CHENIERE ENERGY, INC.
TWO XXXXX CENTER
0000 XXXXX XXXXXX, XXXXX 0000
XXXXXXX, XXXXX 00000-0000
(000) 000-0000
FAX: (000) 000-0000
January 6, 1999
Beta Oil & Gas, Inc.
000 Xxxx Xxxxxx, Xxxxx 000
Xxxxxxx Xxxxx, XX 00000
Attention: Xx. Xxxxx Xxxxx, President
Re: Prospect "Shark"
Offshore - West Cameron Area, Louisiana
Gentlemen:
When accepted by you in the manner provided below, this letter shall
evidence the agreement between you (sometimes hereinafter referred to as "Beta")
and Cheniere Energy, Inc., (hereinafter referred to as "Cheniere") with respect
to (1) your acquiring from Cheniere a certain undivided interest in and to the
Oil, Gas and Mineral Leases described on Exhibit "A" attached hereto and made a
part hereof (the "Leases"), which Leases cover lands comprising the prospect
known to Cheniere as the Shark Prospect, and (2) your participation in the
drilling of a test well on the Shark Prospect in the manner hereinafter
described. The geographical area covered by the Shark Prospect is shown on
Exhibit "A," on which it is depicted as the yellow shaded "Lease Block"
(hereinafter referred to as the "Shark Lease Block").
1.
Cheniere represents that it owns a 100% interest in and to the Leases.
In consideration of the sum of $104,000, which Beta agrees to pay and deliver to
Cheniere simultaneously with Beta's execution of this Letter Agreement, and
Beta's undertakings as hereinafter set forth, Cheniere has agreed and does
hereby agree to assign to Beta, an undivided 15.0% of 8/8ths interest in and to
the Leases. The assignment to you of interests pursuant to this Paragraph shall
be made immediately after Cheniere's receipt of (i) your payment to Cheniere of
the amount set forth above, (ii) an original counterpart of this Letter
Agreement duly executed by you, (iii) an Operating Agreement, in the form
attached as Exhibit "C" (the "Operating Agreement"), duly executed by you; and
(iv) the authority for expenditure for the Test Well set forth in Exhibit A duly
executed by you. Except as to claims by, through, or under Assignor, but not
otherwise, the assignments herein provided for shall be without warranty, either
express or implied, and shall be made expressly subject to the terms and
provisions of this Letter Agreement and the Operating Agreement. The form of the
assignment shall be the same or substantially similar to the form of assignment
attached hereto as Exhibit "B."
2.
All operations on the Shark Lease Block or the area of mutual interest
("AMI") created in the Operating Agreement, including the drilling of a test
well as provided in Section 3 below (the "Test Well"), will be governed by the
Operating Agreement; provided, however, if on any matter there is a conflict
between the Operating Agreement and this Letter Agreement, the Letter Agreement
shall prevail. Initially, Cheniere shall be designated as operator under the
Operating Agreement. Cheniere may resign or be replaced as operator in
accordance with the provisions of the Operating Agreement; provided, however,
that if Cheniere resigns or is replaced as operator prior to completion or
abandonment of the Test Well and the successor operator selected under the
Operating Agreement is not acceptable to Beta, then, for a period of thirty (30)
days after appointment of such successor operator, Beta may elect to reassign to
Cheniere its interests in the Leases, and any other interests acquired within
the Shark Lease Block or AMI, and Cheniere shall, contemporaneously with receipt
of such reassignment, return to Beta the purchase price therefor. If such
reassignment right is not timely exercised, it shall be deemed waived.
3.
Beta has agreed, and does hereby agree to participate in the manner set
forth below in the drilling of a Test Well for the Shark Prospect at the
location and to the Contract Depth described in Exhibit "A." Prior to the
spudding of the Test Well, Cheniere may change the location or Contract Depth
for the Test Well, provided that if Beta does not approve such change it may,
within fourteen (14) days of receipt of notice thereof, reassign to Cheniere its
interests in the Leases, and any other interests acquired within the Shark Lease
Block or AMI, and Cheniere shall, contemporaneously with receipt of such
reassignment, return to Beta the purchase price therefor. If such reassignment
right is not timely exercised, it shall be deemed waived.
