EXHIBIT 10.4
------------
AMENDMENT NO. 4
TO PARTICIPATION AGREEMENT
This Amendment No. 4 ("Amendment") is executed the date as of each
signature below, but shall be effective as of May 11, 2004, ("Amendment
Effective Date"), by and between Penn Virginia Oil and Gas Corporation ("PVOG")
and GMX RESOURCES INC. and its wholly owned subsidiaries, Expedition Natural
Resources Inc. and Endeavor Pipeline Inc. (collectively, "GMX") for purposes of
amending the Participation Agreement ("Agreement"), as previously amended,
between the parties which was effective as of December 5, 2003 with reference to
the following circumstances:
A. PVOG and GMX (collectively, "Parties" and, individually, a "Party")
desire to further amend the Agreement in certain respects in order to
modify and/or clarify their respective rights, liabilities and obligations.
In consideration of the mutual covenants, promises, rights and obligations
contained herein and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Parties agree as follows:
1. CAPITALIZED TERMS. Capitalized terms not otherwise defined in this
Amendment shall have the same meaning as set forth in the Agreement.
2. TWINNED AND SUBSTITUTE XXXXX. A new Section 3.2 shall be added to
Section 3 to read in its entirety as follows:
"3.2 TWINNED AND SUBSTITUTE XXXXX.
For purpose of this Agreement, a "Twinned
Well" shall mean a well drilled in Phase I or II within
467 feet of an existing producing well, but completed in
a different formation from the existing well; and a
"Substitute Well" shall mean a well drilled in Phase I
or Phase II to the same formation from which a well
within 467 feet of the substitute well was previously
producing oil and/or gas. Notwithstanding any provision
in this Agreement or the Operating Agreement to the
contrary: (i) a Twinned Well or a Substitute Well will
have the same working interest as the related producing
or previously producing well, but with no carried
interest for GMX if related to a carried interest well
and (ii) as to all Twinned or Substitute Xxxxx within
467 feet of the xxxxx listed on Exhibit "I"
("Pre-Existing Xxxxx") (with each such Twinned or
Substitute well being hereinafter referred to as the
"Offset Well"): (a) GMX shall have the right to drill an
Offset Well, to the total depth drilled in the related
Pre-Existing Well, without any requirement to offer an
interest in such well to PVOG; (b) GMX shall be the
operator of any such Offset Well; and (c) PVOG shall
deliver to GMX an assignment of 100% of its interest in
the wellbore of the Offset Well
to the extent it arises from leases previously assigned
by GMX to PVOG in either Phase I or Phase II.
3. TIMING OF PHASE II. A new Section 3.3 shall be added to the Agreement,
reading as follows:
"3.3 TIMING OF PHASE II.
------------------
Notwithstanding any provisions of Section
3.2.1.1.1 to the contrary, if PVOG completes Phase I,
Part A by drilling five (5) xxxxx as provided in Section
3.1.1.2.1: (i) PVOG may commence Phase II, Part A prior
to January 1, 2005; and (ii) PVOG may elect that up to
two (2) of the four (4) carried interest xxxxx
contemplated by Section 3.2.1.1.1 may be drilled in
Phase I as additional Phase I carried interest xxxxx;
provided, however, GMX shall have the right to
participate at its cost for an additional 10% of any
such well that is drilled in Phase I instead of Phase
II. Upon reaching total depth in the ninth carried well,
whether it be five (5) in Phase I and four (4) in Phase
II or seven (7) in Phase I and two (2) in Phase II, PVOG
will be deemed to have earned all rights due under the
terms of the Agreement."
4. REDUCED INTEREST ELECTION. A new Section 3.4 shall be added to the
Agreement, reading in its entirety as follows:
"3.4 REDUCED INTEREST ELECTION.
Notwithstanding the provisions of Sections
3.1.2.1.1 and 3.2.2.1.1 to the contrary, GMX may elect
to participate in any well in Phase I, Part B with a
working interest of 10%, 20% or 30% and in Phase II,
Part B for a working interest of 10%, 20%, 30%, 40% or
50%. Such election shall be made at the same time as GMX
makes any election to participate in such well. PVOG
shall participate for the remaining working interest in
each such well. If requested, GMX shall deliver to PVOG
an assignment of its interest in such wellbore necessary
to document PVOG's working interest in that wellbore."
5. SIMULTANEOUS DRILLING. A new Section 2.2 shall be added to the
Agreement, reading in its entirety as follows:
"2.2 USE OF MULTIPLE RIGS.
Notwithstanding the provisions of Section
2.1 that prohibit the drilling of more than one well at
the same time in Phase I, Part B and Phase II, Part B,
collectively, the Parties agree that drilling operations
with no more than two rigs may be used in either Phase
I, Phase II or both subject to the following provisions:
2
2.2.1 DEFINITION. For purposes of this
Section 2.2, use of Multiple Rigs shall be
defined as the spudding of a second well in
Part B of either Phase I or II ("Second
Well") during the period beginning on the
spud date of a first well in Part B of Phase
I or II ("First Well") and ending on the
date that casing point is reached on the
First Well.
2.2.2 FIRST WELL COSTS. If GMX elects to
participate in the First Well, it will pay
its share of costs in accordance with the
terms of the Agreement.
