CONTRACT OPERATING AGREEMENT
THIS CONTRACT OPERATING AGREEMENT (this "CONTRACT OPERATING AGREEMENT" or this
"AGREEMENT") is entered into this ___ day of March, 2008, to be effective as of
the 1st day of April, 2008 ("EFFECTIVE DATE"), between and among SOUTH TEXAS
OIL COMPANY, a Nevada corporation ("SOUTH TEXAS"), including its subsidiaries,
STO OPERATING COMPANY, a Texas corporation ("STO OPERATING"); STO DRILLING
COMPANY, a Texas corporation ("STO DRILLING"); SOUTHERN TEXAS OIL COMPANY, a
Texas corporation ("SOUTHERN TEXAS"); and STO PROPERTIES LLC, a Texas limited
liability company ("STO PROPERTIES"), any or all of which subsidiaries of South
Texas may be referred to as "Subsidiaries" and SOUTH TEXAS, together with such
Subsidiaries, individually or collectively, may be referred to herein as "STO",
all of which collectively constitute the Party of the First Part for which the
Services are to be performed, whose address is ▇▇▇ ▇▇▇▇▇▇▇ ▇▇ ▇., ▇▇▇▇▇▇▇,
▇▇▇▇▇ ▇▇▇▇▇, and SONTERRA RESOURCES, INC., a Texas corporation ("SONTERRA"),
Party of the Second Part which shall perform the Services, whose address is ▇▇▇
▇. ▇▇▇▇▇▇▇▇ ▇▇▇▇., ▇▇▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇. STO and Sonterra are
sometimes herein referred to together as the "PARTIES", and individually as a
"PARTY."
WHEREAS, from and after various dates prior to the Effective Date of this
Contract Operating Agreement, (i) STO Operating has acquired, is a current
owner of, and is the operator of vast majority of the certain producing, non-
producing, and undeveloped oil and gas properties located in the State of Texas
owned by STO Operating and Southern Texas (the "TEXAS PROPERTIES"); and (ii)
STO Operating has acquired, is a current owner of, and is a non-operator of the
certain producing, non-producing, and undeveloped oil and gas properties
located in the State of Colorado owned by STO Properties (the "COLORADO
PROPERTIES"), which Texas Properties and Colorado Properties are more fully
defined in Paragraph 1 below and more fully described in EXHIBITS "A" and "B",
respectively, attached hereto and made a part hereof;
WHEREAS, STO and Sonterra desire that, for the duration of the Contract
Operating Term, STO shall continue to act as operator of record for any Texas
Properties in the State of Texas described on Exhibit "A" for which it is the
current operator;
WHEREAS, although STO is not currently the operator of, and regardless of
whether STO hereafter elects to become operator of, the Colorado oil and gas
properties located in the Denver-Julesberg Basin ("DJ BASIN PROPERTIES") STO
shall, with Sonterra's assistance, continue to lead the technical efforts with
respect to the DJ Basin Properties as more fully described in EXHIBIT "B"
attached hereto and made a part hereof;
WHEREAS, STO and Sonterra desire that Sonterra shall perform certain Operating
Services and certain Accounting Services (each as defined in Paragraph 2 below)
primarily for the Texas Properties that are currently, or hereafter become,
operated by STO ("OPERATED PROPERTIES") and secondarily for the Texas
Properties and Colorado Properties not operated by STO ("NON-OPERATED
PROPERTIES") from the Effective Date ("COMMENCEMENT DATE") for the duration of
the Contract Operating Term (including any extension thereof), in each case to
the extent that such Operating and Accounting Services are (i) appropriate for
the safe, efficient, and productive operation of the business of STO; (ii)
consistent with best industry practices; (iii) in accordance with applicable
Federal and State laws; (iv) in accordance with applicable Securities and
Exchange Commission rules and regulations; (v) in accordance with applicable
Financial Accounting Standards Board ("FASB") publications and guidance; (vi)
consistent with being a reasonable prudent operator as such term is commonly
used in the oil and gas industry; and (vii) in accordance with the terms and
conditions of this Contract Operating Agreement ("all of which standards
enumerated in (i), (ii), (iii), (iv), (v), (vi) and (vii) above shall be
individually or collectively, as applicable, referred to herein as "APPLICABLE
OPERATING STANDARDS");
NOW, THEREFORE, for and in consideration of the mutual covenants herein, the
Parties stipulate and agree as follows:
1. DEFINITIONS. Unless otherwise defined in this Contract Operating
Agreement, capitalized terms used herein have the meanings given to such terms
below.
