1
EXHIBIT 10.16
EXPENSE ALLOCATION AND PARTICIPATION AGREEMENT
R E C I T A L S:
X. Xxxxxxx Oil & Gas, L.P., a Delaware limited partnership
("BOG"), is active in the exploration and development of oil and gas properties
in the domestic United States.
X. Xxxxx Limited Partnership a West Virginia limited partnership
("Gasco"), desires to participate with BOG in the drilling of xxxxx on
properties owned or hereafter acquired, in whole or in part, by BOG, during the
term hereof and otherwise upon and subject to the provisions herein contained.
A G R E E M E N T:
FOR A GOOD AND VALUABLE CONSIDERATION, the receipt and sufficiency of
which are hereby acknowledged, BOG and Gasco hereby act, agree and covenant as
follows:
Section 1. DEFINED TERMS. As used herein, the following terms shall
have the following meanings:
"Affiliate" means, with respect to any Person: (a) any other
Person directly or indirectly owning, controlling or holding with
power to vote 10% or more of the outstanding voting securities of such
Person, (b) any other Person 10% or more of whose outstanding voting
securities are directly or indirectly owned, controlled or held with
power to vote by such Person, and (c) any other Person directly or
indirectly controlling, controlled by or under common control with
such Person.
"Agreement Term" means the period beginning on the date hereof
at 7:00 a.m. Dallas, Texas local time, and ending on the earlier to
occur of (i) March 31, 1997, at 11:59 p.m. Dallas, Texas local time,
or (ii) the date on which Gasco's 25% share of the Drilling Costs
incurred in drilling the Subject Xxxxx and Subsequent Xxxxx equals or
exceeds $1,500,000.00. However, in the event that it reasonably
appears to BOG that such $1,500,000.00 amount will be reached before
March 31, 1997 based upon the Drilling Costs incurred to that point in
time and BOG's estimate of future Drilling Costs, BOG shall give Gasco
written notice that such amount will probably be reached before March
31, 1997 and Gasco shall have the option to nonetheless extend the
term of this Agreement to 11:59 p.m. Dallas, Texas local time on March
31, 1997, by giving BOG written notice of such extension no less than
fifteen (15) days after Gasco's receipt of BOG's notice. Anything to
the contrary contained herein notwithstanding, Gasco shall have the
one time option to terminate this Agreement and the Agreement Term
effective as of 7:00 a.m. Dallas, Texas local time on July 1, 1996.
To exercise such option to end the Agreement Term effective as of 7:00
a.m. Dallas, Texas local time on July 1, 1996, Gasco must cause
written notice of such election to be delivered to BOG's offices on or
before 5:00 p.m. Dallas, Texas local time on May 20, 1996.
"Applicable Environmental Laws" means any federal, state
and/or local laws, rules, orders or regulations, whether now existing
or hereafter enacted, modified or amended, relating to health or to
the protection of the environment, including without limitation the
Comprehensive Environmental Response, Compensation and Liability Act
of 1980, as amended by the Superfund Amendments and Reauthorization
Act of 1986, the Resource Conservation and Recovery Act of 1976, a
amended by the Used Oil Recycling Act of 1980, the Solid Waste
Disposal Act Amendments of 1980, and the Hazardous and Solid Waste
Amendments of 1984.
"Assigned Interests" shall have the meaning assigned to it in
Section 9 hereof.
"Assignment" means any assignment executed pursuant to Section
9 hereof by BOG in favor of Gasco.
"BOG Account" shall be the BOG bank account designated by BOG
to Gasco in writing from time to time.
2
"BOG Account Balance" means the balance of the funds that have
been deposited into the BOG Account for Gasco's share of BOG Drilling
Costs and BOG Completion Costs which have not yet been paid or
advanced to the drilling operator, together with any interest earned
from such funds in the BOG Account, net of all bank fees and other
charges incurred with respect to the BOG Account.
"BOG Completion Costs" means, with respect to any particular
Subject Well or Subsequent Well, BOG's share of the Completion Costs
associated with such Subject Well or Subsequent Well. For purposes of
the foregoing, "BOG's share" of Completion Costs shall be determined
based upon the share of Completion Costs allocable to BOG Properties
(a) without regard to any other agreement whereunder a third party
agrees to carry BOG for all or any portion of what would otherwise be
BOG's share of Completion Costs relative to any particular Subject
Well or Subsequent Well, (b) without regard to any agreement
whereunder BOG agrees to carry a third party for a share of such third
party's Completion Costs, and (c) with regard to and taking into
account any additional interest (and attendant share of Completion
Costs) in any particular Subject Well or Subsequent Well which BOG may
acquire, temporarily or permanently, due to the election by one or
more third parties not to participate in the Completion of such
Subject Well or Subsequent Well. By way of illustration, assume that
BOG owns (or is entitled to earn, under a BOG Farmout Agreement or
otherwise) a 25% interest in a lease covering 100% of the mineral fee
interest in Tract A, and ABC Oil Company ("ABC") owns 25% and CDE Oil
Company ("CDE") owns the remaining 50% interest. If BOG proposes the
Completion of a Subject Well or Subsequent Well on Tract A and all of
BOG, ABC and CDE elect to participate therein, BOG's share of the
Completion Costs associated with such well would, in typical
circumstances, be 25%. If, however, ABC elects not to participate in
the Completion of the well and BOG and CDE elect to proceed to
Complete the well and each acquire a proportionate part of ABC's
non-consent interest, BOG's share of the Completion Costs would, in
typical circumstances, be 33.333%. In the event ABC has the right to
again participate in the well after, for example, payout of a
nonconsent penalty, the interests of BOG and Gasco shall both
proportionately be reduced to take into account the after payout
interest of ABC. In both of the examples set out above, assume
further that XYZ Oil Company ("XYZ") has agreed to carry BOG for 50%
of what would otherwise be BOG's share of Completion Costs in order to
earn 25% of BOG's interest in the well. Under such circumstances, the
BOG Completion Costs shall be determined without regard to XYZ's
agreement to pay 50% of what would otherwise be BOG's share of the
Completion Costs associated with the well, but the 25% interest BOG is
obligated to assign to XYZ shall be taken into account in determining
the interest in any particular BOG Property subject to this Agreement.
As such, in this example in which XYZ has agreed to pay 50% of BOG's
share of Completion Costs in return for 25% of BOG's interest in the
Subject Well or Subsequent Well, as BOG's interest in the well is
reduced to 18.75% in the example in which all of the parties elected
to participate and to 24.99975% in the example in which ABC elected
not to participate in order to account for XYZ's earned interest, the
BOG Completion Costs associated with such well would be reduced to
BOG's reduced interest in the Subject Well or Subsequent Well.
"BOG Drilling Costs" means, with respect to any particular
Subject Well or Subsequent Well, BOG's share of the Drilling Costs
associated with such Subject Well or Subsequent Well. For purposes of
the foregoing, "BOG's share" of Drilling Costs shall be determined
based upon the share of Drilling Costs allocable to BOG Properties (a)
without regard to any other agreement whereunder a third party agrees
to carry BOG for all or any portion of what would otherwise be BOG's
share of Drilling Costs relative to any particular Subject Well or
Subsequent Well, (b) without regard to any agreement whereunder BOG
agrees to carry a third party for a share of such third party's
Drilling Costs, and (c) with regard to and taking into account any
additional interest (and attendant share of additional Drilling Costs)
in any particular Subject Well or Subsequent Well which BOG may
acquire, temporarily or permanently, due to the election by one or
more third parties not to participate in the drilling of such Subject
Well or Subsequent Well. By way of illustration, assume that BOG owns
(or is entitled to earn, under a BOG Farmout Agreement or otherwise) a
25% interest in a lease covering 100% of the mineral fee interest in
Tract A, and ABC Oil Company ("ABC") owns 25% and CDE Oil Company
("CDE") owns the remaining 50% interest. If BOG proposes the drilling
of a well on Tract A and all of BOG, ABC and CDE elect to participate
therein, BOG's share of the Drilling Costs associated with such well
would, in typical circumstances be 25%. If, however, ABC elects not
to participate in the drilling of the well and BOG and CDE elect to
proceed to drill the well and each acquire their proportionate part of
ABC's non-consent interest, BOG's share of the Drilling Costs would,
in typical circumstances, be 33.333%. In the event ABC has the right
to again participate in the well after, for example,
-2-
3
payout of a nonconsent penalty, the interests of BOG and Gasco shall
both proportionately be reduced to take into account the after payout
interest of ABC. In both of the examples set out above, assume
further that XYZ Oil Company ("XYZ") has agreed to carry BOG for 50%
of what would otherwise be BOG's share of Drilling Costs in order to
earn 25% of BOG's interest in the Subject Well or Subsequent Well.
