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Exhibit 10.20
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (hereinafter called this "Agreement") is
entered into effective as of June 1, 1998 (the "Effective Date"), by and
between MARINER ENERGY, INC. (hereinafter called "Company") and X. X. XxXxxxx
(hereinafter called "Employee").
WHEREAS, Company desires to employ Employee upon the terms and
conditions set forth herein; and
WHEREAS, Employee desires to be employed by Company upon the terms and
conditions set forth herein;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements herein contained, the parties hereto agree as follows:
1. Employment.
Company hereby employs Employee to serve as Senior Vice
President - Operations of Company. The permanent place of
Employee's employment shall be at a location within a 50-mile
radius of the central business district of the City of
Houston, Texas; provided, however, Employee shall be required
to undertake such ordinary and usual travel as is necessary
to properly discharge his duties and responsibilities
hereunder. Employee hereby accepts such employment, and
agrees to serve Company faithfully, diligently and in a good
and workmanlike manner.
2. Term.
The term of employment shall be for a term of three (3) years
beginning on the Effective Date, subject, however, to the
provisions of paragraph 3.
3. Extension and Termination.
3.1 If either Employee or Company elects to terminate
this Agreement at the end of the term stated in
paragraph 2, or at the end of any extended term
hereof as hereinafter provided, notice of the
election to terminate shall be given to the other
party no later than six (6) months before the end of
this Agreement. If no notice is given by either
party, the term, or extended term, of this Agreement
shall be deemed to have been extended for an
additional six (6) months.
3.2 In the event Company elects to terminate this
Agreement as provided in paragraph 3.1 above:
3.2.1 Company shall pay to Employee his salary
and other benefits provided elsewhere in
this Agreement for Employee's services
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rendered to Company hereunder through the
end of such term or extended term.
3.2.2 Company shall pay to Employee, on or before
the last day of his employment hereunder, a
lump sum cash payment equal to nine (9)
months' salary at Employee's monthly rate
for the month immediately preceding the
month in which Company elects to terminate
this Agreement.
3.2.3 Company shall pay to Employee, on or before
the last day of his employment hereunder, a
lump sum cash payment for all (a) vacation
time carried forward from a previous year
in accordance with paragraph 8, and (b) all
earned and unused vacation time for the
then current year. Earned vacation time
shall, for the purpose of this paragraph,
be calculated by dividing the number of
days in the calendar year which have
transpired by 365, and then multiplying the
result by the number of vacation days to
which Employee is entitled for that year
pursuant to paragraph 8.
3.3 In the event Employee elects to terminate this
Agreement as provided in paragraph 3.1 above:
3.3.1 Employee agrees to serve to the end of the
term, or extended term hereof, unless
waived by Company.
3.3.2 The provisions of paragraphs 3.2.1 and
3.2.3 shall be applicable, but Employee
shall not be entitled to the payment
provided for in paragraph 3.2.2.
3.4 Company may at its option consent to a request by
Employee to terminate this Agreement at a time other
than that stated in paragraph 2, as extended, in
which case the date requested by Employee and agreed
to by Company will be the end of the term of this
Agreement and the provisions of paragraph 3.3 shall
be applicable.
3.5 Company may terminate this Agreement for "Cause" (as
hereinafter defined in this paragraph 3.5) upon
written notice of such termination to Employee by
Company. Any termination of this Agreement by
Company for Cause shall be effective thirty (30)
days after written notice of termination for Cause
is given by Company to Employee. If Company
terminates this Agreement for Cause, Company shall
have no liability or obligation to Employee
thereafter under this Agreement except for the
payment of his salary and other benefits through the
month of discharge, prorated in the case of salary
for the month of discharge on a daily basis to the
date of termination. As used in this Agreement, the
term "Cause" means (a) Employee is found guilty
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of, admits in writing facts amounting to, or is held
civilly liable for fraud, embezzlement or
dishonesty, (b) Employee is convicted of a felony
involving a crime of moral turpitude or any other
felony if the Board of Directors of the Company in
good faith determines that the continued employment
of the Employee would be materially detrimental to
the Company (in any case which felony through lapse
of time or otherwise is not subject to appeal), (c)
Employee knowingly discloses trade secrets or
confidential Company matters to unauthorized
persons, (d) Employee willfully breaches or
habitually neglects any duties he is required to
perform under the terms of this Agreement and any
such breach or neglect is not cured within thirty
(30) days after Company has provided Employee with
written notice of such breach or neglect, (e)
Employee materially breaches any of the other
material terms of this Agreement and any such breach
is not cured within thirty (30) days after the
Company has provided Employee with written notice of
such breach, and (f) the occurrence of an action or
finding described in paragraph 17, except as
otherwise provided in paragraph 17. The waiver by
Company of a breach of any provision of this
Agreement by Employee shall not operate or be
construed as a waiver of any subsequent breach by
Employee.
3.6 In the event Company terminates this Agreement or
discharges Employee other than as provided in
paragraphs 3.1, 3.4 or 3.5 above, Employee shall be
entitled to receive on the date of such termination
or discharge:
3.6.1 A lump sum cash payment equal to Employee's
salary, at Employee's monthly rate for the
month immediately preceding the month in
which such termination or discharge occurs,
for the unexpired portion of the term or
extended term hereof then in effect.
3.6.2 The payments and other benefits provided
for in paragraphs 3.2.2 and 3.2.3 hereof.
3.7 In the event Employee terminates this Agreement for
"Good Reason" (as defined in paragraph 3.9), and
prior to such termination Employee has not
terminated this Agreement under paragraph 3.1
hereof, Employee shall be entitled to receive from
Company on the date of such termination:
3.7.1 A lump sum cash payment equal to Employee's
salary, at Employee's monthly rate in
effect at the effective time of such
termination (but prior to giving effect to
any reduction therein which precipitated
such termination), for the unexpired
portion of the term or extended term hereof
then in effect.
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3.7.2 A lump sum cash payment equal to nine (9)
months' salary, at Employee's rate in
effect at the time of such termination (but
prior to giving effect to any reduction
therein which precipitated such
termination).
3.7.3 The payments and other benefits provided
for in paragraph 3.2.3.
3.8 Any termination of this Agreement by Employee for
Good Reason shall be effective thirty (30) days
after written notice of termination for Good Reason
is given by Employee to Company
3.9 As used in this Agreement, the term "Good Reason"
means any one or more of the following events has
occurred:
3.9.1 The assignment to Employee of any duties
materially inconsistent with Employee's
position (including office, title and
reporting requirements), authority, duties
or responsibilities with Company or any
other action that results in a material
diminution in, or interference with, such
position, authority, duties or
responsibilities, and any such assignment
or action is not cured within thirty (30)
days after Employee has provided Company
with written notice of such assignment or
action;
3.9.2 The failure to continue to provide Employee
with office space, related facilities and
support personnel (including, but not
limited to, administrative and secretarial
assistance) (a) that are both commensurate
with Employee's responsibilities to and
position with Company and not materially
dissimilar to the office space, related
facilities and support personnel provided
to other employees of Company having
comparable responsibility to that of
Employee or (b) that are physically located
at Company's principal executive offices,
and any such failure is not cured within
thirty (30) days after Employee has
provided Company with written notice of
such failure;
3.9.3 Any (a) reduction in Employee's monthly
salary as established in paragraph 5
(including subsequent increases), (b)
reduction in, or failure to allow or
continue Employee's participation in, any
employee benefit plan or program (except
when such benefit plan or program is
replaced with another benefit plan, program
or arrangement that provides Employee, in
the aggregate, with reasonably comparable
benefits) in which Employee is
participating or is eligible to participate
prior to such reduction or failure (other
than as a result of the expiration of such
plan or program), and any such reduction,
discontinuance or failure is not cured
within thirty (30) days after
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Employee has provided Company with written
notice of such reduction or failure;
3.9.4 The relocation of Employee's or Company's
principal office and principal place of
Employee's performance of his duties and
responsibilities to a location more than 50
miles outside of the central business
district of the City of Houston, Texas; or
3.9.5 A breach of any material provision of this
Agreement by Company (other than any breach
described in paragraphs 3.9.1, 3.9.2,
3.9.3, and 3.9.4) which is not cured within
thirty (30) days after Employee has
provided Company with written notice of
such breach.
4. Confidential Information.
4.1 Employee agrees that he will, during the term of
this Agreement, and for a period of four (4) years
from the date of termination of his employment
hereunder, keep secret and confidential and not
disclose to any party not a party to this Agreement,
land or lease data, geological or geophysical data,
well data or any other information which he may
receive as a result of the performance of his duties
hereunder, except when disclosure is necessary for
the performance of his duties to Company hereunder.
This paragraph shall not apply to information that
is in the public domain through no action of
Employee.
4.2 Upon termination of this employment hereunder,
Employee shall promptly deliver to Company all
written information and documents (whether
confidential or not), and all copies thereof,
relating to Company's business and activities and
which are in the possession of or under the control
of Employee.
