EXHIBIT 10.81
A CONFORMED VERSION OF THE
UNIT OPERATING AGREEMENT
TRADING BAY UNIT
▇▇▇▇ INLET, ALASKA
INCORPORATING
THE FIRST THROUGH EIGHTH AMENDMENTS
AND
THE FIRST THROUGH THIRD SUPPLEMENTAL AGREEMENTS
TABLE OF CONTENTS
Page
----
ARTICLE I CONFIRMATION OF UNIT AGREEMENT.......................... 2
1.1 Confirmation of Unit Agreement................................. 2
ARTICLE II EXHIBITS -- APPENDICES.................................. 2
2.1 Exhibits....................................................... 2
2.2 Appendices..................................................... 2
2.3 Revision of Appendices......................................... 3
ARTICLE III DEFINITIONS............................................. 3
3.1 Unit Agreement................................................. 3
3.2 Acre-Feet of WIPA Pay.......................................... 3
3.3 Basic Participating Interest................................... 3
3.4 Costs.......................................................... 3
3.5 Deepen or Plug Back............................................ 3
3.6 Development Well............................................... 3
3.7 Drill, Drilled or Drilling..................................... 4
3.8 Drilling Party................................................. 4
3.9 Effective Participating Interest............................... 4
3.10 Exploratory Well............................................... 4
3.11 Gross Working Interest......................................... 4
3.12 Injection Well................................................. 4
3.13 Lease Burdens.................................................. 4
3.14 Market Value................................................... 4
3.15 Net Working Interest........................................... 4
3.16 Non-Drilling Party............................................. 4
3.17 Party.......................................................... 4
3.18 Pool........................................................... 5
i
3.19 Production..................................................... 5
3.20 Royalty Interest Participating Area............................ 5
3.21 Specified Redetermination...................................... 5
3.22 Sub-Operator................................................... 5
3.23 Subsequent Redetermination..................................... 5
3.24 Surface Acreage................................................ 5
3.25 Tract.......................................................... 5
3.26 Unit Operator.................................................. 5
3.27 Working Interest............................................... 5
3.28 Working Interest Participating Area............................ 5
ARTICLE IV SUPERVISION OF OPERATIONS BY PARTIES....................... 6
4.1 Over-all Supervision........................................... 6
4.2 Particular Powers and Duties................................... 6
ARTICLE V MANNER OF EXERCISING SUPERVISION........................... 7
5.1 Designation of Representatives................................. 7
5.2 Meetings....................................................... 7
5.3 Voting Procedure............................................... 8
5.4 Additional Voting Provisions................................... 9
5.5 Absentee Voting................................................ 9
5.6 Poll Votes..................................................... 9
5.7 Vote Binding on Parties........................................ 9
ARTICLE VI INDIVIDUAL RIGHTS OF PARTIES............................... 10
6.1 Reservation of Rights.......................................... 10
6.2 Specific Rights................................................ 10
ARTICLE VII UNIT OPERATOR AND SUB-OPERATORS............................ 10
7.1 Initial Unit Operator.......................................... 10
7.2 Sub-Operator................................................... 10
7.3 Resignation or Removal of Unit Operator and Selection of
Successor................................................... 10
7.4 Resignation or Removal of Sub-Operators and Selection of
Successors.................................................. 11
ii
ARTICLE VIII AUTHORITIES AND DUTIES OF UNIT OPERATOR AND SUB-
OPERATORS............................................ 12
8.3 Unit Operator and Sub-Operators................................ 13
ARTICLE IX DETERMINATION OF WORKING INTEREST PARTICIPATING AREAS
AND BASIC PARTICIPATING INTERESTS.................... 14
9.1 Hemlock WIPA and BPI........................................... 14
9.2 Initial Determination of WIPA.................................. 15
9.3 Determination of Initial BPI................................... 15
9.4 Redeterminations of WIPA and BPI............................... 15
9.5 Effective Date................................................. 16
9.6 Manner of Redetermination of WIPA and BPI...................... 16
9.7 Arbitration.................................................... 16
ARTICLE X APPORTIONMENT OF COSTS AND OWNERSHIP OF PRODUCTION AND
PROPERTY............................................. 17
10.1 Apportionment and Allocation of Production for Royalty
Purposes.................................................... 17
10.2 Apportionment and Ownership Within a WIPA...................... 17
ARTICLE XI INITIAL AND FUTURE ADJUSTMENTS OF COSTS, PRODUCTION AND
PROPERTY............................................. 18
11.1 Adjustments on Initial Determination and Specified
Redeterminations of WIPA or BPI............................. 18
11.2 Adjustments on Subsequent Redeterminations..................... 19
ARTICLE XII PLANS OF DEVELOPMENT.................................... 21
12.1 ▇▇▇▇▇ and Projects Included.................................... 21
12.2 Notice of Proposed Plan........................................ 21
12.3 Cessation of Operations under Plan............................. 21
ARTICLE XIII DRILLING, DEEPENING, PLUGGING BACK OR ABANDONMENT OF
EXPLORATORY, DEVELOPMENT AND INJECTION ▇▇▇▇▇......... 21
13.1 General Provisions for Exploratory, Development and Injection
▇▇▇▇▇....................................................... 21
13.2 Exploratory ▇▇▇▇▇.............................................. 23
13.3 Development ▇▇▇▇▇.............................................. 24
iii
13.4 Relinquishment and Reversion of Interests...................... 24
13.5 Abandonment of Production ▇▇▇▇▇................................ 25
13.6 Injection ▇▇▇▇▇................................................ 26
ARTICLE XIV REQUIRED ▇▇▇▇▇.......................................... 26
14.1 Definition..................................................... 26
14.2 Election to Drill.............................................. 26
14.3 Alternatives to Drilling....................................... 27
ARTICLE XV ESTABLISHMENT, REVISIONS AND CONSOLIDATION OF ROYALTY
INTEREST PARTICIPATING AREAS......................... 27
15.1 General........................................................ 27
15.2 Procedure...................................................... 27
15.3 Revised Proposal............................................... 28
ARTICLE XVI PLATFORMS AND PRODUCTION FACILITIES..................... 28
16.2 Costs.......................................................... 28
16.3 Use of ▇▇▇▇▇, Platforms, or Production Facilities.............. 28
ARTICLE XVII CONSTRUCTION OF CERTAIN PLATFORMS, PIPELINES AND OTHER
FACILITIES........................................... 29
17.1 General........................................................ 29
17.2 Sub-Operator to Conduct Operations............................. 29
17.3 Notice of Proposed Construction................................ 29
17.4 Response to Notice............................................. 29
17.5 Participation.................................................. 29
17.6 Relinquishment and Reversion of Interests...................... 29
ARTICLE XVIII RIGHT TO TAKE IN KIND AND FAILURE TO TAKE IN KIND -
UNDERLIFTING......................................... 31
18.1 Taking in Kind................................................. 31
18.2 Underlifting of Liquid Production.............................. 31
18.3 Underlifting or Balancing of Gas Production.................... 33
18.4 Indemnity...................................................... 35
iv
ARTICLE XIX UNIT EXPENSE............................................ 35
19.1 Basis of Charge to Parties..................................... 35
19.2 Budgets........................................................ 36
19.3 Advance ▇▇▇▇▇▇▇▇............................................... 36
19.4 Commingling of Funds........................................... 36
19.5 Lien of Unit Operator and Sub-Operator......................... 36
ARTICLE XX TITLES.................................................. 37
20.1 Warranty and Indemnity......................................... 37
20.2 Failure Because of Unit Operations............................. 37
ARTICLE XXI RENTALS AND LEASE BURDENS............................... 37
21.1 Rentals........................................................ 37
21.2 Lease Burdens.................................................. 37
21.3 Payments to be Borne by Parties................................ 38
ARTICLE XXII TAXES................................................... 38
22.1 Taxes Upon Unit Property and Operations........................ 38
22.2 Other Taxes.................................................... 38
22.3 Transfer of Interests.......................................... 38
22.4 Notices and Returns............................................ 38
ARTICLE XXIII INSURANCE............................................... 39
23.1 Required Insurance............................................. 39
23.2 Individual Insurance........................................... 39
23.3 Contractors' Insurance......................................... 39
23.4 Notice of Losses and Claims.................................... 40
ARTICLE XXIV RELEASE FROM OBLIGATIONS AND SURRENDER.................. 40
24.1 Surrender or Release Within a WIPA............................. 40
24.2 Procedure on Surrender Outside a WIPA.......................... 40
24.3 Accrued Obligations............................................ 40
ARTICLE XXV FORCE MAJEURE........................................... 41
25.1 Force Majeure.................................................. 41
v
ARTICLE XXVI NOTICES................................................. 41
26.2 Proper Addresses............................................... 41
ARTICLE XXVII LIABILITY, CLAIMS AND SUITS............................. 42
27.1 Individual Liability........................................... 42
27.2 Settlements.................................................... 42
ARTICLE XXVIII INTERNAL REVENUE PROVISIONS............................. 42
28.1 Internal Revenue Provisions.................................... 42
ARTICLE XXIX EFFECTIVE DATE AND TERM................................. 43
29.1 Effective Date................................................. 43
29.2 Term........................................................... 43
ARTICLE XXX NON-DISCRIMINATION...................................... 43
ARTICLE XXXI OTHER PROVISIONS........................................ 43
31.1 Audits......................................................... 43
31.2 Laws and Regulations........................................... 43
31.3 Additional Burdens............................................. 44
31.4 Successors and Assigns......................................... 44
ARTICLE XXXII EXECUTION............................................... 44
32.1 Counterparts................................................... 44
32.2 Ratification................................................... 44
vi
A CONFORMED VERSION OF THE
UNIT OPERATING AGREEMENT
TRADING BAY UNTT
▇▇▇▇ INLET, ALASKA
INCORPORATING
THE FIRST THROUGH EIGHTH AMENDMENTS
AND
THE FIRST THROUGH THIRD SUPPLEMENTAL AGREEMENTS
THIS AGREEMENT, entered into as of the 27th day of February, 1967, by and
between the Parties who have signed the original of this instrument, a
counterpart thereof, or other instrument agreeing to be bound by the provisions
hereof;
WITNESSETH:
THAT WHEREAS, the Parties hereto as Working Interest Owners have executed
or ratified an agreement entitled "UNIT AGREEMENT FOR THE DEVELOPMENT AND
OPERATION OF THE TRADING BAY UNIT AREA, STATE OF ALASKA", herein referred to as
"Unit Agreement", covering the lands described in Exhibit "B" attached thereto,
which lands are referred to in the Unit Agreement and in this Agreement as the
"Unit Area";
WHEREAS, said Unit Agreement was approved by the Commissioner of the
Department of Natural Resources of the State of Alaska effective as of February
27, 1967;
WHEREAS, numbered Paragraph 7 of the Unit Agreement provides for the
Working Interest Owners to enter into a separate agreement in order to carry out
the purposes of the Unit Agreement;
NOW, THEREFORE, in consideration of the mutual agreements herein set forth,
it is agreed as follows:
Page 1 of 45 Pages
ARTICLE I
CONFIRMATION OF UNIT AGREEMENT
1.1 Confirmation of Unit Agreement. The Unit Agreement, together with all
exhibits thereto, is hereby confirmed and adopted in its entirety. If there is
any conflict between this Agreement and the Unit Agreement, the Unit Agreement
shall govern.
ARTICLE II
EXHIBITS - APPENDICES
2.1 Exhibits. The following exhibits are attached hereto and by this
reference are made a part hereof:
A. Exhibit "A", which contains the methods of calculation of Basic
Participating Interest, Royalty Share, Royalty Correction Factor, and
Effective Participating Interest.
B. Exhibit "B", which contains a hypothetical example of the
calculations described in Exhibit "A".
C. Exhibit "C", which is the Accounting Procedure for the
determination of costs and expenses incurred in the conduct of operations
under the Unit Agreement and this Agreement. If there is any conflict
between this Agreement and Exhibit "C", this Agreement shall govern.
2.2 Appendices. The following appendices are or may hereafter be attached
hereto and by this reference are made a part hereof:
A. Appendix "A (containing Sub-Appendices "A-l", "A-2", et seq.),
which contains maps of each Working Interest Participating Area heretofore
or hereafter established by the Parties in accordance with this Agreement.
Any reference in this Agreement to Appendix "A", unless otherwise stated,
shall mean that Sub Appendix of Appendix "A" applicable to the relevant
Working Interest Participating Area.
B. Appendix "B" (containing Sub-Appendices "▇-▇", "B-2", et seq.),
which contains schedules of the Basic Participating Interests of each Party
within each Working Interest Participating Area and descriptions of the
Pools for which such Working Interest Participating Areas are established
as heretofore or hereafter determined by the Parties in accordance with
this Agreement. Any reference in this Agreement to Appendix "B", unless
otherwise stated, shall mean
Page 2 of 45 Pages
that Sub-Appendix of Appendix "B" applicable to the relevant Working
Interest Participating Area.
2.3 Revision of Appendices. Appendix "A" and Appendix "B" shall be revised
from time to time as provided in this Agreement. Unit Operator shall also
revise said appendices as required to conform to changes in ownership of which
Unit Operator has been notified as provided in the Unit Agreement.
