OPTION AGREEMENT
Dated Effective as of February 2, 1998
Between
Polskie Gornictwo Naftowe I Gazownictwo S.A.
Oddzial Biuro Geologiczne - GEONAFTA
and
FX ENERGY, INC.
and
APACHE OVERSEAS, INC.
Pertaining to the Western Carpathian Area Concessions
OPTION AGREEMENT
This Option Agreement (this "Agreement') is entered into on March 4, 1998, but
shall become effective when FXEN, APACHE and/or their subsidiary first obtains
one or more concessions under the New Usufruct, as that term is defined below.
This Agreement is between and among Polskie Gornictwo Naftowe I Gazownictwo
S.A., Oddzial Buro Geologiczne-GEONAFTA, ("POGC") and FX Energy, Inc., a Nevada
corporation ("FXEN") and APACHE Overseas, Inc., a Delaware corporation
("APACHE")
RECITALS
A. Through the support and cooperation of POGC, FXEN and APACHE (through Polish
subsidiaries) have acquired certain rights to explore for and exploit natural
gas and oil in the Western Carpathian region of the Republic of Poland, under
the FX/APA Usufruct and the New Usufruct (as defined in this Agreement).
B POGC has acquired certain rights to explore for natural gas and oil in the
same region, under the POGC Concessions (as defined in this Agreement). In
addition, POGC has acquired a substantial amount of geological and
geophysical data in the Western Carpathian region, and has generous1y shared
this data with FXEN and APACHE.
C. In view of the mutual interests of POGC, FXEN and APACHE in the Western
Carpathians, FXEN and APACHE wish to grant to POGC the option to participate
with them in operations on the FX/APA Usufruct and the New Usufruct and POGC
wished to grant to FXEN and APACHE the option to participate with POGC in
operations on the POGC Concessions.
NOW, THEREFORE, in consideration of thc foregoing recitals, which are
incorporated herein by this reference, and for other good and valuable
consideration, the receipt and legal sufficiency of which are hereby
acknowledged, the parties hereto agree as follows.
DEFINITIONS
"Participation Interest(s)" shall have the meaning described in Article 3.2.
"Hydrocarbon Concession Block(s)" or "Block(s)", refers to one or more of the
480 numbered rectangular areas, each encompassing approximately 1,000 square
kilometers, which in the aggregate comprise a and promulgated by the Bureau of
Geological Concessions for the purpose of identifying hydrocarbon concession
areas.
"FX/APA Usufruct"' means that certain Mining Usufruct Agreement dated October
14, 1997, between FX Energy Poland Sp. z o.o and Gasex Production Company Sp.
zo.o., Commercial Partnership and the State Treasury of the Republic of Poland,
covering the following twelve Hydrocarbon Concession Blocks no. 410, 411, 412,
413, 414, 415, 430, 431, 432, 433, 452 and 453.
"New Usufruct" means that certain Mining Usufruct Agreement now being applied
for by FXEN and APACHE in the region of southwestern Poland bordered on the
north by 50. 15' 00" north latitude, on the east by 22. 00' 00" east longitude,
on the south by 49. 50' 00" and on the west by the border of the Republic of
Poland, covering all or parts of Blocks 388-396 and 408-416.
"POGC Concession(s)" refers to one or more of the following. Rozlropica-Rudzica
35/95/p; ZywiecWadowice 6/95/p; Lachowice 9/95/p; Stryszawa-Lanckorona 4/96/p;
Wisniowa-Raciechowice 3/96/p; Gdow-Cichawa-Bochnia 17/96/p; Myslenice-
Limanowa-Czchow 14/95/p; Xxxxxx-Xxxxxx-Garbek 5/97/p; Xxxxxx-Xxxxxx 27/96/p.
ARTICLE 1. IDENTIFICATION OF INTERESTS
1.1 FXEN and APACHE, through wholly-owned subsidiaries, are the holders of
rights to explore for and explore natural gas and oil ("Hydrocarbon
Rights") in those lands covered by the FX/APA usufructs. POGC, directly or
through wholly-owned subsidiaries, is the holder of Hydrocarbon Rights in
those lands covered by the POGC Concessions. FXEN and APACHE, through
wholly-owned subsidiaries, have applied to the State Treasury of the
Republic of Poland for the New Usufruct with the consent and support of
POGC.
1.2 FXEN and APACHE have entered into agreements dividing the beneficial
interest in the FX/APA Usufruct and the New Usufruct between them initially
on a 50./50% basis. FXEN and APACHE to arrange for the FX/APA Usufruct and
the New Usufruct and the concessions issued pursuant thereto to be held by
a Polish comrnercia1 partnership comprised of one Polish limited liability
company owned by FXEN and another Polish limited liability company owned by
APACHE. In cases where this Agreement results in ownership being shared by
APACHE, FXEN and POGC, (or any two of them), they shall hold such
interests through a Polish commercial partnership composed of one Polish
limited liability company owned by POGC, another Polish limited liability
company owned by FXEN and another Polish limited liability company owned by
APACHE (or any two of them).