Under such circumstances, the BOG Drilling Costs shall be determined
without regard to XYZ's agreement to pay 50% of what would otherwise
be BOG's share of the Drilling Costs associated with the well, but the
25% interest BOG is obligated to assign to XYZ shall be taken into
account in determining the interest in any particular BOG Property
subject to this Agreement. As such, in this example in which XYZ has
agreed to pay 50% of BOG's share of Drilling Costs in return for 25%
of BOG's interest in the Subject Well or Subsequent Well, as BOG's
interest in the well is reduced to 18.75% in the example in which all
of the parties elected to participate and to 24.99975% in the example
in which ABC elected not to participate in order to account for XYZ's
earned interest, the BOG Drilling Costs associated with such well
would be reduced to BOG's reduced interest in the Subject Well or
Subsequent Well.
"BOG Farmout Agreement" means any agreement through which BOG
and Gasco must either provide seismic data, drill a Subject Well or
drill a Subsequent Well in order to earn an assignment of BOG
Properties from a third party.
"BOG Participation Agreements" means any agreements now or
hereafter existing whereunder BOG agrees with certain third parties
upon terms and conditions of joint exploration and/or development of
oil and/or gas properties located in the domestic United States,
including without limitation the existing participation agreements
described in Exhibit A hereto, as same may be amended, modified or
extended from time to time.
"BOG Properties" means BOG's undivided right, title and
interest in and to any property, right or interest that gives BOG the
right to drill for and produce oil, gas and associated hydrocarbons in
any of the lands described in Exhibit B, whether now owned or
hereafter acquired by BOG during the term hereof; BOG Properties shall
in no event include any overriding royalty interest owned by or owing
to BOG, whether pursuant to a BOG Participation Agreement or
otherwise. However, in the event that prior to the Completion of a
Subject Well BOG has assigned or has agreed to assign interests in
properties, rights or interests which are related to such Subject Well
or the Drilling and Production Unit for the applicable Subject Well,
the interests in such properties, rights or interests which BOG has
assigned or agreed to assign shall not be part of the BOG Properties
for purposes of this Agreement; provided, however, that the interests
BOG has agreed to assign to Middle Bay Oil Company, Inc. pursuant to
the terms of that certain Expense Allocation and Participation
Agreement dated April 1, 1996 by and between BOG and Middle Bay, shall
be deemed to be part of the BOG Properties for purposes of this
Agreement. In addition, anything to the contrary contained herein
notwithstanding, in the event that BOG Drilling Costs with respect to
any particular Subject Well are estimated, as set out in the initial
authority for expenditure or "AFE" circulated for the drilling of such
Subject Well (which AFE may be circulated by BOG or by some third
party), to exceed $280,000.00, BOG's undivided interests in and to the
properties, rights and interests included in the Drilling and
Production Unit for such Subject Well shall be reduced in the same
percentage by which the estimated BOG Drilling Costs exceed
$280,000.00, and that reduction amount shall not be a part of the BOG
Properties and shall otherwise be excluded from this Agreement for all
purposes. By way of illustration, assume that (a) the estimated BOG
Drilling Costs for any particular Subject Well is $336,000.00 and thus
exceeds the amount of $280,000.00 by exactly 20%, (b) the Drilling and
Production Unit for such Subject Well covers 80 acres and as part of
the BOG Properties BOG owns and undivided 70% interest in an oil and
gas lease (for purposes of this example referred to as the "Lease")
covering 60 net mineral acres in such Drilling Unit and an undivided
40% interest in the minerals (for purposes of this example referred to
as the "Minerals") covering the other 20 net mineral acres in the
Drilling and Production Unit. Under this example, 20% of BOG's
interest in both the Lease and the Minerals would be excluded from the
BOG Properties; as such, an undivided 56% (i.e. 80% of BOG's 70%)
interest in the Lease and an undivided 32% (i.e. 80% of BOG's 40%)
interest in the Minerals would constitute the BOG Properties for the
Drilling and Production Unit for such Subject Well. Notwithstanding
any provision hereof to the contrary, the original estimate of BOG
Drilling Costs as set forth in the initial AFE circulated relative to
any Subject Well will always, unless BOG and Gasco mutually agree to
the contrary,
-3-
4
definitely be utilized for purposes of determining whether and by how
much the above-described $280,000.00 benchmark has been exceeded.
"Casing Point" means the time when the well has been drilled
to the objective depth stated in the initial notice, appropriate tests
have been made, and the drilling operator notifies all of the
participating parties of his recommendation with respect to completing
or plugging and abandoning the well.
"Complete" or "Completion" means a single operation designed
to complete a Subject Well or Subsequent Well as a producer in one or
more zones, including without limitation the setting of production
casing, perforating, and, where necessary or appropriate, well
stimulation.
"Completion Costs" means the costs and expenses associated
with any attempted Completion of a Subject Well or Subsequent Well.
In addition, in the event that Completion operations are attempted
within a well but the well is not ultimately completed as a producer,
the costs incurred to plug and abandon such well shall also constitute
Completion Costs for purposes of this Agreement.
"Consent" means any right of a third party to grant or deny
its consent to the execution of this Agreement or the consummation of
all or any part of the transactions contemplated herein, including
without limitation any consents provided for or otherwise disclosed in
the existing BOG Participation Agreements.
"Drilling Costs" means all costs and expenses related to (a)
the preparation for drilling and then the drilling and equipping of a
well up and to Casing Point, and (b) all activities associated with
plugging and abandoning a well in which Completion operations have not
been attempted. Without limitation of the generality of the
foregoing, Drilling Costs shall include all costs associated with (i)
clearing and building a location and creating or improving access to
such location (e.g., by building roads), (ii) setting surface casing,
and (iii) logging and testing the well prior to the commencement of
Completion operations.
"Drilling and Production Unit" means, with respect to any
particular well, the acreage allocable, as determined by reference to
the formation initially Completed in such well, to such well under
applicable laws, rules or regulations of governmental authorities
having jurisdiction for the drilling and production of such well at a
legal location and the production from such well of its maximum
allowable, such maximum allowable to be determined by reference to the
lesser of (a) the maximum permissible allowable for such well as set
by any governmental authority having jurisdiction, and (b) such well's
maximum prudent physical productive capability, as determined by
reference to the initial potential test or initial deliverability
test, as the case may be, for such well, limited in each instance to
those depths between the surface and 100 feet below the deepest depth
drilled in the relevant well; the exact configuration of any such
Drilling and Production Unit shall be designated by BOG utilizing
reasonable discretion and good faith. In the event that no
governmental authority having jurisdiction has promulgated any laws,
rules or regulations pursuant to which the Drilling and Production
Unit for any particular well can be determined as set forth in the
immediately preceding sentence, BOG shall, utilizing reasonable
discretion and good faith, designate a Drilling and Production Unit
for such well. However, in the event that after a Drilling and
Production Unit is established for a Subject Well as provided herein,
the Drilling and Production Unit for a Subject Well that has been
completed as a producer is reconfigured or otherwise altered or
changed under law, rule, order or regulation of any governmental
authority having jurisdiction, commencing with the effective date of
such change, the Drilling and Production Unit for such Subject Well
shall be deemed to have been altered as required by the law, rule,
order or regulation and the Parties shall execute all conveyance
instruments necessary to cause Gasco to own the interests (and only
the interests) in the BOG Properties which are included within the
revised Drilling and Production Unit; provided, however, that in the
event that prior to the change in the Drilling and Production Unit a
well has been drilled on acreage (or lands pooled or otherwise
combined therewith) which was not previously included within such
Drilling and Production Unit or BOG has assigned interests in acreage
which was not previously included within such Drilling and Production
Unit, BOG shall not be required to assign such well (or any production
therefrom) or interests to Gasco despite the later inclusion of such
well or acreage in the Drilling and Production Unit. Similarly, in
the event that prior to a change in a Drilling and Production Unit a
Subsequent Well has been drilled on acreage which was previously
included within such Drilling and Production Unit and Gasco
participated in the drilling of such Subsequent Well as provided in
-4-
5
Section 9(b) below, Gasco shall not be required to assign its interest
in such Subsequent Well (or any production therefrom) to BOG despite
the later exclusion of such Subsequent Well or acreage from the
Drilling and Production Unit. The Drilling and Production Unit for
any particular Subject Well shall in no event include any acreage
and/or depths otherwise allocable to the drilling and spacing,
proration or pooled unit reasonably and in good faith designated by
BOG for any other well, the actual drilling of which was commenced
prior to the date hereof, in which BOG owns an interest and which does
not constitute a Subject Well.
