Exhibit 10.2
OFFSHORE OPERATING AGREEMENT
by and between
Chevron U.S.A. Inc.
and
Ridgewood Energy Q Fund, LLC
effective November 30, 2005
covering
Main Pass Block 30; OCS-G 4903
TABLE OF CONTENTS
ARTICLE 1. APPLICATION ........................................................1
1.1 Application to Contract Area ........................................1
ARTICLE 2. DEFINITIONS ........................................................2
2.1 Additional Testing ..................................................2
2.2 Affiliate ...........................................................2
2.3 Authorization For Expenditure .......................................2
2.4 Complete, Completing, Completion ....................................2
2.5 Completion Equipment ................................................2
2.6 Confidential Data ...................................................2
2.7 Contract Area .......................................................2
2.8 Deepen, Deepening ...................................................3
2.9 Development Facilities ..............................................3
2.10 Development Operation ...............................................3
2.11 Development Well ....................................................3
2.12 Exploratory Operation ...............................................3
2.13 Exploratory Well ....................................................3
2.14 Export Pipelines ....................................................4
2.15 Force Majeure .......................................................4
2.16 Hydrocarbons ........................................................4
2.17 Joint Account .......................................................4
2.18 Lease ...............................................................4
2.19 MMS .................................................................4
2.20 Non-consent Operation ...............................................4
2.21 Non-consent Platform ................................................4
2.22 Non-consent Well ....................................................4
2.23 Non-operator ........................................................4
2.24 Non-participating Party .............................................5
2.25 Non-participating Party's Share .....................................5
2.26 Objective Depth .....................................................5
2.27 Objective Horizon ...................................................5
2.28 Operator ............................................................5
2.29 Participating Interest ..............................................5
2.30 Participating Party .................................................5
2.31 Platform ............................................................5
2.32 Producible Reservoir ................................................5
2.33 Producible Well .....................................................6
2.34 Production Interval .................................................6
2.35 Recomplete, Recompleting, Recompletion ..............................6
2.36 Rework, Reworking ...................................................6
2.37 Sidetrack, Sidetracking .............................................6
2.38 Take-in-Kind Facilities .............................................6
2.39 Transfer of Interest ................................................6
2.40 Working Interest ....................................................6
ARTICLE 3. EXHIBITS ...........................................................7
3.1 Exhibits ............................................................7
3.1.1 Exhibit A - Operator, Description of Leases, etc ................7
3.1.2 Exhibit B - Insurance Provisions ................................7
3.1.3 Exhibit C - Accounting Procedure ................................7
3.1.4 Exhibit D - Non-discrimination Provisions .......................7
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3.1.5 Exhibit E - Gas Balancing Agreement .............................7
3.1.6 Exhibit F - Tax Partnership Provision ...........................7
3.1.7 Exhibit G - Memorandum of Operating Agreement and Financing
Statement ...........................................7
3.1.8 Exhibit H - Other ...............................................7
3.1.9 Exhibit I - Security Rights, Default, Unpaid Charges,
Carved-out Interests ................................7
3.2 Conflicts ...........................................................7
ARTICLE 4. OPERATOR ...........................................................8
4.1 Operator ............................................................8
4.2 Substitute Operator .................................................8
4.2.1 Circumstances Under Which the Operator Must Conduct a
Non-Consent Operation ...........................................8
4.2.2 Operator's Conduct of a Non-Consent Operation in Which
it is a Non-participating Party .................................9
4.2.3 Appointment of a Substitute Operator ............................9
4.2.4 Redesignation of Operator .......................................9
4.3 Resignation of Operator .............................................9
4.4 Removal of Operator .................................................9
4.5 Selection of Successor Operator ....................................10
4.6 Effective Date of Resignation or Removal ...........................10
4.7 Delivery of Property ...............................................11
ARTICLE 5. AUTHORITY AND DUTIES OF OPERATOR ..................................11
5.1 Exclusive Right to Operate .........................................11
5.2 Workmanlike Conduct ................................................12
5.3 Liens and Encumbrances .............................................12
5.4 Employees and Contractors ..........................................12
5.5 Records ............................................................12
5.6 Compliance .........................................................12
5.7 Contractors ........................................................12
5.8 Governmental Reports ...............................................13
5.9 Information to Participating Parties ...............................13
5.10 Information to Non-participating Parties ...........................14
ARTICLE 6. VOTING AND VOTING PROCEDURES ......................................14
6.1 Voting Procedures ..................................................14
6.1.1 Voting Interest ................................................14
6.1.2 Vote Required ..................................................14
6.1.3 Votes ..........................................................14
6.1.4 Meetings .......................................................15
ARTICLE 7. ACCESS ............................................................15
7.1 Access to Contract Area ............................................15
7.2 Reports ............................................................15
7.3 Confidentiality ....................................................15
7.4 Limited Disclosure .................................................16
7.5 Limited Releases to Offshore Scout Association .....................16
7.6 Media Releases .....................................................16
ARTICLE 8. EXPENDITURES ......................................................17
8.1 Basis of Charge to the Parties .....................................17
8.2 AFEs ...............................................................17
8.3 Emergency and Required Expenditures ................................17
8.4 Advance Xxxxxxxx ...................................................18
8.5 Commingling of Funds ...............................................18
8.6 Security Rights (LA) ...............................................18
8.7 Overexpenditures ...................................................18
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ARTICLE 9. NOTICES ...........................................................19
9.1 Giving and Receiving Notices .......................................19
9.2 Content of Notice ..................................................19
9.3 Response to Notices ................................................20
9.3.1 Platform and/or Development Facilities Proposals ...............20
9.3.2 Well Proposals
9.3.3 Proposal for Multiple Operations ...............................20
9.3.4 Other Matters ..................................................20
9.4 Failure to Respond .................................................20
9.5 Response to Counterproposals .......................................21
9.6 Timely Well Operations .............................................21
9.7 Timely Platform/Development Facilities Operations ..................21
ARTICLE 10. EXPLORATORY OPERATIONS ...........................................22
10.1 Proposing Operations ...............................................22
10.2 Counterproposals ...................................................22
10.3 Operations by All Parties ..........................................22
10.4 Second Opportunity to Participate ..................................22
10.5 Operations by Fewer Than All Parties ...............................22
10.6 Expenditures Approved ..............................................23
10.7 Conduct of Operations ..............................................23
10.8 Course of Action After Reaching Objective Depth ....................24
10.81 Election by Participating Parties ..............................24
10.82 Priority of Operations .........................................24
10.8.3 Second Opportunity to Participate ..............................25
10.8.4 Operations by Fewer Than All Parties ...........................25
10.8.5 Subsequent Operations ..........................................27
10.9 Xxxxx Proposed Below Deepest Producible Reservoir ..................27
10.10 Initial Exploratory Well on Prospect ...............................28
ARTICLE 11. DEVELOPMENT OPERATIONS ...........................................28
11.1 Proposing Operations ...............................................28
11.2 Counterproposals ...................................................28
11.3 Operations by All Parties ..........................................29
11.4 Second Opportunity to Participate ..................................29
11.5 Operations by Fewer Than All Parties ...............................29
11.6 Expenditures Approved ..............................................29
11.7 Conduct of Operations ..............................................30
11.8 Course of Action After Reaching Objective Depth ....................30
11.8.1 Election by Fewer Than All Parties .............................30
11.8.2 Priority of Operations .........................................30
11.8.3 Second Opportunity to Participate ..............................31
11.8.4 Operations by Fewer Than All Parties ...........................31
11.8.5 Subsequent Operations ..........................................32
ARTICLE 12. PLATFORM AND DEVELOPMENT FACILITIES ..............................32
12.1 Proposal ...........................................................32
12.2 Counterproposals ...................................................33
12.2.1 Operations by All Parties ......................................33
12.2.2 Second Opportunity to Participate ..............................33
12.2.3 Operations by Fewer Than All Parties ...........................33
12.3 Ownership and Use of the Platform and Development Facilities .......34
12.4 Rights to Take in Kind .............................................34
12.5 Expansion or Modification of a Platform and/or Development
Facilities .........................................................36
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ARTICLE 13. NON-CONSENT OPERATIONS ...........................................36
13.1 Non-consent Operations ............................................36
13.1.1 Non-interference .............................................36
13.1.2 Multiple Completion Limitation ...............................36
13.1.3 Metering .....................................................36
13.1.4 Non-consent Well .............................................37
13.1.5 Cost Information .............................................37
13.1.6 Completions ..................................................37
13.2 Relinquishment of Interest .........................................38
13.2.1 Production Reversion Recoupment ..............................38
13.2.2 Non-production Reversion .....................................39
13.3 Deepening or Sidetracking of Non-consent Well ......................39
13.4 Deepening or Sidetracking Cost Adjustments .........................40
13.5 Subsequent Operations in Non-consent Well ..........................40
13.6 Operations in a Production Interval ................................40
13.7 Operations Utilizing a Non-consent Platform and/or Development
Facilities .........................................................40
13.8 Discovery or Extension from Non-consent Drilling ...................41
13.9 Allocation of Platform/Development Facilities Costs to Non-consent
Operations .........................................................42
13.9.1 Investment Usage Fees .......................................42
13.9.2 Operating and Maintenance Charges ...........................45
13.10 Allocation of Costs Between Zones ..................................45
13.11 Contract Area Maintenance Operations ...............................45
13.11.1 Participation in Contract Area Maintenance Operations .......45
13.11.2 Accounting for Non-participation ............................46
13.12 Retention of Contract Area by Non-consent Well .....................46
13.13 Non-Consent Premiums ...............................................47
13.14 Non-Applicability to Exploratory Operations ........................47
ARTICLE 14. ABANDONMENT, SALVAGE AND SURPLUS .................................48
14.1 Platform Salvage and Removal Costs .................................48
14.2 Abandonment of Platforms, Development Facilities or Xxxxx ..........48
14.3 Assignment of Interest .............................................48
14.4 Abandonment Operations Required by Governmental Authority ..........48
14.5 Disposal of Surplus Material .......................................49
ARTICLE 15. WITHDRAWAL .......................................................49
15.1 Right to Withdraw ..................................................49
15.2 Response to Withdrawal Notice ......................................49
15.2.1 Unanimous Withdrawal ...........................................50
15.2.2 No Additional Withdrawing Parties ..............................50
15.2.3 Acceptance of the Withdrawing Parties' Interests ...............50
15.2.4 Effects of Withdrawal ..........................................50
15.3 Limitation Upon and Conditions of Withdrawal .......................51
15.3.1 Prior Expenses .................................................51
15.3.2 Confidentiality ................................................52
15.3.3 Emergencies and Force Majeure ..................................52
ARTICLE 16. RENTALS, ROYALTIES AND OTHER PAYMENTS ............................52
16.1 Overriding Royalty and Other Burdens ...............................52
16.2 Subsequently Created Interest ......................................53
16.3 Payment of Rentals and Minimum Royalties ...........................53
16.4 Non-participation in Payments ......................................53
16.5 Royalty Payments ...................................................54
ARTICLE 17. TAXES ............................................................54
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17.1 Property Taxes .....................................................54
17.2 Contest of Property Tax Valuation ..................................54
17.3 Production and Severance Taxes .....................................54
17.4 Other Taxes and Assessments ........................................54
ARTICLE 18. INSURANCE ........................................................55
18.1 Insurance ..........................................................55
18.2 Bonds ..............................................................55
ARTICLE 19. LIABILITY, CLAIMS AND LAWSUITS ...................................55
19.1 Individual Obligations .............................................55
19.2 Notice of Claim or Lawsuit .........................................55
19.3 Settlements ........................................................56
19.4 Defense of Claims and Lawsuits .....................................56
19.5 Liability for Damages ..............................................56
19.6 Indemnification for Non-Consent Operations .........................57
19.7 Damage to Reservoir, Loss of Reserves and Profit ...................57
19.8 Non-Essential Personnel ............................................57
19.9 Dispute Resolution Procedure .......................................58
ARTICLE 20. INTERNAL REVENUE PROVISION .......................................58
20.1 Internal Revenue Provision .........................................58
ARTICLE 21 CONTRIBUTIONS .....................................................58
21.1 Notice of Contributions Other Than Advances for Sale of Production .58
21.2 Cash Contributions .................................................58
21.3 Acreage Contributions
ARTICLE 22. DISPOSITION OF PRODUCTION ........................................59
22.1 Take-in-Kind Facilities ............................................59
22.2 Duty to Take-in-Kind ...............................................59
22.3 Failure to Take Oil and Condensate in-Kind .........................60
22.4 Failure to Take Gas in-Kind ........................................60
22.5 Expenses of Delivery in-Kind .......................................60
ARTICLE 23. APPLICABLE LAW ...................................................60
23.1 Applicable Law .....................................................60
ARTICLE 24. LAWS, REGULATIONS AND NON-DISCRIMINATION .........................61
24.1 Laws and Regulations ...............................................61
24.2 Non-discrimination .................................................61
ARTICLE 25. FORCE MAJEURE ....................................................61
25.1 Force Majeure ......................................................61
ARTICLE 26. SUCCESSORS, ASSIGNS AND PREFERENTIAL RIGHTS ......................62
26.1 Successors and Assigns .............................................62
26.2 Transfer of Interest ...............................................62
26.3 Consent to Assign ..................................................62
26.4 Transfers Between Parties ..........................................63
26.5 Division of Interest ...............................................63
26.6 Preferential Rights- ...............................................63
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ARTICLE 27. ADMINISTRATIVE PROVISIONS ........................................64
27.1 Term ...............................................................64
27.2 Waiver .............................................................65
27.3 Waiver of Right to Partition .......................................65
27.4 Compliance With Laws and Regulations ...............................65
27.4.1 Severance of Invalid Provisions ................................65
27.4.2 Fair and Equal Employment ......................................65
27.5 Construction and Interpretation of this Agreement .................66
27.5.1 Headings for Convenience .......................................66
27.5.2 Article References .............................................66
27.5.3 Gender and Number ..............................................66
27.5.4 Future References ..............................................66
27.5.5 Currency .......................................................66
27.5.6 Optional Provisions ............................................66
27.5.7 Joint Preparation ..............................................66
27.5.8 Integrated Agreement ...........................................66
27.5.9 Binding Effect .................................................67
27.5.10 Further Assurances .............................................67
27.5.11 Counterpart Execution ..........................................67
27.6 Restricted Bidding .................................................67
27.7 Conflict of Terms ..................................................67
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OFFSHORE OPERATING AGREEMENT
THIS OFFSHORE OPERATING AGREEMENT ("Agreement"), made effective the 30th day of
November, 2005, by and between Chevron U.S.A. Inc. ("Chevron") and Ridgewood
Energy Q Fund, LLC ("Ridgewood"), their respective heirs, successors, legal
representatives, and assigns, herein referred to collectively as the "Parties"
and individually as a "Party."
WITNESSETH:
WHEREAS, the Parties will, with an earning of interest by Ridgewood, co-own
operating rights interests in one oil and gas Lease, as to one or more Contract
Areas, as identified in Exhibit "A" but within that Lease and desire to explore
an area governed by the "EPA", as defined hereafter, and under limited
application this Agreement, but to develop, produce, and operate those Contract
Areas pursuant to this Agreement.
NOW, THEREFORE, in consideration of the premises and the mutual covenants in
this Agreement, the Parties agree as follows:
ARTICLE I
APPLICATION
1.1 Application to Contract Area
This Agreement applies independently to the entirety of each Contract
Area. For purposes of this Agreement, activities or operations affecting
one Contract Area are considered activities or operations affecting only
that Contract Area. Unless otherwise provided in this Agreement, the
Parties, according to their respective Working Interests, own and hold
all rights and obligations in and under each of the listed Contract
Area(s) and, all property acquired with funds from the Joint Account, and
all Hydrocarbons from or attributed to that Contract Area. Until an
earning by Ridgewood in and to the Contract Area under that certain
Exploration Participation Agreement ("EPA") dated November 30, 2005
between Chevron U.S.A. Inc. and Ridgewood Energy Corporation, the
application of the terms and provisions of this Agreement shall be
limited to and shall govern and bear solely upon the operations of and
conducted for the well or xxxxx drilled under that EPA. The parties agree
that the execution of this Agreement effective as of November 30, 2005 is
not intended to grant or recognize any right to interest in ownership in
the Contract Area by Ridgewood and that full application of this
Agreement become effective only with an earning under the EPA. The
Parties agree to amend Exhibit "A" hereof to cover the "Additional
Opportunities Prospects" as such term is defined in the EPA, only upon
the earning thereof by Ridgewood in accordance with the provisions of the
EPA.
MP 30 EPA JOA
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ARTICLE 2
DEFINITIONS
2.1 Additional Testing
An operation not previously approved in the AFE and proposed for the
specific purpose of obtaining additional subsurface data.
2.2 Affiliate
For a person, another person that controls, is controlled by, or is under
common control with that person. In this definition, (a) "control" means
the ownership by one person, directly or indirectly, of more than fifty
percent (50%) of the voting securities of a corporation or, for other
persons, the equivalent ownership interest (such as partnership
interests), and (b) "person" means an individual, corporation,
partnership, trust, estate, unincorporated organization, association, or
other legal entity.
2.3 Authorization For Expenditure (AFE)
An authority to expend funds prepared by a Party to estimate the costs to
be incurred in conducting an operation under this Agreement.
2.4 Complete, Completing, Completion
An operation to complete a well for initial Hydrocarbon production in one
or more Producible Reservoirs, including, but not limited to, setting
production casing, perforating the casing, stimulating the well,
installing Completion Equipment, and/or conducting production tests.
2.5 Completion Equipment
That certain equipment on an Exploratory Well or a Development Well
required to be installed prior to the movement of a well-completion rig
off that well
(a) under 30 CFR 250.502, or any succeeding order or regulation issued
by the MMS, up to and including the tree, and
(b) by any other regulatory agency having jurisdiction, including, but
not limited to, a caisson and navigational aids.
2.6 Confidential Data
The information and data obtained under this Agreement, including, but
not limited to, geological, geophysical, and reservoir information;
originals and copies of logs; core and core analysis; and other well
information including, but not limited to, the progress, tests, or
results of a well drilled or an operation conducted under this Agreement,
except data or information that becomes public other than by breach of
this Agreement or as agreed to in writing by the Participating Parties.
2.7 Contract Area
The portions, area and depths of the Lease but solely within the Contract
Area, listed on Exhibit "A" to this Agreement but after an earning by
Ridgewood under the EPA.
MP 30 EPA JOA
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2.8 Deepen, Deepening
A drilling operation conducted in an existing wellbore below the
Objective Depth to which the well was previously drilled.
2.9 Development Facilities
Production equipment other than Completion Equipment that is acquired
under this Agreement and installed on or outside the Contract Area in
order to handle or process Hydrocarbon production. Development Facilities
include, but are not limited to,
(a) compression, separation, dehydration, generators, treaters,
skimmers, bunkhouses and metering equipment,
(b) the flowlines, gathering lines or lateral lines that deliver
Hydrocarbons and water
1 from the Completion Equipment to the Platform or to offsite
host facilities, or
2 from the Platform to Export Pipelines; and
(c) injection and disposal xxxxx. Development Facilities include
Export Pipelines. All Chevron solely owned platforms, equipment
and facilities in place prior to the effective date or installed
for the Chevron account outside of this Agreement are excluded.
2.10 Development Operation
An operation on the Contract Area other than an Exploratory Operation.
2.11 Development Well
A well or portion of a well proposed as a Development Operation.
2.12 Exploratory Operation
An operation that is conducted on the Contract Area and that is any of
the following:
(a) proposed to Complete an Exploratory Well;
(b) proposed for an Objective Horizon that is not a Producible
Reservoir; or
(c) proposed for an Objective Horizon that has a Producible Well, but
that will be penetrated at a location where the distance between
the midpoint of the Objective Horizon to be penetrated by the
proposed operation and the midpoint of the same Objective Horizon
where it is actually penetrated by a Producible Well will be at
least six thousand (6,000) feet from a Gas Completion or three
thousand ((3,000) feet from an Oil Completion.
(d) proposed for an Objective Horizon that is unanimously agreed by
the Parties not to be in an existing Producible Reservoir; or
(e) proposed as a deeper drilling operation below the base of the
deepest producible reservoir.
2.13 Exploratory Well
A well or portion of a well proposed as an Exploratory Operation.
MP 30 EPA JOA
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2.14 Export Pipelines
Pipelines installed after the effective date hereof for the benefit of a
Contract Area and to which a gathering line or lateral line downstream of
the Platform and/or Development Facilities or, if there is no Platform,
the Completion Equipment, is connected and which are used to transport
Hydrocarbons or produced water to shore.
2.15 Force Majeure
An event or cause that is reasonably beyond the control of the Party
claiming the existence of such event or cause, which includes, but is not
limited to, a flood, storm, hurricane, loop current/eddy, or other act of
God, a fire, loss of well control, oil spill, or other environmental
catastrophe, a war, terrorist act, a civil disturbance, a labor dispute,
a strike, a lockout, compliance with a law, order, rule, or regulation,
governmental action or delay in granting necessary, permits or permit
approvals, and the inability to secure materials or a rig.
2.16 Hydrocarbons
Oil and/or gas and associated liquid and gaseous by-products (except
helium) which may be produced from a wellbore located on and in the
Contract Area.
2.17 Joint Account
This term has the same definition as the defined term "Joint Account" in
Exhibit "C" (Accounting Procedure).
2.18 Lease
That portion of the oil and gas Lease identified in Exhibit "A" and the
lands covered by that Contract Area.
2.19 MMS
The Minerals Management Service, United States Department of Interior, or
its successor agency. Where appropriate, the reference to MMS shall
include the appropriate state agency.
