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EXHIBIT 10.9
SOUTH XXXXXXXXX RANCH (LOBO) ASSETS AGREEMENT
THIS AGREEMENT (the "Agreement") is made and entered into between
Mobil Exploration & Producing U.S. Inc. acting as Agent for Mobil Producing
Texas & New Mexico Inc. ("Mobil") and Xxxxxxx Petroleum Corporation
("Xxxxxxx"). In consideration of the mutual benefits and covenants contained
herein, the parties agree as follows:
The following Exhibits are attached hereto and shall be considered a
part of this Agreement:
Exhibit "A" -- Description of the XxXxxxx Lease,
the GBGL&C Lease, and the Oil and
Gas Interests.
Exhibit "B-1" -- Plat of South Xxxxxxxxx Ranch Lands.
Exhibits "B-2 - B-24" -- Plats of Program Xxxxx.
Exhibit "C-1" -- Term Assignment of Oil and Gas
Leases.
Exhibit "C-2" -- South Xxxxxxxxx Ranch Lease.
Exhibit "C-3" -- Excluded Xxxxx.
Exhibit "D" -- JOA.
Exhibit "E" -- Production Headers and Applicable
Xxxxx.
Exhibit "F" -- VPP Pipeline Delivery Points.
For additional consideration described and defined below, Mobil agrees
to (i) assign to Xxxxxxx a term leasehold interest in the "XxXxxxx Leases" and
the "GBGL&C Lease" as defined and described in attached Exhibit "A," and (ii)
grant all of Mobil's right, title and interest in, to and under or derived from
the lands described as "Oil and Gas Interests" in Exhibit "A" attached hereto.
This Agreement covers the lands depicted on the plat attached hereto as Exhibit
"B-1" (the "South Xxxxxxxxx Ranch Lands"), INSOFAR AND ONLY INSOFAR as the
South Xxxxxxxxx Ranch Lands cover the interval from the surface of the ground
down to 100 feet below the stratigraphic equivalent of the base of the Lobo 6
Sand, which is seen at a measured depth of 8,775 feet on the electric log run
in the South Xxxxxxxxx Ranch Well #164 (API 4247936793) located in the
Xxxxxxxxx Xxxxxxx Survey 1192, A-2293, Xxxx County, Texas. This grant shall be
pursuant to an oil and gas lease from Mobil to Xxxxxxx and substantially in the
form of the lease attached hereto as Exhibit "C-2" (the "South Xxxxxxxxx Ranch
Lease") and this assignment shall be pursuant to the Term Assignment form
attached hereto as Exhibit "C-1."
The South Xxxxxxxxx Ranch Lease shall have a primary term of seven (7)
years, shall be effective January 1, 1998, and shall cover only Mobil's
"undeveloped acreage" in the South Xxxxxxxxx Ranch Lands with an express
provision that no well drilled under such lease shall have
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a bottom-hole location closer than 1,200 feet from any existing producing well
thereon (except this distance shall be 1,250 feet for the "Program Xxxxx"
defined below) unless mutually agreed otherwise between the parties. For
purposes of this Agreement, undeveloped acreage shall include all of the South
Xxxxxxxxx Ranch Lands, SAVE AND EXCEPT the xxxxx listed on Exhibit "C-3"
attached hereto (the "Excluded Xxxxx") and the drilling units allocated to the
23 xxxxx (the "Program Xxxxx") drilled or proposed by Mobil under its 1997
Mobil Development Fund Program. Each such Program drilling unit contains 40
acres, and each is designated with its applicable Program Well on the plats
attached hereto as Exhibits "B-2" through "B-24."
If any currently producing well, including any Program Well, should
cease producing and become a plugging candidate under the JOA (described
below), then upon the parties' consent to plug such well, the 1,200 foot
restriction shall no longer apply to that well. Furthermore, if any proposed
Program Well is not actually drilled as of the date of this Agreement, then the
1,200 foot restriction shall not apply to that well. Xxxxxxx and Mobil further
agree not to seek an exception to the density provisions as provided in Rule 38
WELL DENSITIES of the Statewide Rules for Oil, Gas and Geothermal Operations of
the Railroad Commission of Texas and not to seek changes to current field rules
or seek new field rules, without prior written agreement between the parties.
