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EXHIBIT 10.22
AGREEMENT FOR RELEASE AND TERMINATION
This Agreement for Release and Termination (this "Agreement")
is entered into on this 20th day of November, 1999, by and among United States
Exploration, Inc. ("UXP"), ▇▇▇▇▇▇ ▇▇▇▇▇▇, Inc., formerly KN Energy, Inc.
("KMI"), HS Resources, Inc. ("HSR"), and Resource Gathering Systems, Inc.
("RGSI"), collectively referred to herein as the "Parties" and individually as a
"Party".
WHEREAS, pursuant to paragraph 3 of that certain letter
agreement dated July 30, 1991, between KN Energy, Inc. ("KNE") and Union Pacific
Resources Company ("UPRC'), referred to herein as the "July 30, 1991 Letter
Agreement", KNE granted to UPRC a right of first refusal to purchase any or all
of the Wattenberg Gas Gathering System (the "System") and a right to approve any
new operator or takeover of operatorship of the System under the circumstances
described therein, such rights collectively referred to herein as the "Right of
First Refusal";
WHEREAS, pursuant to an Assignment of Right of First Refusal
dated October 20, 1999, UPRC assigned and conveyed the Right of First Refusal to
UXP;
WHEREAS, KMI wishes to sell to HSR and HSR wishes to purchase
from KMI the System; and,
WHEREAS, KMI and HSR agree to grant certain benefits and
rights to UXP in return for UXP's waiver, release, and termination of the Right
of First Refusal:
NOW, THEREFORE, in consideration of the mutual benefits to be
derived herein, the Parties agree as follows:
1. CONDITION SUBSEQUENT: This Agreement shall
terminate if on or before December 31, 1999, HSR and KMI, do
not enter into a definitive agreement for the purchase and
sale of KMI's Wattenberg Gas Gathering System upon such terms
and conditions, exceptions and reservations as KMI and HSR
shall determine in their sole and unfettered judgment, there
being no obligation on the part of either such party to enter
into such definitive agreement. This condition referred to
hereinafter as the "Condition Subsequent".
2. WAIVER, RELEASE, AND TERMINATION AGREEMENT: KMI
and UXP agree to enter into the Waiver, Release, and
Termination Agreement attached hereto as Exhibit "A", by
reference made a part hereof, upon entering into this
Agreement.
3. ▇▇▇▇▇ OVERHEAD RATES: HSR and UXP agree to amend
the ▇▇▇▇▇ drilling and producing overhead rates under
operating agreements currently in effect
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whereunder HSR is the operator and UXP is the non-operator
(the "Operating Agreements") which shall affect overhead rates
charged on presently existing ▇▇▇▇▇ and future ▇▇▇▇▇ drilled
thereunder. Effective November 1, 1999, and for a period of
ten (10) years thereafter, the drilling and producing overhead
rates under the Operating Agreements shall be $5,000.00 and
$500.00 per month per well (to the 8/8ths interest),
respectively. After such ten-year period, the ▇▇▇▇▇ overhead
rates for all ▇▇▇▇▇ under the Operating Agreements shall be
subject to future escalation in accordance with the applicable
operating agreement.
4. UPRC/HSR EXPLORATION AGREEMENT: HSR and UPRC are
parties to that certain Exploration Agreement dated June 27,
1994 (the "Exploration Agreement"). UPRC has leased and
assigned certain interests to UXP which are subject to the
Exploration Agreement, and UPRC and UXP have entered into a
separate agreement whereby UPRC must offer to UXP any working
interest which may be available to UPRC under the Exploration
Agreement. Accordingly, HSR agrees to the following:
a. CONFIDENTIALITY PROVISIONS: HSR hereby
waives the confidentiality provisions in the
Exploration Agreement insofar, and only insofar, as
will allow UPRC to disclose any information, except
seismic, non-public and interpretative information,
to UXP which UPRC is entitled to receive from HSR
under the Exploration Agreement and affects any of
the interests UXP previously has acquired from UPRC,
or which will allow UXP to make an informed decision
whether it wishes to participate for UPRC's interest
in any well under which UPRC has the option to
participate pursuant to the Exploration Agreement and
which must be offered to UXP. HSR shall provide such
information not presently in UPRC's possession
directly to UXP.
b. Promptly upon entering into this
Agreement, HSR agrees to provide UXP with a list of
the acreage which currently is subject to the
Exploration Agreement.
