EXHIBIT 10.31
UNIT OPERATING AGREEMENT
BETA UNIT
SAN XXXXX BAY AREA
OUTER CONTINENTAL SHELF, OFFSHORE CALIFORNIA
THIS AGREEMENT, made and entered into as of the 1st day of October,
1978, by the parties who have signed the original of this instrument, a
counterpart thereof or other instrument agreeing to be bound by the provisions
hereof,
WITNESSETH:
WHEREAS, the parties hereto as Working Interest Owners have executed
as of the date hereof an agreement entitled "Unit Agreement for the Development
and Operation of the Beta Unit Area, San Xxxxx Bay Area, Outer Continental
Shelf, Offshore California", herein referred to as the "Unit Agreement", which
among other things provides for a separate agreement to be entered into by
Working Interest Owners to provide for development and operation of the Unitized
Land therein defined;
NOW, THEREFORE, in consideration of the mutual agreements herein set
forth, it is agreed as follows:
ARTICLE I
CONFIRMATION OF UNIT AGREEMENT
1.1 Confirmation of Unit Agreement. The Unit Agreement is hereby
confirmed and by reference made a part of this agreement. If there is any
conflict between the Unit Agreement and this Unit Operating Agreement, the Unit
Agreement shall govern.
ARTICLE II
EXHIBITS
2.1 Exhibits. The following Exhibits are incorporated herein by
reference:
2.1.1 Exhibits A and B to the Unit Agreement.
2.1.2 Exhibit C attached hereto, which is the Accounting
Procedure applicable to Unit Operations. If there is any conflict
between this agreement and Exhibit C, this agreement shall control.
2.1.3. Exhibit D attached hereto which is a plat of the Unit Area
and designates and describes the Operating Areas within the Unit Area.
2.1.4 Exhibit E attached hereto which sets forth the basis and
procedure for determining the original reserves underlying each Tract, or
portion thereof, within each Operating Area and the Tract Participation of
each such Tract.
ARTICLE III
DEFINITIONS
3.1 Unit Agreement Definitions. The definitions contained in the Unit
Agreement are adopted for all purposes of this agreement. In addition, each term
listed below shall have the meaning stated therefor whenever used in this
agreement.
3.2 Operating Area is that portion of the Unitized Land which is
outlined on, described in, and designated by number on Exhibit D. Additional
Operating Areas may be created and Operating Areas may be revised and combined
as hereinafter provided.
3.3 Exploratory Areas. Each Tract of Unitized land, exclusive of any
portion thereof within an Operating Area, shall constitute a separate
Exploratory Area.
3.4 Tract Participation is the percentage assigned to the portion of a
Tract of Unitized Land within an Operating Area representing the proportion that
the adjusted acre feet underlying such portion of the Tract bears to the total
adjusted acre feet within the Operating Area, as determined and revised from
time to time in accordance with the provisions of Exhibit E.
3.5 Area Participation of a Working Interest Owner within an Operating
Area is the sum of the percentages obtained by multiplying the Working Interest
of such Working Interest Owner in each Tract within an Operating Area by the
Tract Participation of such Tract.
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3.6 Volumetric Basis means participation by a Party in the proportion
that the original reserves of its Working Interest in an Operating Area or
Areas, according to context, bears to the total original reserves in such
Operating Area or Areas.
3.7 Lease Basis means participation by a Party in the proportion that
its undivided Working Interest in a lease or Exploratory Area bears to the
entire Working Interest therein.
3.8 Well Basis means allocation to a lease or leases committed hereto
of the Unit Expenditures incurred in the construction and installation of a
platform or Common Facility in the proportion that the number of xxxxx proposed
to be drilled on such lease from such platform, or the number of xxxxx on such
lease proposed to be served by such Common Facility, bears to the total number
of xxxxx proposed to be drilled from such platform, or proposed to be served by
such Common Facility, and with the portion of such Unit Expenditures so
allocated to each lease being borne and shared by the Working Interest Owners of
such lease on a Lease Basis. The well count for each platform or Common Facility
shall be determined at the time of Approval of the proposal to construct the
platform or Common Facility.
3.9 Oil and Gas Rights are the rights to explore, develop and operate
lands within the Unit Area for the production of Unitized Substances or to share
in the production so obtained or the proceeds thereof.
3.10 Approve, Approved, or Approval; Determine, Determined, or
Determination are terms showing a decision made by Working Interest Owners
pursuant to the voting procedures herein contained.
3.11 Party means a party to this agreement including the party acting
as Unit Operator when acting as an owner of Working Interest.
3.12 Development Well is a well drilled for oil and gas the projected
bottom hole location of which is within an Operating Area.
3.13 Exploratory Well is a well drilled for oil and gas the projected
bottom hole location of which is within an Exploratory Area.
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3.14 Joint Account is the series of accounts established for the
respective Exploratory Areas, Operating Areas and Platforms showing the charges
and credits accruing because of Unit Operations applicable to such areas and
platforms and which are to be shared by the Working Interest Owners on the basis
herein provided.
3.15 Unit Operations are all operations conducted pursuant to this
agreement and the Unit Agreement.
3.16 Unit Expenditures are all costs, expenses or indebtedness
incurred by Working Interest Owners or Unit Operator pursuant to this agreement
and the Unit Agreement for or on account of Unit Operations.
3.17 Unit Equipment is all personal property, lease and well
equipment, platforms and other facilities and equipment acquired for use in Unit
Operations.
3.18 Drill means to perform all operations reasonably necessary and
incident to the drilling of a well including testing and, subject to the
provisions of Article 11.12 hereof, if productive of Unitized Substances,
completing and equipping for production, including flow lines, treaters,
separators, and tankage located on the platform, or plugging and abandoning, if
dry.
3.19 Paying Quantities means that quantity of Unitized Substances
sufficient to yield a return in excess of operating costs.
3.20 Common Facilities are facilities such as pipelines, production
platforms and facilities thereon which are capable of serving more than one
Operating Area.
3.21 Consolidation Date for each Operating Area is the fifth (5th)
anniversary of the data of commencement of actual drilling of the first well
from the initial platform installed within such Operating Area.
ARTICLE IV
DEVELOPMENT OF OPERATING AREAS
4.1 Initial Plan of Operations. Unit Operator shall proceed with due
diligence to construct or cause to be constructed the drilling platform and
production platform referred to in Section 10.2 of the Unit Agreement, AFE's for
such Platforms having heretofore been Approved by all Parties.
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Unit Expenditures incurred in connection with the construction and installation
of the drilling platform and the production platform shall be borne on a Well
Basis by the Parties owning Working Interests in the respective leases committed
hereto within Operating Area No. 1 as designated on Exhibit D, it having been
determined that such platforms will be constructed to accommodate fourteen (14)
xxxxx for Lease P-0296, thirty-seven (37) xxxxx for Lease P-O300, and nineteen
(19) xxxxx for Lease P-0301. It is understood and agreed that Unit Operator has
heretofore incurred certain expenditures in preparatory engineering and design
work in connection with the aforesaid platforms. Unit Operator shall be
reimbursed therefor by appropriate charges to the Joint Account for such
platform, such charges to be determined under Paragraphs 2, 3, and 6 of Section
II and Paragraph 6 of Section III of the Exhibit C Accounting Procedure. Except
for such charges there shall be no carry forward of costs heretofore incurred in
drilling or other operations in the Unit Area prior to the effective date
hereof.
4.2 Determination of Tract Participations. A Technical Committee shall
be promptly established with Operator's representative as chairman to compute,
in accordance with the provisions of Exhibit E, the Tract Participation of the
respective Tracts within the Operating Area designated on Exhibit D. the initial
Tract Participations shall be effective as of the effective date hereof and
shall be redetermined in accordance with Exhibit E at eighteen (18) month
intervals thereafter until the Consolidation Date; provided, however, that upon
completion of all drilling in an Operating Area, the Tract Participation as
redetermined at the 18 month interval next ensuing shall be final and not
subject to further redetermination except as provided in Articles 4.3, 4.4 and
4.5 hereof. Such committee shall also similarly compute the Tract Participations
for newly created Operating Areas, as provided for in Article 4.3 hereof, such
initial Tract Participations to be effective as of the date of Approval of the
creation of any such Operating Area, and shall be redetermined at eighteen (18)
month intervals thereafter, as above provided for the initial Operating Area,
until such Operating Area is fully developed.
4.3 New and Revised Operating Areas. The Operating Area designated on
Exhibit D is regarded as containing Unitized Substances in Paying
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Quantities which can be economically and efficiently recovered from a single
platform. Any Operating Area may from time to time with the Approval of the
Working Interest Owners therein voting on a Volumetric Basis be revised to
include additional lands than regarded as being capable of production in Paying
Quantities from such platform, or to exclude lands then regarded as not being
capable of production in Paying Quantities, but no land shall be excluded from
an Operating Area on account of depletion of Unitized Substances. In the event
further drilling in the Unit Area demonstrates the presence of additional
accumulations of Unitized Substances justifying the construction of an
additional platform, an additional Operating Area or Areas may, with the
Approval of the Parties within such proposed Operating Area voting on a well
Basis, be established encompassing those lands which are believed to contain
Unitized Substances in Paying Quantities which can be economically and
efficiently recovered from such proposed platform.
