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Exhibit 10
OPERATING AGREEMENT
THIS OPERATING AGREEMENT made and entered into effective November __,
1993, by and between XXXXXXX X XXXXX, individually and KLM EXPLORATION, INC.,
a Kansas corporation (collectively referred to as "KLM"), and G.S.&C., Inc., a
Nevada corporation ("GS&C").
PREMISES
A. WHEREAS, KLM has entered into a farmout agreement dated August 28,
1992 (the Xxxxxxxx Agreement"), with Xxxxxxxx Natural Gas Company ("Xxxxxxxx")
with respect tocertain properties located in the state of Kansas, commonly
referred to as the McLouth Storage Field, said properties fully described in
Exhibit "A" attached hereto and made apart hereof and hereinafter referred to
as the 'Location," which property excludes such property currently held by
production by KLM, and;
B. WHEREAS, KLM is currently negotiating with Xxxxxxxx to modify the
terms of the Xxxxxxxx Agreement with Xxxxxxxx to provide for drilling on a
well by well basis (the "Amendment"), and OS&C will be a ratifying party to
the Amendment; and
C. WHEREAS, KLM and GS&C have entered into an Agreement in Principal
dated September 22, 1993, wherein GS&C will cause to be performed drilling for
the purpose of producing oil from the Location.
AGREEMENT
NOW, THEREFORE, in consideration of the premises and the mutual covenants
and agreements of the parties hereto which are set forth herein KLM and GS&C
agree as follows:
1. Interests of the Parties in Oil and Gas. If any party owns an oil and
gas interest in the Location, the owner thereof shall be deemed to own both
the royalty interest and the interest of the lessee. In connection with the
drilling of xxxxx pursuant to this Agreement XXX agrees that on the spud-in
date for each well, KLM will convey or assign to GS&C all leases to be secured
by such drilling. KLM and GS&C agree that if any time during this Agreement,
KLM desires to sell any or all of its interest in the Location, or working
interest, GS&C shall have a 1st right of refusal to match any said offer
within thirty (30) days. In any event, GS&C shall reserve the right to 5,000
acres within the Location.
2. Interests of Parties in Costs of Production. Unless otherwise provided
in the Xxxxxxxx Agreement, the Amendment, and this Agreement, all costs and
liabilities incurred in operations under this Agreement shall be borne and
paid, and all equipment and materials acquired in operations of the Location
shall be owned, by the parties as their interests are set forth below:
Interest Holder Type of Interest Interest
--------------- ---------------- --------
Xxxxxxxx Natural Gas Company Overriding Royalty 1/16 of 8/8
Existing Lease Holder Overriding Royalty 1/8 of 8/8
Xxxxxxx Overriding Royalty 1/100 of 8/8
KLM Working, carried to the tanks 25%
GS&C Working 75%
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In the same manner, the parties shall also own production of oil from the
Location subject to the payment of royalties as set forth herein.
3. Excess Royalties, Overriding Royalties, and Other Payments. Unless
otherwise provided in the Xxxxxxxx Agreement the Amendment and this Agreement,
if the interest of any party in any lease covered hereby is subject to any
royalty, over-riding royalty, production payment or other burden on production
in excess of the amount stipulated in paragraph 2 above, such party so
burdened shall assume and alone bear all such excess obligations and shall
indemnify and hold the other parties hereto harmless from any and all claims
and demands for payment asserted by owners of such excess burden.
