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A.A.P.L. FORM 610-1982
MODEL FORM OPERATING AGREEMENT
[AMERICAN ASSOCIATION OF PETROLEUM LANDMEN LOGO]
OPERATING AGREEMENT
DATED
MAY 1, 1996
OPERATOR BLACKJACK OIL & GAS, INC.
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CONTRACT AREA OKLAHOMA, TEXAS, KANSAS
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COUNTY OR PARISH OF STATE OF
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COPYRIGHT 1982 - ALL RIGHTS RESERVED
AMERICAN ASSOCIATION OF PETROLEUM
LANDMEN, 4100 FOSSIL CREEK BLVD.
FORT WORTH, TEXAS 76137, APPROVED FORM.
A.A.P.L. NO. 610 - 1982 REVISED
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A.A.P.L. FORM 610 - MODEL FORM OPERATING AGREEMENT - 1982
GUIDANCE IN THE PREPARATION OF THIS AGREEMENT:
1. Title Page - Fill in blanks as applicable.
2. Preamble, Page I - Enter name of Operator.
3. Article II - Exhibits:
(a) Indicate Exhibits to be attached.
(b) If it is desired that no reference be made to non-discrimination,
the reference to Exhibit "F" should be deleted.
4. Article III.B. - Interests of Parties in Costs and Production - Enter
royalty fraction as agreed to by parties.
5. Article IV.A. - Title Examination - Select option as agreed to by the
parties.
6. Article IV.B. - Loss of Title - If "Joint Loss" of Title is desired, the
following changes should be made:
(a) Delete Articles IV.B.1 and IV.B.2.
(b) Article IV.B.3 - Delete phrase "other than those set forth in
Articles IV.B.1 and IV.B.2 above."
(c) Article VII.E. - Change reference at end of the first grammatical
paragraph from "Article IV.B.2" to "Article IV,B.3."
(d) Article X. - Add as the concluding sentence - "All claims or
suits involving title to any interest subject to this agreement
shall be treated as a claim or a suit against all parties
hereto."
7. Article V - Operator - Enter name of Operator.
8. Article VI.A. - Initial Well:
(a) Date of commencement of drilling.
(b) Location of well.
(c) Obligation depth.
9. Article VI.B.2.(b) - Subsequent Operations - Enter penalty percentage as
agreed to by parties.
10. Article VI.C. - Taking Production in Kind - If a Gas Balancing Agreement
is not in existence nor attached hereto as Exhibit "E", then use
Alternate Page 8.
11. Article VII.D.1. - Limitation of Expenditures - Select option as agreed
to by parties.
12. Article VII.D.3. - Limitation of Expenditures - Enter limitation of
expenditure of Operator for single project and amount above which
Operator may furnish information AFE.
13. Article IX. - Internal Revenue Code Election - Delete this article in
the event the agreement is a Tax Partnership and Exhibit "G" is
attached.
14. Article X. - Claims and Lawsuits - Enter claim limit as agreed to by
parties.
15. Article XIII. - Term of Agreement:
(a) Select Option as agreed to by parties.
(b) If Option No. 2 is selected, enter agreed number of days in two
(2) blanks.
16. Article XIV.B - Governing Law - Enter state as agreed to by parties.
17. Signature Page - Enter effective date.
[AMERICAN ASSOCIATION OF PETROLEUM LANDMEN LOGO]
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A.A.P.L. FORM 610 - MODEL FORM OPERATING AGREEMENT - 1982
TABLE OF CONTENTS
Article Title Page
- ------- ----- ----
I. DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
II. EXHIBITS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
III. INTERESTS OF PARTIES . . . . . . . . . . . . . . . . . . . . . . . . 2
A. OIL AND GAS INTERESTS . . . . . . . . . . . . . . . . . . . . . . 2
B. INTERESTS OF PARTIES IN COSTS AND PRODUCTION . . . . . . . . . . 2
C. EXCESS ROYALTIES, OVERRIDING ROYALTIES AND OTHER PAYMENTS . . . . 2
D. SUBSEQUENTLY CREATED INTERESTS . . . . . . . . . . . . . . . . . 2
IV. TITLES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
A. TITLE EXAMINATION . . . . . . . . . . . . . . . . . . . . . . . . 2-3
B. LOSS OF TITLE . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1. Failure of Title . . . . . . . . . . . . . . . . . . . . . . 3
2. Loss by Non-Payment or Erroneous Payment of Amount Due . . . . 3
3. Other Losses . . . . . . . . . . . . . . . . . . . . . . . . 3
V. OPERATOR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
A. DESIGNATION AND RESPONSIBILITIES OF OPERATOR . . . . . . . . . . 4
B. RESIGNATION OR REMOVAL OF OPERATOR AND SELECTION OF SUCCESSOR . . 4
1. Resignation or Removal of Operator . . . . . . . . . . . . . 4
2. Selection of Successor Operator . . . . . . . . . . . . . . . 4
C. EMPLOYEES . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
D. DRILLING CONTRACTS . . . . . . . . . . . . . . . . . . . . . . . 4
VI. DRILLING AND DEVELOPMENT . . . . . . . . . . . . . . . . . . . . . . 4
A. INITIAL WELL . . . . . . . . . . . . . . . . . . . . . . . . . . 4-5
B. SUBSEQUENT OPERATIONS . . . . . . . . . . . . . . . . . . . . . . 5
1. Proposed Operations . . . . . . . . . . . . . . . . . . . . . 5
2. Operations by Less than All Parties . . . . . . . . . . . . . 5-6-7
3. Stand-By Time . . . . . . . . . . . . . . . . . . . . . . . . 7
4. Sidetracking . . . . . . . . . . . . . . . . . . . . . . . . 7
C. TAKING PRODUCTION IN KIND . . . . . . . . . . . . . . . . . . . . 7
D. ACCESS TO CONTRACT AREA AND INFORMATION . . . . . . . . . . . . . 8
E. ABANDONMENT OF WELLS . . . . . . . . . . . . . . . . . . . . . . 8
1. Abandonment of Dry Holes . . . . . . . . . . . . . . . . . . 8
2. Abandonment of Wells that have Produced . . . . . . . . . . . 8-9
3. Abandonment of Non-Consent Operations . . . . . . . . . . . . 9
VII. EXPENDITURES AND LIABILITY OF PARTIES . . . . . . . . . . . . . . . . 9
A. LIABILITY OF PARTIES . . . . . . . . . . . . . . . . . . . . . . 9
B. LIENS AND PAYMENT DEFAULTS . . . . . . . . . . . . . . . . . . . 9
C. PAYMENTS AND ACCOUNTING . . . . . . . . . . . . . . . . . . . . . 9
D. LIMITATION OF EXPENDITURES . . . . . . . . . . . . . . . . . . . 9-10
1. Drill or Deepen . . . . . . . . . . . . . . . . . . . . . . . 9-10
2. Rework or Plug Back . . . . . . . . . . . . . . . . . . . . . 10
3. Other Operations . . . . . . . . . . . . . . . . . . . . . . 10
E. RENTALS, SHUT-IN WELL PAYMENTS AND MINIMUM ROYALTIES . . . . . . 10
F. TAXES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
G. INSURANCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
VIII. ACQUISITION, MAINTENANCE OR TRANSFER OF INTEREST . . . . . . . . . . 11
A. SURRENDER OF LEASES . . . . . . . . . . . . . . . . . . . . . . . 11
B. RENEWAL OR EXTENSION OF LEASES . . . . . . . . . . . . . . . . . 11
C. ACREAGE OR CASH CONTRIBUTIONS . . . . . . . . . . . . . . . . . . 11-12
D. MAINTENANCE OF UNIFORM INTEREST . . . . . . . . . . . . . . . . . 12
E. WAIVER OF RIGHTS TO PARTITION . . . . . . . . . . . . . . . . . . 12
F. PREFERENTIAL RIGHT TO PURCHASE . . . . . . . . . . . . . . . . . 12
IX. INTERNAL REVENUE CODE ELECTION . . . . . . . . . . . . . . . . . . . 12
X. CLAIMS AND LAWSUITS . . . . . . . . . . . . . . . . . . . . . . . . . 13
XI. FORCE MAJEURE . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
XII. NOTICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
XIII. TERM OF AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . 13
XIV. COMPLIANCE WITH LAWS AND REGULATIONS . . . . . . . . . . . . . . . . 14
A. LAWS, REGULATIONS AND ORDERS . . . . . . . . . . . . . . . . . . 14
B. GOVERNING LAW . . . . . . . . . . . . . . . . . . . . . . . . . . 14
C. REGULATORY AGENCIES . . . . . . . . . . . . . . . . . . . . . . . 14
XV. OTHER PROVISIONS . . . . . . . . . . . . . . . . . . . . . . . . . . 14
XVI. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
[AMERICAN ASSOCIATION OF PETROLEUM LANDMEN LOGO]
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A.A.P.L. FORM 610 - MODEL FORM OPERATING AGREEMENT - 1982
OPERATING AGREEMENT
THIS AGREEMENT entered into by and between Blackjack Oil & Gas, Inc.
P.O. Box 5127 Enid, OK 73702, hereinafter designated and referred to as
"Operator", and the signatory party or parties other than Operator, sometimes
hereinafter referred to individually herein as "Non-Operator", and collectively
as "Non-Operators".
WITNESSETH:
WHEREAS, the parties to this agreement are owners of oil and gas leases
and/or oil and gas interests in the land identified in Exhibit "A", and the
parties hereto have reached an agreement to explore and develop these leases
and/or oil and gas interests for the production of oil and gas to the extent
and as hereinafter provided,
NOW, THEREFORE, it is agreed as follows:
ARTICLE I.
DEFINITIONS
As used in this agreement, the following words and terms shall have the
meanings here ascribed to them:
A. The term "oil and gas" shall mean oil, gas, casinghead gas, gas
condensate, and all other liquid or gaseous hydrocarbons and other marketable
substances produced therewith, unless an intent to limit the inclusiveness of
this term is specifically stated.
B. The terms "oil and gas lease", "lease" and "leasehold" shall mean the
oil and gas leases covering tracts of land lying within the Contract Area which
are owned by the parties to this agreement.
C. The term "oil and gas interests" shall mean unleased fee and mineral
interests in tracts of land lying within the Contract Area which are owned by
parties to this agreement.
D. The term "Contract Area" shall mean all of the lands, oil and gas
leasehold interests and oil and gas interests intended to be developed and
operated for oil and gas purposes under this agreement. Such lands, oil and gas
leasehold interests and oil and gas interests are described in Exhibit "A".
E. The term "drilling unit" shall mean the area fixed for the drilling
of one well by order or rule of any state or federal body having authority. If
a drilling unit is not fixed by any such rule or order, a drilling unit shall
be the drilling unit as established by the pattern of drilling in the Contract
Area or as fixed by express agreement of the Drilling Parties.
F. The term "drillsite" shall mean the oil and gas lease or interest on
which a proposed well is to be located.
G. The terms "Drilling Party" and "Consenting Party" shall mean a party
who agrees to join in and pay its share of the cost of any operation conducted
under the provisions of this agreement.
H. The terms "Non-Drilling Party" and "Non-Consenting Party" shall mean
a party who elects not to participate in a proposed operation.
Unless the context otherwise clearly indicates, words used in the
singular include the plural, the plural includes the singular, and the neuter
gender includes the masculine and the feminine.
ARTICLE II.
EXHIBITS
The following exhibits, as indicated below and attached hereto, are
incorporated in and made a part hereof:
[ ] A. Exhibit "A", shall include the following information:
(1) Identification of lands subject to this agreement,
(2) Restrictions, if any, as to depths, formations, or substances,
(3) Percentages or fractional interests of parties to this agreement,
(4) Oil and gas leases and/or oil and gas interests subject to this
agreement,
(5) Addresses of parties for notice purposes.
[ ] B. Exhibit "B", Form of Lease.
[X] C. Exhibit "C", Accounting Procedure.
[ ] D. Exhibit "D", Insurance.
[ ] E. Exhibit "E", Gas Balancing Agreement.
[ ] F. Exhibit "F", Non-Discrimination and Certification of Non-Segregated
Facilities.
[ ] G. Exhibit "G", Tax Partnership.
If any provision of any exhibit, except Exhibits "E" and "G", is
inconsistent with any provision contained in the body of this agreement, the
provisions in the body of this agreement shall prevail.
