DATED FEBRUARY 26, 1999
POLSKIE GORNICTWO NAFTOWE I GAZOWNICTWO S.A.
AND
APACHE OVERSEAS, INC.
APACHE POLAND SP. Z O.O.
FX ENERGY, INC.
FX ENERGY POLAND SP. Z O.O.
AGREEMENT ON COOPERATION
IN THE LACHOWICE AREA
(FARMIN AGREEMENT)
CONTENTS
NO. CLAUSE
1 DEFINITIONS
2 OBLIGATIONS OF APACHE AND FX
3 OBLIGATIONS OF POGC
4 GOVERNMENTAL PERMITS
5 OBLIGATIONS OF PARTIES UPON ESTABLISHMENT OF PARTNERSHIP
6 LIABILITY
7 GUARANTEE BY APACHE OVERSEAS, INC. AND FX ENERGY, INC.
8 REPRESENTATIONS AND WARRANTIES OF APACHE, FX AND POGC
9 OPERATIONS
10 DEFAULT AND TERMINATION
11 FORCE MAJEURE
12 ANNOUNCEMENTS AND CONFIDENTIALITY
13 NOTICES
14 COSTS, EXPENSES AND TAXES
15 RELATIONSHIP OF PARTIES
16 ASSIGNMENT
17 GENERAL
18 GOVERNING LAW AND ARBITRATION
19 ENTIRE AGREEMENT
20 COUNTERPARTS AND LANGUAGE
SCHEDULE 1. THE PLAN AND COORDINATES OF THE CONTRACT AREA. COPIES OF THE
PETROLEUM CONTRACT
SCHEDULE 2. REPRESENTATIONS AND WARRANTIES OF POGC
SCHEDULE 3. REPRESENTATIONS AND WARRANTIES OF APACHE AND FX
SCHEDULE 4. AUTHORIZATION FOR APACHE
THIS AGREEMENT is made this 26th day of February, 1999 AMONG
1. POLSKIE GORNICTWO NAFTOWE i GAZOWNICTWO S.A., a company incorporated under
the laws of the Republic of Poland, with offices at ul. Krucza 6/14, 00-537
Warsaw, Poland, entered into the Commercial Register maintained by the
District Court in Warsaw under the RHB No. 48382 ("POGC");
2. APACHE OVERSEAS, INC., a company incorporated under laws of the State of
Delaware, USA, with offices at 2000 Post Oak Boulevard, Houston, Texas,
USA;
3. APACHE POLAND Sp. z o.o., a company incorporated under the laws of the
Republic of Poland, with offices at ul. Pu3awska 15, 02-515 Warsaw, Poland,
entered into the Commercial Register maintained by the District Court in
Warsaw under the RHB No. 48161 ("APACHE");
4. FX ENERGY, INC., a company incorporated under the laws of the State of
Nevada, USA, with offices at 3006 Highland Drive, Suite 206, Salt Lake
City, Utah, USA; and
5. FX ENERGY POLAND Sp. z o.o., a company incorporated under the laws of the
Republic of Poland, with offices at ul. Staro cinska 5, 02-516 Warsaw,
Poland, entered into the Commercial Register maintained by the District
Court in Warsaw under the RHB No. 50620 ("FX").
WHEREAS:
(A) POGC is a party to mining usufruct agreements and a holder of
concessions to prospect for and to explore minerals in the Lachowice
area, in the Republic of Poland; and
(B) APACHE and FX have agreed to carry out, at their expense, the work in
the Lachowice area specified in this Agreement in return for the
possibility to earn an interest of one third (1/3) each in the
Partnership.
NOW IT IS HEREBY AGREED AS FOLLOWS:
CLAUSE 1 - DEFINITIONS
1.01 In this Agreement (including Schedules 2 and 3 thereto) the following
expressions shall have the following meaning:
(i) "Business Day" means any day Monday through Friday, excluding
official holidays of the Republic of Poland;
(ii) "Pipeline" means the gas pipeline from a mutually acceptable
Delivery Point to the interconnect with the existing gas
transmission line constituting a part of the POGC gas pipeline grid
enabling full utilization of the Hydrocarbon Reservoirs
deliverability, as shown by the Well Tests;
(iii) "Existing Wells" means any well (including the Farmin Wells)
already drilled by POGC in the Contract Area and capable of being
Re-entered;
(iv) "Plugging and Abandoning" means plugging and permanent abandoning
of a well according to the provisions of Polish law; the terms
"Plug and Abandon", "Plugged and Abandoned" and the derivatives
thereof shall be construed accordingly;
(v) "Contract Area" means all of the Zyweic-Wadowice, Lachowice and
Stryszawa-Lanckorona areas onshore in the Northern Carpathians of
the Republic of Poland, coordinates for which are set out in
Schedule 1 and which are covered by the definition "Petroleum
Contract";
(vi) "Operations" means all activities on the Contract Area and to the
extent specified in Clause 2.07, other areas, which APACHE and FX
are obliged or entitled to conduct pursuant to this Agreement;
(vii) "Affiliate" means a company or partnership which controls, or is
controlled by, or which is controlled by an entity which controls,
a Party; control means the ownership directly or indirectly of more
than one half (1/2) of the votes in statutory bodies of a company
or partnership;
(viii) "First Gas Delivery" means the sustained take of at least sixty
(60) days of the contractual volumes of gas according to the Sales
Agreement;
(ix) "Re-entry" has the meaning established in oil and gas industry and
means performance of any downhole work on an already existing
wellbore; the terms "Re-enter", "Re-entered" and the derivatives
thereof shall be construed accordingly;
(x) "Well Tests" means performance of any tests, including but not
limited to tests as may be required to ascertain:
(a) technical condition of a Farmin Well;
(b) productivity of a Farmin Well;
(c) reservoir properties; or
(d) the boundaries of the Hydrocarbon Reservoir
(xi) "Farmin Wells" means the Lachowice #1, Lachowice #7 or Stryszawa
#2K wells drilled by POGC within the Contract Area, or any Existing
Well utilized by APACHE and FX under Clause 2.08;
(xii) "Delivery Point" means a metering station constituting the
"Delivery Point" pursuant to the Sales Agreement;
(xiii) "Baseline Study" means the "Environmental Appraisal Report for the
area of boreholes at Stryszawa-Lachowice" dated November, 1998,
prepared by ANAGEA Environmental and Geological Services, with
additions mentioned in Clause 2.02 of this Agreement;
(xiv) "Partnership" means a commercial partnership specified in Clauses
2.06 and 3.01 of this Agreement;
(xv) "Party" means a party to this Agreement together with its
successors and permitted assigns;
(xvi) "Agreement" means this document and the attached Schedules;
(xvii) "Sales Agreement" means a gas purchase and sale agreement
regarding the gas produced by the Partnership from the Lachowice
