Exhibit 10.2
EXHIBIT "E"
Attached to and made a part of that certain Joint Participation Agreement
effective July 1, 2005 by and between Marathon Oil Company and Ridgewood Energy
Corporation.
OFFSHORE OPERATING AGREEMENT
DATED EFFECTIVE
JULY 1, 2005
COVERING:
OCS-G 27012; ▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇ ▇▇▇
▇▇▇-▇ ▇▇▇▇▇; ▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇ ▇▇▇
▇▇▇-▇ ▇▇▇▇▇; ▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
TABLE OF CONTENTS
WITNESSETH : ..................................................................7
ARTICLE 1 APPLICATION .........................................................7
1.1 APPLICATION TO CONTRACT AREA ...........................................7
ARTICLE 2 DEFINITIONS .........................................................7
2.1 ADDITIONAL TESTING ....................................................7
2.2 AFFILIATE .............................................................7
2.3 AUTHORIZATION FOR EXPENDITURE (AFE) ...................................8
2.4 COMPLETE, COMPLETING, COMPLETION, COMPLETED ...........................8
2.5 COMPLETION EQUIPMENT ..................................................8
2.6 CONFIDENTIAL DATA .....................................................8
2.7 CONTRACT AREA .........................................................8
2.8 DEEPEN, DEEPENING .....................................................8
2.9 DEVELOPMENT FACILITIES ................................................8
2.10 DEVELOPMENT OPERATION .................................................9
2.11 DEVELOPMENT WELL ......................................................9
2.12 EXPLORATORY OPERATION .................................................9
2.13 EXPLORATORY WELL ......................................................9
2.14 EXPORT PIPELINES ......................................................9
2.15 FORCE MAJEURE .........................................................9
2.16 HYDROCARBONS ..........................................................9
2.17 JOINT ACCOUNT .........................................................9
2.18 LEASE .................................................................9
2.19 MMS ..................................................................10
2.20 NON-CONSENT OPERATION ................................................10
2.21 NON-CONSENT PLATFORM .................................................10
2.22 NON-CONSENT WELL .....................................................10
2.23 NON-OPERATOR .........................................................10
2.24 NON-PARTICIPATING PARTY ..............................................10
2.25 NON-PARTICIPATING PARTY'S SHARE ......................................10
2.26 OBJECTIVE DEPTH ......................................................10
2.27 OBJECTIVE HORIZON ....................................................10
2.28 OFFSITE HOST FACILITIES ..............................................10
2.29 OPERATOR .............................................................10
2.30 PARTICIPATING INTEREST ...............................................10
2.31 PARTICIPATING PARTY ..................................................11
2.32 PLATFORM .............................................................11
2.33 PRODUCIBLE RESERVOIR .................................................11
2.34 PRODUCIBLE WELL ......................................................11
2.35 PRODUCTION INTERVAL ..................................................11
2.36 RECOMPLETE, RECOMPLETING, RECOMPLETION ...............................11
2.37 REWORK, REWORKING ....................................................11
2.38 SIDETRACK, SIDETRACKING ..............................................11
2.39 TAKE-IN-KIND FACILITIES ..............................................12
2.40 TRANSFER OF INTEREST .................................................12
2.41 WORKING INTEREST .....................................................12
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ARTICLE 3 EXHIBITS ...........................................................12
3.1 EXHIBITS .............................................................12
3.1.1 Exhibit "A" ....................................................12
3.1.2 Exhibit "B" ....................................................12
3.1.3 Exhibit "C" ....................................................12
3.1.4 Exhibit "D" ....................................................12
3.1.5 Exhibit "E" ....................................................12
3.1.6 Exhibit "F" ....................................................12
3.1.7 Exhibit "G" ....................................................12
3.1.8 Exhibit "H" ....................................................12
3.2 CONFLICTS ............................................................13
ARTICLE 4 OPERATOR ...........................................................13
4.1 OPERATOR .............................................................13
4.2 SUBSTITUTE OPERATOR ..................................................13
4.2.1 Circumstances Under Which the Operator Must Conduct a
Non-Consent Operation ..........................................13
4.2.2 Operator's Conduct of a Non-Consent Operation in Which
it is a Non participating Party ................................14
4.2.3 Appointment of a Substitute Operator ...........................14
4.2.4 Redesignation of Operator ......................................14
4.3 RESIGNATION OF OPERATOR ..............................................14
4.4 REMOVAL OF OPERATOR ..................................................15
4.5 SELECTION OF SUCCESSOR ...............................................15
4.6 EFFECTIVE DATE OF RESIGNATION OR REMOVAL .............................16
4.7 DELIVERY OF PROPERTY .................................................16
ARTICLE 5 AUTHORITY AND DUTIES OF OPERATOR ...................................17
5.1 EXCLUSIVE RIGHT TO OPERATE ...........................................17
5.2 WORKMANLIKE CONDUCT ..................................................17
5.3 LIENS AND ENCUMBRANCES ...............................................17
5.4 EMPLOYEES AND CONTRACTORS ............................................17
5.5 RECORDS ..............................................................17
5.6 COMPLIANCE ...........................................................17
5.7 CONTRACTORS ..........................................................18
5.8 GOVERNMENTAL REPORTS .................................................18
5.9 INFORMATION TO PARTICIPATING PARTIES .................................18
5.10 INFORMATION TO NON-PARTICIPATING PARTIES .............................19
ARTICLE 6 VOTING AND VOTING PROCEDURES .......................................19
6.1 VOTING PROCEDURES .....................................................19
6.1.1 Voting Interest ................................................19
6.1.2 Vote Required ..................................................19
6.1.3 Votes ..........................................................20
6.1.4 Meetings .......................................................20
ARTICLE 7 ACCESS .............................................................20
7.1 ACCESS TO CONTRACT AREA ..............................................20
7.2 REPORTS ..............................................................20
7.3 CONFIDENTIALITY ......................................................21
7.4 LIMITED DISCLOSURE ...................................................21
7.5 LIMITED RELEASES TO OFFSHORE SCOUT ASSOCIATION .......................21
7.6 MEDIA RELEASES .......................................................22
7.6.1 Operator's News Release ........................................22
7.6.2 Non-operating party's News Release .............................22
7.6.3 Emergency News Releases ........................................23
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ARTICLE 8 EXPENDITURES .......................................................23
8.1 BASIS OF CHARGE TO THE PARTIES .......................................23
8.2 AFES .................................................................23
8.3 EMERGENCY AND REQUIRED EXPENDITURES ..................................23
8.4 ADVANCE ▇▇▇▇▇▇▇▇ .....................................................24
8.5 COMMINGLING OF FUNDS .................................................24
8.6 SECURITY RIGHTS ......................................................24
8.7 OVEREXPENDITURES .....................................................24
ARTICLE 9 NOTICES ............................................................25
9.1 GIVING AND RECEIVING NOTICES .........................................25
9.2 CONTENT OF NOTICE ....................................................25
9.3 RESPONSE TO NOTICES ..................................................26
9.3.1 Platform and/or Development Facilities Proposals ...............26
9.3.2 Well Proposals .................................................26
9.3.3 Proposal for Multiple Operations ...............................26
9.3.4 Other Matters ..................................................26
9.4 FAILURE TO RESPOND ...................................................26
9.5 RESPONSE TO COUNTERPROPOSALS .........................................27
9.6 TIMELY WELL OPERATIONS ...............................................27
9.7 TIMELY PLATFORM/DEVELOPMENT FACILITIES OPERATIONS ....................27
ARTICLE 10 EXPLORATORY OPERATIONS ............................................28
10.1 PROPOSING OPERATIONS .................................................28
10.2 COUNTERPROPOSALS .....................................................28
10.3 OPERATIONS BY ALL PARTIES ............................................28
10.4 SECOND OPPORTUNITY TO PARTICIPATE ....................................28
10.5 OPERATIONS BY FEWER THAN ALL PARTIES .................................29
10.5.1 Acreage Out .....................................................29
10.6 EXPENDITURES APPROVED ................................................29
10.7 CONDUCT OF OPERATIONS ................................................29
10.8 COURSE OF ACTION AFTER REACHING OBJECTIVE DEPTH ......................30
10.8.1 Election by Participating Parties ..............................30
10.8.2 Priority of Operations .........................................30
10.8.3 Second Opportunity to Participate ..............................31
10.8.4 Operations by Fewer Than All Parties ...........................31
10.8.4.1 Additional Testing, Coring or Logging Operation
by Fewer than All Parties .................................32
10.8.5 Subsequent Operations ..........................................32
10.9 ▇▇▇▇▇ PROPOSED BELOW DEEPEST PRODUCIBLE RESERVOIR ..................32
ARTICLE 11 DEVELOPMENT OPERATIONS ............................................33
11.1 PROPOSING OPERATIONS ...............................................33
11.2 COUNTERPROPOSALS ...................................................33
11.3 OPERATIONS BY ALL PARTIES ..........................................34
11.4 SECOND OPPORTUNITY TO PARTICIPATE .................................34
11.5 OPERATIONS BY FEWER THAN ALL PARTIES ..............................34
11.6 EXPENDITURES APPROVED .............................................35
11.7 CONDUCT OF OPERATIONS .............................................35
11.8 COURSE OF ACTION AFTER REACHING OBJECTIVE DEPTH ...................35
11.8.1 Election by Participating Parties ...............................35
11.8.2 Priority of Operations .........................................35
11.8.3 Second Opportunity to Participate ...............................36
11.8.4 Operations by Fewer Than All Parties ...........................37
11.8.4.1 Additional Testing Operation by Fewer than All Parties ....37
11.8.5 Subsequent Operations ..........................................37
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11.8.6 Restoration of Damaged Development Well ........................38
ARTICLE 12 PLATFORM AND DEVELOPMENT FACILITIES ...............................39
12.1 PROPOSAL .............................................................39
12.2 COUNTERPROPOSALS .....................................................39
12.2.1 Operations by All Parties ......................................39
12.2.2 Second Opportunity to Participate ..............................39
12.2.3 Operations by Fewer Than All Parties ...........................39
12.3 OWNERSHIP AND USE OF THE PLATFORM AND DEVELOPMENT FACILITIES .........40
12.4 RIGHTS TO TAKE IN KIND ...............................................41
12.5 EXPANSION OR MODIFICATION OF A PLATFORM AND/OR DEVELOPMENT
FACILITIES ...........................................................42
12.6 OFFSITE HOST FACILITIES ..............................................42
ARTICLE 13 NON-CONSENT OPERATIONS ............................................43
13.1 NON-CONSENT OPERATIONS ...............................................43
13.1.1 Non-interference ...............................................43
13.1.2 Multiple Completion Limitation .................................43
13.1.3 Metering .......................................................43
13.1.4 Non-consent Well ...............................................43
13.1.5 Cost Information ...............................................43
13.1.6 Completions ....................................................44
13.2 RELINQUISHMENT OF INTEREST ...........................................44
13.2.1 Production Reversion Recoupment ................................44
13.2.2 Non-production Reversion .......................................45
13.3 DEEPENING OR SIDETRACKING OF NON-CONSENT WELL ........................46
13.4 DEEPENING OR SIDETRACKING COST ADJUSTMENTS ...........................46
13.5 SUBSEQUENT OPERATIONS IN NON-CONSENT WELL ............................47
13.6 OPERATIONS IN A PRODUCTION INTERVAL ..................................47
13.7 OPERATIONS UTILIZING A NON-CONSENT PLATFORM AND/OR DEVELOPMENT
FACILITIES ...........................................................47
13.7.1 Forfeiture of Initial Platform or Development Facilities .......48
13.8 DISCOVERY OR EXTENSION FROM NON-CONSENT DRILLING .....................48
13.9 ALLOCATION OF PLATFORM/DEVELOPMENT FACILITIES COSTS TO NON-CONSENT
OPERATIONS ...........................................................48
13.9.1 Charges ........................................................48
13.9.2 Operating and Maintenance Charges ..............................50
13.10 ALLOCATION OF COSTS BETWEEN ZONES ....................................50
13.11 LEASE MAINTENANCE OPERATIONS .........................................50
13.11.1 Participation in Lease Maintenance Operations ..................50
13.11.2 Accounting for Non-participation ...............................51
13.12 RETENTION OF LEASE BY NON-CONSENT WELL ...............................51
13.13 NON-CONSENT PREMIUMS .................................................52
ARTICLE 14 ABANDONMENT, SALVAGE, AND SURPLUS .................................52
14.1 PLATFORM SALVAGE AND REMOVAL COSTS ...................................52
14.2 ABANDONMENT OF PLATFORMS, DEVELOPMENT FACILITIES OR ▇▇▇▇▇ ............52
14.3 ASSIGNMENT OF INTEREST ...............................................53
14.4 ABANDONMENT OPERATIONS REQUIRED BY GOVERNMENTAL AUTHORITY ............53
14.5 DISPOSAL OF SURPLUS MATERIAL .........................................53
ARTICLE 15 WITHDRAWAL ........................................................54
15.1 RIGHT TO WITHDRAW ....................................................54
15.2 RESPONSE TO WITHDRAWAL NOTICE ........................................54
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15.2.1 Unanimous Withdrawal ...........................................54
15.2.2 No Additional Withdrawing Parties ..............................55
15.2.3 Acceptance of the Withdrawing Parties' Interests ...............55
15.2.4 Effects of Withdrawal ..........................................55
15.3 LIMITATION UPON AND CONDITIONS OF WITHDRAWAL .........................55
15.3.1 Prior Expenses .................................................55
15.3.2 Confidentiality ................................................56
15.3.3 Emergencies and Force Majeure ..................................56
ARTICLE 16 RENTALS, ROYALTIES, AND OTHER PAYMENTS ............................57
16.1 OVERRIDING ROYALTY AND OTHER BURDENS .................................57
16.2 SUBSEQUENTLY CREATED INTEREST ........................................57
16.3 PAYMENT OF RENTALS AND MINIMUM ROYALTIES .............................58
16.4 NON-PARTICIPATION IN PAYMENTS ........................................58
16.5 ROYALTY PAYMENTS .....................................................58
ARTICLE 17 TAXES .............................................................58
17.1 PROPERTY TAXES .......................................................58
17.2 CONTEST OF PROPERTY TAX VALUATION ....................................59
17.3 PRODUCTION AND SEVERANCE TAXES .......................................59
17.4 OTHER TAXES AND ASSESSMENTS ..........................................59
ARTICLE 18 INSURANCE .........................................................59
18.1 INSURANCE ............................................................59
18.2 BONDS ................................................................59
ARTICLE 19 LIABILITY, CLAIMS, AND LAWSUITS ...................................60
19.1 INDIVIDUAL OBLIGATIONS ...............................................60
19.2 NOTICE OF CLAIM OR LAWSUIT ...........................................60
19.3 SETTLEMENTS ..........................................................60
19.4 DEFENSE OF CLAIMS AND LAWSUITS .......................................60
19.5 LIABILITY FOR DAMAGES ................................................61
19.6 INDEMNIFICATION FOR NON-CONSENT OPERATIONS ...........................61
19.7 DAMAGE TO RESERVOIR, LOSS OF RESERVES AND PROFIT .....................62
19.8 NON-ESSENTIAL PERSONNEL ..............................................62
19.9 DISPUTE RESOLUTION PROCEDURE .........................................62
19.10 NON-OPERATOR RELEASE FOR CONTRACTOR INDEMNITY ........................62
ARTICLE 20 INTERNAL REVENUE PROVISION ........................................63
20.1 INTERNAL REVENUE PROVISION ...........................................63
ARTICLE 21 CONTRIBUTIONS .....................................................63
21.1 NOTICE OF CONTRIBUTIONS OTHER THAN ADVANCES FOR SALE OF PRODUCTION ...63
21.2 CASH CONTRIBUTIONS ...................................................63
21.3 ACREAGE CONTRIBUTIONS ................................................63
ARTICLE 22 DISPOSITION OF PRODUCTION .........................................64
22.1 TAKE-IN-KIND FACILITIES ..............................................64
22.2 DUTY TO TAKE IN KIND .................................................64
22.3 FAILURE TO TAKE OIL AND CONDENSATE IN KIND ...........................64
22.4 FAILURE TO TAKE GAS IN KIND ..........................................65
22.5 EXPENSES OF DELIVERY IN KIND .........................................65
ARTICLE 23 APPLICABLE LAW ....................................................65
23.1 APPLICABLE LAW .......................................................65
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ARTICLE 24 LAWS, REGULATIONS, AND NONDISCRIMINATION ..........................66
24.1 LAWS AND REGULATIONS .................................................66
24.2 NONDISCRIMINATION ....................................................66
ARTICLE 25 FORCE MAJEURE .....................................................66
25.1 FORCE MAJEURE ........................................................66
ARTICLE 26 SUCCESSORS, ASSIGNS, AND PREFERENTIAL RIGHTS ......................66
26.1 TRANSFER OF INTEREST .................................................66
26.1.1 Exceptions to Transfer Notice ..................................67
26.1.2 Effective Date of Transfer of Interest .........................67
26.1.3 Form of Transfer of Interest ...................................67
26.1.4 Warranty .......................................................68
26.2 PREFERENTIAL RIGHT TO PURCHASE .......................................68
26.2.1 Notice of Proposed Transfer of Interest ........................68
26.2.2 Exercise of Preferential Right to Purchase .....................68
26.2.3 Transfer of Interest Not Affected by the Preferential
Right to Purchase ..............................................69
26.2.4 Completion of Transfer of Interest .............................70
ARTICLE 27 ADMINISTRATIVE PROVISIONS .........................................70
27.1 TERM .................................................................70
27.2 WAIVER ...............................................................70
27.3 WAIVER OF RIGHT TO PARTITION .........................................70
27.4 COMPLIANCE WITH LAWS AND REGULATIONS .................................71
27.4.1 Severance of Invalid Provisions ................................71
27.4.2 Fair and Equal Employment ......................................71
27.5 CONSTRUCTION AND INTERPRETATION OF THIS AGREEMENT ....................71
27.5.1 Headings for Convenience .......................................71
27.5.2 Article References .............................................71
27.5.3 Gender and Number ..............................................72
27.5.4 Future References ..............................................72
27.5.5 Currency .......................................................72
27.5.6 Intentionally Omitted ..........................................72
27.5.7 Joint Preparation ..............................................72
27.5.8 Integrated Agreement ...........................................72
27.5.9 Binding Effect .................................................72
27.5.10 Further Assurances .............................................72
27.5.11 Counterpart Execution ..........................................72
27.6 RESTRICTED BIDDING ...................................................73
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OFFSHORE OPERATING AGREEMENT
THIS OFFSHORE OPERATING AGREEMENT ("Agreement"), made effective the 1st day of
July, 2005, by the signers hereof, their respective heirs, successors, legal
representatives, and assigns, herein referred to collectively as the "Parties"
and individually as a "Party."
WITNESSETH:
WHEREAS, the Parties own a leasehold interest in one (1) or more oil and gas
Leases identified in Exhibit "A" and desire to explore, develop, produce, and
operate those Leases pursuant to this Agreement.
NOW, THEREFORE, in consideration of the premises and the mutual covenants in
this Agreement, the Parties agree as follows:
ARTICLE 1
APPLICATION
1.1 Application to Contract Area
This Agreement shall apply to the entire Contract Area (whether one or
more Leases), as to all depths.
ARTICLE 2 DEFINITIONS
2.1 Additional Testing
An operation not previously approved in the AFE and proposed for the
specific purpose of obtaining additional subsurface data.
2.2 Affiliate
For a person, another person that controls, is controlled by, or is under
common control with that person. In this definition, (a) "control" means
the ownership by one person, directly or indirectly, of more than fifty
percent (50%) of the voting securities of a corporation or, for other
persons, the equivalent ownership interest (such as partnership
interests), and (b) "person" means an individual, corporation,
partnership, trust, estate, unincorporated organization, association, or
other legal entity.
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2.3 Authorization For Expenditure (AFE)
An authority to expend funds prepared by a Party to estimate the costs to
be incurred in conducting an operation under this Agreement.
2.4 Complete, Completing, Completion, Completed
An operation to complete a well for initial Hydrocarbon production in one
(1) or more Producible Reservoirs, including, but not limited to, setting
production casing, perforating the casing, stimulating the well,
installing Completion Equipment, and/or conducting production tests.
2.5 Completion Equipment
That certain equipment on an Exploratory Well or a Development Well
required to be installed prior to the movement of a well-completion rig
off that well,
(a) under 30 CFR 250.502, or any succeeding order or regulation issued
by the MMS, up to and including the tree, and
(b) by any other regulatory agency having jurisdiction, including, but
not limited to, a caisson and navigational aids.
2.6 Confidential Data
This Agreement and the information and data obtained under this
Agreement, including, but not limited to, geological, geophysical, and
reservoir information; originals and copies of logs; core and core
analysis; and other well information including, but not limited to, the
progress, tests, or results of a well drilled or an operation conducted
under this Agreement, except data or information that becomes public
other than by breach of this Agreement or as agreed to in writing by the
Participating Parties.
2.7 Contract Area
The OCS Blocks or portions thereof covered by the Leases subject to this
Agreement, as listed on Exhibit "A".
2.8 Deepen, Deepening
A drilling operation conducted in an existing wellbore below the
Objective Depth to which the well was previously drilled.
2.9 Development Facilities
Production equipment other than Completion Equipment that is installed on
or outside the Contract Area in order to handle or process Hydrocarbon
production. Development Facilities include, but are not limited to:
(a) compression, separation, dehydration, generators, treaters,
skimmers, bunkhouses and metering equipment;
(b) the flowlines, gathering lines or lateral lines that deliver
Hydrocarbons and water
1) from the Completion Equipment to the Platform or to Offsite
Host Facilities, or
2) from the Platform to Export Pipelines; and
(c) injection and disposal ▇▇▇▇▇.
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Development Facilities exclude Export Pipelines.
2.10 Development Operation
An operation on the Contract Area other than an Exploratory Operation.
2.11 Development Well
A well or portion of a well proposed as a Development Operation.
2.12 Exploratory Operation
An operation that is conducted on the Contract Area and that is any of
the following:
(a) proposed to Complete an Exploratory Well;
(b) proposed for an Objective Horizon that is not a Producible
Reservoir; or
(c) proposed for an Objective Horizon that has a Producible Well, but
that will be penetrated at a location where the distance between
the midpoint of the Objective Horizon to be penetrated by the
proposed operation and the midpoint of the same Objective Horizon
where it is actually penetrated by a Producible Well will be at
least twenty-five hundred (2500) feet for a gas Completion and at
least fifteen hundred (1500) feet for an oil Completion.
2.13 Exploratory Well
A well or portion of a well proposed as an Exploratory Operation.
2.14 Export Pipelines
Pipelines to which a gathering line or lateral line downstream of the
Platform and/or Development Facilities or, if there is no Platform, the
Completion Equipment, is connected and which are used to transport
Hydrocarbons or produced water to shore.
2.15 Force Majeure
An event or cause that is reasonably beyond the control of the Party
claiming the existence of such event or cause, which includes, but is not
limited to, a flood, storm, hurricane, loop current/eddy, or other act of
God, a fire, loss of well control, oil spill, or other environmental
catastrophe, a war, terrorist act, a civil disturbance, a labor dispute,
a strike, a lockout, compliance with a law, order, rule, or regulation,
governmental action or delay in granting necessary permits or permit
approvals, and the inability to secure materials or a rig (which shall
include delays in the ability to take actual possession of contracted
materials or a rig).
2.16 Hydrocarbons
Oil and/or gas and associated liquid and gaseous by-products (except
helium) which may be produced from a wellbore located on the Contract
Area.
2.17 Joint Account
This term has the same definition as the defined term "Joint Account" in
Exhibit "C" (Accounting Procedure).
2.18 Lease
Each oil and gas lease identified in Exhibit "A" and the lands covered by
that lease.
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2.19 MMS
The Minerals Management Service, United States Department of Interior, or
its successor agency. Where appropriate, the reference to MMS shall
include the appropriate state agency.
2.20 Non-consent Operation
An operation conducted on the Contract Area by fewer than all Parties,
which subjects the Nonparticipating Party to Article 13 (Non-Consent
Operations).
2.21 Non-consent Platform
A Platform owned by fewer than all Parties.
2.22 Non-consent Well
An Exploratory Well or a Development Well owned by fewer than all
Parties.
2.23 Non-operator
A Party other than the Operator.
2.24 Non-participating Party
A Party other than a Participating Party.
2.25 Non-participating Party's Share
The Participating Interest that a Non-participating Party would have had
if all Parties had participated in the operation.
2.26 Objective Depth
A depth sufficient to test the lesser of the Objective Horizon or the
specific footage depth stated in the AFE and approved by the
Participating Parties or such lesser depth mutually agreed by the
Parties.
2.27 Objective Horizon
The interval consisting of the deepest zone, formation, or horizon to be
tested in an Exploratory Well, Development Well, Deepening operation, or
Sidetracking operation, as stated in the AFE and approved by the
Participating Parties.
2.28 Offsite Host Facilities
Development and handling facilities that (a) are located of the Contract
Area and (b) are either owned by one or more third parties or by one or
more Participating Parties in a well, whose interests in the development
and handling facilities differ from their respective Working Interest
shares in the well.
2.29 Operator
The Party designated in Article 4.1 (Designation of the Operator), a
successor Operator selected under Article 4.5 (Selection of Successor
Operator), and, if applicable, a substitute Operator selected under
Article 4.2 (Substitute Operator).
2.30 Participating Interest
The percentage of the costs and risks of conducting an operation under
this Agreement that a Participating Party agrees, or is otherwise
obligated, to pay and bear.
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2.31 Participating Party
A Party that executes an AFE for a proposed operation or otherwise
agrees, or becomes liable, to pay and bear a share of the costs and risks
of conducting an operation under this Agreement.
2.32 Platform
An offshore structure on the Contract Area that supports ▇▇▇▇▇,
Completion Equipment, or Development Facilities, whether fixed,
compliant, or floating, and the components of that structure, including,
but not limited to, caissons or well protectors to the extent same are
not Completion Equipment, rising above the water line and used for the
exploration, development, or production of Hydrocarbons. The term
"Platform" shall also mean any offshore equipment or template (excluding
templates used for drilling operations) and any component thereof, other
than' Completion Equipment (including, but not limited to, flow lines and
control systems), that is resting on or attached to the sea floor and
used to obtain production of Hydrocarbons.
2.33 Producible Reservoir
An underground accumulation of Hydrocarbons (a) in a single and separate
natural pool characterized by a distinct pressure system, (b) not in
Hydrocarbon communication with another accumulation of Hydrocarbons, and
(c) into which a Producible Well has been drilled.
2.34 Producible Well
A well that is drilled under this Agreement and that (a) is producing
Hydrocarbons; (b) is determined to be, or meets the criteria for being
determined to be, capable of producing Hydrocarbons in paying quantities
under an applicable order or regulation issued by the governmental
authority having jurisdiction; or (c) is determined to be a Producible
Well by the unanimous vote of the Participating Parties.