[AMERICAN ASSOCIATION OF PETROLEUM LANDMEN LOGO]
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A.A.P.L. FORM 610 - MODEL FORM OPERATING AGREEMENT - 1982
ARTICLE III.
INTERESTS OF PARTIES
A. OIL AND GAS INTERESTS:
If any party owns an oil and gas interest in the Contract Area, that
interest shall be treated for all purposes of this agreement and during the
term hereof as if it were covered by the form of oil and gas lease attached
hereto as Exhibit "B", and the owner thereof shall be deemed to own both the
royalty interest reserved in such lease and the interest of the lessee
thereunder.
B. INTERESTS OF PARTIES IN COSTS AND PRODUCTION:
Unless changed by other provisions, all costs and liabilities incurred
in operations under this agreement shall be borne and paid, and all equipment
and materials acquired in operations on the Contract Area shall be owned, by
the parties as their interests are set forth in Exhibit "A". In the same
manner, the parties shall also own all production of oil and gas from the
Contract Area subject to the payment of royalties which shall be borne as
hereinafter set forth.
Regardless of which party has contributed the lease(s) and/or oil and
gas interest(s) hereto on which royalty is due and payable, each party entitled
to receive a share of production of oil and gas from the Contract Area shall
bear and shall pay or deliver, or cause to be paid or delivered, to the extent
of its interest in such production, all royalties on its share of production and
shall hold the other parties free from any liability therefor. No party shall
ever be responsible, however, on a price basis higher than the price received by
such party, to any other party's lessor or royalty owner, and if any such other
party's lessor or royalty owner should demand and receive settlement on a higher
price basis, the party contributing the affected lease shall bear the additional
royalty burden attributable to such higher price.
Nothing contained in this Article III.B. shall be deemed an assignment
or cross-assignment of interests covered hereby.
C. EXCESS ROYALTIES, OVERRIDING ROYALTIES AND OTHER PAYMENTS:
Unless changed by other provisions, if the interest of any party in any
lease covered hereby is subject to any royalty, overriding royalty, production
payment or other burden on production in excess of the amount stipulated in
Article III.B., such party so burdened shall assume and alone bear all such
excess obligations and shall indemnify and hold the other parties hereto
harmless from any and all claims and demands for payment asserted by owners of
such excess burden.
D. SUBSEQUENTLY CREATED INTERESTS:
If any party should hereafter create an overriding royalty, production
payment or other burden payable out of production attributable to its working
interest hereunder, or if such a burden existed prior to this agreement and is
not set forth in Exhibit "A", or was not disclosed in writing to all other
parties prior to the execution of this agreement by all parties, or is not a
jointly acknowledged and accepted obligation of all parties (any such interest
being hereinafter referred to as "subsequently created interest" irrespective
of the timing of its creation and the party out of whose working interest the
subsequently created interest is derived being hereinafter referred to as
"burdened party"), and:
1. If the burdened party is required under this agreement to assign
or relinquish to any other party, or parties, all or a portion of
its working interest and/or the production attributable thereto,
said other party, or parties, shall receive said assignment
and/or production free and clear of said subsequently created
interest and the burdened party shall indemnify and save said
other party, or parties, harmless from any and all claims and
demands for payment asserted by owners of the subsequently
created interest; and,
2. If the burdened party fails to pay, when due, its share of
expenses chargeable hereunder, all provisions of Article VII.B.
shall be enforceable against the subsequently created interest in
the same manner as they are enforceable against the working
interest of the burdened party.
ARTICLE IV.
TITLES
A. TITLE EXAMINATION:
Title examination shall be made on the drillsite of any proposed well
prior to commencement of drilling operations or, if the Drilling Parties so
request, title examination shall be made on the leases and/or oil and gas
interests included, or planned to be included, in the drilling unit around such
well. The opinion will include the ownership of the working interest,
minerals, royalty, overriding royalty and production payments under the
applicable leases. At the time a well is proposed, each party contributing
leases and/or oil and gas interests to the drillsite, or to be included in such
drilling unit, shall furnish to Operator all abstracts (including federal lease
status reports), title opinions, title papers and curative material in its
possession free of charge. All such information not in the possession of or
made available to Operator by the parties, but necessary for the examination of
the title, shall be obtained by Operator. Operator shall cause title to be
examined by attorneys on its staff or by outside attorneys. Copies of all
title opinions shall be furnished to each party hereto. The cost incurred by
Operator in this title program shall be borne as follows:
[ ] Option No. 1: Costs incurred by Operator in procuring abstracts and
title examination (including preliminary, supplemental, shut-in gas royalty
opinions and division order title opinions) shall be a part of the
administrative overhead as provided in Exhibit "C", and shall not be a direct
charge, whether performed by Operator's staff attorneys or by outside
attorneys.
[AMERICAN ASSOCIATION OF PETROLEUM LANDMEN LOGO]
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A.A.P.L. FORM 610 - MODEL FORM OPERATING AGREEMENT - 1982
ARTICLE IV
CONTINUED
[X] Option No. 2: Costs incurred by Operator in procuring abstracts and fees
paid outside attorneys for title examination (including preliminary,
supplemental, shut-in gas royalty opinions and division order title opinions)
shall be borne by the Drilling Parties in the proportion that the interest of
each Drilling Party bears to the total interest of all Drilling Parties as such
interests appear in Exhibit "A". Operator shall make no charge for services
rendered by its staff attorneys or other personnel in the performance of the
above functions.
Each party shall be responsible for securing curative matter and pooling
amendments or agreements required in connection with leases or oil and gas
interests contributed by such party. Operator shall be responsible for the
preparation and recording of pooling designations or declarations as well as
the conduct of hearings before governmental agencies for the securing of
spacing or pooling orders. This shall not prevent any party from appearing on
its own behalf at any such hearing.
No well shall be drilled on the Contract Area until after (1) the title
to the drillsite or drilling unit has been examined as above provided, and (2)
the title has been approved by the examining attorney or title has been
accepted by all of the parties who are to participate in the drilling of the
well.
B. LOSS OF TITLE:
1. Failure of Title: Should any oil and gas interest or lease, or
interest therein, be lost through failure of title, which loss results in a
reduction of interest from that shown on Exhibit "A", the party contributing
the affected lease or interest shall have ninety (90) days from final
determination of title failure to acquire a new lease or other instrument
curing the entirety of the title failure, which acquisition will not be subject
to Article VIII.B., and failing to do so, this agreement, nevertheless, shall
continue in force as to all remaining oil and gas leases and interests: and,
(a) The party whose oil and gas lease or interest is affected by the
title failure shall bear alone the entire loss and it shall not be entitled to
recover from Operator or the other parties any development or operating costs
which it may have theretofore paid or incurred, but there shall be no
additional liability on its part to the other parties hereto by reason of such
title failure;
(b) There shall be no retroactive adjustment of expenses incurred or
revenues received from the operation of the interest which has been lost, but
the interests of the parties shall be revised on an acreage basis, as of the
time it is determined finally that title failure has occurred, so that the
interest of the party whose lease or interest is affected by the title failure
will thereafter be reduced in the Contract Area by the amount of the interest
lost;
(c) If the proportionate interest of the other parties hereto in any
producing well theretofore drilled on the Contract Area is increased by reason
of the title failure, the party whose title has failed shall receive the
proceeds attributable to the increase in such interest (less costs and burdens
attributable thereto) until it has been reimbursed for unrecovered costs paid
by it in connection with such well;
(d) Should any person not a party to this agreement, who is determined
to be the owner of any interest in the title which has failed, pay in any
manner any part of the cost of operation, development, or equipment, such
amount shall be paid to the party or parties who bore the costs which are so
refunded;
(e) Any liability to account to a third party for prior production of
oil and gas which arises by reason of title failure shall be borne by the party
or parties whose title failed in the same proportions in which they shared in
such prior production; and,
(f) No charge shall be made to the joint account for legal expenses,
fees or salaries, in connection with the defense of the interest claimed by any
party hereto, it being the intention of the parties hereto that each shall
defend title to its interest and bear all expenses in connection therewith.
2. Loss by Non-Payment or Erroneous Payment of Amount Due: If, through
mistake or oversight, any rental, shut-in well payment, minimum royalty or
royalty payment, is not paid or is erroneously paid, and as a result a lease or
interest therein terminates, there shall be no monetary liability against the
party who failed to make such payment. Unless the party who failed to make the
required payment secures a new lease covering the same interest within ninety
(90) days from the discovery of the failure to make proper payment, which
acquisition will not be subject to Article VIII.B., the interests of the
parties shall be revised on an acreage basis, effective as of the date of
termination of the lease involved, and the party who failed to make proper
payment will no longer be credited with an interest in the Contract Area on
account of ownership of the lease or interest which has terminated. In the
event the party who failed to make the required payment shall not have been
fully reimbursed, at the time of the loss, from the proceeds of the sale of oil
and gas attributable to the lost interest, calculated on an acreage basis, for
the development and operating costs theretofore paid on account of such
interest, it shall be reimbursed for unrecovered actual costs theretofore paid
by it (but not for its share of the cost of any dry hole previously drilled or
wells previously abandoned) from so much of the following, as is necessary to
effect reimbursement:
(a) Proceeds of oil and gas, less operating expenses, theretofore
accrued to the credit of the lost interest, on in acreage basis, up to the
amount of unrecovered costs;
(b) Proceeds, less operating expenses, thereafter accrued attributable
to the lost interest on an acreage basis, of that portion of oil and gas
thereafter produced and marketed (excluding production from any wells
thereafter drilled) which, in the absence of such lease termination, would be
attributable to the lost interest on an acreage basis, up to the amount of
unrecovered costs, the proceeds of said portion of the oil and gas to be
contributed by the other parties in proportion to their respective interests;
and,
(c) Any monies, up to the amount of unrecovered costs, that may be paid
by any party who is, or becomes, the owner of the interest lost, for the
privilege of participating in the Contract Area or becoming a party to this
agreement.
3. Other Losses: All losses incurred, other than those set forth in
Articles IV.B.1. and IV.B.2. above, shall be joint losses and shall be borne by
all parties in proportion to their interests. There shall be no readjustment of
interests in the remaining portion of the Contract Area.
[AMERICAN ASSOCIATION OF PETROLEUM LANDMEN LOGO]
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A.A.P.L. FORM 610 - MODEL FORM OPERATING AGREEMENT - 1982
ARTICLE V.
OPERATOR
A. DESIGNATION AND RESPONSIBILITIES OF OPERATOR:
BLACKJACK OIL & GAS, INC. P.O. BOX 5127 ENID, OK 73702 shall be the
Operator of the Contract Area, and shall conduct and direct and have full
control of all operations on the Contract Area as permitted and required by,
and within the limits of this agreement. It shall conduct all such operations
in a good and workmanlike manner, but it shall have no liability as Operator to
the other parties for losses sustained or liabilities incurred, except such as
may result from gross negligence or willful misconduct.
B. RESIGNATION OR REMOVAL OF OPERATOR AND SELECTION OF SUCCESSOR:
1. Resignation or Removal of Operator: Operator may resign at any time
by giving written notice thereof to Non-Operators. If Operator terminates its
legal existence, no longer owns an interest hereunder in the Contract Area, or
is no longer capable of serving as Operator, Operator shall be deemed to have
resigned without any action by Non-Operators, except the selection of a
successor. Operator may be removed if it fails or refuses to carry out its
duties hereunder, or becomes insolvent, bankrupt or is placed in receivership,
by the affirmative vote of two (2) or more Non-Operators owning a majority
interest based on ownership as shown on Exhibit "A" remaining after excluding
the voting interest of Operator. Such resignation or removal shall not become
effective until 7:00 o'clock A.M. on the first day of the calendar month
following the expiration of ninety (90) days after the giving of notice of
resignation by Operator or action by the Non-Operators to remove Operator,
unless a successor Operator has been selected and assumes the duties of
Operator at an earlier date. Operator, after effective date of resignation or
removal, shall be bound by the terms hereof as a Non-Operator. A change of a
corporate name or structure of Operator or transfer of Operator's interest to
any single subsidiary, parent or successor corporation shall not be the basis
for removal of Operator.
