EXHIBIT 10.1
FARMOUT AGREEMENT
This Agreement, entered into as of September 25, 2002, between Colorado
Wyoming Reserve Company, 751 Horizon Ct., #205, Grand Junction, CO 81506
("CWR"), as "Farmor", and S T Oil Company, 1801 Broadway, Suite 600, Denver, CO
80202 ("STO"), and The Shoreline Companies, LLC, P. O. Box 3437, Englewood, CO
80155 ("Shoreline"), as "Farmees".
RECITALS:
WHEREAS, Farmor owns an undivided Forty-Two and One-Half Percent (42.5%)
working interest and Farmees collectively own an undivided Thirty-four and
One-Half Percent (34.5%) working interest in and to the land and oil and gas
leases described in Exhibit "A" ("Leases") insofar as they are located in the
1,400 acres as outlined on the map on Exhibit "B" ("Remington Prospect"). in San
Juan County, Utah; and
WHEREAS, Farmor and Farmees have arrived at an agreement whereby Farmees
will drill a well on the Leases, and Farmor will either participate for its
proportionate share of the costs of said well, or Farmees will pay Farmor's
share of the costs and thereby earn certain interests of Farmor in the Leases
pursuant to the terms and conditions hereinafter set forth;
NOW THEREFORE, for and in consideration of the mutual promises and
covenants herein contained, the parties hereto have agreed as follows:
1. TEST WELL. On or after November 15, 2002, Farmees agree to commence, or
cause to be commenced, the drilling of a well ("Test Well") at a legal location
of 1910 feet FNL and 1850 feet FWL in the SE/4NW/4 of Section 22, Township 31
South, Range 23 East ("Test Well Drillsite"), and to prosecute the drilling and
testing of said well with due diligence and in a good and workmanlike manner.
The Test Well shall be drilled to a depth sufficient to test the
Pennsylvanian/Lower Ismay formation, or to total depth of 5,500 feet, whichever
is the lesser ("Contract Depth"). In the event there is a delay in the
commencement date due to regulatory requirements or drilling rig availability, a
reasonable extension shall be granted.
2. SUBSTITUTE WELL. If, in the drilling of the Test Well, Farmees should
encounter heaving shale, high pressures, igneous rock or other similar
impenetrable substances or conditions, whether natural or mechanical, which
render continued drilling impracticable in the sole discretion of the Farmees,
the well may be properly abandoned. Thereafter, Farmees shall have the option to
commence operations within ninety (90) days of discontinuing the drilling of the
applicable well, to drill a substitute well in replacement thereof ("Substitute
Well") at a new location of Farmee's choice on the Leases and to Contract Depth.
Should Farmees exercise such option, it shall notify Farmor, and within thirty
(90) days following
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discontinuing drilling of the Test Well, commence such operations for such
Substitute Well and thereafter, such well shall be considered, for all purposes,
as though it were the well for which it is a substitute.
3. FARMOR'S OPTION TO EITHER PARTICIPATE OR FARMOUT. Farmor shall have the
option to either participate in the drilling of the Test Well for its
proportionate share, or to farmout its interest under the terms hereof. A
preliminary AFE, attached hereto as Exhibit "C" sets forth the estimated costs
of drilling and completing the Test Well. On or before thirty (30) days to
having an executed contract with a Drilling Rig Contractor for the Test Well,
Farmees shall give Farmor notice of their intent to commence drilling operations
("Notice to Commence Drilling"), together with a final AFE for such well. If
Farmor wishes to participate in the Test Well, Farmor must submit its
proportionate share of the estimated drilling costs as set forth in the final
AFE within thirty (10) days of receipt of the Notice to Commence Drilling.
Failure to submit the drilling costs within the time set forth above shall be
deemed Farmor's election not to participate, and to farmout Farmor's interests
to the Farmees's in accordance with the terms and provisions hereinafter set
forth.
4. COSTS AND EXPENSES. All of Farmor's costs and expenses incurred or
arising out of the drilling, testing, completing, and equipping or the plugging
and abandoning the Test Well shall be borne by the Farmees if Farmor elects not
to participate in the drilling.
5. EARNING. If Farmees commence and drill the Test Well to Contract
Depth according the terms hereof, Farmees shall earn:
(a) all of Farmor's right, title and interest in and to the Leases as
to all depths, insofar as the Leases cover the Drillsite Tract (as
hereinafter defined) for the Test Well subject to the back-in
further defined in Section 6 of this Agreement.
(b) the right to designate within Ninety (90) days after reaching
contract depth in the Test Well, a second drillsite tract
("Second Drillsite Tract") for a well to be located within the
Remington Prospect ("Second Well") within which Farmees shall
earn at Farmor's option either (i.) Sixty Percent (60%) of
Farmor's Forty-Two and One-Half Percent (42.5%) interest in and
to the Second Drillsite Tract if Farmor elects to participate for
its remaining Forty Percent (40%) of Forty-Two and One Half
Percent (42.5%) working interest in the Second Well, or (ii.) all
of Farmor's interest in and to the Second Drillsite Tract and
Second Well subject to a back-in further defined in Section 6 of
this Agreement, if Farmor elects to farmout its
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entire interest. Farmees must make their designation within the
Ninety (90) days by giving notice to Farmor, and Farmor shall
have ten (10) days within receipt of Farmee's designation, to
give notice of its election to either option (i.) or (ii.) above.
Failure by Farmor to submit its election, shall deem Farmor's
election to farmout its entire interest. In the event a second
well is proposed by a party to the Operating Agreement within the
Ninety (90) day period as hereinabove set out, Farmees shall have
the option to either designate it the Second Well and be subject
to above options (i) or (ii), or proceed designating a Second
Drillsite Tract of their choice.
The "Drillsite Tracts" shall be the 160 acre quarter section within which
the wells are located.
6. BACK-IN. For thirty (30) days following receipt of written notice of
Payout (as hereinafter defined) from Farmees, Farmor shall have the option, but
not the obligation, to back-in for thirty percent (30%) of the interest
previously assigned hereunder from Farmor to Farmees in the Drillsite Tract for
the Test Well and the Second Drillsite Well for the Second Well to be effective
at 7:00 a.m. on the first day of the month following payout. Payouts for the
Test Well and the Second Well are calculated on a well by well basis and occur
independently of each other. Failure to notify Farmees in writing of Farmor's
election to back-in shall be deemed Farmor's election not to back-in.
7. ASSIGNMENTS.
a. Within ten (10) days after reaching Contract Depth in the Test
Well, Farmor shall execute and deliver unto Farmees an assignment to
Farmees of all of Farmor's right, title and interest in and to the
Lease(s) as to all depths, insofar as the Lease(s) cover the Drillsite
Tract for the Test Well
b. Within One Hundred and Twenty (120) days after reaching Contract
Depth in the Test Well, Farmor shall either execute and deliver unto
Farmees, depending on whether Farmor has selected option (i) or (ii)
described in paragraph 5b of this Agreement, an assignment to Farmees of
Sixty Percent (60%) of Farmor's Forty-Two and One-Half Percent (42.5%) in
and to the Second Drillsite Tract or all of Farmor's interest in and to
the Second Drillsite Tract subject to the hereinabove described back-in.
c. Within ten (10) days after receiving Farmor's written election to
back-in at Payout for the First Test Well or the Second Test Well,
Farmees shall execute and deliver unto Farmor a re-assignment of
thirty percent (30%) of the interest in the corresponding Drillsite
Tract previously assigned by Farmor to Farmees pursuant to this
Agreement to be effective as of 7:00 a.m. of the first day of the
month following payout.
d. Such interests shall be assigned to and from the Farmees in the
following proportions:
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STO 66.67%
Shoreline 33.33%
All assignments made pursuant to the terms hereof shall be in the
form attached hereto as Exhibit "D", and in addition, if federal or state
leases are involved, assignments shall be made on approved forms required
by the applicable governmental entity. The interests assigned hereunder
shall be free and clear of all liens, claims and encumbrances of
whatsoever kind or character other than lease burdens of record on the
date hereof, and the assignor agrees to indemnify and hold harmless the
assignee from any and all claims, demands, losses, damages and liabilities
(including attorneys fees and costs of litigation) arising out of or
resulting from any liens, claims and encumbrances.
7. PAYOUT FOR TEST WELL: "Payout" shall mean the day when Farmees have
recovered from proceeds of production attributable to the Test Well, less
royalties, overriding royalties and other lease burdens, and production taxes
(ie. ad valorem, severance, conservation and similar taxes assessed on
production), one hundred percent (100%) of all costs and expenses, tangible and
intangible, incurred by Farmees in the drilling, testing, completing and
equipping the Test Well, together with all of the operating costs and expenses
incurred during Payout
8. PAYOUT FOR SECOND WELL. "Payout" shall mean the day when Farmees have
recovered from proceeds of production attributable to the Second Well, less
royalties, overriding royalties and other lease burdens, and production taxes
(ie. ad valorem, severance, conservation and similar taxes assessed on
production), three hundred percent (300%) of all costs and expenses, tangible
and intangible, incurred by Farmees in the drilling, testing, completing and
equipping the Second Well, together with all of the operating costs and expenses
incurred during Payout.
9. FAILURE TO DRILL. If Farmees fail to drill the Test Well in the time
and manner provided herein, then this Agreement shall terminate and neither
party shall have any further obligation hereunder.
10. SUBSEQUENT WELLS: Costs and expenses incurred or arising out of the
drilling, testing, completing and equipping wells drilled subsequent to the
drilling of the Test Well and/or the Second Test Well in the Remington Propsect
("Subsequent Wells") shall be borne by the Farmor and Farmees in accordance to
their proportionate ownership.
11. OPERATING AGREEMENT. The Operating Agreement attached hereto as
Exhibit "E" shall govern the rights and obligations of the parties hereto as to
all lands covered by the Leases in the Remington Prospect. In the event there is
a conflict between the provisions of this agreement and provisions of the
Operating Agreement, the provisions of this Agreement shall control and prevail.
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12. NO PARTNERSHIP. It is not the purpose of intention of this Agreement
to create any partnership, mining partnership, or association, and neither this
Agreement nor the operations hereunder shall be construed or considered as
creating any such legal relationship. The liabilities of the parties shall be
several and not joint or collective. The Parties acknowledge that the Leases
remain subject to the Tax Partnership Agreement, attached as Exhibit "C" to that
certain Farmout Agreement dated effective September 22, 2000, among the Farmor,
the Farmees and FM Energy LLC.
13. NOTICE. Any notice required or permitted hereunder shall be made
in writing and shall be deemed to have been received and effective (a) on the
date of delivery, if delivered personally; (b) on the date of delivery if sent
by telefacsimile where a printed confirmation from the transmitting FAX machine
is retained as evidence of delivery; or (c) on the earlier of the third day
after mailing or the date of the return receipt acknowledgment, if mailed,
postage prepaid, by certified or registered mail, return receipt requested and
addressed as follows:
Colorado Wyoming Reserve Company
751 Horizon Ct., #205
Grand Junction, CO 81506
(970) 255-9995
Fax (970) 255-9238
ST Oil Company
1801 Broadway, Suite 600
Denver, CO 80202 (303) 296-1908
Fax (303) 296-0329
The Shoreline Companies, LLC
P.O. Box 3437
Englewood, CO 80155
(303) 779-3681
Fax (978) 428-0529
Any party may change its address by giving the other parties written
notice thereof, in which event notices shall thereafter be sent to the new
address.
14. ASSIGNABILITY. This Agreement may not be assigned by Farmor, in whole
or in part, with out the prior written consent of all Farmees.
15. MISCELLANEOUS. This Agreement shall be binding upon, and inure to the
benefit of, the parties hereto and their respective successors and permitted
assigns. This Agreement is the entire agreement among the parties hereto with
respect to the subject matter hereof, and supersedes all prior agreements and
understandings. Any modification to this
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Agreement shall be in writing and executed by each party hereto. If either party
hereto commences proceedings to enforce the terms of this Agreement, the party
that prevails in such proceeding shall be entitled to recover its reasonable
attorney's fees, court costs and litigation expenses. This Agreement may be
executed in counterparts. Time is of the essence with respect to the performance
of the provisions of this Agreement. The unenforceability or invalidity of any
provision hereof shall not affect the enforceability or validity of the balance
of this Agreement. This Agreement shall be governed by and construed in
accordance with laws of the State of Colorado.
IN WITNESS WHEREOF, the parties execute this Agreement as of the day and
year first above written.
Colorado Wyoming Reserve Company
/S/ Kim Fuest
------------------------------------
By: Kim Fuerst
Title: President
S T Oil Company
/s/ J. Samuel Butler
------------------------------------
By: J. Samuel Butler
Title: President
The Shoreline Companies, LLC
/s/ F. Robert Tiddens
------------------------------------
By: F. Robert Tiddens
Title: President
EXHIBIT "A"
Attached hereto and made part of that certain Agreement dated September 25,
2002, by and between Colorado Wyoming Reserve Company, ST Oil Company, and The
Shoreline Companies, LLC
UT5000.014
Lessor: Bureau of Land Management UTU-76832
Lessee: Larry J. White
Date: January 1, 1998
Description: INSOFAR AND ONLY INSOFAR AS LEASE COVERS
Township 31 South - Range 23 East, SLB&M
Sec. 15: S/2
San Juan County, Utah
UT5000.019
Lessor: State of Utah ML-47152
Lessee: Vern Jones
Date: November 1, 1995
Description: INSOFAR AND ONLY INSOFAR AS LEASE COVERS
Township 31 South - Range 23 East, SLB&M
Sec. 16: SE/4
Sec. 22: S/2NW/4, SE/4
San Juan County, Utah
UT5000.040
Lessor Bureau of Land Management UTU-76532
Lessee: Legacy Energy Corporation
Date: July 1, 1997
Description: INSOFAR AND ONLY INSOFAR AS LEASE COVERS
Township 31 South - Range 23 East, SLB&M
Sec. 21: E/2
San Juan County, Utah
UT5000.043
Lessor: State of Utah ML-48411
Lessee: Larry J. White
Date: January 26, 2000
Description: Township 31 South - Range 23 East, SLB&M
Sec. 22: SW/4
San Juan County, Utah
UT5000.052
Lessor: Bureau of Land Management UTU-76056
Lessee: Lane Lasrich
Date: February 1, 2002
Description: Township 31 South - Range 23 East, SLB&M
Sec. 22: N/2NW/4, NE/4
San Juan County, Utah
EXHIBIT "B"
REMINGTON PROSPECT
SAN JUAN COUNTY, UTAH
Attached to and made a part of that certain Agreement dated September 25, 2002
between Colorado Wyoming Reserve Company, ST Oil Company and The Shoreline
Companies LLC
[MAP OF REMINGTON PROSPECT IN SAN JUAN COUNTY, UTAH]
EXHIBIT "C"
Attached to and made a part of that certain Agreement dated
September 25, 2002 by and between Colorado Wyoming Reserve Company, ST Oil
Company and The Shoreline Companies LLC
S T Oil Company
Authorization For Expenditure
Well Name: Marie Ogden State No. 1
--------------------------------------- -------------
Location: SE NW, Sec 22, T33S, R23E Depth/FM: 5428' tvd,5428'md DC/Ismay
--------------------------------------- -------------
County/State: San Juan County, Utah Date Prepared: 08/26/2002
--------------------------------------- -------------
Operator: S T Oil Company Date To Commence: 09/28/2002
--------------------------------------- -------------
Description: Drill and complete in DESERT CREEK &/or ISMAY
- -------------------------------------------------------------------------------------------------
INTANGIBLE COSTS: Drilling Completion Total Well
Acct # Cost Acct # Cost Cost
----------------------- ---------------------- -------------
Drill Site Title Opinion....... 51.830.08 $1,500 51.840.08 $500 $2,000
Road and Location.............. 51.830.10 $30,000 XX $30,000
Stake Location Permits......... 51.830.12 $6,000 XX $6,000
Surface Damage/ROW............. 51.830.14 $3,000 XX $3,000
Rig Mobilization Demobil....... 51.830.16 $90,000 XX $90,000
Drilling Footage............... 51.830.18 $0 XX $0
Drilling Dayrate............... 51.830.20 $175,350 XX $175,350
Drilling Turnkey............... 51.830.22 $0 XX $0
Drill Bits..................... 51.830.24 $43,000 XX $43,000
Drill Oper/Dir Drill/Svy....... 51.830.25 $24,000 XX $24,000
Water & Water Hauling.......... 51.830.26 $34,000 XX $34,000
Fishing Tools & Service........ 51.830.27 $0 XX $0
Drilling Mud/Chemicals......... 51.830.28 $15,200 XX $15,200
Cement & Cementing Ser......... 51.830.30 $11,000 51.840.10 $16,000 $27,000
Casing Crew & Equipment........ 51.830.32 $2,500 51.840.12 $2,500 $5,000
Onsite Supervision & Exp....... 51.830.34 $15,750 51.840.28 $7,500 $23,250
Coring & Core Analysis......... 51.830.38 $16,300 XX $16,300
Mud Logging / Geology.......... 51.830.40 $12,000 XX $12,000
Electric Logs.................. 51.830.42 $23,000 XX $23,000
Drill Stem Tests............... 51.830.44 $14,000 XX $14,000
Packers Rental/Service......... XX 51.840.14 $6,000 $6,000
Completion Rig................. XX 51.840.16 $25,000 $25,000
Swabbing Unit.................. XX 51.840.17 $0 $0
Perforating/Logging............ XX 51.840.18 $10,000 $10,000
Circulating Equipment.......... XX 51.840.20 $0 $0
Comp Fluids / Chemicals........ XX 51.840.22 $5,000 $5,000
Acidizing...................... XX 51.840.24 $0 $0
Fracturing..................... XX 51.840.25 $50,000 $50,000
Frac Oil / Water............... XX 51.840.26 $18,000 $18,000
Power Fuel Lube Oils........... 51.830.46 $0 51.840.32 $0 $0
Transporation/Trucking......... 51.830.48 $5,000 51.840.34 $3,000 $8,000
Welding........................ 51.830.50 $1,000 51.840.38 $3,000 $4,000
Equipment Rental............... 51.830.52 $10,000 51.840.40 $5,000 $15,000
Misc Supplies/Services......... 51.830.54 $3,000 51.840.42 $3,500 $6,500
Ins. Bond/Well Control......... 51.830.56 $0 51.840.48 $0 $0
Overhead....................... 51.830.58 $6,100 51.840.46 $3,000 $9,100
Dirt Work Roads Cleanup........ XX 51.840.44 $1,500 $1,500
Fishing Tools / Services....... XX 51.840.35 $0 $0
Roustabout Labor............... XX 51.840.36 $8,000 $8,000
Contingency / Misc.....@ 10%... 51.830.60 $54,270 51.840.60 $16,750 $71,020
P & A Lease Restoration........ 51.830.90 $1,000 XX $0 $1,000
------------ ----------- -------------
TOTAL INTANGIBLE COSTS $596,970 $184,250 $781,220
TANGIBLE COSTS: Drilling Completion Total Well
Acct # Cost Acct # Cost Cost
----------------------- ---------------------- -------------
Cond Pipe/Misc Equip........... 51.835.10 $5,500 XX $5,500
Casing Head.................... 51.835.15 $2,500 XX $2,500
Surface Csg/Misc Equip......... 51.835.20 $7,680 XX $7,680
Misc Tang Equip Costs.......... 51.835.25 $500 XX $500
Intermed Csg/Misc Equip........ 51.835.30 $0 XX $0
Wellhead Assembly.............. 51.835.35 $5,000 51.845.16 $5,000 $10,000
Intermed Head & Fittings....... 51.835.40 $1,200 XX $1,200
Production Casing.............. XX 51.845.10 $31,185 $31,185
Production Liner............... XX 51.845.12 $0 $0
Tubing / Related Equip......... XX 51.845.14 $15,741 $15,741
Xmas Tree & Connections........ XX 51.845.17 $3,000 $3,000
Pumping Unit................... XX 51.845.18 $0 $0
Electric Motors/Engines........ XX 51.845.19 $0 $0
Valves Misc Fittings........... XX 51.845.20 $13,000 $13,000
Bottomhole Pump................ XX 51.845.22 $0 $0
Sucker Rods.................... XX 51.845.24 $0 $0
Heater / Separator............. XX 51.845.26 $15,000 $15,000
Free Water KO.................. XX 51.845.27 $0 $0
Separator / Dehydrator......... XX 51.845.28 $0 $0
Gas Lift Equipment............. XX 51.845.30 $0 $0
Compressor..................... XX 51.845.32 $0 $0
Cathodic Protection ...... XX 51.845.34 $0 $0
Line Pipe...................... XX 51.845.36 $2,500 $2,500
Tanks.......................... XX 51.845.38 $9,600 $9,600
Buildings & Platforms.......... XX 51.845.40 $0 $0
Surface Installation........... XX 51.845.42 $18,000 $18,000
Trucking & Hauling............. XX 51.845.44 $0 $0
Misc & Salvage (Sale).......... XX 51.845.45 $1,000 $1,000
------------ ----------- -------------
TOTAL TANGIBLE COSTS $22,380 $114,026 $136,406
============ =========== =============
TOTAL COST $619,350 $298,276 $917,626
W.I.
Prepared By: Richard A. Ferris Approved By:
- -------------------------------------------------------- --------------------------------------
Title: Chief Operations Engineer Date 08/26/2002 Title: Date:
- -------------------------------------------------------- --------------------------------------
IT IS RECOGNIZED THAT THE AMOUNTS PROVIDED FOR HEREIN ARE ESTIMATES ONLY, AND APPROVAL OF THIS AUTHORIZATION SHALL
EXTEND TO THE ACTUAL COSTS INCURRED IN CONDUCING THE OPERATION SPECIFIED, EITHER MORE OR LESS THAN HEREIN SET FORTH.
Drilling Well Information - Cost Detail Sheet Desert Creek/Ismay Test
INTANGIBLE COSTS:
Drill Site Title Opinion......$1,500 drilling plus $500 for misc. completion $2,000
Road and Location.............$15,000 for building location and access $15,000
Stake Location Permits........$4,000 to stake and calculate cuts and fills for pad. $4,000
Surface Damage/ROW............BLM.none $0
Rig Mobilization Demobil......Rig move will be approximately $150,000. Rig will have to move 250+ miles $150,000
Drilling Footage..............No bid
Drilling Dayrate..............$8935 per day including fuel for 21 days = $187,635
Drilling Turnkey..............No bid
Drill Bits....................2-12-1/4" bits @ $3500,& 5-7-7/8"@ $7000 = $43,000
Drill Oper/Dir Drill/Svy......Mud motor @$2,000/day for 0 days = $0
Water & Water Hauling.........Water will be hauled @ $2,000/day = $34,000
Fishing Tools & Service.......None
Drilling Mud/Chemicals........Gel system with Polymer sweeps. Approximately $800/day = $15,200
Cement & Cementing Ser........Surface casing cement Job 800' of 12-1/4" hole with 8-5/8" $10,000 $10,000
with 5-1/2 " $20,000 $20,000
Casing Crew & Equipment.......Minimum charge for will be $2,500 two times = $5,000
Onsite Supervision & Exp......On site for duration will be for 21 days at $750 = $15,750
Coring & Core Analysis........None
Mud Logging / Geology.........Geologist/Mudloging Unit for 12 days @ $1,000 per day = $12,000
Electric Logs.................Suite of logs = $23,000
Drill Stem Tests..............2 @ $7,000 = $14,000
Packers Rental/Service........Packer for completion = $6,000
Completion Rig................Ten days to complete well @ $2,500 per day. Includes pump and some rental tools = $25,000
Swabbing Unit.................None
Perforating/Logging...........CBL and Perforating = $10,000
Circulating Equipment.........Included in rig
Comp Fluids / Chemicals.......water and misc $5,000
Acidizing.....................none
Fracturing....................Small Fac $50,000
Frac Oil / Water..............None
Power Fuel Lube Oils..........Included in rig $0
Transporation/Trucking........Haul other equipment to and from location, and Production Equipment = $5,000
Welding.......................Weld on Casing Head = $1,000
Equipment Rental..............Misc rental tools for drilling = $10,000
Misc Supplies/Services........Rope soap, dope = $3,000
Ins. Bond/Well Control........
Overhead......................one month = $6,100
Dirt Work Roads Cleanup.......Cleanup after drilling = $3,000
Fishing Tools / Services......None
Roustabout Labor..............Labor to set production equipment and tanks = $8,000
Contingency / Misc.....@ 10%..
P & A Lease Restoration.......lease restoration = $1,000
TANGIBLE COSTS:
Cond Pipe/Misc Equip..........Rat hole and conductor = $5,500
Casing Head...................Head, weld on for 9-5/8' = $2,500
Surface Csg/Misc Equip........800' 9-5/8" 24# @ $ 9.60\ft = $7,680
Misc Tang Equip Costs.........Valves and fittings = $500
Intermed Csg/Misc Equip.......none
Wellhead Assembly.............Tubing head, valves, tee, choke, etc. = $10,000
Intermed Head & Fittings......Hanger and spool = $1,200
Production Casing.............4,950' 5-1/2"15.5# @ $6.30/ft $31,185
Production Liner..............none
Tubing / Related Equip........4,950' 2-7/8" @ $3.18/ft $15,741
Xmas Tree & Connections.......Misc = $3,000
Pumping Unit..................none
Electric Motors/Engines.......none
Valves Misc Fittings..........Tank battery fittings = $13,000
Bottomhole Pump...............none
Sucker Rods...................none
Heater / Separator............Heater -Treater $15,000
Free Water KO.................None
Separator / Dehydrator........
Gas Lift Equipment............None
Compressor....................None
Cathodic Protection None
Line Pipe.....................3 & 4 inch for tank Battery and flow line = $2,500
Tanks.........................2-300 bbls oil and 1-300 bbl water= $9,600
Buildings & Platforms.........none
Surface Installation..........Roustabout Labor = $18,000
Trucking & Hauling............included in equipment costs
Misc & Salvage (Sale).........none
EXHIBIT 'D'
Attached hereto and made a part of that certain Agreement dated September 25,
2002 by and between Colorado Wyoming Reserve Company, ST Oil Company, and The
Shoreline Companies, LLC
ASSIGNMENT OF OIL AND GAS LEASES
This Assignment of Oil and Gas Leases ("Assignment") dated effective as
of________________________, at 7:00 A.M. at the location of the properties
("Effective Time"), is from Colorado Wyoming Reserve Company, 751 Horizon Ct.,
#205, Grand Junction, CO 81506 (hereinafter referred to as "Assignor"), to ST
Oil Company, 1801 Broadway, Suite 600, Denver, CO 80202, and The Shoreline
Companies, LLC, P. O. Box 3437, Englewood, CO 80155 (hereinafter referred to as
"Assignees").
