Operations and Farmout Workovers in
Optional Xxxxx shall terminate in
Farmout Area 3 upon the earlier of (i)
termination of Farmoutor's rights
pursuant to Section 4.2.6, (ii) any
substantial failure, through no fault of
Farmoutor, to timely comply with the
material requirements of Sections 4.3.1
through 4.3.1.5 (inclusive), or (iii)
the end of that certain one (1) year
period which shall commence on the
Effective Date; provided, however,
Farmoutee's rights and options to
perform Major Operations, Minor
Operations and Farmout Workovers in
Optional Xxxxx shall terminate in
non-producing and undeveloped portions
of Farmout Area 2 upon the earlier of
any occurrence of any of items (i)
through (iv) (inclusive) or sixty (60)
days (or sooner if needed by Farmoutor
to satisfy the State of Louisiana) after
Farmoutee's receipt of notice from
Farmoutor that the State of Louisiana
has requested drilling on or release of
non-producing or undeveloped portions of
Louisiana State Lease 1366, except of
course, if Farmoutee commits to,
commences and drills a well on
non-producing or undeveloped portions of
Farmout Area 2 within the time necessary
to satisfy that request from the State
of Louisiana.
4.3.1.9. Farmoutee's rights and options to
perform Major Operations, Minor
Operations and Farmout Workovers in
Optional Xxxxx shall terminate in both
Farmout Area 4 and in depths below the
9800' Sand in Farmout Area 1 upon the
earlier (i) termination of Farmoutor's
rights pursuant to Section 4.2.6, (ii)
any substantial failure, through no
fault of Farmoutor, to timely comply
with the material requirements of
Section 4.3.1 through 4.3.1.5
(inclusive), (iii) the end of that
certain three (3) year period which
shall commence on the Effective Date, or
(iv) any failure, through no fault of
Farmoutor, to drill (or sidetrack) and
log Farmout Xxxxx to and into the
Exploration Prospect or depths below the
9800' Sand in Farmout Area 1 by or on
behalf of Farmoutee pursuant to this
Agreement with no more than a one (1)
year delay between release of the
drilling rig from one (1) such well to
and into the Exploration Prospect or
depths below the 9800' Sand in Farmout
Area 1 and commencement of the drilling
or sidetracking of the next such well to
and into the Exploration Prospect or
depths below the 9800' Sand in Farmout
Area 1.
Notwithstanding the provisions of this
Section 4.3.1.9, if Farmoutee has timely
performed all of the eight (8) Major
Operations for all of the Obligations
Xxxxx, and if Farmoutee is in
substantial compliance with the material
requirements of Section 4.3.1 through
4.3.1.5 and the other terms of this
Agreement, but wishes to discontinue
continuous operations pursuant to
Section 4.3.1 through 4.3.5
(inclusive), and yet maintain its rights
and options to thereafter perform Major
Operations in Optional Xxxxx in Farmout
Area 4 and in depths below the 9800'
Sand in Farmout Area 1 for a period not
to exceed three (3) years after the
Effective Date, and if Farmoutee so
notifies Farmoutor in writing in advance
of any lapse in meeting the continuous
operations requirements of Sections
4.3.1 through 4.3.5 (inclusive),
Farmoutee may maintain its rights and
options to perform Major Operations in
Optional Xxxxx in Farmout Area 4 and in
depths below the
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16
9800' Sand in Farmout Area 1 for a period
not to exceed three (3) years after the
Effective Date by drilling (or
sidetracking) and logging Farmout Xxxxx to
and into the Exploration Prospect or
depths below the 9800' Sand in Farmout
Area 1 by or on behalf of Farmoutee
pursuant to this Agreement with no more
than a six (6) month delay between release
of the drilling rig from one (1) such well
to and into the Exploration Prospect or
depths below the 9800' Sand in Farmout
Area 1 and commencement of the drilling or
sidetracking of the next such well to and
into the Exploration Prospect or depths
below the 9800' Sand in Farmout Area 1,
subject to (i) drilling rig and/or
equipment availability at market rates and
permitting, both of which Farmoutee shall
pursue with all reasonable diligence, and
(ii) force majeure (including but not
limited any delays caused by Farmoutor's
co-owners in Lease OCS 0166) or mechanical
problems which prevent timely operations;
provided, however, (i) that Farmoutee
pursues elimination of any such force
majeure and mechanical problems with all
reasonable diligence, (ii) that Farmoutee
shall not be required to settle any labor
dispute against its best interests in
order to eliminate any such force majeure,
(iii) that the six (6) month maximum time
between such operations shall not be
extended more than ninety (90) days for
any reason without Farmoutor's express
written consent which shall not be
unreasonably withheld, and (iv) that
Farmoutee's rights and options to perform
Major Operations in Optional Xxxxx shall
terminate in both Farmout Area 4 and in
depths below the 9800' Sand in Farmout
Area I upon, the earlier of any
substantial failure, through no fault of
Farmoutor, to timely comply with the
material requirements of this second,
unnumbered paragraph of Section 4.3.1.9 or
the end of that certain three (3) year
period which shall commence on the
Effective Date.
4.3.2. FARMOUT WORKOVERS
Notwithstanding the terms of Section 4.3.1 above,
either Party (or a third party by, through or under
Farmoutor or owning interests in the Farmout Area and
having the right to do so) may propose a Farmout
Workover in any well as a Well Operation in an
Optional Well any time (whether before or after
Payout) after Farmoutee has previously earned an
interest in such well pursuant to a prior Well
Operation under and meeting the requirements of
Section 5.1, and Farmoutee shall have a continuing
right to participate in and perform any Farmout
Workover in such a well as a Well Operation in an
Optional Well until the sooner of permanent plug and
abandonment of such well or Farmoutee's proposal or
approval that such well be permanently plugged and
abandoned.
4.4. FARMOUTEE'S WELL OPERATIONS
4.4.1. Farmoutee's Well Operations (including but not
limited to the related well hook-up for production
and flow back of completion fluids and spent
acid) conducted pursuant to this Agreement shall
be diligently conducted as would a reasonably
prudent operator and in accordance with mutually
acceptable written procedures which Farmoutee
shall prepare and submit to Farmoutor at least ten
(10) days prior to commencement of any such
operations.
4.4.2. Farmoutee shall plan, design, obtain all permits
for and perform (i) all Well Operations in Farmout
Xxxxx pursuant to this Agreement, (ii) all hook-up
(including but not limited to all related
facility, structural, equipment, pipeline or
flowline work) required to place all such xxxxx on
production through to Farmoutor's processing
facilities as
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17
designated by Farmoutor well by well, and (iii)
all flow back of completion fluids and spent acids
from each such well. In accomplishing said
hook-up, Farmoutor's existing pipelines and
facilities upstream of said processing facilities
shall be used to the extent acceptable to both
Parties and modifications and/or improvements to
Farmoutor's existing pipelines and facilities
upstream of said processing facilities shall be
performed to the extent needed to hook-up the
xxxxx for production through to said processing
facilities in a manner acceptable to both Parties.
4.4.3. Except for Well Operations in xxxxx listed on
Exhibit A-9, Well Operations by or on behalf of
Farmoutee may not be conducted on any of
Farmoutor's structures or in any Excluded Well
without the prior written consent of Farmoutor
which shall not be unreasonably withheld.
4.4.4. Upon specific written request from Farmoutee,
Farmoutor shall provide information to Farmoutee
as to those reservoirs for which portions are
considered behind pipe as Excluded Portions of
Reservoirs under Section 2.8.2. Farmoutee shall
limit any such request to the minimum number of
specified xxxxx for which such information is
reasonably needed by Farmoutee at the time of
each request.
4.4.5. To the extent that Farmoutee anticipates no
additional cost, risk, liability, expense or
inconvenience in Farmoutee's sole opinion on a
case by case basis, Farmoutee agrees to use
certain drilling rigs specified by Farmoutor
during gaps in Farmoutor's drilling schedule if
Farmoutor makes same available to Farmoutee in
order to fill such gaps.
4.5. FARMOUTOR'S WELL OPERATIONS
In the event that Farmoutee provides Farmoutor with formal
written notice that Farmoutee desires for Farmoutor to
perform certain Well Operations (including but not limited to
the related well hook-up for production and flow back of
completion fluids and spent acid) on behalf of Farmoutee,
Farmoutor shall have the option to perform same on behalf of
Farmoutee (and on Farmoutor's own behalf to the extent of any
participation therein by Farmoutor pursuant to Section 4.1)
or to decline to perform same. Farmoutor's Well Operations
pursuant to this Agreement shall be diligently conducted as
would a reasonably prudent operator.
4.6. FARMOUTOR'S CASING POINT ELECTIONS
When any Well Operations in any Farmout Well reach the
objective thereof and if Farmoutee plans to install
production casing in order to produce such well, AND ONLY IF
Farmoutor has elected to participate in said Well Operation
to reach said objective, Farmoutee shall notify Farmoutor
thereof in writing and provide Farmoutor an estimate of the
cost (AFE) to install production casing and complete the well
for production. Within forty-eight (48) hours after receipt
of such notice (inclusive of weekends and federal holidays),
Farmoutor shall inform Farmoutee of Farmoutor's election to
participate in the casing and planned completion or have its
participating interest be subject to the nonconsent recovery
provisions of the Operating Agreement except that, as between
Farmoutor and Farmoutee, the nonconsent recovery provisions
of the first but not the second paragraph of Article IX. E
shall apply, and such nonconsent recovery provisions of the
first paragraph of Article IX. E shall apply only to costs
and expenses after casing point attributable to any Farmoutor
participating interest non-consented at casing point.
4.7. COMPLETIONS
In the event that more than one productive zone is
encountered in a Farmout Well, the Parties hereby agree that
completion of the target objective of said Farmout Well shall
take precedence over all other potential completion zones,
absent mutual agreement to the contrary at the time the
Farmout Well has been drilled
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and logged. If the objective in any Well Operation in a Farmout
Well is determined not to be producible, said Farmout Well shall
be successively targeted for completion based upon the deeper
depths upward for each productive zone in which Farmoutee owns
an interest or is entitled to earn an interest.
4.8. COSTS AND RISKS
Farmoutee shall be responsible for all costs, risks, liabilities
and expenses associated with (i) all Well Operations performed
by or on behalf of Farmoutee in any Farmout Well under the terms
of this Agreement, (ii) all hook-up (including but not limited
to all related facility, structural, equipment, pipeline or
flowline work) required to place all such xxxxx on production
through to Farmoutor's processing facilities as designated by
Farmoutor well by well, and (iii) all flow back of completion
fluids and spent acids from each such well, LESS AND EXCEPT any
proportionate share of the cost, risk, liability and expense of
Well Operations in which Farmoutor (and/or any third party
having the right) has elected to participate under the terms of
this Agreement.
4.9. WELL TAKE OVER OPTION UPON PROPOSED ABANDONMENT
4.9.1. No Farmout Well shall be abandoned by Farmoutee
without Farmoutee first giving Farmoutor written notice
of its decision to abandon, together with a copy of any
final electric log(s) and copies of all other wireline
logs, sidewall core analyses and other information
required to be provided to Farmoutor under this
Agreement. Within thirty (30) days (inclusive of
weekends and holidays) after Farmoutor's receipt of
such notice and logs (twenty-four (24) hours if the rig
having conducted drilling or other operations on said
Farmout Well is on location and a decision has been
made by Farmoutee to immediately plug and abandon the
well), Farmoutor may notify Farmoutee that it elects to
take over said well for such further operations it may
wish to conduct. Farmoutor shall, at its sole risk and
expense, thereupon take immediate possession of said
well and of the materials and equipment owned or
controlled by Farmoutee (except materials and equipment
of third party contractors) located at the well site
which may be useful in connection with Farmoutor's
further operations, testing, deepening, or evaluation
of the said well.
4.9.2. If, within the time provided, Farmoutor elects to take
over said well, Farmoutee shall, except as hereinafter
provided, be deemed to have satisfied its
responsibilities to plug and abandon said well
pursuant to this Agreement. After taking over said
well, Farmoutor shall own all interest in the well and
shall be responsible for and shall bear the entire
expense of all further operations in connection with
the well, specifically including the cost of completion
and/or abandonment. In addition, (i) Farmoutor shall
own exclusively, free and clear of this Agreement and
of any assignment or the Operating Agreement, the well
and all production therefrom, regardless of the depth
from which produced, and (ii) the rights earned or
available for earning by Farmoutee with said well shall
expire (except as to any accrued obligations of
Farmoutee). After taking over the well, Farmoutor shall
indemnify and hold harmless Farmoutee from all losses,
costs and liabilities arising therefrom.
4.9.3. Farmoutee shall, upon request from Farmoutor, furnish
Farmoutor with such documents in recordable form as may
be required to perfect title to such well taken over by
Farmoutor except that Farmoutee shall not be required
to cure any title defects attributable to the actions
of Farmoutor before or after the Effective Date of this
Agreement.
4.9.4. If Farmoutor elects to take over a well pursuant to
Section 4.9.1 above, Farmoutor will reimburse
Farmoutee as follows:
4.9.4.1. The reasonable net salvage value (fair
market value) of pipe and any other
materials paid for and placed in the well
by
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Farmoutee that could have been recovered by
Farmoutee if Farmoutor had not take over
the well; and
4.9.4.2. For Farmoutee's unused materials utilized
by Farmoutor, a reasonable compensation for
Farmoutee's materials.
4.9.5. In the event Farmoutee abandons one (1) or more Farmout
Xxxxx without Farmoutor's prior approval, this
Agreement shall immediately terminate as to such xxxxx.
As a result, Farmoutee shall forfeit all rights in such
well(s), and shall, as a penalty for said default, pay
Farmoutor the sum of $50,000.00 per such well within
thirty (30) days of receipt of notice of said default.
Additionally, Farmoutee shall remain responsible for
any and all costs and obligations incurred in
connection with or otherwise associated with
Farmoutee's operations on said abandoned well(s).
Payment of the above penalty for said default shall
constitute the exclusive remedy of Farmoutor for
Farmoutee's failure to obtain Farmoutor's prior
approval.
4.10. CONDITIONAL AREA
Notwithstanding Sections 4.2 and 4.3, certain terms shall
apply to the Conditional Area as fol1ows:
4.10.1. Farmoutor shall have the right to propose and
drill for its own account or participate at up to
its full interest in the drilling, sidetracking
and/or deepening of any one (1) well of its
choosing in the Conditional Area after the
Effective Date.
