EXHIBIT 10.7
PRODUCTION PAYMENT PURCHASE AND SALE AGREEMENT
This PRODUCTION PAYMENT PURCHASE AND SALE AGREEMENT (the "Agreement"),
executed as of November 14, 2003, and effective September 1, 2003 (the
"Effective Date"), is between DENBURY RESOURCES INC. ("Denbury"), a Delaware
corporation, whose address is 5100 Tennyson Parkway, Suite 3000, Plano, Texas
75024, and GENESIS CRUDE OIL, L.P. ("Genesis"), a Delaware limited partnership,
whose address is 500 Dallas, Suite 2500, Houston, Texas 77002. Denbury and
Genesis are sometimes referred to individually as a "Party" and collectively as
the "Parties".
FOR AND IN CONSIDERATION of the payments and mutual covenants to be made
in this Agreement by the Parties and the benefits derived by the Parties from
this Agreement, the Parties agree as follows:
RECITALS
A. Denbury owns certain undivided oil, gas and mineral leasehold, royalty
and mineral interests in and to those lands commonly referred to as the
Hollybush field, the South Pisgah field and the Goshen Springs field, as more
particularly described in Exhibit A attached to the Assignment (as defined
below).
B. Denbury is currently engaged in a program with respect to the Subject
Interests (as defined below) on the Subject Lands (as defined below) for the
exploration, development, production and sale of carbon dioxide.
C. Denbury desires to sell and convey and Genesis desires to purchase and
pay for (1) all of Denbury's rights, title and interests in and to certain
contracts covering the sale of carbon dioxide by Denbury, and (2) a volumetric
production payment in and to the carbon dioxide that is produced, saved and sold
from the Subject Interests, upon and subject to the terms and conditions
provided in the Assignment and this Agreement.
I.
CERTAIN DEFINITIONS
1.1 For purposes of this Agreement, the following capitalized terms shall
have the meanings herein ascribed to them and the capitalized terms defined in
the opening paragraph and subsequent paragraphs by inclusion in quotation marks
and parentheses shall have the meanings ascribed to them:
"Additional Volumes" shall have the meaning given to such term in Section
4.4.
"Airgas Contract" means the Industrial Sale Contract identified as the
Airgas Contract in Exhibit A to the Contracts Assignment, as the same may have
been amended prior to the date hereof.
"Assigned Contract Interests" shall have the meaning given to such term in
Section 4.1.
"Assignment" means the Assignment of Production Payment to be entered into
between Denbury and Genesis in the form attached hereto as Exhibit A.
"Audited Party" shall have the meaning given to such term in Section 12.3.
"Bank One Liens" means the liens created under or pursuant to that certain
Third Amended and Restated Credit Agreement dated as of September 12, 2002 among
Denbury, as borrower, the financial institutions listed therein, Bank One, N.A.,
as Administrative Agent, Credit Lyonnais New York Branch, and Fortis Capital
Corp., as Syndication Agent, and Union Bank of California, as amended by
instrument dated effective as of April 30, 2003, and as otherwise amended,
supplemented or modified from time to time.
"BOC-Brandon Contract" means the Industrial Sale Contract identified as
the BOC-Brandon Contract in Exhibit A to the Contracts Assignment, as the same
may have been amended prior to the date hereof.
"Call Option" shall have the meaning given to such term in Section 2.4.
"Call Settlement Date" shall have the meaning given to such term in
Section 2.4.
"Claims" shall have the meaning given to such term in Section 9.1.
"Closing" shall have the meaning given to such term in Section 10.1.
"Closing Date" shall have the meaning given to such term in Section 10.1.
"CO(2)" shall have the meaning given to such term in the Assignment.
"Contracts Assignment" means the Assignment of Contracts and Bill of Sale
to be entered into between Denbury and Genesis attached hereto as Exhibit C.
"Daily Maximum Quantity" shall have the meaning given to such term in the
Assignment.
"Day" shall have the meaning given to such term in the Assignment.
"Deficiency" shall have the meaning given to such term in Section 4.4.
"Delivery Points" shall have the meaning given to such term in the T&P
Agreement.
"Denbury Indemnified Party" shall have the meaning given to such term in
Section 9.2.
"Denbury Pipeline" shall have the same meaning as "Transporter's Pipeline"
as such term is defined in the T&P Agreement.
"Effective Date" shall have the meaning given to such term in the opening
paragraph of this Agreement.
"Environmental Claims" shall have the meaning given to such term in
Section 5.14.
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"Environmental Contaminants" shall have the meaning given to such term in
Section 5.14.
"Environmental Laws" means all federal, state and local Governmental
Requirements regulating or otherwise pertaining to the environment, including
without limitation the following as from time to time amended and all others
whether similar or dissimilar and whether now existing or hereafter enacted: the
Oil Pollution Act of 1990, as amended ("OPA"); the Comprehensive Environmental
Response, Compensation, and Liability Act of 1980, as amended by the Superfund
Amendments and Reauthorization Act of 1986; the Resource Conservation and
Recovery Act of 1976, as amended by the Used Oil Recycling Act of 1980, the
Solid Waste Disposal Act amendments of 1980, and the Hazardous and Solid Waste
Amendments of 1984; the Hazardous Materials Transportation Act, as amended; the
Toxic Substance Control Act, as amended; the Clean Air Act, as amended; the
Clean Water Act, as amended; and all regulations promulgated pursuant
thereunder.
"Environmental Liabilities" shall have the meaning given to such term in
Section 5.14.
"Environmental Permits" shall have the meaning given to such term in
Section 5.14.
"Excess Volumes" shall have the meaning given to such term in the
Assignment.
"Genesis Indemnified Party" shall have the meaning given to such term in
Section 9.1.
"Governmental Authority" means any nation or government, any state or
other political subdivision thereof and any person exercising executive,
legislative, judicial, regulatory or administrative functions of or pertaining
to government.
"Governmental Requirement" means any law, statute, code, ordinance, order,
determination, rule, regulation, judgment, decree, injunction, franchise,
permit, certificate, license, authorization or other directive or requirement,
energy regulations and occupational, safety and health standards or controls, of
any Governmental Authority.
"Industrial Sale Contracts" shall have the meaning given to such term in
the Contracts Assignment.
"Jackson Dome Plant" means the Jackson Dome Processing Plant owned by
Denbury located in Brandon, Rankin County, Mississippi.
"Leases" means the leases described, referred to or identified in Exhibit
A to the Assignment, together with any renewals or extensions of such leases,
and any replacement leases, insofar and only insofar as they cover the Subject
Lands (or portion thereof).
"Lost Interest" shall have the meaning given to such term in Section
11.10.
"Master Documents" means this Agreement and all agreements executed in
connection herewith or pursuant hereto, including, but not limited to the
Assignment, the Contracts Assignment, and the T&P Agreement.
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"Material Adverse Effect" means a material adverse effect upon (a) the
validity or enforceability of the Master Documents, or (b) the financial
condition of Denbury or Genesis, as applicable, or (c) the ability of Denbury or
Genesis, as applicable, to perform its obligations under the Master Documents.
"MCF" shall have the meaning given to such term in the Assignment.
"Month" means a period beginning on the first Day of a calendar month and
ending at the beginning of the first Day of the next succeeding calendar month.