2.35 Production Interval
A zone or interval producing or capable of producing Hydrocarbons from a
well without Reworking operations.
2.36 Recomplete, Recompleting, Recompletion
An operation whereby a Completion in one Producible Reservoir is
abandoned in order to attempt a Completion in a different Producible
Reservoir within the existing wellbore.
2.37 Rework, Reworking
An operation conducted in a well, after it has been Completed in one or
more Producible Reservoirs, to restore, maintain, or improve Hydrocarbon
production from one or more of those Producible Reservoirs, but
specifically excluding drilling, Sidetracking, Deepening, Completing, or
Recompleting the well.
2.38 Sidetrack, Sidetracking
The directional control and intentional deviation of a well to change the
bottom-hole location, whether it be to the original Objective Depth or
formation or another bottom-hole location not deeper than the
stratigraphic equivalent of the initial Objective Depth, unless the
intentional deviation is done to straighten the hole or to drill around
junk in the hole or to overcome other mechanical difficulties.
11
2.39 Take-in-Kind Facilities
Facilities which (i) are not paid for by the Joint Account and (ii) are
installed for the benefit and use of a particular Party or Parties to
take its or their share of Hydrocarbon production in kind.
2.40 Transfer of Interest
A conveyance, assignment, transfer, farmout, exchange, or other
disposition of all or part of a Party's Working Interest.
2.41 Working Interest
The record title interest, or where applicable, the operating rights of
each Party in and to each Lease (expressed as the percentage provided in
Exhibit "A"). If a Party's record title interest is different from its
operating rights, the Working Interest of each Party is the interest
provided in Exhibit "A".
ARTICLE 3
EXHIBITS
3.1 Exhibits
The following exhibits are attached to this Agreement and incorporated
into this Agreement by reference:
3.1.1 Exhibit "A"
Operator, Description of Leases, Division of Interests, and
Notification Addresses
3.1.2 Exhibit "B"
Insurance provisions.
3.1.3 Exhibit "C"
Accounting procedure.
3.1.4 Exhibit "D"
Non-discrimination Provisions.
3.1.5 Exhibit "E"
Gas Balancing Agreement.
3.1.6 Exhibit "F"
Memorandum of Operating Agreement and Financing Statement.
3.1.7 Exhibit "G"
Dispute Resolution
3.1.8 Exhibit "H"
Security Rights; Default; Unpaid Charges; Carved-out Interests
12
3.2 Conflicts
If a provision of an exhibit, except Exhibits "D," or "E", is
inconsistent with a provision in the body of this Agreement, the
provision in the body of this Agreement shall prevail. If a provision of
Exhibit "D," or "E", is inconsistent with a provision in the body of this
Agreement; however, the provision of the exhibit shall prevail.
ARTICLE 4
OPERATOR
4.1 Operator
Marathon Oil Company (MOC) is designated as the Operator of the Contract
Area. The Parties shall promptly execute and provide Operator with all
documents required by the MMS in connection with the designation of MOC
as Operator or with the designation of any other Party as a substitute or
successor Operator. Unless agreed to the contrary by all Parties hereto,
Operator shall also be classified as the designated applicant for oil
spill financial responsibility purposes and each Non-operating Party
shall promptly execute the appropriate documentation reflecting this
designation and promptly provide same to Operator for filing with the
MMS.
4.2 Substitute Operator
Except as otherwise provided in Article 4.2.1 (Circumstances Under Which
the Operator Must Conduct a Non-Consent Operation), if the Operator
becomes a Non-participating Party in a Non-consent Operation, the
Participating Parties may approve the designation of any Participating
Party as the substitute Operator by the vote of one (1) or more of the
Participating Parties having a combined forty percent (40%) or more of
the Participating Interests. The substitute Operator shall serve only (a)
for the Non-consent Operation, (b) on the Lease, or that portion of the
Lease, affected by the Non-consent Operation, and (c) with the same
authority, rights, obligations, and duties as the Operator. If a
Non-operator is the only Participating Party in a Non-consent Operation,
then the Non-operator shall be designated as the substitute Operator for
that Non consent Operation, with no vote required, unless the
Non-operator elects not to accept the designation. No Non-operator shall
ever be designated as a substitute Operator against its will. If a
substitute Operator is not designated under the foregoing procedures, the
Operator shall, upon the unanimous agreement of the Participating Parties
and the Operator, conduct the Non-consent Operation on behalf of the
Participating Parties and at the Participating Parties' sole cost and
risk under Article 13 (Non-Consent Operations).
4.2.1 Circumstances Under Which the Operator Must Conduct a Non-Consent
Operation
If:
(a) a drilling rig is on location and the Operator becomes a
Non-participating Party in a supplemental AFE for an
Exploratory Operation, or Development Operation, or
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(b) the Operator becomes a Non-participating Party in an
operation to be conducted from a Platform operated by the
Operator,
the Operator, as a Non-participating Party, shall conduct the
Non-consent Operation on behalf of the Participating Parties and
at the Participating Parties' sole cost and risk under Article 13
(Non-Consent Operations).
4.2.2 Operator's Conduct of a Non-Consent Operation in Which it is a
Non-participating Party
When, under Article 4.2 (Substitute Operator) or Article 4.2.1
(Circumstances Under Which the Operator Must Conduct a Non-Consent
Operation), the Operator conducts a Non-consent Operation in which
it is a Non-participating Party, it shall follow the practices and
standards in Article 5 (Exclusive Right to Operate).
Notwithstanding anything to the contrary in Exhibit "C", the
Operator shall not be required to proceed with the Non-consent
Operation until the Participating Parties have advanced the total
estimated costs of the Non-consent Operation to the Operator. The
Operator shall never be obligated to expend any of its own funds
for the Non-consent Operation in which it is a Non-participating
Party.
4.2.3 Appointment of a Substitute Operator
After expiration of all applicable response periods for the
Non-consent Operation and selection of a substitute Operator, each
Party shall promptly provide the substitute Operator with the
appropriate MMS designation of operator forms and designation of
oil spill responsibility forms. The Operator and the substitute
Operator shall coordinate the change of operatorship to avoid
interfering with ongoing activities and operations, if any,
including but not limited to, lease maintenance activities and
operations.
4.2.4 Redesignation of Operator
Within thirty (30) days after conclusion of the Non-consent
Operation, all Parties shall execute and provide the Operator with
the appropriate MMS designation of operator forms and designation
of oil spill responsibility forms to return operatorship to the
Operator, thereby superseding the Parties' designation of the
substitute Operator under Article 4.2.3 (Appointment of a
Substitute Operator).
4.3 Resignation of Operator
Subject to Article 4.5 (Selection of Successor), the Operator may resign
at any time by giving written notice to the Parties, except that the
Operator may not resign during a Force Majeure or an emergency that poses
a threat to life, safety, property, or the environment. If the Operator
ceases to own a Working Interest, the Operator automatically shall be
deemed to have resigned as the Operator without any action by the
Non-operators.
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4.4 Removal of Operator
Operator may be removed by an affirmative vote of the Parties owning a
combined Working Interest of fifty-one percent (51%) or more of the
remaining Working Interest after excluding the Operator's Working
Interest if:
(a) Operator becomes insolvent or unable to pay its debts as they
mature, makes an assignment for the benefit of creditors, commits
an act of bankruptcy, or seeks relief under laws providing for the
relief of debtors;
(b) a receiver is appointed for Operator or for substantially all of
its property or affairs;
(c) a Transfer of Interest by the Operator (excluding an interest
assigned to an Affiliate) reduces the Operator's Working Interest
to less than the Working Interest of a Non operator, whether
accomplished by one (1) or more Transfer of Interest.
(d) Operator commits a substantial breach of a material provision of
this Agreement and fails to cure the breach within thirty (30)
days after notice of the breach. However, if the breach specified
in the notice is of such a nature that it reasonably cannot be
corrected within the thirty (30) day period, and the Operator
within said period begins corrective action or steps to correct
the breach, and thereafter diligently carries such corrective
action to completion, the Operator shall not be removed. The
Operator shall not be removed under this Article 4.4 if the
Operator is able to prove the non-existence of the alleged breach
within thirty (30) days after receipt of written notice of such
alleged breach.
If a petition for relief under the federal bankruptcy laws is filed by or
against Operator, and if a federal bankruptcy court prevents the removal
of Operator, all Non-operators and Operator shall comprise an interim
operating committee to operate until Operator has elected to reject or
assume this Agreement under the Bankruptcy Code. An election by Operator
as a debtor-in-possession or by a trustee in bankruptcy to reject this
Agreement shall be deemed to be a resignation by Operator without any
action by the Non-operators, except the selection of a successor. To be
effective, a vote to remove Operator for any cause described above must
be taken within thirty (30) days after a Non-operator receives actual
knowledge of the cause. A change of corporate name or structure of
Operator or a transfer of Operator's interest to a single Affiliate shall
not be deemed to be a resignation or basis for removing Operator. Subject
to Article 8.6 in Exhibit "H", the resignation or removal of Operator
shall become effective at the earlier of (a) 7:00 a.m. on the first day
of the calendar month following the expiration of ninety (90) days after
the giving of notice of resignation by Operator or action by
Non-operators to remove Operator, or (b) the time when a successor
Operator assumes the duties of Operator.
4.5 Selection of Successor
Upon resignation or removal of Operator, a successor Operator shall be
selected from among the Parties by an affirmative vote of one (1) or more
Parties having a combined Working Interest of forty percent (40%) or
more. If the resigned or removed Operator is not entitled to vote, fails
to vote, or votes only to succeed itself, then the successor Operator
15
shall be selected by the affirmative vote of the Parties owning a
combined Working Interest of forty percent (40%) or more of the remaining
Working Interest after excluding the Working Interest of the resigned or
removed Operator. If the Operator assigns all or a part of its Working
Interest, then under Article 4.3 (Resignation of Operator) or Article
4.4.(c), the Party who acquired all or a part of the former Operator's
Working Interest shall not be excluded from voting for a successor
Operator. If there are only two (2) Parties to this Agreement when the
Operator resigns or is removed, then the Non-operator automatically has
the right, but not the obligation, to become the Operator. If no Party is
willing to become the Operator, this Agreement shall terminate under
Article 27.1 (Term).
4.6 Effective Date of Resignation or Removal
The resignation or removal of the Operator shall become effective as soon
as practical but no later than 7:00 a.m. on the first day of the month
following a period of ninety (90) days after the date of resignation or
removal, unless a longer period is required for the Parties to obtain
approval of the designation of the successor Operator, and designated
applicant for oil spill financial responsibility purposes, by the MMS;
however, in no event shall the resignation or removal of Operator become
effective until a successor Operator has assumed the duties of Operator.
The resignation or removal of the outgoing Operator shall not prejudice
any rights, obligations, or liabilities resulting from its operatorship.
The successor Operator may charge the Joint Account for reasonable costs
incurred in connection with copying or obtaining the former Operator's
records, information or data except when the change of Operator results
from a merger, consolidation, reorganization or sale or transfer to an
Affiliate of the Operator.
4.7 Delivery of Property
On the effective date of resignation or removal of the Operator, the
outgoing Operator shall deliver or transfer to the successor Operator
custodianship of the Joint Account and possession of all items purchased
for the Joint Account under this Agreement, all Hydrocarbons that are not
the separate property of a Party, all equipment, materials, and
appurtenances purchased for the Joint Account under this Agreement, which
are not already in the possession of the successor Operator. The outgoing
Operator shall further use its reasonable efforts to transfer to the
successor Operator, as of the effective date of the resignation or
removal, its rights as Operator under all contracts exclusively relating
to the activities or operations conducted under this Agreement, and the
successor Operator shall assume all obligations of the Operator that are
assignable under the contracts. The Parties may audit the Joint Account
and conduct an inventory of all property and all Hydrocarbons that are
not the separate property of a Party, and the inventory shall be used in
the accounting to all Parties by the outgoing Operator of the property
and the Hydrocarbons that are not the separate property of a Party. The
inventory and audit shall be conducted as provided in Exhibit "C".
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ARTICLE 5
AUTHORITY AND DUTIES OF OPERATOR
5.1 Exclusive Right to Operate
Unless otherwise provided in this Agreement, Operator shall have the
exclusive right and duty to conduct operations (or cause them to be
conducted) under this Agreement. In performing services under this
Agreement for the Non-operators, Operator shall be an independent
contractor, not subject to the control or direction of Non-operators,
except for the type of operation to be undertaken in accordance with the
voting and election procedures in this Agreement. No Party shall be
deemed to be, or hold itself out as, the agent or fiduciary of another
Party.
5.2 Workmanlike Conduct
Operator shall timely commence and conduct all operations in a good and
workmanlike manner, as would a prudent operator under the same or similar
circumstances. OPERATOR SHALL NOT BE LIABLE TO NON-OPERATORS FOR LOSSES
SUSTAINED OR LIABILITIES INCURRED, EXCEPT AS MAY RESULT FROM OPERATOR'S
GROSS NEGLIGENCE OR WILLFUL MISCONDUCT. Operator shall never be required
under this Agreement to conduct an operation that it believes would be
unsafe or would endanger persons, property or the environment. Unless
otherwise provided in this Agreement, Operator shall consult with
Non-operators and keep them informed of all important matters.
5.3 Liens and Encumbrances
Operator shall endeavor to keep the Contract Area, ▇▇▇▇▇, Platforms,
Development Facilities, and other equipment free from all liens and other
encumbrances occasioned by operations hereunder, except those provided in
Article 8.6 (Security Rights).
5.4 Employees and Contractors
Operator shall select employees and contractors and determine their
number, hours of labor, and compensation. The employees shall be
employees of Operator.
5.5 Records
The Operator shall keep or cause to be kept accurate books, accounts, and
records of activities or operations under this Agreement in compliance
with the Accounting Procedure in Exhibit "C". Unless otherwise provided
in this Agreement, all records of the Joint Account shall be available to
a Non-operator as provided in Exhibit "C". The Operator shall use
good-faith efforts to ensure the settlements, ▇▇▇▇▇▇▇▇, and reports
rendered to each Party under this Agreement are complete and accurate.
5.6 Compliance
Operator shall comply, and shall require all agents and contractors to
comply, with all applicable laws, rules, regulations, and orders of
governmental authorities having jurisdiction.
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5.7 Contractors
Operator may enter into contracts with qualified and responsible
independent contractors for the design, construction, installation,
drilling, production or operation of ▇▇▇▇▇, Platforms and Development
Facilities. Insofar as practical, Operator shall use competitive bidding
to procure goods and services for the benefit of the Parties. All
drilling operations conducted under this Agreement shall be conducted by
properly qualified and responsible drilling contractors under current
competitive contracts. A drilling contract will be deemed to be a current
competitive contract if it (a) was made within twelve (12) months before
the commencement of the well (subject to Force Majeure conditions) and
(b) contains terms, rates, and provisions that, when the contract was
made, did not materially exceed those generally prevailing in the area
for operations involving substantially equivalent rigs that are capable
of conducting the drilling operation within the time period provided in
Article 9.6 (Timely Well Operations). At its election, Operator may use
its own or an Affiliate's drilling equipment, ▇▇▇▇▇▇▇ barge, tools, or
machinery to conduct drilling operations, but the work shall be (i)
performed by Operator or its Affiliate acting as an independent
contractor, (ii) approved by written agreement with the Participating
Parties before commencement of operations, and (iii) conducted under the
same terms and conditions and at the same rates as are customary and
prevailing in competitive contracts of third parties doing work of
similar nature.
5.8 Governmental Reports
Operator shall make reports to governmental authorities it has a duty to
make as Operator and shall furnish copies of the reports to the
Participating Parties.
5.9 Information to Participating Parties
Except as provided in Article 8.6, Operator shall furnish each
Participating Party the following information, if applicable, for each
activity or operation conducted by Operator:
5.9.1 A copy of the application for permit to drill and all amendments
thereto.
5.9.2 A daily drilling report (or Reworking report or Recompletion
report, if applicable), giving the depth, corresponding
lithological information, data on drilling fluid characteristics,
information about drilling or operational difficulties or delays,
if any, and other pertinent information, by facsimile transmission
or electronic mail within eight (8) hours (inclusive of Saturdays,
Sundays, and federal holidays) for well operations conducted in
the preceding twenty-four (24) hour period.
5.9.3 A complete report of each core analysis.
5.9.4 A copy of each electrical survey, currently as it is run; all data
for each radioactivity log, temperature survey, deviation or
directional survey, caliper log, and other log or survey obtained
during the drilling of the well; and, upon completion of the well,
a composite of all electrical-type logs, insofar as is reasonable
and customary.
5.9.5 A copy of all well test results, bottom-hole pressure surveys, and
fluid analyses.
18
5.9.6 Upon written request received by Operator before commencement of
drilling, samples of cuttings and, cores taken from the well (if
sufficient cores are retrieved), packaged in containers furnished
by Operator at the expense of the requesting Party, marked as to
the depths from which they were taken, and shipped at the expense
of the requesting Party by express courier to the address
designated by the requesting Party.
5.9.7 To the extent possible, twenty-four (24) hours' advance notice of,
and access to, logging, coring, and testing operations.
5.9.8 A monthly report on the volume of Hydrocarbons and water produced
from each well.
5.9.9 A copy of each report made to a governmental authority having
jurisdiction.
5.9.10 Upon written request, other pertinent information available to
Operator, including, but not limited to, those portions of the
contracts to be used for the benefit of the Joint Account and
which pertain to the Contract Area, but excluding the Operator's
proprietary or secret information and its subsurface
interpretations.
5.10 Information to Non-participating Parties
Operator shall furnish each Non-participating Party a copy of each
Operator's governmental report that is available to the public and
associated with the applicable Non-consent Operation. Until the
applicable recoupment under Article 13 (Non-consent Operations) is
complete, a Non participating Party shall not receive or review any other
information specified by Article 5.9 (Information to Participating
Parties), except as may be necessary for a payout audit of the Non
consent Operation.
ARTICLE 6
VOTING AND VOTING PROCEDURES
6.1 Voting Procedures
Unless otherwise provided in this Agreement, each matter requiring
approval of the Parties shall be determined as follows:
6.1.1 Voting Interest
Subject to Article 8.6 (Security Rights), each Party shall have a
voting interest equal to its Working Interest or its Participating
Interest, as applicable.
6.1.2 Vote Required
Unless expressly stated to the contrary herein, a matter requiring
approval of the Parties shall be decided by the affirmative vote
of one (1) or more Parties having a combined voting interest of
forty percent (40%) or more.
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6.1.3 Votes
The Parties may vote at a meeting, by telephone, promptly
confirmed in writing to Operator, or by facsimile transmission.
Operator shall give each Party prompt notice of the results of the
voting.
6.1.4 Meetings
Meetings of the Parties may be called by Operator upon its own
motion or at the request of a Party having a voting interest of
not less than ten percent (10%). Except in an emergency, no
meeting shall be called on less than five (5) days' advance
written notice, and the notice of meeting shall include the
meeting agenda prepared by the Operator or the requesting Party.
The representative of Operator shall be chairman of each meeting.
Only matters included in the agenda may be discussed at a meeting,
but the agenda and items included in the agenda may be amended
prior to or during the meeting by unanimous agreement of all
Parties.
ARTICLE 7
ACCESS
7.1 Access to Contract Area
Except as provided in Article 8.6, each Party shall have access, at its
sole risk and expense and at all reasonable times and subject to the
reasonable safety requirements of the Operator, to the Contract Area,
Platform, Development Facilities and Joint Account assets to inspect
activities, operations and ▇▇▇▇▇ in which it participates, and to
pertinent records and data. A Non-operator shall give Operator at least
twenty-four (24) hours' notice of the Non-operator's intention to visit
the Contract Area. To protect Operator and the Non-operators from
unnecessary lawsuits, claims, and legal liability, if it is necessary
for a person who is not performing services for Operator directly related
to the joint operations, but is performing services solely for a
Non-operator or pertaining to the business or operations of a
Non-operator, to visit, use, or board a rig, well, Platform, or
Development Facilities subject to this Agreement, the Non-operator shall
give Operator advance notice of the visit, use, or boarding, and shall.
secure from that person an agreement, in a form satisfactory to Operator,
indemnifying and holding Operator and Non-operators harmless, or shall
itself provide the same hold harmless and indemnification in favor of
Operator and other Non-operators before the visit, use, or boarding.
7.2 Reports
On written request, Operator shall furnish a requesting Party any
information not otherwise furnished under Article 5 (Authority and Duties
of Operator) to which that Party is entitled under this Agreement. The
costs of gathering and furnishing information not furnished under Article
5 shall be charged to the requesting Party. Operator is not obligated to
furnish interpretative data that was generated by Operator at its sole
cost.
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7.3 Confidentiality
Except as otherwise provided in Article 7.4 (Limited Disclosure), Article
7.5 (Limited Releases to Offshore Scout Association), Article 7.6 (Media
Releases), and Article 21.1 (Notice of Contributions Other Than Advances
for Sale of Production), and except for necessary disclosures to
governmental authorities having jurisdiction, or except as agreed in
writing by all Participating Parties, no Party or Affiliate shall
disclose Confidential Data to a third party. This Article 7.3 shall be in
force and effect for a term of two (2) years after termination of this
Agreement.
7.4 Limited Disclosure
A Party may make Confidential Data to which it is entitled under this
Agreement available to:
(a) outside professional consultants and reputable engineering firms
for the purpose of evaluations and/or submitting bids;
(b) gas transmission companies for Hydrocarbon reserve or other
technical evaluations;
(c) reputable financial institutions for study before commitment of
funds;
(d) governmental authorities having jurisdiction or the public, to the
extent required by applicable laws or by those governmental
authorities;
(e) the public, to the extent required by the regulations of a
recognized stock exchange;
(f) third parties with whom a Party is engaged in a bona fide effort
to effect a merger or consolidation, sell all or a controlling
part of that Party's stock, or sell all or substantially all
assets of that Party or an Affiliate of that Party;
(g) an Affiliate of a Party;
(h) such limited well information that is typically disclosed by
Operator's representative during meetings of the Offshore Oil
Scouts Association; and
(i) third parties with whom a Party is engaged in a bona fide effort
to sell, farm out, or trade all or a portion of its interest in
the Contract Area.
Confidential Data made available under Articles 7.4(f) and 7.4(i) shall
not be removed from the custody or premises of the Party making the
Confidential Data available to third parties described in those Articles.
A third party permitted access under Articles 7.4, (a), (b), (c), (f),
and (i) shall first agree in writing neither to disclose the Confidential
Data to others nor to use the Confidential Data, except for the purpose
for which it was disclosed. The disclosing Party shall give prior notice
to the other Parties that it intends to make the Confidential Data
available.
7.5 Limited Releases to Offshore Scout Association
The Operator may disclose Confidential Data to the Offshore Oil Scouts
Association at their regularly scheduled meetings. The Confidential Data
that may be disclosed is limited to information concerning well
locations, well operations, and well completions to the extent reasonable
and customary in industry practice or required under the by-laws of the
Offshore Oil Scouts Association.
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7.6 Media Releases
Any Party may propose a news release to the media concerning activities
or operations covered by this Agreement, and such proposal shall require
unanimous approval. Notwithstanding anything to the contrary, should
Operator deem that certain well results covered by this Agreement are of
strategic commercial value to the Participating Parties, no information
may be released in regards to said activity or operation without
unanimous approval of the Participating Parties until (a) Operator deems
that the information is no longer of strategic commercial value, or (b)
one (1) year after completion of the activity or operation which
generated the information, whichever occurs first.
7.6.1 Operator's News Release
The Operator has an exclusive ten (10) day period, commencing
immediately after a proposed news release is not unanimously
approved, in which to issue a basic news release to the media. A
basic news release does not require approval and its content is
restricted to the following information:
(a) name of well and water depth
(b) location of well by area, block, and adjacent state
(c) lease bonus paid and lease acquisition date (d) tested
interval(s), if applicable
(e) test(s) results, if applicable
(f) participants and percentages of working interest
(g) acreage controlled.
The Operator will transmit the basic news release to the
Non-Operating Parties not less than seventy-two (72) hours
(exclusive of Saturdays, Sundays, and federal holidays) before it
is to be issued to the media. Any Party may have its name excluded
from the proposed basic news release by notifying the Operator of
that desire within forty-eight (48) hours of its receipt of the
proposed basic news release.
7.6.2 Non-Operating Party's News Release
If the Operator does issue a basic news release to the media
within its exclusive period set forth in Article 7.6.1 (Operator's
News Release), any other Participating Party may prepare and issue
its own basic news release, using the content guidelines and
procedures set forth in Article 7.6.1 (Operator's News Release),
simultaneously with or following the Operator's basic news
release. If the Operator does not issue a basic news release to
the media within its exclusive period set forth in Article 7.6.1
(Operator's News Release), any other Participating Party may
prepare and issue its own basic news release, using the content
guidelines and procedures set forth in Article 7.6.1 (Operator's
News Release).
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7.6.3 Emergency News Releases
In an emergency involving extensive property damage, loss of human
life, or other clear emergency and where there is insufficient
time to obtain approval from the Parties, the Operator may furnish
factual information necessary to satisfy legitimate public
interest or governmental authorities having jurisdiction. The
Operator shall immediately notify the Parties of the information
furnished in response to the emergency.
ARTICLE 8
EXPENDITURES
8.1 Basis of Charge to the Parties
Subject to the other provisions of this Agreement, Operator shall pay all
costs incurred under this Agreement, and each Party shall reimburse
Operator in proportion to its Participating Interest. All charges,
credits, and accounting for expenditures shall be made and done pursuant
to Exhibit "C".
8.2 AFEs
Before undertaking an operation or making a single expenditure to be in
excess of five hundred thousand dollars ($500,000.00), and before
conducting an activity or operation to drill, Sidetrack, Deepen,
Complete, Rework or Recomplete a well (regardless of the estimated cost),
Operator shall submit an AFE for the operation or expenditure to the
Parties for approval. Operator shall also furnish an informational AFE to
all Parties for an operation or single expenditure estimated to cost five
hundred thousand dollars ($500,000.00) or less, but in excess of one
hundred fifty thousand dollars ($150,000.00) if Operator prepares same
for its own use.
8.3 Emergency and Required Expenditures
Notwithstanding anything in this Agreement to the contrary, Operator is
hereby authorized to conduct operations and incur expenses that in its
opinion are reasonably necessary to safeguard life, property, and the
environment in case of an actual or imminently threatened blowout,
explosion, accident, fire, flood, storm, hurricane, catastrophe, or other
emergency, and the expenses shall be borne by the Participating Parties
in the affected operation. Operator shall report to the Participating
Parties, as promptly as possible, the nature of the emergency and the
action taken. Operator is also authorized to conduct operations and incur
expenses reasonably required by statute, regulation, order, or permit
condition or by a governmental authority having jurisdiction, which
expenses shall be borne by the Participating Parties in the affected
operation, subject to Exhibit "C".
