EXHIBIT 10.45
DIVIDE EXPLORATION AGREEMENT
This Joint Exploration Agreement (this "AGREEMENT") is made and entered
into effective as of the 27th day of June, 1996, by and between Tipperary Oil &
Gas Corporation, a Texas corporation, (hereinafter called "TIPPERARY") and Lyco
Energy Corporation, a Delaware corporation, (hereinafter called "LYCO" or
"PROJECT MANAGER"). Tipperary and Lyco are hereinafter collectively referred to
as the "PARTIES".
W I T N E S S E T H
This Agreement, when executed by Tipperary and Lyco in the space provided
below, shall set forth the understanding and agreement between said Parties
relative to the ownership in, and conduct of, certain acquisition, exploration
and development activities in Divide County, North Dakota within the Area of
Mutual Interest ("AMI") more particularly defined in Article IV below
(hereinafter sometimes referred to as the "DIVIDE PROJECT" or the "PROJECT").
It is the desire of the Parties to combine their respective resources and
technical expertise to conduct such activities as they deem appropriate within
the AMI for (i) the gathering and evaluation of all relevant (a)
mineral/leasehold ownership information and (b) engineering, production,
geological and geophysical data, (ii) the acquisition of oil and gas leases,
(iii) the acquisition, processing and interpretation of 3-D Seismic data, (iv)
the drilling of xxxxx for oil and gas, (v) the possible evaluation and
acquisition of producing properties and (vi) the further exploitation of the
Divide Project AMI, it being the express intent of the parties to conduct a
joint exploration effort for the purpose of developing quality drilling
prospects within the AMI.
In order to pursue the above described activities and objectives, Tipperary
and Lyco entered into (i) that certain Letter of Intent, executed to be
effective on June 27, 1996 and (ii) that certain Letter Agreement executed on
July 31, 1996. The Letter of Intent is hereby superseded by this Agreement.
Therefore, in consideration of the mutual covenants and agreements
contained herein, the obligations to be performed and the benefits to be
received, Tipperary and Lyco do hereby agree as follows:
ARTICLE I - PRIMARY RESPONSIBILITIES OF TIPPERARY AND LYCO
During the term hereof (defined in Article XII), Lyco and Tipperary, in addition
to their other obligations hereunder, shall have the following primary
responsibilities:
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A. TIPPERARY: Tipperary, working closely and directly with Lyco, shall make
available its land, geological and operating data, expertise and business
knowledge relative to the lands within the AMI and provide land, technical
and management staffing sufficient to:
(1) Assist Lyco with generating an inventory of mutually agreeable
drillable well locations and prospects within the AMI through the
integration of well and geological data, mapping and other geological
and/or geophysical interpretations;
(2) Assist Lyco with the field portion of the supplemental lease
acquisition program within the AMI, including, without limitation,
directing the day to day activities of approved lease brokers,
securing title reports and lease purchase reports, approving title for
purchasing oil and gas leases, securing title curative documents
(where applicable), approving bank drafts for payment of
lease bonuses, and securing fully executed and recordable oil and gas
leases on approved oil and gas lease forms. Tipperary will consult
with and advise Lyco (Attention: Vice President of Land and Contracts
or Lyco's Senior Staff Xxxxxxx) on a regular basis of the status of
all lease negotiations and leasing activities within the AMI and
assist with the preparation of budget forecasts relative to all lease
checks, take-offs, title research projects and lease acquisitions
conducted for the benefit of Lyco and Tipperary on each lead or
prospect within the AMI. All oil and gas leases will initially be
acquired with Tipperary as "Lessee" or in such other names, including
Lyco's, as Lyco and Tipperary may deem appropriate. Tipperary will
promptly deliver to Lyco, on a monthly basis, assignments of record
title to Lyco's 50.0% working interest in and to such leases. Lyco
may or may not record said assignments at that time depending on the
status of leasing activities in a particular area of the AMI.
(3) Assist Lyco by (i) providing leasehold/minerals ownership information,
the status of leasing activities and lease negotiations,
identification of farmin or top-leasing opportunities, etc., covering
the Divide Project AMI, and (ii) updating Project maps from time to
time as mutually agreed by the Parties, depicting the results of all
lease take-offs, leasehold ownership reports, state lease sales, new
well locations, Prospect Area designations, etc.; and
(4) Assist Lyco with the preparation and implementation by the Parties of
the Exploitation Plan (defined below) within the AMI.
B. LYCO: Lyco, as the Project Manager, working closely and directly with
Tipperary, shall make available its expertise and knowledge and the
geological, geophysical, engineering, land, accounting and management
staffing sufficient to:
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(1) Prepare and implement, with Tipperary's assistance, a strategic plan
(the "EXPLOITATION PLAN" or "PLAN") to exploit the Divide Project. The
Exploitation Plan will consist of, but not necessarily be limited to,
the overall goals, objectives and strategies for the Divide Project.
