EXHIBIT 10.2
CONVEYANCE OF DOLLAR
DENOMINATED PRODUCTION PAYMENT
between
ABRAXAS PETROLEUM CORPORATION,
as Working Interest Owner,
and
SOUTHERN PRODUCER SERVICES, L.P.,
as Production Payment Owner,
Dated as of October 6, 1999
TABLE OF CONTENTS
Page
Section 1. Conveyance..................................................1
Section 2. Production Payment..........................................2
Section 2.1 Amount and Term of Production Payment.......................2
Section 2.2 Application of Production Payment...........................3
Section 2.3 Non-Cost-Bearing Interest...................................3
Section 2.4 Delivery Services...........................................5
Section 2.5 Marketing of Production Payment Hydrocarbons................6
Section 2.6 Measurement; Hydrocarbons Lost or Used; Quality.............8
Section 2.7 No Proportionate Reduction..................................9
Section 2.8 Termination.................................................9
Section 2.9 Payment Mechanics..........................................10
Section 2.10 Protection to Buyers.......................................10
Section 2.11 Taxes......................................................10
Section 3. Operation of Subject Interests.............................11
Section 4. Abandonment of Wells or Transfer of Subject Interests......14
Section 5. Operations.................................................15
Section 5.1 Pooling and Unitization....................................15
Section 5.2 Renewals and Extensions and New Leases.....................15
Section 5.3 Future Gas Imbalances......................................15
Section 6. Non-Compliance Events......................................16
Section 7. Remedies of Production Payment Owner.......................18
Section 8. Access to Subject Interests................................20
Section 9. Definitions................................................20
Section 10. Successors and Assigns.....................................20
Section 10.1 Assignments by Working Interest Owner......................20
Section 10.2 Assignments by Production Payment Owner....................20
Section 10.3 Binding Effect.............................................21
Section 11. Representations and Warranties by Working Interest Owner...21
Section 12. Interest on Unpaid Amounts.................................22
Section 13. Choice of Law..............................................22
Section 14. Intentions of the Parties..................................23
Section 15. Ownership of Equipment.....................................23
Section 16. Notices....................................................23
Section 17. Unenforceable or Inapplicable Provisions...................24
Section 18. Certain Notices............................................24
Section 19. Further Assurances and Warranty............................24
Section 20. Partition..................................................24
Section 21. Survival...................................................24
Section 22. Execution in Counterparts..................................24
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EXHIBITS, SCHEDULES AND ANNEXES
EXHIBIT A - Description of Subject Interests
EXHIBIT B - [Intentionally omitted]
EXHIBIT C - Delivery Points
ANNEX I - Definitions
24200767.10 101899 843C 99566929
ii
CONVEYANCE OF DOLLAR
DENOMINATED PRODUCTION PAYMENT
THIS CONVEYANCE OF DOLLAR DENOMINATED PRODUCTION PAYMENT is dated as
of October 6, 1999 (such agreement, as from time to time hereafter may be
modified, supplemented or amended, this "Conveyance"), and is a CONVEYANCE OF
DOLLAR DENOMINATED PRODUCTION PAYMENT from ABRAXAS PETROLEUM CORPORATION, a
Nevada corporation (herein called "Working Interest Owner"), to SOUTHERN
PRODUCER SERVICES, L.P., a Delaware limited partnership (herein called
"Production Payment Owner").
RECITAL
Working Interest Owner is presently the owner of the Oil and gas
leases and other interests described in Exhibit A attached hereto and intends to
convey to Production Payment Owner a production payment payable from the oil and
gas produced and saved therefrom.
CONVEYANCE OF PRODUCTION PAYMENT
Section 1. Conveyance. Working Interest Owner, for valuable
consideration to Working Interest Owner in hand paid by Production Payment
Owner, the receipt and sufficiency of which are hereby acknowledged, hereby
grants, sells, conveys, assigns, delivers and sets over unto Production Payment
Owner, effective as of the Initial Time, as a real property interest and as a
PRODUCTION PAYMENT, for the period from and including the Initial Time, to the
Termination Time, a term overriding royalty interest carved out of and burdening
the Subject Interests equal to and measured by all Production Payment
Hydrocarbons if, as and when produced from (or, to the extent pooled or
unitized, allocated to) the Subject Interests. The interests hereby conveyed,
including, but not limited to, the real property interest described above,
together with the Hydrocarbons accruing thereto and the rights, titles,
interests, remedies, powers and privileges appurtenant or incident thereto, as
hereinafter provided, is hereinafter called the "Production Payment";
TO HAVE AND TO HOLD the Production Payment unto Production Payment
Owner, and Production Payment Owner's successors and assigns, forever.
In the event any individual Subject Interest (or portion thereof, as
applicable) should cease to be in force and effect, or otherwise expire before
the time this Conveyance and the Production Payment shall terminate, and such
individual Subject Interest (or portion thereof, as applicable) not be extended,
renewed or replaced, the Production Payment no longer shall apply to that
particular Subject Interest (or portion thereof, as applicable), but the
Production Payment shall remain in full force and effect and undiminished as to
all remaining Subject Interests (and the remainder portion of such Subject
Interest, as applicable), and the unliquidated balance of the total Sum shall
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never be reduced or diminished by reason of the expiration of a Subject Interest
(or any portion thereof, as applicable).
Section 2. Production Payment.
Section 2.1 Amount and Term of Production Payment. The Production
Payment shall continue and remain in full force and effect until the receipt and
realization by Production Payment Owner from Production Payment Proceeds of the
aggregate sum of the amounts specified in the following subsections of this
Section 2.1 (collectively, the "Total Sum"):
(a) the full amount of the Primary Sum; plus
(b) an amount equal to the interest which would accrue at the
Agreed Rate on the unliquidated balance of the Total Sum outstanding
during the period from the Initial Closing Date (as defined in the
Purchase Agreement) to but not including the first Application Date,
and thereafter during each period from and including one Application
Date to but not including the next occurring Application Date, if the
unliquidated balance of the Total Sum were to bear such interest; plus
(c) an amount equal to all Direct Taxes (other than Production
Payment Severance Taxes), to the extent such Direct Taxes are paid by
Production Payment Owner should Working Interest Owner fail to
promptly pay the same as required by Section 2.3, together with an
additional amount equal to interest on the amount so paid computed at
the Agreed Rate from and including the date Production Payment Owner
pays such Direct Taxes to but not including the earlier of the date
such Direct Taxes are either reimbursed by Working Interest Owner or
paid by the application of Production Payment Proceeds under Section
2.2(a) or added to the unliquidated balance of the Primary Sum under
Section 2.2(a); plus
(d) an amount equal to all Reimbursable Expenses to the extent
paid by Production Payment Owner should Working Interest Owner fail to
promptly pay the same as required by Section 2.3, together with an
additional amount equal to interest on the amount so paid computed at
the Agreed Rate from and including the date Production Payment Owner
pays such Reimbursable Expenses to but not including the earlier of
the date such Reimbursable Expenses are either reimbursed by Working
Interest Owner or paid by the application of Production Payment
Proceeds under Section 2.2(a) or added to the unliquidated balance of
the Primary Sum pursuant to Section 2.2(a); plus
(e) an amount equal to all Delivery Charges to the extent paid by
Production Payment Owner should Working Interest Owner fail to
promptly pay same as required by Section 2.3, together with an
additional amount equal to interest on the amount so paid, computed at
the Agreed Rate from and including the date Production Payment Owner
pays such Delivery Charges to but not including the earlier of the
date such Delivery Charges are either reimbursed by Working Interest
Owner or paid by the application of Production Payment Proceeds under
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Section 2.2(a) or added to the unliquidated balance of the Primary Sum
pursuant to Section 2.2(a); plus
(f) an amount equal to all Hedging Costs to the extent paid by
Production Payment Owner should Working Interest Owner fail to
promptly pay same as required by Section 2.3, together with an
additional amount equal to interest on the amount so paid, computed at
the Agreed Rate from and including the date Production Payment Owner
pays such Hedging Costs to but not including the earlier of the date
such Hedging Costs are either reimbursed by Working Interest Owner or
paid by the application of Production Payment Proceeds under Section
2.2(a) or added to the unliquidated balance of the Primary Sum
pursuant to Section 2.2(a).
The amounts (including interest) referred to in subsections (c), (d), (e) and
(f) of this section are herein collectively called the "Expense Components".
Section 2.2 Application of Production Payment.
(a) On each Application Date, all Production Payment Proceeds
that have actually been received by Production Payment Owner (whether
from the purchasers of Production Payment Hydrocarbons or from Working
Interest Owner as provided in Section 2.9) in immediately available
funds prior to noon, Central time, on such Application Date, shall, to
the extent not previously applied, be applied as follows to the Total
Sum:
(i) First, to the amounts described in subsections (b), (c),
(d), (e) and (f) of Section 2.1; and
(ii) Second, to the reduction of the unliquidated balance of
the Primary Sum.
If Production Payment Proceeds applied on any Application Date are
insufficient to cover the full amounts specified in the foregoing
subsection (i) of this subsection (a), then such unrecovered amounts
shall be added to the unliquidated balance of the Primary Sum.
(b) Neither the actual or potential application of Production
Payment Proceeds to Expense Components shall release Working Interest
Owner from its obligations to make any payments or reimbursements of
Expense Components required under Section 2.3, but if any Production
Payment Proceeds are actually applied to Expense Components or added
to the unliquidated balance of the Primary Sum pursuant to the
preceding subsection (a) and if such Expense Components (including
interest thereon) are thereafter paid or reimbursed by Working
Interest Owner, then on the next occurring Application Date the
unliquidated balance of the Primary Sum shall be reduced by the
amounts so paid or reimbursed by Working Interest Owner.
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Section 2.3 Non-Cost-Bearing Interest.
(a) The Production Payment conveyed pursuant hereto is a
non-expense bearing interest in the Subject Interests, free and clear
of (i) all Direct Taxes, (other than Production Payment Severance
Taxes), (ii) all costs, risks and expenses associated with acquiring,
exploring, developing, maintaining, producing, operating, reworking,
recompleting, and remediating the Subject Interests, (iii) all
Delivery Charges and (iv) all Hedging Costs and is a non-operating
interest. All Direct Taxes (other than Production Payment Severance
Taxes), all such other costs and expenses, and all Delivery Charges
shall be borne by the Retained Interests and paid by Working Interest
Owner promptly, on or before the dates the same become due and owing.
Production Payment Owner shall not be liable or responsible in any way
for payment of any costs, expenses or liabilities in respect of the
Subject Interests or any portion thereof or incurred in connection
with the production or delivery of Production Payment Hydrocarbons. In
addition, Working Interest Owner will promptly (and in any event
within 30 days after receiving any notice or statement for the same)
pay all Reimbursable Expenses which have been incurred and are unpaid
and reimburse Production Payment Owner for any Reimbursable Expenses
which have been paid by Production Payment Owner. Each amount which is
to be paid by Working Interest Owner pursuant to this Section 2.3
which is instead paid by Production Payment Owner shall bear interest
at the Agreed Rate on each day from and including the date of such
payment until but not including the date repaid by Working Interest
Owner.
(b) No recourse shall be had for any claim based on this
Conveyance against Production Payment Owner or any other Indemnified
Party, whether by virtue of any constitution, statute or rule of law,
or by the enforcement of any assessment or penalty or otherwise, all
such liability, whether based upon constitution, statute, common law,
or equity, being released as a part of the consideration for the
purchase by Production Payment Owner of the Production Payment and the
Working Interest Owner hereby indemnifies the Indemnified Parties
against all such claims to the extent set forth in Section 25 of the
Purchase Agreement. It is understood and agreed that neither under
this Agreement nor the Purchase Agreement does Production Payment
Owner assume, nor shall Production Payment Owner ever be liable or
responsible in any way for, the payment of any costs, expenses or
liabilities incurred in connection with developing, exploring,
drilling, equipping, testing, operating, producing, maintaining or
abandoning the Subject Interests or any well or facility thereon or
storing, handling, treating or transporting to any Delivery Point
production therefrom. If Production Payment Owner shall pay any such
costs, expenses or liabilities notwithstanding the foregoing, the
Production Payment Owner shall have no obligation or liability for any
other such costs, expenses or liabilities, and the Working Interest
Owner hereby indemnifies Production Payment Owner, and each other
Indemnified Party from and against all such costs, expenses and
liabilities.
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(c) Production Payment Owner agrees to look solely to the
Production Payment Hydrocarbons for satisfaction and discharge of the
Production Payment, and Working Interest Owner shall not be personally
liable for the payment and discharge thereof. The foregoing provision
shall not, however, relieve Working Interest Owner of the obligation
to respond in damages for any breach of any of the representations,
warranties, covenants, agreements and obligations of Working Interest
Owner hereunder, in the Purchase Agreement or in any other Production
Payment Document.