4.10.2. Farmoutor shall have the right to propose and
drill for its own account or participate at up to
its full interest in the drilling, sidetracking
and/or deepening of any well in the Farmout Area
which would compete with, or drain any reservoirs
discovered by, the drilling, sidetracking and/or
deepening of the one (1) well provided for in
Section 4.10.1.
4.10.3. Farmoutee may propose Optional Xxxxx to Farmoutor
in the Conditional Area. Prior to the drilling,
sidetracking and/or deepening of the one (1) well
provided for in Section 4.10, Farmoutee shall not
propose any well or disclose any undrilled
prospect in the Conditional Area to any third
party (including but not limited to any third
party owning an interest in the Conditional Area
or having the right to participate in such a well
or undrilled prospect, but excluding Farmoutee's
legal or financial representatives and assigns)
unless Farmoutor provides its written permission
for the well proposal(s) and undrilled prospect
disclosures to such third party(ies).
4.10.4. The terms of this Section 4.10 shall not exclude
proposal of, or performance of, Farmout Workovers,
Subsequent Workovers or Subsequent Well Operations
by or on behalf of Farmoutee in the Conditional
Area prior to the drilling, sidetracking or
deepening of the one (1) well provided for in
Section 4.10.1.
4.11. WELL SPACING
4.11.1. No well shall be completed or recompleted above the
base of the 9800' Sand in the Farmout Area within that
portion of each reservoir within 1,500' of:
4.11.1.1. Any well completion producing from such
reservoir as of the Effective Date, without
the express written approval of Farmoutor.
4.11.1.2. Any well completion in Farmout Area 1 or
Farmout Area 2 producing from such reservoir
and which production from
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such well completion is or, after
Payout hereunder or payout of any
non-consent, will be owned all or
in part by Farmoutor, without the
express written approval of
Farmoutor.
4.11.1.3. Any well completion in Farmout
Area 1 or Farmout Area 2 producing
from such reservoir and which
production from such well
completion is or, after Payout
hereunder or payout of any
non-consent, will be owned all
or in part by Farmoutee, without
the express written approval of
Farmoutee.
4.11.2. No well shall be completed or recompleted above the
base of the 9800' Sand in the Farmout Area within that
portion of each reservoir penetrated by and behind pipe
at or above the completion(s) in and within 1,500' of
any well bore producing in the Farmout Area as of the
Effective Date, without the express written approval of
Farmoutor.
4.11.3. No well shall be completed or recompleted above the
base of the 9800' Sand in the Farmout Area within that
portion of each reservoir penetrated by and behind pipe
in an unabandoned portion of and within 1,500' of:
4.11.3.1. Any non-producing well bore previously (but
after the Effective Date) drilled and
completed or recompleted for production in
paying quantities which were or, after
Payout hereunder or payout of any
non-consent, would be owned all or in part
by Farmoutor, without the express written
approval of Farmoutor.
4.11.3.2. Any non-producing well bore previously (but
after the Effective Date) drilled and
completed or recompleted for production in
paying quantities which were or, after
Payout hereunder or payout of any
non-consent, would be owned all or in part
by Farmoutee, without the express written
approval of Farmoutee.
4.11.4. Notwithstanding the other provision of this
Section 4.11, no well shall be completed or recompleted
within that portion of each reservoir in Farmout Area 3
within 500' of La. State Lease 1367 Well # 18, without
the express written approval of Farmoutor.
4.11.5. No well shall be completed or recompleted below the
base of the 9800' Sand in the Farmout Area within that
portion of each reservoir penetrated by and behind pipe
in an unabandoned portion of and within 2,200' (4,200'
if a Gas Reservoir Below 9800' Sand) of:
4.11.5.1. Any well bore previously (but after the
Effective Date) drilled and completed or
recompleted for production in paying
quantities owned all or in part by
Farmoutor (whether before or after Payout, if
applicable) without the express written
approval of Farmoutor.
4.11.5.2. Any well bore previously (but after the
Effective Date) drilled and completed or
recompleted in any reservoir for production
in paying quantities owned all or in part by
Farmoutee (whether before or after Payout, if
applicable), without the express written
approval of Farmoutee.
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4.11.6. The 4200' distance for a Gas Reservoir Below 9800'
Sand under Section 4.11.5 shall not apply to any well
drilled or sidetracked below the 9800' Sand in the
Farmout Area through a reservoir prior to the time that
said reservoir is determined to be a Gas Reservoir
Below 9800' Sand.
4.11.7. Notwithstanding the other provision of this
Section 4.11, no well shall be completed or recompleted
in the stratigraphic portion of the Farmout Area from
the surface of the earth to the base of the 7600' Lower
Sand within 1,000' of the bold, black outline on
Exhibit A-8, without the express written approval of
Farmoutor.
4.11.8. Each Party shall be entitled to its operating rights
interest share or participating interest share, if
different, of all production from each well in which it
participates regardless of the actual drainage area for
the well; provided, however, that the well is not in
violation of the provisions of Section 4.11.1 through
4.11.6 (inclusive) and that neither the involved
reservoir, the drainage area, nor the area proven by
the well are solely or partially within Lease OCS 0166
or beyond the limits of the Farmout Area.
4.12. SUBSEQUENT WELL OPERATIONS
Either Party may propose Subsequent Well Operations in an
Earning Well or in other Farmout Xxxxx to explore and/or
develop Earned Areas and, subject to the Operating Agreement
(except that, as between Farmoutor and Farmoutee, the
nonconsent recovery provisions of the first but not the
second paragraph of Article IX. E. shall apply in the case of
a non-consent by either Party), each Party shall have the
option to participate at its operating rights interests in
said Earned Areas at the time said operation is commenced.
Farmoutee shall not earn any additional operating rights
interests in the Farmout Area through Subsequent Well
Operations.
4.13. ABANDONMENT
4.13.1. Subject to Farmoutor's well takeover rights
under Section 4.9 and unless mutually agreed in
writing by Farmoutor and Farmoutee to the
contrary, but not later than allowable by
applicable governmental, laws, orders, rules or
regulations nor later than six (6) months after
termination of this Agreement unless Farmoutor
agrees to take over the well, Farmoutee [at its
sole cost, risk, liability and expense except to
the extent of any participating interest therein
of any third party participant(s) in each Farmout
Well] shall permanently plug and abandon said
well (including but not limited to the caisson
and related equipment and flowlines if the well
is located in a single well caisson) upon or
within six (6) months after completion of an
unsuccessful Well Operation therein by or on
behalf of Farmoutee.
4.13.2. Within the time allowed by applicable
governmental, laws, orders, rules or regulations,
but not later than six (6) months after
termination of this Agreement unless mutually
agreed in writing by Farmoutor and Farmoutee to
the contrary, Farmoutee [at its sole cost, risk,
liability and expense except to the extent of
any participating interest therein of any third
party participant(s)] shall abandon and remove
each platform and caisson (including but not
limited to any related flowlines and equipment
thereon) installed after the Effective Date for
one (1) or more Farmout Xxxxx.
4.13.4. Except as provided in Section 4.13.1 and 4.13.2
and unless mutually agreed in writing by
Farmoutor and Farmoutee to the contrary,
Farmoutee shall not assume any of Farmoutor's
liability for
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abandonment or removal of caissons,
platforms, facilities, equipment,
flowlines or pipelines pursuant to or as
a result of this Agreement.
5. EARNING AND TRANSFER(S) OF INTEREST
The rights available to be earned by Farmoutee from Farmoutor
in the Farmout Area pursuant to this Agreement shall be
limited as provided hereafter in this Section 5.
5.1. EARNING
For each Obligation Well and Optional Well which are
completed for production as a commercially productive
oil and/or gas well pursuant to Well Operations
conducted by or on behalf of Farmoutee in a timely
manner pursuant to Sections 4.2 or 4.3, whichever is
applicable, and provided that said well is not completed
in any of the Excluded Portions of Reservoirs, and
further provided that Farmoutee executes and provides
Farmoutor with a sworn affidavit stating that there are
no delinquent debts, charges, or liens affecting or
burdening any of the Farmout Leases as a result of said
Well Operations in said well, and provided that
Farmoutee has substantially complied with all of the
foregoing requirements of this Section 5.1 and all other
material requirements of this Agreement with respect to
such well and provides Farmoutor with written notice of
same within thirty (30) days, then, effective upon
completion and hook-up of said well for production,
Farmoutee shall earn and Farmoutor shall retain certain
interests, subject to Section 5.7, as follows:
5.1.1. If the initial earning Well Operation in said
well was spud or commenced in a calendar month
for which the Index Price was $17.50 or more per
barrel of oil in the prior calendar month (but
excluding Earned Areas in the Exploration
Prospect):
5.1.1.1. Farmoutee shall earn SEVENTY-FIVE
PERCENT OF ONE HUNDRED PERCENT (75%
of 100%) of Farmoutor's operating
rights interests in and to the Earned
Areas before Payout and FIFTY PERCENT
OF ONE HUNDRED PERCENT (50% of 100%)
of Farmoutor's operating rights
interests in and to the Earned Areas
upon and after Payout.
5.1.1.2. Farmoutor shall retain, reserve and
have TWENTY-FIVE PERCENT OF ONE
HUNDRED PERCENT (25% of 100%) of
Farmoutor's operating rights
interests before Payout in and to the
Earned Areas and FIFTY PERCENT OF ONE
HUNDRED PERCENT (50% of 100%) of
Farmoutor's operating rights
interests upon and after Payout in
and to the Earned Areas.
5.1.1.3. Farmoutee, out of the operating
rights interests transferred to
Farmoutee from Farmoutor pursuant to
Section 3, shall be deemed to have
thereupon transferred back to
Farmoutor and Farmoutor shall
thereupon have and own TWENTY-FIVE
PERCENT OF ONE HUNDRED PERCENT (25%
of 100%) of the operating rights
interests before Payout in and to
said well from the surface down to
the deepest depth contained in Earned
Areas and FIFTY PERCENT OF ONE
HUNDRED PERCENT (50% of 100%) of the
operating rights interests upon and
after Payout in and to said well from
the surface down to the deepest depth
contained in the Earned Areas. The
operating rights interests
transferred back to Farmoutor
pursuant to this subsection 5.1.1.3
shall result in Farmoutor having and
owning operating rights interests in
and to the Farmout Well which equal
the operating rights interests which
were retained and reserved by
Farmoutor under the foregoing
subsection 5.1.1.2.
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5.1.2. If the initial earning Well Operation in said
well was spud or commenced in a calendar
month for which the Index Price was $14.50 or
more but less than $17.50 per barrel of oil
in the prior calendar month (but excluding
Earned Areas in the Exploration Prospect):
5.1.2.1. Farmoutee shall earn EIGHTY
PERCENT OF ONE HUNDRED PERCENT
(80% of 100%) of Farmoutor's
operating rights interests in
and to the Earned Areas before
Payout and SIXTY PERCENT OF ONE
HUNDRED PERCENT (60% of 100%) of
Farmoutor's operating rights
interests in and to the Earned
Areas upon and after Payout.
5.1.2.2. Farmoutor shall retain, reserve
and have TWENTY PERCENT OF ONE
HUNDRED PERCENT (20% of 100%) of
Farmoutor's operating rights
interests before Payout in and
to the Earned Areas and FORTY
PERCENT OF ONE HUNDRED PERCENT
(40% of 100%) of Farmoutor's
operating rights interests upon
and after Payout in and to the
Earned Areas.
5.1.2.3. Farmoutee, out of the operating
rights interests transferred to
Farmoutee from Farmoutor
pursuant to Section 3, shall be
deemed to have thereupon
transferred back to Farmoutor
and Farmoutor shall thereupon
have and own TWENTY PERCENT OF
ONE HUNDRED PERCENT (20% of
100%) of the operating rights
interests before Payout in and
to said well from the surface
down to the deepest depth
contained in Earned Areas and
FORTY PERCENT OF ONE HUNDRED
PERCENT (40% of 100%) of the
operating rights interests upon
and after Payout in and to said
well from the surface down to
the deepest depth contained in
the Earned Areas. The operating
rights interests transferred
back to Farmoutor pursuant to
this subsection 5.1.2.3 shall
result in Farmoutor having and
owning operating rights
interests in and to the Farmout
Well which equal the operating
rights interests which were
retained and reserved by
Farmoutor under the foregoing
subsection 5.1.2.2.
5.1.3. If the initial earning Well Operation in
said well was spud or commenced in a calendar
month for which the Index Price was less than
$14.50 per barrel of oil in the prior
calendar month (but excluding Earned Areas in
the Exploration Prospect):
5.1.3.1. Farmoutee shall earn EIGHTY-FIVE
PERCENT OF ONE HUNDRED PERCENT
(85% of 100%) of Farmoutor's
operating rights interests in
and to the Earned Areas before
Payout and SIXTY PERCENT OF ONE
HUNDRED PERCENT (60% of 100%) of
Farmoutor's operating rights
interests in and to the Earned
Areas upon and after Payout.
5.1.3.2. Farmoutor shall retain, reserve
and have FIFTEEN PERCENT OF ONE
HUNDRED PERCENT (15% of 100%) of
Farmoutor's operating rights
interests before Payout in and
to the Earned Areas and FORTY
PERCENT OF ONE HUNDRED PERCENT
(40% of 100%) of Farmoutor's
operating rights interests upon
and after Payout in and to the
Earned Areas.
5.1.3.3. Farmoutee, out of the operating
rights interests transferred to
Farmoutee from Farmoutor
pursuant to Section 3, shall be
deemed to have thereupon
transferred back to Farmoutor
and
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Farmoutor shall thereupon have and own
FIFTEEN PERCENT OF ONE HUNDRED PERCENT
(15% of 100%) of the operating rights
interests before Payout in and to said
well from the surface down to the deepest
depth contained in Earned Areas and FORTY
PERCENT OF ONE HUNDRED PERCENT (40% of
100%) of the operating rights interests
upon and after Payout in and to said well
from the surface down to the deepest depth
contained in the Earned Areas. The
operating rights interests transferred
back to Farmoutor pursuant to this
subsection 5.1.3.3 shall result in
Farmoutor having and owning operating
rights interests in and to the Farmout
Well which equal the operating rights
interests which were retained and reserved
by Farmoutor under the foregoing
subsection 5.1.3.2.