The Plan will include a budget for leasing, seismic programs, drilling
and completion, and ongoing evaluation of the AMI. The Plan will be
an informal basis for expenditures and will serve as a means for
measuring progress as the Plan is implemented. Lyco will consult with
Tipperary and, subject to the other terms and conditions of this
Agreement, the Parties will mutually approve operations associated
with the implementation of the Plan, including, but not limited to,
expenditures related to the acquisition of, acreage and the terms
(lease bonus, royalty, lease term, rentals, etc.) of all leases, the
acquisition of producing properties, the selection of drillsites, and
the preparation of drilling and completion prognoses for new or
recompleted xxxxx; and
(2) Manage the overall exploration and exploitation of the Divide Project,
including, without limitation, assisting Tipperary with the
supplemental lease acquisition program, coordinating and managing
producing property evaluations and acquisitions, re-entry operations,
drilling and producing operations.
Lyco and Tipperary agree to coordinate their activities such that the
efforts of said parties complement and do not unnecessarily overlap one another.
Said parties further agree to hold regular meetings to consult with each other
and to evaluate and respond to activity and the development of the mutual
prospecting effort. Said meetings can be held by teleconference if the Parties
agree to do so. During these meetings, the Parties will review and approve
Lease Purchase Authorizations ("LPA's"), Authorities for Expenditures ("AFE's"),
and other plans to exploit the development and production of oil and gas
reserves within the AMI.
ARTICLE II - GEOPHYSICAL PROPOSALS
Either Lyco or Tipperary may propose to conduct a geophysical survey
(herein called a "SURVEY") within the AMI in an effort to further investigate
subsurface geological ideas and to enhance prospective leads into drillable
prospects. A proposal for a Survey shall include, but not be limited to, the
following (herein called the "Survey Parameters"): (1) the geographical area
within which the Survey is to be performed, (2) the design or pattern of the
Survey points, (3) expected acquisition and processing parameters, (4) the
anticipated costs, and (5) the desired start date and duration of the proposed
physical operations. For the purposes of this Agreement, each data point in a
Survey shall be deemed to evaluate a 660' square area centered on that data
point. Without the mutual agreement of the Parties, no Survey shall be proposed
which (i) comprises more than five (5) square miles of coverage or (ii) costs,
on an estimated basis, more than $200,000.00 or (iii) covers any part of an
existing Xxxxxxxx Xxxx
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(hereinafter defined). The receiving party shall have fifteen (15) business
days within which to elect to participate or not participate in the costs and
ownership of the Survey. Failure of the notified Party to reply within said
fifteen (15) business days shall constitute an election by that Party not to
participate in the Survey.
Should either Party elect to not participate in the Survey
(herein called a "NON-PARTICIPATING PARTY"), it shall have relinquished all
rights to the Survey data and the results, interpretations and technical
benefits derived therefrom. However, the Non-Participating Party shall retain
all rights to acquire any interests within the geographic area covered by the
Survey pursuant to the terms of Article IV - Area of Mutual Intent.
If operations for any such Survey are not commenced within ninety (90) days
of the proposed start date, or if any of the Survey Parameters change
substantially from that proposed, then said Survey shall terminate and the
coverage area may be included in a new Survey proposal. However, if a Survey
cannot be commenced due to adverse or limiting weather or surface access
conditions or because of permitting problems, the commencement date of the
Survey may be extended by the proposing Party, by written notice to the other
Party, for an additional sixty (60) days. Unless mutually agreed to by the
Parties, there shall not be more than three (3) Surveys proposed and/or in
progress at any one time, however any Survey which costs less than $10,000.00
per square mile shall not be considered as one of the three (3) proposed
Surveys. These lesser cost Surveys may be, without limitation, a 2-D seismic
survey, geochemical survey, telluric survey, etc. A Survey shall be deemed to
have been completed fifteen (15) business days after the completion of the field
acquisition.
The participating Parties in each Survey will pay the costs of the Survey
and own the Survey data based upon each participating Party's net leasehold
acres within the Survey area at the time of the proposed Survey (numerator)
divided by the total net leasehold acres of both of the participating Parties
within the Survey area at the time of the proposed Survey (denominator). The
participating Parties will retain all rights associated with said data including
the same proportionate ownership percentage of all proceeds from future sales
and/or trading rights, if any.
ARTICLE III - DESIGNATION OF "PROSPECT AREAS"
Either Lyco or Tipperary may propose an initial well (including a re-entry)
on a Prospect Area (defined below) within the AMI, which initial well (or re-
entry) and associated Prospect Area will be subject to the Joint Operating
Agreement described in Article IX hereof. For the purpose of this Agreement,
each initial well (or re-entry) proposed to a depth no greater than 10,000'
within the AMI will be deemed to consist of a prospect area (herein called a
"PROSPECT AREA") covering the 160-acre drilling/spacing unit for the initial
wellsite and eight (8) additional 160-acre drilling/spacing units surrounding
the initial wellsite drilling/spacing unit. Each initial well (or re-entry)
proposed below the depth of 10,000' within the AMI will be deemed to consist of
a Prospect Area covering the 320-acre drilling/spacing unit for
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the initial wellsite and four (4) additional 320-acre drilling/ spacing units
contiguous to the initial wellsite drilling/spacing unit as designated by the
proposing Party. It is understood and agreed that said Prospect Areas are (i)
subject to orders of the North Dakota Industrial Commission which may determine
a different drilling/spacing unit pattern regardless of the depth of the initial
well, however, unless amended by other terms of this Agreement, said Prospect
Areas will still consist of either nine (9) 160-acre drilling/spacing units or
five (5) 320 acre- drilling/spacing units, (ii) subject to being reduced in size
to avoid overlapping as provided below in this Article III and (iii) limited as
to all rights from the surface of the ground down to the stratigraphic
equivalent of the base of the deepest formation drilled, or tested if the
initial well is a re-entry.
