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EXHIBIT 10(ii)
TURNKEY DRILLING AGREEMENT
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TURNKEY DRILLING AGREEMENT
THIS AGREEMENT is made and entered into this 4th day of September,
1998, between and among WOLVERINE ENERGY 1998-1999(A) DEVELOPMENT COMPANY,
L.L.C., a Michigan limited liability company (the "Company"), and WOLVERINE
ENERGY, L.L.C., a Michigan limited liability company (the "Manager").
W I T N E S S E T H:
WHEREAS, the Manager owns or controls, or will own or control a working
interest in certain gas leases located in Xxxxxxxxxx County, Kansas,
encompassing certain natural gas well locations (the "Xxxxx"); and
WHEREAS, the Manager is a party to operating agreements (the "Operating
Agreements") with respect to the Xxxxx as the sole non-operating working
interest owner with (the "Operator") as the
operator; and
WHEREAS, the Operating Agreements provide that the Manager is required,
inter alia, to pay a pro rata share of all expenses to develop, drill, complete
and equip the Xxxxx for production according to its working interest in the
Xxxxx as more fully described therein; and
WHEREAS, the Company wishes to acquire, and the Manager wishes to sell,
its working interest in up to net xxxxx (the "Net Xxxxx") from the
Xxxxx, and the Company wishes to have and the Manager is willing to provide,
assurances that the cost of drilling and completing the Net Xxxxx will not
exceed a fixed amount; and
NOW, THEREFORE, in consideration of the mutual covenants and conditions
contained herein, and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the Company and the Manager hereby
agree as follows:
ARTICLE I.
DEFINITIONS
1. "Completion" shall mean the treatment phase of a Well occurring
after the Well has been drilled to Total Depth, and prior to connection of the
Well to gathering lines for production.
2. "Drilling Phase" shall mean the period commencing with surface
preparation of a Well and concluding with logging of the Well after drilling to
total depth.
3. Each capitalized term used, but not otherwise defined, herein shall
have the meaning ascribed to such term in the Memorandum.
ARTICLE II.
DRILLING AND COMPLETION
A. PAYMENT:
The Company agrees to pay the Manager a sum computed at the rate of
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(i) $70,000 per Net Well for all costs of acquisition, drilling and
completion pursuant to the Operating Agreement for each
Net Well on the Independence Prospect during the Drilling Phase and
through Completion and for all post-Completion Facilities specifically
identified in the AFE prepared by the Operator with respect to the
Prospect and provided to the Manager and the Company or such
other post-Completion Facilities as may be actually installed with
respect to such xxxxx to place them in production,
(ii) $ per Net Well for all costs of acquisition,
drilling and completion pursuant to the Operating
Agreement for each Net Well on the Prospect during the
Drilling Phase and through Completion and for all post-Completion
Facilities specifically identified in the AFE prepared by the Operator
with respect to the Prospect and provided to the Manager
and the Company or such other post-Completion Facilities as may be
actually installed with respect to such xxxxx to place them in
production,
(iii) $ per Net Well for all costs of acquisition,
drilling and completion pursuant to the Operating
Agreement for each Net Well on the Prospect during the
Drilling Phase and through Completion and for all post-Completion
Facilities specifically identified in the AFE prepared by the Operator
with respect to the Prospect and provided to the Manager
and the Company or such other post-Completion Facilities as may be
actually installed with respect to such xxxxx to place them in
production,
(iv) $ per Net Well for all costs of acquisition,
drilling and completion pursuant to the Operating
Agreement for each Net Well on the Prospect during the
Drilling Phase and through Completion and for all post-Completion
Facilities specifically identified in the AFE prepared by the Operator
with respect to the Prospect and provided to the Manager
and the Company or such other post-Completion Facilities as may be
actually installed with respect to such xxxxx to place them in
production,
(collectively, the "Turnkey Cost"), payable in advance in cash or by cashiers'
check, or an equivalent method of payment if acceptable to the Manager, for each
Net Well to be drilled prior to commencement of drilling of such Net Well.
B. DRILLING AND COMPLETION:
The Manager agrees to enforce, on behalf of the Company, the obligation
of the Operators to conduct drilling and completion operations on each Net Well
with due diligence and in a good and workmanlike manner, and further agrees to
provide and pay for all tangible and intangible drilling and completion costs
which are convenient or necessary in the judgment of the respective Operator to
drill and complete the Net Well(s) and which are charged by such Operator to the
working interest in the Xxxxx which constitute the Net Xxxxx held by the Manager
pursuant to the Operating Agreements and transferred to the Company pursuant to
this Agreement,
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including costs of acquisition, maintenance and operation of equipment, labor,
materials, supplies, cementing, casing, well treatment, engineering, geology,
surveying, or other technical or consulting services, permitting, bonding, well
logs, utilities, insurance, administrative and office expenses and Operator
overhead, through Completion. The Manager further agrees to enforce, on behalf
of the Company, the obligation of the Operators to cause and supervise the
acquisition and installation of the Post-Completion Facilities specifically
identified on the AFE with respect to each Net Well or such other
post-Completion Facilities as may be actually installed with respect to such
xxxxx to place them in production, with due diligence and in a good and
workmanlike manner, and further agrees to provide and pay for the acquisition
and installation of all such Post-Completion Facilities with respect to the Net
Well(s) and which are charged by such Operator to the working interest in the
Xxxxx which constitute the Net Xxxxx held by the Manager pursuant to the
Operating Agreements and transferred to the Company pursuant to this Agreement.
