EXHIBIT 10.2
PARTICIPATION AGREEMENT
GARDEN BANKS BLOCKS 346 & 390
This Participation Agreement (the "Agreement") is made and entered into
effective as of the 1st day of January, 2006, by and between Walter Oil & Gas
Corporation ("Walter") and Ridgewood Energy Corporation, as manager of Ridgewood
Energy S Fund LLC, ("Ridgewood") with all parties collectively referred to as
"Parties", and individually referred to as "Party".
RECITALS
WHEREAS, Walter has entered into that certain farmout agreement dated
effective November 7th 2005, ("Farmout Agreement") with Shell Offshore, Inc.
("Shell"), as Farmor, affecting all of Farmor's leasehold interest in Federal
Leases OCS-G 23303 and OCS-G 23312 covering Garden Banks blocks 346 and 390,
respectively, from the surface down to 22,350' TVD ("Leases"),
WHEREAS, Walter desires to assign an undivided thirty percent interest in
the Farmout Agreement to Ridgewood to jointly drill an "Initial Test Well" (as
described in the Farmout Agreement),
WHEREAS, Ridgewood desires to acquire an undivided thirty percent interest
in the Farmout Agreement and participate in drilling the Initial Test Well, all
in accordance with the terms of this Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained, the Parties agree as follows:
SECTION I
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Definitions
1.01 In addition to those terms defined elsewhere in this Agreement, terms
defined in the Farmout Agreement shall have the same meaning when used herein.
SECTION II
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Assignment and Assumption of Rights
2.01 Upon obtaining Farmor's consent to assign if required under the
Farmout Agreement, Walter shall be deemed to have assigned to Ridgewood an
undivided thirty percent (30%) share of all of Walter's rights, benefits,
duties, liabilities and obligations related to, arising out of, or in any way
connected with the Farmout Agreement. Except as provided in Section 6.01, Walter
represents that it has not transferred or encumbered the rights, interests or
obligations transferred to Ridgewood hereunder.
2.02 Ridgewood does hereby accept the assignment described in the
immediately preceding paragraph and agrees to assume and be liable for an
undivided thirty percent (30%) share of all of Walter's rights, benefits,
duties, liabilities, and obligations related to, arising under, or in any way
connected with the Farmout Agreement, as fully and effectively as though
Ridgewood was a signatory party thereto.
SECTION III
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Operating Agreement
3.01 The parties agree that the controlling operating agreement shall be
that certain operating agreement attached to the Farmout Agreement as Exhibit
"D" ("JOA") covering the Leases and naming Walter as operator of the Leases.
Contemporaneous with the execution of this Agreement, Ridgewood agrees to adopt
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and ratify the JOA and shall become a signatory party thereto. All operations on
the Initial Test Well and any and all subsequent operations on the Leases shall
be conducted in accordance with the terms and provisions of the JOA. With
respect to Ridgewood and Walter, if there are any conflicts between this
Agreement and the JOA, the terms and provisions of this Agreement shall prevail
and govern.
SECTION IV
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Initial Test Well
4.01 Subject to receipt of all necessary regulatory permits and approvals,
the Parties agree to commence drilling operations for the Initial Test Well on
the Leases on or before March 31St, 2006. The Initial Test Well shall be located
and drilled to a proposed total depth as identified in the AFE attached hereto
as Exhibit "A," which AFE shall be deemed ratified and approved by the parties
hereto concurrent with their execution of this Agreement. As consideration for
the opportunity to earn a Thirty Percent (30%) working interest in the Farmout
Agreement and Leases, Ridgewood shall bear Sixty Percent (60%) of the costs to
drill the Initial Test Well to casing point and through plugging and
abandonment, if the Initial Test Well is not saved for production. This
disproportionate cost sharing obligation shall be referred to as the "Promote."
The Promote will be applicable to the dry hole costs of the Initial Test Well
and will be limited to, 115% of the Initial Test Well's estimated dry hole cost
as noted in the attached AFE, or reaching actual casing point, whichever is
less. Notwithstanding anything to the contrary herein, the Promote will apply to
the plugging and abandonment of the Initial Test Well or its substitute subject
to the cap of 115% as noted herein. The Promote will also apply to any
substitute well or sidetrack of the Initial Test Well until Walter has received
115% of the original AFE dry hole costs. After the Promote has, been satisfied,
Ridgewood shall bear thirty percent (30%) of the costs and expenses associated
with the Initial Test Well, or any substitute well.
4.02 Walter represents that it has contracted the Ocean Lexington drilling
rig at a day rate of $60,000.00 to drill the Initial Test Well and acknowledges
that Ridgewood's willingness to pay the Promote is based, in part, upon this
representation.
4.03 Subject to reduction in accordance with Shell's reversionary rights,
it is understood and agreed that Energy Resources Technology, Inc. will
participate in the Initial Test Well to earn a 20% working interest in the
Farmout Agreement, Leases and Initial Test Well.