Such initial well proposal shall include information concerning prospect lands
already under lease to the Parties, available unleased lands within the Prospect
Area, suggested lease terms, the priority and amount of acreage to be acquired,
expected farmin terms (if known), a complete estimate of any additional
geological or geophysical costs, a description of the location and depth of the
proposed initial well, a list of the targeted reservoirs and a map detailing the
proposed Prospect Area, well location and lease position of the Parties. The
percentage of working interest ownership of the Parties in a Prospect Area will
be based on a fraction the numerator of which is the leasehold net acres owned
by a Party in the Prospect Area and the denominator of which is the total net
leasehold acres owned by both Parties in the Prospect Area.
The party receiving such initial well (or re-entry) proposal shall have thirty
(30) days from receipt of such proposal in which to elect whether or not to
participate in the well (or re-entry) and the associated Prospect Area. Failure
of the notified Party to reply within said thirty (30) days shall constitute an
election by that Party to not participate in said initial well and the leases
and lands comprising the associated Prospect Area, but limited to all rights
from the surface of the ground down to the stratigraphic equivalent of the base
of the deepest formation drilled (or tested if the initial well is a re-entry).
If the proposed Prospect Area overlays all or part of a geographic area
covered by an existing Survey in which a Party did not participate in the costs
and ownership of such Survey, said Party may only participate for its
proportionate interest in the proposed initial well and associated Prospect Area
according to one of the following two options:
(a) Said Party is not entitled to review said Survey data but must pay the
Party which paid for said Survey data, within the thirty (30) day
initial well election period, an amount equal to fifty percent (50.0%)
of the cost of the entire Survey multiplied by the following two (2)
fractions: (i) a fraction the numerator of which is the amount of
leasehold net acres owned by said Party in the Prospect Area at the
time of the proposed initial well and the denominator of which is the
total net leasehold acres owned by both Parties in the Prospect Area
at the time of the proposed initial well and (ii) a fraction the
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numerator of which is the amount of gross Prospect Area acres located
within the Survey area and the denominator of which is the total gross
acres in the Survey area; or
(b) Said Party may receive, review and own copies of the Survey data after
paying the Party which paid for the Survey data, within the thirty
(30) day initial well election period, an amount equal to 300.0% of
the cost of the entire Survey multiplied by a fraction the numerator
of which is the amount of leasehold net acres owned by said Party in
the Prospect Area at the time of the proposed initial well and the
denominator of which is the total net leasehold acres owned by both
Parties in the Prospect area at the time of the proposed initial well.
Under this option (b), the thirty (30) day election period to
participate in the proposed initial well, and associated Prospect
Area, shall be extended to forty-five (45) days. Once said Party has
paid the penalty pursuant to this option (b), then no additional
penalties will be owed by said Party as to any additional Prospect
Areas proposed within the geographic area of said Survey.
Should either Party elect to not participate (herein called a "NON-
CONSENTING PARTY") in the initial well and the associated Prospect Area, it
shall own no further right to participate therein and such well and Prospect
Area shall no longer be subject to this Agreement or the Joint Operating
Agreement. The Non-Consenting Party shall assign all of its right, title and
interest in the leases and lands covering the Prospect Area, limited to all
rights from the surface of the ground down to the stratigraphic equivalent of
the base of the deepest formation drilled (or tested if the initial well is a
re-entry), and excluding any overriding royalty interests previously created by
the Non-Consenting Party as permitted under Article VIII, to the participating
Party within fifteen (15) business days after the spud date of the initial well
in the Prospect Area. The Non-Consenting Party shall not compete with the
participating Party to acquire any interests in said Prospect Area during the
remaining term of the Agreement, or for three (3) years from the date of the
Non-Consenting Party's election to not participate in said initial well and
associated Prospect Area, whichever is the later.
Notwithstanding anything to the contrary herein, if the initial well (or
re-entry) on a Prospect Area is not commenced within one-hundred twenty (120)
days from the date of receipt of such proposal, the Prospect Area will lapse and
the Parties will be in the same position as if no proposal had been made.
However, it is understood and agreed that any such proposal shall not terminate
upon the expiration of the one-hundred twenty (120) day period referenced above
if operations cannot be commenced due to either adverse or limiting weather
conditions or the unavailability of drilling rigs.
Unless agreed to by the Parties, there shall not be more than five (5)
initial xxxxx (and associated Prospect Areas) proposed at any one time under
this Agreement. For the purposes of this paragraph, an initial well and
associated Prospect Area shall be deemed to be excluded from said five (5)
initial well proposal limitation upon the spudding of an initial well on the
associated
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Prospect Area.
