UNIT OPERATING AGREEMENT DELHI UNIT Holt-Bryant Zone BEING PARTS OF TOWNSHIPS 17N 10E, 17N 9E, 17N 8E and 16N 8E RICHLAND, FRANKLIN AND MADISON PARISHES, LOUISIANA
XXXX
XXXXXXXXX XXXXXXXXX
XXXXX
XXXX
Xxxx-Xxxxxx
Xxxx
BEING
PARTS OF TOWNSHIPS
17N
10E, 17N 9E, 17N 8E
and
16N
8E
RICHLAND,
FRANKLIN AND MADISON PARISHES, LOUISIANA
TABLE
OF CONTENTS
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Article
No.
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1.
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Confirmation of Unit Agreement
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2
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2.
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Exhibits
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2
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3.
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Supervision of Operations
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3
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4.
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Manner of Exercising Supervision
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4
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5.
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Individual Rights of Working Interest
Owners/ Taking In Kind
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5
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6.
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Unit
Operator
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7
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7.
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Authority and Duties of Unit Operator
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7
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8.
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Taxes
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8
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9.
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Insurance
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8
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10.
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Adjustment of Investments
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9
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11.
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Unit Expense
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10
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12.
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Unit CO2
Requirements/ Additional Capital
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12
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13.
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Nonunitized Formations
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13
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14.
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Titles
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13
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15.
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Liability, Claims and Suits
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14
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16.
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Nondiscrimination
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14
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17.
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Notices
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14
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18.
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Withdrawal of Working Interest Owner
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15
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19.
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Abandonment of Xxxxx
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15
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20.
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Effective Date and Xxxx
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00
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00.
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Abandonment of Operations
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16
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22.
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Approval
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16
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23.
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Successors and Assigns
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16
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24.
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Miscellaneous
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16
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DELHI
UNIT
Xxxx-Xxxxxx
Zone
RICHLAND,
FRANKLIN AND MADISON PARISHES, LOUISIANA
THIS
AGREEMENT
is
entered into as of the 1st
day of
June, 2006 (the
“Effective Date”),
by and
between NGS Sub Corp. (hereinafter
“NGS”), and
Denbury Onshore, LLC (herein
referred to as “Denbury” or “Unit Operator”).
WHEREAS,
an
agreement entitled "Unitization Agreement, Unitized Zone, Delhi - West Delhi
Field, Richland, Franklin, and Madison Parishes, Louisiana,” dated as of July 1,
1952, was entered into by Sun Oil Company and X.X. Xxxxxx, Xx., which was
recorded with the Clerks of Court, State of Louisiana, in the Parish of
Richland, in XXX 000, Xxxx Xx. 000000, in the Parish of Franklin in Notarial
Book 81, File No. 25742, and in Madison Parish in Oil and Gas Book C, File
No.
7201, beginning at Page 543. This agreement as revised and ratified is referred
to as the "Unit
Agreement.”
WHEREAS,
an
agreement entitled “Unit Operating Agreement, Unitized Zone, Delhi - West Delhi
Field, Richland, Franklin, and Madison Parishes, Louisiana,” dated as of July 1,
1952, was entered into by Sun Oil Company and X.X. Xxxxxx, Xx., which was
recorded with the Clerks of Court, State of Louisiana, in the Parish of
Richland, in XXX 000, Xxxx Xx. 000000, in the Parish of Franklin in Notarial
Book 81, File No. 25741, and in Madison Parish in Oil and Gas Book C, File
No.
7202. This agreement as revised and ratified is referred to as the "Unit
Operating Agreement.”
WHEREAS,
the
above Agreements have been revised and ratified by the following (1) Revision
of
Exhibits dated February 10, 1953, recorded with the Clerks of Court, State
of
Louisiana, in the Parish of Richland, in XXX 000, Xxxx Xx. 000000, in the Parish
of Franklin in Notarial Book 84, File No. 31875, and in Madison Parish in Oil
and Gas Book E, File No. 8575; (2) Ratification of Agreements and Revision
of
Exhibits dated May 31, 1955, recorded with the Clerks of Court, State of
Louisiana, in the Parish of Richland, in XXX 000, Xxxx Xx. 000000, in the Parish
of Franklin in Notarial Book 93, File No. 55655, and in Madison Parish in Oil
and Gas Book G, File No. 12316; (3) Ratification of Agreements and Revision
of
Exhibits dated December 15, 1974, recorded with the Clerks of Court, State
of
Louisiana, in the Parish of Richland (recorded twice), in COB 250, Page 686,
Entry No. 216819, and in COB 250, Page 710, Entry No. 216820, in the Parish
of
Franklin in Notarial Book ____, File No. _______, and in Madison Parish in
Book
35, Page 527, Entry No. 47125.
WHEREAS,
following execution of the Unit Agreement and the Unit Operating Agreement,
the
following orders were issued by the State of Louisiana, Department of
Conservation, Delhi Field: (1) No. 96-F dated January 31, 1953 (which defined
the Xxxxx Xxxxx), Xx. 00-X-0 dated August 5, 1955 (which added unit acreage),
No. 96-G-4 dated April 30, 1975 (which redefined the Xxxx-Xxxxxx Zone of Delhi
Field). The
Xxxx-Xxxxxx Zone is as defined in the latter Order No. 96-G-4, and the Unit
Area
insofar as the Xxxx-Xxxxxx Zone is hereinafter referred to as the “Delhi
Xxxx-Xxxxxx Unit.”
WHEREAS,
NGS
represents that it owns an undivided 100% of the working interest (including
the unleased mineral interests)
in the
Delhi Xxxx-Xxxxxx Unit as defined in the above agreements (i.e.,
all of the Operator interest),
and that
it is selling same to Denbury.
In
said
sale, NGS is conveying the said undivided one hundred percent (100%) working
interest in the Delhi Xxxx-Xxxxxx Unit to Denbury, subject to a reversionary
interest of twenty-five percent (25%) after “Payout” (the
“Reversionary Interest”). Payout
is
defined in those two certain Acts of Purchase and Sale Agreement I and II
(collectively
referred to as the “PSA”)
between
the parties dated as of May 8, 2006.
-1-
WHEREAS,
the
parties hereto have decided to amend and restate the terms of the Unit Operating
Agreement to modernize the said agreement, to specifically provide for Unit
CO2
Requirements, to provide for the voting rights of the Reversionary Interest,
and
for various and sundry other reasons.
NOW,
THEREFORE, it
is
provided as follows:
ARTICLE
1
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.
The definitions in the Unit Agreement are adopted for all purposes of this
Agreement. If there is any conflict between the Unit Agreement and this
Agreement, the Unit Agreement shall govern.
