GAS WELL OPERATING AGREEMENT
THIS OPERATING AGREEMENT made this 2nd day of January 2002, by and between
Wilon Resources, Inc., 931 Ashland Terrace, Chattanooga, Tennessee 37415,
hereinafter referred to as Wilon and P & J Resources, Inc., P.O. Box 242,
Salyersville, Kentucky 41465, hereinafter referred to as P & J.
WHEREAS, P & J is an independent oil and gas management, development and
production company, and currently operates and manages oil and gas wells in
Kentucky and West Virginia, and
WHEREAS, Wilon has gas wells located in Butler District, Wayne County, West
Virginia and desires P & J as an independent contractor to act on its behalf as
the operator of said gas wells, and
WHEREAS, this agreement is entered into to effectuate the agreements and
covenants contained herein.
NOW THEREFORE, in consideration of the promises and mutual covenants
contained herein, the parties do hereby agree as follows:
1. OPERATING AREA
The Operating Area is designated as the Butler District, Wayne County, West
Virginia and shall include the wells, the surface and subsurface equipment
associated with the gas wells, the gas gathering system, the gas pipelines from
the wells to the master sales meters and the well access roads, hereinafter
simply as the "wells". A list of said wells is attached hereto as Exhibit A and
made a part of this agreement. Wells may be added to this Operating Agreement in
writing by Wilon and accepted by P & J.
2. OPERATOR
Wilon appoints P & J as Operator of the wells. P & J shall manage and
conduct all well operations as required or permitted pursuant to the terms and
conditions of this agreement. P & J shall have no liability to Wilon for losses
sustained or liabilities incurred in the operation of the wells, except such as
may result from gross negligence or willful misconduct by P & J.
3. TERM OF OPERATING AGREEMENT
(1) This agreement shall become effective as of the day and year first
written above, when executed by the parties hereto, and except as provided for
in 3(2) hereof, shall continue and remain in full force and effect during the
productive life of the wells.
(2) This agreement shall terminate between the parties hereto, upon the
earliest of (a) the plugging or abandonment of the wells, (b) the resignation of
P & J as operator, which may be effected with just cause, upon ninety (90) days
prior written notice to Wilon, or (c) the removal of P & J as operator, which
may be effected with just cause, upon thirty (30) days prior written notice to P
& J, from Wilon.
(3) Upon resignation or removal of P & J as operator, as provided herein, P
& J shall provide the successor operator, upon written request by such operator,
all well records, books and property pertaining to the wells.
4. WELL INTERESTS
Wilon hereby represents and warrants to P & J that it is the legal owners
of the wells.
5. WELL OPERATIONS
The term "well operations" shall generally mean any labor or service,
including third party services, required to maintain the wells, the surface and
subsurface equipment associated with the wells, gas gathering system, gas
pipelines, well access roads and right of ways, and to maintain the quality of
gas as the standard requires by the gas purchasing entities, and all other
services that would be required following the end of the month.
6. CHARGES FOR WELL OPERATION
(1) P & J shall be paid, except as specifically provided for in 6(2)
hereof, the invoice price for all supplies, equipment, insurance, labor and
services, including third party services, that P & J supplies, purchases or
contracts for, pertaining to or for the benefit of the wells.
(2) P & J shall be paid a monthly operating fee of $250.00 per well, for
each month a well has any production. The monthly operating fee paid P & J shall
include the cost of (a) a well tender and a four (4) wheel drive vehicle, (b)
the routine maintenance and adjustments to the wellheads, gas gathering system,
pipelines and meters, and the services for maintaining well records.
(3) The monthly operating fee paid P & J, as provided for in 6(2) hereof,
shall not include the costs of (a) supplies used in the maintenance of the
wells, gas pipelines and meters, (b) the equipment, labor or third party
services to repair or service the wells, gas gathering system, pipelines, meters
and well access roads, (c) any special fees or reports required by State or
Federal agencies, including well bonds, and (d) the costs associated with title
opinions or gas purchase contracts.
7. PAYMENTS AND APPROVALS
(1) P & J shall in good faith conduct all well operations in a prudent and
workmanlike manner using technically sound, customary and generally accepted oil
and gas field practices and techniques currently prevailing within the
geographical area of the wells.
(2) P & J shall not start any project or incur any extraordinary costs to
the wells reasonably estimated to result in an expenditure of more than
$1,000.00, without first sending written notice and then receiving written
approval from Wilon, unless such project or costs are necessary in the sole
opinion of P & J to protect person, persons, or property in the event of a
sudden emergency.
(3) P & J shall send written notice to Wilon of any project pertaining to
the wells estimated to result in an expenditure of more than $1,000.00, as
provided for in 7(3) hereof. Such notice shall specify (a) the well or wells,
(b) the purpose of the project, (c) the equipment, labor and third party
services required for the project, and (d) the estimated cost of the project.
