CONTRACT OPERATING AGREEMENT
THIS
CONTRACT OPERATING AGREEMENT
(this
“Contract
Operating Agreement”
or
this
“Agreement”)
is
entered into this 8th
day of
April, 2008, to be effective as of the 1st day of April, 2008 (“Effective
Date”),
between and among South
Texas Oil Company,
a
Nevada corporation (“South
Texas”),
including its subsidiaries, STO
Operating Company,
a Texas
corporation (“STO
Operating”);
STO
Drilling Company,
a Texas
corporation (“STO
Drilling”);
Southern
Texas Oil Company,
a Texas
corporation (“Southern
Texas”);
and
STO
Properties LLC,
a Texas
limited liability company (“STO
Properties”),
any
or all of which subsidiaries of South Texas may be referred to as “Subsidiaries”
and South
Texas,
together with such Subsidiaries, individually or collectively, may be referred
to herein as “STO”,
all of
which collectively constitute the Party of the First Part for which the Services
are to be performed, whose address is 000 Xxxxxxx 00 X., Xxxxxxx, Xxxxx 00000,
and Sonterra
Operating, Inc.,
a
Delaware corporation (“Sonterra”),
Party
of the Second Part which shall perform the Services, whose address is 000 X.
Xxxxxxxx Xxxx., Xxxxx 0000, Xxx Xxxxxxx, Xxxxx 00000. STO and Sonterra are
sometimes herein referred to together as the “Parties”,
and
individually as a “Party.”
WHEREAS,
from
and after various dates prior to the Effective Date of this Contract Operating
Agreement, (i) STO Operating has acquired, is a current owner of, and is the
operator of vast majority of the certain producing, non-producing, and
undeveloped oil and gas properties located in the State of Texas owned by STO
Operating and Southern Texas (the “Texas
Properties”);
and
(ii) STO Operating has acquired, is a current owner of, and is a non-operator
of
the certain producing, non-producing, and undeveloped oil and gas properties
located in the State of Colorado owned by STO Properties (the “Colorado
Properties”),
which
Texas Properties and Colorado Properties are more fully defined in Paragraph
1
below and more fully described in Exhibits
“A”
and
“B”,
respectively,
attached hereto and made a part hereof;
WHEREAS,
STO and
Sonterra desire that, for the duration of the Contract Operating Term, STO
shall
continue to act as operator of record for any Texas Properties in the State
of
Texas described on Exhibit “A” for which it is the current
operator;
WHEREAS,
although STO is not currently the operator of, and regardless of whether STO
hereafter elects to become operator of, the Colorado oil and gas properties
located in the Denver-Julesberg Basin (“DJ
Basin Properties”),
STO
shall, with Sonterra’s assistance, continue to lead the technical efforts with
respect to the DJ Basin Properties as more fully described in Exhibit
“B”
attached
hereto and made a part hereof;
WHEREAS,
STO
and
Sonterra desire that Sonterra shall perform certain Operating Services and
certain Accounting Services (each as defined in Paragraph 2 below) primarily
for
the Texas Properties that are currently, or hereafter become, operated by STO
(“Operated
Properties”)
and
secondarily for the Texas Properties and Colorado Properties not operated by
STO
(“Non-Operated
Properties”)
from
the Effective Date (“Commencement
Date”)
for
the duration of the Contract Operating Term (including any extension thereof),
in each case to the extent that such Operating and Accounting Services are
(i)
appropriate for the safe, efficient, and productive operation of the business
of
STO; (ii) consistent with best industry practices; (iii) in accordance with
applicable Federal and State laws; (iv) in accordance with applicable Securities
and Exchange Commission rules and regulations; (v) in accordance with applicable
Financial Accounting Standards Board (“FASB”)
publications and guidance; (vi) consistent with being a reasonable prudent
operator as such term is commonly used in the oil and gas industry; and (vii)
in
accordance with the terms and conditions of this Contract Operating Agreement
(“all of which standards enumerated in (i), (ii), (iii), (iv), (v), (vi) and
(vii) above shall be individually or collectively, as applicable, referred
to
herein as “Applicable
Operating Standards”);
NOW,
THEREFORE,
for and
in consideration of the mutual covenants herein, the Parties stipulate and
agree
as follows:
1.DEFINITIONS.