A Prospect Area may not overlap another Prospect Area, except where an
initial well in a proposed Prospect Area is targeted to test a deeper formation
than the stratigraphic equivalent of the base of the deepest formation which has
been proposed, or drilled (or tested if the initial well is a re-entry), on an
existing Prospect Area. A Prospect Area shall be reduced in size (shrunk down),
expanded or reconfigured, by the mutual agreement of the Parties, to avoid
overlapping of adjoining Prospect Areas. A Prospect Area may possibly include
producing leasehold which was purchased by one of the Parties but declined by
the other. In such cases, the non-participating (declining) Party will not have
any rights to the overlapping lands (located in the producing leasehold in which
such party did not participate) or any right to participate in any well drilled
on said lands and the associated drilling/spacing unit for said well. If the
proximity of Prospect Area outlines result in tracts of lands between such
Prospect Areas which could not be allocated to a new full sized Prospect Area as
contemplated herein, then in that case the proposed Prospect Area can be
reconfigured, expanded or shrunk down, by the mutual agreement of the Parties,
to conform to the optimum use of the available tracts of land between such
Prospect Areas.
Also, if all Parties participate in an initial well in a Prospect Area, and said
initial well is drilled, plugged and abandoned as a dry hole, or otherwise
disposed of, the Prospect Area will terminate (but remain under the AMI) unless
an additional well (or re-entry), is proposed on the same Prospect Area under
the terms of the Operating Agreement.
Notwithstanding anything herein to the contrary, an initial well and the
associated Prospect Area may be proposed without the benefit of a Survey,
subject to the terms of participation described above, however, without the
mutual consent of the Parties, an initial well and the associated Prospect Area
cannot be proposed within (i) the geographic area covered by an existing
proposed Survey or (ii) WITHIN ninety (90) days of a completed Survey (subject
to the terms of Article XI - Obligatory Operations).
ARTICLE IV - AREA OF MUTUAL INTEREST/ACQUISITION OF SUPPLEMENTAL
LEASEHOLD INTERESTS
The area set forth on EXHIBIT "B-1" and described on EXHIBIT "B-2" attached
hereto shall constitute an Area of Mutual Interest between the Parties hereto
which shall remain in force and effect for term of this Agreement at which time
the AMI will terminate as to all acreage not then included in a Prospect Area
which includes a producing well and such Prospect Area will be governed by the
Joint Operating Agreement attached hereto and made a part hereof (see EXHIBIT
"D"). If supported by geological, geophysical and/or other data, the AMI may be
expanded to include additional lands if mutually agreed to by the Parties.
In the event any interests in oil and gas rights (including leases, mineral
interests, royalty interests, overriding royalty interests, extensions and
renewals of jointly owned leases and
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contractual right to earn interests), hereinafter sometimes referred to as a
"LEASEHOLD ACQUISITION", covering any of the lands located within the AMI are
acquired by any of the Parties hereto, directly or indirectly, the other Party
shall be notified promptly in writing by the acquiring Party and furnished with
a copy of all legal instruments, paid drafts or checks, itemized invoices of the
actual costs incurred, and all other pertinent and available data and title
information concerning the Leasehold Acquisition, and the other Party shall have
the right for a period of fifteen (15) days following receipt of such written
notice (or within twenty-four (24) hours, inclusive of Saturday, Sunday or other
legal holidays, following receipt thereof in the event a well is being drilled
at that time in the AMI pursuant to this Agreement or the Joint Operating
Agreement) in which to notify the acquiring party of its election whether or not
to participate in such Leasehold Acquisition by bearing its proportionate share
(based upon the respective percentages of participation in this Agreement) of
the costs of such Leasehold Acquisition, and if applicable, assuming its
proportionate share of any obligations or requirements associated therewith.
Failure of a Party receiving such a notice from the acquiring Party to reply and
tender payment within the specified periods of time set forth herein shall
constitute an election by that Party not to participate in such Leasehold
Acquisition. Any Leasehold Acquisition in which all the Parties hereto elect to
participate shall become subject to this Agreement.
The Party electing to participate in such Leasehold Acquisition shall pay
the acquiring Party its share of the acquisition cost as determined hereinabove,
within thirty (30) days after its election to participate in the Leasehold
Acquisition. Upon receiving the acquisition costs, said acquiring Party shall
execute and deliver a recordable Assignment (defined in Article VI) of the
appropriate percentage of such acquisition to the participating Party. The
general form of the Assignment is attached hereto as EXHIBIT "C". Failure of
the Party to tender its share of the acquisition costs within the time period
specified above shall constitute an election by such Party not to participate.
It is hereby agreed by the Parties that if any portion of a Leasehold
Acquisition falls within the AMI, the entire acquisition shall be deemed to be
included in the AMI.
Notwithstanding anything herein to the contrary, all costs associated with
Leasehold Acquisition by Tipperary within the AMI which was previously approved
by Lyco under the Exploitation Plan will be invoiced to Lyco on a monthly basis.
Upon approval by Lyco of the Leasehold Acquisition, Lyco will pay by check or
wire transfer fifty percent (50.0%) of the Leasehold Acquisition costs within
thirty (30) days after receipt of the invoice. The Leasehold Acquisition costs
shall include bonuses, brokerage and recording fees and the invoice shall
include copies of legal instruments, lease purchase reports, title information
and paid bank drafts.
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ARTICLE V - PARTICIPATION AND OWNERSHIP
Subject to the terms hereof and the Operating Agreement, the Parties shall
own and share on an equal basis ownership of all rights, interests, obligations
and property acquired, produced, developed and/or purchased during the term of
this Agreement within the AMI. All costs and expenses will be paid equally,
unless one of the Parties elects not to participate, subject to the terms of the
applicable Article(s) to this Agreement and the Joint Operating Agreement which
would control such elections.
