OIL AND GAS PROSPECT EXPLORATION
AND DEVELOPMENT AGREEMENT
PREAMBLE
This agreement, hereinafter called "Agreement", is entered into by and
between XXXXX OIL & GAS INC., a Nevada corporation (hereinafter called "Xxxxx")
and __TRIMARK RESOURCES INC._____, a Colorado corporation (hereinafter called
"TRIMARK"). TRIMARK may hereinafter sometimes be referred to as a "Joint Venture
Partner" or "JVP."
Generally, this Agreement provides for Xxxxx to use its best efforts to
generate and develop oil and gas "Prospects" (as defined hereinbelow) within the
United States, primarily within the State of California, for which any or all of
said Prospects each JVP shall, upon payment by each JVP to Xxxxx of the "Option
Price" (as defined hereinbelow), be granted an option, FOR A PERIOD OF TWO (2)
CALENDAR YEARS AFTER PAYMENT OF THE OPTION PRICE, WITH AN OPTION TO EXTEND THIS
PERIOD FOR ONE ADDITIONAL YEAR AFTER THE INITIAL 2- YEAR PERIOD to participate
in and acquire a proportionate working interest in such Prospects on the terms
and conditions set forth in this Agreement. THE INITIAL OPTION PERIOD SHALL
COMMENCE ON THE DATE THE JVP EXECUTES THIS AGREEMENT.
AGREEMENT
In consideration of the Option Price, the mutual promises and covenants
set forth herein, and other good and valuable consideration, the parties hereto
agree as follows:
ARTICLE I. PURCHASE AND GRANT OF OPTION
SECTION 1.1. OPTION AND OPTION PRICE. TRIMARK has paid in $U.S. funds
23.33334% of project costs and overhead FROM OCTOBER 1, 1999 THROUGH NOVEMBER
30, 2000 AND 31.66668% FROM DECEMBER 1, 2000 THROUGH DECEMBER 31, 2000 related
to existing prospects (the "Option Price"). Upon execution of this agreement the
JVP commits to funding Xxxxx on a forward basis for its proportionate share of
prospect generation and land costs. The proportionate share of the JVP is herein
defined as ___43.66668____% working interest effective JANUARY 1, 2001. Upon
execution of this agreement, Xxxxx hereby and hereunder grants an option FOR A
PERIOD OF TWO (2) CALENDAR YEARS (THE INITIAL OPTION PERIOD"), WITH AN OPTION ON
THE PART OF THE JVP TO EXTEND THIS INITIAL OPTION PERIOD FOR AN ADDITIONAL ONE
(1) CALENDAR YEAR AFTER THE EXPIRATION OF THE INITIAL OPTION PERIOD, and after
receipt by Xxxxx of the Option Price (unless an option is earlier terminated by
a JVP's failure to exercise its option in accordance with the terms of this
Agreement or by reason of a JVP's default as specified in Section 1.4 of this
Agreement). Each JVP will participate in and acquire a proportionate working
interest in each Prospect developed and presented by Xxxxx to the JVP's within
said Option Period and extension thereof, if any, in accordance with the terms
and conditions set forth in this Agreement.
SECTION 1.2. NONREFUNDABLE. The Option Price described in Section 1.1,
hereinabove, paid by each JVP to Xxxxx constitutes the consideration paid for
the respective options described in this Agreement and are not refundable under
any circumstances whatsoever. In other words, whether or not a JVP exercises its
option or elects to participate in any Prospect or the drilling or completion of
any well located within any Prospect, the Option Price paid by each JVP is the
sole property of Xxxxx and is paid in consideration of the options granted under
the terms of this Agreement.
SECTION 1.3. TERM OF AGREEMENT AND OPTIONS. This Agreement, and all
options granted under the terms and provisions hereof, SHALL HAVE A TERM OF TWO
(2) YEARS FROM AND AFTER THE DATE THE PARTIES HAVE EXECUTED THIS AGREEMENT
(ALONG WITH AN OPTION TO EXTEND THE INITIAL OPTION PERIOD FOR AN ADDITIONAL ONE
(1) YEAR FROM AND AFTER THE EXPIRATION OF THE INITIAL OPTION PERIOD) and Xxxxx
has received payment of the Option Price from each JVP, after which time this
Agreement, all of the options granted hereunder which have not been exercised in
accordance with Section 4.1, and any and all further obligations of the parties
shall expire and terminate. No later than sixty (60) days prior to the
expiration of this Agreement, however, the parties hereto may mutually
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agree to enter into a like-kind agreement upon the expiration of the term of
this Agreement. In the event no such subsequent like-kind agreement is made,
each JVP then holding an unexercised option, still open for exercise in
accordance with Section 4.1 of this Agreement, shall nevertheless continue to
hold the same which shall be exercisable in accordance with the terms of said
Section 4.1.
SECTION 1.4. TERMINATION UPON DEFAULT. Except as otherwise specifically
provided in this Agreement, in the event any JVP fails or refuses to pay in full
when due under the terms of this Agreement, any costs, expenses or fees, then
all of said defaulting JVP's options, rights, and interests under this Agreement
and in any of the Prospects shall immediately terminate without the requirement
of any further or additional notice, all of Xxxxx'x obligations and
responsibilities under the terms of this Agreement shall immediately cease with
respect to such defaulting JVP, AND THE WORKING INTEREST(S) THAT WOULD OTHERWISE
HAVE BEEN ACQUIRED BY THE JVP IN DEFAULT SHALL BE OFFERED TO THE REMAINING
PARTICIPANTS ON A PROPORTIONATE RIGHT OF FIRST REFUSAL BASIS. IN THE EVENT THAT
ANY PORTION OF THE PROPORTIONATE INTEREST SUBSCRIBED TO BY A PARTICIPANT IS NOT
ACQUIRED BY FIRST RIGHT OF REFUSAL, THEN XXXXX SHALL HAVE the right but not the
obligation, to replace said defaulting JVP with another person, firm or entity
meeting the financial and other qualifications deemed necessary in Xxxxx'x sole
discretion. In the event a JVP is unable to pay its forward expenses, a 30-day
written notice must be given to Xxxxx stating that the JVP does not intend to
continue exercising its option. With respect to any prospects that have
outstanding payments due, the defaulting JVP will forfeit all monies and rights
related to those prospects. The JVP will own its respective proportionate
percentage in prospects for which the JVP's proportionate share of all costs and
expenses have been paid in full and for which Xxxxx is not incurring additional
generation costs, with the exception of permitting and drilling costs. If the
JVP does not pay a cash call for drilling, the JVP shall forfeit the prospect
and all costs paid to date with respect to that prospect.