For Ten Dollars ($10.00) and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged by Assignor, Assignor
does hereby transfer, grant, bargain, sell, convey and assign to Assignees the
following interests (all of which are herein collectively called the
"Interests"):
1. All of Assignor's undivided forty-two and one-half percent (42.50%)
working interest in and to the oil and gas lease and lands described in
Exhibit "A" attached hereto.
2. An undivided Sixty Percent of Assignor's Forty-Two and One-Half Percent
(60.00% of 42.50%) working interest in and to the oil and gas leases
and lands described in Exhibit "B" attached hereto.
To be assigned and conveyed to the Assignees in the following proportions:
ST Oil Company 66.67%
The Shoreline Companies, LLC 33.33%
Together with a like interest in and to all the property and rights appurtenant
or incident thereto, including without limitation the rights applicable to the
leasehold interest in the oil, gas and associated substances and other minerals
produced or producible from the leasehold and the rights and obligations in, to
and under all agreements insofar as they affect the leasehold, including, but
not limited to all operating agreements, farmout agreements.
This Assignment is executed without warranty of any kind, either express
or implied, except that Assignor warrants and agrees to defend title against the
lawful claims of parties claiming by, through or under Assignor, but not
otherwise.
1
This Assignment may be executed in any number of counterparts, and each
counterpart hereof shall be deemed to be an original instrument, but all such
counterparts shall constitute but one assignment.
EXECUTED on the date contained in the acknowledgements of this instrument,
to be effective for all purposes as of the Effective Time.
ASSIGNOR:
ATTEST COLORADO WYOMING RESERVE COMPANY
- ---------------- ------------------------------------------
By: Kim Fuerst
President
ASSIGNEES:
ATTEST ST OIL COMPANY
- ----------------- ------------------------------------------
By: J. Samuel Butler
President
ATTEST THE SHORELINE COMPANIES, LLC
- ------------------- ------------------------------------------
By:
Title:
STATE OF _______________ }
} ss.
COUNTY OF ______________ }
The foregoing instrument was acknowledged before me this _________ day
of ________________, 2002 by _______________________ as _______________________
of Colorado Wyoming Reserve Company.
Witness my hand and official seal.
___________________ Notary Public
My commission expires:
--------------------------
2
STATE OF _______________ }
} ss.
COUNTY OF ______________ }
The foregoing instrument was acknowledged before me this _________ day of
________________, 2002 by _______________________ as _______________________ of
ST Oil Company.
Witness my hand and official seal.
___________________ Notary Public
My commission expires:
--------------------------
STATE OF _______________ }
} ss.
COUNTY OF ______________ }
The foregoing instrument was acknowledged before me this _________ day of
________________, 2002 by _______________________ as _______________________ of
The Shoreline Companies, LLC
Witness my hand and official seal.
___________________ Notary Public
My commission expires:
--------------------------
3
EXHIBIT "E"
\\(6)\463316-LIGHTNING DRAW OPERATING AGREEMENT
A.A.P.L. FORM 610 - 1989
MODEL FORM OPERATING AGREEMENT
EXHIBIT 'E'
ATTACHED HERETO AND MADE A PART OF THAT CERTAIN
AGREEMENT DATED _________________
BY AND BETWEEN COLORADO WYOMING RESERVE COMPANY,
ST OIL COMPANY, MOORE ENERGY LLC, AND
THE SHORELINE COMPANIES, LLC
OPERATING AGREEMENT
DATED
, 2002 ,
---------------- --------
year
OPERATOR ST OIL COMPANY
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CONTRACT AREA TOWNSHIP 31 SOUTH - RANGE 23 EAST
-------------------------------------------------------------
SEC. 15: S/2; SEC. 16: SE/4; SEC. 21: E/2; SEC. 22: ALL
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
COUNTY OR PARISH OF SAN JUAN , STATE OF UTAH
----------------------------- ---------------
COPYRIGHT 1989 - ALL RIGHTS RESERVED
AMERICAN ASSOCIATION OF PETROLEUM
LANDMEN, 4100 FOSSIL CREEK BLVD.
FORT WORTH, TEXAS, 76137, APPROVED FORM.
A.A.P.L. NO. 610 - 1989
A.A.P.L. FORM 610 - MODEL FORM OPERATING AGREEMENT - 1989
TABLE OF CONTENTS
ARTICLE TITLE PAGE
I. DEFINITIONS............................................................1
II. EXHIBITS...............................................................1
III. INTERESTS OF PARTIES...................................................2
A. OIL AND GAS INTERESTS: ............................................2
B. INTERESTS OF PARTIES IN COSTS AND PRODUCTION:......................2
C. SUBSEQUENTLY CREATED INTERESTS: ...................................2
IV. TITLES.................................................................2
A. TITLE EXAMINATION:.................................................2
B. LOSS OR FAILURE OF TITLE:..........................................3
[TEXT DELETED BY PARTIES]..........................................3
[TEXT DELETED BY PARTIES]..........................................3
3. Other Losses...................................................3
[TEXT DELETED BY PARTIES]..........................................3
V. OPERATOR...............................................................4
A. DESIGNATION AND RESPONSIBILITIES OF OPERATOR:......................4
B. RESIGNATION OR REMOVAL OF OPERATOR AND SELECTION OF SUCCESSOR: ....4
1. Resignation or Removal of Operator.............................4
2. Selection of Successor Operator................................4
3. Effect of Bankruptcy...........................................4
C. EMPLOYEES AND CONTRACTORS: ........................................4
D. RIGHTS AND DUTIES OF OPERATOR: ....................................4
1. Competitive Rates and Use of Affiliates........................4
2. Discharge of Joint Account Obligations.........................4
3. Protection from Liens..........................................4
4. Custody of Funds...............................................5
5. Access to Contract Area and Records............................5
6. Filing and Furnishing Governmental Reports.....................5
7. Drilling and Testing Operations................................5
8. Cost Estimates.................................................5
9. Insurance......................................................5
VI. DRILLING AND DEVELOPMENT...............................................5
[TEXT DELETED BY PARTIES...............................................5
B. SUBSEQUENT OPERATIONS: ............................................5
1. Proposed Operations............................................5
2. Operations by Less Than All Parties............................6
3. Stand-By Costs.................................................7
4. Deepening......................................................8
5. Sidetracking...................................................8
6. Order of Preference of Operations..............................8
7. Conformity to Spacing Pattern..................................9
8. Paying Wells...................................................9
C. COMPLETION OF WELLS; REWORKING AND PLUGGING BACK:..................9
1. Completion.....................................................9
2. Rework, Recomplete or Plug Back................................9
D. OTHER OPERATIONS:..................................................9
E. ABANDONMENT OF WELLS:..............................................9
1. Abandonment of Dry Holes.......................................9
2. Abandonment of Wells That Have Produced.......................10
3. Abandonment of Non-Consent Operations.........................10
F. TERMINATION OF OPERATIONS:........................................10
G. TAKING PRODUCTION IN KIND:........................................10
(Option 1) Gas Balancing Agreement................................10
(Option 2) No Gas Balancing Agreement.............................11
VII. EXPENDITURES AND LIABILITY OF PARTIES.................................11
A. LIABILITY OF PARTIES: ............................................11
B. LIENS AND SECURITY INTERESTS:.....................................12
C. ADVANCES:.........................................................12
D. DEFAULTS AND REMEDIES:............................................12
1. Suspension of Rights..........................................13
2. Suit for Damages..............................................13
3. Deemed Non-Consent............................................13
4. Advance Payment...............................................13
5. Costs and Attorneys' Fees.....................................13
E. RENTALS, SHUT-IN WELL PAYMENTS AND MINIMUM ROYALTIES:.............13
F. TAXES:............................................................13
VIII. ACQUISITION, MAINTENANCE OR TRANSFER OF INTEREST......................14
A. SURRENDER OF LEASES:..............................................14
B. RENEWAL OR EXTENSION OF LEASES:...................................14
C. ACREAGE OR CASH CONTRIBUTIONS:....................................14
i
A.A.P.L. FORM 610 - MODEL FORM OPERATING AGREEMENT - 1989
TABLE OF CONTENTS
D. ASSIGNMENT; MAINTENANCE OF UNIFORM INTEREST: .....................15
E. WAIVER OF RIGHTS TO PARTITION:....................................15
[TEXT DELETED BY PARTIES..........................................15
IX. INTERNAL REVENUE CODE ELECTION........................................15
X. CLAIMS AND LAWSUITS...................................................15
XI. FORCE MAJEURE.........................................................16
XII. NOTICES...............................................................16
XIII. TERM OF AGREEMENT.....................................................16
XIV. COMPLIANCE WITH LAWS AND REGULATIONS..................................16
A. LAWS, REGULATIONS AND ORDERS:.....................................16
B. GOVERNING LAW:....................................................16
C. REGULATORY AGENCIES: .............................................16
XV. MISCELLANEOUS.........................................................17
A. EXECUTION:........................................................17
B. SUCCESSORS AND ASSIGNS:...........................................17
C. COUNTERPARTS:.....................................................17
D. SEVERABILITY......................................................17
XVI. OTHER PROVISIONS......................................................17
A. CONFIDENTIALITY
B. ATTORNEYS FEES
C. MINERAL LEASE ACT AND FEDERAL OIL AND GAS ROYALTY
MANAGEMENT ACT
ii
111A.A.P.L. FORM 610 - MODEL FORM OPERATING AGREEMENT - 1989
OPERATING AGREEMENT
THIS AGREEMENT, entered into by and between ST Oil Company,
hereinafter designated and referred to as "Operator," and the signatory party or
parties other than Operator, sometimes
hereinafter referred to individually as "Non-Operator," and collectively as
"Non-Operators."
WITNESSETH:
WHEREAS, the parties to this agreement are owners of Oil and Gas Leases
and/or Oil and Gas Interests in the land
identified in Exhibit "A," and the parties hereto have reached an agreement to
explore and develop these Leases and/or Oil
and Gas Interests for the production of Oil and Gas to the extent and as
hereinafter provided,
NOW, THEREFORE, it is agreed as follows:
ARTICLE I.
DEFINITIONS
As used in this agreement, the following words and terms shall have the
meanings here ascribed to them:
A. The term "AFE" shall mean an Authority for Expenditure prepared by a
party to this agreement for the purpose of
estimating the costs to be incurred in conducting an operation hereunder.
B. The term "Completion" or "Complete" shall mean a single operation
intended to complete a well as a producer of Oil
and Gas in one or more Zones, including, but not limited to, the setting of
production casing, perforating, well stimulation
and production testing conducted in such operation.
C. The term "Contract Area" shall mean all of the lands, Oil and Gas
Leases and/or Oil and Gas Interests intended to be
developed and operated for Oil and Gas purposes under this agreement. Such
lands, Oil and Gas Leases and Oil and Gas
Interests are described in Exhibit "A."
D. The term "Deepen" shall mean a single operation whereby a well is
drilled to an objective Zone below the deepest
Zone in which the well was previously drilled, or below the Deepest Zone
proposed in the associated AFE, whichever is the
lesser.
E. The terms "Drilling Party" and "Consenting Party" shall mean a party
who agrees to join in and pay its share of the
cost of any operation conducted under the provisions of this agreement.
F. The term "Drilling Unit" shall mean the area fixed for the drilling
of one well by order or rule of any state or federal
body having authority. If a Drilling Unit is not fixed by any such rule or
order, a Drilling Unit shall be the drilling unit as
established by the pattern of drilling in the Contract Area unless fixed by
express agreement of the Drilling Parties.
G. The term "Drillsite" shall mean the Oil and Gas Lease or Oil and
Gas Interest on which a proposed well is to be
located.
H. The term "Initial Well" shall mean the well required to be drilled by
the parties hereto as provided in Article VI.A.
I. The term "Non-Consent Well" shall mean a well in which less than all
parties have conducted an operation as
provided in Article VI.B.2.
J. The terms "Non-Drilling Party" and "Non-Consenting Party" shall mean a
party who elects not to participate in a
proposed operation.
K. The term "Oil and Gas" shall mean oil, gas, casinghead gas, gas
condensate, and/or all other liquid or gaseous
hydrocarbons and other marketable substances produced therewith, unless an
intent to limit the inclusiveness of this term is
specifically stated.
L. The term "Oil and Gas Interests" or "Interests" shall mean unleased fee
and mineral interests in Oil and Gas in tracts
of land lying within the Contract Area which are owned by parties to this
agreement.
M. The terms "Oil and Gas Lease," "Lease" and "Leasehold" shall mean the
oil and gas leases or interests therein
covering tracts of land lying within the Contract Area which are owned by the
parties to this agreement.
N. The term "Plug Back" shall mean a single operation whereby a deeper
Zone is abandoned in order to attempt a
Completion in a shallower Zone.
O. The term "Recompletion" or "Recomplete" shall mean an operation whereby
a Completion in one Zone is abandoned
in order to attempt a Completion in a different Zone within the existing
wellbore.
P. The term "Rework" shall mean an operation conducted in the wellbore of
a well after it is Completed to secure,
restore, or improve production in a Zone which is currently open to production
in the wellbore. Such operations include, but
are not limited to, well stimulation operations but exclude any routine repair
or maintenance work or drilling, Sidetracking,
Deepening, Completing, Recompleting, or Plugging Back of a well.
Q. The term "Sidetrack" shall mean the directional control and intentional
deviation of a well from vertical so as to
change the bottom hole location unless done to straighten the hole or drill
around junk in the hole to overcome other
mechanical difficulties.
R. The term "Zone" shall mean a stratum of earth containing or thought to
contain a common accumulation of Oil and
Gas separately producible from any other common accumulation of Oil and Gas.
Unless the context otherwise clearly indicates, words used in the singular
include the plural, the word "person" includes
natural and artificial persons, the plural includes the singular, and any gender
includes the masculine, feminine, and neuter.
ARTICLE II.
EXHIBITS
The following exhibits, as indicated below and attached hereto, are
incorporated in and made a part hereof:
X A. Exhibit "A," shall include the following information:
(1) Description of lands subject to this agreement,
(2) Restrictions, if any, as to depths, formations, or substances,
(3) Parties to agreement with addresses and telephone numbers for notice
purposes,
(4) Percentages or fractional interests of parties to this agreement,
(5) Oil and Gas Leases and/or Oil and Gas Interests subject to this
agreement,
(6) Burdens on production.
[TEXT DELETED BY PARTIES]
X C. Exhibit "C," Accounting Procedure.
X D. Exhibit "D," Insurance.
X E. Exhibit "E," Gas Balancing Agreement.
X F. Exhibit "F," Non-Discrimination and Certification of Non-Segregated
Facilities.
G. [TEXT DELETED BY PARTIES]
H. Other:__________________________________________________
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222A.A.P.L. FORM 610 - MODEL FORM OPERATING AGREEMENT - 1989
If any provision of any exhibit, except Exhibits "E," "F" and "G," is
inconsistent with any provision contained in
the body of this agreement, the provisions in the body of this agreement shall
prevail.
ARTICLE III.
INTERESTS OF PARTIES
A. OIL AND GAS INTERESTS:
If any party owns an Oil and Gas Interest in the Contract Area, that
Interest shall be treated for all purposes of this
agreement and during the term hereof [TEXT DELETED BY PARTIES]
and the owner thereof shall be deemed to own both royalty interest in such lease
and the interest of the lessee thereunder.
B. INTERESTS OF PARTIES IN COSTS AND PRODUCTION:
Unless changed by other provisions, all costs and liabilities incurred in
operations under this agreement shall be borne
and paid, and all equipment and materials acquired in operations on the Contract
Area shall be owned, by the parties as their
interests are set forth in Exhibit "A." In the same manner, the parties shall
also own all production of Oil and Gas from the
Contract Area subject, however, to the payment of royalties and other burdens on
production as described hereafter.
Regardless of which party has contributed any Oil and Gas Lease or Oil and
Gas Interest on which royalty or other
burdens may be payable and except as otherwise expressly provided in this
agreement, each party shall pay or deliver, or
cause to be paid or delivered, [INSERTED TEXT:] [its proportionate share of]
all burdens on its share of the production from the Contract Area [TEXT DELETED
BY PARTIES]
[TEXT DELETED BY PARTIES] and shall indemnify, defend and hold the other parties
free from any liability therefor.
Except as otherwise expressly provided in this agreement, if any party has
contributed hereto any Lease or Interest which is
burdened with any royalty, overriding royalty, production payment or other
burden on production in excess of the amounts
stipulated above, such party so burdened shall assume and alone bear all such
excess obligations and shall indemnify, defend
and hold the other parties hereto harmless from any and all claims attributable
to such excess burden. However, so long as
the Drilling Unit for the productive Zone(s) is identical with the Contract
Area, each party shall pay or deliver, or cause to
be paid or delivered, all burdens on production from the Contract Area due under
the terms of the Oil and Gas Lease(s)
which such party has contributed to this agreement, and shall indemnify, defend
and hold the other parties free from any
liability therefor.
No party shall ever be responsible, on a price basis higher than the price
received by such party, to any other party's
lessor or royalty owner, and if such other party's lessor or royalty owner
should demand and receive settlement on a higher
price basis, the party contributing the affected Lease shall bear the additional
royalty burden attributable to such higher price.
Nothing contained in this Article III.B. shall be deemed an assignment or
cross-assignment of interests covered hereby,
and in the event two or more parties contribute to this agreement jointly owned
Leases, the parties' undivided interests in
said Leaseholds shall be deemed separate leasehold interests for the purposes of
this agreement.
C. SUBSEQUENTLY CREATED INTERESTS:
If any party has contributed hereto a Lease or Interest that is burdened
with an assignment of production given as security
for the payment of money, or if, after the date of this agreement, any party
creates an overriding royalty, production
payment, net profits interest, assignment of production or other burden payable
out of production attributable to its working
interest hereunder, such burden shall be deemed a "Subsequently Created
Interest." Further, if any party has contributed
hereto a Lease or Interest burdened with an overriding royalty, production
payment, net profits interests, or other burden
payable out of production created prior to the date of this agreement, and such
burden is not shown on Exhibit "A," such
burden also shall be deemed a Subsequently Created Interest to the extent such
burden causes the burdens on such party's
Lease or Interest to exceed the amount stipulated in Article III.B. above.
The party whose interest is burdened with the Subsequently Created
Interest (the "Burdened Party") shall assume and
alone bear, pay and discharge the Subsequently Created Interest and shall
indemnify, defend and hold harmless the other
parties from and against any liability therefor. Further, if the Burdened Party
fails to pay, when due, its share of expenses
chargeable hereunder, all provisions of Article VII.B. shall be enforceable
against the Subsequently Created Interest in the
same manner as they are enforceable against the working interest of the Burdened
Party. If the Burdened Party is required
under this agreement to assign or relinquish to any other party, or parties, all
or a portion of its working interest and/or the
production attributable thereto, said other party, or parties, shall receive
said assignment and/or production free and clear of
said Subsequently Created Interest, and the Burdened Party shall indemnify,
defend and hold harmless said other party, or
parties, from any and all claims and demands for payment asserted by owners of
the Subsequently Created Interest.
ARTICLE IV.
TITLES
A. TITLE EXAMINATION:
Title examination shall be made on the Drillsite of any proposed well
prior to commencement of drilling operations and,
if a majority in interest of the Drilling Parties so request or Operator so
elects, title examination shall be made on the entire
Drilling Unit, or maximum anticipated Drilling Unit, of the well. The opinion
will include the ownership of the working
interest, minerals, royalty, overriding royalty and production payments under
the applicable Leases. Each party contributing
Leases and/or Oil and Gas Interests to be included in the Drillsite or Drilling
Unit, if appropriate, shall furnish to Operator
all abstracts (including federal lease status reports), title opinions, title
papers and curative material in its possession free of
charge. All such information not in the possession of or made available to
Operator by the parties, but necessary for the
examination of the title, shall be obtained by Operator. Operator shall cause
title to be examined by attorneys on its staff or
by outside attorneys. Copies of all title opinions shall be furnished to each
Drilling Party. Costs incurred by Operator in
procuring abstracts, fees paid outside attorneys for title examination
(including preliminary, supplemental, shut-in royalty
opinions and division order title opinions) and other direct charges as provided
in Exhibit "C" shall be borne by the Drilling
Parties in the proportion that the interest of each Drilling Party bears to the
total interest of all Drilling Parties as such
interests appear in Exhibit "A." Operator shall make no charge for services
rendered by its staff attorneys or other personnel
in the performance of the above functions.
Each party shall be responsible for securing curative matter and pooling
amendments or agreements required in
connection with Leases or Oil and Gas Interests contributed by such party.
Operator shall be responsible for the preparation
and recording of pooling designations or declarations and communitization
agreements as well as the conduct of hearings
before governmental agencies for the securing of spacing or pooling orders or
any other orders necessary or appropriate to
the conduct of operations hereunder. This shall not prevent any party from
appearing on its own behalf at such hearings.
Costs incurred by Operator, including fees paid to outside attorneys, which are
associated with hearings before governmental
agencies, and which costs are necessary and proper for the activities
contemplated under this agreement, shall be direct
charges to the joint account and shall not be covered by the administrative
overhead charges as provided in Exhibit "C."
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333A.A.P.L. FORM 610 - MODEL FORM OPERATING AGREEMENT - 1989
Operator shall make no charge for services rendered by its staff attorneys or
other personnel in the performance of the above
functions.
No well shall be drilled on the Contract Area until after (1) the title to
the Drillsite or Drilling Unit, if appropriate, has
been examined as above provided, and (2) the title has been approved by the
examining attorney or title has been accepted by
all of the Drilling Parties in such well.
[TEXT DELETED BY PARTIES]
3. OTHER LOSSES: All losses of Leases or Interests committed to this
agreement, [TEXT DELETED BY PARTIES], shall be joint losses and shall be borne
by all parties in proportion to their interests shown on
Exhibit "A." This shall include but not be limited to the loss of any Lease or
Interest through failure to develop or because
express or implied covenants have not been performed (other than performance
which requires only the payment of money),
and the loss of any Lease by expiration at the end of its primary term if it is
not renewed or extended. There shall be no
readjustment of interests in the remaining portion of the Contract Area on
account of any joint loss.
[TEXT DELETED BY PARTIES]
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444A.A.P.L. FORM 610 - MODEL FORM OPERATING AGREEMENT - 1989
ARTICLE V
OPERATOR
A. DESIGNATION AND RESPONSIBILITIES OF OPERATOR:
ST Oil Company shall be the Operator of the Contract Area, and shall
conduct
and direct and have full control of all operations on the Contract Area as
permitted and required by, and within the limits of
this agreement. In its performance of services hereunder for the Non-Operators,
Operator shall be an independent contractor
not subject to the control or direction of the Non-Operators except as to the
type of operation to be undertaken in accordance
with the election procedures contained in this agreement. Operator shall not be
deemed, or hold itself out as, the agent of the
Non-Operators with authority to bind them to any obligation or liability assumed
or incurred by Operator as to any third
party. Operator shall conduct its activities under this agreement as a
reasonable prudent operator, in a good and workmanlike
manner, with due diligence and dispatch, in accordance with good oilfield
practice, and in compliance with applicable law and
regulation, but in no event shall it have any liability as Operator to the other
parties for losses sustained or liabilities incurred
except such as may result from gross negligence or willful misconduct.
B. RESIGNATION OR REMOVAL OF OPERATOR AND SELECTION OF SUCCESSOR:
1. RESIGNATION OR REMOVAL OF OPERATOR: Operator may resign at any time
by giving written notice thereof to Non-Operators.
If Operator terminates its legal existence, no longer owns an interest hereunder
in the Contract Area, or is no longer capable of
serving as Operator, Operator shall be deemed to have resigned without any
action by Non-Operators, except the selection of a
successor. Operator may be removed only for good cause by the affirmative
vote of [INSERTED TEXT:] [two or more] Non-Operators owning a majority interest
based on ownership as shown on Exhibit "A" remaining after excluding the voting
interest of Operator; such vote shall not be
deemed effective until a written notice has been delivered to the Operator by
a Non-Operator detailing the alleged default and
Operator has failed to cure the default within thirty (30) days from its receipt
of the notice or, if the default concerns an
operation then being conducted, within forty-eight (48) hours of its receipt of
the notice. For purposes hereof, "good cause" shall
mean not only gross negligence or willful misconduct but also the material
breach of or inability to meet the standards of
operation contained in Article V.A. or material failure or inability to perform
its obligations under this agreement.
Subject to Article VII.D.1., such resignation or removal shall not become
effective until 7:00 o'clock A.M. on the first
day of the calendar month following the expiration of ninety (90) days after the
giving of notice of resignation by Operator
or action by the Non-Operators to remove Operator, unless a successor Operator
has been selected and assumes the duties of
Operator at an earlier date. Operator, after effective date of resignation or
removal, shall be bound by the terms hereof as a
Non-Operator. A change of a corporate name or structure of Operator or transfer
of Operator's interest to any single
subsidiary, parent or successor corporation shall not be the basis for removal
of Operator.
2. SELECTION OF SUCCESSOR OPERATOR: Upon the resignation or removal of
Operator under any provision of this agreement, a
successor Operator shall be selected by the parties. The successor Operator
shall be selected from the parties owning an
interest in the Contract Area at the time such successor Operator is selected.
The successor Operator shall be selected by the
affirmative vote of two (2) or more parties owning a majority interest based on
ownership as shown on Exhibit "A";
provided, however, if an Operator which has been removed or is deemed to have
resigned fails to vote or votes only to
succeed itself, the successor Operator shall be selected by the affirmative vote
of the party or parties owning a majority
interest based on ownership as shown on Exhibit "A" remaining after excluding
the voting interest of the Operator that was
removed or resigned. The former Operator shall promptly deliver to the successor
Operator all records and data relating to
the operations conducted by the former Operator to the extent such records and
data are not already in the possession of the
successor operator. Any cost of obtaining or copying the former Operator's
records and data shall be charged to the joint
account.
3. EFFECT OF BANKRUPTCY: If Operator becomes insolvent, bankrupt or is
placed in receivership, it shall be deemed to have
resigned without any action by Non-Operators, except the selection of a
successor. If a petition for relief under the federal
bankruptcy laws is filed by or against Operator, and the removal of Operator is
prevented by the federal bankruptcy court, all
Non-Operators and Operator shall comprise an interim operating committee to
serve until Operator has elected to reject or
assume this agreement pursuant to the Bankruptcy Code, and an election to reject
this agreement by Operator as a debtor in
possession, or by a trustee in bankruptcy, shall be deemed a resignation as
Operator without any action by Non-Operators,
except the selection of a successor. During the period of time the operating
committee controls operations, all actions shall
require the approval of two (2) or more parties owning a majority interest based
on ownership as shown on Exhibit "A." In
the event there are only two (2) parties to this agreement, during the period of
time the operating committee controls
operations, a third party acceptable to Operator, Non-Operator and the federal
bankruptcy court shall be selected as a
member of the operating committee, and all actions shall require the approval of
two (2) members of the operating
committee without regard for their interest in the Contract Area based on
Exhibit "A."