Section 2.4 Delivery Services.
(a) Expected Deliveries. To the extent not prevented by Force
Majeure, Working Interest Owner shall deliver, or cause to be
delivered, all Production Payment Hydrocarbons constituting Gas to the
relevant Delivery Point in a condition satisfactory to meet or exceed
pipeline specifications and qualifications of the applicable sales,
transportation or processing contract at such Delivery Point and will
deliver all Production Payment Hydrocarbons constituting Oil at the
points at which the Working Interest Owner delivers Oil from the same
Subject Interests into third party pipelines or to third party
transporters or, if requested by Production Payment Owner, at one or
more other points of sale reasonably convenient and mutually agreeable
to both Working Interest Owner and Production Payment Owner. All tasks
required to make such delivery (whether gathering, treating,
separating, compressing, processing, transporting, or otherwise) are
herein called the "Delivery Services". All Delivery Services, whether
performed by Working Interest Owner or by any other Person, shall be
performed without any cost or charge to Production Payment Owner,
whether incurred or assessed by Working Interest Owner or any other
Person, and all costs so incurred or assessed shall be borne and paid
by Working Interest Owner as provided in Section 2.3. The Delivery
Services shall be provided to Production Payment Owner on a first
priority basis, to the extent permitted by law and applicable
contracts (meaning, for example, that (A) pipeline and compressor
capacity, if owned or controlled by Working Interest Owner or any
Affiliate of Working Interest Owner, shall be afforded to Subject
Hydrocarbons prior to affording any such capacity to Working Interest
Owner, any Affiliates of Working Interest Owner or any other Person
with respect to any other Hydrocarbons, and (B) pipeline and
compressor capacity owned or controlled by any Person other than
Working Interest Owner or any Affiliate of Working Interest Owner
shall be afforded to Subject Hydrocarbons prior to affording any such
capacity to Working Interest Owner or any Affiliate of Working
Interest Owner with respect to any other Hydrocarbons), and Working
Interest Owner hereby expressly subordinates any capacity rights it
may now or hereafter have to the Production Payment Hydrocarbons.
Working Interest Owner shall, to the extent permitted by law and
applicable contracts, take whatever action is appropriate to cause any
Affiliate of Working Interest Owner or any other Person to afford
Subject Hydrocarbons the priority capacity described in this
subsection (a), including assigning to Production Payment Owner, upon
Production Payment Owner's request following failure by Working
Interest Owner to provide Delivery Services as required hereunder, any
capacity rights Working Interest Owner may have under assignable
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contracts or other arrangements with an Affiliate or any other Person
as may be necessary or useful to facilitate delivery of Production
Payment Hydrocarbons to each Delivery Point in a condition
satisfactory to meet or exceed pipeline specifications or
qualifications at such Delivery Point.
(b) Excess Deliveries. If at any time Working Interest Owner
delivers to Production Payment Owner Production Payment Hydrocarbons
in excess of the amount of Production Payment Hydrocarbons required to
be delivered to Production Payment Owner hereunder, the amount of such
excess delivery shall not be returned by Production Payment Owner but
shall instead be deemed an early delivery by Working Interest Owner of
future Production Payment Hydrocarbons and shall be considered as
fully and finally delivered to Production Payment Owner for all
purposes hereunder on the date received by Production Payment Owner;
provided, that if any Hydrocarbons are delivered hereunder to
Production Payment Owner following the termination hereof the proceeds
of such Hydrocarbons shall be paid to Working Interest Owner.
Section 2.5 Marketing of Production Payment Hydrocarbons.
(a) Marketing by Production Payment Owner. Production Payment
Owner shall take possession of all of the Production Payment
Hydrocarbons at the applicable Delivery Points and shall thereafter
market and sell such Production Payment Hydrocarbons for its own
account, crediting all proceeds mutually agreed to by Working Interest
Owner and Production Payment Owner received from the sale and
marketing thereof to the Total Sum on the date such proceeds are
received by Production Payment Owner; provided that in no event shall
the Total Sum be credited with an amount which is less than the amount
which would have been received by the Production Payment Owner for the
Production Payment Hydrocarbons delivered at the applicable Delivery
Points as a reasonably prudent marketer of Hydrocarbons in an
arms-length transaction with an unaffiliated third-party. Working
Interest Owner shall take such actions (including executing all
division orders, transfer orders, instructions in lieu thereof and
other additional instruments) as are necessary or appropriate to
achieve such results, and Working Interest Owner will cooperate with
Production Payment Owner in instructing all purchasers of such
Production Payment Hydrocarbons to pay the proceeds thereof directly
to Production Payment Owner and shall execute such additional
instruments (including division orders, transfer orders and
instructions in lieu thereof) as may be requested by Production
Payment Owner in connection therewith. If payment for any Production
Payment Hydrocarbons is nonetheless made to Working Interest Owner for
any reason, all amounts so paid to Working Interest Owner shall be
held in trust by Working Interest Owner for Production Payment Owner
and Working Interest Owner shall immediately pay over such proceeds,
in the form received, to Production Payment Owner (but without
recourse to Working Interest Owner on any proper endorsement by
Working Interest Owner to Production Payment Owner). Working Interest
Owner shall not enter into any contracts or other arrangements for the
sale, transportation, gathering, processing or other marketing of
Subject Hydrocarbons which would interfere with Production Payment
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Owner's rights under this Section 2.5 to take possession of and market
the Production Payment Hydrocarbons, free and clear of such contracts
or other arrangements.
(b) Cooperation and Assistance. Production Payment Owner and
Working Interest Owner will each be taking quantities of Hydrocarbons
from the Subject Interests, and Working Interest Owner and Production
Payment Owner recognize that coordination between Production Payment
Owner and Working Interest Owner will be required with respect
thereto. Working Interest Owner agrees to cooperate with, and assist,
Production Payment Owner in connection with Production Payment Owner's
receipt and sale of Production Payment Hydrocarbons. Without
limitation of the foregoing:
(i) Not less than 10 days prior to the first day of each
Application Period, Working Interest Owner will notify Production
Payment Owner or its authorized representatives or direct
purchasers, in writing, of the total amounts and average daily
amounts of Gas and Oil which Working Interest Owner expects to be
produced from the Subject Interests during such Application
Period and the portion thereof which Working Interest Owner
projects will be Production Payment Hydrocarbons.
(ii) To the extent reasonably practicable, Working Interest
Owner shall thereafter immediately (but in no event more than
once weekly) notify Production Payment Owner or its authorized
representatives or direct purchasers, in writing, of any material
change in the rate of delivery of Production Payment Hydrocarbons
from the Subject Interests which has come to the attention of
Working Interest Owner.
(iii)Working Interest Owner and Production Payment Owner
will cooperate to ensure that nominations to transporters and
purchasers of Production Payment Hydrocarbons are timely made and
that such nominations reflect expected deliveries from the
various Subject Interests, and Production Payment Owner and its
authorized representatives shall be entitled to rely upon Working
Interest Owner's projections for the purpose of scheduling
deliveries with transporters and purchasers.
Should Production Payment Owner so request, Working Interest Owner
will furnish the information provided for above and will make
nominations and schedule deliveries in conjunction with Production
Payment Owner (and make any revisions to such nominations and
reschedule deliveries in conjunction with Production Payment Owner)
for Production Payment Hydrocarbons (in the form and at the times
required by such Persons), directly to the Persons purchasing or
transporting Production Payment Hydrocarbons for Production Payment
Owner. Working Interest Owner and Production Payment Owner acknowledge
to each other that concurrently herewith Production Payment Owner and
Working Interest Owner are entering into the Gas Sales Agreement and
the Oil Sales Agreement referred to in the Purchase Agreement. Working
Interest Owner and Production Payment Owner further agree that to the
extent Working Interest Owner is ever the purchaser of Production
Payment Hydrocarbons, there will be no need for Working Interest Owner
7
to furnish information and make or revise nominations to itself.
(c) Responsibility. Any charges, costs, penalties or expenses
incurred or payable to any Person solely as a result of Production
Payment Owner's failure to adjust nominations or scheduled deliveries
in accordance with (i) a notification from Working Interest Owner to
Production Payment Owner of any increase or decrease in quantities to
be delivered from any Subject Well, or (ii) a notification from
Production Payment Owner's direct purchaser of any increase or
decrease in quantities to be delivered at Delivery Points, where it
was reasonably possible for Production Payment Owner to make such
adjustment without penalty, then, as between the parties hereto,
Production Payment Owner shall be liable for and shall hold Working
Interest Owner harmless from any such charges, costs, penalties or
expenses. If any such charges, costs, penalties or expenses (the
"Imbalance Charges") are incurred or payable to any Person other than
in the circumstances provided for in the preceding sentence (including
charges, costs, penalties or expenses caused by failure to deliver
projected quantities or failure to provide notice of changes in
deliveries, or charges, costs, penalties or expenses incurred when
Working Interest Owner is making nominations, or revisions to
nominations, on behalf of Production Payment Owner, as provided for in
the next-to-last sentence of Section 2.5(b)), then, as between the
parties hereto, Working Interest Owner shall be liable for and shall
indemnify and hold Production Payment Owner harmless for such
Imbalance Charges. Each of Working Interest Owner and Production
Payment Owner shall promptly notify the other of any notice received
by it from any third party which indicates that an imbalance in
deliveries exists or is occurring that may give rise to any such
Imbalance Charges.
Section 2.6 Measurement; Hydrocarbons Lost or Used; Quality.
(a) As used in this Conveyance, the term "Hydrocarbons" shall not
include Oil or Gas produced from any particular Subject Well which,
based on prudent industry practice and custom for wells which are
similar to the Program Wells, are unavoidably lost in the production
thereof or in the compression, production or transportation thereof
prior to the Lease Measuring Point for such Subject Well, or which are
used, based on prudent industry practice and custom for wells which
are similar to the Program Wells, by Working Interest Owner or the
operator of any Subject Well for the production of Subject
Hydrocarbons or for the compression or transportation of Subject
Hydrocarbons prior to the Lease Measuring Point for such Subject Well,
in each case only to the extent the same are lost or used in the
course of operations which are being conducted prudently and in a good
and workmanlike manner. Working Interest Owner hereby represents,
warrants and covenants to Production Payment Owner as follows: (a) the
Lease Measuring Point applicable to each Subject Well is and will
continue to be located at a point prior to any point where Gas from
such Subject Well is commingled with Gas or any other Hydrocarbons
from any other well or wells, (b) Working Interest Owner currently
meters, and will continue to meter, Gas from each Subject Well
separately (i.e., on a well-by-well basis), (c) the volumes (measured
8
in Mcfs) of Production Payment Hydrocarbons constituting Gas produced
from or out of any particular Subject Well are measured and
determined, and will continue to be measured and determined at the
Lease Measuring Point applicable to such Subject Well, and (d) the
Separation Point for each Subject Well is and will continue to be
upstream of the Lease Measuring Point for such Subject Well. Working
Interest Owner covenants and agrees to determine the number of MMBtus
in each Mcf of Gas included in Production Payment Hydrocarbons at the
Lease Measuring Points under the applicable transportation agreement
with First Transporter and in the case of Oil in accordance with
generally accepted industry practices in effect at the time and place
of delivery using the latest ASTM or API test methods. Volumes of Oil
shall be corrected to 60 degrees Fahrenheit temperature in accordance
with the latest ASTM test methods and the latest edition of API volume
correction tables, with deductions for all basic sediment and water
and other impurities.
(b) All Oil delivered to Production Payment Owner, or to
Production Payment Owner's credit, shall satisfy the Quality Standards
in accordance with the applicable sales, transportation or processing
agreement. All costs and expenses of treating the Oil to satisfy the
Quality Standards shall be borne and paid by Working Interest Owner.
(c) All Gas delivered to Production Payment Owner, or to
Production Payment Owner's credit, shall satisfy the Quality Standards
in accordance with the applicable sales, transportation or processing
agreement. All costs of dehydrating, treating and compressing the Gas
to satisfy the Quality Standards shall be borne by Working Interest
Owner.
(d) Working Interest Owner shall deliver, or cause to be
delivered, the Gas delivered hereunder at a pressure sufficient to be
delivered into First Transporter's pipeline at the Delivery Points, at
the existing pressures of such pipeline and in accordance with the
applicable sales, transportation or processing agreement.