5. RESOURCE GATHERING SYSTEMS, INC.: Resource
Gathering Systems, Inc. ("RGSI") is an affiliate of HSR, which
owns a mini-gathering system in the Wattenberg Field and
currently charges UXP $0.05/Mcf for gas gathered on its
system. RGSI agrees as follows:
a. GATHERING FEE: Effective October 1, 1999,
RGSI agrees to discontinue the $0.05/Mcf fee charged
to UXP for any gas gathered in presently existing
▇▇▇▇▇ or future ▇▇▇▇▇, which are on properties
currently owned, which are, or will be, connected to
the RGSI mini-gathering system as it exists today or
as expanded in the future.
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b. WELL CONNECTION COSTS: If HSR decides to
have RGSI gather gas from an HSR-operated well in
which UXP owns a working interest, HSR shall give UXP
notice of its plans and the estimated costs required
to have RGSI connect such well. If UXP decides to
have RGSI gather UXP's share of gas from such well,
UXP agrees to bear its proportionate share of the
costs to connect such well to the RGSI system, based
on its working interest in such well. Notwithstanding
the foregoing, HSR agrees that it shall bear the
entire cost to connect any of the following ▇▇▇▇▇ to
the RGSI mini-gathering system:
▇▇▇▇▇▇▇ UPRR 41-1A
NE/NE Section 1-2N-65W
▇▇▇▇▇▇ UPRR 32-1 #2A
SW/NE Section 1-3N-66W
6. SEGREGATION OF UNITS ESTABLISHED FOR THE J-SAND
AND DAKOTA FORMATIONS: HSR and UXP shall use their reasonable,
diligent and good faith efforts to segregate some or all of
their jointly owned properties in the D-J Basin. HSR and UXP
shall devote such time, effort and personnel to the process as
may be needed in order for each to make a comprehensive
proposal to the other for such segregation, and to fairly
consider and respond to any proposals made by the other. HSR
shall make UXP a proposal for segregation by the last day of
February 2000. The terms of any proposal shall be entirely
within the discretion of the proposing party and the response
thereto exclusively within the discretion of the responding
party. Neither HSR nor UXP shall have any obligation to accept
any proposal of the other party, and no obligation to
segregate or exchange properties shall exist unless and until
HSR and UXP enter into and execute a written definitive
agreement to do so. The obligations under this paragraph 6
shall terminate December 31, 2000.
7. AMENDMENT TO THE GATHERING AGREEMENT: KMI agrees
to enter into and execute, and agrees to cause its subsidiary,
KN Gas Gathering, Inc. ("KNGG"), to enter into and execute the
Amendment of Gas Gathering Agreement (the "Gathering
Amendment") attached hereto as Exhibit "B", by reference made
a part hereof, upon KMI's entering into this Agreement. UXP
also agrees to execute the Gathering Amendment upon entering
into this Agreement.
8. AMENDMENT TO THE TRANSPORTATION AGREEMENT: KM
agrees to cause its subsidiary, ▇▇ ▇▇▇▇▇▇▇▇▇▇ Transmission
Limited Liability Company ("KNWTLLC"), to enter into and
execute the Amendment of Interruptible Transportation Service
Agreement ("Transportation Amendment") attached hereto as
Exhibit "C", by reference made a part hereof, upon KMI's
entering into this
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Agreement. UXP also agrees to execute the Transportation
Amendment upon entering into this Agreement.