Beta has agreed and does hereby agree to pay and bear 20.0% of all
risks, costs and expenses incurred in connection with the drilling of the Test
Well to Contract Depth; in logging and testing the Test Well; and, in plugging
and abandoning the Test Well if a completion attempt is not made. The costs and
expenses of drilling the Test Well shall include, but without limitation by
enumeration, the costs incurred in obtaining a drill site surface lease,
examining and clearing title on the surface location (and, if the Test Well is
directionally drilled, the lease covering the bottom hole location), staking the
location, preparing the location and drilling to Contract Depth and evaluating
the well. A detailed estimate of costs of drilling the Test Well to Contract
Depth is included in Exhibit "A", but such information is merely an estimate and
shall not be deemed a limitation or cap on such costs or on either party's
responsibility therefor. An estimate of completion cost will be provided prior
to spudding the Test Well.
If after reaching Contract Depth in the Test Well, Beta elects to
participate in a completion attempt of the Test Well, 15% of all risks, costs
and expenses incurred in connection with such completion, together with the
risks, costs and expenses of plugging and abandoning such well in the event
completion is unsuccessful, shall be borne by Beta.
If the Test Well is not commenced within 120 days after the date
hereof, then, for a period of thirty (30) days thereafter, Beta may reassign to
Cheniere its interest in the Leases, and any other interests acquired within the
Shark Lease Block and AMI, and Cheniere shall, contemporaneously with receipt of
such reassignment, return to Beta the purchase price therefor. If such
reassignment right is not timely exercised, it shall be deemed waived.
4.
If, after commencing a Test Well, but before reaching Contract Depth,
there should be encountered conditions or formations, whether natural or
mechanical, which render further drilling of the Test Well either impossible or
impractical, so that operations on the Test Well are abandoned, a Substitute
Well may be commenced not later than 90 days following the abandonment of Test
Well. Such Substitute Well shall be considered and deemed for all purposes
(including, without limitation, the apportionment between the parties of the
costs and expenses incurred in connection therewith) a continuation of the
drilling of the Test Well and as though it were the well for which it is the
substitute.
5.
If Beta elects not to participate in the Substitute Well, then Beta
shall be deemed to have forfeited all rights and interest in and to the Leases
and any other leases, fee mineral interests or other oil and gas interests or
contractual rights covering or appurtenant to lands in the Shark Lease Block and
the AMI, and shall, within ten (10) days after (i) receipt of notice of the
commencement of the Substitute Well or (ii) the expiration of the 90 day period
for commencement of a Substitute Well, as the case may be, assign to Cheniere
all of such rights and interests.
6.
It is recognized that (i) although title will be examined on the drill
site surface and bottom hole location tracts for the Test Well prior to
commencement of drilling thereof, title will not be examined as to other lands
lying within the Shark Lease Block or the AMI until such time as xxxxx are
proposed to be drilled thereon, and (ii) there possibly may be unleased
interests in other tracts of land within the Shark Lease Block. You acknowledge
that Cheniere has advised you of any currently unleased interests known to
Cheniere which may exist within the Shark Lease Block, but Cheniere makes no
representation or warranty, express or implied, as to the completeness or
accuracy of such information, and your reliance thereon is at your sole risk. If
any such unleased interests are now known or become known to Cheniere to exist
prior to completion or abandonment of the Test Well, Cheniere agrees to make a
good faith effort to acquire Oil, Gas and Mineral Leases covering such unleased
interests under such terms and conditions as are reasonably acceptable to
Cheniere. Undivided interests in such leases acquired by Cheniere shall be
offered to Beta pursuant to the AMI provision of the Operating Agreement.
7.
The notices provided for in this agreement shall be in writing and
delivered by certified U.S. mail, return receipt requested, telecopy, or
overnight courier or messenger with receipt confirmation, to the addresses
below:
CHENIERE ENERGY, INC.
Two Xxxxx Center
0000 Xxxxx Xxxxxx, Xxxxx 0000
Xxxxxxx, XX 00000
Attn: Xxxxxx X. Xxxxxxxx
phone (000) 000-0000
fax (000) 000-0000
BETA OIL & GAS, INC.
000 Xxxx Xxxxxx, Xxxxx 000
Xxxxxxx Xxxxx, XX 00000
Attn: Xxxxx Xxxxx
phone (000) 000-0000
fax (000) 000-0000
Notices hereunder shall be deemed made upon receipt.
8.