"Initial Deposit" shall have the meaning assigned to it in
Section 8 hereof.
"Initial Period" shall have the meaning assigned to it in
Section 8 hereof.
"Person" means, an individual, corporation, partnership,
limited liability company, association, joint stock company, pension
fund, trust or trustee thereof, estate or executor thereof,
unincorporated organization or joint venture, court or governmental
unit or any agency or subdivision thereof, or any other legally
recognizable entity.
"Preferential Rights" means a preferential right or option in
favor of a third party to acquire all or a portion of a BOG Property,
or to otherwise participate with BOG in the exploration, or
development thereof.
"Routine Governmental Approvals" means the right of any
governmental entity to consent to or approve the transfer of any
interest in a specific BOG Property.
"Seismic Data" means all data secured by or on behalf of BOG
in the conduct of 3-D seismic operations on, across or through the BOG
Properties, including any tapes, reproducibles and interpretations.
Seismic Data shall not include any data which BOG, in its sole and
absolute discretion, deems to be subject to a confidentiality
restriction imposed by or for the benefit of a third party.
"Shortfall Deposit" means any additional funds required to be
deposited by Gasco with BOG pursuant to subsections 8(b)(iii) and
8(c)(iii) hereof.
"Subject Well" means each well on a BOG Property, or on lands
pooled or unitized therewith, for which drilling operations are
actually commenced after the commencement of the Agreement Term and
for which Gasco's share of the BOG Drilling Costs for such well have
been forwarded to the drilling operator for such well prior to the
expiration of the Agreement Term in accordance with the terms of
Section 8 below, regardless of when the well was proposed; the term
Subject Well shall not include (a) any well in the drilling of which
BOG elects not to participate, or (b) any recompletion, deepening,
side track, plug back, rework or other operation in a wellbore already
in existence at the time the subject new operation is proposed. For
purposes of this definition drilling operations for a well shall not
be deemed to have been "actually commenced" unless and until a drill
bit is turning in the ground at the well's surface location utilizing
a drilling rig that is capable of drilling the well to its proposed
total depth. The Parties recognize and agree that any well which is
drilled within the Drilling and Production Unit (or on lands pooled or
unitized therewith) of a well for which drilling operations were
actually commenced prior to the Agreement Term, shall not be a Subject
Well or Subsequent Well for purposes of this Agreement and such a well
shall not be subject to this Agreement, to the effect that Gasco shall
not be obligated to pay any share of the Drilling Costs associated
with any such well or xxxxx and shall further have no right to receive
assignment of any interest therein (or in any Drilling and Production
Unit otherwise allocable thereto). In addition, in the event that BOG
and Gasco mutually so agree with respect to any particular well or
xxxxx proposed to be drilled during the Agreement Term, such well or
xxxxx shall not become Subject Xxxxx and shall otherwise not be
subject to this Agreement, to the effect that Gasco shall not be
obligated to pay any share of the Drilling Costs associated with any
such well or xxxxx and shall further have no right to receive
assignment of any interest therein (or in any Drilling and Production
Unit otherwise allocable thereto).
"Subsequent Deposit" shall have the meaning assigned to it in
Section 8 hereof.
-5-
6
"Subsequent Period" means each of (a) the period beginning on
July 1, 1996 and ending on September 30, 1996, (b) the period
beginning on October 1, 1996 and ending on December 31, 1996, and (c)
the period beginning on January 1, 1997 and ending on March 31, 1997.
"Subsequent Well" shall have the meaning assigned to it in
subsection 9(b) hereof.
"Termination Amount" means the amount determined utilizing the
following formula:
EW x ADC x AWI x 12.5% x XX - XX
-------
EW
where EW is the number of Subject Xxxxx BOG estimates will be drilled
during the Agreement Term, ADC is the average of BOG's estimate of all
Drilling Costs for EW, calculated based on 8/8ths of such Drilling
Costs, AWI is the average working interest BOG estimates it will have
in the EWs, and AW is the actual number of Subject Xxxxx drilled
hereunder during the Agreement Term and prior to termination of this
Agreement pursuant to Section 10 hereof. For purposes hereof, the
parties stipulate that EW is, based on BOG's estimate, 87 xxxxx, AWI
is, based on BOG's estimate, 25% and ADC is, based on BOG's estimate,
$264,000.
Section 2. REPRESENTATIONS OF BOG. BOG represents to Gasco that:
(a) BOG is a limited partnership, duly formed and legally
existing under the laws of the State of Delaware. BOG 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. Other than requirements
(if any) that there be obtained Consents or waivers of Preferential
Rights regarding the transfer of specific BOG Properties, and except
for Routine Governmental Approvals which are customarily obtained
post-closing and which BOG has no reason to believe cannot be
obtained, 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 the BOG Properties are bound, or violate any order, writ,
injunction, decree, statute, rule or regulation applicable to BOG or
to the BOG Properties. 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.
(b) 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, the consummation of the transactions contemplated hereby,
or the BOG Properties, other than as disclosed in Exhibit A.
THE EXPRESS REPRESENTATIONS OF BOG CONTAINED IN THIS SECTION OR IN ANY
ASSIGNMENT EXECUTED PURSUANT HERETO ARE EXCLUSIVE AND ARE IN LIEU OF ALL OTHER
REPRESENTATIONS AND WARRANTIES, EXPRESS, IMPLIED, STATUTORY OR OTHERWISE, AND
BOG EXPRESSLY DISCLAIMS ANY AND ALL SUCH OTHER REPRESENTATIONS AND WARRANTIES.
WITHOUT LIMITATION OF THE FOREGOING, UNDIVIDED INTERESTS EARNED BY GASCO
HEREUNDER IN THE BOG PROPERTIES SHALL BE CONVEYED WITHOUT ANY WARRANTY OR
REPRESENTATION, WHETHER EXPRESS, IMPLIED, STATUTORY OR OTHERWISE, RELATING TO
THE CONDITION, QUANTITY, QUALITY, FITNESS FOR A PARTICULAR PURPOSE, CONFORMITY
TO THE MODELS OR SAMPLES OF MATERIALS OR MERCHANTABILITY OF ANY EQUIPMENT OR
ITS FITNESS FOR ANY PURPOSE AND GASCO SHALL ACCEPT ALL OF THE SAME IN THEIR "AS
IS, WHERE IS" CONDITION. BOG MAKES NO WARRANTY OR REPRESENTATION, EXPRESS,
IMPLIED, STATUTORY OR OTHERWISE, AS TO THE ACCURACY OR COMPLETENESS OF ANY
DATA, INTERPRETATIONS, REPORTS, RECORDS, PROJECTIONS, INFORMATION OR MATERIALS
NOW, HERETOFORE OR HEREAFTER FURNISHED OR MADE AVAILABLE TO GASCO IN CONNECTION
WITH THIS AGREEMENT INCLUDING, WITHOUT LIMITATION, RELATIVE TO SEISMIC OR
GEOLOGICAL MATTERS, PRICING ASSUMPTIONS, OR QUALITY OR QUANTITY OF HYDROCARBON
-6-
7
RESERVES (IF ANY) ATTRIBUTABLE TO THE BOG PROPERTIES OR THE ABILITY OR
POTENTIAL OF THE BOG PROPERTIES TO PRODUCE HYDROCARBONS OR ANY OTHER MATTERS
CONTAINED IN THE PROPRIETARY DATA OR ANY OTHER MATERIALS FURNISHED OR MADE
AVAILABLE TO GASCO BY BOG OR BY BOG'S AGENTS OR REPRESENTATIVES. ANY AND ALL
SUCH DATA, RECORDS, REPORTS, PROJECTIONS, INFORMATION AND OTHER MATERIALS
(WRITTEN OR ORAL) FURNISHED BY BOG OR OTHERWISE MADE AVAILABLE OR DISCLOSED TO
GASCO ARE PROVIDED GASCO AS A CONVENIENCE AND SHALL NOT CREATE OR GIVE RISE TO
ANY LIABILITY OF OR AGAINST BOG AND ANY RELIANCE ON OR USE OF THE SAME SHALL BE
AT GASCO'S SOLE RISK TO THE MAXIMUM EXTENT PERMITTED BY LAW.