Section 2.7 No Proportionate Reduction. It is understood and agreed
that, though the Production Payment is conveyed by Working Interest Owner to
Production Payment Owner out of the Subject Interests, the Production Payment
shall be equal to, but shall not exceed, the full Dedication Percentage in
effect from time to time of the NRI Percentage of the Hydrocarbons produced from
(or, to the extent pooled or unitized, allocated to) the various lands described
on Exhibit A and shall not be reduced for any reason. Among other things, the
Production Payment and the Production Payment Hydrocarbons shall not be reduced
due to (a) the undivided interest owned by Working Interest Owner in a lease
constituting any Subject Interests being less than the entire interest in such
lease, or (b) the interest in Oil, Gas or other minerals underlying any portion
of the lands described on Exhibit A which is covered by a particular lease (or
group of leases) being less than the entire interest in the oil, gas and other
minerals underlying such portion of the lands described on Exhibit A, or (c) the
share of production from (or, to the extent pooled or unitized, allocated to)
any portion of lands described on Exhibit A which is attributable to the Subject
Interests being less than the NRI Percentage set forth on Exhibit A for such
9
portion of the lands described on Exhibit A, or (d) Working Interest Owner's
failure to own, or otherwise have Defensible Title to, all or any part of the
Subject Interests as described on Exhibit A, except leases which terminate or
expire by their own force and effect.
Section 2.8 Termination. The Production Payment shall remain in full
force and effect until the time (the "Termination Time") when the full aggregate
amount of the Total Sum, together with all reimbursements, indemnities,
restitutions, and other payments required hereunder, have been received by
Production Payment Owner as provided herein; provided, however, that the
Production Payment shall in any event terminate whenever twenty-one (21) years
less one (1) day shall have elapsed after the death of the last survivor of all
the descendants of Joseph P. Kennedy, father of John F. Kennedy, late President
of the United States of America, who are living at the date of the earliest
execution of this instrument by any of the parties hereto. At the Termination
Time, all rights, titles and interests herein conveyed in and to any
Hydrocarbons thereafter produced shall automatically terminate and vest in
Working Interest Owner, and, upon request by Working Interest Owner, Production
Payment Owner shall execute and deliver such instrument or instruments (in
proper recordable form, if applicable) as may be necessary to evidence such
termination of the Production Payment; provided, that, notwithstanding the
foregoing or anything herein to the contrary, any and all obligations which any
Person may have to indemnify or reimburse Production Payment Owner or its
Affiliates for any reason, or to make payments to Production Payment Owner or
its Affiliates on account of Production Payment Hydrocarbons produced before the
Termination Time, shall survive any termination of the Production Payment. No
pipeline company or other Person purchasing, taking, or processing Production
Payment Hydrocarbons shall ever be required to take notice of, or keep informed
concerning, the termination of the Production Payment, until actual receipt of
written notice from Production Payment Owner confirming that such termination
has occurred, which Production Payment Owner agrees to deliver with reasonable
promptness upon request of Working Interest Owner.
Section 2.9 Payment Mechanics. All Production Payment Proceeds
received by Working Interest Owner (instead of directly by Production Payment
Owner) prior to the last day of any Application Period shall be paid by Working
Interest Owner to Production Payment Owner, prior to noon, Central time, on the
related Application Date. No Production Payment Proceeds (whether paid by
Working Interest Owner or any other Person) shall be deemed received by
Production Payment Owner or applied to the Production Payment until such
Production Payment Proceeds have been so received by Production Payment Owner's
bank or collection agent in immediately available funds for the account of
Production Payment Owner. Working Interest Owner will make each payment which it
owes under this Conveyance (except for payments made pursuant to Section 2.5(a),
which shall be made as provided therein) in immediately available funds received
at or before noon, Central time, on the date specified for the payment thereof,
and all such payments by Working Interest Owner will otherwise be made in
accordance with the procedures set out in Section 2.5 of the Purchase Agreement.
Section 2.10 Protection to Buyers. No pipeline company or other person
buying, taking, or processing Production Payment Hydrocarbons shall be required
to take notice of, or to keep informed concerning, the discharge or termination
10
of the Production Payment, until actual receipt by such company or person of
written notice from Production Payment Owner or any assignee of Production
Payment Owner advising such company or person of the discharge or termination of
the Production Payment.
Section 2.11 Taxes. Working Interest Owner shall pay, promptly when
due, together with interest and penalties thereon, if any, (a) all ad valorem
taxes (or taxes imposed in lieu thereof) imposed upon or assessed with respect
to or charged against the Production Payment or any mortgage thereof, or upon
the Subject Interests or the Subject Hydrocarbons or the Production Payment or
the Production Payment Hydrocarbons, or against Production Payment Owner by
reason of its ownership of the Production Payment (other than any taxes levied
on the net income of the Production Payment Owner) or against any mortgagee of
the Production Payment by reason of his or its mortgagee interest therein; (b)
all Direct Taxes imposed upon or with respect to or measured by or charged
against the Production Payment or the Production Payment Hydrocarbons; (c) any
excise taxes imposed on any windfall profit imposed upon or with respect to or
measured by or charged against the Production Payment or the Production Payment
Hydrocarbons; and (d) all other taxes, duties, imposts, charges, levies and
assessments of any kind or nature whatsoever, whether or not currently existing,
imposed upon or assessed with respect to or charged against the Production
Payment or any mortgage thereof, or upon the Subject Interests or the Subject
Hydrocarbons or the Production Payment Hydrocarbons, or against Production
Payment Owner by reason of its ownership of the Production Payment or otherwise
(other than any taxes levied on the income of the Production Payment Owner) or
against any mortgagee of the Production Payment by reason of his or its
mortgagee interest therein or otherwise.
Section 3. Operation of Subject Interests. So long as the Production
Payment shall remain in force, and whether or not Working Interest Owner is the
operator of the Subject Interests, Working Interest Owner shall, as an
independent contractor and at Working Interest Owner's own cost and expense:
(a) Cause the Subject Interests to be maintained, developed,
protected against drainage, and continuously operated for the
production of Hydrocarbons in a good and workmanlike manner, as would
a prudent operator (without regard to the existence of the Production
Payment), all in accordance with generally accepted practices,
applicable operating agreements, and all applicable federal, state and
local laws, rules and regulations (including, without limitation, all
Environmental Laws), excepting those being contested in good faith;
(b) Pay, or cause to be paid, promptly as and when due and
payable, all rentals, royalties and proceeds payable to the other
minerals interest owners in respect of the Subject Interests or the
Subject Hydrocarbons, and all Production Expenses and Direct Taxes
incurred in or arising from the operation or development of the
Subject Interests, or the producing, treating, gathering, storing,
marketing or transporting of the Subject Hydrocarbons;
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(c) Cause all machinery, equipment and facilities of any kind now
or hereafter located on the Subject Interests, and necessary or useful
in the operation thereof for the production of Hydrocarbons therefrom,
to be kept in good and effective operating condition as would a
prudent operator (without regard to the existence of the Production
Payment), and all necessary repairs, renewals, replacements, additions
and improvements thereof or thereto to be promptly made;
(d) Give or cause to be given to Production Payment Owner written
notice of every adverse claim or demand made by any person affecting
the Subject Interests or the Subject Hydrocarbons in any manner
whatsoever, and of any suit or other legal proceeding instituted with
respect thereto, and cause all necessary and proper steps to be taken
with reasonable diligence to protect and defend the Subject Interests
and the Subject Hydrocarbons against any such adverse claim or demand,
including (but not limited to) the employment of counsel for the
prosecution or defense of litigation and the contest, release or
discharge of such adverse claim or demand;
(e) Cause the Subject Interests to be kept free and clear of
liens, charges and encumbrances of every character (including, without
limitation, mortgages, deeds of trust, security interest, pledges,
collateral chattel mortgages, and hypothecations), other than
Permitted Liens;
(f) Carry with financially sound and reputable insurance
companies, insurance similar in amount and type and against such
risks, liabilities, casualties and contingencies as either (i) is set
forth in Exhibit D to the Purchase Agreement or (ii) after 30 days
written notice by the Production Payment Owner, is required by
Production Payment Owner, in its reasonable discretion, and maintained
by other prudent companies in the industry;
(g) Pay or repay any amounts owing to others under advance
payment, loan or other similar agreements only in cash, and not pay,
or elect to pay, under any circumstances, except with the prior
written consent of Production Payment Owner, in its sole and absolute
discretion, any such amounts in Hydrocarbons;
(h) In the event of any destruction or loss of any platform,
pipeline, well, equipment or facility, promptly redrill, rebuild,
reconstruct, repair, restore or replace such damaged or destroyed
property, unless otherwise agreed to by Production Payment Owner in
its reasonable discretion;
(i) If, for any reason Production Payment Owner or an affiliate
of Production Payment Owner is unable or refuses to receive Gas or Oil
from any Subject Interest, Working Interest Owner will market such
severed Gas and Oil on behalf of Production Payment Owner. All
Production Payment Hydrocarbons marketed by Working Interest Owner on
behalf of Production Payment Owner shall be sold pursuant to arm's
length contracts with parties not affiliated with Working Interest
Owner, containing terms negotiated by Working Interest Owner as a
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prudent operator. Any such sale by Working Interest Owner shall be
subject always to the right of Production Payment Owner, upon notice
to Working Interest Owner, to separately dispose of all or any portion
of such Production Payment Hydrocarbons and shall be only for such
minimum periods of time (not to exceed 30 days) as are consistent with
the practices of the industry. All proceeds received by Working
Interest Owner from the sale of Production Payment Hydrocarbons sold
on behalf of Production Payment Owner pursuant to the terms hereof are
received by Working Interest Owner in trust for Production Payment
Owner and shall be held in trust by Working Interest Owner for
Production Payment Owner; provided, however, Working Interest Owner
shall promptly pay such proceeds to such account as Production Payment
Owner shall have designated from time to time to Working Interest
Owner. Working Interest Owner will diligently enforce the terms of all
sales agreements under which Production Payment Hydrocarbons are sold
on behalf of Production Payment Owner, including full and prompt
payment of all amounts due from such sales. In the event of any late
payment by any purchaser, Working Interest Owner shall remit to
Production Payment Owner any interest or penalties collected with
respect to the sale of Production Payment Hydrocarbons. Production
Payment Owner shall have the right at any time Production Payment
Owner considers prudent to direct the purchasers of any Production
Payment Hydrocarbons to pay the proceeds thereof directly to
Production Payment Owner by delivering to such purchasers letters in
lieu of transfer orders and Working Interest Owner agrees to promptly
execute and deliver from time to time such letters in lieu as
Production Payment Owner shall request. In the event Production
Payment Owner requests direct payment, whether or not a Non-Compliance
Event shall have occurred and be continuing, Working Interest Owner
will cooperate in instructing the purchasers to pay such proceeds
directly to Production Payment Owner and shall execute such additional
instruments as may be necessary or appropriate in connection
therewith. In the event any Production Payment Hydrocarbons are sold
by Working Interest Owner, on behalf of Production Payment Owner,
under the terms of any agreement between Working Interest Owner and
Production Payment Owner, Production Payment Owner shall at all times
be entitled to retain the proceeds of such sale;
(j) [Intentionally omitted];
(k) The obligations of Working Interest Owner hereunder shall be
subject to all applicable federal, state and local laws, rules,
regulations and orders (including those of any applicable agency,
board, official or commission having jurisdiction). Working Interest
Owner shall timely make all material filings with all applicable
agencies, boards, officials and commissions having jurisdiction with
respect to the Subject Interests or the operation thereof prior to or
at the time any such filing becomes due. Should any statute, or any
rules or regulations of any governmental body, or any provisions in
private contracts (including those limiting the size of overriding
royalties and similar interests but excluding any contracts directly
entered into by Production Payment Owner) become applicable to the
Subject Interests so as to limit the portion of the Hydrocarbons
produced from the lands covered by a particular Subject Interest which
may be attributable to the Production Payment, the Production Payment
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shall, as to such Subject Interest and for the period of time during
which such statute, rule, regulation or contractual provision is
applicable, be limited to the maximum amount of production from such
lands which can be attributed to the Production Payment under such
statute, rule, regulation or contractual provision; provided, however,
should such limitation come into effect as to one or more Subject
Interests, then (without prejudice to other rights Production Payment
Owner may have) the Dedication Percentage applicable to that portion
of production from (or, to the extent pooled or unitized, allocated
to) lands described on Exhibit A covered by other Subject Interests
which would be attributable to the Production Payment in the absence
of the provisions of this subsection shall be increased, up to a
maximum of ninety percent (90%), so as to cause, to the maximum extent
possible, Production Payment Owner to receive, by virtue of ownership
of the Production Payment, the same amount of Hydrocarbons which
Production Payment Owner would have received had the aforementioned
statute, rule, regulation or contractual provision not reduced the
share of production from the aforementioned Subject Interest with
respect to which the Production Payment could be paid. Unless and
until the Dedication Percentages are otherwise increased as provided
herein and in the Purchase Agreement, the foregoing increase in the
Dedication Percentages shall remain in effect only for so long as such
limitation applies, and thereafter until Production Payment Owner has
received Production Payment Hydrocarbons sufficient to reduce the
unliquidated balance of the Primary Sum to what it would have been had
such limitation never existed; and
(l) Without the prior consent of Production Payment Owner,
Working Interest Owner shall not elect to be a non-participating party
with respect to any plugging back, reworking, sidetracking,
completion, or other operation on any Subject Interest (or lands
pooled therewith), or (except in instances where abandonment of such
well would be permitted without Production Payment Owner's consent
hereunder) elect to be an abandoning party with respect to a well
located on any Subject Interest (or lands pooled therewith), if the
consequence of such election is that Working Interest Owner's interest
in such Subject Interest or any part thereof is temporarily (e.g.,
during a recoupment period) or permanently forfeited to the parties
participating in such operations or electing not to abandon such well.