Xxxxxxx and Mobil shall execute a new joint operating agreement
substantially in the form attached hereto as Exhibit "D" (the "JOA") covering
the South Xxxxxxxxx Ranch Lands to replace a portion of the Contract Area
covered by the current August 16, 1979 operating agreement. The JOA shall
reflect pertinent changes regarding the parties and address among other
matters, the interests of the parties, the XXXXX Accounting Procedure and the
gas balancing agreement. Upon closing, Mobil shall resign as operator (i)
effective May 1, 1998 with respect to the undeveloped acreage in the South
Xxxxxxxxx Ranch Lands, and (ii) as soon as reasonably possible with respect to
currently producing xxxxx located on the balance of the South Xxxxxxxxx Ranch
Lands. Upon such resignations, Xxxxxxx shall be appointed operator of the
South Xxxxxxxxx Ranch Lands. In order to insure an orderly change in operator
of the currently producing xxxxx, Xxxxxxx and Mobil anticipate a transition
period of up to, but not more than, one hundred twenty (120) days during which
Mobil will provide the agreed-upon transition services set forth in Exhibit "G"
of the JOA. Upon completion of the transition period, Xxxxxxx, as successor
operator, will be responsible for assuming all accounting, administrative and
regulatory services currently provided by Mobil. Xxxxxxx agrees that as
successor Operator under the JOA, it shall be subject to a currently existing
agreement with Maverick Engineering, Inc. regarding production operations,
production facilities, production engineering services and production
compression.
Xxxxxxx shall operate the South Xxxxxxxxx Ranch Lands as a reasonable
and prudent operator acting in a lawful, safe, efficient and cost effective
manner at all times. As Operator, Xxxxxxx agrees that it shall, for the
benefit of the joint account under the JOA, render and make timely payment of
all (i) royalties and other payments out of production under the terms of
leases comprising the Contract Area, and (ii) severance, production, and ad
valorem taxes assessed against the Contract Area in the JOA. Xxxxxxx shall
keep the South Xxxxxxxxx Ranch Lands free from all liens, encumbrances, claims
and causes of action except for (i) liens for taxes or assessments not yet due
or not yet delinquent, and (ii) unperfected existing inchoate claims which may,
by subsequent action
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of the claimants or operation of law, attach to the South Xxxxxxxxx Ranch
Lands. Xxxxxxx shall provide to Mobil its quarterly financial statements and
such other information as Mobil may reasonably request regarding Michael's
operating practices and business condition. Xxxxxxx shall employ or contract
with those engineering and field operations personnel who are capable and
experienced in the drilling, completing, reworking, producing and operating of
high pressure gas xxxxx. The JOA shall provide for the removal of Xxxxxxx as
Operator for good cause, which shall include gross negligence, willful
misconduct, the material breach of, or inability to meet, the standards of
operation, and the material failure or inability to perform its obligations
under the terms and provisions of the JOA. Such terms, provisions and
obligations under the JOA shall include, but are not limited to, the timely
delivery of the VPP and maintaining appropriate flowline pressures. The XXXXX
Accounting Procedure attached to the JOA as Exhibit "C" shall enable Xxxxxxx to
charge Mobil for its proportionate share of costs as set out therein.
In operating and producing the South Xxxxxxxxx Ranch Lands, Xxxxxxx
agrees to conduct operations in a manner such that pressures on existing
flowlines immediately upstream of the flowline block valves on the Production
Headers do not increase by more than 5% above the pressure at which they were
operating as of the Closing. If Xxxxxxx wishes to increase pressures on an
existing flowline by more than 5%, Xxxxxxx shall obtain written permission from
Mobil, prior to effecting an increase. No permission shall be required if the
pressure increase is a result of a successful wellwork project on the well
originally serviced by the flowline. "Production Headers" are those headers
referred to as Header A through Header RR on Drawing Nos. D-960089-0201-0000
through D-960089-0201-0015, depicted on Exhibit "E" attached hereto (legible,
large scale versions of which drawings were furnished to, and are in the
possession of, Xxxxxxx).
