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EXHIBIT 10.35
GEOPHYSICAL EXPLORATION AGREEMENT
WELDER PROJECT
XXXXX COUNTY, TEXAS
This Geophysical Exploration Agreement (this "Agreement"), dated
effective as of the 1 st day of October, 1996, is by and among UNEXCO, INC.
("UNEXCO") and XXXXXXX OIL & GAS, L.P. ("BOG") (UNEXCO and BOG are sometimes
referred to herein individually as "Party" and collectively as "Parties");
WHEREAS, the Parties identified an area of mutual interest (the "AMI")
in Xxxxx County, Texas, identified on Exhibit A which is attached hereto, which
UNEXCO and BOG believe to be prospective for oil and gas exploration and
production; and
WHEREAS, the Parties reached an agreement with respect to the evaluation
by them of the AMI; and
WHEREAS, BOG entered into that certain Seismic and Lease Option
Agreement with Xxxxx X. Xxxxxx, et. al. (the "Welder Heirs"), dated effective
as of October 30, 1996, covering lands in Xxxxx County, Texas, and a Memorandum
of Seismic and Lease Option Agreement has been filed of record at Volume 215,
Page 325 of the Official Public Records of Xxxxx County, Texas, giving public
notice of the existence of the Seismic and Lease Option Agreement (such Seismic
and Lease Option Agreement being sometimes referred to herein as the "Welder
Option"); and
WHEREAS, BOG has acquired that certain Oil and Gas Lease by and between
the State of Texas, acting by and through its agent Xxxxx X. Xxxxxx, et al. and
BOG, dated December 24, 1996 (such Oil and Gas Lease being sometimes referred
to herein as the "First State Lease"); and
WHEREAS, BOG entered into that certain Seismic Data Licensing Agreement,
Xxxx and Xxxxx Counties, Texas, with Western Geophysical Company ("WGC") dated
November 6, 1996 (a copy of which is attached hereto as Exhibit G and being
hereinafter referred to as the "WGC Agreement"), providing for the non-
exclusive licensing of seismic data to BOG and the Welder Heirs covering all or
parts of the AMI, together with other lands; and
WHEREAS, in addition to the Welder Option, the Parties may have obtained
other option agreements to acquire oil and gas leases (the Welder Option and
any other option agreements already obtained by either of the Parties being
sometimes referred to herein as "Existing Options"), and in addition to the
First State Lease the Parties may have obtained other oil and gas leases (the
First State Lease and any other oil and gas leases already obtained by either
of the Parties being sometimes referred to herein as the "Existing Leases") and
other agreements to obtain oil and gas leases, mineral interests, royalty
interests or other interests in oil, gas or other hydrocarbons (such other
agreements that have already been obtained by either of the Parties being
sometimes referred to herein as the "Existing Farm-Ins") covering portions of
the AMI (the Existing Options, Existing Leases and Existing Farm-Ins being
described on Exhibit B hereto), and the Parties anticipate that additional
options to acquire oil and gas leases (such options and the Existing Options
being herein referred to as "Options"), oil and gas leases (such leases and the
Existing Leases being herein referred to as "Leases"), and other agreements to
obtain oil and gas leases, mineral interests, royalty interests or other
interests in oil, gas or other hydrocarbons (such agreements and the Existing
Farm-Ins being referred to herein as "Farm-Ins") may be obtained in the future
covering portions of the AMI; and
WHEREAS, the Parties also reached an agreement with respect to certain
matters concerning the ownership of Options, Leases and Farm-Ins, and the
future exploration, development and operation of the AMI;
NOW, THEREFORE, for and in consideration of the mutual covenants
contained herein and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Parties hereto agree as
follows:
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ARTICLE I.
CONTINGENCY OF UNEXCO PARTICIPATION
Section 1.1. Welder Heirs' Consent. The Parties recognize and
acknowledge that under the terms of the Welder Option, an interest in the
Welder Option or any Lease obtained by exercising the Welder Option may not be
assigned to UNEXCO or any other party without first obtaining the Welder Heirs'
consent to such assignment. The Parties agree that they shall utilize
reasonable efforts to obtain all of the Welder Heirs' consent to assignment to
UNEXCO. In the event that on or before April 30, 1997, the Parties have not
obtained all of the Welder Heirs' written consent to such assignment, (i) this
Agreement shall terminate in its entirety, (ii) UNEXCO shall immediately assign
and convey to BOG all of the interests (whether real, personal, intangible,
contingent or vested) acquired by UNEXCO or any of its successors or assigns
which are related in any way to the AMI hereunder, and (iii) BOG shall promptly
reimburse UNEXCO for all of the costs which UNEXCO has paid or reimbursed BOG
for under the terms of this Agreement.
ARTICLE II.
RELATIONSHIP OF PARTIES
Section 2.1. No Partnership. The liabilities of the Parties hereunder
shall be several, not joint or collective. It is not the intention of the
Parties to create, nor shall this Agreement be deemed as creating, a mining,
tax or other partnership or association or to render the Parties liable as
partners. However, if for federal income tax purposes, this Agreement and the
operations hereunder are regarded as a partnership, each Party thereby affected
elects 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 (hereinafter referred to as the "Code"), as permitted and authorized
by Section 761 of the Code and the regulations promulgated thereunder. Should
there be any requirement that each Party hereby affected give further evidence
of this election, each such Party shall execute such documents and furnish such
other evidence as may be required by the Federal Internal Revenue Service or as
may be necessary to evidence this election. No Party shall give any notice or
take any other action inconsistent with the election made hereby. In making
the foregoing election, each Party states that the income derived by such Party
from operations hereunder can be adequately determined without the computation
of partnership taxable income.
Section 2.2. Representations and Third Party Claims and Liabilities.
(a) BOG represents and warrants that it has full power to enter into
and perform its obligations under this Agreement and has taken all appropriate
action to authorize entering into this Agreement and performance of its
obligations hereunder. BOG represents and warrants that other than
requirements (if any) that there be obtained consents or waivers of
preferential rights regarding the transfer of Options, Leases or Farm-Ins,
neither the execution and delivery of this Agreement, nor the consummation of
the transactions contemplated hereby, nor the compliance with the terms hereof,
will result in any material default under any material agreement or instrument
to which BOG is a party or by which BOG is bound, or violate any order, writ,
injunction, decree, statute, rule or regulation applicable to BOG. BOG
represents and warrants that this Agreement constitutes the legal, valid and
binding obligation of BOG, enforceable in accordance with its terms, except as
limited by bankruptcy or other laws applicable generally to creditor's rights
and as limited by general equitable principles. BOG represents that there are
no suits, actions, claims, investigations, inquiries, proceedings or demands
pending (or, to the best of BOG's knowledge, threatened) which affect the
execution and delivery of this Agreement, or the consummation of the
transactions contemplated hereby.
(b) UNEXCO represents and warrants that it has full power to enter
into and perform its obligations under this Agreement and has taken all
appropriate action to authorize entering into this Agreement and performance of
its obligations hereunder. UNEXCO represents and warrants that other than
requirements (if any) that there be obtained consents or waivers of
preferential rights regarding the transfer of Options, Leases or Farm-Ins,
neither the execution
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and delivery of this Agreement, nor the consummation of the transactions
contemplated hereby, nor the compliance with the terms hereof, will result in
any material default under any material agreement or instrument to which UNEXCO
is a party or by which UNEXCO is bound, or violate any order, writ, injunction,
decree, statute, rule or regulation applicable to UNEXCO. UNEXCO represents
and warrants that this Agreement constitutes the legal, valid and binding
obligation of UNEXCO, enforceable in accordance with its terms, except as
limited by bankruptcy or other laws applicable generally to creditor's rights
and as limited by general equitable principles. UNEXCO represents and warrants
that there are no suits, actions, claims, investigations, inquiries,
proceedings or demands pending (or, to the best of UNEXCO's knowledge,
threatened) which affect the execution and delivery of this Agreement, or the
consummation of the transactions contemplated hereby.
