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 "Redfish" (IP's "Four Corners")
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 Redfish Prospect, and (2) your participation in the
drilling of a test well on the Redfish Prospect in the manner hereinafter
described. The geographical area covered by the Redfish Prospect is shown on
Exhibit "A," on which it is depicted as the yellow shaded "Lease Block"
(hereinafter referred to as the "Redfish Lease Block").
1.
Cheniere represents that it owns a 50% interest in and to the Leases.
In consideration of the sum of $242,000, 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 Redfish 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, IP petroleum Company, Inc. (IP) shall be designated as
operator under the Operating Agreement. IP may resign or be replaced as operator
in accordance with the provisions of the Operating Agreement; provided, however,
that if IP 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 Redfish 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 Redfish 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 Redfish
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
Redfish 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 Redfish 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 Redfish 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 Redfish Lease Block. You
acknowledge that Cheniere has advised you of any currently unleased interests
known to Cheniere which may exist within the Redfish 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 Redfish 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 Redfish
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 Redfish 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 Redfish 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
EXHIBIT A
to
REDFISH PROSPECT AGREEMENT, DATED JANUARY 6, 1999
(CONFIDENTIAL TREATMENT REQUESTED)
Exhibit B
Redfish Prospect
EXHIBIT "B"
(Attached to and made a part of that certain Letter Agreement dated January 6,
1999 by and between Cheniere Energy, Inc., and Beta Oil & Gas, Inc.)
ASSIGNMENT OF UNDIVIDED INTEREST
IN OIL, GAS AND MINERAL LEASES
THE STATE OF LOUISIANA )
) KNOW ALL MEN BY THESE PRESENTS, THAT:
PARISH OF CAMERON )
WHEREAS, Cheniere Energy, Inc. is the owner of record of a 50 percent
interest in the Oil, Gas and Mineral Leases and the Lease Option described in
Exhibit "A" and made a part hereof, which leases may be referred to in this
assignment as "Subject Leases"; and
WHEREAS, pursuant to the terms and provisions of that certain
unrecorded Letter Agreement by and between Cheniere Energy, Inc. ("Cheniere")
and Beta Oil & Gas, Inc. ("Beta") dated January 6, 1999, and pertaining to the
leases described in Exhibit "A," Cheniere has agreed to assign and convey to
Beta and Beta has agreed to acquire from Cheniere, subject to the terms and
provisions hereinafter set forth, an undivided 15% interest in and to Subject
Leases.
NOW THEREFORE, in consideration of $1,000.00 and other good and
valuable considerations, paid by Assignee to Assignor, the receipt, seriousness
and sufficiency of which is hereby acknowledged by Assignor, Cheniere, as
Assignor, does hereby assign, transfer and convey unto Beta, as Assignee, an
undivided 15% interest in and to Subject Leases.
This assignment is made by Assignor and is accepted by Assignee subject
to and the parties hereto agree to be bound by the terms and provisions of the
above described unrecorded Letter Agreement and the Joint Operating Agreement,
which is attached thereto as Exhibit "C."
This assignment is made subject to and Assignee agrees to bear its
pro-rata part of the royalties and leasehold obligations provided for in Subject
Leases and of the overriding royalties, if any, that are described in Exhibit
"A" hereof, following the description of each of Subject Leases. Assignor
represents and warrants to Assignee that each of Subject Lease is burdened only
with the royalty and overriding royalty, if any, set forth following the
description of each lease in Exhibit "A."
This assignment is made without warranty, either express or implied,
not even for the return of purchase price paid by Assignee to Assignor, but with
full substitution and subrogation, to the extent of the interest herein
assigned, to the rights and actions of warranty granted Assignor under the terms
of Subject Leases or by Assignor's predecessors-in-title.
IN TESTIMONY WHEREOF, this instrument is executed this ________ day of
_____________________________, 19 ______, in the presence of the undersigned
competent witnesses.
WITNESSES:
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COVER PAGE
of
EXHIBIT C
to
REDFISH PROSPECT AGREEMENT, DATED JANUARY 6, 1999
(CONFIDENTIAL TREATMENT REQUESTED)
T A B L E O F C O N T E N T S
SECTION
Page
Preliminary Recitals . . . . . . . . . . . . . . . . . . . . . . . . . . . ii.
ARTICLE I
APPLICATION
1.1 Application . . . . . . . . . . . . . . . . . . . . . . . . . . .1.
ARTICLE II
DEFINITIONS
2.1 Casing Point . . . . . . . . . . . . . . . . . . . . . . . . . . .1.
2.2 Development Operations . . . . . . . . . . . . . . . . . . . . . .1.
2.3 Development Well . . . . . . . . . . . . . . . . . . . . . . . .1.
2.4 Exploratory Operations . . . . . . . . . . . . . . . . . . . . . .1.
2.5 Exploratory Well . . . . . . . . . . . . . . . . . . . . . . . . .2.
2.6 Facilities . . . . . . . . . . . . . . . . . . . . . . . . . . . .2.
2.7 Lease. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2.
2.8 Non-Consent Operations . . . . . . . . . . . . . . . . . . . . . .2.
2.9 Non-Consent Platform . . . . . . . . . . . . . . . . . . . . . . .2.
2.10 Non-Consent Well . . . . . . . . . . . . . . . . . . . . . . . . .2.
2.11 Non-Operator . . . . . . . . . . . . . . . . . . . . . . . . . . .2.
2.12 Non-Participating Party. . . . . . . . . . . . . . . . . . . . . .2.
2.13 Non-Participating Party's Share. . . . . . . . . . . . . . . . . .2.
2.14 Operator . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2.
2.15 Participating Interest . . . . . . . . . . . . . . . . . . . . . .2.
2.16 Participating Party. . . . . . . . . . . . . . . . . . . . . . . .2.
2.17 Producible Well. . . . . . . . . . . . . . . . . . . . . . . . . .2.
2.18 Working Interest . . . . . . . . . . . . . . . . . . . . . . . . .3.
ARTICLE III
EXHIBITS
3.1 Exhibits . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3.
3.1.1 Exhibit A: Description of Lease
and Working Interest. . . . . . . . . . . . . . . .3.
3.1.2. Exhibit A-1 Area of Mutual Interest . . . . . . . . .3.
3.1.3 Exhibit B: Insurance Provision . . . . . . . . . . .3.
3.1.4 Exhibit C: Accounting Procedure. . . . . . . . . . .3.
3.1.5 Exhibit D: Non-Discrimination Provision. . . . . . .3.
3.1.6 Exhibit E: Gas Balancing Agreement . . . . . . . . .3.
ARTICLE IV
OPERATOR
4.1 Operator . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3.
4.2 Resignation. . . . . . . . . . . . . . . . . . . . . . . . . . . .3.
4.3 Removal of Operator. . . . . . . . . . . . . . . . . . . . . . . .3.
4.4 Selection of Successor . . . . . . . . . . . . . . . . . . . . . .4.
4.5 Delivery of Property . . . . . . . . . . . . . . . . . . . . . . .4.
2
ARTICLE V
AUTHORITY AND DUTIES OF OPERATOR
5.1 Exclusive Right to Operate . . . . . . . . . . . . . . . . . . . .4.
5.2 Workmanlike Conduct. . . . . . . . . . . . . . . . . . . . . . . .4.
5.3 Liens and Encumbrances . . . . . . . . . . . . . . . . . . . . . .4.
5.4 Employees. . . . . . . . . . . . . . . . . . . . . . . . . . . . .4.
5.5 Records. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4.
5.6 Compliance . . . . . . . . . . . . . . . . . . . . . . . . . . . .5.
5.7 Drilling . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5.
5.8 Reports. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5.
5.9 Information to Participating Parties . . . . . . . . . . . . . . .5.
ARTICLE VI
VOTING AND VOTING PROCEDURES
6.1 Designation of Representatives . . . . . . . . . . . . . . . . . .6.
6.2 Voting Procedures. . . . . . . . . . . . . . . . . . . . . . . . .6.
6.2.1 Voting Interest. . . . . . . . . . . . . . . . . . . . .6.
6.2.2 Vote Required. . . . . . . . . . . . . . . . . . . . . .6.
6.2.3 Votes. . . . . . . . . . . . . . . . . . . . . . . . . .6.
6.2.4 Meetings . . . . . . . . . . . . . . . . . . . . . . . .6.
ARTICLE VII
ACCESS
7.1 Access to Lease. . . . . . . . . . . . . . . . . . . . . . . . . .7.
7.2 Reports. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7.
7.3 Confidentiality. . . . . . . . . . . . . . . . . . . . . . . . . .7.
7.4 Limited Disclosure . . . . . . . . . . . . . . . . . . . . . . . .7.
ARTICLE VIII
EXPENDITURES
8.1 Basis of Charge to the Parties . . . . . . . . . . . . . . . . . .7.
8.2 Authorization. . . . . . . . . . . . . . . . . . . . . . . . . . .8.
8.3 Advance Xxxxxxxx . . . . . . . . . . . . . . . . . . . . . . . . .8.
8.4 Commingling of Funds . . . . . . . . . . . . . . . . . . . . . . .8.
8.5 Security Rights. . . . . . . . . . . . . . . . . . . . . . . . . .8.
8.6 Unpaid Charges . . . . . . . . . . . . . . . . . . . . . . . . . .9.
8.7 Default. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9.
8.8 Carved-out Interests . . . . . . . . . . . . . . . . . . . . . . 10.
ARTICLE IX
NOTICES
9.1 Giving and Receiving Notices . . . . . . . . . . . . . . . . . . 10.
9.2 Content of Notice. . . . . . . . . . . . . . . . . . . . . . . . 10.
9.3 Response to Notices. . . . . . . . . . . . . . . . . . . . . . . 10.
9.3.1 Platform Construction. . . . . . . . . . . . . . . . . 11.
9.3.2 Proposal Without Platform. . . . . . . . . . . . . . . 11.
9.3.3 Other Matters. . . . . . . . . . . . . . . . . . . . . 11.
9.4 Failure to Respond . . . . . . . . . . . . . . . . . . . . . . . 11.
9.5 Restrictions on Multiple Well Proposals. . . . . . . . . . . . . 11.
ARTICLE X
3
EXPLORATORY XXXXX
10.1 Operations by All Parties. . . . . . . . . . . . . . . . . . . . 11.
10.2 Second Opportunity to Participate. . . . . . . . . . . . . . . . 12.
10.3 Operations by Fewer Than All Parties . . . . . . . . . . . . . . 12.
10.4 Course of Action After Drilling to Initial Objective
Depth . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.
10.4.1 Casing Point Election. . . . . . . . . . . . . . . . . . . . . . 13.
ARTICLE XI
DEVELOPMENT WELL OPERATIONS
11.1 Operations by All Parties. . . . . . . . . . . . . . . . . . . . 14.
11.2 Second Opportunity to Participate. . . . . . . . . . . . . . . . 15.
11.3 Operations by Fewer Than All Parties . . . . . . . . . . . . . . 15.
11.4 Timely Operations. . . . . . . . . . . . . . . . . . . . . . . . 15.
11.5 Course of Action After Drilling to Initial Objective
Depth. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15.
11.6 Deeper Drilling. . . . . . . . . . . . . . . . . . . . . . . . . 15.
ARTICLE XII
NON-CONSENT OPERATIONS
12.1 Non-Consent Operations . . . . . . . . . . . . . . . . . . . . . 16.
12.1.1 Non-Interference . . . . . . . . . . . . . . . . . . . 16.
12.1.2 Multiple Completion Limitation . . . . . . . . . . . . 16.
12.1.3 Metering . . . . . . . . . . . . . . . . . . . . . . . 16.
12.1.4 Liens. . . . . . . . . . . . . . . . . . . . . . . . . 16.
12.1.5 Non-Consent Well . . . . . . . . . . . . . . . . . . . 16.
12.1.6 Cost-Information . . . . . . . . . . . . . . . . . . . 17.
12.1.7 Completions. . . . . . . . . . . . . . . . . . . . . . 17.
12.2 Relinquishment of Interest . . . . . . . . . . . . . . . . . . . 17.
12.2.1 Production Reversion Penalties . . . . . . . . . . . . 17.
12.2.2 Non-Production Reversion . . . . . . . . . . . . . . . 18.
12.3 Deepening of Non-Consent Well. . . . . . . . . . . . . . . . . . 18.
12.4 Operations from Non-Consent Platforms. . . . . . . . . . . . . . 18.
12.5 Discovery or Extension from Mobile Drilling Operations . . . . . 19.
12.6 Allocation of Platform Costs to Non-Consent Operations . . . . . 19.
12.6.1 Charges. . . . . . . . . . . . . . . . . . . . . . . . 19.
12.6.2 Operating and Maintenance Charges. . . . . . . . . . . 20.
12.6.3 Payments . . . . . . . . . . . . . . . . . . . . . . . 20.
12.7 Non-Consent Drilling to Maintain Lease . . . . . . . . . . . . . 21.
12.7.1 Retention of Lease by Non-Consent Well . . . . . . . . 22.
12.8 Allocation of Costs (Single Completion). . . . . . . . . . . . . 22.
12.9 Allocation of Costs (Multiple Completions) . . . . . . . . . . . 22.
12.10 Allocation of Costs (Dry Hole) . . . . . . . . . . . . . . . . . 24.
12.11 Intangible Drilling and Completion Allocations . . . . . . . . . 24.
12.12 Operated Xxxxx . . . . . . . . . . . . . . . . . . . . . . . . . 24.
ARTICLE XII
FACILITIES
13.1 Approval . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25.
ARTICLE XIV
ABANDONMENT AND SALVAGE
14.1 Platform Salvage and Removal Costs . . . . . . . . . . . . . . . 25.
14.2 Purchase of Salvage Materials. . . . . . . . . . . . . . . . . . 26.
14.3 Abandonment of Producing Well. . . . . . . . . . . . . . . . . . 27.
4
14.4 Assignment of Interest . . . . . . . . . . . . . . . . . . . . . 27.
14.5 Abandonment Operations Required by Governmental Authority. . . . 27.
ARTICLE XV
WITHDRAWAL
15.1 Withdrawal . . . . . . . . . . . . . . . . . . . . . . . . . . . 28.
15.2 Limitations on Withdrawal. . . . . . . . . . . . . . . . . . . . 28.
ARTICLE XVI
RENTALS, ROYALTIES AND OTHER PAYMENTS
16.1 Creation of Overriding Royalty . . . . . . . . . . . . . . . . . 29.
16.2 Payment of Rentals and Minimum Royalties . . . . . . . . . . . . 29.
16.3 Non-Concurrence in Payments. . . . . . . . . . . . . . . . . . . 30.
16.4 Royalty Payments . . . . . . . . . . . . . . . . . . . . . . . . 30.
16.5 Federal Offshore Oil Pollution Compensation Fund Fee . . . . . . 31.
ARTICLE XVII
TAXES
17.1 Property Taxes . . . . . . . . . . . . . . . . . . . . . . . . . 31.
17.2 Contest of Property Tax Valuation. . . . . . . . . . . . . . . . 31.
17.3 Production and Severance Taxes . . . . . . . . . . . . . . . . . 31.
17.4 Other Taxes and Assessments. . . . . . . . . . . . . . . . . . . 31.
ARTICLE XVIII
INSURANCE
18.1 Insurance. . . . . . . . . . . . . . . . . . . . . . . . . . . . 32.
ARTICLE XIX
LIABILITY, CLAIMS AND LAWSUITS
19.1 Individual Obligations . . . . . . . . . . . . . . . . . . . . . 32.
19.2 Notice of Claim or Lawsuit . . . . . . . . . . . . . . . . . . . 32.
19.3 Settlements. . . . . . . . . . . . . . . . . . . . . . . . . . . 32.
19.4 Legal Expense. . . . . . . . . . . . . . . . . . . . . . . . . . 32.
19.5 Liability for Losses, Damages, Injury or Death . . . . . . . . . 32.
19.6 Indemnification. . . . . . . . . . . . . . . . . . . . . . . . . 32.
ARTICLE XX
INTERNAL REVENUE PROVISION
20.1 Internal Revenue Provision . . . . . . . . . . . . . . . . . . . 33.
ARTICLE XXI
CONTRIBUTIONS
21.1 Notice of Contributions Other Than Advances for Sale
of Production . . . . . . . . . . . . . . . . . . . . . . . 34.