ARTICLE II. DEFINITIONS
For the purposes of this Agreement, the following terms and words shall
have the following meanings:
SECTION 2.1. INITIAL PROSPECT WELL. "Initial Prospect Well" shall mean
and refer to the first well designed to test the objective formation or
formations of a Prospect by Xxxxx.
SECTION 2.2. PROSPECT. "Prospect" shall mean and refer to that area of
land and all of those geologic formations which are separate and distinct
geological features according to the geological and geophysical data available
to Xxxxx at the time the Prospect is presented, as delineated and denominated as
a Prospect in the map or maps thereof by Xxxxx and from time to time submitted
by Xxxxx to the JVPs during the term of this Agreement.
SECTION 2.3. PROSPECT DEVELOPMENT COSTS. "Prospect Development Costs"
shall mean and refer to all prospect generation and development costs including,
but not necessarily limited to, geological and geophysical data acquisition,
seismic survey costs, land and leasehold acquisition costs, title curative and
insurance costs, and geological, geophysical, engineering, xxxxxxx, legal
consultant costs, ADMINISTRATIVE, AND OVERHEAD COSTS (ADMINISTRATIVE AND
OVERHEAD COSTS RELATED STRICTLY TO XXXXX BUSINESS AND NON-JVP BUSINESS WILL NOT
BE BILLED TO THE JVPS).
SECTION 2.4. SUBSEQUENT PROSPECT WELL. "Subsequent Prospect Well" shall
mean and refer to any well drilled by or on behalf of the Operator within a
Prospect after the Initial Prospect Well for said Prospect has been drilled to
the objective total depth and completed or plugged and abandoned.
ARTICLE III. PROSPECT DEVELOPMENT AND COSTS
SECTION 3.1. PROSPECT DEVELOPMENT AND PROSPECT COSTS.
(a) PROSPECT DEVELOPMENT. Xxxxx shall use its best efforts to
generate and develop oil and gas Prospects within the United States, primarily
within the State of California, utilizing ordinary and prudent
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industry practices and methods for presentation and submission to the JVPs in
accordance with the terms of this Agreement. The JVPs agree to pay their
proportionate share of the Prospect Development Costs as set forth in this
Section 3.1.
(b) PROSPECT PRESENTATION. After each Prospect is developed or
during development of each Prospect, Xxxxx shall present the same to each JVP,
including all geological, geophysical, engineering, and other data and
information available to Xxxxx for the evaluation of the Prospect by each JVP.
This presentation may occur at the time a fully developed Prospect is submitted
to the JVPs in accordance with Section 3.2 of this Agreement or at any prior
time in connection with a submission of additional Prospect Development Costs in
accordance with Subsections (d) and (e) of this Section 3.1.
(c) INITIAL PROSPECT DEVELOPMENT COSTS OF $100,000.00 OR LESS.
Xxxxx may incur initial Prospect Development Costs equal to or less than One
Hundred Thousand Dollars ($100,000.00 in the aggregate or a maximum of the JVP's
proportionate interest of $100,000 with respect to each JVP in the development
of any one Prospect without prior notification to the JVPs. Xxxxx may, at its
option, invoice each JVP for its proportionate share of such initial Prospect
Development Costs prior to the time such costs in the aggregate total One
Hundred Thousand Dollars ($100,000.00), and each JVP shall, within thirty (30)
days after receipt of any such invoice, pay the full amount thereof to Xxxxx.
(d) PROSPECT DEVELOPMENT COSTS EXCEEDING $100,000.00. Prior to
incurring total aggregate Prospect Development Costs in excess of One Hundred
Thousand Dollars ($100,000.00) for the development of any one Prospect, Xxxxx
shall submit the Prospect, as then developed and defined, to each JVP for the
JVPs to evaluate the merits of such Prospect. Each JVP shall then, within ten
(10) days after receipt of an acceptance/decline notification, accept or decline
further participation in the Prospect. Any JVP declining further participation
forfeits its position and rights in the Prospect and any monies related to that
Prospect.
(e) ADDITIONAL PROSPECT DEVELOPMENT COSTS. Further Prospect
Development Costs, in addition to those described in Subsections (c) and (d),
above, may be necessary from time to time in order to fully delineate and define
a Prospect in order for Xxxxx and the JVPs to fully evaluate the merits of the
Prospect, and each JVP agrees to pay its proportionate share of such costs in
full within thirty (30) days after receipt of an invoice therefore from Xxxxx.
(f) MONTHLY INVOICES. Xxxxx shall ordinarily submit invoices
to each JVP for its proportionate share of all Prospect Development Costs on a
monthly basis. In all cases after the total aggregate Prospect Development Costs
exceed One Hundred Thousand Dollars ($100,000.00) for any one Prospect, Xxxxx
shall submit invoices for such additional costs to the JVPs who have exercised
their options with respect to that Prospect as provided for in Subsection (d)
above on no less than a monthly basis.
(g) PROSPECT DEVELOPMENT COSTS DUE AND PAYABLE REGARDLESS OF
EXERCISE OF OPTION. Each JVP agrees to pay its proportionate share of all
Prospect Development Costs as set forth in this Section 3.1 within thirty (30)
days after receipt of any invoice therefor, whether or not the JVP elects to
exercise its option and participate and acquire a proportionate working interest
in any Prospect as set forth in Section 4.1 of this Agreement.
