JOINT VALUE ENHANCEMENT AGREEMENT
BY AND AMONG
INFINITY OIL & GAS OF WYOMING, INC.
AND
RED OAK CAPITAL MANAGEMENT, LP
AND
SCHLUMBERGER TECHNOLOGY CORPORATION
DATED
DECEMBER 3, 2003
SUBLETTE COUNTY, WYOMING
* Certain material marked with an asterisk on p. 9 and 10 of this Agreement
has been omitted pursuant to a request for confidential treatment. This
Agreement, with the omitted material included, has been filed separately
with the Commission.
TABLE OF CONTENTS
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1. DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2. THE PROJECT WELLS. . . . . . . . . . . . . . . . . . . . . . . . . . 4
3. PROJECT GOVERNANCE . . . . . . . . . . . . . . . . . . . . . . . . . 6
4. THE SERVICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
5. SERVICE PARTY COMPENSATION . . . . . . . . . . . . . . . . . . . . . 10
6. OPERATION OF THE PROJECT WELLS . . . . . . . . . . . . . . . . . . . 12
7. EARLY BUYOUT OR DISPOSAL . . . . . . . . . . . . . . . . . . . . . . 14
8. TERM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
9. GENERAL TERMS AND CONDITIONS . . . . . . . . . . . . . . . . . . . . 16
10. CONFIDENTIAL INFORMATION AND INTELLECTUAL PROPERTY . . . . . . . . . 16
11. NOTICES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
12. MISCELLANEOUS PROVISIONS . . . . . . . . . . . . . . . . . . . . . . 20
13. SEVERABILITY; SAVINGS CLAUSE . . . . . . . . . . . . . . . . . . . . 22
14. WARRANTIES/DISCLAIMERS . . . . . . . . . . . . . . . . . . . . . . . 22
15. FORCE MAJEURE. . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
16. RELATIONSHIP OF THE PARTIES. . . . . . . . . . . . . . . . . . . . . 23
17. CAPACITY OF IOGW . . . . . . . . . . . . . . . . . . . . . . . . . . 24
18. REASONABLENESS . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
19. CONFLICTS OF INTEREST. . . . . . . . . . . . . . . . . . . . . . . . 24
20. CORPORATE POWER AND AUTHORITY. . . . . . . . . . . . . . . . . . . . 24
21. GOVERNMENT APPROVALS . . . . . . . . . . . . . . . . . . . . . . . . 25
22. PUBLIC ANNOUNCEMENTS . . . . . . . . . . . . . . . . . . . . . . . . 25
23. MODIFICATION OF EXHIBITS . . . . . . . . . . . . . . . . . . . . . . 25
24. NO LIABILITY; INDEMNITY. . . . . . . . . . . . . . . . . . . . . . . 25
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25. COUNTERPARTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
EXHIBITS
Exhibit A Contract Area
Exhibit B Project Governance
Exhibit C Master Services Agreement
Exhibit D Engagement Letter
Exhibit E Computations
Exhibit F Financial Accounting Procedures
Exhibit G Form of IOGW Collateral Documents
Exhibit H COPAS Form
Exhibit I Well Costs Excluding Completion Costs
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JOINT VALUE ENHANCEMENT AGREEMENT
---------------------------------
This JOINT VALUE ENHANCEMENT AGREEMENT (the "Agreement") is entered into this
3rd day of December, 2003, by, between and among Infinity Oil & Gas of Wyoming,
Inc. ("IOGW"), a Wyoming corporation; Red Oak Capital Management LP, a Delaware
corporation ("Red Oak"); and Schlumberger Technology Corporation, a Texas
corporation ("Schlumberger"). Red Oak and Schlumberger may be referred to herein
individually as a "Service Party" and collectively as the "Service Parties."
WHEREAS, the Parties desire to work together to align their common commercial
objectives for the purpose of increasing the hydrocarbon potential from IOGW's
current and/or future oil and gas interests in certain properties owned or
operated by IOGW located in Sublette County, Wyoming as more particularly
described in Exhibit A attached hereto ("Contract Area");
WHEREAS, the Parties have the stated preference of working with each other
within a contractual and operational framework (the "Project") based on specific
principles that are intended to align their common commercial objectives in a
manner that will encourage the most efficient use of equipment, personnel,
know-how and other technology;
WHEREAS, Schlumberger has entered into or will enter into a Master Service
Agreement (defined below) with IOGW that sets out the specific terms and
conditions of the provision of goods and services by Schlumberger to IOGW with
respect to the Contract Area;
WHEREAS, Red Oak has entered into or will enter into an Engagement Letter
(defined below) with IOGW that sets out the specific terms and conditions of the
provision of certain capital resources by Red Oak to IOGW for the development of
the Contract Area;
WHEREAS, the Parties intend that this Agreement set out and govern the
relationship of the Parties with respect to the Contract Area; and
WHEREAS, the Parties desire to state the terms and conditions under which the
activities described in this Agreement will be conducted by each of them.
NOW, THEREFORE, in consideration of the mutual promises, conditions and
agreements herein contained, the sufficiency of which is hereby acknowledged,
the Parties agree as follows:
1. DEFINITIONS
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For purposes of this Agreement, including the Exhibits, except as otherwise
expressly provided or unless the context otherwise requires, the
terms-defined in this Article have the meanings assigned to them herein and
the capitalized terms defined elsewhere in this Agreement by inclusion in
quotation marks have the meanings so ascribed to them.
1.1 "AFE" means an Authority for Expenditure prepared for the purpose of
estimating the costs to be incurred in connection with a proposal to
drill, deepen, plug back, complete, recomplete, sidetrack or rework a
Project Well.
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1.2 "Affiliate" means, with respect to any Person, any other Person
controlling or controlled by or under common control with such Person,
with the concept of control in such context meaning the possession,
directly or indirectly, of the power to direct the management and
policies of another, whether by. ownership of voting securities,
contract or otherwise. With respect to a corporation, partnership or
limited liability company, control is conclusively deemed to exist
where a Person owns fifty percent (50%) or more of the voting stock in
such corporation or of the voting interest as a partner in such
partnership or as a member of such limited liability company.
1.3 "Agreement" means this Joint Value Enhancement Agreement between and
among the Parties, including the Exhibits attached hereto or referred
to herein.
1.4 "Bundle" means a specific group of Project Wells. The Evaluation Wells
selected by Schlumberger for completion shall be referred to as the
"First Bundle". The First Bundle may include, at Schlumberger's sole
discretion, as few as five (5) or as many as ten (10) Project Wells.
The next ten (10) Project Wells that are completed, whether as
producers or dry holes, shall be referred to as the "Second Bundle",
and successive groups of up to twenty (20) Project Wells that are
completed, whether as producers or dry holes, shall be referred to as
subsequently numbered Bundles; provided, however, that if for any
reason the full number of Project Wells are not drilled, in the final
Bundle, then the final Bundle shall consist only of such lesser number
of Project Wells as were actually commenced.
1.5 "Business Day" means any day other than a Saturday, a Sunday, or a day
on which the United States Postal Service is not scheduled to deliver
ordinary first class mail.
1.6 "Deferred Payment" means the payment due a Service Party under the
terms of this Agreement in consideration of its provision of Risked
Services.
1.7 "Deferred Payment Account" is defined in Article 5.4.
1.8 "Effective Date" means the effective date of this Agreement, being
December 3, 2003.
1.9 "Engagement Letter" means that certain letter agreement dated December
3, 2003, entered into between Red Oak Capital Management, LP and IOGW,
pursuant to which Red Oak will, at IOGW's request, arrange for
financing for a portion of the services provided on the Project Wells
within the Contract Area, a copy of which is attached hereto as
Exhibit D.
1.10 "Evaluation Wells" means the first group of wells selected by
Schlumberger from those listed in Exhibit I to be completed, or
recompleted, pursuant to this Agreement. These wells may also be
referred to as the First Bundle.
1.11 "Exhibits" means the exhibits to this Agreement, as such exhibits may
be amended from time to time.
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1.12 "Hydrocarbon Production" means all crude oil, natural gas, condensate
and other liquid and gaseous hydrocarbons produced from the Contract
Area.
1.13 "Master Service Agreement" means, that certain service agreement dated
December 3, 2003, entered into between Schlumberger and IOGW,
pursuant' to which Schlumberger will provide Services in connection
with the Project Wells, a copy of which is attached hereto as Exhibit
C.
1.14 "Month" means the period beginning at 7:00 a.m. Mountain time on the
first day of any calendar month and ending at the same time on the
first day of the next succeeding calendar month.
1.15 "Negative Account Balance" means, at any given time, the amount by
which the cumulative value of the Risked Services provided by the
Service Parties exceeds the cumulative amount of the Deferred Payments
received by the Service Parties.