Upon any such election by Working Interest Owner that is consented to
by Production Payment Owner, such election shall also be binding on
the Production Payment Owner as to the interest so temporarily or
permanently forfeited. Any additional interests acquired by Working
Interest Owner by virtue of electing to pay for or acquire the
interest of a non-consenting or abandoning party in a situation of the
type described in the preceding sentence shall not become a part of
the Subject Interests or be subject to the Production Payment.
Section 4. Abandonment of Wells or Transfer of Subject Interests. So
long as the Production Payment remains in force, Working Interest Owner shall
not, without first obtaining the written consent of Production Payment Owner,
(1) abandon or convert to injection any well which is capable of producing in
paying quantities or which a reasonable prudent operator would make capable of
producing in paying quantities by reworking, reconditioning, deepening, plugging
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back, or otherwise, heretofore or hereafter completed for production of
Hydrocarbons on any of the lands described on Exhibit A; (2) surrender or
release any Subject Interest or any part thereof except such of the Subject
Interests or rights thereunder which may have expired or terminated in
accordance with the applicable lease or contract governing same; (3) sell,
assign, lease or otherwise transfer Working Interest Owner's interest in any of
the Subject Interests, either in whole or in part, except in connection with
Permitted Liens; provided that (i) any such sale, assignment, lease or other
transfer must expressly be made subject to both the Production Payment and the
rights of Production Payment Owner pursuant to the Production Payment Documents
and (ii) any purported sale, assignment, lease or other transfer in
contravention hereof shall for all purposes be null and void; (4) be a party to
any merger or consolidation except where the surviving entity expressly agrees
to be bound by the terms of this Conveyance; (5) resign as operator of any of
the Subject Interests operated by Working Interest Owner unless the successor
operator has been approved in writing by Production Payment Owner or, following
the occurrence of a Non-Compliance Event, Production Payment Owner shall have
requested in writing such resignation; or (6) conduct any work or operation in
any well bore of a Subject Interest, which work or operation is related to any
zone, horizon, formation or interval not included in the Subject Interests.
For all purposes of this Section, (1) a well shall be deemed to be
capable of producing Hydrocarbons "in paying quantities" unless and until there
arises a condition, which reasonably appears to be permanent, such that the
aggregate value of the Subject Hydrocarbons which are being produced or will be
produced from such well (without considering the effect of the Production
Payment) no longer exceeds or will not exceed the costs and expenses directly
related to the operation and maintenance of such well (excluding home office and
management overhead and similar charges); and (2) the restoration of the
productivity of a well or the drilling of a well shall be deemed to be
"economically feasible" whenever the aggregate value of the Subject Hydrocarbons
which it reasonably appears will be produced from such well (without considering
the effect of the Production Payment) will exceed the costs and expenses
directly related to such restoration or drilling and the operation and
maintenance of such well (excluding home office and management overhead and
similar charges).
If at any time operations on the Subject Interests shall cease
pursuant to the provisions of this Section, Working Interest Owner shall
thereafter, as often as Production Payment Owner may request, but not more often
than twice in each calendar year, make or cause to be made such investigations
and studies of the engineering and economic facts existing at the time of each
such request to determine whether the Subject Interests are, or could be made,
capable of producing hydrocarbons in paying quantities, and shall, within 30
days after such request, deliver a certificate to Production Payment Owner
signed by an authorized representative of Working Interest Owner setting forth
in reasonable detail the facts, projections and conclusions drawn therefrom, and
concurrently therewith furnish to Production Payment Owner, at the expense of
Working Interest Owner, a report of the Independent Reserve Engineer with
respect to such matters. In the event such engineering report shows that the
Subject Interests are capable of producing Hydrocarbons in paying quantities,
Working Interest Owner shall, at Working Interest Owner's own cost and expense,
cause operations on the Subject Interests to be resumed and cause the Subject
15
Interests to be thereafter regularly operated, maintained and developed in the
same manner and for the same purposes as Working Interest Owner was obligated to
do prior to such ceasing of operations. Pursuant to this Section, operations on
the Subject Interests may be successively ceased, resumed and ceased again.
Section 5. Operations.
Section 5.1 Pooling and Unitization. Working Interest Owner may not
enter into pooling or unitization agreements with respect to the Subject
Interests without the prior written consent of Production Payment Owner. The
interest in any such unit attributable to any of the Subject Interests (or any
part thereof) included therein shall become a part of the Subject Interests and
shall be subject to the Production Payment in the same manner and with the same
effect as though such unit and the interest of Working Interest Owner therein
were specifically described in Exhibit A.
Section 5.2 Renewals and Extensions and New Leases. This Conveyance
and the Production Payment shall apply to all renewals, extensions and other
similar arrangements of the leases (or other determinable interests) which are
included in the Subject Interests, whether such renewals, extensions or
arrangements have heretofore been obtained by Working Interest Owner or are
hereafter obtained by or for Working Interest Owner or any Affiliate thereof and
whether or not the same are described in Exhibit A. For the purposes of the
preceding sentence, a new lease that covers the same interest (or any part
thereof) covered by a prior lease, and which is acquired within one year after
the expiration, termination, or release of such prior lease, shall be treated as
a renewal or extension of such prior lease.
Section 5.3 Future Gas Imbalances.
(a) No Undertakes Without Consent. Without the prior consent of
Production Payment Owner, Working Interest Owner will not deliberately
take (for itself and for Production Payment Owner) a lesser share of
Gas produced from a Subject Well than the share of Gas which Working
Interest Owner and Production Payment Owner are collectively entitled
to take by virtue of ownership of the Subject Interests (without regard
to any rights to take a lesser share under any production balancing
agreement or other arrangement or any rights under common law with
respect to production balancing), except as a result of Working
Interest Owner and Production Payment Owner, or any predecessor in
title to such Subject Interest, having previously taken from such
Subject Well or other wells located on Subject Interests more Gas than
such parties would be entitled to receive by virtue of their ownership
("previous overproduction"), but only to the extent that the amount of
such previous overproduction occurred after the Initial Time or
occurred prior to the Initial Time and is disclosed in the Purchase
Agreement. If any such deliberate undertakes by Working Interest Owner
occur in violation of this Section, the Production Payment Hydrocarbons
shall be determined (to the maximum extent allowed under applicable law
and any applicable Permitted Liens) without regard thereto. It is
recognized, however, that due to differences between the nominations by
16
Working Interest Owner and its (and Production Payment Owner's) share
of actual production and differences between nominations by other
owners of production and their shares of actual production, minor
instances of overproduction or underproduction will frequently occur,
and any such instances will not be deemed violations of this Section.
(b) Proportional Sharing in Overtakes. If, as permitted by
applicable contracts and laws, Working Interest Owner takes a greater
share of the Gas produced from a Subject Well than the share of Gas
which Working Interest Owner is entitled to take by virtue of ownership
of the Subject Interests (such shares determined without regard to the
existence of the Production Payment), then Production Payment Owner
shall be entitled to share in such overproduction with Working Interest
Owner in the same percentages that they share in the normal production
from such well (i.e., the production to which they are entitled without
regard to such overproduction).
(c) No Balancing From Other Properties. Except to the extent, if
any, that a Subject Interest is subject to such a balancing arrangement
before it becomes subject to this Conveyance and such fact is disclosed
to (and accepted by) Production Payment Owner as an express exception
to Section 3(s) of the Purchase Agreement, Working Interest Owner will
not allow any Subject Interest to be subject to any production
balancing arrangement under which one or more third Persons may take a
portion of the production attributable to such Subject Interest without
payment (or without full payment) therefor as a result of production
having been taken from, or as a result of other actions or inactions
with respect to, properties other than such Subject Interest.
Section 6. Non-Compliance Events. Each of the following events or
occurrences described in this Section shall constitute a "Non-Compliance Event":
(a) Any warranty or representation made by the Working Interest
Owner herein or in any other Production Payment Document shall be
untrue in any material respect.
(b) A default in the due performance or observance by the Working
Interest Owner of any covenant, agreement, obligation or condition
contained herein or in any other Production Payment Document, and such
default shall continue to exist for a period of 30 days after the
earlier to occur of (i) the date on which an officer of the Working
Interest Owner has knowledge, or a reasonably prudent officer should
have had knowledge, of such default or (ii) after notice of such
default shall have been given to the Working Interest Owner by the
Production Payment Owner; provided however that if such default cannot
reasonably be cured within such 30 day period and Borrower shall have
commenced to cure such default within such 30 day period and thereafter
diligently and expeditiously proceeds to cure such default, such 30 day
period shall be extended for so long as it shall require Working
Interest Owner in the exercise of due diligence to cure such untrue
warranty or representation, it being agreed that no such extension
shall be to a cure period in excess of 90 days in the aggregate.
17
(c) A default in the due performance or observance by the Working
Interest Owner of any covenant, agreement, obligation or condition
contained in a material agreement pertaining to the Subject Interests
(which for purposes hereof would be any agreement, including, without
limitation, any loan agreement, indenture or contract which would
impose on the Working Interest Owner a material cost, liability or
expense) of the Working Interest Owner, and such default shall continue
to exist for a period of 30 days after the earlier to occur of (i) the
date on which an officer of the Working Interest Owner has knowledge,
or a reasonably prudent officer should have had knowledge, of such
default or (ii) after notice of such default shall have been given to
the Working Interest Owner by the Production Payment Owner; provided
however that if such default cannot reasonably be cured within such 30
day period and Borrower shall have commenced to cure such default
within such 30 day period and thereafter diligently and expeditiously
proceeds to cure such default, such 30 day period shall be extended for
so long as it shall require Working Interest Owner in the exercise of
due diligence to cure such untrue warranty or representation, it being
agreed that no such extension shall be to a cure period in excess of 90
days in the aggregate.
(d) The Working Interest Owner shall (i) become insolvent or
generally fail to pay, or admit in writing its inability or
unwillingness to pay, debts as they become due; (ii) apply for, consent
to, or acquiesce in, the appointment of a trustee, receiver,
sequestrator or other custodian for the Working Interest Owner, the
Subject Interests or any other property thereof, or make a general
assignment for the benefit of creditors; (iii) in the absence of such
application, consent or acquiescence, permit or suffer to exist the
appointment of a trustee, receiver, sequestrator or other custodian for
the Working Interest Owner or for a substantial part of the Subject
Interests or other property thereof, and such trustee, receiver,
sequestrator or other custodian shall not be discharged within 60 days,
provided, that the Working Interest Owner hereby expressly authorizes
the Production Payment Owner to appear in any court conducting any
relevant proceeding during such 60-day period to preserve, protect and
defend its rights under this Agreement, the Purchase Agreement and any
other Production Payment Documents; (iv) permit or suffer to exist the
commencement of any bankruptcy, reorganization, debt arrangement or
other case or proceeding under any bankruptcy or insolvency law, or any
dissolution, winding up or liquidation proceeding, in respect of the
Working Interest Owner and, if any such case or proceeding is not
commenced by the Working Interest Owner such case or proceeding shall
be consented to or acquiesced in by the Working Interest Owner, or
shall result in the entry of an order for relief or shall remain for 60
days undismissed, provided, that the Working Interest Owner hereby
expressly authorizes the Production Payment Owner to appear in any
court conducting any such case or proceeding during such 60-day period
to preserve, protect and defend its rights under this Agreement and the
other Production Payment Documents; or (v) take any action authorizing,
or in furtherance of, any of the foregoing.
(e) Any change in the business, assets, properties, prospects or
financial condition of the Working Interest Owner which materially and
adversely affects the Working Interest Owner's ability to perform its
18
extraction, delivery, indemnity and other obligations hereunder and
under the other Production Payment Documents.