2. Selection of Successor Operator: Upon the resignation or removal of
Operator, a successor Operator shall be selected by the parties. The successor
Operator shall be selected from the parties owning an interest in the Contract
Area at the time such successor Operator is selected. The successor Operator
shall be selected by the affirmative vote of two (2) or more parties owning a
majority interest based on ownership as shown on Exhibit "A"; provided,
however, if an Operator which has been removed fails to vote or votes only to
succeed itself, the successor Operator shall be selected by the affirmative
vote of two (2) or more parties owning a majority interest based on ownership
as shown on Exhibit "A" remaining after excluding the voting interest of the
Operator that was removed.
C. EMPLOYEES:
The number of employees used by Operator in conducting operations
hereunder, their selection, and the hours of labor and the compensation for
services performed shall be determined by Operator, and all such employees
shall be the employees of Operator.
D. DRILLING CONTRACTS:
All wells drilled on the Contract Area shall be drilled on a competitive
contract basis at the usual rates prevailing in the area. If it so desires,
Operator may employ its own tools and equipment in the drilling of wells, but
its charges therefor shall not exceed the prevailing rates in the area and the
rate of such charges shall be agreed upon by the parties in writing before
drilling operations are commenced, and such work shall be performed by Operator
under the same terms and conditions as are customary and usual in the area in
contracts of independent contractors who are doing work of a similar nature.
ARTICLE VI.
DRILLING AND DEVELOPMENT
A. INITIAL WELL: N/A
On or before the ____ day of ____________________, 19_____, Operator
shall commence the drilling of a well for oil and gas at the following
location:
and shall thereafter continue the drilling of the well with due diligence to
unless granite or other practically impenetrable substance or condition in the
hole, which renders further drilling impractical is encountered at a lesser
depth, or unless all parties agree to complete or abandon the well at a
lesser depth.
Operator shall make reasonable tests of all formations encountered
during drilling which give indication of containing oil and gas in quantities
sufficient to test, unless this agreement shall be limited in its application
to a specific formation or formations, in which event Operator shall be
required to test only the formation or formations to which this agreement
may apply.
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ARTICLE VI
CONTINUED
If, in Operator's judgment, the well will not produce oil or gas in
paying quantities, and it wishes to plug and abandon the well as a dry hole,
the provisions of Article VI.E.1. shall thereafter apply.
B. SUBSEQUENT OPERATIONS:
1. Proposed Operations: Should any party hereto desire to drill any well
on the Contract Area other than the well provided for in Article VI.A., or to
rework, deepen or plug back a dry hole drilled at the joint expense of all
parties or a well jointly owned by all the parties and not then producing in
paying quantities, the party desiring to drill, rework, deepen or plug back
such a well shall give the other parties written notice of the proposed
operation, specifying the work to be performed, the location, proposed depth,
objective formation and the estimated cost of the operation. The parties
receiving such a notice shall have thirty (30) days after receipt of the notice
within which to notify the party wishing to do the work whether they elect to
participate in the cost of the proposed operation. If a drilling rig is on
location, notice of a proposal to rework, plug back or drill deeper may be
given by telephone and the response period shall be limited to forty-eight (48)
hours, exclusive of Saturday, Sunday and legal holidays. Failure of a party
receiving such notice to reply within the period above fixed shall constitute
an election by that party not to participate in the cost of the proposed
operation. Any notice or response given by telephone shall be promptly
confirmed in writing.
If all parties elect to participate in such a proposed operation,
Operator shall, within ninety (90) days after expiration of the notice period
of thirty (30) days (or as promptly as possible after the expiration of the
forty-eight (48) hour period when a drilling rig is on location, as the case
may be), actually commence the proposed operation and complete it with due
diligence at the risk and expense of all parties hereto; provided, however,
said commencement date may be extended upon written notice of same by Operator
to the other parties, for a period up to thirty (30) additional days if, in the
sole opinion of Operator, such additional time is reasonably necessary to
obtain permits from governmental authorities, surface rights (including
rights-of-way) or appropriate drilling equipment, or to complete title
examination or curative matter required for title approval or acceptance.
Notwithstanding the force majeure provisions of Article XI, if the actual
operation has not been commenced within the time provided (including any
extension thereof as specifically permitted herein) and if any party hereto
still desires to conduct said operation, written notice proposing same must be
resubmitted to the other parties in accordance with the provisions hereof as if
no prior proposal had been made.
2. Operations by Less than All Parties: If any party receiving such
notice as provided in Article VI.B.1. or VII.D.1. (Option No. 2) elects not to
participate in the proposed operation, then, in order to be entitled to the
benefits of this Article, the party or parties giving the notice and such other
parties as shall elect to participate in the operation shall, within ninety
(90) days after the expiration of the notice period of thirty (30) days (or as
promptly as possible after the expiration of the forty-eight (48) hour period
when a drilling rig is on location, as the case may be) actually commence the
proposed operation and complete it with due diligence. Operator shall perform
all work for the account of the Consenting Parties; provided, however, if no
drilling rig or other equipment is on location, and if Operator is a
Non-Consenting Party, the Consenting Parties shall either: (a) request Operator
to perform the work required by such proposed operation for the account of the
Consenting Parties, or (b) designate one (1) of the Consenting Parties as
Operator to perform such work. Consenting Parties, when conducting operations
on the Contract Area pursuant to this Article VI.B.2., shall comply with all
terms and conditions of this agreement.
If less than all parties approve any proposed operation, the proposing
party, immediately after the expiration of the applicable notice period, shall
advise the Consenting Parties of the total interest of the parties approving
such operation and its recommendation as to whether the Consenting Parties
should proceed with the operation as proposed. Each Consenting Party, within
forty-eight (48) hours (exclusive of Saturday, Sunday and legal holidays) after
receipt of such notice, shall advise the proposing party of its desire to (a)
limit participation to such party's interest as shown on Exhibit "A" or (b)
carry its proportionate part of Non-Consenting Parties' interests, and failure
to advise the proposing party shall be deemed an election under (a). In the
event a drilling rig is on location, the time permitted for such a response
shall not exceed a total of forty-eight (48) hours (inclusive of Saturday,
Sunday and legal holidays). The proposing party, at its election, may withdraw
such proposal if there is insufficient participation and shall promptly notify
all parties of such decision.
The entire cost and risk of conducting such operations shall be borne by
the Consenting Parties in the proportions they have elected to bear same under
the terms of the preceding paragraph. Consenting Parties shall keep the
leasehold estates involved in such operations free and clear of all liens and
encumbrances of every kind created by or arising from the operations of the
Consenting Parties. If such an operation results in a dry hole, the Consenting
Parties shall plug and abandon the well and restore the surface location at
their sole cost, risk and expense. If any well drilled, reworked, deepened or
plugged back under the provisions of this Article results in a producer of oil
and/or gas in paying quantities, the Consenting Parties shall complete and
equip the well to produce at their sole cost and risk,
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A.A.P.L. FORM 610 - MODEL FORM OPERATING AGREEMENT - 1982
ARTICLE VI
CONTINUED
and the well shall then be turned over to Operator and shall be operated by it
at the expense and for the account of the Consenting Parties. Upon commencement
of operations for the drilling, reworking, deepening or plugging back of any
such well by Consenting Parties in accordance with the provisions of this
Article, each Non-Consenting Party shall be deemed to have relinquished to
Consenting Parties, and the Consenting Parties shall own and be entitled to
receive, in proportion to their respective interests, all of such
Non-Consenting Party's interest in the well and share of production therefrom
until the proceeds of the sale of such share, calculated at the well, or market
value thereof if such share is not sold, (after deducting production taxes,
excise taxes, royalty, overriding royalty and other interests not excepted by
Article III.D. payable out of or measured by the production from such well
accruing with respect to such interest until it reverts) shall equal the total
of the following:
(a) 100% of each such Non-Consenting Party's share of the cost of any
newly acquired surface equipment beyond the wellhead connections (including,
but not limited to, stock tanks, separators, treaters, pumping equipment and
piping), plus 100% of each such Non-Consenting Party's share of the cost of
operation of the well commencing with first production and continuing until
each such Non-Consenting Party's relinquished interest shall revert to it under
other provisions of this Article, it being agreed that each Non-Consenting
Party's share of such costs and equipment will be that interest which would
have been chargeable to Such Non-Consenting Party had it participated in the
well from the beginning of the operations; and
(b) 300% of that portion of the costs and expenses of drilling,
reworking, deepening, plugging back, testing and completing, after deducting
any cash contributions received under Article VIII.C., and 300% of that portion
of the cost of newly acquired equipment in the well (to and including the
wellhead connections), which would have been chargeable to such Non-Consenting
Party if it had participated therein.
An election not to participate in the drilling or the deepening of a
well shall be deemed an election not to participate in any reworking or
plugging back operation proposed in such a well, or portion thereof, to which
the initial Non-Consent election applied that is conducted at any time prior to
full recovery by the Consenting Parties of the Non-Consenting Party's
recoupment account. Any such reworking or plugging back operation conducted
during the recoupment period shall be deemed part of the cost of operation of
said well and there shall be added to the sums to be recouped by the Consenting
Parties one hundred percent (100%) of that portion of the costs of the
reworking or plugging back operation which would have been chargeable to such
Non-Consenting Party had it participated therein. If such a reworking or
plugging back operation is proposed during such recoupment period, the
provisions of this Article VI.B. shall be applicable as between said
Consenting Parties in said well.
During the period of time Consenting Parties are entitled to receive
Non-Consenting Party's share of production, or the proceeds therefrom,
Consenting Parties shall be responsible for the payment of all production,
severance, excise, gathering and other taxes, and all royalty, overriding
royalty and other burdens applicable to Non-Consenting Party's share of
production not excepted by Article III.D.
In the case of any reworking, plugging back or deeper drilling
operation, the Consenting Parties shall be permitted to use, free of cost, all
casing, tubing and other equipment in the well, but the ownership of all such
equipment shall remain unchanged; and upon abandonment of a well after such
reworking, plugging back or deeper drilling, the Consenting Parties shall
account for all such equipment to the owners thereof, with each party receiving
its proportionate part in kind or in value, less cost of salvage.
Within sixty (60) days after the completion of any operation under this
Article, the party conducting the operations for the Consenting Parties shall
furnish each Non-Consenting Party with an inventory of the equipment in and
connected to the well, and an itemized statement of the cost of drilling,
deepening, plugging back, testing, completing, and equipping the well for
production; or, at its option, the operating party, in lieu of an itemized
statement of such costs of operation, may submit a detailed statement of monthly
billings. Each month thereafter, during the time the Consenting Parties are
being reimbursed as provided above, the party conducting the operations for the
Consenting Parties shall furnish the Non-Consenting Parties with an itemized
statement of all costs and liabilities incurred in the operation of the well,
together with a statement of the quantity of oil and gas produced from it and
the amount of proceeds realized from the sale of the well's working interest
production during the preceding month. In determining the quantity of oil and
gas produced during any month, Consenting Parties shall use industry accepted
methods such as, but not limited to, metering or periodic well tests. Any
amount realized from the sale or other disposition of equipment newly acquired
in connection with any such operation which would have been owned by a Non-
Consenting Party had it participated therein shall be credited against the
total unreturned costs of the work done and of the equipment purchased in
determining when the interest of such Non-Consenting Party shall revert to it
as above provided; and if there is a credit balance, it shall be paid to such
Non-Consenting Party.
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A.A.P.L. FORM 610 - MODEL FORM OPERATING AGREEMENT - 1982
ARTICLE VI
CONTINUED
If and when the Consenting Parties recover from a Non-Consenting Party's
relinquished interest the amounts provided for above, the relinquished
interests of such Non-Consenting Party shall automatically revert to it, and,
from and after such reversion, such Non-Consenting Party shall own the same
interest in such well, the material and equipment in or pertaining thereto, and
the production therefrom as such Non-Consenting Party would have been entitled
to had it participated in the drilling, reworking, deepening or plugging back
of said well. Thereafter, such Non-Consenting Party shall be charged with and
shall pay its proportionate part of the further costs of the operation of said
well in accordance with the terms of this agreement and the Accounting
Procedure attached hereto.
Notwithstanding the provisions of this Article VI.B.2., it is agreed
that without the mutual consent of all parties, no wells shall be completed in
or produced from a source of supply from which a well located elsewhere on the
Contract Area is producing, unless such well conforms to the then-existing well
spacing pattern for such source of supply.