5. Salary.
As compensation for his services rendered to Company
hereunder, Company shall pay to Employee a salary at the rate
of $15,833.33 per month. Employee's salary may be reviewed at
such times as may be determined by Company, and Company may
at its discretion increase this salary. Employee's salary
shall be paid in two equal monthly installments, payable on
the fifteenth and last days of each month (or on the first
business day of Company thereafter if any such payment date
is not a business day of Company), subject to any and all
necessary withholdings and deductions.
6. Automobile Allowance.
Company agrees to pay an automobile allowance of $250.00
dollars per month to Employee. In addition to such monthly
allowance, Company shall pay, in accordance
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with Company policy, for all gasoline, insurance and
maintenance required for use of the automobile.
7. Business Expenses.
Employee is authorized to incur reasonable business expenses
in accordance with Company's policies as may be established
from time to time for promoting the business of Company,
including expenditures for entertainment and travel. Company
shall reimburse Employee from time to time for all such
business expenses in accordance with those policies adopted
by Company which include, but are not limited to, the
requirement that Employee timely present to Company:
7.1 The amount of the expenditure;
7.2 The time, place and description of the expense;
7.3 The business reason for the expenditure and business
benefit derived or expected to be derived therefrom;
and
7.4 The name and occupation of the person or persons
entertained to establish the business relationship
with Company.
With respect to any reimbursable business expense
contemplated above exceeding twenty-five dollars ($25.00),
Employee will furnish documentary evidence of such expense to
Company.
8. Vacation.
Employee shall be entitled to an annual vacation leave of
twenty (20) days per calendar year at full pay. The timing
and use of such vacation days shall be requested by Employee
and approved by Company in accordance with its policy. Up to
five (5) days of vacation leave may be carried over from one
calendar year to the next calendar year. Employee shall not
be entitled to receive payment in lieu of unused vacation
time except as otherwise provided herein. With prior
approval, vacation may be deferred if business matters keep
Employee from taking his normal vacation.
9. Annual Bonus; Stock Options.
9.1 In addition to the salary provided for in paragraph
5 hereof (the "Base Salary"), Employee shall be
eligible to receive, for each calendar year or
portion thereof occurring during the term of this
Agreement, an annual cash bonus based on performance
(the "Annual Bonus") in an amount up to forty
percent (40%) of the Base Salary for such calendar
year or portion thereof (or such greater percentage
of such Base Salary as the Board of Directors or the
Committee may, in its discretion, determine) upon
approval of such Annual Bonus by the Board of
Directors of Company (the "Board of Directors") or
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a committee of the Board of Directors designated by
the Board of Directors (the "Committee"). The amount
of any such Annual Bonus shall be determined by the
Board of Directors or the Committee, as the case may
be, in accordance with the cash incentive
compensation program of Company in effect with
respect to such determination. The Annual Bonus
shall be paid to Employee, less such amounts as
shall be required to be deducted or withheld
therefrom by applicable law and regulations, at such
time or times as is in accordance with the then
prevailing policy of Company relating to cash
incentive compensation payments.
9.2 As of the Effective Date, Company shall, or shall
cause Mariner Holdings Inc. to, grant to Employee
stock options for 9,120 shares of the common stock
of Mariner Holdings, Inc. ("Parent Common Stock")
pursuant to the Mariner Holdings Inc. 1996 Stock
Option Plan. To the fullest extent possible, the
options granted to Employee shall be incentive stock
options, and otherwise shall be non-qualified stock
options. The terms, conditions and restrictions with
regard to such stock options shall be evidenced by
an Incentive Stock Option Agreement (as to the
qualified stock options) and a Nonstatutory Stock
Option Agreement (as to be nonqualified stock
options), substantially in the forms attached hereto
as Exhibit A and Exhibit B, respectively, which are
incorporated herein by reference and their terms,
conditions and restrictions shall be considered a
part of this Agreement.
10. Insurance.
Employee shall be eligible for participation in such
insurance programs as Company shall institute from time to
time covering medical and dental expenses and such life and
accidental death and dismemberment insurance programs as
Company shall institute from time to time. Payment of
premiums for such coverages shall be in accordance with
Company policy covering all employees as may be established
from time to time by Company. Employee shall also be eligible
for participation in such retirement, pension, deferred
compensation and other benefit programs the Company shall
initiate from time to time.
11. Outside Activities.
During the term or extended term of this Agreement, Employee
shall devote all of his working time, energy and talents to
the due discharge and performance of his duties hereunder, at
the direction and subject to the control of Company, and
shall perform such services and duties as shall reasonably be
required from him from time to time by Company. Employee
agrees that he will not knowingly become involved in a
conflict of interest with Company or its subsidiaries, or
upon discovery thereof, allow such a conflict to continue.
Moreover, Employee agrees to provide Company a statement of
all other directorships Employee holds, with a brief
description of the business activities of each organization.
This statement shall be provided on or
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before December 31 of each year. If, in the opinion of
Company, a conflict of interest exists between Company (and
its affiliates) and the organization in which the Employee
holds a directorship, Company can require Employee to resign
the outside directorship.
12. Right to Invest.
Nothing in this Agreement is intended or shall be construed
to limit Employee's right (i) to engage in passive personal
investments, including, but not limited to, holding as an
investment not more than five percent (5%) of any class of
the issued and outstanding and publicly traded (on a
recognized national or regional securities exchange or in the
over-the-counter market) capital stock or other securities of
any corporation or other entity that conducts activities that
compete with the business of Company or any affiliate of
Company; or (ii) to invest, individually or with others, in
oil and gas prospects, subject, however, in the case of oil
and gas prospects to the following conditions:
12.1 Company must have first had the right and
opportunity to purchase all of the interest in any
prospect made available to Employee, even if this
would preclude Employee's participation.
12.2 Company must have made known its election either to
participate in less than the full interest made
available to Employee and have no desire to acquire
an additional interest, or declined to participate
at all in the prospect. If Company elects to
participate in less than the full interest made
available to Employee, Employee may invest in the
portion of such interest not acquired by Company.
12.3 Employee must purchase his interest in the oil and
gas prospect on terms which are no more favorable
than those made available to Company.
13. Disability During Employment.
If Employee shall become unable to perform his duties by
reason of disability, he shall be entitled to receive, in
addition to any insurance benefits he may receive, all of his
salary for the first one (1) month of his disability, and
one-half (1/2) of his salary for the next three (3) months of
disability. Periods of disability shall not be cumulative so
long as they are separated by at least ninety (90) days of
continuous service.
The term "disability" shall mean disability which, in the
opinion of a doctor satisfactory to Company, renders Employee
unable to perform his duties hereunder as evidenced by such
doctor's certificate. The date disability commences shall be
the date Employee first absents himself from work during a
continuous period of disability.
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14. Merger or Acquisition.
In the event Company should be acquired by or merged into
another company, by signature of Company's authorized
representatives, Company hereby agrees that this Employment
Agreement shall be binding upon Company, its successors and
assigns, and shall be disclosed to any party considering
merger with, or acquisition of, Company.
15. Arbitration.
15.1 If a dispute arises out of or related to this
Agreement and the dispute cannot be settled through
direct discussions, Company and Employee agree that
they shall first endeavor to settle the dispute in
an amicable fashion. If such efforts fail to resolve
the dispute, the dispute shall, except as otherwise
provided in paragraph 19, be resolved as follows:
15.1.1 Except as provided in paragraph 15.1.2
below, any and all claims, demands, cause
of action, disputes, controversies, and
other matters in question arising out of or
relating to this Agreement, any provision
hereof, the alleged breach thereof, or in
any way relating to the subject matter of
this Agreement, involving Company,
Employee, and/or their respective
representatives, even though some or all of
such claims allegedly are extracontractual
in nature, whether such claims sound in
contract, tort, or otherwise, at law or in
equity, under state or federal law, whether
provided by statute or the common law, for
damages or any other relief, shall be
resolved by binding arbitration pursuant to
the Federal Arbitration Act in accordance
with the Commercial Arbitration Rules then
in effect with the American Arbitration
Association (the "AAA"). The arbitration
proceeding shall be conducted in Houston,
Texas. The arbitration may be initiated by
either party by providing to the other a
written notice of arbitration specifying
the claims, and the parties shall
thereafter endeavor to agree on an
arbitrator. If within thirty (30) days of
the notice of initiation of the arbitration
procedure, the parties are unable to agree
on an arbitrator, the party requesting
arbitration shall file a request with the
AAA that the Houston, Texas office of the
AAA provide a list of potential arbitrators
to both parties. The parties shall
thereafter have sixty (60) days to select
an arbitrator from such list, with such
selection to be by mutual agreement. If the
parties fail to select an arbitrator within
such time by mutual agreement, then either
party may request that the Chief Judge of
the U.S. District Court for the Southern
District of Texas appoint an arbitrator,
and any such appointment shall be binding.
