OPTION AGREEMENT
This Option Agreement (this "Agreement"), is entered into effective as of July
18, 1997, between and among Polskie Gornictwo Naftowe I Gazownictwo S. A.,
Oddzial Buro Geologiczne - GEONAFTA, a Polish joint stock company ("POGC") and
FX Energy, Inc., a Nevada corporation ("FXEN") and APACHE Overseas, Inc., a
Delaware corporation ("APACHE").
RECITALS
A. Through the support and cooperation of POGC, FXEN and APACHE (through
Polish subsidiaries) have acquired certain rights to explore for and
exploit natural gas and oil in the Lublin region of Poland, southeast of
Warsaw, under the FX/APA Usufruct (as defined in this Agreement) pursuant
to four Mining Usufruct Agreements. A portion of these rights pertain to
lands where POGC participation is required.
B. POGC has acquired certain rights to explore for natural gas and oil in the
same region, under the POGC Usufructs (as defined in this Agreement). In
addition, POGC has acquired a substantial amount of geological and
geophysical data in the Lublin region, and has generously shared this data
with FXEN and APACHE.
C In view of the mutual interests of POGC, FXEN and APACHE in the Lublin
basin, FXEN and APACHE wish to grant to POGC the option to participate with
them in operations on the FX/APA Usufruct Area and POGC wishes to grant to
FXEN and APACHE the option to participate with POGC in operations on the
POGC Usufruct Area.
NOW, THEREFORE, in consideration of the foregoing recitals, which are
incorporated herein by this reference, and for other good and valuable
consideration, the receipt and legal sufficiency of which are hereby
acknowledged, the parties hereto agree as follows.
DEFINITIONS
"Participation Interest(s) shall have the meaning described in Article 2.3.
"Hydrocarbon Concession Block(s)" refers to one or more of the 480 numbered
rectangular areas, each encompassing approximately 1,000 square kilometers,
which in the aggregate comprise a grid promulgated by the Bureau of Geological
Concessions for the purpose of identifying hydrocarbon concession areas.
"AMB Usufruct" means that certain Mining Usufruct Agreement dated July 18, 1997,
between AMB Production Company Sp. z o.o. and Company, Commercial Partnership,
and the State Treasury of the Republic of Poland, covering the following eight
Hydrocarbon Concession Blocks: no. 319, 320, 339, 340, 359, 360, 379, 380.
"AMB&Gasex Usufruct" means that certain Mining Usufruct Agreement dated July 18,
1997, between AMB Production Company Sp. z o.o. and Gasex Production Company Sp.
z o.o., Commercial Partnership, and the State Treasury of the Republic of
Poland, covering the following seven Hydrocarbon Concession Blocks: no. 257,
258, 277, 278, 297, 317, 318.
"Gasex Usufruct" means that certain Mining Usufruct Agreement dated July 18,
1997, between Gasex Production Company Sp. z o.o. and Company, Commercial
Partnership, and the State Treasury of the Republic of Poland, covering
Hydrocarbon Concession Block no. 298.
"Lubex Usufruct" means that certain Mining Usufruct Agreement dated December 22,
1996, between Lubex Petroleum Company Sp. z o.o. and the State Treasury of the
Republic of Poland, covering the following eight Hydrocarbon Concession Blocks:
no. 255, 275, 295, 296, 316, 336, 337, and 338.
"FX/APA Usufruct(s)" refers to one or more of the following: the AMB Usufruct,
the AMB&Gasex Usufruct, the Gasex Usufruct and the Lubex Usufruct.
"POGC Usufruct(s)" refers to one or more of the following: the Stezyca-
Maciejowica usufruct ("Stezyca"), the Swidnik-Ciecierzyn No. 201/94 usufruct
("Ciecierzyn"), the Ryki-Zyrzyn No. 13/94/p usufruct ("Ryki-Zyrzyn"), the
Zelechow-Kock No. 71/95/p usufruct ("Zelechow"), the Wola Obszanska-Cewkow No.
9/97/p usufruct ("Wola Obszanska"), and the Grabowiec-Rachanie No. [to be
issued] usufruct to be issued ("Grabowiec"), all of which are situated entirely
or partially within the Hydrocarbon Concession Blocks in the FX Usufruct area.
