THIRD PRODUCTION PAYMENT
PURCHASE AND SALE AGREEMENT
Between
DENBURY ONSHORE, LLC
and
GENESIS CRUDE OIL, L.P.
October 11, 2005
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TABLE OF CONTENTS
ARTICLE I CERTAIN DEFINITIONS......................................2
ARTICLE II PURCHASE AND SALE OF THE PRODUCTION PAYMENT..............7
ARTICLE III PROCESSING AND TRANSPORTATION OF PRODUCTION PAYMENT
GAS.................................................8
ARTICLE IV ASSIGNMENT OF ADDITIONAL INDUSTRIAL SALE CONTRACTS.......9
ARTICLE V REPRESENTATIONS AND WARRANTIES OF DENBURY...............10
ARTICLE VI REPRESENTATIONS AND WARRANTIES OF GENESIS...............14
ARTICLE VII PAYMENT TO DENBURY......................................15
ARTICLE VIII DISCLAIMER OF WARRANTIES................................15
ARTICLE IX INDEMNITY...............................................16
ARTICLE X CLOSING.................................................17
ARTICLE XI COVENANTS AND AGREEMENTS OF DENBURY.....................18
ARTICLE XII EXCHANGE OF INFORMATION; AUDIT RIGHTS...................21
ARTICLE XIII NOTICES.................................................22
ARTICLE XIV DISPUTE RESOLUTION......................................23
ARTICLE XV CURTAILMENTS AND INTERRUPTIONS..........................23
ARTICLE XVI MISCELLANEOUS PROVISIONS................................23
Exhibits
Exhibit A - Form of Assignment of Production Payment
Exhibit B - Net Revenue and Working Interests in the Xxxxx Comprising the
Subject Interests
Exhibit C - Form of Contract Assignment
Exhibit D - Form of T&P Agreement
Exhibit E - Dispute Resolution Procedures
Exhibit F - Form of Agreement with Lenders
THIRD PRODUCTION PAYMENT
PURCHASE AND SALE AGREEMENT
THIS THIRD PRODUCTION PAYMENT PURCHASE AND SALE AGREEMENT (this
"Agreement"), executed as of this October 11, 2005 and effective as of September
1, 2005 (the "Effective Date"), is by and between DENBURY ONSHORE, LLC, a
Delaware limited liability company ("Denbury"), whose address is 0000 Xxxxxxxx
Xxxxxxx, Xxxxx 0000, Xxxxx, Xxxxx 00000, and GENESIS CRUDE OIL, L.P., a Delaware
limited partnership ("Genesis"), whose address is 000 Xxxxxx Xxxxxx, Xxxxx 0000,
Xxxxxxx, Xxxxx 00000. In this Agreement, Denbury and Genesis are sometimes
referred to individually as a "Party" and collectively as the "Parties".
FOR AND IN CONSIDERATION of the payments and mutual covenants to be
made in this Agreement by the Parties and the benefits derived by the Parties
from this Agreement, the Parties agree as follows:
RECITALS
A........Denbury owns certain undivided oil, gas and mineral leasehold,
royalty and mineral interests in and to those lands commonly referred to as the
Hollybush field, the South Pisgah field and the Goshen Springs field, as more
particularly described in Exhibit A attached to the Assignment (as defined
below).
B........Denbury is currently engaged in a program with respect to the
Subject Interests (as defined below) on the Subject Lands (as defined below) for
the exploration, development, production and sale of CO2.
C........In connection with that certain Production Payment Purchase
and Sale Agreement executed on November 14, 2003 and effective as of September
1, 2003 between Denbury's predecessor and Genesis (such agreement, as amended,
supplemented, modified or restated from time to time, the "First Purchase and
Sale Agreement"), Denbury's predecessor sold and conveyed and Genesis purchased
and paid for (1) all of such predecessor's rights, title, and interests in and
to certain industrial sale contracts covering the sale of CO2 by such
predecessor to third parties and (2) a volumetric production payment in and to
CO2 produced, saved, and sold from the Subject Interests, upon and subject to
the terms and conditions provided in the First Master Documents (as defined
below).
D........In connection with that certain Second Production Payment
Purchase and Sale Agreement executed on August 26, 2004 and effective as of July
1, 2004 between Denbury and Genesis (such agreement, as amended, supplemented,
modified or restated from time to time, the "Second Purchase and Sale
Agreement"), Denbury sold and conveyed and Genesis purchased and paid for (1)
all of Denbury's rights, title, and interests in and to certain industrial sale
contracts covering the sale of CO2 by Denbury to third parties and (2) a
volumetric production payment in and to CO2 produced, saved, and sold from the
Subject Interests, upon and subject to the terms and conditions provided in the
Second Master Documents (as defined below).
E........Denbury now desires to sell and convey and Genesis now desires
to purchase and pay for (1) all of Denbury's rights, title, and interests in and
to certain additional industrial sales
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contracts covering the sale of CO2 by
Denbury to third parties, and (2) an additional volumetric production payment in
and to CO2 produced, saved, and sold from the Subject Interests, upon and
subject to the terms and conditions provided in the Master Documents.
ARTICLE I
CERTAIN DEFINITIONS
1.1. For purposes of this Agreement, the following capitalized terms shall have
the meanings herein ascribed to them and the capitalized terms defined in the
opening paragraph and subsequent paragraphs by inclusion in quotation marks and
parentheses shall have the meanings ascribed to them:
"Additional Industrial Sale Contracts" means the EPCO Contract and the
Sandhill Group Contract.
"Additional Volumes" is defined in Section 4.4.
"Agreement with Lenders" means that certain Third Agreement with
Lenders to be entered into between JPMorgan Chase Bank, N.A., as Administrative
Agent for the Banks under the Credit Agreement (each of such terms as defined in
the Agreement with Lenders) and Genesis in the form attached hereto as Exhibit
F, as the same may be amended, supplemented, modified or restated from time to
time.
"Applicable Plant" means each dehydration and/or processing plant owned
by Denbury through which CO2 attributable to that portion of the Subject
Interests that is dedicated to an Additional Industrial Sale Contract is
processed, and "Applicable Plants" means all of such plants.
"Assigned Contract Interests" is defined in Section 4.1.
"Assignment" means the Third Assignment of Production Payment to be
entered into between Denbury and Genesis in the form attached hereto as Exhibit
A, as the same may be amended, supplemented, modified or restated from time to
time.
"Audited Party" is defined in Section 12.3.
"Bank Liens" means the liens created under or pursuant to that certain
Fifth Amended and Restated Credit Agreement dated as of September 1, 2004 among
Denbury, as borrower, Denbury Resources Inc., as parent guarantor, the financial
institutions listed therein, JPMorgan Chase Bank, N.A., successor by merger to
Bank One, N.A., as Administrative Agent, Calyon New York Branch, and Fortis
Capital Corp., as Syndication Agents, and Union Bank of California, N.A., and
Comerica Bank, as Documentation Agents, as amended, supplemented, or modified
from time to time.
"BCF" means one billion cubic feet of CO2.
"Call Option" is defined in Section 2.4.
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"Call Settlement Date" is defined in Section 2.4.
"Claims" is defined in Section 9.1.
"Closing" is defined in Section 10.1.
"Closing Date" is defined in Section 10.1.
"CO2" is defined in the Assignment.
"Contract Assignment" means the Third Assignment of Contracts and Xxxx
of Sale to be entered into between Denbury and Genesis in the form attached
hereto as Exhibit C, as the same may be amended, supplemented, modified or
restated from time to time.
"Daily Maximum Quantity" is defined in the Assignment.
"Day" is defined in the Assignment.
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"Dedicated Contract Quantity" means (a) with respect to the Sandhill
Group Contract, the "Dedicated Contract Quantity" as that term is defined in
Section 4.1 of the Sandhill Group Contract and (b) with respect to the EPCO
Contract, the "Daily Contract Quantity" as that term is defined in Section 1.1
of the EPCO Contract.
"Deficiency" is defined in Section 4.4.
"Delivery Points" is defined in the T&P Agreement.
"Denbury Indemnified Party" is defined in Section 9.2.
"Denbury Pipeline" shall have the same meaning as "Transporter's
Pipeline" as such term is defined in the T&P Agreement.
"Effective Date" is defined in the opening paragraph of this Agreement.
"Environmental Claims" is defined in Section 5.14.
"Environmental Contaminants" is defined in Section 5.14.