The arbitrator, utilizing the Commercial
Arbitration Rules of the American
Arbitration Association, shall within 120
days of his or her selection, resolve all
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disputes between the parties. There shall
be no transcript of the hearings before the
arbitrator. The arbitrator's decision shall
be in writing, but shall be as brief as
possible. The arbitrator shall not assign
the reasons for his or her decision. The
arbitrator's decision shall be final and
non-appealable to the maximum extent
permitted by law. Judgment upon any award
rendered in any such arbitration proceeding
may be entered by any federal or state
court having jurisdiction. This agreement
to arbitrate shall be enforceable in either
federal or state court. The enforcement of
this agreement to arbitrate and all
procedural aspects of this agreement to
arbitrate, including but not limited to,
the construction and interpretation of this
agreement to arbitrate, the issues subject
to arbitration (i.e., arbitrability), the
scope of the arbitrable issues, allegations
of waiver, delay or defenses to
arbitrability, and the rules governing the
conduct of the arbitration, shall be
governed by and construed pursuant to the
Federal Arbitration Act and shall be
decided by the arbitrator. In deciding the
substance of any such claims, the
arbitrator shall apply the substantive laws
of the State of Texas (excluding Texas
choice-of-law principles that might call
for the application of some other State's
law); provided, however, it is expressly
agreed that the arbitrator shall have no
authority to award treble, exemplary, or
punitive damages under any circumstances
regardless of whether such damages may be
available under Texas law, the parties
hereby waiving their right, if any, to
recover treble, exemplary, or punitive
damages in connection with any such claims.
15.1.2 Notwithstanding the agreement to arbitrate
contained in paragraph 15.1.1 above, in the
event that either party wishes to seek a
temporary restraining order, a preliminary
or temporary injunction, or other
injunctive relief in connection with any or
all such claims, demands, cause of action,
disputes, controversies, and other matters
in question arising out of or relating to
this Agreement, any provision hereof, the
alleged breach thereof, or in any way
relating to the subject matter of this
Agreement, involving Company, Employee,
and/or their respective representatives,
including disputes arising out of a breach
or alleged breach of paragraph 4 or 16,
even though some or all of such claims
allegedly are extra-contractual in nature,
whether such claims sound in contract,
tort, or otherwise, at law or in equity,
under state or federal law, whether
provided by statute or the common law, for
damages or any other relief, each party
shall have the right to pursue such
injunctive relief in court, rather than by
arbitration. The parties agree that such
action for a temporary restraining order, a
preliminary or temporary injunction, or
other injunctive relief will be brought in
the State or federal courts residing in
Houston, Xxxxxx County, Texas.
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15.2 The Company shall pay all costs and expenses of
Company and Employee (including, but not limited to,
attorneys' fees, the fees of the arbitrator and the
AAA and any other related costs) for any arbitration
proceeding or legal action; provided, however, that
if in any such arbitration proceeding or legal
action, the arbitrator or court, respectively,
determines that Employee has prosecuted or defended
any issue in such proceeding or action in bad faith,
the arbitrator or court, respectively, may allocate
the portion of such costs and expenses relating to
such issue between the parties in any other manner
deemed fair, equitable and reasonable by the
arbitrator or court, respectively.
16. Noncompetition Obligations.
16.1 As part of the consideration for the compensation
and benefits to be paid to Employee hereunder, and
as an additional incentive for Company to enter into
this Agreement, Company and Employee agree to the
non-competition obligations hereunder. Employee will
not, directly or indirectly for Employee or for
others:
16.1.1 in any geographic area or market where
Company or any of its subsidiaries are
conducting any business as of the date of
termination of the employment relationship
or have during the previous twelve months
conducted such business, engage in any
business competitive with any such
business; or
16.1.2 in any geographic area or market where
Employee knew Company contemplated entering
any business as of the date of termination
of the employment relationship, but only if
Company had, as of such date, invested
significant resources toward entering into
such business in such geographic area or
market, engage in any business competitive
with any such business;
16.1.3 render advice or services to, or otherwise
assist, any other person, association, or
entity who is engaged, directly or
indirectly, in any business competitive
with Company's business within the
parameters described in paragraphs 16.1.1
and 16.1.2 above with respect to such
competitive business; or
16.1.4 induce any employee of Company or any of
its subsidiaries to terminate his or her
employment with Company or its
subsidiaries, or hire or assist in the
hiring of any such employee by any person,
association, or entity not affiliated with
Company.
These non-competition obligations shall commence
upon the date of execution of this Agreement and
extend until the earlier of (a) the expiration of
the term of this Agreement (or any extended term) or
(b) twelve (12)
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months after termination of the employment
relationship; provided, however, that
notwithstanding anything contained in this paragraph
16 to the contrary, such obligations shall only
apply after the termination of employment if the
termination of employment results from termination
for Cause by Company under paragraph 3.5 or
voluntary termination without Good Reason by
Employee (it being understood and agreed that
termination of this Agreement by Employee under
paragraph 3.1 shall not, for purposes of this
paragraph 16, constitute voluntary termination
without Good Reason by Employee).
16.2 Employee understands that the foregoing restrictions
may limit Employee's ability to engage in certain
businesses anywhere in the world during the period
provided for above, but acknowledges that Employee
will receive sufficiently high renumeration and
other benefits under this Agreement to justify such
restriction. Employee acknowledges that money
damages would not be sufficient remedy for any
breach of this Article by Employee, and Company
shall be entitled to enforce the provisions of this
Agreement and/or to specific performances and
injunctive relief as remedies for such breach or any
threatened breach. Such remedies shall not be deemed
the exclusive remedies for a breach of this Article,
but shall be in addition to all remedies available
at law or in equity to Company, including, without
limitation, the recovery of damages from Employee
and Employee's agents involved in such breach and
remedies available to Company pursuant to other
agreements with Employee.
16.3 It is expressly understood and agreed that Company
and Employee consider the restrictions contained in
this paragraph 16 to be reasonable and necessary.
Nevertheless, if any of the aforesaid restrictions
are found by a court having jurisdiction to be
unreasonable, or overly broad as to geographic area
or time, or otherwise unenforceable, the parties
intend for the restrictions therein set forth to be
modified by such courts so as to be reasonable and
enforceable and, as so modified by the court, to be
fully enforced.
17. Foreign Corrupt Practices Act.
Employee shall at all times comply with the United States
Foreign Corrupt Practices Act, generally codified in 15 USC
78 (FCPA), as the FCPA may hereafter be amended, and/or its
successor statutes. If Employee pleads guilty to or nolo
contendere or admits civil or criminal liability under the
FCPA, or if a court finds that Employee committed an action
resulting in any Company entity having civil or criminal
liability or responsibility under the FCPA with knowledge of
the activities giving rise to such liability or knowledge of
facts from which Employee should have reasonably inferred the
activities giving rise to liability had occurred or were
likely to occur, such action or finding shall constitute
Cause for termination by Company under paragraph 3.5 of this
Agreement unless Company's Board of Directors
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determines that the actions found to be in violation of the
FCPA were taken in good faith and in compliance with all
applicable policies of Company.
18. Survival.
The provisions of paragraphs 4 and 16 shall survive any
termination of the employment relationship and/or of this
Agreement for the periods stated therein. The provisions of
paragraph 15 relating to arbitration shall survive any
termination of the employment relationship between Employee
and Company and the termination of this Agreement. Amounts,
compensation, rights and benefits which Employee is entitled
to receive or have accrued to Employee under this Agreement
or under any plan, program, arrangement, agreement or policy
of or with Company or any of its affiliates before, at or
subsequent to the termination of the employment relationship
between Employee and Company or the termination of this
Agreement shall not be superseded and shall survive any such
termination.
19. Certain Additional Payments by Company.
19.1 Anything in this Agreement to the contrary
notwithstanding, in the event it shall be determined
that any payment or distribution by Company or any
of its affiliates to or for the benefit of Employee,
whether paid or payable or distributed or
distributable pursuant to the terms of this
Agreement or otherwise (any such payments or
distributions being individually referred to herein
as a "Payment," and any two or more of such payments
or distributions being referred to herein as
"Payments"), would be subject to the excise tax
imposed by Section 4999 of the Internal Revenue Code
of 1986, as amended (the "Code") (such excise tax,
together with any interest thereon, any penalties,
additions to tax, or additional amounts with respect
to such excise tax, and any interest in respect of
such penalties, additions to tax or additional
amounts, being collectively referred herein to as
the "Excise Tax"), then Employee shall be entitled
to receive an additional payment or payments
(individually referred to herein as a "Gross-Up
Payment" and any two or more of such additional
payments being referred to herein as "Gross-Up
Payments") in an amount such that after payment by
Employee of all taxes (as defined in paragraph
19.11) imposed upon the Gross-Up Payment, Employee
retains an amount of such Gross-Up Payment equal to
the Excise Tax imposed upon the Payments.
19.2 Subject to the provisions of paragraph 19.3 through
19.11, any determination (individually, a
"Determination") required to be made under this
paragraph 19, including whether a Gross-Up Payment
is required and the amount of such Gross-Up Payment,
shall initially be made, at Company's expense, by
nationally recognized tax counsel mutually
acceptable to Company and Employee ("Tax Counsel").