A. The term "AFE" shall mean Authorization for Expenditure;
B. The term "CONTRACT" shall mean any joint operating
agreement ("JOA"), Marketing Contract, or other contractual
agreement to which STO was a party prior to the Effective
Date or which STO enters into after the Effective Date; and
C. The terms "OPERATED PROPERTIES", "NON-OPERATED PROPERTIES",
or "PROPERTIES" shall include the Bastrop I, Bastrop II,
Central Texas, and the Southern Texas Properties, whether
described under named ▇▇▇▇▇ or as properties not yet in a
unit on attached EXHIBITS "A" and "B", sometimes also
referred to internally at STO as the:
(1) Bastrop Properties (which consists of contiguous oil
and gas leasehold interests in both the Bastrop I and II
Prospects in Bastrop County, Texas);
(2) Giddings Field Properties (Central Texas Leases, which
consists of oil and gas leasehold interests in Burleson,
Brazos, Fayette, Gonzales, and ▇▇▇ Counties, Texas); and
(3) Big Foot, Kyote, and Somerset Fields (Southern Texas
Leases, which consist of oil and gas leasehold interests in
Atascosa and Frio Counties, Texas).
2. SCOPE OF SERVICES. As of the Effective Date, Sonterra will begin
overseeing daily operations, in the name of, on behalf of, and for the benefit
of STO, of both Operating Services and Accounting Services for the Operated and
Non-Operated Properties as an independent contractor acting in the role of
Contract Operator, subject to the terms, conditions, and limitations set forth
in this Contract Operating Agreement (as the context indicates, individually or
collectively, the "OPERATING SERVICES", the "ACCOUNTING SERVICES", or the
"SERVICES").
In the performance of the Services contemplated hereunder, Sonterra shall
perform (or shall cause the employees, consultants, and representatives of STO
to perform) the Services in the name of the applicable STO entity and in
accordance with Applicable Operating Standards, which Services shall consist of
the following duties:
(A) operating the Operated Properties and, to a lesser extent consistent
with the role of a non-operator, managing the Non-Operating Properties;
provided, however, that STO will remain as the operator of record for the
Operated Properties and that STO will continue to be responsible under law and
in fact for the performance of certain functions and activities for which
Sonterra is not responsible as described in Paragraph 5;
(B) performing all functions in the name of STO and except as limited in
Paragraph 5 below of a Contract Operator as generally understood in the oil and
gas industry and in accordance with Applicable Operating Standards and duties
imposed under any Contracts to which any STO entity is a party, including
without limitation performing the duties of Operator under any JOA or as
Operator in a manner consistent with JOA standards in the event that the STO
entity has no partners in particular ▇▇▇▇▇ and leases;
(C) oversee marketing, nominations, gas control, and other similar services
under existing contracts entered into by STO or by STO on Sonterra's
recommendation to gather, transport, market, store, or sell the oil and gas
production from the Properties (individually or collectively, "MARKETING
CONTRACTS") or under Marketing Contracts hereafter entered into on a spot or
month-to-month basis and (with STO'S prior written approval) to receive
proceeds from (i) the sale of production attributable to the Properties (to the
extent not paid by the purchasers of production directly to STO); (ii)
gathering, compressing, transporting, drilling, or other services rendered by
Sonterra on behalf of STO; and/or (iii) payments not encompassed within (i) or
(ii) immediately above, such as gas balancing payments in lieu of in kind
volumes, overpayments of AFEs, cash calls, insurance, taxes or items similar or
dissimilar to those enumerated in (E) below in which STO is entitled to
payment, or other payments for the benefit of STO;
(D) overseeing land administration, ▇▇▇▇▇▇▇, regulatory compliance,
production reporting, geoscience, technical, operational, secretarial, and
other duties and responsibilities performed by STO personnel, including its
employees, consultants, contractors, and subcontractors, encompassed within the
general and administrative overhead of STO;
(E) administering the books, records and accounts associated with ownership
