UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): September 16, 2004
PARALLEL PETROLEUM CORPORATION
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of incorporation)
0-13305 75-1971716
(Commission file number ) (IRS employer identification number)
1004 N. Big Spring, Suite 400, Midland, Texas 79701
(Address of principal executive offices) (Zip code)
(432) 684-3727 (Registrant's telephone number
including area code)
Not Applicable
(Former name or former address, if changed since last report)
Check the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligation of the registrant under any of the
following provisions:
[ ] Written communications pursuant to Rule 425 under the Securities Act (17
CFR 230.425)
[ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR
240.14a-12)
[ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the
Exchange Act (17 CFR 240.14d-2(b))
[ ] Pre-commencement communications pursuant to Rule 13e-4(c) under the
Exchange Act (17 CFR 240.13e-4(c))
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Item 1.01 Entry into Material Definitive Agreement.
On September 16, 2004, Parallel, L.P., a wholly-owned subsidiary of
Parallel Petroleum Corporation (collectively, "Parallel"), entered into an Asset
Sale Agreement with Chevron U.S.A. Inc. for the purchase of producing oil and
gas properties located in the Fullerton Field of Andrews County, Texas in the
Permian Basin of west Texas. The total purchase price, excluding adjustments,
for the properties is $16,080,470. The effective date of the purchase will be
January 1, 2004. Parallel presently owns a 64.125% working interest in these
same properties.
Under this Asset Sale Agreement, Parallel will acquire approximately
1,480 gross (370 net) acres and 100 gross (25 net) producing oil and gas
wells.
The purchase of the properties is scheduled to close on or before
September 27, 2004, subject to customary closing conditions, including the
absence of any proceedings before any governmental authority, the accuracy of
representations and warranties of the parties and the absence of any material
instances of non-market sensitive contractual obligations covering the
disposition of oil and gas produced for the parties.
The Asset Sale Agreement resulted from Parallel's exercise of its
preferential right to purchase upon being notified by Chevron that Chevron had
entered into an agreement to sell the properties to a third party. As required
by the preferential right to purchase, Parallel's purchase of the properties
will be completed upon the same terms and conditions as had been agreed to
between Chevron and the third party, the purchase price and working interest
being proportionately reduced among all parties exercising their preferential
right to purchase.
Parallel has no relationship with Chevron, other than in respect of the
purchase and sale agreement.
The purchase price will be financed with loan proceeds drawn under
Parallel's revolving credit facility provided by First American Bank, SSB, BNP
Paribas and Western National Bank.
All of the properties to be acquired from Chevron will be pledged as
additional collateral to further secure the payment and performance of
Parallel's indebtedness and obligations under its revolving credit facility.
At the date of this report, Parallel and the bank lenders are in the
process of amending and restating the revolving credit facility to provide for
the purchase of the properties from Chevron and for other acquisitions of oil
and gas properties.
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Item 9.01 Financial Statements and Exhibits.
(c) Exhibits.
Exhibit No. Description
10.1 Purchase and Sale Agreement, dated
September 16, 2004, between
Parallel, L.P. and Chevron U.S.A. Inc.
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SIGNATURE
Pursuant to the requirements of the Securities and Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned.
Dated: September 22, 2004
PARALLEL PETROLEUM CORPORATION
By: /s/ Larry C. Oldham
------------------------------------
Larry C. Oldham, President and Chief
Executive Officer
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Exhibit 10.1
ASSET SALE AGREEMENT
2004 ONSHORE DIVESTMENT PACKAGE
COVERING PROPERTIES IN ANDREWS COUNTY, TEXAS
between
CHEVRON U.S.A. INC.
(as Seller)
and
PARALLEL L.P.
(as Buyer)
Dated September 16, 2004
Table of Contents
1. Sale and Purchase of Assets.......................................1
1.1 Assets to be Sold. Subject to the exclusions and reservations
set forth in Section 1.4,.........................................1
1.2 Seismic Data......................................................3
1.3 Transfer of Assets................................................3
1.4 Exclusions and Reservations.......................................3
1.5 Conveyancing Instruments..........................................5
1.6 Cooperation to Effect IRC ss.1031 Exchange........................5
1.7 Suspended Proceeds................................................5
1.8 Shared Contract Rights............................................6
2. Purchase Price and Effective Date.................................6
2.1 Purchase Price....................................................6
2.1.1 Performance Deposit..........................................7
2.1.2 Payment of Adjusted Purchase Price...........................7
2.2 Transfer of Deposit and Purchase Price............................7
2.3 Allocation of Purchase Price......................................7
2.4 Adjustments to Purchase Price.....................................7
2.4.1 Increases to Purchase Price..................................8
2.4.2 Decreases to Purchase Price..................................9
2.4.3 Adjustment for Buyer-Assumed Imbalances......................9
2.5 Closing Statement................................................10
2.6 Effective Date of Sale...........................................10
3. Allocation of Revenues, Assumption of Liabilities
and Indemnification..............................................10
3.1 Allocation of Revenues...........................................10
3.2 Payment of Invoices..............................................10
3.3 Liabilities After Closing and Indemnities........................10
3.3.1 Definition of "Claims"......................................10
3.3.2 Buyer's Assumption of Abandonment Obligations...............11
3.3.3 Buyer's Assumption of Contract Obligations..................11
3.3.4 Seller's Indemnity with respect to Certain Items............12
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3.3.5 Seller's Indemnity with respect to Retained Litigation......12
3.3.6 Buyer's General Indemnification.............................12
4. Taxes And Payables...............................................12
4.1 Payment of Taxes - Texas Assets..................................12
5. Representations, Warranties, Acknowledgments, Disclaimers a
and Waivers......................................................13
5.1 Seller's Representations and Warranties..........................13
5.1.1 Formation...................................................13
5.1.2 Authorization...............................................13
5.1.3 No Brokers..................................................13
5.1.4 Compliance with Laws........................................14
5.1.5 Litigation..................................................14
5.1.6 Leases in Good Standing.....................................14
5.1.7 Environmental Matters.......................................14
5.1.8 Assets Subject to Payout....................................14
5.1.9 Preferential Rights.........................................14
5.1.10 Non-Exclusion of Necessary Assets...........................14
5.2 Buyer's Representations and Warranties...........................14
5.2.1 Formation...................................................15
5.2.2 Qualification...............................................15
5.2.3 Authorization...............................................15
5.2.4 No Brokers..................................................15
5.2.5 Compliance..................................................15
5.3 Disclaimers, Waivers & Acknowledgments...........................15
5.3.1 Disclaimer..................................................15
5.3.2 Acceptance of Assets "as is, where is"......................16
5.3.3 Acknowledgment..............................................16
5.3.4 WAIVER OF CONSUMER RIGHTS...................................16
5.3.5 NO REPRESENTATIONS OR WARRANTIES............................16
6. Title Matters....................................................18
6.1 Asset Title Review...............................................18
6.2 Notice of Alleged Title Defects..................................18
6.3 Alleged Title Defect.............................................18
6.4 Permitted Encumbrances...........................................19
6.5 Remedies for Title Failures......................................20
6.6 Waiver; Effect of Seller's Special Warranty......................21
7. Environmental Matters............................................21
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7.1 Environmental Review.............................................21
7.2 Alleged Environmental Defects....................................21
7.3 Remedies for Alleged Environmental Defect........................22
7.4 Indemnity Provisions.............................................22
7.5 Post-Closing Environmental Indemnification by Buyer..............23
7.6 Exclusion from Buyer's Indemnification...........................24
7.7 CONDITION OF THE ASSETS AND SPECIFIC BUYER INDEMNIFICATION
WITH RESPECT TO NORM AND OTHER HAZARDOUS SUBSTANCES..............24
7.8 Waiver...........................................................25
8. Aggregate Alleged Defects and Associated Termination Rights......25
8.1 Minimum Threshold for Aggregate Alleged Defects..................25
8.2 Termination Amount...............................................25
9. Additional Covenants.............................................25
9.1 Operations Prior to Closing......................................25
9.2 Preferential Rights to Purchase..................................26
9.2.1 Issuance of Notices.........................................26
9.2.2 Third Party Exercise........................................26
9.2.3 Third Party Failure to Purchase.............................26
9.2.4 Successor Operator..........................................26
10. Covenants, Assignments And Continuing Obligations................26
11. Closing, Termination and Final Adjustments.......................27
11.1 Conditions Precedent to Seller's Obligation to Close.............27
11.2 Conditions Precedent to Buyer's Obligation to Close..............28
11.3 Closing..........................................................28
11.4 Termination......................................................29
11.5 Remedies Upon Termination........................................30
11.6 Final Adjustments................................................30
12. Dispute Resolution and Binding Arbitration.......................31
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12.1 Sole and Exclusive Method for Resolution of Disputes.............31
12.2 Negotiation Between Executives...................................31
12.3 Mediation........................................................31
12.4 Arbitration......................................................31
13. Miscellaneous....................................................32
13.1 Oil and Gas Imbalances...........................................32
13.2 Insurance........................................................33
13.3 Casualty Loss of Assets..........................................34
13.3.1 Definition..................................................34
13.3.2 Notice of Loss..............................................34
13.3.3 Handling of Casualty Loss...................................34
13.4 Transfer of Records..............................................35
13.5 Publicity........................................................35
13.6 Assignment.......................................................35
13.7 Entire Agreement.................................................35
13.8 Notices..........................................................35
13.9 Governing Law....................................................36
13.10 Confidentiality................................................36
13.11 Default........................................................36
13.11.1 Failure to Respond........................................37
13.11.2 Seller Not Obligated to Remedy Buyer's Defaults...........37
13.11.3 Invoicing and Recoupment by Seller........................37
13.11.4 Other Remedies Reserved...................................37
13.12 Survival of Certain Obligations................................37
13.13 Conflict of Interest...........................................38
13.14 Further Cooperation............................................38
13.15 Counterparts...................................................38
13.16 Exhibits and Schedules.........................................38
13.17 Severability...................................................38
13.18 Expenses, Post-Closing Consents and Recording..................38
13.19 Nominations and Accounting Responsibilities....................39
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13.20 Removal of Signs and Markers...................................39
13.21 CONSPICUOUSNESS / EXPRESS NEGLIGENCE...........................39
13.22 Waiver of Certain Damages......................................39
13.23 Prior Contract(s) Affecting Production.........................39
13.24 Disclosure of Royalty Valuation Claims, Demands
and/or Lawsuits................................................40
13.25 Settlement Agreement...........................................40
13.26 Cooperation by Seller (Buyer's Audit)..........................41
Exhibits and Schedules:
Exhibit "A" - Interests to be Conveyed
Exhibit "C" - Form of Assignment and Bill of Sale
Schedule 1.4(n) - Excluded Communications and Office Equipment
Schedule 1.4 (q) - Excluded Equipment
Schedule 2.3 - Buyer's Allocation of Purchase Price
Schedule 3.3.5 - Seller's Retained Litigation
Schedule 5.1.8 - Assets Subject to Payout Schedules
Schedule 5.1.9 - Preferential Purchase Rights
Schedule 13.23 - Pre-Existing Contracts Affecting Production
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ASSET SALE AGREEMENT
2004 Onshore Divestment Package
THIS ASSET SALE AGREEMENT (this "Agreement"), dated September 16, 2004, is
between CHEVRON U.S.A. INC., a Pennsylvania corporation with a mailing address
of 1111 Bagby, Houston, Texas 77002 ("Seller"), and PARALLEL L.P., a Texas
limited partnership, with a mailing address of P. O. Box 10587, Midland, Texas
79702 ("Buyer").
W I T N E S S E T H:
That Seller desires to sell to Buyer and Buyer desires to purchase from
Seller on the terms set forth in this Agreement those certain oil and gas
interests and associated assets described herein. Accordingly, in consideration
of the mutual promises contained herein, the mutual benefits to be derived by
each party hereunder and other good and valuable considerations, the receipt and
sufficiency of which are hereby acknowledged, Buyer and Seller agree as follows:
1. Sale and Purchase of Assets
1.1 Assets to be Sold. Subject to the exclusions and reservations set forth in
Section 1.4, Seller shall sell, transfer, grant, and assign, or cause others to
sell, transfer, grant and assign and deliver to Buyer, and Buyer shall purchase
and receive all of Seller's undivided interests in and to the following:
(a) The oil, gas and mineral leases and/or deeds, operating rights, working
interests, mineral interests, royalty interests, overriding royalty interests,
payments out of production and other similar agreements and rights, whether
producing or non-producing, and any other oil, gas or mineral rights or portions
of same, representing Seller's ownership rights in the lands described in
Exhibit "A", and further including any renewals, extensions, ratifications and
amendments to such leases and/or deeds or portions of same (collectively, the
"Leases"), together with all oil and gas unitization, pooling and/or
communitization agreements, declarations, designations and/or orders relating to
the Leases and statutorily, judicially or administratively created drilling,
spacing and/or production units, whether recorded or unrecorded, insofar as they
relate to the Leases, and all of Seller's interest in and to the properties
covered or units created thereby to the extent attributable to the Leases
(collectively, the "Units"); but reserving to Seller (i) all of Seller's rights,
title and interests under certain of said Leases to explore for and produce oil,
gas and minerals outside the surface boundaries of the lands described in
Exhibit "A" or above or below the depths described in Exhibit "A" (the "Retained
Interests"), and (ii) the right to enter upon and use such portion or portions
of the surface as are necessary for its drilling and operations in the Retained
Interests, which operations shall not unreasonably interfere with those of Buyer
and shall be conducted at Seller's (and, if applicable, its co-owners') risk and
expense.
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(b) Any and all oil and gas wells, salt water disposal wells, injection
wells and other wells and wellbores, whether abandoned, not abandoned, plugged
or unplugged, located on the Leases or within the Units or Land (as defined
below) (collectively, the "Wells").
(c) All buildings, structures, facilities, foundations, wellheads, tanks,
pumps, compressors, separators, casing, tubing, pumps, motors, gauges, valves,
heaters, treaters, gathering lines, gas lines, water lines, vessels, boilers,
equipment, machinery, fixtures, flowlines, materials, improvements, and any
other real, personal, immovable and mixed property located on and currently or
formerly used in the operation of, or relating to the in-field production,
treatment, sale, or disposal of Hydrocarbons (as hereinafter defined), water,
and associated substances produced from, the Leases, Land or the Units
(collectively, the "Personal Property").
(d) All natural gas, casinghead gas, drip gasoline, natural gasoline,
natural gas liquids, condensate, products, crude oil and other hydrocarbons,
whether gaseous or liquid ("Hydrocarbons"), produced and severed from, or
allocable, after severance, to the Leases, Land, the Units, the Wells or the
Contracts (as hereinafter defined) on and after the Effective Date (as defined
in Section 2.6) (collectively, the "Sale Hydrocarbons").
(e) To the extent transferable, and subject to Section 1.8, all contracts,
permits, rights-of-way, easements, servitudes, surface leases, subsurface use
agreements, licenses, pooling agreements, operating agreements, processing
agreements, division orders, farm-in and farm-out agreements, and other
agreements of any kind or nature, whether recorded or not (including but not
limited to those described on Exhibit "A") INSOFAR ONLY as they directly relate
and are attributable to the Leases, Units, the production from either or both,
the Land, Wells or Personal Property or the ownership or operation thereof, or
the production, treatment, sale, transportation, gathering, storage or disposal
of Sale Hydrocarbons, water, or substances associated therewith (the
"Contracts").
(f) All of the fee lands and real or immovable property (the "Land")
identified on Exhibit "A", which shall be conveyed to Buyer under a conveyance
in a form legally sufficient to transfer Seller's title under the laws of the
State in which such Land is located, and otherwise consistent with the terms of
this Agreement.
(g) Records directly relating to the Leases, Units, Wells, Sale
Hydrocarbons, Contracts, Land and Personal Property, in the possession of Seller
(the "Records"), but excluding any records which (i) Seller is prohibited from
transferring to Buyer by law or existing contractual relationship, (ii) have
been archived pursuant to Seller's records management policies, or which (iii)
constitute Excluded Assets (as defined in Section 1.4); provided, however, that
Seller agrees to use reasonable efforts to make available to Buyer upon request
archived records in Seller's possession relating to the Assets if such records
are required by Buyer for purposes of responding to or defending any litigation
or claim pertaining to the Assets. Seller will deliver originals, rather than
copies, of those Records that pertain only to Assets being transferred to Buyer.
If the Records pertain both to Assets being transferred to Buyer and to Excluded
Assets as defined in Section 1.4 Seller may deliver copies to Buyer and retain
the originals.
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(h) All rights and obligations attributable to Production Imbalances and
Assigned Agreement Imbalances as defined in Section 13.1 (the "Assigned
Imbalances").
All such Leases, Units, Wells, Personal Property, Sale Hydrocarbons, Contracts,
Land, Records and Assigned Imbalances are hereinafter collectively referred to
as the "Assets."
1.2 Seismic Data. Seller will not transfer any seismic data or rights therein to
Buyer pursuant to this Agreement.
1.3 Transfer of Assets. The risk of loss and transfer of possession and control
of the Assets shall occur and be made at Closing (as defined in Section 11.3),
but transfer of title to the Assets shall be made effective as of the Effective
Date (as defined in Section 2.6). Seller and Buyer shall promptly execute such
additional documents as may be necessary to transfer the rights, titles or
interests herein sold and purchased on the records of any purchaser of Sale
Hydrocarbons.
1.4 Exclusions and Reservations. Specifically excepted and reserved from the
transactions are the following, hereinafter referred to as the "Excluded
Assets":
(a) Seller's proprietary data, reserve estimates and reports, economic
analyses, computer programs and applications, pricing forecasts, legal files and
legal opinions (except abstracts of title, title opinions, certificates of
title, or title curative documents), attorney-client communications, attorney
work product, and records and documents subject to confidentiality provisions,
claims of privilege or other restrictions on access.
(b) Seller's rights, title and interests in the Contracts to the extent
such are applicable, attributable and allocable to rights and interest retained
by Seller, as more specifically described in Section 1.8.
(c) All of Seller's separate proprietary software and derivatives
therefrom, geophysical data, data licensing agreements and seismic licenses
between Seller and third parties, if any, and any and all geologic/geophysical
interpretations and proprietary or licensed raw or processed geophysical data
(including magnetic tapes, field notes, seismic lines, analyses and similar data
or information) and interpretations therefrom.