4.4 Combining Operating Areas. In order to increase efficiency and the
ultimate recovery of Unitized Substances and to prevent waste, two or more
Operating Areas may be combined into a single Operating Area upon Approval of
the Parties owning Working Interests in each of the Operating Areas to be
combined, voting upon a Volumetric Basis within such respective Areas. Tract
Participation shall be recomputed on a Volumetric Basis within such combined
Area effective as of the date of such Approval and, subject to the provisions of
Article 4.6, shall be redetermined at eighteen (18) month intervals thereafter
until such combined Operating Area is fully developed.
4.5 Consolidation of Operating Areas. Notwithstanding the provisions
of Article 4.4, if more than one Operating Area is established hereunder at any
time, there shall be a consolidation of Operating Areas at such time as two
Consolidation Dates have elapsed, with the consolidation to be effective as of
the time the second Consolidation Date is reached and to result in the
combination into one Operating Area of the two Operating Areas whose
Consolidation Dates have been reached. Additional Operating Areas will be
similarly combined as the respective Consolidation Dates for such additional
Operating Areas are reached. Upon each such consolidation
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the Tract Participations shall be recomputed on a Volumetric Basis within the
Consolidated Area effective as of the data of consolidation.
4.6 Final Tract Participation. The Tract Participations within an
Operating Area shall be recomputed as of the Consolidation Date for such
Operating Area, based upon the then current computations, pursuant to Exhibit E,
of the original reserves underlying each Tract within the Operating Area and
such Tract Participations shall be permanent regardless of subsequent drilling
and regardless of subsequent changes in the boundaries of the Operating Area,
except for changes in Tract Participations resulting from consolidation of
Operating Areas pursuant to Article 4.5.
4.7 Notice of Participation Determination and Redetermination.
Operator shall furnish each Working Interest Owner with a schedule of every
determination or redetermination of participation not later than thirty (30)
days after its effective date.
ARTICLE V
APPORTIONMENT OF COSTS AND OWNERSHIP OF PRODUCTION
AND PROPERTY
5.1 Apportionment and Ownership Within Operating Areas. Except as
otherwise herein provided with respect to non-consent operations:
5.1.1 Platform Construction Costs. All Unit Expenditures in
connection with the construction and Installation of a drilling platform shall
be borne on a Well Basis by the Parties owning Working Interests in the
respective leases within the Operating Area upon which such platform is located.
5.1.2 Development Xxxxx and Operating Costs. All Unit
Expenditures in connection with the drilling of Development Xxxxx, the operation
and maintenance of a drilling platform following the construction and
installation thereof and other Unit Operations in connection with the
development and operation of an Operating Area shall be borne on a Volumetric
Basis by the Parties owning Working Interests within the Operating Area
involved, based on the Tract Participations and Area Participations in effect at
the time such Unit Expenditures are incurred.
5.1.3 Unitized Substances. All Unitized Substances produced and
saved from an Operating Area, except so much thereof as is used in the
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conduct of Unit Operations, shall be allocated to the several Tracts within such
Operating Area in accordance with their respective Tract Participations then in
effect. The amount of Unitized Substances allocated to a Tract regardless of
whether it is more or less than the actual production of Unitized Substances
from the well or xxxxx, if any, on such Tract, shall be deemed for all purposes
to have been produced from such Tract. The Unitized Substances allocated to a
Tract shall be distributed among, or accounted for to, the Parties entitled to
share in the production from such Tract in the same manner, in the same
proportions, and upon the same conditions as they would have participated and
shared in the production from such Tract, or in the proceeds thereof, had this
agreement not been entered into, and with the same legal effect. There shall be
no readjustments of production on account of the revision of basis of
participation.
5.1.4 Property. All Unit Equipment, except Common Facilities,
serving an Operating Area shall be owned, without adjustment of expenditures
incurred in the construction and installation thereof, by the Parties owning
Working Interests in such Operating Area in accordance with their Area
Participations from time to time in effect.
5.2 Apportionment and Ownership Within Exploratory Area.
Notwithstanding any other provision herein contained, all Exploratory Xxxxx
drilled hereunder at any time shall be drilled, not under the terms of this Unit
Operating Agreement, but under the terms of the prior existing Operating
Agreement covering the Tract on which such well is located heretofore entered
into between the Working Interest Owners of such Tract, and the costs of any
such well shall be borne and the Unitized Substances produced and saved
therefrom shall be owned, prior to the inclusion of such well in an Operating
Area, as in such prior Operating Agreement provided, the provisions of such
Operating Agreement, including the non-consent provisions, being applicable to
such operations. There shall be no readjustment of the costs of such operations
in the event an Operating Area should subsequently be established or enlarged to
encompass such Exploratory Well.
5.3. Apportionment and Ownership of Common Facilities. Unit
Expenditures incurred in the construction and installation of Common
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Facilities shall initially be borne and such facilities shall initially be owned
on a Well Basis. Use of Common Facilities to serve an additional Operating Area
or Areas or additional land to be included in an Operating Area by enlargement
thereof shall be upon terms and conditions, including readjustment of shares in
the cost and ownership of said facilities, hereafter negotiated and Approved
prior to such use (1) by vote on the basis of shares in the cost of said
facilities by the Parties owning Working Interests in the respective leases
within the Operating Area or Areas then served by said facilities and (2) by
vote on a Volumetric Basis by the Parties owning Working Interests in the
respective leases within the additional Operating Area or Areas or additional
land to be served by said facilities. Operating costs in connection with Comman
Facilities shall be borne by the Parties proportionately on a Volumetric Basis
based upon their respective original reserves in effect from time to time within
all Operating Areas served by said facilities.
5.4 Taking in Kind. Each Party shall take in kind or separately
dispose of its proportionate share of all Unitized Substances, exclusive of any
part thereof which may be used in development and producing operations and in
preparing and creating oil or gas for marketing purposes and production
unavoidably lost. Any extra expenditure incurred in the taking in kind or
separate disposition by any Party of its proportionate share of Unitized
Substances shall be borne by such Party. Each Party shall execute all division
orders and contracts of sale pertaining to its interest in Unitized Substances,
and shall be entitled to receive payment direct from the purchaser or purchasers
thereof for its share thereof.
5.5 failure to Take in Kind. In the event any Party shall fail to make
the arrangements necessary to take in kind or separately dispose of its
proportionate share of Unitized Substances, Unit Operator shall have the right,
subject to revocation as will by such Party, but not the obligation, to purchase
such Unitized Substances or sell it to others for the time being, at the best
price obtainable. Any such purchase or sale by
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Unit Operator shall be subject always to the right of such Party to exercise at
any time its right to take in kind, or separately dispose of, its share of all
Unitized Substances not previously delivered to a purchaser. All contracts of
sale by Unit Operator made pursuant to this paragraph 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 such contract be for
a period in excess of one year. Notwithstanding the foregoing. Unit Operator
shall not make a sale into interstate commerce of any other Party's share of gas
production without first giving the other Party sixty (60) days notice of such
intended sale.
5.6 Imbalances. Any Party's failure to timely take or sell its share
of Unitized Substances shall not prohibit the other Parties from producing their
share of Unitized Substances, provided that the non-producing Party or Parties
may recoup or recover their share from future production at such time as
suitable arrangements have been made for disposal of their production. In no
event shall the non-producing Party be entitled to recover its share of Unitized
Substances at a rate greater than 150% of the race attributable, to its
ownership, and the producing Party or Parties shall not be liable to any
non-producing Party at any time for unrecovered production because said
non-producing Party has failed to make disposition of its share of production.
ARTICLE VI
UNIT EXPENDITURES
6.1 Basis of Charge to Working Interest Owners. Unit Operator
initially shall pay all Unit Expenditures and Working Interest Owners shall
reimburse Unit Operator for their respective shares thereof on the basis
elsewhere herein provided. All charges, credits and accounting for Unit
Expenditures shall be in accordance with Exhibit C. Except as provided in
Articles 11.9 and 13.4, no operations (including the drilling of any well) shall
be conducted hereunder and no Unit Expenditures shall be incurred which are not
included in an Approved program and Approved estimate of expenditures. Each
Party shall bear its proportionate share of all Unit Expenditures incurred in
connection with all Unit Operations which receive
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the Approval of the Parties, including without limitation the construction of
platforms, except those operations which are conducted under the provisions of
Article XII dealing with Non-Consent Operations.