(c) ANY THIRD PARTY (TO INCLUDE ANY GOVERNMENTAL AUTHORITY) DAMAGE OR
REMEDIATION CLAIM OR SUIT OF ANY KIND ARISING FROM ANY OPERATIONS CONDUCTED
PURSUANT TO THE TERMS OF THIS AGREEMENT, AND ALL COSTS AND EXPENSES OF
HANDLING, SETTLING, OR OTHERWISE DISCHARGING SUCH CLAIM OR SUIT SHALL BE AT THE
EXPENSE OF ALL OF THE PARTIES PARTICIPATING IN THE OPERATION GIVING RISE TO THE
CLAIM OR SUIT, EACH PARTY'S RESPONSIBILITY BEING IN THE PROPORTION THAT THEIR
OWNERSHIP INTEREST (AS SET FORTH IN THE TABLE IN SECTION 4.2(a) BELOW) BEARS TO
THE TOTAL OF THE OWNERSHIP INTERESTS OF ALL OF THE PARTIES PARTICIPATING IN THE
OPERATION GIVING RISE TO THE CLAIM OR SUIT, REGARDLESS OF WHETHER OR NOT SUCH
THIRD PARTY DAMAGE OR REMEDIATION CLAIM OR SUIT IS FOUND TO ARISE IN WHOLE OR
IN PART FROM ANY THE SOLE OR CONCURRENT NEGLIGENCE OR OTHER FAULT OF ANY KIND
OF ANY PARTY HERETO. In the event any such claim or suit is made against any
Party hereto, such Party shall immediately notify all other Parties, and the
claim or suit shall be jointly handled by all of the Parties hereto
participating in the ownership and/or operation giving rise to the claim or
suit. Anything to the contrary contained in this Section 2.2(c)
notwithstanding, this Section 2.2(c) shall not apply to any claims, actions or
suits which are related in any way to a Party's breach of any of the
representations or warranties which are set forth above in this Section 2.2.
ARTICLE III.
EVALUATION PROGRAM
Section 3.1. Scope of the Geophysical Program. The Parties recognize
and acknowledge that pursuant to the terms of the WGC Agreement, WGC shall
conduct a three-dimensional geophysical program across all or part of the AMI
(that part of the WGC three-dimensional geophysical program which covers the
AMI being herein referred to as the "Geophysical Program"), together with other
lands located in the general area of the AMI, and that pursuant to the terms of
the WGC Agreement, BOG and the Welder Heirs shall receive a license to the
three-dimensional seismic data which covers the AMI (that part of the three-
dimensional seismic data resulting from the WGC geophysical program and which
covers the AMI being herein referred to as the "Program Data"). BOG will
interpret the Program Data for the benefit of the Parties. During the term of
the AMI (as defined in Section 4.1 below) hereunder, UNEXCO shall have the
right to come into BOG's offices at mutually agreeable times to review the
Program Data and BOG's interpretations with BOG and give BOG input with respect
to the interpretations prepared by BOG. However, due to the restrictions
contained in the WGC Agreement, UNEXCO shall not have the right to actively
work the Program Data. BOG shall also provide UNEXCO with copies of
interpretations generated by BOG.
Section 3.2. Use of the Program Data and Interpretations.
(a) BOG shall receive everything that it needs to adequately
interpret the Program Data at the cost of the Parties as set forth in Section
3.3 below. Provided that BOG has paid its share of the Geophysical Program
Costs (as defined and set forth in Section 3.3 below) BOG
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shall have the right to utilize and interpret the Program Data in its
exploration and development efforts within the AMI.
(b) Provided that UNEXCO has paid its share of the Geophysical
Program Costs (as defined and set forth in Section 3.3 below), UNEXCO shall
have the right to receive copies of the interpretations that are generated by
BOG from the Program Data. UNEXCO shall have the right to utilize the
interpretations in its exploration and development efforts within the AMI. In
addition, provided that UNEXCO has paid its share of the Geophysical Program
Costs, during the term of the AMI hereunder, UNEXCO shall have the right to
come into BOG's offices at mutually agreeable times to review the Program Data
and BOG's interpretations with BOG on a 3-D workstation. However, due to the
restrictions contained in the WGC Agreement, UNEXCO shall not have the right to
actively work the Program Data. UNEXCO recognizes and agrees that its right to
utilize the Program Data and interpretations are subject to the terms,
provisions, restrictions and conditions of the WGC Agreement and UNEXCO hereby
agrees to abide by all of the terms, provisions, conditions and restrictions
contained in the WGC Agreement.
(c) No Party shall trade, exchange or otherwise disclose any
interpretations of the Program Data to any third party within two (2) years of
the completion of processing of the Program Data without written consent from
the other Party hereto, except to the Welder Heirs as provided in the Welder
Option and except that each Party may trade, exchange or otherwise disclose the
interpretations, at any time, without the consent of the other Party hereto, to
(i) parties in connection with agreements or bona fide negotiations with such
parties for the farming-out or assignment to the disclosing Party of leasehold
or mineral interests covering acreage that is located within the AMI, (ii)
parties in connection with agreements or bona fide negotiations with such
parties for the farming-in or receiving an assignment from the disclosing Party
of part of the disclosing Party's Ownership Interests in Options, Leases or
Farm-Ins, (iii) parties who have entered into agreements or are interested in
entering into agreements to purchase an interest or otherwise participate in
the exploration and/or development of all or parts of the AMI with the
disclosing Party, (iv) parties that have invested in the disclosing Party's
exploration and/or development operations, (v) parties that are hired by a
Party as a consultant to help or facilitate such Party's exploration and/or
development operations within the AMI, or (vi) parties that are hired by a
Party to analyze or examine such Party's existing or potential oil and/or gas
reserves within the AMI for such Party's financial or regulatory reporting
purposes; provided, however, that the disclosing Party must cause all third
parties that are listed in (ii), (iii), (iv) and (v) above, to which the
interpretations are to be disclosed prior to the expiration of such two (2)
year period, to execute a confidentiality agreement in the form attached hereto
as Exhibit D covering the acreage which is covered by the interpretations that
are to be disclosed and naming all of the Parties hereto as "Offeror" in such
confidentiality agreement, prior to the third party's review of the
interpretations.
(d) The Parties recognize and acknowledge that under the terms of the
WGC Agreement there are limited rights of disclosure to the Program Data. The
Parties agree to abide by the terms of the WGC Agreement. In addition, no
Party shall disclose the Program Data to any Party within two (2) years of the
completion of processing of the Program Data without written consent from the
other Party hereto, except that, subject to the terms of the WGC Agreement,
each Party may disclose the Program Data, at any time, without the consent of
the other Party hereto, to (i) parties in connection with agreements or bona
fide negotiations with such parties for the farming-out or assignment to the
disclosing Party of leasehold or mineral interests covering acreage that is
located within the AMI, (ii) parties in connection with agreements or bona fide
negotiations with such parties for the farming-in or receiving an assignment
from the disclosing Party of part of the disclosing Party's Ownership Interests
in Leases or Farm-Ins, (iii) parties who have entered into agreements or are
interested in entering into agreements to purchase an interest or otherwise
participate in the exploration and/or development of all or parts of the AMI
with the disclosing Party, (iv) parties that have invested in the disclosing
Party's exploration and/or development operations, (v) parties that are hired
by a Party as a consultant to help or facilitate such Party's exploration
and/or development operations within the AMI, or (vi) parties that are hired by
a Party to analyze or examine such Party's existing or potential oil and/or gas
reserves within the AMI for such Party's financial or
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regulatory reporting purposes; provided, however, that the disclosing Party
must cause all third parties that are listed in (ii), (iii), (iv) and (v)
above, to which the Program Data is to be disclosed prior to the expiration of
such two (2) year period, to execute a confidentiality agreement in the form
attached hereto as Exhibit D covering the acreage which is covered by the
Program Data that is to be disclosed and naming all of the Parties hereto as
"Offeror" in such confidentiality agreement, prior to the third party's review
of the Program Data. The Parties recognize that under the terms of the WGC
Agreement UNEXCO cannot have a separate copy of the Program Data. However, in
the event that UNEXCO has a third party described in (i), (ii), (iii), (iv),
(v) or (vi) above, to whom UNEXCO desires to disclose all or part of the
Program Data, UNEXCO shall have the right to bring such third-party into BOG's
offices at mutually agreeable times to review the Program Data with BOG and
UNEXCO.
(e) In the event that UNEXCO has not paid for its share of the
Geophysical Program Costs in accordance with the terms of Section 3.3 below,
BOG shall have no obligation to disclose or release any information of any kind
to UNEXCO which is in any way related to the Program Data or interpretations
until such time as UNEXCO has paid all of the Geophysical Program Costs which
are currently due.
Section 3.3. Payment of Costs of Seismic Program.
