EX-10.6
DRILLING AGREEMENT
DRILLING AND OPERATING AGREEMENT
THIS AGREEMENT is made and entered into effective this
27 day of December 2000 by and between NESS ENERGY
INTERNATIONAL, INC., a Washington corporation (hereinafter the
"Operator"), and HESED ENERGY INTERNATIONAL, INC., a Texas
corporation (hereinafter the "Hesed").
WITNESSETH:
WHEREAS, Hesed is the owner of oil and gas Licenses
and/or the oil and gas properties identified on Exhibit A
attached hereto and made a part thereof, and the parties hereto
have reached an Agreement to explore and develop these Licenses
and/or oil and gas interests for the production of oil and gas
to the extent and as herein after provided
NOW, THEREFORE, it is mutually agreed by and between
Hesed and Operators as follows:
1. DEFINITIONS. As used in this Agreement, the
following words and terms shall have the meanings here ascribed
to them:
(a) The term "oil and gas" shall mean oil, gas,
casing head gas, gas condensate, and all other liquid or
gaseous hydrocarbons and other marketable substances
produced therewith, unless an intent to limit the
inclusiveness of this term is specifically stated.
(b) The terms "oil and gas lease", "lease" and
"Licenses" shall mean: The Licenses granted Hesed pursuant
to the terms of the Petroleum Law, 1952 ("the Law") as set
forth in Exhibit A hereto, as such may be extended from
time to time and any and all Leases in to which any such
Licenses are converted pursuant to the Law and any
extensions thereof by the government of Israel.
(c) The term "Drill Site" shall mean any area
subject to a License or Lease listed on Exhibit A,
including but not limited to the Drill Site of the Har
Sedom 1 re-entry well and the Elohim Perazim well, both of
which are within the boundaries of the Ness Carve Out, and
allocated to a well to be drilled hereunder on such License
or Lease.
(d) The term "Producing Well" shall be defined as
follows: A gas well shall be considered to be a producing
well once it is directly connected to a gas transmission
line approved by Hesed and the appropriate government
authorities, even though temporarily shut-in due to
overproduction or the failure of the transmission or gas
company to take the gas. An oil well shall be considered
to be a producing well, if it is producing oil in
commercially marketable quantities.
2. EXHIBITS. The following Exhibits, as indicated below
and attached hereto, are incorporated in and made a part hereof:
(a) Exhibit "A" as shall be amended from time to
time, shall include the Licenses and Leases
granted to Hesed and the ▇▇▇▇▇ to be drilled on
any such License or Lease and shall indicate the
working and net revenue interests in each such
License, Lease and Well.
(b) Exhibit "B" - is the Lapidoth Drilling Contract.
(c) Exhibit "C" is the Authorization for Expenditures
If any provisions of these Exhibits are inconsistent
with any provision contained in the body of this Agreement as
between the parties hereto, the provisions in the body of this
Agreement shall prevail.
3. INTERESTS OF PARTIES. Unless changed by other
provisions of this Agreement, all costs and
liabilities incurred in operations under this
Agreement shall be borne and paid, and all equipment
and material acquired in operations on the Licenses
and Leases shall be owned by the parties as their
working interests are shown on Exhibit A. All
production of oil and gas from the Licenses and
Leases, subject to the payment of royalties to the
government of Israel under the Law, shall be owned
by the parties in the same manner during the term hereof.
Each party shall be responsible for securing curative
matter and pooling amendments or Agreements required in
connection with Licenses and Leases or oil and gas interests
contributed by such party. The Operator shall be responsible
for the preparation and recording of Pooling Designations or
Declarations as well as the conduct of hearings before
Governmental Agencies for the securing of spacing or pooling
orders if required. This shall not prevent any party from
appearing on its own behalf at any such hearing.
4. OPERATOR.
4.1 Designation of Operator. Ness Energy
International, Inc. shall be the Operator of the Licenses and
Leases and ▇▇▇▇▇ to be drilled thereon and shall conduct and
direct and have full control of all operations on the Licenses
and Leases as permitted and required by, and within the limits
of, this Agreement. It shall conduct all such operations in a
good and workmanlike manner, but it shall have no liability as
Operator to the other parties for losses sustained or
liabilities incurred, except such as may result from gross
negligence or willful misconduct.
4.2 Resignation or Removal of Operator.
(a) Operator may resign its duties and
obligations under this Agreement at any time by giving
Hesed written notice of not less than ninety (90) days.
Upon resignation or termination, Operator shall immediately
deliver to the new Operator (as selected by Hesed) copies
of all records and information necessary for the new
Operator to discharge its duties and obligations. Operator,
after the effective date of removal or resignation, shall
be bound by the terms hereof as a Non-Operator.