1.16 "Net Profits" for the Project Wells for any Month shall have the
meaning set forth in Exhibit E attached hereto.
1.17 "IOGW's Working Interest" means that portion of the working interest
ownership in a given Project Well, (determined according to industry
custom and practice) attributable to IOGW's ownership of the lease on
which such well is located or the lease in the pooled, unitized or
communitized unit associated with such well (including farm-in
interests and other related interests).
1.18 "Party" means IOGW, Red Oak or Schlumberger, individually; "Parties"
means IOGW, Red Oak and Schlumberger, collectively.
1.19 "Payout" means, with respect to each Bundle, that point in time at
which the total of the Deferred Payments received by the Service
Parties is equal to the Service Parties' Expenditures on the Project
Wells in such Bundle.
1.20 "Percentage" means, as to each Service Party and as to each Bundle,
the percentage determined by dividing that Service Party's
Expenditures on such Bundle by the Total Well Construction and
Completion Costs attributable to that Bundle. The quantum of each
Service Party's Percentage shall vary as to a Bundle until all Project
Wells in that Bundle have been completed, at which time it will become
a fixed percentage as to that Bundle.
1.21 "Person" means any individual, governmental agency, corporation,
partnership, joint venture, trust, estate, joint venture,
unincorporated organization, or other entity or organization.
1.22 "Project Well" means a well drilled, completed, reworked; deepened,
sidetracked or recompleted under the terms of this Agreement. For the
avoidance of doubt, each Evaluation Well is a Project Well.
1.23 "Production Costs" shall have the meaning set forth in Exhibit E
attached hereto.
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1.24 "Prudent Standards" means the standards of reasonable and prudent
business judgment and sound oil and gas field practices, in compliance
with applicable federal, state and local laws, rules and regulations.
1.25 "Recompletion Costs" shall have the meaning set forth in Exhibit E
attached hereto.
1.26 "Risked Services" means those Services that a Service Party agrees to
provide in exchange for Deferred Payments in accordance with the terms
of this Agreement.
1.27 "Representative" means a director, officer, supervisor, employee,
partner, technical consultant, attorney, accountant, lender, financial
advisor, marketing representative or other consultant or agent of a
Party.
1.28 "Service Party Expenditures" means, as to each Service Party, the
cumulative value of the Risked Services provided by such Service Party
on a given Bundle.
1.29 "Services" means those products, goods and services supplied by the
Service Parties to IOGW as set out in Articles 4.1 and 4.2.
1.30 "Third Party" means a Person who is not a Party or an Affiliate of a
Party.
1.31 "Total Well Construction and Completion Costs" means the actual
charges allocated to IOGW's Working Interest in the Project Well. in
connection with the drilling and completing of a Project Well. Such
costs shall include without limitations all equipment for which one
hundred percent (100%) of the costs of such equipment are allocable to
a single Project Well; provided, however, that no portion of Total
Well Construction and Completion Costs shall ever duplicate amounts
that have been included in the Production Costs or Recompletion Costs
for that same well. For purposes of calculating Schlumberger's
Percentage in the First Bundle, the Total Well Construction and
Completion Costs shall be calculated as the total of Schlumberger's
Expenditures and the Well Costs Excluding Completion Costs set out in
Exhibit I, each attributable to the applicable Evaluation Well.
1.32 "Unrisked Services" means the Services for which Schlumberger has
elected to receive payments under the terms of the Master Service
Agreement, rather than Deferred Payments.
2. THE PROJECT WELLS
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2.1 Overview. IOGW and the Service Parties will work together, using the
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project governance principles set forth in Article 3, to develop the
oil and gas resources contained in that portion of the Contract Area
in which IOGW may conduct oil and gas operations, whether through
ownership of oil and gas leasehold interests or through
communitization, pooling or unitization agreements.
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2.2 The Evaluation Wells. IOGW and Schlumberger will begin the development
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of the Contract Area by designing a completion program for five (5) of
the ten (10) wells listed in Exhibit l. Such wells shall be selected
by Schlumberger.
2.3 Operations on the Evaluation Wells are anticipated to provide
sufficient data so that the Service Parties may determine whether to
proceed with further development under the terms of this Agreement. No
later than April 1, 2004,-each Service Party shall notify IOGW whether
it wishes to proceed under the terms of this Agreement or whether it
wishes to terminate this Agreement' in accordance with Section 8.2.1
below. A Service Party's failure to provide such notice shall be
deemed an election by that Service Party to proceed under the terms of
this Agreement.
2.4 Field Development Plan. As Services are underway on the Evaluation
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Wells, the Technical Committee will begin to generate a Field
Development Plan, which will identify all prospective drilling
locations in the Contract Area, the sequence of drilling these wells,
and anticipated drilling and completion protocols for each well. All
Project Wells will be drilled and completed in accordance with the
Field Development Plan, as approved by the Executive Committee from
time to time.
2.5 Election to Participate. The Technical Committee shall provide to the
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Executive Committee its proposed Field Development Plan for the Second
Bundle no later than March 1, 2004. The Executive Committee shall
approve such plan, along with any necessary modifications, and shall
provide such plan to the Service Parties no later than April 1, 2004.
The Service Parties shall notify the Executive Committee in writing of
their election to provide Risked Services for, such Bundle no later
than May 1, 2004. For each subsequent Bundle of Project Wells, the
following shall apply:
a) Presentation of the Field Development Plan for the Bundle to the
Executive Committee no later than December 1 of the year
preceding the calendar year in which drilling is to commence;
b) Approval, with necessary modification, by the Executive Committee
and provision of such plan to the Service Parties no later than
January 1 of the year in which drilling is to commence; and
c) Notification by the Service Parties to the Executive Committee of
their election to provide Risked Services for such Bundle no
later than February 1 of the year in which drilling is to
commence.
2.6 Project Coordination Services. Schlumberger agrees, subject to the
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direction of IOGW as operator, to provide project coordination
services ("Project Coordination Services") with respect to the
Contract Area subject to and in accordance with the terms of this
Agreement.
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3. PROJECT GOVERNANCE
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3.1 Principles. The Parties will work together in a spirit of openness and
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cooperation in an effort to achieve efficient Hydrocarbon Production
from the Project Wells. A graphic illustration of the Parties'
anticipated responsibilities appears in the attached Exhibit B.
3.2 IOGW as Operator. Based upon existing joint operating agreements and
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leasehold ownership, the Parties anticipate that IOGW will be and
remain the operator of all of the Project Wells. Nothing in this
Agreement shall have the effect of modifying or superseding IOGW's
position as operator. It is the stated policy of Schlumberger not to
take any equity interest in the leases in the Contract Area, the
production or reserves associated therewith or other property of IOGW
in consideration for providing the Risked Services; instead, the sole
compensation to Schlumberger for providing Risked Services shall be
the Deferred Payments.
3.3 Schlumberger as Project Well Coordinator. Schlumberger, acting under
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the direction of IOGW in its capacity as operator, shall coordinate
and facilitate the effective collaboration of IOGW, the Service
Parties and any Third Party service providers in the supply of the
proposed products and services for the Project Wells. In consideration
of its performance of these coordination services; Schlumberger will
earn a fee determined by the Executive Committee and included in the
approved AFE for each Project Well, the full amount of which shall be
included as part of Schlumberger's Service Party Expenditures for that
Project Well.
3.4 Executive Committee. Promptly following the execution of this
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Agreement, IOGW and Schlumberger shall establish an Executive
Committee consisting of four (4) members, two (2) of which shall be
appointed by IOGW from its management and two (2) of which shall be
appointed by Schlumberger from its or its Affiliate's management. The
Executive Committee shall meet at least once each calendar quarter in
Denver, Colorado or as otherwise set out herein. Within seven (7) days
after the execution of this Agreement, the Parties will exchange a
list of their respective appointments, as well as any designated
alternates.
IOGW shall designate one (1) of its two (2) members as the Chairman of
the Executive Committee (the "Chairman"). The Chairman shall schedule
meetings of the Executive Committee, arrange for the preparation and
distribution of notices as well as an agenda of the meetings and
preside and keep minutes. Special meetings shall be held upon the
request of any two (2) members of the Executive Committee under this
Agreement. The Chairman shall transmit written notices of all meetings
to each member at least seven (7) days in advance of the meeting. A
quorum for the conduct of Executive Committee business shall consist
of three (3) members, and such quorum may be by person, by proxy, or
by telephone.