area between POGC as the purchaser and APACHE, FX, the POGC
Affiliate being the partner of the Partnership, and the Partnership
as sellers ;
(xviii) "Petroleum Contract" means (a) that certain Usufruct Agreement
dated July 20, 1995, as amended by an annex of July 20, 1998
between the State Treasury of the Republic of Poland and POGC
covering the Zyweic-Wadowice area; and (b) that certain Usufruct
Agreement dated January 9, 1996 between the State Treasury of the
Republic of Poland and POGC covering the Stryszawa-Lanckorona area;
and (c) that certain Usufruct Agreement dated July 20, 1995 between
the State Treasury of the Republic of Poland and POGC covering the
Lachowice area; and (d) any concessions for exploitation or
exploration covering any part of the areas comprising the above
mentioned usufructs, in particular the POGC concessions numbered
64/98/p, 4/96/p and 9/95/p; copies of documents constituting the
Petroleum Contract as of the date of signature of this Agreement
are attached hereto in Schedule 1;
(xix) "JOA" means the agreement of the Partnership's partners regarding
their joint operations within the Contract Area;
(xx) "Completion for Production" means operations relating to running
tubings with screen, production packer and required subs and safety
valves, as well as installation of a production wellhead; the terms
"Complete for Production", "Completed for Production" and the
derivatives thereof shall be construed accordingly;
(xxi) "Governmental Permit" means any permit of organs of public
administration of the Republic of Poland required to allow
performance of this Agreement or to perform the actions arising
thereunder, as may be required by Polish law;
(xxii) "Hydrocarbon Reservoir" means a natural deposit of hydrocarbons,
the exploitation of which may be economically profitable.
1.02 All references to Clauses, recitals and Schedules are, unless
otherwise expressly stated, references to Clauses of and recitals and
Schedules to this Agreement.
1.03 The headings in this Agreement are inserted for convenience only and
shall be ignored in construing this Agreement.
CLAUSE 2 - OBLIGATIONS OF APACHE AND FX
2.01 Subject to and in accordance with the terms of this Agreement APACHE
and FX shall at their sole cost and expense:
(i) in respect of each Farmin Well, conduct all preparatory operations
(including but not limited to the preparation of the Well Tests
program, drilling program and conducting an appropriate site
survey);
(ii) Re-enter the Farmin Wells, to the extent that in their judgment it
is technically and commercially feasible to do so;
(iii) in respect of each Farmin Well in the event that FX and APACHE
elect to perform the Well Tests, conduct such Well Tests as in
their judgment will be technically and commercially feasible; and
(iv) to the extent that in their judgment it is technically and
commercially feasible to do so, Complete for Production one or more
Farmin Wells.
provided, however, that APACHE and FX shall not be responsible for any
costs previously incurred by POGC or its Affiliate in respect of any
Farmin Well. The well Re-entry plan and the Well Tests program will be
submitted to POGC for review as soon as possible after execution of
this Agreement, and APACHE and FX, to the extent it is technically and
commercially feasible to do so, shall Re-enter the Farmin Wells in
accordance with the plan and program.
2.02 As soon as possible after execution of this Agreement, POGC, APACHE
and FX shall familiarize themselves with the Baseline Study and agree
upon necessary additions to it. If POGC, APACHE and FX determine that
additional soil and groundwater sampling is required to confirm the
conclusions set forth in the Baseline Study, the sampling will be
conducted prior to the conduct of the Well Tests program. The costs
for the additional sampling, if necessary, will be covered by APACHE
and FX.
2.03 Within thirty (30) days after APACHE and FX have terminated the Well
Tests they shall notify POGC whether they intend to proceed with
Operations described in Clause 2.09 below or not. The notice of
intent to proceed which APACHE and FX may give to pursuant to the
preceding sentence shall include their good faith assessment of
deliverability of the Hydrocarbon Reservoirs covered by Well Tests and
their requirements regarding the minimum parameters of the Pipeline so
that all gas produced could be transported by the Pipeline. If APACHE
and FX give notice of their intent to proceed with the Operations
described in Clause 2.09, then POGC shall, within thirty (30) days,
give notice to APACHE and FX as to its election regarding the
construction of a mutually acceptable Pipeline. If POGC elects,
pursuant to the preceding sentence, to build a mutually acceptable
Pipeline, then POGC shall be committed to build the Pipeline and
APACHE and FX shall be deemed to have given notice of their election
to proceed with Operations described in Clause 2.09, and all Parties
shall act in good faith to fulfill, as soon as possible all conditions
precedent specified in Clauses 5.04 and 5.05. If POGC elects not to
build the Pipeline, or fails to timely provide a notice setting forth
its election within the prescribed thirty (30) day notice period, then
APACHE and FX may nevertheless, within thirty (30) days of receipt of
POGC's notice (or expiration of the thirty (30) day period if POGC
fails to timely provide a notice) give POGC notice of their election
to proceed with Operations described in Clause 2.09, may construct at
their own expense a natural gas pipeline to transport natural gas
produced by the Partnership from the Lachowice area, and all Parties
shall act in good faith to fulfill, as soon as possible all conditions
precedent specified in Clauses 5.04 and 5.05, except for the condition
precedent specified in Clause 5.04(iv). If APACHE and FX do not give
notice of their election to proceed with Operations, they shall be
deemed to have elected not to proceed pursuant to Clause 2.04.