"Environmental Laws" means all federal, state and local Governmental
Requirements regulating or otherwise pertaining to the environment, including
without limitation the following as from time to time amended and all others
whether similar or dissimilar and whether now existing or hereafter enacted: the
Oil Pollution Act of 1990, as amended ("OPA"); the Comprehensive Environmental
Response, Compensation, and Liability Act of 1980, as amended by the Superfund
Amendments and Reauthorization Act of 1986; the Resource Conservation and
Recovery Act of 1976, as amended by the Used Oil Recycling Act of 1980, the
Solid Waste Disposal Act amendments of 1980, and the Hazardous and Solid Waste
Amendments of 1984; the Hazardous Materials Transportation Act, as amended; the
Toxic Substance Control Act, as amended; the Clean Air Act, as amended; the
Clean Water Act, as amended; and all regulations promulgated pursuant
thereunder.
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"Environmental Liabilities" is defined in Section 5.14.
"Environmental Permits" is defined in Section 5.14.
"EPCO Contract" means that certain Carbon Dioxide Sale and Purchase
Contract dated July 11, 2001 by and between EPCO Carbon Dioxide Products, Inc.,
as Buyer, and Denbury Resources, Inc., as Seller, as amended by (a) Amendment to
Carbon Dioxide Sale and Purchase Contract dated Xxxxxx 00, 0000, (x) letter
agreement dated August 29, 2001. and (c) Amendment to Carbon Dioxide Sale and
Purchase Agreement dated September 1, 2003.
"Excess Volumes" is defined in the Assignment.
"First Assignment" means that certain Assignment of Production Payment
by Denbury's predecessor to Genesis, dated November 14, 2003, effective as of
September 1, 2003, and recorded in Volume 1040 at Page 73 of the Official
Records of Xxxxxx County, Mississippi, as the same may be amended, supplemented,
modified or restated from time to time.
"First Contract Assignment" means that certain Assignment of Contracts
and Xxxx of Sale dated November 14, 2003 and effective as of September 1, 2003
by Denbury's predecessor, as Assignor, to Genesis, as Assignee, as the same may
be amended, supplemented, modified or restated from time to time.
"First Master Documents" means the First Purchase and Sale Agreement
and all agreements executed in connection therewith or pursuant thereto,
including, but not limited to, the First Assignment, the First Contract
Assignment, and the First T&P Agreement, as the same may be amended,
supplemented, modified or restated from time to time.
"First Production Payment" means that certain volumetric production
payment conveyed by Denbury's predecessor to Genesis pursuant to the First
Assignment and in accordance with the terms and conditions of the First Purchase
and Sale Agreement, as the same may be amended, supplemented, modified or
restated from time to time.
"First Purchase and Sale Agreement" is defined in Recital C above.
"First T&P Agreement" means the Carbon Dioxide Transportation Agreement
dated November 14, 2003, effective September 1, 2003, between Denbury's
predecessor, as transporter, and Genesis, as shipper, as amended, supplemented,
modified, or restated from time to time.
"Genesis Indemnified Party" is defined in Section 9.1.
"Governmental Authority" means any nation or government, any state or
other political subdivision thereof and any person exercising executive,
legislative, judicial, regulatory or administrative functions of or pertaining
to government.
"Governmental Requirement" means any law, statute, code, ordinance,
order, determination, rule, regulation, judgment, decree, injunction, franchise,
permit, certificate,
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license, authorization or other directive or requirement,
energy regulations and occupational, safety and health standards or controls, of
any Governmental Authority.
"Leases" means the leases described, referred to or identified in
Exhibit A-1 to the Assignment, together with any renewals or extensions of such
leases, and any replacement leases, insofar and only insofar as they cover the
Subject Lands (or a portion thereof).
"Lost Interest" is defined in Section 11.10.
"Master Documents" means this Agreement and all agreements executed in
connection herewith or pursuant hereto, including but not limited to the
Assignment, the Contract Assignment and the T&P Agreement.
"Material Adverse Effect" means a material adverse effect upon (a) the
validity or enforceability of the Master Documents, or (b) the financial
condition of Denbury or Genesis, as applicable, or (c) the ability of Denbury or
Genesis, as applicable, to perform its obligations under the Master Documents.
"MCF" means one thousand cubic feet of CO2.
"Month" means a period beginning on the first Day of a calendar month
and ending at the beginning of the first Day of the next succeeding calendar
month.
"Permitted Liens" means (a) lessor's royalties, overriding royalties,
and division orders covering oil, gas and other hydrocarbons, reversionary
interests and similar burdens existing as of the Effective Date; (b) operating
agreements, unit agreements and similar agreements, and any and all federal and
state regulatory orders and rules (including forced pooling orders) to which the
Subject Interests are subject; (c) liens for Taxes or assessments not due or
pursuant to which Denbury is not delinquent; (d) preferential rights to purchase
and required third-party consents to assignments and similar agreements with
respect to which (1) waivers or consents have been obtained from the appropriate
parties, or (2) required notice has been given to the holders of such rights and
the appropriate time period for asserting such rights has expired without an
exercise of such rights; (e) all rights to consent by, required notices to,
filings with, or other actions by governmental entities in connection with the
sale or conveyance of oil, gas and mineral leases or interests therein if the
same are customarily obtained after such sale or conveyance; (f) easements,
rights-of-way, servitudes, permits, surface leases and other rights in respect
of surface operations, pipelines, grazing, logging, canals, ditches, reservoirs
or the like; and easement for streets, alleys, highways, pipelines, telephone
lines, power lines, railways and other easements and rights-of-way, on, over or
in respect of any of the Subject Interests; (g) liens of operators relating to
obligations not due or pursuant to which Denbury is not delinquent; (h) title
problems commonly encountered in the oil and gas business which would not be
considered material by a reasonable and prudent person engaged in the business
of the ownership, development and operation of oil and gas properties with
knowledge of all the facts and appreciation of their legal significance; (i) the
Bank Liens; and (j) the Prior Production Payments.
"Person" means any individual, natural person, corporation, joint
venture, partnership, limited partnership, trust, estate, business trust,
association, governmental entity or other entity.
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"Personal Property" means improvements, machinery, equipment, gathering
lines, tanks, fixtures and other personal property and equipment of every kind
and nature now or hereafter used or held for use in connection with the
exploration, development or operation of the Subject Interests; provided,
however, that the term "Personal Property" shall not include the Denbury
Pipeline or the Applicable Plants.
"Prior Contract Assignments" means, collectively, the First Contract
Assignment and the Second Contract Assignment.
"Prior Master Documents" means, collectively, the First Master
Documents and the Second Master Documents.
"Prior Production Payments" means, collectively, the First Production
Payment and the Second Production Payment.
"Production Payment" is defined in the Assignment.
"Production Payment Gas" is defined in the Assignment.
"Receipt Point" is defined in the T&P Agreement.
"Reserve Report" means "Data on Estimated Proved Carbon Dioxide
Reserves as of December 31, 2004" of the Appraisal Report as of December 31,
2004 on Certain Properties Owned by Denbury, SEC Case, of XxXxxxxx and
XxxXxxxxxxx dated February 2, 2005.
"Retained Obligations" is defined in Section 11.12.
"Scheduled Delivery Volumes" is defined in the Assignment.
"Sandhill Group Contract" means that certain Contract for Sale of
Carbon Dioxide effective as of August 1, 2005, by and between Sandhill Group,
LLC, as Seller, and Denbury Onshore, LLC, as Buyer.
"Second Assignment" means the Second Assignment of Production Payment
by Denbury to Genesis, dated August 26, 2004, effective as of July 1, 2004, and
recorded in Volume 2004 at Page 326 of the Oil & Gas Records of Xxxxxx County,
Mississippi, as the same may be amended, supplemented, modified or restated from
time to time.
"Second Contract Assignment" means the Second Assignment of Contracts
and Xxxx of Sale dated August 26, 2004 and effective as of July 1, 2004 by
Denbury, as Assignor, to Genesis, as Assignee, as the same may be amended,
supplemented, modified or restated from time to time.
"Second Master Documents" means the Second Purchase and Sale Agreement
and all agreements executed in connection therewith or pursuant thereto,
including, but not limited to, the Second Assignment, the Second Contract
Assignment, and the Second T&P Agreement, as the same may be amended,
supplemented, modified or restated from time to time.