(f) Any Change in Control of the Working Interest Owner shall
occur.
(g) Any occurrence, in Production Payment Owner's opinion, of a
Material Negative Reservoir Event.
(h) The insurance required to be maintained pursuant to Sections
5(l) and (p) of the Purchase Agreement shall not be in full force and
effect.
Section 7. Remedies of Production Payment Owner. Upon the occurrence of
a NonCompliance Event, in addition to Production Payment Owner's right to
recover damages and all other remedies available to Production Payment Owner at
law or in equity, Production Payment Owner may (but is not obligated or required
to), either on its own behalf or through any agent or representative, exercise
any one or more of the following remedies (it being agreed that the exercising
of any one remedy shall not preclude the exercising of any other remedy):
(a) If Working Interest Owner has failed to perform any act or
to take any action which Working Interest Owner is required
hereunder to perform or take or to pay any money which
Working Interest Owner is required hereunder to pay, then
Production Payment Owner may, but shall not be obligated to,
perform or cause to be performed such act or take such
action or pay such money, all in Working Interest Owner's
name or in Production Payment Owner's own name. Any expenses
so incurred by Production Payment Owner and any money so
paid by Production Payment Owner shall be a demand
obligation owing by Working Interest Owner to Production
Payment Owner (which obligation Working Interest Owner
hereby expressly promises to pay) and Production Payment
Owner, upon making such payment, shall be subrogated to all
of the rights of the Person receiving such payment. Each
amount due and owing by Working Interest Owner to Production
Payment Owner pursuant to this subsection shall bear
interest each day, from the date of such expenditure or
payment until paid, at the Specified Rate, which interest
shall be payable on the first day of each month and shall
itself bear interest at the same rate if not timely paid.
(b) Production Payment Owner shall be entitled to notify the
purchasers of the Subject Hydrocarbons to make any payments
relating to such Subject Hydrocarbons directly to Production
Payment Owner.
(c) Production Payment Owner shall be entitled to request that
Working Interest Owner resign as operator of the Subject
Interests (and Working Interest Owner agrees to comply with
such request) and Production Payment Owner shall be entitled
to take any and all actions necessary to replace Working
Interest Owner as operator with a reputable third party who
is experienced in operating oil and gas properties and who
19
is acceptable to Production Payment Owner, including,
without limitation, the negotiation of a substitute
operating agreement containing such terms and conditions as
are commercially reasonable in a transaction involving a
contract operator with no ownership interest in the contract
area covered by the operating agreement; provided, that
Working Interest Owner shall remain obligated for all
obligations, costs and expenses arising from operating the
Subject Interests.
(d) Production Payment Owner shall be entitled to apply to a
court of competent jurisdiction for the specific performance
or observance of any covenant or agreement or in aid of the
execution of any power herein granted.
In addition to and not in limitation of the foregoing, upon the occurrence of a
Non-Compliance Event, the Production Payment Owner shall have the option to
increase the Dedication Percentage to capture all excess volumes (over and above
any volumes required to pay reasonable, actual lease operating expenses;
provided that such lease operating expenses do not exceed the amount of
Authorized Production Expenses applicable for such period of time) necessary to
repay the Total Sum to zero and such volumes shall be applied as provided in
Section 2.2 hereof; provided, if Working Interest Owner is producing the
Hydrocarbons in a manner acceptable to Production Payment Owner, in the
Production Payment Owner's sole discretion, and Production Payment Owner
consents thereto, some amount of the production at the Production Payment
Owner's sole discretion may be delivered to the Working Interest Owner in
respect of the Subject Hydrocarbons other than the Production Payment
Hydrocarbons. All rights to which Production Payment Owner shall have succeeded
under the provisions of this Section shall terminate either (1) when the
Production Payment terminates and all amounts then due and payable to Production
Payment Owner pursuant to this Section, including amounts payable for interest
as aforesaid, and all amounts in respect of any Direct Taxes, Reimbursable
Expenses, Hedging Costs, Delivery Charges, Imbalance Charges or Indemnified
Liability, shall have been duly paid to the Production Payment Owner in full in
cash, or (2) at such earlier date when such Non-Compliance Event of Working
Interest Owner shall have been remedied and all such amounts shall have been
duly paid in full, without prejudice, however, to the exercise of any such
rights upon any subsequent failure of Working Interest Owner to perform or
observe any of his covenants or agreements hereunder or under the Purchase
Agreement. Notwithstanding the foregoing provisions of this Section, the
Production Payment Owner will not exercise any of its rights pursuant to this
Section in respect of the Non-Compliance Event described in Section 6(g), if
within 30 days of the occurrence of such Non-Compliance Event, Working Interest
Owner shall deliver to the Production Payment Owner an Independent Reserve
Report meeting the requirements of Section 5(f)(vii) of the Purchase Agreement
and otherwise in form and substance satisfactory to the Production Payment Owner
which report demonstrates that as of the date of such report (which date shall
be no more than thirty (30) days from the date of delivery thereof to the
Production Payment Owner) that the percentage that (a) the Production Payment
NPV bears to (b) the unliquidated balance of the Total Sum is equal to or
greater than one hundred fifty percent (150%) as of the date of such report.
20
Section 8. Access to Subject Interests. Working Interest Owner will
permit the duly authorized representatives of Production Payment Owner or any
Credit Supplier, at any reasonable time, but at Production Payment Owner's risk
and expense, to make such inspection of the Subject Interests and the machinery,
equipment and facilities used in the operation thereof as such representatives
shall deem proper, and will furnish to Production Payment Owner, upon request,
such detailed information as Production Payment Owner may reasonably request
concerning the Subject Interests, the operation thereof and the production and
processing of Hydrocarbons therefrom.
Section 9. Definitions. For all purposes of this Conveyance, unless the
context otherwise requires, terms defined in Annex I hereto shall be used herein
with the same meaning.
Section 10. Successors and Assigns.
Section 10.1 Assignments by Working Interest Owner. Without the prior
consent of Production Payment Owner (which consent may be granted or withheld in
the sole and absolute discretion of Production Payment Owner), Working Interest
Owner shall not assign, sell, transfer, convey, exchange, mortgage or pledge all
or any part of the Subject Interests or create any lien thereon or security
interest therein, except for Permitted Liens.
Section 10.2 Assignments by Production Payment Owner. Production
Payment Owner's interest in the Production Payment may not be transferred except
in compliance with this section. Production Payment Owner and each Permitted
Assign (as hereinafter defined) shall have the right to sell, assign, transfer
or convey its interest in the Production Payment, in whole or in part (and
either absolutely or by mortgage or other security instrument), at any time;
provided that no change of ownership or right to receive payment of the
Production Payment or of any part thereof, however accomplished, shall be
effective or binding upon Working Interest Owner until notice thereof shall have
been registered with Working Interest Owner by the transferor and by the
transferee, and then only with respect to payments made after receipt of such
notice. Any Person to whom all or any interest in the Production Payment is
assigned or conveyed in accordance with the foregoing requirements is herein
called a "Permitted Assign". Production Payment Owner shall keep records of all
Permitted Assigns, their interest in the Production Payment, and their
addresses, and shall give notice thereof to the other Persons, if any, from time
to time holding the interests of Production Payment Owner hereunder. If the
interests of Production Payment Owner under this Conveyance are ever owned by
more than one Person, all Persons owning interests hereunder shall designate in
writing to Working Interest Owner one Person as their agent to deliver and
receive all communications (including consents) and exercise the discretion of
Production Payment Owner hereunder on their behalf. If Production Payment Owner,
or Production Payment Owner's successors and assigns, at any time shall execute
a mortgage or deed of trust covering all or any part of the Production Payment
as security for any obligation, the mortgagee, the pledgee or the trustee
therein named or the holder of the obligation secured thereby shall be entitled,
to the extent such mortgage or deed of trust so provides, to exercise all of the
rights, remedies, powers and privileges herein conferred upon Production Payment
21
Owner, and to give or withhold all consents herein required or permitted to be
obtained from Production Payment Owner.
Section 10.3 Binding Effect. All the covenants and agreements of
Working Interest Owner herein contained shall be covenants running with the land
and the Subject Interests and shall be binding upon the successors and assigns
of Working Interest Owner and shall inure to the benefit of the successors and
assigns of Production Payment Owner; provided, however, that this provision
shall not be deemed to permit any assignment or other transfer of the interest
of Working Interest Owner in any of the Subject Interests that is not
specifically permitted by the provisions of this instrument.
Section 11. Representations and Warranties by Working Interest Owner.
Working Interest Owner warrants to Production Payment Owner and its respective
successors and assigns that:
(a) Working Interest Owner has Defensible Title to the Subject
Interests, free from all liens, charges and encumbrances, subject only
to (i) the lien of ad valorem taxes not yet due and payable and (ii)
the Permitted Liens.
(b) Working Interest Owner has the corporate right, power and
authority to sell and convey, as herein provided, the Production
Payment.
(c) The Production Payment is payable from, and has a first and
prior claim upon (subject only to the matters referred to in Section
11(a) above), that portion of the Subject Hydrocarbons which is herein
dedicated to the Production Payment.
(d) Each Oil and gas lease and other interest described in Exhibit
A is valid and subsisting and in full force and effect, insofar as it
covers or relates to the land described in Exhibit A as covered
thereby; all material agreements, contracts, leases, permits,
easements, right-of-ways, and other surface use rights necessary to
own, maintain and operate such Oil and gas leases are in full force and
effect and no material breach or default exists thereunder.
(e) All rentals, royalties and taxes and other amounts due and
payable under or in respect of said leases and other interests, or any
of them, have been duly paid or provided for, except to the extent
being diligently contested in good faith by appropriate proceedings and
for which adequate reserves in accordance with GAAP shall have been set
aside on its books. No default or event of default now exists under any
of said leases and other interests and Working Interest Owner has
received no notice of any default or event of default or breach or
claimed default or breach in respect of any thereof.
(f) Working Interest Owner is not obligated, by virtue of any
prepayment made under any "take or pay" clause or under any similar
arrangement, to deliver Subject Hydrocarbons at some future time
22
without then or thereafter receiving full payment therefor at the
market price or value thereof.
(g) The production of all Hydrocarbons which have heretofore been
produced from the Subject Interests has not been in excess of allowable
production quotas allowed or permitted to the Subject Interests by any
applicable regulatory authority so as to subject, after the Initial
Time, any well located thereon, or Production Payment Owner's interest
in the production therefrom, to restrictions or penalties on allowables
for overproduction.
(h) None of the Subject Interests or Subject Hydrocarbons are
committed or dedicated to any contract or agreement regarding the sale
or use thereof, other than as described in Exhibit A.
(i) None of the Subject Interests or any of the Subject
Hydrocarbons is subject to, or encumbered by, any balancing, deferred
production, credit financing or similar arrangement, except for
Permitted Liens.
(j) The Subject Interests include and cover all of the properties,
rights and interests of Working Interest Owner (other than the Kuester
#1H well) for which oil and gas reserves and the future production and
revenues therefrom were estimated and projected in that certain
Appraisal Report prepared by DeGolyer and MacNaughton dated as of
December 31, 1998, on certain interests owned by Working Interest Owner
which has heretofore been delivered by Working Interest Owner to
Production Payment Owner.
This Conveyance is made with full substitution and subrogation of Production
Payment Owner, its successors and assigns, in and to all covenants and
warranties by others heretofore given or made in respect of any of the Subject
Interests or any part thereof.
Section 12. Interest on Unpaid Amounts. Any amount not paid when due
hereunder shall bear interest on such overdue amount at a rate of interest per
annum equal to the lesser of (i) the Agreed Rate plus, if a Non-Compliance Event
shall have occurred and be continuing, one and one-half percent (1.5%), or (ii)
the Highest Lawful Rate (the "Specified Rate"). Such interest shall be paid by
Working Interest Owner to Production Payment Owner on demand.
Section 13. Choice of Law. THIS CONVEYANCE SHALL BE DEEMED TO BE A
CONTRACT MADE UNDER THE LAWS OF THE STATE OF TEXAS AND FOR ALL PURPOSES SHALL BE
GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS
(WITHOUT REGARD TO CONFLICTS OF LAW PRINCIPLES THEREOF THAT WOULD CAUSE ANOTHER
STATE'S LAW TO APPLY) AND THE LAWS OF THE UNITED STATES OF AMERICA IN ALL
RESPECTS, INCLUDING, WITHOUT LIMITATION, MATTERS OF CONSTRUCTION, VALIDITY AND
PERFORMANCE.