The Executive Committee shall generally oversee all hydrocarbon
development and production activities occurring pursuant to this
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Agreement. Without limiting the generality of the foregoing, the
Executive Committee shall have the authority and responsibility to:
a. Appoint a committee composed of IOGW and Schlumberger technical
personnel ("Technical Committee"), the responsibilities of which
shall include, but not be limited to, the preparation and
presentation of a plan for completing or recompleting, as
applicable, the Evaluation Wells and, if the Executive Committee
elects to proceed with further activities, the subsequent
development of the Contract Area ("Field Development Plan"), with
both IOGW and Schlumberger earning a fee determined by the
Executive Committee for their work on the Technical Committee
(including any start-up costs) and included (without duplication
in subsequent AFEs) in the approved AFE for the next Project Well
actually drilled, Schlumberger's share of which shall be included
as part of Schlumberger's Service Party's Expenditures for that
Project Well and IOGW's share of which shall simply be an
accounting entry in determining the Total Well Construction and
Completion Cost for such Project Well;
b. Approve, with necessary modifications, the Field Development Plan
for each Bundle of Project Wells as set out in Article 2.4;
c. Approve or disapprove an AFE for each single operation (whether
drilling, completing, deepening, plugging back, recompleting,
sidetracking or reworking) anticipated to cost more than Fifty
Thousand Dollars ($50,000) in connection with a Project Well,
with the understanding that such operation will not be undertaken
unless there is an approved AFE;
d. Attempt to resolve conflicts between the Parties concerning this
Agreement and the activities contemplated hereby;
e. Recommend appropriate actions to optimize the performance of each
Project Well in accordance with good production practices; and
f. Provide IOGW and Schlumberger quarterly reports on the activities
conducted pursuant to this Agreement, the Service Parties'
Expenditures in respect of each Bundle, and a computation of each
Service Party's Percentage in respect of each Bundle.
Matters requiring Executive Committee action shall be decided by
unanimous vote of the Executive Committee members present at a meeting
and voting in person, by proxy or by telephone. All proxies shall be
in writing. Any action permitted to be taken by the Executive
Committee may also be taken without a meeting by means of a written
consent to the action signed by all members of the Executive
Committee.
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3.5 Field Development Plan Amendments. From time to time, the Executive
------------------------------------
Committee will review the proposals submitted by the Technical
Committee, including the information and recommendations derived by
the Technical Committee, and will establish a Field Development Plan
that ultimately will provide for the drilling and completion of all of
the Project Wells. The Executive Committee shall provide to each
Service Party a copy of the initial Field Development Plan following
its adoption by the Executive Committee and shall thereafter timely
inform each Service Party of all amendments and additions to the Field
Development Plan.
3.6 Recommendation Not To Complete. If, following formation evaluation and
------------------------------
production forecasting, Schlumberger reasonably determines that the
present value of the future Net Profits from Hydrocarbon Production
from a Project Well, discounted at ten percent (10%), is less than one
hundred percent (100%) of the total expected AFE amount, Schlumberger
will recommend that IOGW not complete such well. Schlumberger and Red
Oak shall receive Deferred Payments for Risked Services provided on
such well both prior to and following Schlumberger's recommendation
not to complete in accordance with this Agreement. If IOGW elects to
complete such well then all Deferred Payments (determined by the
Service Parties' Percentages on the date of their election not to
complete) attributable to such well shall be paid to IOGW until IOGW
has received an amount equal to the value of the Unrisked Services
provided to IOGW on such well after Schlumberger elects not to
complete such well times the applicable multiplier for such Bundle as
set out in Section 5.2.1.
4. THE SERVICES
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4.1 Schlumberqer's Services and Exclusivity. IOGW hereby grants to
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Schlumberger for the term of this Agreement the exclusive right to
provide the following Services in the Contract Area, so long as
Schlumberger can deliver its Services as reasonably requested by the
Executive Committee at Schlumberger's prevailing market price:
i. coordination of field services
ii. well cementing products and services
iii. formation evaluation logging products and services
iv. well completion products and services
v. data management and consulting services
vi. well perforating products and services
vii. well testing and evaluation products and services
viii. directional drilling and measurement products and services
ix. well stimulation fracturing and acidizing products and services
x. coiled tubing products and services
xi. supply of downhole pumps
xii. slickline products and services
xiii. well/field monitoring and measurement products and services
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IOGW shall not enter into any agreement that conflicts with the
exclusivity granted to Schlumberger herein, although IOGW does reserve
the right freely to contract with Third Parties for such Services as
Schlumberger may be unable to provide as reasonably requested by the
Executive Committee at Schlumberger's prevailing market price.
4.2 Red Oak's Services. Upon Schlumberger's designation of the percentage
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of its Services it will provide as Risked Services, Red Oak shall have
the exclusive right to provide funding, as described in the Engagement
Letter for any Unrisked Services described in Article 4.1 required on
any Bundle.
4.3 Identification of Risked Services. Schlumberger shall provide *
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percent (*%) of its Services in connection with the First Bundle as
Risked Services. If the Service Parties elect to provide Risked
Services on subsequent Bundles, the Service Parties shall participate
in each such Bundle as follows: (i) Schlumberger shall risk payment
for * percent (*%) of the value of the Services it provides on each
Project Well and (ii) Red Oak shall provide funding, as Risked
Services, for * percent (*%) of the AFE costs of the Services provided
by Schlumberger on each Project Well. The Parties estimate that the
Risked Services provided by the Service Parties will be approximately
* percent (*%) of the total Well Construction and Completion Costs.
Schlumberger shall notify the Executive Committee of its and Red Oaks'
election to provide Risked Services on or before the deadline for the
applicable Bundle as set out in Article 2.5. The notice shall indicate
the Service Parties' availability and the proposed timing for the
provision of such Services.
4.4 Limitation on Amount of Risked Services.
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4.4.1 Service Parties Limitations. Notwithstanding the provisions of
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Section 4.3, the Service Parties shall be under no obligation
to undertake Risked Services that are anticipated to produce
more than (i) an anticipated US Two Million Five Hundred
Thousand Dollar ($2,500,000) Negative Account Balance in
connection with the Risked Services they propose to provide
for the Evaluation Wells; (ii) more than a US Three Million
Dollar ($3,000,000) Negative Account Balance in connection
with the Risked Services they propose to provide for all
Project Wells in the first Bundle; (iii) more than a US Six
Million Dollar ($6,000,000) Negative Account Balance in
connection with the Risked Services they propose to provide
for all Project Wells in each Bundle thereafter. Finally, the
Service Parties shall have no obligation to provide any Risked
Services in connection with any proposed Project Well unless
each is satisfied in its reasonable discretion that IOGW has
or will have appropriate means to satisfy all cash expenditure
requirements associated with all Project Wells in that Bundle.
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4.4.2 Absolute Limitation. The Service Parties shall in no event be
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obligated to provide Risked Services in an amount which
results in the Service Parties' Percentages in a Project Well
exceeding fifty percent (50%) of IOGW's Working Interest in
such well. Notwithstanding any other provision of this
Agreement, the Percentages of all Service Parties in a Project
Well may never exceed IOGW's Working Interest in that well.
5. SERVICE PARTY COMPENSATION
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5.1 Unrisked Services. Any Unrisked Services provided by Schlumberger
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shall not be governed by this Agreement, but instead shall be governed
by the Master Service Agreement.
5.2 Risked Services.
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5.2.1 Service Parties' Deferred Payments. In consideration for the
------------------------------------
performance of Risked Services on a Bundle, IOGW shall pay
to the Service Parties Deferred Payments equal to (i) *
percent (*%) of the Net Profits of each Project Well
multiplied by the applicable Service Party's Percentage from
the date of first sale of production from the first Project
Well completed or recompleted in a given Bundle until Payout
and (ii) * percent (*%) of the Net Profits of each Project
Well multiplied by each Service Party's Percentage after
Payout . The Service Parties' right to Deferred Payments as
to such Bundle shall commence in the month that Hydrocarbon
Production is first sold from a Project Well in that Bundle
and shall end:
(i) for the Evaluation Wells (the First Bundle), when
Schlumberger has received Deferred Payments equal to * percent
(*%) of Schlumberger's Service Party Expenditures on such
Bundle;
(ii) for the Second, Third and Fourth Bundles, when each
Service Party has received Deferred Payments equal to *
percent (*%) of such Service Party's Expenditures on each
Bundle; and
(iii) for the Fifth and any subsequent Bundles, when each
Service Party has received Deferred Payments equal to *
percent (*%) of such Service Party's Expenditures on each
Bundle.
