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EXHIBIT 6.18
PRODUCTION PAYMENT ASSIGNMENT
THIS ASSIGNMENT (this "Assignment"), effective as of May 1, 1999
("Effective Date"), is made from and by XxXxxxx Resources Company, Inc., a Utah
corporation whose address is Suite 205, 634 Preston Royal Shopping Center,
Xxxxxx, Xxxxx, 00000 ("GRANTOR") to Conoco Inc., a Delaware corporation whose
address is X.X. Xxx 0000, Xxxxxxx, Xxxxx, 00000 ("GRANTEE").
ARTICLE 1. THE PRODUCTION PAYMENT
1.1 Assignment. GRANTOR does hereby, effective as of the Effective
Date, GRANT, CONVEY, ASSIGN, TRANSFER, and DELIVER unto GRANTEE, as a production
payment, a term overriding royalty interest carved out of and burdening the
Subject Interests equal to and measured by 70 percent of the gross volume of Gas
produced each day from the Xxxxxxx Well, up to a total cumulative volume of
400,000 MCF, TO HAVE AND TO HOLD the Production Payment unto GRANTEE, its
successors and assigns, until the Termination Time. The Production Payment must
at all times be treated as a term overriding royalty and an interest in real
property under the laws of the State of Louisiana and all provisions of this
Assignment must be construed accordingly.
1.2 Non-Cost-Bearing Interest. The Production Payment is free and clear
of, and GRANTEE is not responsible for, (i) all Direct Taxes and (ii) all costs
and expense associated with acquiring, exploring, developing, maintaining,
producing and operating the Subject Interests or of delivering Gas produced
therefrom to the Delivery Point. GRANTOR shall pay all Direct Taxes promptly on
or before the date they become due and owing. GRANTEE shall bear all taxes
relating to the Production Payment other than Direct Taxes.
1.3 Delivery Obligations and Delivery Points. The Delivery Point shall
be the upstream flange of GRANTEE's metering facilities located near the Xxxxxxx
Well. GRANTOR covenants and agrees to deliver to the Delivery Point each day the
total volume of Gas produced from the Xxxxxxx Well. The parties acknowledge that
GRANTEE will take delivery of Gas volumes in excess of the Production Payment
under the terms of the Gas Purchase Contract.
1.4 Termination. Except as extended pursuant to Section 2.3.2, the
Production Payment will remain in full force and effect until the time (the
"Termination Time") that a total cumulative volume of Gas equal to 400,000 MCF
has been delivered to GRANTEE under the
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terms of this Assignment. At the Termination Time, the Production Payment will
terminate and all rights, titles and interests in and to any Gas thereafter
produced will automatically terminate and vest in GRANTOR; provided that
GRANTOR's Gas produced from the Xxxxxxx Well will remain committed to the Gas
Purchase Contract after the Termination Time. Upon request by GRANTOR, GRANTEE
shall execute and deliver such instrument or instruments (in proper recordable
form, if applicable) as may be necessary to evidence the termination of the
Production Payment. Notwithstanding the foregoing or anything herein to the
contrary, any obligations which GRANTOR may have to indemnify or compensate
GRANTEE on account of Production Payment Gas produced before the Termination
Time, shall survive any termination of the Production Payment.
ARTICLE 2. OPERATIONAL CONSIDERATIONS
2.1 Operations. As between GRANTEE and GRANTOR, GRANTOR has exclusive
management and control of all operations conducted on the Subject Interests.
GRANTOR shall take or cause to be taken any and all actions that a prudent
operator would deem necessary or advisable in the operation, maintenance and
management of the Subject Interests and in the production, handling, treating
and delivery of Hydrocarbons produced from the Xxxxxxx Well, and in so acting,
GRANTOR shall not take into account the diminution in GRANTOR's share of
production from the Xxxxxxx Well caused by the granting of the Production
Payment. GRANTOR shall make its economic decisions as if GRANTOR owned the full
interest in the Xxxxxxx Well undiminished by the Production Payment. Without
limiting the foregoing, GRANTOR shall:
2.1.1 operate and maintain the Subject Interests in conformity
with all applicable laws and all rules, regulations and orders of all
duly constituted authorities having jurisdiction (including without
limitation Environmental Laws), and in conformity with all leases and
other contracts and agreements forming a part of or relating to the
Subject Interests;
2.1.2 promptly pay all costs and expenses (including without
limitation all Direct Taxes) and all costs, expenses and liabilities
for labor, materials and equipment incurred in connection with the
Subject Interests and all obligations to the holders of royalty
interests and other interests affecting the Subject Interests) incurred
in exploring,
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developing, operating and maintaining the Subject Interests (or in
producing, handling, treating and delivering Hydrocarbons produced
therefrom);
2.1.3 maintain in full force and effect the Subject Interests,
as well as all permits, licenses, easements, servitudes and other
rights necessary or useful in connection with the operation or
management of the Subject Interests; and
2.1.4 maintain in good working order and, to the extent
necessary, repair and replace, the separation, delivery and related
facilities that are now or hereafter located at the Delivery Point.