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8.4 Advance ▇▇▇▇▇▇▇▇
Operator may require each Party to advance its respective share of
estimated expenditures pursuant to Exhibit "C".
8.5 Commingling of Funds
Funds received by Operator under this Agreement may be commingled with
its own funds.
8.6 Security Rights
The security rights of the Parties will be administered as provided in
Exhibit "H".
8.7 Overexpenditures
Operator shall notify the Participating Parties when it appears that
actual expenditures for an approved operation in an Exploratory or
Development Well or for the design, construction, and installation of a
Platform (other than a Platform that solely supports Development
Facilities) will exceed the AFE estimate (the excess being an
"Overexpenditure"). If it appears that the Overexpenditure will be no
more than twenty percent (20%), hereinafter referred to as the "Allowable
Variance," Operator's notice shall be forwarded for information only. If
Operator determines that the Overexpenditure will exceed the Allowable
Variance, Operator shall submit a new AFE for the current operation
("Supplemental AFE") for approval of the Participating Parties. The
Participating Parties may then elect whether to continue to participate
within ten (10) days or forty-eight (48) hours if a rig is on location,
inclusive of Saturdays, Sundays, and federal holidays, after receipt of
the Supplemental AFE. If fewer than all, but one (1) or more
Participating Parties elect to continue to participate in the current
operation and agree to pay and bear one hundred percent (100%) of the
costs and risks of conducting it, Operator shall continue to conduct the
current operation. Otherwise, the operation shall cease. A Participating
Party that elects not to continue to participate in the current operation
shall become a Non-participating Party in the operation, from and after
the date when the Overexpenditure exceeds the Allowable Variance, not
including emergency expenditures, and Article 13.2 (Relinquishment of
Interest) shall apply to the Party only to the extent that the costs of
the operation exceed the Allowable Variance. Unless otherwise agreed by
the Participating Parties, each Participating Party electing to continue
to participate in the current operation may, but is not obligated to, pay
and bear that portion of the costs and risks attributable to the
interests of the Non-participating Parties in the ratio that the
Participating Party's interest bears to the total interests of all
Participating Parties electing to continue participating in the current
operation. If it appears to Operator that actual expenditures for an
approved operation will exceed the Supplemental AFE estimate, Operator
shall again repeat the procedure of this Article 8.7, using the estimate
in the most recently approved Supplemental AFE as the basis for
determining the Overexpenditure and Allowable Variance. An initial
Participating Party in an operation shall remain responsible for its
share of all costs and risks for plugging, replugging, capping, burying,
disposing, abandoning, removing, and restoring associated with the
operation, subject to Article 14 (Abandonment, Salvage, and Surplus),
24
regardless of its subsequent election on a Supplemental AFE, except to
the extent such costs were increased by subsequent operations in which it
elected not to participate. Notwithstanding anything in this Article to
the contrary, if expenditures exceed the Allowable Variance for an
emergency, as provided in Article 8.3 (Emergency and Required
Expenditures), Operator shall not be required to secure the approval of
the Participating Parties, as the expenditures will be borne by all
Participating Parties. However, once stabilization takes place and
emergency expenditures are no longer being incurred, Operator shall
promptly furnish a Supplemental AFE to the Participating Parties for
their review and election to continue participation in the proposed
operation, as provided above.
ARTICLE 9
NOTICES
9.1 Giving and Receiving Notices
Except as otherwise provided in this Agreement, all AFEs and notices
required or permitted by this Agreement shall be in writing and shall be
delivered in person or by mail, courier service, or facsimile
transmission, with postage and charges prepaid, addressed to the Parties
at the addresses in Exhibit "A". When a drilling rig is on location and
standby charges are accumulating, however, notices pertaining to the rig
shall be given orally or by telephone. All telephone or oral notices
permitted by this Agreement shall be confirmed immediately thereafter by
written notice. A notice shall be deemed to have been delivered only when
received by the Party to whom it was directed, and the period for a Party
to deliver a response thereto begins on the date the notice is received.
"Receipt", for oral or telephone notice, means actual and immediate
communication to the Party to be notified, and for written notice, means
actual delivery of the notice to the address of the Party to be notified,
as specified in this Agreement, or to the facsimile machine of that
Party. A responsive notice shall be deemed to have been delivered when
the Party to be notified is in receipt of same. When a response is
required in forty-eight (48) hours or less, however, the response shall
be given orally or by telephone or facsimile transmission within that
period. If a Party is unavailable to accept delivery of a notice required
to be given orally or by telephone, the notice may be delivered by any
other method specified in this Article 9.1. A message left on an
answering machine or with an answering service or other third person
shall not be deemed to be adequate telephonic or oral notice.
9.2 Content of Notice
An AFE. or notice requiring a response shall indicate the maximum
response time specified in Article 9.3 (Response to Notices). A proposal
for a Platform and/or Development Facilities shall include an AFE,
containing a description of the Platform and/or Development Facilities,
including, but not limited to, location, and the estimated costs of
design, fabrication, transportation, and
25
installation. A proposal for a well operation shall include an AFE,
describing the estimated commencement date, the proposed depth, the
objective formation or formations to be penetrated or tested, the
Objective Horizon, the surface and bottomhole locations, proposed
directional or horizontal drilling operations, the type of equipment to
be used, and the estimated costs of the operation, including, but not
limited to, the estimated costs of drilling, testing, and Completing (if
for Development Operations) or abandoning the well. If a proposed
operation is subject to Article 13.11 (Lease Maintenance Operations), the
notice shall specify that the proposal is a Lease Maintenance Operation.
A proposal for multiple operations on more than one (1) well location by
the same rig shall contain separate AFEs or notices for each operation
and shall specify in writing in what order the operations will be
conducted. Each Party shall respond to each proposed multiple operation
in the manner provided in Article 9.3.3 (Proposal for Multiple
Operations).
9.3 Response to Notices
Except as provided in Article 9.1, each Party's response to a proposal
shall be in writing to the proposing Party. Unless otherwise provided in
this Agreement, the response time shall be as follows:
9.3.1 Platform and/or Development Facilities Proposals
Each Party shall respond within sixty (60) days after its receipt
of the AFE or notice for a Platform and/or Development Facilities.
9.3.2 Well Proposals
Except as provided in Article 9.3.3 (Proposal for Multiple
Operations), each Party shall respond within thirty (30) days
after receipt of the well, Rework or Recompletion proposal, but if
(a) a drilling rig is on location, (b) the proposal relates to the
same well or its substitute, and (c) standby charges are
accumulating, a response shall be made within forty-eight (48)
hours after receipt of the proposal, inclusive of Saturdays,
Sundays, and federal holidays.
9.3.3 Proposal for Multiple Operations
When a proposal is made to conduct multiple Development Operations
at separate well locations using the same rig, each Party shall
respond (a) to the well operation taking precedence, within thirty
(30) days after receipt of the proposal; and (b) to each
subsequent well location, within forty-eight (48) hours after
completion of approved operations at the prior location and
notification thereof by Operator.
9.3.4 Other Matters
For all other matters requiring notice, each Party shall respond
within thirty (30) days after receipt of notice.
9.4 Failure to Respond
Failure of a Party to respond to a proposal or notice, to vote, or to
elect to participate within the period required by this Agreement shall
be deemed to be a negative response, vote, or election.
26
9.5 Response to Counterproposals
Should a counterproposal be allowed under this Agreement, responses to
that counterproposal must be made within the response period for the
original proposal.
9.6 Timely Well Operations
Unless otherwise provided, an approved well shall be commenced within one
hundred-eighty (180) days after the date when the last applicable
election on that well may be made. ▇▇▇▇▇ shall be deemed to have
commenced on the day charges commence under the drilling contract for
that well. The time frame for commencement of a well by the Operator may
be extended due to a Force Majeure for an additional period of up to one
hundred-eighty (180) days. If an approved well has not been commenced by
the Operator within the applicable time frame, the proposal of the well
and its approval will be deemed to have been withdrawn unless the other
Participating Parties in that well select a substitute Operator to drill
the approved well. If the substitute Operator fails to commence actual
drilling operations on an approved well within thirty (30) days after
designation as the substitute Operator, but in no event, including the
occurrence of a Force Majeure, one (1) year after the date when the last
applicable election on that well may be made, the proposal of the well
and its approval will be deemed to have been withdrawn. Subject to
Exhibit "C", if a proposal for a well is deemed to have been withdrawn,
all costs incurred in the preparation for or in furtherance of that well
will be chargeable to the Parties who voted to participate in the well
proposal for that well.
9.7 Timely Platform/Development Facilities Operations
Unless otherwise provided, Operator shall commence, or cause to commence,
the construction, acquisition, or refurbishment of an approved proposal
for a Platform and/or Development Facilities within ninety (90) days
after the date when the last applicable election on that Platform and/or
Development Facilities may be made. The construction, acquisition, or
refurbishment of an approved Platform and/or Development Facilities
proposal shall be deemed to have commenced on the date a contract is
awarded for the design, acquisition, fabrication, or refurbishment of the
Platform and/or Development Facilities. If the Operator does not commence
the construction, acquisition, or refurbishment of an approved Platform
and/or Development Facilities proposal within the ninety (90) day time
frame, the other Participating Parties in that Platform and/or
Development Facilities proposal may select a substitute Operator to
commence the Platform and/or Development Facilities. In all events,
including the occurrence of a Force Majeure, if the substitute Operator
fails to commence the construction, acquisition, or refurbishment of an
approved Platform and/or Development Facilities within one hundred-eighty
(180) days from the proposal of the approved Platform and/or Development
Facilities, the proposal of the Platform and/or Development Facilities
and their approval will be deemed to have been withdrawn. Subject to
Exhibit "C", regardless of whether or not the construction, acquisition,
27
or refurbishment of a Platform and/or Development Facilities is
commenced, all costs incurred by Operator, attributable to that activity,
shall be paid by the Participating Parties.
ARTICLE 10
EXPLORATORY OPERATIONS
10.1 Proposing Operations
A Party may propose an Exploratory Operation in accordance with Article 9
(Notices) to the other Parties who are entitled to vote or make an
election in regard to that operation.
10.2 Counterproposals
When an Exploratory Operation is proposed, a Party may, within ten (10)
days after receipt of the AFE or notice for the original proposal, make a
counterproposal to conduct an alternative Exploratory Operation by
sending an AFE or notice to such Parties in accordance with Article 9
(Notices). The AFE or notice shall indicate that the proposal is a
counterproposal to the original proposal. If one or more counterproposals
are made, such Parties shall elect to participate in either the original
proposal, one (1) counterproposal, or neither the original proposal nor a
counterproposal. If two (2) or more proposals receive the approval of the
number of Parties and combined Working Interests required by Article 10.5
(Operations by Fewer Than All Parties), the proposal receiving the
largest percentage of Working Interest approval shall take precedence,
and in the event of a tie between two (2) or more approved proposals, the
proposal first received by the Parties shall take precedence. Except for
the response period provided in this Article 10.2, a counterproposal
shall be subject to the same terms and conditions as the original
proposal.
10.3 Operations by All Parties
If all Parties elect to participate in the proposed operation, Operator
shall conduct the operation at their cost and risk.
10.4 Second Opportunity to Participate
If fewer than all but one (1) or more Parties having a combined Working
Interest of forty percent (40%) or more elect to participate, then the
proposing Party shall notify the Parties of the elections made, whereupon
a Party originally electing not to participate may then elect to
participate by notifying the proposing Party within twenty-four (24)
hours, exclusive of Saturdays, Sundays, and federal holidays, after
receipt of such notice. If all Parties elect to participate in the
proposed operation, Operator shall conduct the operation at their cost
and risk. If there are only two (2) Parties to this Agreement and no
counterproposal is made pursuant to Article 10.2, then there shall not be
a second opportunity to elect to participate, and if the Participating
Party agrees to pay and bear one hundred percent (100%) of the costs and
risks of the operation, then the Operator, subject to Article 4.2
(Substitute Operator), shall conduct the operation as a Non-consent
28
Operation for the benefit of the Participating Party, and the provisions
of Article 13 (Non-consent Operations) shall apply.
10.5 Operations by Fewer Than All Parties
If there are more than two (2) Parties to this Agreement, then, after the
election made under Article 10.4 (Second Opportunity to Participate),
fewer than all but one (1) or more Parties having a combined Working
Interest of forty percent (40%) or more have elected to participate in
the proposed operation, the proposing Party shall notify the
Participating Parties, and each Participating Party shall have
twenty-four (24) hours, exclusive of Saturdays, Sundays, and federal
holidays, after receipt of the notice to notify the proposing Party of
the portion of the costs and risks attributable to the total
Non-participating Parties' interests it elects to pay and bear. Unless
otherwise agreed by the Participating Parties, each Participating Party
may, but shall not be obligated to, pay and bear that portion of the
costs and risks attributable to the total Nonparticipating Parties'
interests in the ratio that the Participating Party's interest bears to
the total interests of all Participating Parties who elect to pay and
bear a portion of the costs and risks attributable to the total
Non-participating Parties' interests. Failure to respond shall be deemed
to be an election not to pay or bear any additional costs or risks. If
the Participating Parties agree to pay and bear one hundred percent
(100%) of the costs and risks of the operation, Operator, subject to
Article 4.2 (Substitute Operator), shall conduct the operation as a
Non-consent Operation for the benefit of the Participating Parties, and
the provisions of Article 13 (Non-consent Operations) shall apply. If
such agreement is not obtained, however, the operation shall not be
conducted and the effect shall be as if the proposal had not been made.
10.5.1 Acreage Out
With respect to the first Exploratory Well drilled on the Contract
Area, a Party electing not to participate in an approved proposal
to drill the first Exploratory Well on the Contract Area shall
withdraw from this Agreement in accordance with Article l5
(Withdrawal), and shall forfeit and permanently assign its entire
interest in and rights to the Contract Area, with the withdrawal
to be effective on the date actual drilling operations are
commenced.
10.6 Expenditures Approved
Approval of an Exploratory Operation shall cover all necessary
expenditures associated with the operation proposed in the AFE or notice
that are incurred by Operator in connection with (a) preparations for
drilling; (b) the actual drilling; (c) evaluations, such as testing,
coring, and logging; and (d) plugging and abandonment, subject to any
limitation that may exist as provided under Article 8 above.
10.7 Conduct of Operations
After commencement of drilling an Exploratory Well, Operator shall
diligently conduct the operation without unreasonable delay until the
well reaches the Objective Depth, unless the well encounters, at a lesser
depth, impenetrable conditions or mechanical difficulties that cannot be
29
overcome by reasonable and prudent operations and that render further
operations impracticable, except as may otherwise be provided in Article
8.7 (Overexpenditures). If a well does not reach its Objective Depth as a
result of the conditions mentioned in this Article 10.7, the operation
shall be deemed to have been completed and Article 13 (Non-consent
Operations) shall apply to each Non-participating Party for the portion
of the well drilled.
10.8 Course of Action After Reaching Objective Depth
When an Exploratory Well has been drilled to its Objective Depth and
reasonable testing, coring, and logging have been completed as set forth
in the approved AFE and the results have been furnished to the
Participating Parties, Operator shall notify the Participating Parties of
Operator's recommendation for further operations in the well, and the
following provisions shall apply: 10.8.1 Election by Participating
Parties A Participating Party shall have the right to propose another
operation by notifying the Operator and the other Participating Parties
of its proposed operation within twenty-four (24) hours, inclusive of
Saturdays, Sundays, and federal holidays, of receipt of the Operator's
notice. The Participating Parties shall notify Operator within
forty-eight (48) hours, inclusive of Saturdays, Sundays, and federal
holidays, of receipt of the Operator's proposal whether the Participating
Parties elect to (a) participate in a recommended operation, or (b) not
participate in a recommended operation. Failure to respond shall be
deemed to be an election not to participate in any of the recommended
operations.
10.8.2 Priority of Operations
If all Participating Parties elect to participate in the same
proposed operation, Operator shall conduct the operation at their
cost and risk. If more than one (1) operation is approved by one
(1) or more Participating Parties having a combined Working
Interest of forty percent (40%) or more, then the approved
operation with the lowest number as indicated below shall take
precedence:
1) Additional Testing, coring, or logging. (If conflicting
proposals are approved, the proposal receiving the largest
percentage of Working Interest approval shall take
precedence, and in the event of a tie between two (2) or
more approved proposals, the approved proposal first
received by the Parties shall take precedence.)
2) Deepen. (If conflicting proposals are approved, the
operation proposed to the shallowest depth shall take
precedence.)
3) Sidetrack to a location within the previously approved
Objective Horizon or Horizons. (If conflicting proposals
are approved, the proposal receiving the largest percentage
Working Interest approval shall take precedence, and in the
event of a tie between two (2) or more approved proposals,
the approved proposal first received by the Parties shall
take precedence.)
30
4) Sidetrack to a location outside the previously approved
Objective Horizon or Horizons.
5) Complete at the Objective Horizon or run production casing
or a production liner and temporarily abandon the well for
future completion at the Objective Depth upon installation
of any necessary production structures, Facilities,
Flowlines/Pipelines, or other equipment.
6) Complete above the Objective Horizon. (If conflicting
proposals are approved, the operation proposed at the
deepest depth shall take precedence.)
7) Other operations. (If conflicting proposals are approved,
the proposal receiving the largest percentage Working
Interest approval shall take precedence, and in the event
of a tie between two (2) or more approved proposals, the
approved proposal first received by the Parties shall take
precedence.)
8) Temporarily abandon.
9) Plug and abandon.
10.8.3 Second Opportunity to Participate
If fewer than all but one (1) or more Participating Parties having
a combined Working interest of forty percent (40%) or more elect
to participate in an operation, the proposing Party shall notify
the Participating Parties (and any Non-participating Party subject
to Article 13.3.) of the elections made, whereupon a Party
originally electing not to participate in the proposed (or
original) operation may then elect to participate by notifying the
proposing Party within twenty-four (24) hours, inclusive of
Saturdays, Sundays, and federal holidays, after receipt of such
notice. If all Parties elect to participate in the proposed
operation, Operator shall conduct the operation at their cost and
risk. If there are only two (2) Parties to this Agreement and no
counterproposal is made pursuant to Article 10.8.1, then there
shall not be a second opportunity to elect to participate, and if
the Participating Party agrees to pay and bear one hundred percent
(100%) of the costs and risks of the operation, then the Operator,
subject to Article 4.2 (Substitute Operator), shall conduct the
operation as a Non-consent Operation for the benefit of the
Participating Party, and the provisions of Article 13 (Non-consent
Operations) shall apply.
10.8.4 Operations by Fewer Than All Parties
If, after the election (if applicable) made under Article 10.8.3
(Second Opportunity to Participate), fewer than all but one (1) or
more Parties having a combined Working Interest of forty percent
(40%) or more elect to participate in the proposed operation that
takes precedence, the proposing Party shall notify the
Participating Parties and each Participating Party shall have
twenty-four (24) hours, inclusive of Saturdays, Sundays, and
federal holidays, after receipt of the notice to notify the
proposing Party of the portion of the costs and risks attributable
to the total Non-participating Parties' interests it elects to pay
and bear. Unless otherwise agreed by the Participating Parties,
31
each Participating Party may, but shall not be obligated to, pay
and bear that portion of the costs and risks attributable to the
total Non-participating Parties' interests in the ratio that the
Participating Party's interest bears to the total interests of all
Participating Parties who elect to pay and bear a portion of costs
and risks attributable to the Non-participating Parties'
interests. Failure to respond shall be deemed to be an election
not to pay or bear any additional costs or risks. If the
Participating Parties agree to pay and bear one hundred percent
(100%) of the costs and risks of the operation, Operator, subject
to Article 4.2 (Substitute Operator), shall conduct the operation
as a Non-consent Operation for the benefit of the Participating
Parties, and the provisions of Article 13 (Non-consent Operations)
shall apply. If such agreement is not obtained, however, the
operation shall not be conducted and the effect shall be as if the
proposal had not been made. If a Participating Party in a well
elects not to participate in the Deepening or Sidetracking
operation in the well, such non-consenting Party shall become a
Non-participating Party in all operations conducted in the
Deepened or Sidetracked portion of the well after that election.
10.8.4.1 Additional Testing, Coring, or Logging Operation by Fewer
than All Parties
If the Non-consent Operation is an Additional Testing,
coring, or logging operation, Article 13 (Non-consent
Operations) shall not apply, however, a Party electing
not to participate in the Additional Testing, coring, or
logging shall not be entitled to information resulting
from the operation.
10.8.5 Subsequent Operations
Upon completion of an operation conducted under Article 10.8
(Course of Action After Reaching Objective Depth), if the well is
not either (a) Completed as a Producible Well, or (b) temporarily
abandoned or permanently plugged and abandoned, Operator shall
notify the Participating Parties of Operator's recommendation for
further operations in the well under Articles 10.8.1 through
10.8.4, which again shall apply. If sufficient approval is not
obtained to conduct a subsequent operation in a well or if all
Participating Parties elect to plug and abandon the well, subject
to Article 14 (Abandonment and Salvage), Operator shall
permanently plug and abandon the well at the cost and risk of all
Participating Parties. Each Participating Party shall be
responsible for its proportionate share of the plugging and
abandonment costs associated with the operation in which it
participated.
10.9 ▇▇▇▇▇ Proposed Below Deepest Producible Reservoir
If a proposal is made to conduct an Exploratory Operation involving the
drilling of a well to an Objective Horizon below the base of the deepest
Producible Reservoir, a Party may elect within the applicable period to
limit its participation in the operation down to the base of the deepest
Producible Reservoir. For purposes of this Article 10.9, a Party who
elects to limit its participation in the operation down to the base of
32
the deepest Producible Reservoir shall be referred to as "Shallow
Participant" and a Party who elects to participate in the entire
operation shall be referred to as "Deep Participant". If a Party elects
to limit its participation to the base of the deepest Producible
Reservoir, Operator shall prepare and submit to the Shallow Participant,
for informational purposes, a separate AFE covering operations down to
the deepest Producible Reservoir. The Shallow Participant shall be a
Participating Party in, and shall pay and bear the costs and risks of,
each operation to the base of the deepest Producible Reservoir, according
to its Participating Interest. The Shallow Participant shall be a
Non-participating Party in each operation below the deepest Producible
Reservoir, and the operation shall be considered a Non-consent Operation,
and the provisions of Article 13 (Non-consent Operations) shall apply. If
the well is Completed and produces Hydrocarbons from a horizon below the
deepest Producible Reservoir, the Deep Participant shall reimburse the
Shallow Participant for its share of the actual well costs to the base of
the deepest Producible Reservoir. Payment shall be due within thirty (30)
days after receipt of notice of the well being completed below the
deepest Producible Reservoir. If the well is Completed and produces
Hydrocarbons from a horizon below the deepest Producible Reservoir, the
Shallow Participant shall reimburse the Deep Participant for its Working
Interest share of the actual well costs to the base of the deepest
Producible Reservoir in accordance with Article 13.4 (Deepening or
Sidetracking Cost Adjustments), upon the earlier of the time that (a) the
well is plugged back to a horizon at or above the base of the deepest
Producible Reservoir, as determined when the original well was proposed,
(b) the well is plugged and abandoned, or (c) the amount to be recouped
by the Deep Participant under Article 13 (Non-consent Operations) is
recovered.
ARTICLE 11
DEVELOPMENT OPERATIONS
11.1 Proposing Operations
A Party may propose a Development Operation in accordance with Article 9
(Notices) to the other Parties who are entitled to vote or make an
election in regard to that operation.
11.2 Counterproposals
When a Development Operation is proposed, a Party may, within ten (10)
days after receipt of the AFE or notice for the original proposal, make a
counterproposal to conduct an alternative Development Operation by
sending an AFE or notice to such Parties in accordance with Article 9
(Notices). The AFE or notice shall indicate that the proposal is a
counterproposal to the original proposal. If one (1) or more
counterproposals are made, such Parties shall elect to participate in
either the original proposal, one (1) counterproposal, or neither the
original proposal nor a counterproposal. If two (2) or more proposals
receive the approval of the number of Parties and combined Working
Interests required by Article 11.5 (Operations by Fewer Than All
33
Parties), the proposal receiving the largest percentage Working Interest
approval shall take precedence, and in the event of a tie between two (2)
or more approved proposals, the approved proposal first received by the
Parties shall prevail. Except for the response period provided in this
Article 11.2, a counterproposal shall be subject to the same terms and
conditions as the original proposal.
11.3 Operations by All Parties
If all Parties elect to participate in the proposed operation, Operator
shall conduct the operation at their cost and risk.
11.4 Second Opportunity to Participate
If fewer than all but one (1) or more Parties having a combined Working
Interest of forty percent (40%) or more elect to participate, then the
proposing Party shall notify the Parties of the elections made, whereupon
a Party originally electing not to participate may then elect to
participate by notifying the proposing Party within twenty-four (24)
hours, exclusive of Saturdays, Sundays, and federal holidays, after
receipt of such notice. If all Parties elect to participate in the
proposed operation, Operator shall conduct the operation at their cost
and risk. If there are only two (2) Parties to this Agreement and no
counterproposal is made pursuant to Article 11.2, then there shall not be
a second opportunity to elect to participate, and if the Participating
Party agrees to pay and bear one hundred percent (100%) of the costs and
risks of the operation, then the Operator, subject to Article 4.2
(Substitute Operator), shall conduct the operation as a Non consent
Operation for the benefit of the Participating Party, and the provisions
of Article 13 (Non consent Operations) shall apply.
11.5 Operations by Fewer Than All Parties
If there are more than two (2) Parties to this Agreement, then, after the
election made under Article 11.4 (Second Opportunity to Participate),
fewer than all but one (1) or more Parties having a combined Working
Interest of forty percent (40%) or more have elected to participate in
the proposed operation, the proposing Party shall notify the
Participating Parties, and each Participating Party shall have
twenty-four (24) hours, exclusive of Saturdays, Sundays, and federal
holidays, after receipt of the notice to notify the proposing Party of
the portion of the costs and risks attributable to the total
Non-participating Parties' interests it elects to pay and bear. Unless
otherwise agreed by the Participating Parties, each Participating Party
may, but shall not be obligated to, pay and bear that portion of the
costs and risks attributable to the total Nonparticipating Parties'
interests in the ratio that the Participating Party's interest bears to
the total interests of all Participating Parties who elect to pay and
bear a portion of the costs and risks attributable to the total
Non-participating Parties' interests. Failure to respond shall be deemed
to be an election not to pay or bear any additional costs or risks. If
the Participating Parties agree to pay and bear one hundred percent
(100%) of the costs and risks of the operation, Operator, subject to
Article 4.2 (Substitute Operator) shall conduct the operation as a
Non-consent Operation for the benefit of the Participating Parties, and
34
the provisions of Article 13 (Non-consent Operations) shall apply. If
such agreement is not obtained, however, the operation shall not be
conducted and the effect shall be as if the proposal had not been made.