9. AMENDMENT TO THE AGENCY AGREEMENT: KN Front Range
Gathering Company, now KNGG, as Agent, and UPRC, as Principal,
entered into that certain Agency Agreement dated March 29,
1993 (the "Agency Agreement"). UPRC assigned certain interests
to UXP which are subject to the Agency Agreement. KMI agrees
to cause its subsidiary, KNGG, to enter into and execute the
Amendment of Agency Agreement ("Agency Amendment") attached
hereto as Exhibit "D", by reference made a part hereof, upon
KMI's entering into this Agreement. UXP also agrees to execute
the Agency Amendment upon entering into this Agreement.
10. AMENDMENT TO DEVELOPMENT AGREEMENT: HSR and UXP
entered into that certain Development Agreement dated October
1, 1998, as amended, (the "Development Agreement") which
provides for the deepening of those ▇▇▇▇▇ listed on an exhibit
attached thereto. Promptly upon satisfaction of the Condition
Subsequent, HSR and UXP agree as follows:
a. WELLBORE REIMBURSEMENT COSTS: Effective
October 1, 1999, the Development Agreement shall be
amended by eliminating any requirement to pay a
Wellbore Reimbursement Cost as contained therein. HSR
and UXP further agree that even after the Development
Agreement terminates no Wellbore Reimbursement Cost
will be charged on any of the ▇▇▇▇▇ described on
Exhibit A of the Development Agreement, which were
not deepened during the term of the Development
Agreement and which either HSR or UXP proposes to the
other party to deepen in the future.
b. TERM OF DEVELOPMENT AGREEMENT: The term
of the Development Agreement will expire on October
1, 2000. UXP and HSR agree to extend the term of the
Development Agreement to October 1, 2001.
11. USE OF WELLBORES FOR SHALLOW OPERATIONS: New
provisions shall be added to Section 4 of the Development
Agreement to provide that if either HSR or UXP (the "Owning
Party") owns or controls 100% of the interest in a target
Shallow Zone in a well described on Schedule III (a "Joint
Well") which the other party operates, and the Owning Party
desires to conduct Shallow Operations in the subject wellbore,
it shall be deemed that an Approved Operation was conducted
for purposes of Section 4 in that well. If the Owning Party is
the operator of the well, it shall allow the other party to
temporarily take over operations on the subject wellbore and
to conduct its proposed Shallow Operations until complete, but
subject to the other requirements of Section 4; provided,
however, that if a third party has an ownership interest in
the subject wellbore, the Owning Party's proposal to conduct a
Shallow Operation shall not commence until and unless the
Owning Party obtains the consent
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of such third party for the proposed Shallow Operations in the
subject wellbore. This provision shall survive the termination
of the Development Agreement.
12. OPERATING AGREEMENTS: With respect to any well
which HSR operates in the D-J Basin that UXP determines is no
longer producing in paying quantities for UXP's account, UXP
shall have the right to give HSR written notice that UXP
desires to surrender its entire interest in the currently
producing formation(s), limited to the wellbore only, to HSR
in exchange for HSR assuming UXP's proportionate share of the
plugging and abandonment costs and liabilities attributable to
such interests; provided, however, that HSR shall not have the
obligation to assume such cost obligations or liabilities if
HSR agrees to plug and abandon the affected formation(s)
following receipt of UXP's written notice in accordance with
the terms of the applicable operating agreement. If HSR elects
to assume UXP's plugging and abandonment costs and liabilities
which UXP desires to surrender, and if HSR subsequently
desires to deepen or recomplete the subject well to a
formation which UXP has retained an ownership interest, UXP
shall have the right to participate for its proportionate
share of the costs to deepen or recomplete the subject well,
all in accordance with the terms of the applicable operating
agreement, provided that UXP shall not regain its interest in
the previously surrendered formation, UXP shall again become
liable for its share of plugging and abandonment costs and UXP
shall receive a share of equipment that it previously owned
equal to its working interest share of the new producing
formation.
13. ▇▇▇▇▇▇ #2-5 WELL: HSR and UXP agree to enter into
an operating agreement for the ▇▇▇▇▇▇ #2-5 Well located in the
NW/4NW/4 of Section 5, Township 3 North, Range 65 West, Weld
County, Colorado, using substantially the same form of
operating agreement as affecting the ▇▇▇▇▇▇ #1-5 Well located
in the NW/4NE/4 of the same section, except naming UXP as
operator, providing for "15%" in the blank on line 15 of page
two, correctly reflecting the parties interests on Exhibit
"A", and incorporating all of the amendments contained in this
Agreement. UXP shall prepare such operating agreement for
HSR's execution.
