EXHIBIT 10.5
PARTICIPATION AGREEMENT
MCMORAN 1997 EXPLORATION PROGRAM
PAGE
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I. DEFINITIONS
II. PURPOSE; OPERATIONS
2.1 Purpose
2.2 McMoRan's Efforts
2.3 Operator
III. INTERESTS OF THE PARTIES
3.1 Sharing of Exploration Expenditures
3.2 Ownership Interests
IV. EXPLORATION EXPENDITURES
4.1 Exploration Expenditures
V. ACQUISITION OF LEASEHOLD INTERESTS
5.1 Acquisition of Additional Leasehold Interest
5.2 Excluded Areas
VI. EXPLORATION FUND
6.1 General
6.2 Limitations on McMoRan's Authority to Commit
Exploration Fund
6.3 Budget Meetings and Reports
VII. SCIENTIFIC STUDIES AND INFORMATION
VIII. PROSPECTS
Prospects
Designation of Prospects After Program Term
IX. DRILLING OF EXPLORATORY ▇▇▇▇▇
During Program Term
After Program Term
X. FARMOUT OR PARTICIPATION AGREEMENTS
10.1 Participation Agreements
10.2 Farmout Agreements
10.3 Trade Agreements
XI. BURDENS
XII. OPERATING AGREEMENT
XIII. AREA OF MUTUAL INTEREST
13.1 Third Party Area of Mutual Interest Agreements
13.2 Program Area of Mutual Interest Agreement
XIV. OWNERSHIP OF PRODUCTION; GAS BALANCING AGREEMENT
14.1 Ownership of Production
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XV. RELATIONSHIP OF THE PARTIES
15.1 No Partnership
15.2 Tax Partnerships for Certain Activities
XVI. BILLINGS; NOTICES
XVII. SPECIAL NON-CONSENT ELECTIONS
17.1 Casing Point Election - Onshore Prospects
17.2 Elections Prior to Platform Installation- Offshore
Prospects
Time Period
Completion Attempt by Participant - Onshore
XVIII. PROGRAM TERM
Program Term
Unfunded Prospects
XIV. OPERATIONS AFTER PROGRAM TERM
General
Exploratory ▇▇▇▇▇
01 Development Expenditures
02 Provisions Which Do Not Survive the End of the
Program Term
XX. CONFIDENTIALITY
XXI. INSURANCE
21.1 Insurance for Program
21.2 Contractor's Insurance
21.3 Well Control Insurance
21.4 General
XXII. RECORD TITLE, ASSIGNMENT
22.1 Record ▇▇▇▇▇▇
22.2 Assignment
XXIII. SUBSEQUENT INTERESTS
XXIV. GENERAL
24.1 Records
24.2 Access
24.3 Claims & Litigation
24.4 Good Faith
24.5 Governing Law
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24.6 Failure to Respond
24.7 Conflicts
Binding Effect
EXHIBITS
I) PROGRAM OPERATING AGREEMENT (OFFSHORE)
II) PROGRAM OPERATING AGREEMENT (ONSHORE)
III) CERTAIN EXCLUDED AREAS
IV) PROVISIONS CONCERNING TAXATION
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PARTICIPATION AGREEMENT
MCMORAN 1997 EXPLORATION PROGRAM
This Participant Agreement ("the Agreement") is made as of the 1st day of
April, 1997 between McMoRan Oil & Gas Co. ("McMoRan") and Freeport-McMoRan
Resources Partners, Limited Partnership ("Participant").
WITNESSETH:
I.
Definitions
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As used in this Agreement, the following terms shall have the meanings set
forth below:
1.1 Affiliate means, with respect to any person, a person that directly or
indirectly through one or more intermediaries, controls or is controlled
by, or is under common control with the person specified.
1.2 Area of Mutual Interest or AMI means, with respect to any Prospect, the
geographic area more particularly described in Article XIII.
1.3 Casing Point means the point at which determination is made either to run
production string of casing and attempt a completion, or to abandon the
well.
1.4 Committed List means the list described in Paragraph 18.1 hereof.
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1.5 Development Expenditures means those charges applicable to each Prospect
which are not Exploration Expenditures.
1.6 Development Well means any well which is not an Exploratory Well.
1.7 Excluded Area means any of the areas described in Paragraph 5.2 hereof.
1.8 Exploration Expenditures means those charges described in Article IV.
1.9 Exploration Fund means the fund created by McMoRan and Participant for the
acquisition and exploration of Leasehold Interests and the other purposes
of the Exploration Program as more fully described in Article VI, together
with any cash contributions received by the Program from third parties.
1.10 Exploration Program or Program means the McMoRan operated program pursuant
to which McMoRan and Participant have or will acquire and explore Prospects
in the Exploration Program Area during the Program Term pursuant to this
Agreement.
1.11 Exploratory Well means any well drilled by the Program on an Onshore
Prospect prior to the completion thereon by the Exploration Program of a
well capable of production in Paying Quantities or, as to an Offshore
Prospect, means the first and/or second well drilled on a Prospect by the
Program prior to the first installation thereon by the Program of a
drilling and/or production platform.
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1.12 Initial Leasehold Inventory means those Leasehhold Interests described in
Paragraph 2.1 hereof.
1.13 Leasehold Interest means any right, title or interest acquired in, to and
under any oil or gas lease or any other interest in oil or gas, including,
without limitation, contractual rights, which confer on the holder thereof
the right to share, or acquire the right to share, in the production or the
proceeds of production of oil or gas.
1.14 Leasehold Interest Costs means, with respect to a particular Leasehold
interest, the actual cost incurred by the Program for acquisition thereof,
in each case including, without limitation, all bonuses, delay rentals,
brokerage fees, and outside attorney's fees.
1.15 Non-Operator means, as to any Leasehold Interest or Prospect, a working
interest owner therein who is not designated to act as Operator.
1.16 OCS means the outer continental shelf of the Gulf of Mexico under Federal
leasing jurisdiction.
1.17 Offshore Prospect means any Prospect located in the OCS, and/or in that
portion of the Gulf of Mexico under the leasing jurisdiction of the
adjacent states.
1.18 Onshore Prospect means a Prospect located in the Program Area which is not
an Offshore Prospect.
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1.19 Operator means, as to any Leasehold Interest or Prospect, the party hereto
designated to manage and supervise the drilling and/or completion and
operation of oil or gas ▇▇▇▇▇ thereon.
1.20 Participant means Freeport-McMoRan Resources Partners, Limited Partnership.
1.21 Paying Quantities means production of oil and/or gas in quantities
sufficient to yield a return in excess of operating cost.
1.22 Program Area means the OCS, and that portion of the Gulf of Mexico under
the leasing jurisdiction of the adjacent states and the balance of the
lower 48 states of the continental United States, except the Excluded
Areas.
1.23 Program Operating Agreement means the Joint Operating Agreement (Offshore)
or the Joint Operating Agreement (Onshore) attached hereto as Exhibits I
and II respectively, depending upon whether the relevant operation is with
respect to an Offshore Prospect or an Onshore Prospect.
1.24 Program Term means the period beginning on the date hereof and ending at
the end of the Program Term as set forth in Article XVIII.
1.25 Prospect means an area designated as such pursuant to Paragraph 8.1.
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1.26 Technical Consultants means those geologists and geophysicists and related
personnel working therewith who are hired or retained by McMoRan as
independent consultants some portion of whose efforts are to develop or
evaluate Prospects hereunder.