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"Second Production Payment" means that certain volumetric production
payment conveyed by Denbury to Genesis pursuant to the Second Assignment and in
accordance with the terms and conditions of the Second Purchase and Sale
Agreement, as the same may be amended, supplemented, modified or restated from
time to time.
"Second Purchase and Sale Agreement" is defined in Recital D above.
"Second T&P Agreement" means the Second Carbon Dioxide Transportation
Agreement dated August 26, 2004, effective July 1, 2004, between Denbury, as
transporter, and Genesis, as shipper, as amended, supplemented, modified, or
restated from time to time.
"Seller's Reserves" means (a) "Seller's Reserves" as defined in the
Sandhill Group Contract, and (b) "Carbon Dioxide reserves in and under the
Source Field" as defined in the EPCO Contract.
"Subject Interests" is defined in the Assignment.
"Subject Lands" is defined in the Assignment.
"T&P Agreement" means the Third Carbon Dioxide Transportation Agreement
to be entered into between Denbury and Genesis in the form attached hereto as
Exhibit D, as the same may be amended, supplemented, modified or restated from
time to time.
"Taxes" is defined in the Assignment.
"Term" means the period beginning on the Effective Date and ending on
the date on which 80.0 BCF of Production Payment Gas is delivered pursuant to
the Production Payment.
"Transportation Fee" is defined in the T&P Agreement.
ARTICLE II
PURCHASE AND SALE OF THE PRODUCTION PAYMENT
2.1. Upon the terms and subject to the terms of this Agreement, Denbury agrees
to sell and convey and Genesis agrees to purchase and pay for the Production
Payment.
2.2. The Production Payment will be assigned by Denbury to Genesis pursuant to
the Assignment.
2.3. Genesis shall look solely to the receipt of Production Payment Gas as
provided herein for satisfaction and discharge of the Production Payment, and
Genesis shall not have any other recourse against Denbury for the payment and
discharge of the Production Payment. However, the foregoing provision shall not
relieve Denbury of any obligation to respond in damages for any breach of any of
the covenants, agreements and obligations of Denbury hereunder or under any
other Master Document.
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2.4. Genesis hereby grants Denbury the option to repurchase the Production
Payment pursuant to the terms of this Section 2.4 (the "Call Option"). If
pursuant to Section 2.8 of the T&P Agreement, the Transporter (as defined in the
T&P Agreement) elects to exercise its Call Option (or is deemed to have elected
to exercise its Call Option), Denbury shall notify Genesis of the date on which
the repurchase will be consummated (the "Call Settlement Date"), which date must
be a Business Day and must occur no sooner than five Business Days and no later
than 30 days after the date on which Transporter delivered (or was deemed to
have delivered) notice of its intent to exercise the Call Option. On the Call
Settlement Date, Genesis and Denbury shall execute documentation sufficient to
terminate the Production Payment and the other Master Documents, cause the
reconveyance to and assumption by Denbury of the Additional Industrial Sale
Contracts, and contemporaneously therewith, Denbury shall pay to Genesis in
immediately available funds, a purchase price equal to the estimated cash flow
from the remaining volumes obligated to be delivered pursuant to the Production
Payment discounted to present net value using a twelve percent (12%) per annum
discount rate. The estimated cash flow from the remaining volumes obligated to
be delivered pursuant to the Production Payment shall be based upon a forecast
prepared by Denbury and furnished to Genesis, and if Genesis objects to such
forecast, then such matter may be submitted to and resolved in accordance with
the arbitration provisions contained in Article XIV.
2.5. In the event of any express conflict between the terms and provisions of
this Agreement and the terms and provisions of the Assignment, the terms and
provisions of the Assignment shall control. The inclusion in this Agreement of
provisions not addressed in the Assignment shall not be deemed a conflict, and
all such additional provisions contained herein shall be given full force and
effect.
ARTICLE III
PROCESSING AND TRANSPORTATION OF
PRODUCTION PAYMENT GAS
3.1. After the Closing, Denbury agrees to transport Production Payment Gas from
the Receipt Points, and redeliver Production Payment Gas at the Delivery Points,
in accordance with the provisions of the T&P Agreement. All Production Payment
Gas shall be delivered by Denbury to the Delivery Points in compliance with the
requirements set out in the T&P Agreement with respect to pressure, quantity and
quality specifications. Under the T&P Agreement, Genesis will pay Denbury a
Transportation Fee (as adjusted in accordance with the terms of the T&P
Agreement), which initially shall be $0.16 per MCF, for transportation of the
Production Payment Gas from the Receipt Points, processing of the Production
Payment Gas through the Applicable Plants, and redelivery of the Production
Payment Gas to or on behalf of Genesis at the Delivery Points.
3.2. The processing and transportation of Production Payment Gas by Denbury as
described in this Article shall be subject to the terms and provisions contained
in this Article, as such terms and provisions may be further described or
supplemented by the T&P Agreement. In the event of any conflict between the
terms and provisions of this Article and the terms and provisions of the T&P
Agreement, the terms and provisions of the T&P Agreement shall control. The
inclusion in this Agreement of provisions not addressed in the T&P Agreement
shall not be
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deemed a conflict, and all such additional provisions contained
herein shall be given full force and effect.
ARTICLE IV
ASSIGNMENT OF ADDITIONAL INDUSTRIAL SALE CONTRACTS
4.1. At the Closing, Denbury will assign to Genesis all of its right, title, and
interest in and to the Additional Industrial Sale Contracts (the "Assigned
Contract Interests"), subject to the terms and conditions contained in the
Additional Industrial Sale Contracts. The Assigned Contract Interests will be
assigned by Denbury to Genesis pursuant to the Contract Assignment.
Notwithstanding such assignment, Denbury shall be obligated to continue to
comply with the Retained Obligations.
4.2. At the Closing, Genesis will assume the cost and responsibilities of
administering the Assigned Contract Interests with respect to rights and
obligations arising after the Effective Date and will report the sales and
values of such sales to Denbury on a Monthly basis on or before the 10th day of
each succeeding Month, in a manner and format agreed upon between the Parties,
in order that Denbury can timely pay royalties attributable to the Production
Payment Gas sold pursuant to the Additional Industrial Sale Contracts.
Notwithstanding anything herein to the contrary, without the prior written
consent of Denbury, Genesis shall not amend or otherwise modify any terms or
provisions of the Additional Industrial Sale Contracts if such amendment or
modification of the Additional Industrial Sale Contracts shall in any manner
whatsoever, directly or indirectly, modify the Retained Obligations or otherwise
increase any obligations of Denbury under any of the Master Documents, including
but not limited to any increase of the sales and delivery requirements under the
Additional Industrial Sale Contracts. If Denbury elects not to consent to any
proposed amendment, Denbury shall provide a written explanation setting out the
reasons for such election.
4.3. In the event of any conflict between the terms and provisions contained in
this Article IV and the terms and provisions of the Contract Assignment, the
terms and provisions contained in the Contract Assignment shall control. The
inclusion in this Agreement of provisions not addressed in the Assignment shall
not be deemed a conflict, and all such additional provisions contained herein
shall be given full force and effect.
4.4. If at any time or from time to time during the Term Genesis determines that
80.0 BCF is not sufficient to satisfy the sales and delivery requirements of the
Additional Industrial Sale Contracts (a "Deficiency"), Genesis shall promptly
furnish Denbury with written notice of such determination, and such notice shall
contain sufficient detail that is reasonably calculated to enable Denbury to
determine the basis for Genesis' determination of such Deficiency. If, after
receipt of such notice, Denbury agrees with Genesis' assessment of a Deficiency,
Denbury agrees to amend the Production Payment to include such additional
volumes of CO2 that are necessary to enable Genesis to satisfy the sales and
delivery requirements of the Additional Industrial Sale Contracts. If Denbury
fails to agree with Genesis' assessment of a Deficiency, then such matter shall
be resolved pursuant to Article XIV. The agreed-upon amount of additional
volumes necessary to enable Genesis to satisfy the sales and delivery
requirements of the Additional Industrial Sale Contracts (the "Additional
Volumes")
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shall be sold by Denbury to Genesis on the same terms and conditions,
mutatis mutandis, as applicable to the Production Payment by virtue of this
Agreement, and the value of, and consequently the consideration to be paid by
Genesis to Denbury for, the Additional Volumes shall be calculated based on
estimated cash flow from the Additional Volumes discounted to present net value
using a twelve percent (12%) per annum discount rate. Notwithstanding the
foregoing, if it is determined that the Deficiency has occurred, in whole or in
part, as a result of the sale by Genesis of Excess Volumes, Denbury shall not be
obligated to deliver those Additional Volumes which are attributable to the sale
of Excess Volumes by Genesis.