5.1.4. For any earning Well Operation in said well if in the
Exploration Prospect:
5.1.4.1. Farmoutee shall earn FIFTY-FIVE PERCENT
OF ONE HUNDRED PERCENT (55% of 100%) of
Farmoutor's operating rights interests
in and to the Earned Areas in the
Exploration Prospect, except that
Farmoutee shall earn ONE HUNDRED PERCENT
(100%) of Farmoutor's operating rights
interests before Payout in and to said
well and all production from any and
all completion(s) of said well in the
Earned Areas in the Exploration Prospect
and SEVENTY-FIVE PERCENT OF ONE HUNDRED
PERCENT (75% of 100%) of Farmoutor's
operating rights interests upon and
after Payout of said Well in and to said
well and all production from any and all
completion(s) of said well in the Earned
Areas in the Exploration Prospect.
5.1.4.2. Farmoutor shall retain, reserve and have
FORTY-FIVE PERCENT OF ONE HUNDRED
PERCENT (45% of 100%) of Farmoutor's
operating rights interests in the Earned
Areas in the Exploration Prospect,
except that Farmoutor shall have
TWENTY-FIVE PERCENT OF ONE HUNDRED
PERCENT (25% of 100%) of Farmoutor's
operating rights interests upon and
after Payout of said Well in and to
said well and all production from any
and all completion(s) of said well in
the Earned Areas in the Exploration
Prospect.
5.1.4.3. Farmoutee, out of the operating rights
interests transferred to Farmoutee from
Farmoutor pursuant to Section 3, shall
be deemed to have thereupon transferred
back to Farmoutor and Farmoutor shall
thereupon have and own TWENTY-FIVE
PERCENT OF ONE HUNDRED PERCENT (25% of
100%) of the operating rights interests
upon and after Payout in and to said
well from the surface down to the
deepest depth contained in the Earned
Areas in the Exploration Prospect. The
operating rights interests transferred
back to Farmoutor pursuant to this
subsection 5.1.4.3 shall result in
Farmoutor having and owning operating
rights interests in and to said well
which equal the operating rights
interests which were retained and
reserved by Farmoutor in and to said
well under the foregoing subsection
5.1.4.2.
5.1.4.4. In the event that Farmoutee proposes the
drilling or sidetracking of any well as
a Subsequent Well Operation in the
Earned Areas within the Exploration
Prospect, Farmoutor shall have the
option to participate or non-consent
pursuant to
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Section 4.12 or to elect to assign to
Farmoutee all of Farmoutor's retained
operating rights interest in and to said
well and all production from any completion
of said well in the Earned Areas within the
Exploration Prospect, subject to Farmoutor
reserving the right to an assignment of
TWENTY-FIVE PERCENT OF ONE HUNDRED PERCENT
(25% of 100%) operating rights interest
therein upon and after Payout of said well
just as would have been the case if
Farmoutee had not already earned therein and
said well was an Obligation Well or an
Optional Well to the Exploration Prospect
rather than a Subsequent Well Operation in
the Earned Areas within the Exploration
Prospect. Notwithstanding terms of this
Section 5.1.4.4, until termination of this
Agreement, Farmoutee shall have the option
to participate in any replacement well in
the Earned Areas within the Exploration
Prospect at the same interests, if any, in
which Farmoutee participated in a well which
is to be replaced by said replacement well
and, if Farmoutee so participates in said
replacement well, Farmoutee shall have the
right to participate in the production from
said replacement well at the same interests,
if any, which Farmoutee had in the
production from the well which was replaced
by said replacement well; provided, however,
(i) that said replacement well is drilled or
sidetracked solely for the purpose of
replacing a well lost due to mechanical or
other failure, (ii) that said replacement
well produces only within 200' of the lost
well it replaces, and (ii) that said
replacement well produces only production
from the same reservoir(s) in which
Farmoutee was entitled to participate in
production at said interests in the lost
well.
5.2. TERMINATION OF FARMOUTEE'S RIGHT TO EARN
Subject to the sole exception of certain Farmout Workovers
performed pursuant to Section 4.3.2, Farmoutee's rights to
earn any additional interest under Section 5.1 shall terminate
(i) in depths above the base of the 9800' Sand in Farmout Area
1 upon termination of Farmoutor's rights pursuant to 4.3.1.6,
(ii) in Farmout Area 2 upon termination of Farmoutor's rights
pursuant to 4.3.1.7, (iii) in all of Farmout Area 3 upon
termination of Farmoutor's rights pursuant to 4.3.1.8, and
(iii) in Farmout Area 4 and depths below the 9800' Sand in
Farmout Area 1 upon termination of Farmoutor's rights pursuant
to 4.3.1.9.
5.3. INTERESTS TRANSFERRED
5.3.1. In the event that Farmoutee earns operating rights
interests pursuant to Section 5.1, Farmoutor shall
execute and deliver an assignment conveying to
Farmoutee the percentage of operating rights
interests specified in Section 5.1 before Payout of
the Farmout Well. Said assignment shall be effective
upon Farmoutee's completion and hook-up of the
Farmout Well for production.
5.3.2. Said assignment shall be in the form of Exhibit E or
a mutually agreeable form recordable in the records
of Lafourche Parish, Louisiana and acceptable to the
MMS or the State Mineral Board of the State of
Louisiana as appropriate. Said Assignment shall be
filed for approval with the MMS or the State Mineral
Board of the State of Louisiana as appropriate.
5.3.3. In order to comply with current MMS rules and
regulations for assignments, said assignments for
filing with the MMS shall be made by aliquots (1/4 -
1/4 - 1/4s) from the stratigraphic equivalent of the
most shallow depth in each particular aliquot in
which Farmoutee earned operating rights pursuant to
Section 5.1 down to the stratigraphic
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equivalent of the deepest depth in which Farmoutee
earned operating rights pursuant to Section 5.1 in
that particular aliquot; provided, however, that said
assignment or assignments shall be subject to this
Agreement and to a letter agreement or letter
agreements by and between the Parties in which the
Parties shall specify the actual Earned Areas
assigned notwithstanding the depths and aliquots
described as assigned in said assignment.
5.3.4. Upon and effective with Payout throughout the
assigned portion of each aliquot in MMS assignments,
Farmoutee shall make a re-assignment to Farmoutor in
similar form, which instrument shall be filed for
approval with the MMS so that Farmoutee and Farmoutor
each have proper title to their respective share of
operating rights after Payout as provided in Section
5.1.
5.3.5. Upon and effective with Payout of the assigned
portion of the Farmout Area in the State of
Louisiana, Farmoutee shall make a re-assignment to
Farmoutor in similar form to that used to assign the
before Payout interests therein, which instrument
shall be filed for approval with the State Mineral
Board of the State of Louisiana so that Farmoutee and
Farmoutor each have proper title to their respective
share of operating rights after Payout as provided in
Section 5.1.
5.4. NO WARRANTY
Without representation or warranty, but subject to the
subrogation hereafter provided for in this Section 5.4,
Farmoutor has advised Farmoutee that Farmoutor believes (a)
that it owns ONE HUNDRED PERCENT (100%) of the operating
rights and record title interest in the Farmout Area except
for (i) that portion of the Farmout Area affected by OCS-G
0166 covering the S/2 of South Timbalier Block 23 and (ii)
within any "participating area" (as per the Operating
Agreement) which includes any portion of Leases OCS 0164,0165
or 0166, (b) that there are no encumbrances burdening the
Farmout Area other than the lessor's royalty and additional
tax royalty, and (c) that it has the right to grant to
Farmoutee the rights set forth in this Agreement. The transfer
of any interest in the Farmout Well pursuant to this Agreement
shall be made without express or implied warranty of any kind,
but shall grant and convey full subrogation to the rights of
the Party or Parties making the transfer.
5.5. NEW BURDENS
Farmoutor represents and warrants that from and after March 1,
1998 it has not created, and it agrees that it shall not under
any circumstance(s) hereafter create, any overriding royalty,
production payment, net profits interest, mortgage or other
similar or dissimilar burden which Farmoutee would have to
bear under any circumstance(s) pursuant to or as a result of
this Agreement whether as a result of any transfer or
assignment to Farmoutee hereunder, any non-consent or default
hereunder by Farmoutor, any full or partial termination of
this Agreement or otherwise. Farmoutee represents and warrants
that it has not heretofore created, and it agrees that it
shall not under any circumstance(s) create, any overriding
royalty, production payment, net profits interest, mortgage or
other similar or dissimilar burden which Farmoutor would have
to bear under any circumstance(s) pursuant to or as a result
this Agreement whether as a result of any transfer or
assignment to Farmoutor hereunder, any non-consent or default
hereunder by Farmoutee, any full or partial termination of
this Agreement or otherwise.
5.6. TRANSFERS SUBJECT TO APPLICABLE APPROVALS
In the event that the transfer of any interest in and to the
Farmout Area or the Farmout Well requires approval of the
lessor or of any state or federal agency having jurisdiction,
the obligations so to transfer shall be subject to Farmoutee's
obtaining the pertinent approval. Farmoutor agrees to assist
Farmoutee in any reasonable way necessary to help Farmoutee
secure such approvals.
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5.7. PROPORTIONATE REDUCTION
If the operating rights interest earned and transferred to
Farmoutee pursuant to this Agreement covers less than the full
operating rights interests in the Earned Areas, then the
operating rights conveyed to Farmoutee and reserved and/or
transferred to Farmoutor in any such transfer shall be reduced
proportionately as to any production affected thereby. If
Farmoutor participates in an earning Well Operation, then
Farmoutor's operating rights interest in which Farmoutor so
participates shall be reserved to Farmoutor, and the balance
of Farmoutor's operating rights interest shall be
proportionately conveyed to Farmoutee and reserved and/or
transferred to Farmoutor in any such transfer pursuant to
Section 5.1.
5.8. RETAINED RIGHTS: NO UNREASONABLE INTERFERENCE
5.8.1. Any transfer of interest from Farmoutor to Farmoutee
pursuant to this Agreement shall provide that
Farmoutor shall retain all rights necessary to drill
to, produce from and operate in all depths on the
Farmout Lease; provided, however, until the earlier
of Farmoutee earning operating rights interests under
this Agreement or termination of this Agreement
without Farmoutee's earning operating rights
interests under this Agreement, Farmoutor shall not
(a) develop or produce from that portion of the
Farmout Area in which Farmoutee has the right to
earn operating rights interests under this Agreement
or (b) produce from or conduct operations in any of
the Obligation Xxxxx except any taken over by
Farmoutor upon any proposed abandonment thereof by
Farmoutee.
5.8.2. In the event that Farmoutee earns operating rights
pursuant to Section 5.1, all future development and
operation of and production from Earned Areas by
Earning Xxxxx or any other xxxxx through Subsequent
Well Operations shall be done thereupon and
thereafter for the mutual benefit of the Parties
under the terms of this Agreement, the Terms for
Contract Operations and Processing, and the Operating
Agreement until and subject to the reassignment,
termination and other provisions of Sections 7.5 and
10.
5.8.3. Each Party agrees not to interfere unreasonably with
the operations of the other Party. In the event of
conflicting operations, the Parties agree to meet
promptly and work in good faith to resolve such
conflicts, including those situations remedied by the
provisions of Section 6 below. In addition, it is
understood and agreed that Farmoutee shall provide
Farmoutor with all Designation of Operator and other
regulatory forms requested by Farmoutor to enable
Farmoutor to conduct all the operations, other than
Farmoutee's Well Operations, under the terms of this
Agreement, the Terms for Contract Operations and
Processing, and the Operating Agreement subject to
the reassignment, termination and other provisions of
Sections 7.5 and 10.
5.9. ACCOUNTING MATTERS
5.9.1. ACCOUNTING PROCEDURE
As to all Farmout Xxxxx, all costs and expenses
(including those associated with Payout) which are
accruing or incurred pursuant to this Agreement and
under any transfer of interest between the Parties
pursuant hereto, if any, shall be determined and
accounted for in accordance with the Accounting
Procedure attached to the Operating Agreement. To the
extent that any provision of said Accounting
Procedure conflicts with any other provision of this
Agreement, the terms of this Agreement shall prevail.
5.9.2. PAYOUT
Payout shall be calculated separately Earning Well by
Earning Well. Farmoutee shall monitor Payout,
providing monthly payout statements to Farmoutor
pursuant to Section 9.2.2.5 below. In the event that
Payout has not occurred in an Earning Well, and if a
Subsequent Well Operation,
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including but not limited to a Subsequent Workover is
performed in such a well and whether or not both
Parties participate in said workover, certain terms
shall apply with respect to Payout in said well as
follows:
5.9.2.1. The proceeds of production from Farmoutee's
participating interest, if any, in said
Subsequent Well Operation shall be applied
first to Payout of Farmoutee's share of
costs and expenses of, from and after said
Subsequent Well Operation in said well
(including but not limited to recovery of
penalty for any non-consent by Farmoutor in
said Subsequent Well Operation, but
excluding all costs, expenses and
non-consent penalty of, from or after the
next Subsequent Well Operation in said well
or any other Subsequent Well Operation in
said well) and shall be then applied to any
unpaid out balance of Farmoutee's share of
costs and expenses incurred of and for said
well prior to the first Subsequent Well
Operation in said well.
5.9.2.2. Payout shall occur upon Farmoutee's recovery
of its share of (i) costs and expenses of,
from and after said Subsequent Well
Operation (including but not limited to
recovery of penalty for any non-consent by
Farmoutor in said Subsequent Well Operation,
but excluding all costs, expenses and
non-consent penalty of, from or after the
next Subsequent Well Operation in said well
or any other Subsequent Well Operation in
said well, and (b) costs and expenses
incurred of and for said well prior to the
first Subsequent Well Operation in said
well.
5.9.2.3. Notwithstanding the provisions of Sections
5.9.2.1 and 5.9.2.2, no unrecovered cost or
expense, including but not limited to any
unrecovered non-consent penalty, from or
applicable to any workover or Subsequent
Well Operation in an Earning Well shall be
carried forward, applied against or
recovered out of production from any other
workover or Subsequent Well Operation in
such Earning Well.
5.9.2.4. Non-consent of a Subsequent Workover (or any
workover) shall not serve as a transfer of
operating rights interest in any well and
shall not preclude a Party which
non-consented such workover from proposing
and/or participating in another workover
whether or not the prior workover or any
other workover has paid out.