6.2 Retroactive Adjustments. Unit Expenditures shall be borne by the
Parties on the basis provided in Article V as such basis exists at the time such
Unit Expenditures are incurred. Unit Expenditures incurred in the drilling of
Exploratory Xxxxx and Development Xxxxx and in the construction and installation
of platforms and Common Facilities shall be deemed to have been incurred on the
data operations in connection therewith were Approved. There shall be no
readjustment of any such Unit Expenditures except as provided in Article- 5.3
with respect to Common facilities.
6.3 Advance Xxxxxxxx. Unit Operator shall have the right to require
Working Interest Owners to advance their respective shares of estimated Unit
Expenditures by submitting to Working Interest Owners, on or before the 15th day
of any month, an estimate thereof for the succeeding month, with a request for
payment in advance. Within fifteen (15) days thereafter, each Working Interest
Owner shall pay to Unit Operator its share of such estimate. Adjustments between
estimated and actual Unit Expenditures shall be made by Unit Operator at the
close of each calendar month, and the accounts of Working Interest Owners shall
be adjusted accordingly.
6.4 Commingling of Funds. No funds received by Unit Operator under
this agreement need be segregated or maintained by it as a separate fund but may
be commingled with its own funds.
6.5 Lien of Unit Operator. Each Working Interest Owner grants to unit
Operator a lien upon its Oil and Gas Rights in each Tract, its share of Unitized
Substances when produced and its interest in all Unit Equipment as security for
payment of its share of Unit Expenditures, together with interest thereon at the
rate of ten percent (10%) per annum. Unit Operator shall have the right to bring
suit to enforce collection of such indebtedness with or without seeking
foreclosure of the lien. In addition, upon default by any Working Interest Owner
in the payment of its share of Unit Expenditures, Unit Operator shall have the
right to collect from the
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purchaser the proceeds from the sale of such Working Interest Owner's share of
Unitized Substances until the amount owned by such Working Interest Owner, plus
interest as aforesaid, has been paid. Each purchaser shall be entitled to rely
upon Unit Operator's written statement concerning the amount of any default.
6.6 Unpaid Unit Expense. If any Working Interest Owner fails to pay
its share of Unit Expenditures within sixty (60) days after rendition of a
statement therefor by Unit Operator, each Working Interest Owner agrees, upon
request by Unit Operator, to pay its proportionate part of the unpaid share of
Unit Expenditures of the defaulting Working Interest Owner. The Working Interest
Owners shall be reimbursed by the Unit Operator for the amount so paid, plus any
interest collected thereon, upon receipt by Unit Operator of any past due amount
collected from the defaulting Working Interest Owner. Any Working Interest Owner
so paying a defaulting Working Interest Owner's share of Unit Expenditures shall
be subrogated to the lien and rights herein granted Unit Operator.
ARTICLE VII
SUPERVISION OF OPERATIONS BY WORKING INTEREST OWNERS
7.1 Overall Supervision. Working Interest Owners shall exercise
overall supervision and control of all matters pertaining to Unit Operations in
the respective Exploratory and Operating Areas in which they own Working
Interests pursuant to this agreement and the Unit Agreement. In the exercise of
such authority, each Working Interest Owner shall act solely in its own behalf
in the capacity of an individual owner and not in behalf of the owners as an
entirety.
7.2 Specific Authorities and Duties. The matters in the respective
Exploratory and Operating Areas in which they own Working Interests with respect
to which Working Interest Owners shall decide and take action shall include, but
not be limited to, the following:
7.2.1 Method of Operation. Method of operation, including any
type of pressure maintenance, secondary recovery or other recovery program
to be employed.
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7.2.2 Drilling of Xxxxx. Drilling of any well whether for
production of Unitized Substances, for use as an injection well or for
other purposes.
7.2.3 Well Recompletions and Change of Status. Recompletion to
another horizon, abandonment or change of status of any well, or use of any
well for injection or other purposes.
7.2.4 Expenditures. Making of any single expenditure in excess of
One Hundred Thousand Dollars ($100,000.00); provided, that Approval by
Working Interest Owners of drilling, reworking, deepening or plugging back
of Any well shall include approval of all necessary expenditures required
therefor, and for completing, testing and equipping the same, including
necessary flow lines, separators and lease tankage.
7.2.5 Disposition of Unit Equipment. Selling or otherwise
disposing of any major item of surplus Unit Equipment, if the current list
price of new equipment similar thereto is Twenty-Five Thousand Dollars
($25,000.00) or more.
7.2.6. Appearance Before a Court or Regulatory Agency.
Designating a representative to appear before any court or regulatory
agency in matters pertaining to Unit Operations; provided, that such
designation shall not prevent any Working Interest Owner from appearing in
person or from designating another representative in its own behalf.
7.2.7 Audits. Auditing of the accounts of Unit Operator
pertaining to Unit Operations hereunder; provided, that audits shall
(a) not be conducted more than once each year except upon
resignation of Unit Operator,
(b) be made at the expense of all Working Interest Owners other
than the Working Interest Owner designated as Unit Operator,
and
(c) be made upon not less than thirty (30) days written notice
to Unit Operator.
If Working Interest Owners fail to take exception to any item within two
(2) years after the close of the calendar year in which such item
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appeared on the statement rendered, they shall be deemed to have waived
their right to take exception to such item.
7.2.8 Inventories. Taking of periodic inventories under the terms
of Exhibit C.
7.2.9 Technical Services. Authorizing charges to the Joint
Account for services by consultants.
7.2.10 Assignments to Committees. Appointment of committees to
study any problems in connection with Unit Operations.
7.2.11 Participating Areas. The filing with the Supervisor of
each proposal for the establishment or revision of a Participating Area.
7.2.12 Operating Areas. The establishment, revision and
consolidation of Operating Areas pursuant to Article IV hereof.
ARTICLE VIII
MANNER OF EXERCISING SUPERVISION
8.1 Designation of Representatives. Each Working Interest Owner shall
inform Unit Operator in writing of names and addresses of the representative and
alternate who are authorized to represent and bind such Working Interest Owner
with respect to Unit Operations. The representative or alternate may be changed
from time to time by written notice to Unit Operator.
8.2 Meetings. All meetings of Working Interest Owners shall be called
by Unit Operator upon its own motion or at the request of any Party or Parties
having ten percent (10%) or more of the voting power on each matter to be
considered. Except for emergencies, no meeting shall be called on less than ten
(10) days (exclusive of Saturdays, Sundays and legal holidays) advance written
notice, with agenda for the meeting attached. Working Interest Owners
represented at the meeting may amend items included in the Agenda and decide the
amended items or other items presented at the meeting. The representative of
Unit Operator shall be chairman of each meeting.
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8.3 Voting Procedure. Working Interest Owners shall make
Determinations on all matters coming before them as follows:
8.3.1 Voting Interest. The Parties chargeable with the Unit
Expenditures of an operation shall have the right to vote thereon in
proportion to their respective obligations for such expense. Voting on
other matters shall be on the basis elsewhere herein provided.
8.3.2 Vote Required. Unless otherwise provided herein or in the
Unit Agreement, all matters shall be decided by an affirmative vote of
three or more Working Interest Owners possessing fifty percent (50%) or
more voting interest.
8.3.3 Vote at Meeting by Nonattending Working Interest Owner. Any
Working Interest Owner who is not represented at a meeting may vote by
letter or telegram addressed to the representative of the Unit Operator if
its vote is received prior to the vote on the item.
8.3.4 Poll Votes. Working Interest Owners may vote on and decide,
by letter or telegram, any matter submitted to Working Interest Owners, if
no meeting is requested, as provided in Article 8.2, within seven (7) days
after the proposal is sent to Working Interest Owners. Unit Operator will
give prompt notice of the results of the voting to all Working Interest
Owners.
ARTICLE IX
INDIVIDUAL RIGHTS OF WORKING INTEREST OWNERS
9.1 Reservation of Rights. Working Interest Owners severally reserve
to themselves all their rights, except as otherwise provided in this agreement
and the Unit Agreement.
9.2 Specific Rights. Each Working Interest Owner shall have, among
others, the following specific rights as to, and only as to, Unit Operations in
which it is sharing in the Unit Expenditures:
9.2.1 Access to Unitized Land at all reasonable time, weather
permitting, to inspect Unit Operations. Access to Unitized
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Land by a Working Interest Owner shall be at such Working Interest Owner's
sole risk, and such Working Interest Owner agrees to hold Unit Operator and
other Working Interest Owners harmless of and from and to indemnify Unit
Operator and other Working Interest Owners against any and all loss or
liability resulting from or arising out of injuries to such Working
Interest Owner's personal property, employees, guests or contractors not
caused by or resulting from the gross negligence or willful misconduct of
Unit Operator or other Working Interest Owners.
9.2.2 With respect to xxxxx drilled hereunder, the right, upon
request, to inspect and receive representative samples of all cores and
cuttings, and to inspect and receive copies of all logs, including electric
logs, dipmeter logs and other logs and surveys of the holes which are made.