4.5. The Sandhill Group Contract is subject to certain obligations to pay
commissions as more particularly described in Section 2.02 of that certain
Purchase and Sale Agreement dated effective April 1, 2001, by and between
Denbury Resources Inc., as Buyer, and Magna Carta Group, L.L.C., Madex, Inc.,
Xxxxx-Xxxxxx County, L.L.C., and Xxxxxxx X. Xxxxxxx, as Seller (the "Commission
Obligation"). At the Closing, Genesis will assume the Commission Obligation to
the extent that it relates to the Sandhill Group Contract.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF DENBURY
Denbury hereby represents and warrants to Genesis as follows:
5.1. Denbury is a limited liability company duly formed, validly existing and in
good standing under the laws of the State of Delaware. Denbury possesses the
legal right, power and authority, and qualifications to conduct its business and
own its properties (including the Subject Interests), except where the failure
to so possess would not, individually or collectively, have a Material Adverse
Effect. Denbury has the legal right, power and authority (i) to execute and
deliver the Assignment and to convey to Genesis the Production Payment and all
of the rights and privileges appurtenant thereto and (ii) to execute and deliver
this Agreement and the other Master Documents and to perform all of its
obligations hereunder and thereunder.
5.2. The execution, delivery and performance by Denbury of this Agreement and
the other Master Documents are within its powers and authority, have been duly
authorized by all necessary board of director action on the part of Denbury and
do not and will not (i) violate any Governmental Requirement currently in effect
having applicability to Denbury, other than violations which would not,
individually or collectively, cause a Material Adverse Effect, or (ii) violate
any provision of Denbury's governing and organizational documents, or (iii)
result in a breach of or constitute a default (excluding breaches or defaults
which, individually or collectively, would not have a Material Adverse Effect)
under any indenture, bank loan, or credit agreement or farm-out agreement,
program agreement or operating agreement, or any other agreement or instrument
to which Denbury is a party or by which Denbury or its properties may be
currently bound or affected, or (iv) other than the Master Documents and/or
other than matters which would not individually or collectively cause a Material
Adverse Effect, result in or require the creation or imposition of any mortgage,
lien, pledge, security interest, charge, or other encumbrance upon or of any of
the properties or assets of Denbury (including the Subject Interests).
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5.3. This Agreement and the other Master Documents have been duly executed and
delivered by Denbury, and this Agreement and the Master Documents constitute the
legal, valid, and binding acts and obligations of Denbury enforceable against
Denbury in accordance with their terms, subject, however, to bankruptcy,
insolvency, reorganization, and other laws affecting creditors' rights generally
and general principles of equity. There are no bankruptcy, insolvency,
reorganization, receivership or arrangement proceedings pending, being
contemplated by or, to Denbury's knowledge, threatened against Denbury.
5.4. Denbury is not in default under any Governmental Requirement, indenture,
agreement, or instrument which would reasonably be expected to cause a Material
Adverse Effect nor does any fact or condition exist at this time that would
reasonably be expected to cause a Material Adverse Effect in the future under
any Governmental Requirement, indenture, agreement or instrument; and all
consents and waivers of preferential purchase or other rights required in
connection with the valid conveyance to Genesis of the Production Payment or the
execution and delivery of this Agreement and the other Master Documents have
been obtained or the time for giving such consents or waivers has expired
following a written request therefor, other than those consents and waivers
which if not obtained, would not individually or collectively have a Material
Adverse Effect.
5.5. All advance notifications to third parties of the transactions contemplated
herein and in the other Master Documents required in connection with the valid
conveyance to Genesis of the Production Payment or execution and delivery of
this Agreement and the other Master Documents have been timely and properly
given, other than those notifications which, if not obtained, would not
individually or collectively have a Material Adverse Effect.
5.6. All authorizations, consents, approvals, licenses, and exemptions of, and
filings or registrations with, any Governmental Authority, that are required for
the valid execution and delivery by Denbury of, or the performance by Denbury of
its obligations under, this Agreement or the other Master Documents have been
obtained or performed or the period for objection thereto expired, other than
those which, if not obtained or performed, would not individually or
collectively have a Material Adverse Effect.
5.7. To Denbury's knowledge, the Reserve Report (i) was prepared in accordance
with customary engineering practices, and (ii) is based on historical
information that is accurate and complete in all material respects. The Subject
Interests constitute all of the properties and interests reflected in the
Reserve Report that relate to the production of CO2. Set forth on Exhibit B
attached to this Agreement is a true and correct statement of Denbury's working
interest and net revenue interest in and to each well noted on such Exhibit B
except to the extent that such interest is incorrect as the result of an act or
omission that does not arise by, through or under Denbury and except for
discrepancies which would not be considered material by a reasonable and prudent
person engaged in the business of the ownership, development and operation of
oil and gas properties with knowledge of all the facts and appreciation of their
legal significance. The interests reflected on such Exhibit B are owned by
Denbury free and clear of any lien or encumbrance arising by, through or under
Denbury, other than Permitted Liens.
5.8. All Taxes imposed or assessed with respect to or measured by or charged
against or attributable to the Subject Interests, the Personal Property, the
Denbury Pipeline and the
12
Applicable Plants have been duly paid, except for Taxes
not yet due and payable or pursuant to which Denbury is not delinquent.
5.9. There are no suits or proceedings pending or, to Denbury's knowledge,
threatened against Denbury, the Subject Interests, the Denbury Pipeline, the
Applicable Plants or any of the Personal Property before any Governmental
Authority, that, if decided adversely to the interest of Denbury, would
reasonably be expected to have a Material Adverse Effect; provided, however,
that notwithstanding the foregoing, Schedule 5.9 includes a list of current
litigation affecting any of the Subject Interests, the Denbury Pipeline, the
Applicable Plants, and the Personal Property.
5.10. Except with respect to those matters which would not individually or
collectively have a Material Adverse Effect, (i) the Leases are in full force
and effect, and (ii) Denbury has complied with the terms of all Governmental
Requirements applicable to Denbury or applicable directly to the Subject
Interests.
5.11. All rents and royalties with respect to the Leases have been paid in a
timely manner (excluding any failures to pay which would not individually or
collectively have a Material Adverse Effect), and all liabilities of any kind or
nature incurred with respect to the Leases have been paid before delinquent
(excluding any liabilities or failures to pay which would not individually or
collectively have a Material Adverse Effect); Denbury has not received any
notice of default or claimed default with respect to the Subject Interests or
any part thereof that would reasonably be expected to result in a Material
Adverse Effect; and except for matters which would not individually or
collectively have a Material Adverse Effect, all xxxxx, facilities and equipment
which constitute part of the Personal Property and the Denbury Pipeline and the
Applicable Plants are in good repair and working condition and have been
designed, installed and maintained in accordance with generally accepted
industry standards and all applicable Governmental Requirements.
5.12. Denbury has not violated any Governmental Requirement or failed to obtain
any license, permit, franchise or other governmental authorization required for
the ownership or operation of any of the Personal Property or the Denbury
Pipeline or any of the Applicable Plants, except for violations which would not
individually or collectively have a Material Adverse Effect. Except for matters
which would not individually or collectively have a Material Adverse Effect, the
Personal Property, the Denbury Pipeline and the Applicable Plants have each been
maintained, operated and developed in conformity with all applicable
Governmental Requirements of all Governmental Authorities having jurisdiction
and in conformity with the provisions of all leases, subleases or other
contracts comprising a part of the Subject Interests.
5.13. Since the date of the Reserve Report, there has not been any reduction in
the rate of production of CO2 from any of the Subject Interests that would
reasonably be expected to have a Material Adverse Effect.