(d) Subject to the provisions of Section 13.1, all rights and claims
arising, occurring, or existing in favor of Seller prior to the Effective Date
including, but not limited to, any and all contract rights, claims, penalties,
receivables, revenues, recoupment rights, recovery rights, accounting
adjustments, mispayments, erroneous payments, personal injury, property damage,
royalty and other rights and claims of any nature in favor of Seller relating to
any time period prior to the Effective Date, to the extent, and only to the
extent, that such claims, rights and other matters do not cause an impairment in
the value of the Assets to occur after the Effective Date.
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(e) All corporate, financial, and tax records of Seller; however, upon
receipt by Seller of a written request from Buyer indicating its desire to
obtain copies, and the purpose for same, Seller shall provide Buyer, at Buyer's
sole cost and expense, copies of any financial and tax records, other than
income tax records, which directly relate, in the opinion of Seller, to the
Assets, or which are necessary for Buyer's ownership, administration, or
operation of the Assets.
(f) To the extent, and only to the extent, that such claims, rights and
other matters do not cause an impairment in the value of the Assets to occur
after the Effective Date, all rights, titles, claims and interests of Seller
related to the Assets for all periods prior to the Effective Date (i) under any
policy or agreement of insurance or indemnity, (ii) under any bond, or (iii) to
any insurance or condemnation proceeds or awards.
(g) All Hydrocarbons produced from or attributable to Seller's interest
in the Assets with respect to all periods prior to the Effective Date, together
with all proceeds from and rights relating to the sale of such Hydrocarbons.
(h) Claims of Seller for any refund of or loss carry forwards with
respect to (i) production, windfall profit, severance, ad valorem or any other
taxes attributable to the Assets for any period prior to the Effective Date, and
(ii) income, occupational or franchise taxes.
(i) Subject to the terms hereof, all monies, proceeds, benefits,
receipts, credits, income or revenues (and any security or other deposits made)
attributable to the Assets or the operation thereof prior to the Effective Date,
specifically including, without limitation, amounts recoverable from audits
under operating agreements and any overpayments of royalties.
(j) All amounts due or payable to Seller as adjustments to insurance
premiums related to the Assets for all periods prior to the Effective Date.
(k) All of Seller's intellectual property rights, patents, trade
secrets, copyrights, names, marks and logos.
(l) All rights, obligations, benefits, awards, judgments, settlements,
if any, applicable to any litigation pending in which Seller is a named claimant
or plaintiff or holds beneficial rights or interests, to the extent related to
periods prior to the Effective Date, to the extent, and only to the extent, that
such claims, rights and other matters do not cause an impairment in the value of
the Assets to occur after the Effective Date.
(m) Seller's master service agreements and charter party agreements,
storage or warehouse agreements, supplier contracts, service contracts,
insurance contracts, and construction agreements.
(n) All telecommunication and communications equipment and services,
Wide Area Radio System ("WARS") control stations, radio towers, remote terminal
units, SCADA hardware and software, photocopy machines, and personal computers
and associated software, specifically identified as being excluded on the
attached Schedule 1.4 (n).
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(o) All fixtures, facilities, pipelines, gathering lines, real property
or interests therein owned by Chevron Pipe Line Company or any other division of
Seller or subsidiary of ChevronTexaco Corporation or any third party not a party
hereto, unless such assets are expressly identified and included on Exhibit "A".
(p) Seller's interest, if any, in any gas processing plant, separation
facility or gas treating plant serving the Assets, unless otherwise provided in
Exhibit "A".
(q) All vehicles (except those Seller has separately agreed to
include), boats, tools, emergency medical response supplies (including but not
limited to automated external defibulators, oxygen and combi tubes), identified
surplus equipment, whether or not any of the foregoing are identified on any
Exhibit or Schedule as being excluded, and any other assets specifically
identified as excluded or retained on any of the Exhibits attached to this
Agreement, including those described on Schedule 1.4 (q).
(r) All rights and obligations attributable to Other Imbalances as
defined in Section 13.1.
(s) All third party owned equipment and property located on or used in
connection with the Assets, including, without limitation, contractor equipment
and leased equipment.
1.5 Conveyancing Instruments. The Assets to be conveyed by Seller to Buyer
pursuant to this Section 1 shall be conveyed "AS IS, WHERE IS", without warranty
of title, except that Seller shall give a special warranty of title against
claims arising by, through, or under Seller, but not otherwise, and subject to
the express conditions and limitations contained in this Agreement. The Assets
to be transferred to Buyer pursuant to this Section 1 shall be transferred
pursuant to an Assignment and Bill of Sale in substantially the form of Exhibit
"C" (the "Assignment").
1.6 Cooperation to Effect IRC ss.1031 Exchange. If either party so elects, the
parties shall cooperate to effect a tax-deferred exchange under Internal Revenue
Code ss.1031, as amended. Either party shall have the right to elect this
tax-deferred exchange at any time prior to the date of Closing. If either party
elects to effect a tax deferred exchange, the other party shall execute
additional escrow instructions, documents, agreements, or instruments necessary
to effect the exchange, provided that the party asked to so cooperate shall
incur no additional costs, expenses, fees or liabilities as a result of or
connected with the exchange requested by the other party.
1.7 Suspended Proceeds. In the event the Assets include funds being held by
Seller in suspense for the benefit of a third party or parties, Seller shall
transfer and pay to Buyer, and Buyer agrees to accept from Seller for the
benefit of Seller and the party or parties entitled to receive payment thereof,
all monies representing the value or proceeds of production removed or sold from
the Assets and then held by Seller for accounts from which payment has been
suspended, such monies being hereinafter called "Suspended Proceeds". At the
same time, Seller shall deliver to Buyer appropriate supporting detail
pertaining to the Suspended Proceeds in a mutually agreeable digital format,
including (to the extent Seller has such information) the owner
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name, owner number, social security or federal ID number, reason for suspense,
and the amount of suspense funds payable for each entry, together with monthly
line item production detail including gross and net volumes and deductions for
all suspense entries. Except as specifically set forth in the remainder of this
Section 1.7, Buyer shall be solely responsible for the proper distribution of
such Suspended Proceeds to the party or parties which or who are entitled to
receive payment of the same, and hereby agrees to indemnify, defend and hold
Seller harmless from any Claims (as defined in Section 3.3.1) therefor. Upon
properly documented invoice delivered to Seller no later than December 31, 2005,
Seller will reimburse Buyer for (a) statutory penalties and interest, if any,
owing to any interest owner attributable to the Suspended Proceeds accruing
prior to the Effective Date, and (b) penalties and interest, if any,
attributable to the Suspended Proceeds accruing prior to the Effective Date,
payable to any state under existing escheat or unclaimed property law, but only
if the aggregate of such penalties and/or interest shall exceed a threshold
amount of $25,000, after which Seller shall reimburse Buyer on a dollar for
dollar basis (including the threshold amount). Any invoice for reimbursement
under the foregoing sentence shall include supporting documentation showing the
owner name or ownership interest to which the claim pertains, the amount and
calculation of the interest or penalties for which Buyer seeks reimbursement,
and any other documentation reasonably requested by Seller to verify the
validity and accuracy of the claim.
1.8 Shared Contract Rights. Notwithstanding anything to the contrary in Section
1.1(e), to the extent that any Contracts, including, but not limited to,
permits, rights-of-way, easements, servitudes, surface leases, subsurface use
agreements, licenses or other similar rights associated with the Assets are also
necessary to Seller's continuing use and enjoyment of the Retained Interests,
any oil, gas or mineral interests held by Seller and not included in the Assets,
or any other Excluded Assets, and to the extent that such Contracts cannot be
partially assigned or otherwise partitioned between the parties, the parties
shall in good faith determine which of them is best situated to hold, administer
and control each such Contract for the mutual benefit of both parties and their
respective successors and assigns. In that event, the party taking
responsibility for the Contract shall use reasonable commercial efforts to
maintain the contract in force according to its terms, including the payment of
any periodic rentals or fees, and shall invoice the other party for fifty
percent of any amounts so paid (unless the parties have agreed to some other
allocation of costs based on their respective interests in the Contract). In the
event the party holding and administering any such Contract should ever intend
to terminate, release or abandon the Contract it shall first offer the other
party hereto, or its successor or assign, the right to take an assignment of the
Contract. Each Contract held and administered according to the terms of this
Section 1.8 shall be documented in a separate agreement between the parties.
2. Purchase Price and Effective Date
2.1 Purchase Price. As consideration for the sale of the Assets, Buyer shall pay
to Seller or its respective designee, Sixteen Million, Eighty Thousand, Four
Hundred and Seventy U.S. Dollars ($16,080,470.00) (the "Purchase Price"),
adjusted as set forth in Section 2.4. The Purchase Price as adjusted in
accordance with Section 2.4 shall be referred to as the "Adjusted Purchase
Price."
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2.1.1 Performance Deposit. A performance deposit in the amount of ten percent
(10%) of the Purchase Price (the "Deposit") shall be paid by Buyer if the
transaction contemplated hereby is not closed on or before Monday, September 20,
2004, and such Deposit, if required, may be commingled with other Seller funds.
The Deposit, if required, will be credited to the Purchase Price at Closing,
will not bear interest, and is not refundable except as provided in this
Agreement. Buyer's failure to deliver the Deposit as set forth herein shall be a
material breach of this Agreement, for which Seller may declare this Agreement
terminated and seek all legal or equitable remedies.
2.1.2 Payment of Adjusted Purchase Price. The Adjusted Purchase Price shall
be paid at Closing as provided below in Section 2.2.
2.2 Transfer of Deposit and Purchase Price. The Deposit, if required, and the
Adjusted Purchase Price shall be paid by Buyer on the dates provided in Sections
2.1.1 and 2.1.2 above by completed wire transfer, in immediately available
funds, to the account below or as directed in writing by Seller in the Closing
Statement (as defined in Section 2.5):
Receiving Bank: BankOne N.A.
ABA #071000013
BNF: ChevronTexaco Exploration and Production Company
Account #59-51720
REFERENCE: 2004 Onshore Divestment
Attn: Luci Romano-Westuba (925) 842-8015
2.3 Allocation of Purchase Price. Within five business days after the execution
of this Agreement by both parties hereto, Buyer shall provide Seller Buyer's
allocation of the Purchase Price to the individual Assets associated with each
Property Code represented on Exhibit "A", which allocation shall be provided in
the form attached as Schedule 2.3. Buyer represents it will make reasonable
allocations, in good faith, and Seller may rely on the allocations for all
purposes hereunder, including: (a) to notify holders of preferential rights of
Buyer's offer; (b) as a basis for adjustments to the Purchase Price for Alleged
Title Defects, Alleged Environmental Defects and Casualty Losses (as such terms
are defined in Sections 6.3, 7.2, and 13.3.1, respectively); or (c) as otherwise
provided in this Agreement. The Purchase Price shall be further allocated for
federal tax purposes among intangibles and tangibles comprising the Assets as
follows: ninety percent (90%) of the Purchase Price shall be attributed to the
Leases, Units, Land and Contracts and ten percent (10%) of the Purchase Price
shall be attributed to the Wells and Personal Property. Buyer and Seller agree
to be bound by the allocation of the Purchase Price among the tangible and
intangible Assets set forth herein for all purposes; to consistently report such
allocations for all federal, state and local tax purposes; and to timely file
all reports required by the Internal Revenue Code of 1986, as amended,
concerning the Purchase Price allocations.
2.4 Adjustments to Purchase Price. The Purchase Price shall be adjusted in
accordance with this Section 2.4, but, notwithstanding any other provision of
this Agreement, shall not be adjusted for (i) actual or projected changes in
production rates, (ii) alternate interpretations of
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reserves and (iii) normal wear and tear on facilities or equipment.
2.4.1 Increases to Purchase Price. The Purchase Price shall be increased by
the following amounts (without duplication):
(a) The amount of all expenses and charges relating to the Assets
or the operation of the Assets which are paid by or on behalf of Seller and are
attributable to the period of time from and after the Effective Date, including
(i) all operating and capital expenditures and prepaid expenses attributable to
the Assets (inclusive of Seller's reasonable overhead or administrative expenses
attributable or allocable to the Assets, not to exceed the amount specified in
any applicable joint operating agreement) including, without limitation, royalty
disbursements, rentals and other similar charges, excise, severance and
production tax payments and any other tax payments based upon or measured by the
production of Sale Hydrocarbons or the receipt of proceeds therefrom, and (ii)
expenses paid by Seller to any third party under applicable joint operating
agreements or other contracts or agreements included in or bearing upon the
Assets, or in the absence of any joint operating agreement, those customarily
billed under any such agreement, including without limitation, drilling,
completion, reworking, deepening, side-tracking, plugging and abandoning,
geological and geophysical and land costs.
(b) An amount equal to the market value of all Hydrocarbons in
storage above the pipeline connection on the Effective Date that are produced
from, attributable to, or otherwise credited to the Assets (it being understood
that such value shall be based on the price at which such Hydrocarbons were sold
after the Effective Date (on a first-in, first-out basis), less transportation,
quality adjustments, if any, applicable taxes and royalty payments).
(c) The amount of any property or ad valorem taxes paid by Seller,
prorated in accordance with Section 4.
(d) An amount equal to any unpaid joint interest billings of Buyer
relating to the Assets and attributable to the period of time prior to the
Effective Date.
(e) Interest on the Purchase Price from the Effective Date to the
Closing Date, calculated using a month-to-month floating LIBOR rate plus one
(1%) percent. The floating LIBOR rate shall be equal to the one month LIBOR rate
published in the Wall Street Journal on the first day of each month between the
Effective Date and Closing Date. For purposes of this Section 2.4.1 (e), the
interest on the Purchase Price shall be calculated after taking into
consideration the adjustments described in subsections (b), (c), (d) and (g) of
Section 2.4.2. In addition, interest shall not be accrued on that portion of the
Purchase Price represented by the Deposit, if one is required, during the period
beginning on the date the Deposit is credited to Seller's account and ending on
the Closing Date.
(f) Any other amount provided for in this Agreement or agreed upon by
Seller and Buyer.
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2.4.2 Decreases to Purchase Price. The Purchase Price shall be decreased by
the following amounts:
(a) An amount equal to the net proceeds (the price at which the
Sale Hydrocarbons were sold after the Effective Date (on a first-in, first-out
basis), less transportation, quality adjustments, if any, applicable income and
other taxes and royalty payments) received by or estimated to be due to Seller
from the sale of Sale Hydrocarbons from the Effective Date through the last day
of the calendar month immediately prior to the calendar month in which the
Closing is scheduled.
(b) Reductions due to Aggregate Alleged Defects in excess of the
Minimum Threshold as provided for in Section 8.1.
(c) Reductions due to the exercise of preferential rights to purchase
as provided for in Section 9.2.
(d) Reductions due to Casualty Loss as provided in Section 13.3.
(e) The amount of any property or ad valorem taxes prorated in
accordance with Section 4.
(f) The principal amount of the Deposit, if one is required, exclusive
of any interest which may be earned or earnable against the Deposit.
(g) Any other amount provided for in this Agreement or agreed upon by
Seller and Buyer.
2.4.3 Adjustment for Buyer-Assumed Imbalances. The Purchase Price shall be
increased or decreased to account for the estimated aggregate Production
Imbalances and Assigned Agreement Imbalances assumed by Buyer as of the
Effective Date (collectively the "Buyer-Assumed Imbalances"), calculated in
accordance with Section 13.1 and set forth in the Closing Statement delivered to
Buyer pursuant to Section 2.5. The Purchase Price shall be increased by an
amount equal to the quantity (stated in Mcfe of oil, if any and MMBtu of gas) of
the estimated Buyer-Assumed Imbalances multiplied by the Agreed Imbalance
Settlement Price (as hereinafter defined) if the estimated Buyer-Assumed
Imbalances as of the Effective Date reflect a net underproduced position and
shall be decreased by an amount equal to the net imbalance quantity (stated in
Mcfe of oil, if any, and MMBtu of gas) of the estimated Buyer-Assumed Imbalances
multiplied by the Agreed Imbalance Settlement Price if the estimated
Buyer-Assumed Imbalances as of the Effective Date reflect a net overproduced
position. The "Agreed Imbalance Settlement Price" shall be equal to the simple
average of the settlement prices on last three days of trading for the NYMEX
Natural Gas Futures Contract for the delivery month of August 2004, minus a
$0.325 per MMBtu composite basis adjustment and plus or minus an appropriate
adjustment for any royalties or taxes that Seller has previously paid on
imbalance quantities in satisfaction of obligations that would otherwise have to
be paid by Buyer.
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2.5 Closing Statement. Seller shall prepare and deliver to Buyer an accounting
statement (the "Closing Statement") no later than 5 business days prior to
Closing that shall set forth the adjustments to the Purchase Price made in
accordance with this Agreement (with the exception of those provided for under
Sections 2.4.1 (c) and 2.4.2 (e) above), it being understood and agreed that the
Closing Statement shall contain reasonable estimates where actual amounts are
not known at the time and that as actual costs and revenues are known, these
amounts will be taken into account in the Final Settlement Statement provided
for in Section 11.6. The Closing Statement shall be prepared in accordance with
generally accepted accounting principles generally used in the oil and gas
industry.
2.6 Effective Date of Sale. The effective date of the sale of the Assets
described in Section 1 hereof shall be January 1, 2004 as of 7:00 a.m., local
time where the Assets are located (the "Effective Date").
3. Allocation of Revenues, Assumption of Liabilities and Indemnification
3.1 Allocation of Revenues. Seller shall receive (or receive credit for in the
Closing Statement or the Final Settlement Statement, if the necessary
information is not available in time to prepare the Closing Statement) all
proceeds from the sale of Hydrocarbons physically produced from or allocable to
the Assets prior to the Effective Date, and shall also receive (or receive
credit for in the Closing Statement or the Final Settlement Statement, if the
necessary information is not available in time to prepare the Closing Statement)
and hold the right to receive all other revenues, proceeds and benefits
attributable to the Assets accruing or relating to all periods before the
Effective Date. Buyer shall receive (or receive credit for in the Closing
Statement or the Final Settlement Statement, if the necessary information is not
available in time to prepare the Closing Statement) all proceeds from the sale
of Sale Hydrocarbons and shall also receive (or receive credit for in the
Closing Statement or the Final Settlement Statement, if the necessary
information is not available in time to prepare the Closing Statement) and hold
the right to receive all other revenues, proceeds and benefits attributable to
the Assets which accrue or relate to all periods after the Effective Date.
3.2 Payment of Invoices. After the Closing, Seller shall be responsible for and
required to pay only that portion of any charge or invoice received that is
applicable to work performed or material received in the period prior to the
Effective Date; other charges and invoices may be returned to the billing party
for rebilling to Buyer. Similarly, after the Closing, Buyer shall be responsible
for and required to pay only that portion of any charge or invoice received that
is applicable to work performed or material received in the period on or
subsequent to the Effective Date; other charges and invoices may be returned to
the billing party for rebilling to Seller.