II.
Purpose; Operations
-------------------
2.1 Purpose. This Agreement has been entered into to provide
Participant a means of acquiring, exploring and developing oil and gas Prospects
in the Program Area, including but not limited to the acquisition of the Initial
Leasehold Inventory, during the Program Term.
On _____________, Participant acquired all of the interests of MCNIC Oil &
Gas Properties, Inc. and affiliates ("MCN") in the McMoRan Participation &
Exploration Program Agreement and McMoRan and Participant entered into an
amendment thereto dated the same date (as amended, the "Prior Program").
McMoRan and Participant thereafter continued the Prior Program on an interim
basis until the date hereof.
The parties hereto hereby contribute to the Program all of their rights
respecting each of the properties and assets of the Prior Program excluding only
those properties and assets associated with the properties which are located in
an Excluded Area ("Excluded Properties") and the loan (the "Loan") paid the date
hereof due Participant by McMoRan under said Prior Program.
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The Leasehold Interests owned by McMoRan and Participant under the Prior
Program, excluding those which are Excluded Properties, shall be the Initial
Leasehold Inventory hereunder. The costs incurred by McMoRan and Participant
with respect to those Leasehold Interests which are included in the Initial
Leasehold Inventory and as to which Participant acquired its interest from MCN
shall be deemed to have an initial cost as of April 1, 1997 of $8,333,333,
$5,000,000 of which was paid by Participant and $3,333,333 of which was paid by
McMoRan, which amount shall be deemed to have been expended from the Exploration
Fund. All other expenditures under the Prior Program by McMoRan and Participant
together, other than with respect to the Excluded Areas and the Loan, shall
likewise be treated as having been expended from the Exploration Fund.
2.2 McMoRan Efforts. McMoRan agrees to devote a substantial portion
of its oil and gas exploration effort to the operation and management of the
Program, which shall include all prospects, except those in the Excluded Areas,
acquired and to be acquired by McMoRan during the Program Term within the
Program Area, including but not limited to the Initial Leasehold Inventory.
McMoRan will at all times have a staff adequate in number, experience and
competence to perform its obligations hereunder and accomplish the purposes of
the Exploration Program.
Operator. McMoRan shall be the overall manager of the Program.
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III.
Sharing of Exploration Expenditures
-----------------------------------
and Interest of the Parties
---------------------------
3.1 Sharing of Exploration Expenditures. Except as otherwise provided
in this Agreement, Exploration Expenditures shall be shared as follows:
ParticipantMcMoRan
60%40%
If more than one Exploratory Well is drilled on a particular Onshore Prospect,
Exploration Expenditures in connection with the drilling of any second and
subsequent Exploratory Well on such particular onshore Prospect shall not be
shared in the percentages set forth in this Paragraph 3.1 but shall be shared
in the percentages set forth in Paragraph 3.2 hereof; provided, however, if the
first Exploratory Well in such particular Onshore Prospect fails to reach
objective depth because it encounters impenetrable substances, heaving shale,
domal material, salt, excessive salt water flow or other formation or conditions
or develops mechanical difficulty which would render further drilling
impractical and McMoRan elects to drill a substitute for such well, the cost
involved in the drilling of such substitute well shall be shared in the
percentages set forth in this Paragraph 3.1 in the same manner as if such
substitute well were the first Exploratory Well on the particular Onshore
Prospect involved.
3.2 Ownership Interests. Except as otherwise provided in this
Agreement, the ownership of all Leasehold Interest and other
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properties and production acquired by the Program shall be shared as follows:
ParticipantMcMoRan
------------------
50%50%
IV.
Exploration Expenditures
------------------------
4.1 Exploration Expenditures. Subject to the limitations provided in
this Agreement, McMoRan shall be entitled to expend monies for Exploration
Expenditures of the Program on behalf of itself and Participant without the
prior approval of Participant. The term "Exploration Expenditures" means all
actual charges allocable to each Prospect in accordance with generally accepted
industry standards, which charges are incurred by the Program prior to (i) the
completion of the first Exploratory Well drilled by the Program on an Onshore
Prospect that is completed as a well capable of production in Paying Quantities
or (ii) the plugging, or the temporary abandonment if not plugged, of the first
two Exploratory ▇▇▇▇▇ drilled by the Program on an Offshore Prospect, as
applicable, and such other costs applicable to exploration activities in the
Program Area as are otherwise provided for in this Agreement, which charges,
among others, shall include the following:
(a) The cost of acquisition of all Leasehold Interests in the Program
Area, including but not limited to the Initial Leasehold Inventory and any
Leasehold Interest Costs paid by McMoRan to third party program operators in
connection therewith;
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(b) The cost of any geological, geophysical or other scientific,
exploration or engineering work, services or data on the Prospect;
(c) The cost of copies of all seismic records, geological and
geophysical maps and other exploration data and information furnished to
Participant;
(d) Rental and other lease maintenance payments on the Leasehold
Interests;
(e) All necessary independent legal expenses and costs of title
searches and title investigation whether or not Leasehold Interests are
acquired, together with the costs of copies of title opinions and other title
reports furnished to Participant;
(f) The cost of drilling Exploratory ▇▇▇▇▇ in a Prospect, including
the cost of plugging and abandoning or capping same, if no completion attempt is
made;
(g) Any other expenditures properly chargeable as Exploration
Expenditures under this Agreement, or as may be specified in the accounting
procedure attached to the applicable Program Operating Agreement and which are
attributable to exploration activities, but excluding all overhead provided for
in such Program Operating Agreement until such time as the Exploration Fund has
been fully committed;
(h) Notwithstanding the foregoing, the cost of completing an
Exploratory Well shall not be considered an Exploration Expenditure; and
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(i) In addition to the foregoing, McMoRan shall be entitled to charge
as Exploration Expenditures those expenditures that McMoRan incurs annually for
salaries of employees, including but not limited to costs of benefits programs
related thereto, cost of retained consultants, including but not limited to its
Technical Consultants, office rent, office supplies, insurance and other general
and administrative costs that McMoRan incurs in the conduct of its activities,
including but not limited to costs allocated to MOXY from FM Services Company or
its Affiliates, less a reasonable portion of such costs that McMoRan allocates
to the Excluded Areas. Prior to committing to a material increase in the
aggregate costs contemplated by this subparagraph (i) McMoRan shall confer with
Participant and in good faith consider any comments or suggestions that
Participant may offer in regard to such contemplated material change.
The term Exploration Expenditures shall also include any of the
foregoing costs incurred by the Program in attempting to locate or acquire
Leasehold Interests in Prospects for the Program in the Program Area whether or
not the Program owns or acquires Leasehold Interest in such area or subsequently
designates a Prospect under Paragraph 8.1 for such area.
Except as may be expressly provided to the contrary in this Agreement,
all Exploration Expenditures shall be invoiced and accounted for in accordance
with the accounting procedure attached to the Program Operating Agreement,
including the period of time set forth for joint interest auditing and
adjustment.
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McMoRan shall further be entitled to reimbursement as an Exploration
Expenditure or as a proper expenditure under the applicable Program Operating
Agreement, as appropriate, from Participant for its share of reasonable
inventories of pipe and equipment (it being the intention of the parties to keep
such inventories at a minimum level consistent with the needs of the Program).