21.2 Cash Contributions . . . . . . . . . . . . . . . . . . . . . . . 34.
21.3 Acreage Contributions. . . . . . . . . . . . . . . . . . . . . . 34.
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ARTICLE XXII
DISPOSITION OF PRODUCTION
22.1 Facilities to Take in Kind . . . . . . . . . . . . . . . . . . . 34.
22.2 Duty to Take in Kind . . . . . . . . . . . . . . . . . . . . . . 34.
22.3 Failure to Take in Kind. . . . . . . . . . . . . . . . . . . . . 34.
22.4 Expenses of Delivery in Kind.. . . . . . . . . . . . . . . . . . 35.
22.5 Gas Balancing Provisions . . . . . . . . . . . . . . . . . . . . 35.
ARTICLE XXIII
APPLICABLE LAW
23.1 Applicable Law . . . . . . . . . . . . . . . . . . . . . . . . . 35.
ARTICLE XXIV
LAWS, REGULATIONS AND NONDISCRIMINATION
24.1 Laws and Regulations . . . . . . . . . . . . . . . . . . . . . . 35.
24.2 Nondiscrimination. . . . . . . . . . . . . . . . . . . . . . . . 35.
ARTICLE XXV
FORCE MAJEURE
25.1 Notice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36.
25.2 Strikes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36.
25.3 Force Majeure. . . . . . . . . . . . . . . . . . . . . . . . . . 36.
ARTICLE XXVI
SUCCESSORS, ASSIGNS, AND
PREFERENTIAL RIGHT TO PURCHASE
26.1 Successors and Assigns . . . . . . . . . . . . . . . . . . . . . 36.
26.2 Preferential Right of Purchase . . . . . . . . . . . . . . . . . 36.
26.2.1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37.
26.2.2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38.
26.3 Assignments. . . . . . . . . . . . . . . . . . . . . . . . . . . 38.
ARTICLE XXVII
AREA OF MUTUAL INTEREST
27. Area of Mutual Interest. . . . . . . . . . . . . . . . . . . . . 39.
ARTICLE XXVIII
TERM
28.1 Term . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40.
ARTICLE XXIX
HEADINGS AND EXECUTION
6
29.1 Topical Headings . . . . . . . . . . . . . . . . . . . . . . . . 40.
29.2 Counterpart Execution. . . . . . . . . . . . . . . . . . . . . . 41.
7
JOINT OPERATING AGREEMENT
THIS AGREEMENT is made effective as of November 6, 1998 herein by the
signers hereof, herein referred to collectively as "PARTIES" and individually as
"PARTY".
WITNESSETH:
WHEREAS the PARTIES are owners of or have contracted for the right to
earn an interest in the oil and gas lease(s) identified in Exhibit "A", and the
PARTIES desire to explore, develop, produce and operate said lease(s).
NOW THEREFORE, in consideration of the premises and of the mutual
agreement herein, it is agreed as follows:
ARTICLE I
APPLICATION
1.1 APPLICATION . The leases and lands identified in Exhibit "A" shall be
treated as one oil and gas lease for the purposes of this Agreement.
ARTICLE II
DEFINITIONS
2.1 CASING POINT. That point at which a well drilled hereunder, has
reached the proposed objective depth or zone, logged and logs distributed to the
PARTICIPATING PARTIES.
2.2 DEVELOPMENT OPERATIONS. Operations on the LEASE other than
EXPLORATORY OPERATIONS as defined in Section 2.4 below.
2.3 DEVELOPMENT WELL. Any well proposed as a DEVELOPMENT OPERATION.
2.4 EXPLORATORY OPERATIONS. Operations on the LEASE which are scheduled
for an objective zone, horizon or formation:
(1) which has not been established as producible on the LEASE under
2.16 below; or,
(2) which is already established as producible on the LEASE under
2.16 below, but such objective zone, horizon or formation will be
penetrated at a location more than 2,000 feet from the nearest bottom hole
location on the LEASE at which such objective has been proved producible,
or such objective is mutually agreed to be in a separate fault block.
1
2.5 EXPLORATORY WELL. Any well proposed as an EXPLORATORY OPERATION.
2.6 FACILITIES. All lease equipment beyond the wellhead connections
acquired pursuant to this Agreement including any platform(s) necessary to carry
out the operation.
2.7 LEASE. The oil and gas leases identified in Exhibit "A" and the lands
affected thereby.
2.8 NON-CONSENT OPERATIONS. DEVELOPMENT or EXPLORATORY OPERATIONS
conducted by fewer than all PARTIES.
2.9 NON-CONSENT PLATFORM. A drilling or production platform owned by
fewer than all PARTIES.
2.10 NON-CONSENT WELL. A DEVELOPMENT or EXPLORATORY WELL owned by fewer
than all PARTIES.
2.11 NON-OPERATOR. Any PARTY to the Agreement other than the OPERATOR.
2.12 NON-PARTICIPATING PARTY. Any PARTY other than a PARTICIPATING PARTY.
2.13 NON-PARTICIPATING PARTY'S SHARE. The PARTICIPATING INTEREST a
NON-PARTICIPATING PARTY would have had if all PARTIES had participated in the
operation.
2.14 OPERATOR. The PARTY designated under this Agreement to conduct all
operations.
2.15 PARTICIPATING INTEREST. A PARTICIPATING PARTY'S percentage of
participation in an operation conducted pursuant to the Agreement.
2.16 PARTICIPATING PARTY. A PARTY who joins in an operation conducted
pursuant to this agreement.
2.17 PRODUCIBLE WELL. A well producing oil or gas, or if not producing oil
or gas, a well declared capable of producing in accordance with any applicable
government authority or by agreement of all of the PARTIES.
2.18 WORKING INTEREST. The ownership of each PARTY in and to the LEASE as
set forth in Exhibit "A".
2
ARTICLE III
EXHIBITS
3.1 EXHIBITS. Attached hereto are the following exhibits which are
incorporated herein by reference:
3.1.1 Exhibit A. Description of Lease and Working Interest
3.1.2 Exhibit A-1. Area of Mutual Interest
3.1.3 Exhibit B. Insurance Provision
3.1.4 Exhibit C. Accounting Procedure
3.1.5 Exhibit D. Nondiscrimination Provision
3.1.6 Exhibit E. Gas Balancing Agreement
ARTICLE IV
OPERATOR
4.1 OPERATOR. Cheniere Energy, Inc. is hereby designated as OPERATOR.
OPERATOR shall not have the right to assign or transfer any rights, duties or
obligations of OPERATOR to another PARTY.
4.2 RESIGNATION. OPERATOR may resign at any time by giving notice to the
PARTIES. Such resignation shall become effective at 7:00 a.m. on the first day
of the month following a period of ninety (90) days after said notice, unless a
successor OPERATOR has assumed the duties of OPERATOR prior to that date.
4.3 REMOVAL OF OPERATOR. OPERATOR may be removed if (1) OPERATOR becomes
insolvent or unable to pay its debts as they mature or makes an assignment for
the benefit of creditors or commits any act of bankruptcy or seeks relief under
laws providing for the relief of debtors; or (2) a receiver is appointed for
OPERATOR or for substantially all of its property and/or affairs; or (3)
OPERATOR or its designee no longer owns an interest in the property or divest
itself of fifty percent (50%) or more of the interest owned by it in the Lease
at the time it was designated OPERATOR; or (4) OPERATOR has committed a material
breach of any substantive provision hereof or fails to perform its duties
hereunder in a reasonable and prudent manner, or failed to rectify such default
within sixty (60) days after notice from another PARTY to do so. The PARTY
giving notice to the OPERATOR or a default shall also furnish a copy of such
notice to the other PARTIES. In such event, the OPERATOR may be removed by an
affirmative vote of two (2) or more PARTIES having a combined WORKING INTEREST
of fifty percent (50%) in the LEASE.
4.4 SELECTION OF SUCCESSOR. Upon resignation or removal of OPERATOR, a
successor OPERATOR shall be selected by an affirmative vote of two
3
(2) or more PARTIES having a combined WORKING INTEREST of fifty-one percent
(51%) or more; however, if the removed or resigned OPERATOR fails to vote or
votes only to succeed itself, the successor OPERATOR shall be selected by an
affirmative vote of the PARTIES having a combined WORKING INTEREST of
fifty-one percent (51%) or more of the remaining WORKING INTEREST after
excluding the WORKING INTEREST of the removed or resigned OPERATOR.
4.5 DELIVERY OF PROPERTY. Prior to the effective date of resignation or
removal, OPERATOR shall deliver promptly to successor OPERATOR the possession of
everything owned by the PARTIES pursuant to this Agreement.
ARTICLE V
AUTHORITY AND DUTIES OF OPERATOR
5.1 EXCLUSIVE RIGHT TO OPERATE. Unless provided, OPERATOR shall have the
exclusive right and duty to conduct all operations pursuant to the Agreement.
5.2 WORKMANLIKE CONDUCT. OPERATOR shall conduct all operations in a good
and workmanlike manner, as would a prudent OPERATOR under the same or similar
circumstances. OPERATOR shall not be liable to the PARTIES for losses sustained
or liabilities incurred except such as may result from its gross negligence or
willful misconduct. Unless otherwise provided, OPERATOR shall consult with the
PARTIES and keep them informed of all important matters.
5.3 LIENS AND ENCUMBRANCES. OPERATOR shall endeavor to keep the LEASE and
equipment free from all liens and encumbrances occasioned by operations
hereunder, except those provided for in Section 8.5.
5.4 EMPLOYEES. OPERATOR shall select employees and determine their
number, hours of labor and compensation. Such employees shall be employees of
OPERATOR.
5.5 RECORDS. OPERATOR shall keep accurate books, accounts and records of
operations hereunder which, unless otherwise provided for in this Agreement,
shall be available to NON-OPERATOR pursuant to the provisions contained in
Exhibit "C".
5.6 COMPLIANCE. OPERATOR shall comply with and require all agents and
contractors to comply with all applicable laws, rules, regulations and orders of
any governmental agency having jurisdiction.
4
5.7 DRILLING. OPERATOR shall have all drilling operations conducted by
qualified and responsible independent contractors under competitive contracts.
However, OPERATOR may employ its equipment and personnel in the conduct of such
operations, but its charges therefor shall not exceed the then prevailing rates
in the area and such work shall be performed pursuant to a written agreement
among the PARTICIPATING PARTIES.
5.8 REPORTS. OPERATOR shall make reports to governmental authorities that
it has a duty to make as OPERATOR and shall furnish copies of such reports to
the PARTIES. OPERATOR shall give timely written notice to the PARTIES of all
litigation and hearings affecting the LEASE or operations hereunder.
5.9 INFORMATION TO PARTICIPATING PARTIES. OPERATOR shall furnish all
PARTICIPATING PARTIES hereto the following information pertaining to each well
being drilled:
(a) copy of application for permit to drill and all amendments
thereto;
(b) daily drilling reports by telephone followed by written reports
(or by TWX or TELEX);
(c) complete report of all core analyses;
(d) two (2) copies of any logs or surveys as run;
(e) two (2) copies of any well test results, bottom-hole pressure
surveys, gas and condensate analyses or similar information;
(f) one (1) copy of reports made to regulatory agencies; and
(g) twenty-four (24) hour notice of logging, coring and testing
operations;
(h) upon request prior to resumption of drilling operations, samples
of cuttings and cores marked as to depth, to be packaged and shipped to the
requesting PARTY at their expense.
(i) all other reasonable information, available to OPERATOR,
pertaining to any well drilled pursuant to this Agreement.
ARTICLE VI
VOTING AND VOTING PROCEDURES
6.1 DESIGNATION OF REPRESENTATIVE. The name and address of the
representative and alternate authorized to represent and bind each PARTY for
5
operations provided in Article IX, shall be as shown on Exhibit "A". The
designated representative or alternate may be changed by written notice to the
other PARTIES.
6.2 VOTING PROCEDURES. Unless otherwise provided, any matter requiring
approval of the PARTIES shall be determined as follows:
6.2.1 VOTING INTEREST. Each PARTY shall have a voting interest
equal to its WORKING INTEREST or its PARTICIPATING INTEREST as applicable.
6.2.2 VOTE REQUIRED. Except as may be specifically provided
elsewhere herein, any proposal requiring approval of the PARTIES shall be
decided by an affirmative vote to two (2) or more PARTIES having a combined
voting interest of fifty-one percent (51%) or more.
6.2.3 VOTES. The PARTIES may vote at meetings, by telephone,
confirmed in writing to OPERATOR; or by letter, telegram, telex or telecopies.