"Permitted Liens" means (a) lessor's royalties, overriding royalties, and
division orders covering oil, gas and other hydrocarbons, reversionary interests
and similar burdens existing as of the Effective Date; (b) operating agreements,
unit agreements and similar agreements, and any and all federal and state
regulatory orders and rules (including forced pooling orders) to which the
Subject Interests are subject; (c) liens for Taxes or assessments not due or
pursuant to which Denbury is not delinquent; (d) preferential rights to purchase
and required third-party consents to assignments and similar agreements with
respect to which (1) waivers or consents have been obtained from the appropriate
parties, or (2) required notice has been given to the holders of such rights and
the appropriate time period for asserting such rights has expired without an
exercise of such rights; (e) all rights to consent by, required notices to,
filings with, or other actions by governmental entities in connection with the
sale or conveyance of oil, gas and mineral leases or interests therein if the
same are customarily obtained after such sale or conveyance; (f) easements,
rights-of-way, servitudes, permits, surface leases and other rights in respect
of surface operations, pipelines, grazing, logging, canals, ditches, reservoirs
or the like; and easement for streets, alleys, highways, pipelines, telephone
lines, power lines, railways and other easements and rights-of-way, on, over or
in respect of any of the Subject Interests; (g) liens of operators relating to
obligations not due or pursuant to which Denbury is not delinquent; (h) title
problems commonly encountered in the oil and gas business which would not be
considered material by a reasonable and prudent person engaged in the business
of the ownership, development and operation of oil and gas properties with
knowledge of all the facts and appreciation of their legal significance; and (i)
the Bank One Liens.
"Person" means any individual, natural person, corporation, joint venture,
partnership, limited partnership, trust, estate, business trust, association,
governmental entity or other entity.
"Personal Property" shall mean improvements, machinery, equipment,
gathering lines, tanks, fixtures and other personal property and equipment of
every kind and nature now or hereafter used or held for use in connection with
the exploration, development or operation of the Subject Interests; provided,
however, that the term "Personal Property" shall not include the Denbury
Pipeline or the Jackson Dome Plant.
"Praxair Contract" means the Industrial Sale Contract identified as the
Praxair Contract in Exhibit A to the Contracts Assignment, as the same may have
been amended prior to the date hereof.
"Production Payment" shall have the meaning given to such term in the
Assignment.
"Production Payment Gas" shall have the meaning given to such term in the
Assignment.
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"Receipt Point" shall have the meaning given to such term in the T&P
Agreement.
"Reserve Report" shall mean "Data on Estimated Proved Carbon Dioxide
Reserves as of December 31, 2002" of the Appraisal Report as of December 31,
2002 on Certain Properties Owned by Denbury Resources Inc., SEC Case, of
DeGolyer and MacNaughton dated February 4, 2003.
"Retained Obligations" shall have the meaning given to such term in
Section 11.12.
"Scheduled Delivery Volumes" shall have the meaning given to such term in
the Assignment.
"Subject Interests" shall have the meaning given to such term in the
Assignment.
"Subject Lands" shall have the meaning given to such term in the
Assignment.
"Taxes" shall have the meaning given to such term in the Assignment.
"Term" shall have the meaning given to such term in the Assignment.
"T&P Agreement" means the Carbon Dioxide Transportation Agreement to be
entered into between Denbury and Genesis in the form attached hereto as Exhibit
D.
"Transportation Fee" shall have the meaning given to such term in the T&P
Agreement.
II.
PURCHASE AND SALE OF THE PRODUCTION PAYMENT
2.1 Subject to the terms of this Agreement, Denbury agrees to sell and
convey and Genesis agrees to purchase and pay for the Production Payment.
2.2 The Production Payment will be assigned by Denbury to Genesis pursuant
to the Assignment.
2.3 Genesis shall look solely to the receipt of Production Payment Gas as
provided herein for satisfaction and discharge of the Production Payment, and
Genesis shall not have any other recourse against Denbury for the payment and
discharge of the Production Payment. However, the foregoing provision shall not
relieve Denbury of any obligation to respond in damages for any breach of any of
the covenants, agreements and obligations of Denbury hereunder or under any
other Master Document.
2.4 Genesis hereby grants Denbury the option to repurchase the Production
Payment pursuant to the terms of this Section 2.4 (the "Call Option"). If
pursuant to Section 2.8 of the T&P Agreement, the Transporter (as defined in the
T&P Agreement) elects to exercise its Call Option (or is deemed to have elected
to exercise its Call Option), Denbury shall notify Genesis of the date on which
the repurchase will be consummated (the "Call Settlement Date"), which date must
be a Business Day and must occur no sooner than five Business Days and no later
than 30 days after the date on which Transporter delivered (or was deemed to
have delivered) notice
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of its intent to exercise the Call Option. On the Call Settlement Date, Genesis
and Denbury shall execute documentation sufficient to terminate the Production
Payment and the other Master Documents, cause the reconveyance to and assumption
by Denbury of the Industrial Sale Contracts, and contemporaneously therewith,
Denbury shall pay to Genesis in immediately available funds, a purchase price
equal to the estimated cash flow from the remaining volumes obligated to be
delivered pursuant to the Production Payment discounted to present net value
using a fifteen percent (15%) per annum discount rate. The estimated cash flow
from the remaining volumes obligated to be delivered pursuant to the Production
Payment shall be based upon a forecast prepared by Denbury and furnished to
Genesis, and if Genesis objects to such forecast, then such matter may be
submitted to and resolved in accordance with the arbitration provisions
contained in Article XIV.
2.5 In the event of any express conflict between the terms and provisions
of this Agreement and the terms and provisions of the Assignment, the terms and
provisions of the Assignment shall control. The inclusion in this Agreement of
provisions not addressed in the Assignment shall not be deemed a conflict, and
all such additional provisions contained herein shall be given full force and
effect.
III.
PROCESSING AND TRANSPORTATION OF PRODUCTION PAYMENT GAS
3.1 After Closing, Denbury agrees to transport Production Payment Gas from
the Receipt Points, and redeliver Production Payment Gas at the Delivery Points,
in accordance with the provisions of the T&P Agreement. All Production Payment
Gas shall be delivered by Denbury to the Delivery Points in compliance with the
requirements set out in the T&P Agreement with respect to pressure, quantity and
quality specifications. Under the T&P Agreement, Genesis will pay Denbury a
Transportation Fee (as adjusted in accordance with the terms of the T&P
Agreement), which initially shall be $0.16 per MCF, for transportation of the
Production Payment Gas from the Receipt Points, processing of the Production
Payment Gas through the Jackson Dome Plant, and redelivery of the Production
Payment Gas to or on behalf of Genesis at the Delivery Points.
3.2 The processing and transportation of Production Payment Gas by Denbury
as described in this Article shall be subject to the terms and provisions
contained in this Article, as such terms and provisions may be further described
or supplemented by the T&P Agreement. In the event of any conflict between the
terms and provisions of this Article and the terms and provisions of the T&P
Agreement, the terms and provisions of the T&P Agreement shall control. The
inclusion in this Agreement of provisions not addressed in the T&P Agreement
shall not be deemed a conflict, and all such additional provisions contained
herein shall be given full force and effect.
IV.
ASSIGNMENT OF INDUSTRIAL SALE CONTRACTS
4.1 At Closing, Denbury will assign to Genesis all of its rights and
interests in and to the Industrial Sale Contracts (the "Assigned Contract
Interests"), subject to the terms and conditions contained in the Industrial
Sale Contracts. The Assigned Contract Interests will be
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assigned by Denbury to Genesis pursuant to the Contracts Assignment.
Notwithstanding such assignment, Denbury shall be obligated to continue to
comply with the Retained Obligations.
4.2 At Closing, Genesis will assume the cost and responsibilities of
administering the Assigned Contract Interests with respect to rights and
obligations arising after the Effective Date and will report the sales and
values of such sales to Denbury on a Monthly basis on or before the 10th day of
each succeeding Month, in a manner and format agreed upon between the Parties,
in order that Denbury can timely pay royalties attributable to the Production
Payment Gas sold pursuant to the Industrial Sale Contracts. Notwithstanding
anything herein to the contrary, without the prior written consent of Denbury,
Genesis shall not amend or otherwise modify any terms or provisions of any of
the Industrial Sale Contracts if such amendment or modification of the
Industrial Sale Contracts shall in any manner whatsoever, directly or
indirectly, modify the Retained Obligations or otherwise increase any
obligations of Denbury under any of the Master Documents, including but not
limited to any increase of the sales and delivery requirements under the
Industrial Sale Contracts. If Denbury elects not to consent to any proposed
amendment, Denbury shall provide a written explanation setting out the reasons
for such election.