ARTICLE
2
EXHIBITS
2.1. Exhibits.
The
following exhibits are incorporated herein by reference or
attachment:
2.1.1. Exhibits
"A" (Description of Tracts), "B" (Description of Unit Area) and “C” (Schedule of
Participation) of the Unit Agreement.
2.1.2. Exhibit
"D" attached hereto is a schedule showing the Working Interest Owners and the
Unit Participation of each Working Interest Owner. Exhibit "D" or a revision
thereof shall not be conclusive as to the information therein, except it may
be
used as showing the Unit Participations of Working Interest Owners for purposes
of this Agreement until shown to be in error and revised as herein
authorized.
2.1.3. Exhibit
"E" attached hereto is the Accounting Procedure applicable to Unit Operations.
If there is any conflict between this Agreement and Exhibit "E" this Agreement
shall govern.
2.1.4. Exhibit
"F" attached hereto is Unit Operator's Federal Equal Employment agreement and
certification.
2.1.5. Exhibit
“G” attached hereto is the Gas Storage and Balancing Agreement.
2.2. Revision
of Exhibits.
Whenever
Exhibits "A",
”B"
and “C” are revised, Exhibit "D" shall be revised accordingly and be effective
as of the same date.
2.3. Reference
to Exhibits.
When
reference is made herein to an exhibit, it is to be the original exhibit or,
if
revised, to the last revision.
-2-
ARTICLE
3
SUPERVISION
OF OPERATIONS
3.1. Overall
Supervision.
Unit
Operator shall exercise overall supervision and control of all matters
pertaining to Unit Operations. In the exercise of such authority, Unit Operator
shall act solely in its own behalf in the capacity of an individual owner and
is
not acting on behalf of the Working Interest Owners as an entirety. Individual
Working Interest Owners participate in unit activities at their own risk and
expense and may have input as to the overall unit objectives and
approach.
3.2. Specific
Authority and Duties.
(a)
Prior
to Payout.
Prior to
Payout, Unit Operator shall have full supervision and control of all matters
pertaining to Unit Operations. It shall have full authority to decide and take
such action it deems appropriate in achieving the overall unit objectives and
approach. Accordingly, the voting provisions of Article 4 (Manner of Supervising
Control) shall not be applicable (except to change or amend this Agreement)
until Payout has been achieved. The only limitations upon same shall be the
following, to-wit:
(i)
NGS
shall have the right to make reasonable site visits to the Delhi Xxxx-Xxxxxx
Unit with its employees, agents, or investors, after reasonable notice to Unit
Operator, and at NGS’ sole cost, risk and expense, and this right shall not be
unreasonably withheld;
(ii)
Unit
Operator shall provide to NGS (1) on a monthly basis operating reports covering
revenues, operating expenses, capital expenditures, production and injection
volumes and product prices received; and (2) a quarterly statement (with all
supporting documentation) identifying the status of Total Net Cash Flow amounts
(as
defined in the PSA)
and
Payout Statement for the Delhi Xxxx Xxxxxx Unit; and (3) a quarterly report
including historical and prospective technical information relating to the
Delhi
Xxxx Xxxxxx Unit including, but not limited to injection and production data
on
a field and well basis, well logs, cores, tests and any other data necessary
for
NGS to perform its own technical analysis; and (4) the right to request an
annual technical presentation, in addition to one “kick-off” presentation within
180 days after the Effective Date, to be presented to NGS by the appropriate
technical staff of Unit Operator. NGS shall have the right to conduct an annual
audit of the accounts and records of Unit Operator (at a mutually convenient
time during Unit Operator’s normal business hours and in accordance with the
Council of Petroleum Accountants Society guidelines and practices for audits
by
working interest owners) to verify the accounting for the Total Net Cash Flow
amount and Payout. Such audits may be performed by NGS directly or through
an
independent accounting firm of its choice, but in each case at NGS’ sole cost
and expense. Notwithstanding the above, all Payout accounting by Unit Operator
during any calendar year shall conclusively be presumed true and correct after
twenty four months following the end of any such calendar year, unless within
the said twenty four month period, NGS takes written exception thereto and
makes
claim on Unit Operator for adjustments.
(iii)
NGS
may vote its Reversionary Interest with respect to any changes or amendments
to
the Unit Operating Agreement.
(b)
After
Payout.
After
Payout, the matters requiring approval of the Working Interest Owners shall
include the following:
3.2.1. Method
of Operation.
The
method of operation, including the type of recovery program to be
employed.
3.2.2. Drilling
of Xxxxx.
The
drilling of any well whether for production of Unitized Substances, for use
as
an injection well, or for other purposes.
3.2.3. Well
Recompletions and Change of Status.
The
recompletion, abandonment, or change of status of any well, or the use of any
well for injection or other purposes.
3.2.4. Expenditures.
The
making of any single expenditure in excess of Fifty Thousand Dollars ($50,000);
provided that, approval by the Working Interest Owners, of the drilling,
recompletion, deepening, or plugging back of any wellshall include the approval
of all necessary expenditures required therefore, and for completing, testing,
and equipping the same, including necessary flow lines, separators, and lease
tankage.
-3-
3.2.5. Appearance
Before a Court or Regulatory Agency.
The
designation of a representative to appear before any court or regulatory agency
in matters pertaining to Unit Operations; however, such designation shall not
prevent any Working Interest Owner from appearing in person or from designating
another representative in its own behalf.
3.2.6. Audit
Exceptions.
The
settlement of unresolved audit exceptions.
3.2.7. Inventories.
The
taking of periodic inventories as provided by Exhibit "E".
3.2.8. Technical
Services.
The
authorizing of charges to the joint account for services by consultants or
Unit
Operator's technical personnel not covered by the charges provided by Exhibit
"E".
3.2.9. Assignments
to Committees.
The
appointment of committees to study any problems in connection with Unit
Operations.
3.2.10. Selection
of Successor Unit Operator.
The
selection of a successor Unit Operator.
3.2.11. Enlargements
and Amendments.
Enlargements
of the Unit Area, or the amending of this Agreement or the Unit
Agreement.
3.2.12. Investment
Adjustment.
The
adjustment and readjustment of investments.
3.2.13. Termination
of Unit Agreement.
The
termination of the Unit Agreement as provided therein.
ARTICLE
4
MANNER
OF EXERCISING SUPERVISION
4.1. Designation
of Representative.
Each
Working Interest Owner shall inform Unit Operator in writing of the name and
address of the representative who is authorized to represent and bind such
Working Interest Owner with respect to Unit Operations. Should any Working
Interest Owner fail to inform the Unit Operator in writing of the name and
address of its representative and fails to receive a notice sent pursuant to
the
terms of the Unit Agreement or Unit Operating Agreement, such Working Interest
Owner shall forfeit any right to contest whether the notice was properly sent
by
the Unit Operator. The representative may be changed from time to time by
written notice to Unit Operator.