2.04 If APACHE and FX give notice of their election not to proceed with
Operations pursuant to Clause 2.03 above, APACHE and FX at their sole
cost and expense shall:
(i) remediate damage resulting from Well Tests;
(ii) remediate damage resulting from Operations in those Existing
Wells that have been Re-entered, and, at POGC's option, they
either shall Plug and Abandon those wells according to a
program approved by POGC or hand those wells over to POGC; and
(iii) remediate the surface covered by the Baseline Study and to
the extent required by Polish law restore it to the condition
established in the Baseline Study.
Save as provided above, APACHE and FX shall not be responsible for any
other costs of Plugging and Abandoning of Existing Wells.
2.05 If APACHE and FX give notice of their election to proceed with
Operations pursuant to Clause 2.03 above, then the Partnership shall
be responsible for any costs of remediation of Existing Wells that
were Re-entered by APACHE and FX and subsequently used by the
Partnership and APACHE and FX shall be responsible for any costs of
remediation of Existing Wells that were Re-entered by APACHE and FX
and subsequently not used by the Partnership. POGC shall remain solely
responsible for the costs of remediation of any Existing Wells, which
have not been Re-entered by APACHE and FX. If APACHE and FX do elect
to proceed, no Existing Well shall be Plugged and Abandoned until
POGC, APACHE and FX agree that such Existing Well is of no possible
future use to them.
2.06 Upon their election to proceed with Operations pursuant to Clause 2.03
above APACHE and FX shall:
(i) create Partnership together with Affiliate designated by POGC or,
at POGC's option, POGC Affiliate shall accede a partnership of
APACHE and FX; in the event of acceding the previously created
partnership, APACHE and FX shall indemnify POGC Affiliate for any
liabilities of the Partnership arising from any act or omission by
APACHE or FX, or the previously created partnership acceded by POGC
Affiliate, which occurred prior to such accession; as soon as
possible after execution of this Agreement, POGC Affiliate, APACHE
and FX:
(a) in the event of creating a Partnership by POGC Affiliate, APACHE
and FX, shall commence negotiations in good faith with the aim of
agreeing on the terms of a mutually acceptable Partnership
agreement;
(b) in the event of acceding by POGC Affiliate a partnership
previously created by APACHE and FX, shall commence negotiations
in good faith on the changes to the agreement of that partnership
with the aim of obtaining mutually acceptable terms of a
Partnership agreement;
(ii) make an in-kind contribution in the form of any equipment and
installations relating to the Farmin Wells, located in the Contract
Area and any other rights of APACHE and/or FX relating to the
Contract Area, to the extent and under conditions specified in
Polish law, including their respective rights to the geological
documentation concerning the Contract Area; contribution of the
above rights shall be made to the greatest possible extent and
subject to requirements of Polish law; APACHE and FX shall make to
POGC its representations and warranties set out in Paragraph 3 of
Schedule 3 at the time of their performance under this Clause
2.06(ii);
(iii) not commit any act or omission which would result in the breach of
any representation or warranty set out in Schedule 3; until
Partnership is created APACHE and FX shall use reasonable good
faith efforts to maintain rights as of the date of execution of
this Agreement being subject of in-kind contribution of APACHE and
FX to the Partnership unimpaired.
2.07 After APACHE and FX give notice of their election to proceed with
Operations pursuant to Clause 2.03, and after all conditions specified
in Clause 5.04 are fulfilled, POGC will earn the right to be carried
in one Carried Well. Immediately after the First Gas Delivery from the
Farmin Wells, POGC will earn the right to be carried in two additional
Carried Wells. "Right to be carried in a Carried Well" means that
APACHE and FX will cover all costs of drilling and Completing a given
Carried Well, including POGC's share of costs of drilling and
Completing a given Carried Well required under separate agreements
between those parties (excluding, however, the costs of surface
facilities), provided that POGC's share of costs of drilling and
Completing a given Carried Well to be paid by APACHE and FX shall not
exceed one third (1/3) of the total costs of such well. "Carried Well"
means a well selected by POGC from among all the wells to be drilled
in the Contract Area or in any other area covered by agreements
between APACHE, FX and POGC or their Affiliates, according to the
procedure specified in the applicable agreement. POGC may assign its
right to be carried in Carried Wells to any POGC Affiliate. Method of
fulfillment by APACHE and FX of their obligations to pay costs
associated with the right to be carried in Carried Wells shall be
governed by the relevant joint operating agreements or other
agreements between the parties. If APACHE and FX give notice of their
election to proceed with Operations pursuant to Clause 2.03, then POGC
shall select the first Carried Well within one (1) year of the
fulfillment of all conditions specified in Clause 5.04. Each Carried
Well shall be drilled within two (2) years from the date of
notification by POGC of its selection of a given Carried Well. POGC
shall select the Carried Wells from among wells of depths not greater
than four thousand five hundred meters (4,500 m) in which POGC, APACHE
and FX are all participating. Notwithstanding the above, the right to
be carried in a Carried Well shall terminate if a given Carried Well
is not selected within three and one half (3 1/2) years after the date
of execution of this Agreement.
2.08 If APACHE and FX determine that it is not technically or commercially
feasible to test one or more of the Farmin Wells, or if APACHE and FX
are not satisfied with the results of the Well Tests of any Farmin
Well, then in either case APACHE and FX may elect to utilize and
sidetrack from any other Existing Well.
2.09 If APACHE and FX give notice of their election to proceed with
Operations pursuant to Clause 2.03 above, then in respect of each
productive Farmin Well, subject to fulfillment of all conditions
specified in Clause 5.04, they shall install production, gathering,
treatment and measurement facilities sufficient to deliver pipeline-
quality gas to the Delivery Point, all to the extent it is technically
and commercially feasible to do so, at the sole cost of APACHE and
FX.