5.2.2 Red Oaks' Net Profit Interest. In consideration for Red Oak's
------------------------------
Expenditures, IOGW hereby GRANTS, BARGAINS, SELLS, CONVEYS,
ASSIGNS, TRANSFERS, SETS OVER AND DELIVERS unto Red Oak an
interest in the Project Wells equal to the Net Profits
multiplied by Red Oak's Percentage until Red Oak has received
Deferred Payments in the amounts set out in Article 5.2.1 (the
"Net Profits Interest").
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5.3 Deferred Payment Timing. IOGW shall pay Deferred Payments to each
-------------------------
Service Party no later than the 15th day of the second Month following
the Month during which the sale of Hydrocarbon Production occurred.
For example, if the first sale of Hydrocarbon Production from a
Project Well in a Bundle occurs on January 15, then the first Deferred
Payment calculated on Net Profits, if any, shall be due no later than
March 15. Such Deferred Payments shall be accomplished by wire
transfer pursuant to instructions given by each Service Party to IOGW.
5.4 Deferred Payment Account. IOGW shall maintain an account (the
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"Deferred Payment Account") on its books and records for each Service
Party in respect of each Bundle. Each Deferred Payment Account shall
be credited with the aggregate of any Gross Proceeds received by IOGW
after the Effective Date for each Project Well in the Bundle, and
shall be charged with the aggregate Production Costs incurred after
the Effective Date.
On or before the date of payment as set forth in Article 5.3 hereof,
IOGW shall furnish to each Service Party a detailed statement clearly
reflecting the credits and debits against and the balance of the
Deferred Payment Account as of the close of business on the last day
of the preceding Month. Any Excess Production Costs reflected by any
such statement shall be carried forward to the next and succeeding
month or months until the Excess Production Costs shall have been
liquidated.
5.5 Deed of Trust. As security for the payment and performance of all of
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IOGW's obligations to Schlumberger hereunder, IOGW shall, upon request
by Schlumberger, execute and acknowledge a Mortgage, Assignment of
Production and Security Agreement as to each Bundle in the form of the
attached Exhibit G1 together with such financing statements and other
instruments as Schlumberger may reasonably request in order properly
to perfect the lien and security interests created by the Mortgage.
Schlumberger shall file the Mortgage in all appropriate records to
properly perfect the lien and security interest created thereunder. In
addition, IOGW shall, from time to time, execute all such further and
additional instruments including, without limitation, financing
statements, as Schlumberger may reasonably request in order to
properly perfect the lien and security interests created under the
Deed of Trust. IOGW agrees that Schlumberger may at any time assign,
transfer or otherwise convey all or part of its right to receive
Deferred Payments pursuant to this Agreement to any Person (herein
called the "Deferred Payment Assignee"). Concurrently with any such
conveyance to Deferred Payment Assignee, (a) Schlumberger's right to
receive the applicable Deferred Payments pursuant to this Agreement
shall be automatically converted to a net profits interest, (b) IOGW
shall execute and deliver to such Deferred Payment Assignee an
assignment of net profits interest in substantially the same form as
set forth in Exhibit G-2, (c) IOGW shall amend the Memorandum of
Assignment of Net Profits Interest described in Section 5.6 below to
reflect the Deferred Payment Assignee's Percentage, and (d)
Schlumberger shall terminate the liens created by the Security
Agreement as they relate to the applicable Deferred Payments and
deliver to IOGW executed releases, in form and substance reasonably
satisfactory to IOGW, to evidence such termination.
11
5.6 Memorandum of Assignment. IOGW shall, contemporaneously with the
-------------------------
completion of Services on an Evaluation Well or any subsequent Project
Well, execute and file a Memorandum of Assignment of Net Profits
Interest substantially in the form attached as Exhibit G-2. IOGW shall
from time to time amend such Memorandum of Assignment of Net Profits
Interest to reflect Red Oak's Percentage. Final adjustment to Red
Oak's Percentage and payments to reallocate payments made under
inaccurate interim percentages shall be made by the Parties not more
than ninety (90) days after completion of the Services on a given
Bundle.
5.7 Schlumberger Production Facilities Audit. At any time during which
-------------------------------------------
Schlumberger is entitled to receive Deferred Payments, Schlumberger
shall have the right to enter the Contract Area and to audit the
surface facilities to assess the performance of such facilities.
Schlumberger may provide to the Executive Committee a recommendation
regarding improvements or modifications to the facilities with a view
to improving the flow of Hydrocarbon Production for eventual sale. The
Executive Committee will review on a timely basis any such
recommendations by Schlumberger and, if approved by the Executive
Committee, the Field Development Plan shall be amended to include such
activities.
5.8 Payment for Unrisked Services. Payment for all Unrisked Services
--------------------------------
provided by Schlumberger on each Bundle shall be due and payable
according to the terms of the Master Service Agreement.
5.9 Interest on Past Due Payments. Any amount not paid by IOGW when due
--------------------------------
shall bear, and IOGW will pay, interest at the interest rate set forth
in the Master Service Agreement or Engagement Letter, as applicable,
for late payments.
6. OPERATION OF THE PROJECT WELLS
----------------------------------
6.1 Prudent Operator Standard. IOGW will conduct and carry on or cause to
--------------------------
be conducted and carried on the exploration, development, maintenance
and operation of the Project Wells in compliance with applicable
federal, state, and local laws, rules, and regulations and in
accordance with the standards of reasonable and prudent business
judgment and sound oil and gas field practices customarily employed by
oil and gas operators in the Contract Area.
6.2 Cost Overruns. Subject to emergency responses identified by IOGW in
accordance with its obligations under Section 6.1, IOGW may incur
expenditures of up to one hundred ten percent (110%) of the total
amount anticipated in the AFE for a particular operation without
consultation with the Executive Committee. When IOGW reasonably
anticipates that the one hundred ten percent (110%) limit set forth in
the preceding sentence will be exceeded, however, IOGW shall furnish
to the Technical Committee a reasonably detailed estimate of the
12
anticipated overexpenditure and the reasons therefor. Following
consultation with the Technical Committee, IOGW shall revise the AFE
and provide the revised AFE to the Executive Committee for its
approval or modification.
6.3 Production Monitoring and Surveillance. Schlumberger shall monitor the
--------------------------------------
relevant production and parameters from the appropriate number of
nodes (selected individual wells and field level gathering points)
using its proprietary real time web based system to provide data in
order continually to assist in the optimization of the Contract Area.
6.4 Partial Disposal of Properties. IOGW shall have the right in its sole
--------------------------------
discretion at any time and from time to time to dispose of its oil and
gas interests in the Contract Area, whether by farmout, exchange,
assignment or otherwise, free and clear of the terms of this
Agreement; provided, however, that IOGW shall not dispose of so much
of its interest that its loses control of the right to operate the
properties in the Contract Area. In addition, this Article 6.4 shall
not permit IOGW's disposal at any time of either a Project Well or a
drill site and the immediately surrounding offset locations of an
anticipated Project Well that has been identified as a possible well
location in the Field Development Plan.
6.5 Abandonment of Properties. Nothing herein contained shall obligate
----------------------------
IOGW to drill or complete any well in the Contract Area, to continue
to operate any well in the Contract Area, or to operate or maintain in
force or attempt to maintain in force any lease when the Executive
Committee determines that such well or lease is not economical. No
Service Party shall ever have any liability for the plugging,
abandonment or reclamation of any Project Well, although plugging,
abandonment and reclamation costs are included as Production Costs.
6.6 Development of Formations Outside this Agreement. IOGW shall have the
-------------------------------------------------
right in its sole discretion at any time and from time to time to
drill, complete and operate oil and gas wells in the Contract Area,
free and clear of the terms of this Agreement; provided, however, that
this Article 6.6 shall not permit the drilling by IOGW of a well
within the spacing unit (or the 40-acre quarter-quarter section of the
government survey, if no spacing has been adopted) of either a Project
Well or an anticipated Project Well that has been approved by the
Executive Committee for inclusion in a Bundle, unless IOGW's well is
drilled solely to test and produce formations that are not subject to
this Agreement and such testing or drilling does not affect
Hydrocarbon Production from any Project Well.
6.7 Delay Rentals, Minimum Royalties, and Shut-in Gas Payments. IOGW shall
----------------------------------------------------------
use reasonable commercial efforts to pay or cause to be paid in a
proper and timely manner all delay rentals, minimum royalties, and
shut-in gas payments which may be necessary to maintain its leases in
the Contract Area in full force and effect, except to the extent that
IOGW has decided to dispose of or abandon such leases. Notwithstanding
anything to the contrary herein, IOGW shall not be liable to any
Service Party for failure to pay or for incorrect payment of delay
rentals, minimum royalties, shut-in gas payments, or any other
contractual obligations.
