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EXHIBIT 10.16
TURNKEY DRILLING CONTRACT
THIS AGREEMENT, is made and entered into as of 13th day of April, 1999 by and
between the parties herein designated as "Partnership" and "Contractor."
Partnership: Cumberland Gap 10 Limited Partnership, Ltd.
Address: 000 Xxxxx Xxxxxx, Xxxxx 000
Xxxxxxx Xxxxx, Xxxxxxxx 00000
Contractor: Blue Ridge Energy, Inc.
Address: 000 Xxxxx Xxxxxx, Xxxxx 000
Xxxxxxx Xxxxx, Xxxxxxxx 00000
IN CONSIDERATION of the mutual promises, conditions and agreements herein
contained, Partnership engages Contractor as an Independent Contractor to
furnish the equipment, labor and services to drill, test, and complete its
portion of ten Partnership Xxxxx to be located in Xxxxxx County, Kentucky,
(referred to herein as "Partnership Xxxxx") in search of oil and/or gas.
The Partnership will make the specified payments to Contractor in order (i) to
obtain a price from Contractor for the drilling and completion of the
Partnership Xxxxx to a specified depth, (ii) to assure that Contractor will be
available to drill, test and complete the subject Partnership Xxxxx for the
Partnership, (iii) to assure that Contractor will make available on a
preferential basis sufficient drilling and completion apparatus needed to drill,
test and complete the Partnership Xxxxx at the earliest possible time, (iv) to
obtain a preferential use of Contractor's services, and (v) to assure competent
supervisory personnel are available in the drilling and completion of the ten
Partnership Xxxxx.
Contractor agrees to furnish all equipment, labor and services necessary for the
drilling to the depth indicated herein and the completion of such Partnership
Xxxxx. Contractor agrees that the work to be conducted under the terms of this
Agreement will be done with diligence and care in a good and workmanlike manner
and agrees to provide competent supervision of the work performed hereunder.
Unless specifically otherwise provided for herein, all the required equipment,
services and labor are furnished for the price set forth herein.
1. LOCATION OF PARTNERSHIP XXXXX:
See Exhibit "1" attached hereto and made a part hereof.
2. TERMINATION DATE:
Contractor agrees to use its best efforts to complete operations for the
acquisition, drilling and testing of the ten Partnership Xxxxx by March 31,
2000, and Contractor and the Partnership agree that time is of the essence under
this Agreement.
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3. BASIS OF DETERMINING AMOUNTS PAYABLE TO CONTRACTOR:
Contractor shall be paid at the following rate for the work performed hereunder:
"Drilling, Completing, and Equipping Price": $1,411,200
4. DEPTH:
Subject to the right of the Partnership to direct the stoppage of work at any
time (as provided in paragraph 7), the Partnership Xxxxx shall be drilled to the
depth as specified in Exhibit "1" or to the depth at which the production casing
(oil string) is set, whichever depth is first reached, which depth is
hereinafter referred to as the "Contract Depth."
5. TIME OF PAYMENT:
5.1 Basis: Payment by the Partnership to the Contractor of the Drilling
Price becomes due and payable upon the receipt by the Partnership of an
invoice from the Contractor. Neither commencement nor completion of
Contractor's performance shall be a condition precedent to this obligation
to pay.
5.2 Attorneys' Fees: If this Agreement is placed in the hands of an
attorney for collection of any sums due hereunder, or suit is brought on
same, or sums due hereunder are collected through bankruptcy or probate
proceedings, then the Partnership agrees that there shall be added to
the amount due reasonable attorneys' fees and costs.
6. COMPLETION PROGRAM:
The Partnership shall determine whether Contractor shall set an oil string. In
the event the Partnership directs that drilling operations cease and to abandon
the five Partnership Xxxxx, Contractor shall plug the Partnership Xxxxx, remove
all drilling apparatus from the well sites and the obligations of the parties
hereunder shall cease. In the event the Partnership directs Contractor to set an
oil string and makes timely payment to the Contractor of the completion price,
Contractor shall commence the operations necessary to complete the Partnership
Xxxxx for commercial production, including the setting of an oil string and the
acquisition, delivery and installation of a pump xxxx, holding tank and all
other necessary equipment needed to extract and contain oil and/or gas from the
Partnership Xxxxx. If Contractor should enter into an assignment with another
entity to undertake the Completion Program, Contractor may xxxx the Partnership,
and the Partnership will pay for any completion costs over and above the
Completion Price set forth herein.