(h) REFUND OF OVERPAYMENTS. Any excess of funds paid to Xxxxx
in either cash calls or monthly statements will be first applied to any
outstanding bills with Xxxxx. If a JVP is fully paid with respect to all debts
owed to Xxxxx, funds will be disbursed to that JVP within ninety (90) days after
the date it is determined that an overpayment has been made.
SECTION 3.2. SUBMISSION OF FULLY DEVELOPED PROSPECTS - AUTHORITY FOR
EXPENDITURE. When Xxxxx has fully developed and defined a Prospect to the extent
that an exercise by the JVPs of their respective options with respect to such
Prospect is reasonably warranted, Xxxxx shall, upon request by the JVP, submit
to each JVP: (i) the Prospect and all geological, geophysical, engineering, and
other data and information available to
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Xxxxx with respect to said Prospect; and (ii) a written notice specifying that
each JVP has ten (10) calendar days after receipt thereof within which to
exercise its option with respect to said Prospect. For each Prospect submitted
by Xxxxx under this Section 3.2, Xxxxx may at the same time the Prospect is
submitted, or at a later appropriate time as circumstances may warrant, submit
an authority for expenditure ("AFE") for each such Prospect which shall include,
but not necessarily be limited to, the estimated costs of drilling, testing, and
plugging and abandoning the Initial Prospect Well for each such Prospect.
ARTICLE IV. EXERCISE AND TERM OF OPTION - WORKING INTEREST
SECTION 4.1. EXERCISE OF OPTION. Provided that each JVP shall have paid
the Option Price to Xxxxx as set forth hereinabove, each such JVP shall have the
right to participate and acquire a working interest in each Prospect developed
and presented by Xxxxx to the JVPs during the Option Period, and any one-year
extension thereof as provided for hereinabove (aND THE JVP SHALL HAVE ALL THE
RIGHTS AND OBLIGATIONS OF OWNERSHIP OF THE EXISTING SUBSCRIBED PROSPECT(S)
WHETHER OR NOT THE JVP AND XXXXX AGREE TO AN ADDITIONAL OPTION PERIOD) after
payment of the Option Price on the following terms and conditions:
(a) MANNER OF EXERCISE OF OPTION. A JVP may exercise its
option to participate and acquire a proportionate working interest in each fully
developed Prospect submitted by Xxxxx in accordance with Section 3.2,
hereinabove, by:
(i) Notifying Xxxxx in writing of its election to
participate in the Prospect within ten (10) calendar days after Xxxxx has
submitted the fully developed Prospect and the written notice specifying that
each JVP has ten (10) calendar days within which to exercise its option, which
notice may be transmitted to Xxxxx by facsimile transmission, overnight courier,
first-class certified mail with return receipt requested, or any other method
ensuring that Xxxxx receives the written notice within the time period required
with proof of receipt thereof by Xxxxx; and either
(ii) Paying to Xxxxx, within the same 10-day period, in
United States funds the JVP's proportionate share of the drilling, testing, and
plugging and abandonment costs ("Dry Hole Costs") set forth in the AFE for each
Initial Prospect Well, if the Prospect AFE was submitted by Xxxxx at the time
the Prospect is submitted; or
(iii) Agreeing in writing, within the same 10-day
period, to pay the JVP's proportionate share of the Dry Hole Costs to be
specified in the AFE for each Initial Prospect Well within ten (10) days after
the Prospect AFE is submitted by Xxxxx, if the AFE is not submitted at the time
the Prospect is submitted to the JVP.
(b) ACQUISITION OF PROSPECT WORKING INTEREST. Each JVP which
has (i) elected to exercise its option to participate in a Prospect submitted by
Xxxxx in accordance with Section 4.1(a), hereinabove, and (ii) paid its
proportionate share of the AFE Dry Hole Costs of the Initial Prospect Well for
that Prospect shall acquire an undivided Seventy-five percent (75.00%) of its
proportionate share as working interest in the Prospect and Xxxxx shall acquire
an undivided Twenty-five Percent (25.00%) working interest in the Prospect. It
is understood and agreed that the JVPs, in the aggregate, shall bear and pay One
Hundred Percent (100.00%) of the costs of drilling, completing, and developing
the Initial Prospect Well through that point at which the Initial Prospect Well
is actually producing and earn and acquire thereby Seventy-five Percent (75.00%)
of the working interest in each said Prospect and Xxxxx shall acquire an
undivided Twenty-five Percent (25.00%) working interest in each said Prospect.
Thereafter, with respect to each Subsequent Prospect Well, each party shall bear
and pay its working interest share of all costs associated with each such
Subsequent Prospect Well.
(c) FAILURE TO EXERCISE OPTION. In the event any JVP fails or
refuses to exercise its option with respect to any Prospect, then all of said
JVP's options, rights, and interests in and to said Prospect shall immediately
terminate without the requirement of any further or additional notice in
accordance with and pursuant to the provisions of Section 1.5 of this Agreement.
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(d) DEFAULT IN PAYMENT OF DRY HOLE COSTS. In the event any JVP
defaults by failing or refusing to pay in full when due its proportionate share
of the AFE Dry Hole Costs for the Initial Prospect Well for a Prospect submitted
by Xxxxx, said JVP's rights to acquire a proportionate undivided working
interest in that Prospect shall automatically and immediately terminate, and the
working interest(s) that would otherwise have been acquired had there been no
such default shall be OFFERED PROPORTIONATELY TO THE REMAINING PARTICIPANTS ON A
RIGHT OF FIRST REFUSAL BASIS. IN THE EVENT THAT ANY INTEREST OF THE
PROPORTIONATE INTEREST SUBSCRIBED TO BY A PARTICIPANT IS NOT ACQUIRED BY FIRST
RIGHT OF REFUSAL, THEN SUCH INTEREST WILL BE owned by Xxxxx free and clear of
any and all adverse claim, right, title or interest therein. Each such
defaulting JVP agrees to execute and deliver to Xxxxx any and all quitclaim
deeds, surrender instruments, or other documents or instruments reasonably
necessary and appropriate to establish title to such working interest(s) in
Xxxxx.