ARTICLE 1. IDENTIFICATION OF INTERESTS
1.1 FXEN and APACHE, through wholly-owned subsidiaries, are the holders of
rights to explore for and exploit natural gas and oil ("Hydrocarbon
Rights") in those lands covered by the FX/APA Usufructs, three of which
Usufructs require that FXEN and APACHE agree with POGC on terms by which
POGC may participate with FXEN and APACHE within the applicable FX/APA
Usufructs . The purpose of this Agreement is to set out these terms. POGC,
directly or through wholly-owned subsidiaries, is the holder of Hydrocarbon
Rights in those lands covered by the POGC Usufructs.
1.2 FXEN and APACHE have entered into agreements dividing the beneficial
interest in the FX/APA Usufructs between them initially on a 50./O/50%
basis. FXEN and APACHE plan to arrange for each of the FX/APA Usufructs and
the concessions issued pursuant thereto to be held by a Polish commercial
partnership comprised of one Polish limited liability company owned by FXEN
and another Polish limited liability company owned by APACHE.
1.3 FXEN and APACHE are in the process of drafting the documents which will
govern their respective rights and obligations, which at present include
Partnership Agreements, Joint Operating Agreements, and Accounting
Procedure Agreements (collectively, and including substitute documents, the
"Operating Documents"). FXEN and APACHE have agreed that APACHE will be
responsible for management and control of operations and of the
partnerships which will hold the Usufructs and the concessions.
1.4 FXEN and APACHE have reviewed and analyzed a substantial amount of existing
data pertaining to the FX/APA Usufruct Area and plan to review and analyze
additional existing data. FXEN and APACHE also plan to acquire a
significant amount of new seismic data during the remainder of 1997. FXEN
and APACHE are formulating plans for future activity, and hope to drill at
least four exploratory xxxxx in the FX/APA Usufruct Area during 1998, and
at least three more during 1999, subject to data supporting prospective
drill sites.
ARTICLE 2. GRANT OF OPTIONS TO POGC
2.1 FXEN and APACHE hereby grant to POGC the following options to participate
in the FX/APA Usufructs:
a. an option to take an interest of up to twenty-five percent (25.00%) in
all or part of the Lubex Usufruct;
b. an option to take an interest of up to thirty three and one-third
percent (33.33%) in all or part of the AMB Usufruct;
c. an option to take an interest of up to forty percent (40.00%) in all or
part of the Gasex Usufruct; and
d. an option to take an interest of up to thirty three and one-third
percent (33.33%) in all or part of the AMB&Gasex Usufruct.
2.2 POGC may exercise its option in each Usufruct on a block by block basis;
that is, it may take an interest in one, or several, or all of the
Hydrocarbon Concession Blocks in a particular Usufruct. In order to
maintain uniform interests, when POGC first designates the percentage
interest (other than zero percent) it will take in a block within a
particular Usufruct, then it must thereafter take either the same
(non-zero) percentage, or it may take zero, with respect to all other
blocks in the same Usufruct.
2.3 The FX/APA Usufructs cover only a small portion of the land in certain
Hydrocarbon Concession Blocks, either because of other existing Usufructs
or because the blocks lie outside the territory of Poland. Therefore, the
following pairs of blocks will be considered just one block for purposes of
the "block by block" option described in Article 2.2.
a Xxxxx 000 xxx Xxxxx 000
x. Xxxxx 000 xxx Xxxxx 000
x. Xxxxx 000 xxx Xxxxx 000
x. Xxxxx 360 and Block 380
2.4 A discovery well in one block may lead to the grant of a single
exploitation concession covering land within that block as well as
contiguous land within an adjacent block. In such case, the ownership
interests of the parties in such exploitation concession shall be the same
as their interests in the discovery well, whether or not a First Block Well
(defined below) has been drilled in the adjacent block. For all purposes of
this Agreement, including the "block by block" option, the land covered by
the exploitation concession shall be considered to be in the block where
the initial discovery was made.