To the extent that GRANTOR is not the operator of the Subject Interests, GRANTOR
shall exercise its full legal rights to cause the operator of the Subject
Interests to take any and all actions as are required in this Section 2.1.
2.2 Prohibition Against Shut-in or Abandonment of Xxxxxxx Well. Until
the termination of the Production Payment, GRANTOR shall not (i) abandon the
Xxxxxxx Well or voluntarily surrender, abandon or release any Subject Interest
without first tendering assignment of the Subject Interests to GRANTEE or (ii)
voluntarily shut-in or restrict the flow from the Xxxxxxx Well.
2.3 Recompletions and Reworking of the Xxxxxxx Well.
2.3.1 Obligation of GRANTOR. If, prior to the termination of
the Production Payment, the Xxxxxxx Well ceases to produce Gas in
paying quantities, and it would be economically feasible (without
regard to the burden of the Production Payment) to restore the Gas
production from the well by reworking, reconditioning, recompleting,
plugging back, or otherwise conducting operations relative to such
well, GRANTOR shall take such action to restore the productivity of
Hydrocarbons from such well.
2.3.2 GRANTEE's Right to Compel Operations. If at any time
prior to the Termination Time GRANTEE in its good faith judgment
believes that GRANTOR has failed to rework or recomplete a potentially
economic producing zone, GRANTEE will have the right to propose a
workover or recompletion project ("Project") for the Xxxxxxx Well,
including a reasonably detailed description of the work to be
performed. Within 30 days after receipt of GRANTEE's proposal, GRANTOR
must advise GRANTEE whether GRANTOR will perform the Project at
GRANTOR's expense. If GRANTOR declines to perform the Project at its
own expense, GRANTEE may elect to cause
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GRANTOR to perform the Project at GRANTEE's expense. If GRANTEE elects
to provide funding for the Project, GRANTOR and GRANTEE will mutually
agree on drilling and other contractors to perform the Project, GRANTOR
will contract with the selected contractor(s) for the Project, and
GRANTEE will reimburse GRANTOR for the service charges paid to the
contractor(s) for performance of the Project; provided that GRANTER
will not be liable for any losses of the well or any contractor's
equipment. If GRANTEE provides funding for the Project, the Termination
Time will be extended as required to permit GRANTEE to recover payout
of the Project in addition to the total cumulative volume of 400,000
MCF described in Sections 1.1 and 1.4. Production Payment Gas
attributable to payout of the Project will be delivered after delivery
of the cumulative volume of 400,000 MCF and will be valued each month
at the price paid by GRANTEE for Gas delivered under the Gas Purchase
Contract.
2.4. Adverse Claims. GRANTOR will provide prompt written notice to
GRANTEE of every material adverse claim or demand made by any person affecting
the Subject Interests or the Gas produced therefrom and of any proceedings
instituted or threatened with respect to the Subject Interests or the Gas
produced therefrom. GRANTOR will cause all necessary and proper steps to be
diligently taken to protect and defend the Subject Interests and such Gas
against any such proceedings or adverse claim or demand.
2.5. Insurance and Replacement. GRANTOR shall maintain or cause to be
maintained, at its sole cost and expense and with financially sound and
reputable insurers, insurance covering the Xxxxxxx Well and the equipment and
facilities located thereon against such liabilities, casualties, risks and
contingencies and in such types, as is customary in the case of companies
engaged in similar operations and having similar property. All liability
insurance must name GRANTEE as an additional insured. At GRANTEE'S request,
GRANTOR shall furnish GRANTEE certificates of insurance or letters of self
insurance demonstrating that GRANTOR has obtained the required insurance
coverage. Such certificates shall contain a statement that the insurance
coverage may not be materially changed or cancelled without at least 30 days'
prior written notice to GRANTEE.