ARTICLE III
DEFINITIONS
3.1 Unit Ageement. The definitions contained in the Unit Agreement are
adopted for all purposes of this Agreement. In addition, each term listed below
shall have the meaning stated therefor whenever used in this Agreement.
3.2 "Acre-Feet of WIPA Pay" shall mean, as to any area designated pursuant
to this Agreement, the number of productive acres multiplied by the thickness
(in feet) of the Pool containing Unitized Substances, determined in accordance
with sound engineering principles; provided further, if oil and free gas are
originally in place in the same Pool, then Acre-Feet of WIPA Pay of free gas
will be multiplied by a factor which will equate Acre-Feet of WIPA Pay of free
gas to Acre-Feet of WIPA Pay of oil on a recoverable hydrocarbon value basis.
3.3 "Basic Participating Interest" (herein sometimes referred to as "BPI"
and determined as set forth in Article IX) shall mean that percentage upon which
Costs and ownership of property are allocated to the interest of each Party in
each individual Tract within a Working Interest Participating Area.
3.4 "Costs" shall mean all costs and expenses, other than Lease Burdens,
incurred in the development and operation of each Working Interest Participating
Area pursuant to this Agreement or the Unit Agreement and all other expenses
that are herein made chargeable as Costs, determined in accordance with the
Accounting Procedure set forth in Exhibit "C" hereto.
3.5 "Deepen or Plug Back" shall mean to perform all operations reasonably
necessary and incident to Deepen or Plug Back a well, including testing, and
completing or recompleting and equipping for production or injection, or
plugging and abandoning.
3.6 "Development Well" shall mean any well other than an Injection Well
Drilled to a location within any Working Interest Participating Area and
projected to the Pool for which such Working Interest Participating Area was
established.
Page 3 of 45 Pages
3.7 "Drill", "Drilled" or "Drilling" shall mean to perform all operations
reasonably necessary and incident to the drilling of a well, including testing,
and completing and equipping for production or injection, or plugging and
abandoning.
3.8 "Drilling Party" shall mean the Party or Parties obligated to bear the
Costs of Drilling, Deepening or Plugging Back a well in accordance with this
Agreement at the commencement of such operations.
3.9 "Effective Participating Interest" (herein sometimes referred to as
"EPI") shall mean that percentage of Production from a WIPA allocated to each
Party's interest in a particular Tract by this Agreement, less the Royalty Share
(as defined in Exhibit "A") of Production allocated to that Party's interest in
that Tract pursuant to Subsection 10.2B of this Agreement, and shall be
determined as provided in Exhibit "A".
3.10 "Exploratory Well" shall mean any well other than a Development Well
or an Injection Well.
3.11 "Gross Working Interest" (herein sometimes referred to as "GWI") shall
mean each Party's Working Interest percentage in a particular Tract as shown on
Exhibit "B" to the Unit Agreement.
3.12 "Injection Well" shall mean any well Drilled or taken over for the
injection of substances for the purpose of disposal or conducting pressure
maintenance or secondary recovery operations.
3.13 "Lease Burdens" shall mean the royalty reserved to the lessor in an
oil and gas lease, an overriding royalty, a production payment and any other
burden upon the Working Interests.
3.14 "Market Value" shall mean the arithmetical average price upon which
the State of Alaska's royalty is paid and finally accepted on the Production
during the relevant period from the applicable Working Interest Participating
Area.
3.15 "Net Working Interest" (herein sometimes referred to as "NWI") shall
mean that percentage figure obtained by deducting from 100% the basic royalty
percentage for a particular Tract as shown on Exhibit "B" to the Unit Agreement.
3.16 "Non-Drilling Party" shall mean the Party or Parties who have had the
right to participate in the Costs of Drilling, Deepening Or Plugging Back a well
in accordance with this Agreement at the commencement of such operation and who
have elected not to participate therein.
3.17 "Party" shall mean a party to this Agreement, including a party acting
as Unit Operator or Sub-Operator when acting as an owner of a Working Interest.
Page 4 of 45 Pages
3.18 "Pool" shall mean an underground reservoir containing, or appearing to
contain, a common accumulation of oil or gas. Each zone of a structure which is
completely separated from any other zone in the same structure is a Pool.
3.19 "Production" shall mean, as to any area designated pursuant to this
Agreement, all Unitized Substances produced and saved from such area, except so
much thereof as is used in the conduct of operations under the Unit Agreement
and this Agreement within or for the benefit of such area.
3.20 "Royalty Interest Participating Area" (herein sometimes referred to as
"RIPA") shall mean any participating area established pursuant to numbered
Paragraph 11 of the Unit Agreement.
3.21 "Specified Redetermination" shall mean-a redetermination so designated
in Section 9.1 and Subsection 9.4A.
3.22 "Sub-Operator" shall mean any Party herein or hereafter designated as
a Sub-Operator by the Parties, and its successors, acting in that capacity and
not as Unit Operator or as the owner of a Working Interest.
3.23 "Subsequent Redetermination" shall mean a redetermination provided for
in Subsection 9.4B.
3.24 "Surface Acreage" shall mean the number of surface acres within any
area designated pursuant to this Agreement whether or not such area is deemed
productive of oil and/or gas.
3.25 "Tract" shall mean each parcel of land shown as such and given a Tract
number and described in Exhibits "A" and "B" to the Unit Agreement.
3.26 "Unit Operator" shall mean Union Oil Company of California and its
successors, as the Unit Operator designated in accordance with the Unit
Agreement, acting in that capacity and not as Sub-Operator or as the owner of a
Working Interest.
3.27 "Working Interest" shall mean an interest in Unitized Substances,
whether held under an oil and gas lease or otherwise, including a carried
Working Interest, which interest is chargeable with and obligated to pay or
bear, whether in cash or out of Production or otherwise, all or a portion of the
Costs of operations conducted under the Unit Agreement and this Agreement.
3.28 "Working Interest Participating Area" (herein sometimes referred to as
"WIPA") shall mean any such area and Pool established by the Parties in
accordance with Article IX of this Agreement. The Pool for which each such WIPA
is established shall be identified on Appendix "B" to this Agreement.
Page 5 of 45 Pages
ARTICLE IV
SUPERVISION OF OPERATIONS BY PARTIES
4.1 Over-all Supervision. Parties shall exercise over-all supervision and
control of all matters pertaining to the development and operation of the Unit
Area pursuant to this Agreement and the Unit Agreement. In the exercise of such
power each Party shall act solely in its own behalf in the capacity of an
Individual Working Interest owner and not on behalf of the Working Interest
owners as an entirety.
4.2 Particular Powers and Duties. The matters to be passed upon and decided
by the Parties as provided herein or in the Unit Agreement shall include, but
not be limited to, the following:
A. The appointment, removal and selection of successor Unit Operators
and Sub-Operators.
B. The enlargement or contraction of the Unit Area or a WIPA.
C. The determination of Basic Participating Interests.
D. The subsequent joinder of any Working Interest owner to this
Agreement or to the Unit Agreement.
E. The appointment of committees or subcommittees and the designation
of their duties, for any purpose in connection with operations hereunder;
provided, however, each Party shall have the right to representation on
each such committee or sub-committee.
F. The kind, character and method of operation, including any type of
pressure maintenance or secondary recovery program to be employed.
G. The adoption or submission of any plan of further development and
operation of the Unit Area to the Director, Commissioner, or any regulatory
body.
H. Except as otherwise provided herein or in the Unit Agreement, the
drilling of any well within the Unit Area either for production of Unitized
Substances, for use as an injection well, or for other purposes.
I. The recompletion, workover, abandonment, or change of status of any
well in any WIPA or RIPA or use of any such well for injection or other
purposes.
Page 6 of 45 Pages
J. The making of any single expenditure in excess of One Hundred
Thousand Dollars ($100,000.00) except in the case of an emergency involving
the preservation of life or property. (Amended 10/6/75, 1/1/90)
K. The selling or otherwise disposing of any major item of surplus
material or equipment, the current list price of new equipment similar
thereto being Five Thousand Dollars ($5,000.00) or more; provided, however,
surplus material or equipment classified as junk may be disposed of by Unit
Operator or the applicable Sub-Operator at prevailing prices.
L. The authorizing of charges to the joint account for services by
consultants or any Party's technical personnel not covered by the charges
set forth in Exhibit "C".
M. The taking of periodic inventories under the terms of Exhibit "C".
N. The designation of a representative to appear before any court or
regulatory body in matters pertaining to operations hereunder; provided,
however, that such designation shall not prevent a Party from appearing in
person or from designating another representative in its behalf and at its
own expense.
ARTICLE V
MANNER OF EXERCISING SUPERVISION
5.1 Designation of Representatives. Each Party shall advise the Unit
Operator in writing of the names and addresses of its representative and
alternate authorized to represent and bind it in respect to any matter
pertaining to the development and operation of the Unit Area. Such
representative or alternate may be changed from time to time by written notice
to Unit Operator. Unit Operator shall promptly advise all Parties of the names
and addresses of each such representative and alternate. In addition, any
corporate Party may vote through its President, or any of its Vice Presidents.
5.2. Meetings. All meetings of the Parties for the purpose of considering
and acting upon any matter pertaining to the development and operation of the
Unit Area shall be called by Unit Operator upon its own motion or at the request
of one or more Parties. Except in case of a bona fide emergency, no meeting
shall be called on less than fourteen (14) days' advance written or telegraphic
notice, with agenda for the meeting attached. The Parties attending such meeting
may amend such items included in the agenda by unanimous vote of the Parties
present. Unless otherwise agreed, all meetings shall be held in Anchorage,
Alaska. The representative of Unit Operator shall be Chairman of each meeting.
Page 7 of 45 Pages
5.3 Voting Procedure.
A. General. In the supervision of an operations conducted by Unit
Operator or a Sub-Operator, the Parties chargeable with the Costs of such
operation shall have the right to vote thereon in proportion to their
respective obligations for such Costs. The Parties having the right to vote
on any other matter shall vote thereon on the basis of their respective BPI
in the applicable WIPA as herein provided. In the event such other matter
does not involve any WIPA, the Parties shall vote thereon on the basis of
their voting power in the Hemlock WIPA. Except as provided in the Unit
Agreement and except as otherwise specified herein the voting requirements
are as hereinafter provided in this Section 5.3.
B. Determination of a WIPA. The unanimous approval of the Parties to
this Agreement shall be required for the determination of a WIPA.
C. Determination of Acre-Feet of WIPA Pay. The unanimous approval of
the Parties in the WIPA shall be required for the determination of
Acre-Feet of WIPA Pay therein.
D. Use of ▇▇▇▇▇, Platforms or Production Facilities Pursuant to
Section 16.3. The affirmative vote of the Parties having eighty-five per
cent (85%) or more of the voting power as to any well, platform, or
production facility shall be required for the approvals set forth in
Section 16.3; provided, however, if any Party entitled to vote thereon has
fifteen per cent (15%) or more of the voting power, its negative vote or
failure to vote shall not defeat the matter being voted on unless such
Party is supported by one or more of the other Parties entitled to vote
thereon.
E. Major Expenditures. The affirmative vote of the Parties having
eighty-five per cent (85%) or more of the voting power shall be required
for the approval of an expenditure for any single project exceeding One
Million Five Hundred Thousand Dollars ($1,500,000.00). In the event that
more than one WIPA is to be served by such proposed expenditure, the
affirmative vote of the Parties having eighty-five per cent (85%) or more
of the voting power in each WIPA to be served shall be required for such
approval.
Notwithstanding the provisions Of this Subsection 5.3 E, if any Party
entitled to vote thereon has fifteen per cent (15%) or more of the voting
power as to any such WIPA, its negative vote, or failure to vote, shall not
defeat the matter being voted on unless such Party is supported by one or
more of the other Parties entitled to vote thereon as to that WIPA.
Page 8 of 45 Pages
F. Secondary Recovery and Pressure Maintenance Programs. The
affirmative vote of the Parties having eighty-five per cent (85%) or more
of the voting power as above provided shall be required for the approval of
secondary recovery and pressure maintenance projects; provided, however, if
any Party entitled to vote thereon has fifteen per cent (15%) or more of
the voting power, its negative vote or failure to vote shall not defeat the
matter being voted on unless such Party is supported by one or more of the
other Parties entitled to vote thereon.
G. All Other Matters. Except as provided in Subsections 5.3B, 5.3C,
5.3D, 5.3E and 5.3F and except as to matters specifically delegated to Unit
Operator or Sub-Operators by the Unit Agreement or this Agreement, the
affirmative vote of Parties having eighty per cent (80%) or more of the
voting power shall be required for approval of all other matters; provided,
however, if any two Parties have a combined voting power of seventy-five
per cent (75%) or more but less than ninety-five per cent (95%) on such
matter, their affirmative votes must be supported by one or more other
Parties having a combined voting power of at least five per cent (5%) on
such matter; and provided further, if any Party entitled to vote thereon
has twenty per cent (20%) or more of the voting power, its negative vote,
or failure to vote, shall not defeat the matter being voted on unless such
Party is supported by one or more of the other Parties entitled to vote
thereon.