Unless
otherwise defined in this Contract Operating Agreement, capitalized terms used
herein have the meanings given to such terms below.
A. The
term
“AFE”
shall
mean Authorization for Expenditure;
|
B.
|
The
term “Contract”
shall mean any joint operating agreement (“JOA”),
Marketing Contract, or other contractual agreement to which STO was
a
party prior to the Effective Date or which STO enters into after
the
Effective Date; and
|
|
C.
|
The
terms “Operated
Properties”
or “Properties”
shall include the Bastrop I, Bastrop II, Central Texas, and the Southern
Texas Properties, whether described under named Xxxxx or as properties
not
yet in a unit on attached Exhibit
“A”,
sometimes also referred to internally at STO as the:
|
(1)
Bastrop Properties (which consists of contiguous oil and gas leasehold interests
in both the Bastrop I and II Prospects in Bastrop County, Texas);
(2)
Giddings Field Properties (Central Texas Leases, which consists of oil and
gas
leasehold interests in Burleson, Brazos, Fayette, Gonzales, and Xxx Counties,
Texas); and
(3)
Big
Foot, Kyote, and Somerset Fields (Southern Texas Leases, which consist of oil
and gas leasehold interests in Atascosa and Frio Counties, Texas).
|
D.
|
The
terms “Non-Operated Properties”
or “Properties”
shall consist of the D-J Basin Properties, described on attached
Exhibits
“B”.
|
2.
SCOPE
OF SERVICES.
As
of the Effective Date, Sonterra will begin overseeing daily operations, in
the
name of, on behalf of, and for the benefit of STO, of both Operating Services
and Accounting Services for the Operated Properties and Accounting Services
for
the Non-Operated Properties as an independent contractor acting in the role
of
Contract Operator, subject to the terms, conditions, and limitations set forth
in this Contract Operating Agreement (as the context indicates, individually
or
collectively, the “Operating
Services”,
the
“Accounting
Services”,
or the
“Services”).
In
the
performance of the Services contemplated hereunder, Sonterra shall perform
(or
shall cause the employees, consultants, and representatives of STO to perform)
the Services in the name of the applicable STO entity and in accordance with
Applicable Operating Standards, which Services shall consist of the following
duties:
(a)
operating
the Operated Properties and, to a lesser extent consistent with the role of
a
non-operator, managing the Non-Operating Properties; provided, however, that
STO
will remain as the operator of record for the Operated Properties and that
STO
will continue to be responsible under law and in fact for the performance of
certain functions and activities for which Sonterra is not responsible as
described in Paragraph 5;
(b)
performing
all functions in the name of STO and except as limited in Paragraph 5 below,
otherwise act as a Contract Operator as generally understood in the oil and
gas
industry and in accordance with Applicable Operating Standards and duties
imposed under any Contracts to which any STO entity is a party, including
without limitation performing the duties of Operator under any JOA or as
Operator in a manner consistent with JOA standards in the event that the STO
entity has no partners in particular xxxxx and leases;
(c)
overseeing
marketing, nominations, gas control, and other similar services under existing
Contracts that STO is a party to or under Contracts that STO enters into on
Sonterra’s recommendation to gather, transport, market, store, or sell the oil
and gas production from the Properties (individually or collectively,
“Marketing
Contracts”)
or
under Marketing Contracts hereafter entered into on a spot or month-to-month
basis and (with STO’s prior written approval) to receive proceeds from (i) the
sale of production attributable to the Properties (to the extent not paid by
the
purchasers of production directly to STO); (ii) gathering, compressing,
transporting, drilling, or other services rendered by Sonterra on behalf of
STO;
and/or (iii) payments not encompassed within (i) or (ii) immediately above,
such
as gas balancing payments in lieu of in kind volumes, overpayments of AFEs,
cash
calls, insurance, taxes or items similar or dissimilar to those enumerated
in
(e)
below in
which STO is entitled to payment, or other payments for the benefit of
STO;
(d)
overseeing
land administration, xxxxxxx, regulatory compliance, production reporting,
geoscience, technical, operational, secretarial, and other duties and
responsibilities performed by STO personnel, including its employees,