13
6.8 Marketing Hydrocarbon Production. IOGW shall market Hydrocarbon
----------------------------------
Production in accordance with Prudent Standards, taking into account
relevant locations, qualities and other circumstances. IOGW shall
never market Hydrocarbon Production to its Affiliates or in any
transaction other than an arms'-length transaction.
6.9 Insurance. IOGW shall maintain or cause to be maintained, during the
---------
period of time that any of the Service Parties are entitled to receive
Deferred Payments, insurance coverage that is consistent with the
requirements of the joint operating agreement applicable to the
concerned Project Well.
7. EARLY BUYOUT OR DISPOSAL
---------------------------
7.1 Disposal Notice. After the completion of fifty (50) Project Wells,
----------------
excluding the Evaluation Wells, IOGW may elect to dispose, by sale,
transfer, assignment, conveyance or otherwise, of all or any part of
the Contract Area in an arm's length transaction to a non-Affiliate (a
"Permitted Disposal"). If IOGW makes such election during the term of
this Agreement, or at any time during which the Service Parties are
entitled to receive Deferred Payments, IOGW shall provide the Service
Parties not less than sixty (60) days prior written notice of IOGW's
intention to make such a disposal ("Disposal Notice"). Except for a
Permitted Disposal, IOGW may not sell, transfer, assign, convey or
otherwise dispose of all or any part of the Contract Area during the
term of this Agreement or at any time during which the Service Parties
are entitled to receive Deferred Payments.
7.2 Disposal Payment. In the event IOGW consummates a Permitted Disposal,
-----------------
each Service Party shall terminate its Net Profits Interest or
Mortgage insofar as it burdens the property included in the Permitted
Disposal upon the Service Party's receipt of a lump sum payment from
IOGW calculated as set out in Article 7.4 below ("Disposal Payment")
in lieu of its entitlement to any further Deferred Payments under this
Agreement attributable to the property included in the Permitted
Disposal. The Disposal Payment shall be made by IOGW directly to each
Service Party by wire transfer in immediately available funds on the
same date that IOGW receives funds or other consideration attributable
to such Permitted Disposal.
7.3 Early Buyout Notice. If, at any time after the termination of this
---------------------
Agreement, IOGW desires to buyout a Service Party's remaining
entitlement to receive future Deferred Payments, IOGW shall provide
sixty (60) days advance written notice to the Service Party of its
intent to exercise such an early buyout ("Early Buyout Notice"). Upon
such election, the Service Party shall be entitled to receive an
amount equal to the Disposal Payment. Such amount shall be paid by
IOGW to Service Party within forty-five (45) days of the date of
IOGW's Early Buyout Notice.
7.4 Determination of the Disposal Payment. The "Disposal Payment" shall be
-------------------------------------
calculated at any time and as to each Service Party as the total of
all Deferred Payments that the Service Party would otherwise be
14
entitled to receive pursuant to Article 5.2.1 hereof less any Deferred
Payments that have been made to such Service Party through the date of
the Disposal or Early Buyout Notice, as applicable.
8. TERM
----
8.1 Term. This Agreement shall remain in force and effect for six (6)
----
years after the Effective Date, unless earlier terminated pursuant to
Article 8.2.
8.2 Termination. This Agreement may be terminated by written notice from
-----------
the terminating Party to all other Parties in accordance with the
following provisions:
8.2.1 Immediately by any Service Party pursuant to Article 2.3 no
later than April 1, 2004;
8.2.2 Upon thirty (30) days notice by any Party, after the Project
Wells in five (5) Bundles have been completed;
8.2.3 Upon thirty (30) days notice by any Service Party, if, through
no fault of such Service Party, at least ten (10) Project
Wells have not been commenced in a calendar year;
8.2.4 Immediately by any Party, without prejudice to its other
rights, if another Party becomes insolvent, makes a general
assignment for the benefit of its creditors, applies for or
consents to the appointment of a receiver, trustee or
liquidation of all or substantially all of its assets, has an
involuntary petition in bankruptcy filed against it which is
not dismissed within sixty (60) days or fails to pay its debts
and obligations as they become due, or if the terminating
Party reasonably believes that any of the above events is
likely to occur;
8.2.5 Immediately by any Party, without prejudice to its other
rights, if another Party fails to pay any obligation under
this Agreement within thirty (30) Business Days after the same
shall become due and payable, or if such other Party fails to
duly observe, perform or comply with any other covenant,
agreement, condition or provision of this Agreement and such
failure remains unremedied for a period of thirty (30) days
after written notice of such failure is given by the
non-breaching Party to the breaching Party; or.
8.2.6 By mutual agreement of the Parties, on such terms as they may
agree.
8.3 Survival. Notwithstanding any termination of this Agreement in
--------
accordance with Section 8.2, (i) the obligation of IOGW to make
Deferred Payments under Article 5 in respect of each Bundle shall
continue for the full period provided by Article 5.2 for that Bundle
15
and (ii) the confidentiality provisions of Article 10 shall continue
for a period of eighteen (18) months following the termination of this
Agreement.
8.4 Return of Property. IOGW shall promptly return all property of each
--------------------
Service Party, if any, that is in IOGW's possession or under its
control upon termination of this Agreement. Similarly, each Service
Party shall promptly return to IOGW all property of IOGW, and to each
Service Party all property belonging to that Service Party, which is
in such Service Party's possession or under its control upon
termination of this Agreement.
9. GENERAL TERMS AND CONDITIONS
-------------------------------
9.1 Effect of Master Service Agreement. IOGW agrees that the provision of
-----------------------------------
Services by Schlumberger shall be governed by the terms and conditions
contained in the Master Service Agreement. To the extent that any term
or condition set forth in the Master Service Agreement is not
addressed in this Agreement, the Master Service Agreement shall apply.
To the extent that any indemnity is extended by any Party in the
Master Service Agreement, it is agreed that, for the purposes of this
Agreement, such indemnities shall apply to the extent they are
applicable. To the extent that any term or condition set forth in the
Master Service Agreement conflicts with the provisions of this
Agreement, the provisions of this Agreement shall control. The Master
Service Agreement is incorporated herein by reference thereto for all
purposes and is made a part hereof.
9.2 Other Documents. In the event any Party issues any acknowledgment,
----------------
delivery ticket, invoice, purchase order or other instrument whose
terms are inconsistent with any of the terms or provisions of this
Agreement, such terms shall be unenforceable and the terms of this
Agreement shall control.
10. CONFIDENTIAL INFORMATION AND INTELLECTUAL PROPERTY
------------------------------------------------------
10.1 Confidential Information. "Confidential Information" means information
------------------------
unavailable from public sources that any of the Parties considers
confidential and proprietary information, including, but not limited
to, seismic records and tapes, interpreted well logs, maps,
engineering data, and financial information relating to the Contract
Area, together with nonproprietary seismic data that has been licensed
from Third Parties under terms which restrict the licensee's use,
disclosure, or display of such data.
10.2 Nondisclosure. Each Party agrees that any Confidential Information
-------------
obtained by it from any other under the terms of this Agreement will
be held in strict confidence and will not be disclosed by it to any
Third Party without written authorization from the originating Party,
unless such information (i) is in the public domain through no fault
of the disclosing Party, (ii) is required to be publicly disclosed
under applicable securities laws, or (iii) is acquired independently
from a Third Party that represents that it has the right to
disseminate such information at the time it is acquired. Each Party
agrees to limit access to such Confidential Information only to those
of its Affiliates and Representatives who have a need under or in
furtherance of this Agreement to review such Confidential Information.
16
10.3 Other Working Interest Owners. Notwithstanding the foregoing, the
--------------------------------
terms of this Agreement and all related financial information may be
disclosed by IOGW to Third Parties owning working interests in a
Project Well, but only if such working interest owners are entitled to
such information under agreements existing as of the Effective Date
hereof and have agreed to be bound by the confidentiality provisions
of this Agreement.
10.4 Confidential Procedures of Schlumberger. IOGW acknowledges that the
------------------------------------------
procedures, processes, methods and know-how used in rendering the
Services and the formulas, components, mixtures, specifications and
other descriptions of the oilfield products are considered
confidential and proprietary to Schlumberger and will not be divulged
to IOGW. IOGW agrees that it and its' Affiliates shall hold the same
in strictest confidence and shall not to attempt to analyze or test
any oilfield products provided by Schlumberger, including mixtures, to
determine their formula or components.
10.5 Confidential Procedures of IOGW. The Service Parties acknowledge that
--------------------------------
their personnel will have access to certain procedures, processes,
methods, know how and practices used by IOGW in its business planning
and its development of the Contract Area. Each Service Party agrees
that it and its Affiliates shall treat IOGW's information provided to
such personnel as confidential and proprietary, shall not use the
Confidential Information for any purpose other than to render its
Services to IOGW, and shall not disclose the same to Third Parties or
to any of its' or its' Affiliates personnel, other than those of its
Representatives who have a need to review such Confidential
Information for the purposes stated herein.