(a) Each of the Parties shall pay their percentage share listed
opposite such Party's name in the table set forth below in this Section 3.3(a),
of all of the costs and liabilities that are associated with the conduct of the
Geophysical Program, including, without limitation (i) the costs and charges
that are to be paid to WGC pursuant to the terms of the WGC Agreement which are
related to or allocable to the Geophysical Program (see additional provisions
contained in Section 4.8 and 6.5 below related to payments due to WGC under
Sections B and C of the WGC Agreement), insofar as they are related to the
Geophysical Program, (ii) the costs and charges that are to be paid to WGC
pursuant to the terms of the WGC Agreement in order to license the Program Data
to the Welder Heirs, (iii) all costs incurred to other third-parties which are
in any way associated with the conduct of the Geophysical Program or the
processing or interpretation of the Program Data resulting from the Geophysical
Program, (iv) geological consultant fees incurred by BOG to help the Parties in
their exploration and development efforts within the AMI , (v) a charge of
$60.00 for each half hour, or fraction thereof, of use of BOG's work stations
while modeling and/or interpreting the Program Data and $35.00 for each scaled
plot generated on BOG's plotter, (vi) the BOG Employee Time Charges (as defined
below in this Section 3.3(a), and (vii) any other costs associated with the
Geophysical Program (all of the costs described above in this Section 3.3(a)
being hereinafter sometimes collectively referred to as "Geophysical Program
Costs").
Party Percentage
----- ----------
UNEXCO 30.00%
BOG 70.00%.
For purposes of this Agreement "BOG Employee Time Charges" shall mean the
amount BOG shall have the right to charge UNEXCO (in the percentage indicated
in the table above) for the time spent by of certain of its employees in
performing land, geological or geophysical work related to the Parties'
exploration and/or development efforts within the AMI. The rates per hour that
BOG may charge UNEXCO for time spent by its landmen, geologists, geophysicists,
technicians and division order analysts performing work related to the Parties'
exploration and/or development efforts within the AMI is set forth in the table
below:
Rate Per Hour for
Type of Employee Work Performed
---------------- ---------------
Geophysicist $60.00
Geologist $50.00
Technician $25.00
Xxxxxxx $40.00
Division Order Analyst $25.00.
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Anything to the contrary contained above notwithstanding, the Parties agree
that in the event that a contractor or consultant (as opposed to a BOG
employee) is utilized by BOG to provide any services or work related to the
Parties exploration and/or development operations within the AMI, the Parties
shall be charged for the actual cost of such consulting or contractor services
as part of the Geophysical Program Costs.
(b) Concurrent with its execution of this Agreement UNEXCO shall
forward to BOG UNEXCO's share of the estimated total Geophysical Program Costs
expected to be incurred by the Parties. In the event that following WGC's
completion of the field acquisition of the Program Data it reasonably appears
to BOG that the total estimated Geophysical Program Costs will exceed the
original estimate of such amount which was used for pre-payment purposes, BOG
shall have the right to invoice UNEXCO for its share of the amount by which
BOG reasonably expects the total Geophysical Program Costs to exceed the
original estimate. In such event, UNEXCO shall remit to BOG the invoiced
amount within thirty (30) days of its receipt of such invoice. In the event
that the total Geophysical Program Costs incurred is less than the total
estimate (as same may have been supplemented as provided above) utilized for
purposes of calculating UNEXCO's pre-payments, BOG shall reimburse to UNEXCO
its share of the difference between the estimated amount of the total
Geophysical Program Costs utilized for purposes of calculating the pre-payment
and the actual total amount of Geophysical Program Costs incurred. In the
event that the Geophysical Program Costs exceed the amount of the estimated
pre-payment (as same may have been supplemented as provided above) or
Geophysical Program Costs, UNEXCO shall pay BOG its share of costs incurred
over and above the estimate within thirty (30) days of its receipt of an
invoice from BOG indicating the amount of any such costs. BOG shall not be
obligated to deliver any information relative to the Program Data or
interpretations to UNEXCO until such time as all costs currently owed by UNEXCO
have been received by BOG.
Section 3.4. Disclaimer of Warranties and DTPA. The Parties understand
that BOG will use reasonable efforts to obtain high quality Program Data and to
provide good quality interpretation of such Program Data; however, BOG AND ITS
OFFICERS, EMPLOYEES, AGENTS AND SHAREHOLDERS (HEREINAFTER COLLECTIVELY REFERRED
TO AS THE "BOG GROUP") MAKE NO REPRESENTATIONS OR WARRANTIES OF ANY KIND AS TO
THE PROGRAM DATA OR INTERPRETATIONS, INCLUDING WITHOUT LIMITATION, THEIR
FITNESS FOR A PARTICULAR PURPOSE, MERCHANTABILITY OR ACCURACY, AND THE BOG
GROUP HEREBY DISCLAIMS ANY AND ALL SUCH REPRESENTATIONS OR WARRANTIES, AND ANY
USE OF THE PROGRAM DATA OR INTERPRETATIONS BY THE PARTIES OR THEIR SUCCESSORS
OR ASSIGNS, OR ANY ACTION TAKEN BY THE PARTIES OR THEIR SUCCESSORS OR ASSIGNS
SHALL BE BASED SOLELY ON THEIR OWN JUDGMENT, AND NEITHER THE BOG GROUP OR THEIR
SUCCESSORS OR ASSIGNS, SHALL BE LIABLE OR RESPONSIBLE TO THE OTHER PARTIES OR
THEIR SUCCESSORS OR ASSIGNS FOR ANY LOSS, COST, DAMAGES, OR EXPENSE WHATSOEVER,
INCLUDING INCIDENTAL OR CONSEQUENTIAL DAMAGES, INCURRED OR SUSTAINED AS A
RESULT OF THE USE OF OR RELIANCE UPON THE PROGRAM DATA OR INTERPRETATIONS,
REGARDLESS OF WHETHER OR NOT SUCH LOSS, COST, DAMAGE OR EXPENSE IS FOUND TO
RESULT IN WHOLE OR IN PART FROM THE SOLE OR CONCURRENT NEGLIGENCE OR OTHER
FAULT OF ANY MEMBER OF THE BOG GROUP. Each Party hereto waives all of the
provisions of any applicable Deceptive Trade Practices or Consumer Protection
Act ("DTPA"), other than Section 17.555 of the Texas DTPA, and expressly agrees
and acknowledges that it (i) has assets of five million dollars or more, (ii)
has knowledge and experience in financial and business matters that enable it
to evaluate the merits and risks of the transaction and operations contemplated
by this Agreement, and (iii) is not in a significantly disparate bargaining
position relative to each other Party to this Agreement, but has agreed to this
provision in negotiations involving real choice on the part of each Party. In
the event that UNEXCO trades, exchanges or otherwise discloses any
interpretations of the Program Data, to the extent that same is allowed under
the terms of this Agreement, all such interpretations shall contain the
disclaimer set forth above in all capital letters in this Section 3.4 in
conspicuous print on the face of such interpretation.
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ARTICLE IV.
AREA OF MUTUAL INTEREST
Section 4.1. Establishing an Area of Mutual Interest. The Parties
hereto have agreed to establish an AMI which shall encompass all of the lands
described in Exhibit A which is attached hereto and incorporated herein for all
purposes. The AMI shall remain in force and effect for a period of five (5)
years from the date of this Agreement, unless sooner terminated by mutual
agreement of the Parties.
Section 4.2. Ownership and Payment for Options, Leases and Farm-Ins.
(a) Subject to any consent requirements contained in an Existing
Option, Existing Lease or Existing Farm-In, the Existing Options, Existing
Leases, and Existing Farm-Ins shall be owned by the Parties in accordance with
the percentages which are set forth in the table below (the percentages set
forth below being referred to in this Agreement as the Parties' "Ownership
Interests"):
Party Ownership Interest
----- ------------------
UNEXCO 30.00%
BOG 70.00%.
(b) Subject to the notification and response procedures contained in
Section 4.4 below, all other Options, Leases and Farm-Ins acquired by the
Parties within the AMI during the term of this Agreement shall also be owned by
the Parties in accordance with their undivided Ownership Interests (as set
forth in the table contained in Section 4.2(a) above). However, record title
to all Options, Leases and Farm-Ins shall remain in the Party originally
acquiring same until immediately prior to the commencement of drilling
operations for any well which includes all or part of the acreage that is
covered by the Option, Lease or Farm-In is included within the
Drilling/Proration Unit for such well as set forth in Section 6.7 below.
(c) All costs and expenses incurred prior to the Parties' execution
of this Agreement in acquiring and maintaining Options, Leases and Farm-Ins
will be paid for by the Parties in accordance with their Ownership Interests
(as set forth in the table contained in Section 4.2(a) above). Subject to the
notification and response procedures contained in Section 4.4 below, all costs
and expenses incurred after the Parties' execution of this Agreement in
acquiring and maintaining Options, Leases and Farm-Ins during the term of this
Agreement shall also be paid for by the Parties in accordance with their
Ownership Interests.
