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EXHIBIT 10.1
DRAFT
October 12, 1999
FORM OF
NET OVERRIDING ROYALTY CONVEYANCE
APPALACHIAN NATURAL GAS TRUST
STATE OF )
----------- )
) KNOW ALL MEN BY THESE PRESENTS:
COUNTIES OF )
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THAT EASTERN STATES OIL & GAS, INC., a Delaware corporation
("Assignor"), for and in consideration of the sum of Ten Dollars ($10.00) and
other good and valuable consideration to Assignor paid by Bank One Texas, N.A.,
a bank organized under the laws of the United States, acting not in its
individual corporate capacity but solely as trustee under that certain Trust
Indenture establishing the Appalachian Natural Gas Trust dated as of September
1, 1999, ("Assignee"), the receipt and sufficiency of which are hereby
acknowledged, has bargained, sold, granted, conveyed, transferred, assigned, set
over and delivered, and by these presents does bargain, sell, grant convey,
transfer, assign, set over and deliver unto Assignee a net overriding royalty
interest (the "Royalty Interest") in and to the Subject Hydrocarbons in and
under, and if, as and when produced, saved and sold from, the Subject Lands
during the term of the Subject Interests equal to the Net Proceeds attributable
to the Subject Interests, as each of the above capitalized words is defined in
Article I hereof and all as more fully provided herein.
TO HAVE AND TO HOLD the Royalty Interest, together with all and
singular the rights and appurtenances thereto in anywise belonging, unto
Assignee, its successors and assigns, subject, however, to the terms and
provisions of this Conveyance; and Assignor does by these presents bind and
obligate itself its successors and assigns, to WARRANT and FOREVER defend all
and singular the Royalty Interest unto the said Assignee, its successors and
assigns, against every person whomsoever lawfully claiming or to claim the same
or any part thereof by, through or under Assignor, but not otherwise.
ARTICLE I
DEFINITIONS
As used herein, the following words, terms or phrases have the
following meanings:
"Accounting Procedure" means the Accounting Procedure attached hereto
as Exhibit C.
"Affiliate" means, as to the party specified, any Person controlling,
controlled by or under common control with such party, with the concept of
control in such context meaning the possession, directly or indirectly, of the
power to direct or cause the direction of the management and policies of
another, whether through the ownership of voting securities, by contract or
otherwise. The Trust shall not be deemed an Affiliate of Assignor.
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"Aggregate Gross Proceeds" means, for each Computation Period, an
amount equal to the sum of (a) 80% of Existing Well Gross Proceeds for such
Computation Period, plus (b) 10% of New Well Gross Proceeds for such Computation
Period.
"Aggregate Deductible Costs" means, for each Computation Period, an
amount equal to the sum of (a) 80% of Existing Well Deductible Costs for such
Computation Period, plus (b) 10% of New Well Deductible Costs for such
Computation Period, plus (c) Excess Aggregate Deductible Costs for the preceding
Computation Period (including any remaining Excess Aggregate Deductible Costs
carried forward from any preceding Computation Period), plus (d) interest on the
amount of Excess Aggregate Deductible Costs existing at the end of the preceding
Computation Period, calculated from the last day of the preceding Computation
Period to the last day of the Computation Period for which Aggregate Deductible
Costs are being determined, at the Prime Interest Rate in effect at the
beginning of such Computation Period.
"Assignor" means the Assignor named herein while Assignor owns all or
any part of or interest in the Subject Interests and any other Person or Persons
(excluding Assignee) who hereafter may acquire all or any part of or interest in
the Subject Interests.
"Assignee" means the Assignee named herein (and any successor Trustee
under the Trust Indenture) while it owns all or any part of or interest in the
Royalty Interest and any other Person or Persons who may acquire legal title to
all or any part of or interest in the Royalty Interest.
"Coal Bed Methane" means methane gas normally produced from coal beds
or any related, associated or adjacent rock materials, including gas produced
from previously mined areas.
"Computation Period" means (i) initially, the period commencing on the
Effective Date and ending on September 30, 1999, and (ii) each calendar quarter
thereafter.
"Conveyance" means this Net Overriding Royalty Conveyance.
"Designated Wells" means the oil and gas wells described on Exhibit A-1
attached hereto.
"Designated Excluded Wells" means the oil and gas wells described on
Exhibit B-1 attached hereto.
"Devonian Shale" means the organic-rich, gas-bearing predominately
shale and silt sequence of Upper Devonian age deposited strata in which its base
is coincident with the top of the stratigraphically older Onondaga Limestone of
the Devonian Erian series.
"Drilling Overhead Fee" shall mean the fee charged by Assignor in
accordance with Article IV of the Accounting Procedure.
"Effective Date" means 8:00 o'clock A.M., local time in effect at the
location of each Subject Interest, on September 1, 1999.
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"Excess Aggregate Deductible Costs" means, for each Computation Period,
an amount equal to the excess, if any, of Aggregate Deductible Costs for such
Computation Period over Aggregate Gross Proceeds for such Computation Period.
"Excluded Interests" means (a) the Designated Excluded Wells, together
with each kind and character of right, title and interest which Assignor owns in
or under the lands situated within a circle around such Designated Excluded Well
having a radius of 1,000 feet and the center of which is the wellbore of such
Designated Excluded Well, whether such right, title and interest of Assignor be
a mineral leasehold interest, royalty interest, overriding interest, fee mineral
interest, fee interest, surface interest or other type of interest or estate,
(b) each geological formation or horizon underlying the Subject Lands that
contains Coal Bed Methane, (c) any interest of Assignor that is not specifically
described in the Conveyance or that is expressly excluded from the definition of
Subject Interests and/or Subject Lands, and (d) the interests of third Persons
in any of the Subject Leases or Subject Lands arising under the farmout
agreements and other similar agreements described on Exhibit B-2 attached hereto
whether such interests have been previously earned and/or assigned or such
interests are earned by, and/or assigned to, such Person in the future.
"Excluded Wells" means (a) the Designated Excluded Wells, and (b) any
other oil and gas well to the extent (i) such well is completed in and producing
from the lands and depths that are part of the Excluded Interests or (ii) the
production therefrom is otherwise attributable to the Excluded Interests.
"Existing Well Deductible Costs" means, for each Computation Period, an
amount equal to that portion of Deductible Costs for such Computation Period
attributable to the Existing Wells, the Subject Hydrocarbons produced therefrom,
or the Subject Interests attributable thereto.
"Existing Well Gross Proceeds" means, for each Computation Period, an
amount equal to that portion of Gross Proceeds for such Computation Period
attributable to Subject Hydrocarbons produced from the Existing Wells.
"Existing Wells" means (a) the Designated Wells, to the extent such
Designated Wells are drilled and completed in a geological formation or horizon
at or above the base of the Devonian Shale, (b) the Designated Wells, to the
extent such Designated Wells are redrilled or deepened to, and/or recompleted
in, a geological formation or horizon at or above the base of the Devonian
Shale, and (c) any well in which Assignor owns an interest that is located on
the Subject Lands within 1,000 feet of the wellbore of a Designated Well and for
which initial drilling operations are commenced on or after the Effective Date,
to the extent such well is drilled and completed in a geological formation or
horizon at or above the base of the Devonian Shale; provided, however, that
"Existing Wells" shall not include any Excluded Well.
"Hydrocarbons" means oil, gas and all other minerals produced in
association with oil or gas (including, but not limited to, helium, sulphur,
nitrogen and carbon dioxide), but excluding all other minerals, whether similar
or dissimilar.
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"MMBtu" means one million British thermal units.
"Net Proceeds" means, for each Computation Period, the excess of
Aggregate Gross Proceeds for such Computation Period over Aggregate Deductible
Costs for such Computation Period.
"New Well Deductible Costs" means, for each Computation Period, an
amount equal to that portion of Deductible Costs for such Computation Period
attributable to the New Wells, the Subject Hydrocarbons produced therefrom or
the Subject Interests attributable thereto.
"New Well Gross Proceeds" means, for each Computation Period, an amount
equal to that portion of Gross Proceeds for such Computation Period attributable
to Subject Hydrocarbons produced from the New Wells.