of the Properties, including, but not limited to, providing STO with copies of
daily drilling, workover and safety incident reports; preparing and filing all
appropriate forms and reports for governmental agencies; and preparing and
sending reports, change of operator notices or designations to third party co-
owners as necessary;
(F) causing to be paid severance, production and similar taxes, lease
rentals, shut-in royalties, minimum royalties, payments in lieu of production,
royalties, overriding royalties, production payments, net profit payments and
other similar burdens associated with the ownership of the Properties, to the
extent that, prior to Commencement Date, such amounts were paid directly by STO
and not by either the operators of the Properties or by the purchasers of
production from the Properties;
(G) pay operating costs associated with ownership of the Properties or the
operation of the Operated Properties;
(H) send joint interest ▇▇▇▇▇▇▇▇ and cash calls to owners of the Operated
Properties and receive cash calls and ▇▇▇▇▇▇▇▇ from joint interest owners
attributable to the Operated Properties;
(I) submit reports regarding royalty payments to federal, state or tribal
authorities concerning the Properties, as appropriate;
(J) submit production and severance tax reports with respect to the Operated
Properties to federal, state or tribal authorities, with contemporaneous copies
to STO concerning the Properties, as appropriate; and
(K) prepare a Contract Operating Term Final Report summarizing, with copies
of appropriate supporting documentation, Sonterra's activities on behalf of STO
during the Contract Operating Term not more than ninety (90) days after the
expiration of the Contract Operating Term.
Services described in clauses (A), (B), (C), (D), and (E), except to the extent
that a portion of such Services also constitute Accounting Services, shall be
referred to herein as "OPERATING SERVICES." Services described in clauses (F),
(G), (H), (I), (J), and (K) shall be referred to herein as "ACCOUNTING
SERVICES." As used in this Agreement, the "CONTRACT OPERATING TERM FINAL
REPORT" shall mean the final report that will be prepared by Sonterra based
upon all actual production, sales proceeds, joint interest ▇▇▇▇▇▇▇▇, and cash
calls attributable to STO, all actual expenses and costs attributable to STO
pursuant to this Contract Operating Agreement, and all other amounts
attributable to STO that are accrued or owed, but are not yet paid or payable
during the Contract Operating Term. As soon as practicable, but in any event
within thirty (30) days after receipt of the Contract Operating Term Final
Report, STO shall prepare and deliver a written response either: (1)
acknowledging receipt of and agreement with the Contract Operating Term Final
Report or (2) containing any proposed changes to the Contract Operating Term
Final Report, together with an explanation of any such changes and the reasons
therefore. To the extent that STO may suggest changes to the Contract
Operating Term Final Report with which Sonterra does not agree, the Parties
shall endeavor in good faith to reconcile their respective divergent positions
with respect to such Report.
3. ▇▇▇▇▇▇▇▇ TO OTHERS. During the Contract Operating Term, (a) Sonterra
shall oversee, prepare and send, in the name of and on behalf of STO, all joint
interest ▇▇▇▇▇▇▇▇ for the Operated Properties to joint interest owners of the
Operated Properties;
(a)If Sonterra receives any subsequent invoices that pertain to
the operations of the Operated Properties after the Contract
Operating Term, and those invoices pertain to charges
subsequent to the expiration of the Term, Sonterra shall
forward all such invoices to STO for payment by STO;
(c) STO shall reimburse Sonterra for all invoices paid by Sonterra, if
any, on behalf of STO, incurred hereunder within ten (10) business days of
receipt of notice of such payments and supporting documentation; and
(d) The Parties contemplate that all monies to be paid or received
during the Contract Operating Term shall be paid or received by and in the name
of STO, but Sonterra agrees to promptly turn over any funds it inadvertently
may receive in the course of performing Services hereunder and STO agrees to
reimburse Sonterra for any funds, if any, that STO has paid on STO's behalf.