As additional consideration for the agreements contained herein,
Xxxxxxx shall guarantee the delivery of a volumetric production payment (the
"VPP") equal to 4.0 BCF of natural gas, free of all cost and expense (net of
royalty, production and severance taxes, post-production charges and the like),
delivered into one (1) or more of either (i) Katy Plant Tailgate pipelines
listed on attached Exhibit "F", (ii) Mobil LaGloria tailgate, or (iii) Agua
Dulce pipelines listed on attached Exhibit "F", in such volumes at each as
Xxxxxxx shall reasonably determine. Xxxxxxx shall timely notify Mobil (by
telephone, confirmed in writing or by electronic communication) of the volumes
Xxxxxxx will make available to Mobil at each of the three (3) points for each
month no later than three (3) working days prior to the last day of the
preceding month. Once Xxxxxxx has notified Mobil of the volumes available at
each of the three (3) points, Xxxxxxx shall not change the volume it makes
available at any of the three (3) points during that month without Mobil's
prior consent. Contemporaneously with the confirmation by Xxxxxxx of the
delivery point(s) for a particular month, Mobil or its agent or designee shall
have the right to nominate the specific Exhibit "F" pipeline(s) for actual
delivery purposes. Xxxxxxx will use its best efforts to honor Mobil's pipeline
nomination.
The VPP shall be delivered out of Michael's then-current Xxxx and
Xxxxxx Counties production base in a volume stream of an average of 16.35 MMCF
per day (491MMCF per month) beginning on May 1, 1998 and continuing until
December 31, 1998 until the entire 4.0 BCF VPP
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has been delivered to Mobil. The parties, recognize that, as a practical
matter, pipeline imbalances may cause the actual volumes to be delivered to
vary; such variance shall not constitute a default in the payment of the VPP.
The parties agree to use their best efforts to remedy any such variances in
delivered volumes by the end of the month following the month during which the
variance in delivery actually occurred. Failure by Xxxxxxx to deliver the VPP
shall result in the ipso facto termination of the South Xxxxxxxxx Ranch Lease;
provided, however and in that event, Xxxxxxx shall be entitled to own only 40
acres around each then producing or currently drilling well located on the
South Xxxxxxxxx Ranch Lands as governed by the South Xxxxxxxxx Ranch Lease.
Failure by Xxxxxxx to timely deliver the VPP over the course of such period
shall result automatically in (i) Mobil becoming the operator of the xxxxx
existing as of the date of this agreement and (ii) the termination of the JOA
as to all of the Contract Area not otherwise retained by Xxxxxxx. Xxxxxxx and
Mobil agree that the VPP is excluded from any and all South Xxxxxxxxx Ranch
Lease gas balancing calculations and agreements.
With respect to the VPP, Michael's delivery of such gas shall be
subject to the following quality specs:
All gas delivered by Xxxxxxx shall meet the quality and heat content
of the receiving transporter. The unit of quality measurement for
purposes of this agreement shall be one MMBtu dry. Measurement of gas
quantities hereunder shall be in accordance with the established
procedures of the receiving transporter.
Closing of the transactions contemplated hereby shall occur on or
before April 23, 1998, at such time and place as Mobil and Xxxxxxx shall
mutually agree.
In addition to the above specific matters, the parties do generally
agree as follows:
1. The parties do not intend to create, nor shall this Agreement
be construed to create, a partnership, mining partnership, joint venture, or
other relationship of mutual agency between the parties, their relation with
respect to this Agreement and all rights, interests, and obligations hereunder
being solely one of lessor and lessee. Nothing herein shall be construed as
authorization of one party hereto to act as general agent for the other party
nor to permit either party to act for or on behalf of the other party outside
the terms of the Agreement.
2. Xxxxxxx xxx not transfer or assign its operational duties and
responsibilities hereunder without first obtaining the written consent of
Mobil, which consent shall not be unreasonably withheld. Except as otherwise
expressly provided in this Agreement, Mobil's rights under this Agreement shall
be freely assignable. Notwithstanding anything herein to the contrary, no
assignment by either party shall operate to relieve the transferring party from
direct responsibility and liability to the other party hereto for the
performance of all of the transferring party's obligations hereunder.
3. Time is of the essence in each and every provision of this
Agreement.
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4. This Agreement is solely for the benefit of the parties hereto
and their respective successors and assigns. There are no intended third-party
beneficiaries of this Agreement.
5. The parties hereto agree to execute, acknowledge, and deliver,
as appropriate, such other and further instruments, documents, and assurances
as the other of them may reasonably require to effectuate the purpose and
intent of this Agreement.
6. Any failure by Xxxxxxx, on the one hand, or Mobil, on the
other hand, to comply with any obligation, covenant, agreement or condition
contained herein may be expressly waived in writing by the other party;
provided, however, any such waiver or failure to insist upon strict compliance
shall not operate as a waiver of, or estoppel with respect to, any subsequent
or other failure.