4.3 In the event of any conflict between the terms and provisions
contained in this Article and the terms and provisions of the Contracts
Assignment, the terms and provisions contained in the Contracts Assignment shall
control. The inclusion in this Agreement of provisions not addressed in the
Assignment shall not be deemed a conflict, and all such additional provisions
contained herein shall be given full force and effect.
4.4 If at any time or from time to time during the Term Genesis determines
that 167.5 million MCF is not sufficient to satisfy the sales and delivery
requirements of the Industrial Sale Contracts (a "Deficiency"), Genesis shall
promptly furnish Denbury with written notice of such determination, and such
notice shall contain sufficient detail that is reasonably calculated to enable
Denbury to determine the basis for Genesis' determination of such Deficiency.
If, after receipt of such notice, Denbury agrees with Genesis' assessment of a
Deficiency, Denbury agrees to amend the Production Payment to include such
additional volumes of CO(2) that are necessary to enable Genesis to satisfy the
sales and delivery requirements of the Industrial Sale Contracts. If Denbury
fails to agree with Genesis' assessment of a Deficiency, then such matter shall
be resolved pursuant to Article XIV. The agreed-upon amount of additional
volumes necessary to enable Genesis to satisfy the sales and delivery
requirements of the Industrial Sale Contracts (the "Additional Volumes") shall
be sold by Denbury to Genesis on the same terms and conditions, mutatis
mutandis, as applicable to the Production Payment by virtue of this Agreement,
and the value of, and consequently the consideration to be paid by Genesis to
Denbury for, the Additional Volumes shall be calculated based on estimated cash
flow from the Additional Volumes discounted to present net value using a fifteen
percent (15%) per annum discount rate. Notwithstanding the foregoing, if it is
determined that the Deficiency has occurred, in whole or in part, as a result of
the sale by Genesis of Excess Volumes, Denbury shall not be obligated to deliver
those Additional Volumes which are attributable to the sale of Excess Volumes by
Genesis.
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V.
REPRESENTATIONS AND WARRANTIES OF DENBURY
Denbury hereby represents and warrants to Genesis as follows:
5.1 Denbury is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware. Denbury possesses the legal
right, power and authority, and qualifications to conduct its business and own
its properties (including the Subject Interests), except where the failure to so
possess would not, individually or collectively, have a Material Adverse Effect.
Denbury has the legal right, power and authority (i) to execute and deliver the
Assignment and to convey to Genesis the Production Payment and all of the rights
and privileges appurtenant thereto and (ii) to execute and deliver this
Agreement and the other Master Documents and to perform all of its obligations
hereunder and thereunder.
5.2 The execution, delivery and performance by Denbury of this Agreement
and the other Master Documents are within its corporate powers and authority,
have been duly authorized by all necessary board of director action on the part
of Denbury and do not and will not (i) violate any Governmental Requirement
currently in effect having applicability to Denbury, other than violations which
would not, individually or collectively, cause a Material Adverse Effect, or
(ii) violate any provision of Denbury's articles of incorporation, bylaws, or
other governing documents, or (iii) result in a breach of or constitute a
default (excluding breaches or defaults which, individually or collectively,
would not have a Material Adverse Effect) under any indenture, bank loan, or
credit agreement or farm-out agreement, program agreement or operating
agreement, or any other agreement or instrument to which Denbury is a party or
by which Denbury or its properties may be currently bound or affected, or (iv)
other than the Master Documents and/or other than matters which would not
individually or collectively cause a Material Adverse Effect, result in or
require the creation or imposition of any mortgage, lien, pledge, security
interest, charge, or other encumbrance upon or of any of the properties or
assets of Denbury (including the Subject Interests).
5.3 This Agreement and the other Master Documents have been duly executed
and delivered by Denbury, and this Agreement and the Master Documents constitute
the legal, valid, and binding acts and obligations of Denbury enforceable
against Denbury in accordance with their terms, subject, however, to bankruptcy,
insolvency, reorganization, and other laws affecting creditors' rights generally
and general principles of equity. There are no bankruptcy, insolvency,
reorganization, receivership or arrangement proceedings pending, being
contemplated by or, to Denbury's knowledge, threatened against Denbury.
5.4 Denbury is not in default under any Governmental Requirement,
indenture, agreement, or instrument which would reasonably be expected to cause
a Material Adverse Effect nor does any fact or condition exist at this time that
would reasonably be expected to cause a Material Adverse Effect in the future
under any Governmental Requirement, indenture, agreement or instrument; and all
consents and waivers of preferential purchase or other rights required in
connection with the valid conveyance to Genesis of the Production Payment or the
execution and delivery of this Agreement and the other Master Documents have
been obtained or the time for giving such consents or waivers has expired
following a written request therefor,
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other than those consents and waivers which if not obtained, would not
individually or collectively have a Material Adverse Effect.
5.5 All advance notifications to third parties of the transactions
contemplated herein and in the other Master Documents required in connection
with the valid conveyance to Genesis of the Production Payment or execution and
delivery of this Agreement and the other Master Documents have been timely and
properly given, other than those notifications which, if not obtained, would not
individually or collectively have a Material Adverse Effect.
5.6 All authorizations, consents, approvals, licenses, and exemptions of,
and filings or registrations with, any Governmental Authority, that are required
for the valid execution and delivery by Denbury of, or the performance by
Denbury of its obligations under, this Agreement or the other Master Documents
have been obtained or performed or the period for objection thereto expired,
other than those which, if not obtained or performed, would not individually or
collectively have a Material Adverse Effect.
5.7 To Denbury's knowledge, the Reserve Report (i) was prepared in
accordance with customary engineering practices, and (ii) is based on historical
information that is accurate and complete in all material respects. The Subject
Interests constitute all of the properties and interests reflected in the
Reserve Report that relate to the production of CO(2). Set forth on Exhibit B is
a true and correct statement of Denbury's working interest and net revenue
interest in and to each well noted on Exhibit B except to the extent that such
interest is incorrect as the result of an act or omission that does not arise
by, through or under Denbury and except for discrepancies which would not be
considered material by a reasonable and prudent person engaged in the business
of the ownership, development and operation of oil and gas properties with
knowledge of all the facts and appreciation of their legal significance. The
interests reflected on Exhibit B are owned by Denbury free and clear of any lien
or encumbrance arising by, through or under Denbury, other than Permitted Liens.
5.8 All Taxes imposed or assessed with respect to or measured by or
charged against or attributable to the Subject Interests, the Personal Property,
the Denbury Pipeline and the Jackson Dome Plant have been duly paid, except for
Taxes not yet due and payable or pursuant to which Denbury is not delinquent.
5.9 There are no suits or proceedings pending or, to Denbury's knowledge,
threatened against Denbury, the Subject Interests, the Denbury Pipeline, the
Jackson Dome Plant or any of the Personal Property before any Governmental
Authority, that, if decided adversely to the interest of Denbury, would
reasonably be expected to have a Material Adverse Effect; provided, however,
that notwithstanding the foregoing, Schedule 5.9 includes a list of current
litigation affecting Denbury, the Subject Interests, the Denbury Pipeline, the
Jackson Dome Plant or the Personal Property.
5.10 Except with respect to those matters which would not individually or
collectively have a Material Adverse Effect, (i) the Leases are in full force
and effect, and (ii) Denbury has complied with the terms of all Governmental
Requirements applicable to Denbury or applicable directly to the Subject
Interests.
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5.11 All rents and royalties with respect to the Leases have been paid in
a timely manner (excluding any failures to pay which would not individually or
collectively have a Material Adverse Effect), and all liabilities of any kind or
nature incurred with respect to the Leases have been paid before delinquent
(excluding any liabilities or failures to pay which would not individually or
collectively have a Material Adverse Effect); Denbury has not received any
notice of default or claimed default with respect to the Subject Interests or
any part thereof that would reasonably be expected to result in a Material
Adverse Effect; and except for matters which would not individually or
collectively have a Material Adverse Effect, all wells, facilities and equipment
which constitute part of the Personal Property and the Denbury Pipeline and the
Jackson Dome Plant are in good repair and working condition and have been
designed, installed and maintained in accordance with generally accepted
industry standards and all applicable Governmental Requirements.