1.3 POGC as the sole owner of the POGC Concession, is not at present a party to
any operating agreement or similar document (other than the applicable
concession agreements) with respect to its ownership of the mineral rights
therein or the operation thereof. POCC will promptly inform FXEN and
APACHE in writing about any agreements affecting ownership of the interests
in and operations on the POGC Concessions. FXEN and APACHE are in the
process of drafting the documents which will govern their respective rights
and obligations, which at present include Partnership Agreements, Joint
Operating Agreements, and Accounting Procedure Agreements (collectively,
and including substitute documents, the "Operating Documents"). FXEN and
APACHE have agreed that APACHE will be responsible for management and
control of operations and of the partnerships which will hold the Usufructs
and the concessions. FXEN and APACHE will promptly inform POGG in writing
about any agreements affecting ownership of the interests in and operations
on the FX/APA or New Usufructs.
1.4 FXEN and APACHE have reviewed end analyzed a substantial amount of existing
data pertaining to the lands covered by the FX/APA Usufruct and the New
Usufruct and plan to review and analyze additional existing data. FXEN and
APACHE also plan to acquire a significant amount of new seismic data during
1989 and 1999. FXEN and APACHE are formulating plans for future activity,
and expect to drill a significant number of new exploratory xxxxx in the
FX/USUFRUCT and the New Usufruct during 1998 and 1999, subject to data
supporting prospective drill sites.
ARTICLE 2. GRANT OF OPTIONS TO POGC
2. FXEN and APACHE hereby grant to POGC an option to take an interest of up to
thirty-three and one-third percent (33.333%) in all or part of the FK/APA
Usufruct and the New Usufruct.
2.2 POCC may exercise its option in each Usufruct on a "Block by Block" basis;
that is, it may take an interest in one, or several, or all of the
Hydrocarbon Concession Blocks in a particular Usufruct. In order to
maintain uniform interests, when POGC first designates the percentage
interest (other than zero percent) it will take in a Block within a
particular Usufruct, then it must thereafter take either the same (non-
zero) percentage, or it may take zero, with respect to all other Blocks in
the same Usufruct.
2.3 The FX/APA Usufruct and the New Usufruct cover only a small portion of the
land in certain Hydrocarbon Concession Blocks, either because of other
existing Usufructs or because the Blocks lie outside the territory of
Poland. Therefore, the following groups of Blocks will be considered just
one Block for purposes of the "Block by Block" option described in Article
2.2
a. Blocks 388, 389, 408 and 409;
b. Blocks 430, 431, 45O and 451; and
c. Blocks 452 and 453.
2.4 A discovery well in one Block may lead to the grant of a single
exploitation concession covering land within that Block as well as
contiguous land within an adjacent Block. In such case, the ownership
interests of the parties in such exploitation concession shall be the same
as their interests in the discover well first drilled by one or more of the
parties hereto after the date of this Agreement, whether or not a First
Well (defined below) has been drilled in the adjacent Block. For all
purposes of this Agreement, including the "Block by Block" option described
in Article 2.2, the land covered by the exploitation concession shall be
considered to be in the Block where the initial discovery was made.
ARTICLE 3. EXERCISE OF OPTION BY POGC
3.1 APACHE, as Operator, will provide at 1east 60 days' notice to POGO of its
intention to drill the first well after the date of this Agreement (the
"First Well") in each Block (as that term is modified by Articles 2.3 and
2.4) on lands covered by the FX/APA Usufruct or thc New Usufruct. The
notice of the proposed First Well shall include an estimate of costs, an
anticipated spud date, and technical information supporting the proposed
well, such as seismic sections, maps and petrophysical logs (where
available). If POGC wished to take an interest in such Block it may do so
by exercising its option as provided below and by participating in such
First Well. If POGC does not exercise its option and participate in any
particular First Well, it shall have no further interest in the Block (as
that term is modified by Articles 2.3 and 2.4) in which such First Well was
drilled.
3.2 POGC shall have thirty (30) days from the date of notice of a First Well to
give written notice to APACHE and FXEN the POGC has elected to join in the
proposed well and in the related Block. If POGC elects to exercise it
option, it shall designate in the notice of election the amount of interest
it wished to take (its "Participation Interest"), which may be any amount
up to the maximum permitted under Article 2.1, subject to the provisions
for uniform interest in Article 2.2. If POGC does not provide a notice of
election within said thirty (30) day period such failure shall be deemed
conclusively and irrevocably to be an election by POGC not to exercise the
applicable option. Any delay in the actual spud of the well shall not
extend the time for exercise of the option.