11.6 Expenditures Approved
Approval of a Development Operation shall cover all necessary
expenditures associated with the operation proposed in the AFE or notice
that are incurred by Operator in connection with (a) preparations for
drilling; (b) the actual drilling; (c) evaluations, such as testing,
coring, and logging; and (d) plugging and abandonment, subject to any
limitation that may exist as provided under Article 8 above.
11.7 Conduct of Operations
After commencement of a Development Well, Operator shall diligently
conduct the operation without unreasonable delay until the well reaches
the Objective Depth, unless the well encounters, at a lesser depth,
impenetrable conditions or mechanical difficulties that cannot be
overcome by reasonable and prudent operations and render further
operations impracticable, except as may otherwise be provided in Article
8.7 (Overexpenditures). If a well does not reach its Objective Depth as a
result of the conditions mentioned in this Article 11.7, the operation
shall be deemed to have been completed and Article 13 (Non-consent
Operations) shall apply to each Nonparticipating Party for the portion of
the well drilled.
11.8 Course of Action After Reaching Objective Depth
When a Development Well has been drilled to its Objective Depth and
reasonable testing, coring, and logging have been completed as set forth
in the approved AFE and the results have been furnished to the
Participating Parties, Operator shall notify the Participating Parties of
Operator's recommendation for further operations in the well and the
following provisions shall apply:
11.8.1 Election by Participating Parties
A Participating Party shall have the right to propose another
operation by notifying the Operator and the other Participating
Parties of its proposed operation within twenty-four (24) hours,
inclusive of Saturdays, Sundays, and federal holidays, of receipt
of the Operator's notice. The Participating Parties shall notify
Operator within forty-eight (48) hours, inclusive of Saturdays,
Sundays, and federal holidays, of receipt of the Operator's
proposal whether the Participating Parties elect to (a)
participate in a recommended operation, or (b) not participate in
a recommended operation. Failure to respond shall be deemed to be
an election not to participate in any of the recommended
operations.
11.8.2 Priority of Operations
If all Participating Parties elect to participate in the same
proposed operation, Operator shall conduct the operation at their
cost and risk. If more than one (1) operation is approved by one
(1) or more Participating Parties having a combined Working
Interest of forty percent (40%) or more, then the approved
operation with the lowest number as indicated below shall take
precedence:
35
1) Additional Testing, coring, or logging. (If conflicting
proposals are approved, the proposal receiving the largest
percentage of Working Interest approval shall take
precedence, and in the event of a tie between two (2) or
more approved proposals, the approved proposal first
received by the Parties shall take precedence.)
2) Complete at the Objective Horizon.
3) Complete above the Objective Horizon. (If conflicting
proposals are approved, the operation proposed to the
deepest depth shall take precedence.)
4) Deepen within the previously approved Objective Horizon or
Horizons. (If conflicting proposals are approved, the
operation proposed to the shallowest depth shall take
precedence.)
5) Sidetrack to a location within the previously approved
Objective Horizon or Hoizons. (If conflicting proposals are
approved, the proposal receiving the largest percentage of
Working Interest approval shall take precedence, and in the
event of a tie between two (2) or more approved proposals,
the approved proposal first received by the Parties shall
take precedence.)
6) Other operations. (If conflicting proposals are approved,
the proposal receiving the largest percentage of Working
Interest approval shall take precedence, and in the event
of a tie between two (2) or more approved proposals, the
approved proposal first received by the Parties shall take
precedence.)
7) Deepen below the previously approved Objective Horizon or
Horizons.
8) Sidetrack to a location outside the previously approved
Objective Horizon or Horizons.
9) Temporarily abandon.
10) Plug and abandon.
11.8.3 Second Opportunity to Participate
If fewer than all but one (1) or more Participating Parties having
a combined Working Interest of forty percent (40%) or more elect
to participate in an operation, the proposing Party shall notify
the Participating Parties (and any Non-participating Party subject
to Article 13.3) of the elections made, whereupon a Party
originally electing not to participate in the proposed (or
original) operation may then elect to participate by notifying the
proposing Party within twenty-four (24) hours, inclusive of
Saturdays, Sundays, and federal holidays, after receipt of such
notice. If all Parties elect to participate in the proposed
operation, Operator shall conduct the operation at their cost and
risk. If there are only two (2) Parties to this Agreement and no
counterproposal is made pursuant to Article 11.8.1, then there
shall not be a second opportunity to elect to participate, and if
the Participating Party agrees to pay and bear one hundred percent
(100%) of the costs and risks of the operation, then the Operator,
36
subject to Article 4.2 (Substitute Operator), shall conduct the
operation as a Non-consent Operation for the benefit of the
Participating Party, and the provisions of Article 13 (Non-consent
Operations) shall apply.
11.8.4 Operations by Fewer Than All Parties
If, after the election (if applicable) made under Article 11.8.3
(Second Opportunity to Participate), fewer than all but one (1) or
more Parties having a combined Working Interest of forty percent
(40%) or more elect to participate in the proposed operation that
takes precedence, the proposing Party shall notify the
Participating Parties and each Participating Party shall have
twenty-four (24) hours, inclusive of Saturdays, Sundays, and
federal holidays, after receipt of the notice to notify the
proposing Party of the portion of the costs and risks attributable
to the total Non-participating Parties' interests it elects to pay
and bear. Unless otherwise agreed by the Participating Parties,
each Participating Party may, but shall not be obligated to, pay
and bear that portion of the costs and risks attributable to the
total Non-participating Parties' interests in the ratio that the
Participating Party's interest bears to the total interests of all
Participating Parties who elect to pay and bear a portion of costs
and risks attributable to the Non-participating Parties'
interests. Failure to respond shall be deemed to be an election
not to pay or bear any additional costs or risks. if the
Participating Parties agree to pay and bear one hundred percent
(100%) of the costs and risks of the operation, Operator, subject
to Article 4.2 (Substitute Operator), shall conduct the operation
as a Non-consent Operation for the benefit of the Participating
Parties, and the provisions of Article 13 (Non-consent Operations)
shall apply. If such agreement is not obtained, however, the
operation shall not be conducted and the effect shall be as if the
proposal had not been made. If a Participating Party in a well
elects not to participate in the Deepening or Sidetracking
operation in the well, such non-consenting Party shall become a
Non-participating Party in all operations conducted in the
Deepened or Sidetracked portion of the well after that election.
11.8.4.1 Additional Testing Operation by Fewer than All Parties
If the Non-consent Operation is an Additional Testing
operation, Article 13 (Non-consent Operations) shall not
apply, however, a Party electing not to participate in
the Additional Testing shall not be entitled to
information resulting from the operation.
11.8.5 Subsequent Operations
Upon the completion of an operation conducted under Article 11.8
(Course of Action After Reaching Objective Depth), if the well is
not either (a) Completed as a Producible Well, or (b) temporarily
abandoned or permanently plugged and abandoned, Operator shall
notify the Participating Parties of Operator's recommendation for
operations in the well under Articles 11.8.1 through 11.8.4, which
again shall apply. If sufficient approval is not obtained to
conduct a subsequent operation in a well, or if all Participating
37
Parties elect to plug and abandon the well, subject to Article 14
(Abandonment, Salvage, and Surplus), Operator shall permanently
plug and abandon the well at the expense of all Participating
Parties. Each Participating Party shall be responsible for its
proportionate share of the plugging and abandonment costs
associated with the operation in which it participated.
11.8.6 Restoration of Damaged Development Well
Notwithstanding anything to the contrary in Article 19.7, if,
during Additional Testing, or during a Deepening or Sidetracking
of a Development Operation which does not result in the
Development Well being Completed as a Producible Well, the
Development Well is damaged to the extent that the Development
Well is rendered incapable of having a lower-priority operation
conducted and a Party (a) who participated in the Development
Well, but not in the operation being conducted when the
Development Well was damaged, (b) who has a sufficient percentage
of the Working Interest to approve an operation, and (c) who
elected to conduct a lower-priority operation, still desires to
conduct the lower-priority operation after the Development Well
has been damaged, may conduct the lower-priority operation, which
shall include operations to either (a) restore the Development
Well to a condition that will allow the lower-priority operation
to be conducted, or (b) drill a new Development Well to the depth
at which the lower-priority operation was proposed to be conducted
in the damaged well. The Participating Parties in the
lower-priority operation shall advise the Participating Parties in
the operation being conducted when the Development Well was
damaged of their decision to perform (a) or (b) above and the
Participating Parties in the operation being conducted when the
Development Well was damaged shall advise the Participating
Parties in the lower-priority operation within forty-eight (48)
hours after receipt of such notice whether or not they elect to
become a Participating Party in the lower-priority operation. Such
restored or re-drilled Development Well shall be owned by the
Parties in the same percentages as the damaged Development Well
was owned prior to conducting the higher-priority operation. In
the event the Participating Parties in the operation being
conducted when the Development Well was damaged elect not to
participate in the lower-priority operation, such Participating
Parties in the operation being conducted when the Development Well
was damaged shall be subject to the non-consent provisions of
Article 13.2. Upon conclusion of the lower-priority operation, the
Participating Parties in the operation being conducted when the
Development Well was damaged shall reimburse the original
Participating Parties conducting the lower-priority operation all
of the costs associated with restoration or re-drilling of the
Development Well, as applicable, to the point prior to the
lower-priority operation being conducted. In no event, however,
shall Participating Parties in the operation being conducted when
the Development Well was damaged be required to reimburse the
Participating Parties conducting the lower-priority operation an
amount greater than what was actually incurred in the damaged
38
Development Well to the point which would have allowed the
lower-priority operation to be conducted, and any amount in excess
of what was actually incurred in the damaged Development Well to
said point shall be borne by the Participating Parties conducting
the lower-priority operation.
ARTICLE 12
PLATFORM AND DEVELOPMENT FACILITIES
12.1 Proposal
Notwithstanding any other provision herein, from the effective date of
this Agreement until one hundred-eighty (180) days after completion of
operations (a) for the first Exploratory Well that results in a
Producible Well, or (b) for any subsequent operation proposed within one
hundred-eighty (180) days after completion of the well referred to in
12.1 (a), Operator shall have the exclusive right to propose the
fabrication or acquisition and installation of a Platform and/or
Development Facilities by sending an AFE or notice to the other Parties
in accordance with Article 9 (Notices). After Operator's exclusive
period, any Party may propose the fabrication or acquisition and
installation of a Platform and/or Development Facilities, by sending an
AFE or notice to the other Parties in accordance with Article 9
(Notices).
12.2 Counterproposals
When a Platform and/or Development Facilities is proposed under Article
12.1, a Party may, within thirty (30) days after receipt of the AFE or
notice for the original proposal, make a counterproposal to fabricate or
otherwise acquire and install said Platform and/or Development Facilities
by sending an AFE or notice to the other Parties in accordance with
Article 9 (Notices). The AFE or notice shall indicate that the proposal
is a counterproposal to the original proposal. If one or more
counterproposals are made, each Party shall elect to participate in
either the original proposal, one (1) counterproposal, or neither the
original proposal nor a counterproposal. If two (2) or more proposals
receive the approval of the number of Parties and combined Working
Interests required by Article 12.2.3 (Operations By Fewer Than All
Parties), the proposal receiving the largest percentage Working Interest
approval shall be deemed approved, and in the event two (2) or more
approved proposals receive the same Working Interest approval, the
approved proposal first received by the Parties shall be deemed approved.
12.2.1 Operations by All Parties
If all Parties elect to participate in the proposed operation,
Operator shall conduct the operation at their cost and risk.
12.2.2 Second Opportunity to Participate
If fewer than all but one (1) or more Parties having a combined
Working Interest of forty percent (40%) or more elect to
participate in the Platform and/or Development Facilities, then
the proposing Party shall notify the Parties of the elections
39
made, whereupon a Party originally electing not to participate may
then elect to participate by notifying the proposing Party within
forty-eight (48) hours, exclusive of Saturdays, Sundays, and
federal holidays, after receipt of such notice. If all Parties
elect to participate in the Platform and/or Development
Facilities, Operator shall timely commence the fabrication and
installation of the Platform and/or Development Facilities at
their cost and risk. If there are only two (2) Parties to this
Agreement, then there shall not be a second opportunity to elect
to participate, and if the Participating Party agrees to pay and
bear one hundred percent (100%) of the costs and risks of the
operation, then the Operator, subject to Article 4.2 (Substitute
Operator), shall conduct the operation as a Non-consent Operation
for the benefit of the Participating Party, and the provisions of
Article 13 (Non-consent Operations) shall apply.
12.2.3 Operations by Fewer Than All Parties
If there are more than two (2) Parties to this Agreement, then,
after the election made under Article 12.2.2 (Second Opportunity
to Participate), fewer than all but one (1) or more Parties having
a combined Working Interest of forty percent (40%) or more elect
to participate in the Platform and/or Development Facilities, the
proposing Party shall notify the Participating Parties, and each
Participating Party shall have forty-eight (48) hours, exclusive
of Saturdays, Sundays, and federal holidays, after receipt of the
notice to notify the proposing Party of the portion of the costs
and risks attributable to the total Non participating Parties'
interests it elects to pay and bear. Unless otherwise agreed by
the Participating Parties, each Participating Party may, but shall
not be obligated to, pay and bear that portion of costs and risks
attributable to the total Non-participating Parties' interests in
the ratio that the Participating Party's interest bears to the
total interests of all Participating Parties who elect to pay and
bear a portion of the costs and risks attributable to the total
Non-participating Parties' interests. Failure to respond shall be
deemed to be an election not to pay or bear any additional costs
or risks. If the Participating Parties agree to pay and bear one
hundred percent (100%) of the costs and risks of the operation,
the Operator, subject to Article 4.2 (Substitute Operator), shall
conduct the operation as a Non-consent Operation for the benefit
of the Participating Parties, and except as provided in Article
12.4 (Rights to Take in Kind), the provisions of Article 13.2.1
(b) shall apply. If such agreement is not obtained, however, the
fabrication and installation of the Platform and/or Development
Facilities shall not be commenced, and the effect shall be as if
the proposal had not been made.
12.3 Ownership and Use of the Platform and Development Facilities
The Participating Parties in the Development Facilities own all of the
excess capacity of the Development Facilities and the excess weight,
space and buoyancy of the Platform. Each Participating Party in the
Development Facilities does not have the right to use its Participating
Interest share of the excess capacity, weight, space and buoyancy for
40
hydrocarbon production from outside the Contract Area. Each Participating
Party in the Development Facilities or Platform must obtain the unanimous
approval of the other Participating Parties in the Development Facilities
or Platform in order to utilize any portion of the excess capacity,
weight, space and buoyancy. It must negotiate the payment of a fee with
the Participating Parties in the Development Facilities or Platform in
order to utilize any portion of the excess capacity, weight, space and
buoyancy. Each of the Participating Parties in the Development Facilities
or Platform shall receive its Participating interest share of all fees
derived from the utilization of the excess capacity, weight, space and
buoyancy. All hydrocarbon production from outside the Contract Area shall
be processed under a "Facilities Use and Production Handling Agreement"
unanimously agreed to by the Participating Parties in the Development
Facilities.
12.4 Rights to Take in Kind
Nothing in this Article 12 shall act to limit a Party's rights under
Article 22 (Disposition of Production), or to otherwise separately
dispose of its share of Hydrocarbon production. If a Party elects (a) not
to participate in an approved Development Facilities proposal and (b) to
separately dispose of its share of Hydrocarbon production (the
"Separately Disposing Party"), the Separately Disposing Party shall not
be subject to the provisions of Article 13.2.1(b), but must provide proof
to the Participating Parties in the approved Development Facilities
proposal, within thirty (30) days from the last applicable response date
to the Development Facilities proposal that it has entered into
fabrication and transportation contracts to separately dispose of its own
share of Hydrocarbon production. If a Separately Disposing Party fails to
provide such proof by that deadline and if there is sufficient capacity
for the Development Facilities to accommodate the Separately Disposing
Party's share of the Hydrocarbons, it shall immediately (1) become a
Participating Party in the Development Facilities and utilize the
Development Facilities for its share of Hydrocarbon production, (II) pay
to the Participating Parties in the approved Development Facilities
proposal an amount equal to two hundred percent (200%) of what would have
been the Separately Disposing Party's share of the costs and expense of
the Development Facilities had it elected to participate in the
Development Facilities under Article 12.1 or 12.2, and (111) assume its
share of the risks and liabilities associated with the construction and
ownership of the Development Facilities as of the date of commencement of
the operations to construct same. The Participating Parties in the
original Development Facilities and the Separately Disposing Party, which
becomes a Participating Party in the original Development Facilities
under Article 12.4 (1), shall own the original Development Facilities
based on their Participating Interest share in the original Development
Facilities. If a Separately Disposing Party fails to provide such proof
by that deadline and if there is insufficient capacity for the
Development Facilities to accommodate the Separately Disposing Party's
share of the Hydrocarbons, the Separately Disposing Party shall (i)
become a Participating Party in the original Development Facilities and
utilize the available capacity in the original Development Facilities, if
any, for its share of Hydrocarbon production, (ii) pay one hundred
percent (100%) of the costs of an expansion or modification of the
41
Development Facilities, which is required to accommodate all or a portion
of its share of the Hydrocarbons, and assume one hundred percent (100%)
of the risks and liabilities associated with (A) the construction,
installation and commissioning of the expanded or modified Development
Facilities and (B) the utilization of the expanded or modified
Development Facilities for thirty (30) days subsequent to the
commencement of Hydrocarbon production through same, (iii) pay to the
Participating Parties in the approved Development Facilities proposal an
amount equal to two hundred percent (200%) of what would have been the
Separately Disposing Party's share of the costs and expense of the
original Development Facilities had it elected to participate in the
original Development Facilities under Article 12.1 or 12.2, (iv) assume
its share of the risks and liabilities associated with the construction
and ownership of the original Development Facilities as of the date of
commencement of the operations to construct the original Development
Facilities. The Participating Parties in the original Development
Facilities and the Separately Disposing Party, which becomes a
Participating Party in the original Development Facilities under Article
12.4(i), shall own the expanded or modified Development Facilities based
on their Participating Interest share in the original Development
Facilities, and the Participating Parties in the original Development
Facilities shall assume their Participating Interest share of the risks
and liabilities associated with the ownership of the expanded or modified
Development Facilities thirty-one (31) days after that the expanded or
modified Development Facilities have been utilized. 12.5 Expansion or
Modification of a Platform and/or Development Facilities After
installation of a Platform and/or Development Facilities, any
Participating Party in that Platform and/or Development Facilities may
propose the expansion or modification of that Platform and/or Development
Facilities by written notice (along with its associated AFE) to the other
Participating Parties in that Platform and/or Development Facilities.
That proposal requires approval by two (2) or more of the Participating
Parties in the Platform and/or Development Facilities with more than
fifty percent (50%) of the Participating Interest in the Platform and/or
Development Facilities. If approved, that proposal will be binding on all
Participating Parties in that Platform and/or Development Facilities, and
the Operator shall commence that expansion or modification at the sole
cost and risk of all of the Participating Parties in that Platform and/or
Development Facilities unless otherwise agreed.
12.6 Offsite Host Facilities
In the event that one (1) or more Parties with forty percent (40%) or
more of the Participating Interest in Hydrocarbon production agree that
Hydrocarbon production can most effectively be processed and handled by
Offsite Host Facilities, the Operator, on behalf of the Participating
Parties, shall use reasonable efforts to secure a formal "Facilities Use
and Production Handling Agreement" from the owners of the Offsite Host
Facilities. If the Operator does secure access to Offsite Host Facilities
in a Facilities Use and Production Handling Agreement, each Participating
Party shall have the right, but not the obligation, to utilize its
42
Participating Interest share of the capacity so secured. This Article
12.6 shall not constitute a limit on a Party's right to install its own
Take-in-Kind Facilities under Article 22 (Disposition of Production).
ARTICLE 13
NON-CONSENT OPERATIONS
13.1 Non-consent Operations
Operator or substitute Operator under Article 4.2 (Substitute Operator)
shall conduct Non-consent Operations at the sole cost and risk of the
Participating Parties in accordance with the following provisions:
13.1.1 Non-interference
Non-consent Operations shall not interfere unreasonably with
operations approved by all of the Parties.
13.1.2 Multiple Completion Limitation
Subject to Article 10.9, a Non-consent Operation shall not be
conducted in a well having multiple Completions unless (a) each
Completion is owned by the same Parties in the same proportions;
(b) the well is incapable of producing from all Completions; or
(c) all Participating Parties in the well consent to the
operation.
13.1.3 Metering
In Non-consent Operations, Hydrocarbon production shall be
determined upon the basis of appropriate well tests, unless
separate metering devices are required by a governmental authority
having jurisdiction.
13.1.4 Non-consent Well
Operations on a Non-consent Well shall not be conducted in a
Producible Reservoir without approval of all Parties unless (a)
the Producible Reservoir is designated in the notice as a
Completion objective; (b) Completion of the well in the Producible
Reservoir will not increase the rates of Hydrocarbon production
that are prescribed and approved for the Producible Reservoir by
the governmental authority having jurisdiction; and (c) the
horizontal distance between the vertical projections of the
midpoint of the Producible Reservoir in the well and an existing
well currently completed in and producing from the same Producible
Reservoir will. be at least fifteen hundred (1,500) feet for an
oil-well Completion or twenty-five hundred (2,500) feet for a
gas-well Completion.
13.1.5 Cost Information
Operator shall, within one hundred twenty (120) days after
completion of a Non-consent Operation, furnish the Parties either
(a) an inventory and an itemized statement of the cost of the
Non-consent Operation and equipment pertaining thereto, or (b) a
43
detailed statement of the monthly ▇▇▇▇▇▇▇▇. Each quarter
thereafter, while the Participating Parties are being reimbursed
under Article 13.2.1 (Production Reversion Recoupment), Operator
shall furnish the Non-participating Parties a quarterly statement
detailing all costs and liabilities incurred in the Non-consent
Operation, together with a statement of the quantities of
Hydrocarbons produced from it and the amount of the proceeds from
the sale of the Non-participating Parties' relinquished
Hydrocarbon production from the Non consent Operation for the
preceding quarter. Operator shall prepare the quarterly statement
of the quantities of Hydrocarbons produced and the amounts of the
proceeds from the sale of Non-participating Parties' relinquished
Hydrocarbon production based on the proceeds received for the
Operator's share of Hydrocarbon production. When Operator's payout
calculation indicates that payout has occurred, Operator shall
promptly notify all Parties. The Participating Parties who assumed
a portion of the Non participating Parties' relinquished interest
shall then provide Operator all information pertaining to the
cumulative proceeds received from the sale of the
Non-participating Parties' relinquished Hydrocarbon production.
Operator shall revise the payout date using the actual proceeds
from the sale of the Non-participating Parties' relinquished
Hydrocarbon production and administer any subsequent adjustments
between the Parties.
13.1.6 Completions
For determinations under Article 13.1 (Non-consent Operations),
each Non-consent Operation in a single wellbore shall be accounted
for separately.
13.2 Relinquishment of Interest
Upon commencement of Non-consent Operations, other than Non-consent
Operations governed by the Acreage Out Option under Article 10.5.1
(Acreage Out), Article 13.7 (Operations Utilizing a Non-consent Platform
and/or Development Facilities), or Article 13.7.1 (Forfeiture on Initial
Platform or Development Facilities), each Non-participating Party's
interest and leasehold operating rights in the Non-consent Operation and
title to Hydrocarbon production resulting therefrom; and if Article 13.8
(Discovery or Extension from Non-consent Drilling) is effective, one half
(1/2) of each Non-participating Party's interest and leasehold operating
rights and title to Hydrocarbon production from ▇▇▇▇▇ mentioned in
Article 13.8 (Discovery or Extension from Non consent Drilling); shall be
owned by and vested in each Participating Party in proportion to its
Participating Interest, or in the proportions otherwise agreed by the
Participating Parties, for as long as the Non-Consent Operation is being
conducted or Hydrocarbon production is obtained therefrom, subject to the
following:
13.2.1 Production Reversion Recoupment
When the Participating Parties have recouped out of Hydrocarbon
production from the Non-consent Operations attributable to the
44
Non-participating Party's interest an amount, which when added to
amounts received under Article 13.3 (Deepening or Sidetracking of
Non-consent Well), equals the sum of the following:
(a) eight hundred percent (800%) of the Non-participating
Party's share of the costs of the following Non-consent
Exploratory Operations, or five hundred percent (500%) of
the Non-participating Party's share of the costs of the
following Non consent Development Operations: drilling,
testing, Completing, Recompleting, Deepening, Sidetracking,
Reworking, plugging back, and temporarily abandoning a
well, reduced by the Non-participating Party's Share of a
cash contribution received under Article 21.2 (Cash
Contributions);
(b) if applicable, four hundred percent (400%) of
Non-participating Party's Share of the cost of Platforms
and/or Development Facilities approved under Article 12.1
(Proposal) or Article 12.2 (Counterproposals); such
recoupment is limited to the Non-participating Party's
Share of the Hydrocarbon production that utilize such
Platform and/or Development Facilities;
(c) four hundred percent (400%) of the Non-participating
Party's Share of the cost charged in accordance with
Article 13.9 (Allocation of Platform/Development Facilities
Costs to Non-consent Operations) of using an existing
Platform/Development Facilities; and
(d) the Non-participating Party's Share of the costs of
operation, maintenance, treating, processing, gathering,
and transportation, including, but not limited to, an
Offsite Host Facilities' handling fees, as well as lessor's
royalties and severance, Hydrocarbon production, and excise
taxes,
then, the relinquished interests of the Non-participating Party
shall automatically revert to the Non-participating Party as of
7:00 a.m. of the day after the recoupment occurs. Thereafter, the
Non-participating Party shall own the same interest in the
Non-consent Well, equipment pertaining thereto and the Hydrocarbon
production therefrom as the Non-participating Party would have
owned or been entitled to if it had participated in the
Non-consent Operation. Upon reversion, the Non-participating Party
shall become a Participating Party and, as such, shall become
liable for its proportionate share of the further costs of the
operation as set forth in this Agreement and Exhibit "C".
13.2.2 Non-production Reversion
If the Non-consent Operation fails to obtain Hydrocarbon
production or if the operation results in Hydrocarbon production
that ceases before complete recoupment by the Participating
Parties under Article 13.2.1 (Production Reversion Recoupment),
such leasehold operating rights shall revert to each
Non-participating Party, except that all Non-consent ▇▇▇▇▇ shall
remain vested in the Participating Parties (but the salvage value
in excess of the sum remaining under Article 13.2.1 shall be
credited to all Parties).