5.14. Except as set forth on Schedule 5.14 and except with respect to those
matters which would not individually or collectively reasonably be expected to
result in a Material Adverse Effect, to Denbury's knowledge: (i) Denbury has
obtained and maintained in effect all environmental and health and safety
permits, licenses, approvals, consents, certificates and other
13
authorizations
required in connection with Denbury's ownership or operation of the Subject
Lands ("Environmental Permits"); (ii) Denbury's operations on the Subject Lands
are in compliance in all material respects with all applicable Environmental
Laws and with all terms and conditions of all applicable Environmental Permits,
and all prior instances of material non-compliance have been fully and finally
resolved to the satisfaction of all Governmental Authorities with jurisdiction
over such matters; (iii) Denbury's operations on the Subject Lands are not
subject to any third party environmental or health and safety claim, demand,
filing, investigation, administrative proceeding, action, suit or other legal
proceeding, whether direct, indirect, contingent, pending, threatened or
otherwise ("Environmental Claim"), or Environmental Liabilities (as defined
herein), arising from, based upon, associated with or related to Denbury's
operations on the Subject Lands; (iv) Denbury has not received any notice of any
Environmental Claim, Environmental Liabilities or any violation or
non-compliance with any Environmental Law or the terms or conditions of any
Environmental Permit, arising from, based upon, associated with or related to
Denbury's operations on the Subject Lands; (v) no pollutant, waste, contaminant,
or hazardous, extremely hazardous, or toxic material, substance, chemical or
waste identified, defined or regulated as such under any Environmental Law
("Environmental Contaminants") is present on, or has been handled, managed,
stored, transported, processed, treated, disposed of, released, migrated or has
escaped on, in, from, or under the Subject Lands as a result of Denbury's
operations on the Subject Lands in a manner that has caused an Environmental
Claim, Environmental Liabilities or a violation of any applicable Environmental
Law; and (iv) the executive management of Denbury is not aware of any facts,
conditions or circumstances in connection with, related to or associated with
any of the Properties or the ownership or operation, that as of the date of this
Agreement could reasonably be expected to give rise to any material
Environmental Claim or Environmental Liabilities. As used in this Agreement, the
term "Environmental Liabilities" means any and all liabilities arising from,
based upon, associated with or related to (i) any Environmental Claim, (ii) any
applicable Environmental Permit, (iii) any applicable Environmental Law or (iv)
the presence, handling, management, storage, transportation, processing,
treatment, disposal, release, threatened release, migration or escape of
Environmental Contaminants (including, without limitation, all costs arising
under any theory of recovery, in law or at equity), whether based on negligence,
strict liability, or otherwise, including, without limitation, remediation,
removal, response, restoration, abatement, investigative, monitoring, personal
injury, and property damage costs and all other related costs, expenses, losses,
damages, penalties, fines, liabilities and obligations (including interest paid
or accrued, attorneys' fees, and court costs).
5.15. Denbury has good title to the Additional Industrial Sale Contracts, free
and clear of all liens, encumbrances or claims (other than Permitted Liens), and
each Additional Industrial Sale Contract is in full force and effect and
enforceable against Denbury, and, to Denbury's knowledge, the counterparty
thereto. The Additional Industrial Sale Contracts have been conveyed to Genesis
free and clear of the Bank Liens.
5.16. Except as set forth on Schedule 5.9 or Exhibit A to the Contract
Assignment, (a) there have been no amendments or modifications to the Additional
Industrial Sale Contracts; and (b) there are no breaches or defaults under the
Additional Industrial Sale Contracts by Denbury or any counterparty to the
Additional Industrial Sale Contracts which would reasonably be expected to
prevent the practical realization by Genesis of the benefits intended to be
provided to Genesis under the Additional Industrial Sale Contracts.
14
5.17. Upon due execution and delivery by Denbury of the Assignment, under
Mississippi law, (i) the Assignment will constitute the legal, valid, and
binding conveyance of the Production Payment and will constitute a burden upon
all of the CO2 production from the Subject Interests, and (ii) the Production
Payment will constitute real property.
5.18. Except with respect to the Prior Master Documents, the contracts assigned
pursuant to the Prior Contract Assignments, the Additional Industrial Sale
Contracts and/or as set forth in Schedule 5.18, (i) neither the Subject
Interests, the CO2 attributable thereto nor the Denbury Pipeline are subject,
committed, or dedicated to any contract, agreement, or arrangement regarding the
transportation or sale of CO2 production; (ii) no third party has any call,
right of first refusal or preferential right to purchase or transport any such
CO2 that has not been waived or the time for giving such consents or waivers has
expired in accordance with the terms of such call or rights; and (iii) no third
party has any purchase option with respect to any such CO2 or the Denbury
Pipeline.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES OF GENESIS
Genesis hereby represents and warrants to Denbury as follows:
6.1. Genesis is a limited partnership duly formed and validly existing under the
laws of the State of Delaware. Genesis possesses the legal right, power and
authority, and qualifications to conduct its business and own its properties,
except where the failure to so possess would not, individually or collectively,
have a Material Adverse Effect. Genesis has the legal right, power and authority
to execute and deliver this Agreement, the Assignment and the other Master
Documents and to perform all of its obligations hereunder and thereunder,
including unanimous approval of the transactions by the audit committee of
Genesis Energy, Inc., the general partner of Genesis, such audit committee
consisting solely of independent directors (the "Audit Committee").
6.2. The execution, delivery and performance by Genesis of this Agreement and
the other Master Documents are within its powers and authority, have been duly
authorized by all necessary board of director action on the part of Genesis
Energy, Inc. (in its capacity as general partner of Genesis), and by the Audit
Committee and do not and will not (i) violate any Governmental Requirement
currently in effect having applicability to Genesis, other than violations which
would not, individually or collectively, cause a Material Adverse Effect, or
(ii) violate Genesis' limited partnership agreement or other governing
documents, or (iii) result in a breach of or constitute a default (excluding
breaches or defaults which, individually or collectively, would not have a
Material Adverse Effect) under any indenture, bank loan, or credit agreement or
farm-out agreement, program agreement or operating agreement, or any other
agreement or instrument to which Genesis is a party or by which Genesis or its
properties may be currently bound or affected.
6.3. Genesis is not in default under any Governmental Requirement, indenture,
agreement, or instrument that would reasonably be expected to cause a Material
Adverse Effect nor does any fact or condition exist at this time that would
reasonably be expected to cause
15
a Material Adverse Effect now or in the future
under any Governmental Requirement, indenture, agreement or instrument; and all
consents or approvals under such indentures, agreements, and instruments
necessary to permit the valid execution, delivery, and performance by Genesis of
the Master Documents have been obtained.
6.4. This Agreement and the other Master Documents have been duly executed and
delivered by Genesis, and this Agreement and the Master Documents constitute the
legal, valid, and binding acts and obligations of Genesis enforceable against
Genesis in accordance with their terms, subject, however, to bankruptcy,
insolvency, reorganization, and other laws affecting creditors' rights generally
and general principles of equity. There are no bankruptcy, insolvency,
reorganization, receivership or arrangement proceedings pending, being
contemplated by or, to the knowledge of Genesis, threatened against Genesis.
6.5. All authorizations, consents, approvals, licenses, and exemptions of, and
filings or registrations with, any Governmental Authority, that are required for
the valid execution and delivery by Genesis of, or the performance by Genesis of
its obligations under, this Agreement or the other Master Documents have been
obtained or performed or the period for objection thereto expired, other than
those which, if not obtained or performed, would not individually or
collectively have a Material Adverse Effect; and no consent or vote of the
limited partners of Genesis is required for the execution, delivery or
performance by Genesis of this Agreement and the other Master Documents under
Genesis' limited partnership agreement or other documents to which Genesis is a
party.
6.6. There are no suits or proceedings pending or, to Genesis' knowledge,
threatened against Genesis before any Governmental Authority, that if decided
adversely to the interest of Genesis would reasonably be expected to have a
Material Adverse Effect.
6.7. The Production Payment to be acquired by Genesis pursuant to this Agreement
is being acquired for Genesis' own account and for investment and not for
distribution in violation of applicable securities laws.
ARTICLE VII
PAYMENT TO DENBURY
7.1. As consideration for the sale of the Production Payment to Genesis and the
assignment of the Assigned Contract Interests to Genesis by Denbury, Genesis
shall pay to Denbury at the Closing, $14,687,000 in cash.
ARTICLE VIII
DISCLAIMER OF WARRANTIES
8.1. Denbury has allowed Genesis the opportunity to review the title to the
Subject Interests, to satisfy itself as to all matters pertaining to the
transactions contemplated by this Agreement, including but not limited to the
sufficiency of CO2 reserves attributable to the Subject Interests to satisfy the
CO2 delivery requirements under the Assigned Contract Interests, and to conduct
other due diligence with respect to the Production Payment, the Subjects
16
Interests, the Subject Lands, the Denbury Pipeline, the Applicable Plants, and
the Additional Industrial Sale Contracts as Genesis deems necessary to
consummate the transactions contemplated by this Agreement.