Section 3. REPRESENTATIONS OF GASCO. Gasco represents to BOG that:
(a) Gasco is a limited partnership duly organized and
legally existing under the laws of the State of West Virginia. Gasco
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.
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 default under any
material agreement or instrument to which Gasco is a party or by which
Gasco is bound, or violate any order, writ, injunction, decree,
statute, rule or regulation applicable to Gasco. This Agreement
constitutes the legal, valid and binding obligation of Gasco,
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.
(b) There are no suits, actions, claims, investigations,
inquiries, proceedings or demands pending (or, to the best of Gasco's
knowledge, threatened) which affect the execution and delivery of this
Agreement or the consummation of the transactions contemplated hereby.
(c) Gasco is a knowledgeable purchaser, owner and
operator of oil and gas properties, has the ability to evaluate (and
in fact has evaluated or will evaluate, as the case may be) the BOG
Properties for acquisition, and is acquiring the BOG Properties and
its rights and interests hereunder for its own account and not with
the intent to make a distribution in violation of the Securities Act
of 1933 as amended (and the rules and regulations pertaining thereto)
or in violation of any other applicable securities laws, rules, or
regulations.
Section 4. PREFERENTIAL RIGHTS AND CONSENTS.
BOG will utilize reasonable efforts, consistent with industry
practices in transactions of this type, to identify any Preferential Rights or
Consents which would be applicable to the BOG Properties and the transactions
contemplated hereby. In attempting to identify such Preferential Rights and
Consents, BOG is in no event obligated to go beyond its own records. BOG shall
have no obligation other than to so attempt to identify such Preferential
Rights or Consents and to give the notices required by such identified
Preferential Rights or Consents prior to the drilling of a Subject Well or
Subsequent Well on the applicable BOG Properties. To the extent a Preferential
Right applicable to any BOG Property (or portion thereof) is properly exercised
prior to the execution of an Assignment covering such BOG Property in favor of
Gasco, any well located or proposed to be located on the lands covered by such
BOG Property shall not be considered a Subject Well for purposes hereof, and
Gasco shall have no obligation to pay or bear any BOG Drilling Costs associated
therewith; any share of BOG Drilling Costs paid by Gasco relating to such well
prior to the exercise of the subject Preferential Right shall be reimbursed by
BOG to Gasco. To the extent any Preferential Right applicable to any BOG
Property (or portion thereof) is identified after the date of an Assignment to
Gasco covering such BOG Property, and is further validly and properly exercised
by a third party or third parties after such date, Gasco shall convey the
specific BOG Property affected by such Preferential Right to the exercising
third party or third parties, and Gasco shall be entitled, as its sole remedy
against BOG, to any consideration paid by such party or parties on account of
the post-Assignment exercise of any Preferential Right affecting the BOG
Property. BOG and Gasco hereby recognize that any Preferential Right shall
apply only to the specific property described in the instrument creating same,
and shall in no event be construed to apply to all, or any group of, the BOG
Properties, other than the specific property described in the instrument
creating the Preferential Right. BOG shall use reasonable commercial efforts
to secure any Consent of which it becomes aware (whether such Consent was
identified before or after an Assignment was made covering the BOG Property
burdened by such
-7-
8
Consent), and to the extent BOG so utilizes reasonable commercial efforts,
whether successful or not, Gasco shall have no legal redress against BOG
relating to any Consent (or the failure to obtain same). Prior to the drilling
of each Subject Well, at Gasco's request, Gasco will be given reasonable
access, in BOG's offices, to BOG's copies of the operating agreements and BOG
Participation Agreements affecting the drilling of such Subject Well.
Section 5. MAINTENANCE OF UNIFORM INTEREST PROVISIONS.
It is hereby recognized that some of the BOG Properties may now be, or
hereafter become, subject to agreements (the "MUI Agreements") containing
maintenance of uniform interest provisions or similar restrictions against
assigning an interest in part, but less than all, of the contract area covered
by such agreement. In this connection, BOG undertakes to use reasonable
commercial efforts to secure waivers from the other parties to each MUI
Agreement that will allow Assignments to be made hereunder. In order to secure
these waivers, BOG may agree that any separate measurement and/or storage
facilities necessitated by an assignment by BOG to Gasco of an interest in
part, but less than all, of the contract area covered by the applicable MUI
Agreement shall be arranged and paid for in equal shares by BOG (50%) and Gasco
(50%). BOG and Gasco further agree that any other costs, liabilities, damages
or obligations, of whatever kind or character, arising out of or relative to
any maintenance of uniform interest or similar provision contained in an MUI
Agreement shall be borne and paid for in equal shares by BOG (50%) and Gasco
(50%).
Section 6. PARTICIPATION IN BOG DRILLING COSTS BY GASCO.
Gasco shall have the obligation to fund 25% of the BOG Drilling Costs
associated with each Subject Well. The election whether or not to participate
in the drilling of any particular well, and thus whether such well becomes a
Subject Well hereunder, will be exercised in the sole and absolute discretion
of BOG; upon an election by BOG to participate in the drilling of any
particular Subject Well, Gasco's obligation to pay 25% of the BOG Drilling
Costs associated with such Subject Well shall become absolute. The Parties
recognize and agree that anything to the contrary contained herein
notwithstanding, in the event that Gasco's share of BOG Drilling Costs have
been forwarded to the drilling operator for a Subject Well prior to the
expiration of the Agreement Term, Gasco's responsibility to fund 25% of the BOG
Drilling Costs associated with such Subject Well shall continue despite the
termination of the Agreement Term.
Section 7. COMPLETION ELECTIONS.
Gasco shall have the obligation to fund 12.5% of the BOG Completion
Costs associated with each Subject Well. In the event there is a separate
Completion point election relative to any particular Subject Well, BOG shall,
in its sole and absolute discretion, make such election for itself and for
Gasco. Any election by BOG to Complete or not to Complete any Subject Well
shall for all purposes be binding upon Gasco, the same as if Gasco had also
made the same election. Gasco shall have the obligation to fund a 12.5% share
of all BOG Completion Costs associated with any Subject Well. The Parties
recognize and agree that anything to the contrary contained herein
notwithstanding, in the event that Gasco's share of BOG Drilling Costs have
been forwarded to the drilling operator for a Subject Well prior to the
expiration of the Agreement Term, Gasco's responsibility to fund 25% of the BOG
Drilling Costs and 12.5% of the BOG Completion Costs associated with such
Subject Well shall continue despite the termination of the Agreement Term.
Section 8. FUNDING AND PAYMENT OBLIGATIONS
(a) Drilling Costs During the Initial Period.
(i) On or prior to the execution hereof, BOG has
provided to Gasco an estimate, determined in BOG's reasonable
discretion, of all BOG Drilling Costs related to Subject Xxxxx
for which costs are estimated to be incurred or advanced
between April 1, 1996 and June 30, 1996 (the "Initial
Period").
(ii) Contemporaneously with the execution of this
Agreement, Gasco shall forward to BOG three hundred
ninety-eight thousand six hundred fifty-one dollars
($398,651.00) (the "Initial Deposit"), in readily available
funds, representing the sum of Gasco's 25% share of the
estimated BOG Drilling Costs
-8-
9
relating to Subject Xxxxx for the Initial Period estimated to
be incurred or advanced during the Initial Period. BOG shall
deposit such Initial Deposit into the BOG Account.