4. CONTRACT OPERATING TERM AND EARLY TERMINATION. This Agreement commences
as of the Effective Date and shall continue for a period of three (3) calendar
months through and ending at the close of business hours on June 30, 2008,
unless extended by either Party for one or more extended periods of one
calendar month each upon written notice sent by overnight courier not less than
fifteen (15) days prior to the expiration of the Contract Operating Term or any
extension thereof, or unless earlier terminated by mutual agreement of Sonterra
and STO. Sonterra shall secure and thereafter retain possession and control in
its office of all records and files of STO at such time as Sonterra deems
desirable or reasonably necessary for providing Operating Services and
Accounting Services, but STO shall grant immediate electronic access to and
furnish physical access to and/or copies of all records and files to Sonterra
as deemed desirable or necessary by STO or Sonterra to perform the Services
contemplated under this Contract Operating Agreement.
5. LIMITATION ON SERVICES. The following limitations apply with respect to
the Services contemplated hereunder in connection with performing the Operating
Services:
(a) Sonterra shall not enter into any Contract in its own name or on its own
behalf, and STO shall be obligated to enter into all Contracts reasonably
acceptable to STO and Sonterra, in the final discretion of the Executive
Committee of the Board of Directors of STO, that may be necessary for the
operation of the Operated Properties or to otherwise perform the Services.
Each of STO and Sonterra agree to consult with the CEO of the other Party with
respect to any Contract having a duration in excess of three (3) calendar
months and/or with respect to any proposed capital expenditures in excess of
$25,000.00, with the final decision in each instance to be made by the
Executive Committee of the Board of Directors of STO.. Upon request, Sonterra
agrees to join with STO in the execution of any Contract requiring Sonterra's
joinder, if any, that may be necessary for the operation of the Operated
Properties during the Contract Operating Term of this Contract Operating
Agreement; provided, however, that Sonterra shall have no contractual liability
under any such Contract;
(b) the scope of Operating Services shall include, but Sonterra shall not be
responsible for the results of or any liability associated with, providing in
good faith any technical evaluation regarding any drilling, reworking or other
capital expenditure projects. Sonterra shall be responsible for timely
forwarding notices to STO to enable STO to make informed responses and to
direct Sonterra to make such responses on STO's behalf. After receiving
Sonterra's written recommendations, STO shall be responsible for making any
response or non-responses to any elections (including AFEs) pertaining to the
Operated or Non-Operated Properties, but Sonterra shall have no responsibility
or liability therefor if STO does not receive Sonterra's directions regarding
an election to be made by STO. SONTERRA (INCLUDING FOR ALL PURPOSES HEREUNDER
ITS OFFICERS, DIRECTORS, EMPLOYEES, AGENTS, CONSULTANTS, OR REPRESENTATIVES)
SHALL BE RESPONSIBLE FOR THE ACCURACY OF ANY INFORMATION FURNISHED IN GOOD
FAITH BY SONTERRA OR ANY OF ITS SUBSIDIARIES, OR AS A RESULT OF THE INCLUSION
OF SUCH INACCURATE INFORMATION BY STO IN ANY REPORTS OR FOR RESULTS OBTAINED
FROM USE BY STO OF ANY INACCURATE INFORMATION SO FURNISHED. STO acknowledges
and agrees that its employees and the employees of STO's Subsidiaries shall be
required to, and will in fact, devote substantial time in assist Sonterra in
the performance of Services to STO and its Subsidiaries to enable Sonterra to
continue the operation of the Properties and the performance of the Operating
Services and Accounting Services in the same manner as STO did immediately
prior to Commencement Date or as otherwise required by this Contract Operating
Agreement, other applicable Contracts or applicable law. STO also acknowledges
that the employees of Sonterra providing the Services have, and will continue
to have, responsibilities with respect to the business of Sonterra to which
said Sonterra employees will be required to devote substantial time and effort,
in addition to the business of STO and its Affiliates, other than the operation
of the Operated and Non-Properties and the Operating and Accounting Services to
be performed hereunder; and
(c) SONTERRA SHALL NOT BE REQUIRED TO DRILL ANY WELL NOR UNDERTAKE ANY OTHER
DRILLING, WORKOVER OR OTHER CAPITAL EXPENSE OPERATIONS WITH RESPECT TO ANY
OPERATED PROPERTIES, BUT SHALL PROVIDE ANY SERVICES IN THE NATURE OF OPERATING
SERVICES IN SUPPORT OF ANY SUCH OPERATIONS UNDERTAKEN BY STO. IN THE EVENT
THAT STO ELECTS TO CONDUCT SUCH OPERATIONS AND SONTERRA AGREES TO PERFORM
OPERATING SERVICES WITH RESPECT TO THE REQUESTED DRILLING, WORKOVER OR OTHER
CAPITAL EXPENSE OPERATIONS, HOWEVER, SONTERRA SHALL DO SO WITHOUT ADDITIONAL
CHARGE TO STO, WITH THE EXPRESS UNDERSTANDING AND AGREEMENT BY STO THAT
SONTERRA SHALL NOT BE EXPOSED TO, AND STO AGREES TO PROTECT, DEFEND, AND HOLD
SONTERRA HARMLESS FROM, ANY LIABILITY OR RESPONSIBILITY FOR ANY ACTS OR
FAILURES TO ACT ON THE PART OF SONTERRA WITH RESPECT TO ANY SUCH OPERATIONS
UNDERTAKEN BY STO, ALL OF WHICH OPERATIONS SHALL BE AT STO'S SOLE RISK AND
EXPENSE.
