EXHIBIT 10.12
EXPLORATION AND DEVELOPMENT
AGREEMENT BLACK WARRIOR BASIN,
MISSISSIPPI
THIS AGREEMENT is entered into this 23 day of May 2002, by and between
XXXXXXX XXXXXXXX ENERGY, INC. ("Xxxxxxxx"), and XXXX MISS. PARTNERS, L.P.
("Xxxx").
WHEREAS, Xxxxxxxx and Xxxx have acquired undivided leasehold interests in
approximately 42,000 acres covering lands in Clay, Chickasaw, Xxxxxxx, Choctaw,
Lowndes, Oktibbeha, Noxubee, Xxxxxxx, and Xxxxxxx Counties of Mississippi and
being those leases described on Exhibit "A" attached hereto (the "Leases");
WHEREAS, the Parties have identified certain prospects believed to be
prospective for the development of oil and/or gas, which prospects are depicted
in the Blue outlines on Exhibit "B" attached hereto (the "Prospects"); and
WHEREAS, the Parties desire to set forth the terms under which the Leases
will be jointly developed and further desire to establish an area of mutual
interest for the acquisition and development of additional interests in the oil
and gas rights thereunder.
NOW, THEREFORE, for and in consideration of the mutual premises herein set forth
the parties agree as follows.
1. AREA OF MUTUAL INTEREST. The Parties agree to an Area of Mutual Interest
("AMI") comprising all of the following Counties in Mississippi: Xxxxxxx,
Chickasaw, Choctaw, Clay, Lowndes, Noxubee, Oktibbeha, and Xxxxxxx; excluding
the area identified as the "SKH Xxxxx XXX" depicted in a red outline on Exhibit
"B". Any Party acquiring an "oil and gas mineral interest" within the AMI shall
notify the other Party in writing of such acquisition, which notice shall
include all pertinent terms of such acquisition (the "Notice"). For the purposes
of this Agreement an oil and gas mineral interest shall include, leasehold
working interest, overriding royalty interest, mineral interest, royalty
interest, farm-outs, farm-ins, or any other oil and gas interest of any nature
or kind. The non-acquiring Party may elect to participate for its fifty percent
50% share in the acquisition by giving written notice of its election to the
acquiring party within ten (10) days from receipt of the Notice. A Party
electing to participate in an acquisition shall make payment of its
proportionate part of all acquisition costs within twenty (20) days of its
election. A Party's failure to timely elect or make
its payment thereafter shall be deemed an election not to participate in the
acquisition. If subsequent hereto there are multiple Parties to this Agreement,
each Party participating in the acquisition shall have the option to participate
proportionately in any interest attributable to a nonparticipating Party. The
term of the AMI shall run from the date hereof and continue for a period of six
years.
2. PROSPECTS. For purposes of this agreement, a Prospect shall include such
lands to the nearest quarter section line or lines outside the lowest closing
contour of the structure to be tested, or in the case of a stratigraphic trap,
the Prospect shall be drawn to the nearest quarter section line or lines outside
the stratigraphic trapping boundary or the t rapping fault plane. The Parties
have identified a n umber of geologic prospects based on the evaluation of
available geologic and seismic information (the "PROSPECTS"), which Prospects
are identified on Exhibit "B." It is contemplated that a number of additional
Prospects will be identified as additional data becomes available. Likewise as
additional data becomes available, an existing undrilled Prospect may be
modified on the basis of such additional data. All such additional Prospects or
modification of existing Prospects shall be included on a mutually agreeable
revised Exhibit "B" which will accurately reflect the defined Prospects under
this Agreement. In the event of a dispute between the Parties as to the
existence or area of a new Prospect, the Parties shall meet to attempt to
amicably resolve any such dispute, m the event the Parties are unable to resolve
the dispute, a Party may require arbitration of the dispute by a panel of three
(3) arbitrators. The Party proposing the new Prospect shall select a single
arbitrator and the Party or Parties objecting to the proposed Prospect shall
jointly select a single arbitrator, and the two chosen arbitrators shall select
a third arbitrator. The dispute shall be resolved by a majority vote of the
panel of arbitrators and such decision shall be binding on all Parties. An
arbitrator shall be a qualified geologist or geophysicist with experience in
Mississippi. The Parties agree to pay the costs of its chosen arbitrator and to
share proportionately the costs associated with the arbitration and the third
party arbitrator.
3. INITIAL XXXXX ON A PROSPECT. A Party desiring to drill the initial well on a
Prospect shall give notice to the other Parties identifying the proposed
location, objective formation and an authority for expenditure ("AFE") depicting
the anticipated costs of the proposed initial well. If the location is on a
Prospect that is not identified on Exhibit "B", then the notice shall also give
the boundaries of the proposed Prospect. The P arties shall have thirty (30)
days from receipt of such well proposal within which to notify the Operator
whether they elect to participate in the drilling of such initial well (the
"Election Period"). The initial well on each such Prospect shall be deemed the
Initial Well under VI A. of the JOA, as the terms is hereinafter defined. As to
the participating parties, all operations on the initial well shall be conducted
under the terms on the JOA. If a party elects not to participate in the drilling
of an initial well on a Prospect, upon the commencement of such initial well,
which shall be no more than ninety (90)
days from the expiration of the Election Period, a non-participating Party shall
forfeit all of its right, title and interest in and to the oil and gas leases
insofar as they are located within the Prospect. Any such non-participating
Party shall assign its interests to the participating Parties in the proportion
of their participation.
