Exhibit No. 8
AGREEMENT
THIS AGREEMENT is made and entered into this 28th day of August, 1992, by
and between XXXXXXXX NATURAL GAS COMPANY ("WNG") and XXX EXPLORATION, INC.
("OPERATOR").
WHEREAS, WNG has mineral interest and/or gas storage rights in, on and
under tile following described real property;
Certain properties located in Jefferson and Leavenworth Counties in the
State of Kansas, commonly referred to as the McLOUTH STORAGE FIELD, said
properties fully described in Exhibit "A" attached hereto and made a part
hereof, and hereinafter referred to as the "LOCATION," and;
WHEREAS, WNG is actively engaged in an underground natural gas storage
operation in the proximity of the LOCATION from the surface to twenty fee,
below the top of the Mississippi Lime, and
WHEREAS, OPERATOR intends to conduct a fully integrated study of the
McLouth Field which will include seismic tests and following such study
intends to drill for and produce oil that may occur in the LOCATION;
NOW, THEREFORE, in consideration of the premises and the. mutual
covenants and agreements of the parties hereto which are set forth herein, WNG
and OPERATOR agree as follows:
1. (a) During and following the completion of the seismic study,
OPERATOR may commence the drilling of a well or xxxxx at the LOCATION and
thereafter shall proceed with the drilling of said xxxxx diligently and
without unnecessary delay and in a workmanlike manner. All well locations
still be submitted to and approved by WNG prior to the commencement of
drilling, OPERATOR shall commence the initial well as provided above not later
than One (1) year from the date of this agreement set forth above.
(b) Within ninety days (90) days of the date of this Agreement
OPERATOR will propose a geophysical program which will be mutually agreed upon
prior to commencement. OPERATOR will provide WNG with copies of all seismic
studies, all well logs, and any other relevant tests or studies conducted on
any well in McLouth or dealing with the McClouth field.
(c) Within twenty-four months (24) of the date of this Agreement,
OPERATOR will assign WNG all right title and interest in ten xxxxx drilled in
MeLouth under this Agreement. All xxxxx will be drilled on mutual agreeable
well sites following a technical review of geophysical and geological data.
2. (a) This agreement shall remain in force and effect for a term of one
(1) year from the date set forth above and so long thereafter as oil is
produced from the leased premises in commercial Quantities provided that in
the event production of oil shall cease then OPERATOR shall have a reasonable
time, not to exceed one hundred eighty (180) (lays, in which to reestablish
oil production in commercial quantities before tile lease is terminated for
non-production. If, at the expiration of the primary term of this agreement,
oil is not being produced oil tile leased premises in commercial quantities
but OPERATOR is then engaged in drilling for oil and the Underlying line has
not expired, then this agreement shall continue in force so long as drilling
operations are being continuously prosecuted on the leased premises. Drilling
operations shall be considered to be continuously prosecuted if not more than
thirty days shall elapse between the completion or abandonment of one well and
the spudding of a subsequent well, If oil shall be discovered and produced in
commercial quantities from any such well or xxxxx drilled or being drilled at
or after the expiration of the primary term of this agreement, this agreement
shall continue in force so long as oil shall be produced from the leased
premises in commercial quantities and OPERATOR complies with the terms of the
lease.
(b) The parties understand and agree that WNG is engaged in storing
natural gas in the McLouth Sand which is located within two hundred fifty feet
(250) feet above the top of the Mississippi and WNG specifically reserves the
right to such stored gas in such formation or any other formations in which
said stored gas might be found from the surface to twenty feet below the top
of the Mississippi Lime.
3. (a) The OPERATOR shall deliver to WNG, free of cost, on the lease,
or into the pipeline to which OPERATOR may connect its xxxxx the equal of 1/16
of 8/8, part hereby reserved unto WNG as an Overriding Royalty of all oil
produced and saved from the leases premises, or at WNG's option to pay to WNG
for such one-sixteenth (1/16) Overriding Royalty the market value for oil of
like grade and gravity prevailing on the day such oil is run into the pipeline
or into storage tanks.