(d) Concurrent with its execution of this Agreement, UNEXCO shall
reimburse BOG for UNEXCO's Ownership Interest share of all costs and expenses
incurred prior to UNEXCO's execution of this Agreement in acquiring and
maintaining the Existing Options, Existing Leases and Existing Farm-Ins.
Within fifteen (15) days from receipt of an invoice from any Party hereto or a
third party, each Party shall pay in full the balance of any amounts due for
their share of the costs and expenses incurred in acquiring or maintaining
Options, Leases or Farm-Ins.
Section 4.3. Completion of Processing of the Program Data. For
purposes of this Agreement the "completion of processing of the Program Data"
shall be deemed to have occurred when the final processed, migrated seismic
sections have been delivered to BOG in a form and format that is capable of
being loaded and interpreted on BOG's 3-D workstations.
Section 4.4. Participation in Acquired Interests.
(a) Should any Party own on the date hereof, or hereafter acquire or
propose to acquire at any time prior to the date the AMI terminates hereunder,
by purchase, exchange, gift or otherwise, a Lease, Option or a Farm-In covering
lands any part of which are located within the AMI (such Leases, Options and
Farm-Ins, insofar and only insofar as they cover lands within the AMI (as it
then exists), being herein called "Acquired Interests" with the Existing
Leases, Existing Options and Existing Farm-Ins being excluded from the
definition of Acquired
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Interests) such Party (the "Acquiring Party") shall notify the other Parties,
in writing, of such acquisition or proposed acquisition and the initial
consideration paid or to be paid for the Acquired Interest. Each non-acquiring
Party shall, within thirty (30) days after receipt of such a notice from the
Acquiring Party, notify the Acquiring Party, in writing, whether it shall (i)
participate in such acquisition by acquiring its Ownership Interest share of
the Acquired Interest together with its proportionate share of any non-
participating Party's Ownership Interest share of the Acquired Interest, (ii)
participate in such acquisition by acquiring its Ownership Interest share, but
only its Ownership Interest share, of the Acquired Interest, or (iii) not
participate with any interest in the Acquired Interest; provided that failure
to respond within the time and in the manner set forth above shall be deemed to
be an irrevocable election not to participate with any interest in the Acquired
Interest. Anything to the contrary contained in this Section 4.4
notwithstanding, in the event that there is a drilling rig on location within
one mile of any part of the Acquired Interest, the Acquiring Party may provide
in its written notice that the non-acquiring Parties must make their election
to participate within a shorter time period, provided, however, that in no
event shall the non-acquiring Parties have less than forty-eight (48) hours
(exclusive of week-ends and holidays) from the time of their receipt of such
notice in which to make their election to participate in the Acquired Interest.
If there is not a drilling rig on location within one mile of any part of an
Acquired Interest and a non-acquiring Party reasonably desires additional
information with respect to an Acquired Interest before it makes its election
whether or not to participate in the acquisition of an Acquired Interest, such
Party may notify the Acquiring Party in writing within fifteen (15) days of its
receipt of the Acquiring Party's notice, detailing in such notice to the
Acquiring Party the additional information reasonably desired by such non-
acquiring Party, and such non-acquiring Party shall have fifteen (15) days from
the date of its receipt of the additional information it has reasonably
requested from the Acquiring Party in which to make its election whether to
participate in the acquisition of the Acquired Interest. Anything to the
contrary contained herein notwithstanding, a sale, exchange or assignment of
any part of a Party's Ownership Interest share in any Leases, Options or Farm-
Ins to any other Party hereto shall not be deemed to be an Acquired Interest
for purposes of this Section 4.4 and this Section 4.4 shall not apply to any
such sale, exchange or assignment.
(b) In the event that a Party desires to elect to participate in the
acquisition of an Acquired Interest, such Party must deliver its Ownership
Interest share of the costs which have been (or are to be) incurred to obtain
the Acquired Interest with its election to participate in the Acquired Interest
and within the time period set forth above in Section 4.4(a) for the election
to participate. In the event that payment of a Party's Ownership Interest
share of the costs of an Acquired Interest is not included with the Party's
written election as to participation in the Acquired Interest as provided in
this Section 4.4(b), anything to the contrary contained above notwithstanding,
such Party shall be deemed to have irrevocably elected not to participate in
the Acquired Interest. In the event that a Party elects to acquire its
Ownership Interest share of an Acquired Interest as well as its proportionate
share of any non-participation interests as provided in Section 4.4(a) above,
such Party shall pay the Acquiring Party the Party's share of the costs
incurred (or to be incurred) to acquire the Acquired Interest and which is
allocable to the non-participation interest to be acquired by the Party within
fifteen (15) days of such Party's receipt of notification of the amount of non-
participation interest acquired by the Party.
(c) Should all of the Parties elect to participate in an acquisition
of an Acquired Interest, upon payment of its share of the acquisition costs,
each Party shall own its Ownership Interest share of the Acquired Interest.
However, record title to all Acquired Interests shall remain in the Party
originally acquiring same until immediately prior to the commencement of
drilling operations for any well which includes all or part of the acreage that
is covered by the Acquired Interest is included within the Drilling/Proration
Unit for such well as set forth in Section 6.7 below. If any Party elects not
to participate in such acquisition, such non-participating Party shall own no
interest of any kind in the Acquired Interest or any extension or renewal of
such Acquired Interest. The Parties that elect to acquire their share of any
non-participating Party's Ownership Interest shall own and pay for a
proportionate part of the non-participating Party's original Ownership Interest
(being in the proportion that such participating Party's original Ownership
Interest bears to the total Ownership Interests of all of the Parties that have
elected to acquire their share of the non-participating Party's Ownership
Interest).
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Section 4.5. Exercise of Options. Should any Party propose to exercise
an Option with respect to some or all of the lands covered thereby, such Party
shall notify the other Parties owning an interest in such Option in the same
manner as provided for in Section 4.4 above with respect to acquisitions of
Acquired Interests, and each Party owning an interest in the Option shall elect
to participate or to not participate in the exercise of such Option in the same
manner as provided in Section 4.4 with respect to elections to participate or
to not participate in the acquisition of Acquired Interests and the Party
proposing the exercise of the Option shall be deemed to be the "Acquiring
Party" under Section 4.4. The effect of a Party's election to participate in
such an exercise of an Option, and the payment of costs and the ownership of
interests in the Leases acquired pursuant to such exercise, shall be handled in
the same manner as provided in Section 4.4 with respect to elections to
participate or not participate in acquisitions of Acquired Interests. Anything
to the contrary contained above notwithstanding, should any Party having the
right to participate in such exercise furnish notice (within the time provided
for written notice with respect to such an election) to the Acquiring Party
that it wishes to defer exercise of such Option, and should it be possible
under the terms of the Option to defer such exercise without any loss of costs
or rights, the Acquiring Party shall withdraw its proposal to exercise such
Option. However, if any Party does not wish to participate in the exercise of
any Option when the time to exercise arrives, then said non-participating Party
shall not have any interest in the leasehold appurtenant to such Option but
will still be subject to this Agreement in all other respects. Anything to the
contrary contained herein notwithstanding, if a Party has not elected to
participate in the acquisition of an acquired Option as provided in Section
4.4, such Party shall not have the right to participate in the exercise of such
Option and shall own no interest in the Leases resulting from the exercise of
such Option.
Section 4.6. Mandatory Participation in Exercise of Welder Option.
(a) Anything to the contrary contained in Sections 4.4 and 4.5 above
notwithstanding, each of the Parties shall be required to participate in the
exercise of the Welder Option as to the minimum exercise requirement contained
in Article II thereof and shall be required to pay its Ownership Interest share
of the costs incurred to exercise the Welder Option to obtain Leases covering
3,200 net mineral acres.
(b) Anything to the contrary contained in Sections 4.4 and 4.5 above
notwithstanding, in the event that a Party does not pay its Ownership Interest
share of the costs incurred to exercise the Welder Option as to the 3,200 net
mineral acre minimum set forth in the Welder Option within thirty (30) days of
its receipt of an invoice for the Party's Ownership Interest share of such
costs, in addition to and without limitation of all other remedies which may be
available to the paying Party at law or in equity, at such Paying Party's
option, such non-paying Party shall be deemed to have irrevocably elected not
to participate in any Leases which are obtained as the result of the exercise
of the Welder Option and such non-paying Party shall own no interest and have
no rights of any kind in the Welder Option. To exercise the option described
in this Section 4.6(b), the paying Party shall notify the non-paying Party in
writing of its election to exercise the option within sixty (60) days of the
invoice due date. In the event that the paying Party exercises the option
described above in this Section 4.6(b), the non-paying Party shall promptly
(but in any event within fifteen days of its receipt of the instrument) execute
all assignments and other conveyance or relinquishment instruments that may be
requested by the paying Party to help evidence the relinquishment described in
this Section 4.6(b).