2.20 Non-consent Operation
An operation conducted on the Contract Area by fewer than all Parties,
which subjects the Nonparticipating Party to Article 13 (Non-Consent
Operations).
2.21 Non-consent Platform
A Platform installed after the effective date hereof for the benefit of a
Contract Area and owned by fewer than all Parties.
2.22 Non-consent Well
An Exploratory Well or a Development Well owned by fewer than all
Parties.
2.23 Non-operator
A Party other than the Operator.
2.24 Non-participating Party
A Party other than a Participating Party.
MP 30 EPA JOA
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2.25 Non-participating Party's Share
The Participating Interest that a Non-participating Party would have had
if all Parties had participated in the operation.
2.26 Objective Depth
A depth sufficient to test the lesser of the Objective Horizon or the
specific footage depth stated in the AFE and approved by the
Participating Parties.
2.27 Objective Horizon
The interval consisting of the deepest zone, formation, or horizon to be
tested in an Exploratory Well, Development Well, Deepening operation, or
Sidetracking operation, as stated in the AFE and approved by the
Participating Parties.
2.28 Operator
The Party designated in Article 4.1 (Designation of the Operator), a
successor Operator selected under Article 4.5 (Selection of Successor
Operator), and, if applicable, a substitute Operator selected under
Article 4.2 (Substitute Operator).
2.29 Participating Interest
The percentage of the costs and risks of conducting an operation under
this Agreement that a Participating Party agrees, or is otherwise
obligated, to pay and bear.
2.30 Participating Party
A Party that executes an AFE for a proposed operation or otherwise
agrees, or becomes liable, to pay and bear a share of the costs and risks
of conducting an operation under this Agreement.
2.31 Platform
An offshore structure installed after the effective date hereof and for
the benefit of a Contract Area that supports Xxxxx, Completion Equipment,
or Development Facilities, whether fixed, compliant, or floating, and the
components of that structure, including, but not limited to, caissons or
well protectors to the extent same are not Completion Equipment, rising
above the water line and used for the exploration, development, or
production of Hydrocarbons. The term "Platform" shall also mean any
offshore equipment or template (excluding templates used for drilling
operations) and any component thereof, other than Completion Equipment
(including, but not limited to, flow lines and control systems), that is
resting on or attached to the sea floor and used to obtain production of
Hydrocarbons. All Chevron solely owned platforms, equipment and
facilities in place prior to the effective date or installed for the
Chevron account outside of this Agreement are excluded.
2.32 Producible Reservoir
An underground accumulation of Hydrocarbons (a) in a single and separate
natural pool characterized by a distinct pressure system, (b) not in
Hydrocarbon communication with another accumulation of Hydrocarbons, and
(c) into which a Producible Well has been drilled.
MP 30 EPA JOA
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2.33 Producible Well
A well that is drilled under this Agreement and that (a) is producing
Hydrocarbons; (b) is determined to be, or meets the criteria for being
determined to be, capable of producing Hydrocarbons in paying quantities
under an applicable order or regulation issued by the governmental
authority having jurisdiction; or (c) is determined to be a Producible
Well by two (2) or more Participating Parties having a combined Working
Interest of fifty percent (50%) or more, even if the well has been
plugged and permanently or temporarily abandoned.
2.34 Production Interval
A zone or interval producing or capable of producing Hydrocarbons from a
well without Reworking operations.
2.35 Recomplete, Recompleting, Recompletion
An operation whereby a Completion in one Producible Reservoir is
abandoned in order to attempt a Completion in a different Producible
Reservoir within the existing wellbore.
2.36 Rework, Reworking
An operation conducted in a well, after it has been Completed in one or
more Producible Reservoirs, to restore, maintain, or improve Hydrocarbon
production from one or more of those Producible Reservoirs, but
specifically excluding drilling, Sidetracking, Deepening, Completing, or
Recompleting the well.
2.37 Sidetrack, Sidetracking
The directional control and intentional deviation of a well to change the
bottom-hole location, whether it be to the original Objective Depth or
formation or another bottom-hole location not deeper than the
stratigraphic equivalent of the initial Objective Depth, unless the
intentional deviation is done to straighten the hole or to drill around
junk in the hole or to overcome other mechanical difficulties.
2.38 Take-in-Kind Facilities
Facilities which (i) are not paid for by the Joint Account and (ii) are
installed after the effective date hereof for the benefit of a Contract
Area on a Platform but for the benefit and use of a particular Party or
Parties to take its or their share of Hydrocarbon production in kind. All
Chevron solely owned platforms, equipment and facilities in place prior
to the effective date or installed for the Chevron account outside of
this Agreement are excluded.
2.39 Transfer of Interest
A conveyance, assignment, transfer, farmout, exchange, or other
disposition of all or part of a Party's Working Interest.
2.40 Working Interest
The record title interest, or where applicable, the leasehold interest or
the operating rights of each Party in and to each Contract Area
(expressed as the percentage provided in Exhibit "A"). If a Party's
record title interest is different from its operating rights, the Working
Interest of each Party is the interest provided in Exhibit "A".
MP 30 EPA JOA
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ARTICLE 3
EXHIBITS
3.1 Exhibits
The following exhibits are attached to this Agreement and incorporated
into this Agreement by reference:
(Check the exhibits the Parties wish to incorporate into this Agreement.)
3.1.1 Exhibit "A"
Operator, Description of the Lease and Contract Area(s),
Division of Interests, and Notification Addresses
3.1.2 Exhibit "B"
Insurance Provisions.
3.1.3 Exhibit "C"
Accounting Procedure.
3.1.4 Exhibit "D"
Non-discrimination Provisions.
3.1.5 Exhibit "E"
Gas Balancing Agreement.
3.1.6 Exhibit "F"
Tax Partnership Provision.
3.1.7 Exhibit "G"
Memorandum of Operating Agreement and Financing Statement.
3.1.8 Exhibit "H"
Dispute Resolution Procedure.
3.1.9 Exhibit "I"
Security Rights; Default' Unpaid Charges' Carved-out
Interests
3.2 Conflicts
If a provision of an exhibit, except Exhibits "D", "E", or "F", is
inconsistent with a provision in the body of this Agreement, the
provision in the body of this Agreement shall prevail. If a provision of
Exhibit "D", "E", or "F", is inconsistent with a provision in the body of
this Agreement, however, the provision of the exhibit shall prevail.
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ARTICLE 4 OPERATOR
4.1 Operator
Chevron U.S.A. Inc. is designated as the Operator of the Contract Area
covered by this Offshore Operating Agreement. The Parties shall promptly
execute and provide Operator with all documents required by the MMS in
connection with the designation of Chevron as Operator or with the
designation of any other Party as a substitute or successor Operator.
Unless agreed to the contrary by all Parties hereto, Operator shall also
be classified as the designated applicant for oil spill financial
responsibility purposes and each Non-operating Party shall promptly
execute the appropriate documentation reflecting this designation and
promptly provide same to Operator for filing with MMS.
4.2 Substitute Operator
Except as otherwise provided in Article 4.2.1 (Circumstances Under Which
the Operator Must Conduct a Non-Consent Operation), if the Operator
becomes a Non-participating Party in a Non-consent Operation, the
Participating Parties may approve the designation of any Participating
Party as the substitute Operator by the vote of one (1) or more of the
Participating Parties having a combined fifty-one percent (51%) or more
of the Participating Interests. The substitute Operator shall serve only
(a) for the Non-consent Operation, (b) on the Contract Area, or that
portion of the Contract Area governed hereby, affected by the Non-consent
Operation, and (c) with the same authority, rights, obligations, and
duties as the Operator. If a Non-operator is the only Participating Party
in a Non-consent Operation, then the Non-operator shall be designated as
the substitute Operator for that Non-consent Operation, with no vote
required, unless the Non-operator elects not to accept the designation.
No Non-operator shall ever be designated as a substitute Operator against
its will. If a substitute Operator is not designated under the foregoing
procedures, the Operator shall, upon the unanimous agreement of the
Participating Parties and the Operator, conduct the Non-consent Operation
on behalf of the Participating Parties and at the Participating Parties'
sole cost and risk under Article 13 (Non Consent Operations).
4.2.1 Circumstances Under Which the Operator Must Conduct a Non-Consent
Operation
If:
(a) a drilling rig is on location and the Operator becomes a
Non-participating Party in a supplemental AFE for an
Exploratory Operation, or Development Operation, or
(b) the Operator becomes a Non-participating Party in an
operation to be conducted from a Platform operated by the
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Operator, the Operator, as a Non-participating Party, shall
conduct the Non-consent Operation on behalf of the Participating
Parties and at the Participating Parties' sole cost and risk under
Article 13 (Non-Consent Operations).
4.2.2 Operator's Conduct of a Non-Consent Operation in Which it is a
Non-participating Party
When, under Article 4.2 (Substitute Operator) or Article 4.2.1
(Circumstances Under Which the Operator Must Conduct a Non-Consent
Operation), the Operator conducts a Non-consent Operation in which
it is a Non-participating Party, it shall follow the practices and
standards in Article 5 (Authorities and Duties of Operator).
Notwithstanding anything to the contrary in Exhibit "C", the
Operator shall not be required to proceed with the Non consent
Operation until the Participating Parties have advanced the total
estimated costs of the Non-consent Operation to the Operator. The
Operator shall never be obligated to expend any of its own funds
for the Non-consent Operation in which it is a Non participating
Party.
4.2.3 Appointment of a Substitute Operator
After expiration of all applicable response periods for the
Non-consent Operation and selection of a substitute Operator, each
Party shall promptly provide the substitute Operator with the
appropriate MMS designation of operator forms and designation of
oil spill responsibility forms. The Operator and the substitute
Operator shall coordinate the change of operatorship to avoid
interfering with ongoing activities and operations, if any,
including but not limited to, Contract Area maintenance activities
and operations.
4.2.4 Redesignation of Operator
Within five (5) days after conclusion of the Non-consent
Operation, all Parties shall execute and provide the Operator with
the appropriate MMS designation of operator forms and designation
of oil spill responsibility forms to return operatorship to the
Operator, thereby superseding the Parties' designation of the
substitute Operator under Article 4.2.3 (Appointment of a
Substitute Operator).
4.3 Resignation of Operator
Subject to Article 4.5 (Selection of Successor), the Operator may resign
at any time by giving written notice to the Parties, except that the
Operator may not resign during a Force Majeure or an emergency that poses
a threat to life, safety, property, or the environment. If the Operator
ceases to own a Working Interest, the Operator automatically shall be
deemed to have resigned as the Operator without any action by the
Non-operators.
4.4 Removal of Operator
Operator may be removed by an affirmative vote of the Parties owning a
combined Working Interest of fifty-one percent (51%) or more of the
remaining Working Interest after excluding the Operator's Working
Interest if:
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(a) Operator becomes insolvent or unable to pay its debts as they
mature, makes an assignment for the benefit of creditors, commits
an act of bankruptcy, or seeks relief under laws providing for the
relief of debtors;
(b) a receiver is appointed for Operator or for substantially all of
its property or affairs;
(c) a Transfer of Interest by the Operator which reduces the
Operator's Working Interest to less than twenty five percent
(25%), whether accomplished by one or more Transfer of Interest;
or
(d) Operator commits a substantial breach of a material provision of
this Agreement and fails to cure the breach within sixty (60) days
after notice of the breach.
If a petition for relief under the federal bankruptcy laws is filed by or
against Operator, and if a federal bankruptcy court prevents the removal
of Operator, all Non-operators and Operator shall comprise an interim
operating committee to operate until Operator has elected to reject or
assume this Agreement under the Bankruptcy Code. An election by Operator
as a debtor-in-possession or by a trustee in bankruptcy to reject this
Agreement shall be deemed to be a resignation by Operator without any
action by the Non-operators, except the selection of a successor. To be
effective, a vote to remove Operator for any cause described above must
be taken within sixty (60) days after a Non-operator receives actual
knowledge of the cause. A change of corporate name or structure of
Operator shall not be deemed to be a resignation or basis for removing
Operator.
4.5 Selection of Successor
Upon resignation or removal of Operator, a successor Operator shall be
selected from among the Parties by an affirmative vote of one (1) or more
Parties having a combined Working Interest of fifty-one percent (51%) or
more. If the resigned or removed Operator is not entitled to vote, fails
to vote, or votes only to succeed itself, then the successor Operator
shall be selected by the affirmative vote of the Parties owning a
combined Working Interest of fifty-one percent (51%) or more of the
remaining Working Interest after excluding the Working Interest of the
resigned or removed Operator. If the Operator assigns all or a part of
its Working Interest, then under Article 4.3 (Resignation of Operator) or
Article 4.4.(c), the Party who acquired all or a part of the former
Operator's Working Interest shall not be excluded from voting for a
successor Operator. If there are only two Parties to this Agreement when
the Operator resigns or is removed, then the Non-operator automatically
has the right, but not the obligation, to become the Operator. If no
Party is willing to become the Operator, this Agreement shall terminate
under Article 27.1 (Term).
4.6 Effective Date of Resignation or Removal
The resignation or removal of the Operator shall become effective as soon
as practical but no later than 7:00 a.m. on the first day of the month
following a period of ninety (90) days after the date of resignation or
removal, unless a longer period is required for the Parties to obtain
approval of the designation of the successor Operator, and designated
applicant for oil spill
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financial responsibility purposes, by the MMS; however, in no event shall
the resignation or removal of Operator become effective until a successor
Operator has assumed the duties of Operator. The resignation or removal
of the outgoing Operator shall not prejudice any rights, obligations, or
liabilities resulting from its operatorship. The successor Operator may
charge the Joint Account for reasonable costs incurred in connection with
copying or obtaining the former Operator's records, information or data
except when the change of Operator results from a merger, consolidation,
reorganization or sale or transfer to an Affiliate of the Operator.
4.7 Delivery of Property
On the effective date of resignation or removal of the Operator, the
outgoing Operator shall deliver or transfer to the successor Operator
custodianship of the Joint Account and possession of all items purchased
for the Joint Account under this Agreement, all Hydrocarbons that are not
the separate property of a Party, all equipment, materials, and
appurtenances purchased for the Joint Account under this Agreement, which
are not already in the possession of the successor Operator, and all
books, records, and inventories relating to the Joint Account (other than
those books, records, and inventories maintained by the outgoing Operator
as the owner of a Working Interest). The outgoing Operator shall
distribute or return all funds related to the Joint Account to the
Parties who contributed the funds or are otherwise entitled to receive
the funds under this Agreement. The outgoing Operator shall further use
its reasonable efforts to transfer to the successor Operator, as of the
effective date of the resignation or removal, its rights as Operator
under all contracts exclusively relating to the activities or operations
conducted under this Agreement, and the successor Operator shall assume
all obligations of the Operator that are assignable under the contracts.
The Parties may audit the Joint Account and conduct an inventory of all
property and all Hydrocarbons that are not the separate property of a
Party, and the inventory shall be used in the accounting to all Parties
by the outgoing Operator of the property and the Hydrocarbons that are
not the separate property of a Party. The inventory and audit shall be
conducted under Exhibit "C".
ARTICLE 5
AUTHORITY AND DUTIES OF OPERATOR
5.1 Exclusive Right to Operate
Unless otherwise provided in this Agreement, Operator shall have the
exclusive right and duty to conduct operations (or cause them to be
conducted) under this Agreement. In performing services under this
Agreement for the Non-operators, Operator shall be an independent
contractor, not subject to the control or direction of Non-operators,
except for the type of operation to be undertaken in accordance with the
voting and election procedures in this Agreement. No Party shall be
deemed to be, or hold itself out as, the agent or fiduciary of another
Party.
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5.2 Workmanlike Conduct
Operator shall timely commence and conduct all operations in a good and
workmanlike manner, as would a prudent operator under the same or similar
circumstances. OPERATOR SHALL NOT BE LIABLE TO NON-OPERATORS FOR LOSSES
SUSTAINED OR LIABILITIES INCURRED, EXCEPT AS MAY RESULT FROM OPERATOR'S
GROSS NEGLIGENCE OR WILLFUL MISCONDUCT. Operator shall never be required
under this Agreement to conduct an operation that it believes would be
unsafe or would endanger persons, property or the environment. Unless
otherwise provided in this Agreement, Operator shall consult with
Non-operators and keep them informed of all important matters.
5.3 Liens and Encumbrances
Operator shall endeavor to keep the Contract Area, xxxxx, Platforms,
Development Facilities, and other equipment free from all liens and other
encumbrances occasioned by operations hereunder, except those provided in
Article 8.6 (Security Rights).
5.4 Employees and Contractors
Operator shall select employees and contractors and determine their
number, hours of labor, and compensation. The employees shall be
employees of Operator.
5.5 Records
The Operator shall keep or cause to be kept accurate books, accounts, and
records of activities or operations under this Agreement in compliance
with the Accounting Procedure in Exhibit "C". Unless otherwise provided
in this Agreement, all records of the Joint Account shall be available to
a Non-operator as provided in Exhibit "C". The Operator shall use
good-faith efforts to ensure the settlements, xxxxxxxx, and reports
rendered to each Party under this Agreement are complete and accurate.
The Operator shall notify the other Parties promptly upon the discovery
of any error or omission pertaining to the settlements, xxxxxxxx, and
reports rendered to each Party.
5.6 Compliance
Operator shall comply, and shall require all agents and contractors to
comply, with all applicable laws, rules, regulations, and orders of
governmental authorities having jurisdiction.
5.7 Contractors
Operator may enter into contracts with qualified and responsible
independent contractors for the design, construction, installation,
drilling, production or operation of xxxxx, Platforms and Development
Facilities. Insofar as possible, Operator shall use competitive bidding
to procure goods and services for the benefit of the Parties. All
drilling operations conducted under this Agreement shall be conducted by
properly qualified and responsible drilling contractors under current
competitive contracts. A drilling contract will be deemed to be a current
competitive contract if it (a) was made within twelve (12) months before
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the commencement of the well and (b) contains terms, rates, and
provisions that, when the contract was made, did not exceed those
generally prevailing in the area for operations involving substantially
equivalent rigs that are capable of conducting the drilling operation. At
its election, Operator may use its own or an Affiliate's drilling
equipment, xxxxxxx barge, tools, or machinery to conduct drilling
operations, but the work shall be (i) performed by Operator or its
Affiliate acting as an independent contractor, (ii) approved by written
agreement with the Participating Parties before commencement of
operations, and (iii) conducted under the same terms and conditions and
at the same rates as are customary and prevailing in competitive
contracts of third parties doing work of similar nature.
5.8 Governmental Reports
Operator shall make reports to governmental authorities it has a duty to
make as Operator and shall furnish copies of the reports to the
Participating Parties. The Operator shall provide each Non-operating
Party with a copy of each notice, order, and directive received from the
MMS, As soon as reasonably practicable, each Party shall give written
notice to the other Parties before each meeting with government
authorities of which it has notice and that affects the Contract Area.
5.9 Information to Participating Parties
Except as provided in Article 8.6, Operator shall furnish each
Participating Party the following information, if applicable, for each
activity or operation conducted by Operator:
5.9.1 A copy of the application for permit to drill and all amendments
thereto.
5.9.2 A daily drilling report (or Reworking report or Recompletion
report, if applicable), giving the depth, corresponding
lithological information, data on drilling fluid characteristics,
information about drilling or operational difficulties or delays,
if any, and other pertinent information, by facsimile transmission
or electronic mail within twenty-four (24) hours (inclusive of
Saturdays, Sundays, and federal holidays) for well operations
conducted in the preceding twenty-four (24) hour period.
5.9.3 A complete report of each core analysis.
5.9.4 A copy of each electrical survey, currently as it is run; all data
for each radioactivity log, temperature survey, deviation or
directional survey, caliper log, and other log or survey obtained
during the drilling of the well; and, upon completion of the well,
a composite of all electrical-type logs, insofar as is reasonable
and customary.
5.9.5 A copy of all well test results, bottom-hole pressure surveys, and
fluid analyses.
5.9.6 Upon written request received by Operator before commencement of
drilling, samples of cuttings and cores taken from the well (if
sufficient cores are retrieved), packaged in containers furnished
by Operator at the expense of the requesting Party, marked as to
the depths from which they were taken, and shipped at the expense
of the requesting Party by express courier to the address
designated by the requesting Party.
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5.9.7 To the extent possible, twenty-four (24) hours' advance notice of,
and access to, logging, coring, and testing operations.
5.9.8 A monthly report on the volume of Hydrocarbons and water produced
from each well; however, Operator shall provide reports more often
if feasible.
5.9.9 A copy of each report made to a governmental authority having
jurisdiction. 5.9.10 Upon written request, other pertinent
information available to Operator, including, but not limited to,
those portions of the contracts to be used for the benefit of the
Joint Account and which pertain to the Contract Area, but
excluding the Operator's proprietary or secret information and its
subsurface interpretations that have been independently developed
at Operator's sole cost and expense.
5.10 Information to Non-participating Parties
Operator shall furnish each Non-participating Party a copy of each
Operator's governmental report that is available to the public and
associated with the applicable Non-consent Operation. Until the
applicable recoupment under Article 13 (Non-consent Operations) is
complete, a Non participating Party shall not receive or review any other
information specified by Article 5.9 (Information to Participating
Parties), except as may be necessary for a payout audit of the Non
consent Operation.
ARTICLE 6
VOTING AND VOTING PROCEDURES
6.1 Voting Procedures
Unless otherwise provided in this Agreement, each matter requiring
approval of the Parties shall be determined as follows:
6.1.1 Voting Interest
Subject to Article 8.6 (Security Rights), each Party shall have a voting
interest equal to its Working Interest or its Participating Interest, as
applicable.