CLAUSE 3 - OBLIGATIONS OF POGC
3.01 In consideration of APACHE and FX making an affirmative election to
proceed under Clause 2.03 above POGC shall:
(i) cause its Affiliate to create Partnership together with APACHE and FX
or, at POGC's option, POGC Affiliate shall accede a partnership of
APACHE and FX; in the event of acceding the previously created
partnership, FX and APACHE shall indemnify POGC Affiliate for any
liabilities of the Partnership arising from any act or omission by
APACHE or FX, or the previously created partnership acceded by POGC
Affiliate, which occurred prior to such accession; as soon as possible
after execution of this Agreement, POGC Affiliate, APACHE and FX:
(a) in the event of creating a Partnership by POGC Affiliate, APACHE
and FX, shall commence negotiations in good faith with the aim of
agreeing on the terms of a mutually acceptable Partnership
agreement;
(b) in the event of acceding by POGC Affiliate a partnership
previously created by APACHE and FX, shall commence negotiations
in good faith on the changes to the agreement of that partnership
with the aim of obtaining mutually acceptable terms of a
Partnership agreement;
(ii) cause the following assets to be contributed to the Partnership:
(a) any equipment and installations relating to the Existing Wells,
upon decisions provided for in the POGC Articles of Incorporation
are made;
(b) POGC's rights to geological documentation concerning the Contract
Area;
(c) POGC's rights under the Petroleum Contract, to the extent and
under conditions specified in Polish law, provided the
permissibility of such contribution will be confirmed in a legal
opinion delivered by POGC legal counsel, the copy of which shall
be transferred to APACHE and FX; and
(d) any other rights relating to the Contract Area, held by POGC on
the date hereof or acquired prior to the fulfillment of all
conditions specified in Clause 5.04, necessary or desirable for
the Operations;
contribution of the above rights shall be made to the greatest
possible extent and subject to requirements of Polish law; POGC shall
make to APACHE and FX its representations and warranties set out in
Paragraph 2 of Schedule 2 at the time of its performance under this
Clause 3.01(ii);
(iii) not commit any act or omission which would result in the breach
of any representation or warranty set out in Schedule 2; until
Partnership is created POGC shall use reasonable good faith
efforts to maintain rights as of the date of execution of this
Agreement being subject of in-kind contribution of POGC or its
Affiliate to the Partnership unimpaired;
(iv) if POGC elects to build the Pipeline in accordance with Clause
2.03, build, as soon as possible, but no earlier than upon
fulfillment of conditions specified in Clause 5.04(iv) and
(vi), the Pipeline enabling the acceptance of natural gas
quantities agreed in the Sales Agreement;
(v) if POGC elects to build the Pipeline in accordance with Clause
2.03, upon fulfillment of all other conditions specified in
Clause 5.04, sign the Sales Agreement as the purchaser of gas,
the Sales Agreement, as regards the obligations to sell and
purchase gas, shall not become effective until the condition
specified in Clause 5.04(vi) is fulfilled and the Pipeline
mentioned in Clause 3.01(iv) above is built.
CLAUSE 4 - GOVERNMENTAL PERMITS
If the fulfillment of any obligation of the Parties hereunder is subject to
Governmental Permit, the Parties to this Agreement shall use their best efforts
to obtain the relevant Governmental Permit and shall cooperate in good faith to
obtain the same.
CLAUSE 5 - OBLIGATIONS OF PARTIES UPON ESTABLISHMENT OF PARTNERSHIP
5.01 As soon as Partnership exists, APACHE, FX and POGC Affiliate, in its
capacity as a partner of the Partnership, shall commence negotiations
in good faith with the aim of agreeing, as soon as possible, on the
content of the JOA and the execution thereof.
5.02 As soon as Partnership exists all Parties shall cooperate in order for
the Partnership to enter into appropriate mining usufruct agreements
with the State Treasury and to obtain the necessary concessions
covering the entire Contract Area or parts thereof agreed upon by the
Parties, and POGC shall relinquish its rights arising under the
Petroleum Contract to the extent necessary in order for the
Partnership to enter into such mining usufruct agreements and obtain
such concessions.
5.03 APACHE and FX shall have the right to propose to POGC additional
wells, other than Farmin Wells in the Contract Area. Additionally, in
the event that within the duration of this Agreement, any exploitation
concessions are granted which cover a part of the Contract Area, all
Parties shall, by applying per analogy the provisions of Clause 5.02
above, cooperate in order for the Partnership to enter into comparable
mining usufruct agreements with the State Treasury and to obtain the
comparable concessions, and POGC shall, relinquish the rights arising
under the concessions granted to it and the respective mining usufruct
agreements to the extent necessary in order for the Partnership to
enter into comparable mining usufruct agreements and obtain comparable
concessions.
5.04 Obligations of APACHE and FX under Clauses 2.07, 2.08 and 2.09 shall
not arise, unless and until the following conditions precedent have
been fulfilled:
(i) formation of the Partnership according to Clauses 2.06(i) and
3.01(i) above;
(ii) making by APACHE and FX of the in-kind contribution referred to in
Clause 2.08(ii) upon making by APACHE and FX of their
representations and warranties mentioned in the last sentence of
Clause 2.06(ii);
(iii) making by POGC designated Affiliate of the in-kind contribution
referred to in Clause 3.01(ii), upon delivery of a legal opinion
mentioned in Clause 3.01(ii)(c) and upon making by POGC or POGC
Affiliate of its representations and warranties mentioned in the
last sentence of Clause 3.01(ii);
(iv) execution of Sales Agreement by the parties thereto, if POGC
commits to build the Pipeline;
(v) execution of JOA by all partners of the Partnership;
(vi) obtaining by the Partnership of the mining usufructs and
concessions referred to in Clause 5.02; and
(vii) obtaining by the Partnership of the mining usufructs and
concessions referred to in Clause 5.03, if POGC obtains any such
mining usufruct and concession prior to the fulfillment of the
conditions precedent listed as (i) through (vi).