(b) Except for that gas provided pursuant to paragraph 4 (1) all gas
produced shall be returned to WNG at OPERATOR's cost and expense at a mutually
agreeable location in WNG's pipeline or mutually agreeable formation, and if
into the pipeline, against the prevailing pressures contained in WNG's
pipeline from time to time and shall be of normal pipeline quality and shall
not contain over 1/4 grain H2S nor over 20 grains of total Sulphur per 100
cubic feet, nor over 2% by volume of C02 nor over 1% by volume of oxygen. A
gas return program shall be agreed upon as soon as it becomes necessary in
order to properly return any gas produced from any xxxxx drilled under this
Agreement. WNG shall determine, in its sole discretion whether dehydration is
necessary.
4. (a) If operations for the drilling of a well are not completed on
said land on or before the date one (1) year from the date set forth above,
this Agreement shall terminate as to both parties.
(b) At least thirty (30) days prior to startup a well, OPERATOR shall
obtain WNG's approval of OPERATOR's contractor and proposed drilling
programs. This shall include, without limitation, the zone to be produced,
the casing and cementing program , equipment to be used in drilling the well,
the drilling mud and additives and the volume and method of zone,
stimulation. Prior to the plugging and abandonment of any well or xxxxx,
OPERATOR shall obtain WNG's, approval of the plugging program to be used. No
well shall be drilled within three hundred thirty (330) feet of any gas
storage well without the prior written approval of WNG. OPERATOR shall
minimize the volume of gas vented during testing and development.
(c) OPERATOR agrees to furnish WNG with daily progress reports on
each well which shall include, without limitation, drilling depths, all shows
of oil and gas, results of drill stem tests, electrical logging surveys,
samples of cores and cuttings if requested, well log upon completion, and
plugging record. WNG shall have the right to observe OPERATOR's operation at
all reasonable nines.
(d) OPERATOR agrees to complete and/or plug any well or xxxxx in a
manner that will not allow WNG's stored gas to escape or interfere with WNG's
underground gas storage operations.
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(e) Any and all gas produced by OPERATOR's well or xxxxx shall remain
the property of WNG and will be delivered to WNG as described in 3 above.
(f) WNG has the option to take over, at OPERATOR's salvage value, any
abandoned well or xxxxx, or surface facilities related to oil production.
(g) OPERATOR may re-inject gas only into the McLouth Sand formation
at a mutually agreeable location and with mutually agreeable quality and
measurement equipment.
(h) OPERATOR shall not strip condensate from gas except by normal
oilfield mechanical separation equipment, drips, sluggers, and tile like.
(i) With respect to returned gas, WNG shall have the sole discretion
in the selection and approval of the owner or operator of the dehydration
facilities and OPERATOR will pay that owner or operator directly for such
services. When WNG is the owner or operator of the dehydration facilities,
charges for dehydration by WNG will be according to WNG's rates for
dehydration at the time dehydration is performed.
(j) With respect to returned gas, OPERATOR shall hold WNG harmless
for oil production problems or delays in the event WNG experiences system
equipment operating problems.
(k) If requested by WNG all undrilled spacing units shall be released
within one year after the last well completed by OPERATOR on the Location.
(1) WNG shall provide sufficient lease gas for compression fuel, heat
treaters, and dehydration facilities, The volume of such lease gas used on a
monthly basis shall be subject to WNG's approval.
(m) OPERATOR agrees to conduct its operation at its sole risk and
expense and shall defend, indemnify, and hold harmless WNG, its parent,
subsidiaries, and affiliates and their respective directors, officers,
employees, representatives, and agents from and against any claim, demand,
cause of action, liability, loss or expense (including without limitation,
penalties, interest and attorney fees) arising from or related in any way to
(i) actual or asserted failure of OPERATOR, or its contractors, if any, to
comply with any law, ordinance, code, regulation, rule., or order of any
governmental body; (ii) injury to or death of persons (including, without
limitation, the employees of WNG, OPERATOR and its contractors, and suppliers,
if any, and their respective directors, officers, employees, representatives
and agents and any third party, whether or not legally on the premises or at
the location site); or (iii) damage to or loss of property (including, without
limitation, the property of WNG); all arising directly or indirectly out of
the acts or emissions of OPERATOR, its contractors or suppliers, if any, and
their respective officers, employees, representatives, or agents, incident to
the operations to be performed and operations to be conducted, irrespective of
whether WNG was concurrently or jointly negligent and whether actively or
passively, but excepting injury or death of persons or damage or loss of
property caused by the sole negligence or willful misconduct of WNG.