ARTICLE 3. EXERCISE OF OPTION BY POGC
3.1 APACHE, as Operator, will provide at least 60 days' notice to POGC of its
intention to drill a first exploratory (not development or appraisal) well
(the "First Block Well") in each block (as that term is modified by
Articles 2.3 and 2.4) in the FX/APA Usufruct Area. The notice of a proposed
First Block Well shall include an estimate of costs, an anticipated spud
date, and technical information supporting the well proposed such as
seismic sections, maps and petrophysical logs (where available). If POGC
wishes to take an interest in such block it may do so by exercising its
option as provided below and by participating in such First Block Well. If
POGC does not exercise its option and participate in any particular First
Block Well, it shall have no further interest in the block in which such
First Block Well was drilled.
3.2 POGC shall have thirty (30) days from the date of notice of a First Block
Well to give written notice to APACHE and FXEN that POGC has elected to
join in the proposed well and in the related block. If POGC elects to
exercise its option, it shall designate in the notice of election the
amount of interest it wishes to take (its "Participation Interest"), which
may be any amount up to the maximum shown in Article 2.1, subject to the
provisions for uniform interest in Article 2.2. If POGC does not provide a
notice of election within said thirty (30) day period such failure shall be
deemed conclusively and irrevocably an election by POGC not to exercise the
applicable option. Any delay in the actual spud of the well shall not
extend the time for exercise of the option.
3.3 If POGC makes an affirmative election to join in a First Block Well, then
it shall be responsible for its Participation Interest share of all costs
of such well, regardless of the date such costs were incurred. In addition,
POGC shall also be responsible for its Participation Interest share of all
other costs related to the applicable block which accrue on or after (but
not before) the actual spud date of the applicable First Block Well,
including any usufruct fees, concession fees, training fees, general and
administrative costs, geological and geophysical costs, drilling,
production and operating costs, and taxes and royalties, all in accordance
with the Operating Documents.
3.4 If POGC makes an affirmative election to participate in a First Block Well
it shall, within thirty (30) days after its notice of election, become a
signatory to the applicable Operating Documents.
ARTICLE 4. GRANT OF OPTION ON CIECIERZYN; FIRST REFUSAL ON MELGIEW AND GLINNIK
4.1 In the event APACHE and FXEN decide to conduct exploratory seismic or
drilling activities in the area covered by POGC's Swidnik-Ciecierzyn No.
201/94 exploitation concession and usutruct, POGC will give its permission
and full support to such activity. In the event APACHE and FXEN elect to
apply for an exploitation concession covering POGC's Swidnik-Ciecierzyn No.
201/94 exploitation concession and usufruct, they shall first acquire 3-D
seismic over the presumed field and drill one well into the applicable
producing horizon, all at the sole cost of APACHE and FXEN, whereupon POGC
will promptly withdraw and relinquish its exploitation concession and
usufruct and will join (up to 40% Participation Interest) with APACHE and
FXEN in the application for a new exploitation concession covering the
applicable field area, with all parties sharing costs according to their
Participating Interests. The new exploitation concession shall be held in a
Polish commercial partnership formed especially for such purpose by POGC,
FXEN and APACHE. If POGC elects to take an interest of 33.3% or more, then
it shall have the right to be operator or to designate the operator. If
POGC elects to take an interest of 33.3% or more, then neither APACHE nor
FXEN may hold an interest greater than POGC's interest without the consent
of POGC.
4.2 POGC hereby grants to APACHE and FXEN the right of first refusal to
participate in the following POGC concessions: Melgiew No. 17/951p, Glinnik
No. 60/95/p, and StezycaMaciejowica No. 1 81961p, all of which are situated
entirely or partially within the Hydrocarbon Concession Blocks in the
FX/APA Usufuct area. Specifically, POGC will not allow any other party to
acquire any interest in any of the POGC concessions listed in this Article
4.2 unless the identical offer has already been made to and rejected by
FXEN and APACHE after thirty (30) days' notice.
ARTICLE 5. GRANT OF OPTIONS TO FXEN AND APACHE
5.1 POGC hereby grants to APACHE and FXEN the following options to participate
in the POGC Usufructs:
a. an option to APACHE to take an interest of up to thirty three and
one-third percent (33.33%) and an option to FXEN to take an interest of up
to thirty three and one-third percent (33.33%) in the Ryki-Zyrzyn No.