(e) OPTIONS NOT ASSIGNABLE. Neither the options nor any right,
title or interest created thereunder nor any rights or interests created under
the terms of this Agreement may be assigned or otherwise transferred by any JVP
without the prior written consent of Xxxxx, which consent shall not be
unreasonably withheld.
SECTION 4.2. EXPIRATION OF OPTIONS. Unless earlier terminated by a
JVP's failure to exercise its option in accordance with Section 4.1 of this
Agreement with respect to Prospects submitted by Xxxxx in accordance with
Section 3.2, all options granted to each JVP which have not been exercised
pursuant to Section 4.1 of this Agreement shall automatically expire and
terminate without notice to the JVP upon expiration of the Option Period
(including any valid extension thereof) and all rights of the JVP arising out of
this Agreement shall thereupon immediately cease and be of no further force or
effect. Following the expiration and termination of the options, each JVP agrees
to execute, acknowledge, and deliver to Xxxxx within twenty (20) days after
written request therefore a quitclaim deed or other instrument which may be
reasonably necessary or required by any title company to remove the cloud of the
options, if any, from the Prospect lands and the leases or lease options
covering said Prospect lands. IN THE EVENT THE JVP ACQUIRES A WORKING INTEREST
IN A PROSPECT DURING THE OPTION PERIOD (OR ANY VALID EXTENSION THEREOF), THEN
THE JVP SHALL HAVE ALL THE RIGHTS AND OBLIGATIONS OF OWNERSHIP FOR PROSPECTS
SUBSCRIBED TO PRIOR TO THE EXPIRATION OF THE OPTION PERIOD, WHETHER OR NOT THE
JVP AND XXXXX AGREE TO EXTEND THE ORIGINAL DEFINED OPTION PERIOD AS LONG AS THE
JVP'S PAYMENTS OF ALL COSTS AND EXPENSES ARE CURRENT FOR SUCH PROSPECTS.
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ARTICLE V. INITIAL PROSPECT WELL DRY HOLE COSTS
SECTION 5.1. DEPOSIT AND USE OF FUNDS. Upon receipt of the Dry Hole
Costs by Xxxxx from each JVP in accordance with Section 4.1, hereinabove, Xxxxx
shall deposit all such funds into an escrow account. These funds shall be
designated and used by Xxxxx solely for the purposes of drilling, testing and
plugging and abandoning the Initial Prospect Well for each Prospect submitted by
Xxxxx.
SECTION 5.2. RETURN OF FUNDS. In the event that the Initial Prospect
Well for any Prospect submitted by Xxxxx to the JVPs is not drilled for any
reason whatsoever, all Dry Hole Cost funds remaining, after the payment of any
Dry Hole Costs actually incurred, shall be credited to the respective accounts
of the JVPs within ninety (90) days after the final determination and decision
is made that said Initial Prospect Well will not be drilled.
SECTION 5.3. EXCESS FUNDS. In the event that the Initial Prospect Well
for any Prospect submitted by Xxxxx to the JVPs is drilled to the "Production
Casing Election Point" (as defined in Section 6.2, hereinbelow) for a total cost
less than the aggregate Dry Hole Costs paid by the JVPs, all such excess Dry
Hole Cost funds shall be credited to the JVPs' respective accounts within ninety
(90) days or applied to the "Completion Costs" (as defined in Section 6.3(c),
hereinbelow) to be contributed by each JVP for the completion of the Initial
Prospect Well for said Prospect.
ARTICLE VI. INITIAL PROSPECT WELL DRILLING AND COMPLETION
SECTION 6.1. COMMENCEMENT AND DRILLING OF INITIAL PROSPECT XXXXX. As
soon as reasonably practicable after receipt of all of the Initial Prospect Well
Dry Hole Costs (SUPPORTED BY AFE'S APPROVED BY XXXXX) for each Prospect
submitted by Xxxxx in accordance with Section 3.2 of this Agreement and Xxxxx'x
acquisition of all leases, permits, franchises and licenses necessary and
prudent therefore, Xxxxx shall commence the drilling of the Initial Prospect
Well for each said Prospect at the AFE location, and shall thereafter diligently
continue the drilling of such Initial Prospect Well in a reasonably workmanlike
manner without unnecessary delays down to the AFE depth, being hereafter
referred to as the "Objective Depth". In the event a string or strings of
protection casing or liner shall be deemed necessary in order to achieve the
Objective Depth, then all logging, coring and testing prior to running such
string or strings of protection casing or liner which may be run prior to
achieving Objective Depth, and the acquisition, running, setting and cementing
of such protection casing(s) and liner(s) shall be deemed to be operations
conducted prior to achieving the Objective Depth, and all of the costs thereof
shall be deemed to be part of the Dry Hole Costs for such Initial Prospect Well.
SECTION 6.2. PRODUCTION CASING ELECTION POINT. Upon achieving the
Objective Depth, Xxxxx shall run such well logs, sidewall cores, and/or flow
tests as Xxxxx deems appropriate (being such logging, coring and/or testing as a
reasonably prudent operator would deem appropriate under the circumstances in
order to acquire the requisite data for a decision to complete or abandon any
such Initial Prospect Well), and all of the costs thereof shall be deemed to be
part of the Dry Hole Costs for such Initial Prospect Well. Upon completion of
such operations, and being that point in time when the Initial Prospect Well
bore hole is in good shape and condition to run a string of production casing
(or a production liner, as the case may be), or plug and abandon, then such
point in time shall be deemed to be the Production Casing Election Point for the
Initial Prospect Well.
SECTION 6.3. COMPLETION COSTS - PRODUCTION CASING POINT ELECTIONS.