consultants, contractors, and subcontractors, encompassed within the general
and
administrative overhead of STO;
(e)
administering
the books, records and accounts associated with ownership of the Properties,
including, but not limited to, providing STO with copies of daily drilling,
workover and safety incident reports; preparing and filing all appropriate
forms
and reports for governmental agencies; and preparing and sending reports, change
of operator notices or designations to third party co-owners as
necessary;
(f)
paying
or
causing to be paid severance, production and similar taxes, lease rentals,
shut-in royalties, minimum royalties, payments in lieu of production, royalties,
overriding royalties, production payments, net profit payments and other similar
burdens associated with the ownership of the Properties, to the extent that,
prior to Commencement Date, such amounts were paid directly by STO and not
by
either the operators of the Properties or by the purchasers of production from
the Properties;
(g)
paying
or
causing to be paid operating costs associated with ownership of the Properties
or the operation of the Operated Properties;
(h)
sending
joint interest xxxxxxxx and cash calls to owners of the Operated Properties
and
receive cash calls and xxxxxxxx from joint interest owners attributable to
the
Operated Properties;
(i)
submitting
reports regarding royalty payments to federal, state or tribal authorities
concerning the Properties, as appropriate;
(j)
submitting
production and severance tax reports with respect to the Operated Properties
to
federal, state or tribal authorities, with contemporaneous copies to STO
concerning the Properties, as appropriate; and
(k)
preparing
a Contract Operating Term Final Report summarizing, with copies of appropriate
supporting documentation, Sonterra’s activities on behalf of STO during the
Contract Operating Term not more than ninety (90) days after the expiration
of
the Contract Operating Term.
Services
described in clauses
(a),
(b),
(c),
(d),
and
(e),
except
to the extent that a portion of such Services also constitute Accounting
Services, shall be referred to herein as “Operating
Services.”
Services
described in clauses (f),
(g),
(h),
(i),
(j), and
(k)
shall be
referred to herein as “Accounting
Services.”
As used
in this Agreement, the "Contract
Operating Term Final Report"
shall
mean the final report that will be prepared by Sonterra based upon all actual
production, sales proceeds, joint interest xxxxxxxx, and cash calls attributable
to STO, all actual expenses and costs attributable to STO pursuant to this
Contract Operating Agreement, and all other amounts attributable to STO that
are
accrued or owed, but are not yet paid or payable during the Contract Operating
Term. As soon as practicable, but in any event within thirty (30) days after
receipt of the Contract Operating Term Final Report, STO shall prepare and
deliver a written response either: (1) acknowledging receipt of and agreement
with the Contract Operating Term Final Report or (2) containing any proposed
changes to the Contract Operating Term Final Report, together with an
explanation of any such changes and the reasons therefore. To the extent that
STO may suggest changes to the Contract Operating Term Final Report with which
Sonterra does not agree, the Parties shall endeavor in good faith to reconcile
their respective divergent positions with respect to such Report.
3.
XXXXXXXX
TO OTHERS.
During
the Contract Operating Term, (a) Sonterra shall oversee, prepare and send,
in
the name of and on behalf of STO, all joint interest xxxxxxxx for the Operated
Properties to joint interest owners of the Operated Properties;
(b)If
Sonterra receives any subsequent invoices that pertain to the operations of
the
Operated Properties after the Contract Operating Term, and those invoices
pertain to charges subsequent to the expiration of the Term, Sonterra shall
forward all such invoices to STO for payment by STO;
(c) STO
shall
reimburse Sonterra for all invoices paid by Sonterra, if any, on behalf of
STO,
incurred hereunder within ten (10) business days of receipt of notice of such
payments and supporting documentation; and
(d) The
Parties contemplate that all monies to be paid or received during the Contract
Operating Term shall be paid or received by and in the name of STO, but Sonterra
agrees to promptly turn over any funds it inadvertently may receive in the
course of performing Services hereunder and STO agrees to reimburse Sonterra
for
any funds, if any, that STO has paid on STO’s behalf.