5.9.3. POOLED PAYOUT EXCEPTION
Notwithstanding the terms and conditions of Section
5.9.2.1 and 5.9.2.2, in the event that the 1500 B
Prospect Well and/or any one (1) certain sidetrack
well (as expressly identified and designated in
advance by Farmoutee as hereinafter provided) in
Farmout Area 1 or Farmout Area 2 is not successfully
completed for production, Farmoutee shall be allowed
to recoup its costs of said unsuccessful well(s)
including said costs thereof in with the costs
incurred in and subject to payout of any one (1)
other certain Major Operation (as expressly
identified and designated in advance by Farmoutee as
hereinafter provided), whether in an Obligation Well
or an Optional Well; provided, however, that said
certain sidetrack well and said certain Major
Operation are expressly identified and designated for
said recoupment purpose by written notice from
Farmoutee to Farmoutor prior to commencement of said
sidetrack well and said Major Operation. In the event
that such Major Operation is unsuccessful or fails
to fully recover all such sums, Farmoutee's right
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of recoupment terminates with the abandonment of that
Major Operation.
5.10. OPERATING AGREEMENT
Except as otherwise provided in this Agreement, all operations
pursuant to this Agreement (including, but not limited to,
plugging and abandonment of xxxxx, cleaning and restoration of
xxxxx, and abandonment and removal of structures) shall be
performed pursuant to the terms of that certain Operating
Agreement effective as of June 28, 1957, between Continental
Oil Company, The Atlantic Refining Company, Tidewater Oil
Company, Cities Service Production Company and The California
Company, as amended. Notwithstanding the foregoing and as
between Farmoutor and Farmoutee, (i) the nonconsent recovery
provisions of the first but not the second paragraph of
Article IX. E. of said agreement shall apply in the case of a
non-consent by either Party.
5.11. PRE-EXISTING AGREEMENTS
Notwithstanding any other provisions of this Agreement, the
Parties hereby expressly acknowledge and agree that this
Agreement and all operations performed under the terms of this
Agreement and all agreements, transfers and assignments
entered into between the Parties pursuant to this Agreement
are subject to the terms and provisions of certain agreements
being (i) the Leases, (ii) that certain South Bay Xxxxxxxx
Unit Agreement dated June 28, 1957 between The California
Company, Continental Oil Company, The Atlantic Refining
Company, Tidewater Oil Company, and Cities Service Production
Company, and designated and approved by the U.S. Geological
Survey as No. 00-00-000-0000, as amended, (iii) the Operating
Agreement, (iv) that certain Unit Agreement for the
Development and Operation of the 0000' Xxxxx XX Sand effective
October 1, 1970 between Chevron Oil Company and the State
Mineral Board for the State of Louisiana, and designated and
approved by the U.S. Geological Survey as
No. 14-08-0001-11737, as amended, (v) that certain Unit
Agreement for the Development and Operation of the 3650' Lower
RD Sand effective April 1, 1973 between Chevron Oil Company
and the State Mineral Board for the State of Louisiana, and
designated and approved by the U.S. Geological Survey as No.
14-08-0001-12442, as amended, (vi) that certain Purchase and
Sale Agreement effective October 1, 1987 between Atlantic
Richfield Company and Chevron U.S.A. Inc., (vii) that certain
Purchase and Sale/Exchange Agreement executed November 1, 1995
between Conoco Inc. and Chevron U.S.A. Inc., (viii) that
certain Farmout Agreement effective May 1, l998 by and
between Chevron U.S.A. Production Company, a division of
Chevron U.S.A. Inc., and W & T Offshore, Inc., as amended by
Letter Agreement effective June 16, 1998 and by Letter
Agreement dated July 29, 1998, and (ix) any other agreement of
public record as of March 1, 1998; provided, however, the
Parties shall endeavor in good faith to operate under and
comply with the terms of this Agreement and all agreements
entered into between the Parties pursuant to this Agreement to
the extent reasonably possible to do so given the agreements
itemized in (i) through (ix) above.
6. SHUTTING IN PRODUCTION
6.1. OPERATIONS, SAFETY AND COMPLIANCE
6.1.1. Farmoutor shall have the right to shut in Farmoutee's
production for reasonable periods in order to conduct
drilling or other operations. Likewise, Farmoutee
shall have the right to require Farmoutor to shut in
Farmoutor's production for reasonable periods in
order to conduct drilling or other operations in
support of efforts to produce and sell production
from the Farmout Well. Each Party shall give the
other at least ten (10) days notice of a proposed
shut in, except that in the event of an emergency
whichever Party is the operator detecting or
incurring the emergency, Farmoutee during its Well
Operations or Farmoutor during its operations; shall
give the other Party notice as soon as is reasonably
possible under the circumstances.
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6.1.2. If, within forty-eight (48) hours of Farmoutee's
receipt of written notice of any governmental safety
or governmental compliance problem affecting the
Farmout Well or associated pipelines, equipment and
facilities which arises as a result of Farmoutee's
operations, such problem is not corrected or in
process of correction to the satisfaction of the
governmental agency involved, Farmoutor shall have
the right, which shall not be unreasonably exercised,
to take over and/or shut down the operations of
Farmoutee in order to rectify such governmental
safety or governmental compliance problems affecting
Farmoutor's platforms, equipment or production. Any
expenses or costs incurred by Farmoutee as the result
of Farmoutor's takeover and/or shut down of
Farmoutee's operations pursuant to this paragraph
shall be borne exclusively by Farmoutee.
6.2. NO COST TO PARTIES
Neither Party shall bear any cost, responsibility or
obligation to the other Party for any production deferral,
loss or other cost associated with the shutting in of
production pursuant to this Section 6.
7. TERMS FOR CONTRACT OPERATIONS AND PROCESSING
7.1. Farmoutor shall contract operate the xxxxx completed for
production under this Agreement, and shall contract operate
and process all production from said xxxxx pursuant to the
terms of this Section 7.
7.2. Subject to Section 7.4, the terms for Contract Operations
shall include the following provisions:
7.2.1. Notwithstanding the terms and conditions of the
Operating Agreement and its Accounting Procedure,
Farmoutor shall bear all costs and expenses of the
Contract Operations except as expressly provided
otherwise in this Section 7, and, as compensation for
the Contract Operations, Farmoutor shall charge
Farmoutee and Farmoutee shall pay its operating
interest share, or participating interest if
different, of the Contract Fee.
7.2.2. The Contract Fee shall be subject to an annual
adjustment effective April 1st each year beginning
April 1, 2000. The adjustment shall be computed by
multiplying the Contract Fee then currently in use by
the percentage adjustment recommended by XXXXX each
year. The adjusted Contract Fee shall be the Contract
Fee currently in use, plus or minus the computed
adjustment. If any dispute arises over acceptance of
any adjustment to the Contract Fee requested and if
such dispute remains unresolved for one hundred
twenty (120) days, Farmoutor shall thereafter have
the right to suspend the Contract Operations until
Farmoutee pays the Contract Fee in use prior to such
dispute plus at least 75% of the disputed adjustment,
and the Parties shall diligently strive to resolve
such dispute in good faith as soon as possible.
7.2.3. The Contract Fee does include Farmoutor's extra
overhead for performing and accounting for the
Contract Operations; provided, however, that
Farmoutor's basic overhead as operator under the
Accounting Procedure attached to the Operating
Agreement shall be an additional charge under the
Operating Agreement.
7.2.4. The Contract Fee includes recovery of Farmoutor's
existing investment in facilities, equipment and
pipelines as of the Effective Date and no separate
investment recovery charge shall be made against
Farmoutee for same.
7.2.5. The Contract Fee does not include any costs and
expenses of any and all Adverse Events arising out of
the Contract Operations, and all such costs and
expenses (including but not limited to awarded
damages, fines, penalties, judgments and costs of
defense) shall, be charged to the well (or equally to
each well) served by the specific Contract Operations
out of
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which such Adverse Event arose and all said costs and
expenses so charged to said well or xxxxx shall be
paid and borne by the Parties in proportion to their
operating interests, or participating interests if
different, in said well or xxxxx. Each Party shall be
given prompt but reasonable notice under the
circumstances of the occurrence of any and all
Adverse Event potentially chargeable in whole or part
to such Party and each such Party shall have the
opportunity to promptly participate in the defense
and the resolution of same. No settlement or
compromise shall be entered into which causes any
Party to assume or bear any obligation or make any
payment without such Party's written consent.
7.2.6. The Contract Fee is based on Farmoutor's current
practices and methods in place in the Farmout Area
for operation of its own xxxxx and production in a
manner similar to the Contract Operations and on
current conditions assuming normal cost escalations
under normal market conditions, all as of the
Effective Date. Given the foregoing, Farmoutor, under
certain demonstrable economic hardships, shall have
the option to notify Farmoutee of the particulars
(including but not limited to the nature of the
hardship and an estimate of the associated costs,
expenses and economic circumstances supporting such
claim), and enter into good faith negotiations to
amend the terms in this Agreement to provide for
continued Contract Operations and compensate
Farmoutor for additional costs and expenses; however,
in no event shall Farmoutor be entitled to recover
more than Farmoutee's pro rata share of same given
the ownership of the production benefiting, or to
benefit, therefrom. If the Parties are unable to
agree upon and enter into such a mutually acceptable
amendment, each Party shall have the right to
terminate the Contract Operations by and upon six (6)
month's prior written notice to the other Party;
provided, however, any and all obligations accrued
prior to such termination shall remain in force and
effect until performed, fulfilled and satisfied.
Those certain circumstances are as follows:
7.2.6.1. Additional costs and expenses are, or would
have to be, incurred in order to bring the
Contract Operations into compliance with, or
to modify the Contract Operations as
necessary to be in compliance with,
applicable laws, orders, permits, rules,
regulations and governmental requirements.
Farmoutor considers its processes and
methods to be utilized to perform the
Contract Operations to be in compliance with
applicable laws, orders, rules, regulations
and requirements existing as of Effective
Date, but Farmoutor does not represent or
warrant the same because of the volume and
complexity of such laws, orders, rules,
regulations and governmental requirements
taken together with the varying
interpretations within government and
industry.
7.2.6.2. Additional costs and expenses are, or would
have to be, incurred in the event of any
unusual fluctuation in a market or a change
in the regulations causes or results in a
greater than normal escalation of prices for
chemicals, materials, goods, services and/or
labor.
7.2.6.3. Additional costs and expenses are, or would
have to be, incurred because a well or
production therefrom is of an unfit quality
for performance of the Contract Operations.
7.2.6.4. Additional costs and expenses in excess of
$50,000 per occasion or situation are, or
would have to be, incurred in order to
mitigate or eliminate circumstances, arising
for reasons other than those itemized
hereinabove, which prevent or limit
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performance of the Contract Operations
without incurring such additional costs and
expenses.
7.2.6.5. It becomes uneconomic for the Farmoutor to
continue to perform the Contract Operations.
7.2.7. Notwithstanding anything contained herein or
elsewhere in this Agreement, if Farmoutor is rendered
unable to perform the Contract Operations by reason
of, due to or to the extent of any laws, orders,
permits, rules, regulations and requirements
promulgated by any commission or governmental agency
of the United States or of the State of Louisiana or
subdivision thereof in which operations are being
conducted, or any governmental demand or requisition,
or of the action, judgment, or decree of any court of
law, or floods, storms, lightning, earthquake,
washouts, high water, fires, acts of God or public
enemies, wars, blockades, epidemics, riots,
insurrections, strikes, labor troubles, accidents,
explosions, freezing of xxxxx or facilities, bursting
of pipes or vessels, breakdowns, repairs,
modifications or installations of equipment, delays
caused by Farmoutor's co-owners in Lease OCS 0166,
any actual or attempted removal of Farmoutor as
operator under the Operating Agreement, failures of
manufacturers to deliver material or carriers to
transport the same, or any similar cause, which
forbids or prevents the performance of all or any
part of such work or acts to be performed by
Farmoutor under Section 7.2 of this Agreement, such
performance of the Contract Operations shall be
suspended for the period of continuance upon receipt
of notice by the other party. It is, however,
expressly agreed and understood that promptness of
performance of the Contract Operations is of the
essence of the Contract Operations and that
reasonable efforts will be made to avoid delay or
suspension of any work or acts to be performed under
Section 7.2 of this Agreement; provided, however,
Farmoutor shall not be required to incur costs in
excess of $50,000 per occasion or situation nor to
settle any labor dispute against its best interests
in order to restore the Contract Operations.
7.2.8. In the event that any facilities, equipment, piping
or property in, on, upstream or downstream of the
Farmout Area are wholly or partially destroyed or
damaged or become obsolete so as to render same unfit
for performance or continuance of the Contract
Operations or are not replaced at the election of the
Farmoutor, Farmoutor shall be under no obligation to
incur costs or expenses in excess of $50,000 per
occasion or situation to repair or replace same or to
continue performance or continuance of the Contract
Operations.
7.3. Subject to Section 7.4, the terms for Processing shall
include the following provisions:
7.3.1. Farmoutor agrees to provide Farmoutee with
Processing capacity for Farmoutee's production from
the Farmout Area to the extent that excess processing
capacity exists above and beyond that needed by
Farmoutor and/or its co-owners at the time of
hook-up, providing that, prior to restricting
Farmoutee's access to any excess processing capacity,
the Parties agree to meet in good faith and attempt
to determine if any mutually acceptable options are
available (e.g., purchase or leasing of capacity or
facilities, etc.) that would allow Farmoutee to
continue to access all or a portion of Farmoutor's
excess processing capacity.
In the event of curtailment of Processing is required
below capacity made available to Farmoutee at the
time of hook-up, curtailments of sales volumes shall
be made ratably between the Parties upstream of the
constraint(s) or limitation(s) from which such
curtailment arises and such curtailment shall be
based on the capabilities of xxxxx which are upstream
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of the constraint(s) or limitation(s) from which such
curtailment arises to the extent that same can be
accomplished without adverse affect upon Farmoutor's
co-owners. Such well capabilities shall be determined
based upon equivalent barrels of production according
to the most recent well tests. As used in this
Agreement, six (6) MCF of natural gas shall be
considered equivalent to one (1) barrel of oil or
condensate when calculating equivalent barrels of
production.