6.1.2 Vote Required
Unless expressly stated to the contrary herein, a matter requiring
approval of the Parties shall be decided by the affirmative vote of two
(2) or more Parties having a combined voting interest of fifty-one
percent (51%) or more.
6.1.3 Votes
The Parties may vote at a meeting; by telephone, promptly confirmed in
writing to Operator; or by facsimile transmission. Operator shall give
each Party prompt notice of the results of the voting.
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6.1.4 Meetings
Meetings of the Parties may be called by Operator upon its own
motion or at the request of a Party having a voting interest of
not less than twenty-five percent (25%). Except in an emergency,
no meeting shall be called on less than ten (10) days' advance
written notice, and the notice of meeting shall include the
meeting agenda prepared by the Operator or the requesting Party.
The representative of Operator shall be chairman of each meeting.
Only matters included in the agenda may be discussed at a meeting,
but the agenda and items included in the agenda may be amended
prior to or during the meeting by unanimous agreement of all
Parties.
ARTICLE 7
ACCESS
7.1 Access to Contract Area
Except as provided in Article 8.6, each Party shall have access, at its
sole risk and expense and at all reasonable times, to the Contract Area,
Platform, Development Facilities and Joint Account assets to inspect
activities, operations and xxxxx in which it participates, and to
pertinent records and data. A Non-operator shall give Operator at least
twenty-four (24) hours' notice of the Non-operator's intention to visit
the Contract Area. To protect Operator and the Non-operators from
unnecessary lawsuits, claims, and legal liability, if it is necessary for
a person who is not performing services for Operator directly related to
the joint operations, but is performing services solely for a
Non-operator or pertaining to the business or operations of a
Non-operator, to visit, use, or board a rig, well, Platform, or
Development Facilities subject to this Agreement, the Non-operator shall
give Operator advance notice of the visit, use, or boarding, and shall
secure from that person an agreement, in a form satisfactory to Operator,
indemnifying and holding Operator and Non-operators harmless, or shall
itself provide the same hold harmless and indemnification in favor of
Operator and other Non-operators before the visit, use, or boarding.
7.2 Reports
On written request, Operator shall furnish a requesting Party any
information not otherwise furnished under Article 5 (Authority and Duties
of Operator) to which that Party is entitled under this Agreement. The
costs of gathering and furnishing information not furnished under Article
5 shall be charged to the requesting Party. Operator is not obligated to
furnish interpretative data that was generated by Operator at its sole
cost.
7.3 Confidentiality
Except as otherwise provided in Article 7.4 (Limited Disclosure), Article
7.5 (Limited Releases to Offshore Scout Association), Article 7.6 (Media
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Releases), and Article 21.1 (Notice of Contributions Other Than Advances
for Sale of Production), and except for necessary disclosures to
governmental authorities having jurisdiction, or except as agreed in
writing by all Participating Parties, no Party or Affiliate shall
disclose Confidential Data to a third party. This Article 7.3 shall be in
force and effect for a term of two (2) years after termination of this
Agreement.
7.4 Limited Disclosure
A Party may make Confidential Data to which it is entitled under this
Agreement available to:
(a) outside professional consultants and reputable engineering firms
for the purpose of evaluations and/or submitting bids;
(b) gas transmission companies for Hydrocarbon reserve or other
technical evaluations;
(c) reputable financial institutions for study before commitment of
funds;
(d) governmental authorities having jurisdiction or the public, to the
extent required by applicable laws or by those governmental
authorities;
(e) the public, to the extent required by the regulations of a
recognized stock exchange;
(f) third parties with whom a Party is engaged in a bona fide effort
to effect a merger or consolidation, sell all or a controlling
part of that Party's stock, or sell all or substantially all
assets of that Party or an Affiliate of that Party; and
(g) an Affiliate of a Party.
(h) such limited well information that is typically disclosed by
Operator's representative during meetings of the Offshore Oil
Scouts Association.
(i) third parties with whom a Party is engaged in a bona fide effort
to sell, farm out, or trade all or a portion of its interest in
the Contract Area;
Confidential Data made available under Articles 7.4(f) and 7.4(i) shall
not be removed from the custody or premises of the Party making the
Confidential Data available to third parties described in those Articles.
A third party permitted access under Articles 7.4, (a), (b), (c), (f),
and (i) shall first agree in writing neither to disclose the Confidential
Data to others nor to use the Confidential Data, except for the purpose
for which it was disclosed. The disclosing Party shall give prior notice
to the other Parties that it intends to make the Confidential Data
available.
7.5 Limited Releases to Offshore Scout Association
The Operator may disclose Confidential Data to the Offshore Oil Scouts
Association at their regularly scheduled meetings. The Confidential Data
that may be disclosed is limited to information concerning well
locations, well operations, and well completions to the extent reasonable
and customary in industry practice or required under the by-laws of the
Offshore Oil Scouts Association.
7.6 Media Releases
Without the prior written consent of the other Participating Parties, no
Party shall issue a news or media release about operations on the
Contract Area. In an emergency involving extensive property or
environmental damage, operations failure, loss of human life, or other
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clear emergency, and for which there is insufficient time to obtain the
prior approval of the Parties, Operator may furnish the minimum, strictly
factual, information necessary to satisfy the legitimate public interest
of the media and governmental authorities having jurisdiction. Operator
shall then promptly advise the other Parties of the information furnished
in response to the emergency. The foregoing, however, shall not restrict
disclosures by either Party which are required by applicable securities
or other laws or regulations or the applicable rules of any stock
exchange having jurisdiction over the disclosing Party or its Affiliates.
ARTICLE 8
EXPENDITURES
8.1 Basis of Charge to the Parties > Subject to the other provisions of this
Agreement, Operator shall pay all costs incurred under this Agreement,
and each Party shall reimburse Operator in proportion to its
Participating Interest. All charges, credits, and accounting for
expenditures shall be made and done pursuant to Exhibit "C".
8.2 AFEs
Before undertaking an operation or making a single expenditure to be in
excess of Two Hundred and Fifty Thousand Dollars ($250,000), and before
conducting an activity or operation to drill, Sidetrack, Deepen,
Complete, Rework or Recomplete a well (regardless of the estimated cost),
Operator shall submit an AFE for the operation or expenditure to the
Parties for approval. Operator shall also furnish an informational AFE to
all Parties for an operation or single expenditure estimated to cost Two
Hundred and Fifty Thousand Dollars ($250,000) or less, but in excess of
Fifty-Thousand Dollars ($50,000), if Operator prepares same for its own
use.
8.3 Emergency and Required Expenditures
Notwithstanding anything in this Agreement to the contrary, Operator is
hereby authorized to conduct operations and incur expenses that in its
opinion are reasonably necessary to safeguard life, property, and the
environment in case of an actual or imminently threatened blowout,
explosion, accident, fire, flood, storm, hurricane, catastrophe, or other
emergency, and the expenses shall be borne by the Participating Parties
in the affected operation. Operator shall report to the Participating
Parties, as promptly as possible, the nature of the emergency and the
action taken. Operator is also authorized to conduct operations and incur
expenses reasonably required by statute, regulation, order, or permit
condition or by a governmental authority having jurisdiction, which
expenses shall be borne by the Participating Parties in the affected
operation, subject to Exhibit "C".
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8.4 Advance Xxxxxxxx
Operator may require each Party to advance its respective share of
estimated expenditures pursuant to Exhibit "C".
8.5 Commingling of Funds
Funds received by Operator under this Agreement may be commingled with
its own funds.
8.6 Security Rights (LA)
Exhibit "I" (LOUISIANA) if applicable, applies.
8.7 Overexpenditures
Operator shall notify the Participating Parties when it appears that
actual expenditures for an approved operation in an Exploratory or
Development Well or for the design, construction, and installation of a
Platform or Development Facilities will exceed the AFE estimate (the
excess being an "Overexpenditure") by more than twenty percent (20%),
hereinafter referred to as the "Allowable Variance". Operator's notice
shall be forwarded for information only. Except for an Exploratory Well,
if Operator determines that the Overexpenditure will exceed the Allowable
Variance, Operator shall submit a new AFE for the current operation
("Supplemental AFE") for approval of the Participating Parties. The
Participating Parties may then elect whether to continue to participate
within thirty (30) days or forty-eight (48) hours if a rig is on
location, inclusive of Saturdays, Sundays, and federal holidays, after
receipt of the Supplemental AFE. If one (1) or more Participating Parties
elect to continue to participate in the current operation and agree to
pay and bear one hundred percent (100%) of the costs and risks of
conducting it, Operator shall continue to conduct the current operation.
Otherwise, the operation shall cease. A Participating Party that elects
not to continue to participate in the current operation shall become a
Non-participating Party in the operation, from and after the date when
the Overexpenditure exceeds the Allowable Variance, not including
emergency expenditures, and Article 13.2 (Relinquishment of Interest)
shall apply to the Party only to the extent that the costs of the
operation exceed the Allowable Variance. Unless otherwise agreed by the
Participating Parties, each Participating Party electing to continue to
participate in the current operation may, but is not obligated to, pay
and bear that portion of the costs and risks attributable to the
interests of the Non-participating Parties in the ratio that the
Participating Party's interest bears to the total interests of all
Participating Parties electing to continue participating in the current
operation. If it appears to Operator that actual expenditures for an
approved operation will exceed the Supplemental AFE estimate, Operator
shall again repeat the procedure of this Article 8.7, using the estimate
in the most recently approved Supplemental AFE as the basis for
determining the Overexpenditure and Allowable Variance. An initial
Participating Party in an operation shall remain responsible for its
share of all costs and risks for plugging, replugging, capping, burying,
disposing, abandoning, removing, and restoring associated with the
operation, subject to Article 14 (Abandonment, Salvage, and Surplus),
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regardless of its subsequent election on a Supplemental AFE, except to
the extent such costs were increased by subsequent operations in which it
elected not to participate. Notwithstanding anything in this Article to
the contrary, if expenditures exceed the Allowable Variance for an
emergency, as provided in Article 8.3 (Emergency and Required
Expenditures), Operator shall not be required to secure the approval of
the Participating Parties, as the expenditures will be borne by all
Participating Parties. However, once stabilization takes place and
emergency expenditures are no longer being incurred, Operator shall
promptly furnish a Supplemental AFE to the Participating Parties for
their review and election, as provided above.
ARTICLE 9
NOTICES
9.1 Giving and Receiving Notices
Except as otherwise provided in this Agreement, all AFEs and notices
required or permitted by this Agreement shall be in writing and shall be
delivered in person or by mail, courier service, or facsimile
transmission, with postage and charges prepaid, addressed to the Parties
at the addresses in Exhibit "A". When a drilling rig is on location and
standby charges are accumulating, however, notices pertaining to the rig
shall be given orally or by telephone. All telephone or oral notices
permitted by this Agreement shall be confirmed immediately thereafter by
written notice. A notice shall be deemed to have been delivered only when
received by the Party to whom it was directed, and the period for a Party
to deliver a response thereto begins on the date the notice is received.
"Receipt", for oral or telephone notice, means actual and immediate
communication to the Party to be notified, and for written notice, means
actual delivery of the notice to the address of the Party to be notified,
as specified in this Agreement, or to the facsimile machine of that
Party. A responsive notice shall be deemed to have been delivered when
the Party to be notified is in receipt of same. When a response is
required in forty-eight (48) hours or less, however, the response shall
be given orally or by telephone or facsimile transmission within that
period. If a Party is unavailable to accept delivery of a notice required
to be given orally or by telephone, the notice may be delivered by any
other method specified in this Article 9.1. A message left on an
answering machine or with an answering service or other third person
shall not be deemed to be adequate telephonic or oral notice.
9.2 Content of Notice
An AFE or notice requiring a response shall indicate the maximum response
time specified in Article 9.3 (Response to Notices). A proposal for a
Platform and/or Development Facilities shall include an AFE, containing a
description of the Platform and/or Development Facilities, including, but
not limited to, location, and the estimated costs of design, fabrication,
transportation, and
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installation. A proposal for a well operation shall include an AFE,
describing the estimated commencement date, the proposed depth, the
objective formation or formations to be penetrated or tested, the
Objective Horizon, the surface and bottomhole locations, proposed
directional or horizontal drilling operations, the type of equipment to
be used, and the estimated costs of the operation, including, but not
limited to, the estimated costs of drilling, testing, and plugging and
abandoning the well, if applicable. If a proposed operation is subject to
Article 13.11 (Contract Area Maintenance Operations), the notice shall
specify that the proposal is a Contract Area Maintenance Operation. A
proposal for multiple operations on more than one well location by the
same rig shall contain separate AFEs or notices for each operation and
shall specify in writing in what order the operations will be conducted.
Each Party shall respond to each proposed multiple operation in the
manner provided in Article 9.3.3 (Proposal for Multiple Operations).
9.3 Response to Notices
Except as provided in Article 9.1, each Party's response to a proposal
shall be in writing to the proposing Party. Unless otherwise provided in
this Agreement, the response time shall be as follows:
9.3.1 Platform and/or Development Facilities Proposals
Each Party shall respond within ninety (90) days after its receipt
of the AFE or notice for a Platform and/or Development Facilities.
9.3.2 Well Proposals
Except as provided in Article 9.3.3 (Proposal for Multiple
Operations), each Party shall respond within thirty (30) days
after receipt of the well, Rework or Recompletion proposal, but if
(a) a drilling rig is on location, (b) the proposal relates to the
same well or its substitute, and (c) standby charges are
accumulating, a response shall be made within forty-eight (48)
hours after receipt of the proposal, inclusive of Saturdays,
Sundays, and federal holidays.
9.3.3 Proposal for Multiple Operations
When a proposal is made to conduct multiple Development Operations
at separate well locations using the same rig, each Party shall
respond (a) to the well operation taking precedence, within thirty
(30) days after receipt of the proposal; and (b) to each
subsequent well location, within forty-eight (48) hours after
completion of approved operations at the prior location and
notification thereof by Operator.
9.3.4 Other Matters
For all other matters requiring notice, each Party shall respond
within thirty (30) days after receipt of notice.
9.4 Failure to Respond
Failure of a Party to respond to a proposal or notice, to vote, or to
elect to participate within the period required by this Agreement shall
be deemed to be a negative response, vote, or election.
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9.5 Response to Counterproposals
Should a counterproposal be allowed under this Agreement, responses to
that counterproposal must be made within the response period for the
original proposal.
9.6 Timely Well Operations
Unless otherwise provided, an approved well shall be commenced within one
hundred twenty (120) days after the date when the last applicable
election on that well may be made. Xxxxx shall be deemed to have
commenced on the day charges commence under the drilling contract for
that well. If the Operator does not commence the drilling of an approved
well within the one hundred twenty (120) day time frame, the other
Participating Parties in that well may select a substitute Operator to
drill the approved well. In all events, including the occurrence of a
Force Majeure, if the substitute Operator fails to commence actual
drilling operations on an approved well within one hundred eighty (180)
days from the proposal of the approved well, the proposal of the well and
its approval will be deemed to have been withdrawn. Subject to Exhibit
"C", if a proposal for a well is deemed to have been withdrawn, all costs
incurred in the preparation for or in furtherance of that well will be
chargeable to the Parties who voted to participate in the well proposal
for that well.
9.7 Timely Platform/Development Facilities Operations
Unless otherwise provided, Operator shall commence, or cause to commence,
the construction, acquisition, or refurbishment of an approved proposal
for a Platform and/or Development Facilities within one hundred eighty
(180) days after the date when the last applicable election on that
Platform and/or Development Facilities may be made. The construction,
acquisition, or refurbishment of an approved Platform and/or Development
Facilities proposal shall be deemed to have commenced on the date the
contract is awarded for the design, acquisition, fabrication, or
refurbishment of the Platform and/or Development Facilities. If the
Operator does not commence the construction, acquisition, or
refurbishment of an approved Platform and/or Development Facilities
proposal within the one hundred eighty (180) day time frame, the other
Participating Parties in that Platform and/or Development Facilities
proposal may select a substitute Operator to commence the Platform and/or
Development Facilities. In all events, including the occurrence of a
Force Majeure, if the substitute Operator fails to commence the
construction, acquisition, or refurbishment of an approved Platform
and/or Development Facilities within two hundred forty (240) days from
the proposal of the approved Platform and/or Development Facilities, the
proposal of the Platform and/or Development Facilities and their approval
will be deemed to have been withdrawn. Subject to Exhibit "C", regardless
of whether or not the construction, acquisition, or refurbishment of a
Platform and/or Development Facilities is commenced, all costs incurred
by Operator, attributable to that activity, shall be paid by the
Participating Parties.
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ARTICLE 10
EXPLORATORY OPERATIONS
10.1 Proposing Operations
Subject to the provisions of the EPA, any Party may propose an
Exploratory Operation in accordance with Article 9 (Notices) to the other
Parties who are entitled to vote or make an election in regard to that
operation.
10.2 Counterproposals
When an Exploratory Operation is proposed, a Party may, within ten (10)
days after receipt of the AFE or notice for the original proposal, make a
counterproposal to conduct an alternative Exploratory Operation by
sending an AFE or notice to such Parties in accordance with Article 9
(Notices). The AFE or notice shall indicate that the proposal is a
counterproposal to the original proposal. If one or more counterproposals
are made, such Parties shall elect to participate in either the original
proposal, one counterproposal, or neither the original proposal nor a
counterproposal. If two or more proposals receive the approval of the
number of Parties and combined Working Interests required by Article 10.5
(Operations by Fewer Than All Parties), the proposal receiving the
largest percentage of Working Interest approval shall take precedence,
and in the event of a tie between two (2) or more approved proposals, the
proposal first received by the Parties shall take precedence. Except for
the response period provided in this Article 10.2, a counterproposal
shall be subject to the same terms and conditions as the original
proposal.
10.3 Operations by All Parties
If all Parties elect to participate in the proposed operation, Operator
shall conduct the operation at their cost and risk.
10.4 Second Opportunity to Participate
If fewer than all but one (1) or more Parties having a combined Working
Interest of forty-five percent (45%) or more elect to participate, then
the proposing Party shall notify the Parties of the elections made,
whereupon a Party originally electing not to participate may then elect
to participate by notifying the proposing Party within forty eight (48)
hours, inclusive of Saturdays, Sundays, and federal holidays, after
receipt of such notice. If all Parties elect to participate in the
proposed operation, Operator shall conduct the operation at their cost
and risk.
10.5 Operations by Fewer Than All Parties
If after the election (if applicable) made under Article 10.4 (Second
Opportunity to Participate), fewer than all but one (1) or more Parties
having a combined Working Interest of forty-five percent (45%) or more
have elected to participate in the proposed operation, then, in such
event:
(a) if Chevron is the Proposing Party and Ridgewood is the
Non-Participating Party, Ridgewood shall, in accordance with
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Article 4.2 of the EPA (Additional Opportunities Prospect Well Cost
Sharing), immediately forfeit all right to earn or own any interest in
the Contract Area for the "Prospect Area" (as such is defined in the EPA)
covered by the subject proposal or,
(b) if Ridgewood is the proposing Party and Chevron is the
Non-Participating Party, Chevron shall, in accordance with Article
5 of the EPA (Farmout Option), immediately farmout its interest to
Ridgewood interest in the Contract Area for the "Prospect Area"
(as such is defined in the EPA) covered by the subject proposal
and such Prospect shall not be covered by this Agreement, but
rather under the farmout provisions contained in the EPA.
10.6 Expenditures Approved
Approval of an Exploratory Operation shall cover all necessary
expenditures associated with the operation proposed in the AFE or notice
that are incurred by Operator in connection with (a) preparations for
drilling; (b) the actual drilling; (c) evaluations, such as testing,
coring, and logging; and (d) plugging and abandonment, subject to any
limitation that may exist as provided under Article 8 above.
10.7 Conduct of Operations
After commencement of drilling an Exploratory Well, Operator shall
diligently conduct the operation without unreasonable delay until the
well reaches the Objective Depth, unless the well encounters, at a lesser
depth, impenetrable conditions or mechanical difficulties that cannot be
overcome by reasonable and prudent operations and that render further
operations impracticable, except as may otherwise be provided in optional
provision Article 8.7 (Overexpenditures), if selected. If a well does not
reach its Objective Depth as a result of the conditions mentioned in this
Article 10.7, the operation shall be deemed to have been completed and
the rights and obligations of the Parties are as set out in the EPA (e.g.
if the well described in this Article 10.7 is the initial Exploratory
Well in a Prospect, either Party may propose the drilling of a
"Substitute Well" (as such term is defined in the EPA).for such initial
Exploratory Well in that Prospect with the election of the Parties to
participate or not to participate in such Substitute Well being subject
to the provisions of this Agreement, including but not limited to
Articles 10.1 through 10.5, inclusive.
Notwithstanding the above, in the event that the Exploratory Well does
not reach its Objective Depth as a result of the conditions mentioned in
this Article 10.7, but either Party proposes that the well be completed
for production at a depth above Objective Depth, then the following
conditions shall apply:
(a) If both Parties elect to participate in the proposed operation,
Operator shall conduct the operation at their cost and risk, or
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(b) if Chevron is the Proposing Party and Ridgewood is the
Non-Participating Party, Ridgewood shall, in accordance with
Articles 3 and 4 of the EPA, immediately forfeit all right to earn
or own any interest in the Contract Area for the "Prospect Area"
(as such is defined in the EPA) covered by the subject proposal
except as such rights as it may have to propose or participate in
the drilling of a Substitute Well or,
(c) if Ridgewood is the proposing Party and Chevron is the
Non-Participating Party, Chevron shall, in accordance with Article
5 of the EPA (Farmout Option), immediately farmout its interest to
Ridgewood interest in the shallower depths earned by Ridgewood in
the Contract Area for the "Prospect Area" (as such is defined in
Article 3.1(c) of the EPA) covered by the subject proposal and
such depth-limited Prospect Area shall not be covered by this
Agreement, but rather under the farmout provisions contained in
the EPA.