10.6 Confidential Designs, Drawings, Information and Data. IOGW shall treat
----------------------------------------------------
as secret and confidential, and shall not, except in connection with
this Agreement, make any use whatsoever of any designs, drawings,
information or data furnished to IOGW by the Service Parties
hereunder. Similarly, the Service Parties shall treat as secret and
confidential, and shall not, except in connection with this Agreement,
make any use whatsoever of any designs, drawings, information or data
furnished by IOGW hereunder.
10.7 No Intellectual Property Assignments. Nothing in this Agreement shall
-------------------------------------
be deemed to constitute or result in an assignment to one Party of any
trademarks or Confidential Information owned or used by any other
Party, or the creation of any equitable or other interest therein, or
to grant one Party any right to use the trademarks owned or used by
any other Party or the other Party's Confidential Information. Each
Party agrees never to impugn or challenge, or to assist in any
challenge to the validity of, the trademarks, any registration thereof
or any other Party's ownership thereof.
17
10.8 New Copyrights and Patents. Schlumberger shall have the right to
-----------------------------
obtain copyrights or patents on any method, material or equipment
originating in whole or in part from Schlumberger arising in the
course of or out of this Agreement.
10.9 Copyright and Patent Cooperation and Use. IOGW shall provide
---------------------------------------------
reasonable cooperation in all efforts by Schlumberger to obtain such
patents and copyrights, and will be reimbursed a reasonable amount for
the time and expense required in providing such cooperation. If
requested by IOGW, Schlumberger shall grant to IOGW an irrevocable,
royalty-free license to use any patents developed out of this
Agreement exclusively for IOGW's use in the normal course of its
business, but any such license shall not be sold, licensed or
otherwise transferred to a Third Party without the approval of
Schlumberger. If requested by IOGW, Schlumberger shall grant to IOGW
an irrevocable license, free from royalty, for IOGW's internal use
only of any copyrighted process, method or the like developed
hereunder. It is understood and agreed that IOGW shall have no right
to grant any sublicense to Third Parties.
10.10 Proceedings to Compel Disclosure. If a Party hereto, or its
-----------------------------------
Representative, is required by any court or legislative or
administrative body to disclose any Confidential Information belonging
to any other Party, the Party required to make such disclosure shall
provide the disclosing Party with prompt notice of such requirement in
order to afford the disclosing Party the opportunity to seek an
appropriate protective order. If, however, the Party seeking to
prevent the disclosure does not seek or is unable to obtain such
protective order, then the Party required to compel such Confidential
Information may disclose such Confidential Information, without
liability to the other Party, if such disclosure is, in the opinion of
counsel, compelled under pain of liability for contempt or other
penalty.
10.11 Injunctive Relief. In the event of breach or threatened breach by one
-----------------
Party or its Representatives of the provisions of this Article 10, the
disclosing Party shall be entitled to an injunction or judicial order
equivalent thereto restraining that Party or its Representatives from
using or disclosing, in whole or in part, such Confidential
Information. Nothing herein shall be construed as prohibiting any
Party from pursuing any other remedies available to it for such breach
or threatened breach, including recovery of damages from the other
Party.
10.12 Indemnification. Schlumberger will defend, at its sole expense, legal
---------------
proceedings brought within the United States against IOGW or
Schlumberger claiming direct infringement of copyright, theft of trade
secret or violation of other intellectual property rights based upon
any method, material or equipment used or provided by Schlumberger in
performance of the Services, excluding however any method, material or
equipment provided by IOGW to Schlumberger. Schlumberger will
indemnify and hold IOGW harmless from and against any judgment by a
court of competent jurisdiction for damages arising from any such
claim, provided that Schlumberger will have no liability or obligation
18
to IOGW under this Agreement for infringement of any patent,
intellectual property or other proprietary right or claim thereof
which is based upon Schlumberger's compliance with IOGW's
specifications or if IOGW makes any admission regarding infringement.
Furthermore, Schlumberger shall have no liability or obligation to
defend or indemnify IOGW under this Article 10 unless Schlumberger:
(i) is notified promptly in writing by IOGW of each notice and
communication regarding any claim, (ii) is given the complete
authority, information and assistance necessary for such defense and
(iii) is given sole control of the defense of any action and of all
negotiations for its settlement or compromise.
11. NOTICES
-------
Any notice required under the terms of this Agreement shall be in writing,
addressed to the Party to whom sent, and transmitted prepaid by air
courier, telecopy, or email or other facsimile transmission with confirmed
answerback and with signed original to follow by air courier. All such
notices in compliance with this provision shall be deemed given when
actually delivered to the recipient's address. For purposes of this
Agreement, the addresses of the Parties are as follows until changed by
written notice from the Party desiring to change its address to the other
Parties:
If to Schlumberger: Schlumberger Technology Corporation
6501 South Fiddler's Green Circle,
Greenwood Village, Colorado 80111,
Telephone: 303 486 3253
Facsimile: 303 486 3249
Attention: Paul DeBonis
Email: debonis1@denver.oilfield.slb.com
cc: NAM General Counsel
300 Schlumberger Drive
Sugar Land, Texas 77478
If to IOGW: Infinity Oil & Gas of Wyoming, Inc.
950 17th Street, Suite 800
Denver, Colorado 80202
Telephone: 720-932-7800
Facsimile: 720-932-5409
Attention: Stanton E. Ross Email:
cc: Infinity Inc.
211 West 14th
Chanute, Kansas 66720
Telephone: 620-431-6200
Facsimile: 620-431-6262
Attention: Stanton E. Ross
cc: Davis, Graham & Stubbs LLP
1550 17th Street Suite 500
Denver, Colorado 80202
19
Telephone: 303-892-9400
Facsimile: 303-892-1379
Attention: Deborah Friedman
If to Red Oak: Red Oak Capital Management, LLC
11757 Katy Freeway, Suite 300
Houston, Texas 77079
Telephone: 281-493-4450
Facsimile: 281-493-4490
Attention: James Whipkey
Email: whipkey@redoakcap.com
12. MISCELLANEOUS PROVISIONS
-------------------------
12.1 Governing Law. This. Agreement shall be governed by and construed in
--------------
accordance with the laws of the State of Colorado.
12.2 Dispute Resolution. Any controversy, dispute or claim arising out of
-------------------
or relating to this Agreement (a "Dispute") shall be resolved in
accordance with this Section 12.2.
Any Party may give to another Party written notice (a "Dispute
Notice") of any Dispute which has not been resolved in the normal
course of business. Within fifteen (15) Business Days after delivery
of the Dispute Notice, the receiving Party shall submit to the other
Party a written response (the "Response"). The Dispute Notice and the
Response shall each include (i) a statement setting forth the position
of the Party giving such notice, a summary of the arguments supporting
such position and, if applicable, the relief sought and (ii) the name
and title of a senior manager of such Party who has authority to
settle the Dispute and will be responsible for the negotiations
related to the settlement of the Dispute (the "Senior Manager").
Within ten (10) days after delivery of the Response, the Senior
Managers of the disputing Parties shall meet or communicate by
telephone at a mutually acceptable time and place, and thereafter as
often as they reasonably deem necessary, and shall negotiate in good
faith to attempt to resolve the Dispute that is the subject of such
Dispute Notice.
If such Dispute has not been resolved within sixty (60) days after
delivery of the Dispute Notice, then the Parties shall submit the
Dispute for arbitration administered by the American Arbitration
Association (the "AAA") in accordance with the terms of this Section
12.2, the Commercial Arbitration Rules of the AAA, and, to the maximum
extent applicable, the United States Arbitration Act. Judgment on any
matter rendered by arbitrators may be entered in any court having
jurisdiction. Any arbitration shall be conducted before one (1)
arbitrator. The arbitrator shall be an individual knowledgeable in the
subject matter of the Dispute. If the disputing Parties are not able
to agree upon an arbitrator within thirty (30) Business Days after the
request for an arbitration, then any
20
Party may request the AAA to select the arbitrator. The arbitrator may
engage engineers, accountants or other consultants he or she deems
necessary to render a conclusion in the arbitration proceeding. To the
extent practicable, an arbitration proceeding hereunder shall be
concluded within ninety (90) Business Days of filing a Dispute with
the AAA. Arbitration proceedings shall be conducted in Houston, Texas.