"New Wells" means (a) all oil and gas wells in which Assignor owns an
interest that are located on the Subject Lands and for which initial drilling
operations are commenced on or after the Effective Date (except wells described
in clause (c) of the definition of Existing Wells) and (b) the Designated Wells
to the extent such wells are drilled or deepened to, or completed in, a
geological formation or horizon below the base of the Devonian Shale; provided,
that "New Wells" shall not include any Excluded Well.
"Non-Affiliate" means, as to the party specified, any Person who is not
an Affiliate of such party.
"NYMEX Price" means ________________________.
"Overhead Rate" shall mean the fee charged by Assignor in accordance
with Article IV of the Accounting Procedure.
"Person" means any individual, corporation, partnership, limited
partnership, limited liability company, trust, estate or other entity,
organization or association.
"Prime Interest Rate" means the variable rate of interest most recently
announced by [Bank One Texas, N.A.] (or its successor) as its "prime rate."
"Producing Well Fixed Fee" shall mean the fee charged by Assignor in
accordance with Article IV of the Accounting Procedures.
"Quarterly Payment Date" means, for each Computation Period, the close
of business on the 25th day of the third calendar month following the end of
such Computation Period which is not a Saturday, Sunday or other day on which
national banking institutions in the City of Fort Worth, Texas are closed as
authorized or required by law, then the Quarterly Payment Date shall be the next
business day following such closure.
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"Sale" and "Sold" mean all forms of dispositions of Subject
Hydrocarbons for value, including exchanges and other dispositions for value.
"Sales Contracts" means all contracts and agreements for the sale of
Subject Hydrocarbons.
"Subject Hydrocarbons" means all Hydrocarbons in and under, and which
may be produced, saved and Sold from, and which shall accrue and be attributable
to, the Subject Interests, other than Coal Bed Methane.
"Subject Interests" means, subject to the exclusions stated below, each
kind and character of right, title and interest which Assignor owns on the
Effective Date in or under the Subject Leases, and all the right, title and
interest which Assignor owns on the Effective Date in and to the Subject Lands,
whether such right, title or interest be under and by virtue of a lease, a
unitization or pooling agreement or order, an operating agreement, a farmout
agreement, a division order, a transfer order or any other type of agreement,
conveyance, assignment or instrument or under any other type of claim or title,
legal or equitable, recorded or unrecorded even though Assignor's interests be
incorrectly or incompletely described in, or a description thereof be omitted
from, Exhibit A, all as the same shall be enlarged by the discharge of any
payments out of production or by the removal of any charges or encumbrances to
which any of the same are subject and any and all renewals and extensions of any
of the same, but subject to all burdens to which Assignor's right, title or
interest is subject (while same remains so subject), limited, however, if
Assignor's interest in any Subject Interest should terminate at any time, to the
period to which Assignor's interest in such Subject Interest is limited. There
shall be excluded from the term "Subject Interests" (a) all Excluded Interests,
and (b) any interest hereafter acquired by Assignor in and to any of the Subject
Lands, except any interest acquired pursuant to existing agreements for no new
consideration and renewals or extensions of existing Subject Leases. For
purposes of this Conveyance "renewals or extensions" of any Subject Lease shall
be limited to renewals or extensions of an existing Subject Lease obtained by
the present owner thereof (or such owner's successors in interest) while such
Subject Lease is in force or within six months after such Subject Lease
terminates. Assignor shall be under no duty to seek renewals or extensions of
any Subject Lease.
"Subject Lands" means, subject to the exclusions below, the lands which
are described in and which are covered by the Subject Leases, provided that, (a)
there shall be excluded from the term "Subject Lands" all lands and depths that
are part of the Excluded Interests and (b) where the description in Exhibit A
excepts land or refers to an instrument insofar only as it covers certain land
or certain depths in certain land, no interest in such excepted land or depths
or in land other than to which such reference is limited shall be included in
the terms "Subject Lands" or "Subject Interests".
"Subject Leases" means each oil and gas lease, oil, gas and mineral
lease, oil and gas sublease, mineral deed, royalty deed, assignment, deed,
pooling agreement, unitization agreement or other document of title described on
Exhibit A attached hereto.
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"Tax Accrual" means, for each Computation Period, an amount that may be
set aside by Assignor as an accrual to be applied against Taxes other than those
that are deducted or excluded from Gross Proceeds, which accruals shall be
adjusted to the extent actual Taxes paid differ.
"Taxes" means the sum of all general property (ad valorem), production,
severance, sales, gathering and excise taxes and other taxes (whether state,
federal or otherwise), except income taxes, assessed or levied on or in
connection with the Subject Interests, the Royalty Interest or the production
therefrom or equipment on the Subject Lands, or against Assignor as owner of the
Subject Interests or Assignee as owner of the Royalty Interest.
"Trust" means the Appalachian Natural Gas Trust established by the
Trust Indenture.
"Trust Indenture" means the Trust Indenture by and between Eastern
States Oil & Gas, Inc. and Band One Texas, N.A. and Bank One Delaware, Inc.
dated as of September 1, 1999, establishing the Appalachian Natural Gas Trust, a
Delaware business trust.
ARTICLE II
DEDUCTIBLE COSTS; GROSS PROCEEDS
SECTION 2.01. Deductible Costs. As used herein the term "Deductible
Costs" means, for each Computation Period, to the extent not excluded for
purposes of calculating Gross Proceeds, whether capital or non-capital in
nature,
(a) the sum of the following (without duplication):
(i) all amounts paid by Assignor or any Affiliate of Assignor for any
of the following:
(A) royalty, overriding royalty or other presently existing
burdens against production or the proceeds of Sale of production
attributable to the Subject Interests; and
(B) delay rentals, shut-in gas well royalty or payments, and
minimum royalty payments; and
(C) payments to lessors or others in the area in connection with
the drilling or deferring of drilling of any well on any of the Subject
Lands or lands in the vicinity thereof (including dry and bottom hole
payments and payments made to others for refraining from drilling an
offset well) or in connection with any adjustment of any well and
leasehold equipment upon unitization of any of the Subject Interests;
and
(D) rent and other consideration paid for use of or damage to the
surface;
(ii) the Tax Accrual and other taxes or fees, to any governmental
authority paid by Assignor in connection with the recording or filing of the
Conveyance; and
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(iii) with respect to any Subject Interests (whether Assignor or any
Affiliate of Assignor is the operator of such Subject Interest and whether such
Subject Interest is subject to a joint operating agreement) the Drilling
Overhead Fee, the applicable Producing Well Fixed Fee, and Overhead Rate, all as
subject to adjustment as set forth in the Accounting Procedure and proportionate
reduction as set forth in Section 2.03 hereof; and
(iv) the direct charges set forth in Article II of the Accounting
Procedure, the gathering and compression fees and charges set forth in Article
III of the Accounting Procedure; and
(v) all other costs, expenses and liabilities paid or incurred by
Assignor or any Affiliate of Assignor for investigating, exploring, prospecting,
drilling and mining for, operating and producing Subject Hydrocarbons and the
Sale and marketing thereof including, without limitation, the following:
(A) costs and expenses for acquisition, processing and
interpretation of geological, geophysical and engineering data; and
(B) costs for drilling, equipping, plugging back, reworking,
completing, recompleting and plugging and abandoning any well on the
Subject Lands and making the Subject Hydrocarbons ready or available
for market; and
(C) costs for construction and operation of gathering lines,
tanks, transmission lines, meters and other production and delivery
facilities; and
(D) costs, whether paid in cash or by a share of Subject
Hydrocarbons, of transporting, gathering, compressing, dehydrating,
processing, separating, treating, storing and marketing the Subject
Hydrocarbons and disposing of extraneous substances produced in
association with Subject Hydrocarbons; and
(E) costs for secondary recovery, pressure maintenance,
repressuring, cycling and other operations conducted for the purpose of
enhancing production; and
(F) costs or expenses (whether paid in cash or by delivery of gas)
incurred in resolving overproduced gas imbalances attributable to the
Subject Interests as of the Effective Date and thereafter; and
(G) costs for litigation concerning title to or operation of the
Subject Interests and any other acts or omissions of Assignor
consistent herewith or brought by Assignor to protect the Subject
Interests; and