C. EMPLOYEES AND CONTRACTORS:
The number of employees or contractors used by Operator in conducting
operations hereunder, their selection, and the
hours of labor and the compensation for services performed shall be determined
by Operator, and all such employees or
contractors shall be the employees or contractors of Operator.
D. RIGHTS AND DUTIES OF OPERATOR:
1. COMPETITIVE RATES AND USE OF AFFILIATES: All wells drilled on the
Contract Area shall be drilled on a competitive
contract basis at the usual rates prevailing in the area. If it so desires,
Operator may employ its own tools and equipment in
the drilling of wells, but its charges therefor shall not exceed the prevailing
rates in the area and the rate of such charges
shall be agreed upon by the parties in writing before drilling operations are
commenced, and such work shall be performed by
Operator under the same terms and conditions as are customary and usual in the
area in contracts of independent contractors
who are doing work of a similar nature. All work performed or materials supplied
by affiliates or related parties of Operator
shall be performed or supplied at competitive rates, pursuant to written
agreement, and in accordance with customs and
standards prevailing in the industry.
2. DISCHARGE OF JOINT ACCOUNT OBLIGATIONS: Except as herein otherwise
specifically provided, Operator shall promptly pay
and discharge expenses incurred in the development and operation of the Contract
Area pursuant to this agreement and shall
charge each of the parties hereto with their respective proportionate shares
upon the expense basis provided in Exhibit "C."
Operator shall keep an accurate record of the joint account hereunder, showing
expenses incurred and charges and credits
made and received.
3. PROTECTION FROM LIENS: Operator shall pay, or cause to be paid, as and
when they become due and payable, all accounts
of contractors and suppliers and wages and salaries for services rendered or
performed, and for materials supplied on, to or in
respect of the Contract Area or any operations for the joint account thereof,
and shall keep the Contract Area free from
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555A.A.P.L. FORM 610 - MODEL FORM OPERATING AGREEMENT - 1989
liens and encumbrances resulting therefrom except for those resulting from a
bona fide dispute as to services rendered or
materials supplied.
4. CUSTODY OF FUNDS: Operator shall hold for the account of the
Non-Operators any funds of the Non-Operators advanced
or paid to the Operator, either for the conduct of operations hereunder or as a
result of the sale of production from the
Contract Area, and such funds shall remain the funds of the Non-Operators on
whose account they are advanced or paid until
used for their intended purpose or otherwise delivered to the Non-Operators or
applied toward the payment of debts as
provided in Article VII.B. Nothing in this paragraph shall be construed to
establish a fiduciary relationship between Operator
and Non-Operators for any purpose other than to account for Non-Operator funds
as herein specifically provided. Nothing in
this paragraph shall require the maintenance by Operator of separate accounts
for the funds of Non-Operators unless the
parties otherwise specifically agree.
5. ACCESS TO CONTRACT AREA AND RECORDS: Operator shall, except as
otherwise provided herein, permit each Non-Operator
or its duly authorized representative, at the Non-Operator's sole risk and cost,
full and free access at all reasonable times to
all operations of every kind and character being conducted for the joint account
on the Contract Area and to the records of
operations conducted thereon or production therefrom, including Operator's books
and records relating thereto. Such access
rights shall not be exercised in a manner interfering with Operator's conduct of
an operation hereunder and shall not obligate
Operator to furnish any geologic or geophysical data of an interpretive nature
unless the cost of preparation of such
interpretive data was charged to the joint account. Operator will furnish to
each Non-Operator upon request copies of any
and all reports and information obtained by Operator in connection with
production and related items, including, without
limitation, meter and chart reports, production purchaser statements, run
tickets and monthly gauge reports, but excluding
purchase contracts and pricing information to the extent not applicable to the
production of the Non-Operator seeking the
information. Any audit of Operator's records relating to amounts expended and
the appropriateness of such expenditures
shall be conducted in accordance with the audit protocol specified in Exhibit
"C."
6. FILING AND FURNISHING GOVERNMENTAL REPORTS: Operator will file, and
upon written request promptly furnish copies to
each requesting Non-Operator not in default of its payment obligations, all
operational notices, reports or applications
required to be filed by local, State, Federal or Indian agencies or authorities
having jurisdiction over operations hereunder.
Each Non-Operator shall provide to Operator on a timely basis all information
necessary to Operator to make such filings.
7. DRILLING AND TESTING OPERATIONS: The following provisions shall apply
to each well drilled hereunder, including but not
limited to the Initial Well:
(a) Operator will promptly advise Non-Operators of the date on which
the well is spudded, or the date on which
drilling operations are commenced.
(b) Operator will send to Non-Operators such reports, test results
and notices regarding the progress of operations on the well
as the Non-Operators shall reasonably request, including, but not limited to,
daily drilling reports, completion reports, and well logs.
(c) Operator shall adequately test all Zones encountered which may
reasonably be expected to be capable of producing
Oil and Gas in paying quantities as a result of examination of the electric log
or any other logs or cores or tests conducted
hereunder.
8. COST ESTIMATES: Upon request of any Consenting Party, Operator shall
furnish estimates of current and cumulative costs
incurred for the joint account at reasonable intervals during the conduct of any
operation pursuant to this agreement.
Operator shall not be held liable for errors in such estimates so long as the
estimates are made in good faith.
9. INSURANCE: At all times while operations are conducted hereunder,
Operator shall comply with the workers
compensation law of the state where the operations are being conducted;
provided, however, that Operator may be a self-
insurer for liability under said compensation laws in which event the only
charge that shall be made to the joint account shall
be as provided in Exhibit "C." Operator shall also carry or provide insurance
for the benefit of the joint account of the parties
as outlined in Exhibit "D" attached hereto and made a part hereof. Operator
shall require all contractors engaged in work on
or for the Contract Area to comply with the workers compensation law of the
state where the operations are being conducted
and to maintain such other insurance as Operator may require.
In the event automobile liability insurance is specified in said Exhibit
"D," or subsequently receives the approval of the
parties, no direct charge shall be made by Operator for premiums paid for
such insurance for Operator's automotive
equipment.
ARTICLE VI.
DRILLING AND DEVELOPMENT
[TEXT DELETED BY PARTIES]
B. SUBSEQUENT OPERATIONS:
1. PROPOSED OPERATIONS: If any party hereto should desire to drill any
well on the Contract Area other than the Initial Well, or
if any party should desire to Rework, Sidetrack, Deepen, Recomplete or Plug Back
a dry hole or a well no longer capable of
producing in paying quantities in which such party has not otherwise
relinquished its interest in the proposed objective Zone under
this agreement, the party desiring to drill, Rework, Sidetrack, Deepen,
Recomplete or Plug Back such a well shall give written
notice of the proposed operation to the parties who have not otherwise
relinquished their interest in such objective Zone
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666A.A.P.L. FORM 610 - MODEL FORM OPERATING AGREEMENT - 1989
under this agreement and to all other parties in the case of a proposal for
Sidetracking or Deepening, specifying the work to be
performed, the location, proposed depth, objective Zone and the estimated cost
of the operation. The parties to whom such a
notice is delivered shall have thirty (30) days after receipt of the notice
within which to notify the party proposing to do the work
whether they elect to participate in the cost of the proposed operation. If
a drilling rig is on location, notice of a proposal to
Rework, Sidetrack, Recomplete, Plug Back or Deepen may be given by telephone and
the response period shall be limited to forty-
eight (48) hours, [TEXT DELETED BY PARTIES] Failure of a party to whom such
notice is delivered to reply
within the period above fixed shall constitute an election by that party not to
participate in the cost of the proposed operation.
Any proposal by a party to conduct an operation conflicting with the operation
initially proposed shall be delivered to all parties
within the time and in the manner provided in Article VI.B.6.
If all parties to whom such notice is delivered elect to participate in
such a proposed operation, the parties shall be
contractually committed to participate therein provided such operations are
commenced within the time period hereafter set
forth, and Operator shall, no later than ninety (90) days after expiration of
the notice period of thirty (30) days (or as
promptly as practicable after the expiration of the forty-eight (48) hour period
when a drilling rig is on location, as the case
may be), actually commence the proposed operation and thereafter complete it
with due diligence at the risk and expense of
the parties participating therein; provided, however, said commencement date may
be extended upon written notice of same
by Operator to the other parties, for a period of up to thirty (30) additional
days if, in the sole opinion of Operator, such
additional time is reasonably necessary to obtain permits from governmental
authorities, surface rights (including rights-of-
way) or appropriate drilling equipment, or to complete title examination or
curative matter required for title approval or
acceptance. If the actual operation has not been commenced within the time
provided (including any extension thereof as
specifically permitted herein or in the force majeure provisions of Article XI)
and if any party hereto still desires to conduct
said operation, written notice proposing same must be resubmitted to the other
parties in accordance herewith as if no prior
proposal had been made. Those parties that did not participate in the drilling
of a well for which a proposal to Deepen or
Sidetrack is made hereunder shall, if such parties desire to participate in the
proposed Deepening or Sidetracking operation,
reimburse the Drilling Parties in accordance with Article VI.B.4. in the event
of a Deepening operation and in accordance
with Article VI.B.5. in the event of a Sidetracking operation.
2. OPERATIONS BY LESS THAN ALL PARTIES:
(a) DETERMINATION OF PARTICIPATION. If any party to whom such notice
is delivered as provided in Article VI.B.1. or
VI.C.1. (Option No. 2) elects not to participate in the proposed operation,
then, in order to be entitled to the benefits of this
Article, the party or parties giving the notice and such other parties as shall
elect to participate in the operation shall, no
later than ninety (90) days after the expiration of the notice period of thirty
(30) days (or as promptly as practicable after the
expiration of the forty-eight (48) hour period when a drilling rig is on
location, as the case may be) actually commence the
proposed operation and complete it with due diligence. Operator shall perform
all work for the account of the Consenting
Parties; provided, however, if no drilling rig or other equipment is on
location, and if Operator is a Non-Consenting Party,
the Consenting Parties shall either: (i) request Operator to perform the work
required by such proposed operation for the
account of the Consenting Parties, or (ii) designate one of the Consenting
Parties as Operator to perform such work. The
rights and duties granted to and imposed upon the Operator under this agreement
are granted to and imposed upon the party
designated as Operator for an operation in which the original Operator is a
Non-Consenting Party. Consenting Parties, when
conducting operations on the Contract Area pursuant to this Article VI.B.2.,
shall comply with all terms and conditions of this
agreement.
If less than all parties approve any proposed operation, the proposing
party, immediately after the expiration of the
applicable notice period, shall advise all Parties of the total interest of the
parties approving such operation and its
recommendation as to whether the Consenting Parties should proceed with the
operation as proposed. Each Consenting Party,
within forty-eight (48) hours) [TEXT DELETED BY PARTIES] after delivery of such
notice, shall advise the
proposing party of its desire to (i) limit participation to such party's
interest as shown on Exhibit "A" or (ii) carry only its
proportionate part (determined by dividing such party's interest in the Contract
Area by the interests of all Consenting Parties in
the Contract Area) of Non-Consenting Parties' interests, or (iii) carry its
proportionate part (determined as provided in (ii)) of
Non-Consenting Parties' interests together with all or a portion of its
proportionate part of any Non-Consenting Parties'
interests that any Consenting Party did not elect to take. Any interest of
Non-Consenting Parties that is not carried by a
Consenting Party shall be deemed to be carried by the party proposing the
operation if such party does not withdraw its
proposal. Failure to advise the proposing party within the time required shall
be deemed an election under (i). In the event a
drilling rig is on location, notice may be given by telephone, and the time
permitted for such a response shall not exceed a
total of forty-eight (48) hours) [TEXT DELETED BY PARTIES]. The proposing party,
at its election, may
withdraw such proposal if there is less than 100% participation and shall notify
all parties of such decision within ten (10)
days, or within twenty-four (24) hours if a drilling rig is on location,
following expiration of the applicable response period.
If 100% subscription to the proposed operation is obtained, the proposing party
shall promptly notify the Consenting Parties
of their proportionate interests in the operation and the party serving as
Operator shall commence such operation within the
period provided in Article VI.B.1., subject to the same extension right as
provided therein.
(b) RELINQUISHMENT OF INTEREST FOR NON-PARTICIPATION. The entire cost
and risk of conducting such operations shall be
borne by the Consenting Parties in the proportions they have elected to bear
same under the terms of the preceding
paragraph. Consenting Parties shall keep the leasehold estates involved in such
operations free and clear of all liens and
encumbrances of every kind created by or arising from the operations of the
Consenting Parties. If such an operation results
in a dry hole, then subject to Articles VI.B.6. and VI.E.3., the Consenting
Parties shall plug and abandon the well and restore
the surface location at their sole cost, risk and expense; provided, however,
that those Non-Consenting Parties that
participated in the drilling, Deepening or Sidetracking of the well shall remain
liable for, and shall pay, their proportionate
shares of the cost of plugging and abandoning the well and restoring the surface
location insofar only as those costs were not
increased by the subsequent operations of the Consenting Parties. If any well
drilled, Reworked, Sidetracked, Deepened,
Recompleted or Plugged Back under the provisions of this Article results in a
well capable of producing Oil and/or Gas in
paying quantities, the Consenting Parties shall Complete and equip the well to
produce at their sole cost and risk, and the
well shall then be turned over to Operator (if the Operator did not conduct the
operation) and shall be operated by it at the
expense and for the account of the Consenting Parties. Upon commencement of
operations for the drilling, Reworking,
Sidetracking, Recompleting, Deepening or Plugging Back of any such well by
Consenting Parties in accordance with the
provisions of this Article, each Non-Consenting Party shall be deemed to have
relinquished to Consenting Parties, and the
Consenting Parties shall own and be entitled to receive, in proportion to their
respective interests, all of such Non-
Consenting Party's interest in the well and share of production therefrom or, in
the case of a Reworking, Sidetracking,
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777A.A.P.L. FORM 610 - MODEL FORM OPERATING AGREEMENT - 1989
Deepening, Recompleting or Plugging Back, or a Completion pursuant to Article
VI.C.1. Option No. 2, all of such Non-
Consenting Party's interest in the production obtained from the operation in
which the Non-Consenting Party did not elect
to participate. Such relinquishment shall be effective until the proceeds of the
sale of such share, calculated at the well, or
market value thereof if such share is not sold (after deducting applicable ad
valorem, production, severance, and excise taxes,
royalty, overriding royalty and other interests not excepted by Article III.C.
payable out of or measured by the production
from such well accruing with respect to such interest until it reverts), shall
equal the total of the following:
(i) 100% of each such Non-Consenting Party's share of the cost of any
newly acquired surface equipment
beyond the wellhead connections (including but not limited to stock tanks,
separators, treaters, pumping equipment and
piping), plus 100% of each such Non-Consenting Party's share of the cost of
operation of the well commencing with first
production and continuing until each such Non-Consenting Party's relinquished
interest shall revert to it under other
provisions of this Article, it being agreed that each Non-Consenting Party's
share of such costs and equipment will be that
interest which would have been chargeable to such Non-Consenting Party had it
participated in the well from the beginning
of the operations; and
(ii) 300% of (a) that portion of the costs and expenses of drilling,
Reworking, Sidetracking, Deepening,
Plugging Back, testing, Completing, and Recompleting, after deducting any cash
contributions received under Article VIII.C.,
and of (b) that portion of the cost of newly acquired equipment in the well (to
and including the wellhead connections),
which would have been chargeable to such Non-Consenting Party if it had
participated therein.
Notwithstanding anything to the contrary in this Article VI.B., if the
well does not reach the deepest objective Zone
described in the notice proposing the well for reasons other than the
encountering of granite or practically impenetrable
substance or other condition in the hole rendering further operations
impracticable, Operator shall give notice thereof to each
Non-Consenting Party who submitted or voted for an alternative proposal under
Article VI.B.6. to drill the well to a
shallower Zone than the deepest objective Zone proposed in the notice under
which the well was drilled, and each such Non-
Consenting Party shall have the option to participate in the initial proposed
Completion of the well by paying its share of the
cost of drilling the well to its actual depth, calculated in the manner provided
in Article VI.B.4. (a). If any such Non-
Consenting Party does not elect to participate in the first Completion proposed
for such well, the relinquishment provisions
of this Article VI.B.2. (b) shall apply to such party's interest.
(c) REWORKING, RECOMPLETING OR PLUGGING BACK. An election not to
participate in the drilling, Sidetracking or
Deepening of a well shall be deemed an election not to participate in any
Reworking or Plugging Back operation proposed in
such a well, or portion thereof, to which the initial non-consent election
applied that is conducted at any time prior to full
recovery by the Consenting Parties of the Non-Consenting Party's recoupment
amount. Similarly, an election not to
participate in the Completing or Recompleting of a well shall be deemed an
election not to participate in any Reworking
operation proposed in such a well, or portion thereof, to which the initial
non-consent election applied that is conducted at
any time prior to full recovery by the Consenting Parties of the Non-Consenting
Party's recoupment amount. Any such
Reworking, Recompleting or Plugging Back operation conducted during the
recoupment period shall be deemed part of the
cost of operation of said well and there shall be added to the sums to be
recouped by the Consenting Parties ____100___% of
that portion of the costs of the Reworking, Recompleting or Plugging Back
operation which would have been chargeable to
such Non-Consenting Party had it participated therein. If such a Reworking,
Recompleting or Plugging Back operation is
proposed during such recoupment period, the provisions of this Article VI.B.
shall be applicable as between said Consenting
Parties in said well.
(d) RECOUPMENT MATTERS. During the period of time Consenting Parties are
entitled to receive Non-Consenting Party's
share of production, or the proceeds therefrom, Consenting Parties shall be
responsible for the payment of all ad valorem,
production, severance, excise, gathering and other taxes, and all royalty,
overriding royalty and other burdens applicable to
Non-Consenting Party's share of production not excepted by Article III.C.
In the case of any Reworking, Sidetracking, Plugging Back, Recompleting or
Deepening operation, the Consenting
Parties shall be permitted to use, free of cost, all casing, tubing and other
equipment in the well, but the ownership of all
such equipment shall remain unchanged; and upon abandonment of a well after such
Reworking, Sidetracking, Plugging Back,
Recompleting or Deepening, the Consenting Parties shall account for all such
equipment to the owners thereof, with each
party receiving its proportionate part in kind or in value, less cost of
salvage.
Within ninety (90) days after the completion of any operation under this
Article, the party conducting the operations
for the Consenting Parties shall furnish each Non-Consenting Party with an
inventory of the equipment in and connected to
the well, and an itemized statement of the cost of drilling, Sidetracking,
Deepening, Plugging Back, testing, Completing,
Recompleting, and equipping the well for production; or, at its option, the
operating party, in lieu of an itemized statement
of such costs of operation, may submit a detailed statement of monthly billings.
Each month thereafter, during the time the
Consenting Parties are being reimbursed as provided above, the party conducting
the operations for the Consenting Parties
shall furnish the Non-Consenting Parties with an itemized statement of all costs
and liabilities incurred in the operation of
the well, together with a statement of the quantity of Oil and Gas produced from
it and the amount of proceeds realized from
the sale of the well's working interest production during the preceding month.
In determining the quantity of Oil and Gas
produced during any month, Consenting Parties shall use industry accepted
methods such as but not limited to metering or
periodic well tests. Any amount realized from the sale or other disposition of
equipment newly acquired in connection with
any such operation which would have been owned by a Non-Consenting Party had it
participated therein shall be credited
against the total unreturned costs of the work done and of the equipment
purchased in determining when the interest of such
Non-Consenting Party shall revert to it as above provided; and if there is a
credit balance, it shall be paid to such Non-
Consenting Party.
If and when the Consenting Parties recover from a Non-Consenting Party's
relinquished interest the amounts provided
for above, the relinquished interests of such Non-Consenting Party shall
automatically revert to it as of 7:00 a.m. on the [INSERTED TEXT:] [first day of
the month] [TEXT DELETED BY PARTIES]
following the day on which such recoupment occurs, and, from and after such
reversion, such Non-Consenting Party shall
own the same interest in such well, the material and equipment in or pertaining
thereto, and the production therefrom as
such Non-Consenting Party would have been entitled to had it participated in the
drilling, Sidetracking, Reworking,
Deepening, Recompleting or Plugging Back of said well. Thereafter, such
Non-Consenting Party shall be charged with and
shall pay its proportionate part of the further costs of the operation of
said well in accordance with the terms of this
agreement and Exhibit "C" attached hereto.
3. STAND-BY COSTS: When a well which has been drilled or Deepened has
reached its authorized depth and all tests have
been completed and the results thereof furnished to the parties, or when
operations on the well have been otherwise
terminated pursuant to Article VI.F., stand-by costs incurred pending
response to a party's notice proposing a Reworking,
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888A.A.P.L. FORM 610 - MODEL FORM OPERATING AGREEMENT - 1989
Sidetracking, Deepening, Recompleting, Plugging Back or Completing operation in
such a well (including the period required
under Article VI.B.6. to resolve competing proposals) shall be charged and borne
as part of the drilling or Deepening
operation just completed. Stand-by costs subsequent to all parties responding,
or expiration of the response time permitted,
whichever first occurs, and prior to agreement as to the participating interests
of all Consenting Parties pursuant to the terms
of the second grammatical paragraph of Article VI.B.2. (a), shall be charged to
and borne as part of the proposed operation,
but if the proposal is subsequently withdrawn because of insufficient
participation, such stand-by costs shall be allocated
between the Consenting Parties in the proportion each Consenting Party's
interest as shown on Exhibit "A" bears to the total
interest as shown on Exhibit "A" of all Consenting Parties.
In the event that notice for a Sidetracking operation is given while the
drilling rig to be utilized is on location, any party
may request and receive up to five (5) additional days after expiration of the
forty-eight hour response period specified in
Article VI.B.1. within which to respond by paying for all stand-by costs and
other costs incurred during such extended
response period; Operator may require such party to pay the estimated stand-by
time in advance as a condition to extending
the response period. If more than one party elects to take such additional time
to respond to the notice, standby costs shall be
allocated between the parties taking additional time to respond on a day-to-day
basis in the proportion each electing party's
interest as shown on Exhibit "A" bears to the total interest as shown on Exhibit
"A" of all the electing parties.
4. DEEPENING: If less than all parties elect to participate in a drilling,
Sidetracking, or Deepening operation proposed
pursuant to Article VI.B.1., the interest relinquished by the Non-Consenting
Parties to the Consenting Parties under Article
VI.B.2. shall relate only and be limited to the lesser of (i) the total depth
actually drilled or (ii) the objective depth or Zone
of which the parties were given notice under Article VI.B.1. ("Initial
Objective"). Such well shall not be Deepened beyond the
Initial Objective without first complying with this Article to afford the
Non-Consenting Parties the opportunity to participate
in the Deepening operation.
In the event any Consenting Party desires to drill or Deepen a Non-Consent
Well to a depth below the Initial Objective,
such party shall give notice thereof, complying with the requirements of Article
VI.B.1., to all parties (including Non-
Consenting Parties). Thereupon, Articles VI.B.1. and 2. shall apply and all
parties receiving such notice shall have the right to
participate or not participate in the Deepening of such well pursuant to said
Articles VI.B.1. and 2. If a Deepening operation
is approved pursuant to such provisions, and if any Non-Consenting Party elects
to participate in the Deepening operation,
such Non-Consenting party shall pay or make reimbursement (as the case may be)
of the following costs and expenses.
(a) If the proposal to Deepen is made prior to the Completion of such well
as a well capable of producing in paying
quantities, such Non-Consenting Party shall pay (or reimburse Consenting Parties
for, as the case may be) that share of costs
and expenses incurred in connection with the drilling of said well from the
surface to the Initial Objective which Non-
Consenting Party would have paid had such Non-Consenting Party agreed to
participate therein, plus the Non-Consenting
Party's share of the cost of Deepening and of participating in any further
operations on the well in accordance with the other
provisions of this Agreement; provided, however, all costs for testing and
Completion or attempted Completion of the well
incurred by Consenting Parties prior to the point of actual operations to Deepen
beyond the Initial Objective shall be for the
sole account of Consenting Parties.
(b) If the proposal is made for a Non-Consent Well that has been
previously Completed as a well capable of producing
in paying quantities, but is no longer capable of producing in paying
quantities, such Non-Consenting Party shall pay (or
reimburse Consenting Parties for, as the case may be) its proportionate share of
all costs of drilling, Completing, and
equipping said well from the surface to the Initial Objective, calculated in the
manner provided in paragraph (a) above, less
those costs recouped by the Consenting Parties from the sale of production from
the well. The Non-Consenting Party shall
also pay its proportionate share of all costs of re-entering said well. The
Non-Consenting Parties' proportionate part (based
on the percentage of such well Non-Consenting Party would have owned had it
previously participated in such Non-Consent
Well) of the costs of salvable materials and equipment remaining in the hole and
salvable surface equipment used in
connection with such well shall be determined in accordance with Exhibit "C." If
the Consenting Parties have recouped the
cost of drilling, Completing, and equipping the well at the time such Deepening
operation is conducted, then a Non-
Consenting Party may participate in the Deepening of the well with no payment
for costs incurred prior to re-entering the
well for Deepening
The foregoing shall not imply a right of any Consenting Party to propose
any Deepening for a Non-Consent Well prior
to the drilling of such well to its Initial Objective without the consent of the
other Consenting Parties as provided in Article
VI.F.
5. SIDETRACKING: Any party having the right to participate in a proposed
Sidetracking operation that does not own an
interest in the affected wellbore at the time of the notice shall, upon electing
to participate, tender to the wellbore owners its
proportionate share (equal to its interest in the Sidetracking operation) of the
value of that portion of the existing wellbore
to be utilized as follows:
(a) If the proposal is for Sidetracking an existing dry hole,
reimbursement shall be on the basis of the actual costs
incurred in the initial drilling of the well down to the depth at which the
Sidetracking operation is initiated.
(b) If the proposal is for Sidetracking a well which has previously
produced, reimbursement shall be on the basis of
such party's proportionate share of drilling and equipping costs incurred in the
initial drilling of the well down to the depth
at which the Sidetracking operation is conducted, calculated in the manner
described in Article VI.B.4(b) above. Such party's
proportionate share of the cost of the well's salvable materials and equipment
down to the depth at which the Sidetracking
operation is initiated shall be determined in accordance with the provisions of
Exhibit "C."
