PARTICIPATION AGREEMENT
BY AND BETWEEN
XXXXX MANAGEMENT COMPANY, INC.,
FAIRFIELD INDUSTRIES, INCORPORATED,
PETRO-GUARD COMPANY, INC.,
CAEX SERVICES, INC.,
XXXXXX OIL COMPANY
AND
FORTUNE NATURAL RESOURCES CORPORATION
FEBRUARY 25, 1997
TABLE OF CONTENTS
ARTICLE 1. DEFINITIONS ................................................... 1
ARTICLE 2. IDENTIFICATION OF PROSPECTS AND
PURCHASE TERMS ................................................ 3
2.1 Prospect Identification ..................................... 2
2.2 Phase I: Pre-Shoot Phase ................................... 3
2.3 Phase II: Conduct of 3-D Survey ............................ 3
2.4 Phase III: Lease Acquisition ............................... 6
2.5 Grass Island Field .......................................... 6
ARTICLE 3. OWNERSHIP AND USE OF DATA ..................................... 6
3.1 Xxxxx Data .................................................. 6
3.2 Confidentiality ............................................. 7
3.3 Evaluation of Data .......................................... 7
3.4 Ownership of 3-D Data ....................................... 7
3.5 Use of 3-D Data After Confidentiality Period ................ 8
ARTICLE 4. ACQUISITION OF PROSPECTS ...................................... 8
4.1 Area of Mutual Interest ..................................... 8
4.2 Acquisition of Prospects in the Subject Area ................ 8
ARTICLE 5. TERM .......................................................... 10
5.1 Term ........................................................ 10
5.2 Joint Operating Agreement(s) ................................ 10
ARTICLE 6. MISCELLANEOUS ................................................. 11
6.1 Force Majeure ............................................... 11
6.2 Notices ..................................................... 11
6.3 Amendments .................................................. 12
6.4 Assignments ................................................. 12
6.5 Governing Law ............................................... 12
6.6 Entire Agreement ............................................ 13
6.7 Waivers ..................................................... 13
6.8 Counterparts ................................................ 13
6.9 Relationship of the Parties ................................. 13
6.10 Press Releases and Public Statements ........................ 13
6.11 Execution by Fairfield, Petro-Guard, CAEX
and Xxxxxx for Limited Purposes ............................. 13
ii
EXHIBITS
Exhibit A - Map of Subject Area
Exhibit B - Cost Estimate for 3-D Survey
Exhibit C - Parameters of 3-D Survey and Plat
Exhibit D - 3-D Survey Plat of Revised Subject Area
Exhibit E - Form of Joint Operating Agreement
iii
PARTICIPATION AGREEMENT
THIS PARTICIPATION AGREEMENT ("Agreement") is made and effective February 25,
1997 by and between XXXXX MANAGEMENT COMPANY, INC., a New York corporation
("Xxxxx"), FAIRFIELD INDUSTRIES, INCORPORATED, a Delaware corporation
("Fairfield"), PETRO-GUARD COMPANY, INC., a Texas corporation ("Petro-Guard"),
CAEX SERVICES, INC., a Texas corporation ("CAEX"), XXXXXX OIL COMPANY, a
Louisiana corporation ("Xxxxxx") and FORTUNE PETROLEUM CORPORATION D/B/A
FORTUNE NATURAL RESOURCES CORPORATION, a _________ corporation ("Participant")
(sometimes individually, a "Party," and collectively, "the Parties").
W I T N E S S E T H
WHEREAS, Xxxxx and Fairfield have entered into a Venture Agreement
effective July 15, 1996 (the "Xxxxx/Fairfield Agreement") to participate
with each other in the identification and acquisition of oil and gas
exploration and development properties within the Subject Area as defined
below, by utilizing Fairfield's geophysical acquisition capabilities and
expertise, certain existing geologic and geophysical data and new three
dimensional geophysical data to be acquired pursuant to the Xxxxx/Fairfield
Agreement;
WHEREAS, Xxxxx and Petro-Guard have entered into an Agreement whereby
Petro-Guard has acquired an undivided 5% working interest out of Xxxxx'x
interest in and to the venture established in the Xxxxx/Fairfield
Agreement;
WHEREAS, Xxxxx and CAEX have entered into an Agreement whereby CAEX has
acquired an undivided 2.5% working interest out of Xxxxx'x interest in and
to the venture established in the Xxxxx/Fairfield Agreement;
WHEREAS, Xxxxx and Xxxxxx have entered into an Agreement whereby Xxxxxx
has acquired an undivided 10% working interest out of Xxxxx'x interest in
and to the venture established in the Xxxxx/Fairfield Agreement;
WHEREAS, Participant desires to participate with Xxxxx, Xxxxx-Guard,
CAEX, Fairfield and Xxxxxx in those efforts pursuant to the terms of this
Agreement; and
WHEREAS, Fairfield, Petro-Guard, CAEX and Xxxxxx have executed this
Agreement for the limited purpose set forth in section 6.11 of this
Agreement.