4.CONTRACT
OPERATING TERM AND EARLY TERMINATION.
This
Agreement commences as of the Effective Date and shall continue for a period
of
three (3) calendar months through June 30, 2008, and shall automatically
continue from month to month thereafter unless terminated by either Party for
one or more extended periods of one calendar month each upon written notice
sent
by overnight courier not less than thirty (30) days prior to the expiration
of
the Contract Operating Term or any extension thereof, or unless earlier
terminated by mutual agreement of Sonterra and STO. Sonterra shall secure and
thereafter retain possession and control in its office of all records and files
of STO at such time as Sonterra deems desirable or reasonably necessary for
providing Operating Services and Accounting Services, but STO shall grant
immediate electronic access to and furnish physical access to and/or copies
of
all records and files to Sonterra as deemed desirable or necessary by STO or
Sonterra to perform the Services contemplated under this Contract Operating
Agreement.
5.
LIMITATION
ON SERVICES.
The
following limitations apply with respect to the Services contemplated hereunder
in connection with performing the Operating Services:
(a)
Sonterra
shall not enter into any Contract in its own name or on its own behalf, and
STO
shall be obligated to enter into all Contracts reasonably acceptable to STO
and
Sonterra, in the final discretion of STO, that may be necessary for the
operation of the Operated Properties or to otherwise perform the Services.
Each
of STO and Sonterra agree to consult with the CEO of the other Party with
respect to any Contract having a duration in excess of three (3) calendar months
and/or with respect to any proposed capital expenditures in excess of
$25,000.00, with the final decision to be made in any event by the Executive
Committee of STO in the event that the CEO of Sonterra and the CEO of STO do
not
concur on the decision with respect to such matter. Upon request, Sonterra
agrees to join with STO in the execution of any Contract requiring Sonterra’s
joinder, if any, that may be necessary for the operation of the Operated
Properties during the Contract Operating Term of this Contract Operating
Agreement; provided,
however, that Sonterra shall have no contractual liability under any such
Contract and shall be entitled to indemnification from STO pursuant to Paragraph
7(c) below;
(b)
the
scope
of Operating Services shall include, but Sonterra shall not be responsible
for
the results of or any liability associated with, providing in good faith any
technical evaluation regarding any drilling, reworking or other capital
expenditure projects. Sonterra shall be responsible for timely forwarding
notices to STO to enable STO to make informed responses and to direct Sonterra
to make such responses on STO's behalf. After receiving Sonterra's written
recommendations, STO shall be responsible for making any response or
non-responses to any elections (including AFEs) pertaining to the Operated
or
Non-Operated Properties, but Sonterra shall have no responsibility or liability
therefor if STO does not receive Sonterra's directions regarding an election
to
be made by STO. Sonterra
(including for all purposes hereunder its officers, directors, employees,
agents, consultants, or representatives) shall not be responsible for the
accuracy of any information furnished in good faith by Sonterra or any of its
Subsidiaries by Sonterra, and shall not be liable to STO or to any third parties
for any (i) claims based upon the inclusion of any inaccurate information
furnished by Sonterra to STO and used by STO in any reports or (ii) results
obtained from any other use by STO of any inaccurate information so furnished.
STO
acknowledges and agrees that its employees and the employees of STO's
Subsidiaries shall be required to, and will in fact, devote substantial time
in
assist Sonterra in the performance of Services to STO and its Subsidiaries
to
enable Sonterra to continue the operation of the Properties and the performance
of the Operating Services and Accounting Services in the same manner as STO
did
immediately prior to Commencement Date or as otherwise required by Contract
or
applicable law. STO also acknowledges that the employees of Sonterra providing
the Services have, and will continue to have, responsibilities with respect
to
the business of Sonterra to which said Sonterra employees will be required
to
devote substantial time and effort, in addition to the business of STO and
its
Affiliates, other than the operation of the Operated and Non-Properties and
the
Operating and Accounting Services to be performed hereunder; and
(c)
Sonterra
shall not be required to drill any well nor undertake any other drilling,
workover or other capital expense operations (individually or collectively,
“Drilling Operations”) with respect to any Operated Properties, but shall
provide any services in the nature of Operating Services in support of any
such
operations undertaken by STO. In the event that STO elects to conduct such
operations and Sonterra agrees to perform Operating Services with respect to
the
requested drilling, workover or other capital expense operations, however,
Sonterra shall do so without additional charge to STO, with the express
understanding and agreement by STO that Sonterra shall not be exposed to, and
STO agrees to protect, defend, and hold Sonterra harmless from, any liability
or
responsibility for any acts or failures to act on the part of Sonterra with
respect to any such operations undertaken by STO, all of which operations shall
be at STO’s sole risk and expense.