23
Section 14. Intentions of the Parties. Nothing herein contained shall
be construed to constitute either party hereto (under state law or for tax
purposes) in partnership with the other party. In addition, the parties hereto
intend that the Production Payment shall at all times be treated (and all
provisions of this Conveyance shall be construed and treated accordingly) as a
production payment (i.e., a term overriding royalty) and an interest in real
property under the laws of each state in which Subject Interests are located.
Section 15. Ownership of Equipment. The Production Payment does not
include any right, title or interest in and to any of the personal property,
fixtures, structures or equipment now or hereafter placed on, or used in
connection with, the Subject Interests, and the interest herein conveyed to
Production Payment Owner is exclusively a production payment (i.e., a term
overriding royalty).
Section 16. Notices. Any notice or communication required or permitted
hereunder shall be given in writing, delivered to or sent by the United States
Postal Service, postage prepaid, or by prepaid telegram, addressed to the
following addresses:
To Working Interest Owner:
Abraxas Petroleum Corporation
500 North Loop 1604 East, Suite 100
San Antonio, Texas 78232
Attention: Robert Carington
Telephone: (210) 490-4788
Telecopy: (210) 490-8816
To Production Payment Owner:
Southern Producer Services, L.P.
1200 Smith Street
Two Allen Center, Suite 2890
Houston, Texas 77002
Attention: David W. Stewart
Telephone: (713) 276-1900
Telecopy: (713) 276-1990
or to such other address or to the attention of such other person as hereafter
may be designated in writing by the applicable party by notice to the other
party as herein provided, and shall be deemed to have been given as of the date
of receipt.
Section 17. Unenforceable or Inapplicable Provisions. If any provision
hereof is invalid or unenforceable in any jurisdiction, the other provisions
hereof shall remain in full force and effect in such jurisdiction, and the
remaining provisions hereof shall be liberally construed in favor of Production
Payment Owner, and its successors and assigns, in order to effectuate the
24
provisions hereof, and the invalidity of any provision hereof in any
jurisdiction shall not affect the validity or enforceability of any such
provision in any other jurisdiction.
Section 18. Certain Notices. During the term hereof, Working Interest
Owner will not change his name, identity, principal place of business or the
office where the Working Interest Owner keeps its books and records concerning
the Production Payment, the Production Sale Contracts and the contract rights
and accounts now existing or hereafter arising in connection therewith without
notifying Production Payment Owner of any such change at least 30 days prior to
the Initial Time of such change.
Section 19. Further Assurances and Warranty. Working Interest Owner and
Production Payment Owner will execute and deliver all such other and additional
instruments, notices, releases and other documents and will do all such other
acts and things as may be necessary or appropriate more fully to assure to each
other party or its successors or assigns all of the respective rights and
interests herein and hereby granted or intended so to be. Working Interest Owner
will warrant and forever defend the Production Payment unto Production Payment
Owner, its successors and assigns, against every person whomsoever now or at any
time hereafter lawfully claiming the same or any part thereof.
Section 20. Partition. Working Interest Owner and Production Payment
Owner acknowledge that neither has any right or interest that would permit it to
partition any portion of the Subject Interests as against the other, and each
waives any such right.
Section 21. Survival. The covenants and obligations of the Working
Interest Owner under Sections 2.3(a) and 2.3(b) of this Conveyance shall survive
the termination of this Conveyance and the other Production Payment Documents.
Section 22. Execution in Counterparts. This Conveyance has been
executed in several counterparts each of which shall be deemed to be an original
and all of which are identical, except that in the case of certain counterparts
and to facilitate recordation, portions of Exhibit A which describe properties
situated in Parishes or Counties other than the Parish or County in which the
particular counterpart is being recorded may have been omitted. All of such
counterparts together shall constitute but one and the same Conveyance. All of
said documents are integral parts of one consolidated transaction and are to be
construed as a single transaction.
[SIGNATURES BEGIN ON NEXT PAGE]
25
IN WITNESS WHEREOF, this Conveyance has been executed, or caused to be
executed on his behalf, by Working Interest Owner as of the day and year first
above written, but effective as of the Initial Time.
ABRAXAS PETROLEUM
CORPORATION
By:______________________
Name:
Title:
Attest:
__________________________
Name:
Title: Secretary
The name and address of Working Interest Owners is:
ABRAXAS PETROLEUM CORPORATION
500 North Loop 1604 East, Suite 100
San Antonio, Texas 78232
Attention: Robert Carington
The name and address of Production Payment Owner are:
SOUTHERN PRODUCER SERVICES, L.P.
1200 Smith Street
Two Allen Center, Suite 2890
Houston, Texas 77002
Attention: David W. Stewart
S-1
STATE OF TEXAS )
) SS.
COUNTY OF HARRIS )
The foregoing instrument was acknowledged before me on this _____ day
of _______________, _______, by _____________________, the _____________________
of ABRAXAS PETROLEUM CORPORATION, a Nevada corporation, on behalf of such
corporation.
Witness my hand and official seal.
Notary Public
Residing at
My commission expires:
S-2
EXHIBIT A
TO
CONVEYANCE OF DOLLAR DENOMINATED PRODUCTION PAYMENT
This Exhibit A sets forth the description of the "Leases" and other
interests which are defined as "Subject Interests" in the Conveyance of Dollar
Denominated Production Payment to which this Exhibit A is attached, subject to
the limitations contained herein.
A. Leases. Each field contains descriptions of the oil, gas and mineral
leases, oil and gas leases and other interests which are the "Leases" covered
hereby covering lands located within the State of Texas. The following
descriptive information may also be included for a particular Lease:
County or Parish: A designation of the county or parish in which
the respective Subject Interests lie.
Description of Property: This sets forth a description of some or
all of the properties covered by the Oil and gas leases designated.
The Subject Interests are not limited nor shall they be confined to any
unit, unitized interval, aerial extent of a unit, well bore or other similar
limitation, notwithstanding the inclusion of well names, unit names, land
descriptions or other matters, all of which are included for identification
only. Rather, all of the interests of Working Interest Owner in the various
Leases listed on the following pages shall be included within the meaning of the
term Subject Interests.
B. Leasehold and Net Revenue Interests. Immediately following the
listing of Leases for each field is a listing of Properties, well names
associated therewith and, as indicated, "Leasehold and Net Revenue Interests"
for each such well. With respect to each of the said wells, the leasehold
interest is the share of costs borne with respect thereto and the net revenue
interests shall mean, with respect to the relevant well or the relevant unit on
which the well is located, that interest in the Oil and Gas production which is
produced, saved and sold from such well or unit after deducting all burdens
against the production therefrom (other than the burden or burdens created by
this instrument and other instruments of even date herewith among the same
parties as those who have executed this instrument).
C. Permitted Encumbrances. Following the description of Leasehold and
Net Revenue Interests in this Exhibit A is a listing of easements,
rights-of-way, servitudes, permits, surface leases, and other rights in respect
of surface operations, on a prospect by prospect basis as identified in such
listing, that affect the Subject Interests shown on this Exhibit A and in the
wells or units described or referred to in this Exhibit A, but only to the
extent that such instruments are valid and in force and effect. These
instruments shall be deemed the "Permitted Encumbrances" for purposes of the
instrument to which this Exhibit A is attached.
EXHIBIT A - 1
D. Matters Contested in Good Faith. Following the description of
Permitted Encumbrances in this Exhibit A is a listing of all liens and
encumbrances pertaining to the Subject Interests which the Working Interest
Owner is contesting in good faith.
E. Defined Terms. Capitalized terms used in this Preamble and not
otherwise defined herein shall have the meanings ascribed to them in Annex I to
the Conveyance of Dollar Denominated Production Payment.
EXHIBIT A - 2
EXHIBIT B
TO
CONVEYANCE OF DOLLAR DENOMINATED PRODUCTION PAYMENT
[Intentionally omitted]
EXHIBIT B - 1
EXHIBIT C
TO
CONVEYANCE OF DOLLAR DENOMINATED PRODUCTION PAYMENT
Delivery Points
EXHIBIT C - 1
ANNEX I
TO
CONVEYANCE OF DOLLAR DENOMINATED PRODUCTION PAYMENT
Definitions
In addition to such other defined terms as may be set forth in the
Conveyance of Dollar Denominated Production Payment as used in the Conveyance,
the following terms have the following respective meanings:
"Affiliate" shall mean, with respect to any Person, (a) any other
Person who directly or indirectly through one or more intermediaries
controls, or is controlled by, or under common control with, such
specified Person, and (b) any Related Person of such Person. For
purposes of this definition, the term "control" means the possession,
directly or indirectly, of the power to direct or cause the direction
of the management and policies of a Person, whether through the
ownership of voting securities, by contract or otherwise; and the terms
"controlling" and "controlled" have meanings correlative of the
foregoing.
"Agreed Rate" shall mean a rate of interest of fifteen percent
(15.0%) per year, calculated on the basis of actual days elapsed and a
year of 360 days.
"API" shall mean the American Petroleum Institute.
"Application Date" shall mean the next-to-last Business Day of
each calendar month, starting with November 30, 1999. As used herein
with respect to any Application Period, the "related Application Date"
shall mean the Application Date that occurs approximately one month
after the end of such Application Period. For example, if an
Application Period ends at 7:00 a.m., Central time, on March 1 and the
next-to-last Business Day of such March is March 30, the related
Application Date is such March 30.
"Application Period" shall mean a period of time beginning at 7:00
a.m., Central time, on the first day of any calendar month and ending
at 7:00 a.m., Central time, on the first day of the next succeeding
calendar month. The first Application Period will begin at the Initial
Time and will end at 7:00 a.m., Central time, on October 31, 1999. As
used herein with respect to any Application Date, the "related
Application Period" shall mean the Application Period immediately
preceding (but not including) such Application Date. For example, if an
Application Date occurs on February 27, the related Application Period
is the one which ended at 7:00 a.m., Central time, on the preceding
February 1.
"ASTM" shall mean the American Society for Testing Materials.
"Authorized Production Expenses" shall have the meaning set forth
in Section 5(m) of the Purchase Agreement.
ANNEX I - 1
"Barrel of Oil" shall mean 42 United States standard gallons of
231 cubic inches per gallon of Oil at a temperature of 60 degrees
Fahrenheit.
"Btu" or "British Thermal Unit" shall mean the amount of energy
required to raise the temperature of one (1) pound (avoirdupois) of
pure water one (1) degree Fahrenheit (1(degree)F.) from fifty-nine
degrees Fahrenheit (59(degree)F.) to sixty degrees Fahrenheit
(60(degree)F.).
"Business Day" shall mean a day that is not a Saturday, a Sunday
or a legal holiday in Atlanta, Georgia or Houston, Texas.
"Change in Control" shall mean a change resulting when any
Unrelated Person or any Unrelated Persons acting together which would
constitute a Group together with any Affiliates or Related Persons
thereof (in each case also constituting Unrelated Persons) shall at any
time either (A) Beneficially Own more than 20% of the aggregate voting
power of all classes of Voting Stock of the Working Interest Owner
provided that such ownership has not been obtained in a transaction
which has been approved by the Board of Directors of such Person or (B)
during any period of two consecutive years ending on or after the
Initial Closing Date, as determined as of the last day of each calendar
quarter after the Initial Closing Date, the individuals (the "Incumbent
Directors") who at the beginning of such period constituted the Board
of Directors of the Working Interest Owner (other than additions
thereto or removals therefrom from time to time thereafter approved by
a vote of the Board of Directors in accordance with the Working
Interest Owner's by-laws) shall cease for any reason to constitute 51%
or more of the Board of Directors of the Working Interest Owner. As
used herein, (a) "Beneficially Own" means "beneficially own" as defined
in Rule 13d-3 of the Securities Exchange Act of 1934, as amended, or
any successor provision thereto; provided, however, that, for purposes
of this definition, a Person shall not be deemed to Beneficially Own
securities tendered pursuant to a tender or exchange offer made by or
on behalf of such Person or any of such Person's Affiliates until such
tendered securities are accepted for purchase or exchange; (b) "Group"
means a "group" for purposes of Section 13(d) of the Securities
Exchange Act of 1934, as amended; (c) "Unrelated Person" means at any
time any Person other than the Working Interest Owner or any Subsidiary
and other than any trust for any employee benefit plan of the Working
Interest Owner or any Subsidiary of the Working Interest Owner; (d)
"Related Person" of any Person shall mean any other Person owning (1)
5% or more of the outstanding common stock of such Person or (2) 5% or
more of the Voting Stock of such Person; and (e) "Voting Stock" of any
Person shall mean capital stock of such Person which ordinarily has
voting power for the election of directors (or persons performing
similar functions) of such Person, whether at all times or only so long
as no senior class of securities has such voting power by reason of any
contingency.