ARTICLE VI - LYCO'S ACQUISITION OF TIPPERARY'S EXISTING LEASEHOLD
Tipperary owns certain non-producing leasehold interests (the "TIPPERARY
LEASES") which were acquired within the AMI prior to the effective date of this
Agreement. The Tipperary Leases, including their description and any depth
restrictions, Tipperary's working and revenue interest in each lease and a
designation of which Tipperary Leases (see Exhibit "A" only) are subject to the
overriding royalty interest of Northern Energy Corporation, are described in
detail in EXHIBITS "A" AND "A-1" hereto.
Lyco agrees to purchase from Tipperary, and Tipperary agrees to sell and
assign to Lyco, pursuant to Article IV - Participation and Ownership, the
Tipperary Leases. The purchase price will be equal to $45.00 per net mineral
acre for an assignment of fifty percent (50.0%) of Tipperary's approximate
30,000 total net leasehold acres located within the AMI. Pursuant to the Letter
Agreement executed by the Parties on July 31, 1996, Lyco paid to Tipperary the
sum of $675,000.00 which amount of money was intended to approximate the sum
which is equal to $45.00 per net mineral acre (conveyed to Lyco), and Tipperary
delivered to Lyco on July 31, 1996 a duly executed, acknowledged and completed
Assignment (the "ASSIGNMENT") (SEE EXHIBIT "C") conveying to Lyco an undivided
fifty percent (50.0%) of the right, title and interest of Tipperary in and to
the Divide Project and the Tipperary Leases. Adjustments to this purchase price
will be made post-closing, by invoice, after the actual net acres in the
Tipperary Leases are determined. The Assignment was with warranty of title by,
through and under Tipperary, but not otherwise, stating that Tipperary is the
lawful owner of, and has good title to, the Tipperary Leases and the interests
to be assigned to Lyco, that the Tipperary Leases are valid and subsisting
leases covering the lands therein described, that all brokers fees and expenses
and lease bonus costs (including paid-up rentals) due thereunder have been paid
and that the Tipperary Leases are free and clear of all material liens,
encumbrances and adverse claims. Tipperary agrees that all such costs,
recording fees, claims, demands, actions, costs, expenses, debts, and
liabilities of every kind of character, including without limiting the same, all
charges and claims under or pursuant to any agreement, with respect to the
Tipperary Leases and the Divide Project which were made, incurred or which
accrue or relate to all times prior to the Effective Date shall be and remain
the obligation, duty and responsibility of Tipperary; and, Tipperary shall
indemnify and hold Lyco and LOC harmless from any and all of the same.
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Tipperary will deliver to Lyco an undivided 43.25% revenue interest (which
is equal to an 86.5% net revenue interest ("NRI")) attributable to Lyco's 50.0%
working interest ("W.I.") in all of the Tipperary Leases acquired to date with
the exception of those certain thirty-eight (38) oil and gas leases (21 of which
contain a 1/6th royalty interest ("R.I.") and 17 of which contain a 15% R.I.)
covering 6,194.31 gross acres and 3,478.91 net acres (8/8ths), which said
Tipperary Leases shall be delivered to Lyco with total lease burdens on such
Leases not exceeding the sum of (i) the base royalty interest provided in such
lease plus (ii) a proportionate 1.0% overriding royalty interest ("ORRI")
payable to Northern Energy Corporation ("Northern", Tipperary's lease broker) on
a portion of the Tipperary Leases. For example, Lyco's revenue interest in one
of the 17 leases which contain a 15.0% R.I. (assuming said lease covers 100.0%
of the mineral estate and was acquired through Northern) will equal 42.0%, being
calculated as follows: 50.0% (Lyco's interest in the leasehold estate) x a 84.0%
NRI (100.0% less (i) 15.0% R.I. and (ii) Northern's 1.0% ORRI, or 84.0%).
Tipperary will deliver to Lyco, exclusive of any overriding royalty interest
reservations, a 50.0% W.I. in all of the Tipperary Leases which were acquired by
Tipperary through Empire Oil Company, which Leases are denoted on EXHIBIT "A-1"
hereto.
ARTICLE VII - EVIDENCE OF TITLE, TITLE EXAMINATION AND TITLE
DEFECTS
Immediately after the execution of this Agreement, Tipperary shall deliver
to Lyco for the purpose of evidencing Tipperary's approved title to the
Tipperary Leases (i) copies of the recorded leases, paid drafts, title curative
documents (i.e. xxxxx, affidavits, ratifications, subordination agreements,
plugging affidavits, etc.) and any subsequent assignments related thereto, (ii)
any title opinions or title memorandums which Tipperary may have acquired
covering any of the Tipperary Leases, and (iii) all title acquisition/lease
purchase reports and title run sheets prepared by Tipperary, or prepared on
behalf of Tipperary (and approved by Tipperary) by petroleum landmen employed or
contracted by Tipperary, which relate or pertain to the Tipperary Leases and the
lands covered thereby. Tipperary agrees to provide to Lyco for examination and
review, any other documents, records or other information which Tipperary may
have relating or pertaining to the title to the Tipperary Leases and the lands
covered thereunder.