C. MANAGER'S OVERRIDING ROYALTY INTEREST
The Manager shall retain a 2% overriding royalty interest in all Net
Xxxxx transferred to the Company pursuant to this Agreement, notwithstanding the
provisions of paragraph II.E. hereof.
D. COMMENCEMENT, TITLE, DRILLING, COMPLETION AND ABANDONMENT:
All aspects of the commencement, title, drilling, completion, operation
and abandonment of any Xxxxx which constitute Net Xxxxx hereunder shall be
governed by and performed in accordance with the Operating Agreements. By this
Agreement, the Manager hereby assigns and transfers all of its right, title and
interest under the Operating Agreements with respect to the Xxxxx which
constitute Net Xxxxx to the Company, subject to paragraph II.C. above. The
rights so assigned and transferred shall be determined solely by reference to
the Operating Agreements and this Agreement shall not be understood or construed
to create or confer any rights, duties, obligations, benefits or liabilities
upon the Company with respect to the Net Xxxxx which are not created for or
conferred upon the Manager with respect to such Net Xxxxx by the Operating
Agreements.
E. EXCLUSIVE CONTROL:
The respective Operator shall have the exclusive charge, control and
supervision of all activities of every kind to be conducted with respect to each
Well which is part of the Net Xxxxx assigned to the Company hereby, including,
without limitation, drilling, treatment, completion, installation of collection
and distribution facilities, compressors and pumps, marketing and sale of gas,
installation of treatment or other facilities, maintenance of the xxxxx and
abandonment.
F. MANAGER'S PERFORMANCE:
Pursuant to paragraph II.C. hereof, the Manager agrees to enforce the
obligation of the Operators to conduct all activities in a good and workmanlike
manner and to maintain insurance as provided for in the Operating Agreements,
but shall have no liability to the Company for losses sustained or liabilities
incurred by the Company with respect to the Net Well(s) except as may result
from the Manager's gross negligence or willful misconduct, and
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the Manager does not warrant, guarantee, or represent that a well will produce
any gas at all or in any particular quantities.
G. TITLE TO EQUIPMENT:
Title to all well casing, fittings, meters, compressors, piping, or
other materials bought or paid for by or for the Company, or installed by the
Operators in the ordinary course of performing their drilling and completion
obligations, shall remain at all times in the name of the Company and the
Company shall remain the owner of said equipment and facilities during and after
the term of this Agreement, notwithstanding that such equipment may be purchased
in the name of the Manager as a working interest owner pursuant to the Operating
Agreements. This paragraph shall not apply to equipment or supplies purchased by
the Operators for operation of their businesses which do not become physical
components or fixtures associated with operation of the Net Well(s) or gathering
facilities appurtenant to the Net Well(s) constructed under the Operating
Agreements.
H. TERM:
This Agreement shall become effective on the date first above written,
and shall terminate upon the Completion of the Xxxxx and the installation of all
post-Completion Facilities necessary to place such Xxxxx in production, except
with respect to the assignment of such Net Xxxxx to the Company pursuant to this
Agreement.
ARTICLE III
MISCELLANEOUS MATTERS
A. INDEPENDENT CONTRACTOR RELATIONSHIP:
The Operators are each independent contractors, free of control or
supervision by the Manager or the Company as to the means or manner of
performing work under the Operating Agreements, and shall have full control and
supervision of drilling, completion, and operating activities.
B. ASSIGNMENT:
This contract shall be binding upon and inure to the benefit of the
successors, assigns and legal representatives of the parties hereto.
C. FORCE MAJEURE:
Neither party shall be liable for any delay or damages, or for failure
to act, to the extent that the party is unable to perform under this Agreement
by force majeure; force majeure as used herein shall mean the effect of any
federal and state laws, rules or regulations, or orders of any public body which
affect performance, acts of God, strikes, fires, floods, or other actions of the
elements, explosions, breakdown of machinery pipelines, inability to obtain
materials, equipment, or labor, and any other cause not reasonably within the
control of the party claiming that force majeure prevented timely performance of
its obligations and claims the protections of this paragraph III.C.
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D. LAW AND BINDING EFFECT:
This Agreement is subject to all present and future valid laws, rules
and regulations of any governmental agency having jurisdiction, and shall in all
respects be subject to and interpreted in accordance with the laws of Michigan.
E. NOTICES:
Any notice, request, demand or statement provided for in this Agreement
shall be in writing and deemed given when deposited in the United States Mail,
postage pre-paid, directed to the address of the parties provided one another
from time to time, unless a party is notified by the other by registered or
certified letter that another address shall be used for notice purposes.
F. ENTIRE AGREEMENT:
This document represents the entire Agreement between the parties, and
supersedes any and all prior oral or written agreements, and no changes,
alterations, or modifications to this Agreement shall be valid or enforceable,
unless in writing and signed by the parties to this Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this agreement to be
executed as of the date first hereinabove written.
WOLVERINE ENERGY 1998-1999(A) DEVELOPMENT COMPANY, L.L.C.
By: //Xxxx X. Xxxxx//
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Its: Executive Vice President
WOLVERINE ENERGY, L.L.C.
By: //Xxxx X. Xxxxx//
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Its: Executive Vice President
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