4.2. Meetings.
All
meetings of Working Interest Owners shall be called by Unit Operator upon its
own motion or at the request of one or more Working Interest Owners having
a
total Unit Participation of not less than twenty percent (20%). No meeting
shall
be called on less than fourteen (14) days' advance written notice, with agenda
for the meeting attached. Working Interest Owners who attend the meeting may
amend items included in the agenda and may act upon an amended item or other
items presented at the meeting. The representative of Unit Operator shall be
chairman of each meeting.
4.3. Voting
Procedure.
Working
Interest Owners shall determine all matters coming before them as
follows:
4.3.1. Voting
Interest.
Each
Working Interest Owner shall have a voting interest equal to its Unit
Participation.
4.3.2. Vote
Required.
Unless
otherwise provided
herein or in the Unit Agreement, Working Interest Owners shall determine all
matters by the affirmative vote of one or more Working Interest Owners having
a
combined voting interest of at least seventy-seven percent (77%).
4.3.3. Vote
at Meeting by Nonattending Working Interest Owner.
Any
Working Interest Owner who is not represented at a meeting may vote on any
agenda item by letter or telegram addressed to the representative of Unit
Operator if its vote is received prior to the vote at the meeting.
-4-
4.3.4. Poll
Votes.
Working
Interest Owners may vote by letter or telegram on any matter submitted in
writing to all Working Interest Owners. If a meeting is not requested, within
fifteen (15) days after a written proposal is sent to Working Interest Owners,
the vote taken by letter or telegram shall control. Failure to respond within
fifteen (15) days of the sending of the written proposal shall be deemed a
concurrence with such proposal. Unit Operator shall give prompt notice of the
results of such voting to each Working Interest Owner.
ARTICLE
5
INDIVIDUAL
RIGHTS OF WORKING INTEREST OWNERS/ TAKING IN KIND
5.1. Reservation
of Rights.
Working
Interest Owners retain all their rights, except as otherwise provided in this
Agreement or the Unit Agreement.
5.2. Reports.
Upon
written request, Working Interest Owners have the right to receive from Unit
Operator, copies of all reports to any governmental agency, reports of liquid
hydrocarbon runs and stocks, inventory reports, and all other information
pertaining to Unit Operations. The cost of gathering and furnishing information
not ordinarily furnished by Unit Operator to all Working Interest Owners shall
be charged to the Working Interest Owner that requests the
information.
5.3. Audits.
Each
Working Interest Owner shall have the right to audit the accounts of Unit
Operator pertaining to Unit Operations according to the provisions of Exhibit
"E".
5.4. Taking
Production in Kind.
Each
party shall take in kind or separately dispose of its proportionate share of
all
oil and gas produced from the Unit Area, exclusive of production which may
be
used in development and producing operations and in preparing and treating
oil
and 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 the production shall be borne by such party.
Any
party taking its share of production in kind shall be required to pay for only
its proportionate share of such part of Unit Operator’s surface facilities which
it uses. Each party shall execute such division orders and contracts as may
be
necessary for the sale of its interest in production from the Unit Area, and,
shall be entitled to receive payment directly from the purchaser thereof for
its
share of all production. The right of NGS to take in kind is subject to Unit
Operator reserving a competitive call on NGS’ share of production (but not its
overriding royalty interest share of production), as follows. In the event,
NGS
receives a bona fide offer from a third party to purchase all or a part of
its
working interest share of production, NGS shall disclose such principal terms
and conditions (the
“Offer”)
in
detail to Unit Operator in a written notice. Unit Operator shall have the right
to purchase NGS’ share of production on the same terms and conditions of the
Offer, if within fifteen (15) days after receipt of the Offer, Unit Operator
delivers to NGS a written acceptance of same.
In
the
event any party shall fail to make the arrangements necessary to take in kind
or
separately dispose of its proportionate share of the oil and gas produced from
the Unit Area, Unit Operator shall, subject to the revocation at will by the
party owning it, purchase such oil and/or gas, or sell it to others at any
time
and from time to time, for the account of the non-taking party at the same
price
obtained by the Unit Operator for such production. Any such purchase or sale
by
Unit Operator shall be subject always to the right of the owner of the
production to exercise at any time its right to take in kind, or separately
dispose of, its share of all oil and/or gas not previously delivered to a
purchaser. Any purchase or sale by Unit Operator of any other party’s share of
oil and/or gas shall be only for such reasonable periods of time as are
consistent with the minimum needs of the industry under the particular
circumstances, but in no event for a period in excess of one (1)
year.
In
the
event one or more parties’ separate disposition of its share of the gas causes
split-stream deliveries to separate pipelines and/or deliveries which on a
day-to-day basis for any reason are not exactly equal to a party’s respective
proportionate share of total gas sales to be allocated to it, the balancing
or
accounting between the respective accounts of the parties shall be in accordance
with the gas balancing agreement attached hereto as Exhibit “G”.
-5-
ARTICLE
6
UNIT
OPERATOR
6.1. Unit
Operator.
Denbury
Onshore, LLC, is designated as Unit Operator.
6.2. Resignation
or Removal.
Unit
Operator may resign at any time. Such resignation shall not become effective
for
a period of three (3) months after the resignation, unless a successor Unit
Operator has taken over Unit Operations prior to the expiration of such period.
Unit Operator may be removed if it fails or refuses to carry out its duties
hereunder, or becomes insolvent, bankrupt or is placed in receivership. A change
of a corporate name or structure of Unit Operator or transfer of Unit Operator’s
interest to any single subsidiary, parent or successor corporation shall
not
be
the
basis for removal of Operator.
6.3. Selection
of Successor.
Upon
the
resignation or removal of Unit Operator, a successor Unit Operator shall be
selected by Working Interest Owners. The successor Unit Operator shall be
selected by the affirmative vote of Working Interest Owners having sixty percent
(60%) or more of the voting interest. Provided, however, that if a Unit Operator
which has been removed fails to vote or votes only to succeed itself, the
successor Unit Operator shall be selected by the affirmative vote of one (1)
or
more parties owning a majority interest remaining after excluding the voting
interest of the Unit Operator that was removed.
ARTICLE
7
AUTHORITY
AND DUTIES OF UNIT OPERATOR
7.1. Exclusive
Right to Operate Unit.
Subject
to the provisions of this Agreement, Unit Operator shall have the exclusive
right and be obligated to conduct Unit Operations.
7.2. Workmanlike
Conduct.
Unit
Operator shall conduct Unit Operations in a good and workmanlike manner as
would
a prudent operator under the same or similar circumstances. Unit Operator shall
freely consult with Working Interest Owners keeping them informed of all matters
which Unit Operator, in the exercise of its best judgment, considers important.
Unit Operator shall not be liable to Working Interest Owners for damages, unless
such damages result from gross negligence or willful misconduct.