6. COMPENSATION
AND FEES.
As and
for compensation for Services to be rendered hereunder, STO agrees to pay
Sonterra the sum of $75,000 per month, plus reimburse Sonterra for all of its
out-of-pocket costs and expenses, all of which shall be payable within ten
(10)
days after receipt of the monthly invoice from Sonterra. Any and all expenses
anticipated to be incurred by Sonterra in connection with its performance
hereunder in excess of $25,000 per item, or $75,000 for a series of related
items, shall be pre-approved by STO’s CEO as a condition of
reimbursement.
7.DISCLAIMER
OF WARRANTIES/INDEMNIFICATION.
(a) Notwithstanding
any other term of this Agreement to the contrary, Sonterra makes no, and in
fact
expressly disclaims any and all, representations and warranties, express,
implied or statutory, with respect to the performance or results of the
Services, except that Sonterra shall perform the Services during the term of
this Agreement in a manner consistent with best industry practice, or as
otherwise required by Contract or applicable law.
(b) Each
Party hereby agrees to defend, indemnify, release, and hold the other Party
harmless, including its respective officers, directors, employees, agents,
representatives, contractors or subcontractors, from and against any and all
claims, demands, lawsuits, or other legal or contractual liability, including
any damages, expenses, costs, interest, and attorneys’ fees associated therewith
(individually or collectively, “Liabilities”) on account of personal injury,
bodily injury or death to its own personnel and representatives to the extent
such injury, death, damage or loss arises out of or is attributable to the
Operating Services or the performance thereof by any of Sonterra’s respective
officers, directors, employees, agents, representatives, contractors or
subcontractors, regardless
of whether such Liabilities are allegedly or deemed to be caused by, in whole
or
in part, the joint, several, active, passive, sole or concurrent negligent
acts
or omissions or the strict liability (statutory or otherwise) or other legal
fault attributable to Sonterra, but if and only to the extent any such
Liabilities are caused by willful misconduct of
Sonterra.
(c) The
provisions of Paragraph (b) and (d) shall not be applicable to any Liabilities
arising out of the performance of any duties and responsibilities performed
by
Sonterra pursuant to Paragraph 5 (c) and, accordingly, STO hereby agrees to
defend, indemnify, release, and hold Sonterra harmless, including its respective
officers, directors, employees, agents, representatives, contractors or
subcontractors, from and against any and all Liabilities with respect to
Drilling Operations undertaken by STO.
(d)
The
mutual indemnification obligations in Paragraph 7(b) are intended to comply
with
applicable “knock-for-knock” oilfield anti-indemnity laws or similar Laws. To
the extent such indemnification provisions are found to violate any applicable
Law, or in the event any applicable Law is enacted or amended that would cause
these provisions to be in violation of such Law, then this Agreement shall
automatically be amended to provide that the indemnification provided hereunder
shall extend only to the maximum extent permitted by the applicable Law. Any
person or entity entitled to indemnification shall be deemed to be a STO
Indemnified Party or Sonterra Indemnified Party, as applicable.
8.
FORCE
MAJEURE.
(a) If any Party is rendered unable, wholly or in part, by an event of
force majeure to carry out its obligations under this Agreement, other than
obligations to make money payments which shall not be affected by any such
event, that Party shall give the non-affected Party prompt written notice of
the
force majeure event with reasonably full particulars of the event and its
consequent inability to carry out its obligations, whereupon the obligations
of
the Party giving notice, to the extent affected by the event of force majeure,
shall be suspended during, but no longer than, the duration of the event of
force majeure. The affected Party shall use all reasonable diligence to remedy
the inability to perform its obligation caused by the event of force majeure
as
quickly as reasonably possible under the circumstances.