9.2.3 The right to participate at its own expense in all
litigation and all hearings before administrative bodies affecting the Unitized
Land.
9.2.4 The right to receive from Unit Operator currently as
obtained daily drilling reports at all xxxxx drilled under the terms of this
agreement.
9.2.5 The right to receive from Unit Operator copies of all reports
currently as filed by Unit Operator with governmental authorities and which are
required in connection with Unit Operations and the production and disposition
of Unitized Substances.
9.2.6 The right to be present and witness any tests or logging
conducted in any well drilled hereunder, it being understood that Unit Operator
shall notify orally the affected Working Interest Owners of the pendency of any
such activity at least four (4) hours in advance.
9.2.7 The right, at its sole cost and expense, to construct and
operate pipeline and processing facilities required to handle its share of
Unitized Substances when such facilities are not furnished as a part of Unit
Operations.
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9.3 Treatment of Data and Information. All geophysical, geological,
exploration, reservoir and other data and information normally regarded by
prudent oil operators as sensitive data and information and which is acquired by
Working Interest Owners from any Unit Operation shall be for the sole and
exclusive use and benefit of such Working Interest Owners and their respective
affiliated companies, as hereinafter defined, and shall not be disclosed by them
or their affiliates to any other person unless all Working Interest Owners
involved in the Unit Operation involved consent in writing to such disclosure.
For the purpose of this paragraph an affiliated company shall mean: (1) a
corporation which is the direct or Indirect subsidiary of a Party hereto; (2) a
corporation of which a Party hereto is a direct or indirect subsidiary; (3) a
corporation which is a direct or indirect subsidiary of a corporation of which a
Party hereto is a direct or indirect subsidiary; and (4) is the case of Shell
Oil Company, N. V. Koninklijke Nederlandsche Petroleum Maatschappij, a company
of The Netherlands, the "Shell" Transport and Trading Company Limited, an
English Company, and all other companies, excluding Shell, in whatever country
organized, in which either or both of said named companies shall at the time in
question and directly or indirectly through, one or more intermediaries, own or
control fifty percent or more of the voting stock. A corporation shall be deemed
to be a subsidiary of another corporation if the latter owns fifty percent (50%)
or more of all capital stock of the former which has voting rights of any kind.
9.4 Publicity Releases. Unit Operator shall prepare and disseminate
all publicity releases concerning Unit Operations; provided, however, Unit
Operator will obtain approval of the other parties except in circumstances
requiring immediate action.
ARTICLE X
UNIT OPERATOR
10.1 Initial Unit Operator. Shell Oil Company, or any wholly-owned
subsidiary of Shell Oil Company, is designated as Unit Operator.
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10.2 Resignation or Removal of Unit Operator. Resignation or removal
of the Unit Operator shall be governed by the provisions of Article V of the
Unit Agreement.
10.3 Voting Interest. For the purposes of this Article X, voting
interest shall be determined on a Volumetric Basis within all Operating Areas.
ARTICLE XI
AUTHORITY AHD DUTIES OF UNIT OPERATOR
11.1 Exclusive Right to Operate Unit. Subject to the provisions of
this agreement and to Determinations of Working Interest Owners, Unit Operator
shall have the exclusive right and be obligated to conduct Unit Operations.
11.2 Responsibility of Operator. In the conduct of Unit Operations,
Unit Operator shall be obligated to use only the care and diligence customarily
exercised by a prudent operator in the area is which this Unit is located and in
conformity with good oil field practice in said area. Unit Operator shall not be
liable in damages to Working Interest Owners for any act done or omitted in good
faith in the performance of the provisions of this agreement, or for errors of
judgment, or for loss or damage to any property or Unit Equipment owned by
Working Interest Owners not resulting from the gross negligence or willful
misconduct of Unit Operator.
11.3 Liens and Encumbrances. Unit Operator shall endeavor to keep the
lands and leases on the Unitized Land free from all liens and encumbrances
occasioned by Unit Operations, except the lien of Unit Operator granted
hereunder.
11.4 Employees. The number of employees used by Unit Operator in
conducting Unit Operations, and their selection, hours of labor, and
compensation shall be determined by Unit Operator. Such employees shall be the
employees of Unit Operator.
11.5 Records. Unit Operator shall keep correct books, accounts and
records of Unit Operations.
11.6 Reports to Working Interest Owners. Unit Operator shall furnish
to Working Interest Owners copies of periodic reports of Unit Operations made by
Unit Operator to regulatory agencies.
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11.7 Reports to Governmental Authorities. Unit Operator shall make all
reports to governmental authorities that it has the duty to make as Unit
Operator.
11.8 Geological Information. Unit Operator shall furnish to an
affected Working Interest Owner the material and information described in
Article IX hereof with respect to Unit Operations in which such Working Interest
Owner is sharing in the Unit Expenditures.
11.9 Expenditures. Unit Operator is authorized to make single
expenditures not in excess of One Hundred Thousand Dollars ($100,000.00) without
prior Approval of Working Interest Owners; provided, however, that if an
emergency occurs, Unit Operator may immediately take such remedial action and
make or incur those expenditures which in its opinion are required to deal with
the emergency. As promptly as possible, Unit Operator shall report to Working
Interest Owners the nature of the emergency and the action taken.
11.10 Programs for Exploration, Development and Operations. Unit
Operator shall prepare and submit programs for the exploration, development and
operation of each Operating Area to the Working Interest Owners obligated to
bear a share of Unit Expenditures for such programs in sufficient detail to
permit proper technical evaluation.
11.10.1 Each such program shall include, but not be limited to,
matters such as type, size and location of well-drilling sites,
platforms, tenders and drilling equipment, depth and bottom-hole
locations of xxxxx to be drilled, equipment and onshore and offshore
facilities which will be required for such operations; and nature,
size, location and method of operation of facilities for crude oil
storage or transfer and cleaning and collection, processing or
disposing of gas or other hydrocarbons or wastes and facilities for
pressure maintenance or secondary recovery.
11.10.2 Prior to production of Unitized substances in an
Operating Area, such programs shall be submitted at such intervals as
Unit Operator deems appropriate. After production
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of Unitized Substances has been established in an Operating Area,
such a program shall be furnished on a six-months basis.
11.10.3 In addition an annual program forecast as routinely
prepared for Unit Operator's internal budget purposes shall be
furnished on or about August 1 of each year covering the next
succeeding calendar year and setting forth estimated expenditures for
such year. Such annual program forecast shall outline major projects
and objectives proposed for that year and shall be used by Unit
Operator as a guide in the preparation of programs to be submitted for
such year. A meeting to discuss the annual program forecast shall be
held in the offices of Unit Operator at 10:00 a.m. on the third
Wednesday of each August. Accordingly, while an annnn1 program
forecast shall not be subject to provisions hereinafter set forth with
respect to Approval of programs, it is understood that said Working
Interest Owners and Unit Operator shall endeavor to agree in principle
(without being bound thereby) upon the major features contained
therein.
11.11 Estimates for Expenditures. A detailed estimate of expenditures
for each program shall be prepared by Unit Operator and submitted to the Working
Interest Owners obligated to bear a share of Unit Expenditures therefor. Each
estimate shall include sufficient detail concerning the estimated costs to
enable such Working Interest Owners to make a reasonable analysis on which to
base an Approval thereof. Such Working Interest Owners shall, within twenty (20)
days after receipt of such program and estimate, approve or disapprove the same.
If such Working Interest Owners fail to notify Unit Operator in writing of their
disapproval within such twenty days, they shall be deemed to have approved such
estimate. If a Working Interest Owner disapproves such a program and estimate by
notice in writing to Unit Operator within such twenty (20) days, any Working
Interest Owner, regardless of his interest, may demand that a meeting be called
by Unit Operator pursuant to the provisions of Article 8.2 hereof, and within
fifteen (15) days there-after the affected Working Interest Owners shall
Determine and Approve a proper program and
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estimate. Upon request of Unit Operator, and on or before the last day of the
calendar month immediately preceding commencement of an Approved program and
estimate, the affected Working Interest Owners shall advance to Unit Operator
their proportionate share of such estimated Unit Expenditures (less any credit
balance in the Joint Account) for the first month of such period, and on or
before the last day of the first and each of the following (except the last)
months, inclusive, of the period involved, such Working Interest Owners shall
advance to Unit Operator their proportionate share of such estimated Unit
Expenditures (less any credit balance in the Joint Account) for the next
succeeding month. Whenever it shall appear to Unit Operator that a program and
estimate of expenditures is for any reason insufficient, Unit Operator shall
submit to the affected Working Interest Owners for their Approval an itemized
supplemental program and estimate which shall be acted upon in the same manner
as above provided for regular programs and estimates; provided, however, that
Unit Operator need not submit a supplemental estimate of expenditures unless it
shall appear that the aggregate expenditures under the then current Approved
program will exceed the aggregate amount of the approved estimate(s) for such
program by more than fifteen percent (15%) on estimates of $2,000,000 or less,
by $300,000 for estimates over $2,000,000 but less than $3,000,000, or by more
than ten percent (10%) on estimates of $3,000,000 or more.