(H) costs for litigation or regulatory proceedings concerning
title to or operation of the Subject Interests and any other acts or
omissions of Assignor consistent herewith or brought by Assignor to
protect the Subject Interests or to protect or enforce any rights,
contractual or otherwise, of Assignor to produce or market Subject
Hydrocarbons therefrom;
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(vi) any amounts paid by Assignor or any Affiliate of Assignor whether
as refund, interest or penalty, to a purchaser or any governmental agency or
other Person because the amount initially received by Assignor (or Affiliate of
Assignor) as sales price for Sales after the Effective Date was more or
allegedly more than permitted by the term of any applicable contact, statute,
regulation, order, decree or other obligation; provided such amount (in the case
of a refund), or the amounts with respect to which the interest or penalty was
paid, were previously included in Gross Proceeds;
(vii) any other amounts paid by Assignor or any Affiliate of Assignor
with respect to ownership or operation of the Subject Interests after the
Effective Date or Sales of production therefrom after the Effective Date,
whether as refund, fine, damages, interest or penalty pursuant to litigation or
settlement of threatened litigation by any third Person or governmental agency,
provided that Assignor has not breached Section 7.01 hereof;
(viii) all consideration hereafter paid and costs and expenses
hereafter incurred by Assignor or any Affiliate of Assignor for any renewals or
extensions of Leases or other rights acquired after the Effective Date which are
included in the definition herein of Subject Interests; and
(ix) any prepayment which Assignor or any Affiliate of Assignor may, at
its election, charge to Deductible Costs for services, materials, supplies,
equipment or other cost or expense related to the Subject Interests which are
reasonably expected to be incurred no later than 180 days following the
Computation Period in which such prepayment is included as a Deductible Cost,
and which prepayment is in lieu of charging the cost or expense when actually
incurred by Assignor (or Affiliate of Assignor); provided, however, that such
amounts shall be adjusted if and to the extent actual cost or expenses differ
from such prepayment and shall be credited against future Deductible Costs to
the extent the actual cost or expense for which such prepayment was made is not
actually incurred by Assignor (or Affiliate or Assignor) within 180 days
following the Computation Period in which such prepayment is included as a
Deductible Cost;
(x) any accrual or reserve which Assignor or any Affiliate of Assignor
shall have the right, at its election, to charge to Deductible Costs for
operations budgeted under an operating agreement or approved under an
authorization for expenditures ("AFE"), which accrual or reserve may be based on
the reasonably expected time of performing such operation or on an estimated
percentage of completion of the operation or on any other reasonable method, and
which accrual is in lieu of charging the cost of such operation when paid for by
Assignor (or Affiliate of Assignor) but which shall be adjusted if and to the
extent actual costs differ from such accrual or reserve;
(b) but excluding
(i) the overhead costs paid by Assignor under any joint operating
agreement applicable to any of the Subject Interests where Assignor or any
Affiliate of Assignor is not the operator of such Subject Interest; and
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(ii) costs which would otherwise be treated as Deductible Costs (but
which shall not be so treated for purposes hereof until the following amounts
have been fully credited against such costs) equal to amounts reimbursed or
credited to Assignor by insurance from damage to property, by sales of property
or transfers of property off the leases included in the Subject Interests or by
proceeds from unitization or other disposition of property; and
(iii) except for resolution of gas imbalances which are included in
subclause (a)(v)(F) of this Section 2.01, any amounts that otherwise would be
Deductible Costs but which are attributable to periods before the Effective
Date; and
(iv) any amount that otherwise would be treated as a Deductible Cost
but which is attributable to claims or causes of action against Assignor arising
out of operations or other activities on the Subject Lands or related to the
Subject Interests occurring prior to the Effective Date, including litigation
costs and settlement costs with respect to such claims or causes of action; and
(v) costs that otherwise would be treated as Deductible Costs but which
have already been excluded or deducted from Gross Proceeds; and
(vi) costs incurred by any Affiliate of Assignor for which such
Affiliate has received a fee, reimbursement or other payment from Assignor,
where such payment by Assignor constitutes a Deductible Cost.
SECTION 2.02. Allocation of Deductible Costs. To the extent operating
expenses or other Deductible Costs relate to operations for both an Existing
Well and a New Well, such Deductible Costs shall be allocated to Existing Well
Deductible Costs and New Well Deductible Costs in the proportion such operations
apply to the Existing Well and the New Well, as determined by Assignor in its
reasonable discretion.
SECTION 2.03 Proportionate Reduction of Certain Deductible Costs. If
Assignor owns less than 100% working interest in any Existing Well or New Well,
the Drilling Overhead Fee, the applicable Producing Well Fixed Fee and Overhead
Rate chargeable as Deductible Costs under Section 2.01(a)(iii) shall be
proportionately reduced with respect to such well. For example, if Assignor owns
a 50% working interest in such well, then only 50% of the Drilling Overhead Fee,
the applicable Producing Well Fixed Fee and Overhead Rate for such well shall be
included as Deductible Costs.
SECTION 2.04. Gross Proceeds. As used herein, the term "Gross Proceeds"
means, for each Computation Period, the proceeds received by Assignor from the
Sale of Subject Hydrocarbons produced and Sold during such Computation Period
(whether such proceeds are received during or after such Computation Period),
plus or minus any amount representing adjustments or corrections made in such
Computation Period to Gross Proceeds for any prior Computation Period to the
extent such adjustment or correction results from prior estimations or
inaccuracies in the calculation of Gross Proceeds, but in all instances subject
to the following:
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(a) There shall be excluded from Gross Proceeds all Taxes that are
deducted or excluded from proceeds of Sale received by Assignor.
(b) There shall be excluded from Gross Proceeds any amount for Subject
Hydrocarbons attributable to nonconsent operations conducted with respect to the
Subject Interests (or any portion thereof) as to which Assignor shall be a
nonconsenting party and which is dedicated to the recoupment or reimbursement of
costs and expenses of the consenting party or parties by the terms of the
relevant operating agreement, unit agreement, contract for development or other
instrument providing for such nonconsent operations. Assignor agrees that its
election not to participate in such operations shall be made in conformity with
the provisions of Section 7.01 of this Conveyance, but third persons shall not
be under any duty to determine that such election so conformed.
(c) There shall be excluded from Gross Proceeds any amount which
Assignor shall receive as any of the following:
(i) consideration for transfer or sale of any of the Subject
Interests (subject to the Royalty Interest) or equipment, gathering lines,
pipelines or other personal property or fixtures on the Subject Lands; and
(ii) payments for gas not taken, when such payments are made (but
to the extent such payments are allocated to gas taken in the future such
payments shall be included without interest in Gross Proceeds when such gas is
taken); and
(iii) damages arising from any cause other than drainage or
reservoir injury; and
(iv) rental for reservoir use; and
(v) payments made to Assignor in connection with the drilling of
any well on any of the Subject Lands or lands in the vicinity thereof (such
exclusion including dry and bottom hole payments, provided that if such well is
drilled on the Subject Lands and Assignor incurs Deductible Costs in connection
therewith such payments shall reduce Deductible Costs); and
(vi) payments made to Assignor in connection with any adjustment of
any well and leasehold equipment upon unitization of any of the Subject
Interests; and
(vii) payments made to Assignor in connection with the shutting-in
of any well on any of the Subject Lands; and
(viii) proceeds received from the Sale of Subject Hydrocarbons that
are produced prior to the Effective Date.
(d) There shall be excluded from Gross Proceeds any amount for Subject
Hydrocarbons lost in the production (including volumes vented into the
atmosphere as a result of operations), treating, gathering, compressing or
marketing thereof (including line loss) or used by Assignor in
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conformity with ordinary or prudent practices for drilling, production and plant
operations (including gas injection, secondary recovery, pressure maintenance,
repressuring, cycling operations, compressor or plant fuel or shrinkage)
conducted for the purpose of drilling for, producing or processing Subject
Hydrocarbons or for operations on any unit or plant to which the Subject
Interests are committed, but only so long as such Subject Hydrocarbons are so
used.