3.3 Liabilities After Closing and Indemnities.
3.3.1 Definition of "Claims". As used in any provision of this Agreement,
"Claims" shall mean all liabilities, penalties, fines, obligations, judgments,
claims, governmental actions,
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causes of action, demands, administrative proceedings, suits and other legal
proceedings, together with any costs of court, fees and expenses associated
therewith (including, without limitation, costs of investigation, attorneys'
fees, expert's fees, and expenses associated with investigation of claims,
testing, assessment and remedial actions).
3.3.2 Buyer's Assumption of Abandonment Obligations. As additional
consideration for the sale and transfer of the Assets, Buyer shall assume and
shall timely and fully satisfy all Abandonment Obligations (as defined below)
associated with the Assets. As used herein, the term "Abandonment Obligations"
shall mean and include all obligations associated with, and liability for, (i)
the plugging and abandonment of all wells, either active or inactive,
(including, but not limited to, the Wells) situated on or in any of the Leases,
Units or Land; (ii) the removal of structures, facilities, foundations,
wellheads, tanks, pipelines, flowlines, pumps, compressors, separators, heater
treaters, valves, fittings and equipment and machinery of any nature and all
materials contained therein, located on or used in connection with the Assets;
(iii) the clearance, restoration and remediation of the lands, groundwater and
waterbottoms covered or burdened by the Leases, Contracts, Units and Land; and
(iv) the removal, remediation and abatement of any petroleum material, any
contamination or pollution (including, without limitation, spilling, leaking,
pumping, pouring, emitting, emptying, discharging, leaching, dumping or
disposing of any chemical substance, pollutant, contaminant, toxic substance,
radioactive material, hazardous substance, naturally occurring radioactive
material ("NORM"), waste, saltwater, crude oil, or petroleum product) of the
surface (including surface water), air, or any vessel, piping, equipment, tubing
or subsurface strata associated with the Assets, all in accordance with or as
required by applicable agreements, implied or express, including without
limitation, leases, unit agreements and operating agreements, or by law,
regulation, order, permit, judgment or decree. Buyer shall protect, indemnify,
hold harmless and defend Seller and the Seller Parties (as defined in Section
3.3.6) against any and all Claims, whether based on any theory of liability,
including, but not limited to, tort, breach of contract (express or implied),
breach of warranty (express or implied), strict liability, regulatory liability,
or statutory liability, regardless of the sole, joint or concurrent negligence,
strict liability, regulatory liability, statutory liability, breach of contract,
breach of warranty, or other fault or responsibility of Seller or any other
person or party, whether arising from, resulting from or related to Buyer's
failure to timely and fully satisfy the Abandonment Obligations as set forth in
this Agreement or as may be imposed by any applicable statutes, laws, rules,
regulations, or orders. Buyer further agrees to take whatever actions are
necessary to protect Seller from being subjected to any such Claims, including,
but not limited to, removal, remediation and restoration, and will comply with
reasonable requests by Seller that Buyer take such actions.
3.3.3 Buyer's Assumption of Contract Obligations. Buyer shall observe and
comply with all covenants, terms, and provisions, express or implied, contained
in the Leases, Units and Contracts; and this Agreement is made expressly subject
to all agreements, leases, easements, permits, commingling authorizations and
other contracts relating to the Assets, whether or not the same are herein
specifically identified. Buyer shall assume and be responsible for all
obligations and liabilities of Seller accruing under such agreements after the
Effective Date and agrees to execute any instrument or document required by
Seller to evidence such assumption.
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3.3.4 Seller's Indemnity with respect to Certain Items. Subject to the
provisions of Section 1.7, Seller shall defend, indemnify and hold Buyer, its
affiliates, and its/their directors, officers, employees, contractors, and
representatives (which additional parties together with Buyer are hereinafter
collectively referred to as the "Buyer Parties") harmless from any and all
Claims for periods of time prior to the Effective Date relating to: (i) the
payment, underpayment or nonpayment of royalties, overriding royalties,
production payments, net profits payments or other payments on production or the
proper accounting or payment to parties for their interests therein, (ii) the
payment, underpayment or nonpayment of property, ad valorem, windfall profit,
severance or other taxes relating to the Assets or the Seller, (iii) all amounts
payable by Seller pursuant to Section 3.2, and (iv) damages to property or
injury to persons, including death, arising out of Seller's ownership or
operation of the Assets, but only if such Claims described in this clause (iv)
are asserted or filed within two years after the Closing Date. Buyer shall be
responsible for all Claims of these types insofar as they relate to periods of
time from and after the Effective Date and Buyer shall defend, indemnify and
hold the Seller Parties (as defined in Section 3.3.6) harmless therefrom.
3.3.5 Seller's Indemnity with respect to Retained Litigation. Seller shall
defend, indemnify and hold Buyer and the Buyer Parties harmless from any and all
Claims relating to the litigation and claim matters set forth on Schedule 3.3.5,
but only to the extent the underlying Claims relate to the period of time prior
to the Effective Date.
3.3.6 Buyer's General Indemnification. Subject to the provisions of Sections
3.3.4 and 3.3.5 above and any other provisions of this Agreement specifically
requiring indemnification from Seller, Buyer shall defend, protect, indemnify
and hold Seller, its parent, its affiliates, and its/their directors, officers,
employees, contractors, and representatives (which additional parties together
with Seller are hereinafter collectively referred to as the "Seller Parties")
harmless against any and all Claims asserted or filed on or after the Effective
Date in any way arising out of, related to, or connected with the Assets or
Buyer's or Seller's ownership, operations or activities related to the Assets
and the Contracts and agreements pertaining thereto, or any of the obligations,
responsibilities or liabilities assumed by Buyer hereunder, whether relating to
periods before or after the Effective Date and including, but not limited to,
acts or omissions of Seller, based upon any theory, whether in contract,
negligence, liability without fault, strict liability, regulatory liability,
statutory liability, tort or other, regardless of the sole, joint or concurrent
negligence, strict liability, liability without fault, regulatory liability,
statutory liability, breach of contract, breach of warranty, or other fault or
responsibility of Seller or any other person or party.
4. Taxes And Payables
4.1 Payment of Taxes - Texas Assets. All real estate, use, occupation, ad
valorem, personal property taxes and charges on any of the Assets located in the
State of Texas shall be prorated as of the Effective Date. Seller shall pay all
such items for all periods prior to the Effective Date and shall be entitled to
all refunds, recoupments, rebates and credits with regard to such periods.
Seller shall be responsible for all oil and gas production and severance taxes,
windfall profits
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taxes, and any other similar taxes applicable to Hydrocarbons produced from or
attributable to the Leases or the Units prior to the Effective Date, and Buyer
shall be responsible for all such taxes applicable to Sale Hydrocarbons produced
from or attributable to the Leases or the Units on and after the Effective Date.
Both of the parties believe that the sale of the Assets is a sale of an
identifiable segment of the business exempt from Texas sales and use taxes.
Buyer shall be responsible and liable for any such sales, use and similar taxes
arising out of the sale of the Assets. In the event that any such taxes are
assessed against the transaction, both parties will cooperate in an attempt to
eliminate or reduce such taxes. If unsuccessful, Buyer shall pay Seller any such
state and local sales, use or excise taxes, together with applicable interest,
penalties and reasonable legal fees incurred by Seller, and Seller shall remit
such amount (except the portion attributable to reimbursement of Seller's legal
fees) to the appropriate taxing authority in accordance with applicable law.
Buyer shall indemnify, defend and hold harmless Seller and the Seller Parties
for any sales, use or excise taxes assessed against Seller by any taxing
authority in respect of this sale, including the amounts of any penalties,
interest, court costs and attorneys' fees. In the event that the Effective Date
is not within the same calendar month as the Closing Date, Buyer shall reimburse
Seller for any interest and penalties due and owing on any late reported sales
or other taxes. Both parties will reasonably cooperate to eliminate or reduce
the assessment of sales or use taxes. Seller shall, if it alone is required to
appeal or protest the assessment of sales or use taxes, protest the assessment
of such taxes if Buyer provides a written request to Seller to do so. Any
reasonable legal expenses incurred by Seller to reduce or avoid any of the
aforementioned taxes attributable to Buyer shall be paid or reimbursed by the
Buyer.
5. Representations, Warranties, Acknowledgments, Disclaimers and Waivers
5.1 Seller's Representations and Warranties. Seller represents and warrants to
Buyer that, as of the date hereof and as of Closing, the following statements
are accurate:
5.1.1 Formation. Seller is a corporation duly organized and validly existing,
in good standing, under the laws of the State of Pennsylvania. Seller has the
corporate power and authority to own the Assets and to carry on its business as
now conducted and to enter into and to carry out the terms of this Agreement.
5.1.2 Authorization. The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been duly authorized
by all necessary corporate action on behalf of Seller and Seller is not subject
to any charter, by-law, lien, encumbrance, agreement, instrument, order, or
decree of any court or governmental body (other than any governmental approval
required) which would prevent consummation of the transactions contemplated by
this Agreement.
5.1.3 No Brokers. Seller is not a party to, or in any way obligated under,
nor does Seller have any knowledge of, any contract or outstanding claim for the
payment of any broker's or finder's fee in connection with the origin,
negotiation, execution, or performance of this Agreement for which Buyer will
have any liability.
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5.1.4 Compliance with Laws. To the best of Seller's knowledge and in
accordance with normal industry practice, Seller has complied in all material
respects with all applicable laws, ordinances, rules and regulations and has
obtained and maintained all material permits required by public authorities in
connection with the Assets.
5.1.5 Litigation. Except as set forth on Schedule 3.3.5, there are no
actions, suits, proceedings or governmental investigations or inquiries pending
or, to the best of Seller's knowledge, threatened, against Seller or the Assets
which might delay, prevent or materially hinder the consummation of the
transactions contemplated hereby or materially adversely affect the title to or
value of any of the Assets.
5.1.6 Leases in Good Standing. To the best of Seller's knowledge, but without
investigation, all royalties, rental and other payments due under the Leases
have been properly paid in all material respects, and all conditions necessary
to keep the Leases in force and effect have been fully performed in all material
respects.
5.1.7 Environmental Matters. Except as disclosed in this Agreement or as
reflected in the data rooms made available for Buyer's due diligence review,
Seller has received no notice of any violation of or investigation relating to
any federal, state or local laws with respect to pollution or protection of the
environment relating to the Assets, which violation or investigation would
materially affect the value, use or operation of any of the Assets operated by
Seller.
5.1.8 Assets Subject to Payout. To the best of Seller's knowledge, the Assets
that are subject to a payout schedule that may impact Buyer's net revenue
interests after the Effective Date are reflected in Schedule 5.1.8. Within 15
days after execution of this Agreement, Seller shall provide Buyer a schedule
showing the current payout balance of each well subject to a payout schedule and
the "before payout" and "after payout" working interest and net revenue interest
of Seller in each such well.
5.1.9 Preferential Rights. To the best of Seller's knowledge, Schedule 5.1.9
sets forth all obligations under which third parties have preferential rights or
similar rights to acquire any portion of the Assets.
5.1.10 Non-Exclusion of Necessary Assets. The fixtures, facilities,
pipelines, gathering lines, real property or interests therein owned by Chevron
Pipe Line Company or any other division of Seller or subsidiary of ChevronTexaco
Corporation and excluded herefrom by virtue of Section 1.4 (o) do not include
any such assets that are directly related to and used exclusively for the
Assets, and Seller shall use reasonable efforts to assist Buyer in acquiring
from Seller's affiliates the right to use all such fixtures, facilities,
pipelines and gathering lines that are used for the Assets (but not exclusively
used for the Assets) consistent with past practices and reasonable commercial
terms.
5.2 Buyer's Representations and Warranties. Buyer represents and warrants to
Seller that, as of the date hereof and as of Closing, the following statements
are accurate:
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5.2.1 Formation. Buyer is a corporation duly organized and validly existing,
in good standing, under the laws of the State of Delaware and is or will be
prior to Closing, duly qualified to carry on its business in each of the states
in which it is required to be qualified and has the corporate power and
authority to own its property and to carry on its business as now conducted and
to enter into and to carry out the terms of this Agreement and the transactions
contemplated by this Agreement.
5.2.2 Qualification. Buyer is qualified to own and operate oil, gas and
mineral leases in the State of the situs of the Assets and any federal onshore
leases made a part of the Assets in accordance with applicable laws, rules,
regulations and orders governing the ownership and operation of leases in the
State of the situs of the Assets.
5.2.3 Authorization. The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been duly authorized
by all necessary corporate action on behalf of Buyer and Buyer is not subject to
any charter, by-law, lien, encumbrance, agreement, instrument, order or decree
of any court or governmental body which would prevent consummation of the
transactions contemplated by this Agreement.
5.2.4 No Brokers. Buyer is not a party to, or in any way obligated under, nor
does Buyer have any knowledge of, any contract or outstanding claim for the
payment of any broker's or finder's fee in connection with the origin,
negotiation, execution, or performance of this Agreement for which Seller will
have any liability.
5.2.5 Compliance. From and after Closing, Buyer shall comply with all
applicable laws, ordinances, rules and regulations and shall promptly obtain and
maintain all permits required by public authorities in connection with the
Assets purchased.
5.3 Disclaimers, Waivers & Acknowledgments.
5.3.1 Disclaimer. EXCEPT AS EXPRESSLY PROVIDED IN THIS AGREEMENT, THE ASSETS
ARE TO BE SOLD AS IS, WHERE IS AND WITH ALL FAULTS AND SELLER MAKES NO WARRANTY
OR REPRESENTATION, EXPRESS OR IMPLIED IN FACT OR BY LAW, WITH RESPECT TO ORIGIN,
QUANTITY, QUALITY, OPERATING CONDITION, SAFETY OF EQUIPMENT, TITLE TO PERSONAL
PROPERTY, TITLE TO REAL PROPERTY, COMPLIANCE WITH GOVERNMENT REGULATIONS,
MERCHANTABILITY, FITNESS FOR ANY PARTICULAR PURPOSES, CONDITION, THE QUANTITY,
VALUE OR EXISTENCE OF RESERVES OF OIL, GAS OR OTHER MINERALS PRODUCIBLE OR
RECOVERABLE FROM THE LEASES OR WELLS, OR OTHERWISE, CONCERNING ANY OF THE
ASSETS. ALL WELLS, PERSONAL PROPERTY, DATA, RECORDS, MACHINERY, EQUIPMENT AND
FACILITIES THEREIN, THEREON AND APPURTENANT THERETO ARE TO BE CONVEYED BY SELLER
AND ACCEPTED BY BUYER PRECISELY AND ONLY "AS IS, WHERE IS".
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5.3.2 Acceptance of Assets "as is, where is". Buyer has made, or arranged for
others to make, or has been afforded the opportunity to make an inspection and
inventory of the Assets and, if not performed, waives such right at and with
Closing. Buyer, at Closing, will accept all Assets in an "as is and where is"
condition, with an expressed acceptance and understanding of the disclaimers
contained in this Agreement.
5.3.3 Acknowledgment. Buyer acknowledges that the Assets have been used for
oil and gas exploration, drilling and producing operations, pipeline,
transportation and/or gathering operations, and other related oilfield
operations, including, without limitation, possibly the injection, storage
and/or disposal of produced water and/or waste materials incidental to or
occurring in connection with such operations, and that physical changes in the
land, groundwater or subsurface may have occurred as a result of any such uses
and that Buyer has entered into this Agreement on the basis of Buyer's own
investigation of, or right to investigate, the physical condition of the Assets,
including, without limitation, the facilities and equipment, and the surface and
subsurface conditions. Buyer is acquiring the Assets precisely and only in an
"as is and where is" condition and assumes the risk that adverse physical
conditions, including, but not limited to, the presence of unknown abandoned or
unproductive oil wells, gas wells, equipment, pits, landfills, flowlines,
pipelines, water wells, injection wells and sumps, which may or may not have
been revealed by Buyer's investigation, are located thereon or therein, and
whether discovered, discoverable, hidden, known or unknown to Buyer as of
Closing. Buyer hereby agrees to assume full responsibility for compliance with
all obligations attributable, in any way, to the Assets and all laws, orders,
rules and regulations concerning all of such conditions, discovered,
discoverable, hidden, known or unknown, and further agrees to defend, indemnify
and hold the Seller Parties harmless for same, including, but not limited to,
defense, indemnification and hold harmless for any liability, attorneys' fees,
fines, penalties or costs under all Environmental Laws, as defined in this
Agreement or otherwise asserted.
5.3.4 WAIVER OF CONSUMER RIGHTS. BUYER WAIVES ITS RIGHTS UNDER THE TEXAS
DECEPTIVE TRADE PRACTICES-CONSUMER PROTECTION ACT, SECTION 17.41 et seq., TEXAS
BUSINESS & COMMERCE CODE, A LAW THAT GIVES CONSUMERS SPECIAL RIGHTS AND
PROTECTIONS. AFTER CONSULTATION WITH AN ATTORNEY OF BUYER'S OWN SELECTION, BUYER
VOLUNTARILY CONSENTS TO THIS WAIVER. IN ORDER TO EVIDENCE ITS ABILITY TO GRANT
THE ABOVE WAIVER, BUYER HEREBY REPRESENTS AND WARRANTS TO SELLER THAT BUYER (I)
IS IN THE BUSINESS OF SEEKING OR ACQUIRING, BY PURCHASE OR LEASE, GOODS OR
SERVICES FOR COMMERCIAL OR BUSINESS USE, (II) HAS KNOWLEDGE AND EXPERIENCE IN
FINANCIAL AND BUSINESS MATTERS THAT ENABLE IT TO EVALUATE THE MERITS AND RISKS
OF THE TRANSACTIONS CONTEMPLATED HEREBY, AND (III) IS NOT IN A SIGNIFICANTLY
DISPARATE BARGAINING POSITION.