The provisions of this Article shall have no application whatsoever to
the drilling of the initial well described in Article VI.A. except (a) as to
Article VII.D.1. (Option No. 2), if selected, or (b) as to the reworking,
deepening and plugging back of such initial well after it has been drilled to
the depth specified in Article VI.A. if it shall thereafter prove to be a dry
hole or, if initially completed for production, ceases to produce in paying
quantities.
3. Stand-By Time: When a well which has been drilled or deepened has
reached its authorized depth and all tests have been completed, and the results
thereof furnished to the parties, stand-by costs incurred pending response to a
party's notice proposing a reworking, deepening, plugging back or completing
operation in such a well shall be charged and borne as part of the drilling or
deepening operation just completed. Stand-by costs subsequent to all parties
responding, or expiration of the response time permitted, whichever first
occurs, and prior to agreement as to the participating interests of all
Consenting Parties pursuant to the terms of the second grammatical paragraph of
Article VI.B.2, shall be charged to and borne as part of the proposed
operation, but if the proposal is subsequently withdrawn because of
insufficient participation, such stand-by costs shall be allocated between the
Consenting Parties in the proportion each Consenting Party's interest as shown
on Exhibit "A" bears to the total interest as shown on Exhibit "A" of all
Consenting Parties.
4. Sidetracking: Except as hereinafter provided, those provisions of
this agreement applicable to a "deepening" operation shall also be applicable
to any proposal to directionally control and intentionally deviate a well from
vertical so as to change the bottom hole location (herein called
"sidetracking"), unless done to straighten the hole or to drill around junk in
the hole or because of other mechanical difficulties. Any party having the
right to participate in a proposed sidetracking operation that does not own an
interest in the affected well bore at the time of the notice shall, upon
electing to participate, tender to the well bore owners its proportionate share
(equal to its interest in the sidetracking operation) of the value of that
portion of the existing well bore to be utilized as follows:
(a) If the proposal is for sidetracking an existing dry hole,
reimbursement shall be on the basis of the actual costs incurred in the
initial drilling of the well down to the depth at which the sidetracking
operation is initiated.
(b) If the proposal is for sidetracking a well which has previously
produced, reimbursement shall be on the basis of the well's salvable materials
and equipment down to the depth at which the sidetracking operation is
initiated, determined in accordance with the provisions of Exhibit "C", less
the estimated cost of salvaging and the estimated cost of plugging and
abandoning.
In the event that notice for a sidetracking operation is given while the
drilling rig to be utilized is on location, the response period shall be
limited to forty-eight (48) hours, exclusive of Saturday, Sunday and legal
holidays; provided, however, any party may request and receive up to eight (8)
additional days after expiration of the forty-eight (48) hours within which to
respond by paying for all stand-by time incurred during such extended response
period. If more than one party elects to take such additional time to respond
to the notice, stand-by costs shall be allocated between the parties taking
additional time to respond on a day-to-day basis in the proportion each
electing party's interest as shown on Exhibit "A" bears to the total interest
as shown on Exhibit "A" of all the electing parties. In all other instances the
response period to a proposal for sidetracking shall be limited to thirty (30)
days.
C. TAKING PRODUCTION IN KIND:
Each party shall take in kind or separately dispose of its proportionate
share of all oil and gas produced from the Contract Area, exclusive of
production which may be used in development and producing operations and in
preparing and treating oil and gas for marketing purposes and production
unavoidably lost. Any extra expenditure incurred in the taking in kind or
separate disposition by any party of its proportionate share of the production
shall be borne by such party. Any party taking its share of production in kind
shall be
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A.A.P.L. FORM 610 - MODEL FORM OPERATING AGREEMENT - 1982
ARTICLE VI
CONTINUED
required to pay for only its proportionate share of such part of Operator's
surface facilities which it uses.
Each party shall execute such division orders and contracts as may be
necessary for the sale of its interest in production from the Contract Area,
and, except as provided in Article VII.B., shall be entitled to receive payment
directly from the purchaser thereof for its share of all production.
In the event any party shall fail to make the arrangements necessary to
take in kind or separately dispose of its proportionate share of the oil and
gas produced from the Contract Area, Operator shall have the right, subject to
the revocation at will by the party owning it, but not the obligation, to
purchase such oil and gas or sell it to others at any time and from time to
time, for the account of the non-taking party at the best price obtainable in
the area for such production. Any such purchase or sale by Operator shall be
subject always to the right of the owner of the production to exercise at any
time its right to take in kind, or separately dispose of, its share of all oil
and gas not previously delivered to a purchaser. Any purchase or sale by
Operator of any other party's share of oil and gas shall be only for such
reasonable periods of time as are consistent with the minimum needs of the
industry under the particular circumstances, but in no event for a period in
excess of one (1) year. Notwithstanding the foregoing, Operator shall not make
a sale, including one into interstate commerce, of any other party's share of
gas production without first giving such other party thirty (30) days notice of
such intended sale.
D. ACCESS TO CONTRACT AREA AND INFORMATION:
Each party shall have access to the Contract at all reasonable times, at
its sole cost and risk to inspect or observe operations, and shall have access
at reasonable times to information pertaining to the development or operation
thereof, including Operator's books and records relating thereto. Operator,
upon request, shall furnish each of the other parties with copies of all forms
or reports filed with governmental agencies, daily drilling reports, well logs,
tank tables, daily gauge and run tickets and reports of stock on hand at the
first of each month, and shall make available samples of any cores or cuttings
taken from any well drilled on the Contract Area. The cost of gathering and
furnishing information to Non-Operator, other than that specified above, shall
be charged to the Non-Operator that requests the information.
E. ABANDONMENT OF WELLS:
1. Abandonment of Dry Holes: Except for any well drilled or deepened
pursuant to Article VI.B.2., any well which has been drilled or deepened under
the terms of this agreement and is proposed to be completed as a dry hole shall
not be plugged and abandoned without the consent of all parties. Should
Operator, after diligent effort, be unable to contact any party, or should any
party fail to reply within forty-eight (48) hours (exclusive of Saturday,
Sunday and legal holidays) after receipt of notice of the proposal to plug and
abandon such well, such party shall be deemed to have consented to the proposed
abandonment. All such wells shall be plugged and abandoned in accordance with
applicable regulations and at the cost, risk and expense of the parties who
participated in the cost of drilling or deepening such well. Any party who
objects to plugging and abandoning such well shall have the right to take over
the well and conduct further operations in search of oil and/or gas subject to
the provisions of Article VI.B.
2. Abandonment of Wells that have Produced: Except for any well in which
a Non-Consent operation has been conducted hereunder for which the Consenting
Parties have not been fully reimbursed as herein provided, any well which has
been completed as a producer shall not be plugged and abandoned without the
consent of all parties. If all parties consent to such abandonment, the well
shall be plugged and abandoned in accordance with applicable regulations and at
the cost, risk and expense of all the parties hereto. If, within thirty (30)
days after receipt of notice of the proposed abandonment of any well, all
parties do not agree to the abandonment of such well, those wishing to continue
its operation from the interval(s) of the formation(s) then open to production
shall tender to each of the other parties its proportionate share of the value
of the well's salvable material and equipment, determined in accordance with
the provisions of Exhibit "C", less the estimated cost of salvaging and the
estimated cost of plugging and abandoning. Each abandoning party shall assign
the non-abandoning parties, without warranty, express or implied, as to title
or as to quantity, or fitness for use of the equipment and material, all of its
interest in the well and related equipment, together with its interest in the
leasehold estate as to, but only as to, the interval or intervals of the
formation or formations then open to production. If the interest of the
abandoning party is or includes an oil and gas interest, such party shall
execute and deliver to the non-abandoning party or parties an oil and gas
lease, limited to the interval or intervals of the formation or formations then
open to production, for a term of one (1) year and so long thereafter as oil
and/or gas is produced from the interval or intervals of the formation or
formations covered thereby, such lease to be on the form attached as Exhibit
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A.A.P.L. FORM 610 - MODEL FORM OPERATING AGREEMENT - 1982
ARTICLE VI
CONTINUED
"B". The assignments or leases so limited shall encompass the "drilling unit"
upon which the well is located. The payments by, and the assignments or leases
to, the assignees shall be in a ratio based upon the relationship of their
respective percentage of participation in the Contract Area to the aggregate of
the percentages of participation in the Contract Area of all assignees. There
shall be no readjustment of interests in the remaining portion of the Contract
Area.
Thereafter, abandoning parties shall have no further responsibility,
liability, or interest in the operation of or production from the well in the
interval or intervals then open other than the royalties retained in any lease
made under the terms of this Article. Upon request, Operator shall continue to
operate the assigned well for the account of the non-abandoning parties at the
rates and charges contemplated by this agreement, plus any additional cost and
charges which may arise as the result of the separate ownership of the assigned
well. Upon proposed abandonment of the producing interval(s) assigned or
leased, the assignor or lessor shall then have the option to repurchase its
prior interest in the well (using the same valuation formula) and participate
in further operations therein subject to the provisions hereof.
3. Abandonment of Non-Consent Operations: The provisions of Article
VI.E.1. or VI.E.2. above shall be applicable as between Consenting Parties in
the event of the proposed abandonment of any well excepted from said Articles;
provided, however, no well shall be permanently plugged and abandoned unless
and until all parties having the right to conduct further operations therein
have been notified of the proposed abandonment and afforded the opportunity to
elect to take over the well in accordance with the provisions of this Article
VI.E.
ARTICLE VII.
EXPENDITURES AND LIABILITY OF PARTIES
A. LIABILITY OF PARTIES:
The liability of the parties shall be several, not joint or collective.
Each party shall be responsible only for its obligations, and shall be liable
only for its proportionate share of the costs of developing and operating the
Contract Area. Accordingly, the liens granted among the parties in Article
VII.B. are given to secure only the debts of each severally. It is not the
intention of the parties to create, nor shall this agreement be construed as
creating, a mining or other partnership or association, or to render the
parties liable as partners.
B. LIENS AND PAYMENT DEFAULTS:
Each Non-Operator grants to Operator a lien upon its oil and gas rights
in the Contract Area, and a security interest in its share of oil and/or gas
when extracted and its interest in all equipment, to secure payment of its
share of expense, together with interest thereon at the rate provided in
Exhibit "C". To the extent that Operator has a security interest under the
Uniform Commercial Code of the state, Operator shall be entitled to exercise
the rights and remedies of a secured party tinder the Code. The bringing of a
suit and the obtaining of judgment by Operator for the secured indebtedness
shall not be deemed an election of remedies or otherwise affect the lien rights
or security interest as security for the payment thereof. In addition, upon
default by any Non-Operator in the payment of its share of expense, Operator
shall have the right, without prejudice to other rights or remedies, to collect
from the purchaser the proceeds from the sale of such Non-Operator's share of
oil and/or gas until the amount owed by such Non-Operator, plus interest, has
been paid. Each purchaser shall be entitled to rely upon Operator's written
statement concerning the amount of any default. Operator grants a like lien and
security interest to the Non-Operators to secure payment of Operator's
proportionate share of expense.
If any party fails or is unable to pay its share of expense within sixty
(60) days after rendition of a statement therefor by Operator, the
non-defaulting parties, including Operator, shall, upon request by Operator,
pay the unpaid amount in the proportion that the interest of each such party
bears to the interest of all such parties. Each party so paying its share of
the unpaid amount shall, to obtain reimbursement thereof, be subrogated to the
security rights described in the foregoing paragraph,
C. PAYMENTS AND ACCOUNTING:
Except as herein otherwise specifically provided, Operator shall
promptly pay and discharge expenses incurred in the development and operation
of the Contract Area pursuant to this Agreement and shall charge each of the
parties hereto with their respective proportionate shares upon the expense
basis provided in Exhibit "C". Operator shall keep an accurate record of the
joint account hereunder, showing expenses incurred and charges and credits made
and received.
Operator, at its election, shall have the right from time to time to
demand and receive from the other parties payment in advance of their
respective shares of the estimated amount of the expense to be incurred in
operations hereunder during the next succeeding month, which right may be
exercised only by submission to each such party of an itemized statement of
such estimated expense, together with an invoice for its share thereof. Each
such statement and invoice for the payment in advance of estimated expense
shall be submitted on or before the 20th day of the next preceding month. Each
party shall pay to Operator its proportionate share of such estimate within
fifteen (15) days after such estimate and invoice is received. If any party
fails to pay its share of said estimate within said time, the amount due shall
bear interest as provided in Exhibit "C" until paid. Proper adjustment shall be
made monthly between advances and actual expense to the end that each party
shall bear and pay its proportionate share of actual expenses incurred, and no
more.