8.2. OTHER THAN THE EXPRESS REPRESENTATIONS AND WARRANTIES PROVIDED BY DENBURY
HEREIN AND IN THE OTHER MASTER DOCUMENTS, DENBURY MAKES NO WARRANTIES AS TO (i)
THE PRESENCE, QUALITY AND QUANTITY OF CO2 RESERVES ATTRIBUTABLE TO THE SUBJECT
INTERESTS, (ii) THE AMOUNT, VALUE, QUALITY, QUANTITY, VOLUME OR DELIVERABILITY
OF ANY CO2 OR CO2 RESERVES IN, UNDER OR ATTRIBUTABLE TO THE SUBJECT LANDS, (iii)
THE GEOLOGICAL OR ENGINEERING CONDITION OF THE SUBJECT LANDS, (iv) THE ABILITY
OF THE SUBJECT LANDS TO PRODUCE CO2, INCLUDING WITHOUT LIMITATION, PRODUCTION
RATES, DECLINE RATES AND RECOMPLETION OPPORTUNITIES, (v) ANY PROJECTIONS AS TO
EVENTS THAT COULD OR COULD NOT OCCUR, (vi) THE ACCURACY, COMPLETENESS, OR
MATERIALITY OF ANY DATA, INFORMATION OR RECORDS FURNISHED TO GENESIS IN
CONNECTION WITH THE SUBJECT INTERESTS, SUBJECT LANDS, THE DENBURY PIPELINE AND
THE APPLICABLE PLANTS, INCLUDING INFORMATION CONTAINED IN ANY EXHIBIT OF THIS
AGREEMENT, ANY SEISMIC DATA AND DENBURY'S INTERPRETATION OR ANALYSIS OF SAME, OR
(vii) ANY OTHER MATTERS CONTAINED IN OR OMITTED FROM ANY INFORMATION OR MATERIAL
FURNISHED TO GENESIS BY DENBURY. ANY DATA, INFORMATION OR OTHER RECORDS
FURNISHED BY DENBURY ARE PROVIDED TO GENESIS AS A CONVENIENCE AND GENESIS'
RELIANCE ON OR USE OF THE SAME IS AT GENESIS' SOLE RISK.
ARTICLE IX
INDEMNITY
9.1. Denbury hereby indemnifies Genesis and its successors and assigns and
affiliates (each a "Genesis Indemnified Party") against, and agrees to defend
and hold each Genesis Indemnified Party harmless from and against, any and all
obligations, liabilities, claims, demands, suits, debts, accounts, liens or
encumbrances, and all costs and expenses, including reasonable attorneys' fees
relating thereto (collectively, "Claims"), that any Genesis Indemnified Party
may suffer or incur and that result from (a) the ownership or operation of the
Subject Interests, (b) the ownership of the Additional Industrial Sale Contracts
prior to the Effective Date, (c) any inaccuracy of any representation or
warranty of Denbury contained in this Agreement or in any other Master Document,
(d) any breach of any covenant or agreement of Denbury contained in this
Agreement or in any other Master Document, including but not limited to the
covenants relating to the Retained Obligations; provided, however, that such
indemnification shall not be construed to cover or include any of the matters
identified in Section 8.2 (including but not limited to disclaimers of
warranties relating to CO2 reserves or production) or any Claims to the extent,
but only to the extent, such Claims are determined to be not payable because
they fall within the scope of the force majeure provisions contained in the
Master Documents or the Additional Industrial Sale Contracts.
17
9.2. Genesis hereby indemnifies Denbury and its successors and assigns and
affiliates (each a "Denbury Indemnified Party") against, and agrees to defend
and hold each Denbury Indemnified Party harmless from and against, any and all
Claims that each Denbury Indemnified Party may suffer or incur and that result
from (a) except to the extent of any Claims arising solely as a result of
Denbury's execution of the Assignment, the ownership or operation of the
Production Payment, (b) except to the extent of any Claims arising as a result
of Denbury's failure to comply with the Retained Obligations, the ownership of
the Additional Industrial Sale Contracts after the Effective Date, (c) any
inaccuracy of any representation or warranty of Genesis contained in this
Agreement or any other Master Document, or (d) any breach of any covenant or
agreement of Genesis contained in this Agreement or any other Master Document;
provided, however, that such indemnification shall not be construed to cover or
include any Claims to the extent, but only to the extent, such Claims are
determined to be not payable because they fall within the scope of the force
majeure provisions contained in the Master Documents or the Additional
Industrial Sale Contracts.
9.3. No person entitled to indemnification hereunder or otherwise to damages in
connection with or with respect to the transactions contemplated in the
Agreement and the other Master Documents shall settle, compromise or take any
other action with respect to any Claim that could prejudice or otherwise
adversely impact the ability of the person providing such indemnification or
potentially liable for such damages to defend or otherwise settle or compromise
with respect to such Claim.
9.4. Each Party entitled to indemnification hereunder or otherwise to damages in
connection with the transactions contemplated in Agreement or the other Master
Documents shall take all reasonable steps to mitigate all losses, costs,
expenses and damages after becoming aware of any event or circumstance that
could reasonably be expected to give rise to any losses, costs, expenses and
damages that are indemnifiable or recoverable hereunder or in connection
herewith.
9.5. The indemnification provisions provided for in this Agreement shall be
applicable whether or not the losses, costs, expenses and damages in question
arose solely or in part from the gross, active, passive or concurrent
negligence, strict liability or other fault of Genesis or Denbury, as
applicable. The parties acknowledge that this statement complies with the
express negligence rule and is conspicuous.
ARTICLE X
CLOSING
10.1. Unless the Parties otherwise agree in writing, the closing of the
transactions contemplated by this Agreement (the "Closing") will occur
on the date this Agreement is executed as first set forth above (the
"Closing Date")
10.2. At the Closing, the following events shall occur, each being a
condition precedent to the others and each being deemed to have
occurred simultaneously with the others:
18
(a) Genesis shall deliver to Denbury the cash consideration described
in Section 7.1 by wire transferring immediately available funds to the
account of Denbury pursuant to wiring instructions furnished by Denbury
to Genesis prior to the Closing Date;
(b) The Parties shall execute, acknowledge and deliver the Assignment
and the Contract Assignment;
(c) The Parties shall execute and deliver the T&P Agreement;
(d) Denbury shall obtain and deliver to Genesis multiple executed
originals of (i) the Agreement with Lenders executed by the holders of the
Bank Liens, and (ii) an acceptable release of liens with respect to the
Bank Liens encumbering the Subject Interests conveyed to Genesis pursuant
to the Assignment; and
(e) The Parties shall execute and deliver any other documents or
instruments necessary or appropriate to effect or support the
transactions contemplated in this Agreement, including but not limited
to any amendments or other modifications of the Prior Master Documents
that may be necessary or appropriate due to the execution and delivery
of the Master Documents.
10.3. Promptly following the Closing, Genesis will cause counterparts of the
Assignment, a mutually agreeable Memorandum of T&P Agreement, the Agreement with
Lenders and financing statements to be filed for record in all appropriate
records in appropriate filing locations. Genesis will pay for all documentary,
filing and recording fees required in connection with the filing and recording
of the Master Documents.
ARTICLE XI
COVENANTS AND AGREEMENTS OF DENBURY
During the Term, and unless Genesis otherwise agrees in writing,
Denbury covenants as follows, and agrees and undertakes, to perform each and all
of the following covenants at Denbury's sole and entire cost and expense:
11.1. Denbury will (without regard to the burden of the Production Payment)
conduct and carry on the development, maintenance and operation of the Subject
Interests with reasonable and prudent business judgment and in accordance with
good oil and gas field practices and all applicable Governmental Requirements,
and will drill such xxxxx as a reasonably prudent operator would drill from time
to time in order to develop the Subject Interests and to protect them from
drainage. Nothing contained in this Section, however, shall be deemed to prevent
or restrict Denbury from electing not to participate in any operation that is to
be conducted under the terms of any operating agreement, unit operating
agreement, contract for development or similar instrument affecting or
pertaining to the Subject Interests (or any portion thereof) and allowing
consenting parties to conduct nonconsent operations thereon, if such election is
made by Denbury in good faith and in conformity with sound field practices.