5.3.5 NO REPRESENTATIONS OR WARRANTIES.
(a) BUYER ACKNOWLEDGES THAT SELLER MAKES THIS SALE OF THE ASSETS
TO BUYER WITHOUT ANY WARRANTY AS TO THE
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CONDITION OF THE ASSETS, INCLUDING ABSENCE OF VICES OR DEFECTS (WHETHER APPARENT
OR LATENT, KNOWN OR UNKNOWN, EASILY DISCOVERABLE OR HIDDEN), FITNESS FOR ANY
ORDINARY USE, OR FITNESS FOR ANY INTENDED USE OR PARTICULAR PURPOSE, EVEN FOR
RETURN OR REDUCTION OF THE PURCHASE PRICE OR OTHERWISE, IT BEING UNDERSTOOD THAT
BUYER TAKES THE ASSETS "AS IS" AND "WHERE IS"; BUYER HEREBY ACKNOWLEDGING
RELIANCE SOLELY ON ITS OWN INSPECTION OF THE ASSETS, AND NOT ON ANY WARRANTIES
OR REPRESENTATIONS FROM SELLER WITH RESPECT TO THE CONDITION OF THE ASSETS. IN
ADDITION, BUYER ACKNOWLEDGES THAT SELLER HAS MADE NO REPRESENTATIONS OR
WARRANTIES OF ANY KIND OR CHARACTER, EXPRESS OR IMPLIED, WITH RESPECT TO THE
CONDITION OF THE ASSETS, INCLUDING, WITHOUT LIMITATION, ANY WARRANTIES OR
REPRESENTATIONS AS TO ABSENCE OF VICES OR DEFECTS (WHETHER APPARENT OR LATENT,
KNOWN OR UNKNOWN, EASILY DISCOVERABLE OR HIDDEN), FITNESS FOR ANY ORDINARY USE,
FITNESS FOR ANY INTENDED USE OR PARTICULAR PURPOSE, TAX CONSEQUENCES, OR
ENVIRONMENTAL CONDITION OF THE ASSETS. ALL WARRANTIES WITH RESPECT TO THE
CONDITION OF THE ASSETS ARE HEREBY DISCLAIMED BY SELLER AND EXPRESSLY WAIVED BY
BUYER. BUYER HAS NOT RELIED AND WILL NOT RELY ON, AND SELLER IS NOT LIABLE FOR
OR BOUND BY, ANY EXPRESS OR IMPLIED WARRANTIES, GUARANTIES, STATEMENTS,
REPRESENTATIONS OR INFORMATION PERTAINING TO THE CONDITION OF THE ASSETS OR
RELATING THERETO MADE OR FURNISHED BY SELLER, ANY PARTY ACTING OR PURPORTING TO
ACT FOR SELLER, OR ANY BROKER OR AGENT REPRESENTING OR PURPORTING TO REPRESENT
SELLER, TO WHOMEVER MADE OR GIVEN, DIRECTLY OR INDIRECTLY, ORALLY OR IN WRITING.
(b) SELLER MAKES NO REPRESENTATION OR WARRANTY, EXPRESS, IMPLIED,
STATUTORY OR OTHERWISE, AS TO THE ACCURACY OR COMPLETENESS OF ANY DATA, REPORTS,
RECORDS, PROJECTIONS, INFORMATION OR MATERIALS NOW, HERETOFORE OR HEREAFTER
FURNISHED OR MADE AVAILABLE TO BUYER IN CONNECTION WITH THIS SALE, INCLUDING,
WITHOUT LIMITATION, THE QUALITY, QUANTITY OR ENVIRONMENTAL CONDITION OF THE
ASSETS OR ANY OTHER MATTERS CONTAINED IN THE DATA OR ANY OTHER MATERIALS
FURNISHED OR MADE AVAILABLE TO BUYER BY SELLER, ITS AGENTS, REPRESENTATIVES OR
EMPLOYEES. ANY AND ALL SUCH DATA, RECORDS, REPORTS, PROJECTIONS, INFORMATION AND
OTHER MATERIALS FURNISHED BY SELLER OR OTHERWISE MADE AVAILABLE TO BUYER ARE
PROVIDED TO BUYER AS A CONVENIENCE, AND SHALL NOT CREATE OR GIVE RISE TO ANY
LIABILITY OF OR AGAINST SELLER. ANY RELIANCE ON OR USE OF THE SAME SHALL BE AT
BUYER'S SOLE RISK TO THE MAXIMUM EXTENT PERMITTED BY LAW.
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6. Title Matters
6.1 Asset Title Review. Until Closing, Buyer shall have reasonable access,
without express or implied warranty of any kind regarding the accuracy of such
information, to copies of non-privileged information in Seller's possession
regarding Seller's title to the Assets, which information Buyer may copy at its
sole cost and expense (unless prohibited by agreement between Seller and a third
party). Except as otherwise provided in this Agreement, Seller shall not be
required to perform any additional title work. Any existing abstracts and title
opinions have not been made and will not be made current by Seller. Buyer
specifically agrees that any conclusions made from any examination done or
caused to be done from Seller furnished information regarding title have
resulted and shall result from its own independent review, skill, knowledge and
judgment only.
6.2 Notice of Alleged Title Defects. If, prior to Closing, Buyer determines the
existence of an "Alleged Title Defect" as defined in Section 6.3, Buyer shall
notify Seller in writing of any matter Buyer considers to be an Alleged Title
Defect as soon as reasonably practicable after Buyer becomes aware of such
Alleged Title Defect, but, in any event, by not later than 4:00 p.m. Central
Prevailing Time ("CPT"), 10 days prior to Closing (the "Defect Notice Date").
Such notice ("Notice of Alleged Title Defect") shall include (i) a specific
description of the matter Buyer asserts as an Alleged Title Defect, (ii) a
specific description of the Asset or portion of the Assets that is affected by
the Alleged Title Defect, (iii) Buyer's calculation of the amount by which each
Alleged Title Defect has diminished the value of the Assets, such amount to be
determined by Buyer in good faith and in a commercially reasonable manner, and
(iv) all necessary and desirable supporting documentation, including any
abstracts and title opinions or updates thereto that describe or explain the
Alleged Title Defect.
6.3 Alleged Title Defect. The term "Alleged Title Defect" shall refer to any
defect or deficiency in title, except for Permitted Encumbrances, that (i)
creates a lien, claim, encumbrance or other obligation affecting the interests
of Seller in the Assets, (ii) diminishes Seller's net revenue interest (defined
as Seller's share of the proceeds as of the Effective Date from the sale of
Hydrocarbons produced from and allocable to the Assets, net of all royalties,
overriding royalties, and other burdens on production) from that set forth on
Exhibit "A", or (iii) increases Seller's working interest (defined as Seller's
share of the costs of operation, development or production borne by the owner of
such interest as of the Effective Date) from that set forth in Exhibit "A"
without a corresponding increase in Seller's net revenue interest, or which
creates an obligation to pay costs or expenses in an amount greater than such
interest. Notwithstanding anything to the contrary in Section 6.5 or elsewhere
in this Agreement, no adjustment to the Purchase Price for Alleged Title Defects
shall be made unless and until, and only to the extent that, (a) the individual
value of each Alleged Title Defect (with respect to all Assets affected) exceeds
$200,000 and (b) the value of all Aggregate Alleged Defects exceeds the Minimum
Threshold amount provided for in Section 8.1 below.
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6.4 Permitted Encumbrances. As used in this Section 6, the term "Permitted
Encumbrances" means:
(a) Lessor's royalties, non-participating royalties, overriding
royalties, division orders, sales and transportation contracts containing
customary terms and provisions, reversionary interests, and similar burdens if
the net cumulative effect of such burdens does not operate to reduce the net
revenue interest in any Asset as of the Effective Date to an amount less than
the net revenue interest set forth on Exhibit "A" or increase the working
interest of any Asset from that set forth in Exhibit "A" without a corresponding
increase in the revenue interest.
(b) Preferential rights to purchase and required non-governmental
third party consents to assignments and similar agreements with respect to which
prior to Closing (i) waivers or consents are obtained from the appropriate
parties, or (ii) the appropriate time period for asserting such rights has
expired without an exercise of such rights.
(c) Liens for taxes or assessments not yet due or delinquent or,
if delinquent, that are being contested in good faith in the normal course of
business.
(d) All rights to consent by, required notices to, filings with,
or other actions by governmental entities in connection with the sale or
conveyance of oil and gas leases or interests therein, if the same are
customarily obtained subsequent to such sale or conveyance and Buyer and Seller
have no reason to believe they cannot be obtained.
(e) Alleged Title Defects or other deficiencies or irregularities
that have been waived by Buyer in writing or not asserted on or before the
Defect Notice Date.
(f) Easements, rights-of way, servitudes, permits, surface leases
and other rights in respect of surface operations, provided they do not
materially interfere with Buyer's operation or use of the Assets.
(g) Defects, irregularities and deficiencies in title of or to any
rights-of-way, easements, surface leases or other rights which in the aggregate
do not materially impair the use of such rights-of-way, easements, surface
leases or other rights for the purpose for which such rights will be held by
Buyer and would not have a material adverse effect on the operation or value of
any of the Assets.
(h) Environmental laws and regulations, to the extent valid and
applicable to the Assets.
(i) Vendors', carriers', warehousemen's, repairmen's, mechanics',
workmen's, materialmen's, construction or other like liens which have expired as
a matter of law, or arising by operation of law in the ordinary course of
business or incident to the construction or improvement of any property in
respect of obligations which are not yet due.
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(j) All other liens, claims, charges, encumbrances, contracts,
agreements, instruments, obligations, defects, and irregularities affecting the
Assets relating to obligations not yet in default, and/or which individually or
in the aggregate are not such as to interfere materially with the operation,
value, or use of any of the Assets, do not materially prevent Buyer from
receiving the proceeds of production from the Assets, do not reduce the net
revenue interest of any of the Assets as of the Effective Date to less than the
net revenue interest set forth on Exhibit "A" and do not obligate Buyer to bear
costs and expenses relating to the maintenance, development, and operation of
any of the interests in any amount greater than the working interest set forth
on "A" (unless the net revenue interest for such Asset is greater than the net
revenue interest set forth in Exhibit "A" in the same proportion as any increase
in such working interest).
6.5 Remedies for Title Failures. With respect to each Alleged Title Defect
asserted by Buyer in the Notice of Alleged Title Defect, if Seller requests,
Seller and Buyer shall discuss and agree whether a particular matter constitutes
an Alleged Title Defect. Seller shall have the right but not the obligation to
cure any Alleged Title Defect asserted in such Notice at its own expense prior
to Closing, in which case the parties shall proceed to Closing without
adjustment of the Purchase Price. If Seller fails to cure any Alleged Title
Defect on or prior to Closing, it shall be deemed to be a title failure ("Title
Failure") for the relevant Asset. Buyer and Seller shall negotiate in good faith
to reach agreement regarding the value of any Title Failure, and unless waived
by Buyer shall mutually agree to one of the following options with respect to
each Title Failure, subject, however, to the provisions of Section 8.1 hereof:
(a) If the Title Failure results from a difference in the net
revenue interest for a Lease as of the Effective Date from that shown on Exhibit
"A", the parties shall proceed to Closing and reduce the Purchase Price by an
amount (the "Defect Amount") determined by multiplying the amount of the
Purchase Price allocated to the affected Lease by a fraction, the numerator of
which shall be the difference between the actual net revenue interest being
conveyed and the net revenue interest shown on Exhibit "A" and the denominator
of which shall be the net revenue interest shown on Exhibit "A".
(b) If the Title Failure results from a difference in the working
interest for a Lease from that shown on Exhibit "A", the parties shall proceed
to Closing and reduce the Purchase Price by a Defect Amount determined by
multiplying the amount of the Purchase Price allocated to the affected Lease by
a fraction, the numerator of which shall be the difference between the actual
working interest being conveyed and the working interest shown on Exhibit "A"
and the denominator of which shall be the working interest shown on Exhibit "A".
(c) If the Title Failure is one other than described in Sections
6.5 (a) or (b), the Defect Amount shall be an amount determined in good faith by
the mutual agreement of Buyer and Seller, taking into account the portion of the
Purchase Price to be allocated by agreement of Seller and Buyer to the portion
of the Assets affected by the Title Failure, the legal effect of the Title
Failure, and the potential economic effect of the Title Failure over the life of
the Assets.
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6.6 Waiver; Effect of Seller's Special Warranty. Except for the special warranty
of title given by Seller in the Assignment(s), as limited by this Section 6.6,
Buyer waives for all purposes all objections associated with the title to the
Assets (including Alleged Title Defects), unless raised by proper notice within
the applicable time period set forth in Section 6.2 and not cured or settled
under Section 6.5; and Buyer (and on behalf of the Buyer Parties and their
successors and assigns) irrevocably waives any and all claims they may have
against Seller and the Seller Parties associated with the same. Any Alleged
Title Defect created by, through or under Seller and constituting a breach of
Seller's Special Warranty of Title shall not be subject to the dollar
limitations set forth in Section 6.3 or the Minimum Threshold for Aggregate
Alleged Defects set forth in Section 8.1. It is agreed, however, that no
Permitted Encumbrance, as defined in Section 6.4, shall be deemed to breach
Seller's Special Warranty of Title, except for any matter that falls within the
definition of "Permitted Encumbrance" solely as a result of Buyer's failure to
assert such matter on or before the Defect Notice Date as referenced in Section
6.4 (e).
7. Environmental Matters
7.1 Environmental Review. Until Closing, Buyer may request access to the Assets
(if operated by Seller) and the non-privileged environmental data in Seller's
files pertaining to the Assets. Buyer may request Seller's assistance in gaining
access to Assets operated by others, but Buyer will be responsible for
contacting the operators of such Assets to arrange for review and inspection, at
Buyer's sole cost, risk and expense. Buyer specifically acknowledges that (a)
any access to Seller-operated Assets or Seller's data is given as an
accommodation only, at Buyer's sole cost, risk and expense, that Seller makes no
representations whatsoever as to the accuracy, completeness, or reliability of
any such environmental information so, or otherwise, disclosed to or obtained by
Buyer and (b) Buyer relies and depends on and uses any and all such
environmental information, review or inspection exclusively and entirely at its
own risk and without any recourse to Seller whatsoever. Seller shall cooperate
with Buyer for the performance by Buyer of any additional environmental testing
at Buyer's expense prior to Closing, which testing shall be conducted in a
reasonable manner so as not to interfere with Seller's or operator's operation
of the Assets, and Seller and Buyer shall cooperate to ensure that such testing
is performed on an expedited and confidential basis before Closing. Results of
any such tests shall be treated as confidential, except to the extent disclosure
is required under applicable law.
7.2 Alleged Environmental Defects. Buyer shall notify Seller in writing no later
than 4:00 p.m. CPT, 10 days prior to Closing (the "Defect Notice Date") in the
event Buyer believes that the environment associated with the Assets contains an
"Alleged Environmental Defect", which is defined as a violation of Environmental
Laws (as defined in Section 7.5) to the extent that (a) as to each individual
Alleged Environmental Defect (i) prosecution, if instituted, would be reasonably
likely to result in a penalty, fine or damage payment of $250,000 or more, or
(ii) performance of corrective work in respect of such Alleged Environmental
Defect required by Environmental Laws would be reasonably likely to result in
expenditures of $250,000 or more, net to Seller's interest in the affected
Asset, or (iii) the combination of sums under subparts (i) and (ii) above
exceeds $250,000, net to Seller's interest in the affected Asset, and (b) the
value of all Aggregate Alleged Defects exceeds the Minimum Threshold provided
for in Section 8.1.
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Such notification (the "Notice of Alleged Environmental Defect") shall include
(i) a detailed description of such claims, (ii) a copy of any environmental
assessments, reports, data and information pertaining to such claims, and (iii)
Buyer's calculation of the amount by which such claims have diminished the value
of the Assets, which amount shall be determined by Buyer in good faith and in a
commercially reasonable manner.
7.3 Remedies for Alleged Environmental Defect. With respect to each Alleged
Environmental Defect asserted by Buyer in the Notice of Alleged Environmental
Defect, if Seller requests, Seller and Buyer shall discuss and agree whether a
particular matter constitutes an Alleged Environmental Defect. As to each claim
of an Alleged Environmental Defect made by Buyer on or prior to the Defect
Notice Date (and upon satisfaction of the aggregate Alleged Defect Minimum
Threshold set forth in Section 8.1 below), Buyer and Seller shall endeavor to
agree upon one of the following three (3) options, with option 7.3 (c) being the
default selection in the event the parties are unable to agree:
(a) Prior to or at Closing, Seller and Buyer shall mutually agree
in writing separate and apart from this Agreement that Seller shall correct or
make arrangements for the correction of such Alleged Environmental Defect, and
Closing shall proceed with Seller defending, indemnifying and holding Buyer and
the Buyer Parties harmless against all Claims attributable to such Alleged
Environmental Defect and without reduction of the Purchase Price;
(b) Buyer shall correct or make arrangements for the correction of
such Alleged Environmental Defect after Closing, and the parties shall proceed
to Closing with a reduction of the Purchase Price in an amount mutually agreed
to by the parties and with Buyer defending, indemnifying and holding Seller and
the Seller Parties harmless against all Claims attributable to such Alleged
Environmental Defect; or
(c) Buyer shall accept the Assets subject to such Alleged
Environmental Defect, the parties shall proceed to Closing without adjustment of
the Purchase Price, and Seller shall defend, indemnify and hold Buyer and the
Buyer Parties harmless against all Claims incurred by Buyer with respect to such
Alleged Environmental Defect, up to, but in no event to exceed, the sum of Fifty
Million Dollars (such amount being cumulative for any and all claims of Alleged
Environmental Defect made by Buyer). In the event of a claim of an Alleged
Environmental Defect and a demand for indemnification by Buyer hereunder, Seller
reserves the right to jointly negotiate with Buyer and the agency or party, if
any, making such claim the right of access to the affected site, the use of
temporary storage and resources at such site, to the full extent held by Buyer,
and the right to perform assessment, removal and remedial operations for such
Alleged Environmental Defect, at its cost and risk, and any sums so expended by
Seller shall be a credit against Seller's indemnity obligation, if any, under
this Section 7.3 (c).
Each party shall cooperate with the other party's reasonable corrective work,
and any operations unreasonably interfering with the corrective work shall cease
until correction is completed.
7.4 Indemnity Provisions. The indemnities for Alleged Environmental Defects and
for Claims related thereto, as provided for in this Section 7, by Buyer and
Seller, as the case may be,
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for Claims shall include, without limitation, the obligation to protect,
indemnify, hold harmless and defend Buyer or Seller, as the case may be, and the
Buyer Parties and Seller Parties, respectively, against any and all claims,
demands, losses, liabilities, liens, judgments, settlements, suits, causes of
action, fines, penalties, fees (including, without limitation, attorneys' fees
and court costs), costs, expenses (including, without limitation, expenses
associated with investigation of claims, testing and assessment), whether based
on any theory of liability, including, but not limited to, negligence, tort,
breach of contract (express or implied), breach of warranty (express or
implied), strict liability, regulatory liability, or statutory liability,
regardless of the sole, joint or concurrent negligence, strict liability,
regulatory liability, statutory liability, breach of contract, breach of
warranty, or other fault or responsibility of Buyer or Seller or any other
person or party, arising under any obligations under this Agreement or imposed
by any applicable statutes, laws, rules, regulations, or orders. The indemnities
will further include an agreement by the party providing the indemnification to
take whatever actions are necessary to protect the party being indemnified from
being subjected to any such claims, demands, losses, liabilities, liens,
judgments, settlements, suits, causes of action, fines, penalties, fees, costs
or expenses, and to comply with reasonable requests by the party being
indemnified to take such actions.