10.8 Course of Action After Reaching Objective Depth
When an Exploratory Well has been drilled to its Objective Depth and
reasonable testing, coring, and logging have been completed as set forth
in the approved AFE and the results have been furnished to the
Participating Parties, Operator shall notify the Participating Parties of
Operator's recommendation for further operations in the well, and the
following provisions shall apply:
10.8.1 Election by Participating Parties
A Participating Party shall have the right to propose another
operation by notifying the Operator and the other Participating
Parties of its proposed operation within twenty-four (24) hours,
inclusive of Saturdays, Sundays, and federal holidays, of receipt
of the Operator's notice. The Participating Parties shall notify
Operator within forty-eight (48) hours, inclusive of Saturdays,
Sundays, and federal holidays, of receipt of the Operator's
proposal whether the Participating Parties elect to (a)
participate in Operator's recommended operation, (b) participate
in another proposed operation, or (c) not participate in any
operation. Failure to respond shall be deemed to be an election
not to participate in any of the proposed operations. The
Participating Parties shall respond to all proposals within the
period allotted to the original proposal.
10.8.2 Priority of Operations
If all Participating Parties elect to participate in the same
proposed operation, Operator shall conduct the operation at their
cost and risk. If more than one (1) operation is approved by one
(1) or more Participating Parties having a combined Working
Interest of forty-five percent (45%) or more, then the approved
operation with the lowest number as indicated below shall take
precedence:
(Indicate the order of preference.)
1 Additional Testing, coring, or logging. (if conflicting
proposals are approved, the proposal receiving the largest
percentage of Working Interest approval shall take
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precedence, and in the event of a tie between two (2) or
more approved proposals, the approved proposal first
received by the Parties shall take precedence.)
2 Deepen. (If conflicting proposals are approved, the
proposal receiving the largest percentage Working Interest
approval shall take precedence, and in the event of a tie
between two (2) or more approved proposals, the approved
proposal first received by the Parties shall take
precedence.)
3 Sidetrack. (if conflicting proposals are approved, the
proposal receiving the largest percentage Working Interest
approval shall take precedence, and in the event of a tie
between two (2) or more approved proposals, the approved
proposal first received by the Parties shall take
precedence.)
4 Complete at the Objective Horizon
5 Complete above the Objective Horizon. (If conflicting
proposals are approved, the operation proposed at the
deepest depth shall take precedence.)
6 Other operations: (If conflicting proposals are approved,
the proposal receiving the largest percentage Working
Interest approval shall take precedence, and in the event
of a tie between two (2) or more approved proposals, the
approved proposal first received by the Parties shall take
precedence.
7 Temporarily abandon.
8 Plug and abandon.
10.8.3 Second Opportunity to Participate
If fewer than all but one (1) or more Participating Parties having
a combined Working Interest of forty-five percent (45%) or more
elect to participate in an operation, the proposing Party shall
notify the Participating Parties of the elections made, whereupon
a Party originally electing not to participate in the proposed
operation may then elect to participate by notifying the proposing
Party within twenty four (24) hours, inclusive of, Saturdays,
Sundays, and federal holidays, after receipt of such notice. If
all Parties elect to participate in the proposed operation,
Operator shall conduct the operation at their cost and risk.
10.8.4 Operations by Fewer Than All Parties
If, after the election (if applicable) made under Article 10.8.3
(Second Opportunity to Participate), fewer than all but one (1) or
more Parties having a combined Working Interest of forty-five
percent (45%) or more elect to participate in the proposed
operation that takes precedence, the proposing Party shall notify
the Participating Parties and each Participating Party shall have
twenty four (24) hours, inclusive of Saturdays, Sundays, and
federal holidays, after receipt of the notice to notify the
proposing Party of the portion of the costs and risks attributable
to the total Non-participating Parties' interests it elects to pay
and bear. Unless otherwise agreed by the Participating Parties,
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each Participating Party may, but shall not be obligated to, pay
and bear that portion of the costs and risks attributable to the
total Non-participating Parties' interests in the ratio that the
Participating Party's interest bears to the total interests of all
Participating Parties who elect to pay and bear a portion of costs
and risks attributable to the Non-participating Parties'
interests. Failure to respond shall be deemed to be an election
not to pay or bear any additional costs or risks. However, if
Chevron is the sole Participating Party, and, as the Participating
Party, it agrees to bear one hundred percent (100%) of the costs
and risks of the operation, other than an operation to either
temporarily abandon, or permanently plug and abandon the well,
Operator, subject to Article 4.2 (Substitute Operator), shall
conduct the operation as a Non-consent Operation for the benefit
of the Participating Party, and the provisions of Article 13
(Non-consent Operations) shall apply to Ridgewood's interest;
provided, however, that if:
(a) the proposal by Chevron is for the Deepening of
Sidetracking of a Well to a depth deeper than the Objective
Horizon contained in the original proposal for the drilling
of such well, Ridgewood shall, like and in accordance with
Articles 3 and 4 of the EPA, immediately forfeit all right
to earn or own any additional interest in those proposed
deeper depths in the Contract Area for the "Prospect Area"
(as such is defined in the EPA) covered by the subject
Sidetracking or Deepening proposal of such well, less and
except such rights as Ridgewood may have to propose or
participate in the drilling of a Substitute Well as
provided for in the EPA; but, if,
(b) the proposal by Chevron is for any other Exploratory
Operation, including but not limited to Ridgewood's right
to elect or elect not to participate in the Completion of
an Exploratory Well or to the Sidetracking of an
Exploratory Well to the Objective Horizon contained in the
original proposal for the drilling of such well, then, in
such event Ridgewood's interest shall be subject to the
provisions of Article 13. (Non-consent Operations)
including but not limited to those contained in 13.2.1 (a).
If Ridgewood is the Participating Party of a proposal to either
Complete the well at the Objective Horizon or above the Objective
Horizon, and Chevron is the Non-Participating Party, Chevron
shall, in accordance with Article 5 of the EPA (Farmout Option),
immediately farmout its interest to Ridgewood for the "Prospect
Area" (as such is defined in Article 3.1(c) of the EPA) covered by
the subject proposal and such Prospect Area shall not be covered
by this Agreement, but rather under the farmout provisions
contained in the EPA.
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Subject to the other provisions contained hereinabove and
elsewhere in this Agreement, if a Participating Party in a well
elects not to participate in the Deepening or Sidetracking
operation, in the well, such non-consenting Party shall become a
Non-participating Party in all operations conducted in the
Deepened or Sidetracked portion of the well after that election.
If the Non-consent Operation is an Additional Testing, coring, or
logging operation, Article 13 (Non-consent Operations) shall not
apply, however, a Party electing not to participate in the
Additional Testing, coring, or logging shall not be entitled to
information resulting from the operation.
10.8.5 Subsequent Operations
Upon completion of an operation conducted under Article 10.8
(Course of Action After Reaching Objective Depth), if the well is
not either (a) Completed as a Producible Well, or (b) temporarily
abandoned or permanently plugged and abandoned, Operator shall
notify the Participating Parties of Operator's recommendation for
further operations in the well under Articles 10.8.1 through
10.8.4, which again shall apply. If sufficient approval is not
obtained to conduct a subsequent operation in a well or if all
Participating Parties elect to plug and abandon the well, subject
to Article 14 (Abandonment, Salvage, and Surplus), Operator shall
permanently plug and abandon the well at the cost and risk of all
Participating Parties. Each Participating Party shall be
responsible for its proportionate share of the plugging and
abandonment costs associated with the operation in which it
participated.
10.9 Xxxxx Proposed Below Deepest Producible Reservoir
If a proposal is made to conduct an Exploratory Operation involving the
drilling of a well to an Objective Horizon below the base of the deepest
Producible Reservoir, a Party may elect within the applicable period to
limit its participation in the operation down to the base of the deepest
Producible Reservoir. For purposes of this Article 10.9, a Party who
elects to limit its participation in the operation down to the base of
the deepest Producible Reservoir shall be referred to as "Shallow
Participant" and a Party who elects to participate in the entire
operation shall be referred to as "Deep Participant". If a Party elects
to limit its participation to the base of the deepest Producible
Reservoir, Operator shall prepare and submit to the Shallow Participant,
for informational purposes, a separate AFE covering operations down to
the deepest Producible Reservoir. The Shallow Participant shall be a
Participating Party in, and shall pay and bear the costs and risks of,
each operation to the base of the deepest Producible Reservoir, according
to its Participating Interest. The Shallow Participant shall be a
Non-participating Party in each operation below the deepest Producible
Reservoir, and the operation shall be considered a Non-consent Operation,
and the provisions of Article 13 (Non-consent Operations) shall apply. If
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the well is Completed and produces Hydrocarbons from a horizon below the
deepest Producible Reservoir, the Deep Participant shall reimburse the
Shallow Participant for its share of the actual well costs to the base of
the deepest Producible Reservoir. Payment shall be due within thirty days
after receipt of notice of the well being completed below the deepest
Producible Reservoir. If the well is Completed and produces Hydrocarbons
from a horizon below the deepest Producible Reservoir, the Shallow
Participant shall reimburse the Deep Participant for its Working Interest
share of the actual well costs to the base of the deepest Producible
Reservoir in accordance with Article 13.4 (Deepening or Sidetracking Cost
Adjustments), upon the earlier of the time that (a) the well is plugged
back to a horizon above the base of the deepest Producible Reservoir, as
determined when the original well was proposed, (b) the well is plugged
and abandoned, or (c) the amount to be recouped by the Deep Participant
under Article 13 (Non consent Operations) is recovered.
10.10 Initial Exploratory Well on Prospect "A" of the EPA
Notwithstanding anything contained in this Agreement to the contrary, in
accordance with the provisions of the EPA Chevron and Ridgewood have
already elected to participate in the initial Exploratory Well for
Prospect "A" under the EPA in accordance with and subject to the
provisions contained in the EPA, including, but not limited Article 4.1
(Primary Prospect Well Cost Sharing) thereof.
ARTICLE 11
DEVELOPMENT OPERATIONS
11.1 Proposing Operations
A Party may propose a Development operation in accordance with Article 9
(Notices) to the other Parties who are entitled to vote or make an
election in regard to that operation.
11.2 Counterproposals
When a Development Operation is proposed, a Party may, within ten (10)
days after receipt of the AFE or notice for the original proposal, make a
counterproposal to conduct an alternative Development Operation by
sending an AFE or notice to such Parties in accordance with Article 9
(Notices). The AFE or notice shall indicate that the proposal is a
counterproposal to the original proposal. If one or more counterproposals
are made, such Parties shall elect to participate in either the original
proposal, one counterproposal, or neither the original proposal nor a
counterproposal. If two or more proposals receive the approval of the
number of Parties and combined Working Interests required by Article 11.5
(Operations By Fewer Than All Parties), the proposal receiving the
largest percentage Working Interest approval shall take precedence, and
in the event of a tie between two (2) or more approved proposals, the
approved proposal first
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received by the Parties shall prevail. Except for the response period
provided in this Article 11.2, a counterproposal shall be subject to the
same terms and conditions as the original proposal.
11.3 Operations by All Parties
If all Parties elect to participate in the proposed operation, Operator
shall conduct the operation at their cost and risk.
11.4 Second Opportunity to Participate
If fewer than all but one (1) or more Parties having a combined Working
Interest of forty-five (45%) or more elect to participate, then the
proposing Party shall notify the Parties of the elections made, whereupon
a Party originally electing not to participate may then elect to
participate by notifying the proposing Party within forty eight (48)
hours, inclusive of Saturdays, Sundays, and federal holidays, after
receipt of such notice. If all Parties elect to participate in the
proposed operation, Operator shall conduct the operation at their cost
and risk.
11.5 Operations by Fewer Than All Parties
If after the election (if applicable) made under Article 11.4 (Second
Opportunity to Participate), fewer than all but one (1) or more Parties
having a combined Working Interest of forty-five percent (45%) or more
have elected to participate in the proposed operation, the proposing
Party shall notify the Participating Parties, and each Participating
Party shall have forty eight (48) hours, inclusive of Saturdays, Sundays,
and federal holidays, after receipt of the notice to notify the proposing
Party of the portion of the costs and risks attributable to the total
Non-participating Parties' interests it elects to pay and bear. Unless
otherwise agreed by the Participating Parties, each Participating Party
may, but shall not be obligated to, pay and bear that portion of costs
and risks attributable to the total Non-participating Parties' interests
in the ratio that the Participating Party's interest bears to the total
interests of all Participating Parties who elect to pay and bear a
portion of the costs and risks attributable to the total
Non-participating Parties' interests. Failure to respond shall be deemed
to be an election not to pay or bear any additional costs or risks. If
the Participating Parties agree to pay and bear one hundred percent
(100%) of the costs and risks of the operation, Operator, subject to
Article 4.2 (Substitute Operator) shall conduct the operation as a
Non-consent Operation for the benefit of the Participating Parties, and
the provisions of Article 13 (Non-consent Operations) shall apply. If
such agreement is not obtained, however, the operation shall not be
conducted and the effect shall be as if the proposal had not been made.
11.6 Expenditures Approved
Approval of a Development Operation shall cover all necessary
expenditures associated with the operation proposed in the AFE or notice
that are incurred by Operator in connection with (a) preparations for
drilling; (b) the actual drilling; (c) evaluations, such as testing,
coring, and logging; and (d) plugging and abandonment, subject to any
limitation that may exist as provided under Article 8 above.
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11.7 Conduct of Operations
After commencement of a Development Well, Operator shall diligently
conduct the operation without unreasonable delay until the well reaches
the Objective Depth, unless the well encounters, at a lesser depth,
impenetrable conditions or mechanical difficulties that cannot be
overcome by reasonable and prudent operations and render further
operations impracticable, except as may otherwise be provided in optional
provision Article 8.7 (Overexpenditures), if elected. If a well does not
reach its Objective Depth as a result of the conditions mentioned in this
Article 11.7, the operation shall be deemed to have been completed and
Article 13 (Non consent Operations) shall apply to each Non-participating
Party for the portion of the well drilled.
11.8 Course of Action After Reaching Objective Depth
When a Development Well has been drilled to its Objective Depth and
reasonable testing, coring, and logging have been completed and the
results have been furnished to the Participating Parties, Operator shall
notify the Participating Parties of Operator's recommendation for further
operations in the well and the following provisions shall apply:
11.8.1 Election by Fewer Than All Parties
A Participating Party shall have the right to propose another
operation by notifying the Operator and the other Participating
Parties of its proposed operation within twenty-four (24) hours,
inclusive of Saturdays, Sundays, and federal holidays, of receipt
of the Operator's notice. The Participating Parties shall notify
Operator within forty-eight (48) hours, inclusive of Saturdays,
Sundays, and federal holidays, of receipt of the Operator's
proposal whether the Participating Parties elect to (a)
participate in Operator's recommended operation, (b) participate
in another proposed operation, or (c) not participate in any
operation. Failure to respond shall be deemed to be an election
not to participate in any of the proposed operations. The
Participating Parties shall respond to all proposals within the
period allotted to the original proposal.
11.8.2 Priority of Operations
If all Participating Parties elect to participate in the same
proposed operation, Operator shall conduct the operation at their
cost and risk. If more than one (1) operation is approved by one
(1) or more Participating Parties having a combined Working
Interest of forty-five percent (45%) or more, then the approved
operation with the lowest number as indicated below shall take
precedence:
(Indicate the order of preference.)
1 Additional Testing, coring, or logging. (If conflicting
proposals are approved, the proposal receiving the largest
percentage of Working Interest approval shall take
precedence, and in the event of a tie between two (2) or
more approved proposals, the approved proposal first
received by the Parties shall take precedence.)
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2 Complete at the Objective Horizon.
3 Complete above the Objective Horizon. (If conflicting
proposals are approved, the operation proposed to the
deepest depth shall take precedence.)
4 Deepen. (if conflicting proposals are approved, the
proposal receiving the largest percentage of Working
Interest approval shall take precedence, and in the event
of a tie between two (2) or more approved proposals, the
approved proposal first received by the Parties shall take
precedence.)
5 Sidetrack. (If conflicting proposals are approved, the
proposal receiving the largest percentage of Working
Interest approval shall take precedence, and in the event
of a tie between two (2) or more approved proposals, the
approved proposal first received by the Parties shall take
precedence.)
6 Other operations: (If conflicting proposals are approved,
the proposal receiving the largest percentage of Working
Interest approval shall take precedence, and in the event
of a tie between two (2) or more approved proposals, the
approved proposal first received by the Parties shall take
precedence.)
7 Temporarily abandon.
8 Plug and abandon.
11.8.3 Second Opportunity to Participate
If fewer than all but one (1) or more Participating Parties having
a combined Working Interest of forty-five percent (45%) or more
elect to participate in an operation, the proposing Party shall
notify the Participating Parties of the elections made, whereupon
a Party originally electing not to participate in the proposed
operation may then elect to participate by notifying the proposing
Party within twenty four (24) hours, inclusive of Saturdays,
Sundays, and federal holidays, after receipt of such notice. If
all Parties elect to participate in the proposed operation,
Operator shall conduct the operation at their cost and risk.
11.8.4 Operations by Fewer Than Ail Parties
If, after the election (if applicable) made under Article 11.8.3
(Second Opportunity to Participate), fewer than all but one (1) or
more Parties having a combined Working Interest of forty-five
percent (45%) or more elect to participate in the proposed
operation that takes precedence, the proposing Party shall notify
the Participating Parties and each Participating Party shall have
twenty four (24) hours, inclusive of Saturdays, Sundays, and
federal holidays, after receipt of the notice to notify the
proposing Party of the portion of the costs and risks attributable
to the total Non-participating Parties' interests it elects to pay
and bear. Unless otherwise agreed by the Participating Parties,
each Participating Party may, but shall not be obligated to, pay
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and bear that portion of the costs and risks attributable to the
total Non-participating Parties' interests in the ratio that the
Participating Party's interest bears to the total interests of all
Participating Parties who elect to pay and bear a portion of costs
and risks attributable to the Non-participating Parties'
interests. Failure to respond shall be deemed to be an election
not to pay or bear any additional costs or risks. If the
Participating Parties agree to pay and bear one hundred percent
(100%) of the costs and risks of the operation, Operator, subject
to Article 4.2 (Substitute Operator), shall conduct the operation
as a Non-consent Operation for the benefit of the Participating
Parties, and the provisions of Article 13 (Non-consent Operations)
shall apply. If such agreement is not obtained, however, the
operation shall not be conducted and the effect shall be as if the
proposal had not been made. If a Participating Party in a well
elects not to participate in the Deepening or Sidetracking
operation in the well, such non-consenting Party shall become a
Non-participating Party in all operations conducted in the
Deepened or Sidetracked portion of the well after that election.
If the Non-consent Operation is an Additional Testing, coring, or
logging operation, Article 13 (Non-consent Operations) shall not
apply, however, a Party electing not to participate in the
Additional Testing, coring, or logging shall not be entitled to
information resulting from the operation.
11.8.5 Subsequent Operations
Upon the completion of an operation conducted under Article 11.8
(Course of Action After Reaching Objective Depth), if the well is
not either (a) Completed as a well capable of producing
Hydrocarbons in paying quantities, or (b) temporarily abandoned or
permanently plugged and abandoned, Operator shall notify the
Participating Parties of Operator's recommendation for operations
in the well under Articles 11.8.1 through 11.8.4, which again
shall apply. If sufficient approval is not obtained to conduct a
subsequent operation in a well, or if all Participating Parties
elect to plug and abandon the well, subject to Article 14
(Abandonment, Salvage, and Surplus), Operator shall permanently
plug and abandon the well at the expense of all Participating
Parties. Each Participating Party shall be responsible for its
proportionate share of the plugging and abandonment costs
associated with the operation in which it participated.
ARTICLE 12
PLATFORM AND DEVELOPMENT FACILITIES
12.1 Proposal
A Party may propose the fabrication or acquisition and installation of a
Platform and/or Development Facilities, by sending an AFE or notice to
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the other Parties in accordance with Article 9 (Notices). Any proposal by
a Party for a Platform and/or Development Facilities shall not provide
for excess capacity and/or space which is greater than ten percent (10%)
of what is required for such Platform and/or Development Facilities based
upon the expected size of the Producible Reservoir(s); the number of
existing Producible Xxxxx; the quality of Hydrocarbons to be produced,
processed, and transported; and the number of scheduled Development
Xxxxx.
12.2 Counterproposals
When a Platform and/or Development Facilities is proposed under Article
12.1, a Party may, within thirty (30) days after receipt of the AFE or
notice for the original proposal, make a counterproposal to fabricate or
otherwise acquire and install said Platform and/or Development Facilities
by sending an AFE or notice to the other Parties in accordance with
Article 9 (Notices). The AFE or notice shall indicate that the proposal
is a counterproposal to the original proposal. If one or more
counterproposals are made, each Party shall elect to participate in
either the original proposal, one counterproposal, or neither the
original proposal nor a counterproposal. If two or more proposals receive
the approval of the number of Parties and combined Working Interests
required by Article 12.2.3 (Operations By Fewer Than All Parties), the
proposal receiving the largest percentage Working Interest approval shall
be deemed approved, and in the event two (2) or more approved proposals
receive the same Working Interest approval, the approved proposal first
received by the Parties shall be deemed approved.
12.2.1 Operations by All Parties
If all Parties elect to participate in the proposed operation,
Operator shall conduct the operation at their cost and risk.