5.12 Denbury has not violated any Governmental Requirement or failed to
obtain any license, permit, franchise or other governmental authorization
required for the ownership or operation of any of the Personal Property or the
Denbury Pipeline or the Jackson Dome Plant, except for violations which would
not individually or collectively have a Material Adverse Effect. Except for
matters which would not individually or collectively have a Material Adverse
Effect, the Personal Property, the Denbury Pipeline and the Jackson Dome Plant
have each been maintained, operated and developed in conformity with all
applicable Governmental Requirements of all Governmental Authorities having
jurisdiction and in conformity with the provisions of all leases, subleases or
other contracts comprising a part of the Subject Interests.
5.13 Since the December 31, 2002, there has not been any reduction in the
rate of production of CO(2) from any of the Subject Interests that would
reasonably be expected to have a Material Adverse Effect.
5.14 Except as set forth on Schedule 5.14 and except with respect to those
matters which would not individually or collectively reasonably be expected to
result in a Material Adverse Effect, to Denbury's knowledge: (i) Denbury has
obtained and maintained in effect all environmental and health and safety
permits, licenses, approvals, consents, certificates and other authorizations
required in connection with Denbury's ownership or operation of the Subject
Lands ("Environmental Permits"); (ii) Denbury's operations on the Subject Lands
are in compliance in all material respects with all applicable Environmental
Laws and with all terms and conditions of all applicable Environmental Permits,
and all prior instances of material non-compliance have been fully and finally
resolved to the satisfaction of all Governmental Authorities with jurisdiction
over such matters; (iii) Denbury's operations on the Subject Lands are not
subject to any third party environmental or health and safety claim, demand,
filing, investigation, administrative proceeding, action, suit or other legal
proceeding, whether direct, indirect, contingent, pending, threatened or
otherwise ("Environmental Claim"), or Environmental Liabilities (as defined
herein), arising from, based upon, associated with or related to Denbury's
operations on the Subject Lands; (iv) Denbury has not received any notice of any
Environmental Claim, Environmental Liabilities or any violation or
non-compliance with any Environmental Law or the terms or conditions of any
Environmental Permit, arising from, based upon, associated with or related to
Denbury's operations on the Subject Lands; (v) no pollutant, waste, contaminant,
or hazardous, extremely hazardous, or toxic material, substance, chemical or
waste identified, defined or regulated as such under any Environmental Law
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("Environmental Contaminants") is present on, or has been handled, managed,
stored, transported, processed, treated, disposed of, released, migrated or has
escaped on, in, from, or under the Subject Lands as a result of Denbury's
operations on the Subject Lands in a manner that has caused an Environmental
Claim, Environmental Liabilities or a violation of any applicable Environmental
Law; and (iv) the executive management of Denbury is not aware of any facts,
conditions or circumstances in connection with, related to or associated with
any of the Properties or the ownership or operation, that as of the date of this
Agreement could reasonably be expected to give rise to any material
Environmental Claim or Environmental Liabilities. As used in this Agreement, the
term "Environmental Liabilities" shall mean any and all liabilities arising
from, based upon, associated with or related to (i) any Environmental Claim,
(ii) any applicable Environmental Permit, (iii) any applicable Environmental Law
or (iv) the presence, handling, management, storage, transportation, processing,
treatment, disposal, release, threatened release, migration or escape of
Environmental Contaminants (including, without limitation, all costs arising
under any theory of recovery, in law or at equity), whether based on negligence,
strict liability, or otherwise, including, without limitation, remediation,
removal, response, restoration, abatement, investigative, monitoring, personal
injury, and property damage costs and all other related costs, expenses, losses,
damages, penalties, fines, liabilities and obligations (including interest paid
or accrued, attorneys' fees, and court costs).
5.15 Denbury has good title to each of the Industrial Sale Contracts, free
and clear of all liens, encumbrances or claims (other than (i) Permitted Liens
and (ii) the right of first refusal set out in the Airgas Contract), and each
Industrial Sale Contract is, in full force and effect and enforceable against
Denbury and, to Denbury's knowledge, the counterparty thereto. The Industrial
Sale Contracts have been conveyed to Genesis free and clear of the Bank One
Liens.
5.16 Except as set forth on Schedule 5.9 or Exhibit A to the Contracts
Assignment, (a) there are no have been no amendments or modifications to the
Industrial Sale Contracts; and (b) there are no breaches or defaults under any
Industrial Sale Contract by Denbury or any counterparty to any Industrial Sale
Contract which would reasonably be expected to prevent the practical realization
by Genesis of the benefits intended to be provided to Genesis under such
Industrial Sale Contract.
5.17 Upon due execution and delivery by Denbury of the Assignment, under
Mississippi law, (i) the Assignment will constitute the legal, valid, and
binding conveyance of the Production Payment and will constitute a burden upon
all of the CO(2) production from the Subject Interests, and (ii) the Production
Payment will constitute real property.
5.18 Except with respect to the Industrial Sale Contracts and/or as set
forth in Schedule 5.18, (i) neither the Subject Interests, the CO(2)
attributable thereto nor the Denbury Pipeline are subject, committed or
dedicated to any contract, agreement or arrangement regarding the transportation
or sale of CO(2) production; (ii) no third party has any call, right of first
refusal or preferential right to purchase or transport any such CO(2) that has
not been waived or the time for giving such consents or waivers has expired in
accordance with the terms of such call or rights; and (iii) no third party has
any purchase option with respect to any such CO(2) or the Denbury Pipeline.
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VI.
REPRESENTATIONS AND WARRANTIES OF GENESIS
Genesis hereby represents and warrants to Denbury as follows:
6.1 Genesis is a limited partnership duly formed and validly existing
under the laws of the State of Delaware. Genesis possesses the legal right,
power and authority, and qualifications to conduct its business and own its
properties, except where the failure to so possess would not, individually or
collectively, have a Material Adverse Effect. Genesis has the legal right, power
and authority to execute and deliver this Agreement, the Assignment and the
other Master Documents and to perform all of its obligations hereunder and
thereunder, including unanimous approval of the transactions by the audit
committee of Genesis Energy, Inc., the general partner of Genesis, such audit
committee consisting solely of independent directors (the "Audit Committee").
6.2 The execution, delivery and performance by Genesis of this Agreement
and the other Master Documents are within its powers and authority, have been
duly authorized by all necessary board of director action on the part of Genesis
Energy, Inc., (in its capacity as general partner of Genesis) and by the Audit
Committee and do not and will not (i) violate any Governmental Requirement
currently in effect having applicability to Genesis, other than violations which
would not, individually or collectively, cause a Material Adverse Effect, or
(ii) violate Genesis' limited partnership agreement or other governing
documents, or (iii) result in a breach of or constitute a default (excluding
breaches or defaults which, individually or collectively, would not have a
Material Adverse Effect) under any indenture, bank loan, or credit agreement or
farm-out agreement, program agreement or operating agreement, or any other
agreement or instrument to which Genesis is a party or by which Genesis or its
properties may be currently bound or affected.
6.3 Genesis is not in default under any Governmental Requirement,
indenture, agreement, or instrument that would reasonably be expected to cause a
Material Adverse Effect nor does any fact or condition exist at this time that
would reasonably be expected to cause a Material Adverse Effect now or in the
future under any Governmental Requirement, indenture, agreement or instrument;
and all consents or approvals under such indentures, agreements, and instruments
necessary to permit the valid execution, delivery, and performance by Genesis of
the Master Documents have been obtained.