McMoRan shall not have an obligation to spend a particular portion of
the Program Fund during any Program Year but rather McMoRan shall commit
Exploration Expenditures as the occasion arises to secure Prospects which
McMoRan deems would be appropriate for the Exploration Program, subject to the
provisions of Paragraph 6.1 hereof.
McMoRan agrees to make available its entire geological and geophysical
data base for use in operations under the Program at no cost to the Participant,
except to the extent setforth in the immediately following sentence. The amounts
expended in acquiring seismic data from Western Geophysical pursuant to the
Licensing Agreement between McMoRan and Western Geophysical dated November 20,
1996 shall constitute proper charges to Exploration Expenditures,
notwithstanding the fact that some of the costs incurred pursuant to such
agreement were incurred prior to the beginning of the Program Term, except to
the extent that any of such seismic data so acquired relates to Excluded Areas.
Participant agrees to bear its proportionate part of all Exploration
Expenditures of the Program, subject to the limitations hereinafter set forth
under Article VI.
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V.
Acquisition of Leasehold Interests
----------------------------------
5.1 Acquisition of Leasehold Interest. On behalf of the Program and
subject to the limitations and guidelines herein set forth, McMoRan shall
evaluate and acquire Leasehold Interests in the Program Area during the Program
Term which it believes to be potentially productive of oil or gas.
5.2 Excluded Areas. McMoRan and Participant agree that the following
areas ("Excluded Areas") shall not be subject to the terms of this Agreement
unless any such area, or portion thereof, has been recommended for inclusion
herein by McMoRan in writing and Participant has concurred in writing in that
recommendation:
(a) Any Leasehold Interest or prospect lying outside the Program
Area;
(b) Any Leasehold Interest or Prospect which at the time of
acquisition contains proven reserves unless (i) the then proven reserves do not
constitute a material consideration in the acquisition, and (ii) the primary
objective of the acquisition is to explore for oil and gas other than the then
proven reserves;
(c) Those areas identified on attached Exhibit III; and
(d) Any Leasehold Interest or prospect acquired through
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merger, acquisition, corporate reorganization or consolidation with or purchase
of substantially all of the assets of an individual, a corporation or a
partnership, provided that the primary purpose of such merger, acquisition,
reorganization, consolidation or purchase is not to acquire a specific Prospect
or Leasehold Interest which otherwise would be subject to this Agreement;
provided, however, if in such an acquisition McMoRan acquires an inventory of
exploratory prospects not associated with any proven production acquired in such
acquisition, McMoRan shall meet with Participant and, in good faith, attempt to
have the exploratory prospects transferred to the Exploration Program
5.3 Obligation. Subject to the limitations otherwise provided in this
Agreement, Participant agrees to participate for its proportionate share of
Exploration Expenditures as to all Leasehold Interest acquired or committed to
by McMoRan in the Program Area during the Program Term. Without limiting or
altering the effect of the AMI provisions of Article XIII hereof, from and after
the end of the Program Term, McMoRan shall not be obligated to search for and
offer to Participant any interest in Leasehold Interests within the Program
Area.
VI.
Exploration Fund
----------------
6.1 General. The Program shall have a budget of $200,000,000 for
Exploration Expenditures to be incurred or committed during the Program Term
(the "Exploration Fund"). Notwithstanding that the Exploration Fund is for the
entire Program Term, unless McMoRan and Participant agree otherwise in writing,
McMoRan will schedule its
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activities so that Exploration Expenditures are not likely to exceed on a
cumulative basis one hundred fifty percent (150%) of $40,000,000 per twelve
months period times the number of twelve months periods that have elapsed since
the Program Term commenced.
6.2 Limitations on McMoRan's Authority to Commit Exploration Fund. In
addition to the other limitations imposed upon McMoRan's authority to commit
Participant hereunder, once the actual and committed Exploration Expenditures
reach the budgeted total, it is understood and agreed that McMoRan (i) will not
undertake any additional drilling commitments on behalf of the Exploration
Program, and (ii) will not acquire any additional Leasehold Interests on behalf
of the Exploration Program. Additionally, McMoRan shall not make any commitment
on behalf of the Program for the drilling of any well which is anticipated to
commence more than six (6) months after the end of the Program Term.
6.3 Budget Meetings and Reports.
(a) On a quarterly basis, McMoRan shall hold a meeting in McMoRan's
offices with Participant to discuss the contemplated activities of the Program
for the following period. In such meetings, McMoRan shall advise Participant of
the amounts of the Exploration Fund which have been committed to Prospects on
which an Exploratory Well has not yet commenced. Such advise shall include the
name of the Prospect, the amount of the Exploration Fund anticipated to be spent
thereon and the anticipated commencement date of the Exploratory Well to be
drilled thereon. On a monthly basis, McMoRan shall provide Participant with an
accounting of the
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Exploration Expenditures of the prior month and Program Term to date reconciling
prior ▇▇▇▇▇▇▇▇ and advance ▇▇▇▇▇▇▇▇ with expenditures. McMoRan will promptly
advise Participant in writing when McMoRan reasonably believes that actual and
committed Exploration Expenditures of the Program equal the Exploration Fund and
will furnish reasonable data supporting such conclusion. In addition to the
foregoing, McMoRan will furnish Participant on request and at Participant's
expense any other data or information needed by Participant to comply with any
governmental laws, rules and regulations, including those promulgated by the
Securities and Exchange Commission.
VII.
Scientific Studies and Information
----------------------------------
7.1 Scientific Studies and Information. During the Program Term,
McMoRan shall conduct geological, geophysical, engineering and other scientific
studies with respect to the acquisition and/or exploration of Leasehold Interest
("Scientific Studies") in the Program Area and the cost thereof shall be
Exploration Expenditures.
It is agreed that any seismic records, and other exploration data (not
including any interpretation thereof by McMoRan or its Technical Consultants)
that may be acquired by McMoRan under the terms of this Agreement shall become
and remain the joint property of McMoRan and Participant. If McMoRan designates
a Prospect under
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Paragraph 8.1 hereof affecting such acquired data, McMoRan shall at such time
furnish copies of all such data, upon written request of Participant, including
geological and geophysical maps, to Participant unless McMoRan is prohibited
from furnishing a copy or disclosing it to Participant under the agreement by
which McMoRan acquired such data. Except as otherwise provided in this
Agreement, Participant shall be permitted full access to such data in McMoRan's
offices unless prohibited from doing so under the agreement by which McMoRan
acquires such data. McMoRan shall not be precluded from entering into data
exchange agreements which McMoRan in good faith believes will benefit the
Program and all data acquired pursuant to any such exchange agreement shall be
the joint property of McMoRan and Participant. During and after the Program
Term, McMoRan shall have the exclusive right to sell any such data which McMoRan
in good faith believes no longer must be kept confidential for the purposes of
the Program and the proceeds of such sale shall be shared by the Participant and
McMoRan on the same basis as the said parties own such data. At the end of the
Program Term, McMoRan shall identify seismic records and other pertinent
acquired data (not including any interpretation thereof by McMoRan or its
Technical Consultants) as to which Prospects have not been designated during the
Program Term and McMoRan shall, upon written request by Participant, provide it
copies of all or any part of such data, unless prohibited from doing so under
the agreement by which McMoRan acquired such data. Notwithstanding anything
herein to the contrary, Participant shall not have or acquire any property
interest in any interpretations by McMoRan or its Technical Consultants of any
seismic or other exploration data unless and until a Prospect based thereon has
been designated by McMoRan hereunder.