14. PRODUCTION INFORMATION: Promptly following
satisfaction of the Condition Subsequent, and continuing
thereafter, HSR shall provide to UXP on a daily basis the
estimated gross daily production volumes and on a monthly
basis copies of the Gas Metering Volume Statements for each
HSR-operated well in which UXP has a working interest. Such
information shall be the same information as used and relied
on by HSR. However, HSR does not represent, warrant, or
guaranty the accuracy or completeness of such production data.
UXP acknowledges that use of or reliance on such data shall be
at UXP's sole risk. HSR shall have no obligation to allocate
to or identify the various owners in such gross daily
production volumes for purposes of delivering such data to UXP
pursuant to this Agreement. Additionally, HSR agrees to
provide UXP with information contained in the reports filed
with the Colorado Oil
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and Gas Conservation Commission and affecting UXP/HSR jointly
owned ▇▇▇▇▇ which HSR operates.
15. GAS IMBALANCES: HSR estimates that as of August
31, 1999, gas production for the account of UXP (including the
Weld County Partnership production interests, subject to
True's consent) is under delivered on ▇▇▇▇▇ which HSR operates
in the D-J Basin in the aggregate amount of 175,000 MMBtu. HSR
hereby agrees to cash-out UXP's gas imbalance at a price of
$2.50 per MMBtu within fifteen (15) days of satisfaction of
the Condition Subsequent. The parties acknowledge that the
foregoing is based on HSR's statement of imbalance, and that
UXP and HSR shall have the opportunity to verify such amount.
UXP and HSR shall work diligently to arrive at a final
reconciliation by December 31, 1999. The final reconciliation
amount will be made at $2.50 per MMBtu.
16. POOLING AGREEMENTS: It may be necessary for UXP
and HSR to enter into pooling agreements to hold various
leases acquired by UXP from UPRC. HSR agrees to enter into
such pooling agreements upon UXP's request, using
substantially the same form of pooling agreement as attached
to the Development Agreement. The pooled area will be limited
to the Drilling Unit for the applicable formations in a
completed well. Drilling Unit is defined in Paragraph 5b of
the Development Agreement. In no event will the pooled area be
greater than 320 acres.
17. DAKOTA FARMOUT AGREEMENT: Promptly following
satisfaction of the Condition Subsequent, HSR and UXP agree to
enter into a Farmout Agreement covering the Dakota Formation
under the lands and wellbores identified on Schedule II
attached hereto, by reference made a part hereof. Under the
agreement, HSR shall grant to UXP the right to commence, on or
before December 31, 2000: (i) operations for the deepening to
the Dakota Formation in any of the eleven (11) wellbores
identified on Schedule II, and (ii) operations for the
recompletion of the Dakota Formation in any of the six (6)
wellbores identified on Schedule II. HSR will reserve a
non-convertible overriding royalty interest, proportionately
reduced, equal to the difference between leasehold burdens
existing as of the date of this Agreement and twenty percent
(20%). UXP is under no obligation to commence any of the
operations. The only loss for failure to conduct an operation
shall be the loss of any assignment pursuant hereto associated
with such operation. UXP shall take over operations of a well
to conduct the deepening or recompletion operation therein,
and return operations to HSR once UXP's operations are
completed. After UXP has recouped from the proceeds of all
production produced, sold, and allocated to the Dakota
Formation in a well, after deducting all burdens payable out
of production and all production taxes, 100% of the costs
incurred by UXP to either deepen or recomplete such well,
including operating costs during such recoupment period, HSR
shall backin for a twenty-five percent (25%) working interest,
proportionately reduced by HSR's original interest in the
Dakota Formation in such well. Payout
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shall be on a well-by-well basis. The allocation formula to be
used shall be the same formula as previously used under the
Development Agreement. The farmout shall contain such other
standard provisions as HSR and UXP reasonably require.