6. COMPENSATION AND FEES. As and for compensation for Services to be
rendered hereunder, STO agrees to pay Sonterra the sum of $75,000 per month,
plus reimburse Sonterra for all of its out-of-pocket costs and expenses, all of
which shall be payable within ten (10) days after receipt of the monthly
invoice from Sonterra. Any and all expenses anticipated to be incurred by
Sonterra in connection with its performance hereunder in excess of $25,000 per
item or for a series of related items, shall be pre-approved by STO's CEO as a
condition of reimbursement.
7. DISCLAIMER OF WARRANTIES/INDEMNIFICATION.
(A) NOTWITHSTANDING ANY OTHER TERM OF THIS AGREEMENT TO THE CONTRARY,
SONTERRA MAKES NO, AND IN FACT EXPRESSLY DISCLAIMS ANY AND ALL, REPRESENTATIONS
AND WARRANTIES, EXPRESS, IMPLIED OR STATUTORY, WITH RESPECT TO THE PERFORMANCE
OR RESULTS OF THE SERVICES, EXCEPT THAT SONTERRA SHALL PERFORM THE SERVICES
DURING THE TERM OF THIS AGREEMENT IN A MANNER CONSISTENT WITH BEST INDUSTRY
PRACTICE, OR AS OTHERWISE REQUIRED BY THIS CONTRACT OPERATING AGREEMENT, OTHER
APPLICABLE CONTRACTS OR APPLICABLE LAW.
(B) EACH PARTY HEREBY AGREES TO DEFEND, INDEMNIFY, RELEASE, AND HOLD
THE OTHER PARTY HARMLESS, INCLUDING ITS RESPECTIVE OFFICERS, DIRECTORS,
EMPLOYEES, AGENTS, REPRESENTATIVES, CONTRACTORS OR SUBCONTRACTORS, FROM AND
AGAINST ANY AND ALL LIABILITIES ON ACCOUNT OF PERSONAL INJURY, BODILY INJURY OR
DEATH TO ITS OWN PERSONNEL AND REPRESENTATIVES TO THE EXTENT SUCH INJURY,
DEATH, DAMAGE OR LOSS ARISES OUT OF OR IS ATTRIBUTABLE TO THE OPERATING
SERVICES OR THE PERFORMANCE THEREOF BY ANY OF SONTERRA'S RESPECTIVE OFFICERS,
DIRECTORS, EMPLOYEES, AGENTS, REPRESENTATIVES, CONTRACTORS OR SUBCONTRACTORS,
REGARDLESS OF WHETHER SUCH LIABILITIES ARE ALLEGEDLY OR DEEMED TO BE CAUSED BY,
IN WHOLE OR IN PART, THE JOINT, SEVERAL, ACTIVE, PASSIVE, SOLE OR CONCURRENT
NEGLIGENT ACTS OR OMISSIONS OR THE STRICT LIABILITY (STATUTORY OR OTHERWISE) OR
OTHER LEGAL FAULT ATTRIBUTABLE TO SONTERRA, BUT IF AND ONLY TO THE EXTENT ANY
SUCH LIABILITIES ARE CAUSED BY WILLFUL MISCONDUCT OR GROSS NEGLIGENCE OF
SONTERRA.