"Contingent Liability" shall mean any agreement, undertaking or
arrangement by which any Person guarantees, endorses or otherwise
becomes or is contingently liable upon (by direct or indirect
ANNEX I - 2
agreement, contingent or otherwise, to provide funds for payment, to
supply funds to, or otherwise to invest in, a debtor, or otherwise to
assure a creditor against loss) the indebtedness, obligation or any
other liability of any other Person (other than by endorsements of
instruments in the course of collection), or guarantees the payment of
dividends or other distributions upon the shares of any other Person.
The amount of any Person's obligation under any Contingent Liability
shall (subject to any limitation set forth therein) be deemed to be the
outstanding principal amount (or maximum principal amount, if larger)
of the debt, obligation or other liability guaranteed thereby.
"Conveyance" shall mean that certain Conveyance of Dollar
Denominated Production Payment, dated October 6, 1999, between the
Working Interest Owner and the Production Payment Owner, as from time
to time hereafter may be modified, supplemented or amended.
"Dedication Percentage" shall mean (i) sixty (60%) with respect to
the NRI Percentage of each portion of lands described on Exhibit A;
provided, that the Dedication Percentage shall be adjusted upward
(automatically, without any need for an amendment hereto) from time to
time as follows:
(a) as of the first day of each month, the Dedication
Percentage shall be adjusted upward in the event that the
Reserve Report prepared as of such then most-recent
Evaluation Date reflects that the Production Payment NPV is
less than one hundred fifty percent (150%) of the
unliquidated balance of the Total Sum as of such then
most-recent Evaluation Date, and the new Dedication
Percentage (in this definition, the "Adjusted Dedication
Percentage") shall, in the case of Subject Interests, be that
percentage between sixty percent (60%) and a maximum of
ninety percent (90%), necessary to achieve, to the maximum
extent possible, the level of one hundred fifty percent
(150%) of the unliquidated balance of the Total Sum, all as
more particularly described in Section 14 of the Purchase
Agreement;
(b) the Dedication Percentage may be adjusted from
time to time pursuant to Section 14 in the Purchase Agreement
(but no such adjustment shall result in a Dedication
Percentage in excess of ninety percent (90%) for the Subject
Interests).
"Delivery Charges" shall mean the actual costs, if any, incurred
by Production Payment Owner for separating, gathering, compressing,
treating, or Processing Production Payment Hydrocarbons prior to a
Delivery Point or of transporting Production Payment Hydrocarbons to a
Delivery Point in a condition satisfactory to meet pipeline
specifications and qualifications at such Delivery Point (net of any
revenues received by Production Payment Owner in connection with any
such Processing, to the extent that such revenues are not included in
Production Payment Proceeds).
ANNEX I - 3
"Delivery Point" shall mean (a) as of the Initial Time, for each
field listed on Exhibit A hereto, the Delivery Point specified for such
field on Exhibit C, or (b) such other delivery point or points in the
vicinity of such field hereafter from time to time designated by
Production Payment Owner and mutually agreed to by Working Interest
Owner at which Hydrocarbons from the Subject Interests in such field is
(or reasonably could be, without any additional capital expenditures)
sold to a third party or delivered into a pipeline for transportation
to a market point. Unless otherwise mutually agreed by Working Interest
Owner and Production Payment Owner, any new Delivery Point shall become
effective one month after the first day of the next succeeding
Application Period.
"Delivery Services" is defined in Section 2.4(a).
"Direct Taxes" shall mean all ad valorem, property, gathering,
transportation, pipeline regulating, gross receipts, severance,
production, excise, heating content, carbon, value, value added,
environmental, occupation, franchise, sales, use, fuel, and other taxes
and governmental charges, fees and assessments imposed on or as a
result of all or any part of the Subject Interests, the Hydrocarbons
produced from Subject Interests or the proceeds thereof, the Production
Payment, or the Production Payment Hydrocarbons or the proceeds
thereof, regardless of the point at which or the manner in which such
taxes, charges or assessments are charged, collected, levied or
otherwise imposed. The only taxes which are not Direct Taxes are
federal income taxes, state income taxes, and franchise taxes levied
against Production Payment Owner and any other taxes levied against the
overall net income of Production Payment Owner (including interest,
penalties and withholding obligations owing to governmental authorities
with respect to such income or franchise taxes). Interest, penalties
and withholding obligations owing to governmental authorities with
respect to any Direct Taxes shall constitute "Direct Taxes".
"economically feasible" is defined in Section 4.
"Environmental Laws" shall mean all applicable federal, state or
local statutes, laws, ordinances, codes, rules, policies, directives,
orders, judgments, decisions, regulations and guidelines (including
consent decrees and administrative orders) relating to public health
and safety and protection of the environment.
"Evaluation Date" is defined in the Purchase Agreement.
"Exhibit A" shall mean Exhibit A attached to the Conveyance and
the Purchase Agreement.
"Expense Components" is defined in Section 2.1.
"First Transporter" shall mean the first interstate or intrastate
pipeline downstream of the Delivery Points.
ANNEX I - 4
"Force Majeure" shall mean acts of God, governmental action,
strikes, lockouts or other industrial disturbances, acts of the public
enemy, wars, blockades, insurrections, riots, epidemics, landslides,
lightning, earthquakes, fires, hurricanes, tornados, storms, storm
warnings, floods, washouts, freezes, arrests and restraints of
governments and people, civil disturbances, explosions, breakage of, or
accidents to, lines of pipe or subsurface storage caverns regardless of
how caused, and any other causes, whether of the kind herein enumerated
or otherwise, not within the control of the party claiming suspension
(including, but not limited to, acts of negligence or willful
misconduct of third parties) and which by the exercise of due diligence
such party is unable to prevent or overcome; provided, however, that
"force majeure" shall not include any transportation curtailment,
failure of machinery or equipment or failure or inadequacy of reserves.
"GAAP" shall mean generally accepted accounting principles set
forth in the opinions and pronouncements of the Accounting Principles
Board of the American Institute of Certified Public Accountants and
statements and pronouncements of the Financial Accounting Standards
Board as of any date of determination; and the requisite that such
principles be applied on a consistent basis shall mean that the
accounting principles observed in a current period are comparable in
all material respects to those applied in any preceding period.
"Gas" shall mean natural gas which meets or exceeds the Quality
Standards and shall include all liquefiable hydrocarbons and other
components entrained in the gas upon delivery to Production Payment
Owner.
"Gas Sales Agreement" is defined in the Purchase Agreement.
"Hedging Costs" shall mean costs incurred by Production Payment
Owner in conformity with its hedging guidelines (i) with respect to any
commodity swap or hedge agreement or other hedging transaction,
including, without limitation, rescheduling, unwinding, termination or
other costs and all increased costs, interest period breakage and
indemnity costs, (ii) with respect to all stranded transportation
charges, which for purposes hereof shall mean that portion of any
demand charges incurred for reservation of firm transportation capacity
downstream of the scheduled Delivery Points which were utilized as a
result of Working Interest Owner's failure to deliver the required
volumes at the appropriate Delivery Points, and (iii) costs of
acquiring Gas and Oil to satisfy contractual obligations incurred by
Production Payment Owner pursuant to any contract for the sale of
Production Payment Hydrocarbons; provided that at no time will
Production Payment Owner enter into any hedge transaction (A) involving
Hydrocarbon volumes in excess of the currently expected volume of
Production Payment Hydrocarbons as determined in Production Payment
Owner's economic projections or (B) for the purpose of speculating in
Hydrocarbons.
"Highest Lawful Rate" is defined in Section 23(b) of the Purchase
Agreement.
ANNEX I - 5
"Hydrocarbons" shall mean collectively oil, gas and other liquid
or gaseous hydrocarbons.
"Imbalance Charges" is defined in Section 2.5(c).
"Indemnified Party" shall mean the Production Payment Owner and
any of its members, officers, employees, agents, shareholders,
directors, advisors or affiliates.
"Independent Reserve Engineer" shall mean DeGolyer and MacNaughton
or such other independent petroleum engineer of recognized standing
selected by Working Interest Owner and acceptable to Production Payment
Owner, in its sole and absolute discretion.
"Independent Reserve Report" has the meaning set forth in Section
5(g) of the Purchase Agreement.
"Initial Time" shall mean October 1, 1999, at 7:00 A.M.,
determined as to each locality in accordance with the time then
generally observed in such locality.
"Lease Measuring Point" shall mean, with respect to any particular
Subject Well, the point at which the Btu content of Gas included in
Production Payment Hydrocarbons produced from such Subject Well is
initially measured.
"Lease Use Hydrocarbons" shall mean any Hydrocarbons which are
lost in the production thereof or used by Working Interest Owner or the
operator of the Subject Interests for the purpose of producing
Hydrocarbons from the Subject Interests, but only for so long as and to
the extent such Hydrocarbons are so used.
"Material Negative Reservoir Event" shall mean (a) any reservoir
discrepancy or other well problem which results in or could reasonably
be expected to result in a downward reevaluation of reserves in the
aggregate for the life of the reservoir, as determined using the
standards provided in the Independent Reserve Report delivered pursuant
to Section 5(f)(vii) of the Purchase Agreement, (b) loss of reservoir
pressure, (c) reservoir damage, or (d) other problem or matter which,
in Production Payment Owner's sole discretion, could adversely affect
the Working Interest Owner's ability to produce and deliver the
Production Payment Hydrocarbons.
"Mcf" shall mean one thousand cubic feet.
"MMBtu" shall mean 1,000,000 British Thermal Units.
"Month" shall mean a calendar month.
"Non-Compliance Event" is defined in Section 6 of the Conveyance.
ANNEX I - 6
"Non-Consent Hydrocarbons" shall mean those Hydrocarbons produced
from a well during the applicable period of recoupment or reimbursement
pursuant to a non-consent provision covering the relevant well or
wells, which Hydrocarbons have been relinquished to the consenting
party or participating party under the terms of such non-consent
provision as the result of the election by Working Interest Owner not
to participate in the particular operation; provided such election by
Working Interest Owner has been made in good faith and as a prudent
operator.
"NRI Percentage" shall mean, with respect to each portion of
Subject Interests described on Exhibit A, the percentage shown on
Exhibit A as the "Net Revenue Interest" for such portion of the lands
described on Exhibit A.
"Oil" shall mean crude oil, condensate and other liquid
hydrocarbons which meet or exceed the Quality Standards when delivered
to Production Payment Owner at the Delivery Points.
"Oil and Gas Leases" shall include oil, gas and mineral leases and
shall also include subleases and assignments of operating rights.
"Oil Sales Agreement" is defined in the Purchase Agreement.
"Permitted Assigns" is defined in Section 10.2.
"Permitted Liens" shall mean (1) any lien relating to taxes which
are not yet due and payable; (2) defects or irregularities in title,
and liens, charges or encumbrances, including, without limitation,
liens under operating agreements, pooling orders and unitization
agreements and mechanics' and materialmen's liens with respect to
obligations incurred in the ordinary course of business which are being
contested in good faith, which are not such (i) as to interfere
materially with the development, operation or value of the Subject
Interests and (ii) as to affect materially title thereto; (3) the liens
set forth or referred to in Exhibit A hereto; (4) the liens, if any,
granted by Production Payment Owner in favor of any credit supplier;
(5) any lien or encumbrance created as a consequence of the execution
and delivery of the Conveyance; (6) any lien created by the Senior
Secured Trust Indenture; (7) any lien created by the Series C and
Series D Trust Indenture; (8) any inchoate mechanics or materialmens
liens; and (9) any liens consented to in writing by Production Payment
Owner.
"Person" shall mean any natural person, corporation, partnership,
joint venture, trust, firm, association, government, governmental
agency or any other entity, whether acting in an individual, fiduciary
or other capacity.
"previous overproduction" is defined in Section 5.3(a).
ANNEX I - 7
"Primary Sum" shall mean the sum of $4,000,000, as such sum may be
increased from time to time by amendments or supplements hereto or
increased or decreased by operation of Section 2.2(a) or any provision
of this Conveyance.
"Processing" or "Processed" shall mean to manufacture, fractionate
or refine Subject Hydrocarbons or otherwise to engage in any process
designed to remove elements (hydrocarbons or nonhydrocarbons) from Gas,
but such terms do not mean or include natural pressure reduction, the
use of normal lease or well equipment or other normal operations on or
near any of the Subject Interests (such as the use on or near the lease
- or, in the case of any offshore or near-shore wells, at or near the
landfall of the connecting pipeline - of dehydrators, gas treating
facilities, separators, heater-treaters, lease compression facilities,
injection or recycling equipment, tank batteries, field gathering
systems, pipelines and equipment and so forth). References to
Hydrocarbons which are "Processed" (including the reference thereto
contained in the definition of Gas) refer both to the natural gas
liquids and other products of Processing and to the residue gas and
other hydrocarbons remaining after such operations.