Lyco shall have one (1) year from the execution of this Agreement to
conduct, at Lyco's cost, an examination of the title to the Tipperary Leases.
Prior to the expiration of said one (1) year time period, Lyco shall notify
Tipperary in writing of (i) any material defect in Tipperary's title to the
Tipperary Leases or (ii) any reasonable objection thereto. Such material defect
or reasonable objection shall be hereinafter called a "TITLE DEFECT" in the
singular and "TITLE DEFECTS" in the plural.
In the event Tipperary is given timely notice of a Title Defect, Tipperary
shall have the option for thirty (30) days from receipt of such notice to cure,
or attempt to cure, any such defect, to the reasonable satisfaction of Lyco. In
the event a Title Defect is timely cured in the manner hereinabove provided,
then the Tipperary Lease, or Leases, shall remain subject to this
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Agreement.
Lyco and Tipperary understand and agree that if Tipperary's title to a
lease is not satisfactory, on account of a Title Defect, and Tipperary notifies
Lyco that (i) Tipperary is unable to cure any such Title Defect, or (ii)
Tipperary elects not to attempt to cure any such Title Defect, then Lyco shall
elect to either waive any such defect and said lease shall remain subject to
this Agreement, or to exempt such lease from this Agreement.
If Lyco elects to exempt any lease from this Agreement because of a Title
Defect, then Tipperary will pay to Lyco the sum of $45.00 per net mineral acre
for any such Tipperary Lease. Said payment to Lyco shall be issued within
thirty (30) days after receipt of written notice by Lyco of its election to
exempt such Tipperary Lease(s).
ARTICLE VIII - JOINT OPERATIONS
Each Prospect Area designated during the term of this Agreement in which
both Parties have elected to participate pursuant to the terms hereof shall be
subject to the terms of the operating agreement (the "JOINT OPERATING
AGREEMENT") attached hereto and made a part hereof (see EXHIBIT "D"), unless
such Prospect Area is subject to an existing joint operating agreement with
third parties. The Parties agree to execute the Joint Operating Agreement
attached hereto contemporaneously with this Agreement. To the extent that such
Joint Operating Agreement does not conflict with the terms of this Agreement,
all operations involved in the exploration and development, including all
development xxxxx on each Prospect Area designated hereunder, shall also be
governed by the terms of the Joint Operating Agreement. In the event of any
conflict or inconsistency between this Agreement and the Joint Operating
Agreement between the Parties, this Agreement shall control. Lyco's wholly
owned subsidiary, Lyco Operating Company ("LOC"), shall be designated as the
Operator in Article V.A of the Joint Operating Agreement unless Lyco is a non-
participating party to any well proposal or completion attempt. In such event,
LOC agrees, upon request by a majority of the participating parties to resign as
operator for such well.
LOC shall conduct, direct and have full control of all drilling and geophysical
operations conducted within each Prospect Area, as permitted and required by and
within the limits of this Agreement and as more particularly described in the
attached Joint Operating Agreement. However, LOC and/or Lyco will consult with
Tipperary on matters regarding such operations in which Tipperary is a working
interest participant and shall keep Tipperary informed as to all such operations
and plans for operations as timely as possible. LOC, as operator, shall conduct
all operations in a good and workmanlike manner, but it shall have no liability,
as operator, to the Parties for any losses sustained or liabilities incurred,
except such as may result from gross negligence or willful misconduct.
The Joint Operating Agreement shall be deemed to be a separate agreement
with respect to each initial test well and the associated Prospect Area
designated hereunder. If LOC deems it necessary to
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do so as Prospect Areas are designated pursuant to Article III - Designation of
"Prospect Areas", an identical form Joint Operating Agreement shall be executed
for each such test well and Prospect Area, with appropriate insertions and
modifications for working interests, etc., unless the form of operating
agreement must be altered to accommodate third party requests. If such event or
necessity shall occur, the Parties shall execute a mutually agreeable operating
agreement with such third party (parties), which shall, as closely as possible,
cover the terms and conditions described in the attached Joint Operating
Agreement. It is understood by the Parties that their interests shown in
Article V (Participation and Ownership) may be proportionately reduced
resulting from participation by a third party.
While this Agreement is in effect, and/or during the term of any operating
agreement entered into pursuant to this Agreement, LOC will pay all delay
rentals, minimum royalties, and shut-in well payments which become due and
payable on leases owned jointly by the Parties, provided, however, that if LOC,
through mistake, oversight, or inadvertence, fails to make any delay rental
payment or other payments necessary to maintain lease acreage in force and
effect as required hereunder, there shall be no liability, providing that LOC
was acting in good faith. Tipperary will reimburse LOC within thirty (30) days
of receipt of LOC's invoice for Tipperary's proportionate share of such payments
attributable to the jointly owned leases.
In the event a Party elects not to continue a lease in full force and
effect by the payment of such rental, minimum royalty, or shut-in payment, that
Party will assign to the other Party any interest which it may have in the lease
or part thereof which is affected. Such lease will thereafter be excluded from
the terms of this Agreement and any operating agreement entered into hereunder.