12.2.2 Second Opportunity to Participate
If fewer than all but one (1) or more Parties having a combined
Working Interest of forty five percent (45%) or more elect to
participate in the Platform and/or Development Facilities, then
the proposing Party shall notify the Parties of the elections
made, whereupon a Party originally electing not to participate may
then elect to participate by notifying the proposing Party within
forty eight (48) hours, inclusive of Saturdays, Sundays, and
federal holidays, after receipt of such notice. If all Parties
elect to participate in the Platform and/or Development
Facilities, Operator shall timely commence the fabrication and
installation of the Platform and/or Development Facilities at
their cost and risk.
12.2.3 Operations by Fewer Than All Parties
If after the election (if applicable) made under Article 12.2.2
(Second Opportunity to Participate), fewer than all but one (1) or
more Parties having a combined Working Interest of forty-five
percent (45%) or more elect to participate in the Platform and/or
Development Facilities, the proposing Party shall notify the
Participating Parties, and each Participating Party shall have
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forty eight (48) hours, inclusive of Saturdays, Sundays, and
federal holidays, after receipt of the notice to notify the
proposing Party of the portion of the costs and risks attributable
to the total Non-participating Parties' interests it elects to pay
and bear. Unless otherwise agreed by the Participating Parties,
each Participating Party may, but shall not be obligated to, pay
and bear that portion of costs and risks attributable to the total
Non-participating Parties' interests in the ratio that the
Participating Party's interest bears to the total interests of all
Participating Parties who elect to pay and bear a portion of the
costs and risks attributable to the total Nonparticipating
Parties' interests. Failure to respond shall be deemed to be an
election not to pay or bear any additional costs or risks. If the
Participating Parties agree to pay and bear one hundred percent
(100%) of the costs and risks of the operation, the Operator,
subject to Article 4.2 (Substitute Operator), shall conduct the
operation as a Non-consent Operation for the benefit of the
Participating Parties, and except as provided in Article 12.4
(Rights to Take in Kind), the provisions of Article 13.2.1.(b)
shall apply. If such agreement is not obtained, however, the
fabrication and installation of the Platform and/or Development
Facilities shall not be commenced, and the effect shall be as if
the proposal had not been made.
12.3 Ownership and Use of the Platform and Development Facilities
The Participating Parties in the Development Facilities own all of the
excess capacity of the Development Facilities and the excess weight,
space and buoyancy of the Platform. Each Participating Party in the
Development Facilities does not have the right to use its Participating
Interest share of the excess capacity, weight, space and buoyancy for
hydrocarbon production from outside the Contract Area. Each Participating
Party in the Development Facilities or Platform must obtain the unanimous
approval of the other Participating Parties in the Development Facilities
or Platform in order to utilize any portion of the excess capacity,
weight, space and buoyancy. It must negotiate the payment of a fee with
the Participating Parties in the Development Facilities or Platform in
order to utilize any portion of the excess capacity, weight, space and
buoyancy. Each of the Participating Parties in the Development Facilities
or Platform shall receive its Participating Interest share of all fees
derived from the utilization of the excess capacity, weight, space and
buoyancy. All hydrocarbon production from outside the Contract Area shall
be processed under a "Facilities Use and Production Handling Agreement"
unanimously agreed to by the Participating Parties in the Development
Facilities.
12.4 Rights to Take in Kind
Nothing in this Article 12 shall act to limit a Party's rights under
Article 22 (Disposition of Production), or to otherwise separately
dispose of its share of Hydrocarbon production. If a Party elects (a) not
to participate in an approved Development Facilities proposal and (b) to
separately dispose of its share of Hydrocarbon production (the
"Separately Disposing Party"), the Separately Disposing Party shall not
be subject to the provisions of Article 13.2.1.(b), but must provide
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proof to the Participating Parties in the approved Development Facilities
proposal, within sixty (60) days from the last applicable response date
to the Development Facilities proposal that it has entered into
fabrication and transportation contracts to separately dispose of its own
share of Hydrocarbon production. If a Separately Disposing Party fails to
provide such proof by that deadline and if there is sufficient capacity
for the Development Facilities to accommodate the Separately Disposing
Party's share of the Hydrocarbons, it shall immediately (I) become a
Participating Party in the Development Facilities and utilize the
Development Facilities for its share of Hydrocarbon production, (II) pay
to the Participating Parties in the approved Development Facilities
proposal an amount equal to one hundred fifty percent (150%) of what
would have been the Separately Disposing Party's share of the costs and
expense of the Development Facilities had it elected to participate in
the Development Facilities under Article 12.1 or 12.2, and (III) assume
its share of the risks and liabilities associated with the construction
and ownership of the Development Facilities as of the date of
commencement of the operations to construct same. The Participating
Parties in the original Development Facilities and the Separately
Disposing Party, which becomes a Participating Party in the original
Development Facilities under Article 12.4 (I), shall own the original
Development Facilities based on their Participating Interest share in the
original Development Facilities. If a Separately Disposing Party fails to
provide such proof by that deadline and if there is insufficient capacity
for the Development Facilities to accommodate the Separately Disposing
Party's share of the Hydrocarbons, the Separately Disposing Party shall
(I) become a Participating Party in the original Development Facilities
and utilize the available capacity in the original Development
Facilities, if any, for its share of Hydrocarbon production, (ii) pay one
hundred percent (100%) of the costs of an expansion or modification of
the Development Facilities, which is required to accommodate all or a
portion of its share of the Hydrocarbons, and assume one hundred percent
(100%) of the risks and liabilities associated with (A) the construction,
installation and commissioning of the expanded or modified Development
Facilities and (B) the utilization of the expanded or modified
Development Facilities for seven (7) days subsequent to the commencement
of Hydrocarbon production through same, (iii) pay to the Participating
Parties in the approved Development Facilities proposal an amount equal
to one hundred fifty percent (150%) of what would have been the
Separately Disposing Party's share of the costs and expense of the
original Development Facilities had it elected to participate in the
original Development Facilities under Article 12.1 or 12.2, (iv) assume
its share of the risks and liabilities associated with the construction
and ownership of the original Development Facilities as of the date of
commencement of the operations to construct the original Development
Facilities. The Participating Parties in the original Development
Facilities and the Separately Disposing Party, which becomes a
Participating Party in the original Development Facilities under Article
12.4(i), shall own the expanded or modified Development Facilities based
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on their Participating Interest share in the original Development
Facilities, and the Participating Parties in the original Development
Facilities shall assume their Participating Interest share of the risks
and liabilities associated with the ownership of the expanded or modified
Development Facilities seven (7) days after that the expanded or modified
Development Facilities have been utilized.
12.5 Expansion or Modification of a Platform and/or Development Facilities
After installation of a Platform and/or Development Facilities, any
Participating Party in that Platform and/or Development Facilities may
propose the expansion or modification of that Platform and/or Development
Facilities by written notice (along with its associated AFE) to the other
Participating Parties in that Platform and/or Development Facilities.
That proposal requires approval by two of more of the Participating
Parties in the Platform and/or Development Facilities with more than
seventy five percent (75%) of the Participating Interest in the Platform
and/or Development Facilities. If approved, that proposal will be binding
on all Participating Parties in that Platform and/or Development
Facilities, and the Operator shall commence that expansion or
modification at the sole cost and risk of all of the Participating
Parties in that Platform and/or Development Facilities unless otherwise
agreed.
ARTICLE 13
NON-CONSENT OPERATIONS
13.1 Non-consent Operations
Operator or substitute Operator under Article 4.2 (Substitute Operator)
shall conduct Non-consent Operations at the sole cost and risk of the
Participating Parties in accordance with the following provisions:
13.1.1 Non-interference
Non-consent Operations shall not interfere unreasonably with
operations approved by all of the Parties.
13.1.2 Multiple Completion Limitation
Subject to Article 10.9, a Non-consent Operation shall not be
conducted in a well having multiple Completions unless (a) each
Completion is owned by the same Parties in the same proportions;
(b) the well is incapable of producing from any Completion; or (c)
all Participating Parties in the well consent to the operation.
13.1.3 Metering
In Non-consent Operations, Hydrocarbon production shall be
determined upon the basis of appropriate well tests, unless
separate metering devices are required by a governmental authority
having jurisdiction.
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13.1.4 Non-consent Well
Operations on a Non-consent Well shall not be conducted in a
Producible Reservoir without approval of all Parties unless (a)
the Producible Reservoir is designated in the notice as a
Completion objective; (b) Completion of the well in the Producible
Reservoir will not increase the rates of Hydrocarbon production
that are prescribed and approved for the Producible Reservoir by
the governmental authority having jurisdiction; and (c) the
horizontal distance between the vertical projections of the
midpoint of the Producible Reservoir in the well and an existing
well currently completed in and producing from the same Producible
Reservoir will be at least one thousand (1,000) feet from another
Completion.
13.1.5 Cost Information
Operator shall, within one hundred twenty (120) days after
completion of a Non-consent Operation, furnish the Parties either
(a) an inventory and an itemized statement of the cost of the
Non-consent Operation and equipment pertaining thereto, or (b) a
detailed statement of the monthly xxxxxxxx. Each month thereafter,
while the Participating Parties are being reimbursed under Article
13.2.1 (Production Reversion Recoupment), Operator shall furnish
the Non-participating Parties a monthly statement detailing all
costs and liabilities incurred in the Non-consent Operation,
together with a statement of the quantities of Hydrocarbons
produced from it and the amount of the proceeds from the sale of
the Non-participating Parties' relinquished Hydrocarbon production
from the Non consent Operation for the preceding month. Operator
shall prepare the monthly statement of the quantities of
Hydrocarbons produced and the amounts of the proceeds from the
sale of Non-participating Parties' relinquished Hydrocarbon
production based on the proceeds received for the Operator's share
of Hydrocarbon production. When Operator's payout calculation
indicates that payout has occurred, Operator shall promptly notify
all Parties. The Participating Parties who assumed a portion of
the Non participating Parties' relinquished interest shall then
provide Operator all information pertaining to the cumulative
proceeds received from the sale of the Non-participating Parties'
relinquished Hydrocarbon production. Operator shall revise the
payout date using the actual proceeds from the sale of the
Non-participating Parties' relinquished Hydrocarbon production and
administer any subsequent adjustments between the Parties.
13.1.6 Completions
For determinations under Article 13.1 (Non-consent Operations),
each Non-consent Operation in a single wellbore shall be accounted
for separately.
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13.2 Relinquishment of Interest
Upon commencement of Non-consent Operations, other than Non-consent
operations governed by Article 13.7 (Operations Utilizing a Non-consent
Platform and/or Development Facilities), each Non-participating Party's
interest and Contract Area operating rights in the Non-consent Operation
and title to Hydrocarbon production resulting therefrom; and if Article
13.8 (Discovery or Extension from Non-consent Drilling) is effective,
one-half (1/2) of each Non-participating Party's interest and Contract
Areahold operating rights and title to Hydrocarbon production from xxxxx
mentioned in Article 13.8 (Discovery or Extension from Non-consent
Drilling); shall be owned by and vested in each Participating Party in
proportion to its Participating Interest, or in the proportions otherwise
agreed by the Participating Parties, for as long as the Non-Consent
Operation is being conducted or Hydrocarbon production is obtained
therefrom, subject to the following:
13.2.1 Production Reversion Recoupment
When the Participating Parties have recouped out of Hydrocarbon
production from the Non-consent Operations attributable to the
Non-participating Party's interest an amount, which when added to
amounts received under Article 13.3 (Deepening or Sidetracking of
Non-consent Well), equals the sum of the following:
(a) Six hundred percent (600%) of the Non-participating Party's
share of the costs of the following Non-consent Exploratory
Operations, or four hundred percent (400%) of the
Non-participating Party's share of the costs of the
following Non consent Development Operations: drilling,
testing, Completing, Recompleting, Deepening, Sidetracking,
Reworking, plugging back, and temporarily abandoning a
well, reduced by the Non-participating Party's Share of a
cash contribution received under Article 21.2 (Cash
Contributions);
(b) Three hundred percent (300%) of Non-participating Party's
Share of the cost of Platforms and/or Development
Facilities approved under Article 12.1 (Proposal) or
Article 12.2 (Counterproposals); such recoupment is limited
to the Non participating Party's Share of the Hydrocarbon
production that utilize such Platform and/or Development
Facilities;
(c) Four hundred percent (400%) of the Non-participating
Party's Share of the cost charged in accordance with
Article 13.9 (Allocation of Platform/Development Facilities
Costs to Non-consent Operations) of using an existing
Platform/Development Facilities; and
(d) the Non-participating Party's Share of the costs of
operation, maintenance, treating, processing, gathering,
and transportation, including, but not limited to, an
offsite host facilities' handling fees, as well as lessor's
royalties and severance, Hydrocarbon production, and excise
taxes,
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then, the relinquished interests of the Non-participating Party
shall automatically revert to the Non-participating Party as of
7:00 a.m. of the day after the recoupment occurs. Thereafter, the
Non-participating Party shall own the same interest in the
Non-consent Well, equipment pertaining thereto, including, but not
limited to, any Platform or Development Facilities, and the
Hydrocarbon production therefrom as the Non participating Party
would have owned or been entitled to if it had participated in the
Non consent Operation. Upon reversion, the Non-participating Party
shall become a Participating Party and, as such, shall become
liable for its proportionate share of the further costs of the
operation as set forth in this Agreement and Exhibit "C".
13.2.2 Non-production Reversion
If the Non-consent Operation fails to obtain Hydrocarbon
production or if the operation results in, Hydrocarbon production
that ceases before complete recoupment by the Participating
Parties under Article 13.2.1 (Production Reversion Recoupment),
such Contract Areahold operating rights shall revert to each
Non-participating Party, except that all Non-consent Xxxxx,
Platforms, and Development Facilities shall remain vested in the
Participating Parties (but the salvage value in excess of the sum
remaining under Article 13.2.1 shall be credited to all Parties).
13.3 Deepening or Sidetracking of Non-consent Well
If a Participating Party proposes to Deepen or Sidetrack a Non-consent
Well, a Non-participating Party may then elect to participate in the
Deepening or Sidetracking operation by notifying Operator within thirty
(30) days, or within forty-eight (48) hours, inclusive of Saturdays,
Sundays, and federal holidays, if a rig is on location and standby
charges are being incurred, after receiving notice of the proposal. A
Non-participating Party that elects to participate in Deepening or
Sidetracking the well, as proposed, shall immediately pay the
Participating Parties, in accordance with Article 13.4 (Deepening or
Sidetracking Cost Adjustments), its Working Interest share of actual well
costs (excluding logging, coring, testing, and Completion costs other
than the cost of setting any casing or Completion Equipment that is used
in the Deepening or Sidetracking), less all amounts recovered by the
Participating Parties from the proceeds of Hydrocarbon production from
the well, as if the Non-participating Party had originally participated
to the initial objective depth or formation, in the case of a Deepening
operation, or the depth at which the Sidetracking operation is initiated.
Thereafter, the Non-participating Party shall be deemed to be a
Participating Party for the Deepening or Sidetracking operations, and
Article 13.2.1(a) shall not apply to that Party for the Deepened or
Sidetracked portion of the well. The initial Participating Parties,
however, shall continue to recoup out of the proceeds of Hydrocarbon
production from the non-consent portion of the well any balance for the
Non-consent Well remaining to be recovered under Article 13.2.1
(Production Reversion Recoupment), less the amounts paid by the
Non-participating Party under this Article 13.3.
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13.4 Deepening or Sidetracking Cost Adjustments
If a proposal is made to Deepen or Sidetrack a Non-consent Well, a well
cost adjustment will be performed as follows:
(a) Intangible drilling will be valued at the actual cost incurred by
the Participating Parties.
(b) Tangible materials will be valued at the actual cost incurred by
the Participating Parties.
(c) For Sidetracking operations, the values determined in Articles
13.4(a) and 13.4(b) shall be reduced by the amount allocated to
that portion of the well from the surface to one hundred feet
(100') below the point at which the Sidetracking was initiated.
Such allocations shall be consistent with the guidelines
recommended by the applicable Council of Petroleum Accountants
Societies ("XXXXX") Guideline, as amended from time to time.
(d) Amortization/depreciation shall be applied to both intangible and
tangible values at the rate of ten percent (10%) per annum from
the date the well commenced Hydrocarbon production to the date
operations commence to Deepen or Sidetrack the well, provided,
however, the value of tangible materials after applying
depreciation shall never be less than fifty percent (50%) of the
value determined in Article 13.4(b).
13.5 Subsequent Operations in Non-consent Well
Except as provided in Article 13.3 (Deepening or Sidetracking of
Non-consent Well), an election not to participate in the drilling,
Sidetracking, or Deepening of a well shall be deemed to be an election
not to participate in any subsequent operations in the well before full
recovery by the Participating Parties of the Non-participating Party's
recoupment amount.
13.6 Operations in a Production Interval
A Participating Party in a Production Interval may propose Rework or
Sidetrack operations within that Production Interval, or to permanently
plug and abandon that Production Interval in a well; however, no
Production Interval in a well shall be abandoned without the unanimous
approval of the Participating Parties in the Production Interval. If a
proposal, estimated to exceed the amount specified in Article 8.2
(Authorization), is made to Rework or Sidetrack a Production Interval and
the Participating Parties elect to participate in the proposed operation,
Operator shall conduct the operation at their sole cost and risk. If
fewer than all but one (1) or more Parties having a combined
Participating Interest of forty-five percent (45%) or more elect to
participate in the proposed operation, Operator shall conduct the
Reworking or Sidetracking operation at the cost and risk of the
Participating Parties owning an interest in the Production Interval. A
proposal to Rework an interval, other than a Production Interval, shall
be made and approved in accordance with Article 11.5 (Operations by Fewer
Than All Parties).
13.7 Operations Utilizing a Non-consent Platform and/or Development Facilities
Except as otherwise provided in Article 12.4 (Rights to Take in Kind) and
this Article 13.7, if applicable, a Party that did not originally
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participate in a Platform and/or Development Facilities shall be a
Non-participating Party for all operations utilizing the Platform and/or
Development Facilities and shall be subject to Article 13.2
(Relinquishment of Interest). Notice, in accordance with Article 9
(Notices), shall be given to the Non-participating Party for all xxxxx
proposed to be drilled from or tied-back to the Non-consent Platform
and/or handled by non-consent Development Facilities. If a
Non-participating Party in a Non-consent Platform and/or Development
Facilities desires to participate in the drilling of any such well
proposed by the Participating Parties in the Platform and/or Development
Facilities, the Non-participating Party desiring to join in the proposed
well shall first pay the Participating Parties in the Platform and/or
Development Facilities its proportionate share of the cost of the
Platform and/or Development Facilities, including, but not limited to,
costs of material, fabrication, transportation, and installation plus any
remaining amounts to be recouped under Article 13.2.1(b). The
Non-participating Party shall remit payment to Operator and Operator
shall (a) reimburse the Participating Parties in the Platform and/or
Development Facilities in the same proportions they are sharing in the
Platforms and/or Development Facilities recoupment account, and (b)
credit the applicable payout account. Upon payment of that amount, the
original Non-participating Party shall become an owner and a
Participating Party in the Platform and/or Development Facilities in the
same manner as if recoupment had occurred under Article 13.2.1
(Production Reversion Recoupment), and may participate in all future
xxxxx drilled from or tied back to the Platform. As to well operations
conducted from the Platform and/or Development Facilities prior to
payment under this Article 13.7, the original Non-participating Party
shall remain a Non-participating Party in such Non consent Operations
until such time as the entire recoupment balance applicable to all such
Non consent Operations in the aggregate has occurred, as provided for in
Articles 13.2.1 (a) and 13.2.1 (d).
13.8 Discovery or Extension from Non-consent Drilling
If a Non-consent Well (a) discovers a new Producible Reservoir or (b)
extends an existing Producible Reservoir beyond its recognized
boundaries, as unanimously agreed by the Participating Parties in all
existing xxxxx currently producing from the existing Producible Reservoir
before commencement of drilling operations, the recoupment of costs for
the well shall be governed by Article 13.2 (Relinquishment of Interest)
and shall be recovered by the Participating Parties in one of the
following ways:
(a) if the Non-consent Well is not completed and produced, recoupment
shall be out of one half (1/2) of each Non-participating Party's
interest in Hydrocarbon production from all subsequently drilled
and completed xxxxx on the Contract Area that are completed in the
Producible Reservoir discovered, or in that portion extended, by
the Non-consent Well and in which the Non-participating Party has
a Participating Interest; or
(b) if the Non-consent Well is completed and produced, recoupment
shall be out of the Non participating Party's Share of all
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Hydrocarbon production from the Non-consent Well and one-half
(1/2) of the Non-participating Party's interest in Hydrocarbon
production from all subsequently drilled and completed xxxxx on
the Contract Area that are completed in the Producible Reservoir
discovered, or in that portion extended, by the Non-consent Well
and in which the Non-participating Party has a Participating
Interest.
13.9 Allocation of Platform/Development Facilities Costs to Non-consent
Operations
In the event a well is drilled from or produced through a Platform or is
produced through Development Facilities which are owned by the
Participating Parties in different proportions than the ownership of the
Non-consent well, the rights of the Participating Parties in such well
and the costs to utilize such Platform or Development Facilities for such
well shall be determined as follows:
13.9.1 Investment Usage Fees
The Participating Parties in such well shall pay to the Operator,
for credit to the owners of the Platform and/or Development
Facilities, a one-time usage fee for the right to use the Platform
and/or Development Facilities. Such usage fees shall be determined
in accordance with paragraphs (a) and (b) below:
(a) A fee for slot usage will be determined as follows:
(i) In the event the well uses a platform with well
slots and such platform has no Development
Facilities installed on it, the slot usage fee shall
be an amount equal to the ratio which one Platform
slot bears to the total number of slots on the
Platform times the total cost of the Platform.