2.6 Renewals and Extensions and New Leases. This Assignment and the
Production Payment shall apply to all renewals, extensions and other similar
arrangements of the leases which are included in the Subject Interests, whether
such renewals, extensions or arrangements
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have heretofore been obtained by GRANTOR or are hereafter obtained by or for
GRANTOR or any Affiliate thereof and whether or not the same are described in
Section 7.1. For the purposes of the preceding sentence, a new lease which
covers the same interest (or any part thereof) which was covered by a prior
lease, and which is acquired within one year after the expiration, termination,
or release of such prior lease, shall be treated as a renewal or extension of
such prior lease; provided that a new lease taken after expiration, termination
or release of a prior lease due to the permanent failure of production in paying
quantities from the Xxxxxxx Well to maintain such lease in force and effect
shall not constitute a renewal or extension of the subject prior lease for
purposes hereof.
ARTICLE 3 NO LIABILITY OF GRANTEE; INDEMNITY
3.1 No Liability of GRANTEE. GRANTEE is not responsible for any part of
the costs, expenses or liabilities incurred in connection with the exploring,
developing, operating, owning or maintaining of the Subject Interests, the
physical condition of the Subject Interests, or the handling, treating or
delivery of Hydrocarbons produced from the Subject Interests (including any
costs, expenses, losses or liabilities related to violation of an Environmental
Law or otherwise related to damage to or remediation of the environment, whether
the same arise out of GRANTEE's ownership of an interest in property or out of
the actions of GRANTOR or GRANTEE or of third parties), or the failure by
GRANTOR to have good and defensible title to the Subject Interests free and
clear of all burdens, encumbrances, liens and title defects (including any
costs, expenses, losses or liabilities suffered by GRANTEE as a result of any
claim that GRANTEE must pay over to any person any part of the proceeds of
Production Payment Gas at any time previously received or thereafter to be
received by GRANTEE).
3.2 Indemnity by GRANTOR. Except as otherwise provided in this
Assignment, GRANTOR agrees to indemnify and hold GRANTEE harmless from and
against all costs, expenses, losses and liabilities incurred by GRANTEE in
connection with any of the matters described in the foregoing section or in
connection with the Production Payment, this Assignment, or the transactions and
events (including the enforcement or defense thereof) at any time associated
with or contemplated in any of the foregoing. Such indemnity also covers all
costs and expenses of GRANTEE, including reasonable legal fees and expenses,
incurred incident to the matters indemnified against. The foregoing
indemnification extends to GRANTEE and its successors and assigns, all their
respective Affiliates, and all the respective
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officers, directors, agents, beneficiaries, trustees, attorneys and employees of
themselves and their Affiliates. THE FOREGOING INDEMNITY APPLIES WHETHER OR NOT
ARISING OUT OF THE SOLE, JOINT OR CONCURRENT NEGLIGENCE, FAULT OR STRICT
LIABILITY OF GRANTEE OR ANY OTHER PERSON OR ENTITY INDEMNIFIED HEREUNDER AND
APPLIES, WITHOUT LIMITATION, TO ANY LIABILITY IMPOSED UPON ANY PERSON
INDEMNIFIED HEREUNDER AS A RESULT OF ANY STATUTE, RULE, REGULATION, THEORY OF
STRICT LIABILITY OR OTHERWISE. The foregoing indemnity does not, however, apply
to any costs, expenses, losses or liabilities proximately caused solely by the
gross negligence or willful misconduct of GRANTEE. In addition, the
indemnification and hold harmless provisions contained in this Section 3.2 and
elsewhere in this Assignment do not apply to any costs, expenses, losses or
liabilities that arise out of the failure by GRANTEE (or any person other than
GRANTOR or any affiliate of GRANTOR) to perform its obligations under, or that
are otherwise based upon, any contractual arrangement entered into directly by
GRANTEE and relating to the handling, transportation, sale or other disposition
of Production Payment Gas at or after the Delivery Points. The foregoing
indemnity will survive the termination of the Production Payment and of this
Assignment.
ARTICLE 4. ASSIGNMENT
4.1 Assignments by GRANTOR. GRANTOR shall not assign, sell, transfer,
convey, exchange, mortgage or pledge all or any part of the Subject Interests or
create any lien thereon or security interest therein without the prior written
consent of GRANTEE, which consent shall not be unreasonably withheld.