(e) Amounts received as a loan by Assignor from a purchaser of Subject
Hydrocarbons, whether with or without interest, shall not be considered to be
derived from the Sale of Subject Hydrocarbons or included as Gross Proceeds.
(f) Advance or prepaid payments for future production of Subject
Hydrocarbons received by Assignor shall be included in Gross Proceeds when
received to the extent not subject to repayment in the event of insufficient
subsequent product (and to the extent so subject to repayment shall be included
without interest in Gross Proceeds when the Subject Hydrocarbons on which such
payment was so advanced or prepaid are actually produced).
(g) Cash payments received by Assignor in respect of any lease or
farmout entered into by Assignor with respect to the Subject Interests as
contemplated under Section 7.04 hereof shall be included in Gross Proceeds when
such payment is received by Assignor.
(h) If a controversy or possible controversy exists (whether by reason
of any statute, order, decree, rule, regulation, contract or otherwise) between
Assignor and any purchaser as to the correct sales price of any Subject
Hydrocarbons or, for any other reason, as to Assignor's right to receive or
collect the proceeds of Sale of any Subject Hydrocarbons, then
(i) amounts withheld by the purchaser or deposited by it with an
escrow agent shall be excluded from Gross Proceeds until the Computation Period
in which such amounts are actually collected by Assignor, but the amounts then
so included in Gross Proceeds shall include any interest, penalty or other
amount paid to Assignor in respect thereof,
(ii) amounts received by Assignor and promptly deposited by it with
an escrow agent shall be excluded from Gross Proceeds, but all amounts
thereafter paid to Assignor by such escrow agent shall be included in Gross
Proceeds in the Computation Period in which such amounts are paid to Assignor;
and
(iii) amounts received by Assignor and not deposited with an escrow
agent shall be included in Gross Proceeds for the applicable Computation Period.
(i) Gross Proceeds for each month during the calendar year of 2000
shall be subject to adjustment in the manner provided for in Section 2.05.
SECTION 2.05. Adjustments to Gross Proceeds. If the NYMEX Price for
natural gas sales settled in any month during 2000 is less than $2.50 per MMBtu,
then the Gross Proceeds for such month shall be increased by an amount equal to
the product of (a) $2.50 minus such NYMEX Price for that month multiplied by (b)
that portion of the Subject Hydrocarbons produced and Sold during
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such month that is natural gas (such portion to be expressed and measured in
MMBtu's). If the NYMEX Price for natural gas sales settled in any month during
2000 is greater than $2.90 per MMBtu, then the Gross Proceeds for such month
shall be reduced by an amount equal to the product of (y) the NYMEX Price for
that month minus $2.90 multiplied by (z) that portion of the Subject
Hydrocarbons produced and Sold during such month that is natural gas (such
portion to be expressed and measured in MMBtu's). The foregoing adjustments to
Gross Proceeds shall be made only for Subject Hydrocarbons produced and Sold
during the calendar year of 2000.
ARTICLE III
MARKETING OF SUBJECT HYDROCARBONS
SECTION 3.01. Sales Contracts. Assignor, to the extent it has the right
to do so, shall market or cause to be marketed the Subject Hydrocarbons and
Assignee shall have no authority to market the Subject Hydrocarbons or to take
in-kind any Subject Hydrocarbons. For such purpose, Sales of Subject
Hydrocarbons may continue to be made pursuant to existing Sales Contracts.
Assignor may amend such existing Sales Contracts and may enter into one or more
Sales Contracts in the future at the prices and on the terms Assignor shall deem
proper in Assignor's sole and absolute discretion, which may include sales to
Affiliates of Assignor. Further, Assignor may commit any of the Subject
Interests (including the Royalty Interest attributable thereto) to one or more
agreements for processing pursuant to which, by way of example and not by way of
limitation, the plant owner or operator (which may be an Affiliate of Assignor)
receives a portion of the Subject Hydrocarbons or plant products derived
therefrom or proceeds of the Sale thereof as a fee for processing. Subject to
Section 2.05, Gross Proceeds of Subject Hydrocarbons shall be determined on the
basis of amounts actually received by Assignor (and not proceeds received by any
of Assignor's Affiliates) from Sales under Sales Contracts regardless of whether
at the time of production or Sale market value should be different from proceeds
of Sale. In no event shall Gross Proceeds or Deductible Costs include any
revenues, expenses, gains or losses resulting from option transactions, swaps,
collars, floors, caps or other futures or hedging transactions which, if engaged
in by Assignor or any of its Affiliates in respect of Subject Hydrocarbons,
shall be solely for the account of Assignor or such Affiliate.
SECTION 3.02. Delivery of Subject Hydrocarbons. All Subject
Hydrocarbons Sold by Assignor shall be delivered by Assignor to the purchasers
thereof into the pipelines to which the wells producing such Subject
Hydrocarbons may be connected or to such other point of purchase as is
reasonably required in the marketing of such Subject Hydrocarbons.
SECTION 3.03. Reliance by Third Party. As to any party, the acts of
Assignor with respect to the Sale of Subject Hydrocarbons shall be binding on
Assignee. It shall not be necessary for Assignee to join with Assignor in any
division or transfer order, or Sales Contract, and proceeds of Sale of the
Subject Hydrocarbons shall be paid by the purchasers thereof (or others
disbursing proceeds) directly to Assignor without necessity of joinder by or
consent of Assignee.
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ARTICLE IV
PAYMENTS
SECTION 4.01. Payments. On or before each Quarterly Payment Date,
beginning with the Quarterly Payment Date for the Computation Period ending
September 30, 1999, Assignor shall pay to Assignee in respect of the Royalty
Interest an amount equal to the Net Proceeds for the immediately preceding
Computation Period. Gross Proceeds shall not include any interest on proceeds
received by Assignor prior to the payment dates provided for in this Section
4.01.
SECTION 4.02. Interest on Past Due Payments. Except as otherwise
provided in Section 10.05 hereof, any amount not paid by Assignor to Assignee
when due shall bear, and Assignor will pay, interest determined at the end of
each month, from such due date until such amount is paid, at the rate of the
lesser of (a) the Prime Interest Rate and (b) the maximum lawful contract rate
of interest permitted by the applicable usury laws, now or hereafter enacted,
which interest rate (the "Maximum Rate") shall change when and as said laws
change, effective at the close of business on the day such change in said laws
becomes effective; but, if there shall be no Maximum Rate, then the rate shall
be specified in the foregoing clause (a).
SECTION 4.03. Overpayment. If at any time Assignor pays Assignee more
than the amount due, Assignee shall not be obligated to return any such
overpayment, but the amount or amounts otherwise payable to Assignee for any
subsequent period or periods shall be reduced by such overpayment plus an amount
equal to interest during the period of such overpayment at the rate of the
lesser of (a) the Prime Interest Rate and (b) the Maximum Rate; but if there
shall be no Maximum Rate, then the rate shall be as specified in the foregoing
clause (a).
ARTICLE V
RECORDS AND REPORTS
SECTION 5.01. Books and Records. Assignor shall at all times maintain
true and correct books and records sufficient to determine the amounts payable
to Assignee hereunder, including, but not limited to, a Net Proceeds account to
which Aggregate Gross Proceeds and Aggregate Deductible Costs are credited and
charged.
SECTION 5.02. Inspections. The books and records referred to in Section
5.01 shall be open for inspection by Assignee and its agents and representatives
at the office of Assignor during normal business hours and after reasonable
advance notice.
SECTION 5.03. Quarterly Statements. Within 90 days after the close of
each Computation Period, Assignor shall deliver to Assignee a statement showing
the computation of Net Proceeds attributable to such Computation Period.
SECTION 5.04. Annual Audits and Reports. Within 120 days after the end
of each calendar year, Assignor shall deliver to Assignee a statement which has
been audited by a
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nationally recognized firm of independent public accountants selected by
Assignor, which shall show the information provided for in Section 5.03 on an
annual basis. Assignee shall bear the cost of each such audit.