Tax Counsel shall provide detailed supporting legal
authorities, calculations, and documentation both to
Company and
EMPLOYMENT AGREEMENT--X. X. XxXXXXX
-13-
14
Employee within 15 business days of the termination
of Employee's employment, if applicable, or such
other time or times as is reasonably requested by
Company or Employee. If Tax Counsel makes the
initial Determination that no Excise Tax is payable
by Employee with respect to a Payment or Payments,
it shall furnish Employee with an opinion reasonably
acceptable to Employee that no Excise Tax will be
imposed with respect to any such Payment or
Payments. Employee shall have the right to dispute
any Determination (a "Dispute") within 15 business
days after delivery of Tax Counsel's opinion with
respect to such Determination. The Gross-Up Payment,
if any, as determined pursuant to such Determination
shall be paid by Company to Employee within five
business days of Employee's receipt of such
Determination. The existence of a Dispute shall not
in any way affect Employee's right to receive the
Gross-Up Payment in accordance with such
Determination. If there is no Dispute, such
Determination shall be binding, final and conclusive
upon Company and Employee, subject in all respects,
however, to the provisions of paragraph 19.3 through
19.11 below. As a result of the uncertainty in the
application of Sections 4999 and 280G of the Code,
it is possible that Gross-Up Payments (or portions
thereof) which will not have been made by Company
should have been made ("Underpayment"), and if upon
any reasonable written request from Employee or
Company to Tax Counsel, or upon Tax Counsel's own
initiative, Tax Counsel, at Company's expense,
thereafter determines that Employee is required to
make a payment of any Excise Tax or any additional
Excise Tax, as the case may be, Tax Counsel shall,
at Company's expense, determine the amount of the
Underpayment that has occurred and any such
Underpayment shall be promptly paid by Company to
Employee.
19.3 Company shall defend, hold harmless, and indemnify
Employee on a fully grossed-up after tax basis from
and against any and all claims, losses, liabilities,
obligations, damages, impositions, assessments,
demands, judgements, settlements, costs and expenses
(including reasonable attorneys', accountants', and
experts' fees and expenses) with respect to any tax
liability of Employee resulting from any Final
Determination (as defined in paragraph 19.10) that
any Payment is subject to the Excise Tax.
19.4 If a party hereto receives any written or oral
communication with respect to any question,
adjustment, assessment or pending or threatened
audit, examination, investigation or administrative,
court or other proceeding which, if pursued
successfully, could result in or give rise to a
claim by Employee against Company under this
paragraph 19 ("Claim"), including, but not limited
to, a claim for indemnification of Employee by
Company under paragraph 19.3, then such party shall
promptly notify the other party hereto in writing of
such Claim ("Tax Claim Notice").
EMPLOYMENT AGREEMENT--X. X. XxXXXXX
-14-
15
19.5 If a Claim is asserted against Employee ("Employee
Claim"), Employee shall take or cause to be taken
such action in connection with contesting such
Employee Claim as Company shall reasonably request
in writing from time to time, including the
retention of counsel and experts as are reasonably
designated by Company (it being understood and
agreed by the parties hereto that the terms of any
such retention shall expressly provide that Company
shall be solely responsible for the payment of any
and all fees and disbursements of such counsel and
any experts) and the execution of powers of
attorney, provided that:
19.5.1 within 30 calendar days after Company
receives or delivers, as the case may be,
the Tax Claim Notice relating to such
Employee Claim (or such earlier date that
any payment of the taxes claimed is due
from Employee, but in no event sooner than
five calendar days after Company receives
or delivers such Tax Claim Notice), Company
shall have notified Employee in writing
("Election Notice") that Company does not
dispute its obligations (including, but not
limited to, its indemnity obligations)
under this Agreement and that Company
elects to contest, and to control the
defense or prosecution of, such Employee
Claim at Company's sole risk and sole cost
and expense; and
19.5.2 Company shall have advanced to Employee on
an interest-free basis, the total amount of
the tax claimed in order for Employee, at
Company's request, to pay or cause to be
paid the tax claimed, file a claim for
refund of such tax and, subject to the
provisions of the last sentence of
paragraph 19.7, xxx for a refund of such
tax if such claim for refund is disallowed
by the appropriate taxing authority (it
being understood and agreed by the parties
hereto that Company shall only be entitled
to xxx for a refund and Company shall not
be entitled to initiate any proceeding in,
for example, United States Tax Court) and
shall indemnify and hold Employee harmless,
on a fully grossed-up after tax basis, from
any tax imposed with respect to such
advance or with respect to any imputed
income with respect to such advance; and
19.5.3 Company shall reimburse Employee for any
and all costs and expenses resulting from
any such request by Company and shall
indemnify and hold Employee harmless, on
fully grossed-up after-tax basis, from any
tax imposed as a result of such
reimbursement.
19.6 Subject to the provisions of paragraph 19.5 hereof,
Company shall have the right to defend or prosecute,
at the sole cost, expense and risk of Company, such
Employee Claim by all appropriate proceedings, which
proceedings shall be defended or prosecuted
diligently by Company to a Final Determination;
provided, however, that (i) Company shall not,
without
EMPLOYMENT AGREEMENT--X. X. XxXXXXX
-15-
16
Employee's prior written consent, enter into any
compromise or settlement of such Employee Claim that
would adversely affect Employee, (ii) any request
from Company to Employee regarding any extension of
the statute of limitations relating to assessment,
payment, or collection of taxes for the taxable year
of Employee with respect to which the contested
issues involved in, and amount of, the Employee
Claim relate is limited solely to such contested
issues and amount, and (iii) Company's control of
any contest or proceeding shall be limited to issues
with respect to the Employee Claim and Employee
shall be entitled to settle or contest, in his sole
and absolute discretion, any other issue raised by
the Internal Revenue Service or any other taxing
authority. So long as Company is diligently
defending or prosecuting such Employee Claim,
Employee shall provide or cause to be provided to
Company any information reasonably requested by
Company that relates to such Employee Claim, and
shall otherwise cooperate with Company and its
representatives in good faith in order to contest
effectively such Employee Claim. Company shall keep
Employee informed of all developments and events
relating to any such Employee Claim (including,
without limitation, providing to Employee copies of
all written materials pertaining to any such
Employee Claim), and Employee or his authorized
representatives shall be entitled, at Employee's
expense, to participate in all conferences, meetings
and proceedings relating to any such Employee Claim.
19.7 If, after actual receipt by Employee of an amount of
a tax claimed (pursuant to an Employee Claim) that
has been advanced by Company pursuant to paragraph
19.5.2 hereof, the extent of the liability of
Company hereunder with respect to such tax claimed
has been established by a Final Determination,
Employee shall promptly pay or cause to be paid to
Company any refund actually received by, or actually
credited to, Employee with respect to such tax
(together with any interest paid or credited thereon
by the taxing authority and any recovery of legal
fees from such taxing authority related thereto),
except to the extent that any amounts are then due
and payable by Company to Employee, whether under
the provisions of this Agreement or otherwise. If,
after the receipt by Employee of an amount advanced
by Company pursuant to paragraph 19.5.2, a
determination is made by the Internal Revenue
Service or other appropriate taxing authority that
Employee shall not be entitled to any refund with
respect to such tax claimed and Company does not
notify Employee in writing of its intent to contest
such denial of refund prior to the expiration of 30
days after such determination, then such advance
shall be forgiven and shall not be required to be
repaid and the amount of such advance shall offset,
to the extent thereof, the amount of any Gross-Up
Payments and other payments required to be paid
hereunder.
19.8 With respect to any Employee Claim, if Company fails
to deliver an Election Notice to Employee within the
period provided in paragraph 19.5.1 hereof or,
EMPLOYMENT AGREEMENT--X. X. XxXXXXX
-16-
17
after delivery of such Election Notice, Company
fails to comply with the provisions of paragraph
19.5.2, 19.5.3 or 19.6 hereof, then Employee shall
at any time thereafter have the right (but not the
obligation), at his election and in his sole and
absolute discretion, to defend or prosecute, at the
sole cost, expense and risk of Company, such
Employee Claim. Employee shall have full control of
such defense or prosecution and such proceedings,
including any settlement or compromise thereof. If
requested by Employee, Company shall cooperate, and
shall cause its affiliates to cooperate, in good
faith with Employee and his authorized
representatives in order to contest effectively such
Employee Claim. Company may attend, but not
participate in or control, any defense, prosecution,
settlement or compromise of any Employee Claim
controlled by Employee pursuant to this paragraph
19.8 and shall bear its own costs and expenses with
respect thereto. In the case of any Employee Claim
that is defended or prosecuted by Employee, Employee
shall, from time to time, be entitled to current
payment, on a fully grossed-up after tax basis, from
Company with respect to costs and expenses incurred
by Employee in connection with such defense or
prosecution.