(b) Hesed shall have the right to remove the
Operator and terminate this Agreement for cause (as
hereinafter defined) after giving the Operator written
notice of not less than ninety (90) days. For purposes of
this Section 4.2(b), the term "cause" shall mean:
(i) the Operator's failure or refusal to carry out its duties under
this
Agreement, following written notice from Hesed of not less than thirty
(30)
days indicating the basis for Hesed's claim; or
(ii) the Operator becomes insolvent, bankrupt or is placed in
receivership;
or
(iii) the Operator willfully breaches the terms of this Agreement and
fails to
cure such breach following thirty (30) days' written notice from Hesed,
setting
forth the terms of such breach.
Such removal shall not become effective until
7:00 A.M. on the first day of the calendar month following
the expiration of ninety (90) days after the giving of
written notice as provided above, unless otherwise agreed
by Hesed and the Operator. Operator, after the effective
date of the resignation or removal under this Section 4,
shall be bound by the terms hereof as a Non-Operator if and
to the extent it has any working interest in any of the
Licenses or Leases. A change of a corporate name or
structure of Operator or a transfer of Operator's interest
in any single subsidiary, parent or successor corporation
shall not be the basis for the removal of the Operator.
(b) Upon the resignation or removal of Operator, a
successor Operator shall be selected by Hesed if
necessary, subject to the approval, if
necessary, of other owners of working interests
in the relevant License, Lease or Drill Site.
4.3 Employees. The number of employees used by
Operator in conducting operations hereunder, their selection,
and the hours, labor and the compensation for services performed
by these employees shall be determined by Operator, and all such
employees shall be the employees of Operator.
4.4 Drilling Contracts. All ▇▇▇▇▇ drilled on the
Drill Sites shall be drilled on a turnkey basis for 100% WI as
described on Exhibit "A".
5. DRILLING AND OPERATIONS.
5.1 Agreement to Drill.
5.1.1 Operator agrees to drill or cause to be
drilled, a well for oil and gas on the Elohim
Perazim and any other ▇▇▇▇▇ to be drilled on the
Ness 1 Carve Out or the Masada Licenses. Sites,
All ▇▇▇▇▇ to be drilled under this Agreement
shall be drilled to a depth sufficient to test
the targeted formation targeted by Hesed as
evidenced by la logging survey, and the well bore
shall be of sufficient size that they may be
completed using sufficient production casing;
provided, however, that the parties hereto may
decide to complete or abandon the well at lesser depth.
5.1.2 Operator shall undertake and have full and
direct control of all drilling and production
activities, subject to the limitations contained
herein. Operator shall conduct all operations
with due diligence and in accordance with good
oil field practices and shall comply with all
applicable state conservation laws, with the
valid rules, regulations and orders of any duly
constituted regulatory body of Israel. local laws,
5.1.3 During the course of drilling operations
on each well conducted pursuant to this
Agreement, Operator agrees to furnish Hesed, upon
request, daily drilling reports specifying depth,
drilling penetration rate, formation and all
shows of oil or gas; to permit access to ▇▇▇▇▇▇▇
floor and rig area and to all pertinent
information concerning such operations. The log
analysis will be reported in two-foot intervals
and also will include the net thickness of pay,
total porosity-feet, average porosity, and
average water saturation for the targeted Formation.
5.1.4 The drilling of the Har Sedom re-entry
well hereunder shall commence no later than as
prudently as possible following the execution of
this Agreement in accordance with the
requirements of the Hesed License and Ness Carve
Out and the Lapidoth Drilling contract (Exhibit
B) and the drilling of each additional well shall
commence in accordance with the timetable agreed
between Hesed and Operator in accordance with the
requirements of the applicable Leases and Licenses.
5.1.5 The Operator shall have each Drill Site
surveyed and staked and shall obtain approval
from the applicable state regulatory authority
for all permits necessary for the conduct of
drilling operations on each Drill Site.
5.1.6 Included as part of the cost of
drilling, Operator will supply a gamma ray-
neutron log and a density log and such other log
or logs as shall be deemed necessary or
appropriate by the Operator of each well.
5.1.7 Immediately upon completion, Operator
shall file all necessary information with the
applicable regulatory authorities and shall upon
request furnish Hesed a copy of the completion
report. Operator shall also file on behalf of
Hesed any and all periodic and other reports to
the Israeli regulatory authorities as required by
law or otherwise duly requested by them.