4.2 Assignments by GRANTEE. GRANTEE shall not assign, sell, transfer,
convey, exchange, mortgage or pledge all or any part of its interest in the
Production Payment or create any lien thereon or security interest therein
without the prior written consent of GRANTOR, which consent shall not be
unreasonably withheld.
4.3 Binding Effect. All the covenants and agreements of GRANTOR and
GRANTEE in this Assignment are real rights burdening the Subject Interests. All
of the provisions hereof are binding upon and inure to the benefit of the
parties hereto, and their respective permitted successors and assigns.
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ARTICLE 5. WARRANTY; SUBROGATION
5.1 Warranty. GRANTOR shall warrant and forever defend all and singular
title to the Production Payment unto GRANTEE, its successors and assigns,
against every person claiming or to claim the same or any part thereof. Without
limitation of the generality of the foregoing, GRANTOR represents and warrants
to GRANTEE that GRANTOR's ownership of the Subject Interests does and will
entitle GRANTOR to receive (subject to and before giving effect to the
Production Payment), free and clear of liens and encumbrances, a percentage of
the gross Gas production from the Xxxxxxx Well greater than the Production
payment granted herein.
5.2 Subrogation. This Assignment is made with full substitution and
subrogation of GRANTEE in and to all covenants, representations and warranties
by others heretofore given or made with respect to the Subject Interests.
ARTICLE 6. MISCELLANEOUS
6.1 Governing Law. This shall be construed and enforced in accordance
with and governed by the laws of the State of Louisiana, without regard to
principles of conflicts of law, and the laws of the United States of America.
6.2 No Partnership. Nothing in this Assignment may be construed to
constitute either party hereto (under state law or for tax purposes) in
partnership with the other party.
6.3 Ownership of Equipment. The Production Payment does not include any
right, title or interest in and to any of the personal property, fixtures,
structures or equipment now or hereafter placed on, or used in connection with,
the Subject Interests.
6.4 Further Assurances. GRANTOR agrees to execute and deliver to
GRANTEE all such other and additional instruments, notices, division orders,
transfer orders and other documents and to do all such other and further acts
and things as may be necessary to more fully and effectively grant, convey and
assign to GRANTEE the rights, titles, interest and estates conveyed to GRANTEE
hereby or intended to be so conveyed.
6.5 Notices and Addresses. All notices and other communications
required or permitted under this Assignment must be in writing and, unless
otherwise specifically provided, must be delivered personally or by telecopier
or by registered or certified mail, postage prepaid, or by delivery service with
proof of delivery, at the respective addresses shown below, and will be deemed
delivered on the date of receipt. Either party may specify as its proper address
any other street address within the continental limits of the United States by
giving notice to the other
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party, in the manner provided in this Section, at least 15 days prior to the
effective date of such change of address.
GRANTOR: GRANTEE:
Xx. Xxxxx X. XxXxxxx Conoco Inc.
XxXxxxx Resources Company, Inc. 3807 Xxxx Xxxxxx Road
634 Preston Royal Shopping Center, Ste. 205 Lake Charles, La. 70615
Xxxxxx, XX 00000
Tele: (000) 000-0000 Tele: (000) 000-0000
Fax: (000) 000-0000 Fax: (000) 000-0000
ARTICLE 7. DEFINITIONS AND INTERPRETATION
7.1 Defined Terms. When used in this Assignment or in any exhibit or
schedule hereto (unless otherwise defined in any such exhibit or schedule), the
following terms have the following meanings:
"Affiliate" means, with respect to any person: (a) any other person
directly or indirectly owning, controlling or holding with power to vote 50% or
more of the outstanding voting securities of such person, (b) any other person
50% or more of whose outstanding voting securities are directly or indirectly
owned, controlled or held with power to vote by such person, and (c) any other
person directly or indirectly controlling, controlled by or under common control
with such person.
"Delivery Points" is defined in Section 1.3.
"Direct Taxes" means all ad valorem, property, gathering,
transportation, pipeline regulating, gross receipts, severance, production,
excise, heating content, carbon, value, value added, environmental, occupation,
franchise, sales, use, fuel, and other taxes and governmental charges and
assessments imposed on or as a result of all or any part of the Subject
Interests, the Hydrocarbons produced from Subject Interests or the proceeds
thereof, the Production Payment, or the Production Payment Gas or the proceeds
thereof, regardless of the point at which or the manner in which such taxes,
charges or assessments are charged, collected, levied or otherwise imposed. The
only taxes that are not Direct Taxes are federal income taxes, state income
taxes, and franchise taxes levied against GRANTEE and any other taxes levied
against the overall net income of GRANTEE.