5.05 Obligations of POGC or POGC Affiliate under Clauses 3.01(iv) and
3.01(v) shall not arise, unless and until the conditions precedent
specified in these Clauses have been fu1filled.
CLAUSE 6 - LIABILITY
6.01 POGC and its Affiliate in its capacity as a partner of the Partnership
shall be liable for all costs, charges, expenses, liabilities and
obligations in respect of the rights and property referred to in
Clause 3.01(ii), which are incurred before the date of execution of
this Agreement, including any environmental remediation and costs of
such remediation (as provided in Clause 2.04), arising from the
condition of the Existing Wells as specified in the Baseline Study.
POGC shall reimburse and indemnify APACHE and FX against any costs,
charges, expenses, liabilities and obligations in respect of which it
and/or its Affiliate assumes liability pursuant to this Clause 6.01
but which are paid by APACHE and FX and/or their Affiliates. Any
costs, charges and expenses referred to above to be reimbursed by
POGC, shall be agreed upon with POGC before they are incurred.
6.02 APACHE and FX shall be liable in one third (1/3) each for all costs,
charges, expenses, liabilities and obligations in respect of the
rights and property referred to in Clause 3.01(ii), which are incurred
on or after the date of execution of this Agreement, prior to the
contribution of such rights to the Partnership. APACHE and FX shall
also be liable in one half (1/2) each for and any costs for which they
have assumed responsibility under Clause 2.04 above. APACHE and FX
shall reimburse and indemnify POGC against any costs, charges,
expenses, liabilities and obligations in respect of which they assume
liability pursuant to this Clause 6.02 but which are paid by POGC
and/or its Affiliates. Any costs, charges and expenses referred to
above to be reimbursed by APACHE and FX shall be agreed upon with
APACHE and FX before they are incurred.
6.03 APACHE and FX shall indemnify and keep POGC and POGC Affiliate
harmless against any liabilities resulting from the Operations
conducted by APACHE and FX within the Contract Area prior to
fulfillment of conditions precedent specified in Clause 5.04,
including third party claims, provided that POGC or its Affiliate
shall not agree to any settlement with the claimant without first
obtaining a consent by APACHE and FX. .
6.04 Notwithstanding any other provision of this Agreement, no Party shall
in any circumstances be liable to the other Party under, arising out
of or in any way connected with this Agreement for any consequential
loss or damage howsoever arising. For the purposes of this Clause
6.04, consequential loss shall include but not be limited to any
obligation or inability to produce Hydrocarbons, lost production or
loss of contract, revenue or profits howsoever arising.
6.05 Any liability of APACHE and FX hereunder shall be joint and several.
Joint and several liability shall in no event be extended to
obligations of APACHE OVERSEAS, INC. and FX ENERGY, INC. hereunder.
CLAUSE 7 - GUARANTEE BY APACHE OVERSEAS, INC. AND FX ENERGY, INC.
7.01 APACHE OVERSEAS, INC. hereby guarantees the performance by APACHE of
any of its obligations under Clauses 2.01, 2.04 and 6.03 above,
provided that guarantee of APACHE OVERSEAS, INC shall not extend to
any liability or obligation of APACHE arising from a default occurring
after all conditions specified in Clause 5.04 are fulfilled, and
provided that this guarantee shall cover one half (1/2) of the overall
liability of APACHE and FX under Clauses 2.01, 2.04 and 6.03 above.
7.02 FX ENERGY, INC. hereby guarantees the performance by FX of any of its
obligations under Clauses 2.01, 2.04 and 6.03 above, provided that
guarantee of FX ENERGY, INC. shall not extend to any liability or
obligation of FX arising from a default occurring after all conditions
specified in Clause 5.04 are fulfilled, and provided that this
guarantee shall cover one half (1/2) of the overall liability of
APACHE and FX under Clauses 2.01, 2.04 and 6.03 above.
CLAUSE 8 - REPRESENTATIONS AND WARRANTIES OF APACHE, FX AND POGC
8.01 Subject to the provisions of Clause 8.03 below POGC hereby and as of
the date of execution of this Agreement makes to APACHE and FX the
representations and warranties set out in Schedule 2, provided that
the representation contained in Paragraph 2 of Schedule 2, shall be
made by POGC or its designated Affiliate at the time of contributing
to the Partnership the assets referred to in Clause 3.01(ii).
8.02 Subject to the provisions of Clause 8.03 below, APACHE and FX hereby
and as of the date of execution of this Agreement respectively
represent and warrant to POGC in the terms set out in Schedule 3,
provided that the representation contained in Paragraph 3 of Schedule
3, shall be made by APACHE and FX at the time of contributing to the
Partnership the assets referred to in Clause 2.06(ii).
8.03 APACHE and FX shall not be entitled to claim that any fact or matter
constitutes breach of the representations and warranties set out in
Schedule 2 nor shall POGC be entitled to claim that any fact or matter
constitutes a breach of the representations and warranties set out in
Schedule 3 to the extent that such fact or matter is known by the
relevant Party or is referred to herein or in any of the Schedules.
8.04 POGC undertakes to provide APACHE and FX with all existing data in its
possession and not previously delivered to APACHE and FX relating to
the Existing Wells and the areas adjacent to them, within thirty (30)
days of the date of execution of this Agreement.
8.05 Save as set out in Clause 8.01, POGC makes no representations or
warranties in respect to the subject matter of this Agreement, and
APACHE and FX represent that each of them respectively have made their
own independent evaluation of the data, costs, and prospects relevant
to the Contract Area.
CLAUSE 9 - OPERATIONS
9.01 The Operations shall be conducted by APACHE.
9.02 (i) In order to enable APACHE to conduct Operations, POGC shall, at
the date of execution of this Agreement, grant to APACHE an
authorization set out in Schedule 4 and shall grant on request of
APACHE all and any further authorizations that may be necessary;
and
(ii) any applications by APACHE and FX to organs of public
administration in matters pertaining to Operations shall be made
in consultation with POGC.