D. LIMITATION OF EXPENDITURES:
1. Drill or Deepen: Without the consent of all parties, no well shall be
drilled or deepened, except any well drilled or deepened pursuant to the
provisions of Article VI.B.2. of this agreement. Consent to the drilling or
deepening shall include:
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ARTICLE VII
CONTINUED
[ ] Option No. 1: All necessary expenditures for the drilling or deepening,
testing, completing and equipping of the well, including necessary tankage
and/or surface facilities.
[ ] Option No. 2: All necessary expenditures for the drilling or deepening
and testing of the well. When such well has reached its authorized depth, and
all tests have been completed, and the results thereof furnished to the
parties, Operator shall give immediate notice to the Non-Operators who have the
right to participate in the completion costs. The parties receiving such notice
shall have forty-eight (48) hours (exclusive of Saturday, Sunday and legal
holidays) in which to elect to participate in the setting of casing and the
completion attempt. Such election, when made, shall include consent to all
necessary expenditures for the completing and equipping of such well, including
necessary tankage and/or surface facilities. Failure of any party receiving
such notice to reply within the period above fixed shall constitute an election
by that party not to participate in the cost of the completion attempt. If one
or more, but less than all of the parties, elect to set pipe and to attempt a
completion, the provisions of Article VI.B.2. hereof (the phrase "reworking,
deepening or plugging back" as contained in Article VI.B.2. shall be deemed to
include "completing") shall apply to the operations thereafter conducted by
less than all parties.
2. Rework or Plug Back: Without the consent of all parties, no well
shall be reworked or plugged back except a well reworked or plugged back
pursuant to the provisions of Article VI.B.2. of this agreement. Consent to
the reworking or plugging back of a well shall include all necessary
expenditures in conducting such operations and completing and equipping of said
well, including necessary tankage and/or surface facilities.
3. Other Operations: Without the consent of all parties, Operator shall
not undertake any single project reasonably estimated to require an expenditure
in excess of Fifteen thousand Dollars ($15,000.00) except in connection with a
well, the drilling, reworking, deepening, completing, recompleting, or plugging
back of which has been previously authorized by or pursuant to this agreement;
provided, however, that, in case of explosion, fire, flood or other sudden
emergency, whether of the same or different nature, Operator may take such
steps and incur such expenses as in its opinion are required to deal with the
emergency to safeguard life and property but Operator, as promptly as possible,
shall report the emergency to the other parties. If Operator prepares an
authority for expenditure (AFE) for its own use, Operator shall furnish any
Non-Operator so requesting an information copy thereof for any single project
costing in excess of Fifteen thousand Dollars ($15,000.00) but less than the
amount first set forth above in this paragraph.
E. RENTALS, SHUT-IN WELL PAYMENTS AND MINIMUM ROYALTIES:
Rentals, shut-in well payments and minimum royalties which may be
required under the terms of any lease shall be paid by the party or parties who
subjected such lease to this agreement at its or their expense. In the event
two or more parties own and have contributed interests in the same lease to
this agreement, such parties may designate one of such parties to make said
payments for and on behalf of all such parties. Any party may request, and
shall be entitled to receive, proper evidence of all such payments. In the
event of failure to make proper payment of any rental, shut-in well payment or
minimum royalty through mistake or oversight where such payment is required to
continue the lease in force, any loss which results from such non-payment shall
be borne in accordance with the provisions of Article IV.B.2.
Operator shall notify Non-Operator of the anticipated completion of a
shut-in gas well, or the shutting in or return to production of a producing
gas well, at least five (5) days (excluding Saturday, Sunday and legal
holidays), or at the earliest opportunity permitted by circumstances, prior to
taking such action, but assumes no liability for failure to do so. In the event
of failure by Operator to so notify Non-Operator, the loss of any lease
contributed hereto by Non-Operator for failure to make timely payments of any
shut-in well payment shall be borne jointly by the parties hereto under the
provisions of Article IV.B.3.
F. TAXES:
Beginning with the first calendar year after the effective date hereof,
Operator shall render for ad valorem taxation all property subject to this
agreement which by law should be rendered for such taxes, and it shall pay all
such taxes assessed thereon before they become delinquent. Prior to the
rendition date, each Non-Operator shall furnish Operator information as to
burdens (to include, but not be limited to, royalties, overriding royalties and
production payments) oil leases and oil and gas interests contributed by such
Non-Operator. If the assessed valuation of any leasehold estate is reduced by
reason of its being subject to outstanding excess royalties, overriding
royalties or production payments, the reduction in ad valorem taxes resulting
therefrom shall inure to the benefit of the owner or owners of such leasehold
estate, and Operator shall adjust the charge to such owner or owners so as to
reflect the benefit of such reduction. If the ad valorem taxes are based in
whole or in part upon separate valuations of each party's working interest,
then notwithstanding anything to the contrary herein, charges to the joint
account shall be made and paid by the parties hereto in accordance with the tax
value generated by each party's working interest. Operator shall bill the other
parties for their proportionate shares of all tax payments in the manner
provided in Exhibit "C".
If Operator considers any tax assessment improper, Operator may, at its
discretion, protest within the time and manner prescribed by law, and prosecute
the protest to a final determination, unless all parties agree to abandon the
protest prior to final determination. During the pendency of administrative or
judicial proceedings, Operator may elect to pay, under protest, all such taxes
any interest and penalty. When any such protested assessment shall have been
finally determined, Operator shall pay the tax for the joint account, together
with any interest and penalty accrued, and the total cost shall then be
assessed against the parties, and be paid by them, as provided in Exhibit "C".
Each party shall pay or cause to be paid all production, severance,
excise, gathering and other taxes imposed upon the production or handling of
such party's share of oil and/or gas produced under the terms of this
agreement.
[AMERICAN ASSOCIATION OF PETROLEUM LANDMEN LOGO]
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A.A.P.L. FORM 610 - MODEL FORM OPERATING AGREEMENT - 1982
ARTICLE VII
CONTINUED
G. INSURANCE:
At all times while operations are conducted hereunder, Operator shall
comply with the workmen's compensation law of the state where the operations
are being conducted; provided, however, that Operator may be a self-insurer for
liability under said compensation laws in which event the only charge that
shall be made to the joint account shall be as provided in Exhibit "C".
Operator shall also carry or provide insurance for the benefit of the joint
account of the parties as outlined in Exhibit "D", attached to and made a part
hereof. Operator shall require all contractors engaged in work on or for the
Contract Area to comply with the workmen's compensation law of the state where
the operations are being conducted and to maintain such other insurance as
Operator may require.
In the event automobile public liability insurance is specified in said
Exhibit "D", or subsequently receives the approval of the parties, no direct
charge shall be made by Operator for premiums paid for such insurance for
Operator's automotive equipment.
ARTICLE VIII.
ACQUISITION, MAINTENANCE OR TRANSFER OF INTEREST
A. SURRENDER OF LEASES:
The leases covered by this agreement, insofar as they embrace acreage in
the Contract Area, shall not be surrendered in whole or in part unless all
parties consent thereto.
However, should any party desire to surrender its interest in any lease
or in any portion thereof, and the other parties do not agree or consent
thereto, the party desiring to surrender shall assign, without express or
implied warranty of title, all of its interest in such lease, or portion
thereof, and any well, material and equipment which may be located thereon and
any rights in production thereafter secured, to the parties not consenting to
such surrender. If the interest of the assigning party is or includes an oil
and gas interest, the assigning party shall execute and deliver to the party or
parties not consenting to such surrender an oil and gas lease covering such oil
and gas interest for a term of one (1) year and so long thereafter as oil
and/or gas is produced from the land covered thereby, such lease to be on the
form attached hereto as Exhibit "B". Upon such assignment or lease, the
assigning party shall be relieved from all obligations thereafter accruing, but
not theretofore accrued, with respect to the interest assigned or leased and
the operation of any well attributable thereto, and the assigning party shall
have no further interest in the assigned or leased premises and its equipment
and production other than the royalties retained in any lease made under the
terms of this Article. The party assignee or lessee shall pay to the party
assignor or lessor the reasonable salvage value of the latter's interest in any
wells and equipment attributable to the assigned or leased acreage. The value
of all material shall be determined in accordance with the provisions of
Exhibit "C", less the estimated cost of salvaging and the estimated cost of
plugging and abandoning. If the assignment or lease is in favor of more than
one party, the interest shall be shared by such parties in the proportions that
the interest of each bears to the total interest of all such parties.
Any assignment, lease or surrender made under this provision shall not
reduce or change the assignor's, lessor's or surrendering party's interest as
it was immediately before the assignment, lease or surrender in the balance of
the Contract Area; and the acreage assigned, leased or surrendered, and
subsequent operations thereon, shall not thereafter be subject to the terms and
provisions of this agreement.
B. RENEWAL OR EXTENSION OF LEASES:
If any party secures a renewal of any oil and gas lease subject to this
agreement, all other parties shall be notified promptly, and shall have the
right for a period of thirty (30) days following receipt of such notice in
which to elect to participate in the ownership of the renewal lease, insofar as
such lease affects lands within the Contract Area, by paying to the party who
acquired it their several proper proportionate shares of the acquisition cost
allocated to that part of such lease within the Contract Area, which shall be
in proportion to the interests held at that time by the parties in the Contract
Area.
If some, but less than all, of the parties elect to participate in the
purchase of a renewal lease, it shall be owned by the parties who elect to
participate therein, in a ratio based upon the relationship of their respective
percentage of participation in the Contract Area to the aggregate of the
percentages of participation in the Contract Area of all parties participating
in the purchase of such renewal lease. Any renewal lease in which less than all
parties elect to participate shall not be subject to this agreement.
Each party who participates in the purchase of a renewal lease shall be
given an assignment of its proportionate interest therein by the acquiring
party.
The provisions of this Article shall apply to renewal leases whether
they are for the entire interest covered by the expiring lease or cover only a
portion of its area or an interest therein. Any renewal lease taken before the
expiration of its predecessor lease, or taken or contracted for within six (6)
months after the expiration of the existing lease shall be subject to this
provision; but any lease taken or contracted for more than six (6) months after
the expiration of an existing lease shall not be deemed a renewal lease and
shall not be subject to the provisions of this agreement.
The provisions in this Article shall also be applicable to extensions of
oil and gas leases.
C. ACREAGE OR CASH CONTRIBUTIONS:
While this agreement is in force, if any party contracts for a
contribution of cash towards the drilling of a well or any other operation on
the Contract Area, such contribution shall be paid to the party who conducted
the drilling or other operation and shall be applied by it against the cost of
such drilling or other operation. If the contribution be in the form of
acreage, the party to whom the contribution is made shall promptly tender an
assignment of the acreage, without warranty of title, to the Drilling Parties
in the proportions
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A.A.P.L. FORM 610 - MODEL FORM OPERATING AGREEMENT - 1982
ARTICLE VIII
CONTINUED
said Drilling Parties shared the cost of drilling the well. Such acreage shall
become a separate Contract Area and, to the extent possible, be governed by
provisions identical to this agreement. Each party shall promptly notify all
other parties of any acreage or cash contributions it may obtain in support of
any well or any other operation on the Contract Area. The above provisions
shall also be applicable to optional rights to earn acreage outside the
Contract Area which are in support of a well drilled inside the Contract Area.
If any party contracts for any consideration relating to disposition of
such party's share of substances produced hereunder, such consideration shall
not be deemed a contribution as contemplated in this Article VIII.C.
D. MAINTENANCE OF UNIFORM INTEREST:
For the purpose of maintaining uniformity of ownership in the oil and
gas leasehold interests covered by this agreement, no party shall sell,
encumber, transfer or make other disposition of its interest in the leases
embraced within the Contract Area and in wells, equipment and production unless
such disposition covers either:
1. the entire interest of the party in all leases and equipment and
production; or
2. an equal undivided interest in all leases and equipment and
production in the Contract Area.