(iii) It is hereby recognized that the amount of the
Initial Deposit has been calculated based on estimated BOG
Drilling Costs relating to Subject Xxxxx for the Initial
Period. BOG shall have the right from time to time during the
Initial Period to revise its estimate of BOG Drilling Costs
relating to Subject Xxxxx upward. To the extent that the
Deposit Balance is (or is reasonably estimated by BOG to be)
less at any particular time than the sum of Gasco's 25% share
of the revised estimate of BOG Drilling Costs relating to
Subject Xxxxx for the Initial Period, Gasco shall forward to
BOG readily available funds representing 25% of the portion of
the estimated shortfall attributable to BOG Drilling Costs
relating to Subject Xxxxx (which funds shall constitute a
Shortfall Deposit); such Shortfall Deposit shall be made by
Gasco, in immediately available funds, within 15 days after
receipt by Gasco of a written request for the subject
Shortfall Deposit. BOG shall deposit the Shortfall Deposit
into the BOG Account
(iv) BOG shall pay when due, out of and to the
extent of the Initial Deposit and any Shortfall Deposit, the
share of BOG Drilling Costs relating to Subject Xxxxx actually
incurred and charged to the account of Gasco. The balance of
the Initial Deposit and any Shortfall Deposit which has not
been incurred and paid for Gasco's share of BOG Drilling Costs
will be reflected on the books of BOG as a payable to Gasco
until such time as it is applied against Gasco's share of the
BOG Drilling Costs relating to Subject Xxxxx.
(b) Drilling Costs During Subsequent Periods.
(i) Within forty-five days of the first day of each
Subsequent Period, BOG shall provide to Gasco a written
estimate, determined in BOG's reasonable discretion, of the
BOG Drilling Costs relating to Subject Xxxxx for such
Subsequent Period.
(ii) On or before 30 days before the first day of
each Subsequent Period, Gasco shall forward to BOG an amount
(the "Subsequent Deposit"), in readily available funds,
representing the sum of Gasco's 25% share of the estimated BOG
Drilling Costs relating to Subject Xxxxx for such Subsequent
Period estimated to be incurred or advanced during such
Subsequent Period. The amount of each Subsequent Deposit
shall, however, be determined giving due credit to any BOG
Account Balance that is expected to remain unused from a
previous period (i.e., from the Initial Period or a prior
Subsequent Period, as the case may be) and that further is not
earmarked by BOG for payment of Gasco's share of BOG Drilling
Costs relating to Subject Xxxxx for such previous period. BOG
shall deposit each Subsequent Deposit into the BOG Account.
(iii) It is hereby recognized that each Subsequent
Deposit shall be calculated based on estimated BOG Drilling
Costs relating to Subject Xxxxx for the applicable Subsequent
Period. BOG shall have the right from time to time during
each Subsequent Period to revise its estimates of BOG Drilling
Costs relating to Subject Xxxxx for such Subsequent Period
upward. To the extent that the BOG Account Balance is (or is
reasonably estimated by BOG to be) less at any particular time
than the sum of Gasco's 25% share of the revised estimate of
BOG Drilling Costs relating to Subject Xxxxx for the
applicable Subsequent Period, Gasco shall forward to BOG
readily available funds (which shall constitute a Shortfall
Deposit) representing 25% of the portion of the estimated
shortfall attributable to BOG Drilling Costs relating to
Subject Xxxxx; such deposit shall be made by Gasco, in
immediately available funds, within 15 days after receipt by
Gasco of a written request for the Shortfall Deposit. BOG
shall deposit the Shortfall Deposit into the BOG Account.
(iv) During each Subsequent Period BOG shall pay
when due, out of and to the extent of the Subsequent Deposit
and any Shortfall Deposit, the share of BOG Drilling Costs
relating to Subject Xxxxx actually incurred and charged to the
account of Gasco during such Subsequent Period. The balance
of the Subsequent Deposit and any Shortfall Deposit which has
not been incurred and paid for
-9-
10
Gasco's share of BOG Drilling Costs will be reflected on the
books of BOG as a payable to Gasco until such time as it is
applied against Gasco's share of the BOG Drilling Costs
relating to Subject Xxxxx.
(c) BOG Completion Costs. On or before the 25th day of
each calendar month preceding each calendar month occurring within the
Initial Period and each Subsequent Period, BOG shall provide Gasco
with an estimate, determined in BOG's reasonable discretion, of all of
the BOG Completion Costs relating to Subject Xxxxx estimated to be
incurred or advanced during the next succeeding calendar month. The
amount of each such estimate shall, however, be determined giving due
credit to any BOG Account Balance from the previous month that is
expected to remain unused and that further is not earmarked by BOG for
payment of Gasco's share of BOG Drilling Costs relating to Subject
Xxxxx and/or BOG Completion Costs relating to Subject Xxxxx for such
previous month. On or before the first day of the next succeeding
calendar month Gasco shall pay to BOG, in immediately available funds,
Gasco's 12.5% share of BOG Completion Costs relating to Subject Xxxxx
estimated by BOG to be incurred or advanced during the such calendar
month. BOG shall initially deposit such funds into the BOG Account
and shall withdraw those funds from the BOG Account to pay, when due,
out of and to the extent of such deposit, Gasco's 12.5% share of BOG
Completion Costs relating to Subject Xxxxx which are incurred during
such calendar month. The balance of each monthly deposit which has
not been incurred and paid for Gasco's share of BOG Completion Costs
will be reflected on the books of BOG as a payable to Gasco until such
time as it is applied against Gasco's share of the BOG Completion
Costs relating to Subject Xxxxx.
(d) Reporting. On or before a date that is Forty-five
(45) days after expiration of the previous period (i.e., the Initial
Period or a prior Subsequent Period, as the case may be), BOG shall
provide to Gasco a statement reflecting, on a well-by-well basis,
application of the funds attributable to Gasco's share of BOG Drilling
Costs relating to Subject Xxxxx and BOG Completion Costs relating to
Subject Xxxxx for the previous period; such statement shall be based
on actual numbers, where available, and on estimates, where actuals
are not available.
Section 9. ASSIGNMENTS AND SUBSEQUENT XXXXX.
(a) Assignments. BOG shall execute an Assignment in favor of
Gasco covering each Subject Well that is Completed as a producer of
oil, gas and/or associated hydrocarbons; any such Assignment shall be
made on or before the later to occur of (i) thirty business days after
the date the Subject Well was Completed, and (ii) thirty business days
after BOG secures assignment from a third party of all or any portion
of the interest in the Subject Well it is obligated to assign to Gasco
hereunder. Under each Assignment, BOG shall assign to Gasco an
undivided 12.5% interest in and to the BOG Properties related to (A)
the wellbore of any particular Subject Well that is Completed as a
producer of oil, gas and/or associated hydrocarbons, and in and to the
right to produce oil, gas and/or associated hydrocarbons therefrom,
and (B) subject to the limitations and restrictions set forth in
subsection 9(b), below, the Drilling and Production Unit allocable to
such Subject Well. Each Assignment shall be made effective on or
before the date of first production from the Subject Well under
instrument in substantially the form attached hereto as Exhibit C.
Notwithstanding any provision hereof to the contrary, BOG shall not be
obligated to execute any Assignment to Gasco hereunder if Gasco has
failed to fund the BOG Drilling Costs or BOG Completion Costs for any
Subject Well(s) in accordance with the provisions of Section 8 above.
The interest assigned to Gasco under any Assignment (the "Assigned
Interests") shall be burdened by an overriding royalty interest in
favor of BOG (the "BOG ORRI") in the same proportions as the interests
of the participants under the BOG Participation Agreement(s) relating
to such Assigned Interests are burdened by an overriding royalty
interest created or reserved in favor of BOG pursuant to the
applicable BOG Participation Agreement(s). The BOG ORRI shall be
calculated in the same manner, and shall bear the same costs, expenses
and taxes, as the overriding royalty interest of BOG burdening the
interests of the other participants under the BOG Participation
Agreements; provided, however, that in the event that the BOG ORRI
would reduce Gasco's net revenue interest in any of the BOG Properties
included within the Drilling and Production Unit of a Subject Well
below 75%, proportionately reduced to Gasco's interest in the BOG
Properties, with respect to those BOG Properties the amount of the BOG
ORRI shall be reduced to an amount that is equal to the positive
difference, if any, between 25% and the total of all existing royalty
and overriding royally interests burdening such BOG Properties. Any
Assigned Interests shall further bear their proportionate share of any
(i) rights of reversion or conversion in favor of third parties
-10-
11
that do or may result in the reduction of BOG's interest in the
Assigned Interests or the alteration of such interest (e.g. a back-in
right under a BOG Farmout Agreement), and (ii) royalties, overriding
royalties, production payments and any other burdens against BOG's
interest in, or share of production from, the Assigned Interests, to
the extent same are in existence or owing under documentation in
existence as of the date the Assignment is made.