At the conclusion of any arbitration proceeding, the arbitrator shall
make specific written findings of fact and conclusions of law. The
arbitrator shall have the power to award recovery of all costs and
fees to the, prevailing party. All fees of the arbitrator and any
engineer, accountant or other consultant engaged by the arbitrators,
shall be shared equally unless otherwise awarded by the arbitrators
All negotiations between the Senior Managers pursuant to this Section
12.2 shall be treated as compromise and settlement negotiations.
Nothing said or disclosed, nor any document produced, in the course of
such negotiations that is not otherwise independently discoverable
shall be offered or received as evidence or used for impeachment or
for any other purpose in any current or future arbitration or
litigation.
12.3 Compliance with Laws. Each Service Party agrees to comply in material
---------------------
respects with all laws, statutes, codes, rules, and regulations, which
are now or may become applicable to its Services or arising out of the
performance of its Services.
12.4 Amendment; Entire Agreement; No Waiver. No modification of this
------------------------------------------
Agreement shall be of any force or effect unless in writing and signed
by an authorized signatory of all Parties. This Agreement, together
with any service orders, service requests and the Exhibits attached
hereto, constitutes the entire understanding between the Parties with
respect to the subject matter hereof and supersedes all prior
agreements, negotiations and discussions of the Parties in relation to
its contents. Failure to enforce any or all of the terms and
conditions of this Agreement in a particular instance or instances
shall not constitute a waiver thereof or preclude subsequent
enforcement thereof.
12.5 Assignment. IOGW may not assign its rights or obligations under this
----------
Agreement without the prior written consent of the Service Parties,
which shall not be unreasonably withheld. Each Service Party shall
have the right to assign all rights and obligations under this
Agreement to an Affiliate, without prior consent of IOGW. No Service
Party will transfer or assign its respective rights and obligations
under this Agreement, except its right to receive payments hereunder,
to a non-Affiliate without the prior written consent of IOGW.
12.6 Rules of Construction. All references in this Agreement to articles,
-----------------------
sections, subsections and other subdivisions refer to corresponding
articles, sections, subsections and other subdivisions of this
Agreement unless expressly provided otherwise. Titles appearing at the
beginning of any of such subdivisions are for convenience only and
shall not constitute part of such subdivisions and shall be
disregarded in construing the language contained in such subdivisions.
The words "this Agreement", "this instrument", "herein", "hereof",
"hereunder"' and words of similar import refer to this Agreement as a
whole and not to any particular subdivision unless expressly so
limited. Unless the context otherwise requires: "including" and its
grammatical variations mean "including without limitation"; "or" is
not exclusive; words in the singular form shall be construed to
include the plural and vice versa; words in any gender include all
21
other genders; references herein to any instrument or agreement refer
to such instrument or agreement as it may be from time to time amended
or supplemented; and references herein to any Person include such
Person's successors and assigns. All references in this Agreement to
exhibits and schedules refer to exhibits and schedules to this
Agreement unless expressly provided otherwise, and all such exhibits
and schedules are hereby incorporated herein by reference and made a
part hereof for all purposes.
13. SEVERABILITY; SAVINGS CLAUSE
------------------------------
Any provision or term of this Agreement that is or may be void or
unenforceable shall, to the extent of such invalidity or unenforceability,
be deemed severable and shall not affect any other provision of this
Agreement. All Parties agree that the exculpatory, indemnification and hold
harmless provisions herein, or in the Master Service Agreement which is
incorporated herein by reference, shall be modified or altered only insofar
as required by a jurisdiction purporting to limit such provisions, it being
the intention of the Parties to enforce to the fullest extent all terms and
conditions herein agreed to.
14. WARRANTIES/DISCLAIMERS
----------------------
14.1 Service Party Disclaimer. In preparing technical recommendations,
--------------------------
Schlumberger shall provide IOGW the benefit of its best judgment based
on its experience. All such technical recommendations are opinions
only, and it may not be possible for Schlumberger to obtain first-hand
knowledge of the many variable conditions that could affect the
outcome of the services. NO WARRANTY IS GIVEN AS TO THE EFFECTIVENESS
OR RESULTS OF THE SERVICES THAT WILL BE RENDERED HEREUNDER, NOR AS TO
THE OUTCOME OF IMPLEMENTATION OF ANY TECHNICAL RECOMMENDATION.
SCHLUMBERGER MAKES NO WARRANTY, EXPRESS OR IMPLIED, WITH RESPECT TO
THE SERVICES, EXCEPT TO THE EXTENT, IF ANY, SET FORTH IN THE MASTER
SERVICE AGREEMENT. MOREOVER, SCHLUMBERGER MAKES NO WARRANTY, EXPRESS
OR IMPLIED, AS TO THE ACCURACY, COMPLETENESS OR MATERIALITY OF ANY
DATA, INFORMATION OR RECORDS FURNISHED TO ANY OTHER PARTY IN
CONNECTION WITH THIS AGREEMENT.
14.2 IOGW Title Warranty. IOGW represents and warrants to the Service
---------------------
Parties that it will be the owner (or have appropriate operational
rights under a farmout or earning agreement from the owner) of the
leasehold interests constituting the drill site of a Project Well, but
only to extent indicated and subject to the encumbrances identified in
22
the drilling opinion furnished by IOGW to the Service Parties with the
AFE for such Project Well. IOGW will take appropriate steps to
maintain such interest in good standing and free and clear of all
liens, charges, encumbrances and claims whatsoever. To the best of
IOGW's knowledge, there is no claim, action or administrative
proceeding pending which may jeopardize title to any interest IOGW
holds on the Effective Date. IOGW shall provide such documentation to
the Service Parties as they may reasonably require to satisfy
themselves that IOGW owns such interests.
14.3 Overriding Royalty Interests. IOGW represents and warrants that
------------------------------
neither it nor its Affiliates, nor its or their officers, directors
or, to the best of its knowledge, employees holds, either directly or
indirectly, or has the right to receive an overriding royalty interest
in the Contract Area.
15. FORCE MAJEURE
--------------
If, as a result of an event of Force Majeure, any Party is rendered unable,
wholly or in part, to carry out its obligations under this Agreement, other
than the obligation to pay any amounts due or to furnish security, then the
obligations of that Party, so far as and to the extent that the obligations
are affected by such event of Force Majeure, shall be suspended during the
continuance of any inability so caused, but for no longer period. The Party
claiming Force Majeure shall notify the other Parties of the Force Majeure
situation within a reasonable time after the occurrence of the cause relied
on and shall keep the other Parties timely informed of all significant
developments. Such notice shall give reasonably full particulars of said
event of Force Majeure, and also estimate the period of time that said
Party likely will require to remedy the Force Majeure. The affected Party
shall use all reasonable diligence to remove or overcome the Force Majeure
situation as quickly as possible in an economic manner, but shall not be
obligated to settle any labor dispute except on terms acceptable to it and
all such disputes shall be handled within the sole discretion of the
affected Party.
For the purposes of this Agreement, "Force Majeure" shall mean an act of
God, strike, lock-out or other industrial disturbance, act of the public
enemy, war, blockade, public riot, lightning, fire, storm, flood or other
adverse weather condition, explosion, governmental action, governmental
inaction, restraint or delay, unavailability of equipment or any other
cause, whether of the kind specifically enumerated above or otherwise,
which is not reasonably within the control of the Party claiming Force
Majeure.
16. RELATIONSHIP OF THE PARTIES
------------------------------
This Agreement is not intended to create, nor shall it be construed as
creating, any joint venture, association, partnership, trust or fiduciary
relationship nor shall it give rise to the imposition of a fiduciary
obligation or liability with regard to any one or more of the Parties. In
this Agreement, the Parties agree that where decisions are to be taken
hereunder by unanimous agreement, agreement thereto shall not be
unreasonably withheld.
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17. CAPACITY OF IOGW
------------------
The Service Parties shall look only to IOGW for the due performance of this
Agreement and nothing herein contained shall impose any liability upon, or
entitle the Service Parties to commence any proceedings against any working
interest owner ("Owner") other than IOGW. Only IOGW shall be entitled to
enforce this Agreement on behalf of all Owners as well as for itself and,
for this purpose only, IOGW may commence proceedings in its own name to
enforce all obligations and liabilities of the Service Parties and to make
any claim which any of the said Owners may have against the Service Parties
in relation to or arising out of this Agreement.
18. REASONABLENESS
--------------
Each of the Parties undertakes to do all things reasonably within its power
that are necessary to give effect to the spirit and intent of this
Agreement. None of the Parties shall act unreasonably or without giving due
regard to the representations of the other Party when reaching any decision
as to the giving or withholding of consent or approval or when exercising
any other discretion pursuant to this Agreement.
19. CONFLICTS OF INTEREST
-----------------------
Conflicts of interest relating to this Agreement are strictly prohibited.