(a) NOTIFICATION. When the Production Casing Point is achieved
in the Initial Prospect Well following the conduct of the requisite logging,
coring and/or testing program, Xxxxx shall promptly notify, by telephone and/or
facsimile transmission, each of the JVPs of Xxxxx'x recommendations as follows:
(i) To conduct additional or other and further logging,
coring, testing, or other formation or production evaluation operations; or
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(ii)To attempt a completion of the Initial Prospect Well
as a producing well; or
(iii) To plug and abandon the Initial Prospect Well as a
dry hole.
(b) ELECTION PERIOD. In each instance, each JVP shall have
twenty-four (24) hours after receipt of said notification in which to advise
Xxxxx of the JVP's decision with respect thereto and which may include either
agreement with Xxxxx'x recommendations or election of the JVP's choice under
items (i) through (iii) of Section 6.3(a), hereinabove. Should any JVP fail,
refuse or neglect, for any reason, to reply within said twenty-four (24) hour
period, then said JVP shall be deemed to have elected not to join in the
proposed operation, and the provisions hereof applicable to non-consenting
parties shall apply.
(c) COMPLETION COSTS. Each party consenting to a proposed
additional testing operation under Section 6.3(a)(i), hereinabove, or an attempt
to complete operation under Section 6.3(a)(ii), hereinabove, shall, within ten
(10) calendar days after such election, pay in full its proportionate share of
the costs of such operation to Xxxxx, such costs sometimes referred to elsewhere
in this Agreement as the "Completion Costs". Should any party fail to make full
payment of its proportionate share of the Completion Costs, then said party
shall be deemed to have elected not to join in the proposed operation, and the
provisions hereof applicable to non-consenting parties shall apply.
(d) UNANIMOUS CONSENT OR ELECTIONS.
(i) UNANIMOUS AGREEMENT TO PLUG AND ABANDON. In the
event the parties unanimously agree under Section 6.3(a)(iii), hereinabove, to
plug and abandon the Initial Prospect Well as a dry hole, then Xxxxx shall do or
cause the same to be done, the cost thereof being borne by all parties as part
of the Dry Hole Costs.
(ii) UNANIMOUS AGREEMENT TO CONDUCT ADDITIONAL TESTING
OR ATTEMPT COMPLETION. In the event the parties unanimously agree to proceed
under Sections 6.3(a)(i) or 6.3(a)(ii) hereinabove, then the actual Completion
Costs of such operations shall be borne and paid by each party in proportion to
its working interest as set forth in Section 4.1(b) of this Agreement, and all
subsequent operations within the Prospect shall be conducted pursuant to the
applicable terms and provisions of the Prospect Operating Agreement attached
hereto as Exhibit "A". Should the parties unanimously elect to proceed under
Section 6.3(a)(i), hereinabove, then at the conclusion of such operations, the
parties hereto shall be afforded a notification and shall have the elections
provided under this Section 6.3.
(e) NONCONSENT ELECTIONS. In the event the parties hereto fail
to unanimously agree as to the conduct of operations hereunder, then the
following provisions shall apply to such non-consent operations:
(i) Should a party or parties elect to plug and abandon
the Initial Prospect Well under Section 6.3(a)(iii) (the "nonconsenting" party
or parties) and the other party or parties elect to conduct additional testing
under Section 6.3(a)(i) or attempt a completion under Section 6.3(a)(ii) (the
"consenting" party or parties), then all operations thereafter ensuing shall be
at the risk, cost and expense of the consenting party or parties, and the
non-consenting party or parties shall thereupon be deemed to have relinquished
all right, title and interest in the Initial Prospect Well, the Prospect, and to
all Prospect leases, which right, title and interest shall thereupon be acquired
by Xxxxx or, at the sole option of Xxxxx, by all of the consenting parties in
proportion to their respective working interests in the Prospect. The parties
agree to execute such assignments and other instruments and documents as may be
necessary to effectuate of record such relinquishments and/or conveyances and
specifically, the non-consenting party or parties agree to execute, acknowledge
and deliver all requisite conveyances, assignments and documents necessary or
desirable to vest in Xxxxx or all of the consenting parties, as the case may be,
the full record title in and to the affected Prospect leases.
(ii) Should a party or parties elect under Section
6.3(a)(i), hereinabove, above to conduct additional testing and the other party
or parties elect under Section 6.3(a)(ii) to proceed to attempt to
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complete the Initial Prospect Well rather than conduct additional testing
operations, then such additional testing party or parties may proceed at his or
their sole risk, cost and expense to conduct such additional testing operations,
provided that such additional testing party or parties shall furnish all thus
obtained testing results to the other party or parties hereto, and at the
conclusion of such additional testing operations the additional testing party or
parties shall deliver back to the joint account the Initial Prospect Well in
good condition with the bore hole in good shape and condition for the running of
a string of production casing or liner (this obligation includes, if the
original well bore should be lost during the conduct of such additional testing
operations, the drilling of a new well). At such point, all parties excepting
those theretofore electing to plug and abandon under Section 6.3(a)(iii),
hereinabove, shall be afforded the notifications and elections under this
Section 6.3.
(iii) Should the parties hereto agree under Section
6.3(a)(ii) to conduct operations to attempt to complete the Initial Prospect
Well as a producing well, but disagree as to the zone or formation for the
completion attempt, then the deeper proposed zone shall have precedence. At the
conclusion of operations under this Subsection 6.3(e)(iii), that is, after the
completion attempt is abandoned as unsuccessful or after the cessation of
production operations upon depletion of such deeper zone if the completion
attempt is successful, Section 6.3 of this Agreement shall again apply and the
parties hereto shall have the notifications, options and elections herein
provided except with respect to the party or parties heretofore electing to plug
and abandon under Section 6.3(a)(iii), hereinabove.