However, any PARTY not attending a meeting must vote prior to the meeting in
order to be counted. Provided, however, no vote shall be taken in a meeting in
which all Parties are not present unless such vote was specifically set out in
the formal agenda. OPERATOR shall give prompt notice of the results of such
voting to each PARTY.
6.2.4 MEETINGS. Meetings of the PARTIES may be called by OPERATOR
upon its own motion or at the request of one (1) or more PARTIES having a
combined voting interest of not less than ten percent (10%). Except in the case
of emergency or except when agreed by unanimous consent, no meeting shall be
called on less than five (5) days advance written notice, (including the agenda
for such meeting). The OPERATOR shall be chairman of each meeting.
6
ARTICLE VII
ACCESS
7.1 ACCESS TO LEASE. Each PARTY shall have access to the LEASE as its
sole risk and expense at all reasonable times to inspect operations and records
and data pertaining thereto.
7.2 REPORTS. OPERATOR shall furnish to a requesting PARTY any information
to which such PARTY is entitled hereunder. The costs of gathering and
furnishing information not otherwise furnished under Article V shall be charged
to the requesting PARTY.
7.3 CONFIDENTIALITY. Except as provided in Section 7.4 and except for
necessary disclosures to governmental agencies, no PARTY shall release any
geological, geophysical or reservoir information or any logs, surveys or other
information pertaining to the progress, tests or results of any well or status
of the LEASE unless agreed to by the PARTICIPATING PARTIES. At such time as the
PARTIES mutually agree such information is non-confidential, it may be publicly
released. Unless otherwise provided, OPERATOR shall initially release the same
subsequent to approval of its content by the PARTIES. OPERATOR shall have the
exclusive right to designate certain xxxxx as "tight" for the competitive
protection of the PARTIES.
7.4 LIMITED DISCLOSURE. Any PARTY may make confidential data available to
affiliates, to reputable engineering firms and gas transmission companies for
hydrocarbon reserve and other technical evaluations, to reputable financial
institutions for study prior to commitment of funds and to bonafide purchasers
of all of a PARTY'S interest in the LEASE. Any third party permitted such
access shall first agree in writing neither to disclose such data to others nor
to use such data except for the purpose for which it is disclosed. Each PARTY
shall be furnished with copies of third parties execution of the same.
ARTICLE VIII
EXPENDITURES
8.1 BASIS OF CHARGE TO THE PARTIES. OPERATOR shall pay all costs and each
PARTY shall reimburse OPERATOR in proportion to the PARTICIPATING INTEREST. All
charges, credits and accounting for expenditures shall be pursuant to
7
the Accounting Procedure attached hereto as Exhibit "C". The provisions of
this Agreement shall prevail in the event of conflict with Exhibit "C".
8.2 AUTHORIZATION. OPERATOR shall neither make any single expenditure nor
undertake any project costing in excess of Seventy-five Thousand Dollars
($75,000.00) without prior approval of the PARTIES. OPERATOR shall furnish a
written AFE, for information purposes only, to the PARTIES on any expenditures
in excess of Twenty-five Thousand Dollars ($25,000.00) or if costs of an
operation exceed 120% of a previously approved AFE. Subject to any election
provided in Article X and XI, approval of a well operation shall include
approval of a all necessary expenditures through installation of the wellhead.
In the event of an emergency, OPERATOR may immediately make such expenditures as
in its opinion are required to deal with the emergency. OPERATOR shall report
to the PARTIES, as promptly as possible, the nature of the emergency and action
taken.
8.3 ADVANCE XXXXXXXX. OPERATOR shall have the right to require each
PARTY to advance its respective share of estimated expenditures pursuant to
Exhibit "C", provided, however, that in the event a statement and invoice for
advance payment is submitted for costs attributable to a well proposal,
OPERATOR shall advance xxxx for the entire amount of such billing costs even
though such costs may not actually be incurred during the next thirty (30) day
period and as to any party who fails to pay its share of said advance payment
within fifteen (15) days after receipt of such statement and invoice, OPERATOR
will notify such affected party of its default by certified mail, return receipt
requested and if such party fails to cure the default within ten (10) days from
the date of receipt of OPERATOR'S Notice, by payment in full of the outstanding
invoices for advance payment, at OPERATOR'S election, the affected party shall
be deemed non-consent as to the proposed well attributable thereto.
8.4 COMMINGLING OF FUNDS. Funds received by OPERATOR under this Agreement
may be commingled with its own funds.
8.5 SECURITY RIGHTS. In addition to any other security rights and
remedies provided by law with respect to services rendered or materials and
equipment furnished under this Agreement, OPERATOR shall have a first lien upon
each PARTY'S PARTICIPATING and/or WORKING INTEREST, including the production and
8
equipment credited thereto, in order to secure payment of charges against such
PARTY, together with interest thereon at the rate set forth in Exhibit "C" or
the maximum rate allowed by law, whichever is less, plus attorneys' fees, court
costs and other related collection costs. If any PARTY does not pay such
charges when due, OPERATOR shall have the additional right to collect from the
purchaser the proceeds from the sale of such PARTY'S share of production until
the amount owed has been paid. Each purchaser shall be entitled to rely on
OPERATOR'S statement concerning the amount owed. Each NON-OPERATOR shall have
comparable security rights on OPERATOR'S PARTICIPATING and/or WORKING INTEREST.
8.6 UNPAID CHARGES. If any PARTY fails to pay the charges due hereunder,
including xxxxxxxx under Section 8.3, within thirty (30) days after payment is
due, the PARTICIPATING PARTIES shall have the obligation, upon OPERATOR'S
request, to pay the unpaid amount in proportion to their interest. Each PARTY
so paying its share of the unpaid amount shall be subrogated to OPERATOR'S
security rights to the extent of such payment.
8.7 DEFAULT. If any PARTY does not pay its share of the charges when due,
or prior to commencement of the approved operation for which it is billed,
whichever is the earlier, OPERATOR may give such PARTY notice that unless
payment is made within fifteen (15) DAYS, such PARTY shall be in default. Any
PARTY in default shall have no further access to the maps, cores, logs, surveys,
records, data, interpretations or other information obtained in connection with
said operation. A defaulting PARTY shall not be entitled to vote on any matter
until such time as PARTY'S payments are current. The voting interest of each
non-defaulting PARTY shall be in the proportion its PARTICIPATING INTEREST bears
to the total non-defaulting PARTICIPATING INTEREST. As to any operation
approved or commenced during the time a PARTY is in default, such PARTY shall be
deemed to be a NON-PARTICIPATING PARTY.
8.8 CARVED-OUT INTERESTS. Any overriding royalty, production payment, net
proceeds interest, carried interest or any other interest carved-out of the
WORKING INTEREST in the LEASE after the effective date of this Agreement shall
be subject to the rights of the PARTIES to this Agreement, and any PARTY whose
WORKING
9
INTEREST is so encumbered shall be responsible therefor. If a PARTY does not
pay its share of expenses and the proceeds from the sale of production under
Section 8.5 are insufficient for that purpose, the security rights provided
for therein may be applied against the carved-out interests with which such
WORKING INTEREST is burdened. In such event, the rights of the owner of such
carved-out interest shall be subordinated to the security rights granted by
Section 8.5.
ARTICLE IX
NOTICES
9.1 GIVING AND RECEIVING NOTICES. All notices shall be in writing and
delivered in person or by mail, telex, telegraph, TWX, telecopier or cable;
however, if a drilling rig is on location at time of proposal and standby
charges are accumulating, such notices shall be given by telephone and
immediately confirmed in writing. Notice shall be deemed given only when
received by the PARTY to whom such notice is directed, except that any notice by
certified mail or equivalent, telegraph or cable properly addressed, pursuant to
Section 6.1, and with all postage and charges prepaid shall be deemed given
seventy-two (72) hours after such notice is deposited in the mail or twenty-four
(24) hours after such notice is sent by facsimile (receipt confirmed), or when
filed with an operating, telegraph or cable company for immediate transmission.
9.2 CONTENT OF NOTICE. Any notice which requires a response shall
indicate the maximum response time specified in Section 9.3 If a proposal
involves a platform or facility, the notice shall contain a description of same,
including location and the estimated costs of fabrication, transportation and
installation. If a proposal involves a well operation, the notice shall include
the proposed depth, the objective zone or zones to be tested, the surface and
bottom-hole locations and the estimated costs of the operation including all
necessary expenditures through installation of the wellhead.
9.3 RESPONSE TO NOTICES. Each PARTY'S response to a proposal shall be in
writing to OPERATOR, with copies to the other PARTIES. Except for
those notices in Articles X, XI, XV and XVI, the maximum response time
shall be as follows:
9.3.1 PLATFORM CONSTRUCTION. When any proposal for operations
involves the construction of a platform, the maximum response time
shall be forty-five (45) days.
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9.3.2 PROPOSAL WITHOUT PLATFORM. When any proposal for operations
does not require construction of a platform, maximum response time
shall be thirty (30) days; however, if a drilling rig is on location
and standby charges are accumulating, the maximum response time shall
be forty-eight (48) hours.
9.3.3 OTHER MATTERS. For all other matters requiring notice, the
maximum response time shall be thirty (30) days.
9.4 FAILURE TO RESPOND. Failure of any PARTY to respond to a notice
within the required period shall be deemed to be a negative response.
9.5 RESTRICTIONS ON MULTIPLE WELL PROPOSALS. Unless otherwise agreed by
the PARTIES, no more than one well shall be drilling or completing at the same
time. Well proposals made under the terms hereof shall be limited to one well
each and except as provided below, no PARTY shall be required to make an
election under more than one well proposal at the same time or while a well is
drilling or completing. This paragraph shall not limit the right of a PARTY to
propose a well while another is drilling or completing, however, the time to
elect under such a proposal shall be deferred until (a) thirty (30) days after
the previous well has been completed or plugged and abandoned or (b) twenty-four
(24) hours from receipt of notification that the drilling rig has been moved to
the new location and standby charges are being accumulated, whichever is
earlier.
ARTICLE X
EXPLORATORY XXXXX
10.1 OPERATIONS BY ALL PARTIES. Any PARTY may propose an EXPLORATORY WELL
by notifying the other PARTIES. If all the PARTIES agree to participate in
drilling the proposed well, OPERATOR shall drill same for the benefit of all
PARTIES.
10.2 SECOND OPPORTUNITY TO PARTICIPATE. If fewer than all PARTIES elect
to participate, the proposing PARTY shall inform the OPERATOR of the elections
made. OPERATOR shall inform the PARTIES of the elections, whereupon any PARTY
originally electing not to participate may then elect to participate by
notifying the OPERATOR within forty-eight (48) hours after receipt of such
information.
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10.3 OPERATIONS BY FEWER THAN ALL PARTIES. If fewer than all but two (2)
or more PARTIES owning not less than fifty percent (50%) WORKING INTEREST elect
to participate in and agree to bear the cost and risk of drilling the proposed
well, OPERATOR, even if OPERATOR is a NON-PARTICIPATING PARTY, shall drill such
well under this Agreement. OPERATOR, immediately after expiration of the
applicable notice period, shall advise the PARTICIPATING PARTIES of (a) the
total interest of the PARTIES approving such operation, and (b) its
recommendation as to whether the PARTICIPATING PARTIES should proceed with the
operation as proposed. Each PARTICIPATING PARTY, within forty-eight (48) hours
(inclusive of Saturday, Sunday or legal holidays) after receipt of such notice,
shall advise the proposing PARTY of its desire to (a) limit participation to
such PARTY'S interest as shown on Exhibit "A", or (b) carry its proportionate
part of NON-PARTICIPATING PARTIES' interest, or (c) participate with a lesser
percentage than its proportionate part of the NON-PARTICIPATING PARTIES'
interest. The proposing PARTY, at its election, may withdraw such proposal if
there is insufficient participation and shall promptly notify all PARTIES of
such decision. If the well is commenced within ONE HUNDRED FIFTY (150) days
after the date of the last applicable election date and is drilled as proposed
in accordance with this Agreement, any PARTY electing not to participate shall
be deemed to have relinquished its operating rights in such well as if it were a
NON-CONSENT WELL. However, in the situation in which a rig is on location and
standby charges are accumulating, thus precipitating a forty-eight (48) hour
response period, the well must be commenced within fifteen (15) days. If no
operations are begun within such time period, the effect shall be as if the
proposal had not been made. Operations shall be deemed to have commenced (a) on
the date the contract for a new platform is let, if the notice indicated the
need for such platform; or (b) the date rigging-up operations are commenced.
Recoupment of costs shall be determined by Sections 12.2 and 12.5, if
applicable, and the drilling of such well shall be governed by Article XII as
applicable; however, percentages under Section 12.2 shall be as follows:
12.2.1a) Eight hundred percent (800%)
12.2.1b) Three hundred percent (300%)
12.2.1c) One hundred percent (100%)
12.2.1d) One hundred percent (100%)
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PROVIDED HOWEVER, if the proposed EXPLORATORY WELL is the initial well drilled
by the PARTIES on the LEASE, then any NON-PARTICIPATING PARTY shall permanently
assign its entire interest in the LEASE to the PARTICIPATING PARTIES and the
recoupment of cost provision of this Article and Article XII shall not apply,
but the NON-PARTICIPATING PARTY shall not be relieved of any obligation accruing
prior to such assignment.
10.4 COURSE OF ACTION AFTER DRILLING TO INITIAL OBJECTIVE
DEPTH
10.4.1 CASING POINT ELECTION. After an EXPLORATORY WELL has been
drilled for all PARTIES to CASING POINT, and all authorized logging and testing
has been completed, OPERATOR shall immediately notify the other PARTICIPATING
PARTIES in writing of OPERATOR'S proposal for further operations thereon. Each
PARTICIPATING PARTY, within forty-eight (48) hours after receipt of such notice,
shall advise the OPERATOR and the other PARTICIPATING PARTIES in writing whether
it accepts OPERATOR'S recommendation or makes additional recommendations as to
further operations with respect to such well. If additional recommendations are
made, the PARTICIPATING PARTIES shall have an additional twenty-four (24) hours
to respond. If all PARTICIPATING PARTIES elect to abandon the well at that
point, it shall be plugged and abandoned at their joint cost and expense.