45
13.3 Deepening or Sidetracking of Non-consent Well
If a Participating Party proposes to Deepen or Sidetrack a Non-consent
Well, a Non-participating Party may then elect to participate in the
Deepening or Sidetracking operation by notifying Operator within thirty
(30) days, or within twenty-four (24) hours, inclusive of Saturdays,
Sundays, and federal holidays, if a rig is on location and standby
charges are being incurred, after receiving notice of the proposal. A
Non-participating Party that elects to participate in Deepening or
Sidetracking the well, as proposed, shall immediately pay the
Participating Parties, in accordance with Article 13.4 (Deepening or
Sidetracking Cost Adjustments), its Working Interest share of actual well
costs (excluding logging, coring, testing, and Completion costs other
than the cost of setting any casing or Completion Equipment that is used
in the Deepening or Sidetracking), less all amounts recovered by the
Participating Parties from the proceeds of Hydrocarbon production from
the well, as if the Non-participating Party had originally participated
to the initial objective depth or formation, in the case of a Deepening
operation, or the depth at which the Sidetracking operation is initiated.
Thereafter, the Non-participating Party shall be deemed to be a
Participating Party for the Deepening or Sidetracking operations, and
Article 13.2.1 (a) shall not apply to that Party for the Deepened or
Sidetracked portion of the well. The initial Participating Parties,
however, shall continue to recoup out of the proceeds of Hydrocarbon
production from the non consent portion of the well any balance for the
Non-consent Well remaining to be recovered under Article 13.2.1
(Production Reversion Recoupment), less the amounts paid by the
Non-participating Party under this Article 13.3.
13.4 Deepening or Sidetracking Cost Adjustments
If a proposal is made to Deepen or Sidetrack a Non-consent Well, a well
cost adjustment will be performed as follows:
(a) Intangible drilling will be valued at the actual cost incurred by
the Participating Parties.
(b) Tangible materials will be valued in accordance with the
provisions of Exhibit "C".
(c) For Sidetracking operations, the values determined in Articles
13.4(a) and 13.4(b) shall be reduced by the amount allocated to
that portion of the well from the surface to one hundred feet
(100') below the point at which the Sidetracking was initiated.
Such allocations shall be consistent with the guidelines
recommended by the applicable Council of Petroleum Accountants
Societies ("▇▇▇▇▇") Guideline, as amended from time to time.
(d) Amortization/depreciation shall be applied to both intangible and
tangible values at the rate of five percent (5%) per annum from
the date the well commenced Hydrocarbon production to the date
operations commence to Deepen or Sidetrack the well, provided,
however, the value of tangible materials after applying
depreciation shall never be less than sixty percent (60%) of the
value determined in Article 13.4(b).
46
13.5 Subsequent Operations in Non-consent Well
Except as provided in Article 13.3 (Deepening or Sidetracking of
Non-consent Well), an election not to participate in the drilling,
Sidetracking, or Deepening of a well shall be deemed to be an election
not to participate in any subsequent operations in the well before full
recovery by the Participating Parties of the Non-participating Party's
recoupment amount.
13.6 Operations in a Production Interval
A Participating Party in a Production Interval may propose Rework or
Sidetrack operations within that Production Interval, or to permanently
plug and abandon that Production Interval in a well; however, no
Production Interval in a well shall be abandoned without the unanimous
approval of the Participating Parties in the Production Interval. If a
proposal, estimated to exceed the amount specified in Article 8.2
(Authorization), is made to Rework or Sidetrack a Production Interval,
the unanimous approval of the Parties owning an interest in the
Production Interval shall be required to conduct the operation. A
proposal to Rework an interval, other than a Production Interval, shall
be made and approved in accordance with Article 11.5 (Operations by Fewer
Than All Parties).
13.7 Operations Utilizing a Non-consent Platform and/or Development Facilities
Except as otherwise provided in Article 12.4 (Rights to Take in Kind) and
this Article 13.7, if applicable, a Party that did not originally
participate in a Platform and/or Development Facilities shall be a
Non-participating Party for all operations utilizing the Platform and/or
Development Facilities and shall be subject to Article 13.2
(Relinquishment of Interest). Notice, in accordance with Article 9
(Notices), shall be given to the Non-participating Party for all ▇▇▇▇▇
proposed to be drilled from or tied-back to the Non-consent Platform
and/or handled by non-consent Development Facilities. If a
Non-participating Party in a Non-consent Platform and/or Development
Facilities desires to participate in the drilling of any such well
proposed by the Participating Parties in the Platform and/or Development
Facilities, the Non-participating Party desiring to join in the proposed
well shall first pay the Participating Parties in the Platform and/or
Development Facilities its proportionate share of the cost of the
Platform and/or Development Facilities, including, but not limited to,
costs of material, fabrication, transportation, and installation plus any
remaining amounts to be recouped under Article 13.2.1(b). The
Non-participating Party shall remit payment to Operator and Operator
shall (a) reimburse the Participating Parties in the Platform and/or
Development Facilities in the same proportions they are sharing in the
Platforms and/or Development Facilities recoupment account, and (b)
credit the applicable payout account. Upon payment of that amount, the
original Non-participating Party shall become an owner and a
Participating Party in the Platform and/or Development Facilities in the
same manner as if recoupment had occurred under Article 13.2.1
(Production Reversion Recoupment), and may participate in all future
▇▇▇▇▇ drilled from or tied back to the Platform. As to well operations
conducted from the Platform and/or Development Facilities prior to
payment under this Article 13.7, the original Non-participating Party
47
shall remain a Non-participating Party in such Non-consent Operations
until such time as the entire recoupment balance applicable to all such
Non consent Operations in the aggregate has occurred, as provided for in
Articles 13.2.1 (a) and 13.2.1(d).
13.7.1 Forfeiture on Initial Platform or Development Facilities
Notwithstanding anything to the contrary contained herein, a Party
that does not participate in the initial approved Platform or
Development Facilities shall withdraw from this Agreement in
accordance with Article 15 (Withdrawal), and shall forfeit and
permanently assign its entire interest in and rights to the
Contract Area, with the withdrawal to be effective on the date of
such non-consent.
13.8 Discovery or Extension from Non-consent Drilling
If a Non-consent Well (a) discovers a new Producible Reservoir or (b)
extends an existing Producible Reservoir beyond its recognized
boundaries, as unanimously agreed by the Participating Parties in all
existing ▇▇▇▇▇ currently producing from the existing Producible Reservoir
before commencement of drilling operations, the recoupment of costs for
the well shall be governed by Article 13.2 (Relinquishment of Interest)
and shall be recovered by the Participating Parties in one of the
following ways:
(a) if the Non-consent Well is not completed and produced, recoupment
shall be out of one half (1/2) of each Non-participating Party's
interest in Hydrocarbon production from all subsequently drilled
and completed ▇▇▇▇▇ on the Contract Area that are completed in the
Producible Reservoir discovered, or in that portion extended, by
the Non-consent Well and in which the Non-participating Party has
a Participating Interest; or
(b) if the Non-consent Well is completed and produced, recoupment
shall be out of the Non participating Party's Share of all
Hydrocarbon production from the Non-consent Well and one-half
(1/2) of the Non-participating Party's interest in Hydrocarbon
production from all subsequently drilled and completed ▇▇▇▇▇ on
the Contract Area that are completed in the Producible Reservoir
discovered, or in that portion extended, by the Non-consent Well
and in which the Non-participating Party has a Participating
Interest.
13.9 Allocation of Platform/Development Facilities Costs to Non-consent
Operations
Non-consent Operations shall be subject to further conditions as follows:
13.9.1 Charges
In the event a well is drilled or produced from a Platform and/or
is produced through Development Facilities whose Participating
Parties are different from the Participating Parties in that well
or if the Participating Parties' Participating interest shares in
that Platform and/or Development Facilities are different from
their Participating Interest shares in that well, the rights of
the Participating Parties in that well and the costs to use the
Platform and/or Development Facilities for that well shall be
determined as follows:
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(a) The Participating Parties in that well shall pay to the
Operator a one-time slot usage fee for the use of a slot on
the Platform equal to the cost of the Platform divided by
the total number of slots on the Platform. Within fifteen
(15) days of its receipt of that fee, the Operator shall
distribute to the Participating Parties in the Platform
their Participating Interest share of that payment. For
purposes of calculating the slot usage fee, the total cost
of the Platform shall be reduced by four tenths of one
percent (0.4%) per month, commencing on the date the
Platform was installed and continuing every month
thereafter until the month actual drilling operations on
that well are commenced; however, the total cost of the
Platform shall not be reduced by more than sixty percent
(60%) of the total Platform's costs. The cost of additions
to the Platform shall be reduced in the same manner
commencing the first month after the addition is installed.
If that well is abandoned, having never produced
Hydrocarbons, the right of the Participating Parties in
that well to use the Platform slot through which the well
was drilled shall terminate unless those Parties commence
drilling a substitute well for the abandoned well through
the same slot within ninety (90) days of the abandonment.
If that substitute well is abandoned, having never produced
Hydrocarbons, the right of the Participating Parties in
that well to use the Platform slot through which the well
was drilled shall terminate. The slot usage fee shall not
apply to a slot deemed to be "surplus." A slot may be
deemed surplus only by the unanimous agreement of the
Participating Parties in the Platform.
(b) The Participating Parties in that well shall pay to the
owners of the Development Facilities a lump sum equal to
that portion of the total cost of those Development
Facilities that the throughput volume of the Non-consent
Operation bears to the current total design throughput
volume of the Development Facilities. Throughput volume
shall be estimated by the Operator in barrels produced per
day (with 1 barrel of oil equaling 5.8 mcf of gas), using
an average daily volume of the first three months of
Hydrocarbon production from the Non-consent Operation. For
purposes of calculating the Development Facilities lump sum
payment, the total cost of the Development Facilities,
shall be reduced by four tenths of one percent (0.4%) per
month, commencing from the date when the Development
Facilities were installed and continuing every month
thereafter until the first month during which Hydrocarbon
production from the Non-consent Operation commences, but
the total cost of the Development Facilities shall not be
reduced more than sixty percent (60%) of the total
Development Facilities' cost. If a modification, expansion,
or addition to the Development Facilities is made after
commencing first Hydrocarbon production and before
connection of the Non-consent Operation
49
to the Development Facilities, the Development Facilities
lump sum payment shall be reduced in the same manner
described above, from the month in which the Development
Facilities modification, expansion or addition is completed
until the first month during which Hydrocarbon production
from the Non-consent Operation is commenced.
Payment of sums under this Article 13.9.1 is not a purchase of an
additional interest in the Platform or the Development Facilities.
Such payment shall be included in the total amount that the
Participating Parties are entitled to recoup out of Hydrocarbon
production from the Non-consent Well.
13.9.2 Operating and Maintenance Charges
The Participating Parties shall pay all costs necessary to connect
a Non-consent Well to the Platform and/or Development Facilities
and that proportionate part of the costs of operating and
maintaining the Platform and/or Development Facilities applicable
to the Non-consent Well. Platform operating and maintenance costs
that are costs not directly attributable to a wellbore shall be
allocated equally to all actively producing Completions. Operating
and maintenance costs for the Development Facilities shall be
allocated on a volume throughput basis, that is, in the proportion
that the volume throughput of the well bears to the total volume
throughput of all ▇▇▇▇▇ connected to the Development Facilities.
Volume throughput, as used in this Article 13.9.2, shall be
determined by considering all Hydrocarbons and water volumes.
13.10 Allocation of Costs Between Zones
Except as provided in Article 10.9 (▇▇▇▇▇ Proposed Below Deepest
Producible Reservoir), if for any reason the Participating Interests of
the Parties in a well are not the same for the entire depth or the
Completion thereof, the costs of -drilling, Completing, and equipping the
well shall be allocated in an equitable manner, as agreed by the Parties,
based on the value and allocation recommended in the applicable ▇▇▇▇▇
Guideline, as amended from time to time.
13.11 Lease Maintenance Operations
An operation proposed within the last twelve (12) months of the primary
term or, subsequent thereto, an operation proposed to perpetuate a Lease
or portion thereof at its expiration date or otherwise, including, but
not limited to, well operations, regulatory relief (for example, course
of action necessary to satisfy the statutory or regulatory requirements
of the governmental authority having jurisdiction), and other Lease
operations, shall be deemed to be a "Lease Maintenance Operation." To
invoke this Article 13.11, a notice or AFE that proposes an operation
must state that the proposed operation is a Lease Maintenance Operation.
13.11.1 Participation in Lease Maintenance Operations
A Party may propose a Lease Maintenance Operation by giving notice
to the other Parties. If fewer than all Parties elect to
50
participate in the proposed Lease Maintenance Operation, the
proposing Party shall notify the Parties of the elections made.
Each Party electing not to participate shall then have a second
opportunity to participate in the proposed operation by notifying
the other Parties of its election within forty-eight (48) hours
after receipt of the notice. A Lease Maintenance Operation shall
not require minimum approval, either of the number of Parties or
the percentage of the voting interests of the Parties otherwise
required in Article 6.1.2 (Vote Required). For a Lease Maintenance
Operation to be conducted, the Participating Parties must agree to
pay and bear one hundred percent (100%) of the costs and risks of
the operation. If more than one (1) Lease Maintenance Operation is
proposed, the operation with the greatest percentage approval
shall be conducted. Notwithstanding the recoupment provisions of
this Agreement, a Party electing not to participate in a well
operation proposed as a Lease Maintenance Operation shall promptly
assign, effective as of the date the operation commences, to the
Participating Parties all of its right, title, and interest in and
to that portion of the Lease that would otherwise expire and the
property and equipment attributable thereto, in accordance with
Article 26 (Successors, Assigns, and Preferential Rights). If more
than one (1) Lease Maintenance Operation is proposed and there is
a tie between two (2) proposed operations, both operations shall
be conducted and the costs and risks of conducting both operations
shall be paid and borne by the Participating Parties. If the
drilling of a well is undertaken as a Lease Maintenance Operation,
further operations conducted by the Participating Parties in the
well shall be governed by Article 10.9 (Course of Action After
Reaching Objective Depth) or Article 11.9 (Course of Action After
Reaching Objective Depth), whichever applies. If more than one (1)
well operation is conducted, any of which would perpetuate the
Lease or such portion thereof, an assignment shall not be required
from a Party participating in any such well operation.
13.11.2 Accounting for Non-participation
If after one (1) year from completion of a well operation
conducted as a Lease Maintenance Operation, the Lease or portion
thereof is being perpetuated by a Lease Maintenance Operation, as
provided in Article 13.11.1 (Participation in Lease Maintenance
Operations), Operator shall render a final statement, if
applicable, to the assigning Party for its share of all expenses
attributed to the assigned interest before the effective date of
the assignment, plus any credit or deficiency in salvage value
calculated under Article 15.3.1 (Prior Expenses). The assigning
Party shall settle any deficiency owed the non-assigning Parties
within thirty (30) days after receipt of Operator's statement.
13.12 Retention of Lease by Non-consent Well
If, at the expiration of the primary term of a Lease, one (1) or more
Non-consent ▇▇▇▇▇, except ▇▇▇▇▇ drilled under the Acreage Out under
Article 10.5.1 (Acreage Out), are the only ▇▇▇▇▇ perpetuating the Lease,
Operator shall give written notice to each Non-participating Party that
51
the Non-consent ▇▇▇▇▇ are serving to perpetuate the Lease. Each
Non-participating Party shall, within thirty (30) days after receipt of
Operator's written notice, elect one of the following:
(a) to assign its entire interest in the Lease to the Participating
Parties in the proportions in which the Non-consent ▇▇▇▇▇ are
owned; or
(b) to pay the Participating Parties, within sixty (60) days after its
election, the lesser of its proportionate share of the actual well
costs of the ▇▇▇▇▇, as if the Non-participating Party had
originally participated, or the balance of the recoupment account.
The payment shall be made to Operator and credited to the account
of each Participating Party. The Nonparticipating Party shall
remain as a Non-participating Party until full recoupment is
obtained, but the payment shall be credited against the total
amount to be recouped by the Participating Parties.
A Non-participating Party that fails to make the required election shall
be deemed to have elected under Article 13.12(a) to relinquish its entire
interest in the Lease. If a Non-participating Party elects to make
payment under Article 13.12(b) but fails to make the required payment
within sixty (60) days after its election, the Non-participating Party
shall either remain liable on the obligation to pay or, by unanimous vote
of the Participating Parties, be deemed to have elected under Article
13.12 (a) to relinquish its entire interest in the Lease. Each
relinquishing Non-participating Party shall promptly execute and deliver
an assignment of its interest to the Participating Parties, in accordance
with Article 26 (Successors, Assigns, and Preferential Rights).
13.13 Non-Consent Premiums
A non-consent premium paid by a Non-Participating Party to the
Participating Parties shall be allocated to the Participating Parties
based on their original Participating Interest share in the Non-consent
Operation which generated the non-consent premium.
ARTICLE 14
ABANDONMENT, SALVAGE, AND SURPLUS
14.1 Platform Salvage and Removal Costs
When the Parties owning ▇▇▇▇▇, Platforms and/or Development Facilities
unanimously agree to dispose of the ▇▇▇▇▇, Platforms and/or Development
Facilities, it shall be disposed of by Operator in the time and manner
approved by the Parties. The costs, risks, and net proceeds, if any, for
the disposal shall be shared by the Parties in proportion to their
Participating Interests therein.
14.2 Abandonment of Platforms, Development Facilities or ▇▇▇▇▇
Except as provided in Article 10 (Exploratory Operations) and Article 11
(Development Operations), a Participating Party may propose the
abandonment of a Platform and Development Facilities or ▇▇▇▇▇ by
notifying the other Participating Parties. No Platform and Development
Facilities or wellbore shall be abandoned without the unanimous approval
52
of the Participating Parties. If the Participating Parties do not approve
abandoning the Platform and Development Facilities or ▇▇▇▇▇, the Operator
shall prepare a statement of the abandoning Party's share of estimated
abandonment costs, less its share of estimated salvage value, as
determined by the Operator pursuant to Exhibit "C". The Party desiring to
abandon it shall pay the Operator, on behalf of the Participating Parties
for that Party's share of the estimated abandonment costs, less its share
of estimated salvage value, within thirty (30) days after receipt of the
Operator's statement. If an abandoning Party's respective share of the
estimated salvage value is greater than its share of the estimated costs,
Operator, on behalf of the Participating Parties, shall pay a sum equal
to the deficiency to the abandoning Party within thirty (30) days after
the abandoning Party's receipt of the Operator's statement.
14.3 Assignment of Interest.
Each Participating Party desiring to abandon a Platform and Development
Facilities or ▇▇▇▇▇ under Article 14.2 (Abandonment of Platforms,
Development Facilities or ▇▇▇▇▇) shall assign, effective as of the last
applicable election date, to the non-abandoning Parties, in proportion to
their Participating Interests, its interest in the Platform and
Development Facilities or ▇▇▇▇▇ and the equipment therein and its
ownership in the Hydrocarbon production from the ▇▇▇▇▇. A Party so
assigning shall be relieved from further liability for the Platform and
Development Facilities or ▇▇▇▇▇, except liability for payments under
Article 14.2 (Abandonment of Platforms, Development Facilities or ▇▇▇▇▇).
14.4 Abandonment Operations Required by Governmental Authority
A well abandonment or Platform and Development Facilities removal
required by a governmental authority having jurisdiction shall be
accomplished by Operator with the costs, risks, and net proceeds, if any,
to be shared by the Parties owning the well or Platform and Development
Facilities in proportion to their Participating Interests therein. No
approval by the Parties will be necessary for Operator to proceed with
the government required well abandonment, or Platform and Development
Facilities removal. The Operator shall provide the Parties with an
informational AFE prior to commencing such an abandonment or removal.
14.5 Disposal of Surplus Material
Material and equipment acquired hereunder may be classified as surplus by
Operator when deemed no longer needed in present or foreseeable
operations. Operator shall determine the value and cost of disposing of
the materials in accordance with Exhibit "C". If the material is
classified as junk or if the value, less cost of disposal, is less than
or equal to one hundred thousand dollars ($100,000.00), Operator shall
dispose of the surplus materials in any manner it deems appropriate. If
the value, less the cost of disposal of the surplus material, is greater
than one hundred thousand dollars ($100,000.00), Operator shall give
written notice thereof to the Parties owning the material. Unless
purchased by Operator, the surplus material shall be disposed of in
accordance with the method of disposal approved by the Parties owning the
53
material. Proceeds from the sale or transfer of surplus material shall be
promptly credited to each Party in proportion to its ownership of the
material at the time of retirement or disposition.
ARTICLE 15
WITHDRAWAL
15.1 Right To Withdraw
Subject to this Article 15.1, any Party may withdraw from this Agreement
(the "Withdrawing Party") by giving prior written notice to all other
Parties stating its decision to withdraw ("the withdrawal notice"). The
withdrawal notice shall specify an effective date of withdrawal that is
at least sixty (60) days, but not more than ninety (90) days, after the
date of the withdrawal notice. Within thirty (30) days of receipt of the
withdrawal notice, the other Parties may join in the withdrawal by giving
written notice of that fact to the Operator ("written notice to join in
the withdrawal") and upon giving written notice to join in the withdrawal
are "Other Withdrawing Parties". The withdrawal notice and the written
notice to join in the withdrawal are unconditional and irrevocable offers
by the Withdrawing Party and the Other Withdrawing Parties to convey to
the Parties who do not join in the withdrawal ("the Remaining Parties")
the Withdrawing Party's and the Other Withdrawing Parties' entire Working
Interest in all of the Contract Area, Hydrocarbon production, and other
property and equipment owned under this Agreement.
15.2 Response to Withdrawal Notice
Failure to respond to a withdrawal notice is deemed a decision not to
join in the withdrawal.
15.2.1 Unanimous Withdrawal
If all the other Parties join in the withdrawal,
(a) no assignment of Working Interests shall take place;
(b) subject to Article 14.4, no further operations may be conducted
under this Agreement unless agreed to by all Parties;
(c) the Parties shall abandon all activities and operations within the
Lease and relinquish all of their Working Interests to the MMS
within three hundred sixty-five (365) days of the conclusion of
the thirty (30) day joining period; and
(d) notwithstanding anything to the contrary in Article 14
(Abandonment, Salvage and Surplus), the Operator shall:
1) furnish all Parties a detailed abandonment plan, if
applicable, and a detailed cost estimate for the
abandonment within thirty (30) days after the conclusion of
the thirty (30) day joining period; and
2) cease operations and begin to permanently plug and abandon
all ▇▇▇▇▇ and remove all Facilities in accordance with the
abandonment plan.
54
15.2.2 No Additional Withdrawing Parties
If none of the other Parties join in the withdrawal, then the
Remaining Parties must accept an assignment of their Participating
Interest share of the Withdrawing Party's Working Interest.
15.2.3 Acceptance of the Withdrawing Parties' Interests.
If one (1) or more but not all of the other Parties join in the
withdrawal and become Other Withdrawing Parties, then within
forty-eight (48) hours (exclusive of Saturdays, Sundays, and
federal holidays) of the conclusion of the thirty (30) day joining
period, each of the Remaining Parties shall submit to the Operator
a written rejection or acceptance of its Participating Interest
share of the Withdrawing Party's and Other Withdrawing Parties'
Working Interest. Failure to make that written rejection or
acceptance shall be deemed a written acceptance. If the Remaining
Parties are unable to select a successor Operator, if applicable,
or if a Remaining Party submits a written rejection and the other
Remaining Parties do not agree to accept one hundred percent
(100%) of the Withdrawing Party's and Other Withdrawing Parties'
Working Interest within ten (10) days of the conclusion of the
forty-eight (48) hour period to submit a written rejection or
acceptance, the Remaining Parties will be deemed to have joined in
the withdrawal, and Article 15.2.1 (Unanimous Withdrawal) will
apply.
15.2.4 Effects of Withdrawal
Except as otherwise provided in this Agreement, after giving a
withdrawal notice or a written notice to join in the withdrawal,
the Withdrawing Party and Other Withdrawing Parties are not
entitled to approve or participate in any activity or operation in
the Lease, other than those activities or operations for which
they retain a financial responsibility. The Withdrawing Party and
Other Withdrawing Parties shall take all necessary steps to
accomplish their withdrawal by the effective date referred to in
Article 15.1 (Right to Withdraw) and shall execute and deliver to
the Remaining Parties all necessary instruments to assign their
Working Interest to the Remaining Parties. A Withdrawing Party and
Other Withdrawing Parties shall bear all expenses associated with
their withdrawal and the transfer of their Working Interest.
15.3 Limitation Upon and Conditions of Withdrawal
15.3.1 Prior Expenses
The Withdrawing Party and Other Withdrawing Parties shall remain
liable for their Participating Interest share of the costs of all
activities, operations, rentals, royalties, taxes, damages,
Hydrocarbon imbalances, or other liability or expense accruing or
relating to (i) obligations existing as of the effective date of
the withdrawal, (ii) operations conducted before the effective
date of the withdrawal, (iii) operations approved by the
Withdrawing Party and Other Withdrawing Parties before the
55
effective date of the withdrawal, or (iv) operations commenced by
the Operator under one of its discretionary powers under this
Agreement before the effective date of the withdrawal. Before the
effective date of the withdrawal, the Operator shall provide a
statement to the Withdrawing Party and Other Withdrawing Parties
for (1) their respective shares of all identifiable costs under
this Article 15.3.1 and (2) their respective Participating
Interest shares of the estimated current costs of plugging and
abandoning all ▇▇▇▇▇ and removing all Platforms, Development
Facilities, and other material and equipment owned by the Joint
Account, less their respective Participating Interest Shares of
the estimated salvage value of the assets at the time of
abandonment, as approved by vote. This statement of expenses,
costs, and salvage value shall be prepared by the Operator under
Exhibit "C". Before withdrawing, the Withdrawing Party and Other
Withdrawing Parties shall either pay the Operator, for the benefit
of the Remaining Parties, the amounts allocated to them as shown
in the statement, or provide security satisfactory to the
Remaining Parties for all obligations and liabilities they have
incurred and all obligations and liabilities attributable to them
before the effective date of the withdrawal. All liens, charges,
and other encumbrances, including but not limited to overriding
royalties, net profits interest and production payments, which the
Withdrawing Party and Other Withdrawing Parties placed (or caused
to be placed) on their Working Interest shall be fully satisfied
or released prior to the effective date of its withdrawal (unless
the Remaining Parties are willing to accept the Working Interest
subject to those liens, charges, and other encumbrances).
15.3.2 Confidentiality
The Withdrawing Party and Other Withdrawing Parties will continue
to be bound by the confidentiality provisions of Article 7.3
(Confidentiality) after the effective date of the withdrawal but
will have no further access to technical information relating to
activities or operations under this Agreement. The Withdrawing
Party and Other Withdrawing Parties are not required to return to
the Remaining Parties Confidential Data acquired prior to the
effective date of the withdrawal.