5.1.8 Hesed shall upon request be furnished
with full and complete information in connection
with the drilling of the ▇▇▇▇▇ immediately upon
performance, including daily drilling reports,
notices prior to logging, copies of all logs and
weekly operating summaries.
5.1.9 The Operator endeavor to keep all
Licenses and Leases free from liens and
encumbrances occasioned by operations under this
Agreement . However, Operator needs not
discharge any lien, which it disputes unless
specifically requested to do so in writing by
Hesed. In the event Hesed request the Operator
to discharge a disputed lien, Hesed shall be
stopped from invoking the notice and termination
provisions of Section 6.5.2 with respect to any
defective services or materials giving rise to
the disputed lien, and any further costs
necessary to remedy such defective services and
material shall be borne solely by Hesed.
6.0 WORK TO BE PERFORMED.
6.1 The Operator will commence drilling the Har
Sedom I re-entry well, as hereinabove provided, time being of
the essence hereunder, and will perform its obligations
hereunder diligently, with dispatch and in accordance with the
terms of the Licenses so as to finish drilling the ▇▇▇▇▇ to be
drilled hereunder as hereinabove set forth; provided, however,
that in the event that, by reason of the occurrence of any acts
of God, labor strikes, major delays in delivery of tubular pipe
for drilling or other causes for delay beyond the Operator's
reasonable control, the Operator's obligation hereunder shall
instead be to drill all of the ▇▇▇▇▇ to be drilled hereunder by
the earliest possible date. Should Lapidoth claim a Force
Majeure event under the terms of the drilling contract (see
Exhibit B) then said claim shall also constitute a claim under
this Agreement. If it is decided by following consultations
between Hesed and Operator to conduct a seismic program prior to
the commencement of the Har Sedom 1 re-entry well and such
seismic program is approved by the Israeli authorities, Ness
shall conduct such seismic program prior to commencement of the
Har Sedom I re-entry well in accordance with good oilfield
practices and commence the Har Sedom I re-entry well as soon as
prudently possible following the completion of the seismic
program in accordance with the requirements of the Hesed License
and Ness Carve Out and Lapidoth Drilling Contract as then in effect.
6.2 The Operator will, within the limits of the AFE
(see Exhibit C), provide all materials, supplies, tools labor
and services required (I) to drill and complete each well
through the production gate, including but not limited to the
▇▇▇▇▇▇▇, drilling rig, casings, bits, drill pipe, and all water,
power, fuel and lubricants required at the well site; (ii) for
gas production, to install, or supervise the installation of
(where the terms of any gas marketing or transmission Agreement
to which Hesed is a party requires) meters, meter houses,
gathering lines and all other equipment required to connect each
well to a gas transmission line selected by Hesed and (iii) for
oil production, to install meters, meter houses and other
equipment as may be necessary or advisable therefore. The
Operator shall also be responsible for all waste, oil, water,
sand and mud that may result from its drilling operations, shall
gather and properly contain the same during such operations and
at the conclusion thereof shall properly dispose of the same.
6.3 Following the completion of any well and its
connection to the required gas transmission line, the Operator
shall, upon request, furnish Hesed with an accurate, itemized
list of all equipment and appliances constituting a part of such
well as so completed and connected. The Operator upon request
shall deliver to Hesed good and marketable title to such
equipment and appliances, free and clear of all liens and
encumbrances, such delivery of title to be evidenced by the
delivery to Hesed of a general warranty ▇▇▇▇ of sale and such
other evidence of transfer of ownership of such equipment and
appliances.
6.4 Election at Casing Point. After any well has
been drilled to the objective depth stated in the initial notice
and appropriate tests have been made, herein referred to as
casing point, Operator shall give immediate notice to Hesed
setting forth its recommendation with respect to the running and
setting of a production string of casing and completing the
well. Hesed shall have a period of twenty-four (24) hours
thereafter within which to notify the Operator whether or not it
desires to participate in the running and setting of the
production string of casing and the completion of the well. The
decision shall be made in the sole discretion of Hesed. If
Hesed elect to participate, Operator must participate in such
activities to the extent of its interest, if any, in the well
and shall conduct the proposed operation with respect to the
running and setting of the production string of casing and
completing the well for the account of all such Parties.
6.5 Subsequent Operations. Should any party hereto
desire to rework, deepen or plug back a dry hole drilled at the
joint expense of all parties or a well jointly owned by all the
parties and not then producing in paying quantities, the party
desiring to drill, rework, deepen or plug back such a well shall
give the other parties notice of the proposed operation,
specifying the work to be performed, the location, proposed
depth, objective formation and the estimated costs of the
operation. Notice of proposal to rework, plug back or drill
deeper may be given by telephone and the response period shall
be limited to thirty (30) days. Failure of a party receiving
such notice to reply within the period fixed above shall
constitute an election by that party not to participate in the
cost of the proposed operation. Any notice or response given by
telephone shall be promptly confirmed in writing.
