AGREEMENT
THIS AGREEMENT (this "Agreement") is entered into effective as of
January 1, 2000, by and between FX Energy, Inc., a Nevada corporation, and its
subsidiaries and affiliates through which it owns interests and carries out
activities in Poland (collectively, "FX Energy"), and Apache Overseas, Inc.. a
Delaware corporation, and its subsidiaries and affiliates through which it owns
interests and carries out activities in Poland (collectively, "Apache").
Recitals
A. Apache and FX Energy hold certain rights to explore for and exploit
natural gas and oil in certain lands in the Republic of Poland and have been
conducting exploration operations in Poland pursuant to various agreements.
Apache and FX Energy jointly hold exploration rights covering approximately 11.5
million acres and options covering approximately 3.4 million acres controlled by
Polski Gornictwo Naftowe i Gazownictwo S.A. ("POGC").
B. The strategic alliance of Apache and FX Energy has historically
focused on an extensive exploration program. To date, Apache and FX Energy have
jointly participated in the drilling of six wells, and Apache has covered all of
FX Energy's drilling and completion costs for five of the six wells. Apache and
FX Energy also entered into a Farmin Agreement with POGC with respect to POGC's
Lachowice area. The Farmin Agreement was the first agreement of its kind
executed by POGC with foreign entities.
C. The close relationship that Apache and FX Energy have developed
together. and with POGC will hopefully lead to an expanded program in the
Republic of Poland that will include the acquisition of producing properties and
the development and enhancement of proven properties within the Republic of
Poland. Apache and FX Energy have been evaluating several opportunities, and, as
a result of their analyses, executed a Letter of Intent with POGC that, among
other things, establishes an exclusive negotiation period for a proposed
transaction involving the acquisition of interests in the Koscian, Rensko,
Obrzycko, Paproc East and Stezyca project areas (the "Zielona Gora
transaction").
D. In light of these developments, Apache and FX Energy wish to modify
certain provisions of their existing agreements and acknowledge certain
additional agreements.
Agreement
NOW, THEREFORE, in consideration of the foregoing recitals, which are
incorporated herein by this reference, and for other good and valuable
consideration, the receipt and legal sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
1. Interim Funding Agreement (Zielona Gora). Apache and FX Energy are parties to
an Interim Funding Agreement dated as of September 30, 1999. The Interim Funding
Agreement, among other things, sets forth a timetable for FX Energy's obtaining
of third party financing for the Zielona Gora transaction. Any capitalized term
used in this Section 1 but not defined shall have the meaning given such term in
the Interim Funding Agreement.
The Interim Funding Agreement is hereby amended as follows:
(i) Extension. According to Paragraph 1 of the Interim Funding
Agreement, "[i]f a Definitive Agreement has not been signed by December
31, 1999, this Agreement shall have no further force or effect unless
extended by mutual agreement of the parties." In addition, the Interim
Funding Agreement states that only Definitive Agreements signed on or
before December 31, 1999 will be subject to the Interim Funding
Agreement. The term of the Interim Funding Agreement is hereby extended
until July 1, 2000, and the deadline for execution of Definitive
Agreements subject to the Interim Funding .Agreement is hereby extended
until July 1, 2000.
(ii) Option Period. The Interim Funding Agreement currently
provides for a 180-day option period commencing on the date of
execution of a Definitive Agreement among POGC, Apache and FX Energy.
The option period described in Paragraph 4 of the Interim Funding
Agreement is hereby modified and will commence on the Closing (defined
below) of the Zielona Gora transaction and terminate 90 days
thereafter.
(iii) Determination Date. The Determination Date set forth in
Paragraph 5 of the Interim Funding Agreement is hereby modified and
will occur on the 90th day following the Closing (defined below) of the
Zielona Gora transaction, or earlier at the election of FX Poland.
(iv) Transaction Expenses. All third party legal and
accounting expenses of Apache and FX Energy relating to the negotiation
and execution of the Definitive Agreement for the Zielona Gora
transaction will be shared by Apache and FX Energy regardless of
whether a Definitive Agreement is executed. Each party's share of
expenses will be based upon each party's participation interest in the
Zielona Gora transaction following FX Energy's exercise of its option.
Apache will provide FX Energy with copies of the invoices from third
parties upon receipt, and promptly pay the invoices. FX Energy will
reimburse Apache for the third party legal and accounting expenses
within thirty days after the first to occur of: (i) FX Energy's
exercise of its option to own an interest in the Zielona Gora
transaction, or (ii) the termination of the Interim Funding Agreement.