15.3.3 Emergencies and Force Majeure
No Party may withdraw during a Force Majeure or emergency that
poses a threat to life, safety, property or the environment but
may withdraw from this Agreement after termination of the Force
Majeure or emergency. The Withdrawing Party and Other Withdrawing
Parties shall remain liable for their share of all costs and
liabilities arising from the Force Majeure or emergency, including
but not limited to the drilling of relief ▇▇▇▇▇, containment and
cleanup of oil spills and pollution, and all costs of debris
removal made necessary by the Force Majeure or emergency.
56
ARTICLE 16
RENTALS, ROYALTIES, AND OTHER PAYMENTS
16.1 Overriding Royalty and Other Burdens
If the Working Interest or Participating Interest of a Party is subject
to an overriding royalty, Hydrocarbon production payment, net profits
interest, mortgage, lien, security interest, or other burden or
encumbrance, other than lessor's royalty and other burdens listed in
Exhibit "A", the Party so burdened shall pay and bear all liabilities and
obligations created or secured by the burden or encumbrance and shall
indemnify and hold the other Parties harmless from all claims and demands
for payment asserted by the owners of the burdens or encumbrances. If a
Party becomes entitled to an assignment under this Agreement, or as a
result of Non-consent Operations hereunder becomes entitled to receive a
relinquished interest, as provided in Article 13.2 (Relinquishment of
Interest), otherwise belonging to a Non-participating Party whose Working
Interest in the operations is so burdened or encumbered, the Party
entitled to receive the assignment from the Non-participating Party or
the relinquished interest of the Non-participating Party's Hydrocarbon
production shall receive same free and clear of all such burdens and
encumbrances, and the Non-participating Party whose interest is subject
to the burdens and encumbrances shall hold the Participating Parties
harmless for the burdens and encumbrances, and will bear same at its own
expense.
16.2 Subsequently Created Interest
Notwithstanding anything in this Agreement to the contrary, if a Party,
after execution of this Agreement, creates an overriding royalty,
Hydrocarbon production payment, net profits interest, carried interest,
or any other interest out of its Working Interest which the Parties do
not unanimously agree to list on Exhibit "A", (hereinafter called
"Subsequently Created Interest"), the Subsequently Created Interest shall
be made specifically subject to this Agreement. If the Party owning the
interest from which the Subsequently Created Interest was established
fails to pay, when due, its share of costs, and if the proceeds from the
sale of Hydrocarbon production under Article 8.6 (Security Rights) are
insufficient for that purpose, or elects to abandon a well, or elects to
relinquish its interest in the applicable Lease, the Subsequently Created
Interest shall be chargeable with a pro rata portion of all costs in the
same manner as if the Subsequently Created Interest were a Working
Interest, and Operator may enforce against the Subsequently Created
Interest the lien and other rights granted or recognized under this
Agreement to secure and enforce collection of costs chargeable to the
Subsequently Created Interest. The rights of the owner of the
Subsequently Created Interest shall be, and hereby are, subordinated to
the rights granted or recognized by Article 8.6 (Security Rights).
57
16.3 Payment of Rentals and Minimum Royalties
Operator shall pay in a timely manner, for the joint account of the
Parties, all rental, minimum royalties, and other similar payments
accruing under each Lease and shall, on request, submit evidence of each
such payment to the Parties. Operator shall not be held liable to the
other Parties in damages for loss of a Lease or interest therein if,
through mistake or oversight, a rental, minimum royalty, or other payment
is not paid or is erroneously paid. The loss of a Lease or interest
therein resulting from the Operator's failure to pay, or erroneous
payment of rental or minimum royalty shall be a joint loss, and there
shall be no readjustment of interests. For Hydrocarbon production
delivered in kind by Operator to a Non-operator or to another for the
account of a Non-operator, the Non-operator shall provide Operator with
information about the Non-operator's proceeds received or the value of
the Hydrocarbon production taken in kind in order that Operator may make
payments of minimum royalties due.
16.4 Non-participation in Payments
A Party that desires not to pay its share of a rental, minimum royalty,
or similar payment shall notify the other Parties in writing at least
sixty (60) days before the payment is due. Operator shall then make the
payment for the benefit of the Parties that do desire to maintain the
Lease. In such event, the Non-participating Party shall assign to the
Participating Parties the portions of its interest in the Lease
maintained by the payment. The assigned interest shall be owned by each
Participating Party in proportion to its Participating Interest. The
assignment shall be made in accordance with Article 27 (Successors,
Assigns, and Preferential Rights).
16.5 Royalty Payments
Each Party shall be responsible for and shall separately bear and
properly pay or cause to be paid all royalty and other amounts due on its
share of Hydrocarbon production taken in accordance with state or federal
regulations, as may be amended from time-to-time. Adjustments shall be
made among the Parties in accordance with Exhibit "E" (Gas Balancing
Agreement). During a period when Participating Parties in a Non-consent
Operation are receiving a Non-participating Party's share of Hydrocarbon
production, the Participating Parties shall bear and properly pay, or
cause to be paid, the Lease royalty on the Hydrocarbon production taken,
and shall hold the Nonparticipating Parties harmless from liability for
the payment.
ARTICLE 17
TAXES
17.1 Property Taxes
Operator shall render property covered by this Agreement for ad valorem
taxation, if applicable, and shall pay the property taxes for the benefit
of each Party. Operator shall charge each Party its share of the tax
payments. If the ad valorem taxes are based in whole or in part upon
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separate valuations of each Party's Working Interest, then
notwithstanding anything in this Agreement to the contrary, each Party's
share of property taxes shall be in proportion to the tax value generated
by that Party's Working Interest.
17.2 Contest of Property Tax Valuation
Operator shall timely and diligently protest to a final determination
each tax valuation it deems unreasonable. Pending such determination,
Operator may elect to pay under protest. Upon final determination,
Operator shall pay the taxes and the interest, penalties, and costs
accrued as a result of the protest. In either event, Operator shall
charge each Party its share of any amounts due, and each Party shall be
responsible for reimbursing Operator for any such amounts paid.
17.3 Production and Severance Taxes
Each Party shall pay, or cause to be paid, all production and severance
taxes due on Hydrocarbon production that it receives under this
Agreement.
17.4 Other Taxes and Assessments
Operator shall pay other applicable taxes (other than income taxes,
excise taxes, or other similar types of taxes) or assessments and charge
each Party its share.
ARTICLE 18
INSURANCE
18.1 Insurance
Operator shall provide and maintain the insurance prescribed in Exhibit
"B" and charge those costs to the Joint Account. No other insurance shall
be carried for the benefit of the Parties under this Agreement, except as
provided in Exhibit "B".
18.2 Bonds
Operator shall obtain and maintain all bonds or financial guarantees
required by an applicable law, regulation or rule. The costs of those
bonds or financial guarantees acquired exclusively for the conduct of
activities and operations under this Agreement shall be charged to the
Joint Account, including an amount equivalent to the reasonable cost of
that bond or financial guarantee if Operator provides that bond or
guarantee itself and does not engage a third party to do so. Operator
shall require all contractors to obtain and maintain all bonds required
by an applicable law, regulation or rule
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ARTICLE 19
LIABILITY, CLAIMS, AND LAWSUITS
19.1 Individual Obligations
The obligations, duties, and liabilities of the Parties under this
Agreement are several, not joint or collective. Nothing in this Agreement
shall ever be construed as creating a partnership of any kind, joint
venture, agency relationship, association, or other character of business
entity recognizable in law for any purpose. In their relations with each
other under this Agreement, the Parties shall not be considered to be
fiduciaries or to have established a confidential relationship, except as
specifically provided in Article 7.3 (Confidentiality) and Article 7.4
(Limited Disclosure), but rather shall be free to act at arm's length in
accordance with their own respective self-interests. Each Party shall
hold all other Parties harmless from liens and encumbrances on the
Contract Area arising as a result of its acts.
19.2 Notice of Claim or Lawsuit
If, on account of a matter involving activities or operations under this
Agreement, or affecting the Contract Area, a claim is made against a
Party, or if a party outside of this Agreement files a lawsuit against a
Party, or if a Party files a lawsuit, or if a Party receives notice of a
material administrative or judicial hearing or other proceeding, that
Party shall give written notice of the claim, lawsuit, hearing, or
proceeding ("Claim") to the other Parties as soon as reasonably
practicable.
19.3 Settlements
The Operator may settle a Claim, or multiple Claims arising out of the
same incident, involving activities or operations under this Agreement or
affecting the Contract Area, if the aggregate expenditure, exclusive of
outside professional fees and expenses, does not exceed three hundred
thousand ($300,000.00) and if the payment is in complete settlement of
these Claims. If the amount required for settlement exceeds this amount,
the Parties shall determine the further handling of the Claims under
Article 19.4 (Defense of Claims and Lawsuits).
19.4 Defense of Claims and Lawsuits
The Operator shall supervise the handling, conduct, and prosecution of
all Claims involving activities or operations under this Agreement or
affecting the Contract Area. Claims may be settled in excess of the
amount specified in Article 19.3 (Settlements) if the settlement is
approved by vote in accordance with Article 6.1.2 (Vote Required) of the
Participating Parties in the activity or operation out of which the Claim
arose, but a Party may independently settle a Claim or the portion of a
Claim which is attributable to its Participating Interest share alone as
long as that settlement does not directly adversely affect the interest
or rights of the other Participating Parties. Charges for services
performed by the legal staff of a Party shall be made in accordance with
Exhibit "C", but all other expenses incurred by the Operator in the
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prosecution or defense of Claims for the Parties, together with the
amount paid to discharge a final judgment, are costs and shall be paid by
the Parties in proportion to their Participating Interest share in the
activity or operation out of which the Claim arose. The employment of
outside counsel, but not the selection of that counsel, requires approval
by vote of the Participating Parties in the activity or operation out of
which the Claim arose. If the use of outside counsel is approved, the
fees and expenses incurred as a result thereof shall be charged to the
Parties in proportion to their Participating Interest share in the
activity or operation out of which that Claim arose. Each Party has the
right to hire its own outside counsel at its sole cost with respect to
its own defense.
19.5 Liability for Damages
UNLESS SPECIFICALLY PROVIDED OTHERWISE IN THIS AGREEMENT, LIABILITY FOR
LOSSES, DAMAGES, COSTS, EXPENSES OR CLAIMS INVOLVING ACTIVITIES OR
OPERATIONS UNDER THIS AGREEMENT OR AFFECTING THE CONTRACT AREA WHICH ARE
NOT COVERED BY OR IN EXCESS OF THE INSURANCE CARRIED FOR THE JOINT
ACCOUNT SHALL BE BORNE BY EACH PARTY IN PROPORTION TO ITS PARTICIPATING
INTEREST SHARE IN THE ACTIVITY OR OPERATION OUT OF WHICH THAT LIABILITY
ARISES, EXCEPT TO THE EXTENT LIABILITY RESULTS FROM THE GROSS NEGLIGENCE
OR WILLFUL MISCONDUCT OF A PARTY, IN WHICH CASE THAT PARTY SHALL BE
SOLELY RESPONSIBLE FOR LIABILITY RESULTING FROM ITS GROSS NEGLIGENCE OR
WILLFUL MISCONDUCT.
19.6 Indemnification for Non-Consent Operations
TO THE EXTENT ALLOWED BY LAW, THE PARTICIPATING PARTIES WILL HOLD THE
NON-PARTICIPATING PARTIES (AND THEIR PARENT, AFFILIATES, AGENTS,
INSURERS, DIRECTORS, OFFICERS, AND EMPLOYEES) HARMLESS AND RELEASE,
DEFEND, AND INDEMNIFY THEM AGAINST ALL CLAIMS, DEMANDS, LIABILITIES,
REGULATORY DECREES, AND LIENS FOR ENVIRONMENTAL POLLUTION AND PROPERTY
DAMAGE OR PERSONAL INJURY, INCLUDING SICKNESS AND DEATH, CAUSED BY OR
OTHERWISE ARISING OUT OF NON-CONSENT OPERATIONS, AND ANY LOSS AND COST
SUFFERED BY A NON-PARTICIPATING PARTY AS AN INCIDENT THEREOF, EXCEPT
WHERE THAT LOSS OR COST RESULTS FROM THE SOLE, CONCURRENT, OR JOINT
NEGLIGENCE, FAULT OR STRICT LIABILITY OF THAT NON-PARTICIPATING PARTY, IN
WHICH CASE EACH PARTY SHALL PAY OR CONTRIBUTE TO THE SETTLEMENT OR
SATISFACTION OF JUDGMENT IN THE PROPORTION THAT ITS NEGLIGENCE, FAULT OR
STRICT LIABILITY CAUSED OR CONTRIBUTED TO THE INCIDENT. IF AN INDEMNITY
IN THIS AGREEMENT IS DETERMINED TO VIOLATE LAW OR PUBLIC POLICY, THAT
INDEMNITY SHALL THEN BE ENFORCEABLE ONLY TO THE MAXIMUM EXTENT ALLOWED BY
LAW.
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19.7 Damage to Reservoir, Loss of Reserves and Profit
NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED HEREIN, NO PARTY TO
THIS AGREEMENT SHALL BE LIABLE TO ANY OTHER PARTY TO THIS AGREEMENT FOR
DAMAGE TO A RESERVOIR(S), LOSS OF HYDROCARBONS, OR FOR LOSS OF PROFITS OR
FOR OTHER CONSEQUENTIAL OR BUSINESS INTERRUPTION DAMAGES, NOR DOES ANY
PARTY INDEMNIFY ANY OTHER PARTY FOR SUCH LOSS.
19.8 Non-Essential Personnel
A NON-OPERATOR THAT REQUESTS TRANSPORTATION OR ACCESS TO A DRILLING RIG,
PLATFORM, VESSEL, OR OTHER FACILITY USED FOR ACTIVITIES OR OPERATIONS
UNDER THIS AGREEMENT SHALL HOLD THE OTHER PARTIES HARMLESS AND SHALL
RELEASE, DEFEND, AND INDEMNIFY THEM AGAINST (I) ALL CLAIMS, DEMANDS, AND
LIABILITIES FOR PROPERTY DAMAGE AND (II) ALL CLAIMS, DEMANDS, AND
LIABILITIES FOR ANY LOSS OR COST SUFFERED BY A PARTY AS AN INCIDENT
THEREOF, INCLUDING, BUT NOT LIMITED TO, INJURY, SICKNESS AND DEATH,
CAUSED BY OR OTHERWISE ARISING OUT OF THAT TRANSPORTATION OR ACCESS, OR
BOTH, EXCEPT TO THE EXTENT THAT LOSS OR COST RESULTS FROM THE GROSS
NEGLIGENCE OR WILLFUL MISCONDUCT OF THE PARTY SO INDEMNIFIED AND
PROTECTED.
19.9 Dispute Resolution Procedure
Any claim, controversy or dispute arising out of, relating to, or in
connection with this Agreement or an activity or operation conducted
under this Agreement shall be resolved under the Dispute Resolution
Procedure in Exhibit "G" to this Agreement.
19.10 Non-Operator Release For Contractor Indemnity
It is contemplated that Operator, in the performance of its duties as
Operator under this Agreement, will retain the services of independent
contractors on behalf of the Joint Account. It is also contemplated that,
to retain the services of such contractors, Operator will in some
instances be required to release and indemnify such contractors, and
possibly their subcontractors, from liability, including, without
limitation, from liability for the consequences of said indemnitees' own
negligence. It is not the intention of the Parties, where Operator has
agreed to release and indemnify contractors and subcontractors incident
to work to be performed for the Joint Account, that Operator would incur
individual liability as an indemnitor. Therefore, to the extent of
indemnities granted by Operator to contractors and subcontractors, in
connection with goods to be provided and services to be performed for the
Joint Account under this Agreement, it is agreed: (1) Non-Operators shall
release Operator's indemnitees just as if the said Non-Operators had
ratified, approved and adopted the release provisions of Operator's
contracts with said indemnitees relative to said Non-Operator's losses,
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and (2) that losses to third parties arising out of indemnities granted
by Operator shall be obligations of the Joint Account maintained pursuant
to this Agreement.
ARTICLE 20
INTERNAL REVENUE PROVISION
20.1 Internal Revenue Provision
Notwithstanding any provision in this Agreement to the effect that the
rights and liabilities of the Parties are several, not joint or
collective, and that the Agreement and the activities and operations
under this Agreement do not constitute a partnership under state law,
each Party elects to be excluded from the application of all or any part
of the provisions of Subchapter K, Chapter 1, Subtitle A, of the Internal
Revenue Code of 1986, as amended, or similar provisions of applicable
state laws regardless of whether for federal income tax purposes this
Agreement and the activities and operations under this Agreement are
regarded as a partnership.
ARTICLE 21
CONTRIBUTIONS
21.1 Notice of Contributions Other Than Advances for Sale of Production
Each Party shall promptly notify the other Parties of all offers of
contributions that it may obtain, or contributions it is attempting to
obtain, for the drilling of a well or the conducting of an operation on
the Contract Area. Payments received as consideration for entering into a
contract for the sale of Hydrocarbon production from the Contract Area,
loans, and other financial arrangements shall not be considered
contributions for the purpose of this Article 21. No Party shall release
or obligate itself to release Confidential Data in return for a
contribution from a third party without prior written consent of the
Participating Parties or Parties having the right to participate in the
well.
21.2 Cash Contributions
If a Party receives a cash contribution for drilling a well on the
Contract Area or conducting an activity or operation on the Contract
Area, the cash contribution shall be paid to Operator, and Operator shall
credit the amount thereof to the Parties in proportion to their
Participating Interests in the well or the Platform and/or Development
Facilities. If the well is a Non-consent Well, the amount of the
contribution shall be deducted from the cost specified in Article
13.2.1(a) before computation of the amount to be recouped out of
Hydrocarbon production.
21.3 Acreage Contributions
If a Party receives an acreage contribution for the drilling of a well on
the Contract Area, the acreage contribution shall be shared by each
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Participating Party that accepts it in proportion to its Participating
Interest in the well. As between the Participating Parties, this
Agreement shall apply separately to the acreage.
ARTICLE 22
DISPOSITION OF PRODUCTION
22.1 Take-in-Kind Facilities
Subject to Article 22.2, a Party may, at its sole cost and risk,
construct Take-in-Kind Facilities to take its share of Hydrocarbon
production in kind.
22.2 Duty to Take in Kind
Each Party shall own and, at its own cost and risk, shall take in kind or
separately dispose of its share of the oil, gas, and condensate produced
and saved from the Contract Area, exclusive of Hydrocarbon production
used by Operator in activities or operations conducted under this
Agreement, subject to this Article 22. In order to avoid interference
with operations on or regarding the Platform, the Development Facilities,
and the Contract Area, a Party exercising its right to construct Take in
Kind Facilities ("the Take in Kind Party) shall provide the Operator with
a list of equipment it deems necessary for its Take in Kind Facilities
("the components") along with its notice informing the Operator of its
election to take in kind. If the Operator agrees to install and operate
the Take in Kind Facilities, the Operator shall purchase the components
and install it on behalf of the Take in Kind Party at the Take in Kind
Party's sole risk and cost, including, but not limited to, any fees,
penalties or other costs incurred as a result of any cancellation of
placed orders as may be requested by the Take in Kind Party. The Operator
shall provide the Take in Kind Party with monthly updates on the progress
of the ordering and installation of the Take in Kind Facilities. The
Operator, based on the instructions of the Take in Kind Party, shall
install and operate all of the components. The Operator shall not be
responsible for any losses or damages to the components or the Take in
Kind Party's Hydrocarbon production metered, treated, processed or
transported by the components unless such losses or damages are the
result of the Operator's gross negligence or willful misconduct. If the
Operator refuses or fails to install the Take-in Kind Facilities within a
commercially reasonable period of time, the Take-in Kind Party shall have
the right to install and operate the Take-in Kind Facilities provided
that such operations do not interfere with existing operations or
proposed operations that have been approved under the terms of this
Agreement.
22.3 Failure to Take Oil and Condensate in Kind
Notwithstanding Article 22.2 (Duty to Take in Kind), if a Party fails to
take in kind or dispose of its share of the oil or condensate, Operator
shall have the right, but not the obligation, subject to revocation at
will by the Party owning the Hydrocarbon production, to purchase for its
own account, sell to others, or otherwise dispose of all or part of the
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Hydrocarbon production at the same price at which Operator calculates and
pays lessor's royalty on its own portion of the oil or condensate.
Operator shall notify the non-taking Party when the option is exercised.
A purchase or sale by Operator of any other Party's share of the oil or
condensate shall be for such reasonable periods of time as are consistent
with the minimum needs of the industry under the circumstances, but in no
event shall a contract be for a period in excess of one (1) year.
Proceeds of the oil or condensate purchased, sold, or otherwise disposed
of by Operator under this Article 22.3 shall be paid to the Party that
had, but did not exercise, the right to take in kind and separately
dispose of the oil or condensate. Operator, in disposing of another
Party's oil or condensate, shall not be responsible for making any filing
with regulatory agencies not required by law to be made by it in respect
to another Party's share of oil or condensate. Unless required by
governmental authority having jurisdiction or by judicial process, no
Party shall be forced to share an available market with a non-taking
Party.
22.4 Failure to Take Gas in Kind
Article 22.3 (Failure to Take Oil and Condensate in Kind) shall not apply
to gas produced from the Contract Area. In no event shall Operator be
responsible for, or obligated to dispose of, another Party's share of gas
production. If for any reason a Party fails to take or market its full
share of gas as produced, that Party may later take, market, or receive a
cash accounting for its full share in accordance with Exhibit "E".
22.5 Expenses of Delivery in Kind
A cost that is incurred by Operator in making delivery of a Party's share
of Hydrocarbons or disposing of same shall be paid by the Party.
ARTICLE 23
APPLICABLE LAW
23.1 APPLICABLE LAW
THIS AGREEMENT AND THE RELATIONSHIP OF THE PARTIES UNDER THIS AGREEMENT
SHALL BE GOVERNED BY AND INTERPRETED UNDER U.S. GENERAL MARITIME LAW, IF
APPLICABLE; OTHERWISE, UNDER THE LAWS OF THE STATE OF TEXAS, WITHOUT
REGARD TO PRINCIPLES OF CONFLICTS OF LAWS THAT WOULD OTHERWISE REFER THE
MATTER TO THE LAWS OF ANOTHER JURISDICTION.
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ARTICLE 24
LAWS; REGULATIONS, AND NONDISCRIMINATION
24.1 Laws and Regulations
This Agreement and operations under this Agreement are subject to all
applicable laws, rules, regulations, and orders by all governmental
authorities claiming jurisdiction now and in the future. A provision of
this Agreement found to be contrary to or inconsistent with any such law,
rule, regulation, or order shall be deemed to have been modified
accordingly.
24.2 Nondiscrimination
In performing work under this Agreement, the Parties shall comply and
Operator shall require each independent contractor to comply with the
governmental requirements in Exhibit "D" and with the applicable
provisions of Executive Order 11246, as amended.
ARTICLE 25
FORCE MAJEURE
25.1 Force Majeure
If a Party is unable, wholly or in part because of a Force Majeure, to
carry out its obligations under this Agreement, other than the obligation
to make money payments, that Party shall give the other Parties prompt
written notice of the Force Majeure with full particulars about it.
Effective upon the date notice is given, the obligations of the Party, so
far as they are affected by the Force Majeure, shall be suspended during,
but no longer than, the continuance of the Force Majeure. Time is of the
essence in the performance of this Agreement, and every reasonable effort
will be made by the Party to avoid delay or suspension of any work or
acts to be performed under this Agreement. The requirement that the Force
Majeure be remedied with all reasonable dispatch shall not require a
Party to settle strikes or other labor difficulties.
ARTICLE 26
SUCCESSORS, ASSIGNS, AND PREFERENTIAL RIGHTS
26.1 Transfer of Interest
Except as provided in 26.1.1 (Exceptions to Transfer Notice), a Transfer
of Interest shall be preceded by written notice to the Operator and the
other Parties ("the transfer notice"). Any Transfer of Interest shall be
made to a party financially capable of assuming the corresponding
obligations under this Agreement. No Transfer of Interest shall release a
Party from its obligations and liabilities under this Agreement, and the
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security rights under Article 8.6 (Security Rights) shall continue to
burden the Working interest transferred and to secure the payment of
those obligations and liabilities. No Transfer of Interest shall be made
that is not an undivided interest in all of a Party's Working Interest in
the Contract Area (unless otherwise provided under this Agreement).
Unless unanimously agreed otherwise, any Transfer of Interest to a third
party shall be limited to a minimum Working Interest of ten percent (10%)
in the entire Contract Area. If the Working Interest of any Party is
subsequently conveyed or distributed to other entities, so that any one
of them owns a Working Interest of less than ten percent (10%), such
entities shall be entitled to only a single joint representative at
meetings of the Parties and shall vote or act collectively on all matters
hereunder. Such Parties shall be entitled to only a single set of logs,
samples, information and reports and shall be considered as only one
Party for all purposes under this Agreement.
26.1.1 Exceptions to Transfer Notice
Notwithstanding any contrary provision of this Agreement, the
transfer notice is not required when a Party proposes to mortgage,
pledge, hypothecate or grant a security interest in all or a
portion of its Working Interest (including Assignments of
Hydrocarbon production executed as further security for the debt
secured by that security device), any ▇▇▇▇▇, Platforms,
Development Facilities or other equipment. However, an encumbrance
arising from the financing transaction shall be expressly made
subject and subordinated to this Agreement.
26.1.2 Effective Date of Transfer of Interest
A Transfer of Interest becomes effective five (5) days after the
day all Parties are in receipt of the transfer notice. No Transfer
of Interest, other than those provided in Article 15.1 (Right to
Withdraw) and Article 26.1.1 (Exceptions to Transfer Notice), is
binding upon the Parties unless and until (i) the assignor or
assignee provides all remaining Parties with a photocopy of a
fully executed Transfer of Interest, an executed MMS "Designation
of Operator" form and a designation of oil spill responsibility
form and (ii) evidence of receipt of all necessary approvals by
the MMS. The Parties shall promptly undertake all reasonable
actions necessary to secure those approvals and shall execute and
deliver all documents necessary to effectuate that Transfer of
Interest. All costs attributable to a Transfer of Interest are the
sole obligation of the assigning Party.
26.1.3 Form of Transfer of Interest
Any Transfer of Interest shall incorporate provisions that the
Transfer of Interest is subordinate to and made expressly subject
to this Agreement and provide for the assumption by the assignee
of the performance of all of the assigning Party's obligations
under this Agreement. Any Transfer of Interest not in compliance
with this provision is voidable by the non-assigning Parties.
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26.1.4 Warranty
Any Transfer of Interest, vesting or relinquishment of Working
Interest between the Parties under this Agreement shall be made
without warranty of title except by, through and under assignor.
All liens, charges, and other encumbrances, including but not
limited to overriding royalties, net profits interest and
production payments, which a Party placed (or caused to be placed)
on its Working Interest shall be fully satisfied or released prior
to the effective date of a Transfer of Interest, vesting or
relinquishment of Working Interest between that Party and another
Party under this Agreement (unless the other Party is willing to
accept the Working Interest subject to those liens, charges, and
other encumbrances).