11.12 Election at Casing Point. After any Development Well has been
drilled to the objective depth as stated in the notice in Article 11.11.1 or in
Article 12.1 and appropriate data obtained, if in Unit Operator's opinion the
running and setting of a production string of casing should not be conducted and
completion should not be attempted, Unit Operator shall so notify all Working
Interest Owners who participated in the drilling of said well immediately by
telegraph or telephone, to be confirmed in writing. Each such Working Interest
Owner shall have a period of twenty-four (24) hours thereafter in the case of
non-platform xxxxx and forty-eight (48) hours in the case of platform xxxxx in
which to notify Unit Operator in like manner whether or not it desires to run
and set a
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production string of casing and attempt to complete said well. Failure to so
notify Unit Operator within the time required shall be deemed an election not
to run and set a production string of casing and attempt to complete said
well. If all such Working Interest Owners elect to run and set a production
string of casing and attempt completion of the well, Unit Operator shall
conduct such operations for the account of all such Working Interest Owners, but
if less than all such Working Interest Owners elect to run and set a production
string of casing and attempt to complete said well, the provisions of
Article 12.4 shall apply to the running and setting of the production string of
casing and completing the well to and including flow-lines. If the running and
setting of the production string of casing and the completion operations result
in a dry hole, Unit Operator shall plug and abandon the well at the cost, risk
and expense of all Working Interest Owners who participated in the casing and
completion of the well.
11.13 Use of Unit Operator's Drilling Equipment. Any operation conducted
hereunder which requires a drilling rig may be conducted by Unit Operator by
means of its own tools and equipment provided that the rates to be charged and
the applicable terms and conditions are set forth in a form of drilling contract
which receives the Approval of the Party or Parties chargeable with the Unit
Expenditures incurred in such operation.
ARTICLE XII
NON-CONSENT OPERATIONS
12.1 Proposing Operations. Should any Working Interest Owner or Owners
desire to (1) drill a well for oil and gas in the Unitized Land; or (2) deepen,
complete, recomplete, plug back, deviate or redrill a well drilled as Unit
Operations, but which has never produced or which is no longer profitable to the
Working Interest Owners to produce; then the desiring Working Interest Owners,
hereinafter called "Drilling Parties" (whether one or more), shall give written
notice of their desire to undertake such operations to other Working Interest
Owners who would be obligated if such operations were other than Non-Consent
operations to bear a share of Unit Expenditures for such operations. If
conflicting proposals under
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subparagraph (2), above, are made, the order of priority shall he in the order
they appear above.
12.2 Notices and Options. Any notice given as aforesaid shall include
the location (which must conform with any then existing spacing pattern) and
depth and objective(s) to which the Drilling Parties propose to drill, redrill,
complete, recomplete, deviate, deepen or plug back said well and a program of
the work to be performed and an estimate of the costs thereof. The Working
Interest Owners so notified shall inform the Drilling Parties whether or not the
Working Interest Owners receiving such notice elect to join the proposed
operations. Such election shall be made (1) in the case of a well then having a
rig on location, within twenty-four (24) hours after receipt of the notice in
the case of non-platform xxxxx and within forty-eight (48) hours in the case of
platform xxxxx, or (2) in the case of any other well within fifteen (15) days
after receipt of such notice. Failure to respond to the notice within the
allotted time shall be deemed for all purposes hereof to be an election to
participate in the costs of such operations. Working Interest Owners (whether
one or more) who decline to participate are referred to as "Non-Drilling
Parties". Working Interest Owners who elect to participate thereupon become
"Drilling Parties". If any affected Working Interest Owner receiving the
proposal elects, as aforesaid, not to participate in the proposed operations,
then Unit Operator shall (subject to availability of drilling equipment) conduct
such operations for Drilling Parties at the cost, risk and expense of Drilling
Parties, and such well, hereinafter called Non-Consent Well, and oil and gas
produced therefrom shall subject to the provisions of Article 12.7 hereof be
owned by Drilling Parties in the ratio of their respective Area Participations,
each to the total of the others, in the Operating Area Involved.
12.3 Consent to Specific Depth. If a Non-Consent Well described in any
notice is intended to be drilled below any zone or horizon then being produced
from or then known to be capable of being produced from by any other well on
Unitized Land, than Working Interest Owners receiving
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such proposal may, in the manner and within the applicable time limit above
prescribed, elect to become Drilling Parties to a specific depth only; and if
such Well is completed in a zone or horizon at or above the depth to which such
Drilling Parties have elected to participate, then such Well and the oil and gas
produced therefrom shall be deemed to be owned by Drilling Parties as aforesaid.
If, however, such Well is completed below such depth, such Well shall be deemed
to be a Non-Consent Well below such depth.
12.4 Unit Operator to Operate. If Unit Operator is a Non-Drilling
Party as to any proposed Non-Consent Well operation, it nevertheless shall
(subject to availability of drilling equipment) conduct the same under the terms
hereof at the sole cost, risk and expense of, but subject to supervision by, the
Drilling Parties; provided, however, that Unit Operator promptly shall submit an
estimate of costs of proposed operations to Drilling Parties and shall not be
obligated to proceed with such operations unless and until the entire amount
thereof, has been advanced to it by such Drilling Parties.
12.5 Time of Commencement of Operations. Non-Consent Well operations
may be commenced after expiration of the applicable time limit as prescribed in
Article 12.2, above, and must be commenced within ninety (90) days after the
original notice is given, and not thereafter; provided, that subsequent notices
may be given, in which event, the foregoing provisions hereof shall again be
applicable as in connection with the first notice.
12.6 Revision of Tract Participations. All information and data
obtained from the drilling of any Non-Consent Development Well shall be utilized
for purposes of revision of Tract Participations in accordance with Exhibit E
hereof.
12.7 Recoupment. If any Development Well drilled as a Non-Consent Well
is completed as a producing Well, such well, all oil and gas produced therefrom,
all pipe and equipment placed therein or thereon, and the right to the use of
the slot on a platform which is used for drilling such Non-Consent Well shall be
owned by Drilling Parties until such time as
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Non-Drilling Parties' share (had such Non-Consent Well been Unit Operations) of
the proceeds of the Working Interest share of oil and gas produced from such
Non-Consent Xxxxx equals.
12.7.1 one hundred percent (100%) of such Non-Drilling Parties'
proportionate share of the cost of operating such Non-Consent Well
during the period of recoupment, plus
12.7.2 five hundred per cent (500%) of such Non-Drilling Parties'
proportionate share of that portion of the total Non-Consent Well
costs, including, without limitation, costs of drilling, testing,
completing and equipping such Non-Consent Well as to which
Non-Drilling Parties did not participate.
12.8 Data and Statements. Within one hundred and twenty (120) days
after date of completion of operations, provided the Non-Consent Well is capable
of producing oil or gas, Unit Operator shall furnish Non-Drilling Parties with;
12.8.1 an inventory of equipment in and on the Non-Consent Well;
12.8.2 a statement of the cost of drilling, redrilling,
recompleting, deviating, deepening, plugging back (as the case may
be), equipping, testing and completing said Non-Consent Well for
production; and
12.8.3 each month thereafter during the time the Drilling Party
is being reimbursed as hereinafter provided, a statement of the costs
of operation of Non-Consent Xxxxx and the allocated quantity and
gravity of oil and gas produced therefrom and the proceeds of the
Working Interest share of production in the preceding month.
12.9 Accounting. All costs of Non-Consent Xxxxx for purpose of
recoupment shall be computed in accordance which Exhibit C (Accounting
Procedure).
12.10 Reversion to Non-Drilling Parties. On and after the date
Drilling Parties have been reimbursed fully as aforesaid, such Non-Consent
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Xxxxx shall be Unit Equipment; oil and gas produced therefrom shall be Unitized
Substances; and the appropriate provisions of this agreement shall govern and
control.
12.11 Costs and Expenses Charged Against Production. All costs and
expenses incurred in operating, or reworking any Non-Consent Well prior to the
time recoupment is obtained, as provided above, shall be a charge against the
Working Interest share of oil and gas produced from said Well and if such share
is not sufficient to pay all such charges, including charges and payments
described in Article 12.12, below, Drilling Parties shall be solely responsible
therefor. If such Well is a dry hole or ceases to produce prior to the time it
becomes a Unit Operation, then all solvable equipment placed therein and thereon
by or for Drilling Parties shall be owned by such Parties, and such Parties,
shall plug and abandon the well at their sole cost, risk and expense.