Section 4.7. Election as to Participation in Maintenance or Extension
Costs. In the event maintenance or extension costs are incurred with respect
to an Option, Lease or Farm-In, each Party that owns an Ownership Interest in
such Option, Lease or Farm-In shall have the right to elect whether to
participate in such maintenance or extension cost for the Option, Lease or
Farm-In utilizing the same procedures set forth in Section 4.4 above for
Acquired Interests; provided, however, that in the event that a Party elects
not to participate in a maintenance or extension cost, such Party shall
promptly relinquish and assign to the Parties participating in such maintenance
or extension cost all of such non-participating Party's Ownership Interest in
the interests in the Option, Lease or Farm-In that would have been relinquished
or lost if the maintenance or extension cost had not been paid.
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Section 4.8. Lease Bonus Payments to WGC. The Parties recognize and
acknowledge that under the terms of Section B of the WGC Agreement, certain
payments are to be made to WGC in the event that any Party hereto pays lease
bonus costs to mineral interest owners in order to lease mineral interests
within the AMI after November 6, 1996. Each Party hereby agrees to pay its
Ownership Interest share of such costs that are to be made to WGC under the
terms of the WGC Agreement; provided, however, that in the event that any Party
hereto elects not to participate in the acquisition of a Lease that creates the
payment responsibility to WGC under the WGC Agreement, the Party(ies)
participating in the acquisition of the Lease shall be responsible for the full
payment that is to be made to WGC as the result of such Lease acquisition in
accordance with their Ownership Interests in the Lease and the non-
participating Party shall not be required to bear any part of such cost.
Anything to the contrary contained above notwithstanding, the Parties recognize
that BOG has already made payment to WGC for lease bonuses that have already
been paid to obtain Leases (including the First State Lease) within the AMI and
concurrent with its execution of this Agreement, UNEXCO shall reimburse BOG for
UNEXCO's 30% Ownership Interest share of the payments previously made to WGC.
Each Party shall timely pay WGC directly for its share of all lease bonus
charges that are to be made to WGC pursuant to the terms of Section B of the
WGC Agreement.
ARTICLE V.
PROSPECT DESIGNATION AND PARTICIPATION
Section 5.1. Prospect Designation. Upon completion of BOG's initial
interpretation of the Program Data, the Parties will meet to review the
interpretations and delineate prospects (hereinafter individually referred to
as "Prospect Area") for exploration and development within the AMI. The
Parties shall attempt to agree on 1) the number of Prospect Areas, and 2) the
acreage to be included in each Prospect Area. As to all Prospect Areas
proposed and agreed upon by all of the Parties in the initial meeting, such
Prospect Areas shall be deemed to be designated and the Parties shall document
their agreement in writing in the form attached hereto as Exhibit C. Each such
Prospect Area will be governed by a separate operating agreement in the form
attached hereto as Exhibit F (the "Operating Agreement"). Any Prospect Area
proposed at the initial meeting which is not agreed to by the Parties may be
re-submitted by any Party utilizing the procedures contained in Section 5.2
below.
Section 5.2. Additional Proposals by Parties for Prospect Areas. After
the meeting described in Section 5.1 above, any Party hereto may propose
(hereinafter referred to as the "Proposing Party") that a portion of the AMI be
designated as a Prospect Area by giving written notice to the other Parties,
which notice shall contain 1) a description of the acreage which such Party
would include in the Prospect Area, and 2) the Proposing Party's tentative
initial well location within the Prospect Area. The acreage proposed to be
included in a Prospect Area shall not include any acreage included within a
previously designated Prospect Area. The Parties recognize that the Proposing
Party's tentative initial well location described in a Prospect Area proposal
does not commit the Parties to the well location described or to participate in
the initial well that is drilled within the Prospect Area. The "tentative
initial well location" is just provided in the proposal in order to facilitate
the designation of the acreage to be included within the Prospect Area.
Section 5.3. Response to a Prospect Area Proposal. In the event that a
Party proposes the designation of a Prospect Area utilizing the terms of
Section 5.2 above, each Party shall notify such Proposing Party, in writing,
within thirty (30) days after its receipt of such proposal, or sooner (but in
no event shall a Party be required to respond in less than 48 hours) if an
Option, Lease or Farm-In is expiring, as to whether such Party agrees with the
acreage proposed to be included in the Prospect Area by the Proposing Party.
In the event that a Party does not respond to a Prospect Area proposal within
such time period, such Party shall be deemed to be in irrevocable agreement
with the acreage proposed for inclusion in the Prospect Area. A Party who
disagrees with the acreage proposed to be included in the Prospect Area must
give notice of such disagreement to the Proposing Party within the time and in
the manner provided above. If no Party disagrees with the acreage proposed to
be included in the proposed Prospect Area, such Prospect Area shall be deemed
to be designated.
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Section 5.4. Determining Prospect Area Disagreements. If, with respect
to a Prospect Area proposed under Section 5.2, there is disagreement concerning
the lands to be included in the Prospect Area, the Parties shall, for a period
of ten (10) days after the expiration of the response period described in
Section 5.3 above, attempt to agree upon the lands to be included in the
Prospect Area and, failing to reach such agreement within such time, the
Prospect Area shall be deemed to be designated and the lands included in the
Prospect Area shall consist of the Governmental Section on which the initial
well is proposed to be located. In the event that the acreage located in the
area of the proposed Prospect Area is not divided into 640 acre Governmental
Sections, to the extent practicable, the Prospect Area shall consist of a 640
acre tract in the form of a square (with the boundary lines running due North,
South, East and West) with the tentative initial well location being the center
of the tract. Provided, further, any such Prospect Area determined pursuant to
this Section 5.4 may not include any acreage included within a previously
designated Prospect Area unless all of the Parties hereto agree to amend the
acreage included within the previously designated Prospect Area. In the event
of such a Prospect Area disagreement, once the acreage to be included within
the Prospect Area has been resolved in accordance with the provisions of this
Section 5.4, the Prospect Area shall be deemed to be designated.
Section 5.5. Project Generator Burdens. The Parties expressly
recognize and agree that their interests in the AMI are, or shall be,
proportionately subject to the overriding royalties created in that certain
Project Area Generation Agreement, Las Cabeza Ranch Project, by and between BOG
and X.X. Xxxxxx Company and Sable Energy Corp. dated October 1, 1996 (the
"Sable Agreement"). The Parties also agree to bear their Ownership Interest
share of all costs, expenses and payments which are due under the Sable
Agreement. Concurrent with its execution of this Agreement UNEXCO shall
reimburse BOG for UNEXCO's 30% Ownership Interest share of all payments which
have been made by BOG pursuant to the terms of the Sable Agreement prior to the
Parties' execution of this Agreement.
Section 5.6. Lease Burdens. No Party hereto shall burden or encumber
any other Party's legal or equitable interest in a Lease, Option or Farm-In
with any overriding royalty, production payment, mortgage, security interest or
other burden except as provided in Section 5.5 above, without the consent of
the other Parties; provided, however, that in its efforts to obtain a Lease,
Option or Farm-In, a Party hereto may grant or otherwise burden such Lease,
Option or Farm-In with a royalty, overriding royalty, production payment or
other similar burden (other than a lien or security interest), or acquire such
interest subject to reservation of such a burden, in favor of a third party
owning such Acquired Interest (farmor, mineral owner, assignor, lessee or
lessor) in such Party's reasonable efforts to obtain the Lease, Option or Farm-
In. If any Party hereto burdens or encumbers its own Ownership Interest,
whether legal or beneficial, vested or contingent, in any Option, Lease, Farm-
In or Program Data with any overriding royalty, production payment, lien,
security interest or other burden (hereinafter referred to as "Subsequently
Created Burdens") except as provided in this Section 5.6 or in Section 5.5
above, and such Party is thereafter required under the terms of this Agreement,
or the applicable Operating Agreement, to assign or relinquish to any other
Party or Parties, all or a portion of its Ownership Interest and/or the
production attributable thereto, said other Party or Parties shall receive such
assignment and/or production free and clear of such Subsequently Created
Burdens and such Party shall indemnify and hold harmless the Party or Parties
entitled to the assignment or forfeiture, from any and all claims and demands
for payment asserted by owners of such Subsequently Created Burdens.