SECTION 6.4. NONCONSENTING PARTIES. In the event a party declines to
participate in a proposed operation under Section 6.3, then:
(a) All costs attributable to the non-consenting party's or
parties' interest shall be borne by the consenting parties in proportion to
their respective working interests; and
(b) All rights thus acquired from such non-consenting party or
parties shall be OFFERED PROPORTIONATELY TO THE REMAINING PARTICIPANTS ON A
RIGHT OF FIRST REFUSAL BASIS. IN THE EVENT THAT ANY INTEREST OF THE
PROPORTIONATE INTEREST SUBSCRIBED TO BY A PARTICIPANT IS NOT ACQUIRED BY FIRST
RIGHT OF REFUSAL, THEN XXXXX SHALL HAVE THE RIGHT BUT NOT THE OBLIGATION, TO
REPLACE SAID DEFAULTING JVP WITH ANOTHER PERSON, FIRM OR ENTITY MEETING THE
FINANCIAL AND OTHER QUALIFICATIONS DEEMED NECESSARY IN XXXXX'X SOLE DISCRETION.
ARTICLE VII. OPERATING AGREEMENT
SECTION 7.1. OPERATING AGREEMENT. Prior to commencement of drilling
operations for any Initial Prospect Well, the Prospect working interest owners
shall enter into a joint operating agreement in the form of the AAPL Form 610 -
1989 Model Form Operating Agreement, or any other form of operating agreement
which is mutually satisfactory with all of the Prospect working interest owners,
for each Prospect (the "Prospect Operating Agreement"). Each Prospect Operating
Agreement shall govern the parties' rights, duties and responsibilities with
respect to that Prospect. In the event of any conflict between the terms and
provisions of a Prospect Operating Agreement and the terms and provisions of
this Agreement, the terms and provisions of this Agreement shall prevail and
control. UNDER THE PROVISIONS OF THE OPERATING AGREEMENT ARE REQUIREMENTS FOR
THE MAINTENANCE OF INSURANCE WHICH WILL BE OBTAINED EITHER BY XXXXX DIRECTLY OR
THROUGH THE CONTRACTED DRILLING COMPANY.
SECTION 7.2. DESIGNATION OF OPERATOR. The parties to this Agreement
hereby agree to elect and designate Xxxxx as the Operator of any and all of the
Prospects and shall designate Xxxxx as the Operator under all Prospect Operating
Agreements. Xxxxx reserves the right to assign a different operator at any time.
SECTION 7.3. DAILY DRILLING REPORTS. Xxxxx, as Operator, shall provide
all Prospect working interest owners with daily drilling reports by telephone
and/or facsimile of the status of any Initial Prospect Well and Subsequent
Prospect Well drilled under the terms of this Agreement.
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SECTION 7.4. OPERATOR'S COSTS. THE OPERATOR SHALL BE PAID ITS ACTUAL
COSTS OF OPERATING EACH PROSPECT. EACH PROSPECT WORKING INTEREST OWNER SHALL
BEAR AND PAY ALL OF SAID OPERATOR'S COSTS IN PROPORTION TO EACH OWNER'S WORKING
INTEREST IN THE PROSPECT.
ARTICLE VIII. SUBSEQUENT PROSPECT XXXXX
SECTION 8.1. SUBSEQUENT PROSPECT XXXXX. In the event that additional
xxxxx are required, following the drilling and completion or abandonment of an
Initial Prospect Well, to fully develop a Prospect in accordance with prudent
oilfield practices, then Xxxxx and the JVPs owning a working interest in said
Prospect shall bear all of the costs of drilling, testing, completing, and
plugging and abandoning all such Subsequent Prospect Xxxxx in proportion to
their respective working interests acquired in the Prospect under the terms of
Section 4.1(b) of this Agreement. All such Subsequent Prospect Xxxxx shall be
drilled on a spacing pattern determined by Xxxxx in accordance with prudent
oilfield practices and any state or federal spacing regulatory requirements
which may then be in effect in the jurisdiction in which the Subsequent Prospect
Xxxxx are drilled. TO THE EXTENT POSSIBLE, A DEVELOPMENT PLAN WILL BE PRESENTED
AT THE TIME OF AN AFE FOR SUBSEQUENT PROSPECT XXXXX DRILLED SUBSEQUENT TO THE
INITIAL PROSPECT WELL.
SECTION 8.2. AUTHORITY FOR EXPENDITURE. Prior to commencement of
operations for the drilling of any Subsequent Prospect Well, the Operator shall
prepare and submit to all Prospect working interest owners an AFE for each such
well which shall include, but not necessarily be limited to, the estimated costs
of drilling, testing, completing, and plugging and abandoning each such
Subsequent Prospect Well.
SECTION 8.3. DEFAULT IN PAYMENT OF COSTS. Notwithstanding any contrary
term or provision of this Agreement or the Prospect Operating Agreement entered
into by the parties for any Prospect, in the event any party fails or refuses to
pay in full any of the costs for which it is obligated with respect to a
Subsequent Prospect Well, then that party shall be deemed to have relinquished
all of its working interest and all other right, title or interest in the
Prospect, all xxxxx theretofore drilled in the Prospect, and all Prospect
leases, provided, however, said defaulting party shall retain its working
interest in those Prospect xxxxx previously drilled under the terms of this
Agreement and for which said party is not in default together with the spacing
unit surrounding any such well or xxxxx as designated by the Operator in
accordance with the terms of this Agreement and any state or federal spacing
regulatory requirements which may then be in effect in the jurisdiction in which
such xxxxx have been drilled. All such relinquished interests shall be OFFERED
TO THE REMAINING PARTICIPANTS ON A RIGHT OF FIRST REFUSAL BASIS. IN THE EVENT
THAT ANY PORTION OF THE PROPORTIONATE INTEREST SUBSCRIBED TO BY A PARTICIPANT IS
NOT ACQUIRED BY RIGHT OF FIRST REFUSAL, THEN XXXXX SHALL HAVE THE RIGHT BUT NOT
THE OBLIGATION, TO REPLACE SAID DEFAULTING JVP WITH ANOTHER PERSON, FIRM OR
ENTITY MEETING THE FINANCIAL AND OTHER QUALIFICATIONS DEEMED NECESSARY IN
XXXXX'X SOLE DISCRETION. The parties agree to execute such assignments and other
instruments and documents as may be necessary to effectuate of record such
relinquishments and/or conveyances and specifically, the defaulting party or
parties agree to execute, acknowledge and deliver all requisite conveyances,
assignments and documents necessary or desirable to vest in Xxxxx or all of the
consenting parties, as the case may be, the full record title in and to the
affected Prospect leases.