6.6 Drilling Procedures. In drilling and, where
applicable, completing any well hereunder and connecting the
same to the required gas transmission line, unless otherwise
specified by Hesed, the Operator shall comply with the
procedures set forth in Exhibit B attached hereto. The Operator
will follow such of the foregoing steps as may be applicable in
drilling and completing an oil well and will also take such
actions as may be necessary or desirable, or otherwise specified
by Hesed to permit the recovery and sale of oil there from if
oil is discovered in marketable quantities.
6.7 Payment of Drilling Costs.
6.7.1 In consideration of the agreement of
Operator to drill the ▇▇▇▇▇, Hesed hereto agree
to pay Operator their respective shares of the
Total Intangible Cost (as hereinafter defined) as
soon as practical after the execution of this
Agreement. All tangible equipment will be
provided immediately upon request of the Operator.
6.7.2 The payments made pursuant to Section 6.4.1
are made to provide the Operator with adequate
working capital to drill the ▇▇▇▇▇ and to allow
the Operator to pay and drilling contractor or
service companies' amounts required pursuant to a
contractual Agreement or required to secure fixed
price commitments for the provision of such services.
6.7.3 As used in this Agreement, "Total
Intangible Cost" shall mean the items designated
Total Intangible Costs, as specified on the
Authority for Expenditures ("AFE") attached
hereto as Exhibit D, for all the ▇▇▇▇▇.
6.7.4 Hesed shall be responsible, whether by
paying the cost or by contribution such items in
kind, for all costs incurred for Tangible Equipment.
6.8 Included Services and Materials: Completion
Services to be performed by Operator under this Agreement shall
include provision of location and access, drilling supervision,
logging and perforating, formation treating, well testing,
cement, cement service, drilling fluids, bits, reamers,
stabilizers, packer, control equipment, drilling rig, water
supply, pit lining, casing crews, filling of pits, payment of
crop damage and other services necessary for drilling of the
▇▇▇▇▇, including providing hookups, tie-ins, and acquiring
rights-of-way, and the plugging and abandonment of the well, if
a determination to do so is made before the setting of
production casing, and all other services and materials that are
necessary or required in order to operate the ▇▇▇▇▇ and related
facilities and to market the oil and gas produced from such well.
6.9 Right To Take Production In Kind. The parties
hereto shall have the right to take production in kind or
separately dispose of its share of all oil and gas produced from
the Licenses and Leases. Subject to the foregoing provisions,
Hesed may execute a power of attorney, revocable at will, to the
Operator to permit the Operator to execute such division orders
and contracts as may be necessary for the sale of its interest
in production from the Licenses and Leases.
6.10 Access To Licenses and Leases: Information.
Hesed shall have access to the Licenses and Leases at all
reasonable times, at its sole risk to inspect or observe
operations, and shall have access at reasonable times to
information pertaining to the development or operation thereof,
including Operator's books and records relating hereto. Upon
request, Operator shall furnish each of the other parties with
copies of forms or reports filed with governmental agencies,
daily drilling reports, well logs, and a weekly well status
report (for the first six (6) months after the drilling of each
well is commenced). In addition, the Operator will make
available to Hesed tank tables, daily gauge and run tickets,
weekly operating summaries and other documents relating to the
operation of the ▇▇▇▇▇, and shall make available samples of any
cores or cuttings taken from any well drilled on Licenses and Leases.
In addition to the information specifically provided for in
this Section 6.10 and in Sections 6.11 and 6.12 of this
Agreement, the Operator shall, upon written request, provide
Hesed with copies of the following documents:
(a) form of a copy of executed Division Order;
(b) Gas Purchase contracts;
(c) recorded Assignment of Working Interest;
(d) location plat map;
(e) certificate of insurance (indicating the
insurance and the coverages required pursuant to
Section 7.9 of the Agreement.
6.11 Audit Provisions. Operator shall cause to be
kept a complete and accurate book of accounts for the ▇▇▇▇▇
subject to this Agreement (both as to drilling operations and
producing operations and shall make available all books and
records of accounts to the auditors retained by Hesed for
purposes of preparing tax returns and audited financial
statements. Operator also shall provide copies of all third
party invoices and other documentation as required by said
auditors. Access shall be provided to said auditors or Certified
Public Accountants not later than February 15 of each calendar year.