7.3. Liens
and Encumbrances.
Unit
Operator shall endeavor to keep the lands and leases in the Unit Area and Unit
Equipment free from all liens and encumbrances occasioned by Unit Operations,
except those provided for in Article 11.
7.4. Employees. The
number of employees used by Unit Operator in conducting Unit Operations, their
selection, hours of labor, and compensation shall be determined by Unit
Operator; provided the above are appropriate for operations conducted in the
area and are consistent with industry practices. Such employees shall be the
employees of Unit Operator.
7.5. Records.
Unit
Operator shall keeps correct books, accounts, and records of Unit
Operations.
7.6. Reports
to Working Interest Owners.
Unit
Operator shall timely furnish Working Interest Owners periodic reports of Unit
Operations.
7.7. Reports
to Governmental Authorities.
Unit
Operator shall timely make all reports to governmental authorities that it
has
the duty to make as Unit Operator.
7.8. Engineering
and Geological Information.
Unit
Operator shall furnish to each Working Interest Owner, upon written request,
a
copy of all logs and other engineering and geological data pertaining to xxxxx
drilled for Unit Operations.
-6-
7.9. Expenditures.
Prior
to Payout of the NGS interest,
Unit
Operator is authorized to make single expenditures not in excess of Two Hundred
Fifty Thousand Dollars ($250,000.00) without prior approval of Working Interest
Owners. After
Payout of the NGS interest,
Unit
Operator is authorized to make single expenditures not in excess of Fifty
Thousand Dollars ($50,000.00). In the event of an emergency, Unit Operator
may
immediately make or incur such expenditures as, in its opinion, are required to
deal with the emergency.
7.10. Xxxxx
Drilled by Unit Operator.
All
xxxxx
drilled by Unit Operator shall be at the rates prevailing in the area in
accordance with Exhibit "E" (Accounting Procedure, Article II.8). Unit Operator
may employ its own tools and equipment, but the charge therefore shall be
governed by Exhibit “E”.
ARTICLE
8
TAXES
8.1. Property
Taxes.
Beginning with the first calendar year after the Effective Date hereof, Unit
Operator shall make and file all necessary property tax renditions and returns
with the proper taxing authorities with respect to all property of each Working
Interest Owner used or held by Unit Operator for Unit Operations. Unit Operator
shall settle assessments arising therefrom. All such property taxes shall be
paid by Unit Operator and charged to the joint account.
8.2. Other
Taxes.
Each
Working Interest Owner shall pay or cause to be paid all production, severance,
gathering, and other taxes imposed upon or with respect to the production or
handling of its share of Unitized Substances.
8.3.
Income
Tax Election.
Notwithstanding any provisions herein that the rights and liabilities hereunder
are several and not joint or collective, or that this Agreement and operations
hereunder shall not constitute a partnership, if for federal income tax purposes
this Agreement and the operations hereunder are regarded as a partnership,
then
each Person hereby affected elects to be excluded from the application of all
of
the provisions of Subchapter K, Chapter l, Subtitle A of the Internal Revenue
Code of 1986, as amended, as permitted and authorized by Section 761 of the
Code
and the regulations promulgated thereunder. Unit Operator is authorized and
directed to execute on behalf of each Person hereby affected such evidence
of
this election as may be required by the Secretary of the Treasury of the United
States or the federal Internal Revenue Service, including specifically, but
not
by way of limitation, all of the returns, statements, and the data required
by
Federal Regulations 1.761-l (a) and 2. Should there be any requirement that
each
Person hereby affected give further evidence of this election, each such Person
shall execute such documents and furnish such other evidence as may be required
by the federal Internal Revenue Service or as may be necessary to evidence
this
election. No such Person shall give any notices or take any other action
inconsistent with the election made hereby. If any present or future income
tax
laws of the state or states in which the Unit Area is located or any future
income tax law of the United States contain provisions similar to those in
Subchapter K, Chapter 1, Subtitle A, of the Internal Revenue Code of l986,
as
amended, under which an election similar to that provided by Section 761 of
the
Code is permitted, each Person affected hereby makes such election as may be
permitted or required by such laws. In making the foregoing election, each
such
Person states that the income derived by such Person from Unit Operations can
be
adequately determined without the computation of partnership taxable
income.
ARTICLE
9
INSURANCE
9.1. Insurance.
Unit
Operator, with respect to Unit Operations, shall:
| (a) |
carry
Workers' Compensation Insurance with statutory benefits for the applicable
state,
|
|
(b)
|
carry
employer's liability in amounts not less than One Million Dollars
($1,000,000.00) and comply with such other insurance requirements
of the
laws of the state,
|
|
(c)
|
carry
auto liability (covering all owned and non-owned vehicles) in amounts
not
less than One Million Dollars
($1,000,000.00)
|
-7-
|
(d)
|
carry
general liability insurance in amounts not less than One Million
Dollars
($1,000,000.00) per occurrence,
|
|
(e)
|
carry
control of well/operator’s extra expense (blowout) insurance in amounts
not less than Ten Million Dollars ($10,000,000.00),
and
|
|
(f)
|
carry
excess umbrella liability insurance in amounts not less than Ten
Million
Dollars ($10,000,000.00).
|
Premiums
for such insurance coverage will be charged to the joint account.
No
other
insurance will be carried by Unit Operator for the benefit of the joint account.
Each Working Interest Owner individually may acquire such other insurance as
it
deems proper to protect itself against claims growing out of personal injury
to
or death of third parties or injury to or destruction of property of third
parties resulting from Unit Operations, and on equipment used for the benefit
of
the Unit.
ARTICLE
10
ADJUSTMENT
OF INVESTMENTS
10.1. Investment
Adjustment Due to Subsequent Enlargement of Unit Area.
If the
Unit Area is subsequently enlarged to include additional Tracts, the Working
Interest Owners of such additional Tracts shall, upon the effective date of
the
enlargement, deliver to Unit Operator all xxxxx on such additional Tracts
completed in the Unitized Formation, casing and tubing in each well, the
wellhead connections thereon, all other lease and operating equipment that
is
used in the operation of such xxxxx which Working Interest Owners in the Unit
Area as enlarged determine is necessary or desirable for Unit Operations, and
a
copy of all production and well records of such xxxxx. Working Interest Owners
shall, at Unit Expense, inventory and evaluate, as determined by Working
Interest Owners, the personal property taken over. Such inventory shall include
and be limited to those items of equipment considered controllable under Exhibit
"E" except, upon determination of Working Interest Owners, specific terms
considered non-controllable may be included in the inventory in order to insure
a more equitable adjustment of investment. All non-controllable items, though
excluded from the inventory, shall nevertheless be taken over by the Unit
Operator. Casing shall be inventoried, but assigned no value.
10.2. Ownership
of Property and Facilities.