26.2 Preferential Right to Purchase
Any Transfer of Interest shall be subject to the following provisions:
26.2.1 Notice of Proposed Transfer of Interest
The transfer notice shall provide full information about the
proposed Transfer of Interest, including, but not limited to, the
name and address of the prospective assignee (who must be ready,
willing, and able to acquire the interest and deliver the stated
consideration therefor), the full consideration for the Transfer
of Interest, and all other terms of the offer. In the case of a
sale of oil and gas interests that includes all or part of the
assigning Party's Working Interest, or if the proposed Transfer of
Interest is structured as a like-kind exchange, the Working
Interest that is subject to the Transfer of Interest shall be
separately valued and the transfer notice shall state the monetary
value attributed to the Working Interest by that prospective
assignee. Article 26.2 (Preferential Right to Purchase) shall
apply only to the Working Interest that is subject to the Transfer
of Interest.
26.2.2 Exercise of Preferential Right to Purchase
Within twenty (20) days after receipt of the transfer notice, each
non-assigning Party may exercise its preferential right to
purchase its Participating Interest share of the Working Interest
offered (on the same terms and conditions, or on equivalent terms
for a non-cash transaction as stated in the notice) without
reservations or conditions by written notice of that fact to all
of the Parties. If one or more non-assigning Parties, but not all
non-assigning Parties, exercise their preferential right to
purchase (the "Acquiring Parties"), then within fifteen (15) days
after the termination of the twenty (20) day notice period set
forth in the previous sentence, each Acquiring Party may exercise
its preferential right to purchase its Participating Interest
share of the Working Interest offered based on its Participating
Interest share as a non-assigning Party or based on its
Participating Interest share as an Acquiring Party. If within the
fifteen (15) day notice period set forth in the previous sentence
an Acquiring Party does not exercise its preferential right to
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purchase its Participating Interest share of the Working Interest
offered based on its Participating Interest share as an Acquiring
Party but does exercise its preferential right to purchase its
Participating Interest share of the Working Interest offered based
on its Participating Interest share as a non-assigning Party, then
the other Acquiring Parties shall have ten (10) days in which to
agree to pay the remainder of the full consideration for the
Transfer of Interest and notify the assigning Party of that fact.
If within the ten (10) day period set forth in the previous
sentence the other Acquiring Parties do not agree to pay the
remainder of the full consideration for the Transfer of Interest,
or if the other Acquiring Parties do agree to pay the remainder of
the full consideration for the Transfer of Interest but do not
notify the assigning Party of the fact, the assigning Party shall
be free to complete the proposed conveyance on the terms disclosed
in the notice. If the non assigning Parties or the Acquiring
Parties agree to pay the full consideration for the Transfer of
interest and accept all of the other terms of the third party
offer, the assigning Party shall transfer the Working Interest to
the non-assigning Parties or Acquiring Parties who exercised their
preferential right to purchase under this Article 26 (Successors,
Assigns, and Preferential Rights). The Transfer of Interest shall
be concluded within a reasonable time, but no later than one
hundred twenty (120) days after the applicable period in which the
non-assigning Parties or Acquiring Parties may exercise their
preferential right to purchase.
26.2.3 Transfer of Interest Not Affected by the Preferential Right to
Purchase
Article 26.2 (Preferential Right to Purchase) shall not apply when
a Party proposes to:
(a) mortgage, pledge, hypothecate or grant a security interest
in all or a portion of its Working Interest (including
assignments of Hydrocarbon production executed as further
security for the debt secured by that security device), or
(b) grant an overriding royalty, a net profits interest, or a
production payment, or
(c) dispose of its Working Interest by:
(1) a merger, reorganization, or consolidation;
(2) a Transfer of Interest of substantially all of a
Party's exploration and production properties in the
Gulf of Mexico; or
(3) a Transfer of Interest to an Affiliate, provided
that there is included in the Transfer of Interest a
provision that if for any reason the assignee ceases
to be an Affiliate of the Transferring Party within
one (1) year after Transfer of Interest, those
rights shall be immediately reassigned to the
original Party before the assignee ceases to be an
Affiliate, and that all rights of the assignee in
the Contract Area shall terminate if the
reassignment does not take place.
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26.2.4 Completion of Transfer of Interest
If the proposed Transfer of Interest is not executed and filed of
record with the MMS within one hundred eighty (180) days after
receipt of the transfer notice by the non-assigning Parties, or if
the terms of the proposed Transfer of Interest conveyance are
materially altered, the proposed Transfer of Interest shall be
deemed withdrawn, and the Working Interest included in the
proposed Transfer of Interest shall again be governed by this
Article 26.2 (Preferential Right to Purchase).
ARTICLE 27
ADMINISTRATIVE PROVISIONS
27.1 Term
This Agreement shall remain in effect so long as a Lease remains in
effect and thereafter until (a) all ▇▇▇▇▇ have been abandoned and plugged
or turned over to the Parties owning an interest in the Lease on which
the ▇▇▇▇▇ are located; (b) all Platforms, Development Facilities, and
equipment have been disposed by the Operator in accordance with Article
14 (Abandonment, Salvage, and Surplus); (c) all Claims as defined in
Article 19 (Liability, Claims, and Lawsuits) have been settled or
otherwise disposed of; and (d) there has been a final accounting and
settlement by all Parties. In accordance with Article 4.5 (Selection of
Successor Operator), this Agreement will terminate if no Party is willing
to become Operator, effective after all conditions in clauses (a) through
(d) above have been completed. In accordance with Article 15.2.1
(Unanimous Withdrawal), this Agreement will terminate if all Parties
elect to withdraw, effective after all conditions in clauses (a) through
(d) above have been completed. Termination of this Agreement shall not
relieve a Party of a liability or obligation accrued or incurred before
termination and is without prejudice to all continuing confidentiality
obligations or other obligations in this Agreement.
27.2 Waiver
A term, provision, covenant, representation, warranty, or condition of
this Agreement may be waived only by written instrument executed by the
Party waiving compliance. The failure or delay of a Party in the
enforcement or exercise of the rights granted under this Agreement shall
not constitute a waiver of said rights nor shall it be considered as a
basis for estoppel. Time is of the essence in the performance of this
Agreement and all time limits shall be strictly construed and enforced.
27.3 Waiver of Right to Partition
Each Party waives the right to bring an action for partition of its
interest in the Lease(s), ▇▇▇▇▇, Platform, Development Facilities, and
other equipment held under this Agreement, and covenants that during the
existence of this Agreement it shall not resort at any time to an action
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at law or in equity to partition any or all of the Leases and lands or
personal property subject to this Agreement.
27.4 Compliance With Laws and Regulations
This Agreement, and all activities or operations conducted by the Parties
under this Agreement, are expressly subject to, and shall comply with,
all laws, orders, rules, and regulations of all federal, state, and local
governmental authorities having jurisdiction over the Contract Area.
27.4.1 Severance of Invalid Provisions
If, for any reason and for so long as, a clause or provision of
this Agreement is held by a court of competent jurisdiction to be
illegal, invalid, unenforceable or unconscionable under a present
or future law (or interpretation thereof), the remainder of this
Agreement will not be affected by that illegality or invalidity.
An illegal or invalid provision will be deemed severed from this
Agreement, as if this Agreement had been executed without the
illegal or invalid provision. The surviving provisions of this
Agreement will remain in full force and effect unless the removal
of the illegal or invalid provision destroys the legitimate
purposes of this Agreement; in which event this Agreement shall be
null and void.
27.4.2 Fair and Equal Employment
Each of the Parties is an Equal Opportunity Employer, and the
equal opportunity provisions of 30 CFR 270 and 41 CFR 60-1, as
amended or modified, are incorporated in this Agreement by
reference. The affirmative action clauses concerning disabled
veterans and veterans of the Vietnam era (41 CFR 60-250) and the
affirmative action clauses concerning employment of the
handicapped (41 CFR 60-741) are also incorporated in this
Agreement by reference. In performing work under this Agreement,
the Parties shall comply with (and the Operator shall require each
independent contractor to comply with) the governmental
requirements in Exhibit "D" that pertain to non segregated
facilities.
27.5 Construction and Interpretation of this Agreement
27.5.1 Headings for Convenience
Except for the definition headings in Article 2 (Definitions), all
the table of contents, captions, numbering sequences, and
paragraph headings in this Agreement are inserted for convenience
only and do not define, expand or limit the scope, meaning, or
intent of this Agreement.
27.5.2 Article References
Except as otherwise provided in this Agreement, each reference to
an article of this Agreement includes all of the referenced
article and its sub-articles.
71
27.5.3 Gender and Number
The use of pronouns in whatever gender or number is a proper
reference to the Parties to this Agreement though the Parties may
be individuals, business entities, or groups thereof. Reference in
this Agreement to the singular of a noun or pronoun includes the
plural and vice versa.
27.5.4 Future References
A reference to a Party includes such Party's successors and
assigns and, in the case of governmental bodies, persons
succeeding to their respective functions and capacities.
27.5.5 Currency
Any amounts due or payable under this Agreement shall be paid in
United States currency.
27.5.6 Intentionally Omitted
27.5.7 Joint Preparation
This Agreement shall be deemed for all purposes to have been
prepared through the joint efforts of the Parties and shall not be
construed for or against one (1) Party or the other as a result of
the preparation, submittal, drafting, execution or other event of
negotiation hereof.
27.5.8 Integrated Agreement
This Agreement contains the final and entire agreement of the
Parties for the matters covered by this Agreement and, as such,
supersedes all other prior written or oral communications and
agreements. This Agreement may not be modified or changed except
by written amendment signed by the Parties.
27.5.9 Binding Effect
To the extent it is assignable, this Agreement shall bind and
inure to the benefit of the Parties and their respective
successors and assigns, and shall constitute a covenant running
with the land comprising the Contract Area. This Agreement does
not benefit or create any rights in a person or entity that is not
a Party to this Agreement.
27.5.10 Further Assurances
Each Party will take all actions necessary and will sign all
documents necessary to implement this Agreement. Except as
otherwise provided in this Agreement, within thirty (30) days
after their receipt of a valid written request for those documents
from a Party, all other Parties shall prepare and execute the
documents.
27.5.11 Counterpart Execution
This Agreement may be executed by signing the original or a
counterpart. If this Agreement is executed in counterparts, all
counterparts taken together shall have the same effect as if all
Parties had signed the same agreement. No Party shall be bound to
this Agreement until all Parties have executed a counterpart or
72
the original of this Agreement. This Agreement may also be
ratified by a separate instrument that refers to this Agreement
and adopts by reference all provisions of this Agreement. A
ratification shall have the same effect as an execution of this
Agreement.
27.6 Restricted Bidding
If more than one (1) Party is ever on the list of restricted joint
bidders for Outer Continental Shelf ("OCS") lease sales, as issued by the
MMS under 30 CFR 256.44, as amended, the Parties shall comply with all
statutes and regulations regarding restricted joint bidders on the OCS.
IN WITNESS WHEREOF, this Agreement has been executed by the Parties as of the
day and year first above written.
WITNESSES: ______________________________
___________________________ By:_____________________________
___________________________ Title:__________________________
_____________________________
By: /s/ ▇. ▇. ▇▇▇▇▇
--------------------------- -----------------------------
Title: Executive Vice President
--------------------------
--------------------------
73
EXHIBIT "A"
Attached to and made a part of that certain Offshore Operating Agreement
effective July 1, 2005 by and between Marathon Oil Company and Ridgewood Energy
Corporation.
OPERATOR
--------
Marathon Oil Company
DESCRIPTION OF LEASE(S) AND DIVISION OF INTEREST
------------------------------------------------
I. Oil and Gas Lease(s)
--------------------
Federal Lease No. OCS-G 27012, effective June 1, 2005 covering all of
Block 259, West Cameron Area, OCS Leasing Map, Louisiana Map No. 1,
containing approximately 5000.00 acres.
Federal Lease No. OCS-G 24722, effective July 1, 2003 covering all of
Block 265, West Cameron Area, OCS Leasing Map, Louisiana Map No. 1,
containing approximately 5000.00 acres.
Federal Lease No. OCS-G 24723, effective July 1, 2003 covering all of
Block 266, West Cameron Area, OCS Leasing Map, Louisiana Map No. 1,
containing approximately 5000.00 acres.
II. Working Interest of the Parties
-------------------------------
The Working Interest of the Parties in the Contract Area shall be as
follows:
MARATHON - 60 %
RIDGEWOOD - 40 %
NOTIFICATION ADDRESSES
----------------------
Marathon Oil Company ▇.▇. ▇▇▇▇▇▇
▇.▇. ▇▇▇ ▇▇▇▇ ▇▇▇▇▇-▇▇▇▇ ▇▇▇▇▇▇▇, Contracts and Negotiations
▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇ (▇▇▇) ▇▇▇-▇▇▇▇
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇ Alternate: ▇.▇. ▇▇▇▇▇▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇ (▇▇▇) ▇▇▇-▇▇▇▇
Ridgewood Energy Corporation W. ▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇ ▇▇▇ ▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇ ▇▇▇ Executive Vice President
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇ (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇ Alternate: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
(▇▇▇) ▇▇▇-▇▇▇▇
EXHIBIT "B"
Attached to and made `a part of that certain Offshore Operating Agreement
effective July 1, 2005 by and between Marathon Oil Company and Ridgewood Energy
Corporation.
OFFSHORE INSURANCE PROVISIONS
-----------------------------
I. WORKERS COMPENSATION & EMPLOYERS LIABILITY INSURANCE
----------------------------------------------------
Operator will carry Workers Compensation insurance in compliance with all
state and federal regulations in the jurisdiction where any of the work
under this Agreement shall be performed, including the following special
coverage extensions:
1. Employer's Liability coverage with limits of not less than
$1,000,000 per accident.
2. U. S. Longshoremen and Harbor Workers' Act and Outer
Continental Shelf Lands Act coverage.
3. Employers' Liability arising out of Maritime operations
including coverage for benefits and damages under the ▇▇▇▇▇
Act with limits of at least $1,000,000 per occurrence.
4. "In Rem" endorsement providing that a claim "In Rem" shall
be treated as a claim against the Operator.
5. Waiver of Subrogation endorsement which waives the insurers
rights of subrogation against all of the Parties to this
Agreement.
Premiums for the insurance above specified shall be charged to the Joint
Account. Provided, however, that if the Operator either self-insures or
effectively self-insures, the Operator shall charge to the Joint Account,
in lieu of any premiums for such insurance, an amount not to exceed the
workers compensation manual rates times the payroll. Claims under
Operator's self-insurance program shall not be charged to the Joint
Account. Except as provided above, Operator shall not be obligated to
obtain or cause to be carried insurance for the benefit of the Joint
Account. Operator shall not obtain or cause to be carried for the benefit
of the Joint Account, control of well or seepage and pollution insurance
nor insurance against the hazards of fire, windstorm, explosion, blowout,
cratering, reservoir damage or insurance other than specified below.
II. INSURANCE NOT CHARGED TO THE JOINT ACCOUNT
------------------------------------------
At all times while this Agreement is in effect, each Party to this
Agreement shall insure or self insure for their share of any liabilities
assumed under this Agreement. The cost of these insurance or
self-insurance programs shall be the individual responsibilities of each
of the Parties and none of the cost associated with these programs shall
be charged to the Joint Account. Each Party shall insure or self-insure
the following coverage for the minimum limits stated.
1. Commercial General Liability Insurance covering all of the
Parties operations, including their offshore operations,
and including contractual liability coverage with combined
single limits of at least $10,000,000 per occurrence and in
the annual aggregate.
2. Automobile Liability covering all owned, non-owned and
leased vehicles with combined single limits of at least
$1,000,000 per occurrence and in the annual aggregate.
3. Pollution Liability insurance covering offshore oil
pollution with the limits of at least $10,000,000 per
occurrence.
4. Physical Damage insurance and coverage for Wreck Removal
for Facilities covered by this Agreement, with limits not
less than the Parties share of the replacement cost of the
facility.
5. Control of Well and Seepage and Pollution insurance with
limits of at least $10,000,000 per occurrence.
Non-owned aviation liability insurance in the amount of $1,000,000
per occurrence covering liability arising out of any leased
aircraft used in the connection with the work to be
performed under this Agreement.
All of the above coverages shall be endorsed to waive the insurers'
rights of subrogation against Operator and all other Parties to this
Agreement. Any Party to this Agreement, at the request of any other
Party, shall advise all of the other Parties as to whether it will insure
or self-insure the above mentioned coverages. If insurance is purchased,
upon request, a Party will provide all other Parties with a certificate
of insurance evidencing that all of the above insurance and special
insuring provisions are in place.
In the event a Party elects to self-insure all or part of the above
requirements, and if any of the other Parties believe or have a concern
that the Party does not have the financial capability to meet its
obligations under such self-insurance programs, any Party may request any
other Party to provide proof of its ability to self-insure these risks.
Proof will consist of independently audited financial statements
demonstrating Tangible Net Worth (calculated in accordance with Generally
Accepted Accounting Procedures ("GAAP")) in an amount at least equal to
ten (10) times the amount of the above required insurance that the Party
elects to self-insure. If the self-insuring Party is unable to meet that
test, the other Parties may, but are not required to do so, purchase any
or all of the insurance that the Party elected to self-insure. The cost
of said insurance shall be for the individual account of the Party on
whose behalf the insurance was purchased.
III. CONTRACTORS' INSURANCE
----------------------
Operator (including any Party conducting Non-Consent operations) shall
use its best efforts to require each contractor who performs work
pursuant to this Agreement to carry the following insurance and special
insuring provisions.
1. Workers' Compensation and Employers' Liability insurance in
accordance with all state and federal regulations in the
jurisdiction where the work is to be performed. This
coverage shall contain the following special endorsements:
a. Employers' Liability coverage with limits of not
less than $1,000,000 per accident.
b. U.S. Longshoremen and Harbor Workers' Act and Outer
Continental Shelf Lands Act coverage.
c. Employers' Liability arising out of Maritime
operations including coverage for benefits and
damages under the ▇▇▇▇▇ Act with limits of at least
$1,000,000 per person and $2,000,000 all persons in
any one occurrence.
d. "In Rem" endorsement providing that a claim "In Rem"
shall be treated as a claim against the Contractor,
e. `Borrowed Servant' endorsement providing that a
Workers' Compensation claim brought against Operator
or any Party, by a Contractor's employee will be
treated as a claim against the Contractor.
f. Waiver of Subrogation endorsement which waives the
insurers rights of subrogation against all of the
Parties to this Agreement.
2. Commercial General Liability insurance and/or Excess
Liability insurance, including contractual liability
covering the indemnity obligations assumed in the contract
with Operator, with combined single limits of $5,000,000
per occurrence for injuries to or death of persons and
damage to property.
3. Automobile Liability insurance covering all owned,
non-owned and hired vehicles with combined single limits of
at least $1,000,000 per occurrence for injuries to or death
of persons and damage to property.
4. In the event watercraft is used by the Contractor,
Contractor shall carry or require owners of such watercraft
to carry Protection and Indemnity Insurance in the amount
of not less than the market value of the vessel or
$1,000,000, whichever is greater.
5. If Contractor's operations require it to use aircraft,
Contractor shall carry or require the owners of such
aircraft to carry liability insurance with a combined
single limit of $500,000 per passenger seat or $1,000,000,
whichever is greater.
6. Any other insurance that Operator deems necessary.
7. All of the insurance carried by Contractors pursuant to
Sections 2 through 6 above shall contain endorsements
waiving the insured's rights of subrogation against
Operator and all other Parties to the Agreement.
Operator shall make a good faith effort to obtain all of the above
required insurance and special insuring provisions. Operator shall also
make a good faith effort to obtain endorsements naming the Operator and
all other Parties as an Additional Insured on the policies of insurance
pursuant to Sections 2 through 6 above. However, Operator shall not be
liable to Non-operators or to their parent companies, subsidiaries or any
affiliated companies for failure to obtain any of the above. It is
recognized in the industry that there are certain contractors and service
companies whose services are necessary to operations contemplated by the
Parties, who as a matter of policy refuse contractually to indemnify
Working Interest owners. As to those entities, Operator may waive any
requirement of contractual indemnity or any or all of the insurance or
special insurance provisions required above.
IV. NOTICE
------
Operator shall promptly notify Non-operators of any loss, damage or claim
not covered by the insurance obtained hereunder for the Joint Account.
All losses which are not covered and all losses in excess of insurance
coverage shall be borne by the Parties in accordance with the terms of
this Agreement under which said operations are being conducted by the
Parties.
EXHIBIT "D"
Attached to and made a part of that certain Offshore Operating Agreement
effective July 1, 2005 by and between Marathon Oil Company and Ridgewood Energy
Corporation.
CERTIFICATION OF NONSEGREGATED FACILITIES
Contractor certifies that it does not maintain or provide for its employees any
segregated facilities at any of its establishments and that it does not permit
its employees to perform their services at any location under its control, where
segregated facilities are maintained. Contractor certifies further that it will
not maintain or provide for its employees any segregated facilities at any of
its establishments and that it will not permit its employees to perform their
services at any location, under its control, where segregated facilities are
maintained. Contractor agrees that a breach of this certification is a violation
of the Equal Opportunity Clause in any Government contract between Contractor
and Operator. As used in this certification, the term "segregated facilities"
means any waiting rooms, work areas, rest rooms and other storage or dressing
areas, parking lots, drinking fountains, recreation or entertainment areas,
transportation, and housing facilities provided for employees which are
segregated by explicit directive or are in fact segregated on the basis of race,
color, religion, or national origin because of habit, local custom or otherwise.
Contractor further agrees that (except where it has obtained identical
certifications from proposed subcontractors) prior to the award of subcontracts
exceeding $10,000 which are not exempt from the provisions of the Equal
Opportunity Clause; that it will retain such certifications in its files; and
that it will forward the following notice to such proposed subcontractors
(except where the proposed subcontractors have submitted identical
certifications for specific time periods):
NOTICE TO PROSPECTIVE SUBCONTRACTORS- OF REQUIREMENT FOR CERTIFICATIONS OF
NONSEGREGATED FACILITIES. A Certification of Nonsegregated Facilities, as
required by the May 9, 1.967 order on Elimination of Segregated Facilities, by
the Secretary of Labor (32 Fed. Reg. 7439, May 19, 1967) must be submitted prior
to the award of a subcontract exceeding $10,000 which is not exempt from the
provisions of the Equal Opportunity Clause. The certification may be submitted
either for each subcontract or for all subcontracts during a period (i.e.,
quarterly, semi-annually or annually). (1968 MAR.)(Note: The penalty for making
false statements in offers is prescribed in 18.U.S.C. 1001.) Whenever used in
the foregoing Section, the term "contractor" refers to each Party to this
Agreement.
EXHIBIT "E"
Attached to and made a part of that certain Offshore Operating Agreement
effective July 1, 2005 by and between Marathon Oil Company and Ridgewood Energy
Corporation.
GAS BALANCING AGREEMENT
(OFFSHORE)
1. Gas Imbalances.
---------------
Notwithstanding anything to the contrary in the Operating Agreement to
which this Gas Balancing Agreement is attached, if any Party hereto takes and
disposes of less than its percentage interest share of gas (including casinghead
gas) produced and saved during any calendar month, then the volume not taken by
such Party may be taken by any other Party or Parties hereto. If such volume is
taken by more than one Party, then each taking Party shall be entitled to take
the proportion thereof that its percentage interest bears to the sum of the
percentage interests of all taking Parties, or in such other proportions as the
taking Parties may agree upon among themselves. The Parties shall provide
sufficient nomination to cover any casinghead gas production. In the event any
Party's nomination does not cover casinghead gas volumes, the Operator shall,
when legally possible, market the shortfall at the prices then available for
that particular volume, and credit that sale and pay proceeds to the Party who
had the insufficient nomination. This will insure casinghead ▇▇▇▇▇ stay in
balance. All gas volumes shall be adjusted for its heating value in British
Thermal Units (BTUs).
2. Volumetric Balancing.
---------------------
2.1 Balancing by Category. Volumetric balancing hereunder shall apply
separately to each category established by law, regulation or governmental order
for the purpose of setting a ceiling price for gas, including but not limited to
the categories established by the Natural Gas Policy Act of 1978 and the Federal
Energy Regulatory Commission. All gas which is now or hereafter becomes
unregulated as to price as to all Parties shall be considered a single category,
and any Cumulative Overproduction or Cumulative Underproduction accrued in a
previously regulated category shall not, upon deregulation, be carried forward
into the unregulated category.
2.2 Definitions. The term "Cumulative Underproduction" means the amount
by which the cumulative volume of gas taken by a Party within a particular
category is less than the cumulative volume that Party was entitled to take
within such category according to its percentage interest; the term "Cumulative
Overproduction" means the amount by which the cumulative volume of gas taken by
a Party within a category exceeds the cumulative volume that Party was entitled
to take within such category according to its percentage interest; the term
"Underproducer" means a Party credited with Cumulative Underproduction; the term
"Overproducer" means a Party charged with Cumulative Overproduction; and the
term "Make-Up Gas" means the volume taken by an Underproducer to make up
Cumulative Underproduction pursuant to Paragraph 2.4 below.
2.3 Operator's Statements. On or before the end of each calendar month,
Operator shall furnish the Parties hereto a written statement showing for each
category (a) the total volume of gas taken by each Party during the preceding
calendar month; (b) the Make-Up Gas taken by each Party during that month; and
(c) the Cumulative Overproduction or Cumulative Underproduction, if any, of each
Party as of the end of that month.
2.4 Make-Up. Any Part y underproduced as to a given category of gas shall
endeavor to bring that category of gas into balance. Commencing on the first day
-1-
of the month after fifteen days written notice to the Operator, a Party may
begin taking and/or delivering to its purchaser(s) its full share of each
category of gas produced. In addition, to allow for the recovery and make-up of
underproduced gas in a category and to balance the gas account for that category
between the Parties in accordance with their respective Participating Interests,
the underproduced Party shall be entitled to take an additional share of gas
("make-up gas") equal to the underproduced Party's Participating Interest share
of gas taken for its account; provided, the amount of make-up gas taken shall
not exceed twenty-five percent (25%) of the overproduced Party's Participating
Interest share of the monthly quantity of the category of gas to be balanced,
and provided that the right to take make-up gas shall not subordinate to the
right of any other Party to take its full Working Interest share of gas from
time to time to satisfy the deliverability test requirements of its gas
contract. If more than one underproduced Party desires to take make-up gas
during the same month and the combined volume they desire to take exceeds the
volume available as make-up gas, the volume available as make-up gas shall be
shared by such Underproducers in proportion to their respective amounts of
Cumulative Underproduction. The first gas made up shall be assumed to be the
first gas underproduced.
It is specifically agreed that no underproduced Party will be allowed to take
make-up gas during the months of November, December, January or February ("the
winter period"). However, gas make-up will be allowed during the winter period
if the underproduced Party has taken at least eighty percent (80%) of the
make-up gas to which it was entitled during the six consecutive months
commencing with March through August.