12.12 Non-Consent Use of Unit Platforms. If and whenever Working
Interest Owners determine that adequate space thereon is available, Drilling
Parties shall have the right to use any Platform for a Non-Consent Well, for
which such Drilling Parties shall pay to the Joint Account the cost of any
repairs or other expense directly attributable to and made necessary by the
presence thereon of such Well; and such Drilling Parties shall be liable and
responsible for any damage to the platform or to other xxxxx or equipment
(whether on or off Unitized Land) caused by or resulting from such Non-Consent
Well or operations performed in connection therewith by or for Drilling Parties.
No adjustment shall be made in the Joint Account with respect to the cost of
constructing on or removing from a Platform any Unit Equipment by reason of its
use for a Non-Consent Well. However, in the event such Non-Consent Well shall be
completed as a producer of oil or gas, and until such Well becomes a Unit well
as hereinbefore provided, Drilling Parties currently shall pay to the Joint
Account a proportionate part of the expense of maintaining and operating the
platform used for producing such Well. The proportionate part of such expense so
to be paid
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shall be based upon the total number of xxxxx drilled, being drilled and
produced from the platform, excluding xxxxx which have been abandoned. Drilling
Parties also shall have the right to use any boats or other facilities which are
Unit Equipment, for which Drilling Parties shall pay a pro rata share, based on
use, of the expenses incurred in securing and maintaining the same.
12.13 Use of Common Facilities. A Drilling Party shall have the right
to reasonable use of Common Facilities which are Unit Equipment for purposes of
treating and handling oil and gas recouped pursuant to this Article 12, the
cost, risk and expense of such use to be borne solely by such Drilling Party.
When feasible, existing pipelines or construction of parallel pipelines shall be
utilized.
12.14 Priority of Recoupment. If, pursuant to Article 12.7, two (2) or
more Non-Consent operations result in conflicting recoupment rights, priority
shall be established in accordance with the chronology of events which earn such
recoupment, and the Drilling Party having a prior right shall be entitled to
full recoupment before a Drilling Party with a subordinate right shall be
entitled to any recoupment.
12.15 Liability. Costs of litigation, liens, judgments and settlement
of claims incurred in or resulting from Non-Consent operations hereunder shall
be borne solely by Drilling Parties proportionate to their respective ownerships
in such Non-Consent operation.
ARTICLE XIII
REQUIRED XXXXX
13.1 Definition. For the purpose of this Article a well shall be
deemed a required well if the drilling thereof is required by the final order of
an authorized representative of the Department. Such an order shall be deemed
final upon expiration of the time allowed for appeal therefrom without the
commencement of appropriate appeal proceedings or, if such proceedings are
commenced within said time, upon the final disposition of the appeal. Whenever
Unit Operator receives any such order, it shall promptly mail a copy thereof to
each affected Party.
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13.2 Election to Drill. Any affected Party desiring to drill, or
participate in the drilling of, a required well shall give to Unit Operator
written notice thereof within thirty (30) days after the order requiring such
well becomes final or within such lesser time as may be required by such order.
If such notice is given within said period, Unit Operator shall drill the
required well for the account of the Party or Parties giving such, notice, who
shall bear all Unit Expenditures incurred therein. The rights and obligations of
such Party or Parties with respect to the ownership of such well, the operating
rights therein, the production therefrom and the bearing of Unit Expenditure
incurred therein shall be the same as if the well had been drilled for the
account of such Party or Parties under Article 12.7, if the same is a
Development Well.
13.3 Alternatives to Drilling. If no Party elects to drill a required
well within the period allowed for such election, and if any of the following
alternatives is available, the first such alternative which is available shall
be followed:
A. Compensatory Royalties. If compensatory royalties may be paid
in lieu of drilling the well and if payment thereof receives, within
said period, the Approval of the Parties who would be chargeable with
the Unit Expenditures incurred in drilling the well, if the well were
drilled as provided in Article 13.4, Unit Operator shall pay such
compensatory royalties for the account of said Parties; or
B. Contraction. If the drilling of the well may be avoided,
Without other penalty, by contraction of the Unit Area, Unit Operator
shall make reasonable effort to effect such contraction with the
approval of the Director.
13.4 Required Drilling. If none of the foregoing alternatives is
available, Unit Operator shall drill the required well for the account of the
Party or Parties who would be obligated to bear the Unit Expenditures thereof is
accordance with Article V.
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ARTICLE XIV
RENTAL, ROYALTY AND MINIMUM ROYALTY
14.1 Royalty, Minimum Royalty and Rentals. Royalty and minimum royalty
on Unitized Substances and Unitized Land payable to the United States of America
shall be paid in amount or value by Unit Operator when due and charged to the
Joint Account. Rentals on Unitized Land payable to the United States of America
shall be paid by the lessees of the respective leases. All overriding royalties,
production payments and any other payments of like nature shall be borne and
paid by the Working Interest Owner owning or claiming the interest which is
subject to such payments.
ARTICLE XV
SUBSEQUENT JOINDER,
CONTRACTION OR TERMINATION OF UNIT
15.1 Subsequent Joinder. After the effective date hereof, subsequent
joinder in the Unit Agreement and in this agreement by any owner of a Working
Interest in the Unit Area Shall be permitted upon such reasonable terms and
conditions as may be Approved by the Parties voting on a Volumatric Basis within
all Operating Areas.
15.2 Contraction of Unit. The Unit Area may, with the consent of the
Director and subject to the Approval of the Parties voting on a Volumetric Basis
within all Operating Areas, be contracted to exclude lands in the following
categories: (a) lands as to which exploratory operations are proposed to be
undertaken by the Working Interest Owners thereof and which lands are reasonably
believed to be underlain by a reservoir which is not in pressure and hydrocarbon
communication with any other producing or producible reservoir in the Unit Area
and which reservoir is reasonably believed to not underlie more than one lease
within the Unit Area and which reservoir is reasonably believed to not be
capable of operation from existing platforms in the Unit Area, or (b) lands as
to which exploratory operations have disclosed a reservoir which is not in
communication with any other producing or producible reservoir in the Unit Area
and which
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separate reservoir lies predominently outside the Unit Area. Any contraction
applicable to lands in this category (b) shall be conditioned on reimbursement
by the Working Interest Owners of such lands to the other Parties hereto for
Unit Expenditures theretofore incurred in exploratory operations hereunder
applicable to such lands.
15.3 Termination of Unit. No application for termination of the Unit
Agreement shall be filed with the Supervisor pursuant to Article 17.2 of the
Unit Agreement without the Approval of the Parties voting on a Volumetric Basis
within all Operating Areas.
ARTICLE XVI
TRANSFERS OF INTEREST
16.1 Restriction on Zone Transfers. No Party shall assign, mortgage or
transfer its Working Interest in any Tract or portion thereof as to less than
all formations underlying said Tract without first receiving the Approval of the
Parties within the Exploratory Area or Operating Area involved.
16.2 Assumption of Obligations. No transfer of any Working Interests
shall be effective unless the same is made expressly subject to the Unit
Agreement and this agreement and the transferee agrees in writing to assume and
perform all obligations of the transferor under the Unit Agreement and this
agreement insofar as relates to the interest assigned, except that such
assumption of obligations shall not be required in case of a transfer by
mortgage or deed of trust as security for indebtedness.
16.3 Effective Date. A transfer of Working Interests shall not be
effective as between the Parties until the first day of the month next following
the delivery to Unit Operator of the original or a certified copy of the
instrument of transfer conforming to the requirements of Section 16.2. In no
event shall a transfer of Working Interests relieve the transferring Party of
any obligations accrued hereunder prior to said effective date, for which
purpose any obligation assumed by the transferor to participate in the drilling
of a well or the construction of a platform prior to such effective data shall
be deemed an accrued obligation.
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16.4 Preferential Right of Purchase. Before any Party makes a sale of
all or any part of its Working Interest herein, it shall give to the other
Parties written notice describing the Working Interest proposed to be sold and
stating the price at which and the terms upon which such Party is willing to
sell the same. For a period of thirty (30) days after receipt of such notice the
other Parties shall have the right, exercisable by written notice to the selling
Party, to purchase the interest proposed to be sold at the same prica and upon
the same terms as stated in said notice. If said right is exercised by any of
the Parties, the obligation to purchase shall be subject to title to such
interests being found to be merchantable in the selling Party and a reasonable
time shall be allowed for examination or title thereto. Upon approval of title
the selling Party shall convey such interests to the purchasing Party or Parties
who shall thereupon pay to the selling Party the purchase price specified
therefor; if two or more Parties have elected to purchase such interest, the
purchase shall be made by them proportionately among themselves on a Volumetric
Basis based upon their respective adjusted acre feet then in effect within all
Operating Areas. If no Party exercises said right of purchase within said thirty
(30) day period, as above provided, the selling Party shall be free to sell the
Working Interest described in its notice to any other purchaser provided the
sale is consummated within, ninety (90) days after the giving of the initial
notice of proposal to sell and for a price no lower and terms no less favorable
to selling Party than the price and terms specified in such initial notice. Such
interests shall not be sold after the expiration of said period of ninety (90)
days without again giving written notice to the other Parties and affording the
other Parties the right to purchase as hereinabove provided. The provisions of
the foregoing paragraph shall not apply to:
A. The mortgage by any Party of all or any part or its Working
Interest, or
B. To the transfer by any Party of all or any part of its Working
Interest to an affiliated company as defined in Article 9.3., or
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C. The sale of other disposition by any Party of all or substantially
all of its oil and gas properties.