NOW, THEREFORE, in consideration of the mutual covenants, obligations,
promises, and benefits set forth below, the Parties agree as follows:
ARTICLE 1. DEFINITIONS
1.1 "Grass Island Field" shall mean the 1,020 acres, more or less,
contained in State Lease Blocks 210, 215 and 216 which are
currently under lease by Xxxxx and others.
1.2 "Parties" shall mean Smith, Fairfield, Petro-Guard, CAEX, Xxxxxx,
Participant and any third party who executes a Participation
Agreement with Xxxxx and Fairfield to participate in the project
described in this Agreement.
1.3 "Seismic Costs" shall have the meaning set forth in Section 2.3(c)
of this Agreement.
1.4 "Xxxxx Data" shall mean the digitized well logs, geologic and area
maps, reprocessed 2-D seismic data as entered on a "Landmark" work
station and available title information on the Subject Area as
prepared by or on behalf of Xxxxx and Fairfield.
1.5 "Subject Area" shall mean approximately 166.5 square miles in
Xxxxxxxx Xxxxx Bay, Texas and located from Port X'Xxxxxx, Texas on
the Northeast corner extending in a roughly rectangular shape 18
miles to the Southwest parallel to the Intracoastal waterway, and
then 9.25 miles to the Southeast extending to the offshore
boundary of Matagorda Island, then Northeast 18 miles to the
northern end of Matagorda Island and then back to the point of
beginning, being the area depicted on the map attached hereto as
Exhibit A, but specifically excluding the Grass Island Field.
1.6 "3-D Survey" shall mean the new three dimensional seismic survey
to be conducted by Fairfield on the Subject Area in accordance
with the technical parameters set forth in the Xxxxx/Fairfield
Agreement.
1.7 "3-D Data" shall mean the three dimensional seismic data to be
acquired by Fairfield on the Subject Area in accordance with the
Xxxxx/Fairfield Agreement, including one copy of the raw data and
the processed data relating to the 3-D Survey.
1.8 "3-D Survey Project" shall mean all data acquisition, processing
and interpretation activities relating to the 3-D Survey and all
exploration, development or exploitation conducted by the Parties
in the Subject Area during the Confidentiality Period (as defined
in Section 2.2 below).
ARTICLE 2. IDENTIFICATION OF PROSPECTS AND PURCHASE TERMS
2.1 PROSPECT IDENTIFICATION
(a) The main purpose of this Agreement is to allow Participant to
participate in the identification of oil and gas prospects in the
Subject Area and nomination of the prospective areas for lease in
the Subject Area at one or more of the lease sales to be held by
the State of Texas.
(b) Participant agrees to participate with Xxxxx, Xxxxx-Guard, CAEX,
Fairfield and Xxxxxx on an exclusive basis in a joint attempt to
identify prospects within the Subject Area during the term of
this Agreement through the use of the Xxxxx Data and the 3-D
Survey. The responsibilities of Participant with respect to the
3-D Survey and the prospect identification process are set forth
below. The relationship between the Parties regarding
acquisition of oil and gas leases and drilling, development and
operation of xxxxx within the Subject Area will be governed by
one or more Joint Operating Agreements in accordance with Section
4.2 below.
2.2 PHASE I: PRE-SHOOT PHASE
(a) Participant acknowledges that prior to commencement of field
work on the 3-D Survey, Xxxxx and Fairfield have acquired
information and data relating to the Subject Area, have performed
services necessary for the design and implementation of the 3-D
Survey, and have acquired from private surface or mineral owners
seismic permits or permits with an option to lease to perform the
3-D Survey over the Subject Area. The seismic permits and
options have been and shall be obtained in the name of Fairfield
and/or Petro-Guard, as nominee, or their designees. All of the
foregoing is referred to as the "Pre-Shoot Phase."
