POLAND 2001 AGREEMENT
This Agreement (this "Agreement") is entered into effective as of
January 1, 2001 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 executed an Agreement dated as of January 1,
1999 pertaining to Oil and Gas Operations in Poland (the "Global Agreement"), in
which the parties modified certain provisions of their existing agreements and
acknowledged certain additional agreements. The Global Agreement, among other
things, establishes an area of mutual interest ("AMI") consisting of all lands
within the Republic of Poland except FX Energy's Baltic concession. Unless
extended by mutual agreement, the AMI is scheduled to expire upon the latest to
occur of the following: (i) two years after the effective date of the Global
Agreement [January 1, 2001], and (ii) the spudding by Apache of the last
required earning well contemplated by the existing agreements between Apache and
FX Energy.
B. Apache and FX Energy executed an Agreement dated as of' January 1,
2000 (the "Poland 2000 Agreement"), in which the parties modified certain
provisions of their existing agreements and acknowledged certain additional
agreements. The Poland 2000 Agreement, among other things, recognizes that
Apache will carry FX Energy in 350 kilometers of seismic. in Blocks 410, 411,
412, 413, 414, 415, 430, 431, 432, 433, 452, and 453 (the "Carpathian Blocks").
C. As of this date of this Agreement, Apache's remaining commitment to
cover FX Energy's share of costs in Poland consists of the (i) drilling, testing
and abandoning of three exploratory wells (but not the costs after the decision
to run production casing which shall be paid in proportion to participation
interests), and (ii) acquisition of 339 kilometers of seismic in the Carpathian
Blocks. Apache is covering FX Energy's share of costs incurred in thc drilling
of the (i) Tuchola l08-2 well in the Pomeranian Concession, which was spudded on
October 23, 2000, and (ii) Annopo1 254-1 well in the Warsaw West Concession,
which was spudded on December 11, 2000. After completing the drilling of the
Tucho1a 108-2 and Annopol 254-1 wells, Apache's remaining drilling carry
commitment balance will be one well.
D. In discussions between the parties. Apache and FX Energy have
expressed their desire to establish a date certain for expiration of the AMI
based upon these discussions, Apache and FX Energy wish to amend the Global
Agreement as set forth herein and acknowledge certain additional agreements.
E. Capitalized terms used and not otherwise defined in this Agreement
shall have the meanings set forth in the form of Joint Operating Agreement
Covering Oil and Gas Operations in Poland (the "Joint Operating Agreement")
between Apache Poland Sp. z o.o. and FX Energy Poland Sp. z o.o. attached as
Annex "A" to the letter agreements dated July 7, 1999 concerning the Mining
Usufruct Areas in Poland.
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. Termination of AMI.
(i) Amendment of Global Agreement. Apache and FX Energy hereby agree
that Article I [Area of Mutual Interest] of the Global Agreement shall be
amended by replacing the second sentence with the following: "The AMI shall
expire on January 1, 2001,"
(ii) No other AMIs. For the avoidance of doubt, Apache and FX Energy
expressly acknowledge and agree that except for the AMI described in the Global
Agreement, no other area of mutual interest agreements between Apache and FX
Energy are currently in full force and effect.
2. Carpathian Seismic and Establishment of Credit Balance.
(i) Release from Obligation. FX Energy hereby releases Apache from its
obligation to carry FX Energy in the remaining 339 kilometers of seismic in the
Carpathian Blocks. In exchange for this release, FX Energy shall be entitled to
a credit equal to the sum of $932,250. Commencing with the current cash call
issued by Apache upon the execution of this Agreement, the credit will be used
to offset FX Energy's participation interest share of costs and expenditures
incurred by Apache in connection with Joint Operations and charged to the Joint
Account.
(ii) Carpathian G&G Activities. In the event the Operating Committee
approves a seismic acquisition program in the Carpathian Blocks prior to
drilling the first exploratory well, FX Energy will bc responsible for paying
its participation interest share of such seismic acquisition and processing
costs subject to the monetary limits described in Paragraph 2(iii) below. In the
event Apache wishes to conduct further geological or geophysical (non-seismic
acquisition related) works in the Carpathian Blocks prior to the production
casing point election in the first exploratory well drilled in the Carpathian
Blocks, Apache will be responsible for paying FX Energy's share of such costs.
(iii) Excess Seismic Costs. In the event (i) the remaining 339
kilometers of seismic is acquired within the Carpathian Blocks. and (ii) FX
Energy's participation interest share of the first 339 km of seismic acquisition
and processing costs exceeds $932,250, Apache will be responsible for paying FX
Energy's share of such costs that exceed $932,250. FX Energy will pay its
participation interest share of any seismic costs in the Carpathian Blocks
approved by the Operating Committee following the completion of the remaining
339 kilometer seismic acquisition program.