7.5 Post-Closing Environmental Indemnification by Buyer. As of the Closing, but
subject to the provisions of Sections 7.3 and 7.6, Buyer specifically assumes
and shall be responsible for all environmentally-related duties and obligations
of Seller and the Seller Parties with respect to the Assets from and after the
Effective Date and shall protect, defend, indemnify and hold Seller and the
Seller Parties harmless from and against any and all Claims under any
Environmental Law (hereafter defined) with respect to the Assets from and after
the Effective Date, including without limitation, any environmentally-related
duties, conditions and obligations existing prior to or as of the Effective Date
or relating to periods arising before the Effective Date. The term
"Environmental Law(s)" as used here and elsewhere in this Agreement includes the
Occupational Safety and Health Act, 29 U.S.C.A. ss.651, et seq.; the Resource
Conservation and Recovery Act, 42 U.S.C.A. ss.6901, et seq.; the Comprehensive
Environmental Response, Compensation, and Liability Act, 42 U.S.C.A. ss.9601, et
seq.; the Clean Water Act, 33 U.S.C.A. ss.1251 et seq.; the Clean Air Act, 42
U.S.C.A. ss.7401, et seq.; the Safe Drinking Water Act, 42 U.S.C.A. ss.3001, et
seq.; the Toxic Substances Control Act, 15 U.S.C.A. ss.2601 et seq.; the Oil
Pollution Act of 1990, 33 U.S.C.A. ss.2701 et seq.; and all rules, regulations
and orders adopted under the foregoing statutes, applicable state statutes
addressing similar matters, or state or federal statutes enacted after the date
of this Agreement applicable to any waste material, produced water, tank
bottoms, sludge, or constituents thereof, radioactive materials (including NORM,
as defined in Section 7.7), or hazardous substances on or included with the
Assets or the presence, disposal, release or threatened release of all waste
material, produced water, tank bottoms, sludge, or constituents thereof,
radioactive materials (including NORM), or hazardous substances on, included
with, or emanating from or through the Assets into the atmosphere or in or upon
land or any water course or body of water, whether above or below the ground,
and all other federal, state and local environmental and oil and gas laws and
regulations, as well as all acts, laws, and regulations amendatory or
supplemental thereto.
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7.6 Exclusion from Buyer's Indemnification. Anything in this Agreement to the
contrary notwithstanding, it is agreed and understood that Buyer shall have no
liability for, and Buyer's post-Closing environmental indemnification of Seller
shall not include any responsibility for disposal off-site from the Assets, that
occurred at any time before the Closing Date, of hazardous substances, wastes,
materials and products generated by or used by or used in connection with
Seller's operation of the Assets.
7.7 CONDITION OF THE ASSETS AND SPECIFIC BUYER INDEMNIFICATION WITH RESPECT TO
NORM AND OTHER HAZARDOUS SUBSTANCES. Buyer specifically assumes the risk of the
condition of the Assets and shall inspect the Assets prior to Closing, or hereby
expressly waives such right, if not exercised. Any such inspection, if made,
shall cover, but not be limited to, the physical and environmental condition,
both surface and subsurface, of the Assets. It is expressly recognized by Buyer
that the lands and/or water bottoms, along with surface facilities and
production equipment located thereon, having been used in connection with oil,
gas, and water production, treatment, storage, and disposal activities, may
contain naturally occurring radioactive materials ("NORM"), asbestos and other
hazardous substances as a result of these operations. The generation, formation,
or presence of NORM, asbestos or other hazardous substances in or on the Assets
shall, after the Effective Date set forth herein, be the sole responsibility of
Buyer, and Buyer and all future assignees and successors of Buyer shall defend,
indemnify and hold Seller and the Seller Parties harmless from any and all
Claims resulting from any and all claims, demands, losses, liabilities, liens,
judgments, settlements, suits, causes of action, fines, penalties, fees
(including, without limitation, attorneys fees and court costs), costs, and
expenses (including, without limitation, expenses associated with investigation
of claims, testing and assessment), whether based on any theory of negligence,
tort, breach of contract, breach of warranty, strict liability, regulatory
liability or statutory liability, regardless of the sole, joint or concurrent
negligence, breach of contract, breach of warranty, strict liability, regulatory
liability, statutory liability, or other fault or responsibility of Seller or
any other person or party, asserted or filed on or after the Effective Date in
any way arising from, resulting from or related to the presence of NORM,
asbestos or other hazardous substances, whether such NORM, asbestos or other
hazardous substance was in place before or after the Effective Date. Any
conveyance, transfer or assignment of all or part of the Assets by Buyer, its
successors or assigns, in which the grantee, transferee or assignee fails to
expressly assume this obligation shall be deemed null and void. Accordingly,
lands and/or water bottoms, the Wells, and the Personal Property transferred
herein are transferred with the restriction that they will be used only in
connection with oil and gas producing activities associated with the Leases, and
will not be subsequently transferred by Buyer or Buyer's assignee for
unrestricted use unless the concentrations of NORM, asbestos or other hazardous
substances associated therewith are independently determined by a competent
laboratory and are found below the levels specified as allowable for
unrestricted transfer as set forth in any and all applicable laws, orders, rules
or regulations of any governmental agency or court having jurisdiction.
Additionally, Buyer agrees to comply with all provisions of such laws, orders,
rules or regulations applicable to said lands and/or water bottoms, the Wells,
and the Personal Property. Buyer further agrees to cause the provisions of this
clause to be included in all subsequent sales or transfers of any interest in
the Assets, and to cause all purchasers or transferees of the Assets to
expressly acknowledge and assume all such obligations.
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7.8 Waiver. Buyer waives for all purposes all objections associated with the
environmental and physical and other condition of the Assets (including
Environmental Contamination and Alleged Environmental Defect), unless raised by
proper notice within the applicable time period set forth in Section 7.2 and
made Seller's responsibility under Sections 7.3 or 7.6; and Buyer (on behalf of
itself and the Buyer Parties and their successors and assigns) irrevocably
waives any and all claims, except Claims covered under Seller's indemnities
pursuant to Sections 7.3 and 7.6, that they may now or hereafter have against
Seller and the Seller Parties associated with the same.
8. Aggregate Alleged Defects and Associated Termination Rights
8.1 Minimum Threshold for Aggregate Alleged Defects. For the purpose of
determining adjustments to the Purchase Price or triggering Seller's obligation
to respond to Alleged Defects under Sections 6 or 7, the Alleged Title Defects
and/or Alleged Environmental Defects ("Aggregate Alleged Defects") must exceed
Fifty Million Dollars ($50,000,000.00) before there shall be any Purchase Price
Adjustment or further action required of Seller under Sections 6 or 7 with
respect to such asserted Alleged Title Defects and/or Alleged Environmental
Defects. Upon the Fifty Million Dollar threshold being reached, Alleged Title
Defects and/or Alleged Environmental Defects shall be handled pursuant to the
applicable Section, provided, however, that the first Fifty Million Dollars of
Aggregate Alleged Defects under either one of the referenced Sections, or both
collectively, shall be treated as a deductible amount to be satisfied by Buyer.
8.2 Termination Amount. Notwithstanding anything to the contrary herein, if the
total amount of Aggregate Alleged Defects should reach or exceed One Hundred
Million Dollars, then either party shall be entitled to terminate this
Agreement, without any liability, upon written notice to the other party on or
prior to the Closing pursuant to the provisions of Section 13.8. If either party
exercises its option to terminate this Agreement pursuant to this Section 8.2,
this Agreement shall become void and have no effect, Seller shall promptly
return the Deposit, if one has been required, to Buyer (exclusive of interest
earned), and neither party shall have any further right or duty to or claim
against the other party under this Agreement, except as expressly provided to
the contrary in this Agreement.
9. Additional Covenants
9.1 Operations Prior to Closing. After the date of this Agreement and prior to
the Closing as to any of the Assets operated by Seller, Seller, in its sole
discretion, shall use, operate and maintain the Assets in substantially the same
manner in which they have been used, operated and maintained prior to this
Agreement. During the period from the Effective Date until Seller is replaced as
operator, Seller as operator shall have no liability to Buyer for losses,
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Claims or damages sustained or liabilities incurred, regardless of the sole,
joint or concurrent negligence, strict liability, regulatory liability,
statutory liability, breach of contract, breach of warranty, or other fault or
responsibility of Seller or any other person or party, except such Buyer losses,
Claims or damages as may result from Seller's gross negligence or willful
misconduct. Seller shall not be obligated for any expenditures after the
execution of this Agreement or the Effective Date, whichever is the earlier, and
shall recover any charges and expenses as part of the Final Settlement Statement
adjustments as appropriate.
9.2 Preferential Rights to Purchase.
9.2.1 Issuance of Notices. Seller shall use the allocations provided by Buyer
pursuant to Section 2.3 to provide any required preferential right to purchase
notifications to third parties.
9.2.2 Third Party Exercise. If a third party gives notice of its intent to
exercise a preferential right to purchase any of the Assets, the affected Assets
will not be sold to Buyer and the Purchase Price will be adjusted by the
allocation for the affected Asset. If Buyer has allocated a positive dollar
amount to the preferential right Asset, the Purchase Price will be reduced by
the dollar amount of the positive allocation. If Buyer has allocated a negative
dollar amount to the preferential right Asset, the Purchase Price will be
increased by the absolute value of the negative allocation. Buyer remains
obligated to purchase the remainder of the Assets not affected by exercised
preferential rights to purchase. Any preferential purchase right must be
exercised subject to and on the same terms and conditions of this Agreement.
9.2.3 Third Party Failure to Purchase. If a third party gives notice of its
intent to exercise a preferential right to purchase any of the Assets, but does
not close the purchase for any reason, either before or within a reasonable time
after Closing, then there shall promptly be an additional Closing between Seller
and Buyer for such portion of the Assets pursuant to the terms of this
Agreement, by which Seller will transfer the affected portion of the Assets to
Buyer and Buyer will promptly pay Seller that portion of the Purchase Price
attributable thereto (or in the case of a negative allocation, Seller will
refund the absolute value of the negative amount to Buyer, without interest).
9.2.4 Successor Operator. Buyer acknowledges and agrees that Seller cannot and
does not covenant or warrant that Buyer shall become successor operator of the
Assets or portions thereof which Seller may presently operate, since same may be
subject to unit, pooling, communitization or operating agreements or other
agreements which control the appointment of a successor operator. Seller agrees,
however, that, where it will, in the opinion of Seller, facilitate the
appointment of a successor operator, it will, in a prudent manner, resign as
operator of the Assets it operates before or after Closing.
10. Covenants, Assignments And Continuing Obligations
It is the intent and effect of this Agreement that the conveyance, transfer or
assignment of any Assets by Buyer or any future conveyances, transfers or
assignments made by Buyer shall not in any way diminish, compromise, extinguish,
or effect a release of Seller's rights against Buyer, or Buyer's obligations to
Seller. It is also the intent and effect of this Agreement that all conveyances,
transfers or assignments of any Assets by Buyer and all future conveyances,
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transfers or assignments made by Buyer shall create rights in favor of Seller
under this Agreement and under all subsequent conveyances, transfers or
assignments pertaining to the Assets, and that Seller is a third party
beneficiary of such subsequent conveyances, transfers or assignments, so that
the party or parties to whom Buyer conveys, transfers or assigns any Assets
shall likewise be bound with Buyer to Seller for performance of Buyer's
obligations to Seller under this Agreement. Buyer specifically agrees and
warrants that in the event of future conveyances, transfers or assignments of
the Assets (in whole or in part) by Buyer, Buyer shall require that as part of
the conveyances, transfers or assignments the party or parties to whom the
Assets are conveyed, transferred or assigned shall agree to assume, be bound by
and subject to all of Buyer's obligations to Seller under this Agreement and
shall fulfill those obligations. Buyer further agrees, understands and warrants
that in the event of future conveyances, transfers or assignments of the Assets
(in whole or in part) by Buyer, Buyer shall remain bound and subject to all of
Buyer's obligations to Seller and shall remain responsible for fulfilling those
obligations even though Buyer has conveyed, transferred or assigned the Assets.
Buyer further agrees, understands and warrants that all future assignments,
conveyances or transfers of any Assets shall also be accompanied by the
assignees', grantees' or transferees' acceptance and full assumption of the
obligations that Buyer owes to Seller. The obligations and responsibilities of
Buyer to Seller, and of Buyer's assignees, grantees or transferees to Seller,
shall be joint and several and shall run with the Assets assigned, conveyed or
transferred, so that all subsequent assignees, grantees and transferees also
accept the same obligations to Seller, without Buyer or any assignees, grantees
or transferees being released of any of their obligations to Seller. Such
obligations shall include, but not be limited to, those involving abandonment
obligations, covenants, terms, conditions, indemnities, liabilities, and assumed
risks.
11. Closing, Termination and Final Adjustments
11.1 Conditions Precedent to Seller's Obligation to Close. Seller's obligation
to consummate the transactions contemplated by this Agreement is subject to the
satisfaction of the following conditions, unless Seller waives the condition:
(a) Buyer shall have performed and complied with all material
terms of this Agreement required to be performed or complied with by it at or
prior to Closing.
(b) No action or proceeding by or before any governmental
authority shall have been instituted or threatened (and not subsequently
dismissed, settled or otherwise terminated) which might restrain, prohibit or
invalidate any of the transactions contemplated by this Agreement, other than an
action or proceeding instituted or threatened by Seller or any of its
affiliates.
(c) The representations and warranties of Buyer contained in
Section 5.2 shall be true and correct in all material respects on the Closing
Date as though made on and as of the Closing Date.
(d) All applicable waiting periods under the HSR Act have
terminated or early release under the Act has been obtained.
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11.2 Conditions Precedent to Buyer's Obligation to Close. Buyer's obligation to
consummate the transactions contemplated by this Agreement is subject to the
satisfaction of the following conditions, unless Seller waives the condition:
(a) Seller shall have performed and complied with all material
terms of this Agreement required to be performed or complied with by it at or
prior to Closing.
(b) No action or proceeding by or before any governmental
authority shall have been instituted or threatened (and not subsequently
dismissed, settled or otherwise terminated) which might restrain, prohibit or
invalidate any of the transactions contemplated by this Agreement, other than an
action or proceeding instituted or threatened by Buyer or any of its affiliates.
(c) The representations and warranties of Seller contained in
Section 5.1 shall be true and correct in all material respects on the Closing
Date as though made on and as of the Closing Date.
(d) Buyer shall not have discovered during its due diligence
activities any material instances of non-market sensitive contractual
obligations governing disposition of oil or gas produced from the Assets. For
purposes of this Section 11.2 (d), the sum of all such matters shall not be
considered "material" if (i) the net adverse economic impact on Buyer of all
such matters is reasonably anticipated to be no more than the Special Deductible
(hereinafter defined), or (ii) the net adverse economic impact on Buyer of all
such matters is reasonably anticipated to exceed the Special Deductible and
Seller has offered to reduce the Purchase Price at Closing by the amount such
net adverse economic impact on Buyer exceeds the Special Deductible. For
purposes of this Section 11.2 (d) the term "Special Deductible" means the
positive amount, if any, arrived at by subtracting from $50,000,000.00 the
amount of Aggregate Alleged Defects applied against the Minimum Threshold for
Aggregate Alleged Defects as described in Section 8.1. If such calculation does
not yield a positive amount, then the Special Deductible shall be zero.
(e) All applicable waiting periods under the HSR Act have
terminated or early release under the Act has been obtained.
11.3 Closing. The Closing of the transactions contemplated herein and the
transfer of the Assets shall occur on or before September 27, 2004 at Seller's
office, 1111 Bagby, Houston, Texas, at 10:00 a.m., local time, or such other
date, time, and place as Seller and Buyer may agree in writing (the "Closing").
At Closing, the following shall occur:
(a) Buyer and Seller shall execute and acknowledge an Assignment
and Bill of Sale in substantially the form of Exhibit "C", in form and substance
sufficient to convey title to the Assets in accordance with the terms of this
Agreement.
(b) Buyer and Seller shall execute and acknowledge any such other
instruments as are reasonably necessary to effectuate the transfer, sale or
conveyance of the Assets to Buyer,
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including without limitation, separate assignments of the Assets on officially
approved forms in sufficient counterparts to satisfy applicable statutory and
regulatory requirements for the transfer of the Assets.
(c) Seller shall prepare and Seller and Buyer shall execute at
Closing transfer orders or letters-in-lieu in form and substance satisfactory to
Buyer for each purchaser or remitter of proceeds from the Leases, Wells and
Units.
(d) Upon and against delivery of the Assignment and other
instruments described in this Section, Buyer shall pay to Seller the Adjusted
Purchase Price by bank wire, as designated in advance by Seller under Section
2.2.
(e) On or before Closing, Seller shall, where Buyer is to become
operator, supply Buyer with an appropriate governmental form as required by the
governmental agency, board or commission having jurisdiction and authority to
change the name of operator from Seller to Buyer, for each Seller-operated Well
(whether dry, inactive, injector or producing), Lease or any other well or
facility or Personal Property, as may be required or defined by said agency,
board or commission, located on the premises that form a part of the subject
matter of this Agreement. All such forms shall be executed by Buyer and/or
Seller as may be required prior to or during Closing. Buyer shall be responsible
for any fee as may be required by such governmental agency, board or commission
and, at the parties' option, shall either deliver its check payable to the
governmental agency, board or commission to Seller at Closing or credit this fee
amount to Seller in the Final Settlement Statement. Seller shall mail the
completed form and fee to the proper governmental agency, board or commission
after Closing.
(f) Immediately after Closing, Buyer shall notify all pertinent
operators, non-operators, oil or gas purchasers, governmental agencies and
royalty owners that it has purchased the Assets. Buyer shall also timely notify
the appropriate taxing authorities following Closing of Buyer's ownership and
provide copies of such notices to Seller.