If less than all, but one (1) or more PARTICIPATING PARTIES owning at least
twenty-five percent (25%) in interest in the well elect to conduct a specific
operation, other than plugging and abandoning the well, the PARTIES so electing
shall conduct such operation as a NON-CONSENT OPERATION under the provisions of
Article 12. In the sole opinion of OPERATOR, if the well is in such a condition
that a reasonably prudent Operator would not conduct the contemplated operations
due to concern for jeopardizing or losing the same prior to completing the well
in the objective depth or objective formation, such election shall not be given
the priority herein above set forth. If at any time there is more than one
operation proposed in connection with any well subject to this Agreement, and in
the event no one proposed operation receives the approval of one or more
PARTICIPATING PARTIES owning fifty-one percent (51%) in interest in the well,
such operations shall be conducted in the following order of priority:
(a) further log or test the well,
(b) complete the well as originally planned,
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(c) plug-back the well and attempt to complete it in a shallower zone
in ascending order,
(d) sidetrack the well to another bottom hole location,
(e) deepen the well in the order made,
(f) other operations in the well,
(g) temporarily plug and abandon the well,
(h) permanently plug and abandon the well.
If all PARTIES approve a proposal or counter-proposal, OPERATOR shall conduct
the operation at the PARTICIPATING PARTIES cost and risk. A proposal to
complete, rework or recomplete a well at a particular depth will take precedence
over a proposal to complete, rework or recomplete the well above such depth,
with a deeper proposal for such operations always taking precedence over a
shallower proposal. Proposals for such operations at any depth will take
precedence over proposals to deepen the well below its originally proposed total
depth or to sidetrack the well once it has reached such depth with a proposal to
sidetrack taking precedence over a proposal to deepen. Proposals of the same
type shall be given precedence in the order in which they are made. No action
shall be required on a proposal while there is pending a proposal, with
precedence being on the same well on which the PARTIES have not acted or on
which work has not been completed.
ARTICLE XI
DEVELOPMENT WELL OPERATIONS
11.1 OPERATIONS BY ALL PARTIES. Any PARTY may propose a DEVELOPMENT
OPERATION, including any platform required by such operations, by notifying the
other PARTIES. If all PARTIES elect to participate in the proposed operation,
OPERATOR shall conduct such operation for the benefit of the PARTIES at their
cost and risk.
11.2 SECOND OPPORTUNITY TO PARTICIPATE. If fewer than all PARTIES elect
to participate, the OPERATOR shall inform the PARTIES of the elections made,
whereupon any PARTY originally electing not to participate may then elect to
participate by notifying the OPERATOR within forty-eight (48) hours after
receipt of such information. Thereafter, if fewer than all PARTIES elect to
participate, the PARTICIPATING PARTIES shall be afforded the alternatives as set
out under Article 10.3.
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11.3 OPERATIONS BY FEWER THAN ALL PARTIES. Except for a DEVELOPMENT
WELL(S) under Section 12.7, if fewer than all PARTIES, but one (1) or more
PARTIES having a combined WORKING INTEREST of fifty percent (50%) or more
approve a DEVELOPMENT OPERATION, OPERATOR shall conduct such operation pursuant
to Article XII. If such operations are to be conducted from an existing
platform, the operations participated in by all of the PARTIES shall have
preference, unless otherwise agreed to by the PARTIES hereto.
11.4 TIMELY OPERATIONS. Operations shall be commenced within ONE HUNDRED
FIFTY (150) days following the date upon which the last applicable election may
be made. If no operations are begun within such time period, the effect shall
be as if the proposal had not been made. Operations shall be deemed to have
commenced (a) on the date the contract for a new platform is let, if the notice
indicated the need for such platform; or (b) on the date rigging-up operations
are commenced on an existing platform.
11.5 COURSE OF ACTION AFTER DRILLING TO INITIAL OBJECTIVE DEPTH. After
any DEVELOPMENT WELL has reached its objective depth, the identical procedures
and alternatives provided under Article 10.4 shall apply.
11.6 DEEPER DRILLING. If a well is proposed to be drilled below the
deepest producible zone penetrated by a PRODUCIBLE WELL on the LEASE any PARTY
may elect to participate either in the well as proposed or to the base of the
deepest producible zone. A PARTY electing to participate in such well to the
base of said zone shall bear its proportionate part of the cost and risk of
drilling to said zone including completion or abandonment. All operations below
the depth to which such PARTY agreed to participate shall be governed by Article
X.
ARTICLE XII
NON-CONSENT OPERATIONS
12.1 NON-CONSENT OPERATIONS. OPERATOR shall conduct NON-CONSENT
OPERATIONS at the sole risk and expense of the PARTICIPATING PARTIES, in
accordance with the following provisions;
12.1.1 NON-INTERFERENCE. NON-CONSENT OPERATIONS shall not
interfere unreasonably with operations being conducted by all PARTIES.
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12.1.2 MULTIPLE COMPLETION LIMITATION. NON-CONSENT OPERATIONS
shall not be conducted in a well having multiple completions unless: (a) each
completion is owned by the same PARTIES in the same proportions; (b) the well
is incapable of producing from any of its current completions; or (c) all
PARTICIPATING PARTIES in the well consent to such operations.
12.1.3 METERING. In NON-CONSENT OPERATIONS, production need not be
separately metered but may be determined on the basis of well test.
12.1.4 LIENS. In the conduct of NON-CONSENT OPERATIONS, the
PARTICIPATING PARTIES shall keep the LEASE free and clear of liens and
encumbrances.
12.1.5 NON-CONSENT WELL. Operations on a NON-CONSENT WELL shall
not be conducted in any producible zone penetrated by a PRODUCIBLE WELL
without approval of each NON-PARTICIPATING PARTY unless; (a) such zone shall
have been designated in the notice as a completion zone; (b) completion of
such well in said zone will not increase the well density governmentally
prescribed or approved for such zone; and (c) the horizontal distance between
the vertical projections of the midpoint of the zone in such well and any
existing well in the same zone will be a least one thousand (1,000) feet if
an oil-well completion or two thousand (2,000) feet if a gas-well completion
Subject to the foregoing provisions of this Article, until the PARTICIPATING
PARTIES in a NON-CONSENT WELL have recouped the amount to which they are
entitled hereunder, they may conduct any reworking operation on such well
which they may desire, including plugging back to a shallower zone but only
if such shallower zone is subject to NON-CONSENT elections in the original
proposal. In this event, the cost of such reworking operation shall be
subject to the penalty provisions of Section 12.2.1.
12.1.6 COST-INFORMATION. OPERATOR shall, within one hundred twenty
(120) days after completion of a NON-CONSENT WELL, furnish the PARTIES an
inventory and an itemized statement of the cost of such well and equipment
pertaining thereto. OPERATOR shall furnish to the PARTIES a monthly statement
showing operating expenses and the proceeds from the sale of production from the
well for the preceding month.
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12.1.7 COMPLETIONS. For the purposes of determinations hereunder,
each completion shall be considered a separate well.
12.2. RELINQUISHMENT OF INTEREST. Upon commencement of NON-CONSENT
OPERATIONS, each NON-PARTICIPATING PARTY'S interest and leasehold operating
rights in the NON-CONSENT OPERATION and title to production therefrom shall be
owned by and vested in each PARTICIPATING PARTY in proportion to its
PARTICIPATING INTEREST for as long as the operations originally proposed are
being conducted or production is obtained, subject to Sections 12.2.1 and
12.2.2.
12.2.1 PRODUCTION REVERSION PENALTIES. Except as to such
operations conducted pursuant to Section 12.7 or for the initial EXPLORATORY
WELL referred to in Section 10.3, such interest, rights and title shall revert
to each NON-PARTICIPATING PARTY when the PARTICIPATING PARTIES have recouped out
of the proceeds of production from such NON-CONSENT OPERATIONS an amount equal
to the sum of the following:
(a) Six hundred percent (600%) of the cost of drilling,
completing, recompleting, sidetracking, deepening, deviating or
plugging back each NON-CONSENT WELL and equipping it through the
wellhead connections, reduced by any contribution received under
Section 21.1; plus,
(b) Three hundred percent (300%) of the cost of FACILITIES
necessary to carry out the operation; plus,
(c) One hundred percent (100%) of the cost of using any
FACILITIES already installed determined pursuant to Section 12.6
below; plus,
(d) One hundred percent (100%) of the cost of operating
expenses, royalties and severance, gathering, production and windfall
profit taxes.
Recoupment of costs shall be in the order listed above. Upon the recoupment of
such costs, a NON-PARTICIPATING PARTY shall become a PARTICIPATING PARTY in such
operations.
12.2.2 NON-PRODUCTION REVERSION. If such NON-CONSENT OPERATIONS
fail to obtain production or such operations result in production which ceases
prior to recoupment by the PARTICIPATING PARTIES of the penalties provided for
above, such operating rights shall revert to each NON-PARTICIPATING PARTY except
that all NON-CONSENT xxxxx, platforms and FACILITIES shall remain vested in
17
the PARTICIPATING PARTIES; however, any salvage in excess of the sum
remaining under Section 12.2.1 shall be credited to all PARTIES.
12.3 DEEPENING OR SIDETRACKING OF NON-CONSENT WELL. If any PARTICIPATING
PARTY proposes to deepen or sidetrack a NON-CONSENT WELL, a NON-PARTICIPATING
PARTY may participate by notifying the OPERATOR within fifteen (15) days after
receiving the proposal (48 hours if a rig is on location) that it will join in
the (deepening or sidetracking) operations, and by paying to the PARTICIPATING
PARTIES an amount equal to such NON-PARTICIPATING PARTY'S share of the actual
costs of drilling and casing such well to the point at which such deepening or
sidetracking operation is commenced. The PARTICIPATING PARTIES shall continue
to be entitled to recoup the full sum specified in Section 12.2.1 applicable to
the NON-CONSENT WELL, less the amount paid under this section, out of the
proceeds of production from the NON-CONSENT portion of the well.
12.4 OPERATIONS FROM NON-CONSENT PLATFORMS. Subject to the following,
a PARTY which did not originally participate in a platform shall be a
NON-PARTICIPATING PARTY as to ownership therein and all operations thereon
until the PARTICIPATING PARTIES as to such platform have recouped the full
sum specified in Section 12.2.1 applicable to such NON-CONSENT PLATFORM and
the NON-CONSENT OPERATIONS which resulted in the setting of such PLATFORM and
other NON-CONSENT OPERATIONS thereon or therefrom. However, an original
NON-PARTICIPATING PARTY may participate in additional operations from such
PLATFORM by notifying the OPERATOR within thirty (30) days after receiving a
proposal for operations from such PLATFORM (48 hours if a rig is on location
and standby rig charges are being incurred) that it will join in such
proposed operations by paying to the PARTICIPATING PARTIES in such PLATFORM
an amount equal to 300% of such NON-PARTICIPATING PARTY'S share of the actual
cost of such PLATFORM, less any recoupment therefor previously obtained.
Thereafter, such original NON-PARTICIPATING PARTY in the PLATFORM shall own
its proportionate share thereof. The PARTICIPATING PARTIES in such
NON-CONSENT PLATFORM shall continue to be entitled to recoup the full sum
specified in Section 12.2.1 applicable to any other NON-CONSENT OPERATIONS
thereon or therefrom.
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12.5 DISCOVERY OR EXTENSION FROM MOBILE DRILLING OPERATIONS. If a
NON-CONSENT WELL drilled from a mobile drilling rig or floating drilling
vessel results in the discovery or extension of productive formations and, if
within one (1) year from the date the drilling equipment is released, a
platform or other fixed structure is ordered and if its location is within
one thousand (1,000) feet from an oil well or three thousand (3,000) feet if
gas, from the vertical projection of the bottom-hole location of any such
well (unless limited by surface restrictions), the recoupment of amounts
applicable to such well under Section 12.2.1 shall be out of such original
NON-PARTICIPATING PARTY'S SHARE of all production from such NON-CONSENT WELL
and one-half of its share of production from all other xxxxx on the platform
or other fixed structure drilled to develop reserves resulting from the
discovery or extension of productive formations in said NON-CONSENT WELL in
which the NON-PARTICIPATING PARTY in such NON-CONSENT WELL has a
PARTICIPATING INTEREST.
12.6 ALLOCATION OF PLATFORM COSTS TO NON-CONSENT OPERATIONS.
NON-CONSENT OPERATIONS shall be subject to further conditions as follows:
12.6.1 CHARGES. If a NON-CONSENT WELL is drilled from a platform
(and is producible or the slot is otherwise rendered unusable), the
PARTICIPATING PARTIES in such well shall pay to the OPERATOR for credit to the
owners of such platform a charge (due upon completion of operations for such
NON-CONSENT WELL) for the right to use the platform and its FACILITIES as
follows:
(a) Such PARTICIPATING PARTIES shall pay a sum equal to that
portion of the total cost of the platform (including, but not by way
of limitation, costs of design, materials, fabrication,
transportation, installation and other costs associated therewith,
plus any repairs and maintenance expense resulting from the drilling
of such well not provided in Section 12.6.2), which one platform slot
bears to the total number of slots on the platform. If the
NON-CONSENT WELL is abandoned, the right of the PARTICIPATING PARTIES
to use that platform slot shall terminate
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unless such PARTIES commence drilling a substitute well from the same
slot within ninety (90) days after abandonment.
(b) If the NON-CONSENT WELL production is handled through
existing FACILITIES, the PARTICIPATING PARTIES shall pay the owners
of the facilities a sum equal to that portion of the total cost of
such FACILITIES which the number of completions in said NON-CONSENT
WELL bears to the total number of completions utilizing the
FACILITIES.
12.6.2 OPERATING AND MAINTENANCE CHARGES. The PARTICIPATING PARTIES
shall pay all costs necessary to connect a NON-CONSENT WELL to the FACILITIES
and that proportionate part of the expense of operating and maintaining the
platform and other FACILITIES applicable to the NON-CONSENT WELL, including the
cost of insurance thereon or in connection therewith, whether by insurance
policy of self-insurance by each PARTY for its interest or by OPERATOR for the
joint account. Platform operating and maintenance expenses shall be allocated
equally to all completions served and operating and maintenance expenses for the
other FACILITIES shall be allocated equally to producing completions.
12.6.3 PAYMENTS. Payments of sums pursuant to Section 12.6.1 is
not a purchase of an additional interest in the platform or other FACILITIES.
Such payments shall be included in the total amount which the PARTICIPATING
PARTIES are entitled to recoup out of production from the NON-CONSENT WELL.