6.12 Abandonment of ▇▇▇▇▇. Any well, which has been
drilled under the terms of this Agreement and is proposed to be
completed as a dry hole shall not be plugged and abandoned
without the written consent of both parties hereto. Should
Operator, after diligent effort, be unable to contact any party,
or should any party fail to reply within thirty (30) days after
receipt of notice of the proposal to plug and abandon such well,
such party shall be deemed to have consented to the proposed
abandonment. If either the Hesed or the Operator desire to plug
and abandon a well and the other party wishes to continue
operations, such party will purchase the other party's interest
in the well by paying the other party its share of the net
salvage value for such well. All such ▇▇▇▇▇ shall be plugged and
abandoned in accordance with applicable regulations and at the
cost, risk and expense of the parties who participated in the
cost of drilling of such well.
6.13 Well Operations. Operator agrees to be
responsible for and furnish sufficient well operators and
supervisory personnel including but not limited to the hiring of
Lapidoth Israel Oil Prospectors Corporation, Ltd. To drill and
complete all ▇▇▇▇▇ and to:
(a) Gauge production stock tanks and record
correctly in gauge reports;
(b) Drain salt water of oil storage tanks and
arrange for disposal in a disposal facility
approved by the Israeli authorities;
(c) Calculate amount of production from tank tables;
(d) Note on gauge report number of hours and downtime and reason;
(e) Report unusual changes in well
production with recommended changes or repairs
and record in remarks section of gauge report;
(f) Operate and maintain equipment such as
separators, gas production units, heaters,
hydraulic lifts with timing devices, drips, gas
gathering lines, pumping units, if applicable,
and other auxiliary equipment;
(g) Operate and maintain all meters and
provide the Hesed and Operator with volume
calculation. Charts will be retained by Operator
with volume calculation. Charts will be retained
by Operator for a minimum of twenty-four (24)
months and will be made available to the Hesed upon request.
(h) Take production well tests as directed and report gauge report;
(i) Supervise the treating of ▇▇▇▇▇ with
emulsion breakers, paraffin solvents, corrosion
inhibitors, etc., as required;
(j) Maintain production at levels mutually
agreed upon by Hesed and Operator with existing
equipment, recommending changes in equipment as
may be necessary for maintaining or increasing production;
(k) Direct supervision of all well
servicing, construction work and major and minor
maintenance work;
(l) Prepare all forms, records, reports,
run tickets, downtime reports, and well service tickets;
(m) Furnish labor, transportation and hand tools
required for normal operations and maintenance,
including pick-up trucks, gauge line, wrenches,
▇▇▇▇▇, shovels, tools, etc.
(n) Conduct an adequate preventive
maintenance program and safety program;
(o) Purchase, order and/or negotiate for
all materials and services necessary for
continued normal and economic lease/well operations;
(p) Report on the foregoing at periodic intervals;
(q) Conduct all operations of the ▇▇▇▇▇ in
a good and workmanlike manner and in conformity
with the terms of the Lease(s); and
(r) Prepare all necessary tax reports with the
assistance of Operator ("Ness").
6.14 Deep, Drilling Arrangements. From time to time,
Ness, acting as Operator, may propose to Hesed that one or more
▇▇▇▇▇ on Exhibit A be drilled to test and evaluate a deeper
formation than the primary development formation than the
primary development formation. The decision to participate in
such deeper drilling shall be in the sole discretion of Hesed.
All drilling shall be in the sole discretion of Hesed. All
drilling, development, completion and operating activities on or
in connection with such a designated deep drilling prospect
shall be conducted pursuant to the terms of this Agreement and
Exhibits hereto.
7. EXPENDITURES AND LIABILITY OF PARTIES.
7.1 Liability of Parties: The liability of the
parties shall be several, not joint and collective. Each party
shall be responsible for only its obligations, and shall be
liable only for its obligations, and shall be liable only for
its proportionate share of the costs of developing and operating
the Licenses and Leases and Drill Sites. Accordingly, the liens
granted among the parties in Section 7.2 are given to secure
only the debts of each severally. It is not the intention of the
parties to create, nor shall this Agreement be construed as
creating, a mining or other Joint Venture or association, or to
render the parties liable as partners.