11.4 Termination. This Agreement and the transactions contemplated hereby may be
terminated in the following instances:
(a) By Buyer or Seller in accordance with Section 8.2;
(b) By Buyer or Seller in accordance with Section 13.3;
(c) By Seller if any condition set forth in Section 11.1 has not
been satisfied and such condition has not been waived by Seller by the Closing
Date;
(d) By Buyer if any condition set forth in Section 11.2 has not
been satisfied and such condition has not been waived by Buyer by the Closing
Date;
(e) By mutual written agreement of Buyer and Seller; and
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(f) By Seller or Buyer if the Closing does not occur on or before
September 30, 2004, through no fault of the terminating party or its affiliates,
unless the date of such Closing shall have been extended in writing by mutual
agreement of the parties.
11.5 Remedies Upon Termination. If Buyer, through no fault of Seller, fails,
refuses, or is unable for any reason not permitted by this Agreement to close
the sale as described herein, Seller may, at its option, assert its right of
specific performance, declare the Deposit forfeited and retain same or pursue
any other rights or remedies to which it may be entitled, at law or in equity.
If this Agreement (i) is terminated by either Buyer or Seller under Sections 8.2
or 13.3, (ii) is terminated by Seller due to the failure of a Condition
Precedent listed in subsections (b) or (d) of Section 11.1, or (iii) is
terminated by Buyer due to the failure of a Condition Precedent listed in
subsections (a), (b), (c) or (d) of Section 11.2, Seller shall promptly return
the Deposit, if one has been required, exclusive of interest earned, if any, to
Buyer and neither party shall have any further liability whatsoever to the other
party pursuant to this Agreement. If Seller, through no fault of Buyer, fails or
refuses for any reason not permitted by this Agreement to close the sale as
described herein, Buyer may, at its option, assert its right of specific
performance, or waive such right and receive a refund of the Deposit, if one has
been required.
11.6 Final Adjustments. Within six months after the Closing, Seller shall
prepare a settlement statement setting forth any adjustments to the Purchase
Price provided for in Section 2.4 and not made prior to or at Closing, any
updates or corrections to previously-made adjustments, and any other adjustments
arising pursuant to this Agreement. Additionally, in preparing such Final
Settlement Statement, Seller may include as a set off any resulting amount due
to Buyer against any amount or sum that Buyer may otherwise owe to Seller under
the terms of this Agreement.
Seller shall submit the Final Settlement Statement to Buyer on or before the
date established above, along with copies of third party vendor invoices in
excess of $10,000.00 each, or other evidence of expenses agreed to by Buyer and
Seller. Buyer shall respond in writing with objections and proposed corrections
within 90 days after receiving the Final Settlement Statement. If Buyer does not
respond to the Final Settlement Statement by signing or objecting in writing
within the 90-day period, the statement will be deemed approved by Buyer. After
approval of the Final Settlement Statement, Seller will send a check or invoice
to Buyer for the net amount. If Buyer and Seller are unable to agree to all
adjustments within 90 days after Buyer's receipt of the Final Settlement
Statement submitted by Seller, adjustments which are not in dispute shall be
paid by Buyer or Seller, as the case may be, at the expiration of such 90-day
period. Adjustments which remain in dispute, if Buyer and Seller are unable to
agree within 120 days after Seller provides the Final Settlement Statement to
Buyer, shall be resolved as provided in Section 12. Within 5 business days after
final resolution of the dispute, Buyer or Seller, as the case may be, shall
promptly make cash payment to the other equal to the sum as may be found to be
due. Nothing in this Section shall limit any right of either party to assert a
claim for revenues or reimbursement after Buyer's receipt of the Final
Settlement Statement, and in this regard (i) should any party receive revenues
to which the other is entitled, such party shall pay over such revenues to the
appropriate party within 30 days after receipt thereof, and (ii) should any
party pay for costs or expenses for which the other party is responsible, such
party shall reimburse the
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other party within 30 days after the date the responsible party receives an
invoice for such costs and expenses.
12. Dispute Resolution and Binding Arbitration
12.1 Sole and Exclusive Method for Resolution of Disputes. Any dispute arising
out of or relating to this Agreement shall be resolved in accordance with the
procedures specified in this Section 12, which shall be the sole and exclusive
procedures for the resolution of any such disputes.
12.2 Negotiation Between Executives. The parties shall attempt to resolve any
dispute arising out of or relating to this Agreement promptly by negotiation
between executives who have authority to settle the controversy and who are at a
higher level of management than the persons with direct responsibility for
administration of this Agreement. Either party may give the other party written
notice of any dispute not resolved in the normal course of business. Within 15
days after delivery of the notice, the receiving party shall submit to the other
a written response. The notice and response shall include (a) a statement of
that party's position and a summary of arguments supporting that position, and
(b) the name and title of the executive who will represent that party and of any
other person who will accompany the executive. Within 30 days after delivery of
the initial notice, the executives of both parties shall meet at a mutually
acceptable time and place, and thereafter continue to meet as often as they
reasonably deem necessary, to attempt to resolve the dispute. All negotiations
pursuant to this clause are confidential and shall be treated as compromise and
settlement negotiations for purposes of applicable rules of evidence.
12.3 Mediation. If the dispute has not been resolved by negotiation as provided
herein within 60 days after delivery of the initial notice of negotiation, or if
the parties failed to meet within 30 days after delivery of such notice, the
parties shall endeavor to settle the dispute by mediation under the CPR
Mediation Procedure then currently in effect. Unless otherwise agreed, the
parties will select a mediator from the CPR Panels of Distinguished Neutrals.
12.4 Arbitration. Any dispute arising out of or relating to this Agreement,
including the breach, termination or validity thereof, which has not been
resolved by mediation as provided herein within 45 days after initiation of the
mediation procedure, shall be finally resolved by arbitration in accordance with
the CPR Rules for Non-Administered Arbitration then currently in effect, three
independent and impartial arbitrators, none of whom shall be appointed by either
party; provided, however, that if one party fails to participate in either
negotiation or mediation as agreed herein, the other party can commence
arbitration prior to the expiration of the time periods set forth above. The
place of arbitration shall be Houston, Texas. The arbitrators are not empowered
to award damages in excess of compensatory damages and each party expressly
waives and foregoes any right to punitive, exemplary or similar damages. The
arbitration shall be governed by the Federal Arbitration Act, 9 U.S.C.
ss.ss.1-16, and judgment upon the award rendered by the arbitrators may be
entered by any court having jurisdiction thereof.
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13. Miscellaneous
13.1 Oil and Gas Imbalances. The adjustments described in Section 2.4.1 and
2.4.2 are not applicable to oil and gas production, pipeline or other imbalances
as hereafter described, whether or not a gas or oil delivery balancing agreement
is in effect. Instead, such imbalances will be handled as set forth in this
Section 13.1 and in Section 2.4.3.
(a) Production Imbalances. "Production Imbalances" are defined as
over-production or under-production with respect to oil or gas produced from or
allocated to the Assets where Seller as of the Effective Date is out of balance
with the operator or with other working interest parties in the Assets. As to
Production Imbalances, and regardless of whether Seller is over-produced or
under-produced as to its share of total oil, condensate or gas production, any
balancing obligation or credit arising from such over- or under-production
balance as of the Effective Date shall transfer to Buyer on the Effective Date,
and Seller shall have no further liability therefor nor benefit therefrom
(whichever the case may be), and as of the Effective Date, Buyer expressly
assumes any such obligation or credit. If Seller is a party to an oil or gas
balancing agreement or other reconciliation obligations pursuant to any
operating agreement or commingling authority covering all or a portion of the
Assets, Buyer shall assume all rights and duties of Seller pursuant thereto. If
the Assets are not covered by a balancing agreement or other reconciliation
obligations pursuant to any operating agreement or commingling authority, Buyer
shall fulfill its obligations under this provision in accordance with applicable
law. Buyer agrees to indemnify, defend and hold Seller and Seller Parties
harmless against any and all losses, Claims, suits and liabilities arising
directly or indirectly out of Buyer's failure to fulfill its obligations under
this provision.
(b) Imbalances on Agreements Assigned to Buyer. Any oil or gas
imbalances existing as of the Effective Date on gathering, transportation or
processing agreements assigned to Buyer pursuant to this Agreement (the
"Assigned Agreement Imbalances"), regardless of whether Seller is long or short,
shall transfer to Buyer on the Effective Date and Seller shall have no further
liability therefor nor benefit therefrom (whichever the case may be) and as of
the Effective Date Buyer expressly assumes any such long or short Assigned
Agreement Imbalance. Buyer agrees to indemnify, defend and hold Seller and
Seller Parties harmless against any and all losses, Claims, suits and
liabilities arising directly or indirectly out of Buyer's failure to fulfill its
obligations under this provision.
(c) Other Imbalances. All oil or gas imbalances existing as of the
Effective Date on Seller's gathering, transportation or other agreements that
are not assigned to Buyer pursuant to this Agreement (the "Other Imbalances"),
regardless of whether Seller is long or short, shall remain the responsibility
of Seller, and Buyer shall have no liability therefor nor benefit therefrom
(whichever the case may be). Seller agrees to indemnify, defend and hold Buyer
and Buyer Parties harmless against any and all losses, Claims, suits and
liabilities arising directly or indirectly out of Seller's failure to fulfill
its obligations under this provision.
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(d) Adjustment Methodology for Buyer-Assumed Imbalances. The
following adjustments shall be made to account for the Production Imbalances and
the Assigned Agreement Imbalances (the "Buyer-Assumed Imbalances") transferred
to and assumed by Buyer:
(i) Seller shall set forth in the Closing Statement, based on the best
information available to Seller at the time the Closing Statement is prepared,
Seller's best estimate of the aggregate Buyer-Assumed Imbalances as of the
Effective Date. Such estimate shall form the basis of the Purchase Price
adjustment to be made pursuant to Section 2.4.3 hereof.
(ii) If it shall be determined prior to conclusion of the Final Adjustments as
set forth in Section 11.6 that the aggregate Buyer-Assumed Imbalances as of the
Effective Date actually varied from the estimated aggregate Buyer-Assumed
Imbalances set forth on the Closing Statement, the following adjustment shall be
made:
(A) If the actual aggregate Buyer-Assumed Imbalances as of the
Effective Date varied from the estimated aggregate Buyer-Assumed
Imbalances set forth on the Closing Statement to the detriment of
Seller, then Seller shall pay Buyer the product of the Agreed Imbalance
Settlement Price as defined in Section 2.4.3 and the entire amount of
such variance; or
(B) If the actual aggregate Buyer-Assumed Imbalances as of the
Effective Date varied from the estimated aggregate Buyer-Assumed
Imbalances set forth on the Closing Statement to the benefit of Seller,
then Buyer shall pay Seller the product of the Agreed Imbalance
Settlement Price as defined in Section 2.4.3 and the entire amount of
such variance,
and each Party hereby expressly waives any other remedies. For purposes of this
Section 13.1 (d), one "Mcfe" shall be equal to one-sixth of a barrel of oil or
condensate.
13.2 Insurance. With regard to any Seller-operated properties:
(a) Seller and Buyer acknowledge that insurance coverage for the
Assets and the operations in which the Assets have been used has been provided,
in part, under insurance programs arranged and maintained by ChevronTexaco
Corporation for itself and its subsidiaries and affiliates (such policies are
herein called "ChevronTexaco Policies").
(b) Seller and Buyer agree that, as of the Closing Date, all of
the ChevronTexaco Policies shall cease to apply to the Assets and the operations
in which the Assets are used and that Buyer shall make no claims under the
ChevronTexaco Policies with respect to any matter whatsoever, whether arising
before or after the Closing Date.
(c) In the event that any Claim is hereafter made under or with
respect to any of the ChevronTexaco Policies by or through Buyer or any person
subrogated to its rights, Buyer shall indemnify and defend Seller and the Seller
Parties against and shall hold them harmless from
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such Claim and all costs and expenses (including without limitation attorneys'
fees and court costs) related thereto.
13.3 Casualty Loss of Assets.
13.3.1 Definition. "Casualty Loss" means physical damage to any of the
physical Assets that (a) occurs between execution of this Agreement and Closing,
(b) is not the result of normal wear and tear, mechanical failure or gradual
structural deterioration of materials, equipment and infrastructure, downhole
failure (including: (i) failures arising or occurring during drilling or
completing operations; (ii) junked or lost holes; or (iii) sidetracking or
deviating a well) or reservoir changes; and (c) exceeds One Hundred Fifty
Thousand Dollars.
13.3.2 Notice of Loss. Seller shall promptly notify Buyer of all instances of
Casualty Loss that occur and become known to Seller between the date of this
Agreement and Closing.
13.3.3 Handling of Casualty Loss. If, prior to Closing, a portion of the
Assets is damaged or destroyed by a Casualty Loss, Seller and Buyer shall meet
to attempt to agree on an adjustment to the Purchase Price reflecting the
"Reduction in Value" of the Assets because of such Casualty Loss. For this
purpose, "Reduction in Value" is based on the principle that Seller should
generally bear the costs of repairing the Assets to the state existing
immediately prior to the Casualty Loss, but if such repair results in equipment
or facilities that are newer than or upgraded from that which existed
immediately prior to the Casualty Loss, Buyer should bear a portion of such
costs that is equitable under the circumstances because of the benefit to Buyer
of such newer or upgraded equipment or facilities. Except as to those real
property Assets with a negative Buyer's Allocation, no adjustment associated
with a Casualty Loss shall exceed Buyer's Allocation for the affected Asset. For
any real property Asset with a negative Buyer's Allocation, Buyer may give
Seller written notice at least 5 business days prior to Closing and exclude from
this Agreement the real property Asset subject to the Casualty Loss and increase
the Purchase Price by an amount equal to Buyer's negative Allocation for such
real property Asset. If the Parties are unable to agree on resolution of a
Casualty Loss, the Parties shall proceed to Closing with the Purchase Price
being reduced by Seller's estimate of the Reduction in Value of the Assets as a
result of the Casualty Loss; provided, however, either Party may, within 60 days
after the Closing Date (but not later), initiate binding arbitration in
accordance with Section 12.4 to resolve the dispute, without any necessity to
first engage in negotiations or mediation. Any claim for a Casualty Loss not
referred to arbitration within 60 days after Closing shall be deemed waived.
Seller shall retain any and all insurance proceeds and other payments associated
with or attributable to any pre-Closing Casualty Loss which has been remedied by
Seller or for which a Purchase Price adjustment has been made. Notwithstanding
the foregoing, if the aggregate Casualty Losses and Asset exclusions under this
Section exceed ten percent (10%) of the Purchase Price, either Party may, by
written notice to the other at least 5 days prior to Closing, terminate this
Agreement. If either party exercises its option to terminate this Agreement
pursuant to this Section 13.3, this Agreement shall become void and have no
effect, Seller shall promptly return the Deposit, if one has been required, to
Buyer (exclusive of interest earned), and neither party shall have any further
right or duty to or claim against the other party under this Agreement, except
as expressly provided to the contrary in this Agreement.
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13.4 Transfer of Records. With the exception of books of account, tax returns
and correspondence relating thereto, technical and interpretive data excluded
from this sale, any documents of overall significance to Seller's business and
all of the Excluded Assets, Seller shall deliver to Buyer, at Closing or within
a reasonable time thereafter, the Records.
13.5 Publicity. Seller and Buyer shall consult with each other with regard to
all press releases or other public or private announcements made concerning this
Agreement or the transactions contemplated hereby, and except as may be required
by applicable laws or the applicable rules and regulations of any governmental
agency or stock exchange, neither Buyer nor Seller shall issue any such press
release or other publicity without the prior written consent of the other party,
which shall not be unreasonably withheld. Except as may be required by
applicable laws or the applicable rules and regulations of any governmental
agency or stock exchange, no press release of either party shall include any
reserve estimates without the prior written consent of the other party, which
consent may be withheld at the sole discretion of such party.
13.6 Assignment. Prior to Closing, Buyer may not assign any rights acquired
hereunder or delegate any duties assumed hereunder without the prior written
consent of Seller or its respective successors and assigns. After Closing, Buyer
may not sell, transfer, assign, sublease or delegate any rights or interests
acquired under this Agreement and the Assignment or delegate any duties assumed
thereunder without any such grantee, transferee, assignee, sublessee or delegee
having agreed in writing to be bound by all of the terms and provisions
contained in this Agreement and the Assignment, and any such grantee,
transferee, assignee, sublessee or delegee shall assume all duties and
obligations imposed on Buyer set forth herein and therein or arising herefrom
and therefrom; and any such transfer, assignment, sublease or delegation shall
so provide. Notwithstanding anything herein to the contrary, Buyer shall remain
responsible to Seller for all obligations and liabilities under this Agreement
and under the Assignment.
13.7 Entire Agreement. This Agreement constitutes the entire agreement between
Seller and Buyer with respect to the transactions contemplated herein, and
supersedes all prior oral or written agreements, commitments, and understandings
between the parties. No amendment of this Agreement shall be binding unless in
writing and signed by both parties. Headings used in this Agreement are only for
convenience of reference and shall not be used to define the meaning of any
provision. The parties and their counsel participated jointly in the preparation
of this Agreement, and there shall be no presumption applied against either
party in the interpretation of this Agreement based upon such party's role in
the drafting. This Agreement is for the benefit of Seller and Buyer and their
respective successors, representatives, and assigns and not for the benefit of
third parties.
13.8 Notices. All notices and consents to be given hereunder shall be in writing
and shall be deemed to have been duly given if delivered either by personal
delivery, telex, telecopy or similar facsimile means, by certified or registered
mail, return receipt requested, or by courier or delivery service, addressed to
the parties hereto at the following addresses:
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If to Seller: If to Buyer:
Chevron U.S.A. Inc. Parallel L.P.
1111 Bagby St. P. O. Box 10587
Houston, Texas 77002 Midland, Texas 79702
Attention: M. H. Forman Attention: Mr. John Rutherford
Manager, Acquisitions & Divestitures Fax No.: 432-684-3905
Fax No.: 713-752-4743
or at such other address and number as either party shall have previously
designated by written notice given to the other party in the manner set forth
above. Notices shall be deemed given when received if sent by facsimile means
(confirmation of such receipt by confirmed facsimile transmission being deemed
receipt of communications) and when delivered and receipted for (or upon the
date of attempted delivery where delivery is refused), if hand-delivered, sent
by express courier or delivery service, or sent by certified or registered mail,
return receipt requested.
13.9 Governing Law. This Agreement shall be governed by the laws of the State of
Texas, without giving effect to any principles of conflicts of law. The validity
of the conveyances affecting the title to real property shall be governed by and
construed in accordance with the laws of the jurisdiction in which such property
is situated. The provisions contained in such conveyances and the remedies
available in the event of a breach of such provisions shall be governed by and
construed in accordance with the laws of the State of Texas without giving
effect to the principles of conflict of laws.