7.3.2. Said Processing capacity shall not be required to be
provided to Farmoutee by Farmoutor in case of force
majeure (including but not limited any delays caused
by Farmoutor's co-owners in Lease OCS 0166 or any
actual or attempted removal of Chevron as operator)
or in any instance where facilities costs are
necessary to provide and guarantee said capacity and
said costs would exceed $50,000.00 per instance of
installation, repair, upgrade or modification, or if
it becomes uneconomic for Farmoutor to continue to
provide said capacity.
7.3.3. Farmoutee may, at its own cost and expense to be
recovered through Payout without penalty, add
facilities to ensure sufficient throughput capacity
for the Earned Areas and/or the Farmout Well if
Farmoutor approves any such additions or
modifications on or to its facilities, equipment or
piping. Farmoutor shall not unreasonably withhold
such approval.
7.3.4. Notwithstanding the terms and conditions of the
Operating Agreement and its Accounting Procedure,
Farmoutor shall bear all costs and expenses of the
Processing except as expressly provided otherwise in
this Section 7, and, as compensation for the
Processing, Farmoutor shall charge to Farmoutee and
Farmoutee shall pay to Farmoutor the Processing Fees
applicable to Farmoutee's share of production
volumes.
7.3.5. The Processing Fees are subject to annual adjustment
effective April 1st each year beginning April 1,
2000. The adjustment shall be computed by multiplying
the Processing Fees then currently in use by the
percentage increase recommended by XXXXX each year.
The adjusted Processing Fees shall be the Processing
Fees currently in use, plus or minus the computed
adjustment. If any dispute arises over acceptance of
any adjustment to the Processing Fees requested and
if such dispute remains unresolved for one hundred
twenty (120) days, Farmoutor shall thereafter have
the right to suspend the Processing until Farmoutee
pays the Processing Fees in use prior to such dispute
plus at least 75% of the disputed adjustment, and the
Parties shall diligently strive to resolve such
dispute in good faith as soon as possible.
7.3.6. The Processing Fees do include Farmoutor's extra
overhead for performing and accounting for the
Processing; provided, however, that Farmoutor's basic
overhead as operator under the Accounting Procedure
attached to the Operating Agreement shall be an
additional charge under the Operating Agreement.
7.3.7. The Processing Fees includes recovery of Farmoutor's
existing investment in facilities, equipment and
pipelines as of the Effective Date and no separate
investment recovery charge shall be made against
Farmoutee for same.
7.3.8. The Processing Fees do not include any costs and
expenses of any and all Adverse Events arising out of
the Processing and all such costs and expenses
(including but not limited to awarded damages, fines,
penalties, judgments and costs of defense) shall be
charged to the well (or equally to each well) served
by the specific Processing out of which such Adverse
Event arose and all said costs and expenses so
charged to said well or
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xxxxx shall be paid and borne by the Parties in
proportion to their operating interests, or
participating interests if different, in said well or
xxxxx. Each Party shall be given prompt but
reasonable notice under the circumstances of the
occurrence of any and all Adverse Event potentially
chargeable in whole or part to such Party and each
such Party shall have the opportunity to promptly
participate in the defense and the resolution of
same. No settlement or compromise shall be entered
into which causes any Party to assume or bear any
obligation or make any payment without such Party's
written consent.
7.3.9. The Processing Fees are based on Farmoutor's current
practices and methods in place for processing its own
production from the Farmout Area through its existing
facilities in a manner similar to the Processing and
on current conditions assuming normal cost
escalations under normal market conditions, all as of
the Effective Date. Given the foregoing, the
Farmoutor, under certain demonstrable economic
hardships, shall have the option to notify Farmoutee
of the particulars (including but not limited to the
nature of the hardship and an estimate of the
associated costs, expenses and economic circumstances
supporting such claim), and enter into good faith
negotiations to amend this Agreement to provide for
continued Processing and to compensate Farmoutor for
additional costs and expenses; however, in no event
shall Farmoutor be entitled to recover more than
Farmoutee's pro rata share of same given the
ownership of the production benefiting, or to
benefit, therefrom. If the Parties are unable to
agree upon and enter into such a mutually acceptable
amendment, each Party shall have the right to
terminate performance of the Processing, irrespective
of any other provisions hereof, by and upon six (6)
month's prior written notice to the other Party;
provided, however, any and all obligations accrued
prior to such termination shall remain in force and
effect until performed, fulfilled and satisfied.
Those certain circumstances are as follows:
7.3.9.1. Additional costs and expenses are, or would
have to be, incurred in order to bring the
Processing into compliance with, or to
modify the Processing as necessary to be in
compliance with, applicable laws, orders,
permits, rules, regulations and governmental
requirements. Farmoutor considers the
facilities, equipment, processes and
methods to be utilized to perform the
Processing to be in compliance with
applicable laws, orders, rules, regulations
and requirements existing as of the
Effective Date, but the Farmoutor does not
represent or warrant the same because of the
volume and complexity of such laws, orders,
rules, regulations and governmental
requirements taken together with the varying
interpretations within government and
industry.
7.3.9.2. Additional costs and expenses are, or would
have to be, incurred if treating of oil,
condensate or produced water becomes
necessary in the future in order to deliver
Farmoutee's production to Chevron Pipe Line
Company or other regulated common carrier
pipelines and facilities. The Parties
acknowledge that treating of oil, condensate
and produced water are not included in the
Processing or the Processing Fees.
7.3.9.3. Additional costs and expenses are, or would
have to be, incurred in the event of any
unusual fluctuation in a market or a change
in the regulations causes or results in a
greater than normal escalation of prices for
chemicals, materials, goods, services
and/or labor.
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7.3.9.4. Additional costs and expenses are, or would
have to be, incurred because the production
is of an unfit quality for performance of
the Processing through existing pipelines,
facilities and equipment.
7.3.9.5. Additional costs and expenses in excess of
$50,000 per occasion or situation are, or
would have to be, incurred in order to
mitigate or eliminate circumstances, arising
after initial commencement of the Processing
for reasons other than those itemized
hereinabove, which prevent or limit
performance of the Processing without
further modifications, additions,
installations, repairs, restorations and/or
replacements of facilities, equipment or
piping by the Farmoutor costing in excess of
$50,000 per occasion or situation.
7.3.9.6. It becomes uneconomic for the Farmoutor to
continue to perform the Processing.
7.3.10. Notwithstanding anything contained herein or
elsewhere in this Agreement, if Farmoutor is
rendered unable to perform the Processing or
Farmoutee is rendered unable to deliver its
production to Farmoutor for Processing by reason of,
due to or to the extent of any laws, orders, permits,
rules, regulations and requirements promulgated by
any commission or governmental agency of the United
States or of the State of Louisiana or subdivision
thereof in which operations are being conducted, or
any governmental demand or requisition, or of the
action, judgment, or decree of any court of law, or
floods, storms, lightning, earthquake, washouts, high
water, fires, acts of God or public enemies, wars,
blockades, epidemics, riots, insurrections, strikes,
labor troubles, accidents, explosions, freezing of
xxxxx or facilities, bursting of pipes or vessels,
breakdowns, repairs, modifications or installations
of equipment, delays caused by Farmoutor's co-owners
in Lease OCS 0166, any actual or attempted removal of
Chevron as operator, failures of manufacturers to
deliver material or carriers to transport the same,
or any similar cause, which forbids or prevents the
performance of all or any part of such work or acts
to be performed by any party or parties under Section
7.3 of this Agreement, such performance of the
Processing or delivering of the Production to the
Farmoutor for Processing shall be suspended for the
period of continuance upon receipt of notice by the
other party. It is, however, expressly agreed and
understood that promptness of performance of the
Processing is of the essence of the Processing and
that reasonable efforts will be made to avoid delay
or suspension of any work or acts to be performed
under Section 7.3 of this Agreement; provided,
however, neither Party shall be required to make any
repairs, restorations, replacements, modifications,
additions nor installations of facilities, equipment
or piping costing in excess of $50,000 per occasion
or situation nor to settle any labor dispute against
its best interests in order to restore the
Processing.
7.3.11. In the event that any facilities, equipment, piping
or property in, on, upstream or downstream of the
Farmout Area are wholly or partially destroyed or
damaged or become obsolete so as to render same unfit
for performance or continuance of the Processing or
are not replaced at the election of the Farmoutor, no
party or parties to this Agreement shall be under any
obligation to incur cost in excess of $50,000 per
occasion or situation to repair or replace same or to
continue performance or continuance of the
Processing.
7.3.12. Farmoutee shall bear in kind its direct and
reasonably allocated operating rights interest, or
participating interest if different, share of
shrinkage, loss, fuel, including but not limited to
compressor fuel, and emergency or
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36
temporary flare resulting from, consumed, released or
lost by, during or in direct connection or
association with the Processing. Farmoutee shall bear
and pay Farmoutor for any such natural gas so used on
Farmoutee's behalf in the event that Farmoutee's
produced natural gas volumes are insufficient to bear
same in kind.
7.3.13. Gas and liquid hydrocarbon production and produced
water from the Earned Areas shall be commingled with
other production at facilities existing in or
adjacent to the Farmout Area for delivery to Chevron
Pipe Line Company or other regulated common carrier
pipelines and facilities for transportation to market
and for further treating and handling.
7.3.14. Whether (a) paid and borne by Farmoutee (and/or its
purchaser other than Farmoutor) or (b) paid by
Farmoutor and billed to and paid by Farmoutee or
deducted from Farmoutee's proceeds under Section 14
and 15 or otherwise, Farmoutee (rather than
Farmoutor) shall bear any and all cost of
transportation and any treating charges or other
charges or penalties incurred against Farmoutee or
Farmoutee's share of production downstream of
delivery to Chevron Pipe Line Company or other
regulated common carrier pipelines and facilities.
7.3.15. Farmoutee shall bear and be responsible for any
increase in (or credited with any decrease to)
Farmoutor's revenues caused by Farmoutee's share of
production due to changes in the "per unit" price
(inclusive of transportation costs) received by
Farmoutor for its share of production as a result of
the commingled processing and transportation of
production from Farmout Xxxxx and other production.
7.3.16. From time to time as necessary for prudent and
efficient performance of the Processing, Farmoutor
shall remove and dispose of sand, sediments and scale
(hereafter "Sand") accumulating in the Farmoutor's
equipment and piping as a result of performance of
the Processing. Said removal and disposal shall be
performed at the expense of the Parties hereto as
allocated to the well (or equally to xxxxx) served
thereby since the date last cleaned out and in
accordance with each Party's operating interest, or
participating interest if different, in said well or
xxxxx. Notwithstanding the foregoing, removal and
disposal of such Sand with non-exempt levels of
naturally occurring radioactive material ("NORM")
which requires removal, handling or disposal by
methods more costly than removal, handling or
disposal of Sand with exempt NORM levels shall be
performed at the expense of the parties hereto as to
the well (or equally to xxxxx) served thereby since
the date last cleaned out and in accordance with each
Party's operating interest, or participating interest
if different, from only said well or xxxxx which
produced Sand with such non-exempt o levels of NORM.
For purposes of this subsection, the terms
"non-exempt" and "exempt" shall be used as defined
under the provisions of La. Rev. Stat. 33.XV:1404.
7.4. Commencing four (4) years after the Effective Date, each Party
shall have the right to terminate Contract Operations and the
Processing by and upon six (6) month's prior written notice to
the other Party; provided, however, that such matters shall
thereafter be handled under the terms of this Agreement (less
this Section 7) and the Operating Agreement, and further
provided that any and all obligations accrued prior to such
termination shall remain in force and effect until performed,
fulfilled and satisfied.
8. INFORMATION REQUIREMENTS
8.1. GEOLOGICAL AND WELL INFORMATIONAL REQUIREMENTS
Farmoutee shall comply with the requirements of Exhibit B,
attached hereto and made a part hereof for all purposes, and
shall furnish Farmoutor the materials
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therein specified for all xxxxx drilled in the Farmout Area
pursuant to this Agreement.
8.2. ACCESS
Each Party shall make a reasonable effort to allow the other
Party access to review all pertinent geological, geophysical,
drilling and completion data covering any well drilled,
recompleted or worked over in the Farmout Area during or
prior to the term of this Agreement to the extent either Party
possesses same and has the right to allow the other Party
access thereto; provided, however, that the Party Conducting
Well Operations shall be responsible to verify the accuracy
and completeness of all such pertinent geological,
geophysical, drilling and completion data it receives from the
other Party and that Farmoutee shall maintain the
confidentiality thereof while not public information.
8.3. HAZARD AND SURVEYS
Farmoutor shall make a reasonable effort to allow Farmoutee
access to review its pertinent surface and underwater hazard
information during and until termination of this Agreement;
provided, however, Farmoutee shall be responsible to verify
the accuracy and completeness of all such pertinent surface
and underwater hazard information and to determine the
existence of and to avoid all surface and underwater hazards
in conducting its operations.
9. REPORTS AND STATEMENTS
9.1. NOTICE OF COMMENCEMENT
Prior to moving any drilling or other equipment for purposes
of performing Well Operations on any well under this
Agreement, Farmoutee shall give a 24-hour prior notice to:
Chevron U.S.A. Inc.
Attention: Mid-Shelf Profit Center
Bay Xxxxxxxx Team Leader
000 Xxxxxxx Xxxxxx
Xxx Xxxxxxx, XX 00000
9.2. NOTICES AND REPORTS
9.2.1. FARMOUTEE-PREPARED REPORTS
For each well drilled hereunder, Farmoutee will
forward to Farmoutor, at the addresses listed below,
the following reports:
9.2.1.1. EVIDENCE OF ROYALTY PAYMENT
Copies of documentation of payment of
royalties paid by Farmoutee for each month's
or certain month's production upon written
request from Farmoutor.
9.2.1.2. WELL & EQUIPMENT COSTS
The final and total costs, including
drilling, testing, and completion costs, and
all costs associated with the equipping of
each well.
9.2.1.3. REGULATORY REPORTS
Copies of any and all reports filed by
Farmoutee that are required by the
regulatory body or bodies having
jurisdiction.
9.2.1.4. REPORT ON WELL STATUS
A monthly statement showing all xxxxx in
which Well Operations are being performed
pursuant to the terms hereof, and the values
and proceeds realized from the sale of
production of said xxxxx.
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9.2.1.5. PAYOUT STATEMENTS
A monthly statement showing a comparison of
the revenues and expenses associated with
activity in the Farmout Area, on a
well-by-well basis.