5.4 Additional Voting Provisions. A Party failing to vote shall be deemed
to have voted in the negative. In all cases, if only two Parties are entitled to
vote, the vote of the one with the greater relevant BPI shall prevail.
5.5 Absentee Voting. Any Party not represented at a meeting may vote on any
item included in the agenda upon which that Party is entitled to vote. Such
absentee vote shall be by letter or telegram addressed to the Chairman of the
meeting provided such vote is received prior to the submission of such item to
vote. Such vote shall not be counted with respect to any item on the agenda
which is amended at the meeting.
5.6 Poll Votes. The Parties may decide any matter by vote taken by letter
or telegram, provided the matter is first submitted to each Party entitled to
vote thereon and no meeting on the matter is called as provided in Section 5.2
within ten (10) days after such proposal is dispatched to such Parties. Unit
Operator will give prompt notice of the results of such voting to all such
Parties. Any such Party failing to vote within the time stated in such letter or
telegram shall be deemed to have voted in the negative.
5.7 Vote Binding on Parties. Any approval, direction, consent,
determination, redetermination, agreement, stipulation, designation or other
decision of the Parties provided for in this Agreement which receives the
affirmative vote herein specified shall be deemed given by and shall be binding
upon all Parties to this Agreement, except as otherwise specified herein.
Page 9 of 45 Pages
ARTICLE VI
INDIVIDUAL RIGHTS OF PARTIES
6.1 Reservation of Rights. The Parties severally reserve to themselves all
their rights, except as otherwise provided in this Agreement and the Unit
Agreement.
6.2 Specific Rights. Each Party owning a Working Interest in a WIPA shall
have, among others, the following specific rights:
A. Access to WIPA. Access to such WIPA and operations being conducted
for the benefit thereof at all reasonable times to inspect such operations,
▇▇▇▇▇, and the records and data pertaining thereto.
B. Reports. The right to receive from Unit Operator or from Sub-
Operator copies of all reports to any governmental agency, reports of crude
oil runs and stocks, inventory reports, well logs, engineering and
geological data and all other information pertaining to operations
hereunder. All such reports and information shall be limited to factual and
not interpretative data, unless accomplished by or charged to the Parties.
The cost of gathering and furnishing information not ordinarily furnished
by Unit Operator or Sub-Operator to the Parties shall be charged to the
Party who requests the information.
ARTICLE VII
UNIT OPERATOR AND SUB-OPERATORS
7.1 Initial Unit Operator. Union Oil Company of California is hereby
designated as Unit Operator.
7.2 Sub-Operator. Union Oil Company is hereby designated as Sub-Operator of
the following facilities and pipelines:
▇▇▇▇▇ ▇▇▇▇▇▇ Platform and Pipelines;
Grayling Platform and Pipelines:
North ▇▇▇▇▇▇▇▇ River (King Salmon) Platform and Pipelines; Steelhead
Platform and Pipelines; and Trading Bay Unit Production Facility and
Pipelines.
(Amended 12/1/94)
7.3 Resignation or Removal of Unit Operator and Selection of Successor.
Unit Operator may resign or be removed for good cause and a successor Unit
Operator shall be selected as provided in numbered Paragraphs 5 and 6 of the
Unit Agreement.
Page 10 of 45 Pages
7.4 Resignation or Removal of Sub-Operators and Selection of Successors.
Any Sub-Operator shall have the right to resign at any time, but such
resignation shall not become effective so as to release such Sub-Operator from
its duties and obligations and terminate its rights as such for a period of six
months after notice of intention to resign has been served by a Sub-Operator on
all Parties, unless a new Sub-Operator shall have been selected and approved and
shall have taken over and assumed the duties and obligations of that
Sub-Operator prior to the expiration of said period.
In all instances of resignation or removal, until a successor Sub-Operator
is selected and approved as hereinafter provided, the Parties shall be jointly
responsible for performance of the duties of that Sub-Operator, and shall not
later than 30 days before such resignation or removal becomes effective appoint
a common agent to represent them in any action to be taken hereunder.
The resignation of a Sub-Operator shall not release that Sub-Operator from
any liability for any default by it hereunder occurring prior to the effective
date of its resignation.
Any Sub-Operator may, upon default or failure in the performance of its
duties or obligations hereunder be subject to removal by a vote representing
eighty-five per cent (85%) or more of the voting power of the Parties in the
Hemlock WIPA. Such removal shall be effective upon notice thereof to the Parties
The resignation or removal of a Sub-Operator under this Agreement shall not
terminate its right, title, or interest as the owner of a Working Interest or
other interest in Unitized Substances, but upon the resignation or removal of a
Sub-Operator becoming effective such Sub-Operator shall deliver possession of
all equipment, materials, and appurtenances used in conducting the Unit
operations and owned by the Parties to the new duly qualified successor
Sub-Operator or to the owners thereof if no such new Sub-Operator is elected, to
be used for the purpose of conducting Unit operations hereunder. Nothing herein
shall be construed as authorizing removal of any material, equipment and
appurtenances needed for the preservation of any ▇▇▇▇▇.
Whenever the Sub-Operator shall resign, or shall be removed as hereinabove
provided, or a change of a Sub-Operator is negotiated by the Parties, the
Parties in the Hemlock WIPA shall, by a vote of eighty-five per cent (85%) or
more of their voting power, select a successor Sub-Operator. Such selection
shall not become effective until a Sub-Operator so selected shall accept in
writing the duties and responsibilities of Sub-Operator.
Page 11 of 45 Pages
ARTICLE VIII
AUTHORITIES AND DUTIES OF UNIT OPERATOR AND SUB-OPERATORS
8.1 Unit Operator.
A. General Duties. Unit Operator shall coordinate the activities of
the Sub-Operators and all committees and subcommittees in accordance with
plans and procedures approved as herein provided. Unit Operator shall be
responsible for submitting all required reports to the State of Alaska and
other regulatory authorities and shall, subject to Subsection 4.2N,
represent the Parties at hearings or other meetings held by any regulatory
bodies pertaining to operations hereunder.
Unit Operator shall keep advised of daily activities being carried out
within or for the benefit of the Unit Area; make recommendations of its own
or submit those of any Party, Committee or Sub-Committee to the Parties;
coordinate transportation, communication and other operations and services
among the various Sub-Operators, platforms, pipelines, and shore sites; and
carry out any other duties or assignments given to Unit Operator by the
Parties.
B. Records. Unit Operator shall be responsible for keeping correct
books, accounts and records of Unit operations, coordinating any accounting
work being done by various Sub-Operators, and sending to each Party, in
accordance with the Accounting Procedure in Exhibit "C", a statement
incorporating cost and production accounting.
C. Reports. Unit Operator shall furnish reports of Unit operations as
required by the Parties.
8.2 Sub-Operators.
A. General Duties. Pursuant to the provisions of this Agreement, Sub-
Operators shall have the exclusive right and duty to conduct Unit
operations according to plans and procedures as specified by the Parties
and to do all things necessary and consistent therewith, including the
execution of all contracts as Sub-Operator which affect drilling, reworking
and servicing of ▇▇▇▇▇, construction of facilities, and the purchasing of
supplies, and shall prepare or assist in the preparation of any and all
applications, reports, or other documents required by any governmental
agency.
B. Records and Reports. Each Sub-Operator shall keep correct books,
accounts and records and shall furnish the Parties with periodic reports of
operations conducted by it pursuant to this Agreement.
Page 12 of 45 Pages
▇. ▇▇▇▇▇ Drilled, Deepened or Worked over by Snb-Operator. All ▇▇▇▇▇
drilled by Sub-Operators through independent contractors shall be at not
more than the usual rates prevailing in the area. A Sub-Operator may employ
its own tools and equipment, but the charge therefor shall be at actual
cost, but not to exceed the prevailing rate in the area, and the work shall
be performed by that Sub-Operator under terms and conditions customary in
the area in contracts of independent contractors doing work of a similar
nature.
8.3 Unit Operator and Sub-Operators.
A. Workmanlike Conduct. Unit Operator and each Sub-Operator shall
conduct all Unit operations in a good and workmanlike manner. Unit Operator
and Sub-Operators shall not be liable to the Parties for damages, unless
such damages result from their gross negligence or willful misconduct.
B. Liens and Encumbrances. Unit Operator and each Sub-Operator shall
endeavor to see that the lands and leases in the Unit Area are kept free
from all liens and encumbrances occasioned by Unit operations, except the
liens of Unit Operator and Sub-Operators granted hereunder.
C. Employees. All individuals employed by Unit Operator and each
Sub-Operator in conducting Unit operations shall be the employees of that
party employing same, and their selection, hours of labor, compensation,
and all other matters relating to their employment shall be determined by
such party.
D. Expenditure Approval.
1. The Operator and Sub-Operators shall have the right to make
expenditures up to an aggregate of one hundred thousand dollars
($100,000.00) for any single project of any kind without prior written
consent of all Parties. (Amended 10/6/75, 1/1/90)
2. For all projects exceeding twenty-five thousand dollars
($25,000.00), but less than one hundred thousand dollars ($100,000.00), an
informational Authority for Expenditure (AFE) shall be prepared by the
Operator or Sub-Operator and supplied by the Operator to all other Parties.
(Amended 10/6/75,1/1/90)
3. All projects exceeding one hundred thousand dollars
($100,000.00) shall require approval of the Parties. An AFE shall be
prepared by the Operator or Sub-Operator and supplied by the Operator to
all other Parties for approval. Response to a Request for Approval shall be
given to the Operator within sixty (60) days after receipt of the request.
A party failing to vote shall be
Page 13 of 45 Pages
deemed to have voted in the negative. The provisions of Article 26 shall
apply hereto. (Amended 10/6/75, 1/1/90)
4. If, at any time, it becomes apparent that expenditures for an
AFE and any Supplemental AFE's for such item previously approved pursuant
to this Subsection 8.3D will be or has exceeded the authorized limit by ten
percent (10%) or fifty thousand dollars ($50,000.00) whichever is greater,
or by one million dollars ($1,000,000.00), the Operator or Sub-Operator
shall notify the Parties and shall, without delay, prepare a Supplemental
AFE. A Supplemental AFE should also be prepared for an informational AFE if
it becomes apparent that expenditures will have or have exceeded the
$100,000.00 formal AFE threshold. The Supplemental AFE shall include
reasons for the increased costs, and shall request approval for the
additional commitment. The Operator or Sub-Operator shall give verbal
notification to the Parties advising that a Supplemental AFE may be
required. (Amended 10/6/75, 1/1/90)
5. Unless otherwise stated in an AFE or Supplemental AFE, the
approval granted for the project described in the AFE or Supplemental AFE
will be cancelled if no work has been performed or money spent on the
project six (6) months after the AFE or Supplemental AFE has received
requisite approval, or six (6) months after proposed start date, whichever
occurs first. (Amended 10/6/75, 1/1/90)
6. If any emergency occurs, Operator or any Sub-Operator may
immediately make or incur such expenditures as in its opinion are required
to deal with the emergency. Operator or Sub-Operator shall report to the
Parties as promptly as possible the nature of the emergency and the action
taken and, as soon as practical, prepare an AFE if otherwise required by
the provisions of this Sub section 8.3D. (Amended 10/6/75, 1/1/90)
ARTICLE IX
DETERMINATION OF WORKING INTEREST PARTICIPATING
AREAS AND BASIC PARTICIPATING INTERESTS
9.1 Hemlock WIPA and BPI. The initial determination of the WIPA and BPI for
the Hemlock WIPA, as shown on appendices "A-1" and "B-1", respectively, have
been made by the Parties. Specified Redeterminations for the Hemlock WIPA shall
be made effective as of July 1, 1968 (First Redetermination), January 1, 1970
(Second Redetermination), July 1, 1971 (Third Redetermination) and January 1,
1973 (Fourth Redetermination).
Page 14 of 45 Pages
9.2 Initial Determination of WIPA. Upon the request of any Party,
representatives of the Parties shall meet for the purpose of making the initial
determination of a WIPA for each other Pool heretofore or hereafter discovered
which is capable of producing Unitized Substances. Each such WIPA shall be
determined in accordance with sound engineering principles by unanimous
agreement of the parties, and shall include all of each governmental quarter
section if any portion thereof lies within the area reasonably deemed to be
capable of producing Unitized Substances from that Pool. Each such WIPA and its
effective date shall be shown on Appendix "A" hereto.
9.3 Determination of Initial BPI. Upon the initial determination of each
WIPA, representatives of the parties in that WIPA shall meet for the purpose of
determining each Party's initial BPI in each Tract within that WIPA as provided
in Subsection 1.A of Exhibit "A". Each such BPI, each Party's total BPI in that
WIPA, and the effective date thereof shall be shown on Appendix "B".
9.4. Redeterminations of WIPA and BPI.
A. Specified Redetetminations. Specified Redeterminations, referred to
as First Redetermination, Second Redetermination, and Third
Redetermination, respectively, of the WIPA and BPI of each WIPA, other than
the Hemlock WIPA, shall be made effective as of one and one-half years,
three years, and four and one-half years subsequent to the effective date
of the initial determination of that WIPA.