(c) The mutual indemnification obligations in Paragraph 7(b) are
intended to comply with applicable "knock-for-knock" oilfield anti-indemnity
laws or similar Laws. To the extent such indemnification provisions are found
to violate any applicable Law, or in the event any applicable Law is enacted or
amended that would cause these provisions to be in violation of such Law, then
this Agreement shall automatically be amended to provide that the
indemnification provided hereunder shall extend only to the maximum extent
permitted by such applicable Law. Any person or entity entitled to
indemnification shall be deemed to be a STO Indemnified Party or Sonterra
Indemnified Party, as applicable.
8. FORCE MAJEURE. (a) If any Party is rendered unable, wholly or in part,
by an event of force majeure to carry out its obligations under this Agreement,
other than obligations to make money payments which shall not be affected by
any such event, that Party shall give the non-affected Party prompt written
notice of the force majeure event with reasonably full particulars of the event
and its consequent inability to carry out its obligations, whereupon the
obligations of the Party giving notice, to the extent affected by the event of
force majeure, shall be suspended during, but no longer than, the duration of
the event of force majeure. The affected Party shall use all reasonable
diligence to remedy the inability to perform its obligation caused by the event
of force majeure as quickly as reasonably possible under the circumstances.
(b) The requirement that any event of force majeure shall be remedied with
all reasonable dispatch shall not require the settlement of strikes, lockouts,
or other labor difficulty by the Party involved in a manner or on terms
contrary to such Party's wishes, and the handling and resolution of such labor
difficulties shall be entirely within the discretion of the Party concerned.
(c) The term "EVENT OF FORCE MAJEURE" shall mean an act of God, strike,
lockout, or other industrial disturbance, act of the public enemy, war,
blockade, terrorism, public riot, lightning, fire, storm, flood, explosion,
governmental action, governmental delay, restraint or inaction, unavailability
of equipment, and any other cause, whether of the kind specifically enumerated
above or otherwise, which is not reasonably within the control of the Party
claiming the inability or suspension of performance.
9. ASSIGNABILITY. This Agreement may not be assigned by Sonterra without
the prior written consent of STO, and Sonterra may not delegate its duties or
responsibilities hereunder to a third party without the prior written consent
of STO. No assignment of any rights hereunder by Sonterra shall relieve
Sonterra of any obligations and responsibilities hereunder.
10. GOVERNING LAW; JURISDICTION, VENUE; JURY WAIVER. THIS AGREEMENT AND THE
LEGAL RELATIONS AMONG THE PARTIES SHALL BE GOVERNED AND CONSTRUED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF TEXAS, EXCLUDING ANY CONFLICTS OF LAW RULE OR
PRINCIPLE THAT MIGHT REFER CONSTRUCTION OF SUCH PROVISIONS TO THE LAWS OF
ANOTHER JURISDICTION. ALL OF THE PARTIES HERETO CONSENT TO THE EXERCISE OF
JURISDICTION IN PERSONAM BY THE COURTS OF THE STATE OF TEXAS FOR ANY ACTION
ARISING OUT OF THIS AGREEMENT. ALL ACTIONS OR PROCEEDINGS WITH RESPECT TO,
ARISING DIRECTLY OR INDIRECTLY IN CONNECTION WITH, OUT OF, RELATED TO, OR FROM
THIS AGREEMENT SHALL BE EXCLUSIVELY LITIGATED IN COURTS HAVING A SITUS IN SAN
ANTONIO, BEXAR COUNTY, TEXAS. EACH PARTY HERETO WAIVES, TO THE FULLEST EXTENT
PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN
RESPECT OF ANY ACTION, SUIT OR PROCEEDING ARISING OUT OF OR RELATING TO THIS
AGREEMENT.
11. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, and each such counterpart hereof shall be deemed to be an
original instrument, but all of such counterparts shall constitute for all
purposes one agreement. Any signature hereto delivered by a Party by facsimile
transmission shall be deemed an original signature hereto.
12. INDEPENDENT CONTRACTOR. In their performance of the Services, Sonterra
shall be considered an independent contractor, and in no event shall either
Party be deemed a partner, co-venturer or agent of the other Party. None of the
persons utilized by Sonterra in the performance of Services hereunder shall be
deemed to be an employee of STO nor entitled to any benefits available to an
STO employee. Compensation required to be paid to such persons engaged by
Sonterra to perform any Services hereunder shall be the sole responsibility of
Sonterra.