Section 5.7. Operating Agreements. The Parties agree that once a
Prospect Area has been designated pursuant to the terms of this Article V, such
Prospect Area shall thereupon immediately be deemed covered by a separate
Operating Agreement which is in the form attached hereto as Exhibit F.
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ARTICLE VI.
DRILLING OPERATIONS
Section 6.1. Drilling Operations.
(a) The designation of a Prospect Area in accordance with the terms
of Article V above does not constitute a commitment to participate in the
drilling of a well within the Prospect Area. After a Prospect Area has been
designated in accordance with terms of Article V above, subject to the
limitations set forth in Section 6.8 below, any Party owning an interest in
Options, Leases or Farm-Ins within such Prospect Area may propose the drilling
of the initial well (being the first well drilled by any of the Parties within
the applicable Prospect Area and being hereinafter referred to as an "Initial
Well") or any subsequent well (being any well drilled within a Prospect Area
following the drilling of the Initial Well within such Prospect Area and being
hereinafter referred to as a "Subsequent Well") within the Prospect Area in
accordance with the procedures set forth in the form Operating Agreement which
is attached hereto as Exhibit F. In the event that a Party proposes a
completion operation within an Initial Well or Subsequent Well hereunder, in
addition to the information which must be included with the completion proposal
as set forth in the Operating Agreement, such proposing Party shall specify the
exact interval (by log depths) within the well bore which such Party reasonably
believes may produce from the completion operations which are proposed (the
formation(s) or partial formation(s) which are located between the high and low
log depth which are reasonably described in such completion proposal being
herein referred to as the "Completion Interval," regardless of the exact
location of the perforations within said Completion Interval).
(b) In the event that a Party does not participate in the drilling of
the Initial Well proposed and drilled within the Prospect Area, anything to the
contrary contained in the applicable (or deemed applicable) Operating Agreement
to the contrary, such Party (i) must permanently relinquish and assign (without
reimbursement for costs) to the Parties participating (in proportion to the
interest in the Initial Well acquired by such Party from the non-participating
Party in accordance with the terms of the Operating Agreement) in the drilling
of such Initial Well all of its right, title and interest in the applicable
Prospect Area as to all depths from the surface to two hundred feet (200')
below the deepest depth drilled in such Initial Well, and (ii) shall not own or
acquire any mineral, leasehold, royalty or other interest in oil, gas and/or
other minerals within such Prospect Area as to all depths located from the
surface to two hundred feet (200') below the deepest depth drilled in such
Initial Well for a period of fifteen (15) years from the effective date of this
Agreement.
(c) In the event that a Party has participated in the drilling of the
Initial Well drilled within a Prospect Area but such Party does not participate
in the drilling of any Subsequent Well which is proposed and drilled within
such Prospect Area, such Party (i) must permanently relinquish and assign
(without reimbursement for costs) to the Parties participating (in proportion
to the interest in the Subsequent Well acquired by such Party from the non-
participating Party in accordance with the terms of the Operating Agreement) in
the drilling of such Subsequent Well all of its right, title and interest in
the Drilling/Proration Unit (as such term is defined below in Section 6.1(e))
for such Subsequent Well as to all depths from the surface to two hundred feet
(200') below the deepest depth drilled in such Subsequent Well, and (ii) shall
not own or acquire any mineral, leasehold, royalty or other interest in oil,
gas and/or other minerals within the Drilling/Proration Unit for such well as
to all depths from the surface to two hundred feet (200') below the deepest
depth drilled in such well for a period of fifteen (15) years from the
effective date of this Agreement.
(d) In the event that a Party has participated in the drilling of the
Initial Well or any Subsequent Well within a Prospect Area and then elects not
to participate in a completion operation proposed for such well, such Party (i)
must permanently relinquish and assign (without reimbursement for costs) all of
its right, title and interest in the Completion Interval within the
Drilling/Proration Unit for such well to the Parties participating (in
proportion to the interest in the completed formation acquired by such Party
from the non-participating Party in accordance with the terms of the Operating
Agreement) in the completion of such Completion Interval, and
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(ii) shall not own or acquire any mineral, leasehold, royalty or other interest
in oil, gas and/or other minerals located within the Completion Interval within
the Drilling/Proration Unit for such well for a period of fifteen (15) years
from the effective date of this Agreement. The Parties recognize that the
depth of the Completion Interval may vary within the Drilling/Proration Unit
and it is the Parties' intent that the relinquishment and assignment provisions
contained in this Section 6.1(d) shall apply to the stratigraphic equivalent of
the Completion Interval within the Drilling/Proration Unit despite the fact
that the Completion Interval's depth may vary within the Drilling/Proration
Unit.
(e) For purposes of this Section 6.1, "Drilling/Proration Unit" shall
be defined as follows: (1) in the event that a voluntary pooled unit is formed
prior to or after the drilling or completion of the well by the Parties that
are participating in the well operations that are being conducted at the time
that such unit is formed, the "Drilling/Proration Unit shall be made up of the
lands included within such voluntary pooled unit, provided that such voluntary
pooled unit does not violate the terms and provisions of any Lease or Farm-In
which covers any part of the lands that are included in the voluntary pooled
unit; (2) in the event that a voluntary pooled unit is not formed prior to or
after the drilling or completion of the well, (i) if the well is drilled or
completed as an oil well, the Drilling/Proration Unit shall be an 80 acre tract
with the well being located within the tract and the exact configuration of the
boundary lines of the 80 acre tract to be determined by the Parties
participating in the well operations that are being performed after any non-
consent or non-participation elections have been made with respect to such
operations, and (ii) if the well is drilled or completed as a gas well, the
Drilling/Proration Unit shall be a 640 acre tract with the well being located
within the tract and the exact configuration of the boundary lines of the 640
acre tract to be determined by the Parties participating in the well operations
that are being performed after any non-consent or non-participation elections
have been made with respect to such operations; provided, however, that in the
event that the Drilling/Proration Unit as described in this Section 6.1(e)
would violate the terms of any Lease or Farm-In which covers lands which are
included in the Drilling/Proration Unit, the Drilling/Proration Unit shall be
re-configured by the Parties participating in the well to conform to the terms
of the applicable Lease or Farm-In. It is the intent of the Parties that the
relinquishment and assignment of interests provided for in this Section 6.1 for
failure to participate in the drilling of a Subsequent Well or a completion
operation apply to all and only all of the leasehold interests, mineral
interests and production that are allocated to the relevant well (or completed
formation) for production purposes and the Parties hereto agree that in the
event that such allocation changes in the future, the Parties shall execute any
future or further relinquishment instruments or other documentation that is
necessary to effectuate that intent.
(f) In the event that mechanical difficulties are experienced,
impenetrable substances are encountered or other conditions are encountered
which render further drilling or completion of any well impracticable before
such well reaches its proposed depth or formation or before such well can be
completed, the participating Parties may discontinue drilling or completing
said well and shall have the option for thirty (30) days to commence the
drilling of a "substitute well." The substitute well must have a bottom hole
location that is within 1,000' of the bottom hole location that was originally
planned for the well that it is drilled to replace. If a substitute well is
commenced and drilled and/or completed as herein provided, for purposes of the
non-participation provisions of this Section 6.1, the drilling Parties shall be
deemed to have complied with this Agreement to the same extent as if the well
it replaced had been commenced, drilled and/or completed in accordance with the
terms of this Section 6.1. In such event, each reference herein to the well a
substitute well replaced shall include the substitute well.
(g) Nothing contained in this Section 6.1 shall be construed so as to
require an assignment of any Party's interest in a completed formation within a
previously existing well that was then producing or capable of producing even
though such completed formation is located within a Prospect Area or proration
unit that is to be relinquished because of such Party's failure to participate
in the drilling or completion of an additional well as provided herein.
(h) In the event of any required relinquishment and assignment of
interests as provided in this Section 6.1, the relinquishing Party shall,
promptly following the
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commencement of the operation as proposed and which results in such
relinquishment and assignment, execute all conveyance instruments necessary to
effectuate the relinquishment and assignment. However, the Parties recognize
and agree that in the event that the proposed operation is not commenced within
the time frame set forth in Article VI.B.2. of the Operating Agreement, the
relinquishment and assignment provisions set forth in this Section 6.1 shall
not apply unless and until such operation is re-proposed to the non-
participating Party and the non-participating Party is again given the election
to participate in the operation.
