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EXHIBIT 10.6
TURNKEY DRILLING CONTRACT
THIS AGREEMENT, is made and entered into as of 21st day of May, 1997 by and
between the parties herein designated as "Joint Venture" and "Contractor."
Joint Venture: Home Stake Joint Venture, Ltd.
Address: 000 Xxxxx Xxxxxx, Xxxxx 000
Xxxxxxx Xxxxx, Xxxxxxxx 00000
Contractor: Blue Ridge Energy, Inc.
Address: 000 Xxxxx Xxxxxx, Xxxxx 000
Xxxxxxx Xxxxx, Xxxxxxxx 00000
IN CONSIDERATION of the mutual promises, conditions and agreements herein
contained, Joint Venture engages Contractor as an Independent Contractor to
furnish the equipment, labor and services to drill, test, and complete its
portion of a Re-Entry Well to be located in Lea County, New Mexico and a
Venture Well to be located in Xxxxxxxxxxxx County, Texas, (referred to herein as
"Re-Entry and/or Venture Xxxxx") in search of oil and/or gas.
The Joint Venture will make the specified payments to Contractor in order (i) to
obtain a price from Contractor for the drilling and completion of the Re-Entry
and/or Venture Xxxxx to specified depths, (ii) to assure that Contractor will be
available to drill, test and complete the subject Re-Entry and/or Venture Xxxxx
for the Joint Venture, (iii) to assure that Contractor will make available on a
preferential basis sufficient drilling and completion apparatus needed to drill,
test and complete the Re-Entry and/or Venture Xxxxx at the earliest possible
time, (iv) to obtain a preferential use of Contractor's services, and (v) to
assure competent supervisory personnel are available in the drilling and
completion of the subject Re-Entry and/or Venture Xxxxx.
Contractor agrees to furnish all equipment, labor and services necessary for the
drilling to the depth indicated herein and the completion of such Re-Entry
and/or Venture Xxxxx. Contractor agrees that the work to be conducted under the
terms of this Agreement will be done with diligence and care in a good and
workmanlike manner and agrees to provide competent supervision of the work
performed hereunder. Unless specifically otherwise provided for herein, all the
required equipment, services and labor are furnished for the price set forth
herein.
1. LOCATION OF RE-ENTRY AND/OR VENTURE XXXXX:
See Exhibit "1" attached hereto and made a part hereof.
2. TERMINATION DATE:
Contractor agrees to use its best efforts to complete operations for the
acquisition, drilling and testing of the Re-Entry and/or Venture Xxxxx by
September 30, 1997, and Contractor and the Joint Venture agree that time is of
the essence under this Agreement.
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3. BASIS OF DETERMINING AMOUNTS PAYABLE TO CONTRACTOR:
Contractor shall be paid at the following rate for the work performed hereunder:
"Acquisition Price": $ 80,000
"Drilling Price": $552,684
"Completion and Equipping Price": $438,500
4. DEPTH:
Subject to the right of the Joint Venture to direct the stoppage of work at any
time (as provided in paragraph 7), the Re-Entry and/or Venture Xxxxx shall be
drilled to the depths as specified in Exhibit "1" or to the depths at which the
production casing (oil string) is set, whichever depth is first reached, which
depth is hereinafter referred to as the "Contract Depth."
5. TIME OF PAYMENT:
5.1 Basis: Payment by the Joint Venture to the Contractor of the Drilling
Price becomes due and payable upon the receipt by the Joint Venture of an
invoice from the Contractor. Neither commencement nor completion of
Contractor's performance shall be a condition precedent to this obligation
to pay.
5.2 Attorneys' Fees: If this Agreement is placed in the hands of an
attorney for collection of any sums due hereunder, or suit is brought on
same, or sums due hereunder are collected through bankruptcy or probate
proceedings, then the Joint Venture agrees that there shall be added to
the amount due reasonable attorneys' fees and costs.
6. COMPLETION PROGRAM:
The Joint Venture shall determine whether Contractor shall set an oil string. In
the event the Joint Venture directs that drilling operations cease and to
abandon the Re-Entry and/or Venture Xxxxx, Contractor shall plug the Re-Entry
and/or Venture Xxxxx, remove all drilling apparatus from the well sites and the
obligations of the parties hereunder shall cease. In the event the Joint Venture
directs Contractor to set an oil string and makes timely payment to the
Contractor of the completion price, Contractor shall commence the operations
necessary to complete the Re-Entry and/or Venture Xxxxx for commercial
production, including the setting of an oil string and the acquisition, delivery
and installation of a pump xxxx, holding tank and all other necessary equipment
needed to extract and contain oil from the Re-Entry and/or Venture Xxxxx. If
Contractor should enter into an assignment with another entity to undertake the
Completion Program, Contractor may xxxx the Joint Venture, and the Joint Venture
will pay for any completion costs over and above the Completion Price set forth
herein.