18. JOINT RECOMPLETION OF DAKOTA FORMATION: Promptly
following satisfaction of the Condition Subsequent, and
subject to title approval, HSR and UXP agree to participate
for their proportionate share in the recompletion of the
Dakota Formation in the five (5) wellbores identified on
Schedule 11 in accordance with the terms and conditions of the
Development Agreement, as amended herein. HSR shall promptly
issue to UXP a separate AFE for each well setting out the
reasonable costs to recomplete the Dakota Formation.
19. PRESS RELEASES AND PUBLIC ANNOUNCEMENTS: No Party
hereunder shall issue any press release or make any public
announcement relating to the subject matter of this Agreement
prior to the Condition Subsequent having been met without the
prior approval of the other Parties, which approval shall not
be unreasonably withheld; provided, however, that a Party may
make any public disclosure it believes in good faith is
required by applicable law or any listing or trading agreement
concerning its publicly traded securities (in which case the
disclosing Party will use its reasonable best efforts to
advise the other Parties prior to making the disclosure).
20. ENTIRE AGREEMENT: This Agreement, including the
exhibits attached hereto, constitutes the entire agreement
between the Parties with respect to the subject matter hereof
and supersedes all prior understandings, agreements, or
representations by, between, or among the Parties, written or
oral, with respect to such subject matter.
21. SECTION 29 TAX CREDIT ISSUE: HSR represents and
warrants that it has the authority to enter into this
agreement on behalf of those parties holding legal title under
any Section 29 Tax Credit Transaction.
22. SUCCESSORS: This Agreement shall be binding upon
and inure to the benefit of the Parties hereto and their
respective successors, assigns, subsidiaries, and affiliates.
23. GOVERNING LAW: This Agreement shall be governed
by and construed in accordance with the laws of the State of
Colorado without giving effect to any choice or conflict of
law provision or rule.
24. LEGAL FEES: The prevailing Party in any legal
proceeding brought under or to enforce this Agreement shall be
entitled to recover court costs and reasonable attorneys' fees
from the nonprevailing Party.
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25. FURTHER ASSURANCES: Each of the Parties will
execute, acknowledge, and deliver to the other such further
instruments and take such other actions, as may be reasonably
requested in order to further assure a Party of the rights and
benefits contemplated hereunder.
26. NOTICE OF SATISFACTION OF CONDITION SUBSEQUENT:
HSR and KMI shall notify Mr. ▇▇▇▇▇ ▇▇▇▇▇▇ with UXP by
telephone at (▇▇▇) ▇▇▇-▇▇▇▇ on the day that the Condition
Subsequent is satisfied, to be followed immediately by a joint
written notice from HSR and KMI to the address shown below.
Within the first week of January, 2000, UXP shall be notified
by a joint written notice from HSR and KMI if the Condition
Subsequent was not satisfied by December 31, 1999. Failure of
the Condition Subsequent to be satisfied timely shall result
in this entire Agreement terminating ab initio, including the
Gathering Amendment, the Transportation Amendment, and the
Agency Amendment.
[The rest of this page left intentionally blank]
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IN WITNESS WHEREOF, the Parties hereto have executed this
document on the date first above written.
UNITED STATES EXPLORATION, INC.
By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇
---------------------------------
▇▇▇▇▇ ▇. ▇▇▇▇▇▇, President
Address for Notice:
▇▇▇▇ ▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇ ▇▇▇▇▇▇, INC.
By: /s/ ▇▇▇▇ ▇. ▇▇▇▇▇ ▇▇
---------------------------------
Name: ▇▇▇▇ ▇. ▇▇▇▇▇ ▇▇
---------------------------
Title: VP & Controller
--------------------------
HS RESOURCES, INC.
By: /s/ ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
---------------------------------
▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, Vice President
RESOURCE GATHERING SYSTEMS, INC.
By: /s/ ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
---------------------------------
▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, Vice-President
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EXHIBITS OMITTED
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