19.9 In the case of any Employee Claim that is defended
or prosecuted to a Final Determination pursuant to
the terms of this paragraph 19.9, Company shall pay,
on a fully grossed-up after tax basis, to Employee
in immediately available funds the full amount of
any taxes arising or resulting from or incurred in
connection with such Employee Claim that have not
theretofore been paid by Company to Employee,
together with the costs and expenses, on a fully
grossed-up after tax basis, incurred in connection
therewith that have not theretofore been paid by
Company to Employee, within ten calendar days after
such Final Determination. In the case of any
Employee Claim not covered by the preceding
sentence, Company shall pay, on a fully grossed-up
after tax basis, to Employee in immediately
available funds the full amount of any taxes arising
or resulting from or incurred in connection with
such Employee Claim at least ten calendar days
before the date payment of such taxes is due from
Employee, except where payment of such taxes is
sooner required under the provisions of this
paragraph 19.9, in which case payment of such taxes
(and payment, on a fully grossed-up after tax basis,
of any costs and expenses required to be paid under
this paragraph 19.9 shall be made within the time
and in the manner otherwise provided in this
paragraph 19.9.
19.10 For purposes of this Agreement, the term "Final
Determination" shall mean (A) a decision, judgment,
decree or other order by a court or other tribunal
with appropriate jurisdiction, which has become
final and non-appealable; (B) a final and binding
settlement or compromise with an administrative
agency with appropriate jurisdiction, including, but
not limited to, a closing agreement under Section
7121 of the Code; (C) any disallowance of a claim
for refund or credit in respect to an overpayment of
tax unless a suit is filed
EMPLOYMENT AGREEMENT--X. X. XxXXXXX
-17-
18
on a timely basis; or (D) any final disposition by
reason of the expiration of all applicable statutes
of limitations.
19.11 For purposes of this Agreement, the terms "tax" and
"taxes" mean any and all taxes of any kind
whatsoever (including, but not limited to, any and
all Excise Taxes, income taxes, and employment
taxes), together with any interest thereon, any
penalties, additions to tax, or additional amounts
with respect to such taxes and any interest in
respect of such penalties, additions to tax, or
additional amounts.
20. No Obligation to Mitigate.
Employee shall not be required to mitigate the amount of any
payment or other benefit required to be paid to Employee
pursuant to this Agreement, whether by seeking other
employment or otherwise; nor shall the amount of any such
payment or other benefit be reduced on account of any
compensation earned by Employee as a result of employment by
another person or entity.
21. Miscellaneous.
21.1 This Agreement shall not be modified or amended
except in writing and signed by Company and
Employee. This Agreement shall be binding upon the
heirs, administrators, or executors and the
successors and assigns of each party to this
Agreement.
21.2 The rights and benefits of Employee under the
Agreement are personal to him and shall not be
assigned or transferred without the prior written
consent of Company. Subject to the foregoing, this
Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective
heirs, personal representatives, successors and
assigns.
21.3 All titles or headings of sections or paragraphs or
other divisions of this Agreement are only for the
convenience of the parties and shall not be
construed to have any effect or meaning with respect
to the other content of such sections or paragraphs
or other divisions, such content being controlling
as to the agreement between the parties hereto.
21.4 This Agreement is made and will be performed under,
and shall be governed by and construed in accordance
with, the law of the State of Texas.
21.5 EMPLOYEE AFFIRMS AND ATTESTS BY HIS SIGNATURE TO
THIS AGREEMENT THAT HE HAS READ THIS AGREEMENT
BEFORE SIGNING IT AND THAT HE FULLY UNDERSTANDS ITS
PURPOSES, TERMS AND PROVISIONS, WHICH HE HEREBY
EXPRESSLY ACKNOWLEDGED TO BE REASONABLE IN ALL
RESPECTS.
EMPLOYMENT AGREEMENT--X. X. XxXXXXX
-18-
19
EMPLOYEE FURTHER ACKNOWLEDGES RECEIPT OF ONE COPY
OF THIS AGREEMENT.
21.6 Notices contemplated under this Agreement shall be
directed to the following address:
If to Company:
Mariner Energy, Inc.
000 Xxxxxxxx Xxxxxxxxx, Xxxxx 0000
Xxxxxxx, Xxxxx 00000
Attention: President and Chief Executive Officer
If to Employee:
X. X. XxXxxxx
000 Xxxxxxxxx Xxxx
Xxxxxxxxxx, Xxxxx 00000
Company and Employee may change the above addresses
for notice purposes by notifying the other in
writing.
21.7 The Company may withhold from any amounts payable
under this Agreement such federal, state, or local
taxes as shall be required to be withheld pursuant
to any applicable law or regulation.
Executed as of the Effective Date in duplicate originals at Houston,
Texas.
Acknowledged by: MARINER ENERGY, INC.
/s/ X. Xxxx Xxxxx By: /s/ Xxxxxx X. Xxxxxxxxx
------------------------------- -----------------------------------
X. Xxxx Xxxxx Xxxxxx X. Xxxxxxxxx
Vice President - Administration President and
Chief Executive Officer
"COMPANY"
/s/ X. X. XxXxxxx
---------------------------------------
X. X. XxXxxxx
"EMPLOYEE"
EMPLOYMENT AGREEMENT--X. X. XxXXXXX
-19-
20
EXHIBIT 23.1
CONSENT OF INDEPENDENT PETROLEUM ENGINEERS
We consent to the use of the name of this firm and of certain
information contained in our reserve report dated December 31, 1998, prepared
for Mariner Energy, Inc. ("Mariner"), in Mariner's Annual Report on Form 10-K
for the year ended December 31, 1998.
/s/ XXXXX XXXXX COMPANY
PETROLEUM ENGINEERS
XXXXX XXXXX COMPANY
PETROLEUM ENGINEERS
Houston, Texas
March 30, 1999
21
[LOGO] [XXXXX XXXXX COMPANY LETTERHEAD]
March 29, 1999
Mariner Energy, Inc.
000 XxxxXxxx Xxxx Xxxx., Xxxxx 0000
Xxxxxxx, Xxxxx 00000
Gentlemen:
At your request, we have prepared an estimate of the reserves, future
production, and income attributable to certain leasehold interests of Mariner
Energy, Inc. (Mariner) as of January 1, 1999. The subject properties are
located in the states of Louisiana, Mississippi, and Texas and in the federal
waters offshore Louisiana and Texas. The income data were estimated using the
Securities and Exchange Commission (SEC) guidelines for future price and cost
parameters.
The estimated reserves and future income amounts presented in this
report are related to hydrocarbon prices. December 1998 hydrocarbon prices were
used in the preparation of this report as required by SEC guidelines; however,
actual future prices may vary significantly from December 1998 prices.
Therefore, volumes of reserves actually recovered and amounts of income
actually received may differ significantly from the estimated quantities
presented in this report. The results of this study are summarized below.
SEC PARAMETERS
Estimated Net Reserves and Income Data
Certain Leasehold Interests of
MARINER ENERGY, INC.
As of January 1, 1999
Proved
------------------------------------------------------
Developed Total
--------------------------- --------------------------
Producing Non-Producing Undeveloped Proved
------------ ------------- ------------ ------------
NET REMAINING RESERVES
Oil/Condensate - Barrels 2,282,975 582,551 6,472,846 9,338,372
Plant Products - Barrels 10,329 10,580 0 20,909
Gas - MMCF 57,082 28,942 42,871 128,895
INCOME DATA
Future Gross Revenue $150,978,685 $ 65,653,902 $157,499,321 $374,131,908
Deductions 44,159,398 24,415,844 106,555,833 175,131,075
------------ ------------ ------------ ------------
Future Net Income (FNI) $106,819,287 $ 41,238,058 $ 50,943,488 $199,000,833
Discounted FNI @ 10% $ 86,947,896 $ 33,976,023 $ 26,705,382 $147,629,301
Liquid hydrocarbons are expressed in standard 42 gallon barrels. All
gas volumes are sales gas expressed in millions of cubic feet (MMCF) at the
official temperature and pressure bases of the areas in which the gas reserves
are located.
22
March 29, 1999
Page 2
The future gross revenue is after the deduction of production taxes.
The deductions are comprised of the normal direct costs of operating the xxxxx,
ad valorem taxes, recompletion costs, development costs, and certain
abandonment costs net of salvage. The future net income is before the deduction
of state and federal income taxes and general administrative overhead, and has
not been adjusted for outstanding loans that may exist nor does it include any
adjustment for cash on hand or undistributed income. No attempt was made to
quantify or otherwise account for any accumulated gas production imbalances
that may exist. Gas reserves account for approximately 74.7 percent of the
total future gross revenue from proved reserves. Liquid hydrocarbon reserves
account for approximately 25.2 percent and plant product reserves account for
the remaining 0.1 percent of total future gross revenue from proved reserves.
The discounted future net income shown above was calculated using a
discount rate of 10 percent per annum compounded monthly. Future net income was
discounted at four other discount rates which were also compounded monthly.
These results are shown on each estimated projection of future production and
income presented in a later section of this report and in summary form below.
Discounted Future Net Income
As of January 1, 1999
----------------------------
Discount Rate Total
Percent Proved
------------- ------------
15 $130,676,504
20 $116,923,905
25 $105,465,882
30 $ 95,740,539
The results shown above are presented for your information and should not be
construed as our estimate of fair market value.