6.4 This Agreement and the other Master Documents have been duly executed
and delivered by Genesis, and this Agreement and the Master Documents constitute
the legal, valid, and binding acts and obligations of Genesis enforceable
against Genesis in accordance with their terms, subject, however, to bankruptcy,
insolvency, reorganization, and other laws affecting creditors' rights generally
and general principles of equity. There are no bankruptcy, insolvency,
reorganization, receivership or arrangement proceedings pending, being
contemplated by or, to the knowledge of Genesis, threatened against Genesis.
6.5 All authorizations, consents, approvals, licenses, and exemptions of,
and filings or registrations with, any Governmental Authority, that are required
for the valid execution and delivery by Genesis of, or the performance by
Genesis of its obligations under, this Agreement
12
or the other Master Documents have been obtained or performed or the period for
objection thereto expired, other than those which, if not obtained or performed,
would not individually or collectively have a Material Adverse Effect; and no
consent or vote of the limited partners of Genesis is required for the
execution, delivery or performance by Genesis of this Agreement and the other
Master Documents under Genesis' limited partnership agreement or other documents
to which Genesis is a party.
6.6 There are no suits or proceedings pending or, to Genesis' knowledge,
threatened against Genesis before any Governmental Authority, that if decided
adversely to the interest of Genesis would reasonably be expected to have a
Material Adverse Effect.
6.7 The Production Payment to be acquired by Genesis pursuant to this
Agreement is being acquired for Genesis' own account and for investment and not
for distribution in violation of applicable securities laws.
VII.
PAYMENT TO DENBURY
7.1 As consideration for the sale of the Production Payment to Genesis and
the assignment of the Assigned Contract Interests to Genesis by Denbury, Genesis
shall pay to Denbury at Closing, $24,925,000 in cash.
VIII.
DISCLAIMER OF WARRANTIES
8.1 Denbury has allowed Genesis the opportunity to review the title to the
Subject Interests, to satisfy itself as to all matters pertaining to the
transactions contemplated by this Agreement, including but not limited to the
sufficiency of CO(2) reserves attributable to the Subject Interests to satisfy
the CO(2) delivery requirements under the Assigned Contract Interests, and to
conduct other due diligence with respect to the Production Payment, the Subjects
Interests, the Subject Lands, the Denbury Pipeline, the Jackson Dome Plant and
the Industrial Sale Contracts as Genesis deems necessary to consummate the
transactions contemplated by this Agreement.
8.2 OTHER THAN THE EXPRESS REPRESENTATIONS AND WARRANTIES PROVIDED BY
DENBURY HEREIN AND IN THE OTHER MASTER DOCUMENTS, DENBURY MAKES NO WARRANTIES AS
TO (i) THE PRESENCE, QUALITY AND QUANTITY OF CO(2) RESERVES ATTRIBUTABLE TO THE
SUBJECT INTERESTS, (ii) THE AMOUNT, VALUE, QUALITY, QUANTITY, VOLUME OR
DELIVERABILITY OF ANY CO(2) OR CO(2) RESERVES IN, UNDER OR ATTRIBUTABLE TO THE
SUBJECT LANDS, (iii) THE GEOLOGICAL OR ENGINEERING CONDITION OF THE SUBJECT
LANDS, (iv) THE ABILITY OF THE SUBJECT LANDS TO PRODUCE CO(2), INCLUDING WITHOUT
LIMITATION, PRODUCTION RATES, DECLINE RATES AND RECOMPLETION OPPORTUNITIES, (v)
ANY PROJECTIONS AS TO EVENTS THAT COULD OR COULD NOT OCCUR, (vi) THE ACCURACY,
COMPLETENESS, OR MATERIALITY OF ANY DATA, INFORMATION OR RECORDS FURNISHED TO
GENESIS IN CONNECTION WITH THE SUBJECT INTERESTS, SUBJECT LANDS, THE
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DENBURY PIPELINE AND JACKSON DOME PLANT, INCLUDING INFORMATION CONTAINED IN ANY
EXHIBIT OF THIS AGREEMENT, ANY SEISMIC DATA AND DENBURY'S INTERPRETATION OR
ANALYSIS OF SAME, OR (VII) ANY OTHER MATTERS CONTAINED IN OR OMITTED FROM ANY
INFORMATION OR MATERIAL FURNISHED TO GENESIS BY DENBURY. ANY DATA, INFORMATION
OR OTHER RECORDS FURNISHED BY DENBURY ARE PROVIDED TO GENESIS AS A CONVENIENCE
AND GENESIS' RELIANCE ON OR USE OF THE SAME IS AT GENESIS' SOLE RISK.
IX.
INDEMNITY
9.1 Denbury hereby indemnifies Genesis and its successors and assigns and
affiliates (each a "Genesis Indemnified Party") against, and agrees to defend
and hold each Genesis Indemnified Party harmless from and against, any and all
obligations, liabilities, claims, demands, suits, debts, accounts, liens or
encumbrances, and all costs and expenses, including reasonable attorneys' fees
relating thereto (collectively, "Claims"), that any Genesis Indemnified Party
may suffer or incur and that result from (a) the ownership or operation of the
Subject Interests, (b) the ownership of the Industrial Sale Contracts prior to
the Effective Date, (c) any inaccuracy of any representation or warranty of
Denbury contained in this Agreement or in any other Master Document, (d) any
breach of any covenant or agreement of Denbury contained in this Agreement or in
any other Master Document, including but not limited to the covenants relating
to the Retained Obligations; provided, however, that such indemnification shall
not be construed to cover or include any of the matters identified in Section
8.2 (including but not limited to disclaimers of warranties relating to CO(2)
reserves or production) or any Claims to the extent, but only to the extent,
such Claims are determined to be not payable because they fall within the scope
of the force majeure provisions contained in the Master Documents or the
Industrial Sale Contracts.
9.2 Genesis hereby indemnifies Denbury and its successors and assigns and
Affiliates (each a "Denbury Indemnified Party") against, and agrees to defend
and hold each Denbury Indemnified Party harmless from and against, any and all
Claims that each Denbury Indemnified Party may suffer or incur and that result
from (a) except to the extent of any Claims arising solely as a result of
Denbury's execution of the Assignment, the ownership or operation of the
Production Payment, (b) except to the extent of any Claims arising as a result
of Denbury's failure to comply with the Retained Obligations, the ownership of
the Industrial Sale Contracts after the Effective Date, (c) any inaccuracy of
any representation or warranty of Genesis contained in this Agreement or any
other Master Document, or (d) any breach of any covenant or agreement of Genesis
contained in this Agreement or any other Master Document; provided, however,
that such indemnification shall not be construed to cover or include any Claims
to the extent, but only to the extent, such Claims are determined to be not
payable because they fall within the scope of the force majeure provisions
contained in the Master Documents or the Industrial Sale Contracts.
9.3 No person entitled to indemnification hereunder or otherwise to
damages in connection with or with respect to the transactions contemplated in
the Agreement and the other Master Documents shall settle, compromise or take
any other action with respect to any Claim
14
that could prejudice or otherwise adversely impact the ability of the person
providing such indemnification or potentially liable for such damages to defend
or otherwise settle or compromise with respect to such Claim.
9.4 Each Party entitled to indemnification hereunder or otherwise to
damages in connection with the transactions contemplated in Agreement or the
other Master Documents shall take all reasonable steps to mitigate all losses,
costs, expenses and damages after becoming aware of any event or circumstance
that could reasonably be expected to give rise to any losses, costs, expenses
and damages that are indemnifiable or recoverable hereunder or in connection
herewith.
9.5 The indemnification provisions provided for in this Agreement shall be
applicable whether or not the losses, costs, expenses and damages in question
arose solely or in part from the gross, active, passive or concurrent
negligence, strict liability or other fault of Genesis or Denbury, as
applicable. The parties acknowledge that this statement complies with the
express negligence rule and is conspicuous.
X.