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3. 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, 2001, in the
form attached hereto as Appendix "A"; provided however that the foregoing
approval is subject to the following terms and conditions set forth in this
Paragraph 3 and elsewhere in this Agreement:
(i) General and Administrative Charges. According to the terms of the
Global Agreement and other existing agreements, FX Energy is required to pay its
share of overhead incurred by Apache in connection with Joint Operations, with
the FX Energy share prorated based on the number of carried wells completed as a
percentage of the total carry commitment of ten wells. The tern "overhead" means
the direct charges authorized by Section II of the Accounting Procedure [Exhibit
A to the Joint Operating Agreement], which are identified in thc Work Program
and Budget as "G&A." The parties acknowledge and agree that as of thc date of
this Agreement, FX Energy is required to pay 70% of its share of overhead
incurred by Apache in connection with Joint Operations reduced by any payments
received by Apache as Operator from Polskie Gornictwo Naftowe i Gazownictwo S.A.
("POGC") and others in the nature of direct charges. Furthermore, it is possible
that in 2001 Apache may have overhead which is allocable to Apache's other
operations within the Republic of Poland and not chargeable to the Joint
Account. Apache shall keep time records to support the allocation of overhead
charges between Joint Operations and Apache's other operations, unless the
Operating Committee shall agree on an alternate method of allocation.
Thc Work Program and Budget contemplates that Apache's General and
Administrative ("G&A") charges during the first six months of 2001 will be equal
to the sum of $1,713,500 of which FX Energy's net allocation share is $613,900.
For the first six months of 200l, Apache's monthly cash calls to FX Energy will
include the G&A charges set forth in the Work Program and Budget. Following the
completion of this six month period, an adjustment will be made to reflect (i)
the actual G&A charges incurred by Apache during such period in connection with
Joint Operations, and (ii) the payments received by Apache as Operator from POGC
and others in the nature of direct charges. For the avoidance of doubt, it is
emphasized that the adjustment will further reflect any changes in G&A arising
from any revised allocation of overhead between Joint Operations and Apache's
other operations for such six month period.
The parties acknowledge that Apache's G&A charges may require
adjustment based upon the results of the Tuchola 108-2 and Annopol 254-1 wells,
and the extended flow test of the Wilga 255-2 well, which will affect the nature
and extent of Joint Operations during the remainder of 2001. No later than May
15, 2000, Apache shall deliver to FX Energy a revised Work Program and Budget
detailing the Joint Operations to be performed in the Republic of Poland for the
remainder of 2001. Apache and FX Energy will meet no later than June 1, 2000, to
negotiate in good faith to agree upon a level of G&A charges commensurate with
thc Joint Operations contemplated for the last six months of 2001 and approve
such revised Work Program and Budget.
(ii) Special Procedure for G&A Charges. As noted above, the principal
activities that will be undertaken during the first six months of 2001 will
consist of the drilling of the Tuchola 108-2 and Annopo1 254-1 wells, and the
extended flow testing of the Wilga 255-2 well. If the
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Tuchola 108-2 and Annopo1254-l wells are determined to be dry holes, and the
Operating Committee for Block 255 determines that the Wilga 255-2 discovery is
not a viable, economic project, a special formula for G&A charges will be
applied and remain in effect until the tenth and final commitment well is
drilled. The amount of G&A chargeable to the Joint Account shall be equal to 11%
of Apache's total capital expenditures incurred in connection with the drilling
of the tenth and final commitment well exclusive of goods and services tax.
The parties acknowledge that this formula will be applied only under
the limited circumstances identified above, and will not be considered as a
precedent for determining reasonable and appropriate G&A charges for other Joint
Operations.
4. Special Agreements regarding Further Seismic and Drilling of
Appraisal Wells.
(i) Seismic in the Pomeranian Blocks. Neither Apache nor FX Energy may
propose or conduct seismic acquisition or reprocessing activities within thc
Pomeranian Blocks prior to the production casing point election in the Tuchola
108-2 well. The tern "Pomeranian Blocks" means Blocks 85, 86, 87, 88, 89, 105,
108, 109, 129, and 149.
(ii) Seismic in the Warsaw West Concession. Neither Apache nor FX
Energy may propose or conduct seismic acquisition or reprocessing activities
within the Warsaw West Blocks prior to the production casing point election in
the Annopo1 254-1 well. The term "Warsaw West Blocks" means Blocks 211, 212,
213, 214, 231, 232, 233, 234, 251, 252, 253, 254, and 274.
(iii) Pomeranian Appraisal Well. Neither Apache nor FX Energy may
propose or conduct the drilling of an appraisal well within the Pomeranian
Blocks prior to the production casing point election in the Tuchola 108-2 well.
(iv) Warsaw West Appraisal Well. Neither Apache nor FX Energy may
propose or conduct the drilling of an appraisal well within the Warsaw West
Blocks prior to the production casing point election in the Annopo1 254-1 well.
(v) Carpathian Appraisal Well. Neither Apache nor FX Energy may propose
or conduct the drilling of an appraisal well within the Carpathian Blocks prior
to thc production casing point election in the first exploratory well drilled in
the Carpathian Blocks.
5. 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, bc 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/ John A. Crum
------------------------
Executive Vice President
FX ENERGY, INC.
By:/s/ Andrew W. Pierce
------------------------
Vice President
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