January 16, 1998
Xx. Xxxxxxx Xxxxx, Xx., President
Xxxxx Oil and Gas Company
000 Xxxxxxx Xxxxx, Xxxxx 000
P.O. Box 60219
Grand Junction, CO 81506-8758
Re: Letter Agreement
3D Seismic Survey Participation and
Amendment of Agreement dated February 4, 1997
Dear Xx. Xxxxx:
Pursuant to our discussions, this Letter Agreement shall act to express
the mutual understanding and agreement by and between National Energy Group,
Inc. ("NEG") and Xxxxx Oil and Gas Company ("Xxxxx") with respect to
participation in that certain 3D seismic survey currently being conducted by NEG
over an approximate 54 square mile area located in Iberville Parish, Louisiana
(the "3D Survey") as more particularly described on Exhibit "A", attached hereto
and incorporated herein, and subject to the terms and conditions hereof.
WHEREAS, NEG and Xxxxx are parties to that certain Letter Agreement
dated February 4, 1997 pertaining to Xxxxx'x participation in certain Prospects
of NEG (the "February 4, 1997 Agreement") incorporated by reference herein; and
WHEREAS, NEG is a party to that certain agreement dated July 22, 1997
by and between NEG and Xxxxxxxx and Company 3D Program I, L.L.C. ("Xxxxxxxx")
pertaining to the 3D Survey and certain obligations to Xxxxxxxx in connection
therewith (the "Xxxxxxxx Agreement"), incorporated by reference herein as
Exhibit "A-1"; and
WHEREAS, NEG and Acadian Geophysical Services, Inc. are parties to that
certain Geophysical Services Agreement dated October 10, 1997 providing for
various services and a 3D seismic data survey within the 3D Survey Area (the
"Geophysical Services Agreement"), incorporated by reference herein as Exhibit
"A-2"; and
WHEREAS, NEG and Xxxxx desire to amend certain aspects of the February
4, 1997 Agreement as more particularly described below, provide for Xxxxx'x
participation in the 3D Survey and create an area of mutual interest within the
area encompassed by the 3D Survey (the "3D Survey Area").
NOW THEREFORE, in consideration of the mutual covenants and agreements
herein contained and good and valuable consideration, the sufficiency of which
is hereby acknowledged, the parties agree as follows:
1. Participation. NEG and Xxxxx agree that Xxxxx shall (i) have the right and
the obligation to participate in the 3D Survey with NEG as the Operator,
(ii) increase its participation and obligation from 1/8th interest to
3/16ths interest with respect to the NW Bayou Sorrel and Xxxxx Bayou
Prospects described in the February 4, 1997 Agreement, and (iii) purchase a
14.0625% interest in any leases acquired from Panaco, Inc. by agreement
dated November 11, 1996 (the "Panaco Acquisition") only as to depths below
the L4 Sand, the base of which is defined as occurring at a measured log
depth of 11.340 feet in the NEG Xxxxxxx #1 well located in 2-T10S-R11E,
Iberville Parish, Louisiana (the "L4 Sand"); provided Xxxxx:
1.1 shall, upon execution and delivery of this Letter Agreement,
pay an amount equal to $1,228,510.00, as more particularly
described on Schedule 1 hereto;
1.2 shall pay, within fifteen (15) days of receipt of an invoice
from NEG, 14.0625% of all costs relating to the 3D Survey
incurred by NEG after December 31, 1997;
1.3 shall ratify and agree to be bound by the terms and conditions
of the Xxxxxxxx Agreement and accept liabilities for its
14.0625% proportionate share thereof;
1.4 shall ratify and agree to be bound by all permits, leases
and/or other agreements now existing or hereafter acquired by
NEG relating to the 3D Survey and accept liability for its
14.0625% proportionate share thereof;
1.5 shall ratify and agree to be bound by the terms and conditions
of the Geophysical Services Agreement and accept liabilities
for its 14.0625% proportionate share thereof;
1.6 shall ratify and agree to be bound by the terms and conditions
of any agreement and/or amendments to the existing Agreement
between NEG and Xxxxxxxx Oil & Gas Inc. ("SOG") dated January
1, 1996 (the "SOG Agreement") and the Consulting Agreement
between SOG and Xxxxxxx Oil & Gas Inc. and Atocha Exploration,
Inc. dated January 1, 1996, each of which are incorporated by
reference herein, which may relate to the 3D Survey and/or the
3D Survey Area; provided that NEG shall bear the burden of the
SOG Deferred Leasehold Interest described in Paragraph 17 of
the SOG Agreement;
1.7 shall enter into a Joint Operating Agreement ("JOA") on all
leases owned and Prospects developed within the 3D Survey
Area, it being understood and agreed that such JOA shall be in
the form of JOA attached hereto as Exhibit "B"; and
1.8 shall agree to amend the February 4, 1997 Agreement in
accordance with the terms and conditions hereof.