7. STOPPAGE OF WORK BY THE JOINT VENTURE:
Notwithstanding the provisions of paragraph 3 with respect to the depth to be
drilled, the Joint Venture shall have the right to direct the stoppage of the
work to be performed by the Contractor hereunder at any time prior to reaching
the Contract Depths and even though Contractor has made no default hereunder. If
the Joint Venture exercises its right to discontinue drilling a well, the Joint
Venture will not receive a refund for any unused portion of the Drilling Price
allocable to the discontinued well but the Joint Venture may direct Contractor
to apply the unused portion of
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the Drilling Price to the intangible cost of another well that the Joint Venture
shall specify. The unused portion of the Drilling Price will be determined as
follows:
Contractor shall determine a sum equal to all the actual expenses reasonably and
necessarily incurred up to the date the Joint Venture notified Contractor to
discontinue drilling plus such additional expenses reasonably and necessarily
incurred in order for Contractor to cease operations, including plugging and
abandoning the hole, and dismantling the rig plus the sum of 15% of such total
actual expenses. This sum shall be deducted from the Drilling Price of the
Re-Entry and/or Venture Xxxxx. The resulting difference shall be the unused
portion of the price.
8. REPORTS TO BE FURNISHED BY CONTRACTOR:
8.1 Contractor shall keep and furnish to the Joint Venture an accurate
record of the work performed and formations drilled on the IADC-API Daily
Drilling Report form or other form acceptable to the Joint Venture. A
legible copy of said form signed by Contractor's representative shall be
furnished by Contractor to the Joint Venture.
8.2 Delivery tickets, if requested by the Joint Venture, covering any
material or supplies furnished by the Joint Venture shall be turned in
each day with the daily drilling report. The quantity, description and
condition of materials and supplies so furnished shall be checked by
Contractor and such tickets shall be properly certified by Contractor.
9. RESPONSIBILITY FOR A SOUND LOCATION:
Contractor shall prepare a sound location, adequate in size and capable of
properly supporting the drilling rig. Contractor shall be responsible for a
conductor pipe program adequate to prevent soil and subsoil washout. In the
event subsurface conditions cause a cratering or shifting of the location
surface, and loss or damage to the rig or its associated equipment results
therefrom, the Joint Venture shall not be responsible for reimbursing Contractor
for any such loss or damage including payment of work stoppage rate during
repair and/or demobilization if applicable.
10. RESPONSIBILITY FOR ROAD AND LOCATIONS:
Contractor agrees at all times to maintain roads to locations and each location
in such a condition that will allow free access and movement to and from the
drilling site in an ordinarily equipped highway type vehicle.
11. PAYMENT OF CLAIMS:
Contractor agrees to pay all claims for labor, material, services and supplies
to be furnished by Contractor hereunder, and agrees to allow no lien or charge
to be fixed upon the lease, the Re-Entry and/or Venture Xxxxx or other property
of the Joint Venture or the land upon which said Re-Entry and/or Venture Xxxxx
are located.
12. RESPONSIBILITY FOR LOSS OR DAMAGE:
12.1 Contractor's Surface Equipment: Contractor shall assume liability at
all times for damage to or destruction of Contractor's surface equipment,
including but not limited to all drilling tools, machinery and appliances,
for use above the surface, regardless of when or how such damage or
destruction occurs.
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12.2 Contractor's In-Hole Equipment Basis: Contractor shall assume
liability at all times for damage to or destruction of Contractor's
in-hole equipment, including but not limited to drill pipe, drill collars
and tool joints, and the Joint Venture shall be under no liability to
reimburse Contractor for any such loss.
12.3 Joint Venture's Equipment: The Joint Venture shall assume liability
at all times for any defective equipment owned by it, including but not
limited to casing, tubing, well head equipment, and Contractor shall be
under no liability to reimburse the Joint Venture for any such loss or
damage.