9.03 APACHE shall cause the Operations specified in Clause 2.01 above to
be commenced within ninety (90) days after the date of execution of
this Agreement and shall use its reasonable good faith efforts to
complete The same within one hundred eighty (180) days from the
commencement. If APACHE fails to complete the Operations within the
time specified above, the prohibition specified in Clause 9.05 below
shall cease to apply.
9.04 In respect of the Farmin Wells, all decisions relating to the
deepening or sidetracking thereof shall be made by APACHE and FX, and
any costs associated therewith shall be borne by APACHE and FX.
9.05 Until such time as APACHE and FX have completed the Operations, in
accordance herewith, no Party nor any of their respective Affiliates
shall conduct any exploration operations in the Contract Area except
as required to fulfill its obligations under this Agreement.
9.06 The Operations shall be conducted in conformity with Polish law and
international oil and gas industry standards. If a given international
oil and gas industry standard contravenes Polish law, the Operations
shall be conducted pursuant to Polish law.
CLAUSE 10 - DEFAULT AND TERMINATION
10.01 If APACHE and FX fail to commence Operations specified in Clause 2.01
above within ninety (90) days after the date of execution of this
Agreement, then in such case POGC shall have the right to terminate
this Agreement forthwith by a written notice to APACHE and FX.
10.02 If APACHE and FX fail to fulfill their obligations specified in Clause
2.01 above, and such failure is not remedied within thirty (30) days
from a written notice by POGC to APACHE and FX, then in such case POGC
shall have the right to require APACHE and FX to immediately terminate
the Operations, abandon the Contract Area, remediate damages resulting
from the Operations and Plug and Abandon the wells in which Operations
were conducted. APACHE and FX shall not be entitled to any claims
toward POGC for the refund of any sums paid for: Operations,
remediation of damages resulting from the Operations and Plugging and
Abandoning of the wells. In such case, POGC shall have the right to
terminate this Agreement forthwith by a written notice to APACHE and
FX.
10.03 If APACHE and FX fail to satisfy their obligations under Clause 2.07
to cover the applicable part of the costs described therein, then each
of them will pay POGC Seven Hundred Fifty Thousand U.S. dollars (U.S.
$750,000) equivalent for each well in which POGC has the right to be
carried and which is not drilled. APACHE and FX's obligations flowing
from POGC's right to be carried shall be deemed fulfilled as soon as
the aforementioned sum is paid to POGC.
10.04 If any of the conditions precedent listed in Clause 5.04 are not
fulfilled within one hundred and eighty (180) days from the date of
the election to proceed with Operations under Clause 2.03 above, any
Party shall have the right to terminate this Agreement forthwith by a
written notice to the other Parties.
10.05 If the suspension of obligations of a Party under this Agreement due
to Force Majeure persists for more than one hundred and eighty (180)
days, each of the Parties shall have the right to terminate this
Agreement forthwith by a written notice to the other Parties.
10.06 In the event of termination of this Agreement pursuant to this Clause
10 APACHE and FX shall not be entitled to the refund of any sums paid
pursuant to the terms of this Agreement prior to such termination.
10.07 Notwithstanding the termination of this Agreement pursuant to this
Clause 10, the Parties shall remain bound by the provisions of Clause
12 within two (2) years from the date of termination of this
Agreement.
CLAUSE 11 - FORCE MAJEURE
The obligations of each of the Parties hereunder (other than obligations to make
payments) shall be suspended while and to the extent that such Party is
prevented or hindered from complying therewith by any cause (other than lack of
financial capability of such Party) directly affecting the performance of such
obligations, beyond the reasonable control of such Party or which the Party
affected thereby could not foresee or prevent acting with the diligence required
by international oil and gas industry standards ("Force Majeure"). In an event
of occurrence of Force Majeure the Party affected thereby shall give notice of
the suspension of its obligations as soon as possible to the other Party stating
the date and extent of such suspension and the cause thereof and shall undertake
all action reasonably required in accordance with international oil and gas
industry standards to remove or mitigate the effect of Force Majeure. The Party
concerned shall resume the performance of such obligations as soon as
reasonably possible after the removal of the cause and shall so notify the other
Party.
CLAUSE 12 - ANNOUNCEMENTS AND CONFIDENTIALITY
12.01 No Party shall issue or make any public announcement or statement
regarding this Agreement or the Operations unless prior thereto it
furnishes the other Parties with a copy of such announcement or
statement forty eight (48) hours in advance of issuance, provided
that, no Party or Affiliate of such Party shall be prohibited from
issuing or making any such public announcement or statement is
required by law or regulations and practices of a recognized stock
exchange.
12.02 All information and data relating to this Agreement or the Operations
as well as the information and data acquired or obtained by any Party
in respect of Operations shall be considered confidential and shall be
kept confidential and not be disclosed during the term of this
Agreement to any person or entity not a Party to this Agreement,
except:
(i) to an Affiliate;
(ii) to a governmental agency or other entity when required by the
Petroleum Contract;
(iii) to the extent such data and information is required to be furnished
in compliance with any applicable laws or regulations, or pursuant
to any legal proceedings or because of any order of any court
binding upon a Party;
(iv) to prospective or actual contractors, consultants and attorneys
employed by any Party where disclosure of such data or information
is essential to such contractor's, consultant's or attorney's work;
(v) to a prospective assignee of a Party's rights under this Agreement;
(vi) to a bank or other financial institution to the extent appropriate
to a Party arranging for funding;
(vii) to the extent such data and information must be disclosed pursuant
to any applicable law or regulations and practices of a recognized
stock exchange;
(viii) to the extent that any data or information, through no fault of a
Party, becomes a part of the public domain;
any information or data referred to in this Clause 12.02(iv), (v) and (vi)
shall not be disclosed unless prior to such disclosure the disclosing Party
has obtained a written undertaking from the recipient party to keep the
data and information strictly confidential for at least three (3) years and
not to use or disclose the data and information except for the express
purpose for which disclosure is to be made.