(b) Subsequent Xxxxx. Any well drilled or commenced to be
drilled, whether during or at any time after expiration of the
Agreement Term, on acreage and to depths included within the Drilling
and Production Unit (or on lands pooled or unitized therewith) for a
Subject Well shall be considered a "Subsequent Well" for all purposes
hereof. Notwithstanding any provision hereof to the contrary:
(i) In the event that both Gasco and BOG elect to
participate under the applicable BOG Participation Agreement,
joint operating agreement or similar agreement governing joint
operations on any Drilling and Production Unit in the drilling
of any particular Subsequent Well, Gasco shall have the
obligation to fund the sum of (A) 12.5% of BOG's share of all
Drilling Costs associated with such Subsequent Well (the "BOG
Carry Amount") and (B) Gasco's own share of the Drilling Costs
associated with such Subsequent Well. Upon an election by
both Gasco and BOG to participate in the drilling of any
particular Subsequent Well, Gasco's obligation to pay all BOG
Carry Amounts associated with such Subsequent Well shall
become absolute. Gasco shall pay over to BOG all BOG Carry
Amounts if and when incurred by BOG; provided that Gasco shall
have 15 business days after receipt from BOG of an invoice for
any particular BOG Carry Amounts to submit payment for same,
in immediately available funds, to BOG.
(ii) In the event that Gasco fails to timely pay any
BOG Carry Amount within 15 days of Gasco's receipt of written
notice of such default from BOG, in addition to, and without
limitation of any remedies that may be available to BOG at law
or in equity, at BOG's option Gasco shall automatically and in
perpetuity forfeit to BOG all of Gasco's right, title and
interest, whether legal or equitable, vested or contingent, in
and to the entire wellbore of the Subsequent Well to which
such BOG Carry Amount relates, together with any right to oil,
gas or other substances that may be produced therefrom and any
proceeds related thereto, free and clear of any liens or
encumbrances created by, through or under Gasco, but not
otherwise, and subject to any superior rights of third parties
under any BOG Participation Agreement, joint operating
agreement or other agreement governing joint operations on the
relevant Drilling and Production Unit to which both Gasco and
BOG are parties or are otherwise bound.
(iii) Notwithstanding any provision hereof to the
contrary, in the event that any particular Subsequent Well has
allocated to it a drilling and spacing unit or a proration or
pooled unit, as the case may be, that includes acreage outside
the areal confines of the Drilling and Production Unit related
to such Subsequent Well (the "Outside Lands"), Gasco shall in
no event be entitled to any right, title or interest in (A)
any such Outside Lands, or (B) any production or proceeds
allocable to such Outside Lands under applicable law, rule,
order or regulation or otherwise under any voluntary pooling,
unitization or similar agreement to which BOG is a party or is
otherwise bound; instead, Gasco shall be limited to its share
of production (or the proceeds thereof) as derived from its
right, title and interest only in the pooled unit, drilling
and spacing unit or proration unit, as the case may be, that
is made up of lands from the Drilling and Production Unit.
Further, BOG's share of Drilling Costs utilized in the
computation of BOG Carry Amounts shall be determined only by
reference to the proportionate share of any pooled unit,
drilling and spacing unit or proration unit, as the case may
be, that is made up of lands included in the Drilling and
Production Unit. By way of example, assume that a particular
Drilling and Production Unit is comprised of Tract A,
containing 320 acres, and Tract B, containing 320 acres; Gasco
owns a 12.5% share of the oil, gas and other mineral leasehold
interest in Tracts A and B and BOG owns the remaining 87.5%.
Further assume that a Subsequent Well is drilled on Tract A,
and both Gasco and BOG elect to participate in the drilling of
such well. Tract A, constituting Drilling and Production Unit
lands, is then pooled or otherwise combined with Tract C,
constituting Outside Lands; BOG owns a 100% interest in the
oil, gas and/other mineral leasehold interest in Tract C.
BOG's share of the Drilling Costs for the Subsequent Well is
$1,000,000. Under these facts, Gasco would be entitled
-11-
12
to 6.25% (i.e. 12.5% x 50%) of the production and allocable
proceeds from the subject Subsequent Well, prior to deduction
of royalties and other burdens, assuming production is
allocable as between Tracts A and B equally (i.e., on a
surface acreage basis); if production is allocable as between
Tracts A and C other than on a surface acreage basis (e.g.,
based on acre-feet), then Gasco's share of production from the
Subsequent Well, again derived only from its 12.5% interest in
Tract A, will be adjusted accordingly. Gasco's allocable
share of Drilling Costs under these facts would be $125,000
(i.e., the sum of (a) 12.5% x 50% x $1,000,000, and (b) the
BOG Carry Amount, which is 12.5% x 50% x $1,000,000), assuming
that Drilling Costs are allocable as between Tracts A and B on
a surface acreage basis; if Drilling Costs are allocable other
than on a surface acreage basis, Gasco's allocable share
thereof, again delivered from both its 12.5% interest in Tract
A and from its obligation to pay and bear the BOG Carry
Amount, shall be adjusted accordingly.
(iv) The provisions of this subsection 9(b) shall be
binding upon and shall enure to the benefit of BOG and Gasco,
and their respective successors and assigns. Any assignment
or other transfer by Gasco of any right, title or interest in
any Drilling and Production Unit established pursuant to this
Agreement shall be made expressly subject to the terms of this
subsection 9(b), and the transferee shall expressly agree to
assume and be bound by the terms of this subsection 9(b); any
attempted assignment or other transfer by Gasco that is not in
compliance with the foregoing shall be void.
Section 10. CONDITIONS PRECEDENT TO BOG PERFORMANCE AND TERMINATION
RIGHTS.
The obligation of BOG under this Agreement to allow Gasco to
participate in the drilling of any particular Subject Well, and to receive
assignment of an undivided 12.5% of BOG's interest therein, is subject to the
fulfillment of each of the following conditions, unless any one or more of same
are waived, in whole or in part, by BOG:
a. Each and every representation of Gasco under this
Agreement shall be true and accurate in all material respects as of
the date when made and shall be deemed to have been made again at and
as of the time of the proposed drilling of each Subject Well, and
shall at and as of the proposed drilling of each Subject Well be true
and accurate in all material respects except as to changes
specifically contemplated by this Agreement or consented to by BOG.
x. Xxxxx shall have performed and complied in all
material respects with (or compliance therewith shall have been waived
by BOG) each and every covenant, agreement and condition required by
this Agreement to be performed or complied with by Gasco, including
without limitation Gasco shall have timely performed its funding and
payment obligations under Section 8 hereof.
c. No suit, action or other proceedings shall, on the
date of the proposed drilling of each Subject Well, be pending or
threatened against Gasco or BOG before any court or governmental
agency seeking to restrain, prohibit, or obtain damages or other
relief in connection with the consummation of the transactions
contemplated by this Agreement, except to the extent that such suit,
action or other proceedings arise, in whole or in part out of any
action or inaction of BOG in breach of or otherwise in derogation of
this Agreement.
Notwithstanding any provision hereof to the contrary, in the event Gasco fails
at any time or from time to time, within 15 days after receipt of written
notice of default from BOG, to make any payment owing to BOG hereunder or to
otherwise satisfy any funding obligation hereunder, BOG shall have the right,
exercisable in its sole and absolute discretion, to terminate this Agreement,
in which case BOG shall be authorized to receive from Gasco the Termination
Amount. Gasco shall wire transfer to an account or accounts designated by BOG
the Termination Amount within fifteen business days after receipt by Gasco of
BOG's written notice that this Agreement has been terminated pursuant to the
preceding sentence of this Section 10. GASCO AND BOG ACKNOWLEDGE THAT THE
EXTENT OF DAMAGES TO BOG OCCASIONED BY GASCO'S FAILURE TO PROMPTLY PERFORM ITS
PAYMENT OR FUNDING OBLIGATIONS HEREUNDER WOULD BE IMPOSSIBLE OR EXTREMELY
DIFFICULT TO ASCERTAIN AND THAT THE AMOUNT OF THE TERMINATION AMOUNT IS A FAIR
AND REASONABLE ESTIMATE OF SUCH DAMAGES UNDER THE
-12-
13
CIRCUMSTANCES AND DOES NOT CONSTITUTE A PENALTY. Gasco hereby expressly
recognizes that BOG has a legal right, but not the obligation, to set-off all
or any portion of the BOG Account Balance against Gasco's obligation to pay the
Termination Amount.