(b)
The
requirement that any event of force majeure shall be remedied with all
reasonable dispatch shall not require the settlement of strikes, lockouts,
or
other labor difficulty by the Party involved in a manner or on terms contrary
to
such Party’s wishes, and the handling and resolution of such labor difficulties
shall be entirely within the discretion of the Party concerned.
(c)
The
term
“event
of force majeure”
shall
mean an act of God, strike, lockout, or other industrial disturbance, act of
the
public enemy, war, blockade, terrorism, public riot, lightning, fire, storm,
flood, explosion, governmental action, governmental delay, restraint or
inaction, unavailability of equipment, and any other cause, whether of the
kind
specifically enumerated above or otherwise, which is not reasonably within
the
control of the Party claiming the inability or suspension of
performance.
9.
ASSIGNABILITY.
This
Agreement may not be assigned by Sonterra without the prior written consent
of
STO, and Sonterra may not delegate its duties or responsibilities hereunder
to a
third party without the prior written consent of STO. No assignment of any
rights hereunder by Sonterra shall relieve Sonterra of any obligations and
responsibilities hereunder.
10.
GOVERNING
LAW; JURISDICTION, VENUE; JURY WAIVER. THIS
AGREEMENT AND THE LEGAL RELATIONS AMONG THE PARTIES SHALL BE GOVERNED AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS, EXCLUDING ANY
CONFLICTS OF LAW RULE OR PRINCIPLE THAT MIGHT REFER CONSTRUCTION OF SUCH
PROVISIONS TO THE LAWS OF ANOTHER JURISDICTION. ALL OF THE PARTIES HERETO
CONSENT TO THE EXERCISE OF JURISDICTION IN PERSONAM BY THE COURTS OF THE STATE
OF TEXAS FOR ANY ACTION ARISING OUT OF THIS AGREEMENT. ALL ACTIONS OR
PROCEEDINGS WITH RESPECT TO, ARISING DIRECTLY OR INDIRECTLY IN CONNECTION WITH,
OUT OF, RELATED TO, OR FROM THIS AGREEMENT SHALL BE EXCLUSIVELY LITIGATED IN
COURTS HAVING A SITUS IN SAN ANTONIO, BEXAR COUNTY, TEXAS. EACH PARTY HERETO
WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY
HAVE
TO A TRIAL BY JURY IN RESPECT OF ANY ACTION, SUIT OR PROCEEDING ARISING OUT
OF
OR RELATING TO THIS AGREEMENT.
11.
COUNTERPARTS.
This Agreement may be executed in any number of counterparts, and each such
counterpart hereof shall be deemed to be an original instrument, but all of
such
counterparts shall constitute for all purposes one agreement. Any signature
hereto delivered by a Party by facsimile transmission shall be deemed an
original signature hereto.
12.
INDEPENDENT
CONTRACTOR.
In
their
performance of the Services, Sonterra shall be considered an independent
contractor, and in no event shall either Party be deemed a partner, co-venturer
or agent of the other Party. None of the persons utilized by Sonterra in the
performance of Services hereunder shall be deemed to be an employee of STO
nor
entitled to any benefits available to an STO employee. Compensation required
to
be paid to such persons engaged by Sonterra to perform any Services hereunder
shall be the sole responsibility of Sonterra.
13.
NO
RESTRICTIONS.
STO
recognizes that Sonterra is not performing the Services under this Agreement
on
an exclusive basis and agrees that Sonterra is only obligated to devote such
time under this Agreement as is reasonably necessary to perform the Services
in
the same manner as STO performed such Services immediately prior to the
Commencement Date. Nothing contained in this Agreement shall prevent either
Sonterra or STO from engaging in any other business activities.
14.
NOTICES.