6. ORDER OF PREFERENCE OF OPERATIONS. Except as otherwise specifically provided
in this agreement, if any party desires to
propose the conduct of an operation that conflicts with a proposal that has been
made by a party under this Article VI, such
party shall have fifteen (15) days from delivery of the initial proposal, in the
case of a proposal to drill a well or to perform
an operation on a well where no drilling rig is on location, or twenty-four (24)
hours, [TEXT DELETED BY PARTIES]
from delivery of the initial proposal, if a drilling rig is on location for the
well on which such operation is to be
conducted, to deliver to all parties entitled to participate in the proposed
operation such party's alternative proposal, such
alternate proposal to contain the same information required to be included in
the initial proposal. Each party receiving such
proposals shall elect by delivery of notice to Operator within five (5) days
after expiration of the proposal period, or within
twenty-four (24) hours) [TEXT DELETED BY PARTIES] if a drilling rig is on
location for the well that is the
subject of the proposals, to participate in one of the competing proposals. Any
party not electing within the time required
shall be deemed not to have voted. The proposal receiving the vote of parties
owning the largest aggregate percentage
interest of the parties voting shall have priority over all other competing
proposals; in the case of a tie vote, the
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999A.A.P.L. FORM 610 - MODEL FORM OPERATING AGREEMENT - 1989
initial proposal shall prevail. Operator shall deliver notice of such result
to all parties entitled to participate in the operation
within five (5) days after expiration of the election period (or within
twenty-four (24) hours, exclusive of Saturday, Sunday
and legal holidays, if a drilling rig is on location). Each party shall then
have two (2) days (or twenty-four (24) hours if a rig
is on location) from receipt of such notice to elect by delivery of notice to
Operator to participate in such operation or to
relinquish interest in the affected well pursuant to the provisions of Article
VI.B.2.; failure by a party to deliver notice within
such period shall be deemed an election not to participate in the prevailing
proposal.
7. CONFORMITY TO SPACING PATTERN. Notwithstanding the provisions of this
Article VI.B.2., it is agreed that no wells shall be
proposed to be drilled to or Completed in or produced from a Zone from which a
well located elsewhere on the Contract
Area is producing, unless such well conforms to the then-existing well spacing
pattern for such Zone.
8. PAYING WELLS. No party shall conduct any Reworking, Deepening, Plugging
Back, Completion, Recompletion, or
Sidetracking operation under this agreement with respect to any well then
capable of producing in paying quantities except
with the consent of all parties that have not relinquished interests in the well
at the time of such operation.
C. COMPLETION OF WELLS; REWORKING AND PLUGGING BACK:
1. COMPLETION: Without the consent of all parties, no well shall be
drilled, Deepened or Sidetracked, except any well
drilled, Deepened or Sidetracked pursuant to the provisions of Article VI.B.2.
of this agreement. Consent to the drilling,
Deepening or Sidetracking shall include:
|X| OPTION NO. 1: All necessary expenditures for the drilling,
Deepening or Sidetracking, testing, Completing and
equipping of the well, including necessary tankage and/or surface
facilities.
[TEXT DELETED BY PARTIES]
2. REWORK, RECOMPLETE OR PLUG BACK: No well shall be Reworked, Recompleted
or Plugged Back except a well Reworked,
Recompleted, or Plugged Back pursuant to the provisions of Article VI.B.2. of
this agreement. Consent to the Reworking,
Recompleting or Plugging Back of a well shall include all necessary expenditures
in conducting such operations and
Completing and equipping of said well, including necessary tankage and/or
surface facilities.
D. OTHER OPERATIONS:
Operator shall not undertake any single project reasonably estimated to
require an expenditure in excess of
Twenty-Five Thousand Dollars Dollars ($25,000.00) except in connection with the
drilling, Sidetracking, Reworking, Deepening, Completing, Recompleting or
Plugging Back of a well that has been previously
authorized by or pursuant to this agreement; provided, however, that, in case of
explosion, fire, flood or other sudden
emergency, whether of the same or different nature, Operator may take such steps
and incur such expenses as in its opinion
are required to deal with the emergency to safeguard life and property but
Operator, as promptly as possible, shall report the
emergency to the other parties. If Operator prepares an AFE for its own use,
Operator shall furnish any Non-Operator [TEXT DELETED BY PARTIES]
[TEXT DELETED BY PARTIES] an information copy thereof for any single project.
[INSERTED TEXT:] [Those projects] / costing in excess of Twenty-Five Thousand
Dollars
($25,000.00) [INSERTED TEXT:] [shall require the approval of all participating
parties]./ Any party who has not relinquished its interest in a well shall have
the right to propose that
Operator perform repair work or undertake the installation of artificial lift
equipment or ancillary production facilities such as
salt water disposal wells or to conduct additional work with respect to a well
drilled hereunder or other similar project (but
not including the installation of gathering lines or other transportation or
marketing facilities, the installation of which shall
be governed by separate agreement between the parties) reasonably estimated to
require an expenditure in excess of the
amount first set forth above in this Article VI.D. (except in connection with an
operation required to be proposed under
Articles VI.B.1. or VI.C.1. Option No. 2, which shall be governed exclusively be
those Articles). Operator shall deliver such
proposal to all parties entitled to participate therein. If within thirty (30)
days thereof Operator secures the written consent
of any party or parties owning at least 80.00 % of the interests of the parties
entitled to participate in such operation,
each party having the right to participate in such project shall be bound by the
terms of such proposal and shall be obligated
to pay its proportionate share of the costs of the proposed project as if it had
consented to such project pursuant to the terms
of the proposal.
E. ABANDONMENT OF WELLS:
1. ABANDONMENT OF DRY HOLES: Except for any well drilled or Deepened
pursuant to Article VI.B.2., any well which has
been drilled or Deepened under the terms of this agreement and is proposed to be
completed as a dry hole shall not be
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101010A.A.P.L. FORM 610 - MODEL FORM OPERATING AGREEMENT - 1989
plugged and abandoned without the consent of all parties. Should Operator, after
diligent effort, be unable to contact any
party, or should any party fail to reply within forty-eight (48) hours
(exclusive of Saturday, Sunday and legal holidays) after
delivery of notice of the proposal to plug and abandon such well, such party
shall be deemed to have consented to the
proposed abandonment. All such wells shall be plugged and abandoned in
accordance with applicable regulations and at the
cost, risk and expense of the parties who participated in the cost of drilling
or Deepening such well. Any party who objects to
plugging and abandoning such well by notice delivered to Operator within
forty-eight (48) hours (exclusive of Saturday,
Sunday and legal holidays) after delivery of notice of the proposed plugging
shall take over the well as of the end of such
forty-eight (48) hour notice period and conduct further operations in search of
Oil and/or Gas subject to the provisions of
Article VI.B.; failure of such party to provide proof reasonably satisfactory to
Operator of its financial capability to conduct
such operations or to take over the well within such period or thereafter to
conduct operations on such well or plug and
abandon such well shall entitle Operator to retain or take possession of the
well and plug and abandon the well. The party
taking over the well shall indemnify Operator (if Operator is an abandoning
party) and the other abandoning parties against
liability for any further operations conducted on such well except for the costs
of plugging and abandoning the well and
restoring the surface, for which the abandoning parties shall remain
proportionately liable.
2. ABANDONMENT OF WELLS THAT HAVE PRODUCED: Except for any well in which a
Non-Consent operation has been
conducted hereunder for which the Consenting Parties have not been fully
reimbursed as herein provided, any well which has
been completed as a producer shall not be plugged and abandoned without the
consent of all parties. If all parties consent to
such abandonment, the well shall be plugged and abandoned in accordance with
applicable regulations and at the cost, risk
and expense of all the parties hereto. Failure of a party to reply within sixty
(60) days of delivery of notice of proposed
abandonment shall be deemed an election to consent to the proposal. If, within
sixty (60) days after delivery of notice of the
proposed abandonment of any well, all parties do not agree to the abandonment of
such well, those wishing to continue its
operation from the Zone then open to production shall be obligated to take over
the well as of the expiration of the
applicable notice period and shall indemnify Operator (if Operator is an
abandoning party) and the other abandoning parties
against liability for any further operations on the well conducted by such
parties. Failure of such party or parties to provide
proof reasonably satisfactory to Operator of their financial capability to
conduct such operations or to take over the well
within the required period or thereafter to conduct operations on such well
shall entitle operator to retain or take possession
of such well and plug and abandon the well.
Parties taking over a well as provided herein shall tender to each of the
other parties its proportionate share of the value of
the well's salvable material and equipment, determined in accordance with the
provisions of Exhibit "C," less the estimated cost
of salvaging and the estimated cost of plugging and abandoning and restoring
the surface; provided, however, that in the event
the estimated plugging and abandoning and surface restoration costs and the
estimated cost of salvaging are higher than the
value of the well's salvable material and equipment, each of the abandoning
parties shall tender to the parties continuing
operations their proportionate shares of the estimated excess cost. Each
abandoning party shall assign to the non-abandoning
parties, without warranty, express or implied, as to title or as to quantity,
or fitness for use of the equipment and material, all
of its interest in the wellbore of the well and related equipment, together with
its interest in the Leasehold insofar and only
insofar as such Leasehold covers the right to obtain production from that
wellbore in the Zone then open to production. If the
interest of the abandoning party is or includes and Oil and Gas Interest, such
party shall execute and deliver to the non-
abandoning party or parties an oil and gas lease, limited to the wellbore and
the Zone then open to production, for a term of
one (1) year and so long thereafter as Oil and/or Gas is produced from the Zone
covered thereby, [INSERTED TEXT:] [such lease to be on a mutually acceptable
form or that required by a government entity].
[TEXT DELETED BY PARTIES]. The assignments or leases so limited shall
encompass the Drilling Unit upon which the well is located.
The payments by, and the assignments or leases to, the assignees shall be in a
ratio based upon the relationship of their
respective percentage of participation in the Contract Area to the aggregate of
the percentages of participation in the Contract
Area of all assignees. There shall be no readjustment of interests in the
remaining portions of the Contract Area.
Thereafter, abandoning parties shall have no further responsibility,
liability, or interest in the operation of or production
from the well in the Zone then open other than the royalties retained in any
lease made under the terms of this Article. Upon
request, Operator shall continue to operate the assigned well for the account of
the non-abandoning parties at the rates and
charges contemplated by this agreement, plus any additional cost and charges
which may arise as the result of the separate
ownership of the assigned well. Upon proposed abandonment of the producing Zone
assigned or leased, the assignor or lessor
shall then have the option to repurchase its prior interest in the well (using
the same valuation formula) and participate in
further operations therein subject to the provisions hereof.
3. ABANDONMENT OF NON-CONSENT OPERATIONS: The provisions of Article
VI.E.1. or VI.E.2. above shall be applicable as
between Consenting Parties in the event of the proposed abandonment of any well
excepted from said Articles; provided,
however, no well shall be permanently plugged and abandoned unless and until all
parties having the right to conduct further
operations therein have been notified of the proposed abandonment and afforded
the opportunity to elect to take over the well
in accordance with the provisions of this Article VI.E.; and provided further,
that Non-Consenting Parties who own an interest
in a portion of the well shall pay their proportionate shares of abandonment and
surface restoration cost for such well as
provided in Article VI.B.2.(b).
F. TERMINATION OF OPERATIONS:
Upon the commencement of an operation for the drilling, Reworking,
Sidetracking, Plugging Back, Deepening, testing,
Completion or plugging of a well, including but not limited to the Initial Well,
such operation shall not be terminated without
consent of parties bearing ____100_% of the costs of such operation; provided,
however, that in the event granite or other
practically impenetrable substance or condition in the hole is encountered which
renders further operations impractical,
Operator may discontinue operations and give notice of such condition in the
manner provided in Article VI.B.1, and the
provisions of Article VI.B. or VI.E. shall thereafter apply to such operation,
as appropriate.
G. TAKING PRODUCTION IN KIND:
|X| OPTION NO. 1: GAS BALANCING AGREEMENT ATTACHED
Each party shall take in kind or separately dispose of its proportionate
share of all Oil and Gas produced from the
Contract Area, exclusive of production which may be used in development
and producing operations and in preparing and
treating Oil and Gas for marketing purposes and production unavoidably
lost. Any extra expenditure incurred in the taking
in kind or separate disposition by any party of its proportionate share of
the production shall be borne by such party. Any
party taking its share of production in kind shall be required to pay for
only its proportionate share of such part of
Operator's surface facilities which it uses.
Each party shall execute such division orders and contracts as may be
necessary for the sale of its interest in
production from the Contract Area, and, except as provided in Article
VII.B., shall be entitled to receive payment
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111111A.A.P.L. FORM 610 - MODEL FORM OPERATING AGREEMENT - 1989
directly from the purchaser thereof for its share of all production.
If any party fails to make the arrangements necessary to take in kind
or separately dispose of its proportionate
share of the Oil produced from the Contract Area, Operator shall have the
right, subject to the revocation at will by
the party owning it, but not the obligation, to purchase such Oil or sell
it to others at any time and from time to
time, for the account of the non-taking party. Any such purchase or sale
by Operator may be terminated by
Operator upon at least ten (10) days written notice to the owner of said
production and shall be subject always to
the right of the owner of the production upon at least ten (10) days
written notice to Operator to exercise at any
time its right to take in kind, or separately dispose of, its share of all
Oil not previously delivered to a purchaser.
Any purchase or sale by Operator of any other party's share of Oil shall
be only for such reasonable periods of time
as are consistent with the minimum needs of the industry under the
particular circumstances, but in no event for a
period in excess of one (1) year.
Any such sale by Operator shall be in a manner commercially reasonable
under the circumstances but Operator
shall have no duty to share any existing market or to obtain a price equal
to that received under any existing
market. The sale or delivery by Operator of a non-taking party's share of
Oil under the terms of any existing
contract of Operator shall not give the non-taking party any interest in
or make the non-taking party a party to said
contract. No purchase shall be made by Operator without first giving the
non-taking party at least ten (10) days
written notice of such intended purchase and the price to be paid or the
pricing basis to be used.
All parties shall give timely written notice to Operator of their Gas
marketing arrangements for the following
month, excluding price, and shall notify Operator immediately in the event
of a change in such arrangements.
Operator shall maintain records of all marketing arrangements, and of
volumes actually sold or transported, which
records shall be made available to Non-Operators upon reasonable request.
In the event one or more parties' separate disposition of its share of
the Gas causes split-stream deliveries to separate
pipelines and/or deliveries which on a day-to-day basis for any reason are
not exactly equal to a party's respective proportion-
ate share of total Gas sales to be allocated to it, the balancing or
accounting between the parties shall be in accordance with
any Gas balancing agreement between the parties hereto, whether such an
agreement is attached as Exhibit "E" or is a
separate agreement. Operator shall give notice to all parties of the first
sales of Gas from any well under this agreement.
|_| [TEXT DELETED BY PARTIES]
ARTICLE VII.
EXPENDITURES AND LIABILITY OF PARTIES
A. LIABILITY OF PARTIES:
The liability of the parties shall be several, not joint or collective.
Each party shall be responsible only for its obligations,
and shall be liable only for its proportionate share of the costs of developing
and operating the Contract Area. Accordingly, the
liens granted among the parties in Article VII.B. are given to secure only the
debts of each severally, and no party shall have
any liability to third parties hereunder to satisfy the default of any other
party in the payment of any expense or obligation
hereunder. It is not the intention of the parties to create, nor shall this
agreement be construed as creating, a mining or other
partnership, joint venture, agency relationship or association, or to render the
parties liable as partners, co-venturers, or
principals. In their relations with each other under this agreement, the parties
shall not be considered fiduciaries or to have
established a confidential relationship but rather shall be free to act on an
arm's-length basis in accordance with their own
respective self-interest, subject, however, to the obligation of the parties to
act in good faith in their dealings with each other
with respect to activities hereunder.
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121212A.A.P.L. FORM 610 - MODEL FORM OPERATING AGREEMENT - 1989
B. LIENS AND SECURITY INTERESTS:
Each party grants to the other parties hereto a lien upon any interest it
now owns or hereafter acquires in Oil and Gas
Leases and Oil and Gas Interests in the Contract Area, and a security interest
and/or purchase money security interest in any
interest it now owns or hereafter acquires in the personal property and fixtures
on or used or obtained for use in connection
therewith, to secure performance of all of its obligations under this agreement
including but not limited to payment of expense,
interest and fees, the proper disbursement of all monies paid hereunder, the
assignment or relinquishment of interest in Oil
and Gas Leases as required hereunder, and the proper performance of operations
hereunder. Such lien and security interest
granted by each party hereto shall include such party's leasehold interests,
working interests, operating rights, and royalty and
overriding royalty interests in the Contract Area now owned or hereafter
acquired and in lands pooled or unitized therewith or
otherwise becoming subject to this agreement, the Oil and Gas when extracted
therefrom and equipment situated thereon or
used or obtained for use in connection therewith (including, without limitation,
all wells, tools, and tubular goods), and accounts
(including, without limitation, accounts arising from gas imbalances or from the
sale of Oil and/or Gas at the wellhead),
contract rights, inventory and general intangibles relating thereto or arising
therefrom, and all proceeds and products of the
foregoing.
To perfect the lien and security agreement provided herein, each party
hereto shall execute and acknowledge the recording
supplement and/or any financing statement prepared and submitted by any party
hereto in conjunction herewith or at any time
following execution hereof, and Operator is authorized to file this agreement
or the recording supplement executed herewith as
a lien or mortgage in the applicable real estate records and as a financing
statement with the proper officer under the Uniform
Commercial Code in the state in which the Contract Area is situated and such
other states as Operator shall deem appropriate
to perfect the security interest granted hereunder. Any party may file this
agreement, the recording supplement executed
herewith, or such other documents as it deems necessary as a lien or mortgage in
the applicable real estate records and/or a
financing statement with the proper officer under the Uniform Commercial Code.
Each party represents and warrants to the other parties hereto that the
lien and security interest granted by such party to
the other parties shall be a first and prior lien, and each party hereby agrees
to maintain the priority of said lien and security
interest against all persons acquiring an interest in Oil and Gas Leases and
Interests covered by this agreement by, through or
under such party. All parties acquiring an interest in Oil and Gas Leases and
Oil and Gas Interests covered by this agreement,
whether by assignment, merger, mortgage, operation of law, or otherwise, shall
be deemed to have taken subject
to the lien and security interest granted by this Article VII.B. as to all
obligations attributable to such interest hereunder
whether or not such obligations arise before or after such interest is acquired.
To the extent that parties have a security interest under the Uniform
Commercial Code of the state in which the
Contract Area is situated, they shall be entitled to exercise the rights and
remedies of a secured party under the Code.
The bringing of a suit and the obtaining of judgment by a party for the secured
indebtedness shall not be deemed an
election of remedies or otherwise affect the lien rights or security interest as
security for the payment thereof. In
addition, upon default by any party in the payment of its share of expenses,
interests or fees, or upon the improper use
of funds by the Operator, the other parties shall have the right, without
prejudice to other rights or remedies, to collect
from the purchaser the proceeds from the sale of such defaulting party's share
of Oil and Gas until the amount owed by
such party, plus interest as provided in "Exhibit C," has been received, and
shall have the right to offset the amount
owed against the proceeds from the sale of such defaulting party's share of Oil
and Gas. All purchasers of production
may rely on a notification of default from the non-defaulting party or parties
stating the amount due as a result of the
default, and all parties waive any recourse available against purchasers for
releasing production proceeds as provided in
this paragraph.
If any party fails to pay its share of cost within [INSERTED TEXT:] [Sixty
(60)] / [TEXT DELETED BY PARTIES] days after rendition of a statement therefor
by
Operator, the non-defaulting parties, including Operator, shall upon request by
Operator, pay the unpaid amount in the
proportion that the interest of each such party bears to the interest of all
such parties. The amount paid by each party so
paying its share of the unpaid amount shall be secured by the liens and security
rights described in Article VII.B., and each
paying party may independently pursue any remedy available hereunder or
otherwise.
If any party does not perform all of its obligations hereunder, and the
failure to perform subjects such party to foreclosure
or execution proceedings pursuant to the provisions of this agreement, to the
extent allowed by governing law, the defaulting
party waives any available right of redemption from and after the date of
judgment, any required valuation or appraisement
of the mortgaged or secured property prior to sale, any available right to stay
execution or to require a marshaling of assets
and any required bond in the event a receiver is appointed. In addition, to the
extent permitted by applicable law, each party
hereby grants to the other parties a power of sale as to any property that is
subject to the lien and security rights granted
hereunder, such power to be exercised in the manner provided by applicable law
or otherwise in a commercially reasonable
manner and upon reasonable notice.
Each party agrees that the other parties shall be entitled to utilize the
provisions of Oil and Gas lien law or other lien
law of any state in which the Contract Area is situated to enforce the
obligations of each party hereunder. Without limiting
the generality of the foregoing, to the extent permitted by applicable law,
Non-Operators agree that Operator may invoke or
utilize the mechanics' or materialmen's lien law of the state in which the
Contract Area is situated in order to secure the
payment to Operator of any sum due hereunder for services performed or materials
supplied by Operator.
C. ADVANCES:
Operator, at its election, shall have the right from time to time to
demand and receive from one or more of the other
parties payment in advance of their respective shares of the estimated amount
of the expense to be incurred in operations
hereunder during the next succeeding month, [INSERTED TEXT:] [including the
total estimated cost of any operation anticipated to be commenced during the
next succeeding month] which right may be exercised only by submission to each
such party of an
itemized statement of such estimated expense, together with an invoice for its
share thereof. Each such statement and invoice
for the payment in advance of estimated expense shall be submitted on or before
the 20th day of the next preceding month [INSERTED TEXT:] [or in conjunction
with the submission of an AFE.]
Each party shall pay to Operator its proportionate share of such estimate within
[INSERTED TEXT:] [twenty-two (22)] [TEXT DELETED BY PARTIES] days after such
estimate and
invoice is received. If any party fails to pay its share of said estimate
within said time, the amount due shall bear interest as
provided in Exhibit "C" until paid. Proper adjustment shall be made monthly
between advances and actual expense to the end
that each party shall bear and pay its proportionate share of actual expenses
incurred, and no more.
D. DEFAULTS AND REMEDIES:
If any party fails to discharge any financial obligation under this
agreement, including without limitation the failure to
make any advance under the preceding Article VII.C. or any other provision of
this agreement, within the period required for
such payment hereunder, then in addition to the remedies provided in Article
VII.B. or elsewhere in this agreement, the
remedies specified below shall be applicable. For purposes of this Article
VII.D., all notices and elections shall be delivered
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131313A.A.P.L. FORM 610 - MODEL FORM OPERATING AGREEMENT - 1989
only by Operator, except that Operator shall deliver any such notice and
election requested by a non-defaulting Non-Operator,
and when Operator is the party in default, the applicable notices and elections
can be delivered by any Non-Operator.
Election of any one or more of the following remedies shall not preclude the
subsequent use of any other remedy specified
below or otherwise available to a non-defaulting party.
1. SUSPENSION OF RIGHTS: Any party may deliver to the party in default a
Notice of Default, which shall specify the default,
specify the action to be taken to cure the default, and specify that failure to
take such action will result in the exercise of one
or more of the remedies provided in this Article. If the default is not cured
within thirty (30) days of the delivery of such
Notice of Default, all of the rights of the defaulting party granted by this
agreement may upon notice be suspended until the
default is cured, without prejudice to the right of the non-defaulting party or
parties to continue to enforce the obligations of
the defaulting party previously accrued or thereafter accruing under this
agreement. If Operator is the party in default, the
Non-Operators shall have in addition the right, by vote of Non-Operators owning
a majority in interest in the Contract Area
after excluding the voting interest of Operator, to appoint a new Operator
effective immediately. The rights of a defaulting
party that may be suspended hereunder at the election of the non-defaulting
parties shall include, without limitation, the right
to receive information as to any operation conducted hereunder during the period
of such default, the right to elect to
participate in an operation proposed under Article VI.B. of this agreement, the
right to participate in an operation being
conducted under this agreement even if the party has previously elected to
participate in such operation, and the right to
receive proceeds of production from any well subject to this agreement.
2. SUIT FOR DAMAGES: Non-defaulting parties or Operator for the benefit of
non-defaulting parties may sue (at joint
account expense) to collect the amounts in default, plus interest accruing on
the amounts recovered from the date of default
until the date of collection at the rate specified in Exhibit "C" attached
hereto. Nothing herein shall prevent any party from
suing any defaulting party to collect consequential damages accruing to such
party as a result of the default.
3. DEEMED NON-CONSENT: The non-defaulting party may deliver a written
Notice of Non-Consent Election to the
defaulting party at any time after the expiration of the thirty-day cure period
following delivery of the Notice of Default, in
which event if the billing is for the drilling a new well or the Plugging Back,
Sidetracking, Reworking or Deepening of a
well which is to be or has been plugged as a dry hole, or for the Completion or
Recompletion of any well, the defaulting
party will be conclusively deemed to have elected not to participate in the
operation and to be a Non-Consenting Party with
respect thereto under Article VI.B. or VI.C., as the case may be, to the extent
of the costs unpaid by such party,
notwithstanding any election to participate theretofore made. If election is
made to proceed under this provision, then the
non-defaulting parties may not elect to sue for the unpaid amount pursuant to
Article VII.D.2.
Until the delivery of such Notice of Non-Consent Election to the
defaulting party, such party shall have the right to cure
its default by paying its unpaid share of costs plus interest at the rate set
forth in Exhibit "C," provided, however, such
payment shall not prejudice the rights of the non-defaulting parties to pursue
remedies for damages incurred by the non-
defaulting parties as a result of the default. Any interest relinquished
pursuant to this Article VII.D.3. shall be offered to the
non-defaulting parties in proportion to their interests, and the non-defaulting
parties electing to participate in the ownership
of such interest shall be required to contribute their shares of the defaulted
amount upon their election to participate therein.
4. ADVANCE PAYMENT: If a default is not cured within thirty (30) days of
the delivery of a Notice of Default, Operator, or
Non-Operators if Operator is the defaulting party, may thereafter require
advance payment from the defaulting
party of such defaulting party's anticipated share of any item of expense for
which Operator, or Non-Operators, as the case may
be, would be entitled to reimbursement under any provision of this agreement,
whether or not such expense was the subject of
the previous default. Such right includes, but is not limited to, the right to
require advance payment for the estimated costs of
drilling a well or Completion of a well as to which an election to participate
in drilling or Completion has been made. If the
defaulting party fails to pay the required advance payment, the non-defaulting
parties may pursue any of the remedies provided
in the Article VII.D. or any other default remedy provided elsewhere in this
agreement. Any excess of funds advanced remaining
when the operation is completed and all costs have been paid shall be promptly
returned to the advancing party.