3.3 If POGC makes an affirmative election to join in a First Well, then it
shall be responsible for its Participation Interest share of all costs of
such well, regardless of whether such costs were incurred before or after
the election. In addition, POGC shall also be responsible for its
Participation Interest share of all other costs related to the applicable
Block which accrue on or after (but not before) the actual spud date of the
applicable First Well, including any usufruct fees, concession fees,
training fees, general and administrative costs, geological and geophysical
costs, drilling, production and operating costs, and taxes and royalties,
all in accordance with the Operating Documents.
3.4 If POGC makes an affirmative election to participate in a First We11 it
shall, within thirty (30) days after its notice of election, become a
signatory to the applicable Operating Documents.
ARTICLE 4. GRANT OF OPTIONS TO FXEN AND APACHE
4.1 POGC hereby grants to APACHE an option to take an interest of up to thirty
three and one-third percent (33.333%) in all or any one or more of the POGC
Concessions as specified in, Definitions. POGC hereby grants to FXEN an
option to take an interest of up to thirty three and one-third percent (33
333%) in all or any one or more of the POGC Concessions as specified in
Definitions.
4.2 FXEN and APACHE each may exercise its option independently of the other and
each may exercise its option on a "Usufruct by Usufruct" or "Concession by
Concession" basis; that is, each may take an interest in one, or several,
or al1 of the POGC Concessions.
ARTICLE 5. EXERCISE OF OPTIONS BY FXEN and APACHE
5.1 POGC, as Operator, will provide at least 60 days' notice to FXEN and APACHE
of its intention to drill the First Well after the date of this Agreement
in each POGC Concession. The notice of the proposed First Well shall
include an estimate of costs, an anticipated spud date, and technical
information supporting the proposed well, such as seismic sections, maps
and petrophysical logs (where available). In addition, the notice shall be
accompanied by copies of any and all documents relating to the applicable
mineral rights and the operations thereon. If either FXEN or APACHE wished
to take an interest in such POGC Concession may do so by exercising its
option as provided below and by participating in such First Well. If
either APACHE or FXEN does not exercise its option and participate in any
particular First Well, it shall have no further interest in the POGC
Concession in which such First Well was drilled.
5.2 FXEN and APACHE each shall have thirty (30) days from the date of notice of
a First Well.
5.3 If either FXEN or APACHE makes an affirmative election to join in a First
Well, then it will be responsible for its Participation Interest share of
all costs of such well, regardless of whether such costs were incurred
before or after the election. In addition, FXEN or APACHE, as applicable,
shall also be responsible for its Participation Interest share of all other
costs related to the applicable POGC Concession which accrue on or after
(but not before) the actual spud date of the applicable First Well,
including any usufruct fees, concession fees, training fees, general and
administrative costs, geological and geophysical costs, drilling,
production and operating costs, and taxes and royalties, al1 in accordance
with the Operating Documents.
5.4 If either FXEN or APACHE makes an affirmative election to participate in a
First Well it shall, within thirty (30) days after its notice of election,
become a signatory to a set of operating documents to be prepared which
mirror the Operating Documents referred to in Article 1.3.
5.5 In the event that one of FXEN or APACHE elects to take up its option on a
given POGC Concession and the other does not, the party electing to
exercise its option shall also have the right to take up al1 or part of the
share of the party which has elected not to exercise its option, on giving
notice to POCC to that effect within the time set out in Article 5.2 above.
The party electing to exercise its option shall not have the right to take
an interest greater than forty nine percent (49%) in the aggregate without
the consent of POGC.
ARTICLE 6. GRANT OF RIGHT TO INITIATE OPERATIONS ON POGC USUFRUCTS IN CERTAIN
CIRCUMSTANCES
6.1 It is possible that APACHE and FXEN may wish to initiate and conduct
geological and geophysical investigations or drilling operations on POGC
Concessions. In principle, POGC is willing to give its consent to such
activities on a case by case basis, especially in cases where APACHE and
FXEN agree to operate and pay for further investigations at their sole
risk. APACHE and FXEN are encouraged to present any detailed proposal for
consideration by POGC, including in such proposal the specific
investigations or operations proposed to be carried out at the sole risk of
APACHE and FXEN and the specific operations which will be earning events
under Articles 4 and 5. Subject to POGC approval, APACHE shall have the
right to serve as operator in the applicable POGC Concession pursuant to
the Operating Documents.