RESERVES INCLUDED IN THIS REPORT
The proved reserves included herein conform to the definition as set
forth in the Securities and Exchange Commission's Regulation S-X Part 210.4-10
(a) as clarified by subsequent Commission Staff Accounting Bulletins. The
definition of proved reserves is included in the attached "Reserve Definitions
and Pricing Assumptions".
The proved developed non-producing reserves included herein are
comprised of shut-in and behind pipe categories. The various reserve status
categories are defined in the attached "Reserve Definitions and Pricing
Assumptions".
ESTIMATES OF RESERVES
In general, the reserves included herein were estimated by performance
methods or the volumetric method; however, other methods were used in certain
cases where characteristics of the data indicated such other methods were more
appropriate in our opinion. The reserves estimated by the performance method
utilized extrapolations of various historical data in those cases where such
data were definitive. Reserves were estimated by the volumetric method in those
cases where there
23
March 29, 1999
Page 2
were inadequate historical performance data to establish a definitive trend or
where the use of production performance data as a basis for the reserve
estimates was considered to be inappropriate.
The reserves included in this report are estimates only and should not
be construed as being exact quantities. They may or may not be actually
recovered, and if recovered, the revenues therefrom and the actual costs
related thereto could be more or less than the estimated amounts. Moreover,
estimates of reserves may increase or decrease as a result of future
operations.
FUTURE PRODUCTION RATES
Initial production rates are based on the current producing rates for
those xxxxx now on production. Test data and other related information were
used to estimate the anticipated initial production rates for those xxxxx or
locations which are not currently producing. If no production decline trend has
been established, future production rates were held constant, or adjusted for
the effects of curtailment where appropriate, until a decline in ability to
produce was anticipated. An estimated rate of decline was then applied to
depletion of the reserves. If a decline trend has been established, this trend
was used as the basis for estimating future production rates. For reserves not
yet on production, sales were estimated to commence at an anticipated date
furnished by Mariner.
In general, we estimate that future gas production rates limited by
allowables or marketing conditions will continue to be the same as the average
rate for the latest available 12 months of actual production until such time
that the well or xxxxx are incapable of producing at this rate. The well or
xxxxx were then projected to decline at their decreasing delivery capacity
rate. Our general policy on estimates of future gas production rates is
adjusted when necessary to reflect actual gas market conditions in specific
cases.
The future production rates from xxxxx now on production may be more
or less than estimated because of changes in market demand or allowables set by
regulatory bodies. Xxxxx or locations which are not currently producing may
start producing earlier or later than anticipated in our estimates of their
future production rates.
HYDROCARBON PRICES
Mariner furnished us with prices in effect at January 1, 1999 and
these prices were held constant except for known and determinable escalations.
In accordance with Securities and Exchange Commission guidelines, changes in
liquid and gas prices subsequent to December 31, 1998 were not taken into
account in this report. Future prices used in this report are discussed in more
detail in the attached "Reserve Definitions and Pricing Assumptions".
COSTS
Operating costs for the leases and xxxxx in this report are based on
the operating expense reports of Mariner and include only those costs directly
applicable to the leases or xxxxx. When applicable, the operating costs include
a portion of general and administrative costs allocated directly to the leases
and xxxxx under terms of operating agreements. No deduction was made for
indirect costs such as general administration and overhead expenses, loan
repayments, interest expenses, and exploration and development prepayments that
are not charged directly to the leases or xxxxx.
24
March 29, 1999
Page 2
Development costs were furnished to us by Mariner and are based on
authorizations for expenditure for the proposed work or actual costs for
similar projects. Three offshore undeveloped fields, Ewing Bank 966,
Mississippi Canyon 718 and Galveston Island 144, have relatively large capital
expense requirements which have been allocated to both the proved and probable
categories. In these three cases, two thirds of the total field development
costs were allocated to proved and one third of the costs were allocated to
probable. The estimated net cost of abandonment after salvage was included for
properties where abandonment costs net of salvage are significant. The
estimates of the net abandonment costs furnished by Mariner were accepted
without independent verification.
Current costs were held constant throughout the life of the
properties.
GENERAL
Table A presents a one line summary of proved reserve and income data
for each of the subject properties which are ranked according to their future
net income discounted at 10 percent per year. Table B presents a one line
summary of gross and net reserves and income data for each of the subject
properties. Table C presents a one line summary of initial basic data for each
of the subject properties. Tables 1 through 320 in our report present our
estimated projection of production and income by years beginning January 1,
1999, by state, field, and lease or well.
While it may reasonably be anticipated that the future prices received
for the sale of production and the operating costs and other costs relating to
such production may also increase or decrease from existing levels, such
changes were, in accordance with rules adopted by the SEC, omitted from
consideration in making this evaluation.
The estimates of reserves presented herein were based upon a detailed
study of the properties in which Mariner owns an interest; however, we have not
made any field examination of the properties. No consideration was given in
this report to potential environmental liabilities which may exist nor were any
costs included for potential liability to restore and clean up damages, if any,
caused by past operating practices. Mariner has informed us that they have
furnished us all of the accounts, records, geological and engineering data, and
reports and other data required for this investigation. The ownership
interests, prices, and other factual data furnished by Mariner were accepted
without independent verification. The estimates presented in this report are
based on data available through December 1998.
Neither we nor any of our employees have any interest in the subject
properties and neither the employment to make this study nor the compensation
is contingent on our estimates of reserves and future income for the subject
properties.
25
March 29, 1999
Page 2
This report was prepared for the exclusive use and sole benefit of
Mariner Energy, Inc.. The data, work papers, and maps used in this report are
available for examination by authorized parties in our offices. Please contact
us if we can be of further service.
Very truly yours,
XXXXX XXXXX COMPANY
PETROLEUM ENGINEERS
/s/ Xxxxxxx X. Xxxxxx
Xxxxxxx X. Xxxxxx, P.E.
Petroleum Engineer
JRW/sw
Approved:
/s/ Xxxx X. Xxxxxx
--------------------------------
Xxxx X. Xxxxxx, P.E.
Senior Vice President
26
DEFINITIONS OF RESERVES
PROVED RESERVES (SEC DEFINITION)
Proved reserves of crude oil, condensate, natural gas, and natural gas
liquids are estimated quantities that geological and engineering data
demonstrate with reasonable certainty to be recoverable in the future from
known reservoirs under existing operating conditions, i.e., prices and costs as
of the date the estimate is made. Prices include consideration of changes in
existing prices provided only by contractual arrangements, but not on
escalation based on future conditions.
Reservoirs are considered proved if economic producibility is
supported by either actual production or conclusive formation test. In certain
instances, proved reserves are assigned on the basis of a combination of core
analysis and electrical and other type logs which indicate the reservoirs are
analogous to reservoirs in the same field which are producing or have
demonstrated the ability to produce on a formation test. The area of a
reservoir considered proved includes (1) that portion delineated by drilling
and defined by fluid contacts, if any, and (2) the adjoining portions not yet
drilled that can be reasonably judged as economically productive on the basis
of available geological and engineering data. In the absence of data on fluid
contacts, the lowest known structural occurrence of hydrocarbons controls the
lower proved limit of the reservoir.
Reserves that can be produced economically through the application of
improved recovery techniques are included in the proved classification when
these qualifications are met: (1) successful testing by a pilot project or the
operation of an installed program in the reservoir provides support for the
engineering analysis on which the project or program was based, and (2) it is
reasonably certain the project will proceed. Improved recovery includes all
methods for supplementing natural reservoir forces and energy, or otherwise
increasing ultimate recovery from a reservoir, including (1) pressure
maintenance, (2) cycling, and (3) secondary recovery in its original sense.
Improved recovery also includes the enhanced recovery methods of thermal,
chemical flooding, and the use of miscible and immiscible displacement fluids.
Proved natural gas reserves are comprised of non-associated,
associated and dissolved gas. An appropriate reduction in gas reserves has been
made for the expected removal of natural gas liquids, for lease and plant fuel,
and for the exclusion of non-hydrocarbon gases if they occur in significant
quantities and are removed prior to sale. Estimates of proved reserves do not
include crude oil, natural gas, or natural gas liquids being held in
underground or surface storage.
Proved reserves are estimates of hydrocarbons to be recovered from a
given date forward. They may be revised as hydrocarbons are produced and
additional data become available.
27
RESERVE STATUS CATEGORIES
Reserve status categories define the development and producing status
of xxxxx and/or reservoirs.
PROVED DEVELOPED (SEC DEFINITION)
Proved developed oil and gas reserves are reserves that can be
expected to be recovered through existing xxxxx with existing equipment and
operating methods. Additional oil and gas expected to be obtained through the
application of fluid injection or other improved recovery techniques for
supplementing the natural forces and mechanisms of primary recovery should be
included as "proved developed reserves" only after testing by a pilot project
or after the operation of an installed program has confirmed through production
response that increased recovery will be achieved.