7.2 Liens and Payment Defaults. Each party to this
Agreement grants to the other party a lien upon its oil and gas
rights in the Licenses and Leases, and a security interest in
its share of oil and/or gas when extracted and its interest in
all equipment, to secure payment of its share of expense,
together with interest thereon at a rate equal to the "Prime
Rate" (as then in effect for the Operator's principal lending
bank) plus one percent (1%) per annum. The bringing of a suit
and the obtaining of judgment by either party for the secured
indebtedness shall not be deemed an election of remedies or
otherwise affect the lien rights or security interest as
security for the payment thereof. In addition, upon default by
either party in the payment of its share of expense, the other
party shall have the right, without prejudice to other rights or
remedies, to collect from the purchaser the proceeds from the
sale of the defaulting party's share of oil and/or gas until the
amount owed by the defaulting party, plus interest has been
paid. Each purchaser shall be entitles to rely upon the other
party's written statement concerning the amount of any default.
7.3 Payments and Accounting. Except as herein
otherwise specifically provided, Operator shall promptly pay and
discharge expenses incurred in the development and operation of
the Licenses and Leases pursuant to this Agreement and shall
charge Hesed its share upon the expense basis provided in
Section 7.4 hereof , Operator shall keep an accurate record of
the joint account hereunder, showing expenses incurred and
charges and credits made and received.
7.4 Costs and Expenses: Adjustment. After a well is
placed in production, (which shall be deemed to have occurred
upon the sale of any oil and/or gas from such well) the Operator
shall deliver to Hesed an itemized statement of all costs and
expenses paid during each month on or before the forty-fifth
(45th) day following the first day of such month as follows:
(a) Direct Costs. The Operator shall charge
each owner of the working interest its pro rata
share of the amount of all reasonable charges
paid by the Operator for services or equipment
rendered or used on or for ▇▇▇▇▇ located in the
Licenses and Leases. All such charges shall be in
the amount paid by the Operator and shall be
competitive with the similar charges of other
prudent operators and appropriate for the area
and circumstances. Such charges shall be limited
to Operator's Direct Charges. Operator shall
provide Hesed with a statement enumerating these
Direct Charges.
(b) Operating Fee. Operator shall make a
monthly overhead charge of $_________ "Operating
Fee" prorated to each owner of the working
interest for each producing well. The Operating
Fee will be subject to increases or decreases
giving due regard to the Operator's reasonable
costs; provided, however, that this monthly
operating fee will not be increased before 2002.
(c) Adjustment. Each owner of the working
interest shall have the right of an adjustment
for any error in any statement rendered by
Operator if the error is disclosed to Operator
within two (2) years of the date of the statement.
7.5 Limitation on Expenditures. Without the prior
written consent of Hesed, Operator shall not undertake any
single project within the Licenses and Leases, which is
reasonably estimated to require an expenditure in excess of Five
Thousand Dollars ($5,000.00). Upon written request of Hesed,
Operator shall furnish copies of its "Authority for
Expenditures" ("AFE") for any single project exceeding the
amount set forth above. However, in the case of an explosion,
fire, flood or other sudden emergency, whether of the same or
different nature, and whether mandated by a government authority
or not, Operator may take such steps and incur such expenses as
in its opinion are required to deal with the emergency and to
safeguard life and property, but Operator shall, as promptly as
possible, report the emergency to Hesed.
7.6 Liability -- Hold Harmless. Operator shall
conduct all operations with reasonable diligence and ordinary
care, but Operator shall not be liable to Hesed for the result
of any errors of judgment or mistakes or for losses sustained or
liabilities incurred except as may result from gross negligence
or willful or wanton misconduct. Operator agrees to indemnify
and hold harmless Hesed as to any claims for damages or actions
or causes of action which might arise from and which might be in
any way occasioned as a result of Operator's gross negligence or
willful or wanton misconduct on behalf of Hesed.
7.7 Claims and Lawsuits. Operator shall charge the
joint account for all damage settlements made up to $15,000
unless the Operator is found guilty of gross negligence or
willful misconduct. In cases where Hesed takes over management
of settlement negotiations or litigation all expenses and all
damage awards or settlement shall be charged to the joint
account unless the Operator was guilty of gross negligence or
willful or wanton misconduct. Proof of Operator's conduct in
accordance with good oil field practice shall be a complete
defense to any charge of gross negligence and shall be a
sufficient basis for charging the joint account.
7.8 Taxes. Operator shall make return for and pay
on behalf of Hesed all applicable and any additional taxes
(including taxes in the nature of VAT) that from time to time
may be levied relating to production and the sale thereof. If
the Operator deems any tax to be excessive or improper, it may
undertake the necessary action to protest such tax to the proper
tax authorities.
7.9 Insurance. At all times, while operations are
conducted hereunder, Operator shall comply with the applicable
laws of Israel. In addition, Operator shall have in effect
comprehensive general public liability insurance to cover the
risks of accidents and/or damages to persons and/or property,
which may occur in the course of operations conducted under this
Agreement. Operator's policy of commercial insurance coverage
shall include Hesed as insured, whether or not specifically
named, with respect to liability arising out of its interest and
for operations conducted by Operator pursuant to this Agreement.