12.7 NON-CONSENT DRILLING TO MAINTAIN LEASE. A lease maintenance
operation is defined for the purposes of this paragraph as one required to
maintain the joint LEASE or a portion thereof, at its expiration date or
otherwise. This shall include, but not be limited to, a well proposed to be and
actually commenced and drilled during the last year of the primary term of the
LEASE, or subsequent thereto, when: (a) the LEASE, or affected portion
thereof, is not otherwise being held by operations or production; (b) a
PRODUCIBLE WELL(S) thereon has not established sufficient reserves, as
determined by one (1) or more PARTICIPATING PARTIES owning fifty percent (50%)
working interest in the well, to justify a platform; or (c) any governmental
agency having jurisdiction requires the same to avoid loss or forfeiture of
20
all or any portion of the LEASE. Any PARTY may propose and carry out (no
percentage vote required) a lease maintenance operation and any PARTY(S)
electing not to participate in such an operation will assign to the
PARTICIPATING PARTIES in the proportions in which they participate therein,
all of its rights, titles and interest in such LEASE block, or the affected
portion thereof, free and clear of any burdens thereon occurring since the
effective date of this Agreement as provided herein, retaining, however, its
interest in previously completed xxxxx which are producing, shut-in or
temporarily abandoned. Such assignment, effective upon commencement of lease
maintenance operations, will be promptly signed before witnesses,
acknowledged and delivered to the PARTICIPATING PARTIES. If only a portion
of the LEASE is involved, the PARTICIPATING PARTIES at their election may
require an assignment of operating rights in lieu of the assignment of all
interest. Upon acceptance by assignees, the assigning PARTY will thereupon
cease to be a PARTY hereto as to the assigned interest, subject to final
accounting between the PARTIES. If such assignment is not accepted by the
Assignees, they shall promptly prepare a release of such affected LEASE or
portion thereof which shall be executed by all PARTIES. However, nothing
herein contained will be construed to permit any PARTY to refuse to pay in
cash its share of the cost and expense of any operation required on the joint
LEASE block by final order of any governmental authority or court having
jurisdiction.
12.7.1 RETENTION OF LEASE BY NON-CONSENT WELL. If a NON-CONSENT
WELL is the only well on the LEASE(S) and is serving to perpetuate the
LEASE(S), within thirty (30) days after expiration of the LEASE(S) primary
term, each NON-PARTICIPATING PARTY shall elect one of the following;
(a) Immediately assign its entire interest in the LEASE(S) to
the PARTICIPATING PARTIES in the proportions in which the NON-CONSENT
OPERATION was conducted; or
(b) Immediately pay to the PARTICIPATING PARTIES its share of
all costs associated with such well, less any recoupment therefor
previously obtained, such payment to be credited against the total
amount to be recovered out of its share of production by
21
the PARTICIPATING PARTIES pursuant to Article X or XII, whichever is
applicable.
12.8 ALLOCATION OF COSTS (SINGLE COMPLETION). For the purpose of
allocating costs on any well in which the ownership is not the same for the
entire depth, the cost of drilling, completing or equipping such well shall be
allocated on the following basis:
(a) Intangible drilling, completion and material costs
(including casing and tubing costs) from the surface to a depth one
hundred (100) feet below the base of the completed zone shall be
charged to the owners or the PARTIES participating in that zone.
(b) Intangible drilling, completion, casing string and material
costs, other than tubing costs, from a depth one hundred (100) feet
below the base of the completed zone to total depth shall be charged
to the owners or the PARTIES participating in the costs to total
depth.
12.9 ALLOCATION OF COSTS (MULTIPLE COMPLETIONS). For the purpose of
allocating costs on any well completed in dual or multiple zones in which the
ownership is not the same for the entire depth or the completions thereof, the
cost of drilling, completing and equipping such well shall be allocated on the
following basis:
(a) Intangible drilling, completion (including wellhead
equipment), casing string and material costs, other than tubing costs,
from the surface to a depth one hundred (100) feet below the base of
the upper completed zone shall be divided equally between the
completed zones and charged to the owners thereof or the PARTIES
participating in such zone.
(b) Intangible drilling, completion, casing string and material
costs, other than tubing costs, from a depth one hundred (100) feet
below the base of the upper completed zone to a depth one hundred
(100) feet below the base of the second completed zone shall be
divided equally between the second and any other zone completed below
such depth and charged to the owners
22
thereof or to the PARTIES participating in each zone. If the well is
completed in additional zones, the costs applicable to each such zone
shall be determined and charged to the owners thereof in the same
manner as prescribed by the dual zones completion.
(c) Intangible drilling, completion, casing string and material
costs, other than tubing costs, from a depth one hundred (100) feet
below the base of the lower completed zone to total depth shall be
charged to the owners or the PARTIES participating in the costs to
total depth.
(d) Costs of tubing strings serving each separate zone shall be
charged to the owners or the PARTIES participating in each zone.
(e) For the purposes of allocating tangible and intangible costs
between zones that occur at less than one hundred (100) foot
intervals, the costs for the distance between the base of the upper
zone to the top of the next lower zone shall be allocated equally
between zones.
12.10 ALLOCATION OF COSTS (DRY HOLE). For the purpose of allocating
costs on any well determined to be a dry hole, in which the ownership is not the
same for the entire depth or the completion thereof, the cost of drilling,
plugging and abandoning such well shall be allocated on the following basis:
(a) Costs to drill, plug and abandon a well proposed for
completion in single, dual, or multiple zones shall be charged to the
PARTICIPATING PARTIES in the same manner as if the well were completed
as a producing well in all zones as proposed.
(b) Plugging and abandoning of any well following any deepening,
completion attempt or other operation shall be at the sole risk and
expense of the PARTICIPATING PARTIES in such operation, subject
however to the provisions of Section 10.4.
12.11 INTANGIBLE DRILLING AND COMPLETION ALLOCATIONS. For the purpose of
calculations hereunder, intangible drilling and completion costs, including
23
non-controllable material costs, shall be allocated between zones, including
the interval from the lower completed zones to total depth, on a drilling day
ratio basis beginning on the day the rig arrives on location and terminating
when the rig is released.
12.12 OPERATED XXXXX. The designated OPERATOR hereunder shall operate
all xxxxx drilled pursuant to the NON-CONSENT provision of this Agreement.
However, if the NON-CONSENT WELL is drilled from a mobile drilling rig and if
the designated OPERATOR is a NON-PARTICIPATING PARTY therein, the PARTICIPATING
PARTY owning the largest PARTICIPATING INTEREST shall serve as OPERATOR for the
drilling and completion of such well, unless the PARTICIPATING PARTIES agree
otherwise. Upon completion of any such well as a productive well (completion
through the wellhead), the well shall be turned over to the designated OPERATOR
for further operations.
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ARTICLE XIII
FACILITIES
13.1 APPROVAL. Any PARTY may propose the installation of FACILITIES by
notice to the other PARTIES with information adequate to describe the proposed
FACILITIES and the estimated costs. The affirmative vote of one (1) or more
PARTIES having a combined PARTICIPATING INTEREST of fifty percent (50%) or more
in the xxxxx to be served shall be required before such FACILITIES may be
installed. If such required approval is obtained, the PARTICIPATING PARTIES
therein shall proceed with the installation of such FACILITIES at their sole
cost, risk and expense and the NON-PARTICIPATING PARTIES in such FACILITIES
shall have no rights with respect thereto, subject to recoupment of amounts set
forth under Article 12.2.1 from the completions served thereby. Each PARTIES'
share shall be calculated by multiplying the total cost of the FACILITIES by a
fraction, the numerator of which is that PARTY'S number of PRODUCIBLE WELL
completions served by the FACILITIES and the denominator of which is the total
number of PRODUCIBLE WELL completions served by the FACILITIES. Nothing
hereunder shall limit a PARTY'S rights under Section 22.1, however, a PARTY
acting thereunder shall not be required to pay for joint account FACILITIES that
duplicate its FACILITIES constructed pursuant to Section 22.1
ARTICLE XIV
ABANDONMENT AND SALVAGE
14.1 PLATFORM SALVAGE AND REMOVAL COSTS. When the PARTIES owning
FACILITIES consisting of a platform, mutually agree to dispose of such platform
it shall be disposed of by the OPERATOR as approved by such PARTIES. The costs,
risks and net proceeds, if any, resulting from such disposition shall be shared
by such PARTIES in proportion to their PARTICIPATING INTEREST. To secure the
availability and sufficiency of funds for the dismantling, abandonment and
removal of such platform, the PARTICIPATING PARTIES, prior to the construction
shall assign to a trustee of a bank (the "Assignee") an overriding royalty
interest equal to one-half percent (1/2%) of the whole of the oil, gas and other
minerals produced, saved and marketed from the LEASE. The assignee shall be
selected by an affirmative vote of two or more parties having a combined
PARTICIPATING INTEREST of fifty percent
25
(50%) or more. The assigned overriding royalty interest shall burden the
interest of the parties in proportion to their participation in the platform.
The assignee, who shall have no interest in the overriding royalty
interest, shall receive the proceeds and place same in an interest bearing
account or in insured certificates of deposit (the "Abandonment Fund"). If a
platform is not constructed within one year of the date of overriding royalty
interest is assigned, the overriding royalty shall terminate and the assignee
shall reassign the interest and disburse the Abandonment Fund.
Any proposal to construct a platform shall provide estimated cost of
dismantling, abandonment and removal of same. At such time as the Abandonment
Fund equals these estimated costs, the overriding royalty shall be assigned to
the PARTICIPATING PARTIES by the assignee. Similarly, any excess Abandonment
Funds after complete dismantling, abandonment and removal costs are paid shall
be disbursed to the PARTICIPATING PARTIES in proportion to their interest.
A PARTICIPATING PARTY's interest in the Abandonment Fund may only be
assigned or transferred in conjunction with an assignment or transfer of the
subject leases.
In lieu of an assignment of overriding royalty interest, any PARTICIPATING
PARTY may elect to furnish an irrevocable letter of credit in favor of the
assignee, or proof of coverage under adequate plugging and abandonment bonds,
subrogated in favor of the OPERATOR, to provide for that PARTY's estimated
proportionate share of platform dismantling, removal and abandonment costs. The
letter of credit or plugging and abandonment bonds shall provide that either
instrument shall remain in force in the event of a transfer or assignment of the
PARTY's interest until such time as the transferee or assignee provides a
similar irrevocable letter of credit or plugging and abandonment bonds.
14.2 PURCHASE OF SALVAGE MATERIALS. OPERATOR shall give all PARTIES
written notice when it is determined under Section 14.1 that FACILITIES or other
materials are not needed for further operations and may be moved from the LEASE.
Within fifteen (15) days after receipt of such notice any PARTY desiring to
acquire such materials shall give OPERATOR written notice of such fact. If more
than
26
one PARTY desires to acquire such materials, OPERATOR shall designate a time
and place at which each PARTY may submit written bids for such materials. If
only one PARTY desires to acquire such materials, it may do so on the basis
of the value thereof as determined in accordance with the provisions of
Exhibit "C", with prefabricated materials being valued on the basis of cost
including but not limited to cost of fabrication. All materials removed from
the LEASE shall be removed at the expense of the PARTIES unless purchased
hereunder, then at the expense of the acquiring PARTY. In the event no PARTY
desires to purchase said materials, the materials shall be disposed of in
accordance with the provisions of Exhibit "C".
14.3 ABANDONMENT OF PRODUCING WELL. Any PARTY may propose the
abandonment of a well by notifying the other PARTIES, who shall have the time
period set forth in Section 9.3.2 from receipt thereof within which to
respond. No well shall be abandoned without the mutual consent of the
PARTICIPATING PARTIES. The PARTICIPATING PARTIES not consenting to the
abandonment shall pay to each PARTICIPATING PARTY desiring to abandon its
share of the current value of the well's salvageable material and equipment
as determined pursuant to Exhibit "C", less the estimated current costs of
salvaging same and of plugging and abandoning the well as determined by the
PARTICIPATING PARTIES. Provided, however, if such salvage value is less than
such estimated current costs, then each PARTICIPATING PARTY desiring to
abandon shall pay to OPERATOR for the benefit of the PARTICIPATING PARTIES
not consenting to abandonment a sum equal to its share of such deficiency.
14.4 ASSIGNMENT OF INTEREST. Each PARTICIPATING PARTY desiring to
abandon a well pursuant to Section 14.3 shall assign effective as of the last
applicable election date, to the non-abandoning PARTIES, in proportion to
their PARTICIPATING INTERESTS, its interest in such well and the equipment
therein and its ownership in the production of such well. Any PARTY so
assigning shall be relieved from any further liability with respect to said
well except as to any accrued liability.
14.5 ABANDONMENT OPERATIONS REQUIRED BY GOVERNMENTAL AUTHORITY. Any well
abandonment or platform removal required by a governmental authority shall be
accomplished by OPERATOR with the costs, risks and net proceeds,
27
if any, to be shared by the PARTIES owning such well or platform in
proportion to their PARTICIPATING INTEREST.
ARTICLE XV
WITHDRAWAL
15.1 WITHDRAWAL. Any PARTY may withdraw from this Agreement and thereby
be relieved of all responsibilities with respect to the LEASE by giving notice
to the other PARTIES of such desire together with an offer to convey at no cost
by a recordable instrument, without warranty, express or implied, except for its
own acts, all of its interest in and to the LEASE, the oil and gas, and the
property and equipment owned hereunder. Any such conveyance or assignment shall
be free and clear of any overriding royalties, production payments or other
burdens on production created after the effective date of this Agreement and
shall be subject to the LEASE provisions and to the rules and regulations of the
lessor. If any PARTY(S) desires to acquire such interest and to assume the
obligations of the assigning PARTY under this Agreement and the LEASE, the
withdrawing PARTY shall deliver such conveyance or assignment ratably to the
acquiring PARTIES, unless the acquiring PARTIES agree otherwise. If no PARTY
desires to acquire such interest, the PARTY desiring to withdraw may do so only
by paying to those PARTIES not desiring to withdraw its pro-rata share of the
estimated costs of plugging and abandoning all xxxxx and removal of all
platforms, structures and other equipment on the LEASE, less any salvage value
approved under the voting procedure hereof, and such withdrawing PARTY shall
remain liable for any costs, expenses or damages theretofore accrued or arising
out of any event occurring prior to such PARTY'S withdrawal. Thereafter, the
withdrawing PARTY shall assign its entire interest ratably to the remaining
PARTIES. If the remaining PARTIES do not wish to continue operations on the
LEASE, all PARTIES shall proceed with abandoning and surrendering the same.