After the date of this Agreement, Denbury shall not enter into any
transaction(s) or agree to any arrangements which, after taking into account
then current required third party sales (including
19
sales under the Additional
Industrial Sale Contracts) and Denbury's and its affiliates' usage, would result
or be reasonably anticipated to result in an inability of Denbury to deliver the
Scheduled Delivery Volumes to Genesis.
11.2. Denbury shall not voluntarily abandon any well heretofore or hereafter
completed for production of CO2 on any of the Subject Lands or surrender,
abandon or release any Subject Interest or any part thereof; provided however,
that nothing in this Agreement shall obligate Denbury to continue to operate any
well or to operate or maintain in force or attempt to maintain in force any
Lease when, in Denbury's reasonable opinion, exercised in good faith and as
would a prudent operator not burdened by the Production Payment, such well or
Lease ceases to produce or is not capable of producing in paying quantities
(without regard to the burden of the Production Payment) and it would not be
economically practical, in Denbury's reasonable judgment (determined without
regard to the burden of the Production Payment), to restore the productivity of
such well by reworking, reconditioning, deepening, or plugging back such well.
The expiration of a Lease in accordance with its terms and conditions shall not
be considered to be a voluntary surrender or abandonment of such lease.
11.3. With respect to all oil, gas and mineral leases included in the Subject
Interests, Denbury will in all material respects comply with, or cause to be
complied with, all pertinent Governmental Requirements that from time to time
are promulgated to regulate the production or sale of CO2.
11.4. Certain of the Subject Interests may have been heretofore pooled and
unitized for the production of CO2. Such Subject Interests are and shall be
subject to the terms and provisions of such pooling and unitization agreements,
and the Production Payment shall apply to and affect only that portion of the
production from such units that accrues to such Subject Interests as burdened,
encumbered or otherwise affected by any and all applicable pooling and
unitization agreements. Denbury shall have the right and power to pool and
unitize any of the Subject Interests and to alter, change or amend or terminate
any pooling or unitization agreements heretofore or hereafter entered into, as
to all or any part of the Subject Lands, upon such terms and provisions as
Denbury shall in its sole discretion determine. If and whenever through the
exercise of such right and power, or pursuant to any Governmental Requirement
hereafter enacted, any of the Subject Interests are pooled or unitized in any
manner, the Production Payment, insofar as it affects such pooled or unitized
Subject Interests shall also be pooled and unitized, and in any such event such
Production Payment shall apply to and affect only the production that accrues to
such Subject Interests, as burdened, encumbered or otherwise affected by such
pooling and unitization.
11.5. Denbury shall pay, or cause to be paid, before delinquent, all Taxes,
except Taxes being contested in good faith. In the event that after the
expiration of the Term, additional Taxes should be charged against Genesis which
are attributable to Production Payment Gas produced during the Term and
delivered to Genesis at the Receipt Point(s), Denbury shall be obligated to pay
such Taxes.
11.6. Subject to the provisions of Section 2.4 hereof and Section 2.8 of the T&P
Agreement, Denbury will at all times maintain, preserve and keep all Personal
Property in good repair, working order and condition in all material respects,
and promptly make all necessary and
20
proper repairs, renewals, replacements and
substitutions, to the end that the value of such Personal Property, shall in all
material respects be fully preserved and kept in such condition as at all times
to permit the most efficient and economical use and operation thereof.
11.7. Denbury will (i) use all commercially reasonable efforts to promptly pay,
or cause to be paid, as and when due and payable all material rentals and
royalties payable in respect of the Subject Interests or the production
therefrom, and all material costs, expenses and liabilities for labor and
material to the extent that the same are attributable to the Subject Interests,
the Personal Property, the Denbury Pipeline, or the Applicable Plants, (ii)
never permit any lien (other than Permitted Liens) to be affixed or burden the
Subject Interests or Personal Property, even though inferior to the Production
Payment, for any such bills which may be legally due and payable (other than
Permitted Liens or liens which, individually or collectively, could not have a
Material Adverse Effect), and (iii) never permit to be created or to exist in
respect to any of the Subject Interests or the Personal Property, any other or
additional lien on a parity with or superior to the Production Payment, except
for Permitted Liens or other than liens which, individually or collectively,
could not have a Material Adverse Effect.
11.8. Denbury shall not resign as operator of any Subject Interest operated by
Denbury until and unless the successor operator has been approved in writing by
Genesis, such approval not to be unreasonably withheld or delayed.
11.9. Denbury agrees to furnish Genesis, upon request, with copies of all
electrical logs, core analyses, and completion reports relating to any well now
or hereafter drilled upon the Subject Lands. Denbury agrees to furnish Genesis,
upon request, with full information regarding the condition of the xxxxx and the
lease operations relating to the Subject Interests. The reasonable cost of
copying any data and information described in this Section shall be paid by
Genesis. Furthermore, Denbury's disclosure of the data and information described
in this Section is subject to and may be limited by any confidentiality
obligations or other restrictions to which Denbury may be subject.
11.10. In the event that any Lease or other interest that constitutes a part of
the Subject Interests should expire or terminate for any reason (a "Lost
Interest"), and within one (1) year from date of such expiration or termination
of such Lost Interest, Denbury should reacquire such Lost Interest, then such
Lost Interest shall be charged and burdened with the Production Payment to the
same extent that the Lost Interest was charged and burdened with the Production
Payment, and Denbury agrees to execute such documents and agreements as may be
necessary or appropriate to effect the intent and purpose of this section.
11.11. Airgas Obligations. The provisions of Section 11.11(b) and (c) of the
First Purchase and Sale Agreement (along with the definitions of all applicable
defined terms) are hereby incorporated herein by reference for all purposes as
if stated herein in full.
11.12. Denbury acknowledges that, pursuant to this Agreement and the Contract
Assignment, Genesis is acquiring all of Denbury's rights, interest and
obligations in the Additional Industrial Sale Contracts. Notwithstanding such
acquisition, there are certain covenants and obligations under the Additional
Industrial Sale Contracts that must be satisfied by the owner or operator of the
Subject Interests. Accordingly, Denbury covenants that, until the
21
termination of
the Additional Industrial Sale Contracts and subject to the applicable force
majeure provisions in the Additional Industrial Sale Contracts, Denbury will
fully and timely perform each and every covenant and agreement in the Additional
Industrial Sale Contracts which must be performed by the Seller (as defined in
the Additional Industrial Sale Contracts) and which relates to the ownership and
operations of Seller's Reserves, the production of carbon dioxide from Seller's
Reserves, and/or the measurement, metering, testing and other transportation
services related thereto, including but not limited to the obligations and
covenants in Sections 5.1, 6.3, 7.2, 7.3, 7.4, 8.1 and the first sentence of the
second paragraph of Section 4.1 of the Sandhill Group Contract, and Sections
2.5, 5.3, 6.1, 6.4, 7.1, 7.2, 8.1 and 8.2 of the EPCO Contract. The covenants
and agreements of Denbury described in this section are collectively referred to
herein as the "Retained Obligations".
11.13. Denbury shall not sell CO2 to any Buyer (as such term is defined in each
of the Additional Industrial Sale Contracts), unless each Buyer has purchased
from Genesis, pursuant to each of the Additional Industrial Sale Contracts, the
Dedicated Contract Quantity applicable to such Additional Industrial Sale
Contracts.
11.14. For so long as the Additional Industrial Sale Contracts are in force and
effect, the Production Payment Gas delivered by Denbury to Genesis shall meet
the minimum quality specifications set forth in the Additional Industrial Sale
Contracts.
11.15. Section 5.2 of the Sandhill Group Contract ("Section 5.2") provides that,
upon the occurrence of certain events more particularly described therein, the
Buyer (as defined therein) may elect to treat the CO2 delivered to Buyer
thereunder and recover treatment costs incurred by Buyer by reducing the price
payable to Genesis for such CO2 in the manner described in such Section 5.2. If,
in accordance with Section 5.2, the Buyer elects to treat the CO2 delivered to
the Buyer under the Sandhill Group Contract and reduces the amount of the
proceeds otherwise payable to Genesis thereunder, then Denbury agrees to
reimburse Genesis for the incremental reduction of proceeds received by Genesis
under the Sandhill Group Contract resulting from such actions by the Buyer.