(a) All notices and communications required or permitted to be given hereunder
shall be in writing and shall be delivered personally, or sent by bonded
overnight courier, or mailed by U.S. Express Mail or by certified or registered
United States Mail with all postage fully prepaid, or sent by facsimile
transmission (provided any such facsimile transmission is confirmed either
orally or by written confirmation), addressed to the appropriate Party, as
follows:
If
to
STO South Texas Oil Company
000
Xxxxxxx 00 X
Xxxxxxx,
Xxxxx 00000
Fax:
000-000-0000
Attention:
Xxxxx Xxxxxxxxx, CEO
Xxxxx.xxxxxxxxx@xxxxxxxxxxxxx.xxx
With
a
copy to:
Xxx X.
Xxxxxx, Xx., Esq.
6
Xxxxxxx’x Xxxxx Xxxx
Xxxxxxxxxx,
XX 00000-0000
xxxxxxxx@XxxxXxxxxXxxxxxxxx.xxx
If
to
Sonterra: Sonterra
Operating, Inc.
000
Xxxx
Xxxxxxxx Xxxx., Xxxxx 0000
Xxx
Xxxxxxx, XX 00000
Fax:
000-000-0000
Attention:
Xxxxx X. Xxxxxxx, President
xxxxx@xxxxxxxxxxxxxxxxx.xxx
With
a
copy
to:
Xxxx
Xxxxxx, Esq.
Xxxxxxxx
& Xxxxxx LLP
000
Xxxx
Xxxxxx, Xxxxx 0000
Xxxxxxx,
XX 00000
Fax:
000-000-0000
xxxx.xxxxxx@xxxxx.xxx
(b)
Any
notice given in accordance herewith shall be deemed to have been given when
delivered to the addressee in person, or by courier, or transmitted by facsimile
transmission during normal business hours, or upon actual receipt by the
addressee after such notice has either been delivered to an overnight courier
or
deposited in the United States Mail, as the case may be. The parties hereto
may
change the address, telephone numbers, and facsimile numbers to which such
communications are to be addressed by giving written notice to the other parties
in the manner provided in this Paragraph
14.
15.
INSURANCE.
(a) Each party, at its expense, shall procure and maintain, effective as of
the
date hereof, commercial general liability insurance with a combined single
limit
for bodily injury and property damage of at least U.S. $1,000,000 per
occurrence, excess liability insurance
in
amounts of not less than $2,000,000 per occurrence in excess of the
foregoing,
and an
aggregate deductible of not in excess of U.S. $100,000, covering its
indemnification and other responsibilities under this Agreement.
(b) All
insurance policies obtained and maintained as required hereunder shall name
the
other Party (and include all of said Party’s Indemnified Parties and the
contractors and subcontractors of the Indemnified Parties) as additional
insureds, and shall also include a waiver of subrogation by the insurers in
favor of the Indemnified Parties (including the contractors and subcontractors
of the Indemnified Parties). Such insurance shall be primary to any insurance
maintained by said Party with respect to matters for which the other Party
is
responsible under this Agreement.
16.
AMENDMENT.
This
Agreement may be amended only by a formal written instrument duly executed
by
the CEOs of both Parties hereto.
17.
WAIVER;
RIGHTS CUMULATIVE.
Any of the terms, covenants, representations, warranties, or conditions hereof
may be waived only by a formal written instrument executed by or on behalf
of
the Party hereto waiving compliance. No course of dealing on the part of STO
or
Sonterra, nor by their respective officers, employees, agents, or
representatives, nor any failure by STO or Sonterra to exercise any of its
rights under this Agreement shall operate as a waiver thereof nor affect in
any
way the right of such Party at a later time to enforce the performance of such
provision. No waiver by any Party of any condition, or any breach of any term,
covenant, representation, or warranty contained in this Agreement, in any one
or
more instances, shall be deemed to be or construed as a further or continuing
waiver of any such condition or breach or a waiver of any other condition or
of
any breach of any other term, covenant, representation, or warranty. The rights
of STO and Sonterra under this Agreement shall be cumulative, and the exercise
or partial exercise of any such right shall not preclude the exercise of any
other right.
18.
SEVERABILITY.