7. STOPPAGE OF WORK BY THE PARTNERSHIP:
Notwithstanding the provisions of paragraph 3 with respect to the depth to be
drilled, the Partnership shall have the right to direct the stoppage of the work
to be performed by the Contractor hereunder at any time prior to reaching the
Contract Depth and even though Contractor has made no default hereunder. If the
Partnership exercises its right to discontinue drilling a well, the Partnership
will not receive a refund for any unused portion of the Drilling Price allocable
to the discontinued well but the Partnership may direct Contractor to apply the
unused portion of the Drilling Price to the intangible cost of another well that
the Partnership shall specify. The unused portion of the Drilling Price will be
determined as follows:
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Contractor shall determine a sum equal to all the actual expenses reasonably and
necessarily incurred up to the date the Partnership notified Contractor to
discontinue drilling plus such additional expenses reasonably and necessarily
incurred in order for Contractor to cease operations, including plugging and
abandoning the hole, and dismantling the rig plus the sum of 15% of such total
actual expenses. This sum shall be deducted from the Drilling Price of the
Partnership Xxxxx. The resulting difference shall be the unused portion of the
price.
8. REPORTS TO BE FURNISHED BY CONTRACTOR:
8.1 Contractor shall keep and furnish to the Partnership an accurate
record of the work performed and formations drilled on the IADC-API Daily
Drilling Report form or other form acceptable to the Partnership. A
legible copy of said form signed by Contractor's representative shall be
furnished by Contractor to the Partnership.
8.2 Delivery tickets, if requested by the Partnership, covering any
material or supplies furnished by the Partnership shall be turned in
each day with the daily drilling report. The quantity, description and
condition of materials and supplies so furnished shall be checked by
Contractor and such tickets shall be properly certified by Contractor.
9. RESPONSIBILITY FOR A SOUND LOCATION:
Contractor shall prepare a sound location, adequate in size and capable of
properly supporting the drilling rig. Contractor shall be responsible for a
conductor pipe program adequate to prevent soil and subsoil washout. In the
event subsurface conditions cause a cratering or shifting of the location
surface, and loss or damage to the rig or its associated equipment results
therefrom, the Partnership shall not be responsible for reimbursing Contractor
for any such loss or damage including payment of work stoppage rate during
repair and/or demobilization if applicable.
10. RESPONSIBILITY FOR ROAD AND LOCATIONS:
Contractor agrees at all times to maintain roads to locations and each location
in such a condition that will allow free access and movement to and from the
drilling site in an ordinarily equipped highway type vehicle.
11. PAYMENT OF CLAIMS:
Contractor agrees to pay all claims for labor, material, services and supplies
to be furnished by Contractor hereunder, and agrees to allow no lien or charge
to be fixed upon the lease, the Partnership Xxxxx or other property of the
Partnership or the land upon which said Partnership Xxxxx are located.
12. RESPONSIBILITY FOR LOSS OR DAMAGE:
12.1 Contractor's Surface Equipment: Contractor shall assume liability at
all times for damage to or destruction of Contractor's surface equipment,
including but not limited to all drilling tools, machinery and appliances,
for use above the surface, regardless of when or how such damage or
destruction occurs.
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12.2 Contractor's In-Hole Equipment Basis: Contractor shall assume
liability at all times for damage to or destruction of Contractor's
in-hole equipment, including but not limited to drill pipe, drill collars
and tool joints, and the Partnership shall be under no liability to
reimburse Contractor for any such loss.
12.3 Partnership's Equipment: The Partnership shall assume liability at
all times for any defective equipment owned by it, including but not
limited to casing, tubing, well head equipment, and Contractor shall be
under no liability to reimburse the Partnership for any such loss or
damage.
12.4 Fire or Blow-Out: Should a fire or blowout occur or should the hole
for any cause attributable to Contractor's operators be lost or damaged
while Contractor is engaged in the performance of work hereunder, all such
loss of or damage to the hole including cost of regaining control of a
fire or blowout, shall be borne by Contractor; and if the hole is not in
condition to be carried to the Contract Depth as herein provided,
Contractor shall, if requested by the Partnership, commence a new hole
without delay at Contractor's cost; and the drilling of the new hole shall
be conducted under the terms and conditions of this Agreement in the same
manner as though it were the first hole and Contractor shall be
responsible for replacement of any casing lost in a junked and abandoned
hole as well as the cost of preparing a new drill site for the new hole
and the road thereto. In such case, Contractor shall not be entitled to
any payment or compensation for expenditures made or incurred by
Contractor on or in connection with the abandoned hole.