4. Subsequently Created Interests. If any party should after the date of
this Agreement create an overriding royalty, production payment or other
burden payable out of production attributable to its working interest
hereunder (any such interest being hereinafter referred to as "subsequently
created interest' and the party out of whose working interest the subsequently
created interest is derived being hereinafter referred to as the "burdened
party") and if the burdened party is required under this Agreement to assign
or relinquish to any other party, or parties, all or a portion of its working
interest and/or the production attributable thereto, said other party, or
parties, shall receive said assignment and/or production free and clear of
said subsequently created interest and the burdened party shall indemnify and
save said other parties harmless from any and all claims and demands for
payment asserted by owners of the subsequently created interest; and
5. Designation and Responsibility of Operation and Driller. KLM shall be
the Operator of the xxxxx drilled on the Location and shall conduct and direct
and have full control of all operations of the xxxxx drilled on the Location
as permitted and required by and within the limits of this Agreement, the
Xxxxxxxx Agreement, and the Amendment, and KLM shall conduct all such
operations in good and workmanlike manner, but it shall have no liability as
Operator to the other parties for losses sustained or liabilities incurred,
except as may result from gross negligence or willful misconduct.
6. Consideration to Operator. GS&C agrees to pay to KLM for supervising
the day-to-day operations of the xxxxx to be drilled on the Location, $1,000
per well over and above the invoice costs incurred from all contractors in
connection with the drilling and completion of each well. In addition, GS&C
will pay to KLM monthly, a fee of $100 for the first well completed and $75
for each additional well completed on the Location until such well is plugged
and abandoned.
7. Operating Bond and Permits. KLM agrees to be responsible for obtaining
all operating bonds and permits as may be specified in the Xxxxxxxx Agreement
and the Amendment, including obtaining all regulatory permits and licenses as
may be required to permit the drilling specified pursuant to this Agreement.
Further, KLM, will at its sole cost maintain insurance coverage in those
amounts set forth in the Xxxxxxxx Agreement and the Amendment.
8. Drilling and Development. GS&C shall prepare and submit a drilling
proposal to KLM, and on approval of the parties of the well locations, GS&C
shall commence drilling (8) xxxxx prior to December 31, 1993. GS&C shall cause
to be commenced drilling on the Location prior to Nov. 10, 1993.
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9. Other Drilling and Development. KLM shall give GS&C a first right of
refusal to perform all drilling on the Location, except drilling performed by
KLM, on property within the Location currently defined as property held by
production. Should KLM receive a proposal from a third parties to drill on
the location, KLM will provide GS&C with a copy of the third party's drilling
proposal and give GS&C up to 30 days to match such drilling proposal. If OS&C
fails to submit a drilling proposal to KLM within 30 days from receipt from
KLM of a copy of the third party's drilling proposal, GS&C will forfeit its
right to drill on the acreage in the Location covered by the proposal, unless
KLM does not proceed with the drilling proposal with the third party.
10. Access to Location and Information. KLM, GS&C, and Xxxxxxx shall have
access to the Location at all reasonable times to inspect or observe
operations, and shall have access at reasonable times to information
pertaining to the development or operation thereto. Operator, upon request,
shall furnish each of the other parties with copies of all forms or reports
filed with governmental agencies, day drilling reports, well logs, tank
tables, daily gauge and run tickets and reports of stock on hand at the first
of each month, and shall make available samples of any cores or cuttings taken
from any well drilled on the Location.
11. Abandonment of Xxxxx. Except as may be otherwise provided in the
Xxxxxxxx Agreement or the Amendment, any well drilled pursuant to this
Agreement that is proposed to be completed as a dry hole shall not be plugged
and abandoned without the consent of all parties. All such xxxxx shall be
plugged and abandoned in accordance with applicable regulations. GS&C shall
be responsible for complying with all plugging requirements, including
obtaining a plugging bond, as may be required by the state of Kansas or
Xxxxxxxx.
12. Liabilities and Expenditures. The liabilities of the parties shall be
several, not joint or collective. Each party shall be responsible only for
its obligations and shall be liable only for its proportionate share of the
costs of developing and operating the xxxxx on the Location. Except as
otherwise provided herein, GS&C shall promptly pay and discharge expenses
incurred in the development and operation of the xxxxx drilled on the
Location. GS&C shall be responsible for all out-of-pocket expenses incurred
by KLM in connection with operation of the xxxxx drilled on the Location,
including pre-approved extraordinary expenses. GS&C shall be responsible for
any additional costs borne by KLM of which GSC has had a material part and has
caused KLM expenses above normal operating costs. Such costs shall be
allocated in proportion to KLMs and GSC&C responsibilities. GS&C shall be
responsible for new lease acquisition costs covered under the Agreement
acreage. KLM shall be responsible for its proportionate share of all
operating expenses incurred after the tanks, which amount shall be withheld
from any payments due KLM under this Agreement as a result of their 25%
working interest through the tanks.