Section 11. CONDITIONS PRECEDENT TO GASCO PERFORMANCE.
The obligation of Gasco under this Agreement to fund BOG Drilling
Costs and BOG Completion Costs for the drilling of Subject Xxxxx as set forth
in Section 8 above, is subject to the fulfillment of each of the following
conditions, unless any one or more of same are waived, in whole or in part, by
Gasco:
a. BOG shall have performed and complied in all material
respects with (or compliance therewith shall have been waived by
Gasco) each and every covenant, agreement and condition required by
this Agreement to be performed or complied with by BOG.
b. No suit, action or other proceedings shall, on the
date for funding as set forth in Section 8, be pending or threatened
against Gasco or BOG before any court or governmental agency seeking
to restrain, prohibit, or obtain damages or other relief in connection
with the consummation of the transactions contemplated by this
Agreement, except to the extent that such suit, action or other
proceedings arise, in whole or in part out of any action or inaction
of Gasco in breach of or otherwise in derogation of this Agreement.
Section 12. ASSUMPTION AND REIMBURSEMENT.
Any assignment made by BOG to Gasco hereunder shall be made expressly
subject to any applicable BOG Participation Agreement(s), and any joint
operating agreements related thereto. Gasco agrees to be bound by the terms of
any such BOG Participation Agreement(s) and any related joint operating
agreements, and hereby agrees, effective as of the effective time of the
subject Assignment, to expressly assume a 12.5% share of BOG's obligations
under the applicable BOG Participation Agreements and joint operating
agreement(s), insofar as they pertain to the particular Assigned Interests and
any related facilities. Except as may be provided in the BOG Participation
Agreements which are described in Exhibit A which is attached hereto or as may
be provided in a BOG Farmout Agreement, no BOG Participation Agreement, other
than a BOG Farmout, shall contain provisions which would reduce the net revenue
interest in the BOG Properties to be assigned to Gasco hereunder below 75%
(proportionately reduced to the interest in the BOG Properties to be assigned
to Gasco). Nothing contained in this Section 12 or elsewhere in this Agreement
or any Assignment executed pursuant hereto shall be construed to afford Gasco
any right (and Gasco shall have no right) to participate in production from or
proceeds attributable to any well, other than a Subject Well or a Subsequent
Well, whether drilled under the terms of any particular BOG Participation
Agreement and/or joint operating agreement or otherwise. In addition, nothing
contained in this Section 12 or elsewhere in this Agreement or any Assignment
executed pursuant hereto shall be construed to afford Gasco any right (and
Gasco shall have no right) to participate, as the result of the operation of an
area of mutual interest or similar provision, in any interests acquired by
third party participants under any BOG Participation Agreement or joint
operating agreement.
Section 13. INDEMNIFICATIONS.
(a) INDEMNIFICATIONS BY BOG. BOG agrees to indemnify and
hold harmless Gasco and its officers, directors, employees, agents,
and representatives from and against any and all claims, obligations,
actions, liabilities, damages, or expenses of any kind or character
arising out of or resulting from any agreement, arrangement or
understanding alleged to have been made by, or on behalf of, such
party with any broker or finder in connection with this Agreement or
the transactions contemplated hereby.
(b) INDEMNIFICATIONS BY GASCO.
(i) GENERAL AND ENVIRONMENTAL. NOTWITHSTANDING ANY
PROVISION HEREOF TO THE CONTRARY, GASCO SHALL, FROM AND AFTER
THE EFFECTIVE DATE OF EACH ASSIGNMENT, AGREE TO INDEMNIFY AND
HOLD BOG, ITS OFFICERS, DIRECTORS,
-13-
14
EMPLOYEES, AGENTS AND REPRESENTATIVES (HEREIN COLLECTIVELY
CALLED THE "BOG INDEMNIFIED PARTIES") HARMLESS FROM AND
AGAINST ANY AND ALL CLAIMS, OBLIGATIONS, ACTIONS, LIABILITIES,
DAMAGES, OR EXPENSES, INCLUDING WITHOUT LIMITATION COURT COSTS
AND ATTORNEYS' FEES (HEREIN COLLECTIVELY CALLED "CLAIMS"), TO
THE EXTENT SUCH CLAIMS AROSE OUT OF THE PHYSICAL CONDITION,
OWNERSHIP AND/OR OPERATION OF THE BOG PROPERTIES COVERED BY
THE SUBJECT ASSIGNMENT AT ANY TIME AFTER THE COMMENCEMENT OF
OPERATIONS FOR THE DRILLING OF THE SUBJECT WELL WHICH RESULTED
IN SUCH ASSIGNMENT, INCLUDING, WITHOUT LIMITATION, ANY CLAIMS
ARISING UNDER, OR AS A RESULT OF VIOLATION OF, APPLICABLE
ENVIRONMENTAL LAWS, WHETHER DUE, IN WHOLE OR IN PART, TO THE
NEGLIGENCE OR STRICT LIABILITY OF BOG, OTHER THAN GROSS
NEGLIGENCE OR WILLFUL MISCONDUCT.
(ii) COMMISSIONS. Gasco agrees to indemnify and
hold harmless BOG and the other BOG Indemnified Parties, from
and against any and all claims, obligations, actions,
liabilities, damages, or expenses of any kind or character
arising out of or resulting from any agreement, arrangement or
understanding alleged to have been made by, or on behalf of,
such party with any broker or finder in connection with this
Agreement or the transactions contemplated hereby.
Section 14. WELL DATA AND INFORMATION.
For each Subject Well, BOG shall provide Gasco with the following: (i)
one copy of the AFE submitted for the Subject Well with an estimated working
interest and net revenue interest break down; (ii) one copy of each drilling
and completion report received by BOG for the Subject Well; (iii) one copy of
each well log received by BOG for the Subject Well; and (iv) all data and
information received regarding the testing and analysis of the well. With
respect to each Subject Well which is completed as a producer, following the
completion of such Subject Well BOG shall provide Gasco with a copy of each of
the following documents which are in BOG's possession (i) the BOG Participation
Agreements which affect Gasco's interests in the Drilling and Production Unit
for the Subject Well, (ii) the operating agreements which govern the Drilling
and Production Unit for the Subject Well, and (iii) a copy of each oil and gas
lease and farm-in agreement which covers minerals which are located within the
Drilling and Production Unit for the Subject Well; provided, however, that
Gasco shall reimburse BOG for any third party copying charges which are
incurred to generate such copies. In addition, with respect to each Subject
Well which is completed as a producer, subject to any contractual restrictions
that are placed on such interpretations pursuant to the terms of the applicable
BOG Participation Agreement(s) or the applicable seismic acquisition agreement,
BOG shall provide Gasco with one copy of a 3-D interpretational map generated
from Seismic Data by BOG for each of the targeted zone(s) in such Subject Well
(if a 3-D interpretational map has been generated by BOG for such zone),
limited in geographical extent to 1/2 mile of the outside perimeter of the
Drilling and Production Unit for the Subject Well. Under no circumstances
shall Gasco acquire any ownership interest or license in any of the Seismic
Data.
Section 15. TITLE REVIEW.
To the extent that it is within BOG's control, BOG agrees that a
reasonable title examination shall be performed for each Subject Well prior to
the commencement of actual drilling operations for such Subject Well.
Section 16. NON-COMPETE.