13/94/p concession and usufruct;
b. an option to APACHE to take an interest of up to thirty three and
one-third percent (33.33%) and an option to FXEN to take an interest of up
to thirty three and one-third percent (33.33%) in the Zelechow-Kock No.
71/95/p concession and usufruct;
c. an option to APACHE to take an interest of up to thirty three and
one-third percent (33.33%) and an option to FXEN to take an interest of up
to thirty three and one-third percent (33.33%) in the Wola Obszanska-Cewkow
No. 9/97/p concession and usufruct; andd. an option to APACHE to take an
interest of up to thirty three and one-third percent (33.33%) and an option
to FXEN to take an interest of up to thirty three and one-third percent
(33.33%) in the Grabowiec-Rachanie No. [to be issued] concession and
usufruct to be issued.
5.2 The options granted to FXEN and APACHE shall not include the entire land
area covered by the applicable POGC Usufruct, but only so much of the
applicable POGC Usufruct as lies within Hydrocarbon Concession Blocks
included in the FX/APA Usufructs as in effect on the date of this
Agreement.
ARTICLE 6. EXERCISE OF OPTION BY FXEN AND APACHE
6.1 POGC, as Operator, will provide at least 60 days' notice to FXEN and APACHE
of its intention to drill a First Block Well in each POGC Usufruct. The
notice of a proposed First Block Well shall include an estimate of costs,
an anticipated spud date, and technical information supporting the well
proposed such as seismic sections, maps and petrophysical logs (where
available). If either FXEN or APACHE wishes to take an interest in such PO
GC Usufruct it may do so by exercising its option as provided below and by
participating in such First Block Well. If either APACHE or FXEN does not
exercise its option and participate in any particular First Block Well, it
shall have no further interest in the POGC Usufruct in which such First
Block Well was drilled.
6.2 FXEN and APACHE each shall have thirty (30) days from the date of notice of
a First Block Well to give written notice to POGC that it has elected to
join in the proposed well and in the related POGC Usufruct. If either FXEN
or APACHE elects to exercise its option, it shall designate in the notice
of election the amount of interest it wishes to take (its "Participation
Interest"), which may be any amount up to the maximum shown in Article 5.1.
If either FXEN or APACHE does not provide a notice of election within said
thirty (30) day period such failure shall be deemed conclusively and
irrevocably an election by FXEN or APACHE, as applicable, not to exercise
the applicable option. Any delay in the actual spud of the well shall not
extend the time for exercise of the option.
6.3 If either FXEN or APACHE makes an affirmative election to join in a First
Block Well, then it shall be responsible for its Participation Interest
share of all costs of such well, regardless of the date such costs were
incurred. In addition, FXEN or APACHE, as applicable, shall also be
responsible for its Participation Interest share of all other costs related
to the applicable POGC Usufruct which accrue on or after (but not before)
the actual spud date of the applicable First Block Well, including any
usufruct fees, concession fees, training fees, general and administrative
costs, geological and geophysical costs, drilling, production and operating
costs, and taxes and royalties, all in accordance with the Operating
Documents.
6.4 If either FXEN or APACHE makes an affirmative election to participate in a
First Block Well it shall, within thirty (30) days after its notice of
election, become a signatory to a set of operating documents to be prepared
which mirror the Operating Documents referred to in Article 1.3.
6.5 In the event that one of FXEN or APACHE elects to take up its option on a
given Block and the other does not, the party electing to exercise its
option shall also have the right to take up all or part of the share of the
party which has elected not to exercise its option, on giving notice to
POGC to that effect within the time set out in Article 6.2 above. The xxxxx
electing to exercise its option shall not have the right to take an
interest greater than forty nine percent (49%) in the aggregate without the
consent of POGC.
ARTICLE 7. INFORMATION AND CONFIDENTIALITY
7.1 All information and data (geophysical, geological, engineering, production
marketing or otherwise) provided to a party hereunder shall be kept
confidential by such party unless the release of such information to a
third party is required by law. The term during which information is to be
kept secret and confidential shall coincide with the term of this Agreement
or for a period of three years from the effective date of this Agreement,
whichever is later.
7.2 The parties hereto agree to strictly observe and abide by the terms and
conditions governing data received by any of them from the government of
the Republic of Poland or from any party hereto.