12.4 Fire or Blow-Out: Should a fire or blowout occur or should the hole
for any cause attributable to Contractor's operators be lost or damaged
while Contractor is engaged in the performance of work hereunder, all such
loss of or damage to the hole including cost of regaining control of a
fire or blowout, shall be borne by Contractor; and if the hole is not in
condition to be carried to the Contract Depth as herein provided,
Contractor shall, if requested by the Joint Venture, commence a new hole
without delay at Contractor's cost; and the drilling of the new hole shall
be conducted under the terms and conditions of this Agreement in the same
manner as though it were the first hole and Contractor shall be
responsible for replacement of any casing lost in a junked and abandoned
hole as well as the cost of preparing a new drill site for the new hole
and the road thereto. In such case, Contractor shall not be entitled to
any payment or compensation for expenditures made or incurred by
Contractor on or in connection with the abandoned hole.
13. NO WAIVER EXCEPT IN WRITING:
It is fully understood and agreed that none of the requirements of this
Agreement shall be considered as waived by either party unless the same is done
in writing, and then only by the persons executing this Agreement, or other duly
authorized agent or representative of the party.
14. FORCE MAJEURE:
If either party hereto is rendered unable, wholly or in part (and its
performance hereunder is not rendered merely commercially impracticable) by
force majeure to carry out its obligation under this Agreement, it shall give
the other party prompt written notice of the force majeure with reasonably full
particulars. Thereupon, the obligations of the notifying party, so far as they
are affected by the force majeure, shall be suspended during, but not longer
than, the continuance of the force majeure, and the notifying party agrees to
use reasonable diligence to remove the force majeure as quickly as possible.
This paragraph shall not relieve either party hereto for its obligations to
expend sums of money or to indemnify the other party hereto, as provided
elsewhere in this Agreement. The term "force majeure" as herein employed shall
mean an act of God, strike, lockout or other industrial disturbance, act of the
public enemy, war, blockade, public riot, lightning, fire, storm, flood,
explosion, extreme weather conditions, or governmental restraint.
15. INFORMATION CONFIDENTIAL:
Upon written request by the Joint Venture, information obtained by Contractor in
the conduct of drilling operation on the Re-Entry and/or Venture Xxxxx,
including, but not limited to depth, formations penetrated, the results of
coring, testing and surveying, shall be considered confidential and shall not be
divulged by Contractor or its employees, to any person, firm or any corporation
other than the Joint Venture's designated representative.
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16. ASSIGNMENT:
Neither party may assign this Agreement without the prior written consent of the
other, and prompt notice of any such intent to assign shall be given to the
other party. If any assignment is made that materially alters Contractor's
financial burden, Contractor's compensation shall be adjusted to give effect to
any increase or decrease in Contractor's operating costs.
17. NOTICES AND PLACE OF PAYMENT:
All notices to be given with respect to this Agreement unless otherwise provided
for shall be given to Contractor and to the Joint Venture respectively at the
addresses hereinabove shown. All sums payable hereunder to Contractor shall be
payable at the address hereinabove shown unless otherwise specified herein.
BLUE RIDGE ENERGY, INC.
By: /s/ XXXXXX X. XXXX
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Xxxxxx X. Xxxx, President
HOME STAKE JOINT VENTURE, LTD.
A KENTUCKY LIMITED PARTNERSHIP
By: Blue Ridge Energy, Inc.
Joint Venture Manager
By: /s/ XXXXXX X. XXXX
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Xxxxxx X. Xxxx, President
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EXHIBIT "1" TO EXHIBIT "D"
MAY 21, 1997
HOME STAKE PROSPECT: The primary investment objectives of the Joint Venture are
the acquisition of approximately a 66.67% Working Interest, which is
approximately 50.00% of the Net Revenue Interest, in a well site on the Home
Stake Prospect and the acquisition of a 100.00% Working Interest, which is
approximately 75.00% of the Net Revenue Interest in the Xxxxx Prospect and the
production and sale of oil and/or gas therefrom. The Home Stake Prospect
consists of approximately 160 acres of oil and gas leases in Lea County, New
Mexico, and the well to be re-entered and drilled thereon (the "Re-Entry Well").
The Re-Entry Well will be drilled to a depth of 11,200', or a depth sufficient
to test the Xxxxxx Limestone formation. The Xxxxx Prospect consists of
approximately 70 acres of oil and gas leases in Xxxxxxxxxxxx County, Texas and
the well to be drilled thereon (the "Venture Well"). The Venture Well will be
drilled to a depth of 4,600', or a depth sufficient to test the Mississippian
Chapel Limestone formations.
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