(n) (i) OPERATOR and its contractors, if any, shall at their sole
cost maintain insurance coverages throughout the entire term of this Agreement
as described in Paragraphs (1) through (5) below with insurance companies
acceptable to WNG. The limits set forth are minimum limits and shall not be
construed to limit OPERATOR's liability. All costs and deductible amounts
shall be for the sole. account of the OPERATOR or contractor.
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(1) Worker's Compensation insurance and Employer's Liability
Insurance with a limit of $100,000 each accident, including occupational
disease coverage with a limit of $100,000 each employee, $500,000 aggregate
limit.
(2) Commercial General Liability Insurance with a combined
single limit of $1,000,000 each occurrence, $1,000,000 aggregate, against
claims for bodily injury, death, and property damage, including coverage for
blanket contractual liability .(covering tile indemnity obligations under
Paragraph 4(m), broad form property damage, personal injury liability,
products/completed operations, and XC&U.
(3) Automobile Liability with combined single limit for bodily
injury and property damage of $1,000,000 each occurrence to include
coverage
for all owned, non-owned, and hired vehicles.
(4) If drilling occurs, excess or umbrella liability insurance
with a combined single lit-nit of not less than $1,000,000 per occurrence, to
be in excess of the liability coverages in items 1, 2 and 3 above.
(5) Control of Well insurance in an amount not less than
$1,000,000, that includes expense for cleanup, containment, seepage, and
pollution.
(ii) Irrespective of the requirements of insurance to be
carried, the insolvency, bankruptcy, or failure of any such insurance company
carrying insurance for OPERATOR, or the failure of any such insurance company
to pay claims that occur shall not be held to waive any of the provisions
hereof. All the above described policies, together with all other insurance
now owned or purchased in the future, relating to the operations to be
performed hereunder, shall provide that the insurance companies shall have no
right of subrogation against WNG, its parent, subsidiaries, or affiliates,
(iii) Modification or cancellation of policies providing
coverage hereunder, as it affects the interest of WNG, shall be effective only
after written notice is received by WNG from the insurance company thirty (30)
days in advance of any such modification or cancellation. Prior to commencing
operations hereunder, OPERATOR shall deliver to WNG certificates in form
satisfactory to WNG evidencing trial existence of the insurance coverages
provided for above.
(iv) OPERATOR agrees, upon request of WNG, to submit the
original or a certified copy of its insurance policies for inspection by WNG
at any time.
(o) OPERATOR shall comply with all terms, conditions ,and covenants
(express or implied) of the underlying lease(s).
(p) OPERATOR shall not commence any manner or form of secondary or
tertiary recovery under this agreement or on the leases subject to this
agreement.
5. It is understood and agreed by and between WNG and OPERATOR that the
responsibility for pollution and contamination shall be as follows:
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(a) OPERATOR shall assume all responsibility for, including control
and removal of, and protect, defend and save harmless from and against all
claims, demands and causes of action of every kind and character arising from
pollution or contamination, which originates above the surface of the land or
water from spills of fuels, lubricants, motor oils, crude oil and natural gas
and the components thereof, drilling fluid, pipe dope, paints, solvents,
ballast, bilge and garbage.
(b) OPERATOR shall assume all responsibility for, including control
and removal of, and protect, defend, indemnify and save WNG harmless from and
against all claims, demands, and causes of action of every kind and character
arising directly or indirectly from all other pollution or contamination which
any occur during the conduct of operations hereunder, including but not
limited to, that which may result from fire, blowout, cratering, seepage or
any other uncontrolled flow of oil, gas, water or other substance, as well as,
the use or disposition of drill mud, oil emulsion, oil base or chemically
treated drilling fluids, contaminated cuttings or cavings, lost circulation
and fish recovery materials and fluids.
(c) In the event a third part), commits an act or emission which
results in pollution or contamination for which either WNG or OPERATOR; for
whom such party is performing work, is held to be legally liable, the
responsibility therefor shall be considered, as between WNG and OPERATOR, to
be the same as if the party for whom the work was performed had performed the
same and all of the obligations respecting defense, indemnity, holding
harmless and limitation of responsibility and liability, as set forth in (a)
and (b) above, shall be specifically applied.