(ii) In the event the well uses a Platform with well
slots and such Platform has Development Facilities
installed on it, the slot usage fee shall be an
amount equal to the ratio which one Platform slot
bears to the total number of slots on the Platform
times the total cost of the Platform attributable to
well slot area, determined as follows:
Slot Usage Fee = (one platform slot divided by total
platform slots) x [(Total Cost of Platform - Any Cost of
Development Facilities Included In the Total Cost of
Platform) x Well Slot Area %]
Well Slot Area % = Deck Space Dedicated to Well Slots
divided by (Deck Space Dedicated to Well Slots + Deck
Space Dedicated to Development Facilities)
The cost of Development Facilities [as used in Article
13.9.1 (a) and (b)] shall include the cost of design,
material, fabrication, transportation, installation and
modifications of such Development Facilities.
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For purposes of calculating the slot usage fee [under
Article 13.9.1 (a) (i) or (ii)], the total cost of the
Platform shall be reduced by 0.83333% per month, commencing
on the first day of the month following the date the
Platform was installed and continuing every month
thereafter until the month actual drilling operations on
such well is commenced; however, the total cost of the
Platform shall not be reduced by more than forty percent
(40%) of the total Platform costs. The cost of additions to
the Platform shall be reduced in the same manner commencing
the first day of the month after the addition is installed
If such well is abandoned, having never produced, the right
of the Participating Parties in such well to utilize the
Platform slot through which such well was drilled shall
terminate unless such Parties commence drilling a
substitute well for the abandoned well through the same
slot within ninety (90) days of the abandonment. If such
substitute well is abandoned, having never produced, the
right of the Participating Parties in such well to utilize
the Platform slot through which such well was drilled shall
terminate.
No refund or credit of the slot usage fee shall be given or
due if a subsequent well operation is conducted through the
same slot or if that Platform slot is restored to a usable
condition.
If subsequent Non-consent Operations (such as Workover,
Recompletion, Deepening, or Sidetracking operations) are
conducted in any wellbore where either all Parties to this
agreement participated in the original well drilling costs
or a previous Non-consent Operation was conducted, no slot
usage fee shall be charged to the Participating Parties in
the subsequent Non-consent Operation.
(b) The Participating Parties in such well shall pay to the
owners of the Development Facilities a sum equal to that
portion of the total cost of such Development Facilities
which the throughput volume of the Non-consent Operation
bears to the total design throughput volume of the
Development Facilities at the time such well is connected.
Throughput volume shall be estimated by the Operator using
an average daily volume of the first three months of
production from the Non consent Operation.
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The Total Cost of Development Facilities shall include the cost of
design, material, fabrication, transportation, installation and
modifications of Development Facilities plus that portion of the
cost of the Platform attributable to Development Facilities Area.
The Development Facilities Usage Fee shall be based on the
following:
Development Facilities Usage Fee =Total Cost of Development
Facilities x Throughput Volume of Non-consent Well divided by
Total Design Throughput of Facilities
Total Cost of Development Facilities = Cost of Development
Facilities + [(Total Cost of Platform - Any Cost of Development
Facilities Included In the Total Cost of Platform) x Development
Facilities Area %]
Development Facilities Area % = Deck Space Dedicated to
Development Facilities divided by (Deck Space Dedicated to Well
Slots + Deck Space Dedicated to Development Facilities)
For purposes of calculating the Development Facilities usage fee,
the total cost of the Development Facilities, shall be reduced by
0.83333% per month, commencing from the first day of the month
following the date when the Development Facilities where installed
and continuing every month thereafter until the first day of the
month during which production from the Non-consent Operation is
commenced; however, the total cost of the Development Facilities
shall not be reduced more than forty percent (40%). If
modifications, expansions or additions to the Development
Facilities are made after commencing first production and prior to
the connection of the Non-consent Operation to the Development
Facilities, such Development Facilities investment shall be
reduced in the same manner as described above, from the first day
of the month the Development Facilities modification, expansion or
addition is completed until the first day of the month during
which production from the Non-consent Operation is commenced.
If modifications, expansions or additions are made to the
Development Facilities after connection of the Non-consent Well
which benefit the Non-consent Well, such costs shall be shared by
the Non-consent Well based on that portion which the throughput
volume of the Non-consent Well bears to the total design
throughput volume of the Development Facilities at the time of
completion of such modification, expansion or addition. The
Non-consent well's throughput volumes shall be determined in the
same manner as described above.
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Payment of sums under this Article 13.9.1 is not a purchase of an
additional interest in the Platform or the Development Facilities.
Such payment shall be included in the total amount that the
Participating Parties are entitled to recoup out of Hydrocarbon
production from the Non-consent Well.
13.9.2 Operating and Maintenance Charges
The Participating Parties shall pay all costs necessary to connect
a Non-consent Well to the Platform and/or Development Facilities
and that proportionate part of the costs of operating and
maintaining the Platform and/or Development Facilities applicable
to the Non-consent Well. Platform operating and maintenance costs
that are costs not directly attributable to a wellbore shall be
allocated equally to all actively producing Completions. Operating
and maintenance costs for the Development Facilities shall be
allocated on a volume throughput basis, that is, in the proportion
that the volume throughput of the well bears to the total volume
throughput of all xxxxx connected to the Development Facilities.
Operating and maintenance expense for support facilities (e.g.,
electrical systems and living quarters which do not handle
production) shall be allocated by applying a usage basis
appropriate for that support facility.
13.10 Allocation of Costs Between Zones
Except as provided in Article 10.9 (Xxxxx Proposed Below Deepest
Producible Reservoir), if for any reason the Participating Interests of
the Parties in a well are not the same for the entire depth or the
Completion thereof, the costs of drilling, Completing, and equipping the
well shall be allocated in an equitable manner, as agreed by the Parties,
based on the value and allocation recommended in the applicable XXXXX
Guideline, as amended from time to time.
13.11 Contract Area Maintenance Operations
For the purposes of this Article 13.12, the Contract Area will be deemed
to be governed by the same terms and conditions as bear upon lease
maintenance obligations under the Lease. An operation proposed within the
last six (6) months of the primary term or, subsequent thereto, an
operation proposed to perpetuate the Contract Area or portion thereof at
its expiration date or otherwise, including, but not limited to, well
operations, regulatory relief (for example, course of action necessary to
satisfy the statutory or regulatory requirements of the governmental
authority having jurisdiction), and other Contract Area operations, shall
be deemed to be a "Contract Area Maintenance Operation." To invoke this
Article 13.11, a notice or AFE that proposes an operation must state that
the proposed operation is a Contract Area Maintenance Operation.
13.11.1 Participation in Contract Area Maintenance Operations
A Party may propose a Contract Area Maintenance Operation by
giving notice to the other Parties. If fewer than all Parties
elect to participate in the proposed Contract Area Maintenance
Operation, the proposing Party shall notify the Parties of the
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elections made. Each Party electing not to participate shall then
have a second opportunity to participate in the proposed
operation by notifying the other Parties of its election within
forty-eight (48) hours after receipt of the notice. A Contract
Area Maintenance Operation shall not require minimum approval,
either of the number of Parties or the percentage of the voting
interests of the Parties otherwise required in Article 6.1.2
(Vote Required). For a Contract Area Maintenance Operation to be
conducted, the Participating Parties must agree to pay and bear
one hundred percent (100%) of the costs and risks of the
operation. If more than one Contract Area Maintenance Operation
is proposed, the operation with the greatest percentage approval
shall be conducted. Notwithstanding the recoupment provisions of
this Agreement, a Party electing not to participate in a well
operation proposed as a Contract Area Maintenance Operation shall
promptly assign, effective as of the date the operation
commences, to the Participating Parties all of its right, title,
and interest in and to that portion of the Contract Area, being
the affected Contract Area, that would otherwise expire and the
property and equipment attributable thereto, in accordance with
Article 26 (Successors, Assigns, [and Preferential Rights]). If
more than one Contract Area Maintenance Operation is proposed and
there is a tie between two proposed operations, both operations
shall be conducted and the costs and risks of conducting both
operations shall be paid and borne by the Participating Parties.
If the drilling of a well is undertaken as a Contract Area
Maintenance Operation, further operations conducted by the
Participating Parties in the well shall be governed by Article
10.9 (Course of Action After Reaching Objective Depth) or Article
11.9 (Course of Action After Reaching Objective Depth), whichever
applies. If more than one well operation is conducted, any of
which would perpetuate the Contract Area or such portion thereof,
an assignment shall not be required from a Party participating in
any such well operation.
13.11.2 Accounting for Non-participation
If after one (1) year from completion of a well operation
conducted as a Contract Area Maintenance Operation, the Contract
Area or portion thereof is being perpetuated by a Contract Area
Maintenance Operation, as provided in Article 13.11.1
(Participation in Contract Area Maintenance Operations), Operator
shall render a final statement, if applicable, to the assigning
Party for its share of all expenses attributed to the assigned
interest before the effective date of the assignment, plus any
credit or deficiency in salvage value calculated under Article
15.3.1 (Prior Expenses). The assigning Party shall settle any
deficiency owed the non-assigning Parties within thirty (30) days
after receipt of Operator's statement.
13.12 Retention of Contract Area by Non-consent Well
For the purposes of this Article 13.12, the Contract Area will be deemed
to be governed by the same terms and conditions as bear upon lease
maintenance obligations under the Lease. If, at
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the expiration of the primary term of the Contract Area, one or more
Non-consent Xxxxx are the only xxxxx perpetuating the Contract Area,
Operator shall give written notice to each Nonparticipating Party that
the Non-consent Xxxxx are serving to perpetuate the Contract Area. Each
Non-participating Party shall, within thirty (30) days after receipt of
Operator's written notice, elect one of the following:
(a) to assign its entire interest in the Contract Area to the
Participating Parties in the proportions in which the Non-consent
Xxxxx are owned; or
(b) to pay the Participating Parties, within sixty (60) days after its
election, the lesser of its proportionate share of the actual well
costs of the xxxxx, as if the Non-participating Party had
originally participated, or the balance of the recoupment account.
The payment shall be made to Operator and credited to the account
of each Participating Party. The Nonparticipating Party shall
remain as a Non-participating Party until full recoupment is
obtained, but the payment shall be credited against the total
amount to be recouped by the Participating Parties.
A Non-participating Party that fails to make the required election shall
be deemed to have elected under Article 13.12(a) to relinquish its entire
interest in the Contract Area. If a Non-participating Party elects to
make payment under Article 13.12(b) but fails to make the required
payment within sixty (60) days after its election, the Non-participating
Party shall either remain liable on the obligation to pay or, by
unanimous vote of the Participating Parties, be deemed to have elected
under Article 13.12(a) to relinquish its entire interest in the Contract
Area. Each relinquishing Non-participating Party shall promptly execute
and deliver an assignment of its interest to the Participating Parties,
in accordance with Article 26 (Successors, Assigns, [and Preferential
Rights]).
13.13 Non-Consent Premiums
A non-consent premium paid by a Non-Participating Party to the
Participating Parties shall be allocated to the Participating Parties
based on their original Participating Interest share in the Non-consent
Operation which generated the non-consent premium.
13.14 Non-Applicability to Exploratory Operations
Notwithstanding anything contained in this Agreement to the contrary,
Chevron and Ridgewood agree that this Article 13 (Non-Consent Operations)
shall not apply nor or be construed to apply to any Exploratory
Operation.
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ARTICLE 14
ABANDONMENT, SALVAGE, AND SURPLUS
14.1 Platform Salvage and Removal Costs
When the Parties owning xxxxx, Platforms and/or Development Facilities
unanimously agree to dispose of the xxxxx, Platforms and/or Development
Facilities, it shall be disposed of by Operator in the time and manner
approved by the Parties. The costs, risks, and net proceeds, if any, for
the disposal shall be shared by the Parties in proportion to their
Participating Interests therein.
14.2 Abandonment of Platforms, Development Facilities or Xxxxx
Except as provided in Article 10 (Exploratory Operations) and Article 11
(Development Operations), a Participating Party may propose the
abandonment of a Platform and Development Facilities or xxxxx, by
notifying the other Participating Parties. No Platform and Development
Facilities or wellbore shall be abandoned without the unanimous approval
of the Participating Parties. If the Participating Parties do not approve
abandoning the Platform and Development Facilities or xxxxx, the Operator
shall prepare a statement of the abandoning Party's share of estimated
wellbore plugging and abandonment costs, Platform and Development
Facilities removal costs and/or any related reclamation costs, less its
share of estimated salvage value, as determined by the Operator pursuant
to Exhibit "C". The Party desiring to abandon it shall pay the Operator,
on behalf of the Participating Parties for that Party's share of the
estimated abandonment costs, less its share of estimated salvage value,
within thirty (30) days after receipt of the Operator's statement. If an
abandoning Party's respective share of the estimated salvage value is
greater than its share of the estimated costs, Operator, on behalf of the
Participating Parties, shall pay a sum equal to the deficiency to the
abandoning Party within thirty (30) days after the abandoning Party's
receipt of the Operators statement.
14.3 Assignment of Interest.
Each Participating Party desiring to abandon a Platform and Development
Facilities or xxxxx under Article 14.2 (Abandonment of Platforms,
Development Facilities or Xxxxx) shall assign, effective as of the last
applicable election date, to the non-abandoning Parties, in proportion to
their Participating Interests, its interest in the Platform and
Development Facilities or xxxxx and the equipment therein and its
ownership in the Hydrocarbon production from the xxxxx. A Party so
assigning shall be relieved from further liability for the Platform and
Development Facilities or xxxxx, except liability for payments under
Article 14.2 (Abandonment of Platforms, Development Facilities or Xxxxx).
14.4 Abandonment Operations Required by Governmental Authority
A well abandonment or Platform and Development Facilities removal
required by a governmental authority having jurisdiction shall be
accomplished by Operator with the costs, risks, and net proceeds, if any,
to be shared by the Parties owning the well or Platform and Development
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Facilities in proportion to their Participating Interests therein. No
approval by the Parties will be necessary for Operator to proceed with
the government required well abandonment, or Platform and Development
Facilities removal. The Operator shall provide the Parties with an
informational AFE prior to commencing such an abandonment or removal.
14.5 Disposal of Surplus Material
Material and equipment acquired hereunder may be classified as surplus by
Operator when deemed no longer needed in present or foreseeable
operations. Operator shall determine the value and cost of disposing of
the materials in accordance with Exhibit "C". If the material is
classified as junk or if the value, less cost of disposal, is less than
or equal to One Hundred Thousand Dollars ($100,000), Operator shall
dispose of the surplus materials in any manner it deems appropriate. If
the value, less the cost of disposal of the surplus material, is greater
than One Hundred Thousand Dollars ($100,000), Operator shall give written
notice thereof to. the Parties owning the material. Unless purchased by
Operator, the surplus material shall be disposed of in accordance with
the method of disposal approved by the Parties owning the material.
Proceeds from the sale or transfer of surplus material shall be promptly
credited to each Party in proportion to its ownership of the material at
the time of retirement or disposition.
ARTICLE 15
WITHDRAWAL
15.1 Right to Withdraw
Subject to this Article 15.1, any Party may withdraw from this Agreement
as to one or more Contract Areas (the "Withdrawing Party") by giving
prior written notice to all other Parties stating its decision to
withdraw ("the withdrawal notice"). The withdrawal notice shall specify
an effective date of withdrawal that is at least sixty (60) days, but not
more than one hundred twenty (120) days, after the date of the withdrawal
notice. Within thirty (30) days of receipt of the withdrawal notice, the
other Parties may join in the withdrawal by giving written notice of that
fact to the Operator ("written notice to join in the withdrawal") and
upon giving written notice to join in the withdrawal are "Other
Withdrawing Parties". The withdrawal notice and the written notice to
join in the withdrawal are unconditional and irrevocable offers by the
Withdrawing Party and the Other Withdrawing Parties to convey to the
Parties who do not join in the withdrawal ("the Remaining Parties") the
Withdrawing Party's and the Other Withdrawing Parties' entire Working
Interest in all of the Contract Area or Contract Areas, Hydrocarbon
production, and other property and equipment owned under this Agreement.
15.2 Response to Withdrawal Notice
Failure to respond to a withdrawal notice is deemed a decision not to
join in the withdrawal.
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15.2.1 Unanimous Withdrawal
If all the other Parties join in the withdrawal,
(a) no assignment of Working Interests shall take place;
(b) subject to Article 14.4, no further operations may be
conducted under this Agreement unless agreed to by all
Parties;
(c) the Parties shall abandon all activities and operations
within the Contract Area and relinquish all of their
Working Interests to the MMS within fifteen (15) days of
the conclusion of the thirty (30) day joining period; and
(d) notwithstanding anything to the contrary in Article 14
(Abandonment, Salvage and Surplus), the Operator shall:
1) furnish all Parties a detailed abandonment plan, if
applicable, and a detailed cost estimate for the
abandonment within thirty (30) days after the
conclusion of the thirty (30) day joining period;
and
2) cease operations and begin to permanently plug and
abandon all xxxxx and remove all Facilities in
accordance with the abandonment plan.
15.2.2 No Additional Withdrawing Parties
If none of the other Parties join in the withdrawal, then the
Remaining Parties must accept an assignment of their Participating
Interest share of the Withdrawing Party's Working Interest.
15.2.3 Acceptance of the Withdrawing Parties' Interests.
If one or more but not all of the other Parties join in the
withdrawal and become Other Withdrawing Parties, then within
forty-eight (48) hours (exclusive of Saturdays, Sundays, and
federal holidays) of the conclusion of the thirty (30) day joining
period, each of the Remaining Parties shall submit to the Operator
a written rejection or acceptance of its Participating Interest
share of the Withdrawing Party's and Other Withdrawing Parties'
Working Interest. Failure to make that written rejection or
acceptance shall be deemed a written acceptance. If the Remaining
Parties are unable to select a successor Operator, if applicable,
or if a Remaining Party submits a written rejection and the other
Remaining Parties do not agree to accept one hundred percent
(100%) of the Withdrawing Party's and Other Withdrawing Parties'
Working Interest within ten (10) days of the conclusion of the
forty-eight (48) hour period to submit a written rejection or
acceptance, the Remaining Parties will be deemed to have joined in
the withdrawal, and Article 15.2.1 (Unanimous Withdrawal) will
apply.
15.2.4 Effects of Withdrawal
Except as otherwise provided in this Agreement, after giving a
withdrawal notice or a written notice to join in the withdrawal,
the Withdrawing Party and Other Withdrawing Parties are not
entitled to approve or participate in any activity or operation in
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the Contract Area, other than those activities or operations for
which they retain a financial responsibility. The Withdrawing
Party and Other Withdrawing Parties shall take all necessary steps
to accomplish their withdrawal by the effective date referred to
in Article 15.1 (Right to Withdraw) and shall execute and deliver
to the Remaining Parties all necessary instruments to assign their
Working Interest to the Remaining Parties. A Withdrawing Party and
Other Withdrawing Parties shall bear all expenses associated with
their withdrawal and the transfer of their Working Interest.
15.3 Limitation Upon and Conditions of Withdrawal
15.3.1 Prior Expenses
The Withdrawing Party and Other Withdrawing Parties remain liable
for their Participating Interest share of the costs of all
activities, operations, rentals, royalties, taxes, damages,
Hydrocarbon imbalances, or other liability or expense accruing or
relating to (i) obligations existing as of the effective date of
the withdrawal, (ii) operations conducted before the effective
date of the withdrawal, (iii) operations approved by the
Withdrawing Party and Other Withdrawing Parties before the
effective date of the withdrawal, or (iv) operations commenced by
the Operator under one of its discretionary powers under this
Agreement before the effective date of the withdrawal. Before the
effective date of the withdrawal, the Operator shall provide a
statement to the Withdrawing Party and Other Withdrawing Parties
for (1) their respective shares of all identifiable costs under
this Article 15.3.1 and (2) their respective Participating
Interest shares of the estimated current costs of plugging and
abandoning all xxxxx and removing all Platforms, Development
Facilities, and other materiel and equipment owned by the Joint
Account, less their respective Participating Interest Shares of
the estimated salvage value of the assets at the time of
abandonment, as approved by vote. This statement of expenses,
costs, and salvage value shall be prepared by the Operator under
Exhibit "C". Before withdrawing, the Withdrawing Party and Other
Withdrawing Parties shall either pay the Operator, for the benefit
of the Remaining Parties, the amounts allocated to them as shown
in the statement, or provide security satisfactory to the
Remaining Parties for all obligations and liabilities they have
incurred and all obligations and liabilities attributable to them
before the effective date of the withdrawal. All liens, charges,
and other encumbrances, including but not limited to overriding
royalties, net profits interest and production payments, which the
Withdrawing Party and Other Withdrawing Parties placed (or caused
to be placed) on their Working Interest shall be fully satisfied
or released prior to the effective date of its withdrawal (unless
the Remaining Parties are willing to accept the Working Interest
subject to those liens, charges, and other encumbrances).
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15.3.2 Confidentiality
The Withdrawing Party and Other Withdrawing Parties will continue
to be bound by the confidentiality provisions of Article 7.3
(Confidentiality) after the effective date of the withdrawal but
will have no further access to technical information relating to
activities or operations under this Agreement. The Withdrawing
Party and Other Withdrawing Parties are not required to return to
the Remaining Parties Confidential Data acquired prior to the
effective date of the withdrawal.
15.3.3 Emergencies and Force Majeure
No Party may withdraw during a Force Majeure or emergency that
poses a threat to life, safety, property or the environment but
may withdraw from this Agreement after termination of the Force
Majeure or emergency. The Withdrawing Party and Other Withdrawing
Parties remain liable for their share of all costs and liabilities
arising from the Force Majeure or emergency, including but not
limited to the drilling of relief xxxxx, containment and cleanup
of oil spills and pollution, and all costs of debris removal made
necessary by the Force Majeure or emergency.