15.2 LIMITATIONS ON WITHDRAWAL. No PARTY shall be relieved of its
obligations hereunder during a well or platform fire, blowout or other emergency
thereon, buy may withdraw from this Agreement and be relieved of such
obligations after termination of such emergency, provided such PARTY shall be
and remain liable for its full share of all costs arising out of said emergency,
including without limitation,
28
the drilling of a relief well, containment and cleanup of oil spill and
pollution and all costs of platform debris removal made necessary by the
emergency.
ARTICLE XVI
RENTALS, ROYALTIES AND OTHER PAYMENTS
16.1 CREATION OF OVERRIDING ROYALTY. If after the effective date of this
Agreement, any PARTY creates any overriding royalty, production payment or other
burden payable out of production attributable to such PARTY'S WORKING INTEREST
in the LEASE owned and if any other PARTY(S) becomes entitled to an assignment
pursuant to the provisions of this Agreement (except for Paragraph 26.2) or as a
result of NON-CONSENT OPERATIONS hereunder becomes entitled to receive the
WORKING INTEREST otherwise belonging to a NON-PARTICIPATING PARTY in such
operations, the PARTY entitled to receive the assignment from or the WORKING
INTEREST production of such NON-PARTICIPATING PARTY shall receive same free and
clear of such burdens, and the NON-PARTICIPATING PARTY creating such burdens
shall save the PARTICIPATING PARTIES harmless with respect to the receipt of
such assigned interest or such WORKING INTEREST production.
16.2 PAYMENT OF RENTALS AND MINIMUM ROYALTIES. OPERATOR shall pay all
rentals, minimum royalties, or similar payments accruing under the terms of the
LEASE and submit evidence of such payment to the PARTIES. As to any production
delivered in kind by OPERATOR to any NON-OPERATOR or to another for the account
of such NON-OPERATOR, said NON-OPERATOR shall provide OPERATOR with information
as to the proceeds or value of such production in order that the OPERATOR may
make payment of any minimum royalty due. The amount of such payment for which
each PARTY is responsible shall be charged by the OPERATOR to such PARTIES.
OPERATOR shall diligently attempt to make proper payment, but shall not be held
liable to the PARTIES in damages for the loss of any LEASE or interest therein
of through mistake or oversight any rental or minimum royalty payment is not
paid for or is erroneously paid. The loss of any LEASE or interest therein
which results from a failure to pay or an erroneous payment of rental or minimum
royalty shall be a joint loss and there shall be no readjustment of interest.
16.3 NON-CONCURRENCE IN PAYMENTS. Should any PARTY(S) not concur in the
payment of any rental, minimum royalty or similar payment, such
29
PARTY(S) shall notify OPERATOR and all other owners in writing at least sixty
(60) days prior to the date on which such payment is due or accrues; and, in
this event OPERATOR shall make such payment for the benefit of all concurring
PARTIES. In such event the non-concurring PARTY(s) shall, upon request of
any concurring PARTIES, assign to the concurring PARTIES in the ratio that
each concurring PARTY'S interest at the time bears to the total interest of
all concurring PARTIES, without warranty, except for its own acts, such
portions of its interest in and to the LEASE or portion thereof involved as
would be maintained by such payment. That assignment shall be free and clear
of any overriding royalties, production payments or other burdens on
production created after the effective date hereof. Thereafter, the LEASE, or
portion thereof, involved shall no longer be subject to this Agreement. The
PARTIES then owning such LEASE or portion thereof agree to operate said LEASE
or portion thereof under a separate agreement in the same form as this
Agreement.
16.4 ROYALTY PAYMENTS. Each PARTY shall pay, deliver or cause to be paid
or delivered its pro-rata share of LEASE royalties, overriding royalties,
payments out of production or other amounts or charges which may be or become
payable out of its share of production and shall hold the other PARTIES free
from any liability therefor. During any time in which PARTICIPATING PARTIES in
a NON-CONSENT OPERATION are entitled to receive a NON-PARTICIPATING PARTY'S
share of production, the PARTICIPATING PARTIES shall bear the LEASE royalty due
with respect to such share of production and shall hold the NON-PARTICIPATING
PARTIES harmless from liability in connection therewith. Any PARTY acting under
the provisions of the Article shall never be liable for a standard of
performance in making such payments or deliveries in excess of a good faith
effort to pay or deliver same prior to the due date and no liability (other than
the liability to correct such payment) shall be incurred for failure through
error or omissions of the employees of any such PARTY to make payment or
delivery within the time, in the manner and for the amounts due.
16.5 FEDERAL OFFSHORE OIL POLLUTION COMPENSATION FUND FEE. Each PARTY
agrees to pay and bear the Federal Offshore Oil Pollution Compensation Fund Fee
payable on its share of oil produced, such fee being required by Section 302 of
the Outer Continental Shelf Lands Act Amendment of 1978 and any regulation
30
lawfully promulgated pursuant thereto; provided, however, should the oil owned
by a PARTY be reported by another PARTY, it shall be the obligation of such
reporting PARTY and such reporting PARTY is specifically authorized to an agrees
to pay the Federal Offshore Oil Pollution Compensation Fund Fee on those volumes
which it reports for the benefit of the non-reporting PARTY, and such reporting
PARTY may charge such non-reporting PARTY for the payments so made.
ARTICLE XVII
TAXES
17.1 PROPERTY TAXES. OPERATOR shall render property covered by this
Agreement as may be subject to ad valorem taxation and shall pay such property
taxes for the benefit of each PARTY. OPERATOR shall charge each PARTY its share
of such tax payments. If the OPERATOR is required hereunder to pay ad valorem
taxes based in whole or in part upon separate valuation of each PARTY'S WORKING
INTEREST, then notwithstanding anything to the contrary herein, charges to the
Joint Account shall be made and paid by the PARTIES hereto in accordance with
the percentage of tax value generated by each PARTY'S WORKING INTEREST.
17.2 CONTEST OF PROPERTY TAX VALUATION. OPERATOR shall timely and
diligently protest to a final determination any valuation it deems unreasonable.
Pending such determination, OPERATOR may elect to pay under protest. Upon final
determination, OPERATOR shall pay the taxes and any interest, penalty or cost
accrued as a result of such protest. In either event, OPERATOR shall charge
each PARTY its share.
17.3 PRODUCTION AND SEVERANCE TAXES. Each PARTY shall pay, or cause to be
paid, all production, severance and windfall profits taxes due on any production
which it received pursuant to the terms of this Agreement.
17.4 OTHER TAXES AND ASSESSMENTS. OPERATOR shall pay other applicable
taxes or assessments and charge each PARTY its share.
ARTICLE XVIII
INSURANCE
18.1 INSURANCE. OPERATOR shall obtain the insurance provided in Exhibit
"B" and charge each PARTICIPATING PARTY its proportionate share of the cost of
such coverage.
31
ARTICLE XIX
LIABILITY, CLAIMS AND LAWSUITS
19.1 INDIVIDUAL OBLIGATIONS. The obligations, duties and liabilities of
the PARTIES shall be several and not joint or collective; and nothing contained
herein shall ever be construed as creating a partnership of any kind, joint
venture, association or other character of business entity recognizable in law
for any purpose. Each PARTY shall hold all the other PARTIES harmless from
liens and encumbrances on the LEASE arising as a result of its acts.
19.2 NOTICE OF CLAIM OR LAWSUIT. If a claim is made against any PARTY or
if any PARTY is sued on account of any matter arising from operations hereunder,
such PARTY shall give prompt written notice to the other PARTIES.
19.3 SETTLEMENTS. OPERATOR may settle any single damage claim or suit
involving operations hereunder if the expenditure does not exceed Ten Thousand
Dollars ($10,000.00), if the claim is not covered by Exhibit "B" and if the
payment is in complete settlement of such claim or suit.
19.4 LEGAL EXPENSE. Legal Expenses shall be handled pursuant to Exhibit
"C".
19.5 LIABILITY FOR LOSSES, DAMAGES, INJURY OR DEATH. Liability for
losses, damages, injury or death arising from operations under this Agreement
shall be borne by the PARTIES in proportion to their PARTICIPATING INTERESTS in
the operations out of which such liability arises, except when such liability
results from the gross negligence or willful misconduct of any party, in which
case such PARTY shall be liable.
19.6 INDEMNIFICATION. The PARTICIPATING PARTIES agree to hold the
NON-PARTICIPATING PARTIES harmless and to indemnify and protect them against
all claims, demands, liabilities and liens for property damage or personal
injury, including death, caused by or otherwise arising out of NON-CONSENT
OPERATIONS, and any loss and costs suffered by any NON-PARTICIPATING PARTY as
an incident thereof.
ARTICLE XX
INTERNAL REVENUE PROVISION
32
20.1 INTERNAL REVENUE PROVISION. Notwithstanding any provisions herein
that the rights and liabilities hereunder are several and not joint or
collective or that this Agreement and the operations hereunder shall not
constitute a partnership, if for Federal Income Tax purposes this Agreement and
the operations hereunder are regarded as a partnership, then for Federal Income
Tax purposes each PARTY elects to be excluded from the application of all the
provisions of Subchapter K, Chapter 1, Subtitle A, Internal Revenue Code of
1988, as permitted and authorized by Section 761 of said Code and the
regulations promulgated thereunder. OPERATOR is hereby authorized and directed
to execute on behalf of each PARTY such evidence of this election as may be
required by the Federal Internal Revenue Service including specifically, but not
by way of limitation, all of the returns, statements and data required by
Federal Regulations 1.761.2. Should there be any requirement that each PARTY
further evidence this election, each PARTY agrees to execute such documents and
furnish such other evidence as may be required by the Federal Internal Revenue
Service. Each PARTY further agrees not to give any notices or take any other
action inconsistent with the election made hereby. If any present or future
income tax law of the United States of America or any state contains provisions
similar to those contained in Subchapter K, Chapter 1, Subtitle A of the
Internal Revenue Code of 1986, under which an election similar to that provided
by Section 761 of said Subchapter K is permitted, each PARTY makes such election
or agrees to make such election as may be permitted by such laws. In making
this election, each PARTY states that the income derived by it from the
operations under this Agreement can be adequately determined without the
computation of partnership taxable income.
33
ARTICLE XXI
CONTRIBUTIONS
21.1 NOTICE OF CONTRIBUTIONS OTHER THAN ADVANCES FOR SALE OF PRODUCTION.
Each PARTY shall promptly notify the other PARTIES of all contributions which it
may obtain, or is attempting to obtain, concerning the drilling of any well on
the LEASE. Payments received as consideration for entering into a contract for
sale of production from the LEASE, loans and other financing arrangements shall
not be considered contributions for the purposes of the Article. No PARTY shall
release or obligate itself or release information in return for a contribution
from an outside party toward the drilling of a well without prior written
consent of the other PARTICIPATING PARTIES therein.
21.2 CASH CONTRIBUTIONS. In the event a PARTY receives a cash
contribution toward the drilling of a well, said cash contribution shall be paid
to OPERATOR and OPERATOR shall credit the amount thereof to the PARTIES in
proportion to their PARTICIPATING INTEREST.
21.3 ACREAGE CONTRIBUTIONS. In the event a PARTY receives an acreage
contribution toward the drilling of a well, said acreage contribution shall be
shared by each PARTICIPATING PARTY who accepts in proportion to its
PARTICIPATING INTEREST in the well.
ARTICLE XXII
DISPOSITION OF PRODUCTION
22.1 FACILITIES TO TAKE IN KIND. Any PARTY shall have the right, at its
sole risk and expense, to construct FACILITIES for taking its share of
production in kind, provided that such FACILITIES at the time of installation do
not interfere with continuing operations on the LEASE and adequate space is
available therefor.
22.2 DUTY TO TAKE IN KIND. Each PARTY shall have the right and duty to
take in kind or separately dispose of its share of the oil and gas produced and
saved from the LEASE.
22.3 FAILURE TO TAKE IN KIND. If any PARTY fails to take in kind or
dispose of its share of the oil and condensate, OPERATOR may either (a) purchase
oil or condensate at OPERATOR'S posted price or, in the absence of a posted
price, in no event less than the price prevailing in the area for oil of the
same kind, gravity and
34
quality, or (b) sell such oil or condensate to others at the best price
obtainable by OPERATOR, subject to revocation by the non-taking PARTY upon
thirty (30) days advance notice. All contracts of sale by OPERATOR of any
PARTY'S share of oil or condensate shall be only for such reasonable periods
of time as are consistent with the minimum needs of the industry under the
circumstances, but in no event shall any contract be for a period in excess
of one (1) year. Proceeds of all sales made by OPERATOR pursuant to this
Section shall be paid to the PARTIES entitled thereto. Unless required by
governmental authority or judicial process, no PARTY shall be forced to share
an available market with any non-taking PARTY.
22.4 EXPENSES OF DELIVERY IN KIND. Any cost incurred by OPERATOR in
making delivery of any PARTY'S share of oil and condensate, or disposing of same
pursuant to Section 22.3, shall be borne by such PARTY.
22.5 GAS BALANCING PROVISIONS. Attached hereto is Exhibit "E" entitled
"Gas Balancing Agreement", containing an agreement of the PARTIES which is
incorporated into this Agreement as if copied at length herein.
ARTICLE XXIII
APPLICABLE LAW
23.1 APPLICABLE LAW. THIS AGREEMENT SHALL BE INTERPRETED ACCORDING TO THE
LAWS OF THE STATE OF TEXAS.
ARTICLE XXIV
LAWS, REGULATIONS AND NON-DISCRIMINATION
24.1 LAWS AND REGULATIONS. This Agreement and operations hereunder are
subject to all applicable laws, rules, regulations and orders, and any provision
of the Agreement found to be contrary to or inconsistent with any such law,
rule, regulation or order shall be deemed modified accordingly.
24.2 NON-DISCRIMINATION. In the performance of work under the Agreement,
the PARTIES agree to comply, and OPERATOR shall require each independent
contractor to comply, with the governmental requirements set forth in Exhibit
"D" and with all of the provisions of Section 202(1) to (7), inclusive, of
Executive Order No. 11246, as amended.
ARTICLE XXV
FORCE MAJEURE
35
25.1 NOTICE. If any PARTY is rendered unable, wholly or in part, by force
majeure to carry out its obligations under this Agreement, other than the
obligation to make money payments, that PARTY shall give to all other PARTIES
prompt written notice of the force majeure with reasonably full particulars
concerning it; thereupon, the obligations of the PARTY giving the notice, so far
as they are affected by the force majeure, shall be suspended during, but no
longer than, the continuance of the force majeure. The affected PARTY shall use
reasonable diligence to remove the force majeure as quickly as possible.