During the Agreement Term and continuing for a period of 5 years
thereafter, unless BOG agrees in writing otherwise, except as provided in this
Agreement, neither Gasco, nor any Affiliate of Gasco, nor any broker or other
representative acting on behalf of Gasco shall own, purchase or otherwise
acquire any interest in the oil, gas and/or other minerals in, under or that
may be produced from any lands located within any of the following described
lands (hereinafter collectively referred to as the "Non-Compete Lands"): (1)
any lands located within one mile of the outside perimeter of the drilling
and/or proration units which are established for each Subject Well; and (2) the
lands which must be the subject of a non-compete agreement as the result of the
disclosure of 3-D interpretational maps or the assignment of interests in BOG
Properties pursuant to the terms of a BOG Participation Agreement which is
-14-
15
applicable to BOG Properties which are to be assigned to Gasco pursuant to the
terms of this Agreement. The interests Gasco is precluded hereunder from
owning or acquiring include leasehold working interests, mineral fee interests
or servitudes, overriding royalty interests, royalty interests, production
payments, net profits interests, and any other interests, whether similar or
dissimilar, in the oil, gas and/or other minerals in, under or that may be
produced from any part of the Non-Compete Lands. In the event that Gasco, any
Affiliate of Gasco or any broker or other representative acting on behalf of
Gasco or any Affiliate of Gasco owns or acquires any interest in breach of this
Section 16, BOG shall, in addition to any other remedies it may have at law or
in equity, have the right, exercisable in its sole discretion, to secure from
Gasco, an Affiliate of Gasco and/or any broker or other representative acting
on behalf of Gasco or any Affiliate of Gasco, as the case may be, an
assignment, free of all cost and expense, covering the entire interest so owned
or acquired in breach of this Section 16. The provisions of this Section 16
shall survive the expiration of the Agreement Term and any earlier termination
of this Agreement. Anything to the contrary contained in this Section 16
notwithstanding, the parties hereto agree that Gasco shall not be precluded
from acquiring interests from a third party which is a party to a BOG
Participation Agreement, provided that the interest acquired by Gasco from such
third party is subject to the BOG Participation Agreement to which such third
party is a party.
Section 17. ACCOUNTING MATTERS.
On or before a date that is 30 calendar days after the earlier of
expiration of the Agreement Term or termination of this Agreement under Section
10 or Section 11 hereof, BOG shall issue to Gasco a statement reflecting the
BOG Account Balance as of the statement date. Along with said statement, BOG
shall, subject to any right of set-off afforded BOG hereunder, return to Gasco
the BOG Account Balance, less that portion which BOG believes should be
retained by BOG in order to satisfy Gasco's share of any BOG Drilling Costs or
BOG Completion Costs still to be paid or incurred hereunder. On or before a
date that is 120 calendar days after the earlier of expiration of the Agreement
Term or termination of this Agreement under Section 10 or Section 11 hereof,
BOG shall return, subject to any right of set-off afforded BOG hereunder, to
Gasco any of the remaining BOG Account Balance, to the extent it exceeds an
amount sufficient to cover Gasco's share of any then-accrued BOG Drilling Costs
or BOG Completion Costs.
Section 18. INSURANCE.
Gasco agrees to be bound by any election made by BOG concerning
insurance coverage relative to any particular Subject Well, and Gasco shall pay
a 12.5% share of what would otherwise be BOG's insurance costs relative to such
Subject Well and any related facilities. Prior to execution of an Assignment
covering such Subject Well, BOG shall make any insurance elections for and on
behalf of Gasco, and such election shall be binding upon Gasco, the same as if
made by Gasco. For example, if BOG elects to be covered by the operator's
insurance relative to any particular Subject Well, so will Gasco and if BOG
decides to secure or utilize its own insurance coverage relative to any
particular Subject Well, Gasco's interest in the Subject Well shall also rely
upon such insurance coverage; Gasco shall pay a 12.5% share of BOG's costs in
securing insurance coverage relative to any particular Subject Well. If BOG
decides to secure or utilize its own insurance coverage relative to a Subject
Well, Gasco will be named as an additional insured in the certificate issued
for such coverage.
Section 19. NOTICES.
All notices and other communications required under this Agreement
shall (unless otherwise specifically provided herein) be in writing and be
delivered personally, by recognized commercial courier or delivery service
(which provides a receipt), by telex or telecopier (with receipt acknowledged),
or by registered or certified mail (postage prepaid), at the following
addresses:
If to Gasco:
000 Xxxxxxx Xxxxxx, 0xx Xxxxx
Xxxxxxxxxx, X.X. 00000
Facsimile # (000) 000-0000
Attention: Xx. X. X. Xxxxxxx, III
-15-
16
If to BOG:
Xxxxxxx Oil & Gas, L.P.
0000 Xxxxxx Xxxx, Xxxxx 0000
Xxxxxx, Xxxxx 00000
Facsimile # (000) 000-0000
Attention: Xx. Xxx Xxxxxxx
and shall be considered delivered on the date of receipt. Either Gasco or BOG
may specify as its proper address any other post office address within the
continental limits of the United States by giving notice to the other party, in
the manner provided in this Section, at least two (2) business days prior to
the effective date of such change of address.
Section 20. SURVIVAL OF PROVISIONS.
All representations, warranties and indemnifications made herein by BOG
or Gasco shall survive in perpetuity the expiration of the Agreement Term and
any termination hereof under Section 10 or Section 11.
Section 21. DISCLAIMERS AND ELECTIONS.
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 joint venture, or 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 income.
Section 22. MISCELLANEOUS MATTERS.
a. Neither Gasco nor BOG shall assign or otherwise transfer any
rights, interests or obligations under this Agreement to any third party
without first obtaining the written consent of the other, which consent
may be either granted or withheld in the sole and absolute discretion of
the party being asked to grant consent; provided that either of BOG or
Gasco may freely transfer or otherwise dispose of all of its rights,
interests and obligations hereunder (i) by sale or other transfer or
disposition of all or substantially all of its assets (whether or not
covered hereby) to an Affiliate or (ii) otherwise by merger,
reorganization or consolidation. This Agreement shall be binding upon
and shall enure to the benefit of Gasco and BOG and their respective
permitted successors and assigns.
b. Each party shall bear and pay all expenses (including without
limitation attorneys' fees) incurred by it in connection with the
transaction contemplated by this Agreement.
c. This Agreement contains the entire understanding of the
parties hereto with respect to subject matter hereof and supersedes all
prior agreements, understandings, negotiations, and discussions among the
parties with respect to such subject matter. The descriptive headings
contained in this Agreement are for convenience only and shall not
control or affect the meaning or construction of any provision of this
Agreement. Within this Agreement words of any gender shall be held and
construed to cover any other gender, and words in the singular shall be
held and construed to cover the plural, unless the context otherwise
requires. Time is of the essence in this Agreement.
-16-
17
d. This Agreement may be amended, modified, supplemented,
restated or discharged (and provisions hereof may be waived) only by an
instrument in writing signed by the party against whom enforcement of the
amendment, modification, supplement, restatement or discharge (or waiver)
is sought.
e. Without limitation of BOG's right to be paid the Termination
Amount upon terms and conditions set forth in Section 10 above, BOG and
Gasco do hereby covenant and agree that the recovery by either party
hereto of any damages suffered or incurred by it as a result of any
breach by the other party of any provision of this Agreement shall be
limited to the actual damages suffered or incurred by the non-breaching
party as a result of the breach by the breaching party and in no event
shall the breaching party be liable to the non-breaching party for any
interest, consequential, special, exemplary or punitive damages suffered
or incurred by the non-breaching party as a result of the breach by the
breaching party.
f. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS, WITHOUT REGARD TO
PRINCIPLES OF CONFLICTS OF LAWS, EXCEPT THAT, TO THE EXTENT THAT THE LAW
OF A STATE IN WHICH A PORTION OF THE BOG PROPERTIES IS NOW OR HEREAFTER
LOCATED (OR WHICH IS OTHER APPLICABLE TO A PORTION OF THE BOG PROPERTIES
NECESSARILY GOVERNS, THE LAW OF SUCH STATE SHALL APPLY TO THAT PORTION OF
THE BOG PROPERTIES LOCATED IN (OR OTHERWISE SUBJECT TO THE LAWS OF) SUCH
STATE.
g. This Agreement may be executed in counterparts, all of which
are identical and all of which constitute one and the same instrument.
It shall not be necessary for BOG and Gasco to sign the same counterpart
and signature pages from different counterparts may be combined to form
masters of this Agreement.
This Agreement is executed by the parties hereto on the date set forth
beneath the signature of each but is effective for all purposes as of April 1,
1996.
XXXXXXX OIL & GAS, L.P.
By: Xxxxxxx Exploration Company
Its: Managing General Partner
By: /s/ XXX X. XXXXXXX
---------------------------------
Name: Xxx X. Xxxxxxx
Title: President/CEO
Date: May 8, 1996
GASCO LIMITED PARTNERSHIP
By: Gasco, Inc.
Its: General Partner
By: /s/ X. X. XXXXXXX, III
---------------------------------
Name: X. X. Xxxxxxx, III
Title: President
Date: May 9, 1996
-17-