7. All notices, requests, demands, and other communications
required or permitted hereunder shall be in writing and shall be deemed to have
been duly given if delivered by hand (including, without limitation, by
overnight courier), transmitted by facsimile, or mailed, certified or
registered mail (return receipt requested) with postage prepaid to the
applicable party as follows:
(a) If to Xxxxxxx:
Xxxxxxx Petroleum Corporation
00000 Xxxxxxxxx Xxxxxxx, Xxxxx 000
Xxxxxxx, Xxxxx 00000
Fax: (000) 000-0000
Attention: Land Manager
(b) If to Mobil:
Mobil Exploration & Producing U.S. Inc.
00000 Xxxxxxxxxxx Xxxxx
Xxxxxxx, Xxxxx 00000-0000
Fax: (000) 000-0000
Attention: South Texas Producing Manager
with a copy to: Mobil Exploration & Producing U.S. Inc.
00000 Xxxxxxxxxxx Xxxxx
Xxxxxxx, Xxxxx 00000-0000
Fax: (000) 000-0000
Attention: Xxxxxx X. Xxxxxxx
or to such other persons or entities or addresses as the applicable party shall
furnish to the other parties in writing in accordance with this section.
Delivery of notices shall be effective only upon actual receipt by the intended
recipient (or in the case of facsimile transmission, the completion of such
transmission during the recipient's normal business hours).
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8. This Agreement and all of the provisions hereof shall be
binding upon and inure to the benefit of the parties hereto and their
respective successors and assigns.
9. This Agreement, and the legal relations among the parties
hereto arising from this Agreement, shall be governed by and construed in
accordance with the laws of the State of Texas.
10. This Agreement (including the Exhibits hereto and the other
instruments referred to herein) embodies the entire agreement and understanding
of the parties hereto in respect of the subject matter contained herein; there
are no restrictions, promises, warranties, covenants or undertakings, other
than those expressly set forth or referred to herein; and this Agreement
supersedes all prior agreements and understandings among the parties with
respect to such subject matter.
11. Neither this Agreement nor any other agreement between the
parties nor any uncertainty or ambiguity herein or therein shall be construed
or resolved using any presumption against any party hereto or thereto, whether
under any rule of construction or otherwise. On the contrary, this Agreement
and the other agreements between the parties have been reviewed by the parties
and their counsel and, in the case of any ambiguity or uncertainty, shall be
construed according to the ordinary meaning of the words used so as to fairly
accomplish the purposes and intentions of all parties hereto.
12. Any headings contained in this Agreement are inserted for
convenience only and shall not affect in any way the meaning or interpretation
of this Agreement.
13. This Agreement may be executed simultaneously in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
14. In the event of any conflict between this Agreement and any
instrument or document executed pursuant hereto, the terms of this Agreement
shall in all respects govern and control.
15. The parties shall make no press release or other public
announcement or public disclosure relating to this Agreement or the subject
matter of this Agreement, except as necessary to meet legal or regulatory
requirements, or as mutually approved.
16. Any controversy or claim arising out of or relating to this
Agreement, or the breach thereof, shall be settled by arbitration in accordance
with the Commercial Arbitration Rules of the American Arbitration Association
("AAA") by three (3) arbitrators. Each party shall appoint one arbitrator who
shall be an impartial and independent person. If a party fails to appoint an
arbitrator within thirty (30) days from the date a Demand to Arbitrate was made
under Rule 6, the AAA shall make the appointment of the arbitrator. The two
(2) arbitrators thus appointed shall appoint the third arbitrator who shall be
an impartial and independent person. If said two (2) arbitrators fail to
appoint the third arbitrator within sixty (60) days from the date a Demand to
Arbitrate was made under Rule 6, the AAA shall make the appointment of the
third arbitrator. Should any of the
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arbitrators appointed die, resign, refuse or become unable to act before a
decision is given, the vacancy shall be filled by the method set forth in this
clause for the original appointment. The arbitration shall be held in Houston,
Texas. Judgment upon the award rendered by the arbitrators may be entered in
any court having jurisdiction thereof.
Executed this 20th day of April, 1998
Xxxxxxx Petroleum Corporation
By: /s/ XXXXXXX X. XXXXXX
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Xxxxxxx X. Xxxxxx
President
Mobil Exploration & Producing U.S. Inc.,
as Agent for Mobil Producing Texas &
New Mexico Inc.
By: /s/ X.X. XXXXXXXXXX
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X. X. Xxxxxxxxxx
Attorney-in-Fact
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