Notwithstanding anything herein to the contrary, any joint interest of Lyco
or Tipperary which reverts or is reassigned to the other Party pursuant to this
Agreement or any operating agreement entered into by the Parties hereto, shall
revert to or be reassigned to that Party free and clear of any liens,
encumbrances, debt, claim, production payment, security interest or other
obligation made by, through or under the surrendering Party, provided, however,
it is understood and agreed that any of the Parties have the right under this
Agreement to have created or reserved an overriding royalty interest ("ORRI") on
each lease covered by this Agreement (proportionately reduced to the leasehold
interest being owned by each Party and to the mineral interest covered by such
lease) equal to the difference between total existing burdens and twenty-two
percent (22.0%), but in any event such proportionate ORRI shall not exceed five
percent of eight-eighths (5.0% of 8/8ths). Said overriding royalty interest(s),
if created or reserved, will be considered as a "jointly acknowledged and
accepted obligation of all parties" as provided in ARTICLE III.D - SUBSEQUENTLY
CREATED INTERESTS in the Joint Operating Agreement governing said prospect.
ARTICLE IX - CONFIDENTIALITY OF INFORMATION
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The Parties recognize (i) this is a confidential agreement and shall be
private between said Parties, and (ii) the need for strict confidentiality of
all information related to this Agreement, the Divide Project or any
operating agreement in effect between the Parties. Neither Party shall
reveal, disclose or otherwise distribute information or data revealed or
generated under this Agreement, including the terms hereof, either verbally
or in writing to third parties without the consent of the other Party EXCEPT
(i) as is hereby approved only with respect to each of the Parties'
consultants, representatives, bankers or financial partners, directors, and
employees, (ii) as may be necessary under existing prior contractual
relationships, (iii) as may be necessary pursuant to the best judgement of
either Tipperary or Lyco, as the case may be, (but with such disclosure
preceded by advance notice to the other Party) to disclose to the public, to
potential acquirors, to potential or actual lenders or investors in either
Tipperary or Lyco or in their respective properties, and (iv) as may be
required by law. It is further recognized and acknowledged that the Parties
may be subject to certain contractual restrictions relating to disclosure of
or copying of seismic data acquired pursuant to a Program. Both Parties
acknowledge such limitations and agree to abide by the same. Notwithstanding
the above, either Party may from time to time disclose sufficient data to a
prospective third party partner to enable such party to make a decision to
participate in a particular Prospect Area; provided that, such third party
shall be required to maintain such data confidential.
ARTICLE X - PURCHASE OF THIRD PARTY PRODUCING PROPERTIES
Notwithstanding anything to the contrary herein, any Party may propose to
purchase producing properties and associated leasehold within the AMI from third
parties. The proposing Party will notify the other Party of the properties on
which a purchase offer is to be tendered, the criteria used to determine the
value of the properties and the amount of the proposed purchase price.
The Party receiving such notice shall have fifteen (15) business days from
receipt of such notice in which to elect whether or not to participate in a
purchase offer to be tendered to the third party. Failure to respond within
said fifteen (15) business days shall be deemed an election NOT to participate
in the purchase of the producing properties and associated leasehold. Should
either Party decline to participate, it will own no rights to the purchased
properties and associated leasehold and such properties and leasehold will not
be subject to this Agreement.
The Project Manager, unless it has elected not to participate in a
particular producing property proposal, shall have primary responsibility for
producing property evaluations, purchase price negotiations, preparation and
negotiation of Purchase and Sale Agreements, Assignments and other closing
documents.
ARTICLE XI - OBLIGATORY OPERATIONS
If, during the term of this Agreement or the Joint Operating
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Agreement, a proposal is made for the drilling, deepening, reworking, plugging
back, sidetracking or recompleting of a well or xxxxx or any other operation
proposed or required within six (6) months of the expiration of any rights
and/or interests subject to this Agreement or the Joint Operating Agreement in
order to (1) continue a lease or leases in force and effect, or (2) maintain a
unitized area or any portion thereof in force and effect, or (3) earn or
preserve an interest in and to oil and/or gas and other minerals which may be
owned by any third party or which, failing in such operations, they revert to a
third party, or, (4) comply with an order issued by a regulatory body having
jurisdiction of the premises, failing in which certain rights would terminate
within such period, (hereinafter referred to as "OBLIGATORY OPERATION") the
following shall apply:
(a) Should only one of the Parties hereto elect to participate and pay its
proportionate part of the costs to be incurred in such Obligatory Operation
as elsewhere herein provided, such party desiring to participate shall have
the right to do so at its sole cost, risk and expense.
(b) A Party not participating in the Obligatory Operation which involves the
drilling or re-entry of the initial well in a Prospect Area under Article
III - Designation of Prospects, will assign all of its rights and/or
leasehold interest in said well and the leases and lands comprising the
entire Prospect Area to the Participating Party.
(c) A Party not participating in the Obligatory Operation which involves a
subsequent well in a Prospect Area, will assign all of its rights and/or
leasehold interest in said well and the Leases and lands located within the
geographical boundaries of any spacing unit established for such well.
(d) Such assignment shall be executed and delivered within thirty (30) days of
the conclusion of such operation by the party not electing to participate
and shall be on the form of Assignment attached hereto as Exhibit "C".