ARTICLE XVII
INSURANCE
17.1 Insurance. Unit Operator agrees at all times to purchase or
provide the following insurance coverage for protection of the Parties, and
shall charge premiums for same to the Joint Account:
(a) Workmen's Compensation Insurance and Employers Liability
Insurance granting full coverage under the Workmen's Compensation
Laws of the State of California, for all employees engaged in
work for the Joint Account, with limit of $100,000.00 per
accident on Employers Liability. This insurance shall also
include protection for liability under the Federal Longshoreman's
and Harbor Workers' Compensation Act as amended, including
protection with respect to the extension of this act under the
Outer Continental Shelf Lands Act. Coverage for liability under
the Xxxxx Act, Death on the High Seas Act, and the General
Maritime Law shall be included. Coverage shall be amended to
provide that a claim "in rem" shall be treated as a claim against
the employer. Provided, however, that Unit Operator may be a
self-insurer for liability under said compensation laws, in which
event the only charge that shall be made to the Joint Account
shall be an amount equivalent to the premiums which would have
been paid had such insurance been obtained.
(b) General Public Liability Insurance in the amount of $100,000 for
any one person injured in any one accident and $300,000 for more
than one person injured in any one accident; and $100,000
property damage per accident. Coverage shall include watercraft.
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(c) Automotive Public Liability Insurance in the amount of $100,000
for any one person injured in any one accident and $300,000 for
more than one person injured in any one accident; and $100,000
property damage per accident.
(d) Operator shall require contractors and subcontractors performing
work for the Joint Account to provide such insurance as deemed
necessary by Operator in relation to the work to be performed by
said contractors or sub-contractors.
17.2 Liability Not Covered by Insurance. Liability, except that
covered by insurance, against any of the Parties hereto for damages to property
of third persons or injury to or death of third persons arising out of the
operations hereunder, including expenses incurred in defending claims or actions
asserting liability of this character, shall be borne separately and
individually, and not jointly and collectively, by the parties hereto in
proportion to their responsibility for Unit Expenditures incurred in the
operation involved. Any Party hereto individually may acquire at its own cost
such additional insurance as it desires to protect itself against any liability
not covered by insurance as aforesaid. All insurance purchased individually by a
Party to this Agreement for operations contemplated hereunder shall contain a
waiver by the insurance company of all rights of subrogation in favor of the
Parties to this Agreement.
17.3 Uninsured Losses. Fire, windstorm, tornado, explosion, vandalism,
malicious mischief, or other extended perils insurance will not be carried by
Unit Operator to protect the Parties. Therefore, the Joint Account shall be
charged with all expenditures incurred as a result of fire, windstorm, tornado,
explosion, vandalism, malicious mischief, or other casualties for which
insurance is not required hereunder. Each Party hereby releases Unit Operator
from all claims for loss by or damage to such Party arising out of, in
connection with, or as an incident
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to, any act or omission, including negligence but excluding willful misconduct
of Unit Operator or its employees, agents or contractors, in operations
hereunder, provided, this release shall not apply to Unit Operator's pro rata
share of the costs and expenses as otherwise provided in this Agreement. The
obligations of each Party under this Agreement are separate and individual, and
not joint or collective, with the other Parties hereto.
17.4 Notice of Loss. Operator shall promptly notify the other Parties
of any loss, damage or claim not covered by insurance carried by Unit Operator
for the Joint Account.
ARTICLE XVIII
TAXES
18.1 Ad Valorem Taxes. Unit Operator shall make and file all necessary
ad valorem tax renditions and returns with the proper taxing authorities
covering all real and personal property of each Working Interest Owner used or
held by Unit Operator in Unit Operations. Unit Operator shall settle assessments
arising therefrom. All such ad valorem taxes shall be paid by Unit Operator and
charged to the Joint Account; provided that, if the interest of a Working
Interest Owner is subject to a separately assessed overriding royalty interest,
production payment, or similar interest, such Working Interest Owner shall be
given credit for the reduction in taxes paid resulting therefrom.
18.2 Other Taxes. Each Working Interest Owner shall pay or cause to be
paid all production, severance, gathering, and other taxes imposed upon or in
respect of the production or handling of its share of Unitized Substances.
ARTICLE XIX
TITLES
19.1 Warranty and Indemnity. Each Working Interest Owner represents
and warrants that it is the owner of the respective Working Interests set forth
opposite its name in Exhibit B, and hereby agrees to indemnify and hold harmless
the other Working Interest Owners from any
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loss due to failure, in whole or in part, of its title to any such interest;
provided, that such indemnity shall be limited to an amount equal to the net
value that has been received from the sale or receipt of Unitized Substances
attributed to the interest as to which title failed. Each failure of title will
be deemed to be effective, insofar as this agreement is concerned, as of the
first day of the calendar month in which such failure is finally determined, and
there shall be no retroactive adjustment of Unit Expenditures, or retroactive
allocation of Unitized Substances or the proceeds therefrom, as a result of
title failure.
ARTICLE XX
LIABILITY, CLAIMS, AND SUITS
20.l Individual Liability. The duties, obligations and liabilities of
Working Interest Owners shall be several and not joint or collective. It is not
the purpose or intention of this agreement to create any partnership, mining
partnership, or association and neither this agreement nor the operations
hereunder shall be construed or considered as creating any such relationship.
20.2 Basis of Responsibility. All Unit Expenditures for costs of
litigation, liens, judgments and settlement of claims incurred in or resulting
from Unit Operations shall be charged to the Parties responsible for the costs
of such Unit Operations.
20.3 Settlements. Unit Operator may settle any single damage claim or
suit involving Unit Operations but not involving an expenditure in excess of Ten
Thousand Dollars ($10,000.00), provided the payment is in complete settlement of
such claim or suit. If the amount required for settlement exceeds the above
specified amount, the affected Working Interest Owners shall assume and take
over the further handling of the claim or suit unless such authority is
expressly delegated to Unit Operator. All costs and expenses of handling,
settling or otherwise discharging such claim or suit shall be Unit Expenditures.
If a claim
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is made against any Working Interest Owner or if any Working Interest Owner is
sued on account of any matter arising from Unit Operations and over which such
Working Interest Owner individually has no control because of the rights given
Working Interest Owners and Unit Operator by this agreement and the Unit
Agreement, Working Interest Owner shall immediately notify Unit Operator, and
the claim or suit shall be treated as any other claim or suit involving Unit
Operations.
ARTICLE XXI
WITHDRAWAL OF WORKING INTEREST OWNER
21.1 Withdrawal. No Oil and Gas Rights may he surrendered by a Working
Interest Owner without the unanimous prior written consent of the other Working
Interest Owners in the Exploratory Area or Operating Area in which such Oil and
Gas Rights are situated. A Working Interest Owner may withdraw from this
agreement by transferring, without warranty of title either express or implied,
to the Working Interest Owners who do not desire to withdraw all its Oil and Gas
Rights, exclusive of Royalty Interests, together with its interest in all Unit
Equipment and in all xxxxx used in Unit Operations, provided that such transfer
shall not relieve such Working Interest Owner from any obligation or liability
incurred prior to the first day of the month following receipt by Unit Operator
of such transfer. The delivery of the transfer shall be made to Unit Operator
for the transferees. The transferred interest shall be owned by the transferees
proportionately on a Volumetric Basis based upon their respective adjusted acre
feet then in effect within all Operating Areas. The transferees, in proportion
to the respective interests so acquired, shall pay the transferor for its
interest in Unit Equipment, the salvage value thereof less its share of the
estimated cost of salvaging same and of plugging and abandoning all xxxxx then
being used or held for Unit Operations, as determined by Working Interest
owners. In the event such withdrawing owner's interest in the aforesaid salvage
value is less than such owner's share of such estimated costs, the withdrawing
owner, as a condition precedent to withdrawal, shall pay
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the Unit Operator, for the benefit of Working Interest Owners succeeding to its
interest, a sum equal to the deficiency. Within sixty (60) days after receiving
delivery of the transfer, Unit Operator shall render a final statement to the
withdrawing owner for its share of Unit Expense, including any deficiency in
salvage value, as determined by Working Interest Owners, incurred as of the
first day of the month following the date of receipt of the transfer. Provided
all Unit Expense, including any deficiency hereunder, due from the withdrawing
owner has been paid in full within thirty (30) days after the rendering of such
final statement by the Unit Operator, the transfer shall be effective the first
day of the month following its receipt by Unit Operator and, as of such
effective date, withdrawing owner shall be relieved from all further obligations
and liabilities hereunder and under the Unit Agreement, and the rights of the
withdrawing Working Interest Owner hereunder and under the Unit Agreement shall
cease insofar as they existed by virtue of the interest transferred.