Except as otherwise expressly provided herein, no Service Party and no
director, employee or agent of a Service Party or its subcontractors shall
give to or receive from any director, employee or agent of IOGW any gift,
entertainment or other favor of significant value, or any commission, fee
or rebate. Likewise, no Service Party and no director, employee or agent of
a Service Party or its subcontractors shall, without prior written
notification thereof to IOGW, enter into any business relationship with any
director, employee, or agent of IOGW or any of its Affiliates, unless such
person is acting for and on behalf of IOGW. Each Service Party undertakes
promptly to notify IOGW of any violation of this Article, with the
understanding that any consideration received as a result of such violation
shall be paid over or credited to IOGW. Additionally, in the event of any
violation of this Article, including any violation occurring prior to the
date of this Agreement, resulting directly or indirectly in IOGW's consent
to enter into this Agreement, IOGW may, at IOGW's sole option, terminate
this Agreement at any time and notwithstanding any other provision of this
Agreement, pay each Service Party only for that part of the services
provided prior to the date of termination. Any representatives authorized
by either Party hereto may audit any and all records of the other Party, as
well as applicable subcontractors, for the sole purpose of determining
whether there has been compliance with this Article 19.
20. CORPORATE POWER AND AUTHORITY
--------------------------------
Each of the Parties represents and warrants to the other that it has full
power to enter into and perform its obligations under this Agreement and
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that, when executed, this Agreement will constitute such Party's legal,
valid and binding obligations in accordance with its terms.
21. GOVERNMENT APPROVALS
---------------------
From and after the execution hereof, each of the Parties hereto, without
further consideration, shall use its best efforts to execute, deliver,
submit, gain approvals of, and record, or cause to be executed, delivered,
submitted, and recorded, good and sufficient permits, designations of
operator forms, other regulatory documents and instruments, as applicable,
and take such other action as may be reasonably required to carry out the
purposes of this Agreement and to give effect to the covenants,
stipulations and obligations of the Parties hereto.
22. PUBLIC ANNOUNCEMENTS
---------------------
No Party will issue, or permit any agent or Affiliate of it to issue, any
press releases or otherwise make, or cause any agent or Affiliate of it to
make, any public statements with respect to this Agreement and the
transactions contemplated herein without the prior written approval of the
other Parties, which approval may not be unreasonably withheld. In the
event any Party reasonably believes that it is required by applicable
governmental regulations to disclose any part of this Agreement, it shall
notify the other Parties of its belief and shall seek appropriate
confidentiality protections for the information required to be disclosed.
23. MODIFICATION OF EXHIBITS
--------------------------
Additional Exhibits or amendments may be necessary to fully address the
financial and operational details of the various activities under this
Agreement. The Parties agree to cooperate to obtain the execution of any
documents necessary to carry out the intention of this Article 23.
24. NO LIABILITY; INDEMNITY
-------------------------
EXCEPT TO THE EXTENT OF THE SERVICE PARTIES' EXPENDITURES AND LIABILITIES
ASSUMED BY THE SERVICE PARTIES PURSUANT TO THE MASTER SERVICE AGREEMENT OR
ENGAGEMENT LETTER, AS APPLICABLE, THE SERVICE PARTIES SHALL NEVER BE
RESPONSIBLE FOR ANY PART OF THE COSTS, EXPENSES OR LIABILITIES INCURRED IN
CONNECTION WITH:
(A) THE EXPLORING, DEVELOPING, OPERATING, OWNING, MAINTAINING,
REWORKING OR RECOMPLETING OF THE EVALUATION WELLS OR ANY PROJECT
WELL, THE PHYSICAL CONDITION OF THE CONTRACT AREA, OR THE
HANDLING, TREATING OR TRANSPORTING OF HYDROCARBONS PRODUCED FROM
THE CONTRACT AREA (INCLUDING ANY COSTS, EXPENSES, LOSSES OR
LIABILITIES RELATED TO VIOLATION OF AN ENVIRONMENTAL LAW OR
25
OTHERWISE RELATED TO DAMAGE TO OR REMEDIATION OF THE ENVIRONMENT,
WHETHER THE SAME ARISE OUT OF A SERVICE PARTY'S LIEN ON ANY
PROPERTY OR OUT OF THE ACTIONS OF IOGW OR THE SERVICE PARTIES OR
OF THIRD PARTIES OR ARISE OTHERWISE), OR
(B) THE FAILURE BY IOGW TO HAVE GOOD AND DEFENSIBLE TITLE TO THE
PROJECT WELLS AS SET FORTH IN ARTICLE 14.2, FREE AND CLEAR OF ALL
BURDENS, ENCUMBRANCES, LIENS AND TITLE DEFECTS (INCLUDING ANY
COSTS, EXPENSES, LOSSES OR LIABILITIES SUFFERED BY THE SERVICE
PARTIES AS A RESULT OF ANY CLAIM THAT ANY SERVICE PARTY MUST
DELIVER OR PAY OVER TO ANY PERSON ANY PART OF THE PROCEEDS OF
HYDROCARBON PRODUCTION THEREOF AT ANY TIME PREVIOUSLY RECEIVED OR
THEREAFTER TO BE RECEIVED BY ANY SERVICE PARTY),
AND IOGW AGREES TO INDEMNIFY AND HOLD THE SERVICE PARTIES HARMLESS FROM AND
AGAINST ALL COSTS, EXPENSES, LOSSES AND LIABILITIES INCURRED BY THE SERVICE
PARTIES IN CONNECTION WITH ANY OF THE FOREGOING OR THIS AGREEMENT, OR THE
TRANSACTIONS AND EVENTS (INCLUDING THE ENFORCEMENT OR DEFENSE THEREOF OR
HEREOF) AT ANY TIME ASSOCIATED WITH OR CONTEMPLATED IN ANY OF THE
FOREGOING. SUCH INDEMNITY SHALL ALSO COVER ALL REASONABLE COSTS AND
EXPENSES OF THE SERVICE PARTIES, INCLUDING REASONABLE LEGAL FEES AND
EXPENSES, WHICH ARE INCURRED INCIDENT TO THE MATTERS INDEMNIFIED AGAINST.
AS USED IN THIS ARTICLE 24, "SERVICE PARTY" MEANS EACH SERVICE PARTY AND
ITS' SUCCESSORS AND ASSIGNS, ALL OF THEIR RESPECTIVE AFFILIATES, AND ALL OF
THE OFFICERS, DIRECTORS, AGENTS, BENEFICIARIES, TRUSTEES, ATTORNEYS AND
EMPLOYEES OF THEMSELVES AND THEIR AFFILIATES.
THE FOREGOING INDEMNITY SHALL APPLY WHETHER OR NOT ARISING OUT OF THE SOLE,
---------------------------------------------------------------------------
JOINT OR CONCURRENT NEGLIGENCE, FAULT OR STRICT LIABILITY OF ANY SERVICE
---------------------------------------------------------------------------
PARTY AND SHALL APPLY, WITHOUT LIMITATION, TO ANY LIABILITY IMPOSED UPON
---------------------------------------------------------------------------
ANY SERVICE PARTY AS A RESULT OF ANY THEORY OF STRICT LIABILITY OR ANY
---------------------------------------------------------------------------
OTHER DOCTRINE OF LAW, PROVIDED THAT THE FOREGOING INDEMNITY SHALL NOT
------------------------
APPLY TO ANY COSTS, EXPENSES, LOSSES OR LIABILITIES INCURRED BY ANY SERVICE
PARTY TO THE EXTENT PROXIMATELY CAUSED SOLELY BY THE GROSS NEGLIGENCE OR
WILLFUL MISCONDUCT OF SUCH SERVICE PARTY. THE FOREGOING INDEMNITY SHALL
SURVIVE THE TERMINATION OF THIS AGREEMENT AND THE OTHER DOCUMENTS RELATED
HERETO.
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25. COUNTERPARTS
------------
This Agreement may be executed in one or more counterparts, each of which
shall be deemed an original, and all of which taken together shall
constitute one agreement.
IN WITNESS WHEREOF, this Agreement is executed as of the date first above
written, but is effective as of the Effective Date.
INFINITY OIL & GAS OF WYOMING, INC. SCHLUMBERGER TECHNOLOGY CORPORATION
By: /s/ Stanton E. Ross /s/ Gary A. Kolstad
------------------------------- ----------------------------------
Name: Stanton E. Ross Gary A. Kolstad
----------------------------- ----------------------------------
Title: President Vice President
--------------------------- ----------------------------------
RED OAK CAPITAL MANAGEMENT, LP
By: /s/ J.M. Whipkey
-------------------------------
Name: J.M. Whipkey
-----------------------------
Title: Managing Director
----------------------------
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