(b) Upon execution of this Agreement, Participant shall pay to
Xxxxx: (i) $131,250 as reimbursement to Xxxxx and Fairfield for
the actual costs incurred through the execution date for Pre-
Shoot Phase activities; and (ii) $27,013.75 for its 12.5% share
of lease acquisition costs incurred prior to the effective date
of this Agreement. In addition, Participant shall thereafter pay
25% of the cost of any Pre-Shoot Phase costs incurred after
execution of this Agreement.
2.3 PHASE II: CONDUCT OF 3-D SURVEY
(a) Participant acknowledges that Fairfield shall have the exclusive
right to conduct and shall conduct the 3-D Survey for the joint
account of the Parties in accordance with accepted industry
standards and the parameters set forth on Exhibit B to this
Agreement. Fairfield's obligation to conduct the 3-D Survey
shall include, but not be limited to, providing the crews,
equipment and expertise for the acquisition and processing of
three dimensional seismic data covering approximately 135 square
miles of the
Subject Area (the "3-D Data"). Fairfield shall obtain and maintain
a comprehensive general liability insurance policy with a policy
limit of not less than $1,000,000 per occurrence including coverage
for sudden and accidental pollution events. Fairfield shall also
obtain and maintain a follow form umbrella liability policy with a
policy limit of not less than $5,000,000 per occurrence. The
policies shall include endorsements extending the coverage to the
Parties and waiving rights of contribution and of subrogation
against the Parties.
(b) Participant acknowledges that its use of the 3-D Survey and the
3-D Data is on an "as is" basis. Participant shall use the 3-D
Survey and 3-D Data at Participant's sole risk and during the
Confidentiality Period as defined in Section 3.2 below, shall use
the 3-D Survey and the 3-D Data solely for the benefit of the 3-D
Survey Project. Fairfield shall not be held liable or
responsible for any results of whatever nature in connection with
the use of the 3-D Survey or 3-D Data and in no event shall
Fairfield be liable for any consequential damages arising from
the use of the 3-D Survey or 3-D Data by Participant. Fairfield
makes no representation or warranty, express or implied, as to
the accuracy of the 3-D Survey or 3-D Data, and disclaims any
express or implied warranties of merchantability or fitness for a
particular purpose in connection with the 3-D Survey and 3-D
Data. Pursuant to Section 1.3 of the Xxxxx/Fairfield Agreement,
Fairfield has agreed to conduct the 3-D Survey in accordance with
accepted industry standards and the parameters set forth in
Exhibit B to the Xxxxx/Fairfield Agreement. Participant is
entitled to rely herein upon Fairfield's obligations and
covenants under the Xxxxx/Fairfield Agreement.
(c) For purposes of this Agreement, "Seismic Costs" shall have the
same meaning as in the Xxxxx/Fairfield Agreement, which are the
costs incurred by Fairfield to acquire and process the 3-D Data
in the 3-D Survey, the salaries and benefits of the Fairfield
employees used in the field on a per diem basis, actual invoice
costs billed to Fairfield by third party contractors and
subcontractors, the invoiced cost of materials and supplies and
any rental equipment, the salaries and benefits of Fairfield
employees used to process the 3-D Data and the supervision and
quality control thereof, costs for 3-D Data storage and
reproduction including workstation time and plotter charges, and
an allocated share of the insurance premiums paid by Fairfield
for the coverage required to be maintained by this Agreement and
of the costs associated with Fairfield's Lafayette, Louisiana
data acquisition and division offices, such share to be allocated
based on the number of crews and number of projects being
supervised out of that office, but in no event more than 1/3 of
the total cost of that division office. The allocation of
division office costs and of insurance premiums shall begin when
field operations relating to the 3-D Survey commence and continue
so long as Fairfield's personnel are conducting operations in the
Subject Area for the 3-D Survey. Seismic Costs shall also
include a component for depreciation of equipment but only for
equipment owned by Fairfield and used to conduct the 3-D Survey.
Depreciation shall be calculated on a straight line 24 month
basis as to geophones and
hydrophones and a 60 month basis as to all other equipment.
Seismic Costs shall not include a percentage add-on for home office
or corporate allocated overhead unless agreed upon by the Parties
in advance in writing. Participant, in coordination with Xxxxx,
shall have the right during normal business hours and upon not less
than five business days notice, to audit those financial records
and invoices of Fairfield with respect to the 3-D Survey necessary
to verify the Seismic Costs.