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"Environmental Laws" means all applicable local, state or federal laws,
rules, regulations, or orders regulating or otherwise pertaining to (a) the use,
generation, migration, storage, removal, treatment, remedy, discharge, release,
transportation, disposal or cleanup of pollutants, contamination, hazardous
wastes, hazardous substances, hazardous materials, toxic substances or toxic
pollutants, (b) the soil, surface waters, groundwaters, land, stream sediments,
surface or subsurface strata, ambient air and any other environmental medium on
or off any Subject Interest, or (c) the environment or health and safety-related
matters; including the following as from time to time amended and all others
whether similar or dissimilar and whether now existing or hereinafter enacted:
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 thereto.
"Gas" means natural gas and all other hydrocarbons that are gaseous in
their natural or as-produced state, including casinghead gas, whether or not
such natural gas and other gaseous hydrocarbons are processed. As used in this
Assignment, the term Gas does not include volumes of Gas unavoidably lost in the
production thereof or in the compression or transportation thereof prior to the
Delivery Point, or used by GRANTOR for the production of Hydrocarbons or for
the compression or transportation of Hydrocarbons prior to the Delivery Point,
only to the extent the same is lost or used in the course of operations which
are being conducted prudently and in a good and workmanlike manner.
"Gas Purchase Contract" means that certain Gas Purchase Contract dated
May 1, 1999, as from time to time amended or supplemented, between GRANTEE, as
buyer, and GRANTOR, as seller, providing for the purchase and sale of Gas
produced from the Subject Interests in excess of Production Payment Gas.
"GRANTEE" means Conoco Inc., and, unless the context in which used
requires otherwise, such term also includes any successor-owner at the time in
question of any or all of the Production Payment.
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"GRANTOR" means XxXxxxx Resources Company, Inc., and, unless the
context in which used requires otherwise, such term also includes any
successor-owner at the time in question of any or all of the Subject Interests.
"Hydrocarbons" means oil and Gas.
"MCF" means 1000 Cubic Feet of Gas. A Cubic Foot of Gas is the volume
of Gas contained in one cubic foot of space at a standard pressure base of
15.025 pounds per square inch gauge and at a standard temperature base of 60
degrees Fahrenheit.
"Production Payment" means the term overriding royalty granted to
GRANTEE under this Assignment, and all other rights, titles, interests, estates,
remedies, powers and privileges appurtenant or incident to such term overriding
royalty, whether hereunder, under the Purchase and Sale Agreement, by operation
of law, or otherwise.
"Production Payment Gas" means all Gas produced from the Xxxxxxx Well
that is allocable to the Production Payment.
"Purchase and Sale Agreement" means the Purchase and Sale Agreement of
even date herewith between GRANTOR and GRANTEE, as from time to time amended or
supplemented, relating to the Production Payment assigned hereunder.
"Subject Interests" means all of GRANTOR's right, title and interest in
the oil, gas and/or mineral lease(s) listed on Exhibit A hereto, INSOFAR AS
natural gas is produced from such leases through the wellbore of the Xxxxxxx
Well:
"Termination Time" is defined in Section 1.4.
6.2 Rules of Construction. All references in this Assignment to
articles, sections, subsections and other subdivisions refer to corresponding
articles, sections, subsections and other subdivisions of this Assignment unless
expressly provided otherwise. Titles appearing at the beginning of any of such
subdivisions are for convenience only and do not constitute part of such
subdivisions and must be disregarded in construing the language contained in
such subdivisions.
This Assignment is executed this 18th day of May, 1999, but made
effective as of the Effective Date.
GRANTOR:
XXXXXXX RESOURCES COMPANY, INC.
Witnesses:
By: /s/ XXXXX X. XXXXXXX
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/s/ [ILLEGIBLE]
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Name: Xxxxx X. XxXxxxx
/s/ XXXXXXX X. XXXXX Title: President
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GRANTEE
CONOCO INC.
Witnesses:
By: /s/ XXXXX X. XXXXX
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/s/ [ILLEGIBLE] Name: Xxxxx X. Xxxxx
--------------------------- Title: Director Gas Supply
/s/ [ILLEGIBLE]
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