5. COSTS AND ATTORNEYS' FEES: In the event any party is required to bring
legal proceedings to enforce any financial
obligation of a party hereunder, the prevailing party in such action shall be
entitled to recover all court costs, costs of
collection, and a reasonable attorney's fee, which the lien provided for herein
shall also secure.
E. RENTALS, SHUT-IN WELL PAYMENTS AND MINIMUM ROYALTIES:
Rentals, shut-in well payments and minimum royalties which may be
required under the terms of any lease shall be paid
by the party or parties who subjected such lease to this agreement at its or
their expense. In the event two or more parties
own and have contributed interests in the same lease to this agreement, such
parties may designate one of such parties to
make said payments for and on behalf of all such parties. Any party may request,
and shall be entitled to receive, proper
evidence of all such payments. [TEXT DELETED BY PARTIES]
Operator shall notify Non-Operators of the anticipated completion of a
shut-in well, or the shutting in or return to
production of a producing well, at least five (5) days (excluding Saturday,
Sunday, and legal holidays) prior to taking such
action, or at the earliest opportunity permitted by circumstances, but assumes
no liability for failure to do so. In the event of
failure by Operator to so notify Non-Operators, the loss of any lease
contributed hereto by Non-Operators for failure to make
timely payments of any shut-in well payment shall be borne jointly by the
parties hereto under the provisions of Article
IV.B.3.
F. TAXES:
Beginning with the first calendar year after the effective date hereof,
Operator shall render for ad valorem taxation all
property subject to this agreement which by law should be rendered for such
taxes, and it shall pay all such taxes assessed
thereon before they become delinquent. Prior to the rendition date, each
Non-Operator shall furnish Operator information as
to burdens (to include, but not be limited to, royalties, overriding royalties
and production payments) on Leases and Oil and
Gas Interests contributed by such Non-Operator. If the assessed valuation of any
Lease is reduced by reason of its being
subject to outstanding excess royalties, overriding royalties or production
payments, the reduction in ad valorem taxes
resulting therefrom shall inure to the benefit of the owner or owners of such
Lease, and Operator shall adjust the charge to
such owner or owners so as to reflect the benefit of such reduction. If the ad
valorem taxes are based in whole or in part
upon separate valuations of each party's working interest, then notwithstanding
anything to the contrary herein, charges to
the joint account shall be made and paid by the parties hereto in accordance
with the tax value generated by each party's
working interest. Operator shall bill the other parties for their proportionate
shares of all tax payments in the manner
provided in Exhibit "C."
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141414A.A.P.L. FORM 610 - MODEL FORM OPERATING AGREEMENT - 1989
If Operator considers any tax assessment improper, Operator may, at its
discretion, protest within the time and manner
prescribed by law, and prosecute the protest to a final determination, unless
all parties agree to abandon the protest prior to final
determination. During the pendency of administrative or judicial proceedings,
Operator may elect to pay, under protest, all such taxes
and any interest and penalty. When any such protested assessment shall have
been finally determined, Operator shall pay the tax for
the joint account, together with any interest and penalty accrued, and the total
cost shall then be assessed against the parties, and be
paid by them, as provided in Exhibit "C."
Each party shall pay or cause to be paid all production, severance,
excise, gathering and other taxes imposed upon or with respect
to the production or handling of such party's share of Oil and Gas produced
under the terms of this agreement.
ARTICLE VIII.
ACQUISITION, MAINTENANCE OR TRANSFER OF INTEREST
A. SURRENDER OF LEASES:
The Leases covered by this agreement, insofar as they embrace acreage in
the Contract Area, shall not be surrendered in whole
or in part unless all parties consent thereto.
However, should any party desire to surrender its interest in any Lease or
in any portion thereof, such party shall give written
notice of the proposed surrender to all parties, and the parties to whom such
notice is delivered shall have thirty (30) days after
delivery of the notice within which to notify the party proposing the surrender
whether they elect to consent thereto. Failure of a
party to whom such notice is delivered to reply within said 30-day period shall
constitute a consent to the surrender of the Leases
described in the notice. If all parties do not agree or consent thereto, the
party desiring to surrender shall assign, without express or
implied warranty of title, all of its interest in such Lease, or portion
thereof, and any well, material and equipment which may be
located thereon and any rights in production thereafter secured, to the parties
not consenting to such surrender. If the interest of the
assigning party is or includes an Oil and Gas Interest, the assigning party
shall execute and deliver to the party or parties not
consenting to such surrender an oil and gas lease covering such Oil and Gas
Interest for a term of one (1) year and so long
thereafter as Oil and/or Gas is produced from the land covered thereby, [TEXT
DELETED].
Upon such assignment or lease, the assigning party shall be relieved from all
obligations thereafter accruing, but not theretofore
accrued, with respect to the interest assigned or leased and the operation of
any well attributable thereto, and the assigning party
shall have no further interest in the assigned or leased premises and its
equipment and production other than the royalties retained
in any lease made under the terms of this Article. The party assignee or lessee
shall pay to the party assignor or lessor the
reasonable salvage value of the latter's interest in any well's salvable
materials and equipment attributable to the assigned or leased
acreage. The value of all salvable materials and equipment shall be determined
in accordance with the provisions of Exhibit "C," less
the estimated cost of salvaging and the estimated cost of plugging and
abandoning and restoring the surface. If such value is less
than such costs, then the party assignor or lessor shall pay to the party
assignee or lessee the amount of such deficit. If the
assignment or lease is in favor of more than one party, the interest shall be
shared by such parties in the proportions that the
interest of each bears to the total interest of all such parties. If the
interest of the parties to whom the assignment is to be made
varies according to depth, then the interest assigned shall similarly reflect
such variances.
Any assignment, lease or surrender made under this provision shall not
reduce or change the assignor's, lessor's or surrendering
party's interest as it was immediately before the assignment, lease or surrender
in the balance of the Contract Area; and the acreage
assigned, leased or surrendered, and subsequent operations thereon, shall not
thereafter be subject to the terms and provisions of this
agreement but shall be deemed subject to an Operating Agreement in the form
of this agreement.
B. RENEWAL OR EXTENSION OF LEASES:
If any party secures a renewal or replacement of an Oil and Gas Lease or
Interest subject to this agreement, then all other parties
shall be notified promptly upon such acquisition or, in the case of a
replacement Lease taken before expiration of an existing Lease,
promptly upon expiration of the existing Lease. The parties notified shall have
the right for a period of thirty (30) days following
delivery of such notice in which to elect to participate in the ownership of the
renewal or replacement Lease, insofar as such Lease
affects lands within the Contract Area, by paying to the party who acquired it
their proportionate shares of the acquisition cost
allocated to that part of such Lease within the Contract Area, which shall be in
proportion to the interest held at that time by the
parties in the Contract Area. Each party who participates in the purchase of
a renewal or replacement Lease shall be given an
assignment of its proportionate interest therein by the acquiring party.
If some, but less than all, of the parties elect to participate in the
purchase of a renewal or replacement Lease, it shall be owned
by the parties who elect to participate therein, in a ratio based upon the
relationship of their respective percentage of participation in
the Contract Area to the aggregate of the percentages of participation in the
Contract Area of all parties participating in the
purchase of such renewal or replacement Lease. The acquisition of a renewal
or replacement Lease by any or all of the parties hereto
shall not cause a readjustment of the interests of the parties stated in
Exhibit "A," but any renewal or replacement Lease in which
less than all parties elect to participate shall not be subject to this
agreement but shall be deemed subject to a separate Operating
Agreement in the form of this agreement.
If the interests of the parties in the Contract Area vary according to
depth, then their right to participate proportionately in
renewal or replacement Leases and their right to receive an assignment of
interest shall also reflect such depth variances.
The provisions of this Article shall apply to renewal or replacement
Leases whether they are for the entire interest covered by
the expiring Lease or cover only a portion of its area or an interest therein.
Any renewal or replacement Lease taken before the
expiration of its predecessor Lease, or taken, contracted for, becoming
effective [INSERTED TEXT:] [or, if state or federal leases, nominated] within
six (6) months after the expiration of the
existing Lease, shall be subject to this provision so long as this agreement is
in effect at the time of such acquisition or at the time
the renewal or replacement Lease becomes effective; but any Lease taken,
contracted for, [INSERTED TEXT:] [or, if state or federal leases, nominated]
more than six (6) months after the
expiration of an existing Lease shall not be deemed a renewal or replacement
Lease and shall not be subject to the provisions of this
agreement.
The provisions in this Article shall also be applicable to extensions of
Oil and Gas Leases.
C. ACREAGE OR CASH CONTRIBUTIONS:
While this agreement is in force, if any party contracts for a
contribution of cash towards the drilling of a well or any other
operation on the Contract Area, such contribution shall be paid to the party who
conducted the drilling or other operation and shall
be applied by it against the cost of such drilling or other operation. If the
contribution be in the form of acreage, the party to whom
the contribution is made shall promptly tender an assignment of the acreage,
without warranty of title, to the Drilling Parties in the
proportions said Drilling Parties shared the cost of drilling the well. Such
acreage shall become a separate Contract Area and, to the
extent possible, be governed by provisions identical to this agreement. Each
party shall promptly notify all other parties of any
acreage or cash contributions it may obtain in support of any well or any other
operation on the Contract Area. The above
provisions shall also be applicable to optional rights to earn acreage outside
the Contract Area which are in support of well drilled
inside Contract Area.
-14-
151515A.A.P.L. FORM 610 - MODEL FORM OPERATING AGREEMENT - 1989
If any party contracts for any consideration relating to disposition of
such party's share of substances produced hereunder,
such consideration shall not be deemed a contribution as contemplated in this
Article VIII.C.
D. ASSIGNMENT; MAINTENANCE OF UNIFORM INTEREST:
[TEXT DELETED BY PARTIES]
Every sale, encumbrance, transfer or other disposition made by any party
shall be made expressly subject to this agreement
and shall be made without prejudice to the right of the other parties, and any
transferee of an ownership interest in any Oil and
Gas Lease or Interest shall be deemed a party to this agreement as to the
interest conveyed from and after the effective date of
the transfer of ownership; provided, however, that the other parties shall not
be required to recognize any such sale,
encumbrance, transfer or other disposition for any purpose hereunder until
thirty (30) days after they have received a copy of the
instrument of transfer or other satisfactory evidence thereof in writing from
the transferor or transferee. No assignment or other
disposition of interest by a party shall relieve such party of obligations
previously incurred by such party hereunder with respect
to the interest transferred, including without limitation the obligation of a
party to pay all costs attributable to an operation
conducted hereunder in which such party has agreed to participate prior to
making such assignment, and the lien and security
interest granted by Article VII.B. shall continue to burden the interest
transferred to secure payment of any such obligations.
If, at any time the interest of any party is divided among and owned by
four or more co-owners, Operator, at its discretion,
may require such co-owners to appoint a single trustee or agent with full
authority to receive notices, approve expenditures,
receive billings for and approve and pay such party's share of the joint
expenses, and to deal generally with, and with power to
bind, the co-owners of such party's interest within the scope of the operations
embraced in this agreement; however, all such co-
owners shall have the right to enter into and execute all contracts or
agreements for the disposition of their respective shares of
the Oil and Gas produced from the Contract Area and they shall have the right to
receive, separately, payment of the sale
proceeds thereof.
E. WAIVER OF RIGHTS TO PARTITION:
If permitted by the laws of the state or states in which the property
covered hereby is located, each party hereto owning an
undivided interest in the Contract Area waives any and all rights it may have to
partition and have set aside to it in severalty its
undivided interest therein.
[TEXT DELETED BY PARTIES]
ARTICLE IX.
INTERNAL REVENUE CODE ELECTION
If, for federal income tax purposes, this agreement and the operations
hereunder are regarded as a partnership, and if the
parties have not otherwise agreed to form a tax partnership pursuant to Exhibit
"G" or other agreement between them, each
party thereby affected elects to be excluded from the application of all of
the provisions of Subchapter "K," Chapter 1, Subtitle
"A," of the Internal Revenue Code of 1986, as amended ("Code"), as permitted and
authorized by Section 761 of the Code and
the regulations promulgated thereunder. Operator is authorized and directed
to execute on behalf of each party hereby affected
such evidence of this election as may be required by the Secretary of the
Treasury of the United States or the Federal Internal
Revenue Service, including specifically, but not by way of limitation, all of
the returns, statements, and the data required by
Treasury Regulationss.1.761. Should there be any requirement that each party
hereby affected give further evidence of this
election, each such party shall execute such documents and furnish such other
evidence as may be required by the Federal Internal
Revenue Service or as may be necessary to evidence this election. No such
party shall give any notices or take any other action
inconsistent with the election made hereby. If any present or future income
tax laws of the state or states in which the Contract
Area is located or any future income tax laws of the United States contain
provisions similar to those in Subchapter "K," Chapter
1, Subtitle "A," of the Code, under which an election similar to that provided
by Section 761 of the Code is permitted, each party
hereby affected shall make such election as may be permitted or required by
such laws. In making the foregoing election, each
such party states that the income derived by such party from operations
hereunder can be adequately determined without the
computation of partnership taxable income.
ARTICLE X.
CLAIMS AND LAWSUITS
Operator may settle any single uninsured third party damage claim or suit
arising from operations hereunder if the expenditure
does not exceed Ten Thousand Dollars Dollars ($10,000.00 ) and if the
payment is in complete settlement
of such claim or suit. If the amount required for settlement exceeds the above
amount, the parties hereto shall assume and take over
the further handling of the claim or suit, unless such authority is delegated to
Operator. All costs and expenses of handling settling,
or otherwise discharging such claim or suit shall be a the joint expense of the
parties participating in the operation from which the
claim or suit arises. If a claim is made against any party or if any party is
sued on account of any matter arising from operations
hereunder over which such individual has no control because of the rights given
Operator by this agreement, such party shall
immediately notify all other parties, and the claim or suit shall be treated as
any other claim or suit involving operations hereunder.
-15-
161616A.A.P.L. FORM 610 - MODEL FORM OPERATING AGREEMENT - 1989
ARTICLE XI.
FORCE MAJEURE
If any party is rendered unable, wholly or in part, by force majeure to
carry out its obligations under this agreement, other
than the obligation to indemnify or make money payments or furnish security,
that party shall give to all other parties
prompt written notice of the force majeure with reasonably full particulars
concerning it; thereupon, the obligations of the
party giving the notice, so far as they are affected by the force majeure, shall
be suspended during, but no longer than, the
continuance of the force majeure. The term "force majeure," as here employed,
shall mean an act of God, strike, lockout, or
other industrial disturbance, act of the public enemy, war, blockade, public
riot, lightening, fire, storm, flood or other act of
nature, explosion, governmental action, governmental delay, restraint or
inaction, unavailability of equipment, and any other
cause, whether of the kind specifically enumerated above or otherwise, which is
not reasonably within the control of the party
claiming suspension.
The affected party shall use all reasonable diligence to remove the force
majeure situation as quickly as practicable. The
requirement that any force majeure shall be remedied with all reasonable
dispatch shall not require the settlement of strikes,
lockouts, or other labor difficulty by the party involved, contrary to its
wishes; how all such difficulties shall be handled shall
be entirely within the discretion of the party concerned.
ARTICLE XII.
NOTICES
All notices authorized or required between the parties by any of the
provisions of this agreement, unless otherwise
specifically provided, shall be in writing and delivered in person or by United
States mail, courier service, telegram, telex,
telecopier or any other form of facsimile, postage or charges prepaid, and
addressed to such parties at the addresses listed on
Exhibit "A." All telephone or oral notices permitted by this agreement shall be
confirmed immediately thereafter by written
notice. The originating notice given under any provision hereof shall be deemed
delivered only when received by the party to
whom such notice is directed, and the time for such party to deliver any notice
in response thereto shall run from the date
the originating notice is received. "Receipt" for purposes of this agreement
with respect to written notice delivered hereunder
shall be actual delivery of the notice to the address of the party to be
notified specified in accordance with this agreement, or
to the telecopy, facsimile or telex machine of such party. The second or any
responsive notice shall be deemed delivered when
deposited in the United States mail or at the office of the courier or telegraph
service, or upon transmittal by telex, telecopy
or facsimile, or when personally delivered to the party to be notified,
provided, that when response is required within 24 or
48 hours, such response shall be given orally or by telephone, telex, telecopy
or other facsimile within such period. Each party
shall have the right to change its address at any time, and from time to time,
by giving written notice thereof to all other
parties. If a party is not available to receive notice orally or by telephone
when a party attempts to deliver a notice required
to be delivered within 24 or 48 hours, the notice may be delivered in writing by
any other method specified herein and shall
be deemed delivered in the same manner provided above for any responsive notice.
ARTICLE XIII.
TERM OF AGREEMENT
This agreement shall remain in full force and effect as to the Oil and Gas
Leases and/or Oil and Gas Interests subject
hereto for the period of time selected below; provided, however, no party hereto
shall ever be construed as having any right, title
or interest in or to any Lease or Oil and Gas Interest contributed by any other
party beyond the term of this agreement.
|X| Option No. 1: So long as any of the Oil and Gas Leases subject to this
agreement remain or are continued in
force as to any part of the Contract Area, whether by production,
extension, renewal or otherwise.
[TEXT DELETED BY PARTIES]
The termination of this agreement shall not relieve any party hereto from
any expense, liability or other obligation or any
remedy therefor which has accrued or attached prior to the date of such
termination.
Upon termination of this agreement and the satisfaction of all obligations
hereunder, in the event a memorandum of this
Operating Agreement has been filed of record, Operator is authorized to file of
record in all necessary recording offices a
notice of termination, and each party hereto agrees to execute such a notice
of termination as to Operator's interest, upon
request of Operator, if Operator has satisfied all its financial obligations.
ARTICLE XIV.
COMPLIANCE WITH LAWS AND REGULATIONS
A. LAWS, REGULATIONS AND ORDERS:
This agreement shall be subject to the applicable laws of the state in
which the Contract Area is located, to the valid rules,
regulations, and orders of any duly constituted regulatory body of said state;
and to all other applicable federal, state,
and local laws, ordinances, rules, regulations and orders.
B. GOVERNING LAW:
THIS AGREEMENT AND ALL MATTERS PERTAINING HERETO, INCLUDING BUT NOT
LIMITED TO MATTERS OF PERFORMANCE, NON-
PERFORMANCE, BREACH, REMEDIES, PROCEDURES, RIGHTS, DUTIES, AND INTERPRETATION OR
CONSTRUCTION, SHALL BE GOVERNED AND
DETERMINED BY THE LAW OF THE STATE IN WHICH THE CONTRACT AREA IS LOCATED. IF THE
CONTRACT AREA IS IN TWO OR MORE STATES,
THE LAW OF THE STATE OF UTAH SHALL GOVERN.
C. REGULATORY AGENCIES:
Nothing herein contained shall grant, or be construed to grant, Operator
the right or authority to waive or release any
rights, privileges, or obligations which Non-Operators may have under federal
or state laws or under rules, regulations or
-16-
171717A.A.P.L. FORM 610 - MODEL FORM OPERATING AGREEMENT - 1989
orders promulgated under such laws in reference to oil, gas and mineral
operations, including the location, operation, or
production of wells, on tracts offsetting or adjacent to the Contract Area.
With respect to the operations hereunder, Non-Operators agree to release
Operator from any and all losses, damages,
injuries, claims and causes of action arising out of, incident to or resulting
directly or indirectly from Operator's interpretation
or application of rules, rulings, regulations or orders of the Department of
Energy or Federal Energy Regulatory Commission
or predecessor or successor agencies to the extent such interpretation or
application was made in good faith and does not
constitute gross negligence. Each Non-Operator further agrees to reimburse
Operator for such Non-Operator's share of
production or any refund, fine, levy or other governmental sanction that
Operator may be required to pay as a result of such
an incorrect interpretation or application, together with interest and penalties
thereon owing by Operator as a result of such
incorrect interpretation or application.
ARTICLE XV.
MISCELLANEOUS
A. EXECUTION:
This agreement shall be binding upon each Non-Operator when this agreement
or a counterpart thereof has been
executed by such Non-Operator and Operator notwithstanding that this agreement
is not then or thereafter executed by all of
the parties to which it is tendered or which are listed on Exhibit "A" as owning
an interest in the Contract Area or which
own, in fact, an interest in the Contract Area. Operator may, however, by
written notice to all Non-Operators who have
become bound by this agreement as aforesaid, given at any time prior to the
actual spud date of the Initial Well but in no
event later than five days prior to the date specified in Article VI.A. for
commencement of the Initial Well, terminate this
agreement if Operator in its sole discretion determines that there is
insufficient participation to justify commencement of
drilling operations. In the event of such a termination by Operator, all further
obligations of the parties hereunder shall cease
as of such termination. In the event any Non-Operator has advanced or prepaid
any share of drilling or other costs
hereunder, all sums so advanced shall be returned to such Non-Operator without
interest. In the event Operator proceeds
with drilling operations for the Initial Well without the execution hereof by
all persons listed on Exhibit "A" as having a
current working interest in such well, Operator shall indemnify Non-Operators
with respect to all costs incurred for the
Initial Well which would have been charged to such person under this agreement
if such person had executed the same and
Operator shall receive all revenues which would have been received by such
person under this agreement if such person had
executed the same.
B. SUCCESSORS AND ASSIGNS:
This agreement shall be binding upon and shall inure to the benefit of the
parties hereto and their respective heirs,
devisees, legal representatives, successors and assigns, and the terms hereof
shall be deemed to run with the Leases or
Interests included within the Contract Area.
C. COUNTERPARTS:
This instrument may be executed in any number of counterparts, each of
which shall be considered an original for all
purposes.
D. SEVERABILITY:
For the purposes of assuming or rejecting this agreement as an executory
contract pursuant to federal bankruptcy laws,
this agreement shall not be severable, but rather must be assumed or rejected
in its entirety, and the failure of any party to
this agreement to comply with all of its financial obligations provided herein
shall be a material default.
ARTICLE XVI.
OTHER PROVISIONS
[INSERTED TEXT:] IN THE EVENT A CONFLICT BETWEEN THE PROVISIONS OF THIS ARTICLE
XVI. AND ANY OTHER PROVISIONS OF THIS OPERATING AGREEMENT, THE PROVISIONS OF
THIS ARTICLE XVI. SHALL CONTROL AND PREVAIL
A. CONFIDENTIALITY.
EXCEPT AS OTHERWISE SPECIFICALLY PROVIDED HEREIN, DURING THE TERM OF THIS
AGREEMENT, ALL GEOPHYSICAL, GEOLOGICAL AND ENGINEERING INFORMATION ACQUIRED
HEREUNDER SHALL BE THE PROPERTY OF THE PARTIES HERETO AS HEREIN PROVIDED, AND
THE PARTIES AGREE, AND DO HEREBY BIND THEMSELVES, THEIR SUCCESSORS AND ASSIGNS,
TO ACCEPT AND KEEP SUCH INFORMATION CONFIDENTIAL AND FOR THE EXCLUSIVE USE OF
THE PARTIES CONCERNED FOR THE TERM HEREOF. EXCEPT AS OTHERWISE SPECIFICALLY
PROVIDED HEREIN, WELL INFORMATION SHALL BE THE SOLE AND CONFIDENTIAL PROPERTY OF
THE PARTIES PARTICIPATING IN THE COST OF THE WELL, BUT SUCH INFORMATION MAY BE
DISCLOSED TO A NON-DRILLING PARTY TO THIS AGREEMENT IF A DRILLING PARTY IS SO
OBLIGATED.
NOTWITHSTANDING ANY OTHER PROVISIONS OF THIS AGREEMENT, ANY PARTY MAY DISCLOSE
INFORMATION, WITHOUT THE CONSENT OF THE OTHER PARTIES (I) TO GOVERNMENTAL
AGENCIES WHEN REQUIRED BY SUCH AGENCY, (II) TO FINANCIAL INSTITUTIONS IN
CONNECTION WITH A FINANCIAL TRANSACTION, (III) TO CONSULTANTS AND ENGINEERING
FIRMS FOR THE PURPOSE OF EVALUATION ON A CONFIDENTIAL BASIS, (IV) TO THIRD
PARTIES WITH WHOM A PARTY IS ENGAGED IN A EFFORT TO SELL ALL OR PART OF ITS
INTEREST IN THE CONTRACT AREA OF THIS AGREEMENT, AND (V) THIRD PARTIES WITH WHOM
A PARTY IS ENGAGED IN A EFFORT TO EFFECT A MERGER OR CONSOLIDATION OF WHICH
THIRD PARTY PROPOSES TO ACQUIRE ALL OR A CONTROLLING PART OF THE STOCK IN A
PARTY HERETO; PROVIDED THAT ANY THIRD PARTY WHO IS PERMITTED ACCESS TO
CONFIDENTIAL DATA PURSUANT TO THIS PARAGRAPH SHALL AGREE IN WRITING NOT TO
COMMUNICATE SUCH INFORMATION TO ANYONE AND TO MAKE NO USE OF SUCH INFORMATION
ADVERSE TO THE PARTIES HERETO WITHIN THE AREA COVERED BY SUCH INFORMATION DURING
THE PERIOD OF TIME SUCH INFORMATION REMAINS CONFIDENTIAL HEREUNDER; AND PROVIDED
FURTHER THAT THE PARTY DISCLOSING THE CONFIDENTIAL DATA SHALL INDEMNIFY AND HOLD
THE OTHER PARTIES HERETO HARMLESS AGAINST LOSSES RESULTING FROM ITS DISCLOSURE
TO NON-GOVERNMENTAL THIRD PARTIES.
B. ATTORNEYS FEES
IN THE EVENT OPERATOR SHALL EVER BE REQUIRED TO BRING LEGAL PROCEEDINGS IN ORDER
TO COLLECT ANY SUMS DUE FROM ANY NON-OPERATOR UNDER THIS AGREEMENT, THEN
OPERATOR SHALL ALSO BE ENTITLED TO RECOVER ALL COURT COSTS, COSTS OF COLLECTION,
AND A REASONABLE ATTORNEY'S FEE, WHICH THE LIEN PROVIDED FOR HEREIN SHALL ALSO
SECURE.
C. MINERAL LEASE ACT AND FEDERAL OIL AND GAS ROYALTY MANAGEMENT ACT
OPERATOR AGREES THAT IN ITS CONDUCT HEREUNDER, IT SHALL USE ITS BEST EFFORTS TO
COMPLY WITH ALL APPLICABLE REGULATIONS AND PROVISIONS UNDER THE MINERAL LEASE
ACT AND THE FEDERAL OIL AND GAS ROYALTY MANAGEMENT ACT. THE PARTIES DO, HOWEVER,
AGREE THAT ANY ASSESSMENT OR PENALTY
-17B-
181818A.A.P.L. FORM 610 - MODEL FORM OPERATING AGREEMENT - 1989
LEVIED PURSUANT TO SAID ACTS SHALL BE TREATED AS A JOINT ACCOUNT EXPENSE AND
SHALL BE BORNE
BY THE PARTIES ACCORDINGLY, AND OPERATOR SHALL NOT BE HELD LIABLE OR NEGLIGENT
FOR ANY NON-
COMPLIANCE UNDER SAID ACTS.