(d) Fairfield has estimated that the Seismic Costs will be
approximately $7,900,000 in accordance with the cost breakdown
attached hereto as Exhibit X. Xxxxx shall bear and pay the first
one million dollars ($1,000,000) of the Seismic Costs.
Participant shall thereafter bear and pay 25% of the balance of
the Seismic Costs.
(e) At the beginning of the calendar month in which Fairfield
intends to commence actual field operations, Fairfield will send
an invoice to the Parties for their proportionate share of
Seismic Costs previously incurred and an estimate of the Seismic
Costs to be incurred during that calendar month. On or before
the fifth business day of the following calendar month, each
Party shall pay the invoiced amount to Fairfield. In like
manner, on a monthly basis Fairfield shall invoice each Party at
the beginning of each month for an estimate of the Seismic Costs
to be incurred during that month and each Party shall pay the
invoice by the fifth calendar day of the following calendar
month. To the extent reasonably practical, Fairfield shall
adjust the amount billed in each calendar month to reflect then
known over or under estimates that have been included in prior
xxxxxxxx. This procedure shall be followed until Fairfield has
invoiced the other Parties for 90% of the estimated cost of the
3-D Survey set forth on Exhibit B. A final invoice shall be
submitted by Fairfield within thirty (30) days after Fairfield
has completed the processing of the 3-D Data. The final invoice
shall include a reconciliation of the estimated xxxxxxxx and
payments with the Seismic Costs incurred by Fairfield in
connection with the 3-D Survey. Each Party (including Fairfield
if the final invoice reflects an overcharge) shall pay the amount
shown on the final invoice within twenty (20) days after receipt.
Payment of an invoice, including payment of the final invoice,
shall not constitute a waiver of the audit rights set forth in
Section 2.3(b) above.
(f) The field survey work is projected to commence on or before
April 15, 1997 or, if later, as soon as practical after issuance
of the necessary permits from the State of Texas and any private
landowners and/or lessees in the Subject Area. Fairfield has
estimated that field survey work will require approximately one
month and the data acquisition phase will require approximately
four months, subject to weather delays.
(g) The outline of the 3-D Survey, the design parameters, and
technical specifications of the 3-D Survey acquisition and the
processing technical specifications to be performed on the data
are set forth in Exhibit C and the Exhibit C plat attached
hereto, subject to modification from time to
time as is necessary in Fairfield's reasonable discretion to
accommodate permit and surface conditions or difficulties.
Fairfield shall keep the Parties reasonably informed as to any such
modifications made in the field.
2.4 PHASE III: LEASE ACQUISITION
Acquisition of oil and gas leases or other interests in the
Subject Area shall be governed by Article 4 of this Agreement.
2.5 GRASS ISLAND FIELD
Xxxxx expressly excludes from this Agreement all ownership rights
in and to the Oil and Gas Leases, wellbores, wellhead equipment,
production facilities, well site pad and pipeline rights of way or
access rights for or related to the Grass Island Field located in
Xxxxxxx County, Texas, together with all hydrocarbon production
from or attributable to the Field. In the event operations within
the Grass Island Field or in the Subject Area are reasonably likely
to result in drainage between the two leasehold areas, the Parties
shall use all commercially reasonable efforts to form or implement
a pooled unit for the affected areas or strata with participation
based on a productive acreage or net acre foot of production
determination.
ARTICLE 3. OWNERSHIP AND USE OF DATA
3.1 XXXXX DATA
Xxxxx is the owner, lessee, licensee, or has otherwise acquired an
interest in the Xxxxx Data. To the extent that it may legally do
so, Xxxxx grants to Participant the right to use the Xxxxx Data
during the term of this Agreement for review, analysis and
interpretation in connection with the 3-D Survey. To the extent
Xxxxx is not contractually prohibited from doing so, Xxxxx hereby
grants to Participant a non-exclusive, proprietary license in the
Xxxxx Data by the execution or performance of this Agreement.
Participant acknowledges that its use of the Xxxxx Data is on an
"as is" basis. Participant shall use the Xxxxx Data at its sole
risk and solely for the benefit of the 3-D Survey Project. Xxxxx
shall not be held liable or responsible for any results of whatever
nature in connection with the use of the Xxxxx Data and in no event
shall Xxxxx be liable for any consequential damages arising from
the use of the Xxxxx Data by Participant. Xxxxx makes no
representation or warranty, express or implied, as to the accuracy
of the Xxxxx Data, and disclaims any express or implied warranties
of merchantability or fitness for a particular purpose in
connection with the Xxxxx Data.