In the event the Interim Funding Agreement is terminated, Apache and FX
Energy will share the third party legal and accounting expenses
equally.
(v) Partnership Agreement. The Partnership Agreement to be
filed of record for the Apache/FX Energy spolka jawna (the "Apache/FX
Partnership") in the Zielona Gora transaction will provide that: (a)
the Apache/FX Partnership can be bound only with the signatures of two
members of management, one from Apache and one from FX Energy; (b) it
will have at least two representatives at meetings of the
POGC/Apache/FX Energy spolka komandvtowa (the "Zielona Gora
Partnership"), at least one from FX Energy and at least one from
Apache; and (c) each representative will vote in the Zielona Gora
Partnership in accordance with the consensus mechanism at the Apache/FX
Partnership level.
The term "Closing ' means the consummation of the Zielona Gora
transaction, which will take place following the satisfaction or waiver of the
conditions precedent set forth in the definitive documentation for the Zielona
Gora transaction.
2. Future Well Carries. FX Energy hereby acknowledges and agrees that
Apache has satisfied all of its seismic and drilling obligations to FX Energy in
Poland other than as set forth in this paragraph. Apache will carry FX Energy
in: (i) five wells located within the parties' Area of Mutual Interest and in
which both Apache and FX Energy participate (the "Carried Wells"), and (ii) 350
kilometers of seismic in Blocks 410, 411, 412, 413, 414, 415, 430, 431, 432,
433, 452, and 453 (the
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"Carpathian Blocks"). Each of the Carried Wells will be drilled at a mutually
agreeable location and to a depth sufficient to test Carboniferous or Devonian
or deeper formations, estimated at a depth of 2,000 to 3,000 meters. If a
proposed Carried Well is a well required to satisfy a minimum work obligation of
either the Lublin Blocks (defined below) or Carpathian Blocks, then FX Energy
will be required to elect to be carried in that well. In the event a well is
proposed outside of the Lublin or Carpathian Blocks, FX Energy will have the
right to elect to be carried in such well, provided that Apache and FX Energy
agree that such well is substantially equivalent to the wells previously drilled
in Poland in terms of cost and depth.
The commitments set forth in the previous paragraph are intended to
supersede Apache's obligations to drill ten exploratory wells within certain
specified time periods, as more fully described in the following Agreements:
(i) Lublin Participation Agreement. Participation Agreement
dated as of April 16, 1997 between Apache Overseas, Inc. and FX Energy,
Inc. pertaining to the Lublin Area Concessions;
(ii) Carpathian Participation Agreement. Participation
Agreement dated as of February 27, 1998 between Apache Overseas, Inc.
and FX Energy, Inc. pertaining to the Western Carpathian Concessions;
and
(iii) Global Agreement. Agreement dated as of January 1, 1999'
between Apache Overseas, Inc. and FX Energy, Inc. pertaining to Oil and
Gas Operations in Poland.
FX Energy will pay its share of geological and geophysical costs in the
Carpathian Blocks commencing on the later of (i) January 1, 2001, or (ii) the
completion of the 350 kilometer seismic acquisition program in the Carpathian
Blocks.
The term "Lublin Blocks", as used in this Section 2, means the Komarow,
Lublin, Ciecierzyn (which is Block 298), and Vistula Blocks.
3. Wilga Appraisal Well(s). FX Energy will have the option either (i)
to be carried in the Wilga appraisal well(s), or (ii) pay its participation
interest share of the Wilga appraisal well(s). Such option will be exercised no
later than 60 days following the initial cash call for each well. If FX Energy
elects to be carried on the appraisal well(s), such well(s) will be used to
satisfy the well carry(ies) defined in Section 2 above.
4. Lublin Project Area. FX Energy hereby acknowledges and agrees that
Apache has satisfied its obligations to date under the usufructs concerning the
acquisition and reprocessing of seismic and the drilling of wells within the
Komarow, Lublin, Ciecierzyn (which is Block 298), and Vistula Blocks (the
"Lublin Project Area"), and the parties will relinquish the entire Lublin
Project Area with the exception of Blocks 255, 275 and 297.
5. Lachowice Project Area. Apache and FX Energy will formally notify
POGC that Apache and FX Energy do not wish to proceed with further operations in
the Lachowice area.