CLOSING
10.1 Unless the Parties otherwise agree in writing, the closing of the
transactions contemplated by this Agreement (the "Closing") will occur on the
date this Agreement is executed as first set forth above (the "Closing Date")
10.2 At Closing, the following events shall occur, each being a condition
precedent to the others and each being deemed to have occurred simultaneously
with the others:
(a) Genesis shall deliver to Denbury the cash consideration
described in Section 7.1 by wire transferring immediately available funds
to the account of Denbury pursuant to wiring instructions furnished by
Denbury to Genesis prior to the Closing Date;
(b) The Parties shall execute, acknowledge and deliver the
Assignment and the Contracts Assignment;
(c) The Parties shall execute and deliver the T&P Agreement;
(d) Denbury shall obtain and deliver to Genesis multiple executed
originals of the Agreement with Lenders executed by the holders of the
Bank One Liens, in form and substance substantially similar to the
Agreement with Lenders attached hereto as Exhibit F;
(e) Denbury shall obtain and deliver to Genesis multiple executed
originals of an acceptable release of liens with respect to the Bank One
Liens encumbering the Subject Interests conveyed to Genesis pursuant to
the Assignment; and
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(f) The Parties shall execute and deliver any other documents or
instruments necessary or appropriate to effect or support the transactions
contemplated in this Agreement.
10.3 Promptly following the Closing, Genesis will cause counterparts of
the Assignment, a mutually agreeable Memorandum of T&P Agreement, Agreement with
Lenders and financing statements to be filed for record in all appropriate
records in appropriate filing locations. Genesis will pay for all documentary,
filing and recording fees required in connection with the filing and recording
of the Master Documents.
XI.
COVENANTS AND AGREEMENTS OF DENBURY
During the Term, and unless Genesis otherwise agrees in writing, Denbury
covenants as follows, and agrees and undertakes, to perform each and all of the
following covenants at Denbury's sole and entire cost and expense:
11.1 Denbury will (without regard to the burden of the Production Payment)
conduct and carry on the development, maintenance and operation of the Subject
Interests with reasonable and prudent business judgment and in accordance with
good oil and gas field practices and all applicable Governmental Requirements,
and will drill such wells as a reasonably prudent operator would drill from time
to time in order to develop the Subject Interests and to protect them from
drainage. Nothing contained in this Section, however, shall be deemed to prevent
or restrict Denbury from electing not to participate in any operation that is to
be conducted under the terms of any operating agreement, unit operating
agreement, contract for development or similar instrument affecting or
pertaining to the Subject Interests (or any portion thereof) and allowing
consenting parties to conduct nonconsent operations thereon, if such election is
made by Denbury in good faith and in conformity with sound field practices.
After the date of this Agreement, Denbury shall not enter into any
transaction(s) or agree to any arrangements which, after taking into account
then current required third party sales (including sales under the Industrial
Sale Contracts) and Denbury's and its affiliates' usage, would result or be
reasonably anticipated to result in an inability of Denbury to deliver the
Scheduled Delivery Volumes to Genesis.
11.2 Denbury shall not voluntarily abandon any well heretofore or
hereafter completed for production of CO(2) on any of the Subject Lands or
surrender, abandon or release any Subject Interest or any part thereof; provided
however, that nothing in this Agreement shall obligate Denbury to continue to
operate any well or to operate or maintain in force or attempt to maintain in
force any Lease when, in Denbury's reasonable opinion, exercised in good faith
and as would a prudent operator not burdened by the Production Payment, such
well or Lease ceases to produce or is not capable of producing in paying
quantities (without regard to the burden of the Production Payment) and it would
not be economically practical, in Denbury's reasonable judgment (determined
without regard to the burden of the Production Payment), to restore the
productivity of such well by reworking, reconditioning, deepening, or plugging
back such well. The expiration of a Lease in accordance with its terms and
conditions shall not be considered to be a voluntary surrender or abandonment of
such lease.
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11.3 With respect to all oil, gas and mineral leases included in the
Subject Interests, Denbury will in all material respects comply with, or cause
to be complied with, all pertinent Governmental Requirements that from time to
time are promulgated to regulate the production and sale or production or sale
of CO(2).
11.4 Certain of the Subject Interests may have been heretofore pooled and
unitized for the production of CO(2). Such Subject Interests are and shall be
subject to the terms and provisions of such pooling and unitization agreements,
and the Production Payment shall apply to and affect only that portion of the
production from such units that accrues to such Subject Interests as burdened,
encumbered or otherwise affected by any and all applicable pooling and
unitization agreements. Denbury shall have the right and power to pool and
unitize any of the Subject Interests and to alter, change or amend or terminate
any pooling or unitization agreements heretofore or hereafter entered into, as
to all or any part of the Subject Lands, upon such terms and provisions as
Denbury shall in its sole discretion determine. If and whenever through the
exercise of such right and power, or pursuant to any Governmental Requirement
hereafter enacted, any of the Subject Interests are pooled or unitized in any
manner, the Production Payment, insofar as it affects such pooled or unitized
Subject Interests shall also be pooled and unitized, and in any such event such
Production Payment shall apply to and affect only the production that accrues to
such Subject Interests, as burdened, encumbered or otherwise affected by such
pooling and unitization.
11.5 Denbury shall pay, or cause to be paid, before delinquent, all Taxes,
except Taxes being contested in good faith. In the event that after the
expiration of the Term, additional Taxes should be charged against Genesis which
are attributable to Production Payment Gas produced during the Term and
delivered to Genesis at the Receipt Point(s), Denbury shall be obligated to pay
such Taxes.
11.6 Subject to the provisions of Section 2.4 hereof and Section 2.8 of
the T&P Agreement, Denbury will at all times maintain, preserve and keep all
Personal Property, the in good repair, working order and condition in all
material respects, and promptly make all necessary and proper repairs, renewals,
replacements and substitutions, to the end that the value of such Personal
Property, shall in all material respects be fully preserved and kept in such
condition as at all times to permit the most efficient and economical use and
operation thereof.
11.7 Denbury will (i) use all commercially reasonable efforts to promptly
pay, or cause to be paid, as and when due and payable all material rentals and
royalties payable in respect of the Subject Interests or the production
therefrom, and all material costs, expenses and liabilities for labor and
material to the extent that the same are attributable to the Subject Interests,
the Personal Property, the Denbury Pipeline or the Jackson Dome Plant, (ii)
never permit any lien (other than Permitted Liens) to be affixed or burden the
Subject Interests or Personal Property, even though inferior to the Production
Payment, for any such bills which may be legally due and payable (other than
Permitted Liens or liens which, individually or collectively, could not have a
Material Adverse Effect), and (iii) never permit to be created or to exist in
respect to any of the Subject Interests or the Personal Property, any other or
additional lien on a parity with or superior to the Production Payment, except
for Permitted Liens or other than liens which, individually or collectively,
could not have a Material Adverse Effect.
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11.8 Denbury shall not resign as operator of any Subject Interest operated
by Denbury until and unless the successor operator has been approved in writing
by Genesis, such approval not to be unreasonably withheld or delayed.
11.9 Denbury agrees to furnish Genesis, upon request, with copies of all
electrical logs, core analyses, and completion reports relating to any well now
or hereafter drilled upon the Subject Lands. Denbury agrees to furnish Genesis,
upon request, with full information regarding the condition of the wells and the
lease operations relating to the Subject Interests. The reasonable cost of
copying any data and information described in this Section shall be paid by
Genesis. Furthermore, Denbury's disclosure of the data and information described
in this Section is subject to and may be limited by any confidentiality
obligations or other restrictions to which Denbury may be subject.
11.10 In the event that any Lease or other interest that constitutes a
part of the Subject Interests should expire or terminate for any reason (a "Lost
Interest"), and within one (1) year from date of such expiration or termination
of such Lost Interest, Denbury should reacquire such Lost Interest, then such
Lost Interest shall be charged and burdened with the Production Payment to the
same extent that the Lost Interest was charged and burdened with the Production
Payment, and Denbury agrees to execute such documents and agreements as may be
necessary or appropriate to effect the intent and purpose of this section.