B. Subsequent Redeterminations. Subsequent Redeterminations, including
those of the Hemlock WIPA and BPI, shall be made thereafter not more than
once each calendar quarter upon the joint request of two or more Parties to
the Unit Operator and not more than once each twelve months if such request
is made by a single party, and shall be made only if based upon information
and data obtained from the Drilling, Deepening, or Plugging Back of a well
subsequent to the last prior redetermination. Only Parties in a WIPA shall
be entitled to request a redetermination of the BPI in that WIPA.
C. Effect of Change of Unit Area. No change shall be made in any WIPA
or BPI solely as the result of contraction of the Unit Area, and, as among
the Parties hereto, any WIPA lands excluded from the Unit Area shall
continue to be subject to the terms and conditions of this Agreement and as
among the Parties hereto shall continue to be a portion of the WIPA and no
redetermination of Acre Feet of WIPA Pay in any such lands shall be made
except as the result of information and data obtained from the Drilling,
Deepening or Plugging Back of a well in the then Unit Area.
Page 15 of 45 Pages
9.5 Effective Date. Each initial determination and redetermination shall be
effective as of 7:00 A.M. Alaska Standard Time on its effective date. Each
initial determination and all Subsequent Redeterminations shall be effective as
of such time the first day of the month of the request therefor.
9.6 Manner of Redetermination of WIPA and BPI.
A. WIPA. Within thirty (30) days after each of the dates provided for
in Sections 9.1, 9.4, and 9.5 for each Specified Redetermination and any
Subsequent Redetermination of any WIPA, representatives of the Parties
shall meet for the purpose of reviewing the information and data available
as of the particular effective date and redetermining that WIPA in the same
manner as provided for its initial determination in Section 9.2. Appendix
"A" shall be revised to reflect any such redetermination and its effective
date.
B. BPI. Within thirty (30) days after each of the dates provided for
in Sections 9.1, 9.4, and 9.5 for each Specified Redetermination and any
Subsequent Redetermination of the BPI in a WIPA, representatives of the
Parties in that WIPA shall meet for the purpose of reviewing the
information and data available as of the particular redetermination date in
order to redetermine such BPI. Such redetermination shall be made as
provided in Subsection 1.B of Exhibit "A". Upon such redetermination
Appendix "A" shall be revised to reflect such redetermination of each BPI
in that WIPA, each Party's total BPI in that WIPA, and the effective date
thereof, and appropriate adjustments will be made as provided in Article
XI.
9.7 Arbitration. In the event the Parties fail, for a period of at least
thirty (30) days after any meeting called pursuant to Sections 9.2, 9.3, or 9.6
has convened, to make any determination or redetermination for which that
meeting has been called, any party who may be directly affected by the
determination or redetermination may request in writing that the matter be
submitted to arbitration, and, unless all such requests are withdrawn, such
determination or redetermination shall be made by arbitration in accordance with
the rules of the American Arbitration Association, and the award of the
arbitrator, absent collusion or fraud, shall be conclusive and binding upon the
Parties. The Parties shall choose, in accordance with the applicable voting
procedure set forth for this Article IX, as arbitrator one of the following
consulting firms, including successor firms, which continues in existence and
accepts appointment hereunder as arbitrator; ▇. ▇. ▇▇▇▇▇, ▇▇▇▇▇▇ & ▇▇▇▇▇, Core
Laboratories, Inc., ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇▇▇, ▇. ▇. ▇▇▇▇ & Associates, ▇▇▇▇▇ ▇.
▇▇▇▇▇ Engineering, Inc., or any other mutually agreeable firm; provided, if the
Parties are unable to select an arbitrator in accordance with the applicable
voting procedure, or if no firm which is selected accepts appointment hereunder
as arbitrator, then a consulting firm of appropriate professional acumen and
integrity shall be appointed by the Senior Federal Judge resident in Anchorage,
Alaska, from the names of
Page 16 of 45 Pages
consulting firms supplied by the parties. The parties shall supply full and
adequate information to the arbitrator acting hereunder, and the Parties and
arbitrator shall cooperate and act expeditiously, time being of the essence of
the reference to arbitration hereunder, to the end that the award of the
arbitrator shall issue not later than sixty (60) days after it commences its
duties under this Section 9.7.
The arbitration procedures hereinabove provided shall apply only to such
parameters or factors as to which the Parties are unable to agree and such
arbitrator shall make a decision on the matters submitted to it for arbitration
which are within the scope of its authority.
All costs of arbitration shall be borne by the parties in the relevant
WIPA, in proportion to their respective BPI thereby determined.
ARTICLE X
APPORTIONMENT OF COSTS AND OWNERSHIP
OF PRODUCTION AND PROPERTY
10.1 Apportionment and Allocation of Production for Royalty Purposes.
Production for royalty purposes shall be allocated to each Tract of Unitized
Land on the basis provided in the Unit Agreement and shall be paid by the Unit
Operator to the State of Alaska from Production received from the parties for
this purpose pursuant to Subsection 10.2B.
10.2 Apportionment and Ownership Within a WIPA. For each WIPA the
apportionment of Costs and ownership of Production and properly among the
Parties in that WIPA shall be upon the following bases:
A. Costs. All costs incurred in the development and operation of that
WIPA for or in connection with Production of Unitized Substances from the
Pool for which that WIPA is established shall be borne by the Parties in
that WIPA upon the basis of their respective total BPI in that WIPA,
determined as of the time such Costs are incurred; subject, however, to
adjustments in accordance with Subsections 11.1A and 11.2A.
B. Production. The Production from a WIPA shall be allocated
separately to the parties therein on the basis of their respective BPI
within that WIPA. Each Party receiving such Production shall pay to the
Unit Operator, who shall in turn pay to the State of Alaska that
proportionate part thereof representing the Royalty Share, or the amount
received from the sale thereof if the State elects not to take in kind, as
defined and calculated in the manner set forth In Exhibit "A" to this
Agreement. In agreeing to this method of allocation, it is intended and
Page 17 of 45 Pages
agreed by the parties that any difference in the total royalty rate
applicable to the Production from any WIPA as opposed to what the total
royalty rate applicable to that Production would have been if the State had
accepted the method of allocation (BPI) adopted by the Parties will accrue
to the parties in that WIPA, as a burden or as a benefit, as the case may
be in the same proportion in which Production is allocated to such parties
on the basis of BPI.
C. Property. All material, equipment and other property, whether real
or personal, the cost of which is chargeable as Costs and which are
acquired in connection with the development and operation of that WIPA, or
the proceeds from the sale thereof, shall be owned by the parties in that
WIPA upon the basis of their respective total BPI within that WIPA;
subject, however, to adjustments in accordance with Subsections 11.1C and
11.2C.
ARTICLE XI
INITIAL AND FUTURE ADJUSTMENTS OF COSTS,
PRODUCTION AND PROPERTY
11.1 Adjustments on Initial Determination and Specified Redeterminations of
WIPA or BPI. Adjustments of Costs, Production and property on the initial
determination and Specified Redeterminations of a WIPA or BPI shall be
accomplished in the following
A. Costs. Within sixty (60) days after the Parties in a WIPA have
completed the initial determination, and within sixty (60) days after each
Specified Redetermination of BPI as set forth in Article IX and Exhibit "A"
to this Agreement, Unit Operator and each Sub-Operator shall furnish the
Parties in that WIPA with revised ▇▇▇▇▇▇▇▇ showing all Costs incurred and
paid by it in the development and operation of that WIPA prior to the
effective date of that initial determination or Specified Redetermination.
All such ▇▇▇▇▇▇▇▇ shall show the portion of these Costs to be borne by each
Party upon the basis of its determined or redetermined BPI and the
adjustment required between this amount and that actually paid by such
Party. Upon receipt of each such billing, each Party who has paid less than
its determined or redetermined BPI share shall promptly pay in cash the
amount of the adjustment required, together with interest thereon at the
rate of one-half of one per cent (1/2 of 1%) per month from the month
during which each portion of the Costs was paid. Each such payment shall be
made to Unit Operator who shall distribute the same to those Parties
entitled thereto upon the basis of the advances made by such latter Parties
for the account of the Parties who have paid less than their determined or
redetermined BPI share.
Page 18 of 45 Pages
B. Production. Within thirty (30) days after each such initial
determination and within thirty (30) days after each Specified
Redetermination, Unit Operator shall furnish each Party in the WIPA a
statement which sets forth: (1) the amounts of the EPI and BPI shares of
Production actually taken by each Party; (2) the amounts of the EPI and BPI
shares of Production each Party was formerly entitled to take; and (3) the
amounts of Production that each Party was entitled to take on the basis of
the initially determined or redetermined EPI and BPI. If, as a result of
the revision of BPI, it is shown that a Party has been allocated more than
its revised EPI share of Production, then that Party shall owe those
Parties who have been allocated less than their revised EPI share of
Production for the Production allocated in excess of such revised EPI
share. A Party's failure to take or otherwise dispose of its proportionate
share of Production shall be disregarded in computing such adjustments.
Each owing Party shall have the option of making such adjustments
immediately in cash or out of not less than twenty per cent (20%) of such
Party's BPI share of future Production to the end that such adjustment
shall be completed not later than three (3) years after the effective date
of the relevant determination or redetermination. Such adjustments shall be
made solely on the basis of volume and any adjustment out of future
Production not completed at that time shall be completed immediately in
cash. In the event such Party has no BPI as a result of such revision, such
adjustment shall immediately be made in cash. The amounts of each
adjustment shall be distributed among the Parties with increased EPI's in
proportion to their respective increases therein, so that each such Party
will receive its EPI share of Production or the value thereof.
Whenever such adjustments are made in cash, the value shall be the
Market Value of the Production as of the effective date of the relevant
determination or redetermination.
C. Property. As of each of the effective dates of the initial
determination and of each Specified Redetermination, all materials,
equipment and other property, whether real or personal, the cost of which
was chargeable as Costs and which were acquired in connection with the
development or operation of that WIPA, or the proceed from the sale of any
such materials, equipment or other property, shall be owned by the Parties
upon the determined or redetermined basis, subject to adjustment as
provided in this Agreement
11.2 Adjustments on Subsequent Redeterminations. Adjustment of Costs,
Production, and property on any Subsequent Redeterminations of a WIPA or BPI
shall be accomplished in the following manner:
A. Costs. Within sixty (60) days after the Parties in a WIPA have
completed a Subsequent Redetermination of BPI, Unit Operator and each Sub-
Page 19 of 45 Pages
Operator involved shall furnish the Parties in that WIPA with a billing
showing all Costs incurred and paid by it in the development of that WIPA
prior to the effective date of that Subsequent Redetermination, less the
Costs of any well which has been abandoned, and not including "Operating"
costs as defined in Exhibit "C". All such ▇▇▇▇▇▇▇▇ shall show the portion
of such costs to be borne by each Party upon the basis of its redetermined
BPI and the adjustment required between this amount and that actually paid
by such Party, adjusted for depreciation as provided in this Subsection
11.2A. Upon receipt of each such billing, each Party who has paid less than
its redetermined BPI share shall promptly pay in cash the amount of the
adjustment required. Depreciation on such costs classified as tangible and
intangible (in conformity with accounting procedures generally accepted in
the industry) shall be computed at the following rates for each month from
the month during which the property represented by such costs was usable:
(1) one-half of one per cent (1/2 of 1%) per month for a cumulative
total of one hundred (100) months, and (2) zero per cent (0%) per
month in excess of said cumulative total.
Each such payment shall be made to Unit Operator who shall distribute the
same to those Parties entitled thereto upon the basis of the advances made
by such latter Parties for the account of the Parties who have paid less
than their redetermined BPI share.
B. Production. There shall be no adjustment of Production prior to the
effective date of any Subsequent Redetermination as a result of such
redetermination. Production subsequent to the effective date of each
Subsequent Redetermination shall be adjusted in the manner provided for
adjustments after the initial determination or Specified Redeterminations
in Subsection 11.1B. Statements relating to Production which Unit Operator
is required to furnish shall be limited to the period subsequent to the
effective date of the relevant Subsequent Redetermination.
C. Property. As of the effective date of any Subsequent
Redetermination, all materials, equipment and other property, whether real
or personal, the cost of which was chargeable as Costs and which were
acquired in connection with the development or operation of that WIPA, or
the proceeds from the sale of any such materials, equipment or other
property made subsequent to the effective date of that Subsequent
Redetermination, shall be owned by the Parties upon the redetermined basis,
subject to adjustment as provided in this Agreement.
Page 20 of 45 Pages
ARTICLE XII
PLANS OF DEVELOPMENT
12.1 ▇▇▇▇▇ and Projects Included. Each plan for the development and
operation of the Unit Area which is submitted by Unit Operator to the Director
in accordance with the Unit Agreement shall make provision only for such
Drilling, Deepening and Plugging Back operations and such other projects as have
been approved by the parties as provided herein.
12.2 Notice of Proposed Plan. At least thirty (30) days before submitting
any such proposed plan to the Director, Unit Operator shall give each party
written notice thereof, together with a copy of the proposed plan. Within
fifteen (15) days after receipt of the notice and plan, each Party shall advise
Unit Operator of its approval or suggested revisions in those portions of the
plan as to which it is entitled to vote pursuant to Article V of this Agreement.