13. NO WAIVER EXCEPT IN WRITING:
It is fully understood and agreed that none of the requirements of this
Agreement shall be considered as waived by either party unless the same is done
in writing, and then only by the persons executing this Agreement, or other duly
authorized agent or representative of the party.
14. FORCE MAJEURE:
If either party hereto is rendered unable, wholly or in part (and its
performance hereunder is not rendered merely commercially impracticable) by
force majeure to carry out its obligation under this Agreement, it shall give
the other party prompt written notice of the force majeure with reasonably full
particulars. Thereupon, the obligations of the notifying party, so far as they
are affected by the force majeure, shall be suspended during, but not longer
than, the continuance of the force majeure, and the notifying party agrees to
use reasonable diligence to remove the force majeure as quickly as possible.
This paragraph shall not relieve either party hereto for its obligations to
expend sums of money or to indemnify the other party hereto, as provided
elsewhere in this Agreement. The term "force majeure" as herein employed shall
mean an act of God, strike, lockout or other industrial disturbance, act of the
public enemy, war, blockade, public riot, lightning, fire, storm, flood,
explosion, extreme weather conditions, or governmental restraint.
15. INFORMATION CONFIDENTIAL:
Upon written request by the Partnership, information obtained by Contractor in
the conduct of drilling operation on the Partnership Xxxxx, including, but not
limited to depth, formations penetrated, the results of coring, testing and
surveying, shall be considered confidential and shall not be divulged by
Contractor or its employees, to any person, firm or any corporation other than
the Joint Venture's designated representative.
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16. ASSIGNMENT:
Neither party may assign this Agreement without the prior written consent of the
other, and prompt notice of any such intent to assign shall be given to the
other party. If any assignment is made that materially alters Contractor's
financial burden, Contractor's compensation shall be adjusted to give effect to
any increase or decrease in Contractor's operating costs.
17. NOTICES AND PLACE OF PAYMENT:
All notices to be given with respect to this Agreement unless otherwise provided
for shall be given to Contractor and to the Partnership respectively at the
addresses hereinabove shown. All sums payable hereunder to Contractor shall be
payable at the address hereinabove shown unless otherwise specified herein.
BLUE RIDGE ENERGY, INC.
By: /s/ XXXXXX X. XXXX
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Xxxxxx X. Xxxx, President
CUMBERLAND GAP 10 LIMITED PARTNERSHIP, LTD.
A KENTUCKY LIMITED PARTNERSHIP
By: Blue Ridge Energy, Inc.
Managing General Partner
By: /s/ XXXXXX X. XXXX
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Xxxxxx X. Xxxx, President
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EXHIBIT "1" TO EXHIBIT "D"
APRIL 13, 1999
The primary investment objectives of the Partnership are: (1) the acquisition of
approximately a 30.00% Working Interest, which is approximately 23.00% of the
Net Revenue Interest in ten well sites to be drilled on the Cumberland Gap 10
Prospect and the production and sale of oil/gas therefrom. The Cumberland Gap 10
Prospect consists of approximately 6,500 acres of oil and gas leases in Xxxxxx
County, Kentucky and the xxxxx to be drilled thereon (the "Kentucky Partnership
Xxxxx"). The Kentucky Partnership Xxxxx will be drilled to depths of
approximately 6,000' or depths sufficient to test the Corniferous Sand formation
and (2) the assignment of income from a 25% Working Interest which is an 18.75%
Net Revenue Interest in the Xxxxxx Xxxxxxxx #44-1 Well ("Texas Well") to be
drilled on the 960 acre Rocksprings Prospect in Xxxxxxx County. The Texas Well
will be drilled to a depth of 7,000 feet or a depth sufficient to test the
Holman Sands. There will be no cost to the Partnership for the assignment of
income from the Xxxxxx Xxxxxxxx #44-1 well and the assignment of income is
limited to when twice the partners' original capital contributions, or
$3,600,000, is received by the Partners from the production of all Partnership
xxxxx.
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