If
any term or other provision of this Agreement is invalid, illegal, or incapable
of being enforced by any rule of law or public policy, all other conditions
and
provisions of this Agreement shall nevertheless remain in full force and effect
so long as the economic or legal substance of the transactions contemplated
hereby is not affected in any adverse manner to any Party. Upon such
determination that any term or other provision is invalid, illegal, or incapable
of being enforced, the Parties hereto shall negotiate in good faith to modify
this Agreement so as to effect the original intent of the Parties as closely
as
possible in an acceptable manner to the end that the transactions contemplated
hereby are fulfilled to the extent possible.
19.
PARTIES
IN INTEREST.
Except for the Parties hereto, no other person shall have any right, benefit,
priority, or interest hereunder or as a result hereof or have standing to
require satisfaction of the provisions hereof in accordance with their terms;
provided that the indemnity and defense provisions in Paragraph 7(b) shall
inure
to the benefit of the STO Indemnified Parties and the Sonterra Indemnified
Parties as provided therein. Any claim for defense, indemnity or hold harmless
hereunder on behalf of a member of the STO Indemnified Parties or the Sonterra
Indemnified Parties must be made and administered by STO and Sonterra,
respectively.
20.
PREPARATION
OF AGREEMENT.
Both STO and Sonterra and their respective counsel participated in the
preparation of this Agreement. In the event of any ambiguity in this Agreement,
no presumption shall arise based on the identity of the primary draftsman of
this Agreement.
21.
ENTIRE
AGREEMENT; CONFLICTS.
THIS
AGREEMENT CONSTITUTES THE ENTIRE AGREEMENT AMONG STO AND SONTERRA PERTAINING
TO
THE PROVISION OF THE SERVICES AND SUPERSEDES ALL PRIOR AGREEMENTS,
UNDERSTANDINGS, NEGOTIATIONS, AND DISCUSSIONS, WHETHER ORAL OR WRITTEN, OF
THE
PARTIES PERTAINING TO THE PROVISION OF THE SERVICES. THERE
ARE NO WARRANTIES, REPRESENTATIONS, OR OTHER AGREEMENTS AMONG THE PARTIES
RELATING TO THE SUBJECT MATTER HEREOF EXCEPT AS SPECIFICALLY SET FORTH IN THIS
AGREEMENT, AND NEITHER STO NOR SONTERRA SHALL BE BOUND BY OR LIABLE FOR ANY
ALLEGED REPRESENTATION, PROMISE, INDUCEMENT, OR STATEMENTS OF INTENTION NOT
SO
SET FORTH.
22.
JOINT
AND SEVERAL LIABILITY.
The
covenants made by each Party are joint and several.
23.
BONDING
REQUIREMENTS.
STO shall continue to comply with the bonding requirements of the applicable
governmental agency and other governmental authorities, together with any
bonding or other security requirements provided for in any Contracts, as they
relate to the Operated Properties.
The
Parties have caused their duly authorized representatives to execute this
Agreement as of the day and year first set forth above.
PARTY
OF THE FIRST PART:
STO:
SOUTH
TEXAS OIL COMPANY
By:
/s/
J. Xxxxx Xxxxxxxxx
Name:
J.
Xxxxx Xxxxxxxxx
Title:
CEO
STO
OPERATING COMPANY
By:
/s/
J. Xxxxx Xxxxxxxxx
Name:
J.
Xxxxx Xxxxxxxxx
Title:
CEO
STO
DRILLING COMPANY
By:
/s/
J. Xxxxx Xxxxxxxxx
Name:
J.
Xxxxx Xxxxxxxxx
Title:
CEO
SOUTHERN
TEXAS OIL COMPANY
By:
/s/
J. Xxxxx Xxxxxxxxx
Name:
J.
Xxxxx Xxxxxxxxx
Title:
CEO
STO
PROPERTIES LLC
By:
/s/
J. Xxxxx Xxxxxxxxx
Name:
J.
Xxxxx Xxxxxxxxx
Title:
CEO
PARTY
OF THE SECOND PART:
SONTERRA:
SONTERRA
OPERATING, INC.
By:
/s/
Xxxxx X. Xxxxxxx
Name:
Xxxxx X. Xxxxxxx
Title:
President