Each
Working Interest Owner, individually, shall, by virtue hereof, own an undivided
interest, equal to its Unit Participation in all xxxxx, equipment, and
facilities acquired by Unit Operator pursuant to this Agreement; provided that
the Unit Operator shall be the sole owner of the CO2
pipelines as per Paragraph 12.2, below.
ARTICLE
11
Unit
Expense
11.1. Basis
of Charge to Working Interest Owners.
Subject
to the provisions of Article 11.2 hereof, Unit Operator initially shall pay
all
Unit Expenses. All charges, credits and accounting for Unit Expenses shall
be in
accordance with Exhibit "E" attached hereto. Each Working Interest Owner shall
reimburse Unit Operator for its share of Unit Expenses in accordance with the
following:
11.1.1. Pre-Unitization
Expense. Intentionally
deleted.
11.1.2. Production
Operating Expenses.
All
operating costs associated with producing xxxxx or production facilities and
the
monthly operating overhead costs for producing xxxxx prescribed in Exhibit
"E"
attached hereto shall be allocated to the Working Interest Owners based upon
Unit Participation.
11.1.3. Enhanced
Recovery Operating Expenses.
All
operating costs associated with injection xxxxx, injection lines, injection
facilities, monthly operating overhead costs for injection xxxxx prescribed
in
Exhibit "E" attached hereto and the cost of injection fluids or gases shall
be
allocated to the Working Interest Owners based upon Unit
Participation.
11.1.4. Investment
Costs.
All
costs for equipment, drilling and completion of xxxxx, conversion of xxxxx
for
injection and/or disposal purposes, construction of production or enhanced
recovery facilities and drilling overhead costs and major construction and
catastrophe overhead costs prescribed in Exhibit "E" attached hereto shall
be
allocated to the Working Interest Owners based upon Unit
Participation.
-8-
11.1.5. Site
Specific Trust Account/Plugging and Reclamation Fund.
A Site
Specific Trust Account (“SSTA”)
with the
Office of Conservation, Department of Natural Resources, State of Louisiana
(the
“State”),
has been
established under the terms of La. R.S. 30: 80, et seq. The security provided
to
the State in connection with the SSTA is specifically for the proper plugging
and abandonment of the well or xxxxx, associated site restoration and response
to emergencies.” The SSTA specifically relates to all existing xxxxx in the
Delhi Xxxx-Xxxxxx Unit, except the Delhi Xxxx 00-0, 00-0, 00-0, 000-0 xxx 000-0
Xxxxx.
(x) Unit
Operator may establish a Plugging, Abandonment and Reclamation Fund
(the
“PAR Fund”)
to
fund the costs associated with the plugging, abandonment and reclamation of
all
Unit xxxxx not covered by the existing SSTA (the “PAR Costs”). In the event that
Unit Operator establishes a PAR Fund, Unit Operator shall establish an escrow
fund and shall deposit all amounts received from Working Interest owners
attributable to the PAR Fund into a third party escrow fund (the “Escrow
Funds”). Upon receipt of the Escrow Funds and thereafter, subject to written
instruction and/or confirmation from Buyer and Seller, Unit Operator may invest
the Escrow Funds in (i) time deposits in US banks, only to the extent that
such
deposits are fully insured by the FDIC; or (ii) short-term debt instruments
issued or guaranteed by the United States, its agencies or instrumentalities;
or
(iii) repurchase agreements backed by securities issued or guaranteed by the
United States, it agencies or instrumentalities; or (iv) money market funds
investing in any of the above-listed securities. The maximum allowable
maturity for any investment shall be five years, unless invested in Treasury
Inflation Protected Securities, in which event, the maximum allowable maturity
shall not exceed the expected remaining life of the field. Interest accruing
on
said fund shall become a part of the corpus of said fund.
(b) Upon
the
establishment of a PAR Fund by the Unit Operator, the Unit Operator shall make
a
good faith determination of PAR Costs of all existing Unit xxxxx not covered
by
the SSTA. The Unit Operator shall charge the Joint Account in proportion to
each
Working Interest Owner’s interest, an amount sufficient, per month until the PAR
Fund has been fully funded to cover the PAR Costs, said monthly amount shall
not
exceed fifteen thousand dollars ($15,000.00). The amount maintained in the
PAR
Fund, shall be adjusted annually on the anniversary date of the establishment
of
the PAR Fund to determine the amount of money necessary to fully fund the PAR
Costs. Based on the Unit Operators annual good faith estimate, in the event
the
PAR Costs exceed the PAR Fund, the Unit Operator may charge the Joint Account
with an amount sufficient to fully fund the Par Fund to cover all estimated
PAR
Costs.
(c)
Any
costs incurred by the Unit Operator for the plugging, abandonment or reclamation
of any Unit well or xxxxx shall be paid from the SSTA or the Par Fund, and
shall
not be charged to the Joint Account, unless the amount in the SSTA or the Par
Fund, as the case may be, is not sufficient to cover all of these costs, in
such
event such costs will be charged to the Joint Account in proportion to each
Working Interest Owner’s interest.
(d)
Should, after the termination of this Agreement and the plugging, abandonment
and associated site restoration within the Unit Area, there be funds remaining
in the SSTA or the PAR Fund, said funds shall be distributed to the Working
Interest Owner in accordance with their Working Interest Unit Participation
as
of the date of termination of this Agreement. In the event the SSTA and the
PAR
Fund do not cover the full costs of plugging and abandonment and associated
site
restoration as to all Unit Xxxxx in the Unit Area, the Working Interest Owners
shall pay to the Joint Account their proportionate share of the costs of
plugging and abandoning, and associated site restoration as to all Unit Xxxxx
in
accordance with their Working Interest Unit Participation as of the date of
termination of this Agreement.
11.2. Advance
Xxxxxxxx.
Unit
Operator shall have the right, at its option, to require other Working Interest
Owners to advance their respective proportion of estimated developmental costs
and expenses pursuant to Exhibit "E" Section I, Paragraph Number 3.
11.3. Commingling
of Funds.
Funds
received by Unit Operator under this Agreement need not be segregated by Unit
Operator or maintained by it as a separate fund, but may be commingled with
its
own funds, except for any funds received for the PAR Fund which must be
segregated in accordance with the terms of this Agreement.
11.4 Security
Rights.