3.2 CONFIDENTIALITY
Participant acknowledges the proprietary nature of the Xxxxx Data
and the 3-D Data to be acquired in the 3-D Survey and agrees that
all of such data (and all copies of such data) and information
derived from such data shall be for the internal use of the
Parties. Participant shall not disclose, show, license, trade,
sell, dispose of, use (except for its own internal use) or
otherwise make available the Xxxxx Data or any 3-D Survey data to
third parties without the prior written consent of the Parties as
provided in Section 3.4 during the term of this Agreement and for a
continuing period of 3 years after termination of this Agreement
("the Confidentiality Period"). The prior consent requirement of
this Section 3.2 shall continue to apply during the Confidentiality
Period even if a portion of the Data enters the public domain so
that the Parties can monitor prospect acquisitions under Article 4
below.
3.3 EVALUATION OF DATA
Xxxxx shall arrange for the 3-D Data and the Xxxxx Data to be
combined in an effort to identify oil and gas prospects in the
Subject Area. Participant agrees to pay 10% of the fees charged by
CAEX (or such other party as may be chosen by Xxxxx) as an
independent contractor to interpret and analyze the 3-D Data. Any
interpretation of such data generated by CAEX or any Party during
the term of this Agreement and which is or will be the basis of a
proposed lease acquisition or disposition or a proposed well
operation shall be promptly shared and conveyed to the other
Parties. Reasonable back up or work papers or documentation
supporting the interpretation will be made available on request.
In addition, upon request from a Party, each Party shall keep the
requesting Party reasonably informed as to the progress and results
of their internal interpretations.
3.4 OWNERSHIP OF 3-D DATA
The 3-D Data shall be owned by the Parties with each Party
entitled to possess, copy and use the 3-D Data, subject to the
terms of this Agreement. Subject to the terms and restrictions of
this Agreement, Fairfield shall deliver to each Party two copies
of all field data, field tapes, and processed tapes of the 3-D Data
with applicable documentation for all such data subject to the
restrictions of Section 3.2. The Party receiving the copies shall
reimburse Fairfield for the cost of reproducing the tapes and data.
The 3-D Data is being acquired primarily for use by the Parties to
acquire oil and gas prospects in the Subject Area. However, the
Parties owning not less than 80% of the working interest specified
in Section 4.2(b) below may also agree from time to time during the
Confidentiality Period specified in Section 3.2 to license or sell
the right to use all or part of the 3-D Data to third parties. In
the event any Party desires to pursue marketing of the data to
third parties, the Parties shall meet to discuss a marketing plan
and the suggested compensation to be received for the data. Any
cost reimbursement or proceeds from the sale, licensing, lease or
other disposition of the 3-D Data shall be divided as follows:
Fairfield: 22.5 %
Xxxxx: 47.5 %
CAEX: 2.5 %
Petro-Guard: 5.0 %
Xxxxxx: 10.0 %
Participant: 12.5 %
In addition, Fairfield shall have the responsibility to deliver or
cause to be delivered on a timely basis to the applicable permit
grantor any data required by any permit, license or lease following
the processing of the 3-D Data or as provided in any such
agreement, whichever is sooner. Any costs incurred by Fairfield in
delivering such 3-D Data shall be included within the definition of
"Seismic Costs."
3.5 USE OF 3-D DATA AFTER CONFIDENTIALITY PERIOD
After the expiration of the Confidentiality Period specified in
Section 3.2 above, each Party shall each have full and independent
ownership rights to the 3-D Data and, subject to any third party
license or confidentiality restrictions, to the Xxxxx Data. Each
Party shall have the right to use, license or transfer the Data
without the participation of the other Parties.
ARTICLE 4. ACQUISITION OF PROSPECTS
4.1 AREA OF MUTUAL INTEREST
Except as provided below, until July 15, 2002 ("the AMI Period"),
the Subject Area shall be subject to the provisions of Section 4.2
and be deemed an area of mutual interest that is subject to the non-
competition and participation rights set forth below. Upon
completion of the 3-D Survey, a new plat shall be prepared and
attached to this Agreement as Exhibit D to encompass the area on
which 3-D Data was acquired plus an additional area extending one
half mile outside the 3-D Data area. The Subject Area shall
thereafter be limited to the area shown as Exhibit D.