6. (a) In the event WNCI owns a less interest in the above described
land than the entire and undivided mineral interest therein, then tile
overriding royalty herein provided for shall be paid WNG in the proportion
which its interest bears to the whole and undivided mineral interest.
However, such overriding royalty shall be increased after any revision occurs
to cover the interest so acquired.
(b) OPERATOR acknowledges that WNG has granted Farmout Agreements, or
other agreements allowing drilling activities in the McLouth Storage Field
prior to the date of this Agreement, and that said agreements are still in
force and effect due to commercial production being present, or other legal
conditions. WNG will advise OPERATOR of the leases involved in such
agreements prior to OPERATOR attempting to include such leases under this
Agreement. Upon the expiration or termination of such agreements for any
reason said leases will automatically become included under the terms and
conditions of this Agreement,
7. No waiver by either WNG or OPERATOR of one or more defaults of the
other in the performance of any of the provisions of this agreement shall be a
waiver of any future default(s), whether of like or different character.
8. OPERATOR shall bury its pipelines at least 42 inches below the surface
of tile ground. OPERATOR shall pay for all damages to the landowner, or
tenant, caused by its operation, e.g. damages to crops. Provided OPERATOR
shall have first fulfilled a its obligations, covenants and agreements under
this agreement then OPERATOR shall have the right to remove all machinery and
fixtures it has placed on the premises, following a WNG's approved
environmental audit.
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9. OPERATOR agrees that if any of its operations should interfere with
WNG's storage field, OPERATOR shall immediately stop any such operation(s) and
do everything necessary to stop said interference. Should WNG determine
additional work or precaution are necessary to insure protection of its
storage fields, OPERATOR agrees to institute such additional precautions at
once and at OPERATOR's sole expense. OPERATOR agrees that any operations
conducted on said lands, while gas is stored under said lands, shall be
conducted to prevent the escape of gas from and the intrusion of water and
other substances into any formation in which gas is so stored.
10. All notices or other correspondence to be given hereunder shall be in
writing, delivered in person or by U.S. Mail, addressed as follows:
Xxxxxxxx Natural Gas Company
Xxx Xxxxxxxx Xxxxxx
X.X. Xxx 0000
Xxxxx, Xxxxxxxx 00000
Attention: Vice President,
Supply and Gas Management
KLM Exploration, Inc,
P. 0. Xxx 000
XxXxxxx, Xxxxxx 00000
11. WNC; makes no representation or warranty, express, implied or
otherwise, as to the interest or rights of WNG in the mineral rights, the
interest granted hereunder, or otherwise.
12. (a) In the event the OPERATOR does not comply with the provisions
of this Agreement and commence the drilling of a well within the time period
set out herein, or when this Agreement otherwise terminates by its terms or by
agreement of the parties, all lights of the OPERATOR in and to the Location
shall be immediately automatically terminated and revert to WNG without the
necessity of any document of reconveyance.
(b) Further, in the event production in paying quantities shall be
obtained from the Location by OPERATOR, but thereafter such production in
paying quantities shall cease, or if OPERATOR shall subsequently cease or
suspend production from the Location for more than one hundred eight (180)
days, all rights of OPERATOR in and to the Location shall immediately and
automatically terminate and revert to WNG without the necessity of any
document of reconveyance. In addition, OPERATOR shall not have the authority
to release any part of the underlying oil and gas lease, and any attempt by
OPERATOR to so release any part of such lease shall cause all rights of
OPERATOR in and to the Location to immediately and automatically terminate and
revert to WNG without the necessity of any document of reconveyance and such
purported release shall be of no force and effect.
13. OPERATOR shall not assigns sublet or transfer this instrument or the
rights accruing hereunder without WNG's prior written consent, If the estate
of either party hereto is assigned, the covenants hereof shall extend to their
heirs, executors, administrators, successors, or assigns.
14. It is explicitly understood and agreed by and between the parties
hereto that this document is not intended to convey any interest whatsoever in
the property described herein other than the right to enter upon the property
and drill for and sell oil which relay be produced pursuant to the provisions
set out in this Agreement.