-17B-
A.A.P.L. FORM 610 - MODEL FORM OPERATING AGREEMENT - 1989
IN WITNESS WHEREOF, this agreement shall be effective as of the ________
day of _________________,
2002.
ST Oil Company, who has prepared and circulated this form for execution,
represents and warrants
that the form was printed from and, with the exception(s) listed below, is
identical to the AAPL Form 610-1989 Model Form
Operating Agreement, as published in computerized form by Forms On-A-Disk, Inc.
No changes, alterations, or
modifications, other than those made by strikethrough and/or insertion and that
are clearly recognizable [TEXT DELETED BY PARTIES]
, have been made to the form.
ATTEST OR WITNESS: OPERATOR
ST OIL COMPANY
-------------------------------------
________________________________ By _____________________________________
J. SAMUEL BUTLER
- -------------------------------- -------------------------------------
Type or print name
Title PRESIDENT
--------------------------------
Date ________________________________
Tax ID or S.S. No. 84-0866371
-------------------
NON-OPERATORS
COLORADO WYOMING RESERVE COMPANY
-------------------------------------
________________________________ By _____________________________________
KIM FUERST
- -------------------------------- -------------------------------------
Type or print name
Title PRESIDENT
--------------------------------
Date ________________________________
Tax ID or S.S. No.___________________
_____________________________________
By MOORE ENERGY LLC
- -------------------------------- -------------------------------------
JAMES E. MOORE
- -------------------------------- -------------------------------------
Type or print name
Title President
--------------------------------
Date ________________________________
Tax ID or S.S. No. 95-4842197
-------------------
_____________________________________
By THE SHORELINE COMPANIES, LLC
- -------------------------------- -------------------------------------
F. Robert Tiddens
- -------------------------------- -------------------------------------
Type or print name
Title President
--------------------------------
Date_________________________________
Tax ID or S.S. No.___________________
-18-
A.A.P.L. FORM 610 - MODEL FORM OPERATING AGREEMENT - 1989
ACKNOWLEDGMENTS
Note: The following forms of acknowledgment are the short forms approved
by the Uniform Law on Notarial Acts.
The validity and effect of these forms in any state will depend upon the
statutes of that state.
Individual acknowledgment:
State of ___________)
) ss.
County of __________)
This instrument was acknowledged before me on
________________________________ by ________________________________________
(Seal, if any) ________________________________________
Title (and Rank)________________________
My commission expires:__________________
Acknowledgment in representative capacity:
State of ___________)
) ss.
County of __________)
This instrument was acknowledged before me on
________________________________ by _______________________________________as
____________ of _______________________________________________________________.
(Seal, if any) ________________________________________
Title (and Rank)________________________
My commission expires:__________________
ACKNOWLEDGMENT IN REPRESENTATIVE CAPACITY:
STATE OF ___________)
) SS.
COUNTY OF __________)
THIS INSTRUMENT WAS ACKNOWLEDGED BEFORE ME ON
________________________________ BY ______________________________________AS
____________ of _______________________________________________________________.
(SEAL, IF ANY) ________________________________________
TITLE (AND RANK)________________________
MY COMMISSION EXPIRES:__________________
-19A-
ACKNOWLEDGMENT IN REPRESENTATIVE CAPACITY:
STATE OF ___________)
) SS.
COUNTY OF __________)
THIS INSTRUMENT WAS ACKNOWLEDGED BEFORE ME ON
________________________________ BY ______________________________________AS
___________OF _________________________________________________________________
(SEAL, IF ANY) ________________________________________
TITLE (AND RANK)________________________
MY COMMISSION EXPIRES:__________________
ACKNOWLEDGMENT IN REPRESENTATIVE CAPACITY:
STATE OF ___________)
) SS.
COUNTY OF __________)
THIS INSTRUMENT WAS ACKNOWLEDGED BEFORE ME ON
________________________________ BY ______________________________________AS
___________OF _________________________________________________________________
(SEAL, IF ANY) ________________________________________
TITLE (AND RANK)________________________
MY COMMISSION EXPIRES:__________________
-19A-
EXHIBIT "A"
To that certain Operating Agreement dated ____________
By and between ST Oil Company, Colorado Wyoming Reserve
Company, Moore Energy LLC, and The Shoreline Companies, LLC
(1) LANDS AND LEASES
DESCRIPTIONS OF LANDS SUBJECT TO THIS AGREEMENT
San Juan County, Utah
Township 31 South - Range 23 East
Sec. 15: S/2
Sec. 16: SE/4
Sec. 21: E/2
Sec. 22: All
DESCRIPTIONS OF LEASES SUBJECT TO THIS AGREEMENT:
UT5000.014
Lessor: Bureau of Land Management UTU-76832
Lessee: Larry J. White
Date: January 1, 1998
Description: INSOFAR AND ONLY INSOFAR AS LEASE COVERS
Township 31 South - Range 23 East, SLB&M
Sec. 15: S/2
San Juan County, Utah
UT5000.019
Lessor: State of Utah ML-47152
Lessee: Vern Jones
Date: November 1, 1995
Description: INSOFAR AND ONLY INSOFAR AS LEASE COVERS
Township 31 South - Range 23 East, SLB&M
Sec. 16: SE/4
Sec. 22: S/2NW/4, SE/4
San Juan County, Utah
UT5000.040
Lessor Bureau of Land Management UTU-76532
Lessee: Legacy Energy Corporation
Date: July 1, 1997
Description: INSOFAR AND ONLY INSOFAR AS LEASE COVERS
Township 31 South - Range 23 East, SLB&M
Sec. 21: E/2
San Juan County, Utah
UT5000.043
Lessor: State of Utah ML-48411
Lessee: Larry J. White
Date: January 26, 2000
Description: Township 31 South - Range 23 East, SLB&M
Sec. 22: SW/4
San Juan County, Utah
UT5000.052
Lessor: Bureau of Land Management UTU-76056
Lessee: Lane Lasrich
Date: February 1, 2002
Description: Township 31 South - Range 23 East, SLB&M
Sec. 22: N/2NW/4, NE/4
San Juan County, Utah
1
(2) RESTRICTIONS (IF ANY) AS TO DEPTHS, FORMATIONS, OR SUBSTANCES:
None
(3) PARTIES TO AGREEMENT WITH ADDRESSES, TELEPHONE NUMBERS AND FAX NUMBERS
FOR NOTICE PURPOSES:
ST Oil Company Moore Energy LLC
1801 Broadway, Suite 600 21484 Paseo Portola
Denver, CO 80202 Malibu, CA 90265
(303) 296-1908 (310) 456-6401
Fax (303) 296-0329 (310) 456-6469
Colorado Wyoming Reserve Company The Shoreline Companies, LLC
751 Horizon Ct., #205 P. O. Box 3437
Grand Junction, CO 81506 Englewood, CO 80155
(970) 255-9995 (303) 779-3681
(970) 255-9238 (978) 428-0529
(4) PERCENTAGES OR FRACTIONAL INTERESTS OF PARTIES TO THIS AGREEMENT:
INITIAL TEST WELL
If Colorado Wyoming Reserve Company elects not to farmout its interest:
ST Oil Company 23.00%
Moore Energy LLC 23.00%
The Shoreline Companies, LLC 11.50%
Colorado Wyoming Reserve Company 42.50%
If Colorado Wyoming Reserve Company elects to farmout it's interest in the
INITIAL DRILLSITE WELL::
Before Payout
ST Oil Company 51.3333%
Moore Energy LLC 23.0000%
The Shoreline Companies, LLC 25.6667%
After Payout
ST Oil Company 42.8333%
Moore Energy LLC 23.0000%
The Shoreline Companies, LLC 21.4167%
Colorado Wyoming Reserve Company 12.75%
SECOND DRILLSITE WELL:
If Colorado Wyoming Reserve Company elects to participate for a working
interest in the SECOND TEST WELL:
ST Oil Company 40.0000%
Moore Energy LLC 23.0000%
The Shoreline Companies, LLC 20.0000%
Colorado Wyoming Reserve Company 17.0000%
2
If Colorado Wyoming Reserve Company elects to farmout its working interest
in the SECOND TEST WELL:
Before Payout
ST Oil Company 51.3333%
Moore Energy LLC 23.0000%
The Shoreline Companies, LLC 25.6667%
After Payout
ST Oil Company 42.8333%
Moore Energy LLC 23.0000%
The Shoreline Companies, LLC 21.4167%
Colorado Wyoming Reserve Company 12.75%
SUBSEQUENT WELLS:
ST Oil Company 23.0000%
Moore Energy LLC 23.0000%
The Shoreline Companies, LLC 11.5000%
Colorado Wyoming Reserve Company 42.5000%
EXHIBIT "C"
COPAS 1984 ONSHORE
Recommended by the Council
of Petroleum Accountants
Societies
COPAS
Attached to and made a part of THAT CERTAIN OPERATING AGREEMENT DATED _________
BY AND BETWEEN ST OIL COMPANY, AS OPERATOR, COLORADO WYOMING RESERVE COMPANY,
THE SHORELINE COMPANIES, LLC AND MOORE ENERGY LLC
ACCOUNTING PROCEDURE
JOINT OPERATIONS
I. GENERAL PROVISIONS
1. DEFINITIONS
"Joint Property" shall mean the real and personal property subject to the
agreement to which this Accounting Procedure
is attached.
"Joint Operations" shall mean all operations necessary or proper for the
development, operation, protection and
maintenance of the Joint Property.
"Joint Account" shall mean the account showing the charges paid and
credits received in the conduct of the Joint
Operations and which are to be shared by the Parties.
"Operator" shall mean the party designated to conduct the Joint
Operations.
"Non-Operators" shall mean the Parties to this agreement other than the
Operator.
"Parties" shall mean Operator and Non-Operators.
"First Level Supervisors" shall mean those employees whose primary
function in Joint Operations is the direct
supervision of other employees and/or contract labor directly employed on
the Joint Property in a field operating
capacity.
"Technical Employees" shall mean those employees having special and
specific engineering, geological or other
professional skills, and whose primary function in Joint Operations is the
handling of specific operating conditions and
problems for the benefit of the Joint Property.
"Personal Expenses" shall mean travel and other reasonable reimbursable
expenses of Operator's employees.
"Material" shall mean personal property, equipment or supplies acquired or
held for use on the Joint Property.
"Controllable Material" shall mean Material which at the time is so
classified in the Material Classification Manual as
most recently recommended by the Council or Petroleum Accountants
Societies.
2. STATEMENT AND BILLINGS
Operator shall bill Non-Operators on or before the last day of each month
for their proportionate share of the Joint
Account for the preceding month. Such bills will be accompanied by
statements which identify the authority for
expenditure, lease or facility, and all charges and credits summarized by
appropriate classifications of investment and
expense except that items of Controllable Material and unusual charges and
credits shall be separately identified and
fully described in detail.
3. ADVANCES AND PAYMENTS BY NON-OPERATORS
A. Unless otherwise provided for in the agreement, the Operator may
require the Non-Operators to advance their share of
estimated cash outlay for the succeeding month's operation within
[INSERTED TEXT:] [twenty-two (22)] [TEXT DELETED BY PARTIES] days
after receipt of the
billing or by the first day of the month for which the advance is
required, whichever is later. Operator shall adjust
each monthly billing to reflect advances received from the
Non-Operators.
B. Each Non-Operator shall pay its proportion of all bills within
[INSERTED TEXT:] [Twenty-two (22)] [TEXT DELETED BY PARTIES] days
after receipt. If payment is not made
within such time, the unpaid balance shall bear interest monthly at
the prime rate in effect at CHASE MANHATTAN BANK (NEW YORK)
on the first day of the month in which delinquency occurs plus 1% or
the
maximum contract rate permitted by the applicable usury laws in the
state in which the Joint Property is located,
whichever is the lesser, plus attorney's fees, court costs, and other
costs in connection with the collection of unpaid
amounts.
4. ADJUSTMENTS
Payment of any such bills shall not prejudice the right of any
Non-Operator to protest or question the correctness thereof;
provided, however, all bills and statements rendered to Non-Operators by
Operator during any calendar year shall
conclusively be presumed to be true and correct after twenty-four (24)
months following the end of any such calendar
year, unless within the said twenty-four (24) month period a Non-Operator
takes written exception thereto and makes
claim on Operator for adjustment. No adjustment favorable to Operator
shall be made unless it is made within the same
prescribed period. The provisions of this paragraph shall not prevent
adjustments resulting from a physical inventory of
Controllable Material as provided for in Section V.
COPYRIGHT (C) 1985 BY THE COUNCIL OF PETROLEUM ACCOUNTANTS SOCIETIES.
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COPAS 1984 ONSHORE
Recommended by the Council
of Petroleum Accountants
Societies
COPAS
5. AUDITS
A. A Non-Operator, upon notice in writing to Operator and all other
Non-Operators, shall have the right to audit
Operator's accounts and records relating to the Joint Account for any
calendar year within the twenty-four
(24) month period following the end of such calendar year; provided,
however, the making of an audit shall not
extend the time for the taking of written exception to and the
adjustments of accounts as provided for in
Paragraph 4 of this Section I. Where there are two or more
Non-Operators, the Non-Operators shall make
every reasonable effort to conduct a joint audit in a manner which
will result in a minimum of inconvenience
to the Operator. Operator shall bear no portion of the Non-Operators'
audit cost incurred under this
paragraph unless agreed to by the Operator. The audits shall not be
conducted more than once each year
without prior approval of Operator, except upon the resignation or
removal of the Operator, and shall be made
at the expense of those Non-Operators approving such audit.
B. The Operator shall reply in writing to an audit report within 180 days
after receipt of such report.
6. APPROVAL BY NON-OPERATORS
Where an approval or other agreement of the Parties or Non-Operators is
expressly required under other sections of this
Accounting Procedure and if the agreement to which this Accounting
Procedure is attached contains no
contrary provisions in regard thereto, Operator shall notify all
Non-Operators of the Operator's proposal, and the
agreement or approval of [INSERTED TEXT:] [two or more owning] a
majority in interest of the Non-Operators shall be controlling on all
Non-Operators.
II. DIRECT CHARGES
Operator shall charge the Joint Account with the following items:
1. ECOLOGICAL AND ENVIRONMENTAL
Costs incurred for the benefit of the Joint Property as a result of
governmental or regulatory requirements to satisfy
environmental considerations applicable to the Joint Operations. Such
costs may include surveys of an ecological or
archaeological nature and pollution control procedures as required by
applicable laws and regulations.
2. RENTALS AND ROYALTIES
Lease rentals and royalties paid by Operator for the Joint Operations.
3. LABOR
A. (1) Salaries and wages of Operator's field employees directly
employed on the Joint Property in the conduct of
Joint Operations.
(2) Salaries of First level Supervisors in the field.
(3) Salaries and wages of Technical Employees directly employed on
the Joint Property if such charges are
excluded from the overhead rates.
(4) Salaries and wages of Technical Employees either temporarily or
permanently assigned to and directly
employed in the operation or the Joint Property if such charges
are excluded from the overhead rates.
B. Operator's cost of holiday, vacation, sickness and disability
benefits and other customary allowances paid to
employees whose salaries and wages are chargeable to the Joint Account
under Paragraph 3A of this Section II.
Such costs under this Paragraph 3B may be charged on a "when and as
paid basis" or by "percentage assessment"
on the amount of salaries and wages chargeable to the Joint Account
under Paragraph 3A of this Section II. If
percentage assessment is used, the rate shall be based on the
Operator's cost experience.
C. Expenditures or contributions made pursuant to assessments imposed
by governmental authority which are
applicable to Operator's costs chargeable to the Joint Account under
Paragraphs 3A and 3B of this Section II.
D. Personal Expenses of those employees whose salaries and wages are
chargeable to the Joint Account under
Paragraphs 3A and 3B of this Section II.
4. EMPLOYEE BENEFITS
Operator's current costs or established plans for employees' group life
insurance, hospitalization, pension, retirement,
stock purchase, thrift, bonus, and other benefit plans of a like nature,
applicable to Operator's labor cost chargeable to the
Joint Account under Paragraphs 3A and 3B of this Section II shall be
Operator's actual cost not to exceed the percent
most recently recommended by the Council of Petroleum Accountants
Societies.
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COPAS 1984 ONSHORE
Recommended by the Council
of Petroleum Accountants
Societies
COPAS
5. MATERIAL
Material purchased or furnished by Operator for use on the Joint Property
as provided under Section IV. Only such
Material shall be purchased for or transferred to the Joint Property as
may be required for immediate use and is
reasonably practical and consistent with efficient and economical
operations. The accumulation of surplus stocks shall be
avoided.
6. TRANSPORTATION
Transportation of employees and Material necessary for the Joint
Operations but subject to the following limitations:
A. If Material is moved to the Joint Property from the Operator's
warehouse or other properties, no charge shall be
made to the Joint Account for a distance greater than the distance
from the nearest reliable supply store where like
material is normally available or railway receiving point nearest the
Joint Property unless agreed to by the Parties.
B. If surplus Material is moved to Operator's warehouse or other storage
point, no charge shall be made to the Joint
Account for a distance greater than the distance to the nearest
reliable supply store where like material is normally
available, or railway receiving point nearest the Joint Property
unless agreed to by the Parties. No charge shall be
made to the Joint Account for moving Material to other properties
belonging to Operator, unless agreed to by the
Parties.
C. In the application of subparagraphs A and B above, the option to
equalize or charge actual trucking cost is
available when the actual charge is $400 or less excluding accessorial
charges. The $400 will be adjusted to the
amount most recently recommended by the Council of Petroleum
Accountants Societies.
7. SERVICES
The cost of contract services, equipment and utilities provided by outside
sources, except services excluded by Paragraph
10 of Section II and Paragraph i, ii, and iii, of Section III. The cost of
professional consultant services and contract
services of technical personnel directly engaged on the Joint Property if
such charges are excluded from the overhead
rates. The cost of professional consultant services or contract services
of technical personnel not directly engaged on the
Joint Property shall not be charged to the Joint Account unless previously
agreed to by the Parties.
8. EQUIPMENT AND FACILITIES FURNISHED BY OPERATOR
A. Operator shall charge the Joint Account for use of Operator owned
equipment and facilities at rates commensurate
with costs of ownership and operation. Such rates shall include costs
of maintenance, repairs, other operating
expense, insurance, taxes, depreciation, and interest on gross
investment less accumulated depreciation not to
exceed THE PRIME RATE IN EFFECT AT CHASE MANHATTAN BANK (NEW YORK) ON
THE FIRST DAY OF THE MONTH IN WHICH OPERATIONS OF EQUIPMENT OCCURS
PLUS ONE PERCENT (1%) [TEXT DELETED BY PARTIES] rates shall not
exceed average commercial.
B. In lieu of charges in Paragraph 8A above, Operator may elect to use
average commercial rates prevailing in the
immediate area of the Joint Property less 20%. For automotive
equipment, Operator may elect to use rates
published by the Petroleum Motor Transport Association.
9. DAMAGES AND LOSSES TO JOINT PROPERTY
All costs or expenses necessary for the repair or replacement of Joint
Property made necessary because of damages or
losses incurred by fire, flood, storm, theft, accident, or other cause,
except those resulting from Operator's gross
negligence or willful misconduct. Operator shall furnish Non-Operator
written notice of damages or losses incurred as
soon as practicable after a report thereof has been received by Operator.
10. LEGAL EXPENSE
Expense of handling, investigating and settling litigation or claims,
discharging of liens, payment of judgments and
amounts paid for settlement of claims incurred in or resulting from
operations under the agreement or necessary to
protect or recover the Joint Property, except that no charge for services
of Operator's legal staff or fees or expense of
outside attorneys shall be made unless previously agreed to by the
Parties. All other legal expense is considered to be
covered by the overhead provisions of Section III unless otherwise agreed
to by the Parties, except as provided in Section
I, Paragraph 3.
11. TAXES
All taxes of every kind and nature assessed or levied upon or in
connection with the Joint Property, the operation thereof,
or the production therefrom, and which taxes have been paid by the
Operator for the benefit of the Parties. If the ad
valorem taxes are based in whole or in part upon separate valuations of
each party's working interest, then
notwithstanding anything to the contrary herein, charges to the Joint
Account shall be made and paid by the Parties
hereto in accordance with the tax value generated by each party's working
interest.
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COPAS 1984 ONSHORE
Recommended by the Council
of Petroleum Accountants
Societies
COPAS
12. INSURANCE
Net premiums paid for insurance required to be carried for the Joint
Operations for the protection of the Parties. In the
event Joint Operations are conducted in a state in which Operator may act
as self-insurer for Worker's Compensation
and/or Employers Liability under the respective state's laws, Operator
may, at its election, include the risk under its self-
insurance program and in that event, Operator shall include a charge at
Operator's cost not to exceed manual rates.
13. ABANDONMENT AND RECLAMATION
Costs incurred for abandonment of the Joint Property, including costs
required by governmental or other regulatory
authority.
14. COMMUNICATIONS
Cost of acquiring, leasing, installing, operating, repairing and
maintaining communication systems, including radio and
microwave facilities directly serving the Joint Property. In the event
communication facilities/systems serving the Joint
Property are Operator owned, charges to the Joint Account shall be made as
provided in Paragraph 8 of this Section II.
15. OTHER EXPENDITURES
Any other expenditure not covered or dealt with in the foregoing
provisions of this Section II, or in Section III and which
is of direct benefit to the Joint Property and is incurred by the Operator
in the necessary and proper conduct of the Joint
Operations.
III. OVERHEAD
1. OVERHEAD - DRILLING AND PRODUCING OPERATIONS
i. As compensation for administrative, supervision, office services and
warehousing costs, Operator shall charge
drilling and producing operations on either:
(x ) Fixed Rate Basis, Paragraph lA, or
( ) Percentage Basis, Paragraph lB
Unless otherwise agreed to by the Parties, such charge shall be in
lieu of costs and expenses of all offices and
salaries or wages plus applicable burdens and expenses of all
personnel, except those directly chargeable under
Paragraph 3A, Section II. The cost and expense of services from
outside sources in connection with matters of
taxation, traffic, accounting or matters before or involving
governmental agencies shall be considered as included in
the overhead rates provided for in the above selected Paragraph of
this Section III unless such cost and expense are
agreed to by the Parties as a direct charge to the Joint Account.
ii. The salaries, wages and Personal Expenses of Technical Employees
and/or the cost of professional consultant
services and contract services of technical personnel directly
employed on the Joint Property:
( ) shall be covered by the overhead rates, or
(x ) shall not be covered by the overhead rates.
iii. The salaries, wages and Personal Expenses of Technical Employees
and/or costs of professional consultant services
and contract services of technical personnel either temporarily or
permanently assigned to and directly employed in
the operation of the Joint Property:
( ) shall be covered by the overhead rates, or
(x ) shall not be covered by the overhead rates.
A. Overhead - Fixed Rate Basis
(1) Operator shall charge the Joint Account at the following rates
per well per month:
Drilling Well Rate $ 5,500.00
----------------
(Prorated for less than a full month)
Producing Well Rate $ 500.00
----------
(2) Application of Overhead - Fixed Rate Basis shall be as follows:
(a) Drilling Well Rate
(1) Charges for drilling wells shall begin on the date the
well is spudded and terminate on the date
the drilling rig, completion rig, or other units used
in completion of the well is released, whichever
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COPAS 1984 ONSHORE
Recommended by the Council
of Petroleum Accountants
Societies
COPAS
is later, except that no charge shall be made during
suspension of drilling or completion operations
for fifteen (15) or more consecutive calendar days.
(2) Charges for wells undergoing any type of workover or
recompletion for a period of five (5)
consecutive work days or more shall be made at the
drilling well rate. Such charges shall be
applied for the period from date workover operations,
with rig or other units used in workover,
commence through date of rig or other unit release,
except that no charge shall be made during
suspension of operations for fifteen (15) or more
consecutive calendar days.
(b) Producing Well Rates
(1) An active well either produced or injected into for any
portion of the month shall be considered as
a one-well charge for the entire month.
(2) Each active completion in a multi-completed well in
which production is not commingled down
hole shall be considered as a one-well charge providing
each completion is considered a separate
well by the governing regulatory authority.
(3) An inactive gas well shut in because of overproduction
or failure of purchaser to take the
production shall be considered as a one-well charge
providing the gas well is directly connected to
a permanent sales outlet.
(4) A one-well charge shall be made for the month in which
plugging and abandonment operations
are completed on any well. This one-well charge shall
be made whether or not the well has
produced except when drilling well rate applies.
(5) All other inactive wells (including but not limited to
inactive wells covered by unit allowable, lease
allowable, transferred allowable, etc.) shall not
qualify for an overhead charge.
(3) The well rates shall be adjusted as of the first day of April
each year following the effective date of the
agreement to which this Accounting Procedure is attached. The
adjustment shall be computed by multiplying
the rate currently in use by the percentage increase or decrease
in the average weekly earnings of Crude
Petroleum and Gas Production Workers for the last calendar year
compared to the calendar year preceding as
shown by the index of average weekly earnings of Crude Petroleum
and Gas Production Workers as published
by the United States Department of Labor, Bureau of Labor
Statistics, or the equivalent Canadian index as
published by Statistics Canada, as applicable. The adjusted rates
shall be the rates currently in use, plus or
minus the computed adjustment.
[TEXT DELETED BY PARTIES]
2. OVERHEAD - MAJOR CONSTRUCTION
To compensate Operator for overhead costs incurred in the construction and
installation of fixed assets, the expansion of
fixed assets, and any other project clearly discernible as a fixed asset
required for the development and operation of the
Joint Property, Operator shall either negotiate a rate prior to the
beginning of construction, or shall charge the Joint
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COPAS 1984 ONSHORE
Recommended by the Council
of Petroleum Accountants
Societies
COPAS
Account for overhead based on the following rates for any Major
Construction project in excess of $ :
-------------------------
A. 0 % of first $100,000 or total cost if less, plus
-----
B. 3.00 % of costs in excess of $100,000 but less than $1,000,000,
--------
plus
C. 2.00 % of costs in excess of $1,000,000.
--------
Total cost shall mean the gross cost of any one project. For the purpose
of this paragraph, the component parts of a single
project shall not be treated separately and the cost of drilling and
workover wells and artificial lift equipment shall be
excluded.