11.11 Airgas Obligations.
(a) Section 4.2 of the Airgas Contract provides that Airgas at no time
will pay a price for CO(2) delivered under the terms of the Airgas
Contract that is greater than the lowest price paid by any other
customer of the Seller (as defined therein) or its affiliates
receiving CO(2) from the Source Field (as such terms are defined in
the Airgas Contract). Section 4.2 of the Airgas Contract is
hereafter referred to as the "Favored Nations Clause." If at any
time during the Term Denbury triggers the Favored Nations Clause,
then Denbury agrees to (i) immediately notify Genesis of such sales
and (ii) reimburse Genesis for the incremental reduction of proceeds
received by Genesis under the Airgas Contract resulting from the
payment of a reduced price by Airgas. If at any time and from time
to time Airgas notifies Genesis that it is entitled to a lower price
pursuant to the Favored Nations Clause (a "Reduced Price Notice"),
Genesis will immediately furnish the Reduced Price Notice to
Denbury. Genesis agrees not to take any action with respect to the
Reduced Price Notice until Denbury has had an opportunity to review
the matter described in the Reduced Price Notice and, if it deems
appropriate, to contest such matter.
(b) Section 11.4 of the Airgas Contract (the "RFR Provision") provides
that Airgas shall have the right to exercise its rights under the
Right of First Refusal and Option to Purchase Agreement (as defined
therein) upon the occurrence of certain events. Each Party agrees to
notify the other Party if it receives the notice provided in the RFR
Provision or if it becomes aware that Airgas has failed to receive
75% of its daily requirements of CO(2) on more than 45 days in any
rolling 12-month period (an "RFR Delivery Failure"). If Genesis is
the cause of the RFR
18
Delivery Failure (for reasons other than force majeure (as defined
in the Airgas Contract)), then for so long as Genesis allows such
RFR Delivery Failure to continue, Denbury shall have the right to
make direct deliveries to Airgas in satisfaction of the delivery
requirements in the Airgas Contract and all volumes delivered by
Denbury pursuant to this sentence shall reduce the Scheduled
Delivery Volumes otherwise deliverable pursuant to the Production
Payment and, furthermore, for purposes of the Term, the total
aggregate volumes included in the Term shall be reduced by an amount
equal to 200% of the volumes so delivered pursuant to this sentence.
If Denbury is the cause of the RFR Delivery Failure (for reasons
other than (i) force majeure (as defined in the Airgas Contract) or
(ii) a lack of reserves or insufficient deliverability of reserves
(provided such lack of reserves or insufficient deliverability of
reserves is not the result of a failure of Denbury to comply with
covenants set out in Article XI)), and Airgas exercises its purchase
rights in accordance with the RFR Provision, then, in addition to
any other remedies that may be available, the Parties shall use good
faith efforts to reach an agreement with respect to the allocation
of proceeds paid by Airgas and their application to the Production
Payment after it exercises its rights under the RFR Provision, and
if the Parties are unable to reach such agreement, then such matter
shall be resolved in accordance with the arbitration provisions
contained in Article XIV.
(c) Notwithstanding anything herein to the contrary, without the prior
written consent of the other Party hereto, no Party shall amend or
otherwise modify any terms or provisions of the Right of First
Refusal and Option to Purchase Agreement.
11.12 Denbury acknowledges that, pursuant to this Agreement and the
Contracts Assignment, Genesis is acquiring all of Denbury's rights, interest and
obligations in the Industrial Sale Contracts. Notwithstanding such acquisition,
there are certain covenants and obligations under the Industrial Sale Contracts
that must be satisfied by the owner or operator of the Subject Interests.
Accordingly, Denbury covenants that, until the termination of each such
Industrial Sale Contract and subject to the applicable force majeure provisions
in the applicable Industrial Sale Contracts, it will fully and timely perform
each and every covenant and agreement in each Industrial Sale Contract which
must be performed by the Seller (as defined in each Industrial Sale Contract)
and which relates to the ownership and operations of each Source Field, the
production of carbon dioxide from each Source Field, and/or the measurement,
metering, testing and other transportation services related thereto, including
but not limited to the obligations and covenants in (a) Sections 2.5, 3.3, 5.3,
6.1, 6.2, 6.3, 6.4, 6.5, 6.6, 6.7, 7.1, 7.2, 7.3, 7.4, 8.1, 8.2 and 9.2 of the
Airgas Contract; (b) Sections 2.5, 5.3, 6.1, 6.2, 6.3, 6.4, 6.5, 6.6, 6.7, 7.1,
7.2, 7.3, 7.4, 8.1 and 8.2 of the BOC-Brandon Contract; and (c) Sections 2.5,
5.3, 6.1, 6.2, 6.3, 6.4, 6.5, 6.6, 6.7, 7.1, 7.2, 7.3, 7.4, 8.1 and 8.2 of the
Praxair Contract. The covenants and agreements of Denbury described in this
section are collectively referred to herein as the "Retained Obligations".
11.13 Denbury shall not sell CO(2) to any Buyer (as such term is defined
in each of the Industrial Sale Contracts), unless each Buyer has purchased from
Genesis, pursuant to each of the Industrial Sale Contracts, the total Daily
Contract Quantity and Additional Volumes (as such terms are defined in each of
the Industrial Sale Contracts) under each Industrial Sale Contract;
19
provided, however, that notwithstanding the foregoing, Denbury shall be
permitted to sell CO(2) to any such Buyers pursuant to and in accordance with
the terms of the following contracts (and any amendments, replacements or
renewals thereof that perpetuate only the rights and obligations currently
existing under such contracts): (i) Contract for Sale of Carbon Dioxide Gas
dated November ___, 1995 (presumed to be effective February 1, 1996), by and
between Pennzoil Exploration and Production Company, as Seller, and Pisgah
Partners, L.P., as Buyer; (ii) Contract for Sale of Carbon Dioxide Gas dated
December 18, 2000, by and between Magna Carta Group LLC, as Seller, and Messer
Greisheim Industries, Inc., as Buyer; and (iii) Carbon Dioxide Sale and Purchase
Contract dated and effective February 1, 1996, by and between Shell Western E&P
Inc., as Seller, and Liquid Carbonic Industries Corporation, as Buyer, as
amended by Amendment No. 1 dated as of December 1, 1996, between Seller and
Buyer.
11.14 For so long as the Industrial Sale Contracts are in force and
effect, the Production Payment Gas delivered by Denbury to Genesis shall meet
the minimum quality specification set forth in the Industrial Sale Contracts.
XII.
EXCHANGE OF INFORMATION; AUDIT RIGHTS
12.1 After Closing, (a) Denbury will keep Genesis advised of Denbury's
activities in the fields encompassing the Subject Lands insofar as such
activities relate to the terms and provisions of this Agreement, (b) each Party
shall promptly give, or cause to be given to the other Party, written notice of
any event or circumstance, including, but not limited to every adverse claim or
demand made by any Person or any Governmental Authority, that could reasonably
be expected to have a Material Adverse Effect, (c) each Party shall give or
cause to be given to the other Party written notice of every default under any
Industrial Sale Contract and every adverse claim or demand made by any Person or
any Governmental Authority related to any Industrial Sale Contract, promptly
upon obtaining knowledge of such default, claim or demand and shall include in
such notice a description in reasonable detail of the default, claim or demand
and if such Party obtained knowledge of such default, claim or demand as a
result of the receipt of a written notice, a copy of such written notice, and
(d) each Party shall also provide information to the other Party as needed to
confirm compliance with each Party's obligations under this Agreement and the
other Master Documents, to keep the other Party updated as to matters relating
to this Agreement and the other Master Documents, from time to time, and in
response to reasonable inquiries by the other Party.
12.2 After Closing, each Party, by notice in writing to the other Party,
shall have the right to audit the other Party's accounts and records relating to
the Production Payment, the Industrial Sale Contracts, and compliance with this
Agreement and the other Master Documents. Audit rights pertaining to the T&P
Agreement are subject to the terms and provisions with respect to auditing as
set forth in the T&P Agreement. Audit rights otherwise pertaining to the
Production Payment, the Industrial Sale Contracts, or other compliance issues
under this Agreement and the other Master Documents are subject to the terms of
Section 12.3.