SECTION 5.05. Assignee's Exceptions to Quarterly Statements. If
Assignee objects to any items or matters included in the quarterly or audited
annual statements provided by Assignor, Assignee shall notify Assignor in
writing setting forth in such notice the specific items and matters to which
Assignee objects and, with respect to the objections that are justified,
adjustment shall be made. With respect to each audited annual statement
delivered by Assignor under Section 5.04, if Assignee shall fail to give
Assignor written notice of any objection to such audited annual statement (or
the quarterly statements provided by Assignor for such year) within 90 days
after such annual audited statement is delivered to Assignee, then all the
statements for such calendar year shall be deemed to be correct for all
purposes.
SECTION 5.06. Geological and Other Data. Upon request by Assignee,
Assignor shall, subject to the limitations of confidentiality or nondisclosure
obligations to co-owners or other third parties, furnish to Assignee access to
all geological, well and production data which Assignor has on hand relating to
operations on the Subject Interests. Assignor shall make such data available for
review by Assignee during Assignor's normal business hours at its principal
place of business. Assignor will use reasonable efforts to obtain waivers of any
such confidentiality or nondisclosure obligations that prevent it from providing
to Assignee any requested information, but Assignor shall not be obligated to
incur any expense or detriment above a nominal amount to obtain such waiver.
Assignor shall also furnish to Assignee, upon request by Assignee, reports
showing the status of development, producing and other operations conducted by
Assignor on the Subject Interests. Assignor shall, upon request by Assignee,
furnish to Assignee all reserve reports or studies in the possession of Assignor
from time to time relating to the Subject Interests, whether prepared by
Assignor or by third party consulting engineers; provided, it is agreed that
Assignor makes no representations or warranties as to the accuracy or
completeness of any such reports or studies and shall have no liability to
Assignee or any other Person resulting from their use of such reports or
studies, and Assignee agrees not to attribute to Assignor or such third-party
consulting engineers any such reports or studies or the contents thereof in any
securities filings or reports to owners or holders of "Beneficial Interests" in
the Trust. All information furnished to Assignee pursuant to this section is
confidential and for the sole benefit of Assignee and shall not be shown by
Assignee to any other Person, except that this provision shall not prohibit the
disclosure by Assignee of any information that (i) at the time of disclosure is
generally available to the public (other than as a result of a disclosure by
Assignee), (ii) was available to Assignee on a nonconfidential basis from a
source other than Assignor, provided that such source is not known by Assignee
to be bound by a confidentiality obligation owed to Assignor, or (iii) Assignee
is legally required to disclose, provided that Assignee has given to Assignor
notice of such requirement and a reasonable opportunity to seek at Assignor's
expense, a protective order and other appropriate relief from such requirement.
SECTION 5.07. Reserve Reports. Assignor may, but is not obligated to,
provide an annual reserve report for the Royalty Interest prepared by
independent consulting reservoir engineers. If such reserve report is provided
by Assignor, Assignee will reimburse Assignor for the cost thereof.
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ARTICLE VI
LIABILITY OF ASSIGNEE
In no event shall Assignee be liable or responsible in any way for any
Deductible Costs (including Aggregate Excess Deductible Costs) or other costs or
liabilities incurred by Assignor or others attributable to the Subject Interests
or to the Subject Hydrocarbons produced therefrom.
ARTICLE VII
OPERATION OF SUBJECT INTERESTS
SECTION 7.01. Reasonably Prudent Operator Standard. Assignor agrees, to
the extent it has the legal right to do so under the terms of any lease,
operating agreement, contract for development or similar instrument affecting or
pertaining to the Subject Interests (or any portion thereof), that it will
conduct and carry on the maintenance and operation of the Subject Interests in
accordance with good oil and gas field practices as would a reasonably prudent
operator under the same or similar circumstances in order to protect the Subject
Interests from drainage. However, nothing contained in this Section 7.01 shall
be deemed to prevent or restrict Assignor from electing not to participate in
any operation which is to be conducted under the terms of any 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 Assignor in accordance with the reasonably prudent operator standard set
forth in this Section 7.01. NOTWITHSTANDING ANYTHING ELSEWHERE HEREIN TO THE
CONTRARY, ASSIGNOR SHALL NEVER BE LIABLE TO ASSIGNEE OR THE TRUST FOR THE MANNER
IN WHICH ASSIGNOR PERFORMS ITS OBLIGATIONS AND DUTIES HEREUNDER SO LONG AS
ASSIGNOR HAS ACTED IN ACCORDANCE WITH THE REASONABLY PRUDENT OPERATOR STANDARD
SET FORTH IN THIS SECTION 7.01. ASSIGNOR EXPRESSLY DISCLAIMS ANY FIDUCIARY DUTY
OR FIDUCIARY OBLIGATION IN FAVOR OF ASSIGNEE OR THE TRUST.
SECTION 7.02. Abandonment of Properties. Nothing herein contained shall
obligate Assignor to continue to operate any well or to operate or maintain in
force or attempt to maintain in force any of the Subject Interests when, in
Assignor's opinion, such well or Subject Interest ceases to produce or is not
capable of producing Hydrocarbons in paying quantities. The expiration of a
Subject Interest in accordance with the terms and conditions applicable thereto
shall not be considered to be a voluntary surrender or abandonment thereof
SECTION 7.03. Insurance. Although Assignor is permitted to carry
policies of insurance covering the property upon the Subject Interests and risks
incident to the operation thereof and to include premiums therefor as Deductible
Costs, Assignor shall not be required to carry insurance on such property or
covering any of such risks unless it elects to do so. In no event shall Assignor
be liable to Assignee on account of any losses sustained which are not covered
by insurance.
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SECTION 7.04. Certain Rights to Manage the Subject Interests.
Notwithstanding anything in this Conveyance to the contrary, Assignor shall have
the right and power, acting in good faith and as a reasonably prudent oil and
gas operator, to execute, deliver, and perform operating agreements, oil and gas
leases, farmout agreements, exploration agreements, participation agreements,
drilling agreements, acreage contribution agreements, dry-hole agreements,
bottom-hole agreements, and other similar instruments and agreements that cover
or affect the Subject Interests and to make all decisions or elections required
thereunder, including, but not limited to, decisions to consent or non-consent
to drilling and other operations. The applicable Royalty Interest shall in each
case be bound by such instrument or agreement (and decisions or elections
thereunder), without the necessity of any execution, consent, joinder, or
ratification by Assignee, and the Royalty Interest shall thereafter be
calculated and paid with respect to the interests reserved, obtained, or
modified by Assignor in such transaction, not by reference to the Subject
Interests that existed before such transaction. For example, but not by way of
limitation, (a) Assignor may farm out any Subject Interest that is an oil and
gas lease, and the Subject Interest therein shall subsequently be the overriding
royalty interest, reversionary working interest, and/or other rights and
interests reserved by Assignor in the farmout, not the original leasehold
interest, or (b) Assignor may execute an oil and gas lease to cover any Subject
Interest that is a mineral interest, and the Subject Interest shall subsequently
be the royalty and other lease benefits obtained or reserved by Assignor in such
lease, not the original mineral interest.
ARTICLE VIII
POOLING AND UNITIZATION
SECTION 8.01. Pooled Subject Interests. To the extent any of the
Subject Interests have been heretofore pooled and unitized for the production of
Hydrocarbons, such Subject Interests are and shall be subject to the terms and
provisions of such pooling and unitization agreements, and the Royalty Interest
in each such Subject Interest shall apply to and affect only the production from
such units which accrues to such Subject Interest under and by virtue of the
applicable pooling and unitization agreements.
SECTION 8.02. Right to Pool and Unitize. Assignor shall have the
exclusive right and power (as between Assignor and Assignee), exercisable only
during the period provided in Section 8.03 hereof, to pool or 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, as to any one or more of the formations or horizons
thereunder, and as to any one or more Hydrocarbons, upon such terms and
provisions as Assignor shall in its sole and absolute discretion determine,
including, without limitation, the pooling of any of the Subject Lands with any
of the Excluded Interests. If and whenever through the exercise of such right
and power, or pursuant to any law hereafter enacted or any rule, regulation or
order of any governmental body or official hereafter promulgated, any of the
Subject Interests are pooled or unitized in any manner, the Royalty Interest
insofar as it affects such Subject Interest shall also be pooled and unitized,
and in any such event such Royalty Interest in such Subject Interest shall apply
to and affect only the production which accrues to such Subject Interest under
and by virtue of the
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pooling and unitization, and it shall not be necessary for Assignee to agree to,
consent to, ratify, confirm or adopt any exercise of such right and power by
Assignor.