SECTION 8.4. OPERATING AGREEMENT. All elections and other matters
related to the drilling, testing, equipping, completion, and plugging and
abandonment of each such Subsequent Prospect Well shall be governed by the terms
of the Operating Agreement established and entered into by the Prospect working
interest owners for that Prospect in accordance with the terms of Section 7.1 of
this Agreement.
ARTICLE IX. NET REVENUE
For each Prospect developed and presented by Xxxxx to the JVPs, Xxxxx
shall be obligated to deliver a net revenue of no less than Seventy-five Percent
(75.00%) in the aggregate. If Xxxxx is unable to attain such net revenue
interest with respect to a Prospect, then Xxxxx shall first obtain the prior
written consent of each JVP who has elected to exercise its option with respect
to that Prospect before incurring any additional costs or
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expenses in the drilling and development of an Initial Prospect Well or
Subsequent Prospect Well(s) for that Prospect.
ARTICLE X. PROSPECT FEES
SECTION 10.1. PROSPECT FEES. IN ADDITION TO OPTION PRICE UNDER SECTION
1.1 OF THIS AGREEMENT, THE PROSPECT DEVELOPMENT COSTS UNDER SECTIONS 2.3 AND
3.1, AND THE OPERATOR'S COSTS AND FEES UNDER SECTION 7.4 OF THIS AGREEMENT, THE
JVPS SHALL PAY TO XXXXX A "PROSPECT FEE" FOR EACH PROSPECT DEVELOPED AND
PRESENTED BY XXXXX TO THE JVPS. THE PROSPECT FEE SHALL BE IN AN AMOUNT EQUAL TO
THE SUM OF PROSPECT DEVELOPMENT COSTS FOR EACH PROSPECT.
SECTION 10.2. PROSPECT FEE PAYABLE REGARDLESS OF EXERCISE OF OPTION.
Each JVP shall pay its proportionate share of the Prospect Fee for each Prospect
developed and presented by Xxxxx to the JVPs, whether or not the JVP exercises
its option to participate in a Prospect.
SECTION 10.3. TIME FOR PAYMENT. Each JVP shall pay its proportionate
share of the Prospect Fee within thirty (30) days after Xxxxx submits an invoice
therefore to each JVP.
ARTICLE XI. NO REPRESENTATIONS
While Xxxxx shall use its best efforts to develop Prospects in
accordance with sound and prudent oilfield and geological and geophysical
standards and practices, Xxxxx makes no representations, and hereby expressly
disclaims all representations and warranties, express or implied, with respect
to the success or probability of success of any Prospect or Prospect well.
ARTICLE XII. AUDIT AND INSPECTION RIGHTS
SECTION 12.1. AUDIT RIGHTS. Xxxxx shall maintain a true and correct set
of books and records pertaining to its performance of this Agreement and all
transactions related thereto including each and every Prospect developed by
Xxxxx and presented to the JVPs. Any representative authorized in writing by a
JVP may inspect and/or audit any and all such books and records at its sole cost
and expense.
SECTION 12.2. PROSPECT ACCESS AND INSPECTION RIGHTS. Each JVP electing
to exercise its option and participate and acquire a working interest in a
Prospect, at its own cost, risk and expense, shall be allowed full access to any
drilling well site and to witness any logging or testing operations conducted by
Xxxxx.
SECTION 12.3. ACCESS TO PROSPECT DATA - CONFIDENTIALITY.
(a) SEISMIC DATA.
(i) In the event Xxxxx purchases or obtains seismic data
other than under an exclusive licensing agreement in connection with Prospect
development, all JVPs shall be deemed to be licensees thereof and have full
rights of access and use of such data.
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(ii) In the event Xxxxx purchases or obtains seismic
data under an exclusive licensing agreement in connection with Prospect
development, then Xxxxx alone shall be the licensee, provided, however, all JVPs
shall have access to such data in accordance with any limitations imposed under
the license agreement under which Xxxxx is the licensee.
(b) GEOLOGICAL AND OTHER DATA. With respect to all geological, land,
engineering, drilling and testing data available to Xxxxx in connection with a
Prospect, all JVPs, at their own cost, risk and expense, shall be allowed full
access thereto during reasonable business hours.
(c) CONFIDENTIALITY. All Prospect geological, geophysical, engineering,
land, drilling, testing and other similar data and information is proprietary
and confidential, and all parties hereby agree that they will not disclose or
permit any disclosure of any such data or information to any person, firm or
entity not a party to this Agreement, without the prior written consent of all
parties to this Agreement.
ARTICLE XIII. AREA OF MUTUAL INTEREST
The parties hereto designate, as an Area of Mutual Interest, the lands
outlined or to be outlined on the plats or maps of each and every Prospect
developed and presented by Xxxxx to the JVPs and including a strip of land
one-half (1/2) mile in width located around the full perimeter of each Prospect,
and agree with respect to such Areas of Mutual Interest as follows:
SECTION 13.1. TERM. The terms and conditions of this Area of Mutual
Interest Agreement shall extend from the date of this Agreement until a period
of one (1) year following the expiration or other termination of the lease or
lease option covering any portion of the Prospect lands last to expire or be
terminated.
SECTION 13.2. RIGHTS TO ACQUIRE PROPORTIONATE INTEREST. During the
period this Area of Mutual Interest Agreement is in effect, should any party
hereto acquire or obtain the right to acquire any leasehold interest, payment
out of production, or working interest, covering any lands situated within any
Area of Mutual Interest, then such party shall notify all of the other parties
hereto of such acquisition, or the right to acquire same, giving all details
with respect thereto, including costs, terms and conditions thereof. Should the
parties mutually agree to acquire the same, then with respect to that portion of
the lands to be thus acquired situated within an Area of Mutual Interest, the
acquisition shall be consummated with the costs borne by the parties in
proportion to their respective working interests in the Prospect as described
elsewhere in this Agreement, and all rights to said lands within an Area of
Mutual Interest thus acquired shall be owned in like fashion.