13. NO RESTRICTIONS. STO recognizes that Sonterra is not performing the
Services under this Agreement on an exclusive basis and agrees that Sonterra is
only obligated to devote such time under this Agreement as is reasonably
necessary to perform the Services in the same manner as STO performed such
Services immediately prior to the Commencement Date and consistent with the
Applicable Operating Standards. Nothing contained in this Agreement shall
prevent either Sonterra or STO from engaging in any other business activities.
14. NOTICES. (a) All notices and communications required or permitted
to be given hereunder shall be in writing and shall be delivered personally, or
sent by bonded overnight courier, or mailed by U.S. Express Mail or by
certified or registered United States Mail with all postage fully prepaid, or
sent by facsimile transmission (provided any such facsimile transmission is
confirmed either orally or by written confirmation), addressed to the
appropriate Party, as follows:
If to STO South Texas Oil Company
▇▇▇ ▇▇▇▇▇▇▇ ▇▇ ▇
▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Fax: ▇▇▇-▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, CEO
▇▇▇▇▇.▇▇▇▇▇▇▇▇▇@▇▇▇▇▇▇▇▇▇▇▇▇▇.▇▇▇
With a copy to: ▇▇▇ ▇. ▇▇▇▇▇▇, ▇▇., Esq.
▇ ▇▇▇▇▇▇▇'▇ ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇
▇▇▇▇▇▇▇▇@▇▇▇▇▇▇▇▇▇▇▇▇▇▇▇▇▇▇.▇▇▇
If to Sonterra: Sonterra Resources
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇., ▇▇▇▇▇ ▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Fax: ▇▇▇-▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇, CEO
▇▇▇▇▇▇▇▇@▇▇▇▇▇▇▇▇▇▇▇▇▇▇▇▇▇.▇▇▇
With a copy to: ▇▇▇▇ ▇▇▇▇▇▇, Esq. / ▇▇▇▇▇▇▇▇ & Knight
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Fax: ▇▇▇-▇▇▇-▇▇▇▇
▇▇▇▇.▇▇▇▇▇▇@▇▇▇▇▇.▇▇▇
(b) Any notice given in accordance herewith shall be deemed to have been given
when delivered to the addressee in person, or by courier, or transmitted by
facsimile transmission during normal business hours, or upon actual receipt by
the addressee after such notice has either been delivered to an overnight
courier or deposited in the United States Mail, as the case may be. The
parties hereto may change the address, telephone numbers, and facsimile numbers
to which such communications are to be addressed by giving written notice to
the other parties in the manner provided in this Paragraph 14.
15. INSURANCE. (a) Each party, at its expense, shall procure and
maintain, effective as of the date hereof, commercial general liability
insurance with a combined single limit for bodily injury and property damage of
at least U.S. $1,000,000 per occurrence, excess liability insurance in amounts
of not less than $2,000,000 per occurrence in excess of the foregoing, and an
aggregate deductible of not in excess of U.S. $100,000, covering its
indemnification and other responsibilities under this Agreement.
(b) All insurance policies obtained and maintained as required
hereunder shall name the other Party (and include all of said Party's
Indemnified Parties and the contractors and subcontractors of the Indemnified
Parties) as additional insureds, and shall also include a waiver of subrogation
by the insurers in favor of the Indemnified Parties (including the contractors
and subcontractors of the Indemnified Parties). Such insurance shall be
primary to any insurance maintained by said Party with respect to matters for
which the other Party is responsible under this Agreement.
16. AMENDMENT. This Agreement may be amended only by a formal written
instrument duly executed by the CEOs of both Parties hereto.