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VIII.
Prospects
---------
8.1 Prospects. From time to time McMoRan will obtain information upon
which it can determine and define a particular portion of the Program Area with
sufficient specificity as to be identified as a Prospect. The term "Prospect"
means a contiguous area which can reasonably be interpreted from geological
and/or geophysical data as encompassing a geological structure, stratigraphic
trap or other common geologic feature which makes its treatment as a single
Prospect for oil and gas production purposes reasonable and some portion of
which is considered prospective for commercial oil or gas production and is
designated as such pursuant to this Article VIII. Based on such information,
McMoRan shall from time to time designate an area as a Prospect of the Program.
The size and configuration of a Prospect, as well as all details incident
thereto, shall be determined by McMoRan. During the Program Term, McMoRan alone
shall determine the time when an area is designated as a Prospect, whether or
not Leasehold Interests have previously been acquired therein. After the
Program Term and in accordance with Paragraph 8.2 hereof, McMoRan or Participant
shall have the right to designate a Prospect which includes Leasehold Interests
theretofore acquired through the Program. Without the prior consent of
Participant, McMoRan shall not commit to the Program any Prospects which (1)
McMoRan's economic analysis indicates will not have at least a before taxes rate
of return of twenty-five (25) percent, or (2) the water depth for the first
expected platform location is greater than 1,000 feet.
At the time that McMoRan designates a Prospect it shall
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furnish to Participant a land plat showing the approximate outline of the
Prospect and the proposed AMI therefor. Subject to Paragraph 5.2, McMoRan shall
as soon as possible thereafter, upon written request of Participant, furnish
Participant (to the extent not previously furnished) with all pertinent data
then available with respect to the evaluation of such Prospect for oil or gas
development excluding only such data as McMoRan is prohibited from disclosing by
reason of confidentiality agreements with third parties respecting such data.
Such data shall include a land and geophysical or geological report on such
Prospect, including with respect to the drillsite for the first Exploratory Well
proposed to be drilled thereon, a land plat, farmin, farmout and other trade
agreements, copies of leases, drilling title opinions, assignments, unit
designation agreements, operating agreements and other documents necessary for
Participant to maintain adequate records relative to such Prospect and
operations thereon, together with such of the following, as and when available,
which are applicable to each such Prospect:
(a) An itemized list of all Exploration Expenditures charged to such
Prospect;
(b) An itemized estimate of probable additional costs which may have
to be incurred in connection with such Prospect;
(c) Any other information in McMoRan's possession relevant to an
evaluation of such Prospect, including geological data, including but not
limited to cross-sections, maps, key logs, and geophysical data, including
copies of proprietary reprocessed data, sepias of lines; and
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(d) A description of the primary geologic objective and prospective
zone(s) for which the Prospect was acquired.
At the time each such Prospect is designated, McMoRan will separately
allocate to it all Exploration Expenditures theretofore incurred and properly
attributable to such Prospect, including but not limited to those expenditures
made pursuant to Paragraph 4.1 above.
8.2 Designation of Prospects After Program Term. To the extent any
Leasehold Interests acquired by the Program are not included in Prospects
designated by McMoRan on or prior to the end of the Program Term, then after
such date McMoRan or Participant or their respective successors in interest
shall have the right to propose a Prospect at the time that it proposes an
Exploratory Well thereon. The geographic limits of such Prospect so designated
shall meet the criteria set forth in Paragraph 8.1 and the AMI therefor shall be
subject to the provisions of Article XIII hereof.
IX.
Drilling of Exploratory ▇▇▇▇▇
-----------------------------
9.1 During Program Term. During the Program Term, at the same time as
McMoRan designates a Prospect under Paragraph 8.1 above or thereafter when it
commits the Exploration Fund to the drilling of an Exploratory Well thereon or
as soon as possible after McMoRan has received notice from a third party joint
interest owner that it proposes the drilling of a well thereon, McMoRan shall
provide to Participant (if not previously furnished and requested in writing by
Participant) the following information:
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(a) An AFE for such well both as a dry hole and as a completed well;
(b) A land plat depicting the Prospect, the proposed AMI for such
Prospect and the Program's Leasehold Interests within the AMI for such prospect;
(c) A schedule of the Program's Leasehold Interests in the Prospect
AMI;
(d) Maps depicting McMoRan's geological and geophysical
interpretations of the Prospect;
(e) McMoRan's economic analysis of the Prospect's potential and
timing and estimated costs to develop, including description of facilities to be
used, if then known;
(f) Information as to whether any other third party joint interest
owner has elected to join or not to join in the drilling of such well;
(g) The surface location, proposed bottom hole location, proposed
depth and well prognosis including casing program, mud program and logging
program for such well (to the extent available in those cases where a third
party is the operator of the well) and any other information in McMoRan's
possession relevant to an evaluation of such well; and
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(h) Any acreage or cash contribution pledged in support of the
proposed operation.
Beginning with the permitting process for any Exploratory Well drilled
hereunder, and continuing through the drilling and completion, temporary
abandonment or plugging and abandonment for such well, McMoRan shall provide the
following information if requested in writing by Participant (to the extent
available to McMoRan and not previously furnished):
(a) name of well, name of Prospect, and identification number;
(b) drilling permits, plugging and abandonment permits and permission
to produce;
(c) all daily drilling reports, State completion reports, well
completion schematic diagram, stimulation reports and workover reports;
(d) all core analyses, fluid analyses, PVT. analyses, water sample
analyses;
(e) all pressure survey, DST reports, and pressure buildup or
drawdown data;
all well logs.
9.2 After Program Term. After the Program Term, McMoRan or
Participant shall have the right to propose the drilling of an Exploratory Well
on any Prospect within which an Exploratory Well
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could be drilled consistent with the definition of "Exploratory Well" set out
herein. The terms and provisions of the applicable Program Operating Agreement
shall govern any such proposal.
X.
Farmout or Participation Agreements
-----------------------------------
10.1 Participation Agreements. During the Program Term, if in the
process of evaluation of a Prospect the data and information lead McMoRan to the
good faith determination that because of the large expenditures required, the
extraordinary risk involved or other facts deemed relevant by McMoRan, an
outside venturer should be obtained in such Prospect, McMoRan shall have the
right to undertake to negotiate an agreement with a third party to join in the
drilling of the Exploratory Well on the Prospect and thereby acquire a portion
of the Exploration Program's interest in such Prospect; provided, however, that
if any such agreement would reduce the interest of the Exploration Program by
more than fifty percent (50%), McMoRan must obtain the prior approval of
Participant. McMoRan shall give notice to Participant of its intention to
negotiate an agreement with an outside venturer which would reduce the interest
of the Exploration Program by more than fifty percent (50%), stating the time
within which the circumstances require an expression of approval or disapproval
by the Participant. Failure of Participant to disapprove the proposed
negotiation within the stated period of time may be deemed by McMoRan to be
approval by Participant. Any agreement with an outside venturer shall be on the
basis of the outside venturer paying and bearing not less than the proportionate
part of all drilling costs and expenses of the Exploratory Well attributable to
26
the undivided interest transferred to such outside venturer, and the interest in
the Prospect transferred to or earned by such outside venturer shall reduce the
respective interests of McMoRan and Participant proportionately. Any promotion
or other consideration received by McMoRan incident to such agreement with an
outside venturer shall be held for the benefit of the Exploration Program and
the Participant shall be entitled to participate therein in proportion to its
interest in the Prospect.