9.2.1.6. MAILING ADDRESSES
Such costs, copies, statements, reports and
notices shall be mailed to Farmoutor at the
following addresses:
Chevron U.S.A. Inc.
Attention: Mid-Shelf Profit Center
Bay Xxxxxxxx Team Leader
000 Xxxxxxx Xxxxxx
Xxx Xxxxxxx, XX 00000
Chevron U.S.A. Inc.
Comptroller's Department
Attention: Joint Interest Accounting,
Net Profits and Payouts Group
Post Xxxxxx Xxx X, Xxxxxxx 000
Xxxxxxx, XX 00000-0000
9.2.2. FARMOUTOR-PREPARED REPORTS
For each well drilled hereunder, Farmoutor will
forward to Farmoutee, at the addressed listed below,
the following reports:
9.2.2.1. EVIDENCE OF ROYALTY PAYMENT
Copies of documentation of payment of
royalties paid by Farmoutor for each month's
or certain month's production upon written
request from Farmoutee.
9.2.2.2. REGULATORY REPORTS
Copies of any and all reports required by
the regulatory body or bodies having
jurisdiction, including, but not limited to,
copies of monthly producer's reports or
operator's reports on xxxxx producing oil
and/or gas.
9.2.2.3. REPORT ON WELL STATUS
A monthly statement showing all xxxxx
drilled or being drilled pursuant to the
terms hereof, the status of all such xxxxx
and current production information for all
producing xxxxx.
9.2.2.4. MAILING ADDRESSES
Such costs, copies, statements, reports and
notices shall be mailed to Farmoutee at the
following addresses:
Xxxxxx-Xxxxx, L.L.C.
Attention: Xx. Xxxxx X. Xxxxx
Mtel Centre South, Suite 800
000 Xxxxx Xxxxx Xx.
Xxxxxxx, XX 00000
Fax No. (000) 000-0000
10. CESSATION OR SHUT IN OF PRODUCTION
10.1. If any Farmout Well subject to this Agreement should cease
production or become uneconomic to either Party for any cause
at any time or times after Farmoutee has earned operating
rights interests pursuant to Section 5.1, Farmoutor shall
notify Farmoutee within ten (10) working days of said
cessation. If production should cease from all Farmout Well(s)
in the Earned Areas for a period in excess of six (6) months
or should the said well(s) become uneconomic to either Party,
Farmoutee shall thereupon formally reassign all of its earned
operating rights interests to Farmoutor, and all of
Farmoutee's rights under this Agreement shall
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thereupon terminate, subject to final settlement of accounts
and fulfillment of all accrued obligations.
10.2. If Farmoutor's sole but good faith opinion of production from
any individual Farmout Well is that it is or has become
uneconomic to either Party and is or should be shut in, and if
Farmoutee desires that the well be produced from its then
present completion in the Earned Areas, Farmoutor and
Farmoutee shall have the option to agree in writing to
continue to produce the well from its then present completion
in the Earned Areas under terms which Farmoutee thereupon and
thereafter shall bear and participate in all of Farmoutor's
operating rights interest and participating interest in the
well, at and from that time subject to Farmoutor thereupon and
thereafter having TWENTY-FIVE PERCENT OF ONE HUNDRED PERCENT
(25% of 100%) of its operating rights interest and
participating interest in the well, at that time, as a working
interest in oil and gas (excluding water) production from its
then present completion in the Earned Areas free of all costs
and expenses (except lessor's royalties, additional tax
royalties, severance taxes and production taxes) upstream of
delivery to Chevron Pipeline Company or other regulated common
carrier pipelines and facilities, but including the right to
take Farmoutor's share of product in kind; provided, however,
Farmoutor shall have the option to participate to the full
extent of Farmoutor's operating rights interest and
participating interest in any Subsequent Well Operation in the
well.
11. ROYALTIES AND MINIMUM ROYALTIES
11.1. Except as otherwise hereinafter agreed, the Party(s) taking,
marketing and receiving the resulting proceeds for production
from each well pursuant to this Agreement shall pay all
lessor's royalty payments, additional tax royalty payments,
severance taxes and production taxes accruing pursuant to said
production so taken and marketed after the effective date of
this Agreement, and shall provide the other Party with the
details of and documentation supporting each such payment upon
written request from the other Party. Each Party must give its
co-owners in each well produced pursuant to this Agreement
written notice within fifteen (15) days of any royalty
obligation date which will not be met, and the royalty paying
Party(s) shall have the option (except in case of a dispute
between the non-paying Parties and the royalty recipients) to
remit such payment on behalf of the non-paying Party(s), which
shall obligate the non-paying Party(s) to reimburse the paying
Party(s) for said payment within thirty (30) days of a
receipt from the paying Party(s) of an invoice requesting
payment.
11.2. Farmoutor shall make any minimum royalty payment which becomes
due on the Farmout Lease. Farmoutor shall allocate and charge
same equally to each well which produced from the Farmout
Lease during the lease year for which said minimum royalty
payment is due. Said charge to each such well shall be borne
and paid by the operating rights interests owners of said well
in proportion to their ownership of operating rights
interests, or participating interests if different, in said
well.
12. CALL ON OIL
12.1. INITIAL EXERCISE
With respect to "crude oil" as hereinafter defined, Farmoutee
shall give thirty (30) days' written notice to Farmoutor of
Farmoutee's anticipated date of first production. Upon receipt
of such notice Farmoutor shall have the option to purchase
Farmoutee's share of the crude oil (the term "crude oil" as
used herein shall include condensate and other liquid
hydrocarbons) produced from or attributable to the Earned
Areas for a period of three (3) years commencing the date of
first production. Within ten (10) days of the anticipated date
of first production, Farmoutor shall inform Farmoutee whether
it will purchase Farmoutee's share of crude oil. Should
Farmoutor elect not to purchase Farmoutee's share of crude oil
hereunder, Farmoutor reserves the option,
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exercisable at the time of its election not to purchase for
its own account, and exercisable in accordance with the terms
of this Section 14, to designate, the person, firm, or
corporation to which such crude oil shall be sold. Only after
Farmoutee has so notified Farmoutor and Farmoutor has elected
not to purchase such crude oil or to designate a purchaser
therefor, can Farmoutee dispose of any crude oil produced from
or attributable to the Earned Areas.
12.2. PRICING
With respect to crude oil, Farmoutor, or its designated
purchaser, shall pay for Farmoutee's share of crude oil the
posted price per barrel in the field or at the first pipeline
terminal to which such production is transported, less the
cost of transportation to such terminal and any treating
charges or any other charges incurred against Farmoutee's
share of production at such terminal or downstream of delivery
to Chevron Pipe Line Company or other regulated common carrier
pipelines and facilities for transportation to market and for
further treating and handling. The posted price in the field
or at the terminal shall mean the average of the three highest
prices being paid in the area by crude oil purchasers for
crude oil of like quantity and quality.
12.3. SUBSEQUENT EXERCISE OF CALL
12.3.1. SUBSEQUENT PERIODS
Farmoutor or its designated purchaser shall also have
the option to purchase Farmoutee's share of crude oil
for successive additional periods of three (3) years
each, the first of which shall commence at the end of
the initial three-year period referred to in this
Section 14. Farmoutor shall inform Farmoutee at least
three (3) months in advance of the commencement of
any three-year period following the initial period
whether Farmoutor, or a purchaser designated by
Farmoutor, will purchase Farmoutor's proportionate
share of Farmoutee's share of crude oil during such
three-year period.
12.3.2. PRICE FOR SUBSEQUENT PERIODS
The price provisions applicable under this Section 14
to the initial three-year period shall be applicable
to subsequent three-year periods.
12.3.3. NO ONE-TIME ELECTION
Farmoutor's election for any reason not to purchase
Farmoutee's share of crude oil during any three-year
period, or not to designate a purchaser for such
share of crude oil during any three-year period,
shall not affect Farmoutor's option to purchase or to
designate a purchaser for subsequent three-year
periods.
12.4. SEPARATE DISPOSITION IF NO CALL
During any three-year period in which Farmoutor or its
designated purchaser is not purchasing Farmoutee's share of
crude oil produced from the Earned Areas, Farmoutee shall be
obligated to take in kind or separately dispose of its share
of such crude oil and shall bear all costs and expenses of
doing so. If and so long as Farmoutee fails to take in kind or
separately dispose of its share of crude oil, Farmoutor may
dispose of Farmoutee's share of crude oil at the best price
obtainable (not to exceed the price Farmoutor receives for its
own production from the Earned Areas) and at Farmoutee's sole
risk, cost, and expense. Farmoutee shall be bound by delivery
obligations incurred by Farmoutor for such purpose; however,
any contract made by Farmoutor for the sale of Farmoutee's
share of crude oil shall bear a term no longer than is
commensurate with the minimum needs of the industry under the
circumstances and in no event for a term exceeding one (1)
year.
12.5. DISPOSITION OF FARMOUTOR'S SHARE
Farmoutor shall have the right to take in kind and separately
dispose of its share of oil produced from or attributable to
the Earned Areas.
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12.6. SEVERANCE TAXES
Farmoutee shall bear any severance taxes owing on its share of
production.
12.7. SUBSIDIARIES AND AFFILIATES
This Section 12 shall include and apply separately to not only
Farmoutor but also any one of its subsidiaries or affiliates.
13. CALL ON GAS
13.1. EXERCISE
With respect to natural gas, Farmoutee shall notify Farmoutor
in writing immediately upon the receipt from a responsible
third party of a bona fide offer to purchase any natural gas
owned by Farmoutee in the Earned Areas. Prior to Farmoutee's
completing a sale of such natural gas to said third party,
Farmoutor will have the option of purchasing Farmoutee's share
of such natural gas, or of designating a purchaser for such
sale of gas from Farmoutee, on overall terms and conditions as
favorable as those set out in the offer from said third party,
by notifying Farmoutee in writing within ten (10) days after
receiving Farmoutee's notice of Farmoutor's desire to purchase
such natural gas, or identifying the purchaser designated by
Farmoutor. Failure by such Farmoutor to give such written
notice to Farmoutee within the aforesaid ten (10) day period
will be considered an election by such Farmoutor not to
purchase and not to designate a purchaser for such gas. If,
however, Farmoutor timely elects to purchase Farmoutee's
share of such natural gas or to designate a purchaser
therefor, Farmoutor or its designated purchaser will, as soon
as possible thereafter, enter into a gas purchase contract
with Farmoutee on terms and conditions as favorable as those
set out in the offer from said third party. Farmoutee shall
not be required to give Farmoutor notice if Farmoutee's
natural gas is being sold on the spot market in a contract for
a term of forty-five (45) days or less.
13.2. DISPOSITION IF NO CALL
If Farmoutor elects not to purchase Farmoutee's share of
natural gas, and elects not to designate a purchaser therefor,
Farmoutee may then enter into a gas purchase contract with
said third party on terms and conditions no more favorable to
said third party than those submitted by Farmoutee to
Farmoutor. However, if Farmoutee does not execute a gas
purchase contract with said third party within one hundred and
twenty (120) days after Farmoutor's election not to purchase,
Farmoutor's prior rights to purchase such natural gas from
Farmoutee, or to designate a purchaser for such gas, will be
reinstated.
13.3. FARMOUTOR'S OFFER TO PURCHASE
At any time prior to receiving written notice from Farmoutee
that Farmoutee has received from a responsible third party a
bona fide contract offer, Farmoutor or its designated
purchaser may submit to Farmoutee in writing an offer to
purchase Farmoutee's share of such natural gas. Within ten
(10) days after receipt of Farmoutor's or its designated
purchaser's offer, Farmoutee may either accept Farmoutor's or
its designated purchaser's offer to purchase, in which event
Farmoutee and Farmoutor or its designated purchaser will enter
into a gas purchase contract embodying the terms and
conditions of said offer; or confer with Farmoutor or its
designated purchaser in order to negotiate the terms and
conditions of the purchase of such natural gas by Farmoutor
or its designated purchaser. If such terms and conditions
cannot be agreed upon within the aforesaid ten (10) day
period, Farmoutee may thereafter dispose of its share of the
natural gas after submitting to Farmoutor any bona fide offer
from a responsible third party in accordance with this Section
13.
13.4. SUBSEQUENT ELECTIONS
Upon termination of the primary term of any gas purchase
contract consummated under the applicable provisions of this
Section 13, Farmoutor's right to purchase Farmoutee's share of
any remaining natural gas reserves within the dedicated zone
and area of such gas purchase contract, or to designate a
purchaser therefor, xxxx
Xxxx 4l
42
be automatically reinstated and both the Farmoutee and the
Farmoutor will be subject to the provisions of this Section
13.
13.5. DISPOSITION OF FARMOUTOR'S SHARE
Farmoutor shall have the right to take in kind and separately
dispose of its share of gas produced from or attributable to
the Earned Areas.
13.6. SEVERANCE TAXES
Farmoutee shall bear any severance taxes owing on its share
of production.
13.7. SUBSIDIARIES AND AFFILIATES
This Section 13 shall include and apply separately to not only
Farmoutor but also to any one of its subsidiaries or
affiliates.
13.8. GAS PLANT PROCESSING
Farmoutor's interest in the property covered by this Agreement
is subject to that certain Natural Gas Processing Agreement -
Gulf of Mexico, effective September 1, 1996, between Farmoutor
and Xxxxxx Petroleum Company (now called "Dynegy Midstream
Services, Limited Partnership") (the "Chevron GPA"). Upon or
immediately following any assignment to Farmoutee under this
Agreement, Farmoutee shall enter into a separate Natural Gas
Processing Agreement with Dynegy Midstream Services, Limited
Partnership, covering the interest assigned to Farmoutee
hereunder and containing terms and provisions that are
otherwise identical to those in the Chevron GPA.
14. PARTNERSHIP OR JOINT VENTURE
Notwithstanding anything herein to the contrary, the transfer by
Farmoutor of an interest in the Farmout Well and interests therein, as
hereinabove provided, shall be considered as a contribution of
leasehold interests by Farmoutor to the pool of capital for the
development of the mineral interests by the Parties only, and the
drilling of any well under the terms of this Agreement is not to be
considered for the account of Farmoutor or as a partnership or a joint
venture.