3. CATASTROPHE OVERHEAD
To compensate Operator for overhead costs incurred in the event of
expenditures resulting from a single occurrence due
to oil spill, blowout, explosion, fire, storm, hurricane, or other
catastrophes as agreed to by the Parties, which are
necessary to restore the Joint Property to the equivalent condition that
existed prior to the event causing the
expenditures, Operator shall either negotiate a rate prior to charging the
Joint Account or shall charge the Joint Account
for overhead based on the following rates:
A. 0 % of total costs through $100,000; plus
-----
B. 3.00 % of total costs in excess of $100,000 but less than
--------
$1,000,000; plus
C. 2.00 % of total costs in excess of $1,000,000.
--------
Expenditures subject to the overheads above will not be reduced by
insurance recoveries, and no other overhead
provisions of this Section III shall apply.
4. AMENDMENT OF RATES
The overhead rates provided for in this Section III may be amended from
time to time only by mutual agreement
between the Parties hereto if, in practice, the rates are found to be
insufficient or excessive.
IV. PRICING OF JOINT ACCOUNT MATERIAL PURCHASES, TRANSFERS AND DISPOSITIONS
Operator is responsible for Joint Account Material and shall make proper and
timely charges and credits for all Material
movements affecting the Joint Property. Operator shall provide all Material for
use on the Joint Property; however, at
Operator's option, such Material may be supplied by the Non-Operator. Operator
shall make timely disposition of idle and/or
surplus Material, such disposal being made either through sale to Operator or
Non-Operator, division in kind, or sale to
outsiders. Operator may purchase, but shall be under no obligation to purchase,
interest of Non-Operators in surplus condition
A or B Material. The disposal of surplus Controllable Material not purchased by
the Operator shall be agreed to by the Parties.
1. PURCHASES
Material purchased shall be charged at the price paid by Operator after
deduction of all discounts received. In case of
Material found to be defective or returned to vendor for any other
reasons, credit shall be passed to the Joint Account
when adjustment has been received by the Operator.
2. TRANSFERS AND DISPOSITIONS
Material furnished to the Joint Property and Material transferred from the
Joint Property or disposed of by the Operator,
unless otherwise agreed to by the Parties, shall be priced on the
following basis exclusive of cash discounts:
A. New Material (Condition A)
(1) Tubular Goods Other than Line Pipe
(a) Tubular goods, sized 2 3/8 inches OD and larger, except line
pipe, shall be priced at Eastern mill
published carload base prices effective as of date of
movement plus transportation cost using the 80,000
pound carload weight basis to the railway receiving point
nearest the Joint Property for which
published rail rates for tubular goods exist. If the 80,000
pound rail rate is not offered, the 70,000 pound
or 90,000 pound rail rate may be used. Freight charges for
tubing will be calculated from Lorain, Ohio
and casing from Youngstown, Ohio.
(b) For grades which are special to one mill only, prices shall
be computed at the mill base of that mill plus
transportation cost from that mill to the railway receiving
point nearest the Joint Property as provided
above in Paragraph 2.A.(1)(a). For transportation cost from
points other than Eastern mills, the 30,000
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COPAS 1984 ONSHORE
Recommended by the Council
of Petroleum Accountants
Societies
COPAS
pound Oil Field Haulers Association interstate truck rate shall be
used.
(c) Special end finish tubular goods shall be priced at the
lowest published out-of-stock price, f.o.b. Houston,
Texas, plus transportation cost, using Oil Field Haulers
Association interstate 30,000 pound truck rate,
to the railway receiving point nearest the Joint Property.
(d) Macaroni tubing (size less than 2 3/8 inch OD) shall be
priced at the lowest published out-of-stock prices
f.o.b. the supplier plus transportation costs, using the Oil
Field Haulers Association interstate truck rate
per weight of tubing transferred, to the railway receiving
point nearest the Joint Property.
(2) Line Pipe
(a) Line pipe movements (except size 24 inch OD and larger with
walls 3/4 inch and over) 30,000 pounds or
more shall be priced under provisions of tubular goods
pricing in Paragraph A.(l)(a) as provided above.
Freight charges shall be calculated from Lorain, Ohio.
(b) Line Pipe movements (except size 24 inch OD) and larger with
walls 3/4 inch and over) less than 30,000
pounds shall be priced at Eastern mill published carload
base prices effective as of date of shipment,
plus 20 percent, plus transportation costs based on freight
rates as set forth under provisions of tubular
goods pricing in Paragraph A.(1)(a) as provided above.
Freight charges shall be calculated from Lorain,
Ohio.
(c) Line pipe 24 inch OD and over and 3/4 inch wall and larger
shall be priced f.o.b. the point of
manufacture at current new published prices plus
transportation cost to the railway receiving point
nearest the Joint Property.
(d) Line pipe, including fabricated line pipe, drive pipe and
conduit not listed on published price lists shall
be priced at quoted prices plus freight to the railway
receiving point nearest the Joint Property or at
prices agreed to by the Parties.
(3) Other Material shall be priced at the current new price, in
effect at date of movement, as listed by a reliable
supply store nearest the Joint Property, or point of manufacture,
plus transportation costs, if applicable, to the
railway receiving point nearest the Joint Property.
(4) Unused new Material, except tubular goods, moved from the Joint
Property shall be priced at the current
new price, in effect on date of movement, as listed by a reliable
supply store nearest the Joint Property, or
point of manufacture, plus transportation costs, if applicable,
to the railway receiving point nearest the Joint
Property. Unused new tubulars will be priced as provided above in
Paragraph 2.A.(l) and (2).
B. Good Used Material (Condition B)
Material in sound and serviceable condition and suitable for reuse
without reconditioning:
(1) Material moved to the Joint Property
At seventy-five percent (75%) of current new price, as determined
by Paragraph A.
(2) Material used on and moved from the Joint Property
(a) At seventy-five percent (75%) of current new price, as
determined by Paragraph A, if Material was
originally charged to the Joint Account as new Material or
(b) At sixty-five percent (65%) of current new price, as
determined by Paragraph A, if Material was
originally charged to the Joint Account as used Material
(3) Material not used on and moved from the Joint Property
At seventy-five percent (75%) of current new price as determined
by Paragraph A.
The cost of reconditioning, if any, shall be absorbed by the
transferring property.
C. Other Used Material
(1) Condition C
Material which is not in sound and serviceable condition and not
suitable for its original function until
after reconditioning shall be priced at fifty percent (50%) of
current new price as determined by
Paragraph A. The cost of reconditioning shall be charged to the
receiving property, provided Condition
C value plus cost of reconditioning does not exceed Condition B
value.
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COPAS 1984 ONSHORE
Recommended by the Council
of Petroleum Accountants
Societies
COPAS
(2) Condition D
Material, excluding junk, no longer suitable for its original
purpose, but usable for some other purpose
shall be priced on a basis commensurate with its use. Operator
may dispose of Condition D Material
under procedures normally used by Operator without prior approval
of Non-Operators.
(a) Casing, tubing, or drill pipe used as line pipe shall be
priced as Grade A and B seamless line pipe
of comparable size and weight. Used casing, tubing or drill
pipe utilized as line pipe shall be
priced at used line pipe prices.
(b) Casing, tubing or drill pipe used as higher pressure service
lines than standard line pipe, e.g.
power oil lines, shall be priced under normal pricing
procedures for casing, tubing, or drill pipe.
Upset tubular goods shall be priced on a non upset basis.
(3) Condition E
Junk shall be priced at prevailing prices. Operator may dispose
of Condition E Material under
procedures normally utilized by Operator without prior approval
of Non-Operators.
D. Obsolete Material
Material which is serviceable and usable for its original function
but condition and/or value of such Material
is not equivalent to that which would justify a price as provided
above may be specially priced as agreed to by
the Parties. Such price should result in the Joint Account being
charged with the value of the service
rendered by such Material.
E. Pricing Conditions
(1) Loading or unloading costs may be charged to the Joint Account at
the rate of twenty-five cents (25(cent))
per hundred weight on all tubular goods movements, in lieu of
actual loading or unloading costs
sustained at the stocking point. The above rate shall be adjusted
as of the first day of April each year
following January 1, 1985 by the same percentage increase or
decrease used to adjust overhead rates in
Section III, Paragraph 1.A.(3). Each year, the rate calculated
shall be rounded to the nearest cent and
shall be the rate in effect until the first day of April next
year. Such rate shall be published each year
by the Council of Petroleum Accountants Societies.
(2) Material involving erection costs shall be charged at applicable
percentage of the current knocked-down
price of new Material.
3. PREMIUM PRICES
Whenever Material is not readily obtainable at published or listed prices
because of national emergencies. strikes or other
unusual causes over which the Operator has no control, the Operator may
charge the Joint Account for the required
Material at the Operator's actual cost incurred in providing such
Material, in making it suitable for use, and in moving it
to the Joint Property; provided notice in writing is furnished to
Non-Operators of the proposed charge prior to billing
Non-Operators for such Material. Each Non-Operator shall have the right,
by so electing and notifying Operator within
ten days after receiving notice from Operator, to furnish in kind all or
part of his share of such Material suitable for use
and acceptable to Operator.
4. WARRANTY OF MATERIAL FURNISHED BY OPERATOR
Operator does not warrant the Material furnished. In case of defective
Material, credit shall not be passed to the Joint
Account until adjustment has been received by Operator from the
manufacturers or their agents.
V. INVENTORIES
The Operator shall maintain detailed records of Controllable Material.
1. PERIODIC INVENTORIES, NOTICE AND REPRESENTATION
At reasonable intervals, inventories shall be taken by Operator of the
Joint Account Controllable Material. Written notice
of intention to take inventory shall be given by Operator at least thirty
(30) days before any inventory is to begin so that
Non-Operators may be represented when any inventory is taken. Failure of
Non-Operators to be represented at an
inventory shall bind Non-Operators to accept the inventory taken by
Operator.
2. RECONCILIATION AND ADJUSTMENT OF INVENTORIES
Adjustments to the Joint Account resulting from the reconciliation of a
physical inventory shall be made within six
months following the taking of the inventory. Inventory adjustments shall
be made by Operator to the Joint Account for
-8-
COPAS 1984 ONSHORE
Recommended by the Council
of Petroleum Accountants
Societies
COPAS
overages and shortages, but, Operator shall be held accountable only for
shortages due to lack of reasonable diligence.
3. SPECIAL INVENTORIES
Special inventories may be taken whenever there is any sale, change of
interest, or change of Operator in the Joint
Property. It shall be the duty of the party selling to notify all other
Parties as quickly as possible after the transfer of
interest takes place. In such cases, both the seller and the purchaser
shall be governed by such inventory. In cases
involving a change of Operator, all Parties shall be governed by such
inventory.
4. EXPENSE OF CONDUCTING INVENTORIES
A. The expense of conducting periodic inventories shall not be charged
to the Joint Account unless agreed to by the
Parties.
B. The expense of conducting special inventories shall be charged to the
Parties requesting such inventories, except
inventories required due to change of Operator shall be charged to the
Joint Account.
-9-
EXHIBIT "D"
Attached to and made a part of that certain Operating Agreement
dated __________ by and between ST Oil Company, as Operator,
and Moore Energy LLC, The Shoreline Companies, LLC and Colorado
Wyoming Reserve Company as Non-Operators
INSURANCE
Operator shall maintain the following minimum insurance to cover the risk of
accidents and/or damage to persons and/or third party property which may occur
in the course of operations conducted under this Operating Agreement, and shall
charge the premiums and deductibles to the Joint Account:
1. WORKERS' COMPENSATION AND EMPLOYERS LIABILITY INSURANCE:
(a.) Statutory Workers' Compensation coverage as required by the
law of which operations are conducted.
(b.) Employers Liability limits of $500,000 each accident,
$500,000 each employee/disease and $500,000 policy
limit.
(c.) Other States Insurance for those states not listed in policy
declarations and for which work begins after policy inception.
2. COMMERCIAL GENERAL LIABILITY:
$1,000,000 per occurrence limit subject to $2,000,000 general annual
aggregate to cover for damages to third parties because of bodily injury
or property damage caused by an occurrence.
3. COMMERCIAL AUTOMOBILE LIABILITY:
$1,000,000 per accident combined single limit for bodily injury or
property damage to third parties covering owned, leased, hired and
non-owned automobiles.
4. EXCESS LIABILITY:
$10,000,000 per occurrence/aggregate in excess of Employers Liability,
Commercial General Liability and commercial Automobile Liability.
Operator shall never be held responsible for the financial solvency of any
insurance carrier. Losses for which no insurance is required to be carried or in
excess of the limits set forth above, shall be borne by the parties in
proportion to their respective interests herein and shall be charged to the
joint venture.
5. WELL CONTROL:
$1,000,000 per occurrence limit. Coverage includes well out of
control, redrill/extra expenses, and seepage, pollution, cleanup and
contamination.
EXHIBIT "E"
A.A.P.L. FORM 610-E - GAS BALANCING AGREEMENT - 1992 AMERICAN ASSOCIATION OF
PETROLEUM LANDMEN
APPROVED FORM
A.A.P.L NO.6
GAS BALANCING AGREEMENT ("AGREEMENT")
ATTACHED TO AND MADE PART OF THAT CERTAIN
OPERATING AGREEMENT DATED
----------------------------------------------
BY AND BETWEEN ST OIL COMPANY, AS OPERATOR ,
------------------------------------------------------- -------
AND MOORE ENERGY LLC, COLORADO WYOMING RESERVE COMPANY AND THE
------------------------------------------------------------
SHORELINE COMPANIES, LLC ("OPERATING AGREEMENT")
- ------------------------------------------------
RELATING TO THE E/2 SEC. 21, ALL SEC. 22, N/2 SEC. 27; AND NE/4 SEC. 28
--------------------------------------------------------------
AREA,
SAN JUAN COUNTY/PARISH, STATE OF UTAH
- ------------------------ -----------------------------.
1. DEFINITIONS
The following definitions shall apply to this Agreement:
1.01 "Arm's Length Agreement" shall mean any gas sales agreement with an
unaffiliated purchaser or any gas sales
agreement with an affiliated purchaser where the sales price and
delivery conditions under such agreement are
representative of prices and delivery conditions existing under other
similar agreements in the area between
unaffiliated parties at the same time for natural gas of comparable
quality and quantity.
1.02 "Balancing Area" shall mean (SELECT ONE):
|_| each well subject to the Operating Agreement that produces Gas or
is allocated a share of Gas production. If a
single well is completed in two or more producing intervals, each
producing interval from which the Gas
production is not commingled in the wellbore shall be considered
a separate well.
|X||_| all of the acreage and depths subject to the Operating
Agreement.
|_|
-----------------------------------------------------------------
-----------------------------------------------------------------
-----------------------------------------------------------------
1.03 "Full Share of Current Production" shall mean the Percentage Interest
of each Party in the Gas actually produced
from the Balancing Area during each month.
1.04 "Gas" shall mean all hydrocarbons produced or producible from the
Balancing Area, whether from a well classified
as an oil well or gas well by the regulatory agency having
jurisdiction in such matters, which are or may be made
available for sale or separate disposition by the Parties, excluding
oil, condensate and other liquids recovered by
field equipment operated for the joint account. "Gas" does not include
gas used in joint operations, such as for fuel,
recycling or reinjection, or which is vented or lost prior to its sale
or delivery from the Balancing Area.
1.05 "Makeup Gas" shall mean any Gas taken by an Underproduced Party from
the Balancing Area in excess of its Full
Share of Current Production, whether pursuant to Section 3.3 or
Section 4.1 hereof.
1.06 "Mcf" shall mean one thousand cubic feet. A cubic foot of Gas shall
mean the volume of gas contained in one cubic
foot of space at a standard pressure base and at a standard
temperature base.
1.07 "MMBtu" shall mean one million British Thermal Units. A British
Thermal Unit shall mean the quantity of heat
required to raise one pound avoirdupois of pure water from 58.5
degrees Fahrenheit to 59.5 degrees Fahrenheit at a
constant pressure of 14.73 pounds per square inch absolute.
1.08 "Operator" shall mean the individual or entity designated under the
terms of the Operating Agreement or, in the
event this Agreement is not employed in connection with an operating
agreement, the individual or entity
designated as the operator of the well(s) located in the Balancing
Area.
1.09 "Overproduced Party" shall mean any Party having taken a greater
quantity of Gas from the Balancing Area than
the Percentage interest of such Party in the cumulative quantity of
all Gas produced from the Balancing Area.
1.10 "Overproduction" shall mean the cumulative quantity of Gas taken by a
Party in excess of its Percentage Interest in
the cumulative quantity of all Gas produced from the Balancing Area.
1.11 "Party" shall mean those individuals or entities subject to this
Agreement, and their respective heirs, successors,
transferees and assigns.
1.12 "Percentage Interest" shall mean the percentage or decimal interest of
each Party in the Gas produced from the
Balancing Area pursuant to the Operating Agreement covering the
Balancing Area.
1.13 "Royalty" shall mean payments on production of Gas from the Balancing
Area to all owners of royalties, overriding
royalties, production payments or similar interests.
1.14 "Underproduced Party" shall mean any Party having taken a lesser
quantity of Gas from the Balancing Area than
the Percentage Interest of such Party in the cumulative quantity of
all Gas produced from the Balancing Area.
1.15 "Underproduction" shall mean the deficiency between the cumulative
quantity of Gas taken by a Party and its
Percentage Interest in the cumulative quantity of all Gas produced
from the Balancing Area.
1.16 |_| (OPTIONAL) "Winter Period" shall mean the month(s) of
------------------------------------- in one
calendar year and the month(s) of -------------------------------- in
the succeeding calendar year.
2. BALANCING AREA
2.1 If this Agreement covers more than one Balancing Area, it shall be
applied as if each Balancing Area were covered
by separate but identical agreements. All balancing hereunder shall be on the
basis of Gas taken from the Balancing Area
measured in (ALTERNATIVE 1) |X| Mcfs or (ALTERNATIVE 2) |_| MMBtus.
2.2 In the event that all or part of the Gas deliverable from a Balancing
Area is or becomes subject to one or more
maximum lawful prices, any Gas not subject to price controls shall be considered
as produced from a single Balancing Area
and Gas subject to each maximum lawful price category shall be considered
produced from a separate Balancing Area.
3. RIGHT OF PARTIES TO TAKE GAS
3.1 Each Party desiring to take Gas will notify the Operator, or cause the
Operator to be notified, of the volumes
nominated, the name of the transporting pipeline and the pipeline contract
number (if available) and meter station relating
to such delivery, sufficiently in advance for the Operator,
acting with reasonable diligence, to meet all nomination and other
1
A.A.P.L. FORM 610-E - GAS BALANCING AGREEMENT - 1992
requirements. Operator is authorized to deliver the volumes so nominated and
confirmed (if confirmation is required) to the
transporting pipeline in accordance with the terms of this Agreement.
3.2 Each Party shall make a reasonable, good faith effort to take its Full
Share of Current Production each month, to the
extent that such production is required to maintain leases in effect, to protect
the producing capacity of a well or reservoir, to
preserve correlative rights, or to maintain oil production.
3.3 When a Party fails for any reason to take its Full Share of Current
Production (as such Share may be reduced by the
right of the other Parties to make up for Underproduction as provided herein),
the other Parties shall be entitled to take any
Gas which such Party fails to take. To the extent practicable, such Gas shall be
made available initially to each Underproduced
Party in the proportion that its Percentage Interest in the Balancing Area bears
to the total Percentage Interests of all
Underproduced Parties desiring to take such Gas. If all such Gas is not taken by
the Underproduced Parties, the portion not
taken shall then be made available to the other Parties in the proportion that
their respective Percentage Interests in the
Balancing Area bear to the total Percentage Interests of such Parties.
3.4 All Gas taken by a Party in accordance with the provisions of this
Agreement, regardless of whether such Party is
underproduced or overproduced, shall be regarded as Gas taken for its own
account with title thereto being in such taking
Party.
3.5 Notwithstanding the provisions of Section 3.3 hereof, no Overproduced
Party shall be entitled in any month to take any
Gas in excess of three hundred percent (300%) of its Percentage Interest of the
Balancing Area's then-current Maximum
Monthly Availability; provided, however, that this limitation shall not apply to
the extent that it would preclude production
that is required to maintain leases in effect, to protect the producing capacity
of a well or reservoir, to preserve correlative
rights, or to maintain oil production. "Maximum Monthly Availability" shall mean
the maximum average monthly rate of
production at which Gas can be delivered from the Balancing Area, as determined
by the Operator, considering the maximum
efficient well rate for each well within the Balancing Area, the maximum
allowable(s) set by the appropriate regulatory agency,
mode of operation, production facility capabilities and pipeline pressures.
3.6 In the event that a Party fails to make arrangements to take its Full
Share of Current Production required to be
produced to maintain leases in effect, to protect the producing capacity of a
well or reservoir, to preserve correlative rights, or
to maintain oil production, the Operator may sell any part of such Party's Full
Share of Current Production that such Party fails
to take for the account of such Party and render to such Party, on a current
basis, the full proceeds of the sale, less any
reasonable marketing, compression, treating, gathering or transportation costs
incurred directly in connection with the sale of
such Full Share of Current Production. In making the sale contemplated herein,
the Operator shall be obligated only to obtain
such price and conditions for the sale as are reasonable under the circumstances
and shall not be obligated to share any of its
markets. Any such sale by Operator under the terms hereof shall be only for such
reasonable periods of time as are consistent
with the minimum needs of the industry under the particular circumstances, but
in no event for a period in excess of one
year. Notwithstanding the provisions of Article 3.4 hereof, Gas sold by Operator
for a Party under the provisions hereof shall
be deemed to be Gas taken for the account of such Party.
4. IN-KIND BALANCING
4.1 Effective the first day of any calendar month following at
least THIRTY (30) days' prior
----------------------------- --
written notice to the Operator, any Underproduced Party may begin taking, in
addition to its Full Share of Current
Production and any Makeup Gas taken pursuant to Section 3.3 of this Agreement, a
share of current production determined
by multiplying FIFTY percent ( 50 %)
----------------- ------------------------------------
of the Full Shares of Current Production of all Overproduced Parties by
a fraction, the numerator of which is the Percentage Interest of such
Underproduced Party and the denominator of which
is the total of the Percentage Interests of all Underproduced Parties desiring
to take Makeup Gas. In no event will an
Overproduced Party be required to provide more than FIFTY percent
-----------
( 50 %) of its Full Share of Current
- ---------------------------
Production for Makeup Gas. The Operator will promptly notify all Overproduced
Parties of the election of an Underproduced
Party to begin taking Makeup Gas.
4.2 |_| (OPTIONAL - SEASONAL LIMITATION ON MAKEUP - OPTION 1)
Notwithstanding the provisions of Section 4.1, the
average monthly amount of Makeup Gas taken by an Underproduced Party during the
Winter Period pursuant to Section 4.1
shall not exceed the average monthly amount of Makeup Gas taken by such
Underproduced Party during the
( ) months immediately preceding the Winter Period.
- ---------------------- --
4.2 |_| (OPTIONAL - SEASONAL LIMITATION ON MAKEUP - OPTION 2)
Notwithstanding the provisions of Section 4.1, no
Overproduced Party will be required to provide more than percent ( %)
----- -------
of its Full Share
of Current Production for Makeup Gas during the Winter Period.
4.3 |_| (OPTIONAL) Notwithstanding any other provision of this Agreement,
at such time and for so long as Operator, or
(insofar as concerns production by the Operator) any Underproduced Party,
determines in good faith that an Overproduced
Party has produced all of its share of the ultimately recoverable reserves in
the Balancing Area, such Overproduced Party may
be required to make available for Makeup Gas, upon the demand of the Operator or
any Underproduced Party, up to
percent ( %)
- -------------------------------- ------------------------------------
of such Overproduced Party's Full Share of Current Production.
5. STATEMENT OF GAS BALANCES
5.1 The Operator will maintain appropriate accounting on a monthly and
cumulative basis of the volumes of Gas that each
Party is entitled to receive and the volumes of Gas actually taken or sold for
each Party's account. Within forty-five (45) days
after the month of production, the Operator will furnish a statement for such
month showing (1) each Party's Full Share of
Current Production, (2) the total volume of Gas actually taken or sold for each
Party's account, (3) the difference between
the volume taken by each Party and that Party's Full Share of Current
Production, (4) the Overproduction or
Underproduction of each Party, and (5) other data as recommended by the
provisions of the Council of Petroleum
Accountants Societies Bulletin No.24, as amended or supplemented hereafter. Each
Party taking Gas will promptly provide to
the Operator any data required by the Operator for preparation of the statements
required hereunder.
5.2 If any Party fails to provide the data required herein for four (4)
consecutive production months, the Operator, or
where the Operator has failed to provide data, another Party, may audit the
production and Gas sales and transportation
volumes of the non-reporting Party to provide the required data. Such audit
shall be conducted only after reasonable notice and
during normal business hours in the office of the Party whose records are being
audited. All costs associated with such audit
will be charged to the account of the Party failing to provide the required
data.
6. PAYMENTS ON PRODUCTION
6.1 Each Party taking Gas shall pay or cause to be paid all production and
severance taxes due on all volumes of Gas
actually taken by such Party.
6.2 |_| (ALTERNATIVE 1 - ENTITLEMENTS) Each Party shall pay or cause to be
paid all Royalty due with respect to Royalty
2
A.A.P.L. FORM 610-E - GAS BALANCING AGREEMENT - 1992
owners to whom it is accountable as if such Party were taking its Full Share of
Current Production, and only its Full Share of
Current Production.
6.2.1 |_| (OPTIONAL - FOR USE ONLY WITH SECTION 6.2 - ALTERNATIVE I -
ENTITLEMENT) Upon written request of a Party
taking less than its Full Share of Current Production in a given month ("Current
Underproducer"), any Party taking more than
its Full Share of Current Production in such month ("Current Overproducer") will
pay to such Current Underproducer an
amount each month equal to the Royalty percentage of the proceeds received by
the Current Overproducer for that portion of
the Current Underproducer's Full Share of Current Production taken by the
Current Overproducer; provided, however, that
such payment will not exceed the Royalty percentage that is common to all
Royalty burdens in the Balancing Area. Payments
made pursuant to this Section 6.2.1 will be deemed payments to the Underproduced
Party's Royalty owners for purposes of
Section 7.5.
6.2 |X| (ALTERNATIVE 2 - SALES) Each Party shall pay or cause to be paid
Royalty due with respect to Royalty owners to
whom it is accountable based on the volume of Gas actually taken for its
account.
6.3 In the event that any governmental authority requires that Royalty
payments be made on any other basis than that
provided for in this Section 6, each Party agrees to make such Royalty payments
accordingly, commencing on the effective date
required by such governmental authority, and the method provided for herein
shall be thereby superseded.