Costs of insurance related solely to the Operator's capacity as
a business owner and otherwise unrelated to the operations,
including drilling and production operations, pursuant to this
Agreement. Costs of insurance related solely to the Operator's
capacity as a business owner and otherwise unrelated to the
operations, including drilling and production operations,
pursuant to this Agreement shall be deemed to b an overhead
expense of Operator and not chargeable to Hesed. All other
liability insurance costs shall be allocated among all ▇▇▇▇▇
operated by Operator on a per well basis and shall be charged as
a direct cost pursuant to Section 7.4 hereof The comprehensive
general public liability insurance shall be at least in the
amount of Three Hundred Thousand Dollars ($300,000) bodily
injury liability for each occurrence and Two Million Dollars
($2,000,000) bodily injury liability aggregate and property
liability insurance with limits of Three Hundred Thousand
Dollars ($300,000) for each occurrence and Three Hundred
Thousand Dollars ($300,000) aggregate.
Operator shall also carry automobile insurance in
the amount of Two Hundred Fifty Thousand Dollars ($250,000) for
injury or death to one person and Five Hundred Thousand Dollars
($500,000) for injury or death of more than one person in any
one automobile accident and property damage insurance to the
extent of One Hundred Thousand Dollars ($100,000). The cost of
automobile insurance is not chargeable as a direct expense to Hesed.
7.10 Revenues from Sale of Oil. The oil, if any,
produced from the ▇▇▇▇▇ drilled pursuant to this Agreement shall
be marketed by Operator to such oil purchasers in the area
paying a comparable price for oil produced in the area of
similar grade and quality. Operator hereby agrees to take all
necessary actions in order to insure that the Hesed receives its
share of the proceeds of the sale of any crude oil produced. For
convenience in accounting procedures, however, the Operator is
hereby authorized to direct payment of One Hundred percent of
the proceeds of any crude oil sale to the Operator in its name
alone and Hesed, if so requested, agrees to execute such
indemnifying division orders as may be prepared by Operator
and/or purchaser for such purposes. The Operator, in turn,
agrees to make distribution to Hesed of its share of the
proceeds and to ▇▇▇▇ the Joint Venture for its obligation in
accordance with the provisions of this Agreement.
7.11 Sale of Gas. All natural gas production shall
be transported through sales lines constructed at the sole cost
of the Operator. These sales lines will be owned by and shall be
the separate property of the Operator. All arrangements
concerning the gathering, compression, gas marketing, delivery,
sale, transportation or otherwise concerning such natural gas
shall be governed by a Gas Transportation and marketing or
purchase agreement to be entered into between Operator and
8. SURRENDER OF LEASES. The Licenses and Leases covered
by this Agreement, shall not be surrendered in whole or in part
unless all parties consent thereto or unless by operation of law.
9. TRANSFER OF INTERESTS.
9.1 Limitations on Transfer. No party hereto shall
sell, assign, transfer, or otherwise dispose of its interest (or
any part thereof) in the Licenses and Leases except pursuant to
the provisions of the Law (and with respect to interests in the
Ness Carve Out, the provisions of the April 1998 Agreement
between Hesed and I.O.C..-Israel Oil Company Ltd.) and pursuant
to the following provisions: Drill Sites except pursuant to the
following provisions:
9.1.1 Any party may sell or otherwise
voluntarily dispose of its interest (or any part
thereof) if it obtains the prior written consent
of the other party, or parties, hereto, which
consent shall not be unreasonably withheld.
9.1.2 No party shall make any transfer of its
interest without making the transfer expressly
subject to this Agreement and requiring the
transferee, in writing, to assume and to agree to
perform all obligations of the transferor under
this Agreement relating to the interest assigned.
No transfer of an interest shall be effective as
between the parties until the first day of the
month following the delivery to the Operator of
the original or a certified copy of the
instrument of transfer conforming to the
requirements of this Section and applicable laws.
No such transfer shall relieve the transferring
party of any obligations accrued hereunder prior
to such effective date and any Agreement to
participate in the drilling, completing,
deepening or plugging back of a well prior to
such effective date shall be deemed an accrued
obligation as to all costs subsequently incurred
in connection therewith.
9.1.3 Subject to provisions of applicable law,
any party may mortgage, pledge or otherwise
encumber its interest (or any part thereof)
without restriction at any time.