10.2 Farmout Agreements. During the Program Term McMoRan shall have
the right to enter into farmout agreements with unrelated third parties on such
terms as it deems appropriate respecting Leasehold Interests or portions thereof
which are not anticipated to be drilled or committed to be drilled by the
Exploration Program during the Program Term; provided, however, McMoRan shall
keep Participant advised as to any such farmout proposals or plans and shall
honor the request of Participant that its interest in such Leasehold Interest or
Prospect not be farmed out if Participant advises McMoRan within ten (10) days,
or forty-eight (48) hours if a drilling rig is on location with stand-by rig
charges accumulating, of McMoRan's notice of intention to farmout that it will
participate as to its ownership interest in the drilling of the anticipated
farmout well.
McMoRan shall not farmout any of Participant's Interest in a Prospect
on which the Program has a producing well without the prior consent of
Participant.
10.3 Trade Agreements. During the Program Term, in connection
27
with the drilling of an Exploratory Well on a Prospect, McMoRan shall have
complete authority to enter into unit agreements, acreage swap agreements,
bottom hole and dry hole contribution agreements and any similar agreements with
unrelated third parties. The cost or proceeds of any of the forgoing agreements
shall be credited or charged to the Participants (1) in the proportion that it
participated in the drilling of the affected Exploratory Well, or (2) if the
costs relate to the payment by the Exploratory Program of a dry hole or bottom
hole contribution to a third party, in the proportion that Participant bears
Exploration Expenditures hereunder, and any interest in leases or oil or gas
thus acquired by exchange shall constitute Leasehold Interests subject hereto
and be owned by McMoRan and Participant in proportion to their ownership
interest in such Prospect.
XI.
Burdens
-------
11.1 Burdens. The Leasehold Interests to be acquired by the Program
shall be subject to and McMoRan and Participant each shall bear its
proportionate part of all third party overriding royalties and other burdens on
Leasehold Interest (including subsequently acquired Leasehold Interests in the
Prospect AMI) which McMoRan contracts for incidental to the acquisition or
evaluation of such Leasehold Interests. Participant acknowledges that McMoRan
has heretofore entered into a retainer agreement with a Technical Consultant and
may enter into similar agreements with others during the Program Term. Without
the consent of Participant, McMoRan agrees not to subject any Leasehold Interest
to overriding royalty burdens to its Technical Consultants which exceed the
amounts
28
deliverable to its current Technical Consultant, CLK Company, L.L.C.(CLK),under
their existing agreement as described in the letter to Participant dated the
date hereof. McMoRan has provided Participant with a copy of its current
consulting agreement with CLK and Participant agrees that it will bear its
proportionate part of the overriding royalties to which CLK is entitled pursuant
to the terms of said consulting agreement as to any Leasehold Interest acquired
hereunder as well as to any Leasehold Interest that Participant may acquire
pursuant to an AMI agreement subject hereto.
XII.
Operating Agreement
-------------------
12.1 Operating Agreement. Except as otherwise provided in this
Agreement, all operations on each Prospect will be carried out in accordance
with the provisions of the Program Operating Agreement, Offshore or Onshore as
applicable, with charges and credits to the join account to be made in
accordance therewith, including all overhead as to the drilling of Development
▇▇▇▇▇. In the event of conflict between the terms of the Program Operating
Agreement and the terms of this Agreement, this Agreement shall control. A
particular Leasehold Interest or Prospect may be subject to a different form of
operating agreement (third party) with one or more third parties not related to
McMoRan, which operating agreement (third party) shall apply and control at the
time it becomes effective in the event of conflict therewith and the Program
Operating Agreement. In the event of conflict between such operating agreement
(third party) and this Agreement (other than the Program Operating Agreement),
this Agreement shall control as between McMoRan and Participant.
29
XIII.
Area of Mutual Interest
-----------------------
13.1 Third Party Area of Mutual Interest Agreements. McMoRan may be
obligated to enter into third party AMI agreements in connection with the
acquisition of additional Prospects for the Program. Participant agrees to be
bound by the provisions of such AMI agreements.
13.2 Program Area of Mutual Interest Agreement. At the time a
Prospect is identified by McMoRan pursuant to Paragraph 8.1 hereof, there shall
be created an Area of Mutual Interest among McMoRan and Participant. The lands
within such Area of Mutual Interest shall include the involved Prospect and
shall be fixed and determined in the following manner:
(a) McMoRan shall submit to Participant a plat delineating the area
which it determines on a sound geological basis should be considered as the area
which, even though outside the boundaries of the Prospect, should be considered
an area of mutual interest in connection with the Prospect.
(b) In the event that Participant does not accept the proposed area
of mutual interest, consultation shall be had between McMoRan and Participant in
an effort to fix and determine the area to constitute the area of mutual
interest.
(c) If McMoRan and Participant are able to agree on such
30
area, the area agreed upon shall constitute the Area of Mutual Interest, or if
agreement cannot be reached, the area of the Leasehold Interests as to a
Prospect all of which is under Federal leasing jurisdiction, or as to any other
Prospect the area within one-half (1/2) mile surrounding the outer perimeter of
the Prospect, shall constitute the Area of Mutual Interest; provided however,
any such AMI shall not include any portion of an Excluded Area.
The AMI shall be effective so long as any Leasehold Interest in such
AMI is owned by any of the parties or is subject to this Agreement, but in no
event longer than the earlier of (i) December 31, 2006 or (ii) one (1) year
after the plugging and abandoning of an Exploratory Well thereon unless another
Exploratory Well has been commenced thereon or McMoRan and Participant have
agreed to install a drilling and production platform on such Prospect within
such one (1) year period.
Any acquisition of Leasehold Interests within such AMI after the
establishment thereof by McMoRan or Participant shall be made available to be
shared by McMoRan and Participant. Subject to the rights of any third party
under third party AMI agreements as described in Paragraph 13.1, the other party
shall have the option to participate in any such acquisition in the same
proportion as such party's then interest in such Prospect, which option is to be
exercised in the following manner: the acquiring party shall notify each of the
other parties of such acquisition, furnish a copy thereof and such title
information as the acquiring party has, stating the cost of such acquisition
and/or obligations that must be assumed in connection therewith. The other
parties shall have
31
a period of fifteen (15) days with respect to the interests not related to a
drilling well, and forty-eight (48) hours (or such lesser period as required by
the circumstances and stated in the notice) with respect to interests related to
a drilling well after receipt of such notice within which to elect and notify
the acquiring party whether or not such party desires to participate in such
acquisition. Failure to respond shall be deemed an election on the part of such
party not to participate in such acquisition. Upon election and payment to the
acquiring party of such other party's share of the cost of such acquisition and
assumption of its share of such obligations, such other party shall be entitled
to an assignment of such party's interest in such acquisition. The foregoing
provision of this paragraph shall not apply nor shall they alter Participant's
obligation to purchase its proportionate part of any Leasehold Interests
acquired by McMoRan hereunder in those cases where the costs of acquiring such
interests are Exploration Expenditures.
In the event any party does not elect to participate in an interest
tendered to it under this Paragraph 13.2 the participating parties may, within
twenty-four (24) hours after notice thereof, elect to take their proportionate
shares of the non-participating party's interest. Time periods expressed in
this Paragraph 13.2 are inclusive of Saturdays, Sundays and legal holidays.