13. Purchaser and Payment of Production Income. GS&C will have sole right
to determine to whom it will sell and whom shall be entitled to purchase the
production from the xxxxx drilled on the location. Such purchaser shall be
provided with a division order stipulating the owners of interest in the
production and for calculation of royalties, including the designation of
which costs and taxes shall be deducted from the royalty xxxxxx.XXXX
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14. Indemnification Against Claims by Third Parties. KLM agrees to
indemnify GS&C against any claim by a third party for any commission,
brokerage, or finder's fee or other payment with respect to this Agreement or
the transactions contemplated hereby based on any alleged agreement or
understanding between such parties and such third party, whether express or
implied, from the actions of such parties.
15. Force Majeure. If any party is rendered unable, wholly or in part, by
force majeure to carry out its obligations under this Agreement, other than
the obligation to make money payments, that party shall give to all other
parties prompt written notice of the force majeure with reasonably full
particulars concerning it; thereupon, the obligations of the party giving
notice, so far as they are affected by the force majeure, shall be suspended
during, but no longer than, the continuance of the force majeure. The
affected party shall use all reasonable diligence to remove the force majeure
situation as quickly as practicable. 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, governmental action, governmental delay,
restraint or inaction, unavailability of equipment, and any other cause,
whether of the kind specifically enumerated above or otherwise, which is not
reasonably within the control of the party claiming suspension.
16. Term of the Agreement. This Agreement shall remain in full force and
effect to the leases and interest subject hereto so long as any of the leases
subject to this Agreement remain or are continued in force as to any part of
the Location, whether by production, extension, renewal or otherwise.
17. Laws, Regulations, and Orders. This Agreement shall be subject to the
conservation laws of the state in which the Location is located, to the valid
rules, regulations, and order of any duly constituted regulatory body of the
same state, and to all other applicable federal state, and local laws,
ordinances, rules, regulations, and orders.
18. Third-Party Consent. The parties recognize that the consent of
Xxxxxxxx is required in order to affect the covenants and terms of this
Agreement, which consent is indicated within the signatories set forth below.
19. Governing Law. This Agreement shall be governed by and construed
under and in accordance with the of the state of Kansas.
20. Execution in Counterparts. This Agreement may be executed in multiple
counterparts, each of which shall be deemed an original and an of which taken
together shall be but a single instrument.
21. Attorneys' Fees. If either party to this action defaults on any of the
provisions contained herein, the defaulting party agrees to pay all costs of
enforcing this Agreement, including attorneys' fees, costs, and expenses.
22. No Waiver. In the event that any party institutes any action or
permitted other action to enforce this Agreement or to secure relief from any
default hereunder or breach hereof the breaching party or parties shall
reimburse the non-breaching party or parties for all costs, including
reasonable attorneys' fees, incurred in connection therewith and in enforcing
or collecting any arbitration award or arbitration judgment rendered therein.
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IN WITNESS WHEREOF, the parties to this Agreement have executed the same
the day and year first above written.
G.S.C, INC.
By: /S/ T. Xxxx Xxxxxx
Its Duly Authorized Officer
KLM EXPLORATION, INC.
By: /S/ Xxxxxxx X. Xxxxx
President
By: /S/ Xxxxxxx X. Xxxxx
Individually
Xxxxxxxx Natural Gas Company, hereby acknowledges receipt of this
Agreement and hereby consents and agrees with said Agreement and the terms and
conditions above set forth this Nov. 17, 1993.
XXXXXXXX NATURAL GAS COMPANY
By: /S/ Xxx Xxxxxx
Its Vice President