ARTICLE 7. INFORMATION AND CONFIDENTIALITY
7 1 All information and data (geophysical, geological, engineering, production
marketing or otherwise) provided to party hereunder shall be kept
confidential by such party unless the release of such information to a
third party is required by law. The term during which information is to be
kept secret and confidential shall coincide with the term of this Agreement
or for a period of three years from the effective date of this Agreement,
whichever is later.
7.2 The parties hereto agree to strictly observe and abide by the terms and
conditions governing date received by any of them from the government of
the Republic of Poland or from any party hereto.
7.3 The applicable operating party shall notify each of the other parties
hereto at least monthly of progress toward selection of First Xxxxx. So
1ong as there is any POGC Concession, or any Hydrocarbon Concession Block
within the area covered by the FX/FPA Usufruct or the New Usufruct, where a
First Well has not been drilled, each party hereto shall have access to all
data of the other parties hereto pertaining to the selection of First Well
drill sites in, which the accessing party has a right to participate,
including all seismic and other geological, geophysical, geochemical and
production data, in order to allow such party to be ready to make its
determination whether or not to exercise its options.
ARTICLE 8. FURTHER ASSURANCE AND ASSISTANCE
The Parties agree to execute and deliver to each other all such additional
documents and instruments and do all such further acts and things as may bc
reasonably requested by any Party to effectively carry out the intent of this
Agreement. In particular, POGC will use its best efforts to help obtain the
necessary concessions and permits on behalf of itself; APACHE and FXEN in those
parts of the FX/APA Usufruct area and the New Usufruct area where POGC is or has
the right to be a participant.
ARTICLE 9. ASSIGNMENT; ABANDONMENT
9.1 To the extent that option rights under this Agreement have not yet become
exercisable, the rights and obligations under this Agreement shall be
assigned only to:
a. an affiliate of the assigning party; or
b. a third xxxxx (with the prior consent of the other parties hereto
which shall not be unreasonably withheld in the case of a technically
and financially competent assignee) provided that such third party
also receives assignment of all the Usufruct rights of the assigning
party which are still subject to option rights of the other parties
hereto.
After exercise (or expiry, as the case may be) of any option granted
hereunder, the rights of the participating parties in any Usufruct shall be
governed by the Operating Documents which apply to that Usufruct.
9.2 Each party to this Agreement may exercise its rights and perform its
obligations hereunder through one or more subsidiaries or affiliates, in
which case the term "APACHE", "POGC" or "FXEN", as applicable, shall be
deemed to refer to and include such subsidiaries or affiliates.
9.3 If any party decides to abandon, relinquish or allow to expire undrilled
any Block or Usufruct that is subject to this Agreement, it shall give
notice to the other parties and an opportunity to take over such Block or
Usufruct on terms to be agreed at the time. The parties shall endeavor to
give notice sufficiently far in advance to allow the other parties adequate
time to evaluate, decide and commence any required operations.
ARTICLE 10. AMENDMENT
This Agreement may only be altered, varied or amended by written instrument
executed by all the parties.
ARTICLE 11. NOTICE
Any notice required to be given pursuant to this Agreement shall be in writing
and shall be given by delivering the same by hand at, or by sending the same by
prepaid first class post (confirmed by telefax/facsimile) or telefax/facsimile
to, the relevant address set out below or such other addresses as any party
wishing to change its address may notify to the other party from time to time.
Any such notice given as aforesaid shall be deemed to have been given or
received at the time of delivery (if delivered by hand), the first working day
next following the day of sending (if sent by facsimile) and the first working
day next following, the day of receipt (if sent by post).
FX Energy, Inc. Polish Oil and Gas Company
Geological Bureau - GEONAFTA
Attn: Xxxxx X. Xxxxxx Attn: Xxxxx Xxxxxxxx
0000 Xxxxxxxx Xxxxx, Xxxxx 000 Jagiellonska 76
Xxxx Xxxx Xxxx, XX 00000 00-000 Xxxxxx, Xxxxxx
Telephone: 0-000-000-0000 Telephone: 00-00-000-0000
Fax: 0-000-000-0000 Fax: 00-00-000-0000
APACHE Overseas, Inc.
Attn: Xxxxx X Xxxxx
0000 Xxxx Xxx Xxxxxxxxx
Xxxxxxx, Xxxxx 00000-0000
Telephone: 0-000-000-0000
Fax: 0-000-000-0000
In WITNESS whereof the parties have caused this Agreement to be executed by
their duly authorized representatives the day month and year first written.
FX Energy, Inc. Polskie Gornictwo Naftowe Gazownictwo S. A.
Oddzia1 Buro Geologiczne - GEONAFTA
By /s/Xxxxxx X. Xxxxxx, Director By /s/ Xxxxx Xxxxxxxx, Director
Apache Overseas, Inc.
By /s/ Xxxxx X. Xxxxx, President