"Production Expenses" shall mean all costs, fees, expenses, and
other obligations of any kind whatsoever incurred for or in connection
with the development, operation or maintenance of the Subject Interests
for the production of Subject Hydrocarbons, the lifting, handling,
gathering, producing, treating, storing, marketing or transporting of
the Subject Hydrocarbons and shall include, without limitation,
utilities, rental payments under site leases and leases of equipment or
vehicles, royalties, utilities, salaries , wages (including, without
limitation, withholding, social security and other payroll burdens,
workers compensation insurance deposits and premiums and the costs of
claims) and benefits (including without limitation, medical insurance
benefits, bonuses, vacation pay or pay for other compensated absences)
of field employees, first level supervisors and technical, accounting,
billing or other administrative employees employed in operating,
producing, reworking and maintaining the Subject Hydrocarbons and the
Subject Interests and all accruals with respect to any of the
foregoing; overhead and operating expenses (including, without
limitation, expenses for office supplies and equipment) pursuant to
applicable operating agreements covering the Subject Interests;
compensation to well operators, consultants, and others necessary for
and related to operating, producing, reworking and maintaining the
Subject Interests and plugging and abandoning the wells; shut-in,
minimum and advance royalties; insurance premiums in connection with
the Subject Interests or any equipment located thereon and utilized in
operating, producing, reworking or maintaining the Subject Interests;
accounting, billing or other administrative services provided by third
parties including, but not limited to, the preparation of any reserve
report; and Capital Expenditures and Direct Taxes.
"Production Payment" has the meaning stated in Section 1 of the
Conveyance.
"Production Payment Documents" shall mean the Conveyance, the
Conveyance Supplements, the Purchase Agreement, the Purchase Agreement
Supplements and any other document or agreement executed in connection
ANNEX I - 8
with such agreements, as each from time to time hereafter may be
modified, supplemented or amended.
"Production Payment Hydrocarbons" shall mean the Dedication
Percentage of the NRI Percentage of all Hydrocarbons in and under and
that may be produced from (or, to the extent pooled or unitized,
allocated to) any Subject Interest between the Initial Time and the
Termination Time.
"Production Payment NPV" is defined in the Purchase Agreement.
"Production Payment Owner" and "Working Interest Owner" shall
include the successors and assigns of each.
"Production Payment Owner" is defined in the preamble.
"Production Payment Proceeds" shall mean, for any particular
Application Period, the total dollar amount received by Production
Payment Owner during or (to the extent not previously applied) prior to
such Application Period from sales of Production Payment Hydrocarbons,
determined after deduction of all Production Payment Severance Taxes
(whether paid before or after receipt by Production Payment Owner).
"Production Payment Severance Taxes" shall mean all severance
taxes actually attributable to the Production Payment Hydrocarbons,
taking into account any applicable credits, rebates and other factors.
"Production Sale Contracts" shall mean contracts for the sale of
Subject Hydrocarbons now in effect or hereafter entered into by Working
Interest Owner with Production Payment Owner's written consent,
including, without limitation, the Oil Sales Agreement and the Gas
Sales Agreement.
"Proved Developed Producing Reserves" shall mean, with respect to
the Subject Interests, those quantities of Hydrocarbons, estimated by
Production Payment Owner and Production Payment Owner's Credit
Suppliers with reasonable certainty, as demonstrated by geological and
engineering data, to be economically recoverable based upon the prices
set forth in the then most recent Independent Reserve Report delivered
pursuant to Section 5(f)(vii) of the Purchase Agreement from the
Subject Interests by standard producing methods under existing
regulatory practices and economic conditions using existing
conventional equipment and operating methods from existing completion
intervals open for production on the Initial Time of the evaluation.
"Purchase Agreement" shall mean that certain Purchase Agreement
for Dollar Denominated Production Payment, dated October 6, 1999,
between the Working Interest Owner and the Production Payment Owner, as
from time to time hereafter may be modified, supplemented or amended.
ANNEX I - 9
"Purchaser" shall mean the Production Payment Owner.
"Quality Standards" shall mean, with respect to each Delivery
Point, the quality requirements and specifications set forth in the Gas
Sales Agreement, Oil Sales Agreement and/or any other marketing
arrangement applicable to Hydrocarbons delivered at such Delivery
Point, as the same may be modified from time to time.
"Reimbursable Expenses" shall mean all costs, fees and expenses
paid or incurred by or on behalf of Production Payment Owner or its
Affiliates which are in any way related to: (a) the negotiation,
acquisition, ownership, enforcement, or termination of the Production
Payment, this Conveyance, the other Production Payment Documents, or
any waivers or amendments hereto or thereto, or (b) any litigation,
contest, release or discharge of any adverse claim or demand made or
proceeding instituted by any Person affecting in any manner whatsoever
the Production Payment, any Production Payment Hydrocarbons or
Production Payment Proceeds, this Conveyance or the other Production
Payment Document, or the enforcement or defense hereof or thereof, or
the defense of Production Payment Owner's and its Affiliates' exercise
of their rights hereunder or thereunder. Included among the
Reimbursable Expenses are (i) all recording and filing fees, (ii) all
reasonable fees and expenses of counsel, engineers, accountants and
other consultants, experts and advisors for Production Payment Owner
and its Affiliates, (iii) all reasonable travel and other out of pocket
expenses of the consultants, experts and advisors of Production Payment
Owner and its Affiliates, (iv) all charges for Delivery Services, (v)
all Imbalance Charges, (vi) all Production Expenses, and (vii) all
amounts which any Indemnified Party is entitled to receive under
Section 26 of the Purchase Agreement or Section 7 hereof.
Notwithstanding the foregoing, Reimbursable Expenses shall not include
expenses associated with third party claims (1) relating to title to
the Production Payment, to the extent such claims arise solely due to
the actions of Production Payment Owner or its Affiliates, or (2) that
arise solely out of the failure by Production Payment Owner to perform
its obligations under any contractual arrangement entered into directly
by Production Payment Owner pursuant to Section 2.5(a) hereof.
"related Application Date" is defined in the definition of
"Application Period".
"Residual Hydrocarbons" shall mean for any period of time the
volume of all Hydrocarbons produced from the Subject Interests less the
volume of Production Payment Hydrocarbons delivered in kind to the
Production Payment Owner during the same period of time.
"Retained Interests" shall mean the interests retained by Working
Interest Owner in the Subject Interests after conveyance of the
Production Payment hereunder.
"Seller" is defined in the Purchase Agreement.
ANNEX I - 10
"Senior Secured Trust Indenture" shall mean that certain Indenture
dated as of March 26, 1999, made in connection with the issuance of 12
7/8% Senior Secured Notes due March 15, 2003 by Seller and the Senior
Secured Trustee, as supplemented or amended from time to time, together
with any other indenture governing such Senior Secured Notes or any
agreements extending the maturity of, refinancing, replacing or
otherwise restructuring all or any portion of the Indebtedness under
the Senior Secured Notes.
"Senior Secured Trustee" shall mean either Norwest Bank Minnesota,
National Association or such other Person serving as Trustee under the
Senior Secured Trust Indenture.
"Separation Point" shall mean the point at which lease level
separation of Oil takes place.
"Series C and Series D Trust Indenture" shall mean that certain
Indenture dated as of January 27, 1998, made in connection with the
issuance of 11 1/2% Series C and Series D Senior Notes due November 1,
2004 by Seller and the Series C and Series D Trustee, as supplemented
or amended from time to time, together with any other indenture
governing such Series C and Series D Notes or any agreements extending
the maturity of, refinancing, replacing or otherwise restructuring all
or any portion of the Indebtedness under the Series C and Series D
Notes.
"Series C and Series D Trustee" shall mean either IBJ Whitehall
Bank & Trust Company, successor-in-interest to IBJ Schroder Bank &
Trust Company, or such other Person serving as Trustee under the Series
C and Series D Trust Indenture.
"Specified Rate" is defined in Section 12.
"Subject Hydrocarbons" shall mean all Hydrocarbons in and under,
and which may be produced and saved from, and which shall accrue or be
attributable to the Subject Interests and which are produced after the
Initial Time (other than Lease Use Hydrocarbons and Non-Consent
Hydrocarbons where Working Interest Owner is the non-consenting party).
"Subject Hydrocarbons" and "Production Payment Hydrocarbons,"
respectively, shall be deemed to include the proceeds of such
Hydrocarbons.
"Subject Interests" shall mean the following:
(a) The Oil and gas leases and the leasehold, production
payment, net profit, fee and mineral interests, and all personal
property, surface and subsurface machinery, goods, equipment, fixtures,
inventory, facilities, supplies or other property of whatsoever kind or
nature (excluding drilling rigs, trucks, automotive equipment or other
ANNEX I - 11
property taken to the premises to drill a well or for other similar
temporary uses) now or hereafter located on or under any of the lands
described on Exhibit A to the Conveyance, which are used or useful for
the production, gathering, treatment, processing, storage or
transportation of Hydrocarbons, including, but not by way of
limitation, all oil wells, gas wells, water wells, injection wells,
pumping units and engines, christmas trees, platforms, separators,
compressors, tanks, gas systems, pipelines, water systems, power
plants, communication systems, roads, loading racks and shipping
facilities, and all other properties, rights, titles, interests and
things of value, including, without limitation, all operating
agreements, processing agreements, farming agreements, farmout
agreements, joint venture agreements, exploration agreements, bottom
hole agreements, dryhole agreements, support agreements, acreage
contribution agreements, insurance policies, title opinions, title
abstracts, title materials and information, files, records, data bases,
information systems, logs, well cores, fluid samples, production data
and reports, well testing data and reports, maps, seismic and
geophysical, geological and chemical data and information,
interpretative and analytical reports of any kind or nature, computer
hardware and software and all documentation therefor or relating
thereto (including, without limitation, all licenses relating to or
covering such computer hardware, software and/or documentation),
rights-of-way, easements, servitudes, surface leases, permits,
licenses, subject, however, to the restrictions, exceptions,
reservations, and other matters, if any, set forth in the specific
descriptions of said properties and interests in Exhibit A (including
the presently existing and valid royalties, overriding royalties,
payments out of production, oil and gas sales, purchase, exchange and
processing contracts, and all other contracts and other instruments and
matters, referred to in Exhibit A).
(b) Working Interest Owner's right, title and interest, if
any, in, to and under, or derived from, all of the presently existing
and valid unitization and pooling agreements which are described in
Exhibit A or which relate to any of the properties and interests
described in Exhibit A.
(c) Working Interest Owner's right, title and interest in, to
and under, or derived from, all of the presently existing and valid
oil, liquids, condensate, casinghead gas and gas sales, purchase,
exchange and processing contracts, and all other contracts and
instruments, which are described in Exhibit A, which are permitted
pursuant to the provisions of the Conveyance, or which relate to any of
the properties and interests described in Exhibit A;
provided, however, that the term "Subject Interest" shall not include
(i) any of the above-referenced items relating to a Production Unit
which has been specifically released by Production Payment Owner
pursuant to Section 2(c)(ii) of the Purchase Agreement or (ii) any
Proposed Program Well which has not yet been added as a Program Well
pursuant to Section 2(c) of the Purchase Agreement.
The term "Subject Interest," when used with reference to any particular
Subject Interest, shall mean and include (i) such Subject Interest as
the same may be enlarged or
ANNEX I - 12
diminished by the provisions of any contract or other instrument
described in Exhibit A, or by the removal of any charges or
encumbrances to which such Subject Interest is subject, (ii) any and
all renewals and extensions of such Subject Interest, (iii) all
contracts supplemental to or amendatory of or in substitution for the
contracts described above insofar as the same relate to such Subject
Interest, and (iv) all rights, titles and interests accruing or
attributable to such Subject Interest by virtue of its being included
in any unit.
"Subject Wells" shall mean all wells now located on the Subject
Interests which are expressly identified on Exhibit A hereto (as such
exhibit shall be modified from time to time with the mutually consent
of the parties).
"Swap Agreement" shall mean any commodity swap, cap, floor or
collar agreement entered into for the purpose of fixing or hedging
fluctuations in commodity prices or marking to market any costs under
such an agreement.
"Termination Time" is defined in Section 2.8.
"Total Sum" is defined in Section 2.1.
"unliquidated balance of the Primary Sum" shall mean, at any time,
the Primary Sum plus the aggregate amounts which have been added
thereto pursuant to Section 2.2(a), less the aggregate amount of
Production Payment Proceeds which have been applied thereto at or
before such time pursuant to Section 2.2(a)(ii), and less any
reductions under Section 2.2(b).
"Working Interest Owner" is defined in the preamble.