4.04 For clarification purposes only, there shall be no penalty(ies)
assessable to either party hereto for failure of the Initial Test Well to be
spudded on or before March 31St, 2006.
SECTION V
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Assignment of Operating Rights
5.01 Upon the earning of interests under the Farmout Agreement, Walter
shall request the Farmor assign the earned interest directly into Walter and
Ridgewood in their respective working interest shares. However, if the Farmor
assigns 100% of the earned interest directly into Walter where Ridgewood is
entitled to its working interest share, then the parties shall within 10
business days of Farmor having assigned to Walter, execute an assignment
evidencing Ridgewood's proportionate ownership share of the earned interest.
SECTION VI
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Burdens
6.01 Walter and Ridgewood shall each bear their respective working interest
share of (i) the lease royalty, (ii) the overriding royalty interest or the 25%
back-in and $2,000,000.00 credit, whichever is applicable, retained by Farmor
pursuant to the terms of the Farmout Agreement and (iii) an overriding royalty
interest to be retained by Walter ("Staff ORR") equal to 1 % of 8/8ths.
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SECTION VII
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Notices
7.01 All notices, requests or demands to be given under this Agreement
shall be in writing and governed and directed to the representatives as
specified below:
Ridgewood Energy Corporation Walter Oil & Gas Corporation
11700 Old Katy Rd., Suite 280 1100 Louisiana Street, Suite 200
Houston, Texas 77079 Houston, TX 77002
Attn: Mr. W. Greg Tabor Attn: Mr. Ron Wilson
Phone: 281-293-8449 Phone: 713-659-1221
Fax: 281-293-7705 Fax: 713-756-1177
SECTION VIII
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Internal Revenue Provision
8.01 It is not the purpose or intention of this Agreement to create any
partnership, mining partnership or association, and neither this Agreement nor
the operations hereunder shall be construed as creating any such legal
relationship; however, solely for income tax purposes only, the parties agree
that this Agreement shall be governed in accordance with Article 20 ("Taxes") of
the JOA.
SECTION IX
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Term
9.01 This Agreement shall remain in effect for a term corresponding to the
term of the JOA.
SECTION X
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Miscellaneous
10.01 This Agreement, together with all of its exhibits, is intended by the
Parties to be a complete and final statement of the agreement of the Parties
with respect to the subject matter hereof, and supersedes any prior oral or
written statements or agreements.
10.02 Subject to all matters hereof, this Agreement shall be binding upon
the Parties hereto and their respective successors and assigns.
10.03 This Agreement maybe executed in any number of counterparts, each of
which shall be valid and binding with respect to the signatories thereto, but
only upon the execution by all signatories of this Agreement or a counterpart
hereof.
10.04 This Agreement shall be governed by the laws of the State of Texas
except where the Maritime Laws of the United States of America are applicable.
In the event that any dispute results in formal legal action, venue shall be
appropriate in the federal or state courts of Harris County, Texas.
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10.05 In the event of a breach of this Agreement by any party hereto, the
non-breaching party shall be entitled to all remedies available at law or
equity, including but not limited to, specific performance, monetary damages and
injunctive relief.
10.06 Walter shall provide Ridgewood with full and complete access to
Walter's files, records and data, so that Ridgewood may perform its due
diligence review of Walter's acquisition, ownership and obligations associated
with the Leases. Additionally, Walter shall provide Ridgewood with access to its
technical data associated with the Leases, including seismic, maps, well data
and geological data, subject however, to all confidentiality and data licensing
restrictions.
IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to be
executed effective as of the date first set forth above.
WITNESSES: WALTER OIL & GAS CORPORATION
/s/ Melissa Coronado By: /s/ Ron Wilson
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Melissa Coronado Ron Wilson
Vice President
WITNESSES: RIDGEWOOD ENERGY CORPORATION,
as Manager of Ridgewood Energy S Fund LLC
/s/ Donna Ermis
- ------------------------- By: /s/ W. Greg Tabor
--------------------------
/s/ Randy Bennett W. Greg Tabor
- ------------------------- Executive Vice President
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[LOGO OMITTED]
WALTER OIL & GAS CORPORATION
1100 LOUISIANA, SUITE 200
HOUSTON, TX 77002-5299
AUTHORITY FOR EXPENDITURE
AFE NO PROPERTY NO TOTAL AFE AMOUNT TYPE OF AFB
E0560 T022301001 $21,485,600 Drilling
EXPLORATORY ________ DEVELOPMENT ________ OTHER (Describe)_________
PROSPECT/FIELD NAME Garden Banks 346 (390) LEASE/WELL NO. OCS-G23303 Well No.1
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PROPOSED T.V.D 22,000' M.D. 23,620'
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COUNTY/PAR1SH Offshore STATE Texas
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LOCATION
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DESCRIPTION OF WORK TO BE PERFORMED Cost to drill a 32 degree directional hole.