(i) Except as provided herein to the contrary, or as otherwise
provided in any Lease, Farm-In or Option agreement to the contrary, all
drilling, completing, workover and other well and production operations on each
Prospect Area shall be governed by the terms of a separate Operating Agreement
for each such Prospect Area in the form attached hereto as Exhibit F (with
appropriate insertions and exhibits reflecting the agreements hereunder with
respect to the Prospect Area and participation percentages) as provided in
Section 5.7 above and Section 6.2 below. In the event that there are any
irreconcilable inconsistencies or ambiguities between the terms of this
Agreement and the terms of the Operating Agreement, the terms and conditions
contained in this Agreement shall control.
(j) In the event that any Party proposes the drilling of the Initial
Test Well or a subsequent well within a Prospect Area and any other Party
hereto disagrees with the location of the proposed well, such Party shall
promptly (but in no event less than five (5) days following such Party's
receipt of the drilling proposal) notify all of the other Parties hereto in
writing of such disagreement. In the event of such a disagreement, the Parties
that have the right to participate in the proposed well shall make a reasonable
attempt to reach agreement upon the location for the proposed well. In the
event that within ten (10) days of the Parties' receipt of the notice of
disagreement, Parties which have the right to participate in the drilling of
the proposed well and which would together own a majority (at least 51%) of the
working interest in the well agree upon a location, the location selected by
such Parties shall be the location for the proposed well and all of the
Parties, including the Party which originally proposed the well, shall make
their election to participate or not participate in the proposed well in
accordance with the terms set forth in the Operating Agreement, the time for
election running from the Parties' receipt of the original drilling proposal.
In the event that within ten (10) days of the Parties' receipt of the notice of
disagreement, Parties which have the right to participate in the drilling of
the proposed well and which together would own a majority of the working
interest in the well have not agreed upon a location for the well, then the
location shall remain as originally proposed and each Party must make their
election to participate or not participate in the drilling of the proposed well
in accordance with the terms set forth in the Operating Agreement, the time for
election running from the Parties' receipt of the original drilling proposal.
(k) The Parties recognize and acknowledge that under the terms of the
Sable Agreement the X.X. Xxxxxx Company and Sable Energy Corp. have certain
rights to review well logs and results as set forth in the Sable Agreement.
Section 6.2. Execution of Prospect Area Operating Agreements. Once a
Party (hereinafter referred to as the "Initiating Party") has proposed the
drilling of the Initial Well within a Prospect Area and the Parties have made
their elections (or they are deemed to have made their elections) to
participate, or not participate, in the drilling of such Initial Well under the
terms set forth in Section 6.1 above, if the other Party hereto has elected to
participate in the drilling of such Initial Well, the Initiating Party shall
prepare and deliver to the other Party electing to participate in the Initial
Well the following documentation and pages for the Operating Agreement that
governs all drilling, completion, workover and all other well operations for
such Prospect Area: (i) a cover page describing the Prospect Area as the
Contract Area for the Operating Agreement; (ii) multiple original execution and
acknowledgment pages for the Operating Agreement; (iii) the Exhibit A to the
Operating Agreement with appropriate insertions reflecting the agreements set
forth in this Agreement with respect to the Prospect Area and participation
percentages; and (iv) the Memorandum of Operating Agreement for such Operating
Agreement in the form attached to the form Operating Agreement which is
attached hereto as Exhibit F, completed to describe the Contract Area and the
participating Parties. Prior
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to the date that preparations for the drilling of the Initial Well are expected
to commence, each Party that has elected to participate in the drilling of such
Initial Well shall execute and return to the Initiating Party fully executed
and completed duplicate originals of the execution pages and acknowledgment
pages to both the Operating Agreement and the Memorandum of Operating Agreement
and shall incorporate all of the pages and documentation described in (i), (ii)
and (iii) above into a copy of the form Operating Agreement which is attached
hereto as Exhibit F which it shall retain for its records. Each participating
Party's completed copy of the Operating Agreement shall constitute a duplicate
counterpart original of the Operating Agreement which governs the participating
Party's well operations within the applicable Prospect Area. Once the
Initiating Party receives the duplicate original execution and acknowledgment
pages from the participating Parties, the Initiating Party shall provide each
participating Party with a copy of execution pages for the Initiating Party and
for all of the other participating Parties. In the event that a participating
Party fails to execute and return its duplicate original execution pages to the
Initiating Party (but without a diminution of such Party's obligation to so
execute and return duplicate original signature pages to the Initiating Party),
such Party shall nonetheless continue to be bound by the terms of the Operating
Agreement for such Prospect Area, which terms shall continue to be deemed to
apply to such Party as provided in Sections 5.7 and 6.2 above.
Section 6.3. Operator. It is agreed and understood that, except as may
be provided in any Farm-In or Option agreement to the contrary, BOG shall be
designated as operator in the applicable Operating Agreement for each well in
which BOG participates. In the event that BOG does not participate in the
drilling of a well, except as provided in any Farm-In or Option agreement to
the contrary, the Parties holding a majority working interest in the well shall
designate the operator. The operator shall consult with all of the other
Parties participating in the well as to all drilling and completion operations.
Section 6.4. Drilling Costs. Subject to the terms of the Operating
Agreement, the Parties shall pay for all drilling costs in proportion to their
working interest in each well, as determined by the Parties' respective
Ownership Interests in the Options, Leases and Farm-Ins included within the
drilling and proration unit for such well.
Section 6.5. Drilling Cost Payment to WGC. The Parties recognize and
acknowledge that under the terms of Section B of the WGC Agreement, certain
payments are to be made to WGC in the event that either Party hereto
participates in the drilling and/or completion of a well within the AMI after
WGC has delivered a copy of the Program Data to BOG. Each Party hereby agrees
to pay its Ownership Interest share of such costs that are to be made to WGC
under the terms of the WGC Agreement; provided, however, that in the event that
either Party elects not to participate in the drilling or completion of a well
that creates the payment responsibility to WGC under the WGC Agreement, the
participating Parties shall be responsible for the full payment that is to be
made to WGC as the result of the drilling and/or completion of such well in the
proportion that their respective Ownership Interests bear to the total of the
Ownership Interests of all of the participating Parties, and the non-
participating Parties shall not be required to bear any part of such cost.
Each Party shall timely pay WGC directly for its share of all drilling and
completion cost charges that are to be made to WGC pursuant to the terms of
Section B of the WGC Agreement.
Section 6.6. AMI for Prospect Area. Commencing with the establishment
of a Prospect Area, such Prospect Area shall from that time forward no longer
be subject to the AMI provided for in Section 4.1 above and shall thereafter be
considered covered instead by a new Prospect Area AMI. The new Prospect Area
AMI (i) is binding on all Parties, (ii) consists of such Prospect Area, (iii)
lasts until the later to occur of three (3) years from the date hereof or the
date that the Operating Agreement for such Prospect Area terminates, and (iv)
is governed by the same terms set forth in Sections 4.2, 4.4, 4.5, 4.6, 4.7,
4.8, 5.5, and 5.6, with the participation percentages of the Parties being in
accordance with their ownership interest in the Leases, Options and Farm-Ins
located within the Prospect Area; provided, however, that in the event that a
Party has elected not to participate in the drilling of the Initial Well within
such Prospect Area, such Party shall not have the right to own or acquire any
interest in that part of any Acquired
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Interest that is located within such Prospect Area. Any portion of the AMI not
designated as a Prospect Area shall continue to be subject to the AMI provided
for in Section 4.1.
Section 6.7. Assignment of Ownership Interests in Leases, Options and
Farm-Ins. Unless such assignment is not permitted under the terms of the
applicable Option, Lease or Farm-In, the Parties agree that each Party's
Ownership Interest (as such Ownership Interest is subject to change in
accordance with the provisions of Sections 4.4, 4.5, 4.7 and 6.1) in each
Lease, Option or Farm-In shall be assigned to the Parties (utilizing the
general form of assignment which is attached hereto as Exhibit E) prior to the
commencement of drilling operations for any well which includes all or part of
the acreage that is covered by the Option, Lease or Farm-In in the drilling
and/or proration unit for such well. In addition to the above, following the
expiration of the AMI hereunder, the Parties shall be assigned their Ownership
Interests in any Options, Leases or Farm-Ins which have not been included
within a designated Prospect Area.