In
addition to any other security rights and remedies provided for by the laws
of
this State with respect to services rendered or materials and equipment
furnished under this Agreement, each Working Interest Owner grants Unit Operator
a first and a prior lien upon its Working Interest, including the Unitized
Substances and Unit Equipment credited thereto, in order to secure payment
of
the Unit Expense charged against such Working Interest, together with interest
of one percent (1.00%) per month or the maximum rate allowed by law, whichever
is less. The filing of suit and the obtaining of a judgment by Unit Operator
for
the secured indebtedness shall not be deemed an election of remedies or
prejudice its security rights for the payment thereof. If any Working Interest
Owner does not pay its share of Unit Expense when due and
is in
Default as provided for hereinbelow, Unit Operator shall have the right, without
prejudice to other rights and remedies, to collect from the purchaser the
proceeds from the sale of such Working Interest Owner's share of Unitized
Substances until the amount owed, plus interest at the rate herein provided,
has
been paid. The Unit Operator shall have the continuing right to recoup unit
expenses from a Unit Owner who is in Default as long as production continues
no
matter how much time passes between the expense being incurred and the
production against which it is offset. Each purchaser shall be entitled to
rely
on Unit Operator's written statement concerning the amount owed and the interest
payable thereon. Unit Operator grants a like lien and security interest to
the
Working Interest Owners.
-9-
Any
surplus received by Unit Operator from any sale of production pursuant to this
Section or Section 11.6 below shall be credited to the Person or Persons from
whom it was deducted in the proportion of their respective
interest.
In
addition to the foregoing, each Working Interest Owner's interest in the Unit
Area shall be responsible for its proportionate share of the cost and expense
of
Unit Operations, and the Unit Operator shall have a lien thereon to secure
payment of such share. When any Working Interest Owner fails to pay its part
thereof when due and interest thereon at the rate above provided and is in
Default as provided for hereinbelow, then all of such Working Interest Owner's
interest in the Unitized Substances and Unit Equipment may be foreclosed in
the
same manner and under the same procedure provided for regarding the foreclosure
of mortgages. A transfer or conversion of any Working Interest Owner's interest
or any portion thereof, however accomplished shall not relieve the transferred
interest of the Unit Operator’s lien on said interest for the cost and expense
of Unit Operations past or prospective. In the event any Working Interest Owner
fails to pay its joint interest billing when due herein, and foreclosure
proceedings are commenced by the Unit Operator, the Unit Operator shall be
entitled to recover all of its reasonable costs expended for such proceedings,
including, but not limited to, court costs and reasonable attorney fees even
if
the delinquent working interest owner thereafter pays its unpaid unit
expenses.
(a)
If
any Working Interest Owner fails to pay its share of Unit Expense within thirty
(30) days after rendition of a statement (the
“Statement”)
therefore by Unit Operator, Unit Operator may send a written Notice of Default
to the said defaulting Working Interest Owner, which Notice shall specify that
failure to take such action will result in the exercise of one or more of the
remedies provided in this Article 11. Failure by the Unit Operator to send
a written Notice of Default shall preclude the Unit Operator from exercising
any
statutory or common law remedies or any other remedy set forth in this
Agreement. If the default in payment is not cured within thirty (30) days
(the
“30 Day Notice Period”)
after
the delivery of such Notice of Default, then the Working Interest Owner is
conclusively presumed to be in default (hereinafter
referred to as “Default”) and
the
Unit Operator shall have the right to exercise any of the remedies provided
in
this Agreement. If a Working Interest Owner fails to pay all or any part of
its
share of Unit Expenses due under the terms of this Agreement as a result of
a
legitimate disagreement as to the appropriateness of all or any part of such
Unit Expense, the defaults and remedies provisions of this Agreement shall
not
be applicable if the Working Interest Owner does the following: (i) makes such
disagreement and the grounds therefore known to the Unit Operator, in writing,
certified by an officer of the Working Interest Owner, by the later of the
due
date of the Statement or the end of the 30 Day Notice Period, an (ii) tenders
payment of all un-disputed amounts to the Unit Operator. Thereafter, the Parties
shall attempt to resolve the matter within sixty (60) days after the end of
the
30 Day Notice Period.
(b)
If a
Working Interest Owner is in Default, each non-defaulting Working Interest
Owner, including Unit Operator as a Working Interest Owner, shall, upon request
by Unit Operator, pay the unpaid amount as if it were Unit Expense in the
proportion that the Unit Participation of each such Working Interest Owner
bears
to the Unit Participation of all non-defaulting Working Interest Owners. Working
Interest Owners who pay the share of Unit Expense of a defaulting Working
Interest Owner shall be reimbursed by Unit Operator of 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. A Working Interest
Owner who is in Default shall lose its voting interest during its period of
Default as to operational matters, but shall not lose its voting interest as
to
amending this Agreement. Its voting rights shall be shared proportionally and
exercised by each of the non-defaulting Working Interest Owners. Each Working
Interest Owner paying its share of the unpaid amount shall, to obtain
reimbursement thereof, be subrogated to the security rights described in Article
11.4 of this Agreement.
-10-
11.6. Carved-Out
Interest.
If
any
Working Interest Owner shall, create an overriding royalty, production payment,
net proceeds interest, carried interest, or any other interest out of its
Working Interest ownership after the time of Closing of the PSA, such carved-out
interest shall be subject to the terms and provisions of this Agreement,
specifically including, but without limitation, Article 11.4 hereof entitled
"Lien and Security Interest of Unit Operator and Working Interest Owners."
If
the Working Interest Owner creating such carved-out interest (1) fails to pay
any Unit Expense chargeable to such Working Interest Owner under this Agreement,
and the production of Unitized Substances accruing to the credit of such Working
Interest Owner is insufficient for that purpose, or (b) withdraws from this
Agreement under the terms and provisions of Article 18 hereof, the carved-out
interest shall be chargeable with a pro rata portion of all Unit Expense
incurred hereunder, the same as though carved-out interest were a Working
Interest, and Unit Operator shall have the right to enforce against such
carved-out interest the lien and all other rights granted in Article 11.4 for
the purpose of collecting the Unit Expense chargeable to the carved-out
interest.
11.7. Rentals.
The
Working Interest owners in each Tract shall pay all rentals, minimum royalty,
advance rentals or delay rentals due under the lease thereon and shall
concurrently submit to the Unit Operator, upon written request, evidence of
payment.
ARTICLE
12
UNIT
CO2
REQUIREMENTS/ADDITIONAL
CAPITAL EXPENDITURE COMMITMENT TO NGS
12.1. CO2
Supply.