SECTION 8.03. Applicable Period. Assignor's power and rights in Section
8.02 shall be exercisable only during the period of the life of the last
survivor of the descendants of the signers of the Declaration of Independence
living on the date of execution hereof, plus twenty-one (21) years after the
death of such last survivor, or the term of this Conveyance, whichever period
shall first expire.
ARTICLE IX
GOVERNMENT REGULATION
All obligations of Assignor hereunder shall be subject to all present
and future valid federal, state and local laws, statutes, codes and orders; and
all applicable rules, orders, regulations and decisions of every court,
governmental agency, body or authority having jurisdiction over the Hydrocarbons
in and under and that may be produced from the Subject Interests. Assignor's
obligations are specifically, but not by way of limitation, subject, to the
extent in effect, to all applicable provisions of the Emergency Petroleum
Allocation Act of 1973, the Department of Energy Organization Act, the Natural
Gas Act, the Natural Gas Policy Act of 1978, the Natural Gas Wellhead Decontrol
Act of 1989 and each other statute purporting to provide regulation of the Sale
of Hydrocarbons or establishing maximum prices at which the same may be Sold and
all applicable laws, orders, rules and regulations thereunder of the Federal
Energy Regulatory Commission, the Department of Energy and each other
legislative or governmental body, agency, board or commission having
jurisdiction. If maximum rates permitted under such statutes, rules and
regulations for the Subject Hydrocarbons are lower than prices established in
Sales Contracts, then the lower regulated prices received by Assignor shall
control. Assignor shall be entitled to use its reasonable discretion in making
filings, for itself and on behalf of Assignee, with the Federal Energy
Regulatory Commission, the Department of Energy or any other governmental body,
agency, board or commission having jurisdiction, affecting the price or prices
at which Subject Hydrocarbons may be Sold, and with purchasers of production,
operators or others with respect to any excise tax.
ARTICLE X
ASSIGNMENTS
SECTION 10.01. Assignment by Assignor. Assignor shall have the right to
assign, sell, transfer, convey, mortgage or pledge the Subject Interests, or any
part thereof, subject to the Royalty Interest and the term and provisions of
this Conveyance. From and after the effective date of any such assignment, sale,
transfer or conveyance by Assignor, the assignee thereunder shall succeed to all
the requirements upon and responsibilities of Assignor hereunder, as to the
interests in the Subject Interests so acquired by such assignee, and, from and
after the such effective date, Assignor shall be relieved of such requirements
and responsibilities, excepting only those accrued or due for performance prior
to such effective date.
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SECTION 10.02. Partial Assignment. If Assignor assigns its interest
under the Subject Interests as to some of such Subject Interests or as to some
part thereof, then, effective as of the date of such assignment, in determining
the Royalty Interest payable with respect to production from such assigned
Subject Interests or parts thereof, the Aggregate Gross Proceeds, Aggregate
Deductible Costs and Net Proceeds attributable to such assigned interests will
be computed and determined by the assignee of such assigned interests in the
aggregate as to the assigned interests owned by such assignee, but separate from
and not aggregated with the computation and determination made by Assignor as to
Subject Interests that have not been assigned by Assignor.
SECTION 10.03. Assignment by Assignee. Assignee has the right to assign
the Royalty Interest in whole or in part only as authorized by the Trust
Indenture. However, no such assignment will affect the method of computing Net
Proceeds, and if more than one Person becomes entitled to participate in the
Royalty Interest, Assignor may withhold from such other Person payments to which
such Person would otherwise be entitled hereunder and the furnishing of any data
or information which Assignor is required by the terms hereof to furnish
Assignee until Assignor is furnished a recordable instrument executed by or
binding upon all Persons interested in the Royalty Interest designating one
Person who is to receive such payments, data and information. In making
conveyances or assignments of any of the Subject Interests (to the extent
permitted hereunder), Assignee need not vest in its grantee or assignee all of
the rights of Assignee hereunder with respect to the interest in the Subject
Interests so conveyed or assigned.
SECTION 10.04. Certain Sales of Subject Interests. Subject to the
limitations set forth in Section ______ of the Trust Indenture, Assignor may
cause the sale of certain Subject Interests, including the appurtenant Royalty
Interest from time to time and Assignee will join in such sales as provided in
the Trust Indenture. The proceeds of any such sale shall be apportioned and paid
as provided in the Trust Indenture, but the purchasers of such Subject Interests
(inclusive of the appurtenant Royalty Interest) may pay the full amount of the
purchase price therefor to Assignor and shall have no responsibility to see to
the proper allocation thereof between Assignor and Assignee.
SECTION 10.05. Change in Ownership. No change of ownership or right to
receive payment of the Royalty Interest, or of any part thereof, however
accomplished, shall be binding upon Assignor until notice thereof shall have
been furnished by the Person claiming the benefit thereof, and then only with
respect to payments thereafter made. Notice of sale or assignment shall consist
of a certified copy of the recorded instrument accomplishing the same; notice of
change of ownership or right to receive payment accomplished in any other manner
(for example by reason of incapacity, death or dissolution) shall consist of
certified copies of recorded documents and complete proceedings legally binding
and conclusive of the rights of all parties. Until such notice accompanied by
such documentation shall have been furnished Assignor as above provided, the
payment or tender of all sums payable on the Royalty Interest may be made in the
manner provided herein precisely as if no such change in interest or ownership
or right to receive payment had occurred, or (at Assignor's election) Assignor
shall have the right to suspend payment of such sums without interest in the
event of such change until such documentation is furnished. The kind of
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notice herein provided shall be exclusive, and no other kind, whether actual or
constructive, shall be binding on Assignor.
SECTION 10.06. Rights of Mortgagee or Trustee. If Assignee shall at any
time execute a mortgage or deed of trust covering all or part of the Royalty
Interest, the mortgagee(s) or trustee(s) therein named or the holder of any
obligation secured thereby shall be entitled, to the extent such mortgage or
deed of trust so provides, to exercise all the rights, remedies, powers and
privileges conferred upon Assignee by the terms of this Conveyance and to give
or withhold all consents required to be obtained hereunder by Assignee, but the
provisions of this Section 10.06 shall in no way be deemed or construed to
impose upon Assignor any obligation or liability undertaken by Assignee under
such mortgage or deed of trust or under the obligation secured thereby.
ARTICLE XI
MISCELLANEOUS
SECTION 11.01. Proportionate Reduction. In the event of failure or
deficiency in title to any of the Subject Interests, the portion of the
production from such Subject Interest out of which the Royalty Interest
attributable to such Subject Interest shall be payable shall be reduced in the
same proportion that such Subject Interest is reduced.
SECTION 11.02. Exercise of Preferential Rights by Third Parties.
Notwithstanding Section 11.01, if any Person claims that this Conveyance gives
rise to a preferential right of such Person to acquire any portion of the
Royalty Interest (or any of the Subject Interests), then Assignor shall
indemnify Assignee and the trustee of the Trust against any liability, expense,
damage or loss in regard to such claim and the provisions of Section _____ of
the Trust Indenture shall apply with respect to such indemnity obligation. If
such claim results in the acquisition of any portion of the Royalty Interest by
the Person claiming the preferential right then, subject to the proviso below,
Assignor shall pay to Assignee the amount determined by multiplying (i) the
product of [_____________] multiplied by the initial public offering price of
the Trust's units of beneficial interest by (ii) a fraction, the numerator of
which is the value of the portion of the Royalty Interest acquired by the Person
claiming the preferential right, as determined by reference to the standardized
measure contained in the most recent Reserve Report (as defined in the Trust
Indenture) of the Trust and the denominator of which is the value of all the
Royalty Interest as determined by reference to the standardized measure
contained in such Reserve Report; provided, however, that if the Person claiming
such preferential right makes any payment to the Trust in connection with the
acquisition of a portion of the Royalty Interest then the amount of such payment
shall be credited against Assignor's payment obligation set forth above, but not
to create a negative number.