12.3 Audits shall not be conducted more than twice each year without prior
approval of the Party whose records are being audited (the "Audited Party"), and
shall be made at the expense of the Party conducting the audit. The Audited
Party shall reply in writing to an audit
20
report within thirty (30) days after receipt of such report. The Parties will
endeavor to agree upon and make any adjustments revealed to be necessary by any
audit reports submitted by the Audited Party pursuant to the provisions of this
Section. If the Parties cannot agree on any adjustment, the disputed adjustment
will not be made, and such disputed adjustment shall be resolved in accordance
with the dispute resolution provisions described in Section 14.1.
XIII.
NOTICES
13.1 All notices under this Agreement must be in writing. Any notice with
respect solely to the matters in the T&P Agreement shall be in accordance with
the provisions pertaining to notices set forth in the T&P Agreement. Any other
notice under this Agreement may be given by personal delivery, facsimile or
email transmission, U.S. mail (postage prepaid), or commercial delivery service,
and will be deemed duly given when received by the Party charged with such
notice and addressed as follows:
If to Denbury: Denbury Resources Inc.
5100 Tennyson Parkway, Suite 3000
Plano, TX 75024
Attn: Ray Dubuisson
Telephone: 972-673-2044
Fax: 972-672-2299
email: rayd@denbury.com
If to Genesis: Genesis Crude Oil, L.P.
500 Dallas, Suite 2500
Houston, TX 77002
Attn: Mark Gorman
Telephone: (713) 860-2500
Fax: (713) 860-2640
email: mgorman@genesiscrudeoil.com
13.2 Either Party, by written notice to the other, may change the address
or the individual to which or to whom notices are to be sent under this
Agreement.
XIV.
DISPUTE RESOLUTION
14.1 Except as may be otherwise specifically provided herein, all disputes
arising under or in connection with this Agreement shall be resolved in
accordance with the procedures described in Exhibit E attached hereto and
incorporated herein by reference for all purposes.
XV.
CURTAILMENTS AND INTERRUPTIONS
15.1 If Denbury is unable on any day, whether due to interrupted or
curtailed service at the Jackson Dome Plant, lack of deliverability from the
producing wells, or lack of capacity on
21
the Denbury Pipeline, or any other reason, to transport all volumes of CO(2)
tendered for transportation through the Denbury Pipeline (inclusive of all
volumes which Denbury may tender for transportation for its own account), and
excluding those instances of inability to transport due to force majeure (in
which cases the specific provisions as to force majeure in the Master Documents
or in the relevant Industrial Sale Contracts will control), Denbury may
interrupt or curtail service or receipt or delivery of CO(2), without liability
to or penalty payable to Genesis, in a manner (i) so that volumes attributable
to the Airgas Contract ("Airgas Volumes") are subject to curtailment only after
complete curtailment of volumes attributable to all other parties, and then
Airgas Volumes will be curtailed only as may be permitted under the Airgas
Contract; (ii) so that the Excess Volumes and the volumes attributable to each
of the BOC Contract and the Praxair Contract will be curtailed on a basis that
is pro-rata to the volumes attributable to each of those contracts set forth in
Schedule 5.18 and Denbury for its own account; provided that if the interruption
or curtailment of service is longer than 45 consecutive days, then any volumes
which Denbury tenders for transportation for its own account will not be
included in the proration under clause (ii) above unless and until 100% of the
Scheduled Delivery Volumes have been transported, determined in each case on a
daily basis. In all circumstances above requiring curtailment, all pro-rations
of volumes shall be proportionately based on the actual average volumes which
have been transported during the 30 days before the interruption or curtailment
of service occur.
XVI.
MISCELLANEOUS PROVISIONS
16.1 This Agreement and the other Master Documents constitute the entire
understanding between the Parties relating to the subject matter hereof, and
supersede all prior negotiations, discussions, agreements and understandings
between the Parties, whether written or oral, regarding the subject matter of
this Agreement.
16.2 This Agreement may be amended, modified, and supplemented only by
written instrument executed by both Parties and explicitly referred to as an
amendment to this Agreement.
16.3 The waiver by either Party of any breach of the provisions of this
Agreement shall not constitute a continuing waiver of other breaches of the same
or other provisions of this Agreement.
16.4 Neither Party shall be liable to the other for any special, indirect,
consequential or punitive damages of any nature, or for attorneys' fees.
16.5 The interests of the Parties in this Agreement, and the interests
acquired by virtue of this Agreement and the interests retained by Denbury in
the Subject Lands, may not be subsequently assigned, either in whole or in part,
unless (i) any such assignee expressly agrees in writing to assume and perform
all of the assignor's obligations under this Agreement and the other Master
Documents, and (ii) such assignment is made and accepted expressly subject and
subordinate to this Agreement and the other Master Documents. Further, any
subsequent assignment, either in whole or in part, to an entity that is not as
financially creditworthy at the time of the assignment as the assignor shall
require the consent of the other party hereto, which
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consent may not be unreasonably withheld or delayed. Subject to the compliance
with the terms of clauses (i) and (ii) above, either Party may encumber or
pledge its respective interests in connection with a financing without the
consent of the other Party. Any purported assignment, sale, conveyance or other
transfer in contravention of the foregoing terms shall be null and void. Subject
to the foregoing, this Agreement binds and inures to the benefit of the Parties
and their respective permitted successors and assigns, and nothing contained in
this Agreement, express or implied, is intended to confer upon any other person
or entity any benefits, rights, or remedies.
16.6 If any provision of this Agreement is found by a court of competent
jurisdiction to be invalid or unenforceable, that provision will be deemed
modified to the extent necessary to make it valid and enforceable, and if it
cannot be so modified, it shall be deemed deleted and the remainder of the
Agreement shall continue and remain in full force and effect.
16.7 This Agreement shall be governed by and construed according to the
laws of the State of Texas, excluding any conflicts-of-law rule or principle
that might apply the law of another jurisdiction. Venue for any arbitration,
lawsuit or other legal action in any way pertaining to this Agreement or any
other Master Document shall be in Dallas, Dallas County, Texas.
16.8 The Parties agree to do, execute, acknowledge and deliver all further
acts, conveyances and instruments as may be reasonably necessary or appropriate
to carry out the provisions of this Agreement.
16.9 The omission of certain provisions of this Agreement from the
Assignment does not constitute a conflict or inconsistency between this
Agreement and the Assignment, and will not effect a merger of the omitted
provisions. To the fullest extent permitted by law, all provisions of this
Agreement are hereby deemed incorporated into the Assignment by reference. The
headings and titles in this Agreement are for convenience only and shall have no
significance in interpreting or otherwise affect the meaning of this Agreement.
16.10 This Agreement may be executed in counterparts, each of which shall
constitute an original and all of which shall constitute one document.
16.11 This Agreement may be circulated and executed by facsimile
transmission, and in such event, the signatures of the Parties on facsimiles
shall be considered as original and self-proving for all purposes.
16.12 Genesis and Denbury agree to treat the Subject Interest as a
production payment under Section 636(a) of the Code. Both Genesis and Denbury
agree (i) to file all federal income tax and state income tax returns consistent
with this Section 16.12, and (ii) to use a comparable yield of 7.5% for purpose
of Treasury Regulation Section 1.1275-4(b).
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This Agreement is executed as of the date set out in the first paragraph
of this Agreement, but shall be effective as of the Effective Date.
DENBURY RESOURCES INC.
By: /s/ Phil Rykhoek
--------------------------------------
Phil Rykhoek
Senior Vice President and
Chief Financial Officer
GENESIS CRUDE OIL, L.P.
By: Genesis Energy, Inc.
Its General Partner
By: /s/ Mark J. Gorman
-----------------------------------
Name: Mark J. Gorman
Title: President
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