If
CO2
is used
by Unit Operator for enhanced oil production from the Delhi Xxxx-Xxxxxx Unit,
Unit Operator shall act as a reasonable prudent operator in delivering
CO2
to the
Delhi Xxxx-Xxxxxx Unit in a timely manner and in sufficient quantities to
efficiently conduct operations to enhance oil production. Unit Operator will
deliver CO2
to
the
Delhi Xxxx-Xxxxxx Unit at a pipeline pressure of 1100 psi for a fixed
transportation cost per standard mcf of twenty cents ($.20), for a period of
time not to exceed ten (10) years from the date of first pipeline deliveries
of
CO2
to the
Delhi Xxxx-Xxxxxx Unit. The agreed cost for the CO2
delivered to the Delhi Xxxx-Xxxxxx Unit will be equal to one percent (1%) of
the
price per barrel of crude oil sold from the Delhi Xxxx-Xxxxxx Unit per standard
mcf of CO2
as
determined each month. The agreed cost of the CO2
delivered by the Unit Operator to the Delhi Xxxx-Xxxxxx Unit shall not increase
for the entire life of the CO2
operations conducted on the Delhi Xxxx-Xxxxxx Unit. The above transportation
costs and costs for CO2
are
stipulated by Unit Operator and NGS to be the deemed costs for purposes of
the
Delhi Xxxx-Xxxxxx Unit, regardless of actual costs or other factors or
circumstances. All CO2
injected
into the Delhi Xxxx-Xxxxxx Unit shall be owned by the Working Interest Owners
proportionate to their interests. Any CO2
delivered to the Delhi Xxxx-Xxxxxx Unit and used by Unit Operator for any
purpose other than in the Delhi Xxxx-Xxxxxx Unit shall be credited to the Total
Net Cash Flow calculation (as per the PSA) as revenue at the same cost that
the
CO2
is
charged as provided above.
12.2. CO2
Pipeline
Cost.
Costs
associated with building, owning, operating, and maintaining CO2
pipelines used by Unit Operator to deliver CO2
to the
Delhi Xxxx-Xxxxxx Unit and within the Delhi Xxxx-Xxxxxx Unit, including
pipelines from the source field for the CO2,
shall
not be included in the computation of the costs used to determine “Total Net
Cash Flow” or “Payout” (under the PSA), but shall only be used in computing the
capital expenditure commitment set forth in Paragraph 12.3, below. All such
CO2
pipelines shall be owned solely by Unit Operator, and NGS shall not bear any
costs or have or be entitled to any interest in such pipelines, reversionary
or
otherwise.
12.3. Additional
Capital Expenditure.
(a) Unit
Operator has agreed to spend one hundred million dollars ($100,000,000.00)
of
cumulative capital expenditures (the “Required Cumulative Capital Expenditure
Amounts”) for the development of enhanced production operation for the Delhi
Xxxx-Xxxxxx Unit, which will include but is not limited to the cost of field
development, facilities and CO2
delivery
pipelines. Unit Operator shall make the Required Cumulative Capital Expenditures
Amounts on or before the Commitment Dates set forth below:
-11-
|
Commitment
Date
|
Required
Cumulative Capital Expenditure Amount
|
|
|
December
31, 2007
|
$17,500,000
|
|
|
December
31, 2008
|
$35,000,000
|
|
|
December
31, 2009
|
$52,500,000
|
|
|
December
31, 2010
|
$70,000,000
|
|
|
December
31, 2011
|
$87,500,000
|
|
|
December
31, 2012
|
$100,000,000
|
If the Unit Operator spends in excess of one hundred million dollars ($100,000,000.00) prior to the end of December 31, 2012, the development obligation has been fulfilled.
(b) In
the
event Unit Operator fails to expend the Required Cumulative Capital Expenditure
Amounts by the Commitment Dates set forth in (a) above, NGS shall be entitled
to
a cash payment equal to ten percent, (10.0%) of the difference between the
Required Cumulative Capital Expenditure Amounts for the applicable Commitment
Date and the cumulative capital expenditures actually expended by Unit Operator
from the Effective Date through such applicable Commitment Date (hereinafter
referred to as the “Shortage
Payment”).
Said
Shortage Payment shall be paid by Unit Operator to NGS within thirty (30) days
after each Commitment Date.
ARTICLE
13
NONUNITIZED
FORMATIONS
13.1. Right
to Operate.
Any
Working Interest Owner that now has or hereafter acquires the right to drill
for
and produce oil, gas, or other minerals, from strata above or below the Unit
Area other than the Unitized Formation, shall have the right to do so
notwithstanding this Agreement or the Unit Agreement. In exercising the right,
however, such Working Interest Owner shall exercise care to prevent unreasonable
interference with Unit Operations. No Working Interest Owner other than Unit
Operator shall produce Unitized Substances. If any Working Interest Owner drills
any well into or through the Unitized Formation, the Unitized Formation shall
be
protected in a manner satisfactory to Unit Operator so that the production
of
Unitized Substances will not be affected adversely.
ARTICLE
14
TITLES
14.1. 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 "D" and
agrees to indemnify and hold harmless the other Working Interest Owners from
any
loss due to failure, in whole or in part, of its title to any such interest,
except failure of title arising because of Unit Operations; however, such
indemnity and any liability for breach of warranty, 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 7:00 o’clock a.m. on the first day of the calendar month in
which such failure is finally determined, and there shall be no retroactive
adjustment of unit expense, or retroactive allocation of Unitized Substances
or
the proceeds therefrom, as a result of a title failure.
14.2. Failure
Because of Unit Operations.
The
failure of title to any Working Interest in any Tract because of Unit
operations, including nonproduction from such Tract, shall not change the Unit
Participation of the Working Interest Owner whose title failed in relation
to
the Unit Participations of the other Working Interest Owners at the time of
the
title failure.
14.3. Title
Examination.
Unit
Operator is hereby authorized to conduct such title examination and title
curative work on any Tract or Tracts (whether owned by Unit Operator or any
other Working Interest Owner) as it deems necessary or advisable for time to
time; and each Working Interest Owner who owns any interest in any such Tract
agrees to cooperate in such title examination and agrees to furnish to Unit
Operator all records affecting title, including but not limited to title
opinions and abstracts of title, that may be in such Working Interest Owner’s
possession or control. All costs and expenses incurred in such title examination
and curative work conducted for said purposes shall be treated as a direct
charge under Unit Expense. Upon request, Unit Operator shall make available
to
Working Interest Owner, at Unit Operator’s convenience, all such records
affecting title to Tracts contributed by such Working Interest Owner, including,
but not limited to, title opinions and abstracts of title that may be in Unit
Operator’s possession and control, and Working Interest Owner may have copies of
such records made at Working Interest Owner’s sole expense.
-12-
ARTICLE
15
LIABILITY
CLAIMS AND SUITS
15.1. Individual
Liability.
The
duties, obligations and liabilities of Working Interest Owners shall be several
and not joint or collective; and nothing herein shall ever be construed as
creating a partnership of any kind, joint venture, association or trust among
Working Interest Owners.
15.2. Settlements.
Unit
Operator may settle any single damage claim or suit involving Unit Operations
if
the expenditure does not exceed Fifty Thousand Dollars ($50,000) and if the
payment is in complete settlement of such claim or suit. If the amount required
for settlement exceeds the above amount, Unit Operator, working in conjunction
with the other Working Interest Owners shall determine the further handling
of
the claim or suit. All costs and expenses of handling, settling, or otherwise
discharging such claim or suit shall be an item of Unit Expense, subject to
such
limitation as is set forth in Exhibit "E". If a claim is made against any
Working Interest Owner, of if any Working interest Owner is sued on account
of
any matter arising from Unit Operations 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, the 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.