7. CASH SETTLEMENTS
7.1 Upon the earlier of the plugging and abandonment of the last producing
interval in the Balancing Area, the termination
of the Operating Agreement or any pooling or unit agreement covering the
Balancing Area, or at any time no Gas is taken
from the Balancing Area for a period of twelve (12) consecutive months, any
Party may give written notice calling for cash
settlement of the Gas production imbalances among the Parties. Such notice shall
be given to all Parties in the Balancing Area.
7.2 Within sixty (60) days after the notice calling for cash settlement
under Section 7.1, the Operator will distribute to each
Party a Final Gas Settlement Statement detailing the quantity of Overproduction
owed by each Overproduced Party to each
Underproduced Party and identifying the month to which such Overproduction is
attributed, pursuant to the methodology
set out in Section 7.4.
7.3 |_| (ALTERNATIVE I - DIRECT PARTY-TO-PARTY SETTLEMENT) Within sixty
(60) days after receipt of the Final Gas Settlement
Statement, each Overproduced Party will pay to each Underproduced Party entitled
to settlement the appropriate cash
settlement, accompanied by appropriate accounting detail. At the time of
payment, the Overproduced Party will notify the
Operator of the Gas imbalance settled by the Overproduced Party's payment.
7.3 |X| (ALTERNATIVE 2 - SETTLEMENT THROUGH OPERATOR) Within sixty (60)
days after receipt of the Final Gas Settlement
Statement, each Overproduced Party will send its cash settlement, accompanied by
appropriate accounting detail, to the
Operator. The Operator will distribute the monies so received, along with any
settlement owed by the Operator as an
Overproduced Party, to each Underproduced Party to whom settlement is due within
ninety (90) days after issuance of the
Final Gas Settlement Statement. In the event that any Overproduced Party fails
to pay any settlement due hereunder, the
Operator may turn over responsibility for the collection of such settlement to
the Party to whom it is owed, and the Operator
will have no further responsibility with regard to such settlement.
7.3.1 |_| (OPTIONAL - FOR USE ONLY WITH SECTION 7.3, ALTERNATIVE 2 -
SETTLEMENT THROUGH OPERATOR) Any Party shall have
the right at any time upon thirty (30) days' prior written notice to all other
Parties to demand that any settlements due such
Party for Overproduction be paid directly to such Party by the Overproduced
Party, rather than being paid through the
Operator. In the event that an Overproduced Party pays the Operator any sums due
to an Underproduced Party at any time
after thirty (30) days following the receipt of the notice provided for herein,
the Overproduced Party will continue to be liable
to such Underproduced Party for any sums so paid, until payment is actually
received by the Underproduced Party.
7.4 |X| (ALTERNATIVE 1 - HISTORICAL SALES BASIS) The amount of the cash
settlement will be based on the proceeds
received by the Overproduced Party under an Arm's Length Agreement for the Gas
taken from time to time by the
Overproduced Party in excess of the Overproduced Party's Full Share of Current
Production. Any Makeup Gas taken by the
Underproduced Party prior to monetary settlement hereunder will be applied to
offset Overproduction chronologically in the
order of accrual.
7.4 |_| (ALTERNATIVE 2 - MOST RECENT SALES BASIS) The amount of the cash
settlement will be based on the proceeds
received by the Overproduced Party under an Arm's Length Agreement for the
volume of Gas that constituted Overproduction
by the Overproduced Party from the Balancing Area. For the purpose of
implementing the cash settlement provision of the
Section 7, an Overproduced Party will not be considered to have produced any of
an Underproduced Party's share of Gas until
the Overproduced Party has produced cumulatively all of its Percentage Interest
share of the Gas ultimately produced from the
Balancing Area.
7.5 The values used for calculating the cash settlement under Section 7.4
will include all proceeds received for the sale of the
Gas by the Overproduced Party calculated at the Balancing Area, after deducting
any production or severance taxes paid and any
Royalty actually paid by the Overproduced Party to an Underproduced Party's
Royalty owner(s), to the extent said payments
amounted to a discharge of said Underproduced Party's Royalty obligation, as
well as any reasonable marketing, compression,
treating, gathering or transportation costs incurred directly in connection with
the sale of the Overproduction.
7.5.1 |X| (OPTIONAL - FOR VALUATION UNDER PERCENTAGE OF PROCEEDS CONTRACTS)
For Overproduction sold under a gas
purchase contract providing for payment based on a percentage of the proceeds
obtained by the purchaser upon resale of
residue gas and liquid hydrocarbons extracted at a gas processing plant, the
values used for calculating cash settlement will
include proceeds received by the Overproduced Party for both the liquid
hydrocarbons and the residue gas attributable to the
Overproduction.
7.5.2 |_| (OPTIONAL - VALUATION FOR PROCESSED GAS - OPTION 1) For
Overproduction processed for the account of the
Overproduced Party at a gas processing plant for the extraction of liquid
hydrocarbons, the full quantity of the Overproduction
will be valued for purposes of cash settlement at the prices received by the
Overproduced Party for the sale of the residue gas
attributable to the Overproduction without regard to proceeds attributable to
liquid hydrocarbons which may have been
extracted from the Overproduction.
7.5.2 |X| (OPTIONAL - VALUATION FOR PROCESSED GAS - OPTION 2) For
Overproduction processed for the account of the
Overproduced Party at a gas processing plant for the extraction of liquid
hydrocarbons, the values used for calculating cash
settlement will include the proceeds received by the Overproduced Party for the
sale of the liquid hydrocarbons extracted from
the Overproduction, less the actual reasonable costs incurred by the
Overproduced Party to process the Overproduction and to
transport, fractionate and handle the liquid hydrocarbons extracted therefrom
prior to sale.
7.6 To the extent the Overproduced Party did not sell all Overproduction
under an Arm's Length Agreement, the cash
settlement will be based on the weighted average price received by the
Overproduced Party for any gas sold from the
3
A.A.P.L. FORM 610-E - GAS BALANCING AGREEMENT - 1992
Balancing Area under Arm's Length Agreements during the months to which such
Overproduction is attributed. In the event
that no sales under Arm's Length Agreements were made during any such month, the
cash settlement for such month will be
based on the spot sales prices published for the applicable geographic area
during such month in a mutually acceptable pricing
bulletin.
7.7 Interest compounded at the rate of TEN
-------------------
percent ( 10 %) per annum or the
------------------------------------
maximum lawful
rate of interest applicable to the Balancing Area, whichever is less, will
accrue for all amounts due under Section 7.1 beginning
the first day following the date payment is due pursuant to Section 7.3. Such
interest shall be borne by the Operator or any
Overproduced Party in the proportion that their respective delays beyond the
deadlines set out in Sections 7.2 and 7.3
contributed to the accrual of the interest.
7.8 In lieu of the cash settlement required by Section 7.3, an Overproduced
Party may deliver to the Underproduced Party
an offer to settle its Overproduction in-kind and at such rates, quantities,
times and sources as may be agreed upon by the
Underproduced Party. If the Parties are unable to agree upon the manner in which
such in-kind settlement gas will be
furnished within sixty (60) days after the Overproduced Party's offer to settle
in kind, which period may be extended by
agreement of said Parties, the Overproduced Party shall make a cash settlement
as provided in Section 7.3. The making of an
in-kind settlement offer under this Section 7.8 will not delay the accrual of
interest on the cash settlement should the Parties
fail to reach agreement on an in-kind settlement.
7.9 |X| (OPTIONAL - FOR BALANCING AREAS SUBJECT TO FEDERAL PRICE
REGULATION) That portion of any monies collected by an
Overproduced Party for Overproduction which is subject to refund by orders of
the Federal Energy Regulatory Commission or
other governmental authority may be withheld by the Overproduced Party until
such prices are fully approved by such
governmental authority, unless the Underproduced Party furnishes a corporate
undertaking, acceptable to the Overproduced
Party, agreeing to hold the Overproduced Party harmless from financial loss due
to refund orders by such governmental
authority.
7.10 |X| (OPTIONAL - INTERIM CASH BALANCING) At any time during the term of
this Agreement, any Overproduced Party
may, in its sole discretion, make cash settlement(s) with the Underproduced
Parties covering all or part of its outstanding Gas
imbalance, provided that such settlements must be made with all Underproduced
Parties proportionately based on the relative
imbalances of the Underproduced Parties, and provided further that such
settlements may not be made more often than once
every twenty-four (24) months. Such settlements will be calculated in the same
manner provided above for final cash
settlements. The Overproduced Party will provide Operator a detailed accounting
of any such cash settlement within thirty (30)
days after the settlement is made.
8. TESTING
Notwithstanding any provision of this Agreement to the contrary, any Party
shall have the right, from time to time, to
produce and take up to one hundred percent (100%) of a well's entire Gas stream
to meet the reasonable deliverability test(s)
required by such Party's Gas purchaser, and the right to take any Makeup Gas
shall be subordinate to the right of any Party to
conduct such tests; provided, however, that such tests shall be conducted in
accordance with prudent operating practices only
after THIRTY
----------------------------------------------------------------
( 30 ) days' prior written notice to the Operator and shall last no
- -------
longer than
SEVENTY-TWO ( 72) hours.
- --------------------------- ----
9. OPERATING COSTS
Nothing in this Agreement shall change or affect any Party's obligation to
pay its proportionate share of all costs and
liabilities incurred in operations on or in connection with the Balancing Area,
as its share thereof is set forth in the Operating
Agreement, irrespective of whether any Party is at any time selling and using
Gas or whether such sales or use are in
proportion to its Percentage Interest in the Balancing Area.
10. LIQUIDS
The Parties shall share proportionately in and own all liquid hydrocarbons
recovered with Gas by field equipment operated
for the joint account in accordance with their Percentage Interests in the
Balancing Area.
11. AUDIT RIGHTS
Notwithstanding any provision in this Agreement or any other agreement
between the Parties hereto, and further
notwithstanding any termination or cancellation of this Agreement, for a period
of two (2) years from the end of the calendar
year in which any information to be furnished under Section 5 or 7 hereof is
supplied, any Party shall have the right to audit
the records of any other Party regarding quantity, including but not limited to
information regarding Btu-content.
Any Underproduced Party shall have the right for a period of two (2) years from
the end of the calendar year in which any
cash settlement is received pursuant to Section 7 to audit the records of any
Overproduced Party as to all matters concerning
values, including but not limited to information regarding prices and
disposition of Gas from the Balancing Area. Any such
audit shall be conducted at the expense of the Party or Parties desiring such
audit, and shall be conducted, after reasonable
notice, during normal business hours in the office of the Party whose records
are being audited. Each Party hereto agrees to
maintain records as to the volumes and prices of Gas sold each month and the
volumes of Gas used in its own operations,
along with the Royalty paid on any such Gas used by a Party in its own
operations. The audit rights provided for in this
Section 11 shall be in addition to those provided for in Section 5.2 of this
Agreement.
12. MISCELLANEOUS
12.1 As between the Parties, in the event of any conflict between the
provisions of this Agreement and the provisions of
any gas sales contract, or in the event of any conflict between the provisions
of this Agreement and the provisions of the
Operating Agreement, the provisions of this Agreement shall govern.
12.2 Each Party agrees to defend, indemnify and hold harmless all other
Parties from and against any and all liability for
any claims, which may be asserted by any third party which now or hereafter
stands in a contractual relationship with such
indemnifying Party and which arise out of the operation of this Agreement or any
activities of such indemnifying Party under
the provisions of this Agreement, and does further agree to save the other
Parties harmless from all judgments or damages
sustained and costs incurred in connection therewith.
12.3 Except as otherwise provided in this Agreement, Operator is authorized
to administer the provisions of this
Agreement, but shall have no liability to the other Parties for losses sustained
or liability incurred which arise out of or in
connection with the performance of Operator's duties hereunder, except such as
may result from Operator's gross negligence or
willful misconduct. Operator shall not be liable to any Underproduced Party for
the failure of any Overproduced Party, (other
than Operator) to pay any amounts owed pursuant to the terms hereof.
12.4 This Agreement shall remain in full force and effect for as long as
the Operating Agreement shall remain in force and
effect as to the Balancing Area, and thereafter until the Gas accounts between
the Parties are settled in full, and shall inure to
the benefit of and be binding upon the Parties hereto, and their respective
heirs, successors, legal representatives
4
A.A.P.L. FORM 610-E - GAS BALANCING AGREEMENT - 1992
and assigns, if any. The Parties hereto agree to give notice of the existence of
this Agreement to any successor in interest of
any such Party and to provide that any such successor shall be bound by this
Agreement, and shall further make any transfer of
any interest subject to the Operating Agreement, or any part thereof, also
subject to the terms of this Agreement.
12.5 Unless the context clearly indicates otherwise, words used in the
singular include the plural, the plural includes the
singular, and the neuter gender includes the masculine and the feminine.
12.6 In the event that any "Optional" provision of this Agreement is not
adopted by the Parties to this Agreement by a
typed, printed or handwritten indication, such provision shall not form a part
of this Agreement, and no inference shall be
made concerning the intent of the Parties in such event. In the event that any
"Alternative" provision of this Agreement is not
so adopted by the Parties, Alternative 1 in each such instance shall be deemed
to have been adopted by the Parties as a result
of any such omission. In those cases where it is indicated that an Optional
provision may be used only if a specific Alternative
is selected: (i) an election to include said Optional provision shall not be
effective unless the Alternative in question is selected;
and (ii) the election to include said Optional provision must be expressly
indicated hereon, it being understood that the
selection of an Alternative either expressly or by default as provided herein
shall not, in and of itself, constitute an election to
include an associated Optional provision.
12.7 This Agreement shall bind the Parties in accordance with the
provisions hereof, and nothing herein shall be construed
or interpreted as creating any rights in any person or entity not a signatory
hereto, or as being a stipulation in favor of any
such person or entity.
12.8 If contemporaneously with this Agreement becoming effective, or
thereafter, any Party requests that any other Party
execute an appropriate memorandum or notice of this Agreement in order to give
third parties notice of record of same and
submits same for execution in recordable form, such memorandum or notice shall
be duly executed by the Party to which such
request is made and delivered promptly thereafter to the Party making the
request. Upon receipt, the Party making the request
shall cause the memorandum or notice to be duly recorded in the appropriate real
property or other records affecting the
Balancing Area.
12.9 In the event Internal Revenue Service regulations require a uniform
method of computing taxable income by all
Parties, each Party agrees to compute and report income to the Internal Revenue
Service (SELECT ONE) |_| as if such Party were
taking its Full Share of Current Production during each relevant tax period in
accordance with such regulations, insofar as same
relate to entitlement method tax computations; or |_| based on the quantity of
Gas taken for its account in accordance with
such regulations, insofar as same relate to sales method tax computations.
13. ASSIGNMENT AND RIGHTS UPON ASSIGNMENT
13.1 Subject to the provisions of Sections 13.2 (if elected) and 13.3
hereof, and notwithstanding anything in this Agreement
or in the Operating Agreement to the contrary, if any Party assigns (including
any sale, exchange or other transfer) any of its
working interest in the Balancing Area when such Party is an Underproduced or
Overproduced Party, the assignment or other
act of transfer shall, insofar as the Parties hereto are concerned, include all
interest of the assigning or transferring Party in the
Gas, all rights to receive or obligations to provide or take Makeup Gas and all
rights to receive or obligations to make any
monetary payment which may ultimately be due hereunder, as applicable. Operator
and each of the other Parties hereto shall
thereafter treat the assignment accordingly, and the assigning or transferring
Party shall look solely to its assignee or other
transferee for any interest in the Gas or monetary payment that such Party may
have or to which it may be entitled, and shall
cause its assignee or other transferee to assume its obligations hereunder.
13.2 |X| (OPTIONAL - CASH SETTLEMENT UPON ASSIGNMENT) Notwithstanding
anything in this Agreement (including but not
limited to the provisions of Section 13.1 hereof) or in the Operating Agreement
to the contrary, and subject to the provisions
of Section 13.3 hereof, in the event an Overproduced Party intends to sell,
assign, exchange or otherwise transfer any of its
interest in a Balancing Area, such Overproduced Party shall notify in writing
the other working interest owners who are
Parties hereto in such Balancing Area of such fact at least THIRTY
------------------
( 30 ) days prior
-------------------------------------------------
to closing the
transaction. Thereafter, any Underproduced Party may demand from such
Overproduced Party in writing, within
THIRTY ( 30) days after receipt of the Overproduced
- -------------------------- -----
Party's notice, a cash settlement of its
Underproduction from the Balancing Area. The Operator shall be notified of any
such demand and of any cash settlement
pursuant to this Section 13, and the Overproduction and Underproduction of each
Party shall be adjusted accordingly. Any cash
settlement pursuant to this Section 13 shall be paid by the Overproduced Party
on or before the earlier to occur (i) of sixty (60)
days after receipt of the Underproduced Party's demand or (ii) at the closing of
the transaction in which the Overproduced
Party sells, assigns, exchanges or otherwise transfers its interest in a
Balancing Area on the same basis as otherwise set forth in
Sections 7.3 through 7.6 hereof, and shall bear interest at the rate set forth
in Section 7.7 hereof, beginning sixty (60) days
after the Overproduced Party's sale, assignment, exchange or transfer of its
interest in the Balancing Area for any amounts not
paid. Provided, however, if any Underproduced Party does not so demand such cash
settlement of its Underproduction from the
Balancing Area, such Underproduced Party shall look exclusively to the assignee
or other successor in interest of the
Overproduced Party giving notice hereunder for the satisfaction of such
Underproduced Party's Underproduction in accordance
with the provisions of Section 13.1 hereof.
13.3 The provisions of this Section 13 shall not be applicable in the event
any Party mortgages its interest or disposes of its
interest by merger, reorganization, consolidation or sale of substantially all
of its assets to a subsidiary or parent company, or to
any company in which any parent or subsidiary of such Party owns a majority of
the stock of such company.
14. OTHER PROVISIONS
5
A.A.P.L. FORM 610-E - GAS BALANCING AGREEMENT - 1992
6
EXHIBIT "F"
Attached to and made a part of that certain
Operating Agreement
Dated _________________________ by and between
ST Oil Company as Operator, and
Moore Energy LLC, et al as Non-Operators
EQUAL OPPORTUNITY
CERTIFICATIONS AND AGREEMENTS
For purposes of this Supplement, the word "Contract" shall mean any agreement or
arrangement between the Parties for the furnishing of materials, supplies, or
services or for the use of real or personal property, including lease
arrangements.
1. EQUAL OPPORTUNITY CLAUSE (Applicable to all contracts in excess
of $10,000)
The parties shall be bound by and agree to the following provisions as contained
in Section 202 of Executive Order 11246, as amended to wit:
1. Each of the Parties will not discriminate against any employee because of
race, color, religion, sex or national origin. Each of the Parties will take
affirmative action to ensure that applicants are employed, and that employees
are treated during employment, without regard to their race, color, religion,
sex, or national origin. Such action shall include, but not be limited to the
following: employment, upgrading, demotion, or transfer, recruitment
advertising; layoff or termination; rates of pay or other forms of
compensation; and selection for training, including apprenticeship. Each of
the Parties agree to post in conspicuous places, available to employees and
applicants for employment, notices to be provided by the contracting officer
setting forth the provisions of this nondiscrimination clause.
2. Each of the Parties will, in all solicitations or advertisements for
employees placed by or on behalf of any of the parties, state that all
qualified applicants will receive consideration for employment without regard
to race, color, religion, sex, or national origin.
3. Each of the Parties will send to each labor union or representative of
workers with which it has a collective bargaining agreement or other contract
or understanding, a notice to be provided by the agency contracting officer,
advising the labor union or workers' representative for the Party's
commitments under Section 202 of Executive Order 11246 of September 24, 1965,
and shall post copies of the notice in conspicuous places available to
employees and applicants for employment.
4. Each of the parties will comply with all provisions of Executive Order 11246
of September 24, 1965, and by the rules, regulations, and relevant orders of
the Secretary of Labor.
5. Each of the Parties will furnish all information and reports required by
Executive Order 11246 of September 24, 1965, and by the rules, regulations,
and orders of the Secretary of Labor, or pursuant thereto, and will permit
access to his books, records, and accounts by the contracting agency and the
Secretary of Labor for purposes of investigation to ascertain compliances
with such rules, regulations, and orders.
6. In the event of any of the Parties' noncompliance with the nondiscrimination
clauses of this contract or with any such rules, regulations, or orders, this
Contract may be cancelled, terminated or suspended in whole or in part and
the noncomplying Party may be declared ineligible for further Government
contracts in accordance with procedures authorized in Executive Order 11246
of September 24, 1965, or by rule, regulation, or order of the Secretary of
Labor, or as otherwise provided by law.
7. Each of the Parties will include the provisions of paragraphs (1) through (7)
in every Subcontract or Purchase Order unless exempted by rules, regulations,
or orders of the Secretary of Labor issued pursuant to Section 204 of
Executive Order 11246 of September 24, 1965, so that such provisions will be
binding upon each Subcontractor or Vendor. Each of the Parties will take such
action with respect to any Subcontract or Purchase Order as the Contracting
agency may direct as a means of enforcing such provisions including sanctions
for noncompliance: Provided, however, that in the event any of the Parties
become involved in, or is threaten with, litigation with a Subcontractor or
Vendor as a result of such direction by the contracting agency, that the
Party may request the United States to enter into such litigation to protect
the interest of the United States.
II. CERTIFICATION OF NONSECREGATED FACILITIES
Each of the Parties certifies that it does not maintain or provide for its
employees any segregated facilities at any of its establishments, and that it
does not permit its employees to perform their services at any location under
its control, where segregated facilities are maintained. Each of the Parties
agrees that a breach of this certification is a violation of the Equal
Opportunity Clause in this contract. As used in this certification, the term
"segregated facilities" means, but is not limited to any waiting rooms, work
area, rest rooms and wash rooms, restaurants and other eating areas, time
clocks, locker rooms, and other storage or dressing areas, parking lots,
drinking fountains, recreation or entertainment areas, transportation and
housing facilities provided for employees which are segregated by explicit
directive or are in fact segregated on the basis of race, color, religion, sex,
or national origin, because of habit, local custom, or
otherwise. Each of the parties further agrees that (except where it has obtained
identical certifications from proposed subcontractors for specific time periods)
it will obtain identical certifications from proposed subcontractors prior to
the award of subcontracts exceeding $10,000 which are not exempt from the
provisions of the Equal Opportunity Clause; that it will retain such
certification in its file; and that it will forward the following notice to such
proposed subcontractors (except where the proposed subcontractors have submitted
identical certificates for specific time periods):
"NOTICE TO PROSPECTIVE SUBCONTRACTORS OF REQUIREMENT FOR CERTIFICATIONS
OF NONSEGREGATED FACILITIES."
A Certification of No nonsegregated Facilities must be submitted prior
to the award of a sub contract exceeding $10,000 which is not exempt
from the provisions of the Equal Opportunity Clause. The certification
may be submitted either for each subcontract or for all subcontracts
during a period. (i.e. quarterly, semi-annually or annually). (Note:
The penalty for making false statements is presented in 18 U.S.C. 1001.)
III. EEO-1 REPORT AND AFFIRMATIVE ACTION COMPLIANCE PROGRAM
Each of the Parties is aware of Executive Order 11246 and Section 60-1.40. Title
41 of the Code of Federal Regulations, and all rules and regulations and orders
promulgated thereunder to wit:
(a.) Each of the Parties, to provide special emphasis to the
employment of Qualified disabled veterans and veterans of
the Vietnam era, agrees that All suitable employment
openings of any of the Parties which exist at the time of
the execution of this contract and those which occur during
the performance of this contract, including those not
generated by this contract and including those occurring at
an establishment of any of the Parties other than the one
wherein the contract is being performed but excluding those
independently operated corporate facilities, shall be
offered for listing at an appropriate local office of the
State employment service system wherein the opening occurs
and to provide such reports to such local office regarding
employment openings and hires as may be required: Provided,
that if the contract is for less than $10,000 or if it is
with a State or local government the reports set forth in
paragraphs (C) and (d) of this clause are not required.
(b.) Listing of employment openings with the employment service
system Pursuant to this clause shall be made at least
concurrently with the use of any other recruitment service
or effort and shall involve the normal obligations which
attach to the placing of a bona fide job order, including
the acceptance of referrals of veterans, and nonveterans.
The listing of employment openings does not require the
hiring of any particular job applicant or from any
particular group of job applicants, and nothing herein is
intended to relieve any of the Parties from any
requirements in any Executive Orders or regulations
regarding nondiscrimination in employment.
(c.) The reports required by paragraph (a.) of this clause shall
include, but Not be limited to, periodic reports which
shall be filed at least quarterly with the appropriate
local office or, where any of the Parties has more than one
establishment (1) the number of individuals who were hired
during the reporting period, (2) the number of those hired
who were disabled veterans, and (3) the number who were
nondisabled veterans of the Vietnam era. Each of the
Parties shall submit a report within 30 days after the end
of each reporting period wherein any performance is made on
this contract. Each of the Parties shall maintain copies of
the reports submitted until the expiration of one (1) year
after final payment under the contract, during which time
they shall be made available, upon request, for examination
by any authorized representatives of the contracting
officer or of the Secretary of Labor.
(d.) Whenever any of the Parties becomes contractually bound to
the listing provisions of this clause, it shall advise the
employment service system In each State wherein it has
establishments of the name and location of Each such
establishment in the State. As long as any of the Parties
is contractually bound to these provisions and has so
advised the State system there is no need to advise the
State system of subsequent contracts. Any of the Parties
may advise the State systems when it is no longer bound by
this contract clause.
(e.) This clause does not apply to the listing of employment
openings which occur and are filled outside of the 50
States. the District of Columbia, Puerto Rico, Guam and the
Virgin Islands.
(f.) This clause does not apply to openings which any of the
Parties proposes to fill from within its own organizations
or to fill pursuant to a customary and traditional
employer-union hiring arrangement. This exclusion does not
apply to a particular opening once an employer decides to
consider applications outside of his own organization or
employer-union arrangement for that opening.
(g.) As used in this clause:
1. "All suitable employment openings" includes, but is not limited
to, openings which occur in the following job categories:
Production and nonproduction plant and office; laborers
and mechanics; supervisory and nonsupervisory;
technical and executive, administrative and
professional openings which are compensated on a salary
basis of less than $18,000 per year. This term
includes full-time employment, temporary employment of
more than three (3) days' duration, and part-time
employment. It does not include openings which any of
the Parties proposes to fill from within its own
organization or to fill pursuant to a customary and
traditional employer-union hiring arrangement. Under
the most compelling circumstances an employment opening
may not be suitable for listing, including such
situations where the needs of the Government cannot
reasonably be otherwise supplied, where listing would
be contrary to national security, or where the
requirement of listing would otherwise not be for the
best interest of the Government.