SECTION 13.3. ADDITIONAL INTERESTS. Should any party decline to
participate in any of said acquisitions, or should said party fail to reply
within (15) days of notice of acquisition, then the other parties hereto shall
be free, at their sole risk, cost and expense, to acquire said interest for
their own account, free and clear of all the terms and conditions of this
Agreement, in proportion to their respective working interests in the Prospect
as described elsewhere in this Agreement.
SECTION 13.4. NO COMPETITION. In no event and under no circumstances
shall any party to this Agreement acquire any right, title or interest of any
kind within the Area of Mutual Interest in direct or indirect competition with
Xxxxx or any of the JVPs.
ARTICLE XIV. ADDITIONAL TERMS
SECTION 14.1 FORCE MAJEURE. If any party hereto is rendered unable,
wholly or in part, by force majeure or any other cause of any kind not
reasonably within its control, to perform or comply with any obligation or
condition of this Agreement (excepting the making of payment of money), upon
giving notice and reasonably full particulars to all of the other parties, such
obligation or condition shall be suspended during the continuance of the
inability so caused, and such party shall be relieved of liability and shall
suffer no prejudice for failure to perform the same during such period, and the
cause of suspension (other than strikes or walkouts)
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shall be remedied as far as possible with reasonable dispatch. Settlement of
strikes or walkouts shall be wholly within the discretion of the party having
the difficulty. The term "force majeure" as used herein shall include without
limitation, the following enumeration: acts of God, public enemy, the elements,
fire, flooding, accidents, breakdowns, blowouts, strikes and other industrial,
civil, or public disturbances, inability to obtain drilling rigs, pipe,
materials, supplies, permits, rights-of-way, or labor, or any other act or
omission by third parties, or other circumstances not reasonably within the
control of the party having the difficulty and any law, order, rules,
regulation, act or restraint of any government or governmental body of
authority, civil or military.
SECTION 14.2. ATTORNEY'S FEES AND COSTS. Any party with grievances
should first agree to arbitration before resorting to litigation. Should any
party to this Agreement bring suit or other legal proceedings, including
arbitration or mediation, to enforce any of the terms of this Agreement, it is
agreed that the losing party shall pay the prevailing party its costs and
reasonable attorney's fees.
SECTION 14.3. NOTICES. For all purposes of this Agreement, any party
may give notice to the other parties at the following addresses:
XXXXX OIL & GAS INC.
0000 Xxxxxxxxxx Xxxxxx, Xxxxx 000X
Xxxxxxxxxxx, Xxxxxxxxxx, 00000
Tel: (661) 328 - 7004
Fax: (661) 328 - 7045
TRIMARK RESOURCES INC.
#0000 - 0000 Xxxx Xxxxxxx Xxxxxx
Xxxxxxxxx, XX, X0X 0X0
Tel: (000) 000-0000
Fax: (000) 000-0000
If notice shall be given by facsimile, the notice shall be deemed
delivered upon the facsimile machine confirmation that the transmission was
properly sent and received, provided the party giving such notice shall also
have promptly mailed a copy of such notice and facsimile transmission
confirmation report to the other party at the address indicated above, by
placing such notice in the United States mail, first-class, with postage
prepaid. A party may change its address for the purposes of receiving notice
hereunder by giving notice of such change of address in the manner set forth in
this Section 14.3.
SECTION 14.4. RELATIONSHIP OF PARTIES. It is not the purpose or the
intention of the parties to this Agreement to create any oil and gas or mining
partnership, partnership, or joint venture; the rights, duties, obligations and
liabilities of the parties shall be several and not joint or collective. The
provisions of the Agreement shall apply exclusively to the lands subject hereto,
and not to any other property or interest of the parties.
SECTION 14.5. INDEMNIFICATION. Each party agrees to indemnify and
defend all other parties, and their affiliated and subsidiary companies and the
directors, officers, agents, servants and employees thereof, and to save and
hold them free and harmless from and against any and all claims for death,
damage or injury to persons including but not limited to, damages caused to
land, stock, crops, fences, buildings, structures and other improvements, from
and against any and all claims for death, damage or injury to persons including,
but not limited to, employees resulting from or arising out of the operations
conducted or caused or permitted to be conducted by any party on or in
connection with any of the lands subject to this Agreement.
SECTION 14.6. TITLES AND CAPTIONS. The titles and captions of the
Articles and Sections set forth in this Agreement are inserted for convenience
only and shall not be used in the interpretation or construction of any of the
terms or provisions of this Agreement.
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SECTION 14.7. SUCCESSORS AND ASSIGNS. The provisions hereof shall be
binding upon the parties hereto and shall extend to and bind their respective
heirs, legal representatives, successors and assigns.
SECTION 14.8. GOVERNING LAWS. This Agreement is entered into and is to
be performed in the State of California and in the event of any dispute or legal
action related hereto, the laws of California shall apply and any legal action
or other proceeding shall be brought in the courts of California.
SECTION 14.9 ENTIRE AGREEMENT. This Agreement embodies the entire
agreement between the parties hereto, and no oral or verbal representations made
by any party hereto, or its agents and employees may be considered in
interpreting this Agreement. Any modifications or amendments to this Agreement
must be in writing and signed by all the parties hereto.
IN WITNESS WHEREOF, the undersigned agree to the terms and provisions
hereof as evidenced by their execution hereinbelow effective this 26 day of
February, 2000.
XXXXX OIL & GAS INC. TRIMARK RESOURCES INC.
By: /s/ Xxx Xxxxxxx By: /s/ Xxx Xxxxxx
-------------------------------- ------------------------------
Xxx Xxxxxxx Xxx Xxxxxx
Its: President Its: Vice-President
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