If the plan receives the vote of approval required in Article V of this
Agreement, then Unit Operator shall file the plan with the Director. If the plan
fails to obtain approval, Unit Operator will endeavor to make revisions that
meet with approval of the parties.
12.3 Cessation of Operations under Plan. If any such plan as approved by
the Director provides for the cessation of any Drilling or other operations
therein provided for on the happening of a contingency and if such contingency
occurs, Sub-Operator shall promptly cease such Drilling or other operations and
shall not incur any additional costs in connection therewith unless and until
such Drilling or other operations are again authorized in accordance with this
Agreement by the Parties chargeable with such Costs.
ARTICLE XIII
DRILLING, DEEPENING, PLUGGING BACK OR ABANDONMENT
OF EXPLORATORY, DEVELOPMENT AND INJECTION ▇▇▇▇▇
13.1 General Provisions for Exploratory, Development and Injection ▇▇▇▇▇.
A. General. The Drilling, Deepening, Plugging Back or abandoning of a
well within the Unit Area shall be conducted only in accordance with the
provisions of this Article XIII, except as provided in Article XIV and
Article XVI. For the purposes of this Article XIII, reference to Parties
shall mean all Parties to this Agreement in the case of Exploratory ▇▇▇▇▇
and all parties in the relevant WIPA in the case of Development and
Injection ▇▇▇▇▇.
B. Sub-Operator to Conduct Operations. All Drilling, Deepening,
Plugging Back, and abandoning operations shall be conducted by the
designated Sub-Operator; provided, however, if such operations are to be
conducted from a
Page 21 of 45 Pages
facility for which no Sub-Operator has been designated, the Parties
participating in the Costs thereof shall designate the Sub-Operator.
C. Notice of Proposed Operations. Any Party may propose the Drilling,
Deepening or Plugging Back or abandoning of a well by giving each of the
other Parties written notice which, except in the case of abandoning
operations, shall specify the surface location, bottom hole location (which
location shall conform to any applicable spacing pattern theretofore
adopted or then being followed or an authorized exception thereto), depth
and estimated cost of the proposed well. No Party shall propose the
Drilling of a well hereunder the Drilling of which requires the
construction of a permanent platform.
D. Response to Notice. Within thirty (30) days after receipt of such
notice, each Party shall advise all other Parties, in writing, whether or
not it approves and desires to participate in such operations. If the
Parties approve such operations, then the proposed operations shall be
conducted by the designated Sub-Operator. If any Party fails to respond to
such notice within said thirty (30) day period, it shall be deemed to have
failed to approve such proposed operation and to have elected not to
participate therein.
Notwithstanding the provisions of the foregoing paragraph, if a
drilling rig has suspended operations awaiting approval of redrilling,
Deepening, Plugging Back or abandoning of a well, then the Parties
receiving such notice shall have forty-eight (48) hours (exclusive of
Saturdays, Sundays and legal holidays) after receipt thereof within which
to notify the Parties giving such notice whether they approve and desire to
participate in the proposed operations. All such notices given under this
paragraph shall be by telephone, telegraph or telewriter.
E. Fewer Than All Parties. Whenever all parties entitled to
participate in approved operations fail to agree to participate, then
within fifteen (15) days after expiration of said thirty (30) days' notice
period or within twenty-four (24) hours (exclusive of Saturdays, Sundays
and legal holidays) after expiration of said forty-eight (48) hour notice
period, each such party who desires to participate in the approved
operations shall give to the other Parties written notice (or in the case
of the twenty-four (24) hour notice period, by telephone, telegraph, or
telewriter) of election to participate in such approved operations. Failure
to give such notice shall be deemed an election not to participate.
Unless otherwise agreed by the parties, the entire cost, risk,
liability and expense of the Drilling, Deepening, or Plugging Back of a
Development or Exploratory Well by fewer than all the Parties shall be
borne by the parties comprising the Drilling party in proportion to their
respective interests in such operation as hereinafter provided.
Page 22 of 45 Pages
No operations by fewer than all parties shall be conducted in such a
manner as to interfere or conflict with any other Unit operations, except
as provided in Article XIV.
F. Abandonment of Non-Productive Well. In the event the proposed
operation is the abandonment of a non-productive well other than a Hemlock
WIPA well, then the notice required in Subsection 13.1C shall also be given
to the Parties in the Hemlock WIPA. If the Parties in the Hemlock WIPA give
notice of election, in the manner provided in Subsection 13.1D, to take
over said well and if the parties participating in the Costs of said well
approve the proposed abandonment, then the Parties in the Hemlock WIPA
shall take over said well upon such terms and conditions as may be agreed,
otherwise said well shall be abandoned as provided in Subsection 13.1D.
G. Use of Equipment. In the case of any Plugging Back or Deepening
operation, the Drilling Party shall purchase, at salvage value, all casing,
tubing and other equipment in the well.
13.2 Exploratory ▇▇▇▇▇.
A. Right to Drill. If any party desires to Drill, Deepen or Plug Back
a well as an Exploratory Well, the it shall have the right to do so under
the provisions of this Article XIII.
B. Drilling from Floating Platforms. The Drilling of an Exploratory
Well from a floating platform or drilling barge shall be outside the scope
of this Agreement, but except as provided in the last paragraph of
Subsection 13.1E, nothing herein contained shall be deemed to prevent the
Drilling of such a well on a Tract by a Party owning a Working Interest
therein.
C. Operations and Participation. The Drilling, Deepening or Plugging
Back of an Exploratory Well from any facility other than a floating
platform or drilling barge shall be accomplished in the following manner:
In the event the proposed operation receives the approval of the
Parties as provided in Subsection 13.1D or 13.1E, then each owner of a
Working Interest in the Tract in which such operation is to be conducted
shall have the right to participate in proportion to its Working Interest
in that Tract. Unless one or more of the Owners of Working Interests in
that Tract elect to conduct such operations at its sole cost, risk and
expense as provided in Subsection 13.1E, all Parties shall have the right
to participate in such operations in proportion to their respective BPI in
the Hemlock WIPA, in accordance with the provisions of Subsection 13.1E.
Page 23 of 45 Pages
Notwithstanding the provisions of this Subsection 13.2C, no approval
of the Parties shall be required for the Drilling, Deepening or Plugging
Back of an Exploratory Well from a location on land if such operation is to
be conducted by a Party owning a Working Interest in the Tract in which the
bottom hole location is proposed.
13.3 Development ▇▇▇▇▇.
A. Right to Drill. If any Party desires to Drill, Deepen, or Plug Back
a well as a Development Well, then it shall have the right to do so under
the provisions of this Article XIII.
B. Operations and Participation. The Drilling, Deepening or Plugging
Back of a Development Well shall be accomplished in the following manner:
In the event the proposed operation receives the approval of the
Parties as provided in Subsection 13.1D or 13.1E, each Party in that WIPA
shall have the right to participate therein in proportion to its BPI in
that WIPA.
13.4 Relinquishment and Reversion of Interests.
A. Operations by Less than All Parties. In Order for the Drilling
Party to receive the benefits of this Section 13.4, the proposed operations
shall be commenced within one hundred twenty (120) days after the
expiration of the notice period provided in Subsection 13.1D or 13.1E,
whichever is the later date. Each Drilling Party shall participate in the
proposed operations in the proportion that its BPI bears to the total BPI
of all Drilling Party in the relevant WIPA.
B. Relinquishment of Interest by Non-Drilling Party. When a well which
is Drilling, Deepening or Plugged Back by less than all Parties entitled to
participate therein, is completed as a producer of Unitized Substances,
each Non-Drilling Party shall be deemed to have relinquished to the
Drilling Party all of its operating rights and Working Interest in and to
such Well, and Drilling Party shall make, or cause to be made, payments for
Lease burdens in respect of Production from said well, in accordance with
Section 21.2.
C. Reversion of Relinquished Interest. The operating rights and
Working Interests relinquished by a Non-Drilling Party shall revert to it
at such time as the Market Value of that Non-Drilling Party's EPI share of
the Production obtained from the well after such relinquishment (after
deducting from such Market Value all taxes upon or measured by Production
and all Lease Burdens other than the State's Royalty Share on said portion
thereof) shall equal the total of the following:
Page 24 of 45 Pages
(1) One hundred per cent (100%) of that portion of the Costs
incurred in operating the well (including the portion of costs of
acquisition or use of platforms, pipelines or other facilities
attributable to such operations by less than all Parties, but
excluding the Costs provided for in Subsection 13.4C(2)) that would
have been charged to such Non-Drilling Party had all Parties entitled
thereto participated therein; and
(2) Six hundred per cent (600%) in the case of an Exploratory
Well, or four hundred per cent (400%) in the case of a Development
Well, of that portion of the Costs incurred by Drilling Party in the
Drilling, Deepening, or Plugging Back of said well, through and
including the wellhead connections, that would have been chargeable to
such Non-Drilling Party had all Parties entitled thereto participated
therein.
D. Effect of Reversion. From and after reversion to a Non-Drilling
Party of its relinquished interest in a well, such Non-Drilling Party shall
share in the ownership of the well, the operating rights and Working
Interest therein, the materials and equipment in or pertaining to the well,
the Production therefrom and the Costs of operating the well as otherwise
provided in this Agreement.
13.5 Abandonment of Production ▇▇▇▇▇. No well which is producing or has
once produced, shall be abandoned without approval of the Parties then owning a
Working Interest therein. If such approval is not obtained, then the Parties not
desiring to abandon shall pay to such other Party the latter Party's
proportionate share of the fair market value of the salvable material and
equipment in and on such well determined at the time such abandonment is
proposed, less such latter Party's estimated share of the cost of abandonment.
Upon receipt of said sum, the Party desiring to abandon said well shall assign
to the other Parties, without warranty of title, all of its operating rights and
Working Interest in the well and all subsequent Production therefrom, as to the
Pool from which said well is then producing, or has once produced, but not as to
any other Pool and all of its interest in the material and equipment in and on
said well. If such assignment or conveyance shall run in favor of more than one
Party hereto, the interest covered thereby shall be shared by such Parties in
the proportion that the interest of each Party assignee bears to the interest of
all Parties assignee.
In the event the abandonment is of a well other man a Hemlock WIPA well,
the Party proposing such abandonment shall give the notice required in
Subsection 13.1C to the Parties in the Hemlock WIPA. If the Parties in the
Hemlock WIPA give notice of election, in the matter provided in Subsection
13.1D, to take over said well and if the Parties then owning a Working Interest
in said well approve the proposed abandonment, the Parties in the Hemlock WIPA
shall take over said well upon such terms and conditions as may be agreed.
Unless at the direction of the Parties the well is to be taken
Page 25 of 45 Pages
over for use in Unit operations, the Sub-Operator shall plug and abandon the
well for the account of the parties owning a Working Interest therein.
As used in this Section 13.5, "well" shall be deemed to apply separately to
each Pool from which that well is then producing or has produced, and the value
of the salvable material and equipment therein shall be attributed in proportion
to the ownership thereof.
13.6 Injection ▇▇▇▇▇. The Costs of Drilling, Deepening or Plugging Back,
abandoning, or taking over a well as an Injection Well shall be borne by all the
parties in the WIPA for which the well is to be used for the purpose of disposal
or pressure maintenance or secondary recovery operations. All parties in the
relevant WIPA shall bear such Costs according to their respective BPI in that
WIPA.
ARTICLE XIV
REQUIRED ▇▇▇▇▇
14.1 Definition. For the purposes of this Article, a well shall be deemed a
required well if the Drilling thereof is required by the final order of an
authorized representative of the Department of Natural Resources. Such an order
shall be deemed final upon expiration of the time allowed for appeal therefrom
without the commencement of appropriate appeal proceedings, or, if such
proceedings are commenced within said time, upon the final disposition of the
appeal. Whenever a Party receives any such order, it shall promptly mail a copy
thereof to each of the other Parties; if any such order is appealed, the Party
appealing shall give prompt written notice thereof to each of the other Parties,
and upon final disposition of the appeal, Unit Operator shall give each of the
Parties prompt written notice of the results thereof.
14.2 Election to Drill. Any Party desiring to Drill, or participate in the
Drilling of, a required well shall give to the other Parties written notice
thereof as provided in Subsection 13.1C or within such lesser time as may be
required by the order. If such notice is given, the Parties electing to
participate as provided in Subsections 13.1D or 13.1E shall designate a
Sub-Operator in the manner provided in subsection 13.1B for the Drilling of that
well. Subject to the provisions of Section 16.3, the designated Sub-Operator
shall Drill the required well for the account of such Parties, who shall bear
all Costs incurred therein; provided, however, that if the required well is a
Development Well, it shall not be drilled unless it receives the approval of the
parties in the relevant WIPA. The rights and obligations of such Parties with
respect to the ownership of such well, the operating rights therein, the
Production therefrom and the bearing of Costs incurred therein shall be the same
as if the well had been Drilled for the account of such Parties under Article
XIII either as a Development Well or Exploratory Well, as the case may be.