7.3 The applicable operating party shall notify each of the other parties
hereto at least monthly of progress toward selection of First Block Xxxxx.
So long as there is any POGC Usufruct, or any Hydrocarbon Concession Block
within the FX/APA Usufruct area, where a First Block Well has not been
drilled, each party hereto shall have access to all data of the other
parties hereto pertaining to the selection of First Block Well drill sites
in which the accessing party has a right to participate, including all
seismic and other geological, geophysical, geochemical and production data,
in order to allow such party to be ready to make its determination whether
or not to exercise its options.
ARTICLE 8. FURTHER ASSURANCE AND ASSISTANCE
The Parties agree to execute and deliver to each other all such additional
documents and instruments and do all such further acts and things as may be
reasonably requested by any Party to effectively carry out the intent of
this Agreement. In particular, POGC will use its best efforts to help
obtain the necessary concessions and permits on behalf of itself, APACHE
and FXEN in those parts of the FX/APA Usufruct area where POGC is or has
the right to be a participant.
ARTICLE 9. ASSIGNMENT; ABANDONMENT
9.1 To the extent that option rights under this Agreement have not yet become
exercisable, the rights and obligations under this Agreement shall be
assigned only to:
a. an affiliate of the assigning party; or
b. a third party (with the prior consent of the other parties hereto
which shall not be unreasonably withheld in the case of a technically
and financially competent assignee) provided that such third party
also receives assignment of all the Usufruct rights of the assigning
party which are still subject to option rights of the other parties
hereto.
After exercise (or expiry, as the case may be) of any option granted
hereunder, the rights of the participating parties in any Usufruct shall be
governed by the Operating Documents which apply to that Usufruct.
9.2 Each party to this Agreement may exercise its rights and perform its
obligations hereunder through one or more subsidiaries, in which case the
term "APACHE", "POGC" or "FXEN", as applicable, shall be deemed to refer to
and include such subsidiary or subsidiaries.
9.3 If any party decides to abandon, relinquish or allow to expire undrilled
any Block that is subject to this Agreement, it shall give notice to the
other parties and an opportunity to take over such Block on terms to be
agreed at the time. The parties shall endeavor to give notice sufficiently
far in advance to allow the other parties adequate time to evaluate, decide
and commence any required operations.
ARTICLE 10. AMENDMENT
This Agreement may only be altered, varied or amended by written instrument
executed by all the parties.
ARTICLE 11. NOTICES
Any notice required to be given pursuant to this Agreement shall be in writing
and shall be given by delivering the same by hand at, or by sending the same by
prepaid first class post (confirmed by telefax/facsimile) or telefax/facsimile
to, the relevant address set out below or such other addresses as any party
wishing to change its address may notify to the other party from time to time.
Any such notice given as aforesaid shall be deemed to have been given or
received at the time of delivery (if delivered by hand), the first working day
next following the day of sending (if sent by facsimile) and the first working
day next following the day of receipt (if sent by post).
FX Energy, Inc. Polish Oil and Gas Company - GEONAFTA
Attn: Xxxxx X. Xxxxxx Attn: Xxxxx Xxxxxxxx
0000 Xxxxxxxx Xxxxx, Xxxxx 000 ul. Jagiellonska 76
Xxxx Xxxx Xxxx, XX 00000 00-000 Xxxxxx, Xxxxxx
Telephone:0-000-000-0000 Telephone: 00-00-00-00-00
Fax: 0-000-000-0000 Fax: 00-00-00-00-00
APACHE Overseas, Inc.
Attn: Xxxxx X. Xxxxx
0000 Xxxx Xxx Xxxxxxxxx
Xxxxxxx, Xxxxx 00000-0000
Telephone:0-000-000-0000
Fax: 0-000-000-0000
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by
their duly authorized representatives the day month and year first above
written.
FX Energy, Inc. Polskie Gornictwo Naftowe I Gazownictwo S.A.
By:/s/ Xxxxx X. Xxxxxx By:/s/ Xxxxx Xxxxxxxx
Xxxxx X. Xxxxxx, Director Xxxxx Xxxxxxxx, Director
Apache Overseas, Inc.
By:/s/ Xxxxx X. Xxxxx
Xxxxx X. Xxxxx, President