The provisions of this Paragraph 13.2 shall not be applicable to
acquisitions by any party hereto of an interest acquired through merger,
corporate reorganization or consolidation with or purchase of all or
substantially all of the assets of a corporation, an individual or a
partnership; provided, however, that the primary
32
purpose of such merger, corporate reorganization, consolidation or purchase is
not to acquire Leasehold Interests in a specific Prospect which otherwise would
be subject to this Agreement.
XIV.
Ownership of Production
-----------------------
14.1 Ownership of Production. All the oil, gas and casinghead gas
produced for the account of the Leasehold Interests from any well shall be owned
by McMoRan and Participant severally, in proportion to the respective interests
of each therein as set forth in Paragraph 3.2. above, except as otherwise
provided in this Agreement, and subject to the right, if any, that others may
have under the terms of this Agreement or any operating agreement relating to
such well. Anything to the contrary herein notwithstanding, each party shall at
all times have the right to take in kind or separately dispose of such party's
share of the production from any such well, subject to the provisions of the
applicable Program Operating Agreement. McMoRan shall, however, attempt to give
Participant at least seven (7) days advance written notice of the anticipated
date of first deliveries of any production from a Prospect.
XV.
Relationship of the Parties
---------------------------
15.1 Tax Partnership. This Agreement is not intended and shall
33
not be considered to create a partnership within the meaning of the federal
common law or under the applicable laws of any state or under the laws of the
state in which any party hereto is incorporated, organized or conducting
business or to create a relationship whereby any of the parties shall be held
liable for the acts, either of omission or commission, of any other party
thereto; provided, however, that in the event a party should suffer a loss by
reason of an unauthorized act of the other party hereto, the latter shall
indemnify and save harmless the former.
The parties expressly agree that no party hereto shall be responsible
for the obligations of any other party, each party being severally responsible
only for its obligations arising hereunder and liable only for its allocated
share of the costs and expenses incurred hereunder. It is not the purpose or
intention of this Agreement to create, and this Agreement should never be
construed as creating, a relationship whereby any of the parties shall be held
liable for acts, either of omission or commission, of any other party hereto.
Notwithstanding the foregoing, each party hereto agrees that this Agreement
creates a partnership for Federal and State income tax reporting purposes only,
which tax partnership shall function and exist in accordance with the terms and
provisions of Exhibit IV attached hereto. McMoRan agrees to provide to the
Participant on a best efforts basis, by April 30th of each year, any information
available to it relating to operations conducted pursuant to the Program that is
necessary for Participant to prepare Schedule K-1 of its federal income tax
return.
34
XVI.
Billings; Notices
-----------------
16.1 Billings; Notices. All ▇▇▇▇▇▇▇▇ and notices shall be as provided
in the applicable Program Operating Agreement.
XVII.
Special Non-Consent Elections
-----------------------------
17.1 Casing Point Election - Onshore Prospects. At such time as an
Exploratory Well has been drilled to the final total depth on an Onshore
Prospect, McMoRan shall notify Participant that the Casing Point has been
reached on such well, and whether or not McMoRan recommends that an attempt be
made to complete such well. McMoRan shall also furnish, if requested in writing
by Participant, the estimated costs of completing and equipping the well and
plugging and abandoning same if the completion is unsuccessful, and all well
logs, core analyses and other information in its possession not theretofore
furnished relevant to evaluation of a completion attempt. Within forty-eight
(48) hours (inclusive of Saturday, Sunday and legal holidays) of receipt of such
recommendation, Participant shall advise McMoRan whether or not it desires to
participate in the recommended completion attempt. If McMoRan and Participant
agree to attempt completion, McMoRan shall thereupon be authorized to proceed
with the completion attempt and to charge the cost thereof as a Development
Expenditure; provided, however, the cost of plugging and abandoning the well
shall be charged as an Exploration Expenditure if the completion attempt is
unsuccessful. If Participant does not elect to participate in such
35
completion attempt, it shall have no further rights hereunder as to the Prospect
involved. If McMoRan recommends abandonment without a completion attempt,
McMoRan shall have the well plugged and abandoned, charging the cost thereof as
an Exploration Expenditure. Additionally, if Participant does not elect to
participate in a second or subsequent Exploratory Well in a particular Prospect,
Participant shall have no further rights hereunder as to the Prospect involved.
17.2 Elections Prior to Platform Installation - Offshore Prospects.
If Participant does not elect to participate in (a) the drilling of any well on
an Offshore Prospect proposed by McMoRan to be drilled after the drilling of the
first two (2) Exploratory ▇▇▇▇▇ thereon and prior to the installation of the
first drilling and/or production platform on such Prospect or (b) Participant
does not elect to participate in the installation of the first drilling and/or
production platform on such Prospect, the Participant shall have no further
rights hereunder as to the Prospect involved.
Time Periods. Whenever an election right is provided in the body of
this Agreement and no time period for response is stipulated then the applicable
time periods provided in the applicable Program Operating Agreement shall apply.
Completion Attempt by Participant - Onshore. If McMoRan does not
recommend the completion of an Onshore Exploratory Well and Participant advises
McMoRan within forty-eight (48) hours (inclusive of Saturday, Sunday and legal
holidays) of the receipt by Participant of such recommendation from McMoRan that
Participant
36
elects to attempt to complete such well, McMoRan shall undertake the completion
thereof, and any subsequent plugging and abandoning thereof, for the account of
Participant and Participant shall bear all costs, risks and expenses of such
completion attempt and abandonment thereof and Participant agrees to indemnify
and hold McMoRan harmless therefrom. If such completion attempt is successful
McMoRan will assign Participant all of its interest in the borehole of such well
and any production therefrom, but such assignment shall not confer any
additional interest to the Participant in the balance of the particular Prospect
involved.
XVIII.
Program Term
------------
Program Term. The Program Term shall commence on ____________ and
shall terminate, except for completion of operations which were theretofore
commenced or committed, on the earlier of five (5) years from the date hereof,
or the date that all of the Exploration Fund has been spent or committed. At the
end of the Program Term, McMoRan shall provide Participant with a list (the
"Committed List") of the undrilled ▇▇▇▇▇, Prospects and farmout agreements as to
which it has committed the Exploration Fund. Once such Committed List has been
provided to Participant, no substitution shall be made by McMoRan without the
consent of Participant.
Unfunded Prospects. At the same time as McMoRan submits the Committed
List, McMoRan shall also submit a listing of all Prospects which would have been
committed to the Exploration Program except for the fact that the Exploration
Fund had been
37
fully expended and/or committed. Within fifteen (15) days of receipt of such
listing from McMoRan, Participant will have the option to commit additional
funds to the Exploration Fund for the drilling of the first Exploratory Well on
any such Prospect or Prospects or to advise MOXY that it does not elect to so
commit any such additional funds. If the Participant does so commit, the
drilling of such first Exploratory Well on a Prospect where Participant commits
such additional funds shall be charged as Exploration Expenditures and shall be
deemed included in the Committed List. If the Participant does not commit such
addi-tional funds for a Prospect on such listing, MOXY shall have the right to
acquire Participant's interest in such Prospect, free of any liens, burdens, or
overriding royalties not provided for by Article XI hereof, by reimbursing
Participant for any direct costs incurred by Participant in acquiring Leasehold
Interests in such Prospect; if MOXY so reimburses Participant, such Prospect
shall be excluded from this Agreement and Participant shall have no further
right hereunder as to such Prospect.