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15. (a) OPERATOR agrees to provide a performance bond to comply fully
with the conditions of the Agreement and which will provide for well plugging
expenses in the event any well operated by the OPERATOR on the Location
requires plugging and is not done in a timely manner by the OPERATOR. The
bond shall be executed by a corporate surety authorized to do business in the
state-of Kansas and shall be renewed and continued in effect until the
conditions have been met or released by WNG. OPERATOR agrees to provide a
performance bond in the amount of one million dollars.
(b) Notwithstanding the absence of a performance bond, OPERATOR remains
responsible for a costs of plugging of any well or xxxxx on the Location in a
manner that will not allow WNG's stored gas to escape or interfere with WNG's
underground storage operations, and OPERATOR agrees to indemnify and hold WNG
harmless from all such costs and expenses of plugging,
16. OPERATOR may at any time surrender or cancel this agreement in whole
or iii part by delivering or mailing a release of this agreement to WNG, and
by WNG placing same of record in the appropriate county.
17. A11 provisions of this agreement, express or implied, shall be subject
to all federal and state laws and the orders, rules, or regulations of all
governmental agencies administering the same.
18. This agreement and all its terms, conditions, and stipulations she
extend to and be binding on all respective heirs, successors, and assigns of
WNG and OPERATOR.
19. OPERATOR shall obtain Landowner ratification prior to commencing
drilling activities on any lease. Ratifications may be obtained as the
drilling program proceeds as long as they are received by WNG prior to
OPERATOR entering onto any lease for the purpose of commencing a well.
IN WITNESS WHEREOF, this agreement has been signed the day and year first
above written.
ATTEST: XXXXXXXX NATURAL GAS COMPANY
/S/ [Illegible] By: /S/ Xxxxxx X. Xxxxxxx, V.P.
ATTEST: KLM EXPLORATION, INC.
/S/ Xxxxxxx X. Xxxxx, Asst. Secretary By: Xxxxxxx Xxxxx
PAGE
8
STATE OF KANSAS )
:ss.
COUNTY OF JEFFERSON)
On this 23rd day of July, 1992, before me, the undersigned, a Notary
Public duly commissioned in and for the county and state aforesaid, came
Xxxxxxx Xxxxx, president of KLM Exploration Co., Inc., a corporation of the
State of Kansas, personally known to be such officer, and to be the same for
himself and for said corporation for the uses and purposes therein set forth.
IN WITNESS WHEREOF, I have hereunto set my hand and official seat on the
day and year as above written.
[Notary Seal]
/S/ Xxxx X. Xxxxxxxx
STATE OF OKLAHOMA)
:ss.
COUNTY OF TULSA )
On this 28th day of August 1992, before me, the undersigned, a Notary
Public, duly commissioned for the county and state aforesaid, came Xxxxxxx X.
Xxxxxxx, Vice President of XXXXXXXX NATURAL GAS COMPANY, a corporation of the
State of Delaware, personally known to me to be such officer, and to be the
same person who executed as such officer the foregoing Instrument of writing
in behalf of said corporation, and he duly acknowledged the execution of the
same for himself and for said corporation for the uses and purposes therein
set forth.
IN WITNESS WHEREOF, I have hereunto set my hand and official seal on the
day and year as above written.
[Notary Seal]
/S/Xxxxxxx X. Xxxxxx
My Commission Expires:
October 16, 1996
PAGE
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ADDENDUM TO AGREEMENT BETWEEN
XXXXXXXX NATURAL GAS COMPANY AND
KLM EXPLORATION, INC.
DATED AUG. 28, 1992
Notwithstanding any provisions of the above captioned Agreement, or the
Gas Storage Lease covering said property, the undersigned landowners do hereby
approve, ratify and confirm said Agreement and that certain Gas Storage Lease
recorded ,at Book ______, Pages _____ in the Office of Deeds, Jefferson
County, Kansas.
LANDOWNERS
___________________________ ________________________ ____________________
Date Name Witness
___________________________ ________________________ ____________________
Date Name Witness
___________________________ ________________________ ____________________
Date Name Witness
___________________________ ________________________ ____________________
Date Name Witness
___________________________ ________________________ ____________________
Date Name Witness
___________________________ ________________________ ____________________
Date Name Witness
Xxxxxxxx Natural Gas Company
By_______________________________ Attest__________________________
Title Secretary
PAGE
10
EXHIBIT A
[Map of McLOUTH Storage Field]