Beta shall have the right to review in Cheniere's office all Fairfield
spec data pertaining to the Shark Prospect under the terms and conditions set
out in the Master and Supplemental Licensing Agreement covering such data by and
between Fairfield Industries and Cheniere Energy, Inc. dated January 28, 1998,
and Beta agrees to comply with all such terms and conditions. At Beta's request
and at Beta's cost Cheniere will endeavor to secure a Partners License to such
data for Beta. Subject to Beta's continued compliance with the previously
executed Confidentiality Agreement, dated September 14, 1998, Beta shall have
access to proprietary seismic data acquired by Cheniere covering the Shark
Prospect in Cheniere's offices during Cheniere's normal business hours;
provided, however, that if Beta reassigns interests to Cheniere rights pursuant
to this Agreement, Beta shall return all interpretations, maps, seismic sections
or other data, information, reports, analyses or opinions generated by Beta or
its consultants, contractors or agents using, based upon or derived from such
data, and Beta shall cause all such materials to be removed from Beta's
workstations and computer systems.
9.
This agreement is made subject to all valid, applicable laws, rules,
orders and regulations, of any duly constituted Federal, State or local
regulatory body or authority having jurisdiction thereof, and all development
and operations hereunder shall be in conformity therewith.
10.
The provisions hereof shall inure to the benefit and are binding upon
the parties hereto, and to their respective successors and assigns.
11.
Prior to the date hereof, Beta acquired an interest in State Leases No.
16187 and 00000, Xxxxxx Xxxx Xxxxx 0, Xxxxxxxx Xxxxxxxxx. Beta and Cheniere
expressly agree that, notwithstanding anything herein or in the Operating
Agreement to the contrary, such State Leases are hereby excluded from the AMI.
12.
The parties agree that this Agreement shall be deemed confidential and
shall not be revealed to any third party except (i) to the extent disclosure may
be required by law, including, without limitation, disclosures in registration
statements or other filings with the Securities and Exchange Commission; (ii)
disclosures in any judicial or alternative dispute resolution proceeding
concerning the terms hereof; (iii) disclosures to bona fide prospective
investors, lenders, successors or assigns of a party, upon such third parties'
execution of a confidentiality agreement in form and substance reasonably
acceptable to the parties hereto; and (iv) disclosures with the written consent
of the other party, which consent shall not be unreasonably withheld.
13.
All assignments of interests by Beta to Cheniere pursuant to this
Agreement shall be made by assignment reasonably acceptable to Cheniere and free
of all claims, burdens or encumbrances by through, or under Beta, other than
royalties, overriding royalties, back-ins or like interests reserved by third
parties in farmout agreements, assignments or grants of such interests to Beta.
If Beta reassigns interests to Cheniere pursuant to this Agreement, then Beta
agrees (i) to maintain the confidentiality of all information in Beta's
possession concerning the Shark Prospect; and (ii) for a period of three (3)
years after the date hereof, not to acquire oil and gas interests (including,
without limitation, leasehold interests, fee mineral interests, net profits
interests, royalty or overriding royalty interests, farmouts or other interests)
covering lands within the Shark Lease Block or the AMI. If, notwithstanding the
foregoing, Beta acquires such interests, then within fourteen (14) days after
receipt of assignments or conveyances of such interests, Beta shall in writing
offer to assign such interests to Cheniere upon Cheniere's payment to Beta of
Beta's acquisition costs therefor, documentation of which shall be furnished by
Beta to Cheniere. Cheniere shall have thirty (30) days after receipt of such
notice in which to elect whether to acquire such interest. If Cheniere does not
tender the purchase price for such interests within such period, Cheniere shall
be deemed to have elected not to acquire such interest. Beta shall deliver
executed and acknowledged assignments of such interests to Cheniere
contemporaneously with Cheniere's payment of the purchase price therefor.
14.
Time is of the essence in the performance of this Agreement.
If the foregoing is your understanding of our agreement, please
evidence your acceptance of this agreement by executing in the space provided
below for your signature.
Sincerely,
CHENIERE ENERGY, INC.
/s/Xxxxxx X. Xxxxxxxx
President & CEO
AGREED TO AND ACCEPTED THIS _____ DAY OF _______________, 1999.
BETA OIL AND GAS, INC.
/s/Xxxxx Xxxxx
President & CEO