Every such sale, encumbrance, transfer or other disposition made by any
party shall be made expressly subject to this agreement and shall be made
without prejudice to the right of the other parties.
If, at any time the interest of any party is divided among and owned by
four or more co-owners, Operator, at its discretion, may require such co-owners
to appoint a single trustee or agent with full authority to receive notices,
approve expenditures, receive billings for and approve and pay such party's
share of the joint expenses, and to deal generally with, and with power to
bind, the co-owners of such party's interest within the scope of the
operations embraced in this agreement; however, all such co-owners shall have
the right to enter into and execute all contracts or agreements for the
disposition of their respective shares of the oil and gas produced from the
Contract Area and they shall have the right to receive, separately, payment of
the sale proceeds thereof.
E. WAIVER OF RIGHTS TO PARTITION:
If permitted by the laws of the state or states in which the property
covered hereby is located, each party hereto owning an undivided interest in
the Contract Area waives any and all rights it may have to partition and have
set aside to it in severalty its undivided interest therein.
F. PREFERENTIAL RIGHT TO PURCHASE:
Should any party desire to sell all or any part of its interests under
this agreement, or its rights and interests in the Contract Area, it shall
promptly give written notice to the other parties, with full information
concerning its proposed sale, which shall include the name and address of the
prospective purchaser (who must be ready, willing and able to purchase), the
purchase price, and all other terms of the offer. The other parties shall then
have an optional prior right, for a period of ten (10) days after receipt of
the notice, to purchase on the same terms and conditions the interest which
the other party proposes to sell; and, if this optional right is exercised, the
purchasing parties shall share the purchased interest in the proportions that
the interest of each bears to the total interest of all purchasing parties.
However, there shall be no preferential right to purchase in those cases where
any party wishes to mortgage its interests, or to dispose of its interests by
merger, reorganization, consolidation, or sale of all or substantially all of
its assets to a subsidiary or parent company or to a subsidiary of a parent
company, or to any company in which any one party owns a majority of the stock.
ARTICLE IX.
INTERNAL REVENUE CODE ELECTION
This agreement is not intended to create, and shall not be construed to
create, a relationship of partnership or an association for profit between or
among the parties hereto. Notwithstanding any provision herein that the rights
and liabilities hereunder are several and not joint or collective, or that this
agreement and operations hereunder shall not constitute a partnership, if, for
federal income tax purposes, this agreement and the operations hereunder are
regarded as a partnership, each party hereby affected elects to be excluded
from the application of all the provisions of Subchapter "K", Chapter 1,
Subtitle "A", of the Internal Revenue Code of 1954, as permitted and authorized
by Section 761 of the Code and the regulations promulgated thereunder. Operator
is authorized and directed to execute on behalf of each party hereby affected
such evidence of this election as may be required by the Secretary of the
Treasury of the United States or the Federal Internal Revenue Service,
including specifically, but not by way of limitation, all of the returns,
statements, and the data required by Federal Regulations 1.761. Should there be
any requirement that each party hereby affected give further evidence of this
election, each such party shall execute such documents and furnish such other
evidence as may be required by the Federal Internal Revenue Service or as may
be necessary to evidence this election. No such party shall give any notices or
take any other action inconsistent with the election made hereby. If any
present or future income tax laws of the state or states in which the Contract
Area is located or any future income tax laws of the United States contain
provisions similar to those in Subchapter "K", Chapter 1, Subtitle "A", of the
Internal Revenue Code of 1954, under which an election similar to that provided
by Section 761 of the Code is permitted, each party hereby affected shall make
such election as may be permitted or required by such laws. In making the
foregoing election, each such party states that the income derived by such
party from operations hereunder can be adequately determined without the
computation of partnership taxable income.
[AMERICAN ASSOCIATION OF PETROLEUM LANDMEN LOGO]
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A.A.P.L. FORM 610 - MODEL FORM OPERATING AGREEMENT - 1982
ARTICLE X.
CLAIMS AND LAWSUITS
Operator may settle any single uninsured third party damage claim or
suit arising from operations hereunder if the expenditure does not exceed Five
thousand and no/100 Dollars ($5,000.00) and if the payment is in complete
settlement of such claim or suit. If the amount required for settlement exceeds
the above amount, the parties hereto shall assume and take over the further
handling of the claim or suit, unless such authority is delegated to Operator.
All costs and expenses of handling, settling, or otherwise discharging such
claim or suit shall be at the joint expense of the parties participating in the
operation from which the claim or suit arises. If a claim is made against any
party or if any party is sued on account of any matter arising from operations
hereunder over which such individual has no control because of the rights given
Operator by this agreement, such party shall immediately notify all other
parties, and the claim or suit shall be treated as any other claim or suit
involving operations hereunder.
ARTICLE XI.
FORCE MAJEURE
If any party is rendered unable, wholly or in part, by force majeure to
carry out its obligations under this agreement, other than the obligation to
make money payments, that party shall give to all other parties prompt written
notice of the force majeure with reasonably full particulars concerning it;
thereupon, the obligations of the party giving the notice, so far as they are
affected by the force majeure, shall be suspended during, but no longer than,
the continuance of the force majeure. The affected party shall use all
reasonable diligence to remove the force majeure situation as quickly as
practicable.
The requirement that any force majeure shall be remedied with all
reasonable dispatch shall not require the settlement of strikes, lockouts, or
other labor difficulty by the party involved, contrary to its wishes; how all
such difficulties shall be handled shall be entirely within the discretion of
the party concerned.
The term "force majeure", as here employed, shall mean an act of God,
strike, lockout, or other industrial disturbance, act of the public enemy, war,
blockade, public riot, lightning, fire, storm, flood, explosion, governmental
action, governmental delay, restraint or inaction, unavailability of equipment,
and any other cause, whether of the kind specifically enumerated above or
otherwise, which is not reasonably within the control of the party claiming
suspension.
ARTICLE XII.
NOTICES
All notices authorized or required between the parties and required by
any of the provisions of this agreement, unless otherwise specifically
provided, shall be given in writing by mail or telegram, postage or charges
prepaid, or by telex or telecopier and addressed to the parties to whom the
notice is given at the addresses listed on Exhibit "A". The originating notice
given under any provision hereof shall be deemed given only when received by
the party to whom such notice is directed, and the time for such party to give
any notice in response thereto shall run from the date the originating notice
is received. The second or any responsive notice shall be deemed given when
deposited in the mail or with the telegraph company, with postage or charges
prepaid, or sent by telex or telecopier. Each party shall have the right to
change its address at any time, and from time to time, by giving written notice
thereof to all other parties.
ARTICLE XIII.
TERM OF AGREEMENT
This agreement shall remain in full force and effect as to the oil and
gas leases and/or oil and gas interests subject hereto for the period of time
selected below; provided, however, no party hereto shall ever be construed as
having any right, title or interest in or to any lease or oil and gas interest
contributed by any other party beyond the term of this agreement.
[X] Option No. 1: So long as any of the oil and gas leases subject to this
agreement remain or are continued in force as to any part of the Contract Area,
whether by production, extension, renewal or otherwise.
[ ] Option No. 2: In the event the well described in Article VI.A., or any
subsequent well drilled under any provision of this agreement, results in
production of oil and/or gas in paying quantities, this agreement shall
continue in force so long as any such well or wells produce, or are capable of
production, and for an additional period of _____ days from cessation of all
production; provided, however, if, prior to the expiration of such additional
period, one or more of the parties hereto are engaged in drilling, reworking,
deepening, plugging back, testing or attempting to complete a well or wells
hereunder, this agreement shall continue in force until such operations have
been completed and if production results therefrom, this agreement shall
continue in force as provided herein. In the event the well described in
Article VI.A., or any subsequent well drilled hereunder, results in a dry hole,
and no other well is producing, or capable of producing oil and/or gas from the
Contract Area, this agreement shall terminate unless drilling, deepening,
plugging back or reworking operations are commenced within _____ days from the
date of abandonment of said well.
It is agreed, however, that the termination of this agreement shall not
relieve any party hereto from any liability wnich has accrued or attached prior
to the date of such termination.
[AMERICAN ASSOCIATION OF PETROLEUM LANDMEN LOGO]
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A.A.P.L. FORM 610 - MODEL FORM OPERATING AGREEMENT - 1982
ARTICLE XIV.
COMPLIANCE WITH LAWS AND REGULATIONS
A. LAWS, REGULATIONS AND ORDERS:
This agreement shall be subject to the conservation laws of the state in
which the Contract Area is located, to the valid rules, regulations, and orders
of any duly constituted regulatory body of said state; and to all other
applicable federal, state, and local laws, ordinances, rules, regulations, and
orders.
B. GOVERNING LAW:
This agreement and all matters pertaining thereto, including, but not
limited to, matters of performance, non-performance, breach, remedies,
procedures, rights, duties and interpretation or construction, shall be
governed and determined by the law of the state in which the Contract Area is
located. If the Contract Area is in two or more states, the law of the state of
________________ shall govern.
C. REGULATORY AGENCIES:
Nothing herein contained shall grant, or be construed to grant, Operator
the right or authority to waive or release any rights, privileges, or
obligations which Non-Operators may have under federal or state laws or under
rules, regulations or orders promulgated under such laws in reference to oil,
gas and mineral operations, including the location, operation, or production of
wells, on tracts offsetting or adjacent to the Contract Area.
With respect to operations hereunder, Non-Operators agree to release
Operator from any and all losses, damages, injuries, claims and causes action
arising out of, incident to or resulting directly or indirectly from Operator's
interpretation or application of rules, rulings, regulations or orders of the
Department of Energy or predecessor or Successor agencies to the extent such
interpretation or application was made in good faith. Each Non-Operator further
agrees to reimburse Operator for any amounts applicable to such Non-Operator's
share of production that Operator may be required to refund, rebate or pay as
a result of such an incorrect interpretation or application, together with
interest and penalties thereon owing by Operator as a result of such incorrect
interpretation or application.
Non-Operators authorize Operator to prepare and submit such documents as
may be required to be submitted to the purchaser of any crude oil sold
hereunder or to any other person or entity pursuant to the requirements of the
"Crude Oil Windfall Profit Tax Act of 1980", as same may be amended from time
to time ("Act"), and any valid regulations or rules which may be issued by the
Treasury Department from time to time pursuant to said Act. Each party hereto
agrees to furnish any and all certifications or other information which is
required to be furnished by said Act in a timely manner and in sufficient
detail to permit compliance with said Act.
ARTICLE XV.
OTHER PROVISIONS
[AMERICAN ASSOCIATION OF PETROLEUM LANDMEN LOGO]
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A.A.P.L. FORM 610 - MODEL FORM OPERATING AGREEMENT - 1982
ARTICLE XVI.
MISCELLANEOUS
This agreement shall be binding upon and shall inure to the benefit of
the parties hereto and to their respective heirs, devisees, legal
representatives, successors and assigns.
This instrument may be executed in any number of counterparts, each of
which shall be considered an original for all purposes.
IN WITNESS WHEREOF, this agreement shall be effective as of 1st day of
May, 1996.
OPERATOR
ATTEST: BLACKJACK OIL & GAS, INC.
/s/ KAREN BEAMAN /s/ GARY FOSTER
- ------------------------------ ------------------------------
Karen Beaman, Secretary Gary Foster, President
NON-OPERATORS
NATIONAL ENERGY RESOURCES, INC.
- ------------------------------ ------------------------------
- ------------------------------ ------------------------------
[AMERICAN ASSOCIATION OF PETROLEUM LANDMEN LOGO]
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COPAS - 1984 - ONSHORE
Recommended by the Council
[LOGO] 601, Box 800 of Petroleum Accountants
TULSA OK 74101 Societies
EXHIBIT "C"
Attached to and made a part of that certain Operating Agreement dated May 1,
1996 covering Oklahoma, Texas, and Kansas properties.
ACCOUNTING PROCEDURE
JOINT OPERATIONS
I. GENERAL PROVISIONS
1. DEFINITIONS
"Joint Property" shall mean the real and personal property subject to
the agreement to which this Accounting Procedure is attached.
"Joint Operations" shall mean all operations necessary or proper for the
development, operation, protection and maintenance of the Joint
Property.
"Joint Account" shall mean the account showing the charges paid and
credits received in the conduct of the Joint Operations and which are to
be shared by the Parties.