Developed reserves may be subcategorized as producing or non-producing
using the SPE/SPEE Definitions:
Producing
Producing reserves are expected to be recovered from completion
intervals open at the time of the estimate and producing. Improved
recovery reserves are considered to be producing only after an
improved recovery project is in operation.
Non-Producing
Non-producing reserves include shut-in and behind pipe reserves.
Shut-in reserves are expected to be recovered from completion
intervals open at the time of the estimate, but which had not started
producing, or were shut-in for market conditions or pipeline
connection, or were not capable of production for mechanical reasons,
and the time when sales will start is uncertain. Behind pipe reserves
are expected to be recovered from zones behind casing in existing
xxxxx, which will require additional completion work or a future
recompletion prior to the start of production.
PROVED UNDEVELOPED (SEC DEFINITION)
Proved undeveloped oil and gas reserves are reserves that are expected
to be recovered from new xxxxx on undrilled acreage, or from existing xxxxx
where a relatively major expenditure is required for recompletion. Reserves on
undrilled acreage shall be limited to those drilling units offsetting
productive units that are reasonably certain of production when drilled. Proved
reserves for other undrilled units can be claimed only where it can be
demonstrated with reasonable certainty that there is continuity of production
from the existing productive formation. Estimates for proved undeveloped
reserves are attributable to any acreage for which an application of fluid
injection or other improved technique is contemplated, only when such
techniques have been proved effective by actual tests in the area and in the
same reservoir.
28
HYDROCARBON PRICING PARAMETERS
SECURITIES AND EXCHANGE COMMISSION PARAMETERS
OIL AND CONDENSATE
Mariner furnished us with oil and condensate prices in effect at
January 1, 1999 and these prices were held constant to depletion of the
properties. In accordance with Securities and Exchange Commission guidelines,
changes in liquid prices subsequent to January 1, 1999 were not considered in
this report.
PLANT PRODUCTS
Mariner furnished us with plant product prices in effect at January 1,
1999 and these prices were held constant to depletion of the properties.
GAS
Mariner furnished us with gas prices in effect at January 1, 1999 and
with its forecasts of future gas prices which take into account SEC guidelines,
current spot market prices, contract prices, and fixed and determinable price
escalations where applicable. In accordance with SEC guidelines, the future gas
prices used in this report make no allowances for future gas price increases
which may occur as a result of inflation nor do they make any allowance for
seasonal variations in gas prices which may cause future yearly average gas
prices to be somewhat lower than January 1, 1999 gas prices. For gas sold under
contract, the contract gas price including fixed and determinable escalations,
exclusive of inflation adjustments, was used until the contract expires and
then was adjusted to the current market price for the area and held at this
adjusted price to depletion of the reserves.
29
MARINER ENERGY, INC.
Estimated
Future Reserves and Income
Attributable to Certain
Leasehold Interests
(SEC Parameters)
As of
January 1, 1999
30
[LOGO] [XXXXX XXXXX COMPANY LETTERHEAD]
March 29, 1999
Mariner Energy, Inc.
000 XxxxXxxx Xxxx Xxxx., Xxxxx 0000
Xxxxxxx, Xxxxx 00000
Gentlemen:
At your request, we have prepared an estimate of the reserves, future
production, and income attributable to certain leasehold interests of Mariner
Energy, Inc. (Mariner) as of January 1, 1999. The subject properties are
located in the states of Louisiana, Mississippi, and Texas and in the federal
waters offshore Louisiana and Texas. The income data were estimated using the
Securities and Exchange Commission (SEC) guidelines for future price and cost
parameters.
The estimated reserves and future income amounts presented in this
report are related to hydrocarbon prices. December 1998 hydrocarbon prices were
used in the preparation of this report as required by SEC guidelines; however,
actual future prices may vary significantly from December 1998 prices.
Therefore, volumes of reserves actually recovered and amounts of income
actually received may differ significantly from the estimated quantities
presented in this report. The results of this study are summarized below.
SEC PARAMETERS
Estimated Net Reserves and Income Data
Certain Leasehold Interests of
MARINER ENERGY, INC.
As of January 1, 1999
Proved
------------------------------------------------------
Developed Total
--------------------------- --------------------------
Producing Non-Producing Undeveloped Proved
------------ ------------- ------------ ------------
NET REMAINING RESERVES
Oil/Condensate - Barrels 2,282,975 582,551 6,472,846 9,338,372
Plant Products - Barrels 10,329 10,580 0 20,909
Gas - MMCF 57,082 28,942 42,871 128,895
INCOME DATA
Future Gross Revenue $150,978,685 $ 65,653,902 $157,499,321 $374,131,908
Deductions 44,159,398 24,415,844 106,555,833 175,131,075
------------ ------------ ------------ ------------
Future Net Income (FNI) $106,819,287 $ 41,238,058 $ 50,943,488 $199,000,833
Discounted FNI @ 10% $ 86,947,896 $ 33,976,023 $ 26,705,382 $147,629,301
Liquid hydrocarbons are expressed in standard 42 gallon barrels. All
gas volumes are sales gas expressed in millions of cubic feet (MMCF) at the
official temperature and pressure bases of the areas in which the gas reserves
are located.
31
March 29, 1999
Page 2
The future gross revenue is after the deduction of production taxes.
The deductions are comprised of the normal direct costs of operating the xxxxx,
ad valorem taxes, recompletion costs, development costs, and certain
abandonment costs net of salvage. The future net income is before the deduction
of state and federal income taxes and general administrative overhead, and has
not been adjusted for outstanding loans that may exist nor does it include any
adjustment for cash on hand or undistributed income. No attempt was made to
quantify or otherwise account for any accumulated gas production imbalances
that may exist. Gas reserves account for approximately 74.7 percent of the
total future gross revenue from proved reserves. Liquid hydrocarbon reserves
account for approximately 25.2 percent and plant product reserves account for
the remaining 0.1 percent of total future gross revenue from proved reserves.
The discounted future net income shown above was calculated using a
discount rate of 10 percent per annum compounded monthly. Future net income was
discounted at four other discount rates which were also compounded monthly.
These results are shown on each estimated projection of future production and
income presented in a later section of this report and in summary form below.
Discounted Future Net Income
As of January 1, 1999
----------------------------
Discount Rate Total
Percent Proved
------------- ------------
15 $130,676,504
20 $116,923,905
25 $105,465,882
30 $ 95,740,539
The results shown above are presented for your information and should not be
construed as our estimate of fair market value.
RESERVES INCLUDED IN THIS REPORT
The proved reserves included herein conform to the definition as set
forth in the Securities and Exchange Commission's Regulation S-X Part 210.4-10
(a) as clarified by subsequent Commission Staff Accounting Bulletins. The
definition of proved reserves is included in the attached "Reserve Definitions
and Pricing Assumptions".
The proved developed non-producing reserves included herein are
comprised of shut-in and behind pipe categories. The various reserve status
categories are defined in the attached "Reserve Definitions and Pricing
Assumptions".
ESTIMATES OF RESERVES
In general, the reserves included herein were estimated by performance
methods or the volumetric method; however, other methods were used in certain
cases where characteristics of the data indicated such other methods were more
appropriate in our opinion. The reserves estimated by the performance method
utilized extrapolations of various historical data in those cases where such
data were definitive. Reserves were estimated by the volumetric method in those
cases where there
32
March 29, 1999
Page 2
were inadequate historical performance data to establish a definitive trend or
where the use of production performance data as a basis for the reserve
estimates was considered to be inappropriate.
The reserves included in this report are estimates only and should not
be construed as being exact quantities. They may or may not be actually
recovered, and if recovered, the revenues therefrom and the actual costs
related thereto could be more or less than the estimated amounts. Moreover,
estimates of reserves may increase or decrease as a result of future
operations.
FUTURE PRODUCTION RATES
Initial production rates are based on the current producing rates for
those xxxxx now on production. Test data and other related information were
used to estimate the anticipated initial production rates for those xxxxx or
locations which are not currently producing. If no production decline trend has
been established, future production rates were held constant, or adjusted for
the effects of curtailment where appropriate, until a decline in ability to
produce was anticipated. An estimated rate of decline was then applied to
depletion of the reserves. If a decline trend has been established, this trend
was used as the basis for estimating future production rates. For reserves not
yet on production, sales were estimated to commence at an anticipated date
furnished by Mariner.
In general, we estimate that future gas production rates limited by
allowables or marketing conditions will continue to be the same as the average
rate for the latest available 12 months of actual production until such time
that the well or xxxxx are incapable of producing at this rate. The well or
xxxxx were then projected to decline at their decreasing delivery capacity
rate. Our general policy on estimates of future gas production rates is
adjusted when necessary to reflect actual gas market conditions in specific
cases.
The future production rates from xxxxx now on production may be more
or less than estimated because of changes in market demand or allowables set by
regulatory bodies. Xxxxx or locations which are not currently producing may
start producing earlier or later than anticipated in our estimates of their
future production rates.
HYDROCARBON PRICES
Mariner furnished us with prices in effect at January 1, 1999 and
these prices were held constant except for known and determinable escalations.