9.1.4 In the event of any seizure and/or sale of
a party's interest (or any part thereof) by a
creditor of such party, whether or not made in
accordance with law, such seizure and/or sale
shall not operate to relieve such party of any of
its obligations hereunder, and the party
acquiring such interest shall not thereby become
a party hereto, and shall not have any of the
rights herein conferred upon such party, except
that such party may be entitled to receive the
share of the revenues, income or gain and, upon
sale of interests in the Licenses and Leases and
▇▇▇▇▇ to be drilled thereon, the share of the
Licenses and Leases and ▇▇▇▇▇ to which such party
would have been entitled hereunder.
9.1.5 Any purported assignment, sale, transfer
or other disposition of an interest which does
not comply with this Article IX shall be void and
need not be recognized by the parties hereto.
10. FORCE MAJEURE. If Operator is rendered unable,
wholly or in part, by force majeure to carry out its obligations
under this Agreement, it shall give prompt written notice to
Hesed of the force majeure with reasonably full particulars
concerning it; thereupon the obligations of the Operator, so far
as they are affected by the force majeure, shall be suspended
during, but no longer than, the continuance of the force
majeure. The Operator shall use all possible diligence to remove
the force majeure as quickly as possible.
The requirement that any force majeure shall be
remedied with all reasonable dispatch shall not require the
settlement of strikes, lockouts, or other labor difficulty by
the Operator, contrary to its wishes; how all such difficulties
shall be handled shall be entirely within the discretion of the
Operator.
The term "force majeure" as here employed shall mean
an act of God, strike, lockout, or other industrial disturbance,
act of the public enemy, war, blockade, public riot, lightning,
fire, storm, flood, explosion, governmental restraint,
unavailability of services or equipment, or any other cause,
whether of the kind specifically enumerated above, or otherwise,
which is not reasonably within the control of the Operator
claiming suspension.
11. NOTICES. All notices authorized or required between
the Operator and Hesed and required by the provisions of this
Agreement shall, unless otherwise specified, be given in writing
by United States Mail, postage prepaid, and addressed to the
party to whom notices are given at these addresses:
Operator: Ness Energy International, Inc.
▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇-▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇.
▇▇▇▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Hesed: Hesed Energy International, Inc.
▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇-▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇.
▇▇▇▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Notices shall be deemed to be given only when received by the
party to whom such notice is directed or when evidenced by
certified mail return receipt.
12. TERM OF AGREEMENT. This Agreement shall continue in
full force and effect for the term of the Licenses held by Hesed
and Leases into which such Licenses may be converted. All
materials, equipment and personal property have been removed
from the Licenses and Leases and disposed of and final
settlement made between the parties hereto. Termination of this
Agreement shall not relieve any party hereto from any liability,
which has accrued prior to the date of such termination.
13. COMPLIANCE WITH LAWS. This Agreement shall be
subject to the conservation laws of Israel, to the valid rules,
regulations, and orders of any duly constituted regulatory body
of Israel; and to all other applicable federal, state, and local
laws, ordinances, rules, regulations, and orders.
14. ENTIRE AGREEMENT. This Agreement contains the entire
Agreement between Operator and Hesed relating to operations of
the Licenses and Leases and ▇▇▇▇▇ to be drilled thereon, and
there are no other terms, conditions, promises, understandings
or representations, express or implied.
15. AMENDMENT. This Agreement may only be amended and be
binding upon the parties when such amendment is concurred in by
the parties in writing.
16. MISCELLANEOUS.
(a) This Agreement is entered into and shall be
construed in accordance with the laws of Texas.
(b) The covenants and obligations of this Agreement
shall extend to and be binding upon the heirs,
successors and assigns of the respective parties.
(c) The headings of the Sections of this Agreement
have been inserted for convenience of reference only
and shall in no way modify or restrict any provision
hereof or be used to construe any of such provisions.
Signed and Acknowledged in the Presence of:
HESED ENERGY INTERNATIONAL INC.
By: /s/ Hayseed ▇▇▇▇▇▇▇▇
Hayseed ▇▇▇▇▇▇▇▇, President
/s/ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇, Witness
/s/ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇▇, Witness
NESS ENERGY INTERNATIONAL, INC.
By: /s/ Hayseed ▇▇▇▇▇▇▇▇
Hayseed ▇▇▇▇▇▇▇▇
/s/ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇, Witness
/s/ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇▇, Witness
EXHIBIT A
License: Hesed
Ness II Carve Out
Well Name: Har Sedom #1
Net Revenue Interest: 12.5% State of Israel
87.5% Hesed Energy
International, Inc.
Working Interest: 100% Hesed Energy
International, Inc.