Such notice shall require Wilon to advance payment of the estimated cost of the
project.
(4) P & J shall not plug or abandon a well without first receiving the
written approval from Wilon unless such plugging or abandonment of a well or
wells is required by a written order from a State or Federal agency.
(5) P & J shall have the right to employ its own equipment in the operation
of the wells, but in no event shall P & J charges for its equipment or services
exceed the prevailing rates in the area for similar equipment or services; and
its services shall be performed pursuant the same terms and conditions as
customary in the area.
8. ACCOUNTING AND STATEMENTS
(1) P & J shall maintain accurate records of all operating, production and
business affairs pertaining to the wells. The records shall include the gas
production from the wells and other business records that would be customary in
the day-to-day operation of the wells.
(2) P & J shall have the right and be entitled to receive advance payment
from Wilon for such expenditures as set forth in 7(2) hereof within fifteen (15)
days after receipt of P & J 's written notice, as provided for herein. P & J
shall not be required to commence a project until such payment is made.
9. LIENS AND SECURITY INTEREST
Wilon hereby grants P & J, as operator, a first lien and security interest
in said wells for any unpaid charges, fees or expenditures due P & J, which
remain unpaid for a period of sixty (60) days.
10. ACCESS TO INFORMATION AND WELLS
(1) Wilon, its agents or representatives, including attorneys, by
appointment, shall have the right during normal business hours, to review or
audit the records pertaining to the wells.
(2) Wilon, its agents or representatives, including attorneys, at their
sole risk, liability and expense, shall have the right to enter the property and
inspect the wells.
11. NOTICES
(1) All notices required pursuant to this agreement shall be writing and
either personally delivered or transmitted by mail, registered or certified,
return receipt requested, postage prepaid to the parties hereto.
(2) All notices shall be effective upon personal delivery or upon being
deposited in the United State mail.
(3) Each party shall have the right, from time to time, during the term of
this agreement, to change their address for notices by giving the other party
written notice of such change.
(4) All notices, as provided herein, may also be delivered by facsimile
transmission, provided there is sufficient evidence of actual receipt of such
transmission by the receiving party.
12. RELATIONSHIP OF THE PARTIES
(1) It is not the intention of the parties hereto to create, nor shall this
agreement be construed or considered as creating, any type of partnership or
association between the parties for any purpose or reason whatsoever, including
rendering either party liable as partners.
(2) It is agreed and clearly understood that R & D shall be deemed to be an
independent contractor and shall perform its duties and obligations as the
operator of the wells, as set forth within this agreement.
14. FORCE MAJEURE
If P & J or Wilon is rendered unable, wholly or in part, by force majeure
to carry out their obligations pursuant to this agreement, other than the
obligation to make money payments, they shall give written notice to the other
party hereto of the force majeure with full particulars; thereupon, the
obligations of either party, as the case may be, shall be suspended during, but
not longer than the continuance of the force majeure. Either party shall use all
reasonable diligence to remove the force majeure as quickly as possible to the
extent the force majeure is within the reasonable control of either party. The
term "force majeure" shall mean any act of God, strike, lockout, or other
industrial disturbance, act of public enemy, war, public riot, lightning, fire,
storm, flood, explosion, government restraint, unavailability of equipment,
adverse weather conditions or any other cause, whether of the kind specifically
enumerated herein or otherwise, which directly precludes performance hereunder
and is not reasonably within the control of either party.
15. GOVERNING LAW
This agreement shall be governed by, and construed in accordance with the
laws of the State of West Virginia and by no other state.
16. CAPTIONS
The articles, sections, titles of captions contained in this agreement are
inserted only as a matter of convenience and reference, and in no way define,
limit, extend or describe the scope of this agreement, or the intent of any
provision hereof.
17. SEVERABILITY
If any provision of this agreement, or the application thereof to any
person, entity or circumstances, shall be invalid or unenforceable to any
extent, the remainder of this agreement and the application of such provision to
other persons, entities or circumstances, shall not be affected thereby and
shall be enforced to the greatest extent permitted by law.
18. COUNTERPARTS
This agreement may be executed in any number of counterparts and all such
counterparts shall, for all purposes, constitute one agreement, binding upon the
parties hereto.
19. BINDING AGREEMENT
This agreement shall be binding on and shall inure to the benefit of the
parties hereto and their respective successors and assigns.
20. ENTIRE AGREEMENT
This agreement contains the entire agreement between the parties hereto,
pertaining to P & J 's operation of the wells and supersedes all prior and
contemporaneous oral and written representations, agreements, arrangements and
undertakings whatsoever between the parties hereto. No variations, modifications
or changes to this agreement shall be binding upon the parties hereto, unless
set forth in a document duly executed by the parties.
IN WITNESS WHEREOF, the undersigned have executed this agreement as of the
day and year first above written.
P & J Resources, Inc.
By: _________________________
Its President
Wilon Resources, Inc.
By: __________________________
Its President
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