25.2 STRIKES. The requirement that any force majeure shall be remedied
with all reasonable dispatch shall not require the settlement of strikes.
25.3 FORCE MAJEURE. 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, governmental restraint, unavailability of equipment and any other
cause, whether of the kind specifically enumerated above or otherwise, which is
not reasonably within the control of the PARTY claiming suspension.
ARTICLE XXVI
SUCCESSORS, ASSIGNS AND PREFERENTIAL
RIGHT TO PURCHASE
26.1 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and
inure to the benefit of the PARTIES and their respective heirs, successors,
representatives and assigns and shall constitute a covenant running with the
LEASE. Each PARTY shall incorporate in any assignment of an interest in the
LEASE a provision that such assignment is subject to this Agreement.
26.2 PREFERENTIAL RIGHT OF PURCHASE. Should any PARTY desire to sell,
farmout or otherwise dispose of all or any part of its Working Interest in the
Lease, it shall promptly give written notice to the other PARTIES giving
complete information relative to the proposed disposition, including the price
or value fixed for the interest and the name and address of the prospective
transferee, who must be ready, willing and able to accept such sale, farmout or
other disposition. The other PARTIES shall have the right for a period of
twenty (20) days after receipt of the notice to purchase the interest which the
PARTY proposes to sell, farmout or otherwise dispose of on the
36
same terms and conditions; if this right is exercised, the purchasing PARTIES
shall share the purchased interest in proportion to their Working Interest.
A transfer of interest hereunder shall not become effective as to the PARTIES
until the first day of the month following delivery to OPERATOR of an
original (or copies thereof) instrument of transfer approved by the proper
governmental authority and conforming to the requirements of this Section.
No such transfer shall relieve the transferring PARTY of any obligations or
liabilities accrued hereunder prior to such effective date. This Section
shall not apply when a PARTY wishes to mortgage its interest or to dispose of
its interest by merger, reorganization, consolidation, assignment of
production payment, sale of all or substantially all of its assets, or sale
or transfer of its interest to an affiliate.
26.2.1 A PARTY may sell, transfer or assign all or any part of its
interest in the property or this Agreement without the consent of any other
PARTY hereto, provided that:
(a) Any such sale, transfer or assignment shall be made only to
a financially responsible PARTY or PARTIES.
(b) Such PARTY shall give the other PARTIES written notice of
such sale, transfer or assignment at least thirty (30) days prior to
executing any instrument(s) evidencing the sale, transfer or
assignment (such notice to include the name of each proposed
transferee and the interest(s) to be transferred).
(c) Such PARTY shall incorporate in each instrument evidencing
the sale, transfer or assignment a provision making the same expressly
subject to the Operating Agreement and shall obtain (and furnish to
the other PARTIES) such transferee's written consent to be bound by
all the provisions of the Operating Agreement.
(d) If the original interest of any PARTY is at any time
transferred to two (2) or more transferees, OPERATOR may, at its
discretion, require such transferees to appoint a single trustee with
full authority to receive notices and payments, approve
37
expenditures and pay the share of costs which are chargeable against
such transferees.
26.2.2 The Provisions of this Article shall not, however, apply to
and it shall not be necessary to obtain the consent of any PARTY in connection
with;
(a) Any mortgage or other pledge, including without limitation
the granting of any lien or security interest and any assignment of
production executed as further security for the debt secured by any
such mortgage or pledge, by a PARTY hereto of its interest or any
portion thereof in the joint leases, or the Agreement, or any
judicial, trustee's or other sales to foreclose the same;
(b) Any transfer or disposition of the interest of a PARTY
hereto by corporate merger or consolidation or by any sale or sales of
substantially all of its oil and gas properties; or
(c) Any sale, merger, consolidation or other transfer by a PARTY
hereto of any part of its interest to or with any "affiliate" (as such
term is defined in Regulation C, issued under the Securities Act of
1933).
(d) Any mortgage, pledge, transfer, sale, merger or any other
disposition enumerated in subparagraphs (a), (b) or (c) of this
Paragraph shall be made expressly subject to this Agreement. Any
assignment under this provision shall be effective upon approval of
the lessor or at such earlier date as agreed to by the lessor.
26.3 ASSIGNMENTS. Any assignment, vesting or relinquishment of interest
between the PARTIES shall be without warranty of title, except as to overrides,
production payments, liens, encumbrances or similar burdens on the interest
assigned.
38
ARTICLE XXVII
AREA OF MUTUAL INTEREST
27.1 AREA OF MUTUAL INTEREST. The PARTIES hereby create an Area of Mutual
Interest ("AMI") described and identified on Exhibit "A-1" attached hereto and
made a part hereof. This AMI shall remain in force and effect as long as any
leases lying within the AMI are being maintained by the parties hereto. Any
acquisition of any right, title or interest acquired in, to and under any oil or
gas lease or any other interest in oil or gas, including, without limitation,
contractual rights, which confer on the holder thereof the right to share, or
acquire the right to share, in the production or the proceeds of production of
oil and gas within the AMI (the "Acquisition") by a PARTY herein shall be for
the mutual benefit of the PARTIES; provided, however, that any such Acquisition
shall not be subject to the provisions of this AMI if such Acquisition is the
consequence of (i) a merger, consolidation or reorganization, or (ii) the
acquisition of all or substantially all of the assets of any person, firm or
entity. Each PARTY shall have the right to participate in any such Acquisition
in the same proportion as such PARTY's WORKING INTEREST in and to the LEASE as
set forth in Exhibit "A". The PARTY making the Acquisition (the "Acquiring
Party") shall notify each of the other PARTIES in writing within thirty (30)
days of such Acquisition and shall furnish a copy of all executed agreements
pertaining thereto and such title information as the Acquiring PARTY has,
stating the cost of such acquisition or the obligations that must be assumed in
connection therewith. Each of the other PARTIES shall have a period of fifteen
(15) working days (48 hours exclusive of Saturdays, Sundays and legal holidays
in the event that a well is being drilled within the AMI) after receipt of such
notice within which to elect and notify the Acquiring PARTY whether or not it
desires to participate in such Acquisition. Failure to timely respond to the
Acquiring PARTY's notice or reimburse the Acquiring PARTY for the proportionate
share of the acquired interest shall be deemed an election not to acquire such
interest. Upon election and payment to the Acquiring PARTY of a non-acquiring
PARTY's share of the cost of such acquisition, such non-acquiring PARTY shall be
entitled to an assignment of its proportionate share in such Acquisition.
If fewer than all PARTIES elect to participate in the Acquisition
within the AMI, the Acquiring PARTY shall inform all PARTIES who have elected to
39
participate in the Acquisition, in writing, of the elections made. Each
PARTY receiving notice, within forty-eight (48) hours (inclusive of Saturday,
Sunday or legal holidays) after receipt of such notice, shall advise the
Acquiring PARTY of its desire to (a) limit participation to its WORKING
INTEREST, or (b) acquire its proportionate share of the interest of the
non-participating PARTY(IES), or (c) participate for a percentage of the
interest of the non-participating PARTY(IES).
The proportionate interest of any PARTY who elects to participate
in any acquisition within the AMI shall be subject to and be burdened by the
identical obligations that the Acquiring PARTY owes to Houston Energy &
Development, Inc. on the LEASE.
ARTICLE XXVIII
TERM
28.1 TERM. This Agreement may be amended only in writing and only by
mutual consent of all PARTIES. This Agreement shall remain in effect so long as
the LEASE shall remain in effect and thereafter until all claims, liabilities
and obligations incurred in operations hereunder have been settled; however, all
property belonging to the PARTIES shall be disposed of and final settlement
shall be made under this Agreement.
ARTICLE XXIX
HEADINGS AND EXECUTION
29.1 TOPICAL HEADINGS. The topical headings used herein are for
convenience only and shall not be construed as having any substantive
significance or as indicating that all of the provisions of this Agreement
relating to any topic are to be found in any particular Section.
40
29.2 COUNTERPART EXECUTIONS. This Agreement may be signed in
counterparts, and shall be binding upon the PARTIES and upon their successors,
representatives and assigns.
CHENIERE ENERGY, INC.
WITNESSES:
---------------------------- BY:
-------------------------------------
PRINTED NAME: Xxxxxx X. Xxxxxxxx
---------------------------- TITLE: President & CEO
BETA OIL & GAS, INC.
---------------------------- BY:
-------------------------------------
PRINTED NAME: Xxxxx Xxxxx
---------------------------- TITLE: President
SIGNATURE PAGE OF JOINT OPERATING AGREEMENT DATED NOVEMBER 6, 1998 COVERING S.L.
16017, S.L. 16185, S.L. 16186
41
EXHIBIT A
of
EXHIBIT C
to
REDFISH PROSPECT AGREEMENT, DATED JANUARY 6, 1999
(CONFIDENTIAL TREATMENT REQUESTED)
42
EXHIBIT A-1
of
EXHIBIT C
to
REDFISH PROSPECT AGREEMENT, DATED JANUARY 6, 1999
(CONFIDENTIAL TREATMENT REQUESTED)
43
EXHIBIT "B"
INSURANCE
(Attached and made a part of that particular Joint Operating Agreement dated
effective November 6, 1998, by and between Cheniere Energy, Inc., as Operator,
and Beta Oil & Gas, Inc. as Non-Operator, covering S.L. 16019, 16017 and 16186
as more fully set out on Exhibit "A" of the Joint Operating Agreement.)
Operator shall, at all times while conducting operations on the Contract Area
and/or Assigned Premises, carry or cause to be carried insurance for the
following coverages and in at least the minimum amounts noted.
1. Workers' Compensation and Occupational Disease insurance in accordance
with the statutory requirements of the state in which work is to be
performed, the state in which the Operator, herein "Contractor", or
any of Operator's contractor(s) or sub-contractor(s), employees reside
and the state in which the Contractor is domiciled; Employer's
Liability insurance with limits of not less than $1,000,000. These
coverages shall include:
a. Protection for liabilities under the Federal Longshoremen's and
Harbor Worker's Compensation Act and the Outer Continental Shelf
Lands Act.
b. Coverage for liability under the Merchant Marine Act of 1920,
commonly known as the Xxxxx Act; the Admiralty Act; and the Death
on the High Seas Act with limits of not less than $1,000,000 per
accident.
c. Protection against liability of employer to provide
transportation, wages, maintenance and cure to maritime employees
and a Voluntary Compensation Endorsement.
d. Coverage amended to provide that a claim IN REM shall be treated
as a claim against the employer.
e. Territorial extension shall cover all work areas.
2. Comprehensive General Liability insurance, written on any occurrence
reported basis with limits of $1,000,000 per occurrence Bodily Injury
and Property Damage, combined single limits, an annual aggregate of no
less than $2,000,000 (if applicable), including the following
coverages:
a. Premises and Operations coverages.
b. Independent Contractor's Contingent coverage.
c. Contractual Liability covering liabilities assumed under this
Contract.
d. Products and Completed Operations coverage.
e. Coverage for explosion, collapse and underground resources and
property damage under both Premises/Operations and Contractual
Liability coverage parts, where applicable.
f. Broad Form Property Damage Liability endorsement.
g. Personal Injury Liability.
h. IN REM endorsement.
i. Territorial extension shall cover all work areas.
j. Where applicable, coverage for liability resulting from the
consumption of food prepared or served by contractor or
subcontractor.
44
k. Watercraft exclusion deleted or Protection & Indemnity provided
as per 4.B.
l. Coverage is provided for "Action Over" suits.
m. Coverage is silent as respects Punitive Damages.
3. Automobile Liability insurance covering owned, hired and non-owned
vehicles with limits of $1,000,000 per occurrence Bodily Injury and
Property Damage combined single limits.
4. Where the work described by this Contract involves the use of marine
equipment. Operator will require the contractor to provide the
following insurance:
a. Full Form Hull and Machinery insurance, with coverage equal to
that provided by the American Institute Hull Clauses including
collision liability, with the sister ship clause unamended, with
limits of liability at least equal to the full value of the
vessel and with navigational limitations adequate for Contractor
to perform the contracted work. Where the vessels engage in
towing operations, said insurance shall include full tower's
liability with the sister ship clause unamended.
b. Protection and indemnity insurance coverage in an amount at least
equal to the full value of each vessel employed under the
Contract. Protection and indemnity insurance shall include full
coverage for all crew liabilities if coverage for maritime
employees is not provided under Coverage B, Employers Liability
for Admiralty Jurisdiction.
c. Excess Protection and Indemnity insurance, including Collision
and Tower's (where applicable) Liability in an amount at least
equal to the value of each vessel covered or the difference
between the full value of each vessel and $1,000,000 per
occurrence.
d. Voluntary Removal of Wreck and/or Debris insurance covering
Contractor's operations in an amount of not less than $1,000,000
per occurrence.
All of the marine coverages cited above shall name Operator and all its
subsidiary and affiliated companies as additional insureds as their interests
may appear, to the extent of contractor's obligations to defend and indemnify
the Parties.
5. Aircraft Liability insurance (for contracts involving use of aircraft
or helicopters) with combined single limit coverage for public
liability, passenger liability and property damage liability of not
less than $5,000,000 covering all owned and non-owned aircraft used by
Contractor in connection with work to be performed.
6. Umbrella Liability insurance written on an occurrence basis with no
claims made features with a minimum combined single limit of
$5,000,000 each occurrence/aggregate where applicable, to be excess of
the coverages and limits required in 1, 2, 3, 4 and 5 above.
7. Excess Umbrella Liability with a minimum combined single limit of
$10,000,000.
8. OPERATOR shall carry or cause to be carried the following coverages
for the benefit of and at the expense of the Joint Account, however,
proportionate coverage may be carried individually by each
NON-OPERATOR, subject to proper evidence of such proportionate
coverage being provided to Operator at least fifteen (15) days prior
to commencement of operations for the drilling of the initial
EXPLORATORY WELL.
45
a. Operator's Extra Expense Insurance, including control of well and
redrilling of the well (full restoration redrill), including, but
not limited to, Seepage and Pollution and Containment and
Evacuation Expense with a limit of liability of $20,000,000.
b. Physical Damage and Removal of Wreck Coverage for facilities
hereunder, with limits not less than the replacement value
thereof. Notwithstanding the foregoing, this coverage to be
provided fifteen(15)days prior to placement of such facilities.