CLAUSE 13 - NOTICES
13.01 Any notice under this Agreement shall be in writing and signed by or
on behalf of the Party giving it and may be served by leaving it at or
sending it by facsimile, prepaid recorded delivery or registered post
to the address and for the attention of the relevant Party set out in
Clause 13.02 (or as otherwise notified from time to time hereunder).
Any notice so served by facsimile or post shall be deemed to have been
received in the case of facsimile, on the first Business Day next
after the day of recorded receipt, and in the case of recorded
delivery or registered post, upon the lapse of forty eight (48) hours
from the recorded delivery; provided that in the case of a facsimile
the Party serving the notice must have received confirmation of
receipt by answer back or equivalent.
13.02 The addressee and other correspondence details of the Parties for the
purpose of this Agreement are as follows:
POLSKIE GORNICTWO NAFTOWE i
GAZOWNICTWO S.A.
ul. Krucza 6/14
00-537 Warsaw, Poland
Attention: Dr. Witold Weil
fax: (48 22) 623 58 62
APACHE OVERSEAS, INC.
2000 Post Oak Boulevard
Houston, Texas 77056-4400
Attention: Floyd R. Price
fax: (1 713) 296-6451
APACHE POLAND SP. Z O.O.
ul. Pulawska 15
02-515 Warsaw, Poland
Attention: General Manager
fax: (48 22) 521-4300
FX ENERGY, INC.
3006 Highland Drive, #206
Salt Lake City, Utah 84106
Attention: Andy Pierce
fax: (1 801) 486-5575
FX ENERGY POLAND SP. Z O.O.
ul. Staro cinska 5
02-516 Warsaw, Poland
Attention: General Manager
and all other correspondence in respect of this Agreement shall be sent to
the Party in question at such address or fax number, and marked for the
attention of such person, or to such other address or fax numbers and for
the attention of such other person as either Party may notify in writing to
the other.
CLAUSE 14 - COSTS, EXPENSES AND TAXES
14.01 Each Party shall pay its and its Affiliates' own costs and expenses in
relation to the preparation and execution of this Agreement and the
documents contemplated hereby or executed pursuant hereto.
14.02 Each Party shall be responsible for the timely payment of all taxes
and stamp duties arising in connection with the performance of such
Party's obligations hereunder.
CLAUSE 15 - RELATIONSHIP OF PARTIES
Except for the formation of the Partnership, it is not the intention of the
Parties to create among them for the purpose of conducting Operations pursuant
to this Agreement a separate business entity in which all of the Parties hereto,
or their Affiliates, would be partners or shareholders.
CLAUSE 16 - ASSIGNMENT
The rights and obligations of any Party under this Agreement shall not be
assignable, except to an Affiliate, without the prior written consent of the
other Parties (such consent not to be unreasonably withheld).
CLAUSE 17 - GENERAL
17.01 No waiver by any Party of any breach of a provision of this Agreement
shall be binding unless made expressly and in writing and any such
waiver shall relate only to the breach to which it expressly relates
and shall not apply to any subsequent or other breach.
17.02 This Agreement shall enure to the benefit of and be binding upon the
respective successors and permitted assigns of the Parties.
17.03 If any provision of this Agreement is determined to be invalid or
unenforceable, or if the Parties fail to obtain a Governmental Permit
required to perform thereunder, the Parties shall use their good faith
efforts to agree upon appropriate remedies which may include
modifications to the terms of this Agreement enabling the Parties to
achieve the originally intended economic objective to the extent
feasible.
CLAUSE 18 - GOVERNING LAW AND ARBITRATION
18.01 This Agreement shall be governed by Polish law.
18.02 Any dispute, controversy or claim arising out of or in relation to or
in connection with this Agreement shall be settled by the Arbitration
Court of the Polish Chamber of Commerce in Warsaw, according to
Arbitration Rules of UNCITRAL. In the event Arbitration Rules of
UNCITRAL occur inapplicable by this court, any dispute, controversy or
claim arising out of or in relation to or in connection with this
Agreement shall be settled by the Arbitration Court of the Polish
Chamber of Commerce in Warsaw, according to its rules.
CLAUSE 19 - ENTIRE AGREEMENT
This Agreement supersedes all previous communications (whether oral or written)
including all previous correspondence with respect to the Contract Area which
has passed between the Parties and represents the entire agreement between the
Parties relating to the matters contemplated hereby.
CLAUSE 20 - COUNTERPARTS AND LANGUAGE
This Agreement has been executed in five counterparts in Polish and five in
English, the Polish version prevailing in the event of any discrepancy between
them.
IN WITNESS whereof this Agreement has been signed by the duly authorized
representatives of the Parties on the day and year first above written.
POLSKIE GORNICTWO NAFTOWE
I GAZOWNICTWO S.A.
By /s/ Aleksander Findzinski By /s/ Witold Weil
APACHE OVERSEAS, INC. FX ENERGY, INC.
By /s/ Floyd R. Price By /s/ Andrew W. Pierce
APACHE POLAND SP. Z O.O. FX ENERGY POLAND SP. Z O.O.