In accordance with Securities and Exchange Commission guidelines, changes in
liquid and gas prices subsequent to December 31, 1998 were not taken into
account in this report. Future prices used in this report are discussed in more
detail in the attached "Reserve Definitions and Pricing Assumptions".
COSTS
Operating costs for the leases and xxxxx in this report are based on
the operating expense reports of Mariner and include only those costs directly
applicable to the leases or xxxxx. When applicable, the operating costs include
a portion of general and administrative costs allocated directly to the leases
and xxxxx under terms of operating agreements. No deduction was made for
indirect costs such as general administration and overhead expenses, loan
repayments, interest expenses, and exploration and development prepayments that
are not charged directly to the leases or xxxxx.
33
March 29, 1999
Page 2
Development costs were furnished to us by Mariner and are based on
authorizations for expenditure for the proposed work or actual costs for
similar projects. Three offshore undeveloped fields, Ewing Bank 966,
Mississippi Canyon 718 and Galveston Island 144, have relatively large capital
expense requirements which have been allocated to both the proved and probable
categories. In these three cases, two thirds of the total field development
costs were allocated to proved and one third of the costs were allocated to
probable. The estimated net cost of abandonment after salvage was included for
properties where abandonment costs net of salvage are significant. The
estimates of the net abandonment costs furnished by Mariner were accepted
without independent verification.
Current costs were held constant throughout the life of the
properties.
GENERAL
Table A presents a one line summary of proved reserve and income data
for each of the subject properties which are ranked according to their future
net income discounted at 10 percent per year. Table B presents a one line
summary of gross and net reserves and income data for each of the subject
properties. Table C presents a one line summary of initial basic data for each
of the subject properties. Tables 1 through 320 in our report present our
estimated projection of production and income by years beginning January 1,
1999, by state, field, and lease or well.
While it may reasonably be anticipated that the future prices received
for the sale of production and the operating costs and other costs relating to
such production may also increase or decrease from existing levels, such
changes were, in accordance with rules adopted by the SEC, omitted from
consideration in making this evaluation.
The estimates of reserves presented herein were based upon a detailed
study of the properties in which Mariner owns an interest; however, we have not
made any field examination of the properties. No consideration was given in
this report to potential environmental liabilities which may exist nor were any
costs included for potential liability to restore and clean up damages, if any,
caused by past operating practices. Mariner has informed us that they have
furnished us all of the accounts, records, geological and engineering data, and
reports and other data required for this investigation. The ownership
interests, prices, and other factual data furnished by Mariner were accepted
without independent verification. The estimates presented in this report are
based on data available through December 1998.
Neither we nor any of our employees have any interest in the subject
properties and neither the employment to make this study nor the compensation
is contingent on our estimates of reserves and future income for the subject
properties.
34
March 29, 1999
Page 2
This report was prepared for the exclusive use and sole benefit of
Mariner Energy, Inc.. The data, work papers, and maps used in this report are
available for examination by authorized parties in our offices. Please contact
us if we can be of further service.
Very truly yours,
XXXXX XXXXX COMPANY
PETROLEUM ENGINEERS
/s/ Xxxxxxx X. Xxxxxx
Xxxxxxx X. Xxxxxx, P.E.
Petroleum Engineer
JRW/sw
Approved:
/s/ Xxxx X. Xxxxxx
--------------------------------
Xxxx X. Xxxxxx, P.E.
Senior Vice President
35
DEFINITIONS OF RESERVES
PROVED RESERVES (SEC DEFINITION)
Proved reserves of crude oil, condensate, natural gas, and natural gas
liquids are estimated quantities that geological and engineering data
demonstrate with reasonable certainty to be recoverable in the future from
known reservoirs under existing operating conditions, i.e., prices and costs as
of the date the estimate is made. Prices include consideration of changes in
existing prices provided only by contractual arrangements, but not on
escalation based on future conditions.
Reservoirs are considered proved if economic producibility is
supported by either actual production or conclusive formation test. In certain
instances, proved reserves are assigned on the basis of a combination of core
analysis and electrical and other type logs which indicate the reservoirs are
analogous to reservoirs in the same field which are producing or have
demonstrated the ability to produce on a formation test. The area of a
reservoir considered proved includes (1) that portion delineated by drilling
and defined by fluid contacts, if any, and (2) the adjoining portions not yet
drilled that can be reasonably judged as economically productive on the basis
of available geological and engineering data. In the absence of data on fluid
contacts, the lowest known structural occurrence of hydrocarbons controls the
lower proved limit of the reservoir.
Reserves that can be produced economically through the application of
improved recovery techniques are included in the proved classification when
these qualifications are met: (1) successful testing by a pilot project or the
operation of an installed program in the reservoir provides support for the
engineering analysis on which the project or program was based, and (2) it is
reasonably certain the project will proceed. Improved recovery includes all
methods for supplementing natural reservoir forces and energy, or otherwise
increasing ultimate recovery from a reservoir, including (1) pressure
maintenance, (2) cycling, and (3) secondary recovery in its original sense.
Improved recovery also includes the enhanced recovery methods of thermal,
chemical flooding, and the use of miscible and immiscible displacement fluids.
Proved natural gas reserves are comprised of non-associated,
associated and dissolved gas. An appropriate reduction in gas reserves has been
made for the expected removal of natural gas liquids, for lease and plant fuel,
and for the exclusion of non-hydrocarbon gases if they occur in significant
quantities and are removed prior to sale. Estimates of proved reserves do not
include crude oil, natural gas, or natural gas liquids being held in
underground or surface storage.
Proved reserves are estimates of hydrocarbons to be recovered from a
given date forward. They may be revised as hydrocarbons are produced and
additional data become available.
36
RESERVE STATUS CATEGORIES
Reserve status categories define the development and producing status
of xxxxx and/or reservoirs.
PROVED DEVELOPED (SEC DEFINITION)
Proved developed oil and gas reserves are reserves that can be
expected to be recovered through existing xxxxx with existing equipment and
operating methods. Additional oil and gas expected to be obtained through the
application of fluid injection or other improved recovery techniques for
supplementing the natural forces and mechanisms of primary recovery should be
included as "proved developed reserves" only after testing by a pilot project
or after the operation of an installed program has confirmed through production
response that increased recovery will be achieved.
Developed reserves may be subcategorized as producing or non-producing
using the SPE/SPEE Definitions:
Producing
Producing reserves are expected to be recovered from completion
intervals open at the time of the estimate and producing. Improved
recovery reserves are considered to be producing only after an
improved recovery project is in operation.
Non-Producing
Non-producing reserves include shut-in and behind pipe reserves.
Shut-in reserves are expected to be recovered from completion
intervals open at the time of the estimate, but which had not started
producing, or were shut-in for market conditions or pipeline
connection, or were not capable of production for mechanical reasons,
and the time when sales will start is uncertain. Behind pipe reserves
are expected to be recovered from zones behind casing in existing
xxxxx, which will require additional completion work or a future
recompletion prior to the start of production.
PROVED UNDEVELOPED (SEC DEFINITION)
Proved undeveloped oil and gas reserves are reserves that are expected
to be recovered from new xxxxx on undrilled acreage, or from existing xxxxx
where a relatively major expenditure is required for recompletion. Reserves on
undrilled acreage shall be limited to those drilling units offsetting
productive units that are reasonably certain of production when drilled. Proved
reserves for other undrilled units can be claimed only where it can be
demonstrated with reasonable certainty that there is continuity of production
from the existing productive formation. Estimates for proved undeveloped
reserves are attributable to any acreage for which an application of fluid
injection or other improved technique is contemplated, only when such
techniques have been proved effective by actual tests in the area and in the
same reservoir.
37
HYDROCARBON PRICING PARAMETERS
SECURITIES AND EXCHANGE COMMISSION PARAMETERS
OIL AND CONDENSATE
Mariner furnished us with oil and condensate prices in effect at
January 1, 1999 and these prices were held constant to depletion of the
properties. In accordance with Securities and Exchange Commission guidelines,
changes in liquid prices subsequent to January 1, 1999 were not considered in
this report.
PLANT PRODUCTS
Mariner furnished us with plant product prices in effect at January 1,
1999 and these prices were held constant to depletion of the properties.
GAS
Mariner furnished us with gas prices in effect at January 1, 1999 and
with its forecasts of future gas prices which take into account SEC guidelines,
current spot market prices, contract prices, and fixed and determinable price
escalations where applicable. In accordance with SEC guidelines, the future gas
prices used in this report make no allowances for future gas price increases
which may occur as a result of inflation nor do they make any allowance for
seasonal variations in gas prices which may cause future yearly average gas
prices to be somewhat lower than January 1, 1999 gas prices. For gas sold under
contract, the contract gas price including fixed and determinable escalations,
exclusive of inflation adjustments, was used until the contract expires and
then was adjusted to the current market price for the area and held at this
adjusted price to depletion of the reserves.
38
MARINER ENERGY, INC.
Estimated
Future Reserves and Income
Attributable to Certain
Leasehold Interests
(SEC Parameters)
As of
January 1, 1999