SECTION 11.03. Assignor's Option to Repurchase Certain Royalty
Interests. Notwithstanding Section 11.01, if (a) any Subject Interest is subject
to consent to assign or similar provision in favor of a third Person under a
Subject Lease or other document or agreement pertaining to such Subject
Interest, (b) the conveyance of the portion of the Royalty Interest attributable
to such Subject Interest requires such consent, (c) the failure to obtain such
consent
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would render Assignor's title to such Subject Interest or the conveyance
of the portion of the Royalty Interest attributable thereto void or voidable,
and (d) such consent is not obtained by Assignor within six months after the
Effective Date, then Assignor may elect to repurchase the portion of the Royalty
Interest attributable to such Subject Interest and any such repurchase shall be
exclusive of the amounts contained in Section ___ of the Trust Indenture. As
consideration for such repurchase, Assignor shall pay to Assignee the amount
determined by multiplying (i) the product of [__________] multiplied by the
initial public offering price of the trust's units of beneficial interest by
(ii) a fraction, the numerator of which is the value of the portion of the
royalty Interest repurchased as determined by reference to the standardized
measure contained in the most recent Reserve Report (as defined in the Trust
Indenture) of the Trust and the denominator of which is the value of all the
Royalty Interest as determined by reference to the standardized measure
contained in such Reserve Report. Simultaneously with such repurchase, Assignee
shall reassign the portion of the Royalty Interest repurchased by Assignor under
a recordable form of assignment reasonably acceptable to Assignor and Assignee.
SECTION 11.04. Further Assurances. Should any additional instruments of
assignment and conveyance be required to describe more specifically any
interests subject hereto, Assignor agrees to execute and deliver the same. Also,
if any other or additional instruments are required in connection with the
transfer of State, Federal or Indian lease interests in order to comply with
applicable laws, regulations or agreements, Assignor will execute and deliver
the same.
SECTION 11.05. Notices. All notices, statements, payments and
communications between the parties hereto shall be deemed to have been
sufficiently given and delivered if sent by first class United States mail,
postage prepaid, overnight courier, or if personally delivered, to the party to
whom the same is directed or to be furnished or made at the respective
addresses, as follows:
IF TO ASSIGNOR:
Eastern States Oil & Gas, Inc.
2800 Eisenhower Avenue
Alexandria, Virginia 22314
Attention:
-------------------
IF TO ASSIGNEE:
Bank One Texas, N.A.
500 Throckmorton, Suite 201
Fort Worth, Texas 76102
Attention: Corporate Trust Department
Appalachian Natural Gas Trust
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Either party or the successors or assignees of the interest or rights or
obligations of either party hereunder may change its address or designate a new
or different address or addresses for the purposes hereof by a similar notice
given or directed to all parties interested hereunder at the time.
SECTION 11.06. Binding Effect. This Conveyance shall bind and inure to
the benefit of the successors and assigns of Assignor and Assignee.
SECTION 11.07. Governing Law. The validity, effect and construction of
this Conveyance shall be governed by the laws of the state of _______________.
SECTION 11.08. Headings. Article and Section headings used in this
Conveyance are for convenience only and shall not affect the construction of
this Conveyance.
SECTION 11.09. Substitution of Warranty. This instrument is made with
full substitution and subrogation of Assignee in and to all covenants of
warranty by others heretofore given or made with respect to the Subject
Interests or any part thereof or interest therein.
SECTION 11.10. Nature of Interest. It is the express intention of
Assignor and Assignee that the Royalty Interest is, and shall be construed for
all purposes as, a present, fully-vested and absolute conveyance of an interest
in property.
SECTION 11.11. Counterpart Execution. This Conveyance may be executed
in multiple counterparts, each of which shall be an original. Certain
counterparts may have descriptions relating to different recording jurisdictions
omitted from Exhibit A. A counterpart with all such descriptions is being filed
for record in _________ County, ____________. Where a description covers an
interest located in more than one county, such description may be included in
counterparts recorded in each county but such inclusion of the same description
in more than one counterpart does not have any cumulative effect as to the
interests covered by such description.
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IN WITNESS WHEREOF, each of the parties hereto has caused this
Conveyance to be executed in its name and behalf and delivered as of the
Effective Date.
EASTERN STATES OIL & GAS, INC.
By:
-------------------------------------------------
Name:
-----------------------------------------------
Title:
----------------------------------------------
acting not in its
-----------------------
individual capacity but solely as the Trustee of the
Appalachian Natural Gas Trust
By:
-------------------------------------------------
Name:
----------------------------------------------
Title:
----------------------------------------------
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STATE OF )
----------- )
)
COUNTY OF )
--------
This instrument was acknowledged before me on this ______ day of
_____________, 1999, by ___________, _____________________ of Eastern States Oil
& Gas, Inc., on behalf of said corporation.
Commission Expires: ------------------------------------
Notary Public, State of
-------------
- ------------------------------
Notary Public State of Texas
STATE OF )
----------- )
)
COUNTY OF )
--------
This instrument was acknowledged before me on this ______ day of
_____________, 1999, by ___________, _____________________ of ________________,
Trustee of the Appalachian Natural Gas Trust, on behalf of said Bank as Trustee
of the Appalachian Natural Gas Trust.
Commission Expires: ------------------------------------
Notary Public, State of
-------------
- ------------------------------
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EXHIBIT A
SUBJECT LEASES
With respect to the Conveyance for each of Kentucky and West Virginia this
Exhibit A will include a description of each "Subject Lease" (as defined in the
Conveyance) in which ESOG owns an interest in such state other than:
o Subject Leases with title, consent or pref. right problems
o Subject Leases that have been farmed out entirely
o Subject Leases that pertain exclusively to the Rome Exploration Area
in Kentucky
Exhibit A Page 1
25
EXHIBIT A-1
DESIGNATED WELLS
With respect to the Conveyance for each of Kentucky and West Virginia this
Exhibit A-1 will include a description of each of the 2471 "Designated Wells"
situated in such state.
Exhibit A-1 Page 1
26
EXHIBIT B-1
EXCLUDED WELLS
With respect to the Conveyance for each of Kentucky and West Virginia this
Exhibit B will include a description of each of the "Excluded Wells" situated on
the "Subject Leases" in such state, the Excluded Wells include:
o Section 29 Wells
o Wells drilled in the last [21] months
o low volume Wells
o non operated Wells
o Wells with title, consent or pref. Right problem
Exhibit B-1 Page 1
27
EXHIBIT B-2
FARMOUT AGREEMENTS
Exhibit B-2 Page 1
28
EXHIBIT C
Attached to and made a part of that certain Net Overriding Royalty Conveyance
(Appalachian Natural Gas Trust) dated effective September 1, 1999 (the
"Conveyance")
ACCOUNTING PROCEDURE
I. GENERAL PROVISIONS
1. DEFINITIONS
"G and C Fees" shall mean the gathering and compression fees charged by the
Assignor in accordance with Article III. "Personal Expenses" shall mean
travel and other reasonable reimbursable expenses. "Material" shall mean
personal property, equipment or supplies acquired or held for use for the
benefit of the Subject Interests. All other capitalized terms shall have the
meanings set forth in the Conveyance.
2. APPLICATION OF AGREEMENT
This Accounting Procedure will apply whether or not Assignor or any
Affiliate of Assignor is the operator of the applicable Subject Interests.
3. CONFLICTS
In the event there exists any conflict between the terms of this Accounting
Procedure or any Accounting Procedure that applies to the Subject Interests
and the Conveyance to which it is attached, the Conveyance will control.
II. DIRECT CHARGES
Assignor shall charge the following items as Deductible Costs, which are not
included in the overhead fees and rates described in Article IV:
1. ENVIRONMENTAL
Costs incurred in connection with the ownership or operation of the Subject
Interests as a result of governmental or regulatory requirements to satisfy
environmental considerations applicable to the Subject Interests and other
costs and expenses to comply with applicable laws related to health, safety
or the environment. Such costs may include pollution control procedures as
required by applicable laws and regulations or other remedial measures
necessary for the protection of the environment, and any costs related to
employees of Assignor performing any environmental work involving the
Subject Interests.