21.2 Limitation on Withdrawal. Notwithstanding anything set forth in
Article 21.1, Working Interest Owners may refuse to permit the withdrawal of a
Working Interest Owner if its Working Interest is burdened by any overriding
royalties, production payments, net proceeds interest, carried interest, or any
other interest created out of the Working Interest in excess of the lessor's
royalty, unless the other Working Interest Owners willing to accept the
assignment agree to accept the Working Interest subject to such burdens.
ARTICLE XXII
INTERNAL REVENUE PROVISION
22.1 Internal Revenue Provision. Each of the Parties hereto elects,
under the authority of Section 761(a) of the Internal Revenue Code of 1954, to
be excluded, from the application of all of the provisions of Subchapter K of
Chapter 1 of Subtitle A of the Internal Revenue Code of 1954. If the income tax
laws of the State of California contain, or may hereafter contain, provisions
similar to those contained in the
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Subchapter of the Internal Revenue Code of 1954 above referred to under
which a similar election is permitted, each of the Parties agree that such
election shall be exercised. Beginning with the first taxable year of the
operation each Party agrees that the deemed election provided by Regulations
Section 1.761-2(b)(2)(ii) will apply and no Party will file an application
under Regulations Section 1.761-2(b)(3)(i) or (ii) to revoke said election.
ARTICLE XXIII
EFFECTIVE DATE AND TERM
23.1 Effective Date. This agreement shall become effective as of the
first day of the month next following execution hereof by all Parties owning
Working Interests in the respective leases within the Operating Area shown on
Exhibit D.
23.2 Term. This agreement, unless terminated by vote on a Well Basis
before the Unit Agreement becomes effective, shall continue in effect until the
Unit Agreement becomes effective and thereafter so long as the Unit Agreement
remains in effect, and thereafter until (a) all unit xxxxx have been abandoned
and plugged or turned over to Working Interest Owners in accordance with Article
XXIV, (b) all Unit Equipment and real property acquired for the Joint Account
have been disposed of by Unit Operator in accordance with instructions of
Working Interest Owners and (c) there has been a final accounting.
ARTICLE XXIV
ABANDONMENT OF OPERATIONS
24.1 Termination. Upon termination of the Unit Agreement, the
following shall occur:
24.1.1 Oil and Gas Rights. Oil and Gas Rights in and to each
separate Tract shall no longer be affected by this agreement, and
thereafter the Parties shall be governed by the terms and provisions
of the leases, contracts and other instruments affecting the separate
Tracts.
24.1.2 Right to Operate. Working Interest Owners of any Tract
that desire to take over and continue to operate xxxxx located thereon
may do so by paying Unit Operator, for credit to
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the Joint Account, the net salvage value of the casing and equipment
in and on the xxxxx and platforms together with the Common Facilities
which are taken over, as estimated by Working Interest Owners, and by
agreeing to plug each well at such time as it is abandoned, remove
platforms and restore the Unitized Land insofar as is practicable to
its original conditions, as may be required by law.
24.1.3 Salvaging Xxxxx. Unit Operator shall salvage as much of
the casing and equipment in or on xxxxx not taken over by Working
Interest Owners of separate Tracts as can economically and reasonably
be salvaged and shall cause the xxxxx to be plugged and abandoned
properly and in accordance with law.
24.1.4 Cost of Salvaging. Working Interest Owners shall share the
cost of salvaging, liquidation or other distribution of assets and
properties used in Unit Operations in proportion to their respective
Area Participations.
ARTICLE XXV
NONDISCRIMINATION
25.1 Nondiscrimination. In connection with the performance of
operations hereunder, Unit Operator shall comply with all of the Federal
Contract Provisions contained in the appendix hereto, wherein Unit Operator is
referred to as Contractor, which provisions are incorporated herein by this
reference.
ARTICLE XXVI
NOTICES
26.1 Giving and Receipt. Except as otherwise specified herein, any
notice, consent or statement herein provided or permitted to be given by Unit
Operator or a Party to the Parties shall be given in writing by United States
mail or by telegraph or Telex, properly addressed to each Party to whom given,
with postage or charges prepaid, or by delivery thereof in person to the Party
to whom given; however, if delivered to a corporate Party, it shall not be
deemed given unless delivered personally to an executive officer of such Party
or to its representative designated pursuant to Article 8.1. A notice given
under any provision hereof
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shall be deemed given only when received by the Party to whom such notice is
directed, except that any notice given by United States registered mail or by
telegraph, properly addressed to the Party to whom given with all postage and
charges prepaid, shall be deemed given to and received by the Party to whom
directed forty-eight (48) hours after such notice is deposited in the United
States mails or twenty-four (24) hours after such notice is filed with an
operating telegraph company for immediate transmission by telegraph, and also
except that a notice to Unit Operator Shall not be deemed given until actually
received by it.
26.2 Proper Addresses. Each Party's proper address shall be deemed to
be the address set forth under or opposite its signature hereto unless and until
such Party specifies another post office address within the continental limits
of the United States by not less than ten (10) days prior written notice to all
other Parties.
ARTICLE XXVII
EXECUTION
27.1 Original, Counterpart, or Other Instrument. A party may become a
Party to this agreement by executing the original of this instrument, a
counterpart thereof or other instrument agreeing to be bound by the provisions
hereof. The execution of any such instrument shall have the same effect as if
all the Parties had executed the same instrument.
ARTICLE XXVIII
GENERAL
28.1 Gender and Number. As used herein, whenever the context so
requires, the neuter gender includes the masculine and the feminine, and the
singular includes the plural, and vice versa.
28.2 Headings. The table of contents contained in this agreement and
the title headings of the respective articles of this agreement are inserted for
convenience only and shall not be deemed to be part of this agreement or
considered in construing this agreement.
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ARTICLE XXIX
SUCCESSORS AND ASSIGNS
29.1 Successors and Assigns. The provisions hereof shall be covenants
running with the lands, leases and interests covered hereby and shall be binding
upon and inure to the benefit of the respective heirs, devisees, legal
representatives, successors and assigns of the Parties hereto.
IN WITNESS WHEREOF, the Parties hereto have executed this agreement on
the dates opposite their respective signatures.
UNIT OPERATOR AND
WORKING INTEREST OWNER
Date: 2/21/79 SHELL OIL COMPANY
Address: P. O. Xxx 000
Xxxxxxx, XX 00000 By: /s/ [ILLEGIBLE]
Telex: 000-000-0000 ------------------------------------
WEP SHELL HOU Attorney-in-Fact
WORKING INTEREST OWNERS:
Date: 3/1/79 OXY PETROLEUM, INC.
Address: 0000 Xxxxxxxxx Xxxxxxx
Xxxxxxxxxxx, XX 00000 By: /s/ Xxxxxxxx Xxxxxxx
Telex: 682421 OXYPETE BAK A ------------------------------------
Xxxxxxxx Xxxxxxx, Vice President
Date: 2/21/79 AMINOIL USA, INC.
Address: P. O. Xxx 00000
Xxxxxxx, XX 00000 By: /s/ Xxxx X. Xxxx
Telex: 762060 ------------------------------------
Xxxx X. Xxxx
Attest: /s/ X. X. Xxxxxxx
--------------------------------
X. X. Xxxxxxx,
Assistant Secretary
Date: 3/1/79 SANTA FE ENERGY COMPANY
Address: 00000 Xxxxxxxxx Xxxxxx
Xxxxx Xx Xxxxxxx, XX By: /s/ X. X. Xxxxx
90670 ------------------------------------
Telex: 000-000-0000 X. X. Xxxxx, Vice President
Attest: /s/ X. X. Xxxxxxx
--------------------------------
X. X. Xxxxxxx,
Assistant Secretary
Date: 2-28-79 XXXXXXXX BROTHERS OIL COMPANY
Address: 0000 Xxxxxxxx, Xxxxx 0000
Xxxxxx, Xxxxxxxx 00000 By: /s/ Xxxxxx X. Xxxxx
Telex: 45-851 ------------------------------------
Xxxxxx X. Xxxxx, Vice President
Date: 2-28-79 XXXXXXXX BROTHERS EXPLORATION COMPANY
Address: 0000 Xxxxxxxx, Xxxxx 0000
Xxxxxx, Xxxxxxxx 00000 By: /s/ Xxxxxx X. Xxxxx
Telex: 45-851 ------------------------------------
Xxxxxx X. Xxxxx, President
Date: 2-28-79 XXXXXXXX BROTHERS OIL & GAS CORPORATION
Address: 0000 Xxxxxxxx, Xxxxx 0000
Xxxxxx, Xxxxxxxx 00000 By: /s/ Xxxxxx X. Xxxxx
Telex: 45-851 ------------------------------------
Xxxxxx X. Xxxxx, Vice President