XIX.
Operations After Program Term
-----------------------------
19.1 General. After the Program Term, all Leasehold Interests of the
Program will be subject to the provisions of the applicable Program Operating
Agreement and the provisions of this Agreement except as set forth in Paragraph
18.2 and this Article XIX. Any Leasehold Interest which is included in a
Prospect on which an Exploratory Well has been committed as shown on the
Committed List shall become subject to this Article XIX after the drilling of
such committed well.
38
19.2 Exploratory ▇▇▇▇▇. After the Program Term, McMoRan and/or
Participant shall have the right to propose the drilling of an Exploratory Well
on a Prospect in accordance with Paragraph 9.2 hereof.
19.3 Development Expenditures. All Development Expenditures shall be
borne by the parties according to their interest and subject to the provisions
of the applicable Program Operating Agreement, whether incurred before or after
the Program Term.
19.4 Provisions Which Do Not Survive the End of the Program Term.
From and after the end of the Program Term, McMoRan shall have no right to
commit Participant to any expenditures except in accordance with the applicable
Program Operating Agreement and with respect to the conclusion of then drilling
or committed operations. McMoRan shall have no obligation thereafter to offer
Participant the right to acquire any Leasehold Interest unless such acquisition
is subject to an AMI agreement with Participant. Further, McMoRan shall have no
further right to bind Participant's interest to any trade agreement except as
may be expressly authorized by Participant.
XX.
Confidentiality.
----------------
20.1 Confidentiality. Except to the extent provided to the contrary
hereunder and subject to any agreements with third parties
39
entered into pursuant to the Program, each party agrees that at all times prior
to, but not after, December 31, 2007, it will take all reasonable steps to keep
secret and confidential and not disclose to any third party, geological or
geophysical data, progress reports or other information which it may receive as
a result of operations carried out under this Agreement; provided, however, that
these restrictions shall not apply to information which (i) is in, or has
entered into, the public domain without breach of the provisions of this
Paragraph 20.1; (ii) is in the possession of a party receiving same as a result
of prior receipt thereof from another party (not a party to this Agreement)
prior to the time of such receipt under this Agreement, (iii) may lawfully be
obtained as a matter of right by the party receiving same from another source,
(iv) is required to be disclosed by law or the rules of any governmental agency
or an applicable stock exchange, by McMoRan or Participant, or (v) is furnished
to Affiliates, or to bona fide prospective purchasers, mortgagees, prospective
mortgagees, lenders, prospective lenders, prospective joint program participants
and consultants for evaluation purposes provided that any person furnished
information pursuant to this clause (v) agrees not to communicate such
information to any other party or to use it for their own benefit in a manner
adverse to the interests of McMoRan and/or Participant. Notwithstanding the
foregoing, the parties recognize that from time to time information (such as
logs) may be acquired by the Program which should not be disclosed to anyone
other than those persons who must have such information. Each party shall take
all reasonable steps to require its employees and consultants to be bound by the
provisions of this paragraph in the same manner as it is bound hereunder. News
releases concerning discoveries or operations of the Program shall only be made
in
40
accordance with guidelines attached to the applicable Program Operating
Agreement, subject to the requirements of applicable laws and regulations and
requirements of applicable stock exchanges.
XXI.
Insurance
---------
21.1 Insurance for Program. McMoRan shall, at the expense of the
Exploration Program, procure and maintain with responsible companies insurance
in the amounts and covering the risks set forth below:
(a) Worker's Compensation:
Such insurance shall be in full compliance with the law in the
state where the work is to take place and shall contain a
voluntary compensation endorsement and a waiver of subrogation as
to Participant. Where applicable, coverage shall also be provided
to comply with the:
(i) U.S. Longshoremen's and Harbor Worker's Compensation Act,
and the
(ii) Outer Continental Shelf Lands Act.
(b) Employer's Liability:
Such insurance shall have a limit of liability of $500,000 per
accident and shall be endorsed, where applicable, to provide:
(i) Maritime (Amendment to Coverage B), to include
transportation, wages, maintenance and cure.
41
(ii) A claim "in rem" will be treated as a claim "in
personam".
(iii) A waiver of subrogation as to Participant.
(c) All vessels owned or chartered by McMoRan shall be adequately
covered by Hull and Protection and Indemnity Insurance.
(d) No insurance other than as specified above shall be
provided by McMoRan.
(e) McMoRan shall require contractors and subcontractors performing
work for the Program to provide such insurance as deemed reasonable by McMoRan
in relation to the work to be performed by said contractors or subcontractors.
(f) Upon request, certificates of insurance evidencing the insurance
obtained by McMoRan hereunder shall be furnished to Participant.
(g) Unless otherwise agreed in writing, McMoRan and Participant shall
separately carry their own policies of the following insurance:
(i) Control of Well Insurance in the minimum amount of
$50,000,000 for the total loss.
42
(ii) Where applicable, Blanket Charters' Legal Liability
and Cargo Legal Liability with a limit of liability of
$500,000.
(iii) Umbrella liability Insurance in the amount of $25,000,000
excess of all primary limits.
(iv) Above insurance coverages including, but not limited to,
any and all deductibles, self-insured retentions or
primary layers, shall contain waivers of subrogation as to
McMoRan and Participant.
XXII.
Record Title, Assignment
------------------------
22.1 Record Title. For convenience, McMoRan shall initially hold
record title to the Leasehold Interests acquired hereunder; provided however,
upon written request by Participant, McMoRan will, within 120 days following the
completion by the Program on an Onshore Prospect of a well capable of producing
in paying quantities, or within 120 days following the installation of the first
drilling and/or production platform on an Offshore Prospect by the Program, as
applicable, execute and deliver to Participant a recordable assignment of
Participant's interest in all Leasehold Interests in such Prospect, unless
Participant has no further rights hereunder as to a particular Prospect as the
result of a decision not to participate pursuant to Paragraph 17.1, Paragraph
17.2 or Paragraph 18.2, as applicable. In addition, at the end of
43
Program ▇▇▇▇ ▇▇▇▇▇▇▇ shall execute and deliver to Participant a recordable
assignment of Participant's interest in any Leasehold Interest not included in a
Prospect during the Program Term pursuant to any provision of this Agreement.
Such assignment shall warrant title against all parties claiming by, through or
under McMoRan, but not otherwise; but McMoRan shall assign to Participant, with
full right of subrogation, to the extent so transferable, the benefit of and the
right to enforce the covenants and warranties, if any, which McMoRan is entitled
to enforce with respect to the interest assigned or any part thereof. Each
assignment shall be subject to this Agreement and shall be charged with and
burdened by the proportionate part of the royalties provided for in each lease
covered thereby, any overriding royalty or similar interest with which such
Leasehold Interests are burdened as authorized by Paragraph 11.1 hereof and any
other contracts or agreements with which such Leasehold Interests are burdened
by McMoRan as expressly authorized by other provisions of this Agreement and
which continue to burden such Leasehold Interests at the time of such
assignment. If, however, there are restrictions on assignability with respect to
a Prospect or Leasehold Interest prohibiting McMoRan as nominee for the Program
from transferring interests in such Prospect or Leasehold Interest, McMoRan
shall continue to hold record title in its name on behalf of the parties owning
interests therein rather than for the Program, and at the request of such
parties will execute a mutually acceptable nominee agreement.