By /s/ Mark W. Bauer By /s/ Jerzy B. Maciolek
SCHEDULE 1
PLAN AND COORDINATES OF THE CONTRACT AREA
COPIES OF THE PETROLEUM CONTRACT
The Contract Area consists of the Zyweic-Wadowice, Lachowice and Stryszawa-
Lanckorona Exploration Concession areas onshore in the Northern Carpathians of
the Republic of Poland, as follows:
Concession Latitude Longitude
- --------------- ------------- -------------
Deg Min Sec Deg Min Sec
--- --- --- --- --- ---
Zyweic-Wadowice 49 58 19 19 29 40
Zyweic-Wadowice 49 49 22 19 29 57
Zyweic-Wadowice 49 43 55 19 28 19
Zyweic-Wadowice 49 43 47 19 25 16
Zyweic-Wadowice 49 42 10 19 18 42
Zyweic-Wadowice 49 41 22 19 14 24
Zyweic-Wadowice 49 57 20 19 13 49
Deg Min Sec Deg Min Sec
--- --- --- --- --- ---
Lachowice 49 42 10 19 18 42
Lachowice 49 43 47 19 25 16
Lachowice 49 41 12 19 27 12
Lachowice 49 39 5 19 21 14
Deg Min Sec Deg Min Sec
--- --- --- --- --- ---
Stryszawa-Lanckorona 49 50 31 19 45 0
Stryszawa-Lanckorona 49 48 0 19 45 0
Stryszawa-Lanckorona 49 40 21 19 38 3
Stryszawa-Lanckorona 49 38 37 19 28 53
Stryszawa-Lanckorona 49 41 12 19 27 12
Stryszawa-Lanckorona 49 43 47 19 25 16
Stryszawa-Lanckorona 49 43 55 19 28 19
SCHEDULE 2
REPRESENTATIONS AND WARRANTIES OF POGC
1. POGC is a sole holder of concessions and a sole mining usufructuary under
mining usufruct agreements constituting together the Petroleum Contract, as
defined in Clause 1.01(xviii).
2. POGC has full power to contribute the rights and things referred to in
Clause 3.01(ii) of this Agreement free of any encumbrances of whatever
nature as an in-kind contribution to the Partnership.
3. POGC is duly incorporated in the Republic of Poland and has full power and
authority to enter into this Agreement and to perform its obligations
hereunder.
4. POGC has complied in all material respects with the provisions of the
Petroleum Contract and has not received any notice of any dispute or breach
relating thereto.
5. All the provisions of the Petroleum Contract required to be fulfilled prior
to the date of execution of this Agreement have been duly fulfilled and
there has been no act or omission by POGC which might result in termination
of the Petroleum Contract.
6. To the best of POGC's knowledge, no litigation, arbitration or
administrative proceeding is in existence or threatened or pending with
respect to matters covered by this Agreement or the Petroleum Contract, and
no judgment or award has been given or made by any court or tribunal or
government agency which relates to the subject matter of this Agreement or
the Petroleum Contract.
7. Schedule 1 includes true copies of the Petroleum Contract as binding on the
date of execution of this Agreement.
SCHEDULE 3
REPRESENTATIONS AND WARRANTIES OF APACHE AND FX
APACHE and FX each for itself makes the warranties as set out below:
1. APACHE is a company duly incorporated in the Republic of Poland and has
full power and authority as provided in (4) below, to enter into this
Agreement and to perform its obligations hereunder.
2. FX is a company duly incorporated in the Republic of Poland and has full
power and authority as provided in (4) below, to enter into this Agreement
and to perform its obligations hereunder.
3. Both APACHE and FX have full power to contribute the rights and things
referred to in Clause 2.06(ii) free of any encumbrances of whatever nature
as an in-kind contribution to the Partnership.
4. Neither the execution of nor the performance of any of the transactions
contemplated by this Agreement, will contravene or constitute a default
under any provision contained in any agreement, instrument, law, judgment,
order, license, permit or consent by which APACHE or FX any of their
respective assets is bound or affected.
5. No event has occurred which constitutes, or which could constitute, a
contravention of, or default under any agreement or instrument by which
APACHE or FX is bound or affected, being a contravention or default which
would have a material adverse effect on the business, assets or condition
of APACHE or FX and which would materially and adversely affect its ability
to observe or perform its obligations under this Agreement and the
transactions contemplated hereby.
6. No litigation, arbitration or administrative proceeding or claim which
might by itself or together with any other such proceedings or claims have
a material adverse effect on its business, assets or condition and which
would materially and adversely affect its ability to observe or perform its
obligations under this Agreement and the agreements contemplated hereby, is
presently in progress or pending or, to the best of the knowledge,
information and belief of APACHE threatened against APACHE or any
Affiliate of APACHE, or, to the best of the knowledge, information and
belief of FX threatened against FX or any Affiliate of FX.
SCHEDULE 4
Warsaw, this 26th day of February, 1999
AUTHORIZATION
POLSKIE GORNICTWO NAFTOWE i GAZOWNICTWO S.A., with its registered seat in
Warsaw, at ul. Krucza 6/14, 00-537 Warsaw, entered into the Commercial Register
maintained by the District Court in Warsaw under the RHB No. 48382 ("POGC")
hereby agrees that the limited liability company:
APACHE POLAND Sp. z o.o.
with its registered seat in Warsaw, at ul. Pu3awska 15, 02-515 Warsaw,
entered into the Commercial Register maintained by the District Court in Warsaw
under the RHB No. 48161 ("APACHE");
conduct operations with the purpose of discovering hydrocarbon reservoirs and
their development for production within the concessions areas of Zyweic-
Wadowice, Stryszawa-Lanckorona and Lachowice covered by concessions granted to
POGC for exploration of deposits of oil and natural gas numbered 64/98/p, 4/96/p
and 9/95/p, and therefore hereby authorizes APACHE, effective from February 26,
1999, until revocation, to conduct all works which may be necessary or desirable
to attain the objective referred to above.
POGC in particular authorizes APACHE to test the following wells: Lachowice 1,
Lachowice 7 and Stryszawa 2K, to re-enter and complete them, and then in
respect of each of the wells just referred to which occurs productive, to
install gas production, gathering, treatment and measurement facilities, and to
plug and abandon those wells which occur dry.
POGC authorizes APACHE to act on behalf of POGC vis-a-vis any person or entity,
governmental authority, court or any administrative body, with respect to all
matters regarding geological and mining works or other operations related to
hydrocarbon deposits located within the above described areas.
APACHE POLAND shall have the right, subject to POGC approval, to enter on its
own behalf into contracts for any work necessary or desirable to attain the
above referenced objective, and to apply for any governmental authorizations
required for such works.
POLSKIE GORNICTWO NAFTOWE
I GAZOWNICTWO S.A.
By /s/ Aleksander Findzinski By /s/ Witold Weil