00
XXXXXXX "X"
(Xxxxxxxx and made a part of that particular Joint Operating Agreement dated
effective November 6, 1998, by and between Cheniere Energy, Inc., as Operator,
and Beta Oil & Gas, Inc. as Non-Operator, covering S.L. 16019, 16017 and 16186
as more fully set out on Exhibit "A" of the Joint Operating Agreement.)
INSERT EXHIBIT "C" THIS PAGE
ACCOUNTING PROCEDURE
OFFSHORE JOINT OPERATIONS
47
INSERT PAGE 2 OF EXHIBIT C
48
INSERT PAGE 3 OF EXHIBIT C
49
INSERT PAGE 4 OF EXHIBIT C
50
INSERT PAGE 5 OF EXHIBIT C
51
INSERT PAGE 6 OF EXHIBIT C
52
INSERT PAGE 7 OF EXHIBIT C
53
EXHIBIT "D"
(Attached and made a part of that particular Joint Operating Agreement dated
effective November 6, 1998, by and between Cheniere Energy, Inc., as
Operator, and Beta Oil & Gas, Inc. as Non-Operator, covering S.L. 16017,
16185 and 16186 as more fully set out on Exhibit "A" of the Joint Operating
Agreement.)
CERTIFICATION OF NONSEGREGATED FACILITIES
Contractor certifies that it does not maintain or provide for its employees
any segregated facilities at any of its establishments and that it does not
permit its employees to perform their services at any location, under its
control, where segregated facilities are maintained. Contractor certifies
further that it will not maintain or provide for its employees any segregated
facilities at any of its establishments and that it will not permit its
employees to perform their services at any location, under its control, where
segregated facilities are maintained. Contractor agrees that a breach of
this certification is a violation of the Equal Opportunity Clause in any
Government contract between Contractor and Corporation. As used in this
certification, the term "segregated facilities" means any waiting rooms, work
areas, rest rooms and wash rooms, restaurants and other eating areas, time
clocks, locker rooms and other storage or dressing areas, parking lots,
drinking fountains, recreation or entertainment areas, transportation, and
housing facilities provided for employees which are segregated by explicit
directive or are in fact segregated on the basis of race, color, religion, or
natinal origin, because of habit, local customs or otherwise. Contractor
further agrees that (except where it has obtain identical certifications from
proposed subcontractors for specific time periods) it will obtain identical
certifications from proposed subcontractors prior to the award of
subcontracts exceeding $10,000 which are not exempt from the provisions of
the Equal Oportunity Clause; that it will retain such certifications in its
files; and that it will forward the following notice to such proposed
subcontractors (except where the proposed subcontractors have submitted
identical certifications for specific time periods):
NOTICE TO PROSPECTIVE SUBCONTRACTORS OF REQUIREMENT FOR CERTIFICATIONS OF
NONSEGREGATED FACILITIES. A Certification of Non-segregated Facilities, as
required by the May 9, 1967, order on Elimination of Segregated Facilites, by
the Secretary of Labor (32 Fed. Reg. 7439, May 19, 1967), must be submitted
prior to the award of a subcontract exceeding $10,000 which is not exempt
from the provisions of the Equal Opportunity Clause. The certi-fication may
be submitted either for each subcontract or for all subcontracts during a
period (i.e., quarterly, semi-annually or annually). (1968 MAR.) (Note: The
penalty for making false statements in offers is prescribed in 18 U.S.C.
1001.)
Whenever used in the foregoing Section, the term "contractor" refers to each
party to this agreement.
54
EXHIBIT E
GAS BALANCING AGREEMENT
(Attached and made a part of that particular Joint Operating Agreement dated
effective November 6, 1998, by and between Cheniere Energy, Inc., as Operator,
and Beta Oil & Gas, Inc. as Non-Operator, covering S.L. 16017, 16185 and 16186
as more fully set out on Exhibit "A" of the Joint Operating Agreement.)
I. DEFINITIONS
A. "Agreement" shall mean this Gas Balancing Agreement.
B. "Balanced" is that condition which occurs when a party hereto has
taken the same percentage of the cumulative volume of Gas production it is
entitled to take pursuant to the terms of the Operating Agreement.
C. "Gas" includes natural gas produced from a Well that produces Gas Well
Gas, including all constituent parts of such natural gas except liquid
hydrocarbons and condensate recovered by primary separation equipment.
D. "Gas Well Gas" is gas produced from a Well classified as a gas well by
the regulatory body having jurisdiction.
E. "Overproduced" is the status of a party when the percentage of the
cumulative volume of Gas taken by that party exceeds that party's percentage
interest of the volume of cumulative Gas production of all parties to the
Operating Agreement under and pursuant to the terms of the Operating Agreement.
F. "Underproduced" is the status of a party when the percentage of
cumulative volume of Gas taken by that party is less than that party's
percentage interest of the volume of cumulative Gas production of all parties to
the Operating Agreement under and pursuant to the terms of said Operating
Agreement.
G. "Well" is defined as each well subject to the Operating Agreement that
produces Gas Well Gas. If a single Well is completed in two or more reservoirs,
such Well shall be considered a separate Well with respect to, but only with
respect to, each reservoir from which the Gas produced is not commingled in the
well bore.
II. APPLICATION OF THIS AGREEMENT
The parties to the Operating Agreement own the working or operating
interests in the Gas underlying the Contract Area covered by the Operating
Agreement and are entitled to share in the percentages therein stated in the
Operating Agreement.
In accordance with the terms of the Operating Agreement, each party shall
take its share of Gas produced from the Contract Area and market or otherwise
dispose of same. In the event a party hereto does not take in kind or market
its share of Gas or has contracted to sell its share of Gas produced from the
Contract Area to a purchaser which, at any time while this Agreement is in
effect, fails to take the share of Gas attributable to the interest of such
party, the terms of this Agreement shall automatically become effective.
The Operator has [THE DUTY TO CONTROL GAS PRODUCTION AND] the
responsibility of administering the provisions of this GAS BALANCING AGREEMENT.
[THE OPERATOR SHALL CAUSE DELIVERIES TO BE MADE TO THE GAS PURCHASERS AT SUCH
RATES AS MAY BE REQUIRED TO GIVE EFFECT TO THE EXTENT PRACTICABLE, TO BE OR
BECOME BALANCED.]
The provisions of this agreement shall be applied to each well separately
as if each Well was covered by separate but identical agreements.
III. STORING AND MAKING UP GAS PRODUCTION
A. RIGHT TO TAKE AND MARKET GAS
During any periods or periods when any party hereto does not take, has
no market for, or the market of a party is not sufficient to take, that party's
full share of the Gas produced from any Well located on the Contract Area, or
such party's purchaser otherwise fails to take such party's share of Gas
produced from any such Well located on the Contract Area, resulting in such
party becoming Underproduced (such party being herein referred to as an
"Underproduced Party"), the other party or parties shall be entitled, but not
required, to produce from said Well on the Contract Area (and take or deliver to
their respective purchaser(s)), each month all or a part of that portion of the
allowable Gas production assigned to such Well by the regulatory body having
jurisdiction. Any party so taking or delivering Gas which results in such party
becoming Overproduced is herein referred to as an "Overproduced Party".
Those parties which are capable of taking and/or marketing quantities
of Gas allocable to an Underproduced Party, in the absence of any other
agreement between them, shall each take a share of the Gas attributed to the
Underproduced Party or Parties in the direct proportion that their respective
interests bear to the total interest of all parties taking Gas which are also
considered Overproduced.
All parties hereto shall share in and own the liquid hydrocarbons
recovered from such Gas by primary separation equipment in accordance with their
respective interests and subject to the terms of the above described Operating
Agreement, whether or not such parties are actually taking and/or marketing Gas
at such time.
B. MAKING UP UNDERPRODUCTION
Any Underproduced Party shall endeavor to bring its taking of Gas into
a Balanced condition. Upon written notice to the Operator, any Underproduced
Party may thereafter begin taking or delivering to its purchaser its full share
of the Gas produced from a Well (less any used in operations, vented or lost).
To allow for the recovery of Gas in storage and to balance the Gas account of
the parties in accordance with their respective interests, Underproduced Party
shall be entitled to take or deliver to a purchaser its full share of Gas
produced from such Well (less any used in operations, vented or lost) plus,(i)
for the months of March, April, May, June, July, August, September and October
only of any calendar year during which this agreement may be in place, an amount
up to an additional fifty percent (50%) of the monthly quantity of Gas
attributable to the Overproduced Party or Parties, or (ii) for the months of
November, December, January and February only of any calendar year or years
during which this agreement may be in place, an amount up to an additional
twenty-five percent (25%) of the monthly quantity of Gas attributable to the
Overproduced Party or Parties. If more than one Underproduced Party is entitled
to take additional Gas, they shall divide the additional Gas in proportion to
their respective Underproduced accounts. The first Gas made up shall be assumed
to be the first Gas Underproduced.
C. GAS BALANCE REPORTING
Each party taking Gas shall furnish or cause to be furnished to the
Operator a monthly written statement of Gas volumes taken and the identity of
its Gas purchaser, if any, no later than [THIRTY (30)] days after the production
month. Operator shall not be required to adjust its Gas accounting statements
reflecting a different Gas purchaser until the first day of the month following
the month in which such notice is received by the Operator. The Operator will
maintain appropriate accounting on a monthly and cumulative basis of the
quantities of Gas each party is entitled to take and/or market and the
quantities of Gas taken and/or marketed by each of the parties to their
respective Gas purchasers. With respect to gas purchased from or transported
for more than one party by or through one pipeline connected to the Well, each
party selling to or transporting through such one pipeline shall furnish to
Operator or cause the pipeline owner to furnish to Operator monthly volume
statements showing the split of ownership through such pipeline's sales or
pipeline inlet meter during the preceding calendar month. Within [NINETY (90)]
days after the end of each producing calendar month, the Operator shall furnish
each party a statement showing the status of the Overproduced and Underproduced
accounts of all parties.
To determine respective volumes of Gas taken by separate gas pipelines
connected to the Well, measurement of Gas for overproduction and underproduction
shall be accomplished by use of sales meters and lease measurement equipment
which shall be in accordance with AGA requirements.
Each party to this Agreement agrees that it will not utilize any
information obtained hereunder for any purpose other than implementing or
administering the terms of this Agreement.
D. ROYALTY AND PRODUCTION TAX
55
At all times while Gas is produced from the Contract Area, unless
otherwise required by any State or Federal law or regulations, each party shall
pay or cause to be paid all royalty due and payable on its share of Gas
production as if each party were taking or delivering to a Gas purchaser its
share of Gas production. Each party agrees to hold each other party harmless
from any and all claims for royalty payments asserted by its royalty owners.
The term "royalty owner" shall include owners of royalty, overriding royalties,
production payments and similar interests payable out of production.
Each party producing or taking or delivering Gas to its Gas purchaser
shall pay, or cause to be paid, all production and severance taxes due on all
volumes of Gas actually taken or sold by such party.
IV. CASH SETTLEMENT
A. VOLUME/VALUE
If, at the permanent termination of production of Gas from a Well
located on the Contract Area, an imbalance exists between the parties, a cash
settlement of the imbalance between the parties relative to such Well shall be
made. The amount of the cash settlement will be limited to the proceeds
actually received by the Overproduced Party or Parties at the time of
overproduction, less transportation and applicable treating charges and
production and severance taxes paid on such overproduction. Royalty shall only
be deducted from such proceeds attributable to the overproduction if actually
paid to royalty owners by the Overproduced Party or Parties. [NO INTEREST SHALL
BE ADDED TO ANY CASH SETTLEMENT HEREUNDER.] If there is more than one
Overproduced Party, the cash settlement shall be based on a weighted average of
the proceeds actually received as above described by all Overproduced Parties.
If the Overproduced Party or Parties did not sell its Gas, such Gas will be
valued in the same manner used for royalty calculation purposes when produced.
That portion of the monies collected by the Overproduced Party or Parties which
is subject to refund by others of the Federal Energy Regulatory Commission
("FERC") may be withheld by the Overproduced Party or Parties until such parties
are fully approved by FERC, unless the Underproduced Party or Parties furnish a
corporate undertaking acceptable to the Overproduced Party or Parties agreeing
to hold the Overproduced Party or Parties harmless from financial loss due to
refund orders by FERC.
B. COLLECTION AND DISTRIBUTION
Operator shall provide within [SIXTY (60)] days of permanent
determination of Gas production a final accounting of the Gas balance to all
parties hereto. Overproduced Parties, within thirty (30) days of receipt of the
final accounting of the Gas balance, shall pay their respective shares of the
above described cash settlement to the Underproduced Parties in that proportion
that each such Underproduced Party's volume of gas in storage bears to the total
of all Underproduced Parties' volumes of gas in storage.
V. MISCELLANEOUS
A. TERM
This Agreement shall remain in force and effect as long as the
Operating Agreement to which it is attached remains in force and effect, and
thereafter until the Gas balance accounts between the parties are settled in
full, and shall inure to the benefit of and be binding upon the parties hereto,
their heirs, successors, legal representatives and assigns.
B. EXPENSES
Nothing herein shall change or affect each party's obligations to pay
its proportionate share of all costs and liabilities incurred in operations on
the Contract Area as its share thereof is set forth in the Operating Agreement
to which this Agreement is attached.
C. WELL TESTS
Nothing herein shall be construed to deny any party the right, from
time to time, to produce and take or deliver to its Gas purchaser up to one
hundred percent (100%) of the entire Well stream to meet the deliverability test
required by its Gas purchaser, provided that such tests are reasonable in light
of overall industry standards.
D. MONITORING OF TAKES OF PRODUCTION
Each party shall, at all times, use its best efforts to regulate its
takes and deliveries from each Well on said Contract Area so that no Well will
be shut-in for overproducing the allowable assigned thereto by the regulatory
body having jurisdiction. Additionally, each party shall communicate, as
necessary, the contents of this agreement to its respective Gas purchaser(s) or
transporter(s) and shall monitor its deliveries to its respective Gas
purchaser(s) or transporter(s) so as to ensure to the greatest extent
practicable that its Gas purchaser(s) or transporter(s) does not take Gas in
excess of the quantities provided for herein.
E. LIQUEFIABLE HYDROCARBONS NOT COVERED UNDER AGREEMENT
The parties shall share proportionately in and own all liquid
hydrocarbons recovered with the gas by lease equipment in accordance with their
respective interests.
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