ARTICLE 16
RENTALS, ROYALTIES AND OTHER PAYMENTS
16.1 Overriding Royalty and Other Burdens
If the Working interest or Participating Interest of a Party is subject
to an overriding royalty, Hydrocarbon production payment, net profits
interest, mortgage, lien, security interest, or other burden or
encumbrance, other than lessor's royalty and other burdens listed in
Exhibit "A", the Party so burdened shall pay and bear all liabilities and
obligations created or secured by the burden or encumbrance and shall
indemnify and hold the other Parties harmless from all claims and demands
for payment asserted by the owners of the burdens or encumbrances. If a
Party becomes entitled to an assignment under this Agreement, or as a
result of Non-consent Operations hereunder becomes entitled to receive a
relinquished interest, as provided in Article 13.2 (Relinquishment of
Interest), otherwise belonging to a Non-participating Party whose Working
Interest in the operations is so burdened or encumbered, the Party
entitled to receive the assignment from the Non-participating Party or
the relinquished interest of the Non-participating Party's Hydrocarbon
production shall receive same free and clear of all such burdens and
encumbrances, and the Non-participating Party whose interest is subject
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to the burdens and encumbrances shall hold the Participating Parties
harmless for the burdens and encumbrances, and will bear same at its own
expense.
16.2 Subsequently Created Interest
Notwithstanding anything in this Agreement to the contrary, if a Party,
after execution of this Agreement, creates an overriding royalty,
Hydrocarbon production payment, net profits interest, carried interest,
or any other interest out of its Working Interest which the Parties do
not unanimously agree to list on Exhibit "A", (hereinafter called
"Subsequently Created Interest"), the Subsequently Created Interest shall
be made specifically subject to this Agreement. If the Party owning the
interest from which the Subsequently Created Interest was established
fails to pay, when due, its share of costs, and if the proceeds from the
sale of Hydrocarbon production under Article 8.6 (Security Rights) are
insufficient for that purpose, or elects to abandon a well, or elects to
relinquish its interest in the Contract Area, the Subsequently Created
Interest shall be chargeable with a pro rata portion of all costs in the
same manner as if the Subsequently Created Interest were a Working
Interest, and Operator may enforce against the Subsequently Created
Interest the lien and other rights granted or recognized under this
Agreement to secure and enforce collection of costs chargeable to the
Subsequently Created Interest. The rights of the owner of the
Subsequently Created Interest shall be, and hereby are, subordinated to
the rights granted or recognized by Article 8.6 (Security Rights).
16.3 Payment of Rentals and Minimum Royalties
Operator shall pay in a timely manner, for the joint account of the
Parties, all rentals, minimum royalties, and other similar payments
accruing under the Contract Area and shall, on request, submit evidence
of each such payment to the Parties. Operator shall not be held liable to
the other Parties in damages for loss of the Contract Area or interest
therein if, through mistake or oversight, a rental, minimum royalty, or
other payment is not paid or is erroneously paid. The loss of a Contract
Area or interest therein resulting from the Operator's failure to pay, or
erroneous payment of rental or minimum royalty shall be a joint loss, and
there shall be no readjustment of interests. For Hydrocarbon production
delivered in kind by Operator to a Non-operator or to another for the
account of a Non-operator, the Non-operator shall provide Operator with
information about the Non-operator's proceeds received or the value of
the Hydrocarbon production taken in kind in order that Operator may make
payments of minimum royalties due.
16.4 Non-participation in Payments
A Party that desires not to pay its share of a rental, minimum royalty,
or similar payment shall notify the other Parties in writing at least
sixty (60) days before the payment is due. Operator shall then make the
payment for the benefit of the Parties that do desire to maintain the
Contract Area. In such event, the Non-participating Party shall assign to
the Participating Parties, upon their request, the portions of its
interest in the Contract Area maintained by the payment. The assigned
interest shall be owned by each Participating Party in proportion to its
Participating Interest. The assignment shall be made in accordance with
Article 27 (Successors, Assigns, [and Preferential Rights]).
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16.5 Royalty Payments
Each Party shall be responsible for and shall separately bear and
properly pay or cause to be paid all royalty and other amounts due on its
share of Hydrocarbon production taken in accordance with state or federal
regulations, as may be amended from time-to-time. Adjustments shall be
made among the Parties in accordance with Exhibit "E" (Gas Balancing
Agreement). During a period when Participating Parties in a Non-consent
Operation are receiving a Nonparticipating Party's share of Hydrocarbon
production, the Participating Parties shall bear and properly pay, or
cause to be paid, the Contract Area royalty on the Hydrocarbon production
taken, and shall hold the Non-participating Parties harmless from
liability for the payment.
ARTICLE 17
TAXES
17.1 Property Taxes
Operator shall render property covered by this Agreement for ad valorem
taxation, if applicable, and shall pay the property taxes for the benefit
of each Party. Operator shall charge each Party its share of the tax
payments. If the ad valorem taxes are based in whole or in part upon
separate valuations of each Party's Working Interest, then
notwithstanding anything in this Agreement to the contrary, each Party's
share of property taxes shall be in proportion to the tax value generated
by that Party's Working Interest.
17.2 Contest of Property Tax Valuation
Operator shall timely and diligently protest to a final determination
each tax valuation it deems unreasonable. Pending such determination,
Operator may elect to pay under protest. Upon final determination,
Operator shall pay the taxes and the interest, penalties, and costs
accrued as a result of the protest. In either event, Operator shall
charge each Party its share of any amounts due, and each Party shall be
responsible for reimbursing Operator for any such amounts paid.
17.3 Production and Severance Taxes
Each Party shall pay, or cause to be paid, all production and severance
taxes due on Hydrocarbon production that it receives under this
Agreement.
17.4 Other Taxes and Assessments
Operator shall pay other applicable taxes (other than income taxes,
excise taxes, or other similar types of taxes) or assessments and charge
each Party its share.
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ARTICLE 18 INSURANCE
18.1 Insurance
Operator shall provide and maintain the insurance prescribed in Exhibit
"B" and charge those costs to the Joint Account. No other insurance shall
be carried for the benefit of the Parties or separately by the Parties
under this Agreement, except as provided in Exhibit "B".
18.2 Bonds
Operator shall obtain and maintain all bonds or financial guarantees
required by an applicable law, regulation or rule. The costs of those
bonds or financial guarantees acquired exclusively for the conduct of
activities and operations under this Agreement shall be charged to the
Joint Account, including an amount equivalent to the reasonable cost of
that bond or financial guarantee if Operator provides that bond or
guarantee itself and does not engage a third party to do so. Operator
shall require all contractors to obtain and maintain all bonds required
by an applicable law, regulation or rule.
ARTICLE 19
LIABILITY, CLAIMS, AND LAWSUITS
19.1 Individual Obligations
The obligations, duties, and liabilities of the Parties under this
Agreement are several, not joint or collective. Nothing in this Agreement
shall ever be construed as creating a partnership of any kind, joint
venture, agency relationship, association, or other character of business
entity recognizable in law for any purpose. In their relations with each
other under this Agreement, the Parties shall not be considered to be
fiduciaries or to have established a confidential relationship, except as
specifically provided in Article 7.3 (Confidentiality) and Article 7.4
(Limited Disclosure), but rather shall be free to act at arm's length in
accordance with their own respective self-interests. Each Party shall
hold all other Parties harmless from liens and encumbrances on the
Contract Area arising as a result of its acts.
19.2 Notice of Claim or Lawsuit
If, on account of a matter involving activities or operations under this
Agreement, or affecting the Contract Area, a claim is made against a
Party, or if a party outside of this Agreement files a lawsuit against a
Party, or if a Party files a lawsuit, or if a Party receives notice of a
material administrative or judicial hearing or other proceeding, that
Party shall give written notice of the claim, lawsuit, hearing, or
proceeding ("Claim") to the other Parties as soon as reasonably
practicable.
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19.3 Settlements
The Operator may settle a Claim, or multiple Claims arising out of the
same incident, involving activities or operations under this Agreement or
affecting the Contract Area, if the aggregate expenditure does not exceed
Two Hundred Fifty Thousand Dollars ($250,000) and if the payment is in
complete settlement of these Claims. If the amount required for
settlement exceeds this amount, the Parties shall determine the further
handling of the Claims under Article 19.4 (Defense of Claims and
Lawsuits).
19.4 Defense of Claims and Lawsuits
The Operator shall supervise the handling, conduct, and prosecution of
all Claims involving activities or operations under this Agreement or
affecting the Contract Area. Claims may be settled in excess of the
amount specified in Article 19.3 (Settlements) if the settlement is
approved by vote of the Participating Parties (in accordance with Article
6.1.2) in the activity or operation out of which the Claim arose, but a
Party may independently settle a Claim or the portion of a Claim which is
attributable to its Participating Interest share alone as long as that
settlement does not directly adversely affect the interest or rights of
the other Participating Parties. Charges for services performed by the
legal staff of a Party shall be made in accordance with Exhibit "C", but
all other expenses incurred by the Operator in the prosecution or defense
of Claims for the Parties, together with the amount paid to discharge a
final judgment, are costs and shall be paid by the Parties in proportion
to their Participating Interest share in the activity or operation out of
which the Claim arose. The employment of outside counsel, but not the
selection of that counsel, requires unanimous approval by the Parties
involved in the activity or operation out of which the Claim arose. If
the use of outside counsel is approved, the fees and expenses incurred as
a result thereof shall be charged to the Parties in proportion to their
Participating Interest share in the activity or operation out of which
that Claim arose. Each Party has the right to hire its own outside
counsel at its sole cost with respect to its own defense in which case
the Party would not be obligated to participate in the cost of retaining
outside counsel selected by Operator.
19.5 Liability for Damages
UNLESS SPECIFICALLY PROVIDED OTHERWISE IN THIS AGREEMENT, LIABILITY FOR
LOSSES, DAMAGES, COSTS, EXPENSES OR CLAIMS INVOLVING ACTIVITIES OR
OPERATIONS UNDER THIS AGREEMENT OR AFFECTING THE CONTRACT AREA WHICH ARE
NOT COVERED BY OR IN EXCESS OF THE INSURANCE CARRIED FOR THE JOINT
ACCOUNT SHALL BE BORNE BY EACH PARTY IN PROPORTION TO ITS PARTICIPATING
INTEREST SHARE IN THE ACTIVITY OR OPERATION OUT OF WHICH THAT LIABILITY
ARISES, EXCEPT TO THE EXTENT LIABILITY RESULTS FROM THE GROSS NEGLIGENCE
OR WILLFUL MISCONDUCT OF A PARTY, IN WHICH CASE THAT PARTY SHALL BE
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SOLELY RESPONSIBLE FOR LIABILITY RESULTING FROM ITS GROSS NEGLIGENCE OR
WILLFUL MISCONDUCT.
19.6 Indemnification for Non-Consent Operations
TO THE EXTENT ALLOWED BY LAW, THE PARTICIPATING PARTIES WILL HOLD THE
NON-PARTICIPATING PARTIES (AND THEIR AFFILIATES, AGENTS, INSURERS,
DIRECTORS, OFFICERS, AND EMPLOYEES) HARMLESS AND RELEASE, DEFEND, AND
INDEMNITY THEM AGAINST ALL CLAIMS, DEMANDS, LIABILITIES, REGULATORY
DECREES, AND LIENS FOR ENVIRONMENTAL POLLUTION AND PROPERTY DAMAGE OR
PERSONAL INJURY, INCLUDING SICKNESS AND DEATH, CAUSED BY OR OTHERWISE
ARISING OUT OF NON-CONSENT OPERATIONS, AND ANY LOSS AND COST SUFFERED BY
A NON-PARTICIPATING PARTY AS AN INCIDENT THEREOF, EXCEPT WHERE THAT LOSS
OR COST RESULTS FROM THE SOLE, CONCURRENT, OR JOINT NEGLIGENCE, FAULT OR
STRICT LIABILITY OF THAT NON-PARTICIPATING PARTY, IN WHICH CASE EACH
PARTY SHALL PAY OR CONTRIBUTE TO THE SETTLEMENT OR SATISFACTION OF
JUDGMENT IN THE PROPORTION THAT ITS NEGLIGENCE, FAULT OR STRICT LIABILITY
CAUSED OR CONTRIBUTED TO THE INCIDENT. IF AN INDEMNITY IN THIS AGREEMENT
IS DETERMINED TO VIOLATE LAW OR PUBLIC POLICY, THAT INDEMNITY SHALL THEN
BE ENFORCEABLE ONLY TO THE MAXIMUM EXTENT ALLOWED BY LAW.
19.7 Damage to Reservoir, Loss of Reserves and Profit
NOTWITHSTANDING ANY CONTRARY PROVISION OF THIS AGREEMENT, OTHER THAN
ARTICLES 10.8.6 AND 11.8.6, IF SELECTED, NO PARTY IS LIABLE TO ANY OTHER
PARTY FOR DAMAGE TO A RESERVOIR, LOSS OF HYDROCARBONS, LOSS OF PROFITS,
OR OTHER CONSEQUENTIAL DAMAGES, DAMAGES FOR BUSINESS INTERRUPTION, OR
PUNITIVE DAMAGES, EXCEPT TO THE EXTENT THAT THE DAMAGE OR LOSS ARISES
FROM A PARTY'S GROSS NEGLIGENCE OR WILLFUL MISCONDUCT, IN WHICH CASE THAT
PARTY SHALL BE SOLELY RESPONSIBLE FOR DAMAGE OR LOSS ARISING FROM ITS
GROSS NEGLIGENCE OR WILLFUL MISCONDUCT; NOR DOES A PARTY INDEMNIFY ANY
OTHER PARTY FOR THAT DAMAGE OR LOSS.
19.8 Non-Essential Personnel
A NON-OPERATOR THAT REQUESTS TRANSPORTATION OR ACCESS TO A DRILLING RIG,
PLATFORM, VESSEL, OR OTHER FACILITY USED FOR ACTIVITIES OR OPERATIONS
UNDER THIS AGREEMENT SHALL HOLD THE OTHER PARTIES HARMLESS AND SHALL
RELEASE, DEFEND, AND INDEMNIFY THEM AGAINST (I) ALL CLAIMS, DEMANDS, AND
LIABILITIES FOR PROPERTY DAMAGE AND (II) ALL CLAIMS, DEMANDS, AND
LIABILITIES FOR ANY LOSS OR COST SUFFERED BY A PARTY AS AN INCIDENT
THEREOF, INCLUDING, BUT NOT LIMITED TO, INJURY, SICKNESS AND DEATH,
CAUSED BY OR OTHERWISE ARISING OUT OF THAT TRANSPORTATION OR ACCESS, OR
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BOTH, EXCEPT TO THE EXTENT THAT LOSS OR COST RESULTS FROM THE GROSS
NEGLIGENCE OR WILLFUL MISCONDUCT OF THE PARTY SO INDEMNIFIED AND
PROTECTED.
19.9 Dispute Resolution Procedure
Any claim, controversy or dispute arising out of, relating to, or in
connection with this Agreement or an activity or operation conducted
under this Agreement shall be resolved under the Dispute Resolution
Procedure in Exhibit "H" to this Agreement.
ARTICLE 20
INTERNAL REVENUE PROVISION
20.1 Internal Revenue Provision
Notwithstanding any provision in this Agreement to the effect that the
rights and liabilities of the Parties are several, not joint or
collective, and that this Agreement and the activities and operations
under this Agreement do not constitute a partnership under state law;
however, the Parties agree that the activities and operations under this
Agreement shall constitute a partnership for federal and, to the extent
allowable, state and local income tax law and shall be governed for such
purposes by the terms of Exhibit F hereto.
ARTICLE 21
CONTRIBUTIONS
21.1 Notice of Contributions Other Than Advances for Sale of Production
Each Party shall promptly notify the other Parties of all offers of
contributions that it may obtain, or contributions it is attempting to
obtain, for the drilling of a well or the conducting of an operation on
the Contract Area. Payments received as consideration for entering into a
contract for the sale of Hydrocarbon production from the Contract Area,
loans, and other financial arrangements shall not be considered
contributions for the purpose of this Article 21. No Party shall release
or obligate itself to release Confidential Data in return for a
contribution from a third party without prior written consent of the
Participating Parties or Parties having the right to participate in the
well.
21.2 Cash Contributions
If a Party receives a cash contribution for drilling a well on the
Contract Area or conducting an activity or operation on the Contract
Area, the cash contribution shall be paid to Operator, and Operator shall
credit the amount thereof to the Parties in proportion to their
Participating Interests
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in the well or the Platform and/or Development Facilities. If the well is
a Non-consent Well, the amount of the contribution shall be deducted from
the cost specified in Article 13.2.1(a) before computation of the amount
to be recouped out of Hydrocarbon production.
21.3 Acreage Contributions
If a Party receives an acreage contribution for the drilling of a well on
the Contract Area, the acreage contribution shall be shared by each
Participating Party that accepts it in proportion to its Participating
Interest in the well. As between the Participating Parties, this
Agreement shall apply separately to the acreage.
ARTICLE 22
DISPOSITION OF PRODUCTION
22.1 Take-in-Kind Facilities
Subject to Article 22.2, a Party may, at its sole cost and risk,
construct Take-in-Kind Facilities to take its share of Hydrocarbon
production in kind.
22.2 Duty to Take in Kind
Each Party shall own and, at its own cost and risk, shall take in kind or
separately dispose of its share of the oil, gas, and condensate produced
and saved from the Contract Area, exclusive of Hydrocarbon production
used by Operator in activities or operations conducted under this
Agreement, subject to this Article 22. In order to avoid interference
with operations on or regarding the Platform, the Development Facilities,
and the Contract Area, a Party exercising its right to construct Take-in
Kind Facilities ("the Take in Kind Party") shall provide the Operator
with a list of equipment it deems necessary for its Take in Kind
Facilities ("the components") along with its notice informing the
Operator of its election to take in kind. If the Operator agrees to
install and operate the Take-in Kind Facilities, the Operator shall
purchase the components and install it on behalf of the Take in Kind
Party at the Take in Kind Party's sole risk and cost, including, but not
limited to, any fees, penalties or other costs incurred as a result of
any cancellation of placed orders as may be requested by the Take in Kind
Party. The Operator shall provide the Take in Kind Party with monthly
updates on the progress of the ordering and installation of the Take in
Kind Facilities. The Operator, based on the instructions of Take in Kind
Party, shall install and operate all of the components. The Operator
shall not be responsible for any losses or damages to the components or
the Take in Kind Party's Hydrocarbon production metered, treated,
processed or transported by the components unless such losses or damages
are the result of the Operator's gross negligence or willful misconduct.
If the Operator refuses or fails to commence the installation of the
Take-in Kind Facilities by thirty (30) days prior to the deadline
provided in Section 12.4, the Take-in Kind Party shall have the right to
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install and operate the Take-in Kind Facilities providing that such
operations do not interfere with existing operations or proposed
operations that have been approved under terms of this Agreement.
22.3 Failure to Take Oil and Condensate in Kind
Notwithstanding Article 22.2 (Duty to Take in Kind), if a Party fails to
take in kind or dispose of its share of the oil or condensate, Operator
shall have the right, but not the obligation, subject to revocation at
will by the Party owning the Hydrocarbon production, to purchase for its
own account, sell to others, or otherwise dispose of all or part of the
Hydrocarbon production at the same price at which Operator calculates and
pays lessor's royalty on its own portion of the oil or condensate.
Operator shall notify the non-taking Party when the option is exercised.
A purchase or sale by Operator of any other Party's share of the oil or
condensate shall be for such reasonable periods of time as are consistent
with the minimum needs of the industry under the circumstances, but in no
event shall a contract be for a period in excess of one (1) year.
Proceeds of the oil or condensate purchased, sold, or otherwise disposed
of by Operator under this Article 22.3 shall be paid to the Party that
had, but did not exercise, the right to take in kind and separately
dispose of the oil or condensate. Operator, in disposing of another
Party's oil or condensate, shall not be responsible for making any filing
with regulatory agencies not required by law to be made by it in respect
to another Party's share of oil or condensate. Unless required by
governmental authority having jurisdiction or by judicial process, no
Party shall be forced to share an available market with a non-taking
Party.
22.4 Failure to Take Gas in Kind
Article 22.3 (Failure to Take Oil and Condensate in Kind) shall not apply
to gas produced from the Contract Area. In no event shall Operator be
responsible for, or obligated to dispose of, another Party's share of gas
production. If for any reason a Party fails to take or market its full
share of gas as produced, that Party may later take, market, or receive a
cash accounting for its full share in accordance with Exhibit "E".
22.5 Expenses of Delivery in Kind
A cost that is incurred by Operator in making delivery of a Party's share
of Hydrocarbons or disposing of same shall be paid by the Party.
ARTICLE 23
APPLICABLE LAW
23.1 Applicable Law
THIS AGREEMENT AND THE RELATIONSHIP OF THE PARTIES UNDER THIS AGREEMENT
SHALL BE GOVERNED BY AND INTERPRETED UNDER FEDERAL LAWS AND LAWS OF THE
STATE OF LOUISIANA, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAWS
THAT WOULD OTHERWISE REFER THE MATTER TO THE LAWS OF ANOTHER
JURISDICTION.
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ARTICLE 24
LAWS, REGULATIONS AND NON-DISCRIMINATION
24.1 Laws and Regulations
This Agreement and operations under this Agreement are subject to all
applicable laws, rules, regulations, and orders by all governmental
authorities claiming jurisdiction now and in the future. A provision of
this Agreement found to be contrary to or inconsistent with any such law,
rule, regulation, or order shall be deemed to have been modified
accordingly.