4.2 ACQUISITION OF PROSPECTS IN THE SUBJECT AREA
If any Party or any permitted assignee (an "Acquiring Party")
proposes to acquire or acquires during the AMI Period a leasehold,
mineral, royalty, overriding royalty or other oil and gas interest
in the Subject Area, whether by purchase, farm in, performance of
operations as further described in Sections 4.2(a) and (b) or
otherwise (an "Acquired Interest"), the Acquiring Party shall give
the other Parties identified in the first paragraph of this
Agreement and to any other person who is a participant in the 3-D
Survey Project ("the other Parties") an exclusive option to
participate in such acquisition as set forth below. During the AMI
Period, no Party or Parties shall bid against or attempt to acquire
an Acquired Interest in competition against another Party or
Parties.
(a) ACQUISITION BY ANY PARTY. The Acquiring Party shall notify
the other Parties in writing of the acquisition of an Acquired
Interest. Such notice shall specifically describe the Acquired
Interest, shall state the terms of acquisition and shall itemize
all costs associated with the acquisition, and include evidence
of actual payment of the costs of such acquisition. The other
Parties shall have a period of ten (10) business days from the
date of receipt of such notice to elect to acquire their
proportionate undivided working interest in the Acquired Interest
(22.5% to Fairfield, 47.5% to Xxxxx, 5% to Petro-Guard, 2.5% to
CAEX, 10% to Xxxxxx and 12.5% to Participant). The other Parties
may elect to participate in such acquisition by notifying the
Acquiring Party in writing of such election and by tendering a
check for its proportionate share of the acquisition costs as
itemized in the notice. If a Party fails to elect to participate
in an acquisition, as provided above, that Party shall have no
rights with respect to the Acquired Interest and the Acquired
Interest shall not be subject to the Operating Agreement. The
other Parties who elect to participate in the acquisition of such
Acquired Interest shall enter into a separate Operating Agreement
for the Acquired Interest substantially in the form of the JOA
attached hereto. Contemporaneously with the receipt of the
written election to participate in an acquisition and the check
for its share of the acquisition costs, the Acquiring Party shall
execute and deliver to the acquiring Parties an assignment of the
appropriate working interest in the Acquired Interest subject to
the Operating Agreement and to a proportionate part of all
existing leasehold or other outstanding burdens against the
Acquired Interest (other than any burdens created or reserved by
the Acquiring Party). The other Parties who are receiving the
Acquired Interest shall have no other obligations or suffer other
burdens on the Acquired Interest of any kind or nature, including
but not limited to other burdens in the form of overriding
royalties to the Acquiring Party's employees or partners. In the
event the Acquired Interest covers less than one hundred percent
(100%) of the minerals in any leasehold, the Assignment to the
other acquiring Parties shall cover an undivided share of the
Acquiring Party's interest in such Leases. The right to
participate in acquisitions by a Party in the Subject Area is a
continuing right and shall apply to any acquisitions in the
Subject Area during the AMI Period.
(b) ACQUISITIONS BY OTHER MEANS. If any interest or other
economic benefit in the AMI is acquired or is to be acquired by
drilling or otherwise, and not for cash, by any Party hereto,
each Party, upon receipt of a written acquisition notice, shall
have the right to participate in such acquisition in the
following working interest percentages:
Fairfield: 22.5%
Xxxxx: 47.5%
CAEX: 2.5%
Petro-Guard: 5.0%
Xxxxxx: 10.0%
Participant: 12.5%
The acquisition notice shall specify the requirements for
participation, which requirements (except for the participation
percentage) shall be equally applicable to each Party. The other
Parties may elect to participate
in such acquisition by notifying the Acquiring Party in writing of
such Party's election to participate in the required drilling or
other operation within thirty (30) days from receipt of the
acquisition notice. If the Party receiving the acquisition notice
fails to elect to participate in the acquisition, as provided
above, such Party shall have no rights with respect to the
acquisition and such acquisition shall not be subject to the
Operating Agreement. When required by a third party interest owner,
the Parties hereto shall enter into separate operating agreements
when third party interest owners are involved, and any
inconsistency between these third party operating agreements and
the Operating Agreement shall be controlled by the third party
operating agreement.
ARTICLE 5. TERM
5.1 TERM
This Agreement shall remain in effect for a period ending July 15,
2002 (the "Term") subject to earlier termination by the mutual
consent of the Parties or by the terms of this Agreement; provided,
however, Section 3.2 above regarding confidentiality shall survive
for an additional three year period after the Term.