Page 26 of 45 Pages
14.3 Alternatives to Drilling. If no Party elects to Drill a required well
within the period allowed for such election or if such election is made but
approval to drill is not obtained from the parties as provided under Section
14.2, and if any of the following alternatives is available, the first such
alternative which is available shall be followed:
A. Compensatory Royalties. If compensatory royalties may be paid in
lieu of Drilling the well and if payment thereof receives, within said
period, the approval of the Parties who would be chargeable with the Costs
incurred in Drilling the well, if the well were Drilled as provided in
Section 14.4, Unit Operator shall pay such compensatory royalties for the
account of said Parties; or
B. Contraction. If the Drilling of the well may be avoided, without
other penalty, by contraction of the Unit Area, Unit Operator shall make a
reasonable effort to effect such contraction with the approval of the
Director in the manner provided in numbered Paragraph 2 of the Unit
Agreement.
14.4 Required Drilling. If none of the foregoing alternatives is available,
the required well shall be drilled under whichever of the following provisions
is applicable:
A. Development Well. If the required well is a Development Well, it
shall be Drilled by the Sub-Operator designated in the manner provided in
Section 14.2 for the account of all Parties in the WIPA in which the well
is Drilled; or
B. Exploratory Well. If the required well is an Exploratory Well, it
shall be drilled by the Sub-Operator designated by and for the account of
the parties in proportion to their respective Surface Acreage in the Unit
Area.
ARTICLE XV
ESTABLISHMENT, REVISIONS AND CONSOLIDATION
OF ROYALTY INTEREST PARTICIPATING AREAS
15.1 General. All RIPA shall be established, revised or consolidated from
time to time as provided in numbered Paragraph 11 of the Unit Agreement and in
accordance with the procedure set forth in this Article XV.
15.2 Procedure. Whenever a Sub-Operator obtains information which may cause
the establishment, revision or consolidation of a RIPA, then Sub-Operator shall
promptly advise Unit Operator and furnish the data applicable thereto. Unit
Operator, in turn, shall furnish all available data as it may have relative
thereto, along with Unit Operator's proposal as to such establishment, revision
or consolidation, to each of the Parties in the applicable WIPA. Within fifteen
(15) days following receipt of such data and proposal, each Party shall advise
Unit Operator in writing of its approval or objections to such proposal. If the
proposal receives file approval of such Parties, then Unit Operator shall
Page 27 of 45 Pages
promptly prepare and file with the Director the necessary documents and data
supporting such establishment, revision or consolidation. The failure of any
party to advise Unit Operator of its position shall be regarded as a vote
against the proposal submitted. If the proposal does not receive the approval of
such Parties, then Unit Operator shall submit to the Parties a revised proposal
taking into consideration the written comments made as to the initial proposal.
If such revised proposal fails to receive the approval of such Parties, then
Unit Operator shall file with the Director a proposal that reflects the position
of the greatest percentage of interest of the Parties within the applicable
WIPA.
15.3 Revised Proposal. If any such proposal filed by Unit Operator with the
Director is rejected or requested to be revised, then Unit Operator shall submit
a revised proposal to the Parties in the WIPA involved for their approval in
accordance with the procedure set forth above, any Party may submit its
objections or comments to the Director as to any proposal filed by the Unit
Operator with the Director.
ARTICLE XVI
PLATFORMS AND PRODUCTION FACILITIES
16.1 Prior Commitments. Prior to the effective date of this Agreement, the
parties have agreed to the design, construction and installation of the
platforms, pipelines and production facilities referred to in Section 7.2 for
the primary purpose of the development and operation of the Hemlock WIPA. The
Parties further agreed that the Costs thereof would be initially shared on the
basis provided in appendix "B-1", subject to the right to audit and adjustments
as herein provided.
16.2 Costs. All costs and expenses incurred in connection with the design,
construction and installation of the said platforms, pipelines and production
facilities to the extent that said production facilities are used solely for or
allocated to the Trading Bay Unit, shall be deemed Costs for the purposes of
this Agreement.
16.3 Use of ▇▇▇▇▇, Platforms, or Production Facilities. No well, platform,
or production facility (including a pipeline) shall be used for other than that
upon which ownership thereof is based without the approval of the Parties owning
such well, platform, or production facility, as provided in Subsection 5.3D.
Upon such use, a fair and equitable apportionment of risks and liabilities,
investment, and operating and other costs shall be made between the Parties
therefor. Such use shall include but not be limited to the Drilling of ▇▇▇▇▇,
multiple completion of ▇▇▇▇▇ and the production, transportation and handling of
Unitized Substances. (See First, Second and Third Supplemental Agreements to
Unit Operating Agreement)
Page 28 of 45 Pages
ARTICLE XVII
CONSTRUCTION OF CERTAIN PLATFORMS,
PIPELINES AND OTHER FACILITIES
17.1 General. The construction of any platforms, pipeline, or other
facilities not provided for in Section 16.1 and not related to secondary
recovery or pressure maintenance programs, the cost of which exceeds One Million
Five Hundred Thousand Dollars ($1,500,000.00), referred to in this Article XVII
as "Such Construction", shall be conducted in or for the benefit of the Unit
Area only in accordance with the provisions of this Article XVII. For the
purposes of this Article XVII, reference to parties shall mean all parties in
the WIPA to be served by the proposed platform, pipeline, or other facility.
17.2 Sub-Operator to Conduct Operations. Such Construction shall be
conducted by the Sub-Operator designated by the parties participating in the
Costs thereof.
17.3 Notice of Proposed Construction. Any Party may propose Such
Construction by giving each of the other Parties written notice specifying the
location, contemplated service, design, specifications, proposed Sub-Operator,
and estimated Costs of Such Construction.
17.4 Response to Notice. Within sixty (60) days after receipt of such
notice each Party shall advise all other parties, in writing, whether or not it
approves Such Construction and whether or not it desires to participate in Such
Construction. If any Party fails to respond to such notice within said sixty
(60) day period, it shall be deemed to have failed to approve such construction
and to have elected not to participate therein.
If the Parties approve Such Construction in the manner provided in
Subsection 5.3E, then Such Construction shall be conducted by the designated
Sub-Operator.
17.5 Participation. In the event Such Construction receives the approval of
the Parties as provided in Section 17.4, each Party shall have the right to
participate therein in proportion to its BPI in the WIPA to be served. Unless
otherwise agreed by the Parties, the entire cost, risk, liability and expense of
Such Construction by fewer than all of the Parties shall be borne by the Parties
comprising the Participating Party (as hereinafter defined) in proportion to
their respective interests in Such Construction as hereinafter provided. The
Party or Parties electing to participate in such Construction shall be referred
to in this Article XVII as "Participating Party".
17.6 Relinquishment and Reversion of Interests.
A. Such Construction By Less Than All Parties. In order for the
Participating Party to receive the benefits of this Section 17.6, Such
Construction
Page 29 of 45 Pages
shall be commenced with one (1) year after the expiration of the period
provided in Section 17.4. Each Participating Party shall participate in
Such Construction in the proportion that it's BPI of all Participating
Parties in the relevant WIPA.
B. Non-Ownership and Relinquishment of Interest. When any Party who is
entitled to participate in Such Construction elects not to participate
therein, such Party referred to in this Article XVII as "Non-Participating
Party", it shall be deemed to have no interest in and shall not be entitled
to the use of the platform, pipeline, or other facility constructed and, in
the case of a platform, to have relinquished all of its operating rights
and Working Interest in and Production from all ▇▇▇▇▇ drilled from that
platform and completed in the WIPA for which that platform was constructed.
C. Acquisition of an Interest and Reversion of Relinquished Rights.
Within thirty (30) days after the pipeline or other facility is put into
service or, in the case of a platform, within thirty (30) days after all
well logs and data from the first well Drilled from that platform are
mailed to Non-Participating Party, Sub-Operator shall furnish each
Non-Participating Party a statement of the estimated Costs of Such
Construction and Drilling. Within sixty (60) days after receipt of such
statement, each Non-Participating Party may elect to pay to the
Sub-Operator who conducted Such Construction an amount of money equal to
the total of the following:
(1) One hundred per cent 100% of that portion of the Costs
incurred in operating the pipeline, other facility, or platform and
well thereon that would have been charged to such Non-Participating
Party had it participated in Such Construction;
(2) One hundred thirty-five percent (135%) of that portion of the
Costs incurred and committed in Such Construction and the Costs of
Drilling a well or ▇▇▇▇▇, if Drilled from the facility that would have
been charged to such Non-Participating Party had it participated
therein; and
(3) Interest at the rate of one-half of one percent (1/2 of 1%)
per month on such amounts computed from the month during which each
portion of such Costs was paid.
If a Non-Participating Party has elected to make the payment
hereinabove provided, and does so within thirty (30) days after such
election, such Non-Participating Party shall immediately have that interest
in that platform, pipeline or other facility as it would have had if it had
participated in the construction thereof, and the operating rights and
Working Interests which it relinquished by failing to participate in Such
Construction shall at that time revert to such Party.
Page 30 of 45 Pages
D. Payment by Sub-Operator. All payments received by Sub-Operator from
a Non-Participating Party pursuant to Subsection 17.6C shall be paid
promptly to the Participating Parties in the proportions in which they
shared the Costs of Such Construction and Drilling.
ARTICLE XVIII
RIGHT TO TAKE IN KIND AND FAILURE
TO TAKE IN KIND - UNDERLIFTING
18.1 Taking in Kind. Each Party shall currently take in kind or separately
dispose of its share of Production (and only its share, but its share shall
include any Production said Party is then making up as the result of its
underlift pursuant to this Article XVIII). Each such Party shall have the right
to construct, maintain, and operate all necessary facilities for that purpose,
provided that they are so constructed, maintained, and operated as not to
interfere with Unit operations. Any extra expenditures incurred by reason of the
delivery in kind of any portion of the Production shall be borne by the
receiving party. If a royalty owner has the right to take in kind a share of
Production and fails to do so, those parties taking Production shall take the
Royalty Share of Production in the manner provided in Article X. On all
purchases or sales each Party shall execute any division order or contract of
sale pertaining to its interest.
18.2 Underlifting of Liquid Production.
A. General. Notwithstanding the ownership of Production set forth in
this Agreement, in the event any Party fails to take or otherwise dispose
of its share of oil or other liquid hydrocarbons (liquid production), the
other Parties shall be entitled to take their own shares of liquid
production pursuant to this Section 18.2. These provisions shall be
applicable to liquid production from gas ▇▇▇▇▇ when such liquid production
is available; provided, however, a gas well shall not be produced primarily
to obtain liquid production. Gas production will not be taken into account
in the recovery or recoupment of liquid production.
The procedures set forth in this Article XVIII for underlifting and
for the recovery or recoupment of underlifted liquid production shall apply
separately to each WIPA and shall be computed on the basis of volume
without regard to the value thereof.
B. Underlifted Party. In the event any party fails to take or
otherwise dispose of its proportionate share of "Available Production" (as
defined in Subsection 18.2C hereof) during any calendar quarter, said Party
shall be deemed to have "underlifted" and such Party shall be hereinafter
referred to as an "Underlifted Party." Whenever any Party has not taken its
share of liquid
Page 31 of 45 Pages
production solely as a result of a Redetermination of BPI, as provided in
Article XI hereof, that Party shall not be deemed to have "underlifted" and
the provisions of this Article XVIII shall not affect the adjustment of
Production under Article XI.
C. Available Production. Not less than forty-five (45) days prior to
the beginning of each calendar quarter, Unit Operator shall advise in
writing those Parties in the applicable WIPA of the total estimated
quantity of liquid production therefrom which can be delivered to the
Parties during the next calendar quarter. Such estimated quantity of liquid
production for each such particular period of time is referred to herein as
"Available Production". The amount of Available Production shall not exceed
the maximum efficient rate of liquid production for that period of time as
established for the particular WIPA by the Parties therein, in accordance
with sound petroleum engineering practice. When none of the Parties takes
its full share of Available Production as originally determined by Unit
Operator for any calendar quarter, the total Available Production for such
quarter shall be reduced retroactively to such amount as would allow the
party taking the highest percentage of its share to receive credit for
having taken 100% of its share. Unit Operator, by notice to the Parties,
shall revise the amount of Available Production in the event unforeseen
physical occurrences alter the WIPA's capacity to produce.
D. Nominations. Within fifteen (15) days after receipt of notification
of Available Production for a given period, each Party in that WIPA shall
nominate in writing to Unit Operator the quantity of liquid production
equivalent to all or any part of its share of Available Production which it
desires to take during such period. Any Underlifted Party desiring to make
up a portion or all of the volume it is underlined, shall also nominate the
volume it wants to make up during the next succeeding calendar quarter. A
Party failing to nominate shall be deemed to have nominated zero quantity.
E. Recovery or Recoupment of Underlifted Liquid Production. Excess
productive capacity (herein sometimes referred to as "Excess Capacity") is
defined as the amount by which the Available Production exceeds the total
amount of liquid production (excluding any being recovered or recouped as
provided in this subsection) nominated by all Parties for each quarter.
Whenever there is Excess Capacity and when an Underlifted Party is
able to utilize that Excess Capacity, such capacity will be allotted to
that Party as herein provided.