24.2 Non-discrimination
In performing work under this Agreement, the Parties shall comply and
Operator shall require each independent contractor to comply with the
governmental requirements in Exhibit "D" and with Articles 202(1) to (7),
inclusive of Executive Order 11246, as amended.
ARTICLE 25
FORCE MAJEURE
25.1 Force Majeure
If a Party is unable, wholly or in part because of a Force Majeure, to
carry out its obligations under this Agreement, other than the obligation
to make money payments, that Party shall give the other Parties prompt
written notice of the Force Majeure with full particulars about it.
Effective upon the date notice is given, the obligations of the Party, so
far as they are affected by the Force Majeure, shall be suspended during,
but no longer than, the continuance of the Force Majeure. Time is of the
essence in the performance of this Agreement, and every reasonable effort
will be made by the Party to avoid delay or suspension of any work or
acts to be performed under this Agreement. The requirement that the Force
Majeure be remedied with all reasonable dispatch shall not require a
Party to settle strikes or other labor difficulties.
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ARTICLE 26
SUCCESSORS, ASSIGNS AND PREFERENTIAL RIGHTS
26.1 Successors and Assigns
This Agreement binds and inures to the benefit of the Parties and their
respective heirs, successors, and assigns and shall constitute a covenant
running with the Contract Area. Each Party shall incorporate in each
assignment of an interest in the Contract Area a provision that the
assignment is subject to this Agreement.
26.2 Transfer of Interest
No transfer, assignment, or other disposition of interest by a Party
shall relieve the Party of liabilities and obligations it has incurred or
that are attributable to the interest transferred before the date of the
transfer, and the obligation to pay and bear all costs and risks
attributable to an operation in which, the Party was a Participating
Party before making the transfer, and the lien and security rights
granted by Section 8.6 (Security Rights) shall continue to burden the
interest transferred to secure payment of the obligations. The transferor
shall be liable for all costs, expenses, and liabilities for well
plugging and abandonment, Platform and Development Facilities removal and
disposal, and site clearance for property and equipment attributable to
the assigned interest before the date of the transfer, net of salvage
proceeds.
26.3 Consent to Assign
Ridgewood may not sell, transfer, farm out, assign, or otherwise dispose
of all or part of its Working Interest in the Contract Area without the
prior written consent of Chevron. No Party may sell, transfer, farm out,
assign, or otherwise dispose of all or part of its Working Interest in
the Contract Area unless:
(a) the transferee is financially capable of assuming the obligations
hereunder and, in accordance with Subsection 26.3(c), the
transferor furnishes the Parties with proof of such financial
capability that, in the case of Outer Continental Shelf Contract
Areas, shall be proof that the transferee is currently qualified
by the Minerals Management Service, an agency of the United States
Department of the Interior, or a successor agency having
jurisdiction (hereinafter "MMS"), to own Outer Continental Shelf
Contract Areas and that the transferee would not be required by
the MMS to post a supplemental bond pursuant to 30 CFR ss.
256.53(d) & (e) if such transferee owned 100% of the Working
Interest in the Contract Area.
(b) the transferee agrees in writing to assume all obligations and
liabilities under this Agreement related to the interest acquired
arising from and after the effective date of the transfer; and
(c) the transferor has given the other Parties written notice of the
transfer at least fifteen (15) days before the date of the
transfer, such notice to include the name of each proposed
transferee, a description of the interests to be transferred, and
the proof set forth in Subsection 26.3(a).
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The requirements of this Section 26.3 shall not apply to a merger,
consolidation, reorganization, sale or transfer to an Affiliate, a
mortgage by a Party of its interest in the Contract Area, a sale of all,
or substantially all, of a Party's domestic exploration and production
properties, or a transfer or disposition between the Parties hereto.
26.4 Transfers Between Parties
A transfer, relinquishment, or other disposition of interests in the
Contract Area between Parties under the Acreage Out Option (if selected)
under Section 10.5 (Operations by Fewer Than All Parties); Section 13.11
(Contract Area Maintenance Operations); Section 13.12 (Retention of
Contract Area by Non-consent Well); Article 15 (Withdrawal); or Section
16.4 (Non-participation in Payments) shall be made without warranty of
title. Any such transfer between the Parties, if applicable, shall be
free and clear of all Subsequently Created Interests, as defined in
Section 16.2 (Subsequently Created Interest), and all mortgages, liens,
and encumbrances.
26.5 Division of Interest
If, at any time, the interest of a Party is divided among and owned by
four (4) or more co-owners, Operator, at its discretion, may require the
co-owners to appoint a single trustee or agent with full authority to
receive notices, approve expenditures, receive xxxxxxxx for, and approve
and pay the Party's share of the joint expenses, and to deal generally
with, and with power to bind the co owners of the Party's interest within
the scope of the operations embraced in this Agreement. All such
co-owners may separately dispose of their respective shares of the oil,
gas, and condensate produced from the Contract Area and may receive,
separately, payment of the sale proceeds thereof.
26.6 Preferential Rights
If Ridgewood or any of Ridgewood's successors-in-interest, desires to
transfer, sell, farm out, assign, or otherwise dispose of all or part of
its Working Interest ("Disposing Party"), it shall promptly give written
notice to Chevron and any of Chevron's successors-in-interest ("Acquiring
Party(ies)") with full information about the proposed transaction,
including, but not limited to, the name and address of the prospective
transferee (who must be ready, willing, and able to acquire the interest
and deliver the stated consideration therefor), the consideration for the
transfer, farm out terms, and all other terms of the offer. In the case
of a package sale of oil and gas interests that includes all or part of
the Disposing Party's Working Interest, or if the proposed transaction is
structured as a non-simultaneous, like-kind exchange under Section 1031
of the Internal Revenue Code of 1986, as amended ("Code"), the Working
Interest that is subject to this preferential right shall be separately
valued in good faith and the notice shall state the value attributed to
the interest by the prospective transferee. The Acquiring Party(ies)
shall then have an optional prior right, for a period of thirty (30) days
after receipt of the notice, to elect to purchase or acquire on the same
terms and conditions, or on equivalent terms for a non-cash transaction,
all of the Working Interest that the Disposing Party is proposing to
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transfer. If this preferential right is exercised by an Acquiring
Party(ies), the purchasing or Acquiring Party(ies) shall share the
purchased or acquired interest in the proportions that the Working
Interest of each bears to the total Working Interest of all Acquiring
Party(ies), or in such proportions as the Acquiring Party(ies) otherwise
agree. This preferential right shall apply separately to each Working
Interest or part thereof covered by this Agreement, regardless of whether
it is included in the proposed transaction along with other oil and gas
interests, whether as a sale, farm out, or non-simultaneous, like-kind
exchange, and no provision in this Agreement shall be interpreted to
defeat this preferential right. Upon exercise of this preferential right,
the acquiring Party(ies) shall agree to perform all obligations of the
prospective transferee under the proposed transaction only for the
Working Interest subject to the proposed transaction. This preferential
right, however, shall not exist or apply when a Party proposes (a) to
mortgage its interest; (b) to dispose of or transfer its interest to a
third party by (i) merger, (ii) reorganization, or (iii) consolidation;
(c) to sell all of its exploration and production properties located in
the Gulf of Mexico, Outer Continental Shelf of the United States of
America; or (d) to transfer the interest under a property exchange
transaction other than a non-simultaneous, like-kind exchange under
Section 1031 of the Code. If the proposed transaction is not consummated
within six (6) months after receipt of the notice by the other Parties,
the Working Interest shall again be governed by this Section 26.6 and the
preferential right shall again arise for the offered interest as herein
described.
ARTICLE 27
ADMINISTRATIVE PROVISIONS
27.1 Term
This Agreement shall remain in effect so long as any Contract Area
remains in effect and thereafter until (a) all xxxxx have been abandoned
and plugged or turned over to the Parties owning an interest in the
Contract Area on which the xxxxx are located; (b) all Platforms,
Development Facilities, and equipment have been disposed by the Operator
in accordance with Article 14 (Abandonment, Salvage, and Surplus); (c)
all Claims as defined in Article 19 (Liability, Claims, and Lawsuits)
have been settled or otherwise disposed of; and (d) there has been a
final accounting and settlement by all Parties. In accordance with
Article 4.5 (Selection of Successor Operator), this Agreement will
terminate if no Party is willing to become Operator, effective after all
conditions in clauses (a) through (d) above have been completed. In
accordance with Article 15.2.1 (Unanimous Withdrawal), this Agreement
will terminate if all Parties elect to withdraw, effective after all
conditions in clauses (a) through (d) above have been completed.
Termination of this Agreement shall not relieve a Party of a liability or
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obligation accrued or incurred before termination and is without
prejudice to all continuing confidentiality obligations or other
obligations in this Agreement.
27.2 Waiver
A term, provision, covenant, representation, warranty, or condition of
this Agreement may be waived only by written instrument executed by the
Party waiving compliance. The failure or delay of a Party in the
enforcement or exercise of the rights granted under this Agreement shall
not constitute a waiver of said rights nor shall it be considered as a
basis for estoppel. Time is of the essence in the performance of this
Agreement and all time limits shall be strictly construed and enforced.
27.3 Waiver of Right to Partition
Each Party waives the right to bring an action for partition of its
interest in the Contract Area, xxxxx, Platform, Development Facilities,
and other equipment held under this Agreement, ,and covenants that during
the existence of this Agreement it shall not resort at any time to an
action at law or in equity to partition any or all of the Contract Areas
and lands or personal property subject to this Agreement.
27.4 Compliance With Laws and Regulations
This Agreement, and all activities or operations conducted by the Parties
under this Agreement, are expressly subject to, and shall comply with,
all laws, orders, rules, and regulations of all federal, state, and local
governmental authorities having jurisdiction over the Contract Area.
27.4.1 Severance of Invalid Provisions
If, for any reason and for so long as, a clause or provision of
this Agreement is held by a court of competent jurisdiction to be
illegal, invalid, unenforceable or unconscionable under a present
or future law (or interpretation thereof), the remainder of this
Agreement will not be affected by that illegality or invalidity.
An illegal or invalid provision will be deemed severed from this
Agreement, as if this Agreement had been executed without the
illegal or invalid provision. The surviving provisions of this
Agreement will remain in full force and effect unless the removal
of the illegal or invalid provision destroys the legitimate
purposes of this Agreement; in which event this Agreement shall be
null and void.
27.4.2 Fair and Equal Employment
Each of the Parties is an Equal Opportunity Employer, and the
equal opportunity provisions of 30 CFR 270 and 41 CFR 60-1, as
amended or modified, are incorporated in this Agreement by
reference. The affirmative action clauses concerning disabled
veterans and veterans of the Vietnam era (41 CFR 60-250) and the
affirmative action clauses concerning employment of the
handicapped (41 CFR 60-741) are also incorporated in this
Agreement by reference. In performing work under this Agreement,
the Parties shall comply with (and the Operator shall require each
independent contractor to comply with) the governmental
requirements in Exhibit "E" that pertain to non-segregated
facilities.
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27.5 Construction and Interpretation of this Agreement
27.5.1 Headings for Convenience
Except for the definition headings in Article 2 (Definitions), all
the table of contents, captions, numbering sequences, and
paragraph headings in this Agreement are inserted for convenience
only and do not define, expand or limit the scope, meaning, or
intent of this Agreement.
27.5.2 Article References
Except as otherwise provided in this Agreement, each reference to
an article of this Agreement includes all of the referenced
article and its sub-articles.
27.5.3 Gender and Number
The use of pronouns in whatever gender or number is a proper
reference to the Parties to this Agreement though the Parties may
be individuals, business entities, or groups thereof. Reference in
this Agreement to the singular of a noun or pronoun includes the
plural and vice versa.
27.5.4 Future References
A reference to a Party includes such Party's successors and
assigns and, in the case of governmental bodies, persons
succeeding to their respective functions and capacities.
27.5.5 Currency
Any amounts due or payable under this Agreement shall be paid in
United States currency.
27.5.6 Optional Provisions
In the event that any "Optional" provision of this Agreement is
not adopted by the Parties to this Agreement by a typed, printed
or handwritten indication, such provision shall not form a part of
this Agreement, and no inference shall be made concerning the
intent of the Parties in regard to the subject matter of the
"Optional" provision
27.5.7 Joint Preparation
This Agreement shall be deemed for all purposes to have been
prepared through the joint efforts of the Parties and shall not be
construed for or against one Party or the other as a result of the
preparation, submittal, drafting, execution or other event of
negotiation hereof.
27.5.8 Integrated Agreement
This Agreement contains the final and entire agreement of the
Parties for the matters covered by this Agreement and, as such,
supersedes all prior written or oral communications and
agreements. This Agreement may not be modified or changed except
by written amendment signed by the Parties.
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27.5.9 Binding Effect
To the extent it is assignable, this Agreement shall bind and
inure to the benefit of the Parties and their respective
successors and assigns, and shall constitute a covenant running
with the land comprising the Contract Area. This Agreement does
not benefit or create any rights in a person or entity that is not
a Party to this Agreement.
27.5.10 Further Assurances
Each Party will take all actions necessary and will sign all
documents necessary to implement this Agreement. Except as
otherwise provided in this Agreement, within (30) days after their
receipt of a valid written request for those documents from a
Party, all other Parties shall prepare and execute the documents.
27.5.11 Counterpart Execution
This Agreement may be executed by signing the original or a
counterpart. If this Agreement is executed in counterparts, all
counterparts taken together shall have the same effect as if all
Parties had signed the same agreement. No Party shall be bound to
this Agreement until all Parties have executed a counterpart or
the original of this Agreement. This Agreement may also be
ratified by a separate instrument that refers to this Agreement
and adopts by reference all provisions of this Agreement. A
ratification shall have the same effect as an execution of this
Agreement.
27.6 Restricted Bidding
If more than one Party is ever on the list of restricted joint bidders
for Outer Continental Shelf ("OCS") lease sales, as issued by the MMS
under 30 CFR 256.44, as amended, the Parties shall comply with all
statutes and regulations regarding restricted joint bidders on the OCS.
27.7 Conflict of Terms
Chevron U.S.A. Inc. and Ridgewood Energy Corporation hereby agree and
acknowledge that this Agreement is made subject and subordinate to that
certain Exploration Participation Agreement (EPA) dated November 30, 2005
between Chevron U.S.A. Inc. and Ridgewood Energy Corporation, and that in
the event of a conflict between the terms and provisions of this
Agreement and the EPA, the terms and provisions of the EPA shall control.
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IN WITNESS WHEREOF, this Agreement has been executed by the
Parties as of the day and year first above written.
WITNESSES: Chevron U.S.A. Inc.
[SIGNATURE ILLEGIBLE] By: /s/ X. X. Xxxx
--------------------- ----------------------------
[SIGNATURE ILLEGIBLE] Title: Assistant Secretary
--------------------- -------------------------
Ridgewood Energy Q Fund, LLC
By Ridgewood Energy Corporation, its Manager
/s/ Xxxxx Xxxxxxx By: /s/ X. X. Xxxxx
--------------------- ----------------------------
[SIGNATURE ILLEGIBLE] Title: Executive Vice President
--------------------- -------------------------
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Exhibit "A"
Attached to and made a part of that certain Offshore Operating Agreement
effective as of November 30, 2005, between Chevron U.S.A. Inc. and Ridgewood
Energy Q Fund LLC., covering Main Pass Block 30, Offshore, Gulf of Mexico
1. Chevron U.S.A. Inc. (Chevron) is designated as Operator.
2. Contract Area:
That portion of that certain Oil and Gas Lease of Submerged Lands bearing
Serial No. OCS-G 4903, dated effective December 1, 1981, by and between the
United States of America, as Lessor, and Texaco Inc. et al as Lessee,
covering all of Block 30, Main Pass Area, insofar and only insofar as it
covers and affects Prospect "A", as defined in Exhibit A"" of that certain
Exploration Participation Agreement dated November 30, 2005 between Chevron
and Ridgewood.
3. Division of Interest
Company Working Interest Percentage
--------------------------------------------------------------------------
Chevron U.S.A. Inc. (Chevron) 55.000%
Ridgewood Energy Q Fund, LLC (Ridgewood) 45.000% **
-------
100.000%
* Chevron's interest is subject to the Exploration Participation Agreement
(EPA) dated November 30, 2005 between Chevron and Ridgewood. The 55%
working interest represents Chevron's After Casing Point interest in the
Contract Area as referenced in subject EPA.
** Ridgewood's interest, rights and obligations are pursuant to the
Exploration Participation Agreement (EPA) dated November 30, 2005 between
Chevron and Ridgewood. The 45% working interest represents Ridgewood's
After Casing Point interest in the Contract Area as referenced in subject
EPA.
4. Notification Addressees
Chevron U.S.A. Inc. Tel.: (000) 000-0000
000 Xxxxxxx Xxxxxx Fax: (504) 592-
Xxx Xxxxxxx, XX 00000
Attention: Xx. Xxxxxx X. Xxxx
Gulf of Mexico-Land Manager
Ridgewood Energy Q Fund, LLC Tel: (000) 000-0000
c/o Ridgewood Energy Corporation Fax: (281) 293 - 7391
00000 Xxx Xxxx Xxxx, Xxxxx 000
Xxxxxxx, Xxxxx 00000
Attention: Mr. W. Xxxx Xxxxx
JOA Exhibit "A"
1
Exhibit "B"
Attached to and made a part of that certain Offshore Operating Agreement
effective as of November 30, 2005, between Chevron U.S.A. Inc. and Ridgewood
Energy Q Fund, LLC., covering Xxxx Xxxx Xxxxx 00, Xxxxxxxx, Xxxx xx Xxxxxx.
INSURANCE REQUIREMENTS
----------------------
1. Operator shall carry insurance as follows for the benefit and protection of
the Parties to this Agreement:
a) Worker's Compensation Insurance in accordance with laws of
governmental bodies having jurisdiction including, if applicable,
United States Xxxxxxxxx and Harbor Workers' Compensation Act with
Outer Continental Shelf Extension, Maritime Employers' Liability
(including, but not limited to, the Xxxxx Act and Death on the High
Seas Act) and Employers' Liability Insurance. Employers' Liability
Insurance shall provide coverage of $10,000,000 per accident.
b) Any other insurance or surety bond that may be required elsewhere in
this agreement or by applicable federal, state and local laws and
regulations.
Operator may include the aforesaid risks under its qualified self-insurance
program provided Operator complies with applicable laws, and in such event
Operator shall charge to the Joint Account a premium determined by applying
manual insurance rates to the payroll.
2. Each Party to this Agreement shall carry the following insurance for their
percentage interest:
a) Commercial General Liability (Bodily Injury and Property Damage)
Insurance, including coverage for; premises-operations, products and
completed operations, independent contractors liability, contractual
liability to cover liabilities assumed under this Agreement, coverage
for explosion, collapse and underground hazards, and sudden and
accidental pollution. The limits of such insurance shall not be less
than $25,000,000 combined single limit per occurrence.
b) Automobile Public Liability and Property Damage Insurance covering all
owned, non-owned, and hired vehicles used in performance of this
Agreement. The limits of such insurance shall not be less than
$1,000,000 combined single limit per occurrence.
c) Hull and Machinery Insurance, including collision liability coverage,
on all vessels and barges, if any, used in performance of this
agreement. The limit of such insurance shall not be less than the fair
market value of each vessel and/or barge.
d) Protection and Indemnity Insurance on each vessel and barge used in
performance of this agreement, including but not limited to coverage
for injuries to or death of masters, mates and crew, collision
liabilities not covered under the H&M policy, excess collision
liabilities and pollution liabilities arising under State and Federal
laws. The limits of such insurance shall not be less than $10,000,000
per occurrence.
e) If the Parties use aircraft, including but not limited to helicopters
(excepting such aircraft and helicopters furnished by or employed for
hire from Chevron) in performance of this Agreement, Operator shall
maintain or require owners of such aircraft to maintain, Aircraft
Liability (Bodily Injury - including liability to passengers - and
Property Damage) Insurance with an overall combined single limit per
occurrence of not less than $25,000,000.
JOA - Exhibit "B"
1
f) Operator's Extra Expense insurance including, but not limited to:
coverage for control of well (including underground control of well);
redrill and extra expense; extended and unlimited redrill; seepage,
pollution, clean-up and contamination; evacuation expense; making
xxxxx save and care custody and control. The limits for such insurance
shall not be less than $25,000,000 combined single limit per
occurrence.
The above insurance shall contain waivers of subrogation in favor of the
other Parties to this Agreement.
Each Party shall provide evidence of the above insurance, satisfactory to
Operator, prior to commencement of any work under this Agreement and
subsequently with each policy's renewal date.
3. Operator shall not be obligated or authorized to obtain or carry on behalf
of the Joint Account any additional insurance covering the Parties or the
operations to be conducted hereunder. Each Party individually may acquire
at its own expense such insurance as it deems proper to protect itself
against claims, losses, damage to or destruction of property of third
parties, or personal injury or death of third persons arising out of the
joint operations. All uninsured losses and all damages to jointly owned
property shall be borne by the Parties in proportion to their respective
interests.
4. Operator shall require all contractors engaged in operations under this
Agreement to comply with the applicable Worker's Compensation and
Employers' Liability laws and to maintain such other insurance and in such
amounts as Operator deems necessary.
5. In the event less than all Parties participate in an operation conducted
under the terms of this Agreement, then the insurance requirement and
costs, as well as all losses, liabilities and expenses incurred as the
result of such operation, shall be the burden of the Party or Parties
participating therein.
JOA - Exhibit "B"
2