Said Assignment shall be free and clear of any overriding royalty interest
(except the proportionate overriding royalty interest provided for in
Article IX herein), production payments, mortgages, liens or other
encumbrances placed thereupon or arising out of the assigning Party's
ownership and operations subsequent to the date of this Agreement, but
otherwise without warranty of title, either express or implied except as to
acts of the assigning Party. The leasehold in which an interest is
assigned pursuant to the terms hereof shall no longer be subject to this
Agreement or the Joint Operating Agreement.
ARTICLE XII - TERM
Unless earlier terminated by the mutual consent of the Parties, this
Agreement shall terminate five (5) years from the date hereof except as follows:
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(a) The Parties shall continue to own their respective interests in any
leasehold, minerals, royalties, farmouts, net profits interests, or overriding
royalties, acquired during the term hereof;
(b) The Joint Operating Agreement(s) covering operations of the various
Prospect Areas shall continue pursuant to their individual terms; and
(c) The rights of the Parties relative to the ownership of seismic data shall
continue.
ARTICLE XIII - ASSIGNABILITY
Any interest in leasehold, minerals, royalties, overriding royalties, production
payments, net profits interests, farmouts or the like, that a Party may acquire
under the terms hereof, may be freely assigned in whole or in part, provided,
however, any such assignment shall be made expressly subject to the terms and
provisions hereof and to any Joint Operating Agreement or other agreements or
prior assignments covering such assigned interests. An assignment shall not be
effective as to the other Party until a true and complete copy of same has been
furnished to such Party.
ARTICLE XIV - MISCELLANEOUS
(a) The liabilities of the Parties shall be several, not joint or collective.
Each Party shall be responsible only for its obligations and shall be liable
only for its proportionate share of costs as agreed. This Agreement shall not
be construed as a partnership for income tax purposes. It is not the intention
of the Parties to create, nor shall this Agreement be construed as creating a
mining or other partnership or association to render them liable as partners.
The relationship of the Parties shall be that of independent contractors owning
properties as co-tenants.
(b) The Parties shall at all times have the right to take their respective oil
and/or gas in kind at the wellhead in accordance with the provisions of the
attached Joint Operating Agreement.
(c) This Agreement expresses the entire understanding of the Parties with
respect to the subject matter hereof and supersedes all prior discussions,
negotiations, representations, promises and agreements with respect to the
matters set forth herein. This Agreement may be changed, modified or amended
only by an instrument in writing duly executed by the Parties.
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(d) All notices authorized or required between the Parties shall be given
either in writing by mail, telegram or facsimile with postage or charges
prepaid, addressed to the other Party to whom the notice is given at the
addresses shown as follows:
LYCO ENERGY CORPORATION
0000 Xxxxx Xxxxxxx Xxxxxxxxxx, Xxxxx 0000
Xxxxxx, Xxxxx 00000-0000
Attn: Xxxxx X. Xxxx
Telephone: 214/000-0000
Fax: 214/000-0000
TIPPERARY OIL & GAS CORPORATION
000 Xxxxxxxxxxx Xxxxxx, Xxxxx 0000
Xxxxxx, Xxxxxxxx 00000
Attn: Xxxxx X. Xxxxxxxx
Telephone: 303/000-0000
Fax: 303/000-0000
(e) In all instances, time is of the essence in this Agreement. In any
instance where a response to a notice given hereunder should require a shorter
response period because of outside time requirements, the Parties hereby
mutually agree to such shorter response period to comply with such requirements.
(f) The existing validity of this Agreement and all matters pertaining thereto
including, but not limited to, matters of performance, non-performance, breach,
remedies, procedure, rights, duties and interpretation or construction shall be
governed by, interpreted, construed and enforced in accordance with the laws of
the State of Texas.
(g) The Parties to this Agreement shall execute and deliver (and acknowledge
where necessary), or (to the extent such Party is able) shall cause to be
executed and delivered by third parties (and acknowledged where necessary), from
time to time, such further assignments, operating agreements, division orders,
transfer orders, approvals, and other instruments and other documents, and shall
do such other and further acts and things as may be reasonably necessary to more
fully and effectively accomplish the purposes and intent of this Agreement and
the Joint Operating Agreement.
(h) This Agreement may be executed in any number of counterparts and each such
counterpart so executed shall have the same force and effect as an original
instrument as if all of the Parties to the aggregate counterparts had signed the
same document.
(i) The descriptive headings in this Agreement are for convenience only and
shall not control or affect the meaning or construction of any provision of this
Agreement.
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(j) The effective date of this Agreement and Lyco's purchase of a 50.0% W.I. in
and to the Tipperary Leases shall be June 27, 1996 (the "EFFECTIVE DATE").
The terms, covenants and conditions of this Agreement shall be binding upon
and enure to the benefit of the Parties hereto and their respective successors
and assigns, and said terms, covenants and conditions shall be covenants running
with the lands and leases subject to, or which may become subject to, this
Agreement.
EXECUTED THIS 22 DAY OF AUGUST, 1996.
TIPPERARY OIL AND GAS CORPORATION
By: /s/Xxxx X. Xxxxxx
------------------------------
Name: Xxxx X. Xxxxxx
Title: Attorney in Fact
Tax I.D. No.: 00-0000000
LYCO ENERGY CORPORATION
By: /s/ Xxxxxx X. Xxxxx, Xx.
------------------------------
Name: Xxxxxx X. Xxxxx, Xx.
Title: Vice President - Land & Contracts
Tax I.D. No.: 00-0000000
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