In the event an Underlifted Party has nominated to utilize any Excess
Capacity and during the two succeeding calendar quarters period Excess
Capacity did not exist or was insufficient to permit that Underlifted Party
to recover or
Page 32 of 45 Pages
recoup the full amount of its underlifted liquid production, such party
shall have the right to recover or recoup its underlifted production out of
ten percent (10%) of Available Production in addition to any Excess
Capacity, as above provided, to the extent required for recovery or
recoupment by the Underlifted Party.
If more than one Party elects to recover or recoup at the same time,
they shall share the available Excess Capacity and/or the ten percent (10%)
of liquid production in proportion to their respective BPI's. When an
Underlifted Party has recovered or recouped the full amount of its liquid
production underlift, that Party's share of liquid production shall
thereupon be its BPI share.
No Party shall be deemed an Underlifted Party due to a reduction in
its share of Available Production pursuant to this Subsection 18.2.
F. Rate of Liquid Production. Unit Operator shall timely advise all
parties of the nominations received for each quarter and shall establish a
rate of liquid production equal to the total of the volumes so nominated,
not to exceed the maximum efficient rate of production and each Party shall
accept the volume nominated by it.
G. Allocation of Costs. Each Underlifted Party shall bear its BPI
share of all Costs, except Lease Burdens and taxes measured by production,
as provided in Article XXII hereof.
Further in any calendar quarter during which a Party is recovering or
recouping its underlifted liquid production out of the ten percent (10%) of
Available Production, a percentage of all "Operating" costs as defined in
Exhibit "C", equivalent to the percentage of liquid production taken for
recovery or recoupment of underlifted liquid production out of said ten
percent (10%) of Available Production shall be borne by each such Party in
proportion to the volume of liquid production so taken by that Party for
recovery or recoupment. No adjustment in Costs, except taxes measured by
production, shall be made for the use of Excess Capacity. Lease Burdens
shall be borne as provided for in Article XXI hereof. (Amended 1/1/70)
18.3 Underlifting or Balancing of Gas Production.
A. General. Notwithstanding the ownership of Production set forth in
this Agreement, in the event any Party fails to take or otherwise dispose
of its share of natural gas (gas production), the other parties shall be
entitled to take their own and such party's shares of gas production
pursuant to this Section 18.3. These provisions shall be applicable to gas
well gas and to casing head gas when such gas production is available;
provided, however, an oil well shall not be produced
Page 33 of 45 Pages
primarily to obtain gas production. Liquid production will not be taken
into account in the balancing of gas production.
The procedures set forth in this Article XVIII for underlifting or
balancing of underlifted gas production shall apply separately to each WIPA
and shall be computed on the basis of volume without regard to the value
thereof.
The term "accounting period" as used in this Section 18.3 shall mean a
calendar quarter or such other period as may be otherwise agreed by the
parties.
B. Repressuring, Recycling or Other Secondary Recovery Operations. In
the event gas production is available in any WIPA, and such gas production
may be utilized in repressuring, recycling, or other secondary recovery
operations in that WIPA or any other WIPA, it is agreed that the Parties
owning such gas production shall give first consideration to the use of
such gas production for such operations upon such terms as may be
acceptable to the parties; provided, however, in the event more than one
WIPA, other than the WIPA from which the gas production is obtained,
desires such production, the Hemlock WIPA, if involved, shall have
preference.
C. Underlifted Party. In the event any Party fails to take or
otherwise dispose of its proportionate share of gas production during any
accounting period, said Party shall be deemed to have "underlifted" and
such party shall be hereinafter referred to as an "Underlifted Party"
during that period. Whenever any Party has not taken its share of gas
production solely as a result of a Redetermination of BPI, as provided in
Article XI hereof, that Party shall not be deemed to have "underlifted" and
the provisions of this Article XVIII shall not affect the adjustment of
Production under Article XI.
D. Overlifted Party. In the event any Party fails to take or otherwise
dispose of its proportionate share of gas production during any accounting
period, the other Parties shall have the right, but not the obligation,
during such period to take or otherwise dispose of such Party's
proportionate share of gas production. Each such party taking more than its
share of gas production shall be deemed to have "overlifted" and shall be
hereinafter referred to as an "Overlifted Party" during that period. Each
Party desiring to take more than its share of gas production shall be
entitled to take the gas production not being taken by the Underlifted
Party in the proportion that its BPI bears to the BPI of the Overlifted
Party.
E. Gas Production Account. Unit Operator or any party selected by the
Parties shall maintain and furnish a statement of a gas production account
which
Page 34 of 45 Pages
shall show the amount each Party has underlifted or overlifted relative to
the cumulative gas production from the WIPA.
F. Balancing. If an Underlifted Party desires to take more than its
share of gas production in order to balance its gas production account,
that party shall so advise Unit Operator, who shall use its best efforts to
reduce the portion of gas production being taken by all Overlifted Parties
to the extent necessary to enable the Underlifted Party to take such
amounts sufficient to balance its gas production account within one year
from the date of its request.
In the event an Underlifted Party is unable to balance its gas
production account within said one year, then that Underlifted Party shall
be entitled to increase its take of gas production up to ten percent (10%)
of the Overlifted Parties' share of current gas production until its gas
production account is in balance.
If two or more of the Underlifted Parties desire to balance their gas
production accounts at the same time, then each of such Underlifted Parties
shall be entitled to take the proportion of such ten percent (10%) portion
of the current gas production of the Overlifted Parties that their
respective volumes of underlifted gas production bear to the total of such
volume.
Without prior approval of the parties, no Sub-Operator shall produce
any gas well in excess of the maximum efficient rate of gas production
established for the ▇▇▇▇▇ in a WIPA by the Parties therein.
G. Allocation of Costs. Except as to Lease Burdens and taxes measured
by production, no adjustment shall be made in Costs when a Party is
underlifting or overlifting. Lease Burdens shall be borne as provided in
Article XXI hereof and taxes measured by production shall be borne by the
parties in proportion to their respective gas production.
18.4 Indemnity. In the event any Party or parties is underlifted and any
such action causes the rate of production hereunder to be reduced, then said
Party or Parties shall be solely responsible to the State of Alaska and any
other royalty owner or overriding royalty owner for, and hold the other Parties
harmless and indemnify them against any and all claims whatsoever which arise as
a result of such failure to take.
ARTICLE XIX
UNIT EXPENSE
19.1 Basis of Charge to Parties. All Costs incurred for the benefit of a
WIPA initially shall be paid by Unit Operator or the Sub-Operator incurring
same. Each Party
Page 35 of 45 Pages
shall reimburse Unit Operator or such Sub-Operator for its BPI share of such
Costs except as otherwise provided in Articles XIII, XVII, and XVIII. All
charges, credits and accounting shall be in accordance with Exhibit "C".
19.2 Budgets. Each Sub-Operator will submit a proposed program and a
proposed budget of estimated costs for the next calendar year to the Unit
Operator by August 1 of each year. The Unit Operator will, as soon as practical
after receipt of the proposed programs and budgets, distribute the proposed
programs and budgets to the Parties and give notice of a preliminary meeting to
review the proposed programs and budgets. This meeting will be held by August
15. Following this preliminary meeting and upon at least thirty (30) days'
advance written notice which shall include the agenda for the meeting, Unit
Operator shall call a meeting to be held not later than November 15, of each
year. At such meeting, the representatives of the Parties shall compare the
current year's program and budget to actual performance and shall endeavor to
agree on the next year's program and budget after making such modifications as
may be necessary; provided, however, that such agreement shall not constitute
authority for the making of such expenditures, which shall be made only in
accordance with the remaining provisions of this Agreement. A budget shall not
constitute authority for the making of such expenditures, which shall be made
only in accordance with the remaining provisions of this Agreement. A budget
shall set forth the estimated annual Costs by semi-annual periods. Budgets shall
be estimates only, and shall be adjusted or corrected by the relevant Parties
whenever an adjustment or correction is proper. A copy of each budget and
adjusted budget shall promptly be furnished to each party. Each program shall
show that portion of such program and budget applicable to or allocated to each
WIPA. (Amended 1/1/90)
19.3 Advance Billings. Unit Operator and each Sub-Operator shall have the
right to require the parties in each WIPA to advance their respective shares of
estimated Costs by submitting to such Parties on or before the 15th day of any
month, an itemized estimate thereof for the succeeding month, with a request for
payment in advance. Within fifteen (15) days thereafter, each party shall pay to
Unit Operator or Sub-Operators its share of such estimate. Adjustments between
estimated and actual Costs shall be made by Unit Operator and Sub-Operators at
the close of each calendar month, and the accounts of such Parties shall be
adjusted accordingly.
19.4 Commingling of Funds. No funds received by Unit Operator or any Sub-
Operator under this Agreement need be segregated or maintained by it as a
separate fund, but may be commingled with its own funds.
19.5 Lien of Unit Operator and Sub-Operator. Each party grants to Unit
Operator and the Sub-Operators a lien upon its oil and gas rights in each Tract,
its share of production, and its interest in all Unit property, as security for
payment of its share of Costs, together with interest thereon at the rate of six
percent (6%) per annum. Unit
Page 36 of 45 Pages
Operator and each Sub-Operator shall have the right to bring suit to enforce
collection of such indebtedness with or without seeking foreclosure of the lien.
In addition, upon default by any Party in the payment of its share of Costs,
Unit Operator and each Sub-Operator shall have the right to collect from the
purchaser the proceeds from the sale of such Party's share of Production until
the amount owed by such Party, plus interest as aforesaid, has been paid. Each
purchaser shall be entitled to rely upon Unit Operator's or Sub-Operators'
written statement concerning the amount of any default.
ARTICLE XX
TITLES
20.1 Warranty and Indemnity. Each Party represents and warrants that it is
the owner of the respective Working Interests set forth opposite its name in
Exhibit "B" to the Unit Agreement, and hereby agrees to indemnify and hold
harmless the other Parties from any loss due to failure, in whole or in part, of
its title to any such interest, except failure of title arising out of Unit
Operations; provided that such indemnity shall be limited to an amount equal to
the net value that has been received from the sale or receipt of Unitized
Substances attributed to the interest as to which title failed. Each failure of
title will be deemed to be effective, insofar as this Agreement is concerned, as
of the first day of the calendar month in which such failure is finally
determined, and there shall be no retroactive allocation of Costs or retroactive
allocation of Unitized Substances or the proceeds therefrom, as a result of
title failure.
20.2 Failure Because of Unit Operations. The failure of title to any
Working Interest in Tract by reason of Unit operations, including non-production
from such Tract, shall not change the BPI of the Party whose title failed in
relation to the BPI of the other Parties at the time of the title failure.
ARTICLE XXI
RENTALS AND LEASE BURDENS
21.1 Rentals. Each Party shall be obligated to pay, or cause to be paid,
any and all rentals and other sums (other than Lease Burdens) payable upon or in
respect of its Working Interests, subject, however, to the right of each Party
to surrender any of its Working Interests in accordance with Article XXIV. Upon
request, each Party shall furnish to Unit Operator satisfactory evidence of the
making of such payments. However, no Party shall be liable to any other Party
for unintentional failure to make any such payments provided it has acted in
good faith.
21.2 Lease Burdens. Each party entitled to receive a share of Production
shall make, or cause to be made, payments for that portion of the Lease Burdens
constituting
Page 37 of 45 Pages
the Royalty Share due the State of Alaska in respect of Production or the
proceeds thereof allocated under the Unit Agreement to each Tract in each RIPA
in which it owns a Working Interest, in accordance with Article X. Each Party
shall be obligated to pay, or cause to be paid, all other Lease Burdens as to
each Tract in which it owns a Working Interest, and shall be liable for any
additional Costs occasioned thereby. Each Party entitled to receive the
Production from a well completed as a producer but not included in a RIPA shall
pay, or cause to be paid, all Lease Burdens payable in respect of such
Production.
21.3 Payments to be Borne by Parties. All payments made pursuant to this
Article XXI shall be borne by the Party responsible for such payments in
accordance with this Agreement, except payments made by Unit Operator or a
Sub-Operator acting in that capacity.
ARTICLE XXII
TAXES
22.1 Taxes Upon Unit Property and Operations. All taxes assessed or levied
upon Unit property or operations under this Agreement, except income taxes,
taxes measured by Production and taxes upon Lease Burdens which are payable by
the owners thereof, shall be paid by Unit Operator or each Sub-Operator as and
when due and payable.
All such taxes shall be charged to and borne by the Parties in proportion
to their respective BPI's.
22.2 Other Taxes. Each Party shall pay or cause to be paid all taxes
imposed upon or in respect of the production or handling of its share of
Unitized Substances.
22.3 Transfer of Interests. In the event of a transfer by one Party to
another under the provisions of this Agreement of any Working Interest, or of
any interest in any well or in the materials and equipment in any well, or of
any interest in platforms, pipelines or other facilities, or in the event of the
reversion of any relinquished interest as in this Agreement provided, the taxes
above mentioned assessed against the interest transferred or reverted for the
taxable period in which such transfer or reversion occurs shall be apportioned
between such Parties so that each shall bear the percentage of such taxes which
is proportionate to that portion of the taxable period during which it owned
such interest.
22.4 Notices and Returns. Each Party shall promptly furnish Unit Operator
or the applicable Sub-Operator with copies of notices, assessments, levies or
tax statements received by it pertaining to the taxes to be paid by Unit
Operator or that Sub-Operator.