2.2.3 SECOND WELL ADVANCE ELECTION. If GMX
elects to participate in the Second Well,
GMX may elect to have PVOG advance
("Advance") all the costs attributable to
GMX's share of drilling and completion costs
subject to the terms of the applicable
Operating Agreement. The Advance will be
repaid from 75% of GMX's share of net
production revenue attributable to the
Second Well until the amount of the Advance
is paid in full without interest. PVOG's
recourse for repayment of the Advance shall
be limited to such production revenues from
the (i) Second Well and (ii) subsequent
Second Xxxxx. For example, if the Advance on
a subsequent Second Well has been fully paid
and the Advance on a previous Second Well
has not, 75% of GMX's share of net
production revenues from the subsequent
Second Well shall be applied to the Advance
on the previous Second Well until the
Advance on the previous Second Well has been
fully repaid. Unless such revenues from a
Second Well are required to be dedicated to
repayment of Advances on previous Second
Xxxxx, after the Advance on a Second Well
has been repaid, GMX's share of the revenues
shall no longer be available for repayment
of Advances on other Second Xxxxx. However,
GMX shall still be responsible for the
payment monthly lease operating expenses on
any well in PVOG has advanced GMX's share of
drilling and completion costs.
2.2.4 ELECTION TO TREAT FIRST WELL AS SECOND
WELL. If a Second Well is a Phase I 30% well
and the First Well is a Phase II 50% well,
GMX may elect that the First Well be treated
as the Second Well for purposes of these
provisions so that PVOG will advance GMX's
share of the costs of the 50% well and GMX
shall pay its share of the costs of a 30%
well.
2.2.5 DRY HOLES. If any Second Well is a dry
hole and GMX has elected to have an Advance,
GMX's share of the costs of such well shall
be payable from an additional 5% of GMX's
share of net production revenues from any
prior or
3
future Second Well(s) for which the amount
of any Advance relating to such Second
Well(s) has not been fully paid. After any
such Advance on completed Second Xxxxx has
been fully paid, the additional 5% of GMX's
share of net production revenues shall
continue to be paid until the amount of any
costs associated with any Second Well dry
hole have been paid in full.
2.2.6 LIEN. Except as modified by this
Agreement, all lien rights as provided in
the applicable Operating Agreement shall
continue to be in effect.
2.2.7 PAYMENT. PVOG shall pay to GMX all
100% of its share of net revenues from any
Second Well (rather than offset 75% (or 80%,
if applicable)) and GMX shall repay PVOG
within fifteen (15) days from receipt of
such revenues the 75% (or 80% if applicable)
amount due to PVOG on the Advance.
2.2.8 BANK CONSENT. The PVOG financing shall
be subject to the prior consent of GMX's
lending bank. If such financing is not
consented to by GMX's lender, the provisions
of this Section 2.2 shall not be effective
and Section 2.1 shall remain in effect.
2.2.9 TERMINATION OF THE USE OF MULTIPLE
RIGS. Either Party may terminate the
Multiple Rig provisions at any time by
giving at least sixty (60) days notice of
such termination to the other party in which
event the provisions of Section 2.1 will be
reinstated to prohibit the drilling of more
than one well at the same time.
2.2.10 LIMITATION ON ADVANCES: The maximum
outstanding balances of all Advances at any
one time shall be limited to $4,000,000.00
("Advance Limit") and PVOG shall not make
any Advances if it would exceed the Advance
Limit. If the amount of Advances are repaid
to below the Advance Limit, GMX may elect to
receive additional Advances up to the
Advance Limit.
2.2.11 AFES. PVOG shall not present to GMX
more than two AFEs within any 30 day period.
6. AMI AMENDMENT. Exhibit A-2 shall be amended in the form attached hereto
to expand the Phase I AMI to include the Verhalen Nursery Lease Area. Section
4.1 of the Agreement
4
shall be amended to provide that the AMI covering each phase shall be effective
for a term of four (4) years from the Effective Date.
7. CORRECTION OF EXHIBIT B. Exhibit B attached to the Agreement shall be
amended and restated in its entirety in the form attached as Exhibit B to this
Amendment.
8. REVISION OF EXHIBIT G. Exhibit G attached to the Agreement shall be
revised and restated in its entirety in the form attached as Exhibit G to this
Amendment.
9. REVISION OF EXHIBITS C-1 AND C-2. Lines 55 through 62 on page 9
of each of Exhibits C-1 and C-2 shall be deleted as the Operator shall not have
the rights to demand advance payments. Payments shall be governed by the terms
of the Accounting Procedure attached as Exhibit C to the Operating Agreements.
10. PHASE I, PART A CLEAN UP ACREAGE. For any acreage costs incurred to
acquire additional acreage in any carried interest well covered by Section
3.1.1.2.1, GMX will pay for its 20% (or 30% if a Phase II carried interest well
is drilled in Phase I and GMX elects to participate for an additional 10% as
provided by Section 3 of this Amendment) of acreage costs within 30 days of
receipt of an invoice therefor and PVOG will assign GMX its interest in such
acreage.
Executed effective as of the date set forth above.
GMX RESOURCES INC.
EXPEDITION NATURAL RESOURCES INC.
ENDEAVOR PIPELINE INC.
By: /s/ Xxx X. Xxxxxxxxx, Xx.
------------------------------------------
Xxx X. Xxxxxxxxx, Xx.
Executive Vice President of GMX Resources Inc.
President of Expedition Natural Resources Inc.
President of Endeavor Pipeline Inc.
Date:
-----------------------------------------
PENN VIRGINIA OIL AND GAS CORPORATION
By: /s/ Xxxxx X. Xxx, Land Manager
-------------------------------------------
Date: 8-11-04
-----------------------------------------
5