2. Interest. Subject to the conditions described in Paragraph 1 above,
Xxxxx shall earn and become entitled to receive from NEG an interest in
any Prospect developed within the 3D Survey Area on a promoted basis as
follows:
2.1 The February 4, 1997 Agreement shall be, and hereby is amended
to provide that Xxxxx'x interest in the NW Bayou Sorrel
Prospect, Xxxxx Bayou Prospect, and any other Prospect
developed within the 3D Survey Area (save and except (i) that
portion of the Louisiana State Lease #2102 which is or may be
located in the producing units of the Xxxxxxx #1, Xxxxxxx #2
and Xxxxxxx #3 xxxxx in Iberville Parish, Louisiana, (ii) any
existing units or xxxxx drilled within the 3D Survey Area
acquired from Panaco, Inc. pursuant to the Panaco Acquisition
and all rights above the L4 Sand in such existing units, and
(iii) any Prospect within the existing East Bayou Sorrel Area
of Mutual Interest, other than those Prospects at depths below
the L4 Sand included in the Panaco Acquisition and fall within
such East Bayou Sorrel Area of Mutual Interest) shall be
increased to include a participation interest equal to
14.0625% for such Prospects; provided that Xxxxx shall be
obligated to pay to NEG 18.75% of costs to casing point for
the initial well in each Prospect, 18.75% of the Prospect fee
for each Prospect and 18.75% of all land costs incurred prior
to December 31, 1997. All land costs for each such Prospect
incurred after December 31, 1997 and not otherwise provided
for herein or in the February 4, 1997 Agreement shall be
billed to Xxxxx at its participation interest percentage of
14.0625%, and NEG and Xxxxx agree that Xxxxx shall forfeit all
right to participate in any lease acquired within the 3D
Survey Area after December 31, 1997 for which it has not made
full payment to NEG within fifteen (15) business days of
receipt of an invoice from NEG pertaining to such lease
acquisition costs; provided, however, that Xxxxx shall not be
subject to such forfeiture unless Xxxxx shall have received
from NEG within 48 hours of such forfeiture a "final notice"
that NEG is not in receipt of payment of such land costs. NEG
agrees that it shall assign to Xxxxx its full interest in
leases already acquired and shall furnish copies of all 3D
Survey Area lease acquisitions and any lease purchase reports
described herein on or before April 1, 1998; and
2.2 Xxxxx shall acquire 14.0625% of NEG's ownership interest in
and Xxxxx shall be given copies of any data collected,
processed and delivered to NEG relating to the 3D Survey (the
"Data") pursuant to the Geophysical Services Agreement within
seven (7) days of receipt of such Data by NEG; provided that
Xxxxx shall be prohibited from selling, licensing or in any
manner disseminating the Data to any third parties which are
not a party to this Letter Agreement for a period of five (5)
years from the date of execution hereof without the express
written consent of NEG; provided further, in the event either
party hereto shall sell or license any of the Data to any such
third party, the other party hereto shall be entitled to its
proportionate share of any proceeds derived therefrom. NEG
shall use its best efforts to maintain the Data in a
reasonably prudent manner.