"Operator" shall mean the party designated to conduct the Joint
Operations.
"Non-Operators" shall mean the Parties to this agreement other than the
Operator.
"Parties" shall mean Operator and Non-Operators.
"First Level Supervisors" shall mean those employees whose primary
function in Joint Operations is the direct supervision of other
employees and/or contract labor directly employed on the Joint Property
in a field operating capacity.
"Technical Employees" shall mean those employees having special and
specific engineering, geological or other professional skills, and whose
primary function in Joint Operations is the handling of specific
operating conditions and problems for the benefit of the Joint Property.
"Personal Expenses" shall mean travel and other reasonable reimbursable
expenses of Operator's employees.
"Material" shall mean personal property, equipment or supplies acquired
or held for use on the Joint Property.
"Controllable Material" shall mean Material which at the time is so
classified in the Material Classification Manual as most recently
recommended by the Council of Petroleum Accountants Societies.
2. STATEMENT AND BILLINGS
Operator shall bill Non-Operators on or before the last day of each
month for their proportionate share of the Joint Account for the
preceding month. Such bills will be accompanied by statements which
identify the authority for expenditure, lease or facility, and all
charges and credits summarized by appropriate classifications of
investment and expense except that items of Controllable Material and
unusual charges and credits shall be separately identified and fully
described in detail.
3. ADVANCES AND PAYMENTS BY NON-OPERATORS
A. Unless otherwise provided for in the agreement, the Operator may
require the Non-Operators to advance their share of estimated cash
outlay for the succeeding month's operation within fifteen (15)
days after receipt of the billing or by the first day of the month
for which the advance is required, whichever is later. Operator
shall adjust each monthly billing to reflect advances received from
the Non-Operators.
B. Each Non-Operator shall pay its proportion of all bills within
fifteen (15) days after receipt. If payment is not made within such
time, the unpaid balance shall bear interest monthly at the prime
rate in effect at 1% on the first day of the month in which
delinquency occurs plus 1% or the maximum contract rate permitted
by the applicable usury laws in the state in which the Joint
Property is located, whichever is the lesser, plus attorney's fees,
court costs, and other costs in connection with the collection of
unpaid amounts.
4. ADJUSTMENTS
Payment of any such bills shall not prejudice the right of any
Non-Operator to protest or question the correctness thereof; provided,
however, all bills and statements rendered to Non-Operators by Operator
during any calendar year shall conclusively be presumed to be true and
correct after twenty-four (24) months following the end of any such
calendar year, unless within the said twenty-four (24) month period a
Non-Operator takes written exception thereto and makes claim on Operator
for adjustment. No adjustment favorable to Operator shall be made unless
it is made within the same prescribed period. The provisions of this
paragraph shall not prevent adjustments resulting from a physical
inventory of Controllable Material as provided for in Section V.
COPYRIGHT(C) 1985 by the Council of Petroleum Accountants Societies.
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COPAS - 1984 - ONSHORE
Recommended by the Council
of Petroleum Accountants
Societies
5. AUDITS
A. A Non-Operator, upon notice in writing to Operator and all other
Non-Operators, shall have the right to audit Operator's accounts
and records relating to the Joint Account for any calendar year
within the twenty-four (24) month period following the end of such
calendar year; provided, however, the making of an audit shall not
extend the time for the taking of written exception to and the
adjustments of accounts as provided for in Paragraph 4 of this
Section I. Where there are two or more Non-Operators, the
Non-Operators shall make every reasonable effort to conduct a joint
audit in a manner which will result in a minimum of inconvenience
to the Operator. Operator shall bear no portion of the
Non-Operators' audit cost incurred under this paragraph unless
agreed to by the Operator. The audits shall not be conducted more
than once each year without prior approval of Operator, except upon
the resignation or removal of the Operator, and shall be made at
the expense of those Non-Operators approving such audit.
B. The Operator shall reply in writing to an audit report within 180
days after receipt of such report.
6. APPROVAL BY NON-OPERATORS
Where an approval or other agreement of the Parties or Non-Operators is
expressly required under other sections of this Accounting Procedure and
if the agreement to which this Accounting Procedure is attached contains
no contrary provisions in regard thereto, Operator shall notify all
Non-Operators of the Operator's proposal, and the agreement or approval
of a majority in interest of the Non-Operators shall be controlling on
all Non-Operators.
II. DIRECT CHARGES
Operator shall charge the Joint Account with the following items:
1. ECOLOGICAL AND ENVIRONMENTAL
Costs incurred for the benefit of the Joint Property as a result of
governmental or regulatory requirements to satisfy environmental
considerations applicable to the Joint Operations. Such costs may
include surveys of an ecological or archaeological nature and pollution
control procedures as required by applicable laws and regulations.
2. RENTALS AND ROYALTIES
Lease rentals and royalties paid by Operator for the Joint Operations.
3. LABOR
A. (1) Salaries and wages of Operator's field employees directly
employed on the Joint Property in the conduct of Joint
Operations.
(2) Salaries of First Level Supervisors in the field.
(3) Salaries and wages of Technical Employees directly employed on
the Joint Property if such charges are excluded from the
overhead rates.
(4) Salaries and wages of Technical Employees either temporarily
or permanently assigned to and directly employed in the
operation of the Joint Property if such charges are excluded
from the overhead rates.
B. Operator's cost of holiday, vacation, sickness and disability
benefits and other customary allowances paid to employees whose
salaries and wages are chargeable to the Joint Account under
Paragraph 3A of this Section II. Such costs under this Paragraph 3B
may be charged on a "when and as paid basis" or by "percentage
assessment" on the amount of salaries and wages chargeable to the
Joint Account under Paragraph 3A of this Section II. If percentage
assessment is used, the rate shall be based on the Operator's cost
experience.
C. Expenditures or contributions made pursuant to assessments imposed
by governmental authority which are applicable to Operator's costs
chargeable to the Joint Account under Paragraphs 3A and 3B of this
Section II.
D. Personal Expenses of those employees whose salaries and wages are
chargeable to the joint Account under Paragraph 3A of this Section
II.
4. EMPLOYEE BENEFITS
Operator's current costs of established plans for employees' group life
insurance, hospitalization, pension, retirement, stock purchase, thrift,
bonus, and other benefit plans of a like nature, applicable to
Operator's labor cost chargeable to the Joint Account under Paragraphs
3A and 3B of this Section II shall be Operator's actual cost not to
exceed the percent most recently recommended by the Council of Petroleum
Accountants Societies.
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COPAS - 1984 - ONSHORE
Recommended by the Council
of Petroleum Accountants
Societies
5. MATERIAL
Material purchased or furnished by Operator for use on the Joint
Property as provided under Section IV. Only such Material shall be
purchased for or transferred to the Joint Property as may be required
for immediate use and is reasonably practical and consistent with
efficient and economical operations. The accumulation of surplus stocks
shall be avoided.
6. TRANSPORTATION
Transportation of employees and Material necessary for the Joint
Operations but subject to the following limitations:
A. If Material is moved to the Joint Property from the Operator's
warehouse or other properties, no charge shall be made to the Joint
Account for a distance greater than the distance from the nearest
reliable supply store where like material is normally available or
railway receiving point nearest the Joint Property unless agreed to
by the Parties.
B. If surplus Material is moved to Operator's warehouse or other
storage point, no charge shall be made to the Joint Account for a
distance greater than the distance to the nearest reliable supply
store where like material is normally available, or railway
receiving point nearest the Joint Property unless agreed to by the
Parties. No charge shall be made to the Joint Account for moving
Material to other properties belonging to Operator, unless agreed
to by the Parties.
C. In the application of subparagraphs A and B above, the option to
equalize or charge actual trucking cost is available when the
actual charge is $400 or less excluding accessorial charges. The
$400 will be adjusted to the amount most recently recommended by
the Council of Petroleum Accountants Societies.
7. SERVICES
The cost of contract services, equipment and utilities provided by
outside sources, except services excluded by Paragraph 10 of Section II
and Paragraph i, ii, and iii, of Section III. The cost of professional
consultant services and contract services of technical personnel
directly engaged on the Joint Property if such charges are excluded from
the overhead rates. The cost of professional consultant services or
contract services of technical personnel not directly engaged on the
Joint Property shall not be charged to the Joint Account unless
previously agreed to by the Parties.
9. DAMAGES AND LOSSES TO JOINT PROPERTY
All costs or expenses necessary for the repair or replacement of Joint
Property made necessary because of damages or losses incurred by fire,
flood, storm, theft, accident, or other cause, except those resulting
from Operator's gross negligence or willful misconduct. Operator shall
furnish Non-Operator written notice of damages or losses incurred as
soon as practicable after a report thereof has been received by
Operator.
10. LEGAL EXPENSE
Expense of handling, investigating and settling litigation or claims,
discharging of liens, payment of judgements and amounts paid for
settlement of claims incurred in or resulting from operations under the
agreement or necessary to protect or recover the Joint Property, except
that no charge for services of Operator's legal staff or fees or expense
of outside attorneys shall be made unless previously agreed to by the
Parties. All other legal expense is considered to be covered by the
overhead provisions of Section III unless otherwise agreed to by the
Parties, except as provided in Section I, Paragraph 3.
11. TAXES
All taxes of every kind and nature assessed or levied upon or in
connection with the Joint Property, the operation thereof, or the
production therefrom, and which taxes have been paid by the Operator for
the benefit of the Parties. If the ad valorem taxes are based in whole
or in part upon separate valuations of each party's working interest,
then notwithstanding anything to the contrary herein, charges to the
Joint Account shall be made and paid by the Parties hereto in accordance
with the tax value generated by each party's working interest.
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12. INSURANCE
Net premiums paid for insurance required to be carried for the Joint
Operations for the protection of the Parties. In the event Joint
Operations are conducted in a state in which Operator may act as
self-insurer for Worker's Compensation and/or Employers Liability under
the respective state's laws, Operator may, at its election, include the
risk under its self-insurance program and in that event, Operator shall
include a charge at Operator's cost not to exceed manual rates.
13. ABANDONMENT AND RECLAMATION
Costs incurred for abandonment of the Joint Property, including costs
required by governmental or other regulatory authority.
14. COMMUNICATIONS
Cost of acquiring, leasing, installing, operating, repairing and
maintaining communication systems, including radio and microwave
facilities directly serving the Joint Property. In the event
communication facilities/systems serving the Joint Property are Operator
owned, charges to the Joint Account shall be made as provided in
Paragraph 8 of this Section II.
15. OTHER EXPENDITURES
Any other expenditure not covered or dealt with in the foregoing
provisions of this Section II, or in Section III and which is of direct
benefit to the Joint Property and is incurred by the Operator in the
necessary and proper conduct of the Joint Operations.
III. OVERHEAD
1. Overhead - Drilling and Producing Operations
i. As compensation for administrative, supervision, office services
and warehousing costs, Operator shall charge drilling and producing
operations on either:
(X) Fixed Rate Basis, Paragraph 1A, or
( ) Percentage Basis, Paragraph 1B
Unless otherwise agreed to by the Parties, such charge shall be in
lieu of costs and expenses of all offices and salaries or wages
plus applicable burdens and expenses of all personnel, except those
directly chargeable under Paragraph 3A, Section II. The cost and
expense of services from outside sources in connection with matters
of taxation, traffic, accounting or matters before or involving
governmental agencies shall be considered as included in the
overhead rates provided for in the above selected Paragraph of this
Section III unless such cost and expense are agreed to by the
Parties as a direct charge to the Joint Account.
ii. The salaries, wages and Personal Expenses of Technical Employees
and/or the cost of professional consultant services and contract
services of technical personnel directly employed on the Joint
Property:
( ) shall be covered by the overhead rates, or
(X) shall not be covered by the overhead rates.
iii. The salaries, wages and Personal Expenses of Technical Employees
and/or costs of professional consultant services and contract
services of technical personnel either temporarily or permanently
assigned to and directly employed in the operation of the Joint
Property:
( ) shall be covered by the overhead rates, or
(X) shall not be covered by the overhead rates.