15.3. Notice
of Loss.
Unit
Operator shall report to Working Interest Owners as soon as practicable after
each occurrence, damage or loss to Unit Equipment, and each accident,
occurrence, claim or suit involving third party bodily injury or property damage
which in Unit Operators opinion could result in a claim or loss exceeding Fifty
Thousand Dollars ($50,000.00) and which is not covered by insurance carried
for
the benefit of Working Interest Owners.
ARTICLE
16
NONDISCRIMINATION
16.1. Nondiscrimination.
During
the performance of work under this Agreement, Unit Operator agrees and certifies
to all of the Federal Equal Employment Provisions contained in Exhibit
"F".
ARTICLE
17
NOTICES
17.1. Notices.
All
notices required hereunder shall be in writing and shall be deemed to have
been
properly served when sent by mail or telegram to the address of the
representative of each Working Interest Owner as furnished to Unit Operator
in
accordance with Article 4.
ARTICLE
18
WITHDRAWAL
OF WORKING INTEREST OWNER
18.1. Withdrawal.
A
Working
Interest Owner may withdraw from this Agreement by transferring, without
warranty of title, either expressed or implied, to the Unit Operator all of
its
Working Interest, 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 transferred interest shall be owned by the Unit Operator. Unit Operator
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. 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 the Unit Operator, 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 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.
-13-
18.2. Limitation
on Withdrawal.
Notwithstanding
anything set forth in section 18.1, Unit Operator may refuse to permit the
withdrawal of a Working Interest Owner if its Working Interest is burdened
by
any royalties, overriding royalties, production payments, net proceeds interest,
carried interest, or any other interest created out of the Working Interest
in
excess of one-eighth (l/8th) lessor's royalty.
ARTICLE
19
ABANDONMENT
OF XXXXX
19.1. Rights
of Working Interest Owners Prior to Plugging.
If
Unit
Operator determines to permanently abandon any well within the Unit Area prior
to termination of the Unit Agreement, Unit Operator shall give written notice
thereof to the Working Interest Owners of the Tract on which the well is
located, and they shall have the option for a period of thirty (30) days after
the sending of such notice to notify Unit Operator in writing of their election
to take over and own the well for operations in formations other than the Unit
Formation in accordance with the provisions of Article 12. Within ten (10)
days
after Working Interest Owners of the Tract have notified Unit Operator of their
election to take over the well, they shall pay Unit Operator, for credit to
the
joint account, the net salvage value (including plugging and abandonment) of
the
equipment, through the wellhead, in and on the well. If no Working Interest
Owner elects to take over the well or if Working Interest Owner(s) after
electing to take over said well fail to pay the net salvage value within said
ten (10) days, (thereby constituting a forfeiture of Working Interest Owners
right to take over said well) Unit Operator shall proceed to plug and abandon
said well in compliance with applicable laws and regulations. The Working
Interest Owners of the Tract, by taking over the well, agree to seal off the
Unitized Formation and upon abandonment to plug the well in compliance with
applicable laws and regulations.
ARTICLE
20
EFFECTIVE
DATE AND TERM
20.l. Effective
Date.
The
Unit
Operating Agreement, as amended and restated herein, shall become effective
as
of 7:00 a.m., local time, on June 1, 2006.
20.2. Term.
This
Unit
Operating Agreement, as amended and restated herein, shall continue in effect
so
long as the Unit Agreement remains in effect, and thereafter until (a) all
Unit
Xxxxx have been plugged and abandoned or turned over to Working Interest Owners
in accordance with Article 19.1.; and (b) all Unit Equipment and real property
acquired for the joint account has been disposed of by Unit Operator in
accordance with instructions of Working Interest Owners; and (c) there has
been
a final accounting.
ARTICLE
21
ABANDONMENT
OF OPERATIONS
21.1.
Termination.
Upon
termination of the Unit Agreement, the following will occur:
-14-
21.1.1. 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.
21.1.2. 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 the
joint
account, the net salvage value, of the casing and equipment, through the
wellhead, in and on the xxxxx taken over and by agreeing upon abandonment to
plug each well in compliance with applicable laws and regulations.
21.1.3. 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
in
compliance with applicable laws and regulations.
21.1.4. Cost
of Abandonment.
The
cost
of abandonment of Unit Operations shall be Unit Expense.
21.1.5. Distribution
of Assets.
Working
Interest Owners shall share in the distribution of Unit Equipment, or the
proceeds thereof, in proportion to their Unit Participation.
ARTICLE
22
APPROVAL
22.1. Original,
Counterpart, or Other Instrument.
An
owner
of a working Interest may approve this Agreement by signing the original, a
counterpart thereof, or other instrument approving this Agreement. The signing
of any such instrument shall have the same effect as if all Persons had signed
the same instrument.
ARTICLE
23
SUCCESSORS
AND ASSIGNS
23.1. Successors
and Assigns.
This
Agreement shall extend to, be binding upon, and inure to the benefit of the
Persons hereto and their respective heirs, devisees, legal representatives,
successors
and assigns, and shall constitute a covenant running with the lands, leases
and
interests covered hereby.
ARTICLE
24
MISCELLANEOUS
24.1. Choice
of Law.
This
Agreement and all matters pertaining hereto, including, but not limited to,
matters of performance, non-performance, breach, remedies, procedures, rights,
duties, and interpretation or construction, shall be governed and determined
by
the laws of the state of Texas.
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IN
WITNESS WHEREOF,
the
Persons hereto have approved this Agreement on the dates opposite their
respective signatures.
| DENBURY ONSHORE, LLC | ||
| |
|
|
| By: | ||
|
H. Xxxxxxx Xxxxxxxxx |
||
| Vice President - Land | ||
| NGS SUB CORP. | ||
| |
|
|
| By: | ||
|
Xxxxxx X. Xxxxxx |
||
| President and Chief Executive Officer | ||
STATE
OF
TEXAS
COUNTY
OF
____________
This
instrument was acknowledged before me on this _____ day of _______________,
2006, by H. Xxxxxxx Xxxxxxxxx, Vice President-Land of Denbury Onshore, LLC,
a
Delaware Limited Liability Company, on behalf of said limited liability company.
My
Commission Expires:
______________________ _________________________________
NOTARY
PUBLIC in and for State of Texas
STATE
OF
TEXAS
COUNTY
OF
XXXXXX
This
instrument was acknowledged before me on this _____ day of _______________,
2006, by Xxxxxx X. Xxxxxx, President and Chief Executive Officer of NGS Sub
Corp., a Delaware corporation, on behalf of said corporation.
My
Commission Expires:
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