5.2 JOINT OPERATING AGREEMENT(S)
Upon acquisition of a lease or leases in the Subject Area by any
Party in which all Parties elect to acquire an interest under
Article 4, the Parties shall promptly execute a Joint Operating
Agreement substantially in the form attached hereto as Exhibit E
covering such lease or leases. All oil and gas drilling,
completion and exploration operations on specific lease blocks
within the Subject Area shall be conducted pursuant to the terms of
the Operating Agreement (or one or more sub-operating agreements if
additional Parties participate in a part of the Subject Area)
naming Petro Guard Company, Inc. as Operator, or such other entity
as is mutually acceptable to Fairfield, Xxxxx and such other
Parties whose working interest in the specific lease block(s) at
issue in the Operating Agreement or sub-operating agreements, when
totaled together with interest of Xxxxx and Fairfield, equal 55% of
the working interest in said specific lease block(s).
ARTICLE 6. MISCELLANEOUS
6.1 FORCE MAJEURE
No Party shall be liable to the other or penalized hereunder for
any delays or damage or any failure to act due, occasioned or caused
by reason of any laws, rules, regulations or orders promulgated by
any Federal, State, or Local governmental body or the rules,
regulations, or orders of any public body or official purporting to
exercise authority of control respecting the operations covered
hereby, or due, occasioned or caused by strikes, action of the
elements, water conditions, or other causes beyond the control of
the Party affected thereby not including the payment of reasonable
sums of money, which events shall constitute force majeure under the
terms of this Agreement. In the event that any Party hereto is
rendered unable, wholly or in part, by these causes to carry out its
obligation under this contract, it is agreed that such Party shall
give notice and details of force majeure in writing to the other
Parties as promptly as possible after its occurrence, specifically
outlining the efforts being made or to be made by the affected Party
to remove the force majeure. It is agreed that the affected Party
will move with reasonable diligence to attempt to remove the cause
creating the force majeure.
6.2 NOTICES
All notices provided for or permitted to be given pursuant to
this Agreement must be in writing and shall be deemed to have been
properly given or served if delivered by personal service, telecopy,
telex, overnight mail, or by depositing the same in the United
States mail, postage prepaid, and registered or certified with
return receipt requested at the following addresses:
FAIRFIELD:
---------
Fairfield Industries Incorporated
00000 Xxxxxxxxx
Xxxxxxx, Xxxxx 00000
Telephone: (000) 000-0000
Fax: (000) 000-0000
XXXXX:
------
Xxxxx Management Company, Inc.
0000 Xxxxxxxxxx, Xxxxx 000
Xxxxxxx, Xxxxx 00000
Telephone: (000) 000-0000
Fax: (000) 000-0000
PETRO-GUARD:
------------
Petro-Guard Company, Inc.
0000 Xxxxxxxxxx, Xxxxx 000
Xxxxxxx, Xxxxx 00000
Telephone: (000) 000-0000
Fax: (000) 000-0000
CAEX:
CAEX Services, Inc.
0000 Xxx Xxxxxx, Xxxxx 000
Xxxxxxx, Xxxxx 00000
Telephone: (000) 000-0000
Fax: (000) 000-0000
Xxxxxx:
Xxxxxx Oil Company
Attn: Xxxx X. Xxxxxxx
000 Xxxxx Xxxxxxxxxx Xxxxxx
Xxxxxxx, Xxxxxxxxx 00000-0000
Telephone: (000) 000-0000
Fax: (000) 000-0000 AND (000) 000-0000
Participant:
Fortune Natural Resources Corporation
Attn: Xxxxxx X. Xxxxxxxxx, President
000 Xxxx Xxxxxx Xxxx, Xxxxx 000
Xxxxxxx, Xxxxx 00000
Telephone: (000) 000-0000
Fax: (000) 000-0000
6.3 AMENDMENTS
This Agreement may be amended only by an instrument in writing duly
executed by the Parties.
6.4 ASSIGNMENTS
(a) This Agreement and any interest acquired pursuant to this
Agreement may not be assigned to a non-affiliated party without
the prior written consent of the other Parties, which consent
shall not be unreasonably withheld.
(b) Any permissible assignment shall be subject to this Agreement and
shall be binding upon and inure to the benefit of the successors
and assigns of each Party. Each successor or assign shall
expressly assume all of the obligations provided for in this
Agreement and shall be entitled to full rights as a Party to this
Agreement and shall receive all notices separately as a Party as
if mentioned by name in this Agreement. Any proposed assignment
shall be subject to any approval requirements included in the
seismic permits, options or agreements and/or oil and gas leases.