A. Overhead - Fixed Rate Basis
(1) Operator shall charge the Joint Account at the following rates
per well per month:
Drilling Well Rate $N/A
(Prorated for less than a full month)
Producing WELL Rate $350.00 per month
(2) Application of Overhead - Fixed Rate Basis shall be as
follows:
(a) Drilling Well Rate
(1) Charges for drilling wells shall begin on the date
the well is spudded and terminate on the date the
drilling rig, completion rig, or other units used
in completion of the well is released, whichever
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is later, except that no charge shall be made
during suspension of drilling or completion
operations for fifteen (15) or more consecutive
calendar days.
(2) Charges for wells undergoing any type of workover
or recompletion for a period of five (5)
consecutive work days or more shall be made at the
drilling well rate. Such charges shall be applied
for the period from date workover operations, with
rig or other units used in workover, commence
through date of rig or other unit release, except
that no charge shall be made during suspension of
operations for fifteen (15) or more consecutive
calendar days.
(b) Producing Well Rates
(1) An active well either produced or injected into for
any portion of the month shall be considered as a
one-well charge for the entire month.
(2) Each active completion in a multi-completed well in
which production is not commingled down hole shall
be considered as a one-well charge providing each
completion is considered a separate well by the
governing regulatory authority.
(3) An inactive gas well shut in because of
overproduction or failure of purchaser to take the
production shall be considered as a one-well charge
providing the gas well is directly connected to a
permanent sales outlet.
(4) A one-well charge shall be made for the month in
which plugging and abandonment operations are
completed on any well. This one-well charge shall
be made whether or not the well has produced except
when drilling well rate applies.
(5) All other inactive wells (including but not limited
to inactive wells covered by unit allowable, lease
allowable, transferred allowable, etc.) shall not
qualify for an overhead charge.
(3) The well rates shall be adjusted as of the first day of April each
year following the effective date of the agreement to which this
Accounting Procedure is attached. The adjustment shall be computed
by multiplying the rate currently in use by the percentage increase
or decrease in the average weekly earnings of Crude Petroleum and
Gas Production Workers for the last calendar year compared to the
calendar year preceding as shown by the index of average weekly
earnings of Crude Petroleum and Gas Production Workers as published
by the United States Department of Labor, Bureau of Labor
Statistics, or the equivalent Canadian index as published by
Statistics Canada, as applicable. The adjusted rates shall be the
rates currently in use, plus or minus the computed adjustment.
2. OVERHEAD - MAJOR CONSTRUCTION
To compensate Operator for overhead costs incurred in the construction
and installation of fixed assets, the expansion of fixed assets, and any
other project clearly discernible as a fixed asset required for the
development and operation of the Joint Property, Operator shall either
negotiate a rate prior to the beginning of construction, or shall charge
the Joint
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4. AMENDMENT OF RATES
The overhead rates provided for in this Section III may be amended from
time to time only by mutual agreement between the Parties hereto if, in
practice, the rates are found to be insufficient or excessive.
IV. PRICING OF JOINT ACCOUNT MATERIAL PURCHASES, TRANSFERS AND DISPOSITIONS
Operator is responsible for Joint Account Material and shall make proper and
timely charges and credits for all Material movements affecting the Joint
Property. Operator shall provide all Material for use on the Joint Property;
however, at Operator's option, such Material may be supplied by the
Non-Operator. Operator shall make timely disposition of idle and/or surplus
Material, such disposal being made either through sale to Operator or
Non-Operator, division in kind, or sale to outsiders. Operator may purchase,
but shall be under no obligation to purchase, interest of Non-Operators in
surplus condition A or B Material. The disposal of surplus Controllable
Material not purchased by the Operator shall be agreed to by the Parties.
1. PURCHASES
Material purchased shall be charged at the price paid by Operator after
deduction of all discounts received. In case of Material found to be
defective or returned to vendor for any other reasons, credit shall be
passed to the Joint Account when adjustment has been received by the
Operator.
2. TRANSFERS AND DISPOSITIONS
Material furnished to the Joint Property and Material transferred from
the Joint Property or disposed of by the Operator, unless otherwise
agreed to by the Parties, shall be priced on the following basis
exclusive of cash discounts:
A. New Material (Condition A)
(1) Tubular Goods Other than Line Pipe
(a) Tubular goods, sized 2-3/8 inches OD and larger, except
line pipe, shall be priced at Eastern mill published
carload base prices effective as of date of movement plus
transportation cost using the 80,000 pound carload weight
basis to the railway receiving point nearest the Joint
Property for which published rail rates for tubular goods
exist. If the 80,000 pound rail rate is not offered, the
70,000 pound or 90,000 pound rail rate may be used.
Freight charges for tubing will be calculated from
Lorain, Ohio and casing from Youngstown, Ohio.
(b) For grades which are special to one mill only, prices
shall be computed at the mill base of that mill plus
transportation cost from that mill to the railway
receiving point nearest the Joint Property as provided
above in Paragraph 2.A.(1)(a). For transportation cost
from points other than Eastern mills, the 30,000
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Societies
pound Oil Field Haulers Association interstate truck rate
shall be used.
(c) Special end finish tubular goods shall be priced at the
lowest published out-of-stock price, f.o.b. Houston,
Texas, plus transportation cost, using Oil Field Haulers
Association interstate 30,000 pound truck rate, to the
railway receiving point nearest the Joint Property.
(d) Macaroni tubing (size less than 2-3/8% inch OD) shall be
priced at the lowest published out-of-stock prices f.o.b.
the supplier plus transportation costs, using the Oil
Field Haulers Association interstate truck rate per
weight of tubing transferred, to the railway receiving
point nearest the Joint Property.
(2) Line Pipe
(a) Line pipe movements (except size 24 inch OD and larger
with walls 3/4 inch and over) 30,000 pounds or more shall
be priced under provisions of tubular goods pricing in
Paragraph A.(1)(a) as provided above. Freight charges
shall be calculated from Lorain, Ohio.
(b) Line pipe movements (except size 24 inch OD and larger
with walls 3/4 inch and over) less than 30,000 pounds
shall be priced at Eastern mill published carload base
prices effective as of date of shipment, plus 20 percent,
plus transportation costs based on freight rates as set
forth under provisions of tubular goods pricing in
Paragraph A.(1)(a) as provided above. Freight charges
shall be calculated from Lorain, Ohio.
(c) Line pipe 24 inch OD and over and 3/4 inch wall and
larger shall be priced f.o.b. the point of manufacture at
current new published prices plus transportation cost to
the railway receiving point nearest the Joint Property.
(d) Line pipe, including fabricated line pipe, drive pipe and
conduit not listed on published price lists shall be
priced at quoted prices plus freight to the railway
receiving point nearest the Joint Property or at prices
agreed to by the Parties.
(3) Other Material shall be priced at the current new price, in effect
at date of movement, as listed by a reliable supply store nearest
the Joint Property, or point of manufacture, plus transportation
costs, if applicable, to the railway receiving point nearest the
Joint Property.
(4) Unused new Material, except tubular goods, moved from the Joint
Property shall be priced at the current new price, in effect on
date of movement, as listed by a reliable supply store nearest the
Joint Property, or point of manufacture, plus transportation costs,
if applicable, to the railway receiving point nearest the Joint
Property. Unused new tubulars will be priced as provided above in
Paragraph 2.A.(l) and (2).
B. Good Used Material (Condition B)
Material in sound and serviceable condition and suitable for reuse
without reconditioning:
(1) Material moved to the Joint Property
At seventy-five percent (75%) of current new price, as determined
by Paragraph A.
(2) Material used on and moved from the Joint Property
(a) At seventy-five percent (75%) of current new price, as
determined by Paragraph A, if Material was originally
charged to the Joint Account as new Material or
(b) At sixty-five percent (65%) of current new price, as
determined by Paragraph A, if Material was originally
charged to the Joint Account as used Material.
(3) Material not used on and moved from the Joint Property
At seventy-five percent (75%) of current new price as
determined by Paragraph A.
The cost of reconditioning, if any, shall be absorbed by the
transferring property.
C. Other Used Material
(1) Condition C
Material which is not in sound and serviceable condition and
not suitable for its original function until after
reconditioning shall be priced at fifty percent (50%) of
current new price as determined by Paragraph A. The cost of
reconditioning shall be charged to the receiving property,
provided Condition C value plus cost of reconditioning does
not exceed Condition B value.
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Societies
(2) Condition D
Material, excluding junk, no longer suitable for its original
purpose, but usable for some other purpose shall be priced on
a basis commensurate with its use. Operator may dispose of
Condition D Material under procedures normally used by
Operator without prior approval of Non-Operators.
(a) Casing, tubing, or drill pipe used as line pipe shall be
priced as Grade A and B seamless line pipe of comparable
size and weight. Used casing, tubing or drill pipe
utilized as line pipe shall be priced at used line pipe
prices.
(b) Casing, tubing or drill pipe used as higher pressure
service lines than standard line pipe, e.g. power oil
lines, shall be priced under normal pricing procedures
for casing, tubing, or drill pipe. Upset tubular goods
shall be priced on a non upset basis.
(3) Condition E
Junk shall be priced at prevailing prices. Operator may
dispose of Condition E Material under procedures normally
utilized by Operator without prior approval of Non-Operators.
D. Obsolete Material
Material which is serviceable and usable for its original function
but condition and/or value of such Material is not equivalent to
that which would justify a price as provided above may be specially
priced as agreed to by the Parties. Such price should result in
the Joint Account being charged with the value of the service
rendered by such Material.
E. Pricing Conditions
(1) Loading or unloading costs may be charged to the Joint Account
at the rate of twenty-five cents (25 cents per hundred weight
on all tubular goods movements, in lieu of actual loading or
unloading costs sustained at the stocking point. The above
rate shall be adjusted as of the first day of April each year
following January 1, 1985 by the same percentage increase or
decrease used to adjust overhead rates in Section III,
Paragraph I.A.(3). Each year, the rate calculated shall be
rounded to the nearest cent and shall be the rate in effect
until the first day of April next year. Such rate shall be
published each year by the Council of Petroleum Accountants
Societies.
(2) Material involving erection costs shall be charged at
applicable percentage of the current knocked-down price of new
Material.
3. PREMIUM PRICES
Whenever Material is not readily obtainable at published or listed
prices because of national emergencies, strikes or other unusual causes
over which the Operator has no control, the Operator may charge the
Joint Account for the required Material at the Operator's actual cost
incurred in providing such Material, in making it suitable for use, and
in moving it to the Joint Property; provided notice in writing is
furnished to Non-Operators of the proposed charge prior to billing
Non-Operators for such Material. Each Non-Operator shall have the right,
by so electing and notifying Operator within ten days after receiving
notice from Operator, to furnish in kind all or part of his share of
such Material suitable for use and acceptable to Operator.
4. WARRANTY OF MATERIAL FURNISHED BY OPERATOR
Operator does not warrant the Material furnished. In case of defective
Material, credit shall not be passed to the Joint Account until
adjustment has been received by Operator from the manufacturers or their
agents.
V. INVENTORIES
The Operator shall maintain detailed records of Controllable Material.
1. PERIODIC INVENTORIES, NOTICE AND REPRESENTATION
At reasonable intervals, inventories shall be taken by Operator of the
Joint Account Controllable Material. Written notice of intention to
take inventory shall be given by Operator at least thirty (30) days
before any inventory is to begin so that Non-Operators may be
represented when any inventory is taken. Failure of Non-Operators to be
represented at an inventory shall bind Non-Operators to accept the
inventory taken by Operator.
2. RECONCILIATION AND ADJUSTMENT OF INVENTORIES
Adjustments to the Joint Account resulting from the reconciliation of a
physical inventory shall be made within six months following the taking
of the inventory. Inventory adjustments shall be made by Operator to the
Joint Account for
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Societies
overages and shortages, but, Operator shall be held accountable only for
shortages due to lack of reasonable diligence.
3. SPECIAL INVENTORIES
Special inventories may be taken whenever there is any sale, change of
interest, or change of Operator in the Joint Property. It shall be the
duty of the party selling to notify all other Parties as quickly as
possible after the transfer of interest takes place. In such cases, both
the seller and the purchaser shall be governed by such inventory. In
cases involving a change of Operator, all Parties shall be governed by
such inventory.
4. EXPENSE OF CONDUCTING INVENTORIES
A. The expense of conducting periodic inventories shall not be charged
to the Joint Account unless agreed to by the Parties.
B. The expense of conducting special inventories shall be charged to
the Parties requesting such inventories, except inventories
required due to change of Operator shall be charged to the Joint
Account.
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