Page 38 of 45 Pages
Unit Operator and each Sub-Operator shall make such returns, reports and
statements as may be required by law in connection with any taxes above provided
to be paid by it, shall furnish copies to the Parties upon request, and shall
notify the Parties of any tax which it does not propose to pay before such tax
becomes delinquent.
ARTICLE XXIII
INSURANCE
23.1 Required Insurance. As to all operations hereunder, Unit Operator, or
Sub-Operators where applicable, shall carry, for the benefit and protection of
the parties hereto, Workmen's Compensation Insurance in accordance with all
applicable laws, rules and regulations, or shall, at its option, self-insure
under applicable statutes. Unit Operator or Sub-Operators, where applicable,
shall also procure and maintain such other insurance as shall be required by
law. The net premiums of such insurance shall be charged to the joint account.
The Unit Operator or Sub-Operators shall not carry physical damage insurance on
jointly owned property for the benefit of the other parties hereto. The
liability, if any, of the parties hereto in damages for claims growing out of
personal injury to or death of third persons or injury or destruction of
property of third persons resulting from the operation and development of the
Trading Bay Unit shall be borne by the parties hereto in proportion to their
respective Unit participation interest at the time the act creating the damage
claim occurred. (Amended 8/25/69, 8/30/72)
23.2 Individual Insurance. Any Party may procure and maintain at its own
cost and expense such other insurance as it shall determine and any such
insurance shall inure solely for the benefit of such Party procuring the same;
provided, however, that each such insurance policy shall contain a waiver on the
part of the insurance carrier of all rights, by subrogation or otherwise,
against each Party not named as an insured in such policy or if such waiver is
not secured the insured shall indemnify and hold harmless each Party not named
as an insured in such policy against any claim of the insurance carrier arising
against such Party by subrogation or otherwise. (Amended 8/30/72)
23.3 Contractors' Insurance. Unit Operator or Sub-Operators, where
applicable, shall require any contractor employed by it, to obtain, maintain and
pay for insurance with a reputable company or companies in amounts not less than
that needed to protect the interests of the Unit Operator or Sub-Operators,
where applicable, and Non-Operator predicated upon the exposure to risk of the
work to be performed by the contractor.
Unit Operator or Sub-Operators, where applicable, shall require any
contractor, employed by it, to submit to it property executed certificates of
insurance as issued by approved insurers before work contemplated in any
contract is begun. (Amended 8/30/72)
Page 39 of 45 Pages
23.4 Notice of Losses and Claims. Unit Operator or Sub-Operators shall
notify the other Parties as soon as practicable after the occurrence of any
accident involving either damage to property or injuries to or death of persons.
(Amended 8/30/72)
ARTICLE XXIV
RELEASE FROM OBLIGATIONS AND SURRENDER
24.1 Surrender or Release Within a WIPA. A Working Interest in a WIPA shall
not be surrendered except with the consent of all parties in such WIPA. However,
a Party who owns a Working Interest in a WIPA and who is not at the time
committed to participate in the Drilling, Deepening or Plugging Back of a Well
in such WIPA may be relieved of further obligations with respect to such WIPA as
then constituted by executing and delivering to Unit Operator an assignment
conveying to all other Parties in such WIPA, proportionately to such other
Parties' respective BPI's as among themselves, all Working Interests owned by
such Party in the WIPA, together with the entire interest of such Party in any
and all ▇▇▇▇▇, materials, equipment and other property in or pertaining to such
WIPA.
24.2 Procedure on Surrender Outside a WIPA. Whenever a Party desires to
surrender a Working Interest in any tract which is not in a WIPA, such Party
shall give to all other Parties written notice thereof describing such Working
Interest. The Parties receiving such notice, or any of them, shall have the
right at their option to take from the Party desiring to surrender an assignment
of such Working Interest by giving to the Party desiring to surrender written
notice of election so to do within thirty (30) days after receipt of the notice
of the desire to surrender. If such election is made as above provided, the
Party or Parties taking the assignment (which shall be taken by them in
proportion to the Surface Acreage of their Working Interests among themselves in
the Unit Area) shall pay to the assigning Party its share of the salvage value
of any ▇▇▇▇▇ owned by the Parties and then located on the land covered by such
Working Interest, which payment shall be made on receipt of the assignment. If
no Party elects to take such assignment within such thirty (30) day period, then
the Party or Parties owning such Working Interest may surrender the same if
surrender thereof can be made in accordance with the Unit Agreement.
24.3 Accrued Obligations. A Party making an assignment or surrender in
accordance with Section 24.1 or 24.2 shall not be relieved of its liability for
any obligation accrued hereunder at the time the assignment or surrender is
made, or of obligation to bear its share of the Costs incurred in any Drilling,
Deepening or Plugging Back operation in which such Party has elected to
participate prior to the making of such assignment or surrender, except to the
extent that the Party or Parties receiving such assignment shall assume, with
the approval of the Parties, any and all obligations of the assigning Party
hereunder and under the Unit Agreement.
Page 40 of 45 Pages
ARTICLE XXV
FORCE MAJEURE
25.1 Force Majeure. The obligations of Unit Operator and each Sub-Operator
hereunder shall be suspended to the extent that, and only so long as,
performance thereof is prevented, in whole or in part, by acts of God, fire,
action of the elements, weather or natural phenomena, including, but not limited
to, ice within the Unit Area rendering continued operations hazardous to life or
property, strikes or other differences with workmen, unavoidable accidents, acts
of civil or military authorities, acts of the public enemy, restrictions or
restraints imposed by law or by regulation or order of governmental authority,
whether Federal, state, or local, inability to obtain necessary rights of
access, uncontrollable delays in transportation, inability to obtain necessary
materials in open market, or any other cause reasonably beyond control of Unit
Operator and Sub-Operators whether or not similar to any cause above enumerated.
No Party shall be required against its will to adjust or settle any labor
dispute. Whenever performance of obligations is prevented by any such cause,
Unit Operator and each Sub-Operator shall give notice thereof to the other
Parties as promptly as reasonably possible.
ARTICLE XXVI
NOTICES
26.1 Giving and Receipt. Except as otherwise specified herein, any notice,
consent, or statement herein provided or permitted shall be deemed to have been
properly served when sent by mail (air mail if out of state), facsimile
transmission, or telegram to the address of the representative of each Party as
furnished to Unit Operator in accordance with Article V and received by the
Party. A notice given under any provision hereof shall be deemed given only when
received by the party to whom such notice is directed, except that any notice
given by United States certified or registered mail, or facsimile transmission,
or by telegram, properly addressed to the Party to whom given with all postage
and charges prepaid, shall be deemed given to and received by the Party to whom
directed seventy-two (72) hours after such notice is deposited in the United
States mails or upon confirmation of receipt of facsimile transmission, or
forty-eight (48) hours after such notice if filed with an operating telegraph
company for immediate transmission by telegraph, exclusive of Saturdays, Sundays
and legal holidays in each case, and also except that a notice to Unit Operator
or any Sub-Operator shall not be deemed given until actually received by it
(Amended 1/1/90)
26.2 Proper Addresses. Each Party's proper address shall be deemed to be
the address of that Party's representative furnished to the Unit Operator in
accordance with Article V.
Page 41 of 45 Pages
ARTICLE XXVII
LIABILITY, CLAIMS AND SUITS
27.1 Individual Liability. The duties, obligations, and liabilities of the
Parties shall be several and not joint or collective; and nothing herein
contained shall ever be construed as creating a partnership of any kind, joint
venture, association, trust, or other legal entity among the Parties.
27.2 Settlements. Unit Operator and Sub-Operators may settle any single
damage claim or suit involving Unit operations but not involving an expenditure
in excess of Two Thousand Five Hundred Dollars ($2,500.00) provided the payment
is in complete settlement of such claim or suit. If the amount required for
settlement exceeds the above specified amount, the Parties shall assume and take
over the further handling of the claim or suit unless such authority is
expressly delegated to Unit Operator or a Sub-Operator. All costs and expense of
handling, settling, or otherwise discharging such claim or suit shall be an item
of Costs. If a claim is made against any Party or if any Party is sued on
account of any matter arising from Unit operations and over which such Party
individually has no control because of the rights given the Parties, Unit
Operator and Sub-Operators by this Agreement and the Unit Agreement, the Party
shall immediately notify the Parties and the claim or suit shall be treated as
any other claim or suit involving Unit operations.
ARTICLE XXVIII
INTERNAL REVENUE PROVISIONS
28.1 Internal Revenue Provisions. Each of the Parties hereby elects to be
excluded from the application of Subchapter K of Chapter t of Subtitle A of the
Internal Revenue Code of 1954, or such portion or portions thereof as may be
permitted or authorized by the Secretary of the Treasury of the United States or
his delegate insofar as such Subchapter or any portion or portions thereof may
be applicable to the Parties. If any present or future income tax laws of the
State of Alaska contain provisions similar to those contained in the Subchapter
of the Internal Revenue Code of 1954 above referred to under which a similar
election is permitted, each of the Parties hereby elects to be excluded from the
application of such laws. Accordingly, each Party hereby authorizes and directs
Unit Operator to execute such an election or elections on its behalf and file
the same with the proper administrative office or agency. If requested by Unit
Operator, each Party agrees to execute and join in such instruments as are
necessary to make such elections effective.
Page 42 of 45 Pages
ARTICLE XXIX
EFFECTIVE DATE AND TERM
29.1 Effective Date. This Agreement shall be effective as of the effective
date of the Unit Agreement.
29.2 Term. This Agreement shall continue in effect so long as the Unit
Agreement remains in effect and thereafter until: (a) all ▇▇▇▇▇ have been
plugged and abandoned or otherwise disposed of, (b) all Unit property acquired
for the joint account has been disposed of in accordance with the instructions
of the Parties, and (c) there has been a final accounting.
ARTICLE XXX
NON-DISCRIMINATION
30.1 Non-discrimination. In connection with the performance of work under
this Agreement, Unit Operator and Sub-Operators agree to comply with all of the
provisions of Section 202(1) to (7), inclusive, of Executive order 11246, as
amended (30 FR 12319), which are hereby incorporated by reference in this
Agreement.
Unit Operator and Sub-Operators agree to insert the foregoing provision in
all subcontracts hereunder, except subcontracts for standard commercial supplies
or raw materials.
ARTICLE XXXI
OTHER PROVISIONS
31.1 Audits. An audit shall be made of Unit Operator and Sub-Operator's
records and books of account pertaining to operations under this Agreement
whenever the making of such audit is requested by any two or more Parties in the
affected WIPA, except that neither Unit Operator nor a Sub-Operator shall be
audited more often than once each year, except upon the resignation or removal
of such Unit Operator or Sub-Operator. Such audit shall be made by auditors in
the employ of the Parties desiring to participate therein, and the allowance to
be made to each Party furnishing an auditor shall be determined by the approval
of such Parties, and paid by such Parties in proportion to their respective
participations among themselves in Costs incurred during the period covered by
the audit.
31.2 Laws and Regulations. This Agreement shall be subject to all
applicable laws and regulations, and shall be interpreted in accordance with the
laws of the State of Alaska.
Page 43 of 45 Pages
31.3 Additional Burdens. In the event that any Party has created or should
subsequently create against its interest as shown in Exhibit "B" to the Unit
Agreement, any additional royalty, overriding royalty, production payment, or
other burden or charge, the Party which has created or subsequently creates any
such additional burden or charge shall hold the other Parties to this Agreement
harmless from such additional burdens and charges, and shall satisfy and
discharge such burdens and charges out of its own funds. As security for the
performance of the obligations created by this paragraph, the Parties entitled
to be held harmless shall have a lien to secure the performance of the
obligations created by this Section 31.3. Such lien shall exist upon the
interests shown in said Exhibit "B" to be owned by the Party charged with
performing such obligation.
31.4 Successors and Assigns. The provisions of this Agreement shall be
covenants running with the lands, leases, and interests covered hereby, and
shall be binding upon and inure to the benefit of the legal representatives,
successors and assigns of the Parties hereto.
ARTICLE XXXII
EXECUTION
32.1 Counterparts. This Agreement may be executed in counterparts and all
such counterparts taken together shall be deemed to constitute one and the same
instrument.
32.2 Ratification. This Agreement may be executed by the execution and
delivery of a good and sufficient instrument of ratification, adopting and
entering into this Agreement. Such ratification shall have the same effect as if
the party executing it had executed this Agreement or a counterpart hereof.
IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to be
executed as of the date first herein written.
UNIT OPERATOR, SUB-OPERATOR and PARTY
UNION OIL COMPANY OF CALIFORNIA
By
-------------------------------------
By
-------------------------------------
SUB-OPERATOR and PARTY
MARATHON OIL COMPANY
Page 44 of 45 Pages
By
-------------------------------------
By
-------------------------------------
SUB-OPERATOR and PARTY
ATLANTIC RICHFIELD COMPANY
By
-------------------------------------
By
-------------------------------------
PARTIES
PAN AMERICAN PETROLEUM CORPORATION
By
-------------------------------------
By
-------------------------------------
▇▇▇▇▇▇▇▇ PETROLEUM COMPANY
By
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By
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Page 45 of 45 Pages