Section 6.8. Limitation on Well Proposals. Anything to the contrary
contained herein notwithstanding, the Parties agree that, without mutual
agreement of the Parties otherwise, during any forty-five day period hereunder
no more than one deep well may be proposed to be drilled to a subsurface depth
in excess of 10,000 feet ("Deep Xxxxx") within lands that are within the AMI
and which are the subject of jointly owned Leases and/or Farm-Ins unless the
drilling of additional Deep Xxxxx within lands that are the subject of such
jointly owned Leases and/or Farm-Ins is necessary in order to avoid losing
rights or interests under a Lease or Farm-In without incurring additional costs
to extend or renew such Lease or Farm-In. Therefore, without the mutual
agreement of the Parties or a situation in which more drilling is necessary to
avoid losing rights or interests in a Lease or Farm-In as aforesaid, during any
three hundred sixty day period hereunder no more than eight Deep Xxxxx can be
proposed to be drilled by the Parties on jointly owned Leases and/or Farm-Ins
within the AMI. In addition, anything to the contrary contained herein
notwithstanding, the Parties agree that, without mutual agreement of the
Parties otherwise, during any forty-five day period hereunder no more than
three xxxxx may be proposed to be drilled to total depths of less than 10,000
feet ("Shallow Xxxxx") within lands that are within the AMI and which are the
subject of jointly owned Leases and/or Farm-Ins unless the drilling of
additional Shallow Xxxxx within lands that are the subject of such jointly
owned Leases and/or Farm-Ins is necessary in order to avoid losing rights or
interests under a Lease or Farm-In without incurring additional costs to extend
or renew such Lease or Farm-In. Anything to the contrary contained above
notwithstanding, in the event that a drilling proposal is subsequently
withdrawn by the proposing Party or a proposed well cannot be drilled within
the required time period set forth in the Operating Agreement, the Parties
agree that for purposes of this Section 6.8, such proposal shall not be counted
for purposes of calculating the drilling proposal limitations that are
contained in this Section 6.8. In addition, anything to the contrary contained
above notwithstanding, in the event that only one Party hereto owns interests
in the Leases and/or Farm-Ins which are to be included within the
Drilling/Proration Unit for a well (whether as the result of non-participation
elections in Acquired Interests, well proposals or otherwise), and no jointly
owned Leases or Farm-Ins are to be included within the Drilling/Proration Unit
for such well, the well proposal for such well shall not be counted for
purposes of the well proposal limitations contained in this Section 6.8.
Finally, anything to the contrary contained herein notwithstanding, the Parties
agree that in the event that the Parties hereto and their successors and
assigns own less than fifty-one percent of the working interest in a well that
has been proposed to be drilled within the AMI, the well proposal for such well
shall not be counted for purposes of the well proposal limitations contained in
this Section 6.8.
ARTICLE VII.
MISCELLANEOUS
Section 7.1. Assignments. Subject to any restrictions that may be
contained in any Option, Lease or Farm-In, any Party hereto may assign all or
any part of its interest under the terms of this Agreement. This Agreement
shall be binding upon and inure to the benefit of the Parties hereto and their
respective successors and their respective assigns of rights hereunder;
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provided, however, that the conveyance or assignment instrument vesting such
assignee with all or part of such interests must expressly provide that the
assignment or conveyance is made subject to the terms and conditions contained
in this Agreement. In addition, in any such assignment or conveyance, the
assignee shall expressly agree to assume and be responsible for any
liabilities, damages, obligations, covenants and agreements arising from and
after the date of such assignment or conveyance, in relation to or otherwise
out of the properties, rights and interests that are the subject of this
Agreement and/or such assignment or conveyance, and the assignor shall remain
responsible for any of the foregoing arising prior to the date of such
assignment or conveyance. Any subsequent assignment or conveyance shall
likewise contain express language so allocating responsibility as between
assignor and assignee. Unless (and then only to the extent that) this
Agreement is itself assigned at the same time, the benefits of this Agreement
shall not run with an assignment of a Party's interests in the Options, Leases
or Farm-Ins, or any other rights in lands within the AMI, but the assigned
interest shall be subject to the terms of this Agreement. Anything to the
contrary contained above notwithstanding, in the event that any Party hereto
assigns interests in this Agreement to more than two parties, in no event shall
the other Parties hereto be required to make more than three xxxxxxxx for the
entire Ownership Interest credited to such Party in the table contained in
Section 4.2(a) above. It is further agreed that anything to the contrary
contained above notwithstanding, if any Party (herein referred to as the
"Selling Party") disposes of part of the Ownership Interest credited to it in
the table contained in Section 4.2(a) above to more than two parties, unless
the other Parties hereto agree in writing otherwise, the Selling Party shall be
solely responsible for billing its assignee or assignees, and shall remain
primarily liable to the other Parties hereto for the interest or interests
assigned and shall make prompt payment to the invoicing Party for the entire
amount of the statements or xxxxxxxx rendered to it. It is further understood
and agreed that if a Selling Party disposes of all of its Ownership Interest,
whether to one or more assignees, the Parties hereto shall continue to issue
statements and xxxxxxxx to the Selling Party for the Ownership Interest
conveyed and the Selling Party shall remain liable for all payments due
hereunder until such time as the Selling Party has designated in writing one
financially sound assignee to receive and be liable for the xxxxxxxx and
statements for the entire Ownership Interest and such assignee has assumed such
responsibility in writing, a copy of which is delivered to all of the Parties
hereto.
Section 7.2. Memorandum Giving Notice. Concurrent with their execution
of this Agreement each Party shall sign and deliver to the other Party hereto a
duplicate original of the Memorandum Giving Notice of Geophysical Exploration
Agreement and Area of Mutual Interest Provisions which is attached hereto as
Exhibit H and each Party shall have the right to place such Memorandum Giving
Notice of record in the Official Public Records of Xxxxx County, Texas.
Section 7.3. Notices. All notices and other communications required or
permitted under this Agreement shall be in writing, and unless otherwise
specifically provided, shall be delivered personally, or by mail, telecopier or
delivery service, to the addresses set forth opposite the signatures of the
Parties below, and shall be considered delivered upon the date of receipt.
Each Party may specify its proper address or any other post office address
within the continental limits of the United States by giving notice to other
Parties, in the manner provided in this Section, at least ten (10) days prior
to the effective date of such change of address.
Section 7.4. Merger. This Agreement supersedes any and all prior and
existing agreements, whether oral or in writing, between the Parties hereto
with respect to the subject matter hereof and contains all of the covenants and
agreements between the Parties with respect to the subject matter hereof. Each
Party acknowledges that no Party to this Agreement or anyone on their behalf
has made any representations, inducements, promises or agreements, orally or
otherwise, relating to the subject matter of this Agreement that are not
embodied herein.
Section 7.5. Governing Law. THIS AGREEMENT AND ALL MATTERS PERTAINING
THERETO, INCLUDING, BUT NOT LIMITED TO, MATTERS OF PERFORMANCE, NON-
PERFORMANCE, BREACH, REMEDIES, PROCEDURES, RIGHTS, DUTIES, AND INTERPRETATIONS
OR CONSTRUCTION, SHALL, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW, BE
GOVERNED BY THE LAWS OF THE STATE OF TEXAS.
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Section 7.6. Counterparts. This Agreement may be executed in multiple
counterparts, each of which shall be binding upon the signing Party or Parties
thereto as fully as if all Parties had executed one instrument, and all of such
counterparts shall constitute one and the same instrument. If counterparts of
this Agreement are executed, the signatures of the Parties, as affixed hereto,
may be combined in and treated and given effect for all purposes as a single
instrument.
IN WITNESS WHEREOF this Agreement is executed by the Parties on the
dates set forth opposite their respective signatures below but is effective for
all purposes as of the date first set forth above.
Address: XXXXXXX OIL & GAS, L.P.,
0000 Xxxxxx Xxxx, Xxxxx 0000 by Xxxxxxx Exploration Company,
Xxxxxx, Xxxxx 00000 its Managing General Partner
(000) 000-0000
Fax: (000) 000-0000
Dated: 02/25/97 By: /s/ XXXX X. XXXXXXX
----------------------- ---------------------------------
Xxxx X. Xxxxxxx, Vice President
Address: UNEXCO, INC.
00000 Xxxx Xxx Xxxxx
Xxxxx 000
Xxxxxxx, Xxxxx 00000-0000
(000) 000-0000
Fax: (000) 000-0000 By: /s/ XXXXXXX X. PAWELEL
---------------------------------
Dated: 02/27/97 (name printed) Xxxxxxx X. Pawelel
----------------------- ----------------------
Its: President
-------------------------------
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LIST OF EXHIBITS
Exhibit A -- AMI
Exhibit B -- Existing Options, Existing Leases and Existing Farm-Ins
Exhibit C -- Agreement as to Prospect Areas
Exhibit D -- Form Confidentiality Agreement
Exhibit E -- Form of Assignment of Options, Leases and/or Farm-Ins
Exhibit F -- Form Joint Operating Agreement
Exhibit G -- Copy of the WGC Agreement
Exhibit H -- Memorandum Giving Notice
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