Assignment. Except as permitted below, without the prior written
consent of the other party, neither McMoRan nor Participant shall assign any
rights in this Agreement. Until the Program has
44
completed a well capable of production in Paying Quantities on an Onshore
Prospect or prior to the election provided in Paragraph XVII hereof as to an
Offshore Prospect, or the end of the Program Term, whichever first occurs, no
party hereto may assign its interest in the Leasehold Interests within said
Prospect acquired pursuant to the Program without first obtaining the consent of
the other party hereto (which approval will not be unreasonable withheld);
provided that granting of a lien or security interest by any party shall not
require such consent. The assignees of any Leasehold Interest acquired pursuant
to the Program shall be bound by all of the assignor's obligations with respect
to such Leasehold Interest as to the interest assigned. Notwithstanding the
foregoing, either Participant or McMoRan without the necessity of obtaining
consent may transfer all or any part of its interests and rights in this
Agreement or in any Prospect to any Affiliate provided that the assigning party
shall remain liable hereunder. Notwithstanding the foregoing, if a Prospect
involves the acquisition of a Leasehold interest from a third party, the period
hereinabove provided for the delivery of assignments shall be extended, if
required, until 60 days following the receipt of an assignment of interest by
McMoRan from such third party; provided however, in the event that such an
assignment requires the approval of a governmental authority then such period
will be extended for 60 days following the receipt by McMoRan of the required
approval from the governmental authority.
XXIII.
Subsequent Interests
--------------------
23.1 Subsequent Interest. Except with respect to burdens
45
described in Paragraph 11.1, or as otherwise provided in this Agreement, a party
who creates any burden against such party's interest in any Leasehold Interest
shall be solely responsible for such burden; and in the event such party is
required, pursuant to other provisions of this Agreement including the
applicable Program Operating Agreement or a third party operating agreement, to
assign its interest in any Leasehold Interest to any other party, such
assignment shall convey and vest title to such interest in such assignee free
and clear of any such burden.
XXIV.
General
-------
24.1 Records. McMoRan shall maintain complete and accurate records of
all Leasehold Interests acquired and held hereunder, the acquisition and
disposition of all equipment hereunder, and of all expenditures made hereunder
in accordance with generally accepted industry standards. McMoRan will maintain
complete and accurate records of all correspondence with any operator who may be
operating properties in which the parties hereto have an interest under this
Agreement, and will retain a copy of all statements, bills and other instruments
furnished by any such operator in accordance with generally accepted industry
standards. Such records, together with receipts, vouchers and other supporting
evidence thereof in McMoRan's possession and control, will be available for
inspection, copying and audit by Participant or its duly authorized
representatives on reasonable notice at McMoRan's office during regular business
hours then in effect. Participant's right to audit McMoRan's records for the
purpose of challenging the correctness of any charge made by McMoRan hereunder
shall terminate
46
as provided in the accounting procedure attached to the Program Operating
Agreement. Participant shall be entitled to join McMoRan in any audit made by
McMoRan of the records of third party operators of properties in which
Participant acquired an interest under this Agreement. At the request of
Participant, McMoRan shall conduct or cause to be conducted an audit of the
records of any such third party operator hereunder, said audit right to be as
specified in such third party agreement including the polling of other non-
operators to determine if they desire to participate, at which time McMoRan may
decline to participate and therefore not bear any cost related to such audit. In
addition, Participant shall have the same audit rights as held by McMoRan under
third party agreements including the right to elect participation in any audit
performed by another non-operator if McMoRan elects not to participate in such
audit and Participant shall receive copies of all reports of joint venture
audits which are conducted.
24.2 Access. Participant or its duly authorized representative shall
have access at all reasonable times, at its expense and risk, to the ▇▇▇▇▇▇▇
floor of any well being drilled hereunder in which Participant is participating;
and Participant shall have the right to inspect all materials on hand for the
account of the Program and to observe any such operations conducted hereunder.
24.3 Claims and Litigation. Except as to matters arising with respect
to a particular Prospect after the Program Operating Agreement has become
applicable as to all further operations thereon under the provisions of this
Agreement (as to which the provisions of such Program Operating Agreement will
govern), all investigation, litigation and settlements in connection with
47
titles, claims and causes of action of every kind and joint rights and interests
of McMoRan and Participant in the Program Area in connection with the Program
shall be carried on, conducted and defended for and on behalf of McMoRan and
Participant. Each party shall notify the other of any process served upon it in
any such suit or claim. Where a claim has been made or a suit has been filed
against McMoRan or Participant for damages caused by or arising out of
operations the expense of which is charged to the Exploration Fund as authorized
herein, McMoRan shall retain legal counsel to handle the defense of such suit or
claim and notify Participant of the retention of such legal counsel. The cost of
such legal services shall be charged in the same manner as Exploration
Expenditures are charged. Participant may, if it so chooses, elect to retain its
own legal counsel (at Participant's expense) to defend its interests in any such
suit or claim; and in such event the claim or suit shall be defended by a
committee of attorneys selected by and representing the separate interests of
McMoRan and Participant (with such party being responsible for the fees and
expenses of its own counsel), with McMoRan's counsel as chairperson. All
settlements of suits and claims shall be subject to the approval of Participant;
except that McMoRan may settle any claim under $100,000 without first receiving
Participant's approval, provided the payment is in complete settlement. The
costs and expenses involved in those matters which are subject to the provisions
of this Paragraph 24.3 shall be shared and borne solely by the parties who
participated in such operation or Leasehold Interest in proportion to their
respective participation in the applicable operation or Leasehold Interest.
McMoRan agrees to keep Participant advised as to claims for which Participant
may be partly responsible hereunder.
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24.4 Good Faith. McMoRan and Participant agree to act in good faith
with respect to their respective activities under this Agreement.
24.5 Governing Law. This Agreement and the documents provided for
herein shall be deemed to be governed by, and construed in accordance with, the
laws of the State of Louisiana.
24.6 Failure to Respond. Except as provided in Paragraph 10.1 hereof,
whenever under this Agreement (exclusive of the applicable Program Operating
Agreement) Participant is given the right to approve or disapprove or
participate or decline to participate in a proposed operation or acquisition;
failure to respond shall be deemed a response to disapprove or decline to
participate in the proposed operation or acquisition unless McMoRan is
recommending and electing to plug and abandon a well, in which event failure to
respond shall be an election to plug and abandon.
24.7 Conflicts. Should there be any conflict between the body of this
Agreement and any Exhibit hereto, the provisions contained in the body of this
Agreement shall control.
24.8 Binding Effect. This Agreement shall be binding upon and inure
to the benefit of the parties hereto and their respective successors and
assigns; provided, however, nothing herein contained shall be construed as
permitting an assignment contrary to the terms and provisions of this Agreement.
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IN WITNESS WHEREOF, this Agreement is executed in multiple copies each
of which shall be deemed to be an original on ___________, 1997 but effective as
of the date first above written.
MCMORAN OIL & GAS CO.
BY:_________________________________
FREEPORT-MCMORAN RESOURCE PARTNERS,
LIMITED PARTNERSHIP
BY:_________________________________
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All exhibits have been intentionally omitted.
A copy of any omitted exhibit will be furnished supplementally upon request.