15. TAX MATTERS
As to all operations hereunder, the Parties elect not to be excluded
from the application of Subchapter K, Chapter 1, Subtitle A, Internal
Revenue Code of 1986, as amended, as permitted and authorized by
Article 761 of said Code and the regulations promulgated thereunder,
and similar provisions of applicable state laws. The tax partnership
shall be governed by Exhibit C attached hereto and made a part hereof
for all purposes.
16. COMPLIANCE
All operations performed by Farmoutee pursuant to this Agreement shall
be conducted in accordance with all the terms, provisions, and
conditions of the mineral lease covering the Farmout Area and in
compliance with all applicable laws, rules, and regulations of state
and federal governments, or any agency thereof. Without limiting the
generality of the foregoing, Farmoutee shall comply with all provisions
of Sections 202 (1) through (7), inclusive, of Executive Order 11246,
as revised, and the other requirements set forth in Exhibit D, attached
hereto and made a part hereof for all purposes.
17. INSURANCE REQUIREMENTS
17.1. Farmoutee shall maintain the following insurance and all
insurance that may be required under the applicable laws,
ordinances and regulation of any governmental authority having
jurisdiction:
17.1.1. Worker's Compensation insurance in statutory limits
as prescribed by applicable law, covering all
liabilities owed for compensation and other benefits
under the relevant worker's compensation laws of any
state or of the federal government, and Coverage B
Employer's Liability Insurance in the amount of
$1,000,000.00, both the aforementioned statutory
coverage and Coverage B containing endorsements
naming Farmoutor as Alternate Employer, providing for
voluntary compensation coverage and providing
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for occupational disease coverage. Should the work
provided under this contract involve maritime
activities, the use of maritime workers or vessels
owned or not owned by the Farmoutee, then Farmoutee
shall also obtain Maritime Coverage B for all of the
above coverage's and including transportation, wages,
maintenance and cure, covering liability under the
Xxxxxxxxx and Harbor Worker's Compensation Act, the
Xxxxx Act, the Outer Continental Shelf Lands Act, the
General Maritime Law, and specifically including
coverage for claims of masters and members of crews
of vessels and claims under 33 U.S.C.A. 905 (b)
against any vessel. All policies will provide that
claims "in rem" shall be treated as claims against
the Farmoutee.
17.1.2. Comprehensive or Commercial General Liability (Bodily
Injury and Property Damage) Insurance including the
following supplementary coverages: (a) Contractual
Liability to cover liability assumed under this
Agreement; (b) Products hazards coverage for any and
all products provided or furnished by or on behalf of
Farmoutee during the course of services rendered by
Farmoutee hereunder; (c) Completed operations hazard
coverage, for any claims relating to defects or
deficiencies in goods, products, materials or
services used or rendered by Farmoutee in connection
with its operations at the worksite; (d) Broad Form
Property Damage Liability Insurance, and (e) Coverage
for explosion, collapse and underground hazards, for
work performed by Farmoutee involving equipment or
materials of a volatile, incendiary or explosive
nature or involving excavation, drilling or
subsurface activity. The limit of liability for such
insurance shall not be less than $1,000,000.00
combined single limit per occurrence. All policies
will provide that claims "in rem" shall be treated as
claims against the Farmoutee.
17.1.3. Automobile Bodily Injury and Property Damage
Liability Insurance. Such insurance shall extend to
owned, non-owned, and hired automobiles used in the
performance of this Agreement. The limits of
liability of such insurance shall not be less than
$500,000.00 per person/$1,000,000.00 per occurrence
for bodily injury and $300,000.00 per occurrence for
Property Damage.
17.1.4. Hull and Machinery Insurance, including collision
liability, on all vessels and barges owned or not
owned, if any, used by Farmoutee in the performance
of this Agreement with a limit equal to or greater
than the fair market value of each vessel and barge.
17.1.5. Should the work provided under this contract involve
Maritime activities, the use of maritime workers or
vessels or work aboard vessels owned or not owned by
the Farmoutee, Protection and Indemnity Insurance,
[including but not limited to coverage for injuries
to or death of masters, mates and crews of vessels
used in the performance of this Agreement. For each
vessel including barges used in the performance of
this contract, whether owned by Farmoutee or a third
party, liability insurance in the amount of
$10,000,000.00 for pollution occurrences insuring the
liability of Farmoutee and said third party arising
under (i) the Oil Pollution Act of 1990 as it may be
amended, (ii) the Comprehensive Environmental
Response, Compensation, and Liability Act of 1980, as
amended and reauthorized, and (iii) Third party
bodily Injury and Cargo Liabilities. All policies
required to be obtained by this Section 17.1.5 shall
have deleted therefrom the phrase "as required by
contract" and the phrase "as owners of the vessel
named herein" and all similar phrases purporting to
limit the underwriter liability to that of an owner.
The limits of liability of such insurance shall not
be less than $5,000,000.00 per occurrence. All
policies will provide that claims "in rem" shall be
treated as claims against the Farmoutee.
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17.1.6. If work to be performed hereunder requires Farmoutee
to furnish aircraft (including helicopters),
Farmoutee shall maintain or require owners of such
aircraft to maintain Aircraft Liability (bodily
injury) including liability to passengers and
Property Damage insurance with an overall combined
single limit per occurrence of not less than
$10,000,000.00.
17.1.7. Sudden and Accidental Pollution Liability Insurance
and Control of Well Insurance. The separate limits
for each such type insurance required by this Section
17.1.7 shall not be less than $25,000,000 per
occurrence.
17.1.8. Umbrella Liability Insurance and/or Excess Liability
Insurance in the amount of $25,000,000 per accident
and in the aggregate.
17.2. Except for the insurance required by Section 17.1.1, the
policies providing the insurance called for in this Section
17 shall expressly include Farmoutor as an additional assured,
and all policies provided for in this Section 17 shall contain
an endorsement waiving underwriters' rights of subrogation
against Farmoutor. The insurers shall acknowledge that
Farmoutor has no liability for the payment of premiums for
such insurance. Such inclusion of Farmoutor as an additional
assured and such endorsements waiving underwriters' rights of
subrogation against Farmoutor shall be of no avail whenever,
and to the extent that, they are void or otherwise
unenforceable under applicable law in effect on or validly
retroactive to the date of this Agreement, there being no
intent to circumvent any such statutory limitations or
prohibitions. Farmoutor agrees to waive subrogation in favor
of Farmoutee on all insurance or qualified insurance programs
carried by Farmoutor and/or obtain such waiver from
Farmoutor's insurance carrier if so required by such insurance
contract. If such waiver is not obtained, Farmoutor shall
indemnify Farmoutee for any claim by Farmoutor's insurance
carrier arising out of subrogation.
17.3. The insurance policies set forth in this Section 17 shall be
endorsed to provide that the coverage afforded is primary
irrespective of the existence of other applicable insurance.
17.4. The insurance coverage provided for in this Section 17 shall
be with insurance companies and on policy forms acceptable to
Farmoutor. Farmoutee's obligation to obtain such insurance
coverage is separate and distinct from the other obligations
assumed by Farmoutee hereunder or under applicable law. By
execution of this agreement Farmoutor represents that it has
reviewed and accepted the insurance companies and policy forms
of Farmoutee provided that the insurance coverages, policies
and forms conform to the information disclosed to Farmoutor in
a certificate of insurance which Farmoutee shall provide to
Farmoutor prior to Farmoutor's execution of this Agreement.
17.5. Prior to Farmoutor's execution of this Agreement and quarterly
thereafter, Farmoutee shall furnish Farmoutor with documentary
evidence showing that such insurance required by this
Section 17 is in effect and will not be canceled for any cause
whatsoever or materially changed without thirty (30) days
prior written notice to Farmoutor.
18. INDEMNITY
18.1. As to Farmoutee's operating rights interests and participating
interests in costs, risks, liabilities and/or expenses
pursuant to this Agreement and any other costs, risks,
liabilities and/or expenses which Farmoutee has agreed to bear
pursuant to this Agreement, Farmoutee agrees to protect,
defend, indemnify, and hold harmless Farmoutor from any and
all claims, losses, and expenses (including and without
limitation all costs, demands, damages, suits, judgments,
liabilities, fines, penalties, damages, attorneys' fees, costs
of defense and all causes of action of whatsoever nature or
character) incurred by operation of Section 2702 of the Oil
Pollution Act of 1990 ("OPS" 33 U.S.C. Sections 2710 et seq.)
or arising in favor of any entity or person, including without
limitation, Farmoutee, its employees,
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agents, contractors, contractor's employees or otherwise, on
account of illness, disease, bodily injury or death, property
loss or damage, environmental damage or pollution in any way
directly or indirectly arising out of or related to operations
and/or activities contemplated and/or performed, including but
not limited to acts or omissions, under this Agreement or any
agreement entered into pursuant to this Agreement on or after
the Effective Date, even though caused by the fault or strict
liability of Farmoutor, its employees, but except to the
extent caused by gross negligence or willful misconduct by
Farmoutor or its employees. This indemnity extends to
Farmoutor's parent and affiliated corporations, their
directors, officers, employees, agents and contractors and
their employees.
18.2. As to Farmoutor's operating rights interests and participating
interests in costs, risks, liabilities and/or expenses
pursuant to this Agreement and any other costs, risks,
liabilities and/or expenses which Farmoutor has agreed to bear
pursuant to this Agreement, Farmoutor agrees to protect,
defend, indemnify, and hold harmless Farmoutee from any and
all claims, losses, and expenses (including and without
limitation all costs, demands, damages, suits, judgments,
liabilities, fines, penalties, damages, attorneys' fees, costs
of defense and all causes of action of whatsoever nature or
character) incurred by operation of Section 2702 of the Oil
Pollution Act of 1990 ("OPS" 33 U.S.C. Sections 2710 et seq.)
or arising in favor of any entity or person, including without
limitation, Farmoutee, its employees, agents, contractors,
contractor's employees or otherwise, on account of illness,
disease, bodily injury or death, property loss or damage,
environmental damage or pollution in any way directly or
indirectly arising out of or related to operations and/or
activities contemplated and/or performed, including but not
limited to acts or omissions, under this Agreement or any
agreement entered into pursuant to this Agreement on or after
the Effective Date, even though caused by the fault or strict
liability of Farmoutee or its employees, but except to the
extent caused by gross negligence or willful misconduct by
Farmoutee or its employees. This indemnity extends to
Farmoutee's parent and affiliated corporations, their
directors, officers, employees, agents and contractors and
their employees.
18.3. Except to the extent of gross negligence or willful
misconduct on the part of a party to be indemnified
("Indemnitee"), the indemnities contained in this Agreement
shall apply whether or not the respective party to be
indemnified was or is claimed to be passively, concurrently,
actively or solely negligent, and regardless of whether
liability without fault, including but not limited to claims
for strict liability, is imposed or sought to be imposed upon
such party to be indemnified.
18.4. Each party to be called in indemnity ("Indemnitor") under
this Agreement, shall be given prompt but reasonable notice
under the circumstances of any and all losses, claims, suits,
controversies, liability or expenses potentially giving rise
to a call in indemnity under this Agreement and each such
Indemnitor shall have the opportunity to promptly participate
in the defense and the resolution of same. No settlement or
compromise shall be entered into which causes any Indemnitee
to assume or bear any obligation or make any payment without
such party's written consent.
18.5. Notwithstanding any other provisions of this Agreement,
neither Party to this Agreement shall be responsible to the
other Party hereto, and each Party hereto hereby waives any
right it holds or may hold in recourse, recovery or
indemnification, for any indirect, punitive, special or
consequential damages including, but not limited to those
arising from subsurface damages to reservoirs or formations,
loss of profits, loss of use, loss of hire, and the loss or
deferral of production.
19. PRIOR OBLIGATIONS MAINTAINED
The termination of this Agreement, or the retransfer of interests held
or earned by Farmoutee, in whole or in part, for any reason whatsoever,
shall not relieve Farmoutee of any obligation theretofore incurred or
which may subsequently occur as a result of its
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acceptance of this Agreement, any operations hereunder, or the
noncompliance with any of the provisions of this Agreement. Farmoutee
hereby undertakes and agrees to indemnify Farmoutor and to hold
Farmoutor free and harmless from and against any obligation or
liability incurred by Farmoutee pursuant to Section 18 of this
Agreement, except if caused by the gross negligence or willful
misconduct of Farmoutor.
20. NO LIENS OR ENCUMBRANCES
Each Party agrees to maintain the Farmout Well, the affected Farmout
Area premises and all permanently installed equipment used in
connection with its operations hereunder free of debts, charges, liens,
or other encumbrances resulting from its operations under this
Agreement.
21. PAYMENT OF DEBTS AND CHARGES
Farmoutee agrees to pay or satisfy all such debts and charges incurred
in its operations hereunder within sixty (60) days after such become
due and payable except to the extent said debts and charges are being
disputed in good faith. Farmoutee must immediately notify Farmoutor of
any such dispute.
22. BREACH
Any failure by the Parties to comply, or substantially comply, with any
material obligation hereunder shall be considered an active and
material breach of this Agreement, and in the event of any such failure
by Farmoutee, Farmoutor shall notify Farmoutee in writing of such
failure and, unless remedied within sixty (60) days, Farmoutor may
terminate this Agreement in whole or in part by notifying Farmoutee in
writing of such termination, without prior notice or demand being made
upon Farmoutee and without the necessity of placing Farmoutee in
default; provided, however, the failure by Farmoutor to exercise at any
time or from time to time such right of termination shall not effect a
waiver of any breach or of Farmoutor's right subsequently to terminate
this Agreement. The termination of this Agreement shall not result in
the loss by Farmoutee of any rights and interests earned by Farmoutee
in the Farmout Area prior to the date of termination.
23. OTHER RIGHTS AND REMEDIES RESERVED
No provision contained herein providing for the termination of this
Agreement or termination of the right to earn any interest or
termination of any transfer of interest executed pursuant hereto shall
be construed as precluding, nor shall it preclude, Farmoutor or
Farmoutee from asserting its respective rights to specific performance,
damages, or any other rights or remedies to which it may be entitled.
In all instances herein where liquidated damages are provided for by a
circumstance or set of facts, those liquidated damages as provided for
shall be the only damages recoverable by the damaged party resulting
from such set of circumstances including, without limitation, (i)
failure to timely perform the Obligation Xxxxx as provided for in
Section 4.2 and (ii) failure to obtain Farmoutor's approval to abandon
a Farmout Well as provided for in Section 4.9.