Exhibit C Page 1
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2. BONUSES, RENTALS AND ROYALTIES
Lease bonuses, rentals and royalties paid by Assignor attributable to the
Subject Interests.
3. MATERIAL
Material purchased, rented or furnished by Assignor in connection with
drilling, reworking, recompletion (including "behind pipe" completions), and
abandonment of wells on the Subject Lands. Only such Material shall be
purchased for or transferred to the Subject Lands as may be required for
immediate use and is reasonably practical and consistent with efficient and
economical operations. Surplus stocks of Material may be accumulated.
4. TRANSPORTATION
Transportation and/or storage of Material necessary for operations
pertaining to the Subject Interests.
5. SERVICES
The cost of contract services, equipment and utilities provided by outside
sources, except services excluded by Paragraph 8 of Article II. The cost of
professional consultant services and contract services of technical
personnel not an employee of Assignor and directly engaged in connection
with the Subject Interests.
6. EQUIPMENT AND FACILITIES
A. Assignor shall charge as a Deductible Cost for use of equipment and
facilities owned by Assignor or any of its Affiliates at rates commensurate
with costs of ownership and operation including, but not limited to, meters,
compressors, dehydration units, tanks and pipelines. Such rates shall
include costs of maintenance, repairs, other operating expense, insurance,
taxes, depreciation, and return on gross investment less accumulated
depreciation not to exceed twenty-five percent (25%) per annum.
B. This Paragraph 6 shall not affect any current charges made by Assignor
related to G and C Fees or related charges by an Affiliate of Assignor.
Exhibit C Page 2
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7. DAMAGES AND LOSSES TO JOINT PROPERTY
All costs or expenses necessary for the repair or replacement of equipment,
Material, fixtures or other property used or held for use in connection with
the Subject Interests made necessary because of damages or losses incurred
by fire, flood, storm, theft, accident, or other cause, except those
resulting from Assignor's gross negligence or willful misconduct.
8. 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 Conveyance or
necessary to protect or recover the Subject Interests, and the costs and
expenses incurred in connection with hearings and other matters before
governmental bodies and agencies and costs and expenses incurred in curing
title to the Subject Interests. Costs incurred by Assignor in procuring
abstracts and fees paid to outside attorneys for title examination
(including preliminary, supplemental, shut-in gas royalty opinions and
division order title opinions) shall be included as a Deductible Cost.
Assignor shall make no charge for services rendered by its staff attorneys
or other employed personnel in the performance of the above functions.
9. TAXES
All taxes of every kind and nature assessed or levied upon or in connection
with the Subject Interests, the operation thereof, or the production
therefrom, and which taxes have been paid by the Assignor for the benefit of
the Assignor or Assignee. Assignor may make a Tax Accrual, as defined in the
Conveyance.
10. PLUGGING, ABANDONMENT AND RECLAMATION
Costs incurred for abandonment and reclamation relating to the Subject
Interests, including costs required by governmental or other regulatory
authority.
11. OTHER EXPENDITURES
Any other expenditure not covered or dealt with in the foregoing provisions
of this Article II, or Article III, or Article IV and which is of direct
benefit to the Subject Interests and is incurred by the Assignor in the
necessary and proper conduct of operations pertaining to the Subject
Interests. The failure to list certain direct charges under this Article II
shall not prohibit the inclusion of such amounts as Deductible Costs to the
extent provided for under Section 2.01 of the Conveyance.
Exhibit C Page 3
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III. GATHERING AND COMPRESSION FEES
As compensation for gathering and compression charges, Assignor shall charge as
a Deductible Cost for all costs and expenses related to the measurement,
gathering, compression, processing and dehydration of Subject Hydrocarbons
attributable to the Subject Interests, including, but not limited to, the cost
of equipment, an overhead and handling charge, a return on gross investment less
accumulated depreciation not to exceed twenty-five percent (25%), repairs,
supplies, fuel (including line loss and unaccounted-for gas), Materials, rental
fees, taxes, rights-of-way and other acquisition costs, personnel costs
(including Personal Expenses and employee benefits), and depreciation on
investment. The G&C Fees shall be adjusted annually as of the first day of April
each year beginning on April 1, 2001 and applied to production beginning on
April 1st of each calendar year. The adjustment shall be computed by Assignor by
calculating its actual gathering and compression costs together with a return on
gross investment less accumulated depreciation, as described in this Article
III, for the preceding calendar year.
IV. OVERHEAD
1. DRILLING OVERHEAD FEE AND PRODUCING OPERATIONS
A. As compensation for administrative, supervision, and office
services, Assignor shall charge drilling and producing operations
on a Fixed Rate Basis in accordance with Article IV.1.C. 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 costs and expenses related to G and C
Fees, as more fully described under Article III, or those directly
chargeable in connection with the Subject Interests under Article
II. The cost and expense of services from outside sources
(including consultants) in connection with matters of taxation,
geological, engineering, land, accounting or matters before or
involving governmental agencies shall not be considered as
included in the overhead rates, described in Article IV.1.C.
B. The Personal Expenses in connection with the provision of
professional consultant services and contract services of
technical personnel directly employed on the Joint Property shall
not be covered by the overhead rates, described in Article IV.1.C.
C. Overhead - Fixed Rate Basis
1. Assignor shall charge as a Deductible Cost the following rates and
fees per well:
(a) Drilling Overhead Fee: $36,000 per well for all wells drilled
on or attributable to the Subject Interests for which drilling
is commenced on or after the Effective Date and all wells that
are deepened to another zone or horizon on or after the
Effective Date.
Exhibit C Page 4
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(b) Producing Well Fixed Fees:
(i) Producing Well Fixed Fee: $170 per well per month for
wells completed at or above a subsurface depth of 7,000
feet and producing five (5) or more mcfe per day,
measured on an annualized basis for the preceding
calendar year, determined on the first day of January of
each year; provided, that if such well was not producing
during such preceding calendar year then measured on a
monthly basis for the preceding month, or
(ii) Producing Well Fixed Fee: $70 per well per month for
wells completed at or above a subsurface depth of 7,000
feet and producing less than five (5) mcfe per day,
measured on an annualized basis for the preceding
calendar year; provided, that if such well was not
producing during such preceding calendar year then
measured on a monthly basis for the preceding month, or
(iii) Deep Producing Well Fixed Fee: $300 per well per month
for wells completed below a depth of 7,000 feet.
(c) Overhead Rate: $65 per well per month for fixed overhead
costs, in addition to the Drilling Overhead Fee and the
Producing Well Fixed Fee described above.
2. Application of Overhead - Fixed Rate Basis shall be as follows:
(a) Drilling Overhead Fee
(i) Drilling Overhead Fee shall be charged for each well
that is drilled on or attributable to the Subject Lands,
whether such well is suspended, completed or abandoned.
(ii) Drilling Overhead Fee shall be charged for each well
located on or attributable to the Subject Interests that
is deepened to another zone or horizon, whether such
deepening operation results in additional production.
(b) Producing Well Fixed Fees and Overhead Rates
(i) 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.
(ii) Each active completion in a multi-completed well in
which production is not commingled down hole shall be
considered as a
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one-well charge for each such completion. Each active
completion in a multi-completed well in which production
is commingled down hole shall be considered as a
one-well charge for the entire well.
(iii) The applicable Producing Well Fixed Fee and Overhead
Rate shall apply to all shut in wells, temporarily
abandoned wells and other inactive wells that have not
been plugged and abandoned.
(iv) A one-well charge shall be made for the month in which
plugging and abandonment operations are completed on a
well. This one-well charge shall be made whether or not
the well has produced.
(v) If a multicompleted well in which production is
commingled down hole is completed both above and below
7,000 feet, the Deep Producing Well Fixed Fee shall be
charged with respect to such well rather than either of
Producing Well Fixed Fees described in Article
IV.1.C.1.(b)(i) or Article IV.1.C.1.(b)(ii) above.
3. The Drilling Overhead Fee, Producing Well Fixed Fee, and the
Overhead Rate shall be adjusted annually as of the first day of
April each year beginning on April 1, 2001. The adjustment shall
be computed by multiplying the rate indicated 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. The adjusted rates shall be the rates
currently in use, plus or minus the computed adjustment.
Exhibit C Page 6