6.5 GOVERNING LAW
This Agreement shall be construed and enforced in accordance with
and governed by the laws of the State of Texas. Venue for
resolution of any disputes under or in any way relating to or
arising out of this Agreement shall lie exclusively in a court of
competent jurisdiction in Houston, Xxxxxx County, Texas.
6.6 ENTIRE AGREEMENT
This Agreement together with the Operating Agreement constitutes
the entire agreement of the Parties with respect to the subject
matter of this Agreement and supersedes all prior agreements and
understandings, oral and written, between the Parties with respect
to the subject matter of this Agreement.
6.7 WAIVERS
The failure at any time of any Party to require performance by any
other Party of any responsibility or obligation required by this
Agreement shall in no way affect a Party's right to require such
performance at any time thereafter, nor shall the waiver by a Party
of a breach of any provision of this Agreement by any other Party
constitute a waiver of any other breach of the same or any other
provision nor constitute a waiver of the responsibility or
obligation itself.
6.8 COUNTERPARTS
This Agreement may be executed in several counterparts, each of
which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
6.9 RELATIONSHIP OF THE PARTIES
It is understood that this Agreement is not intended to create a
partnership or a joint venture. To the extent necessary, the
Parties hereby agree to form a tax partnership or to be excluded
from the application of all of the provisions of Subchapter K,
Chapter 1, Subtitle "A" of the Internal Revenue Code of 1986, as
amended, as permitted and authorized by Section 761 of the Code.
Xxxxx shall be designated as the tax matters partner for any tax
partnership formed by the Parties.
6.10 PRESS RELEASES AND PUBLIC STATEMENTS
No Party shall issue any press release or give any interview or
make any public statements in any way relating to the existence of
this Agreement, the 3-D Survey or the 3-D Data without first
consulting with and obtaining the prior consent of the other Parties
as to the release of the information and as to the content of the
proposed release or statement, except as may be required by
applicable law, rule or regulation, or to satisfy any public
disclosure requirements or for routine public notice purposes.
6.11 EXECUTION BY FAIRFIELD, PETRO-GUARD, CAEX AND XXXXXX FOR LIMITED
PURPOSES
This Agreement is being executed by Fairfield, Petro-Guard, CAEX
and Xxxxxx for the limited purposes of: (a) acknowledging
Participant's acquisition of an undivided interest in the 3-D Survey
Project from Xxxxx and the billing and payment responsibilities and
procedures set forth herein; (b) acknowledging and representing to
Participant that Fairfield, Petro-Guard, CAEX and Xxxxxx have
executed agreements with Xxxxx that contain the same provisions
regarding ownership and use of data and acquisition of prospects in
the Subject Area as those provisions contained in Article 3 and
Article 4 of this Agreement; and (c) agreeing that Participant, as a
partial successor in interest to Xxxxx, is entitled to rely upon and
obtain the full benefit of those provisions in the applicable
agreement with Xxxxx. Nothing in this Agreement shall be deemed to
have amended or modified the terms of the Xxxxx/Fairfield Agreement,
the Xxxxx/Petro-Guard Agreement or the Xxxxx/CAEX Agreement unless
specifically agreed in writing between Xxxxx and the appropriate
Party.
IN WITNESS THEREOF, the Parties have executed this Agreement as of the date
first written above.
XXXXX MANAGEMENT COMPANY, INC.
By:
---------------------------
Name: Xxxxxx X. Xxxxxx
-------------------------
Title: Vice President
------------------------
PARTICIPANT:
FORTUNE PETROLEUM CORPORATION
D/B/A FORTUNE NATURAL RESOURCES
CORPORATION
By:
---------------------------
Name:
-------------------------
Title:
------------------------
XXXXXX OIL COMPANY
By:
---------------------------
Name: Xxxx X. Xxxxxx, Xx.
-------------------------
Title: President
------------------------
FAIRFIELD INDUSTRIES,
INCORPORATED
By:
---------------------------
Name:
-------------------------
Title:
------------------------
PETRO-GUARD COMPANY, INC.
By:
---------------------------
Name: Xxxxx X. Xxxxxxxx, III
-------------------------
Title: President
------------------------
CAEX SERVICES, INC.
By:
---------------------------
Name: Xxxxxxx X. Xxxxx
-------------------------
Title: President
------------------------