ARTICLE XII
EXCHANGE OF INFORMATION; AUDIT RIGHTS
12.1. After the Closing, (a) Denbury will keep Genesis advised of Denbury's
activities in the fields encompassing the Subject Lands insofar as such
activities relate to the terms and provisions of this Agreement, (b) each Party
shall promptly give, or cause to be given to the other Party, written notice of
any event or circumstance, including, but not limited to every adverse claim or
demand made by any Person or any Governmental Authority, that could reasonably
be expected to have a Material Adverse Effect, (c) each Party shall give or
cause to be given to the other Party written notice of every default under the
Additional Industrial Sale Contracts and every adverse claim or demand made by
any Person or any Governmental Authority related to the Additional Industrial
Sale Contracts, promptly upon obtaining knowledge of such default, claim or
demand and shall include in such notice a description in reasonable detail of
the default, claim or demand and if such Party obtained knowledge of such
default, claim or demand as a result of the receipt of a written notice, a copy
of such written
22
notice, and (d) each Party shall also provide information to the
other Party as needed to confirm compliance with each Party's obligations under
this Agreement and the other Master Documents, to keep the other Party updated
as to matters relating to this Agreement and the other Master Documents, from
time to time, and in response to reasonable inquiries by the other Party.
12.2. After the Closing, each Party, by notice in writing to the other Party,
shall have the right to audit the other Party's accounts and records relating to
the Production Payment, the Additional Industrial Sale Contracts, and compliance
with this Agreement and the other Master Documents. Audit rights pertaining to
the T&P Agreement are subject to the terms and provisions with respect to
auditing as set forth in the T&P Agreement. Audit rights otherwise pertaining to
the Production Payment, the Additional Industrial Sale Contracts, or other
compliance issues under this Agreement and the other Master Documents are
subject to the terms of Section 12.3 but shall not be construed as a measure or
means to access or to effect change in the audited party's control structure.
12.3. Audits shall not be conducted more than twice each year without prior
approval of the Party whose records are being audited (the "Audited Party"), and
shall be made at the expense of the Party conducting the audit. The Audited
Party shall reply in writing to an audit report within thirty (30) days after
receipt of such report. The Parties will endeavor to agree upon and make any
adjustments revealed to be necessary by any audit reports submitted by the
Audited Party pursuant to the provisions of this Section. If the Parties cannot
agree on any adjustment, the disputed adjustment will not be made, and such
disputed adjustment shall be resolved in accordance with the dispute resolution
provisions described in Section 14.1.
ARTICLE XIII
NOTICES
13.1. All notices under this Agreement must be in writing. Any notice with
respect solely to the matters in the T&P Agreement shall be in accordance with
the provisions pertaining to notices set forth in the T&P Agreement. Any other
notice under this Agreement may be given by personal delivery, facsimile or
email transmission, U.S. mail (postage prepaid), or commercial delivery service,
and will be deemed duly given when received by the Party charged with such
notice and addressed as follows:
If to Denbury: Denbury Onshore, LLC
0000 Xxxxxxxx Xxxxxxx, Xxxxx 0000
Xxxxx, XX 00000
Attn: Xxx Xxxxxxxxx
Telephone: 000-000-0000
Fax: 000-000-0000
email: xxxx@xxxxxxx.xxx
If to Genesis: Genesis Crude Oil, L.P.
000 Xxxxxx, Xxxxx 0000
Xxxxxxx, XX 00000
Attn: Xxxx Xxxxxx
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Telephone: (000) 000-0000
Fax: (000) 000-0000
email: xxxxxxx@xxxxxxxxxxxxxxx.xxx
13.2. Either Party, by written notice to the other, may change the address or
the individual to which or to whom notices are to be sent under this Agreement.
ARTICLE XIV
DISPUTE RESOLUTION
14.1. Except as may be otherwise specifically provided herein, all disputes
arising under or in connection with this Agreement shall be resolved in
accordance with the procedures described in Exhibit E attached hereto and
incorporated herein by reference for all purposes.
ARTICLE XV
CURTAILMENTS AND INTERRUPTIONS
15.1. The provisions of Section 15.1 of the First Purchase and Sale Agreement
(along with the definitions of all applicable defined terms) are hereby
incorporated herein by reference for all purposes if as if stated herein in
full.
ARTICLE XVI
MISCELLANEOUS PROVISIONS
16.1. This Agreement and the other Master Documents constitute the entire
understanding between the Parties relating to the subject matter hereof, and
supersede all prior negotiations, discussions, agreements and understandings
between the Parties, whether written or oral, regarding the subject matter of
this Agreement.
16.2. This Agreement may be amended, modified, and supplemented only by written
instrument executed by both Parties and explicitly referred to as an amendment
to this Agreement.
16.3. The waiver by either Party of any breach of the provisions of this
Agreement shall not constitute a continuing waiver of other breaches of the same
or other provisions of this Agreement.
16.4. Neither Party shall be liable to the other for any special, indirect,
consequential or punitive damages of any nature, or for attorneys' fees.
16.5. The interests of the Parties in this Agreement, and the interests acquired
by virtue of this Agreement and the interests retained by Denbury in the Subject
Lands, may not be subsequently assigned, either in whole or in part, unless (i)
any such assignee expressly agrees in writing to assume and perform all of the
assignor's obligations under this Agreement and the other Master Documents, and
(ii) such assignment is made and accepted expressly subject and
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subordinate to
this Agreement and the other Master Documents. Further, any subsequent
assignment, either in whole or in part, to an entity that is not as financially
creditworthy at the time of the assignment as the assignor shall require the
consent of the other party hereto, which consent may not be unreasonably
withheld or delayed. Subject to the compliance with the terms of clauses (i) and
(ii) above, either Party may encumber or pledge its respective interests in
connection with a financing without the consent of the other Party. Any
purported assignment, sale, conveyance or other transfer in contravention of the
foregoing terms shall be null and void. Subject to the foregoing, this Agreement
binds and inures to the benefit of the Parties and their respective permitted
successors and assigns, and nothing contained in this Agreement, express or
implied, is intended to confer upon any other person or entity any benefits,
rights, or remedies.
16.6. If any provision of this Agreement is found by a court of competent
jurisdiction to be invalid or unenforceable, that provision will be deemed
modified to the extent necessary to make it valid and enforceable, and if it
cannot be so modified, it shall be deemed deleted and the remainder of this
Agreement shall continue and remain in full force and effect.
16.7. This Agreement shall be governed by and construed according to the laws of
the State of Texas, excluding any conflicts-of-law rule or principle that might
apply the law of another jurisdiction. Venue for any arbitration, lawsuit or
other legal action in any way pertaining to this Agreement or any other Master
Document shall be in Dallas, Dallas County, Texas.
16.8. The Parties agree to do, execute, acknowledge and deliver all further
acts, conveyances and instruments as may be reasonably necessary or appropriate
to carry out the provisions of this Agreement.
16.9. The omission of certain provisions of this Agreement from the Assignment
does not constitute a conflict or inconsistency between this Agreement and the
Assignment, and will not effect a merger of the omitted provisions. To the
fullest extent permitted by law, all provisions of this Agreement are hereby
deemed incorporated into the Assignment by reference. The headings and titles in
this Agreement are for convenience only and shall have no significance in
interpreting or otherwise affect the meaning of this Agreement.
16.10. This Agreement may be executed in counterparts, each of which shall
constitute an original and all of which shall constitute one document.
16.11. This Agreement may be circulated and executed by facsimile transmission,
and in such event, the signatures of the Parties on facsimiles shall be
considered as original and self-proving for all purposes.
16.12. Genesis and Denbury agree to treat the Production Payment as a
"production payment" under Section 636(a) of the Code. Both Genesis and Denbury
agree (i) to file all federal income tax and state income tax returns consistent
with this Section 16.12, and (ii) to use a comparable yield of 7.5% for purpose
of Treasury Regulation Section 1.1275-4(b).
[SIGNATURE PAGE FOLLOWS]
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This Agreement is executed as of the date set out in the first
paragraph of this Agreement, but shall be effective as of the Effective Date.
DENBURY:
DENBURY ONSHORE, LLC
By: Xxxx Xxxxxxx
----------------------------------
Xxxx Xxxxxxx
Senior Vice President and
Chief Financial Officer
GENESIS:
GENESIS CRUDE OIL, L.P.
By: Genesis Energy, Inc.,
Its General Partner
By: Xxxx X. Xxxxxx
-----------------------------
Xxxx X. Xxxxxx
President