13.10 Confidentiality. Buyer agrees that all information furnished or disclosed
by Seller or acquired by Buyer in connection with the sale of the Assets shall
remain confidential prior to Closing. Buyer may disclose such information only
to its subsidiaries or affiliates, agents, advisors, counsel or representatives
(herein "Representatives") who have agreed, prior to being given access to such
information, to maintain the confidentiality thereof. In the event that Closing
of the transactions contemplated by this Agreement does not occur for any
reason, Buyer agrees that all information furnished or disclosed by Seller or
acquired by Buyer in connection with the inspection, testing, inventory or sale
of the Assets shall remain confidential, except to the extent such information
is available in the public domain other than through a breach of Buyer's
confidentiality obligations, with Seller a third party beneficiary of any
privilege held by Buyer. Buyer and its Representatives shall promptly return to
Seller any and all materials and information furnished or disclosed by Seller
relating in any way to the Assets, including any notes, summaries, compilations,
analyses or other material derived from the inspection or evaluation of such
material and information, without retaining copies thereof, and destroy any
information relating to the Assets and independently acquired by Buyer.
13.11 Default. Seller shall notify Buyer in the event that Seller becomes aware
that Buyer or Buyer's successors or assigns have failed to satisfy one or more
post-Closing obligations assumed by Buyer pursuant to the terms of this
Agreement, the Assignments, and/or any amendments thereto (any such failures
hereinafter referred to as a "Default"). Buyer shall correct or redress or
respond to or begin to correct or redress or respond to any Default within 30
days after receipt of
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such written notice or such lesser or greater time as may be dictated by any
emergency situation or as required by applicable agreements or as required by
any law, order, rule or regulation of any governmental authority.
13.11.1 Failure to Respond. If (i) within such time as defined hereinabove,
Buyer does not correct or redress or respond to or begin to correct or redress
or respond to any Default, or (ii) after beginning such efforts Buyer does not
correct or redress such Default within a reasonable amount of time and within
the time required by any applicable agreements or any law, order, rule or
regulation of any governmental authority, or (iii) Seller is unable to locate
Buyer in order to notify Buyer after reasonable efforts to do so, Seller, at its
option, may endeavor to and shall be authorized to plug and abandon well(s),
remove facility(ies) or equipment or restore the surface area(s), or otherwise
correct such Default, or cause such to be done. Seller shall exercise reasonable
discretion and endeavor to accomplish only that necessary to remedy such
Default, all at the entire cost, risk and expense of Buyer, except that Buyer
shall not be responsible for costs and expenses of any such work done by Seller
or Seller's affiliates in excess of amounts typically charged by unaffiliated
third parties for like or similar services in the area. Compliance with the
Notices requirements under this Agreement shall be considered as sufficient
notice to Buyer hereunder.
13.11.2 Seller Not Obligated to Remedy Buyer's Defaults. Seller shall in no
event be obligated to satisfy any Default by Buyer or its successors or assigns.
13.11.3 Invoicing and Recoupment by Seller. Within a reasonable period of
time after any such efforts by Seller to correct or redress such Defaults,
Seller shall furnish Buyer at its last known address with detailed invoices and
supporting documentation for expenses incurred by Seller in the efforts to
correct such Defaults, including appropriate charges for overhead, salaries,
legal costs, permits, penalties, interest, and other losses and expenses
incurred for or by Seller for the purpose of correcting or redressing such
Defaults.
13.11.4 Other Remedies Reserved. Seller's right to proceed in the manner
above described to correct or redress Defaults of Buyer or its successors or
assigns is not intended to be nor shall it limit or be exclusive of any other
right or remedy, whether personal or in "rem", available to Seller under this
Agreement, the Assignments, and/or any amendments thereto, or otherwise by law,
all of which remedies are expressly and fully ratified, granted to and reserved
to Seller.
13.12 Survival of Certain Obligations. Representations and warranties in
Sections 5.1 and 5.2 of this Agreement (but not the disclaimers and waivers
contained elsewhere in Section 5) shall terminate as of December 31, 2005; and
thereafter no action may be commenced either in court or disputes brought to
arbitration based on breach of those representations and warranties, without
prejudice to the right to recovery in connection with actions or disputes
commenced in the appropriate forum on or before December 31, 2005. Except as
expressly provided otherwise in this Agreement, waivers, disclaimers, releases,
continuing obligations of Buyer or Seller, and obligations of indemnity and
defense contained in this Agreement shall survive the Closing indefinitely and
shall be binding upon each party and their respective successors and assigns.
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13.13 Conflict of Interest. Conflicts of interest related to this Agreement are
strictly prohibited. Each party, for itself and for its respective directors,
partners, employees, and agents warrants, covenants and represents to the other
that, except as otherwise expressly provided in this Agreement, neither it nor
any of its directors, employees, partners or agents has given to or received
from the other party, or such party's directors, partners, employees or agents,
any commission, fee, rebate, gift or other thing or service in connection with
this Agreement. Likewise, neither Buyer nor any director, employee or agent of
Buyer shall enter into any business relationship with any director, employee or
agent of Seller (or of any affiliate of Seller), unless such person is acting
for and on behalf of Seller, without prior written notification thereof to
Seller. Buyer and Seller each agree that its books and records shall be subject
to reasonable audit by the other as may be required to substantiate compliance
with this provision.
13.14 Further Cooperation. After the Closing, each party shall execute,
acknowledge, and deliver all documents, and take all such acts which from time
to time may be reasonably requested by the other party in order to carry out the
purposes and intent of this Agreement.
13.15 Counterparts. This Agreement may be executed in one or more counterparts
with the same effect as if all signatures of the parties hereto were on the same
document, but in such event each counterpart shall constitute an original, and
all of such counterparts shall constitute one Agreement; but in making proof of
this Agreement, it shall not be necessary to produce or account for more than
one such counterpart signed by each party.
13.16 Exhibits and Schedules. All of the Exhibits and Schedules referred to in
this Agreement are hereby incorporated into this Agreement by reference and
constitute a part of this Agreement.
13.17 Severability. If any term or provision of this Agreement is invalid,
illegal or incapable of being enforced by any rule of law, all other conditions
and provisions of the Agreement shall nevertheless remain in full force and
effect so long as the economic or legal substance of the transactions
contemplated hereby are not affected in any materially adverse manner to the
other party.
13.18 Expenses, Post-Closing Consents and Recording. Notwithstanding other
provisions of this Agreement, Buyer shall be responsible for the filing and
recording of the Assignment(s), conveyances or other instruments required to
convey title to the Assets to Buyer in the appropriate federal, state and local
records, and all required documentary, filing and recording fees and expenses
incurred in connection therewith. Buyer shall supply Seller with a true and
accurate photocopy of all the recorded and filed Assignments(s) within a
reasonable period of time after such are available. Buyer shall be responsible
for timely obtaining all consents and approvals of governmental entities or
authorities customarily obtained subsequent to transfer of title and all costs
and fees associated therewith. Except as otherwise specifically provided, all
fees, costs and expenses incurred by Buyer or Seller in negotiating this
Agreement or in consummating the transactions contemplated by this Agreement
shall be paid by the party incurring the same, including, without limitation,
legal and accounting fees, costs and expenses.
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13.19 Nominations and Accounting Responsibilities. From the first day of the
first production month following Closing, Seller is relieved of all
responsibility for, and Buyer will (a) bear, and commence payment of, all
burdens, fees and taxes on or relating to the Assets, and (b) perform all
nomination, marketing, accounting, royalty payment, reporting, and other
administrative responsibilities relating to the Assets.
13.20 Removal of Signs and Markers. Seller may either remove its name and signs
from the Seller-operated Wells, facilities and Personal Property or require
Buyer, at Buyer's cost, to do so for those Assets that Buyer will operate. If
Seller's name or signs remain on the Assets after Seller ceases to be operator
and Buyer has become operator, Buyer shall (a) remove any remaining signs and
references to Seller within 45 days after Seller ceases to be operator or such
earlier time as may be required by applicable regulations, (b) install signs
complying with applicable governmental regulations, including signs showing
Buyer as operator of the Assets it operates, and (c) notify Seller of the
removal and installation. Seller reserves a right of access to the Assets after
it ceases to be operator to remove its signs and name from all Wells, facilities
and Personal Property, or to confirm that Buyer has done so for the Assets
operated by Buyer. If Seller removes signs because Buyer has not done so, Seller
will charge its costs to Buyer either in the Final Settlement Statement or by
separate invoice, which Buyer agrees to pay within 15 days after receipt
thereof.
13.21 CONSPICUOUSNESS / EXPRESS NEGLIGENCE. THE DEFENSE, INDEMNIFICATION AND
HOLD HARMLESS PROVISIONS PROVIDED FOR IN THIS AGREEMENT, INCLUDING, WITHOUT
LIMITATION, SECTIONS 1.7, 3.3.2, 3.3.4, 3.3.5, 3.3.6, 4.1, 5.3.3, 7.3 (a), (b)
and (c), 7.4, 7.5, 7.7, and 13.2(c), SHALL BE APPLICABLE WHETHER OR NOT THE
DAMAGES, LOSSES, INJURIES, LIABILITIES, COSTS OR EXPENSES IN QUESTION AROSE
SOLELY OR IN PART FROM THE ACTIVE, PASSIVE OR CONCURRENT NEGLIGENCE, STRICT
LIABILITY, BREACH OF DUTY (STATUTORY OR OTHERWISE), OR OTHER FAULT OF ANY
INDEMNIFIED PARTY, OR FROM ANY PRE-EXISTING DEFECT. BUYER AND SELLER ACKNOWLEDGE
THAT THIS STATEMENT COMPLIES WITH THE EXPRESS NEGLIGENCE RULE AND IS
CONSPICUOUS.
13.22 Waiver of Certain Damages. Each Party irrevocably waives and agrees not to
seek indirect, consequential, punitive or exemplary damages of any kind in
connection with any dispute arising out of or related to this Agreement or the
breach hereof. For the avoidance of doubt, this Section 13.22 does not diminish
or otherwise affect the parties' rights and obligations to be indemnified
against, and provide indemnity for, indirect, consequential, punitive or
exemplary damages awarded to any third party for which indemnification is
provided in this Agreement or Seller's right to receive liquidated damages,
including the Deposit, if one has been required, pursuant to the provisions of
Section 11.5. Notwithstanding anything to the contrary contained elsewhere in
this Agreement, Seller's cumulative indemnity obligations to Buyer and the Buyer
Parties under this Agreement shall not exceed the Purchase Price.
13.23 Prior Contract(s) Affecting Production. All or a portion of the natural
gas and other hydrocarbons produced from the Assets covered hereby has
heretofore been committed to the gas
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contracts, crude oil pipeline commitments, and other contracts listed on
Schedule 13.23. Therefore, during the life of said identified contracts and any
successor or replacement contract(s) thereto, none of the natural gas and other
hydrocarbons produced from the Assets subject to said contracts(s) shall be
committed to any other contract in contravention of said identified contracts,
and insofar as they pertain to the interest acquired by Buyer in the Assets,
Buyer hereby agrees to comply with and perform the duties and obligations
imposed upon Seller under said identified contracts. The foregoing restriction
shall not apply if Buyer obtains from the other party thereto a release of the
gas or other hydrocarbons from the aforementioned identified contracts, or
successor, or replacement contracts thereto.
13.24 Disclosure of Royalty Valuation Claims, Demands and/or Lawsuits. The
Leases to be assigned hereunder may be subject to various claims, demands or
lawsuits alleging underpayment of royalty or severance taxes based upon Seller's
use of the posted price of crude oil in the calculation and payment of royalty
or severance taxes on oil. If the Leases are subject to any such claims, demands
or lawsuits, Seller shall retain liability therefor with respect to events
occurring prior to the Effective Date. Settlement agreements and/or judgments
entered in such lawsuits may affect the manner in which royalty or severance
taxes on oil produced from the Leases are paid after the Effective Date, and
Buyer agrees to comply fully with the terms of such settlement agreements and/or
judgments insofar as they affect the Leases, but Seller shall not, without
Buyer's prior written consent, enter into any settlement agreement after the
date of this Agreement that would (a) reduce the net revenue interest accruing
to Buyer in any Lease after the Closing Date, or (b) voluntarily increase the
severance tax rate applicable to any Lease. Seller hereby notifies Buyer, and
Buyer hereby acknowledges, that the Leases to be assigned herein may be subject
to the royalty and severance/production tax claims, demands, lawsuits, and/or
investigations identified on Schedule 3.3.5.
13.25 Settlement Agreement. Buyer acknowledges and agrees that all or a portion
of the Leases may be subject to and affected by the terms and agreements
contained in that certain Settlement Agreement executed by Chevron et al on May
29, 1997 in the class action lawsuit entitled The State of Texas et al v. Amoco
Production Co. et al No. 95-08680, 345th Judicial District, Travis County,
Texas. Under the terms of that Settlement Agreement, Chevron is obligated, in
the absence of an outright sale at the lease, to value oil and condensate for
royalty and overriding royalty payments using the formulas contained in Section
1.25 of the Settlement Agreement. Said Settlement Agreement was approved on
August 20, 1997 by Final Judgment of said Court. Buyer agrees to abide by the
terms of Sections 1.12, 1.25, 2.8 and 6.6 of the said Settlement Agreement
(Referenced Sections) and further agrees that the Referenced Sections shall be
binding upon Buyer, its successors and assigns. Any future conveyance of the
Leases shall specifically reference and describe Buyer's obligations as set
forth in this Section 13.25 and bind Buyer's successors and assigns. Buyer
acknowledges that Seller has provided the Referenced Sections to Buyer and that
Buyer has read and fully understands the Referenced Sections. Buyer further
agrees to require its successors and assigns to acknowledge in their conveyance
of the Leases that Buyer has provided such successors and assigns with the
Referenced Sections and that such parties have read and fully understand the
Referenced Sections.
40
13.26 Cooperation by Seller (Buyer's Audit). Seller will allow Buyer or Buyer's
independent auditors reasonable access, upon prior written notice, to Seller's
records for a period of three (3) years from the Closing Date in order for Buyer
to comply with the requirements of the Securities and Exchange Commission;
provided, however, that Seller will provide only such data as it has in its
possession and shall not be obligated to generate such data in any particular
form or format.
Wherefore, the parties, intending to be legally bound by all of the terms and
provisions hereof, have caused this Agreement to be executed by their
duly-authorized representatives as of the date first above written.
SELLER: BUYER:
CHEVRON U.S.A. INC. PARALLEL L.P.
by Parallel Petroleum Corporation,
its General Partner
By: /s/ M. H. Forman By: /s/ John S. Rutherford
- --------------------------- ----------------------------------
Name: M. H. Forman Name: John S. Rutherford
Title: Assistant Secretary. Title: Vice President
41
EXHIBIT "A"
Attached to and made a part of that certain Asset Sale Agreement
dated September 16, 2004, by and between Chevron U.S.A., Inc., as Seller and
Parallel L.P., as Buyer.
Interests to be Conveyed in the
Fullerton Field
Andrews County, Texas
All of Assignor's right, title and interest in and to the following, only
insofar as described below, including, but not limited to, any mineral rights,
operating rights, royalty, overriding royalty and working interests in said
lands:
Logsdon Texland JOA (B, C, D and E Wells)
Mineral Fee: Description:
- -------------- ----------------
- -------------------------------------------------------------------------------
File No. QLS # 128751 and INSOFAR AND ONLY INSOFAR AS SAID DEED
128851 COVERS THE W/2 of Sectionvv
Date: July 20, 1937 25, Block A-26; NE/4 and the E/2 NW/4
Grantor: Mineral Investing of Section 21, Block A-31;
Corporation Section 1, Block A-37; E/2NE/4,
Grantee: The Texas Company SW/4NE/4 and SE/4 of Section 2,
Recorded: Volume 42, Page 28 Block A-37; PSL Survey, Andrews
Deed Records, County, Texas, all limited in
Andrews County, Texas depth from the surface down to the
top of the Wolfcamp formation
and further limited to rights below
7,411 feet to the top of the
Wolfcamp formation as to the NE/4NW/4
of Section 21, Block A-31,
and LESS AND EXCEPT the
unitized formation of the Fullerton
Clearfork Unit as to the S/2SW/4 of
Section 25, Block A-26, and the
NE/4NE/4, S/2NE/4 and E/2SE/4 of
Section 1, Block A-37.
- -------------------------------------------------------------------------------
Properties are subject to and include rights under the following agreements:
Operating Agreements:
1. Joint Operating Agreement dated May 1, 1995, by and between Texland/JMC
Joint Venture, as Operator, and Texaco Exploration and Production Inc.,
as Non-Operator (QLS# 045679).
Page 1 of 1
EXHIBIT "C"
Attached to and made a part of that certain Asset Sale Agreement
dated September 16, 2004,
between Chevron U.S.A., Inc., as Assignor
and Parallel L.P., as Assignee.
The State of Texas
County of Andrews
NOTICE OF CONFIDENTIALITY RIGHTS: IF YOU ARE A NATURAL PERSON, YOU MAY REMOVE OR
STRIKE ANY OF THE FOLLOWING INFORMATION FROM THIS INSTRUMENT BEFORE IT IS FILED
FOR RECORD IN THE PUBLIC RECORDS: YOUR SOCIAL SECURITY NUMBER OR YOUR DRIVER'S
LICENSE NUMBER.