3. Acknowledgement. Each of NEG and Xxxxx hereby acknowledges and
agree that (i) the February 4, 1997 Agreement shall be, and hereby is
amended with, and only with, respect to the subject matter hereof
pertaining to Xxxxx'x participation in the 3D Survey and any Prospects
generated therefrom described in Paragraph 2 hereof, (ii) nothing
contained herein shall act or be construed to increase the
participation interest of Xxxxx in any Prospect described in the
February 4, 1997 Agreement (other than as provided in Paragraph 2
hereof) without the express written agreement of the parties hereto,
and (iii) all other provisions of the February 4, 1997 Agreement shall
remain in full force and effect in accordance with its terms.
4. Term. The term of this Letter Agreement shall be for a period of
five (5) years from the date of execution hereof.
5. CHOICE OF LAW. THIS LETTER AGREEMENT, THE LEGAL RELATIONSHIP OF THE
PARTIES AND ALL RIGHTS AND OBLIGATIONS HEREUNDER SHALL BE GOVERNED BY
AND INTERPRETED, CONSTRUED, APPLIED AND ENFORCED IN ACCORDANCE WITH THE
LAWS OF THE STATE OF TEXAS, WITHOUT REFERENCE TO THE LAWS OF ANY OTHER
JURISDICTION.
6. Mediation/Arbitration. In the event of a dispute between the
parties to this Letter Agreement, the parties agree not to seek any
relief nor file any action in a court of law or equity, but shall
participate in good faith negotiations in mediation in Dallas, Texas
with a mediator experienced in oil and gas transactions certified by
the American Arbitration Association or comparable organization, the
costs of such mediator to be borne equally by each of the parties. In
the event a resolution is not agreed, the parties further agree to
participate in binding arbitration in Dallas, Texas with arbitrator(s)
experienced in oil and gas transactions pursuant to the rules of the
American Arbitration Association or similar organization, the costs of
which may be awarded to the prevailing party together with a binding
and nonappealable judgment on the award which may be entered in any
court having competent jurisdiction.
7. Notices. Any notice required hereunder shall be in writing; delivered
to or sent by U.S. Mail, postage pre-paid, or nationally recognized
commercial carrier service, postage or delivery charges pre-paid, or by
telecopy with a copy delivered to the U.S. Mail, postage pre-paid,
addressed as follows (or such other address as may be specified by five
(5) days prior written notice to the other party hereto):
NEG: XXXXX:
National Energy Group, Inc. Xxxxx Oil and Gas Company
0000 Xxxxxxxxxx Xxxxxx 000 Xxxxxxx Xxxxx, Xxxxx 000
Xxxxx 0000 P.O. Box 60219
Dallas, Texas 75206-4095 Grand Junction, Colorado 81506
Attn: Xx. Xxxxxxx X. Xxxxx Attn: Xx. Xxxxxxx Xxxxx, Xx.
Sr Vice President-Operations President
Phone: (000) 000-0000 Phone: (000) 000-0000
Fax: (000) 000-0000 Fax: (000) 000-0000
8. Assignment. This Letter Agreement shall inure to the benefit of and be
binding upon NEG and Xxxxx and their respective successors and assigns.
9. Completeness. This Letter Agreement supersedes all prior written or
oral agreements and understandings between the parties and constitutes
the complete agreement between the parties with respect to the subject
matter hereof. This Letter Agreement cannot be modified or amended
except by written instrument duly executed by NEG and Xxxxx.
If the foregoing expresses our mutual understanding and agreement,
please so indicate by executing in the appropriate space below and returning one
(1) fully executed copy to the undersigned.
Sincerely,
Xxxxxxx X. Xxxxx
Senior Vice President - Operations
PDD:mjg
ACCEPTED AND AGREED this
______ day of January, 1998.
Xxxxx Oil and Gas Company
---------------------------------
By: Xxxxxxx X. Xxxxx, Xx.
Title: President and CEO
C:\MJG\LETTERS\WillardPease,Jr.-011698