17. WAIVER; RIGHTS CUMULATIVE. Any of the terms, covenants,
representations, warranties, or conditions hereof may be waived only by a
formal written instrument executed by or on behalf of the Party hereto waiving
compliance. No course of dealing on the part of STO or Sonterra, nor by their
respective officers, employees, agents, or representatives, nor any failure by
STO or Sonterra to exercise any of its rights under this Agreement shall
operate as a waiver thereof nor affect in any way the right of such Party at a
later time to enforce the performance of such provision. No waiver by any
Party of any condition, or any breach of any term, covenant, representation, or
warranty contained in this Agreement, in any one or more instances, shall be
deemed to be or construed as a further or continuing waiver of any such
condition or breach or a waiver of any other condition or of any breach of any
other term, covenant, representation, or warranty. The rights of STO and
Sonterra under this Agreement shall be cumulative, and the exercise or partial
exercise of any such right shall not preclude the exercise of any other right.
18. SEVERABILITY. If any term or other provision of this Agreement is
invalid, illegal, or incapable of being enforced by any rule of law or public
policy, all other conditions and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic or legal
substance of the transactions contemplated hereby is not affected in any
adverse manner to any Party. Upon such determination that any term or other
provision is invalid, illegal, or incapable of being enforced, the Parties
hereto shall negotiate in good faith to modify this Agreement so as to effect
the original intent of the Parties as closely as possible in an acceptable
manner to the end that the transactions contemplated hereby are fulfilled to
the extent possible.
19. PARTIES IN INTEREST. Except for the Parties hereto, no other person
shall have any right, benefit, priority, or interest hereunder or as a result
hereof or have standing to require satisfaction of the provisions hereof in
accordance with their terms; provided that the indemnity and defense provisions
in Paragraph 7(b) shall inure to the benefit of the STO Indemnified Parties and
the Sonterra Indemnified Parties as provided therein. Any claim for defense,
indemnity or hold harmless hereunder on behalf of a member of the STO
Indemnified Parties or the Sonterra Indemnified Parties must be made and
administered by STO and Sonterra, respectively.
20. PREPARATION OF AGREEMENT. Both STO and Sonterra and their respective
counsel participated in the preparation of this Agreement. In the event of any
ambiguity in this Agreement, no presumption shall arise based on the identity
of the primary draftsman of this Agreement.
21. ENTIRE AGREEMENT; CONFLICTS. THIS AGREEMENT CONSTITUTES THE ENTIRE
AGREEMENT AMONG STO AND SONTERRA PERTAINING TO THE PROVISION OF THE SERVICES
AND SUPERSEDES ALL PRIOR AGREEMENTS, UNDERSTANDINGS, NEGOTIATIONS, AND
DISCUSSIONS, WHETHER ORAL OR WRITTEN, OF THE PARTIES PERTAINING TO THE
PROVISION OF THE SERVICES. THERE ARE NO WARRANTIES, REPRESENTATIONS, OR OTHER
AGREEMENTS AMONG THE PARTIES RELATING TO THE SUBJECT MATTER HEREOF EXCEPT AS
SPECIFICALLY SET FORTH IN THIS AGREEMENT, AND NEITHER STO NOR SONTERRA SHALL BE
BOUND BY OR LIABLE FOR ANY ALLEGED REPRESENTATION, PROMISE, INDUCEMENT, OR
STATEMENTS OF INTENTION NOT SO SET FORTH.
22. JOINT AND SEVERAL LIABILITY. The covenants made by each Party are joint
and several.
23. BONDING REQUIREMENTS. STO shall continue to comply with the bonding
requirements of the applicable governmental agency and other governmental
authorities, together with any bonding or other security requirements provided
for in any Contracts, as they relate to the Operated Properties.
The Parties have caused their duly authorized representatives to execute this
Agreement as of the day and year first set forth above.
PARTY OF THE FIRST PART:
STO:
SOUTH TEXAS OIL COMPANY
By:
Name:
Title:
STO OPERATING COMPANY
By:
Name:
Title:
STO DRILLING COMPANY
By:
Name:
Title:
SOUTHERN TEXAS OIL COMPANY
By:
Name:
Title:
STO PROPERTIES LLC
By:
Name:
Title:
PARTY OF THE SECOND PART:
SONTERRA:
SONTERRA RESOURCES, INC.
By:
Name:
Title:
EXHIBIT "A": TEXAS OIL AND GAS PROPERTIES
EXHIBIT "B": COLORADO OIL AND GAS PROPERTIES
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EXHIBIT "A"
TEXAS OIL AND GAS PROPERTIES
#
EXHIBIT "B"
COLORADO OIL AND GAS PROPERTIES
#