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WORKING INTEREST OWNER PERCENT WORKING INTEREST W.I.OWNER SHARE
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TOTAL 0.00000% $0.00
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Prepared by: /s/ Randy Reese Randy Reese Date 26 January 2006
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Review by: /s/ C. J. Locke C. J. Locke Date 26 January 2006
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Approved by: J. C. Walter III President Date
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JOINT INTEREST APPROVAL
This expenditure is approved including the well control insurance coverage
provided by Walter Oil & Gas Corporation
Company proved by Date
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This expenditure is approved excluding the well control insurance coverage
offered by Walter Oil & Gas Corporation. Proof of insurance coverage for our
company is attached.
Company RIDGEWOOD ENERGY CORPORATION Approved by /s/ W G Tabor Date 2/16/06
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WALTER OIL AND GAS CORPORATION
Drilling
AFE Cost Estimate
Field
Name: Garden Banks 346 (390) OCS-G23303 Well No. I Prop. No. 7022301001
AFE No. E0560
Project Description: TVD 22,000'
Cost to drill a 32 degree directional hole. MD 23,620'
Exploratory: ______ Other:
Development: ______
INTANGIBLE DRILLING COSTS - (BCP) $ ESTIMATED $ ACTUAL
101 Surveys & Permits 10,000
102 Legal Fees 0
103 Location & Road Construction 0
105 Surface Damages & Restoration 0
110 Drilling Rig - Mobilization 650,000
111 Drilling Rig - Demobilization 650,000
112 Rig Cost - Footage FT @ $/FT 0
113 Rig Cost - Daywork 92 Days @ $60,000 $/Day 5,520,000
114 Bits 170,000
115 Fuel, Power & Water 92 Days @ $12,000 $/Day 1,104,000
117 Fishing Tools & Services 0
118 Directional Tools & Services 800,000
120 Dock Services 92 Days @ $800 $/Day 73,600
121 Rental - Downhole 60,000
124 Rental - Surface Equipment 60,000
129 Inspection & Testing - Specify 0
131 Mud & Chemicals 2,500,000
138 Waste Water Disposal/Vacuum Trucks 60,000
139 Contract Labor 30,000
140 Transportation - Land 70,000
141 Transportation -Aircraft 45,000
142 Transportation - Boats 92 Days@ $25,000 /day 2,300,000
146 Cement & Services 250,000
148 Casing Crews & Equipment 65,000
151 Cores & Core Analysis 0
152 Logging 320,000
153 Mudlogging 0
154 Testing - DSTs & RFTs 0
155 Mud Consultant 150,000
158 Divers & Equipment 90,000
160 Geological Supervision 0
161 Drilling Supervision 180,000
162 Camp Expenses &I Supplies 35,000
163 Communications - Telephone & Radio 35,000
164 Insurance & Bonds 90,000
168 Drilling Overhead (COPAS) 90,000
169 Miscellaneous Expenses 135,000
170 P&A - Cement & Services 75,000
171 P&A - Other Costs 500,000
175 Dryhole Contributions 0
179 Contingency $2,431,000
194 Company Labor & Expenses 90,000
TOTAL INTANGIBLE DRILLING COSTS $18,638,600
TANGIBLE DRILLING COSTS - (BCP) $ ESTIMATED $ ACTUAL
235 Drive Pipe 250 of 36 "@ $275/ft 68,750
240 Conductor Casing 1,400 of 22 "@ $120/ft 168,000
241 Surface Casing 3,400 of 18 5/8 "@ $100/ft 340,000
242 Intermediate Csng 8,000 of 13 5/8 "@ $85/ft 680,000
243 Liner 14000 of 9 5/8 "@ 60/ft 840,000
246 Bradenhead & Casing Spools -
248 Mudline Suspension System + Subsea Wellheads 650,000
249 Other Equipment 100,000
TOTAL TANGIBLE DRILLING COST - (BCP) $2,847,000
TOTAL DRILLING TO CASING POINT $21,485,600
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Prepared by: /s/ Randy Reese Randy Reese Date 26-Jan-06
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Reviewed by: /s/ C. J. Looke C. J. Looke Date 26-Jan-06
[LOGO OMITTED]
Ridgewood Energy
February 16, 2006
Walter Oil & Gas Corporation
Attn: Mr. Chad Elias
1100 Louisiana, Suite 200
Houston, TX 77002
SUBJECT: Participation Agreement
Garden Banks Blocks 346 & 390
Dear Mr. Elias:
Attached please find one (1) original Participation Agreement effective January
1, 2006, by and between Walter Oil and Gas Corporation and Ridgewood Energy
Corporation covering subject blocks. This document has been executed by W. Greg
Tabor on behalf of Ridgewood Energy.
Should you have any questions or need addition information, please contact me
at 281.293.9464.
Sincerely,
/s/ Donna Ermis
Donna Ermis
Office Manager
Ridgewood Energy
11700 Old Katy Road, Suite 280, Houston, TX 77079
(T) 281.293.9464 (F) 281.293.7391
www.ridgewoodenergy.com