ASSIGNMENT AND BILL OF SALE
This Assignment and Bill of Sale (this "Assignment") is dated September
__, 2004, but shall be effective from and after 7:00 a.m., January 1, 2004 (said
date and time hereinafter referred to as the "Effective Date"), is by and
between Chevron U.S.A. Inc., a Pennsylvania corporation, with a mailing address
of 1111 Bagby, Houston, Texas 77002, hereinafter sometimes referred to as
"Assignor," and Parallel L.P., a Texas limited partnership, with a mailing
address of P. O. Box 10587, Midland, Texas 79702, hereinafter sometimes referred
to as "Assignee;"
W i t n e s s e t h:
1. Conveyance. For and in consideration of the sum of One Hundred and
no/100 Dollars ($100.00), cash in hand paid, and other valuable consideration,
including the assumption by Assignee of certain obligations and liabilities
described in that certain Asset Sale Agreement dated September 16, 2004, by and
between Assignor, as Seller, and Assignee, as Buyer (the "Asset Sale
Agreement"), the receipt and sufficiency of which are hereby acknowledged,
Assignor does hereby sell, transfer, assign, convey, set over and deliver unto
Assignee, without warranty of any kind, express or implied, save for the special
warranty of title hereinafter set forth, and subject to the terms hereof and the
terms of the Asset Sale Agreement, all of Assignor's undivided interests in and
to the following (collectively, the "Assets"):
(a) The oil, gas and mineral leases and/or deeds, operating
rights, working interests, mineral interests, royalty interests, overriding
royalty interests, payments out of production and other similar agreements and
rights, whether producing or non-producing, and any other oil, gas or mineral
rights or portions of same described in Exhibit "A", attached hereto and made a
part hereof, and further including any renewals, extensions, ratifications and
amendments to such leases and/or deeds or portions of same (collectively, the
"Leases"), together with all oil and gas unitization, pooling and/or
communitization agreements, declarations, designations and/or orders relating to
the Leases and statutorily, judicially or administratively created drilling,
spacing and/or production units, whether recorded or unrecorded, insofar as they
relate to the Leases, and all of Assignor's interest in and to the properties
covered or units created thereby to the extent attributable to the Leases
(collectively, the "Units"); but reserving to Assignor (i) all of Assignor's
rights, title and interests under certain of said Leases to explore for and
produce oil, gas and minerals outside the
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surface boundaries of the Leases and Units described in Exhibit "A" or above or
below the assigned depths described in Exhibit "A" (the "Retained Interests"),
and (ii) the right to enter upon and use such portion or portions of the surface
as are necessary for its drilling and operations in the Retained Interests,
which operations shall not unreasonably interfere with those of Assignee and
shall be conducted at Assignor's (and, if applicable, its co-owners') risk and
expense.
(b) All of the fee lands and real or immovable property (the
"Land") listed on Exhibit "A", which Land may be conveyed by Assignor to
Assignee in a separate conveyance as necessary to comply with applicable real
property conveyancing and recording statutes.
(c) Any and all oil and gas wells, salt water disposal wells,
injection wells and other wells and wellbores, whether abandoned, not abandoned,
plugged or unplugged, located on the Leases or Land or within the Units
(collectively, the "Wells").
(d) All buildings, structures, facilities, foundations, wellheads,
tanks, pumps, compressors, separators, casing, tubing, pumps, motors, gauges,
valves, heaters, treaters, gathering lines, gas lines, water lines, vessels,
boilers, equipment, machinery, fixtures, flowlines, materials, improvements, and
any other real, personal, immovable and mixed property located on and currently
or formerly used in the operation of, or relating to the in-field production,
treatment, sale, or disposal of Hydrocarbons (as hereinafter defined), water,
and associated substances produced from, the Leases, the Land or the Units
(collectively, the "Personal Property").
(e) All natural gas, casinghead gas, drip gasoline, natural
gasoline, natural gas liquids, condensate, products, crude oil and other
hydrocarbons, whether gaseous or liquid ("Hydrocarbons"), produced and severed
from, or allocable, after severance, to the Leases, the Land, the Units, the
Wells or the Contracts (as hereinafter defined) on and after the Effective Date
(collectively, the "Sale Hydrocarbons").
(f) To the extent transferable, and subject to Section 1.8 of the
Asset Sale Agreement, all contracts, permits, rights-of-way, easements,
servitudes, surface leases, subsurface use agreements, licenses, pooling
agreements, operating agreements, processing agreements, division orders,
farm-in and farm-out agreements, and other agreements of any kind or nature,
whether recorded or not (including but not limited to those described on Exhibit
"A") INSOFAR ONLY as they directly relate and are attributable to the Leases,
the Units, the production from either or both, the Land, the Wells or the
Personal Property, or the ownership or operation thereof, or the production,
treatment, sale, transportation, gathering, storage or disposal of Sale
Hydrocarbons, water, or substances associated therewith (the "Contracts").
(g) Records directly relating to the Leases, Units, Wells, Sale
Hydrocarbons, Contracts, Land and Personal Property, in the possession of
Assignor (the "Records"), but excluding any records which (i) Assignor is
prohibited from transferring to Assignee by law or existing contractual
relationship, (ii) have been archived pursuant to Assignor's records management
policies, or which (iii) constitute Excluded Assets (as defined in Section 2
below); provided, however, that Assignor agrees to use reasonable efforts to
make available to Assignee upon request archived records in Assignor's
possession relating to the Assets if such records are required by Assignee for
purposes of responding to or defending any litigation or claim pertaining to the
Assets. Assignor will deliver
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originals, rather than copies, of those Records that pertain only to Assets
being transferred to Assignee. If the Records pertain both to Assets being
transferred to Assignee and to Excluded Assets as defined in Section 2 below
Assignor may deliver copies to Assignee and retain the originals.
(h) All rights and obligations attributable to Production
Imbalances affecting the Assets hereby assigned and Assigned Agreement
Imbalances as defined in Section 13.1 of the Asset Sale Agreement (the "Assigned
Imbalances").
All such Leases, Units, Wells, Personal Property, Sale Hydrocarbons, Contracts,
Land, Records and Assigned Imbalances are hereinafter collectively referred to
as the "Assets."
2. Exclusions and Reservations: Specifically excepted and reserved from
this Assignment are the following, hereinafter referred to as the "Excluded
Assets":
(a) Assignor's proprietary data, reserve estimates and reports,
economic analyses, computer programs and applications, pricing forecasts, legal
files and legal opinions (except abstracts of title, title opinions,
certificates of title, or title curative documents), attorney-client
communications, attorney work product, and records and documents subject to
confidentiality provisions, claims of privilege or other restrictions on access.
(b) Assignor's rights, title and interests in the Contracts to the
extent such are applicable, attributable and allocable to rights and interest
retained by Assignor, as more specifically described in Section 1.8 of the Asset
Sale Agreement.
(c) All of Assignor's separate proprietary software and
derivatives therefrom, geophysical data, data licensing agreements and seismic
licenses between Assignor and third parties, if any, and any and all
geologic/geophysical interpretations and proprietary or licensed raw or
processed geophysical data (including magnetic tapes, field notes, seismic
lines, analyses and similar data or information) and interpretations therefrom
which are not specifically licensed to Assignee under a separate geophysical
data licensing agreement.
(d) All corporate, financial, and tax records of Assignor.
(e) All Hydrocarbons produced from or attributable to Assignor's
interest in the Assets with respect to all periods prior to the Effective Date,
together with all proceeds from and rights relating to the sale of such
Hydrocarbons.
(f) All of Assignor's intellectual property rights, patents, trade
secrets, copyrights, names, marks and logos.
(g) All fixtures, facilities, pipelines, gathering lines, real
property or interests therein owned by Chevron Pipe Line Company or any other
division of Assignor or subsidiary of ChevronTexaco Corporation or any third
party not a party hereto, unless such assets are expressly identified and
included on Exhibit "A".
Page 3 of 5
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(h) Assignor's interest, if any, in any gas processing plant,
separation facility or gas treating plant serving the Assets, unless otherwise
provided in Exhibit "A".
(i) Any Assets owned, as of the date of this Agreement, by an
affiliate of Assignor that does not ratify and consent to this Assignment.
(j) All third party owned equipment and property located on or
used in connection with the Assets, including, without limitation, contractor
equipment and leased equipment.
(k) Any other items specifically excluded in the Asset Sale Agreement.
TO HAVE AND TO HOLD the Assets unto Assignee, its successors,
sublessees, and assigns forever, and Assignor hereby warrants and agrees to
defend title to the Assets hereby assigned, but only as to claims arising by,
through or under Assignor, but not otherwise, subject to the terms, conditions,
limitations and reservations set forth herein, in the Leases, in the Asset Sale
Agreement, and in the Contracts.
3. Restriction on Further Assignments. Assignee shall not assign,
convey, transfer or sublease any interest it acquires in the Assets or delegate
any obligations imposed on it under the Asset Sale Agreement, without any such
assignee, grantee, transferee, sublessee or delegee having agreed in writing to
be bound by all of the terms and provisions contained in the Asset Sale
Agreement and without any such assignee, grantee, transferee, sublessee or
delegee having expressly assumed all obligations set forth in the Asset Sale
Agreement or arising from the Asset Sale Agreement, which obligations are
expressly made covenants running with the land. Any assignment, conveyance,
transfer, or sublease of any of the Assets or delegation of any obligations set
forth in the Asset Sale Agreement without the express assumption of such
obligations, to the extent those obligations bear upon the Assets assigned,
conveyed, transferred, or subleased, in such further assignment, act of transfer
or other instrument purporting to transfer title, shall be null and void. The
obligations and responsibilities of Assignee to Assignor, and of Assignee's
assignees, grantees, transferees or sublessees to Assignor, shall be joint and
several and shall run with the land and any Assets assigned, conveyed,
transferred or subleased, such that all subsequent assignees, grantees,
transferees and sublessees also accept and assume the same obligations to
Assignor, without Assignee or any subsequent assignees, grantees, transferees or
sublessees being released of any of their obligations to Assignor. Such
obligations shall include, but not be limited to, those involving abandonment
obligations, covenants, terms, conditions, indemnities, liabilities and assumed
risks.
4. Disclosure and Acknowledgment. Assignee acknowledges that the Assets
being conveyed have or may have been used in connection with oil, gas, and water
production, transportation, treatment, storage, and/or disposal activities and
may contain Naturally Occurring Radioactive Materials (NORM), asbestos and other
hazardous substances as a result of these activities and operations, and that
physical and environmental changes in the land may have occurred as a result of
such uses and that Assignee has entered into this Assignment on the basis of
Assignee's own investigation of the physical and environmental condition of the
Assets, both surface and subsurface conditions. Assignee is acquiring the Assets
precisely and only in an "AS IS AND WHERE IS" condition and assumes the risk
that adverse physical and environmental conditions including, but not limited
to, the presence of unknown, abandoned or unproductive oil
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and gas wells, pits and landfills, flowlines, pipelines, water wells and sumps,
and any hazardous substances, pollutants, or contaminants, which may not have
been revealed by Assignee's investigation, are located thereon. Assignee hereby
agrees to assume full responsibility for compliance with all obligations and
laws, orders, rules and regulations concerning all of such conditions, known or
unknown, and further agrees, without limiting other indemnities between Assignor
and Assignee, to defend, indemnify and hold the Assignor harmless for same,
including, but not limited to, defense, indemnification and hold harmless for
any liability for same, including, but not limited to, indemnification for any
liability, attorney's fees, fines, penalties or costs under any and all federal,
state and/or local environmental laws, orders, rules and regulations, in effect
at the date of this Agreement or adopted, supplemented or amended thereafter.
Assignee agrees that any future assignment of the Assets shall contain similar
disclosure and acknowledgment language in favor of its predecessor-in-title and
former owners.
5. Conflicts. In case of any conflict between the terms and provisions
of the Asset Sale Agreement and the terms and provisions of this Assignment, the
terms and provisions of the Asset Sale Agreement shall prevail. Notwithstanding
the foregoing, third parties may rely upon this Assignment for the description
of the Assets conveyed, which Assets are not reduced or diminished in any manner
by the terms of the Asset Sale Agreement except insofar as the Asset Sale
Agreement may limit the scope of Assignor special warranty of title.
6. Entire Agreement. This Assignment along with the Asset Sale
Agreement constitute the entire understanding between Assignor and Assignee with
regard to the subject matter hereof, superseding all prior statements,
representations, discussions, agreements and understandings.
7. Successors and Assigns. The terms hereof, and of the Asset Sale
Agreement, shall inure to and be binding upon the respective successors and
assigns of Assignor and Assignee.
EXECUTED the day and year first above written, but effective as of the
Effective Date.
Assignor: Assignee:
CHEVRON U.S.A. INC. PARALLEL L.P.
by Parallel Petroleum Corporation,
its General Partner
By: _______________________ By: ______________________________
Name: L. C. LaFleur Name: ____________________________
Title: Attorney-in-Fact Title: ___________________________
Page 5 of 5
THE STATE OF TEXAS ss.
ss.
COUNTY OF HARRIS ss.
This instrument was acknowledged before me this ________ day of
September, 2004, by L.C. LaFleur, Attorney-in-Fact of Chevron U.S.A. Inc., a
Pennsylvania corporation, on behalf of said corporation.
_____________________________
Notary Public in and for the
State of Texas
THE STATE OF TEXAS ss.
ss.
COUNTY OF ____________ ss.
This instrument was acknowledged before me this ________ day of
September, 2004, by ___________________________, of Parallel Petroleum
Corporation, a Delaware corporation, General Partner of Parallel L.P., a Texas
limited partnership, acting on behalf of said limited partnership.
_____________________________
Notary Public in and for the
My commission expires: State of Texas
______________________ _____________________________
Printed Name of Notary Public
EXHIBIT "A"
Attached to and made a part of that certain Assignment and Bill of Sale
Dated effective as of January 1, 2004, by and between Chevron U.S.A., Inc.,
as Assignor and Parallel L.P., as Assignee
ASSETS
Fullerton Field
Andrews County, Texas
All of Assignor's right, title and interest in and to the following, only
insofar as described below, including, but not limited to, any mineral rights,
operating rights, royalty, overriding royalty and working interests in said
lands:
Logsdon Texland JOA (B, C, D and E Wells)
Mineral Fee: Description:
- ------------ ------------
- -------------------------------------------------------------------------------
File No. QLS # 128751 and 128851 INSOFAR AND ONLY INSOFAR AS SAID DEED
COVERS THE W/2 of Section
Date: July 20, 1937 25, Block A-26; NE/4 and the E/2 NW/4
Grantor: Mineral Investing of Section 21, Block A-31;
Corporation Section 1, Block A-37; E/2NE/4,
Grantee: The Texas Company SW/4NE/4 and SE/4 of Section 2,
Recorded: Volume 42, Page 28 Block A-37; PSL Survey, Andrews
Deed Records, County, Texas, all limited in
Andrews County, Texas depth from the surface down to the
top of the Wolfcamp formation
and further limited to rights below
7,411 feet to the top of the
Wolfcamp formation as to the NE/4NW/4
of Section 21, Block A-31,
and LESS AND EXCEPT the
unitized formation of the Fullerton
Clearfork Unit as to the S/2SW/4 of
Section 25, Block A-26, and the
NE/4NE/4, S/2NE/4 and E/2SE/4 of
Section 1, Block A-37.
- -------------------------------------------------------------------------------
Properties are subject to and include rights under the following agreements:
Operating Agreements:
1. Joint Operating Agreement dated May 1, 1995, by and between Texland/JMC Joint
Venture, as Operator, and Texaco Exploration and Production Inc., as
Non-Operator (QLS# 045679).
Page 1 of 1
Schedule 1.4(n)
Attached to and made a part of that certain Asset Sale Agreement
dated September 16, 2004, by and between Chevron U.S.A. Inc., as Seller and
Parallel L.P., as Buyer.
Excluded Communications and Office Equipment
Not Applicable
Schedule 1.4(q)
Attached to and made a part of that certain Asset Sale Agreement
dated September 16, 2004, by and between Chevron U.S.A. Inc., as Seller and
Parallel L.P., as Buyer.
Excluded Equipment
Not Applicable
<table>
Schedule 2.3 to Asset Sale Agreement between Chevron U.S.A. Inc. and Parallel L.P.
Buyer's Allocation of Purchase Price
- -----------------------------------------------------------------------------------------------------------------------------------
FCLC PRIORITY SBU STATE COUNTY FIELD NAME FIELD LEASE/PROPERTY LEASE/ GWI NRI ALLOCATION OF
# CODE NAME PROP CODE VALUE, $
- -------- --------- ------- ------- ------- ---------- ------- ----------------- ---------- --------- -------- -------------
<s> <c> <c> <c> <c> <c> <c> <c> <c> <c> <c> <c>
V18N2000 13 PERMIAN TX ANDREWS FULLERTON V18N LOGSDON, C.W. /C/ 2000 25.0000% 25.0000% $9,770,460.00
- -------- -------- ------- ------- ------- ---------- ------- ----------------- ---------- -------- -------- ---------------
V18N3400 13 PERMIAN TX ANDREWS FULLERTON V18N LOGSDON, C.W. /E/ 3400 25.0000% 25.0000% $2,186,450.00
- -------- -------- ------- ------- ------- ---------- ------- ----------------- ---------- -------- -------- ---------------
V18N4200 13 PERMIAN TX ANDREWS FULLERTON V18N LOGSDON, C.W. /B/ 4200 25.0000% 25.0000% $1,673,980.00
- -------- -------- ------- ------- ------- ---------- ------- ----------------- ---------- -------- -------- ---------------
V18N6800 13 PERMIAN TX ANDREWS FULLERTON V18N LOGSDON, C.W. /D/ 6800 25.0000% 25.0000% $2,449,580.00
- -------- -------- ------- ------- ------- ---------- ------- ----------------- ---------- -------- -------- ---------------
$16,080,470.00
</table>
Schedule 3.3.5
Attached and made a part of that certain Asset Sale Agreement
dated September 16, 2004, by and between Chevron U.S.A., Inc., as Seller and
Parallel L.P., as Buyer.
Seller's Retained Litigation
Texas
Andrews County v. ExxonMobil Corp., et al.
In the 109th District Court of Andrews County, Texas
Cause No. 16365
- ---------------- ------------------------------- ----------------------- ---------------- ----------------------------
Type SubType Service Date Fields County-State
- ---------------- ------------------------------- ----------------------- ---------------- ----------------------------
<s> <c> <c> <c> <c>
Litigation Property Tax 10/24/2003 Various Andrews Co., TX
</table>
Miscellaneous matters relating to non-operated Assets: There are a number of
matters, which may include litigation and/or claims, pertaining to Seller's
interest in non-operated Assets and these matters are routinely handled by the
Operator, often without notice to non-operators unless and until the matter
reaches a certain materiality level. Such matters, to the extent Seller has
knowledge of them, would be reflected in the applicable data room materials
and/or financial records associated with the Assets. All such matters are hereby
incorporated by reference in this Schedule.
Schedule 5.1.8
Attached to and made a part of that certain Asset Sale Agreement
dated September 16, 2004, by and between Chevron U.S.A. Inc., as Seller and
Parallel L.P., as Buyer.
Assets Subject to Payout Schedules
Not Applicable
Schedule 5.1.9
Attached to and made a part of that certain Asset Sale Agreement
dated September 16, 2004, by and between Chevron U.S.A. Inc., as Seller and
Parallel L.P., as Buyer.
Preferential Purchase Rights
Not Applicable
Schedule 13.23
Attached to and made a part of that certain Asset Sale Agreement
dated September 16, 2004, by and between Chevron U.S.A. Inc., as Seller and
Parallel L.P., as Buyer.
Pre-Existing Contracts Affecting Production
Not Applicable