24. NO WAIVER
Failure by Farmoutor or Farmoutee to enforce any of the provisions of
this Agreement shall not effect a waiver of any violation thereof nor
preclude enforcement of that or any other provisions hereof at that or
any other time.
25. AUDIT RIGHTS
Upon reasonable written notice to the other Party, during normal
business hours, each Party may audit the accounts and records of the
other Party related to operations conducted under the terms of this
Agreement for any calendar year, within the twenty-four month (24)
period following the end of such calendar year. Where there are two or
more parties, the non-operating parties shall make every reasonable
effort to conduct a joint audit in a manner which will result in a
minimum of inconvenience to the party being audited. The party being
audited shall not bear a portion of the non-operating parties' audit
costs incurred. The audit of a party's accounts and records shall not
be conducted more than once each year without, the prior approval of
the party being audited and shall be made at the expense of the parties
approving such audit. The lead audit company's audit report shall be
issued within one hundred eighty (180) days after completion of the
audit field work; provided, however, the one hundred eighty (180) day
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time period shall not extend the twenty-four (24) month requirement for
taking specific detailed exception. All exceptions shall be supported
with sufficient documentation. Failure to issue the report within the
prescribed time or to take specific written exception within the
twenty-four (24) month period will preclude the parties from taking
written exception to any accounting transaction within the time frame
audited. The audited Party shall reply in writing to an audit report
and any audit exceptions contained therein within one hundred eighty
(180) days after receipt of such audit report.
26. ASSIGNMENTS
This Agreement, and the transfer or retransfer of an interest in and to
the Farmout Area, the Earned Areas, if any, the Farmout Well or any
other well which is drilled under the terms of this Agreement shall
inure to the benefit of and be binding upon the Parties hereto and
their heirs, successors, sublessees, and assigns; provided, however,
Farmoutee may not transfer, assign, or sublease all or any proportion
of its interest in this Agreement or in its interests earned in the
Farmout Well or the Earned Areas without Farmoutor's prior written
consent which shall not be unreasonably withheld. Farmoutor agrees to
provide prior written notice of a transfer of its interest. Any
transferee, assignee or sublessee of all or any proportion of
Farmoutee's or Farmoutor's rights or interests which are subject to
this Agreement shall agree in writing to be bound by all of the terms
and provisions contained in this Agreement and shall assume all or such
proportion of the duties and obligations of its transferor, assignor or
sublessor as set forth in and arising from this Agreement, and any such
transfer, assignment or sublease shall so provide; provided, however,
no such transfer, assignment or sublease shall relieve Farmoutee of any
of the obligations and duties assumed by Farmoutee under this Agreement
or under the mineral lease covering the Farmout Area, and Farmoutor
shall look solely to Farmoutee for the performance of all obligations
and duties so assumed by Farmoutee.
27. UNIFORM INTEREST AND PREFERENTIAL RIGHT
27.1. Farmoutor and Farmoutee acknowledge the possibility that any
party to the Operating Agreement may have (i) a right during a
fifteen (15) day period after receipt of notice under Article
XII. of the Operating Agreement to elect to exercise a
preferential right to take, and to exercise and take, the
farmout under this Agreement as farmoutee(s) upon the same
terms and conditions as set forth in this Agreement or (ii)
some objection to the farmout contemplated by this Agreement.
27.2. During the last week of July, 1998, a representative of
Farmoutor informally questioned representatives of the other
parties to the Operating Agreement about whether there were a
preferential right applicable to or objections to the farmout
contemplated by this Agreement. The representatives of said
co-owners orally advised that their preference was to receive
formal notice of the farmout contemplated by this Agreement
for consideration.
27.3. No later than five (5) days after execution of this Agreement,
but preferably upon or prior to execution of this Agreement,
Farmoutor will send notice letters to said co-owners providing
the particulars of the farmout under this Agreement or a copy
of this Agreement, referencing Section XII. of the Operating
Agreement, and providing a fifteen (15) day period after
receipt to provide return notice of any election to exercise a
claimed preferential right to take the farmout under this
Agreement as farmoutee(s) upon the same terms and conditions
as set forth in this Agreement. Said notice letters shall be
drafted by Farmoutor in a form mutually acceptable to the
Parties. If, within said fifteen (15) day period, all of said
co-owners sign preferential right waivers for the farmout
under this Agreement and none of said co-owners object to the
farmout under this Agreement, the Parties shall proceed with
the farmout under this Agreement.
27.4. If, within said fifteen (15) day period, one or more of said
co-owners notify either Party of any objection to the farmout
under this Agreement, the Party receiving any such
objection(s) shall immediately notify the other Party in
writing. If (i) any and all such objection(s) received within
said fifteen (15) day period are resolved
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to the mutual satisfaction of the Parties and the objecting
party(ies) within twenty (20) days of the receipt of the
objection(s) and (ii) any and all failures to sign
preferential right waivers for the farmout under this
Agreement are resolved to the mutual satisfaction of the
Parties within twenty (20) days after the end of said fifteen
(15) day period, the Parties shall proceed with the farmout
pursuant to this Agreement. If (i) any and all such
objection(s) received within said fifteen (15) day period are
not resolved to the mutual satisfaction of the Parties and the
objecting party(ies) within said twenty (20) day period or
(ii) any and all failures to sign preferential right waivers
for the farmout under this Agreement are not resolved to the
mutual satisfaction of the Parties within twenty (20) days
after the end of said fifteen (15) day period, certain terms
shall apply as follows:
27.4.1. Farmoutee shall turn over its operations, if any, of
and assign any contracts for all Well Operations in
progress to Farmoutor as soon as reasonably practical
within five (5) days after said twenty (20) day
period and Farmoutor shall thereupon take over and
assume such operations.
27.4.2. Within forty-five (45) days after said twenty (20)
day period, Farmoutee shall invoice Farmoutor for all
of Farmoutee's cost of Well Operations under this
Agreement as accounted for according to the
Accounting Procedure attached to the Operating
Agreement, Farmoutor shall pay same to Farmoutee
within thirty (30) days of invoice receipt, and
Farmoutor shall bear all of Farmoutee's cost, risk
liability and expense arising directly or indirectly
out of said Well Operations.
27.4.3. Farmoutee shall be deemed not to have earned any
interests pursuant to this Agreement, each Party
shall be released from further obligation to or claim
by the other Party, and this Agreement shall
thereupon terminate, subject to final settlement of
accounts.
27.5. If, within said fifteen (15) day period, one or more of said
co-owners notify Farmoutor of an election to exercise a
claimed preferential right to take the farmout under this
Agreement as farmoutee(s) upon the same terms and conditions
as set forth in this Agreement, Farmoutor shall immediately so
notify Farmoutee in writing and certain terms shall apply
between Farmoutor and Farmoutee as follows:
27.5.1. Such exercising party(ies) shall be allowed to and
expected to takeover and proceed with the farmout
contemplated by this Agreement as farmoutee(s) upon
the same terms and conditions as set forth in this
Agreement. Farmoutee shall turn over its operations,
if any, of and assign any contracts for all Well
Operations in progress to Farmoutor as soon as
reasonably practical within five (5) days after
Farmoutor's notice to Farmoutee of a preferential
right election. Farmoutor shall thereupon take over
any such operations by Farmoutee and Farmoutor shall
turnover all such Well Operations (whether by
Farmoutee or by Farmoutor on behalf of Farmoutee) to
the exercising party(ies) as soon as reasonably
practical within another five (5) days.
27.5.2. Within forty-five (45) days after receipt of
Farmoutor's notice to Farmoutee of a preferential
right election, Farmoutee shall invoice Farmoutor for
all of Farmoutee's cost of Well Operations under this
Agreement as accounted for according to the
Accounting Procedure attached to the Operating
Agreement. Farmoutor shall pay same to Farmoutee
within thirty (30) days of invoice receipt, and
Farmoutor shall bear all of Farmoutee's cost, risk
liability and expense arising directly or indirectly
out of said Well Operations in the event and to the
extent that such are not paid and borne by the
exercising party(ies). Farmoutor shall invoice the
exercising party(ies) for same plus all of
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Farmoutor's cost of Well Operations on behalf of
Farmoutee under this Agreement as accounted for
according to the Accounting Procedure attached to the
Operating Agreement and such exercising o party(ies)
shall be expected to pay same to Farmoutor within
thirty (30) days of invoice receipt.
27.5.3. Farmoutee shall be deemed not to have earned any
interests pursuant to this Agreement, each Party
shall be released from further obligation to or claim
by the other Party, and this Agreement shall
thereupon terminate, subject to final settlement of
accounts.
28. APPOINTMENT OF AGENT
If at any time the interest of Farmoutor or Farmoutee is divided among
or is assigned to and owned by four or more co-owners or an entity in
which equity ownership is held by four or more co-owners, any Party
hereto may, at its discretion, require such co-owners to designate in
writing a trustee, mandatary or agent with full authority and all
rights necessary to settle, compromise, dismiss, or release on behalf
of such co-owners any loss, expense, claim, damage, penalty, fine,
lawsuit, or similar matter arising from operations hereunder, including
full authority to act for all said co-owners as insureds under or with
respect to any policy of insurance relevant to such matters.
29. NOTICES
All notices and demands provided for under this Agreement shall be in
writing and shall be given by certified mail, return receipt requested,
telecopy, facsimile, air courier guaranteeing overnight delivery or
personal delivery to the following addressees:
Chevron U.S.A. Inc.
Attention: Land Manager
000 Xxxxxxx Xxxxxx
Xxx Xxxxxxx, XX 00000
Fax No. (000) 000-0000
Xxxxxx-Xxxxx, L.L.C.
Attention: Xx. Xxxxx X. Xxxxx
Mtel Centre South, Suite 800
000 Xxxxx Xxxxx Xx.
Xxxxxxx, XX 00000
Fax No. (000) 000-0000
or to such other address as Farmoutor and Farmoutee designate in
writing. All other communication may be by regular mail. All notices
shall be deemed to have been duly given: at the time delivered by hand,
if personally delivered; at the time delivered according to the return
receipt if sent by certified mail, return receipt requested; when
receipt acknowledged, if telecopied or sent by facsimile; and on the
next business day if timely delivered to an air courier guaranteeing
overnight delivery.
30. AMENDMENTS
This Agreement shall not be modified or amended except by mutual
agreement of the Parties in writing, and no action or failure to act on
the part of either Party hereto shall be construed as a modification or
amendment to, or a waiver of, any of the provisions of this Agreement;
31. ENTIRE AGREEMENT
This Agreement, in conjunction with that certain Confidentiality
Agreement and AMI dated April 29, 1998, by and between Xxxxxx-Xxxxx.
L.L.C. and Chevron U.S.A. Inc. and that certain Letter Agreement dated
August 25, 199$ between Xxxxxx-Xxxxx, L.L.C., Energy Partners, LTD. and
Chevron U.S.A. Inc. relating to Farmoutor's consent to Farmoutee's
assignment to Energy Partners, Ltd. of an undivided thirty percent
(30%) of all of Farmoutee's rights, actions and interest in and to this
Agreement, shall constitute the entire agreement between the Parties
with respect to the subject matter hereof and supercedes all prior
contracts or agreements with respect to the subject matter hereof
whether oral or written.
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32. APPLICABLE LAW
This Agreement is and shall remain subject to all valid and applicable
federal, state and local laws, rules and regulations. Each party shall
be entitled to rely on all laws, orders, permits, rules, regulations
and requirements issued by any federal, state or local regulatory body
as valid and may act in accordance therewith until such time as the
same may be invalidated by final judgment in a court of competent
jurisdiction. This Agreement shall be interpreted according to the laws
of the State of Louisiana and shall extend to and be binding upon the
successors and assigns of the parties hereto.
33. PLURALS
Reference herein to the plural of a noun or pronoun shall, whenever
appropriate, include the singular and vice versa.
34. AUTHORITY
Each Party represent and warrants that it has, holds or has obtained
all the necessary approvals, power and authority from its respective
corporate (or company, in the case of Farmoutee) board of directors,
officers, executives and management (and its partners, in the case of
Farmoutee) to execute, deliver and perform its obligations under this
Agreement; and its execution, delivery and performance of this
Agreement has been duly authorized by all the necessary action on its
part; and this Agreement constitutes its legal, valid and binding
obligations, enforceable in accordance with its terms, except as such
enforceability may be limited by bankruptcy, insolvency, fraudulent
transfer and similar laws affecting creditor's rights generally or by
general principles of equity.
IN WITNESS WHEREOF, this Agreement is executed by each Party on the date of the
acknowledgment of its signature below.
WITNESSES: FARMOUTOR:
CHEVRON U.S.A. INC.
/s/ Witness
--------------------- By: /s/ X. X. XXXXX
-------------------------
---------------------
Title: Assistant Secretary
----------------------
WITNESSES: FARMOUTEE:
/s/ Witness XXXXXX-XXXXX, L.L.C.
---------------------
By: /s/ XXXXX X. XXXXX
--------------------- -------------------------
Title: President
---------------------
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STATE OF LOUISIANA )
)
PARISH OF ORLEANS )
On this 25th day of August, 1998, before me appeared X.X. Xxxxx, to me
personally known, who, being by me duly sworn, did say that he is the Assistant
Secretary of Chevron U.S.A. Inc., a Pennsylvania corporation, and that said
instrument was signed on behalf of said corporation by authority of its Board of
Directors, and said appearer acknowledged that he executed the same as the free
act and deed of said corporation.
IN WITNESS WHEREOF, I have hereunto set my official hand and seal on
the date herein above written.
/s/ WITNESS
-----------------------------
Notary Public in and for
State of Louisiana
My commission expires at death.
STATE OF LOUISIANA )
)
PARISH OF ORLEANS )
On this 25th day of August, 1998, before me appeared Xxxxx X. Xxxxx, to
me personally known, who, being by me duly sworn, did say that he is the
President of Xxxxxx-Xxxxx, L.L.C., a Delaware limited liability company, and
that said instrument was signed on behalf of said company by authority of its
Board of Directors, and said appearer acknowledged that he executed the same as
the free act and deed of said company.
IN WITNESS WHEREOF, I have hereunto set my official hand and seal on
the date herein above written.
/s/ WITNESS
-----------------------------
Notary Public in and for
State of Louisiana
My commission expires at death.
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