6. Poland Overhead. Beginning July 1, 2000, FX Energy will pay its
share of overhead incurred, which shall be prorated based on the number of
carried wells completed as a percentage of the total carry commitment of ten
wells, excluding Zielona Gora. The term "overhead" means the direct
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charges authorized by Article II of the Accounting Procedure [Exhibit A to the
Joint Operating Agreement Covering Oil and Gas Operations in Poland (the "Joint
Operating Agreement")], which are identified in the Work Program and Budget as
"G&A." The amounts of G&A are based upon the amount of capital spent on
individual projects in relation to total capital spent. G&A shall be reduced by
any payments received by Apache as Operator from POGC and others in the nature
of direct or indirect charges.
7. Award of Contract to Geofizyka Torun. Apache and FX Energy hereby
approve the award of a modified seismic acquisition program (the "Modified
Seismic Program") for Blocks 85, 86, 87, 88, 89, 105, 108, 109, 129, and 149
(the "Pomeranian Blocks") and Blocks 211, 212, 213, 214, 231, 232, 233, 234,
251, 252, 253, 254, and 274 (the "Warsaw West Blocks") to Geofizyka Torun Sp. z
o.o. ("Geofizyka Torun"). Apache and FX Energy will each further evidence their
approval by executing an Authorization for Expenditure ("AFE") for the Modified
Seismic Program in the form of Appendix "A" attached hereto, as required by
Article 6.6 of the Joint Operating Agreement. FX Energy will use one of its five
remaining Carried Wells to offset its participation interest share of the cost
of the Modified Seismic Program.
The Modified Seismic Program consists of the acquisition of 2D seismic
data covering: (i) 300 kilometers of seismic lines within the Pomeranian Blocks;
and (ii) 422 kilometers of seismic lines within the Warsaw West Blocks. For
purposes of determining the allocation of G&A, the Carried Well that FX Energy
has elected to use will be deemed completed upon the conclusion of the Modified
Seismic Program. If Apache and FX Energy elect to acquire additional seismic in
excess of the amounts described above for the Modified Seismic Program, Apache
and FX Energy will share the cost of the additional seismic equally.
8. 2000 Work Program and Budget. In accordance with Article 6.1(B) of
the Joint Operating Agreement, Apache and FX Energy hereby approve the Work
Program and Budget for the calendar year commencing on January 1, 2000, in the
form attached hereto as Appendix "B."
9. Outstanding Amounts for Seismic Acquisition. FX Energy hereby agrees
to pay Apache the sum of U.S. $37,000 to settle the dispute arising from charges
incurred during the acquisition of seismic data by Geofizyka Krakow. FX Energy's
payment of this settlement amount shall not be construed as an admission of
liability on its part in any respect. Payment shall be made within five business
days of the execution of this Agreement.
10. Miscellaneous.
(i) Governing Law. This Agreement shall be governed by, and
construed and enforced in accordance with, the laws of the State of
Texas without regard to any conflict of law rules that would direct
application of the laws of another jurisdiction.
(ii) Severability. This Agreement is severable, such that if
any provision of this Agreement is prohibited or unenforceable in any
jurisdiction such provision shall, as to such jurisdiction, be
ineffective to the extent of such prohibition or unenforceability
without invalidating the remaining portions hereof or affecting the
validity or enforceability of such provision in any other jurisdiction.
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(iii) Counterparts. This Agreement may be executed in one or
more counterparts, each of which shall be deemed an original, but all
of which together shall constitute one and the same instrument.
(iv) Amendments and Prior Agreements. This Agreement shall be
effective when signed by the parties and may not be amended, modified
or assigned except by an instrument executed by all of the parties. To
the extent of any conflicts or inconsistencies, and only to such
extent, this Agreement supersedes all prior agreements between Apache
and FX Energy.
(v) Assignments. This Agreement is binding upon the parties
and their respective successors and assigns; provided that no party may
assign or transfer any of its rights or delegate any of its duties or
obligations under this Agreement without the prior consent of the other
parties.
IN WITNESS whereof this Agreement has been signed by the duly
authorized representatives of the parties as of the day and year first above
written.
APACHE OVERSEAS, INC.
By: /s/ W. Steven Farris
-------------------------------
W. Steven Farris
Vice Chairman of the Board
FX ENERGY, INC.
By: /s/ David N. Pierce
-----------------------
David N. Pierce
President and Chief Executive Officer
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