4. JOINT OPERATING AGREEMENT. The AMI shall be subject to the terms of a Joint
Operating Agreement (the "JOA"), the form of which is attached hereto as Exhibit
"C". The JOA shall designate Xxxxxxxx as Operator, and shall include Article
VIII. F. the Preferential Right to Purchase. The JOA shall also provide for 400%
non-consent penalties for all operations subsequent to the drilling of an
initial well, except as to an "Obligation Well." An "Obligation Well" shall be a
well in which the drilling or other proposed operation is necessary in order to
comply with any express or implied covenants of a lease and/or leases or an
interest subject to the JOA or any operation necessary to maintain a lease or
any part thereof under any agreement that will otherwise expire or terminate
unless such operations are conducted. The failure of a Party to participate in
an operation on an Obligation Well shall result in the forfeiture to the
participating parties of all the non-participating Party's right, title and
interest in and to the Prospect upon which such Obligation Well is located, save
and except any interest in a well on the Prospect previously drilled or drilling
in which the Party is then participating.
5. AMI MANAGEMENT. Xxxxxxxx as operator shall be responsible from the date
hereof for the management of the AMI, including the future leasing and
development activities and where applicable the design and implementation of
additional seismic programs within the AMI. The Parties have agreed that
Xxxxxxxx shall initially retain Xxxx Xxxxxxx and Xx Xxxxxxxxxxxxx (the "Project
Managers") to implement these programs. Xxxxxxxx shall be authorized to charge
to the joint account of the Parties a fee for management and professional time,
including the Project Managers, and Xxxx agrees to bear and pay its
proportionate amount of such management fee, limited to $1,000,000.00, which
shall be payable by the parties hereto in twenty-four (24) equal monthly
payments, for in-house supervision of (a) land matters including lease
acquisition, administration and curative; (b) geologic services including
mapping, geophysical interpretations and seismic acquisition; (c) engineering
services including horizontal drilling and completion techniques; and (d) other
management services. Xxxxxxxx shall provide Xxxx with copies of all work
product resulting from the management of the AMI as set forth herein, including,
without limiting the generality of the foregoing, oil and gas leases, title run
sheets, title curative, title opinions, engineering data, geologic and seismic
data, and/or geologic and seismic interpretations. Xxxxxxxx agrees to give Xxxx
technical presentations on a quarterly basis, or as may be mutually agreed and
agrees to allow Xxxx reasonable access to all technical data maintained in
Xxxxxxxx offices. This fee is in addition to, and not in lieu of those charges
set forth in the XXXXX attached to the JOA.
6. PREFERENTIAL RIGHTS. Should any party desire to sell all or any part of its
interests under this Agreement, it shall give written notice to the other
parties, with full information concerning its proposed disposition, which shall
include the name and address of the prospective transferee (who must be ready,
willing and able to purchase), the purchase price, a legal description
sufficient to identify the property, and all other terms of the offer. The other
parties shall then have an optional prior right, for a period often (10) days
after the notice is delivered, to purchase for the stated consideration on the
same terms and conditions the interest which the other party proposes to sell;
and, if this optional right is exercised, the purchasing parties s hall s hare t
he purchased interest in the proportions that the interest of each bears to the
total interest of all purchasing parties. However, there shall be no
preferential right to purchase in those cases where any party wishes to mortgage
its interests, or to transfer title to its interests to its mortgagee in lieu of
or pursuant to foreclosure of a mortgage of its interests, or to dispose of its
interests by merger, reorganization, consolidation, or by sale of all or
substantially all of its assets to any party, or by transfer of its interests to
a subsidiary or parent company or to a subsidiary of a parent company, or to any
company in which such party owns a majority of the stock.
7. SEISMIC PROGRAM. The Parties agree to conduct a seismic program which shall
include the shooting or acquisition of an additional 40 to 60 linear miles of
seismic data and/or the reprocessing of existing seismic data. Each Party agrees
to pay its proportionate part of the costs for any mutually agreeable seismic
program. The Parties agree to participate in additional seismic operations,
including 3-D as may be mutually agreed. Xxxx agrees to reimburse Xxxxxxxx for
its proportionate part of all such mutually agreed seismic program costs within
(30) days from the date of the receipt of an invoice from Xxxxxxxx.
8. LIMITATION ON DRILLING. The Parties agree that there shall be no more than
one (1) well being proposed and/or drilled (jointly by the Parties) at any one
time within the AMI without the consent of 75% or more of the working interest
in the Prospect for the proposed well. Provided, however, that this limitation
on drilling shall not apply to the proposal for and commencement of an
Obligation Well while another well is then being drilled.
9. CONFLICTS. In the event of a conflict between this Agreement and any of the
Exhibits hereto, the terms of this Agreement shall prevail.
10. NOTICES. All notices required by this Agreement shall be given and the
receipt thereof shall be determined in accordance with the Notice provision set
forth in the JOA.
11. LAWS. This Agreement and all exhibits subject hereto shall be interpreted in
accordance with laws of the State of Texas, and the Parties agree that venue
shall be the State of Texas.
12. BINDING EFFECT. This agreement shall be binding upon and inure to the
benefit of the Parties, their respective affiliates, successors and assigns.
Specifically, an affiliate of a Party hereto acquiring an interest in the AMI
area shall be bound by the provisions of paragraph 1, and pursuant thereto shall
offer to the non-affiliated Party the right to participate in the interest
acquired. For the purposes of this agreement, an affiliate shall mean any person
or entity controlling, controlled by or under common control with any Party to
this Agreement.
13. EXHIBITS. All Exhibits attached to this Agreement are by this reference
incorporated herein for all purposes.
IN WITNESS WHEREOF, the Parties have entered into this agreement on the date
above written.
XXXXXXX XXXXXXXX ENERGY, INC,
/sig/
XXXX MISS PARTNERS, L.P.
/sig/