All written notices required under this section must be received by the Operator
at least fifteen (15) days prior to the end of the month in order to be
effective for the next month.
2.5 Oil and Other Minerals. Regardless of the volume of gas actually
taken by any Party hereto, such Party shall share, as otherwise provided in the
Operating Agreement, in the production of crude oil, condensate and other
minerals separated from the gas in facilities operated for the joint account.
Any condensation within the pipeline or plant liquids allocated to the Lease
will be allocated to the Parties in proportion to the Parties' share of gas sold
for that month.
2.6 Costs and Expenses. Regardless of the volume of gas actually taken by
any Party hereto, such Party shall bear costs and expenses as otherwise provided
in the Operating Agreement.
3. Final Cash Balancing.
---------------------
3.1 Statements. If all Parties have not achieved volumetric gas balance
for a particular category upon termination of the lease, Operator shall furnish
to all Parties within ninety (90) days a statement showing the final Cumulative
Overproduction and Cumulative Underproduction for such category, and the month
and year in which it accrued. In determining the timing of accruals, Make-Up Gas
shall be applied against Cumulative Overproduction and Cumulative
Underproduction on a first-in-first-out basis. Within sixty (60) days after
receipt of Operators statement, each Overproducer shall furnish to the Operator
a statement showing the value of its Cumulative Overproduction for such
category, based on the price the Overproducer actually received for the
Cumulative Overproduction in a sale to a Nonaffiliate during the month(s) in
which the Cumulative Overproduction accrued, less all payments made by the
Overproducer for production, severance and excise taxes. In the absence of a
sale to a Nonaffiliate, value shall be based on the weighted average price
received by the Parties hereto in sales to Nonaffiliates during the month in
question. For the purpose of this Agreement, the term "Nonaffiliate" as it
relates to a Party means any corporation or other business organization not in
control of, and not controlled by, and not under common control with, such
Party. Notwithstanding anything contained herein to the contrary, an otherwise
affiliated marketing organization will be considered a Nonaffiliate provided it
remits to its producer the full proceeds of the sale of its producer's gas to a
nonaffiliated end-user, less the actual transportation costs. It is the intent
of this provision to consider as a Nonaffiliate, those marketing organizations
which do not retain a marketing fee and/or price arbitrage from their producer.
Based upon the statements furnished by Overproducers, the net amount owed by or
to each Party for all categories combined shall be calculated by Operator and
furnished to all Parties in a final cash balancing statement.
-2-
3.2 Dispositions. In the event any Party sells, assigns or otherwise
transfers to any Nonaffiliate not already a Party to this Lease any of its
interest in the Lease to which this Agreement applies, and if at the time of
such disposition such Party is an Overproducer, all Underproducers shall have
the option, upon written request from any one Underproducer made within sixty
(60) days of being notified of such disposition, to get an immediate cash
balancing of their shares of the Cumulative Overproduction of the disposing
Party in accordance with the concepts set forth in this Agreement.
3.3 Settlements. Within sixty (60) days after receipt of Operator's final
cash balancing statement, each Overproducer shall pay each Underproducer in
accordance with the statement and without interest. To the extent any value used
to calculate a cash settlement hereunder is subject to refund by the
Overproducer pursuant to law, regulation or governmental order, the
Underproducer entitled to such cash settlement shall, prior to payment thereof,
agree in writing to indemnify the Overproducer against the Underproducer's
proportionate part of any refund (including interest) which the Overproducer
shall be required to make. Any Party may challenge any volumes or values or
amounts specified in any of the statements furnished under Paragraph 2.3 or 3.1
above, in the same manner and subject to the same limitations as an invoice from
Operator may be challenged under the Operating Agreement or the accounting
procedure thereto.
4. Payments on Production.
-----------------------
Each Party shall pay all production or severance taxes, excise taxes,
royalties, overriding royalties, production payments and other such payments on
production for which it is obligated by law or by lease or by contract
(including the Operating Agreement), and nothing in this Gas Balancing Agreement
shall be construed as affecting such obligations. Each Party hereto agrees to
indemnify and hold harmless the other Parties hereto against all claims, losses
or liabilities arising out of its failure to fulfill such obligations.
5. Complete Taking by Overproducer.
--------------------------------
In any situation in which there exists an imbalance of gas, Operator
shall make every effort to determine the point in time when an Overproducer has
taken and produced one hundred percent (100%) of its Working Interest share of
gas reserves for a particular category of gas. Upon notice by Operator that it
believes that such point in time has been reached, Operator shall suspend
delivery of such gas to such Overproducer and all other Parties shall be
entitled to take such Overproducer's share of production as to that category of
gas in proportion to their percentage interests. Notwithstanding the above, if
at any time the other Parties fail to take one hundred percent (100%) of such
production, then at such time, such Overproducer shall be entitled to produce
and sell the gas the other Parties fail to take as provided for in this Article
5.
m:Shelf JOA:▇▇▇▇▇▇ ▇▇▇ EXHIBIT E Accepted.doc
EXHIBIT "F"
Attached to and made a part of that certain Offshore Operating Agreement
effective July 1, 2005 by and between Marathon Oil Company and Ridgewood Energy
Corporation.
MEMORANDUM OF OPERATING AGREEMENT
AND FINANCING STATEMENT
-----------------------
(LOUISIANA)
To be filed in the conveyance records and in the
mortgage records and as a non-standard financing
statement in accordance with Paragraph 6.0 herein.
1.0 This Memorandum of Operating Agreement and Financing Statement
(Louisiana) (this "Memorandum") is effective as of the effective date of
the Operating Agreement referred to in Paragraph 2.0 below and is
executed by the undersigned, duly authorized representative of Marathon
Oil Company, an Ohio corporation, whose taxpayer identification number is
and whose address is P. 0. ▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇ (the
"Operator"), and the undersigned, duly authorized representative of
Ridgewood Energy Corporation, a Delaware corporation, whose taxpayer
identification number is and whose address is ▇▇▇▇▇ ▇▇▇ ▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇
▇▇▇, ▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇ (the "Non Operating Party").
2.0 The Operator and the Non-Operating Parties are parties to that certain
Operating Agreement dated the 1st day of July, 2005 (the "Operating
Agreement"), which Operating Agreement provides for the development and
production of crude oil, natural gas and associated substances from the
lands and oil and gas leases described in Exhibit "A" of the Operating
Agreement and in Attachment "1" to this Memorandum (hereinafter called
the "Contract Area") and which designates Marathon Oil Company as the
Operator, to conduct such operations for itself and the Non-Operating
Parties. All such leases and any future oil and gas leases covering lands
included within the Contract Area that may be acquired by the Operator
and the Non-Operating Parties (including substitutions for or
replacements of existing leases) are hereinafter called the "Lease."
3.0 Among other provisions, the Operating Agreement (a) provides for certain
liens, mortgages, pledges and security interests to secure payment by the
parties of their respective share of costs and performance of other
obligations under the Operating Agreement, (b) contains an Accounting
Procedure, which establishes, among other things, interest to be charged
on indebtedness, certain costs, and other expenses under the Operating
Agreement at the rate set forth therein, (c) includes non-consent clauses
which establish that parties who elect not to participate in certain
operations shall (i) be deemed to have relinquished their interest in
production until the carrying consenting parties recover their costs of
such operations plus a specified amount or (ii) forfeit their interest in
certain Leases or portions thereof involved in such operations, (d)
grants each party to the Operating Agreement the right to take in kind
its proportionate share of all oil and gas produced from the Contract
Area, and (e) includes a volumetric Gas Balancing Agreement which is
attached as Exhibit "E" to the Operating Agreement.
4.0 The Operator hereby certifies that a true and correct copy of the
Operating Agreement is on file and is available for inspection by third
parties at the offices of the Operator at the address set forth in this
Memorandum.
5.0 In addition to any other security rights and remedies provided for by law
with respect to services rendered or materials and equipment furnished
under the Operating Agreement, for and in consideration of the covenants
and mutual undertakings of the Operator and the Non-Operating Parties set
forth in the Operating Agreement, the Operator and the Non-Operating
Parties hereby agree as follows:
5.1 Each Non-Operating Party hereby grants to the Operator a mortgage,
hypothec, and pledge of and over all of its rights, titles, and
interests in and to (a) the Lease, (b) the oil and gas in, on,
under, and that may be produced from the lands covered by the
Lease or included within the Contract Area, and (c) all other
immovable property susceptible of mortgage situated within the
Contract Area.
5.2 Each Non-Operating Party hereby grants to the Operator a
continuing security interest in and to all of its rights, titles,
interests, claims, general intangibles, proceeds, and products
thereof, whether now existing or hereafter acquired, in and to (a)
all oil and gas produced from the offshore blocks covered by the
Lease or the Contract Area or attributable to the Lease or the
Contract Area when produced, (b) all accounts receivable accruing
or arising as a result of the sale of such oil and gas (including,
without limitation, accounts arising from gas imbalances or from
the sale of oil and gas at the wellhead), (c) all cash or other
proceeds from the sale of such oil and gas once produced, and (d)
all platforms, ▇▇▇▇▇, facilities, fixtures, other corporeal
property, whether movable or immovable, whether now or hereafter
placed on the offshore blocks covered by the Lease or the Contract
Area or maintained or used in connection with the ownership, use,
or exploitation of the Lease or the Contract Area, and other
surface and sub-surface equipment of any kind or character located
on or attributable to the Lease or the Contract Area, and the cash
or other proceeds realized from any sale, transfer, disposition or
conversion thereof. The interest of the Non-Operating Parties in
and to the oil and gas produced from or attributable to the Lease
or the Contract Area when extracted and the accounts receivable
accruing or arising as the result of the sale thereof shall be
financed at the wellhead of the well or ▇▇▇▇▇ located on the Lease
or the Contract Area. To the extent susceptible under applicable
law, the security interest granted by each Non-Operating Party
hereunder covers (i) all substitutions, replacements, and
accessions to the property of such Non-Operating Party described
herein and is intended to cover all of the rights, titles, and
interests of such Non-Operating Party in all movable property now
or hereafter located upon or used in connection with the Contract
Area, whether corporeal or incorporeal, (ii) all rights under any
gas balancing agreement, farmout rights, option farmout rights,
acreage and cash contributions, and conversion rights of such
Non-Operating Party in connection with the Lease or the Contract
Area, or the oil and gas produced from or attributable to the
Lease or the Contract Area, whether now owned and existing or
hereafter acquired or arising, including, without limitation, all
interests of each Non-Operating Party in any partnership, tax
partnership, limited partnership, association, joint venture, or
other entity or enterprise that holds, owns, or controls any
interest in the Contract Area, and (iii) all rights, claims,
general intangibles, and proceeds, whether now existing or
hereafter acquired, of such Non-Operating Party in and to the
contracts, agreements, permits, licenses, rights-of-way, and
similar rights and privileges that relate to or are appurtenant to
the Lease or the Contract Area, including the following:
(1) all of its rights, titles, and interests, whether
now owned and existing or hereafter acquired or
arising, in, to, and under or derived from any
present or future operating, farmout, bidding,
pooling, unitization, and communitization
agreements, assignments, and subleases, whether or
not described in Attachment "1," to the extent, and
only to the extent, that such agreements,
assignments, and subleases cover or include any of
its rights, titles, and interests, whether now owned
and existing or hereafter acquired or arising, in
and to all or any portion of the Lease or the
Contract Area, and all units created by any such
pooling, unitization, and communitization
agreements, and all units formed under orders,
regulations, rules, or other official acts of any
governmental authority having jurisdiction, to the
extent and only to the extent that such units cover
or include all or any portion of the Lease or the
Contract Area;
(2) all of its rights, titles, and interests, whether
now owned and existing or hereafter acquired or
arising, in, to, and under or derived from all
presently existing and future advance payment
agreements, and oil, casinghead gas, and gas sales,
exchange, and processing contracts and agreements,
including, without limitation, those contracts and
agreements that are described on Attachment "1," to
the extent, and only to the extent, those contracts
and agreements cover or include all or any portion
of the Lease or the Contract Area; and
(3) all of its rights, titles, and interests, whether
now owned and existing or hereafter acquired or
arising, in, to, and under or derived from all
existing and future permits, licenses,
rights-of-way, and similar rights and privileges
that relate to or are appurtenant to any of the
Lease or the Contract Area.
5.3 To the extent susceptible under applicable law, the mortgage and
the security interest granted by each Non-Operating Party in the
Operating Agreement and this Memorandum shall secure (a) the
complete and timely performance of and payment by such
Non-Operating Party to the Operator of all of its obligations and
indebtedness of every kind and nature, whether now owed by such
Non-Operating Party or hereafter arising pursuant to the Operating
Agreement and this Memorandum, and (b) the payment of all expenses
incurred by the Operator and the Participating Parties for (or on
account of) any and all operations conducted pursuant to the
Operating Agreement ("Costs") and other expenses properly charged
to such Non-Operating Party together with (1) interest on such
indebtedness, Costs, and other expenses at the rate set forth in
Exhibit "C" attached hereto (the "Accounting Procedure") or the
maximum rate allowed by law, whichever is the lesser, (2)
reasonable attorneys' fees, (3) court costs, and (4) other
directly related collection costs.
5.4 This Memorandum (including a carbon, photographic, or other
reproduction thereof and hereof) shall constitute a non-standard
form of financing statement under the terms of Chapter 9 of the
Louisiana Commercial Laws, La. R.S. 10:9-101 et seq. (the "Uniform
Commercial Code," as adopted in the State of Louisiana) and, as
such, for the purposes of the security interest in favor of the
Operator, may be fled for record in the office of the Clerk of
Court of any parish in the State of Louisiana, with the Operator
being the secured party and the Non-Operating Parties being the
debtors with respect to such fling.
5.5 The maximum amount for which the mortgage herein granted by each
Non-Operating Party shall be deemed to secure the obligations and
indebtedness of such Non-Operating Party to the Operator as
stipulated herein is hereby fixed in an amount equal to
$25,000,000.00 (the "Limit of the Mortgage of each Non-Operating
Party"). Except as provided in the previous sentence (and then
only to the extent such limitations are required by law), the
entire amount of obligations and indebtedness of each
Non-Operating Party to the Operator is secured hereby without
limitation. Notwithstanding the foregoing Limit of the Mortgage of
each Non-Operating Party, the liability of each Non-Operating
Party under this Memorandum and the mortgage and security interest
granted hereby shall be limited to (and the Operator shall not be
entitled to enforce the same against such Non-Operating Party for,
an amount exceeding) the actual obligations and indebtedness
(including all interest charges, costs, attorneys' fees, and other
charges provided for in this Memorandum or in the Operating
Agreement) outstanding and unpaid and that are attributable to or
charged against the interest of such Non-Operating Party pursuant
to the Operating Agreement.
5.6 The Operator hereby grants to each Non-Operating Party a mortgage,
hypothec, and pledge of and over all of its rights, titles, and
interests in and to (a) the Lease, (b) the oil and gas in, on,
under, and that may be produced from the lands covered by the
Lease or included within the Contract Area, and (c) all other
immovable property susceptible of mortgage situated within the
Contract Area.
5.7 The Operator hereby grants to each Non-Operating Party a
continuing security interest in and to all of its rights, titles,
interests, claims, general intangibles, proceeds, and products
thereof, whether now existing or hereafter acquired, in and to (a)
all oil and gas produced from the offshore blocks covered by the
Lease or the Contract Area or attributable to the Lease or the
Contract Area when produced, (b) all accounts receivable accruing
or arising as a result of the sale of such oil and gas (including,
without limitation, accounts arising from gas imbalances or from
the sale of oil and gas at the wellhead), (c) all cash or other
proceeds from the sale of such oil and gas once produced, and (d)
all platforms, ▇▇▇▇▇, facilities, fixtures, other corporeal
property, whether movable or immovable, whether now or hereafter
placed on the property covered by the Lease or the Contract Area
or maintained or used in connection with the ownership, use or
exploitation of the. Lease or the Contract Area, and other surface
and sub-surface equipment of any kind or character located on or
attributable to the Lease or the Contract Area and the cash or
other proceeds realized from any sale, transfer, disposition or
conversion thereof. The interest of the Operator in and to the oil
and gas produced from or attributable to the Lease or the Contract
Area when extracted and the accounts receivable accruing or
arising as the result of the sale thereof shall be financed at the
wellhead of the well or ▇▇▇▇▇ located on the Lease or the Contract
Area. To the extent susceptible under applicable law, the security
interest granted by the Operator hereunder covers (i) all
substitutions, replacements, and accessions to the property of the
Operator described herein and is intended to cover all of the
rights, titles and interests of the Operator in all movable
property now or hereafter located upon or used in connection with
the Contract Area, whether corporeal or incorporeal, (ii) all
rights under any gas balancing agreement, farmout rights, option
farmout rights, acreage and cash contributions, and conversion
rights of the Operator in connection with the Lease or the
Contract Area, or the oil and gas produced from or attributable to
the Lease or the Contract Area, whether now owned and existing or
hereafter acquired or arising, including, without limitation, all
interests of the Operator in any partnership, tax partnership,
limited partnership, association, joint venture, or other entity
or enterprise that holds, owns, or controls any interest in the
Contract Area, and (iii) all rights, claims, general intangibles,
and proceeds, whether now existing or hereafter acquired, of the
Operator in and to the contracts, agreements, permits, licenses,
rights-of-way, and similar rights and privileges that relate to or
are appurtenant to the Lease or the Contract Area, including the
following:
(1) all of its rights, titles, and interests, whether
now owned and existing or hereafter acquired or
arising, in, to, and under or derived from any
present or future operating, farmout, bidding,
pooling, unitization, and communitization
agreements, assignments, and subleases, whether or
not described in Attachment "1," to the extent, and
only to the extent, that such agreements,
assignments, and subleases cover or include any of
its rights, titles, and interests, whether now owned
and existing or hereafter acquired or arising, in
and to all or any portion of the Lease or the
Contract Area, and all units created by any such
pooling, unitization, and communitization agreements
and all units formed under orders, regulations,
rules, or other official acts of any governmental
authority having jurisdiction, to the extent and
only to the extent that such units cover or include
all or any portion of the Lease or the Contract
Area;
(2) all of its rights, titles, and interests, whether
now owned and existing or hereafter acquired or
arising, in, to, and under or derived from all
presently existing and future advance payment
agreements, and oil, casinghead gas, and gas sales,
exchange, and processing contracts and agreements,
including, without limitation, those contracts and
agreements that are described on Attachment "1," to
the extent, and only to the extent, that those
contracts and agreements cover or include all or any
portion of the Lease or the Contract Area; and
(3) all of its rights, titles, and interests, whether
now owned and existing or hereafter acquired or
arising, in, to, and under or derived from all
existing and future permits, licenses,
rights-of-way, and similar rights and privileges
that relate to or are appurtenant to the Lease or
the Contract Area.
5.8 To the extent susceptible under applicable law, the mortgage and
the security interest granted by the Operator in the Operating
Agreement and this Memorandum shall secure (a) the complete and
timely performance of and payment by the Operator to the
Non-Operating Parties of all of its obligations and indebtedness
of every kind and nature, whether now owed or hereafter arising
pursuant to the Operating Agreement and this Memorandum, and (b)
the payment of all Costs and other expenses properly charged to
the Operator, together with (1) interest on such indebtedness,
Costs, and other expenses at the rate set forth in the Accounting
Procedure or the maximum rate allowed by law, whichever is the
lesser, (2) reasonable attorneys' fees, (3) court costs, and (4)
other directly related' collection costs.
5.9 For the purposes of the security interest in favor of the
Non-Operating Parties, this Memorandum (including a carbon,
photographic, or other reproduction thereof and hereof) may be
filed as a non-standard form of financing statement pursuant to
the Uniform Commercial Code in the office of the Clerk of Court of
any parish in the State of Louisiana, with the Non-Operating
Parties being the secured parties and the Operator being the
debtor with respect to such filing.
5.10 The maximum amount for which the mortgage herein granted by the
Operator shall be deemed to secure the obligations and
indebtedness of the Operator to all Non-Operating Parties as
stipulated herein is hereby fixed in an amount equal to
$25,000,000.00 in the aggregate (the "Limit of the Mortgage of the
Operator"), irrespective of the total number of non operators
party to the Operating Agreement at any time. Except as provided
in the previous sentence (and then only to the extent such
limitations are required by law), the entire amount of obligations
and indebtedness of the Operator to the Non-Operating Parties is
secured hereby without limitation. Notwithstanding the foregoing
Limit of the Mortgage of the Operator, the liability of the
Operator under this Memorandum and the mortgage and security
interest granted hereby shall be limited to (and the Non-Operating
Parties shall not be entitled to enforce the same against Operator
for, an amount exceeding) the actual obligations and indebtedness
(including all interest charges, costs, attorneys' fees, and other
charges provided for in this Memorandum or in the Operating
Agreement) outstanding and unpaid and that are attributable to or
charged against the interest of the Operator pursuant to the
Operating Agreement.
6.0 To serve as notice of the existence of the Operating Agreement as a
burden on the title of the Operator and the Non-Operating Parties to
their interests in and to the
Lease and the Contract Area and for purposes of satisfying otherwise
relevant recording and filing requirements of applicable law, this
Memorandum is to be filed or recorded, as the case may be, in (a) the
conveyance records of the parish or parishes in which the offshore blocks
covered by the Lease or included within the Contract Area are located or
adjacent pursuant to La. R.S. 9:2731 et seq., (b) the mortgage records of
such parish or parishes, and (c) the appropriate Uniform Commercial Code
records. All parties to the Operating Agreement are identified on
Attachment "I" hereto.
7.0 If performance of any obligation under the Operating Agreement or payment
of any indebtedness created thereunder does not occur or is not made when
due under the Operating Agreement or upon default of any covenant or
condition of the Operating Agreement, in addition to any other remedy
afforded by law, each party to the Operating Agreement and any successor
to such party by assignment, operation of law, or otherwise, shall have,
and is hereby given and vested with, the power and authority to foreclose
the mortgage, pledge, and security interest established in its favor
herein and in the Operating Agreement in the manner provided by law and
to exercise all rights of a secured party under the Uniform Commercial
Code. If any Non-Operating Party does not pay its indebtedness or perform
its obligations under the Operating Agreement when due, the Operator
shall have the additional right to notify the purchaser or purchasers of
such Non-Operating Party's production and collect such indebtedness out
of the proceeds from the sale of such Non-Operating Party's share of
production until the amount owed has been paid. The Operator shall have
the right to offset the amount owed against the proceeds from the sale of
such Non-Operating Party's share of production. Any purchaser of such
production shall be entitled to rely on the Operator's statement
concerning the amount of indebtedness owed by such Non-Operating Party
and payment made to the Operator by any purchaser shall be binding and
conclusive as between such purchaser and such Non-Operating Party.
8.0 Upon expiration of the Operating Agreement and the satisfaction of all
obligations and indebtedness arising thereunder, the Operator, on behalf
of all parties to the Operating Agreement, shall file of record an
appropriate release and termination of all security and other rights
created under the Operating Agreement and this Memorandum executed by all
parties to the Operating Agreement. Upon the filing of such release and
termination instrument, all benefits and obligations under this
Memorandum shall terminate as to all parties who have executed or
ratified this Memorandum. In addition, at any time prior to the filing of
such release and termination instrument, each of the Operator and the
Non-Operating Parties shall have the right to (i) file a continuation
statement pursuant to the Uniform Commercial Code with respect to any
financing statement filed in their favor under the terms of this
Memorandum and (ii) reinscribe this act in the appropriate mortgage
records.
9.0 It is understood and agreed by the parties hereto that if any part, term,
or provision of this Memorandum is held by the courts to be illegal or in
conflict with any law of the state where made, the validity of the
remaining portions or provisions shall not be affected, and the rights
and obligations of the parties shall be construed and enforced as if the
Memorandum did not contain the particular part, term, or provision held
to be invalid.
10.0 This Memorandum shall be binding upon and shall inure to the benefit of
the parties hereto and their respective legal representatives, successors
and permitted assigns. The failure of one or more persons owning an
interest in the Contract Area to execute this Memorandum shall not in any
manner affect the validity of the Memorandum as to those persons who
execute this Memorandum.
11.0 A party having an interest in the Contract Area may ratify this
Memorandum by execution and delivery of an instrument of ratification,
adopting and entering into this Memorandum, and such ratification shall
have the same effect as if the ratifying party had executed this
Memorandum or a counterpart thereof. By execution or ratification of this
Memorandum, such party hereby consents to its ratification and adoption
by any party who acquires or may acquire any interest in the Contract
Area.
12.0 This Memorandum may be executed or ratified in one or more counterparts
and all of the executed or ratified counterparts shall together
constitute one instrument. For purposes of recording in each of the
records described in Paragraph 6 above, duplicate copies of this
Memorandum with individual signature pages attached thereto may be filed
of record, one copy of each to be indexed in the name of the Operator, as
grantor, and one copy of each to be indexed in the name of each
Non-Operating Party, as grantor, and duplicate copies of this Memorandum
with individual signature pages attached thereto may be filed in the
appropriate Uniform Commercial Code records, one filing for the Operator,
as secured party, and another filing for the Non-Operating Parties, as
secured parties. The respective addresses of the Operator, as both
secured party and debtor, and the Non-Operating Parties, as both debtors
and secured parties, at which information with respect to the security
interests created in the Operating Agreement may be obtained, are set
forth in Paragraph 1.0 of this Memorandum.
13.0 The Operator and the Non-Operating Parties hereby agree to execute,
acknowledge and deliver or cause to be executed, acknowledged and
delivered, any instrument or take any action necessary or appropriate to
effectuate the terms of the Operating Agreement or any Exhibit,
instrument, certificate or other document pursuant thereto.
14.0 Whenever the context. requires, reference herein made to the single
number shall be understood to include the plural, and the plural shall
likewise be understood to include the singular, and specific enumeration
shall not exclude the general, but shall be construed as cumulative.
EXECUTED on the dates set forth below each signature but effective as of
the day of ______, ______.
OPERATOR:
--------
WITNESSES: ______________________________
By:___________________________
_________________________ Printed Name:_________________
(Printed Name of Witness) Title:________________________
Date:_________________________
_________________________
(Printed Name of Witness)
NON-OPERATING PARTY:
-------------------
WITNESSES: ______________________________
By:___________________________
_________________________ Printed Name:_________________
(Printed Name of Witness) Title:________________________
Date:_________________________
_________________________
(Printed Name of Witness)
ACKNOWLEDGMENT
OPERATOR:
STATE OF ______________
PARISH OF _______
On this ____ day of _____________, 200_, before me, appeared _____, to me
personally known, who, being by me duly sworn, did say that he is the
___________ of ________________, a ________________, and that the foregoing
instrument was signed on behalf of the corporation by authority of its Board of
Directors and that ________ acknowledged the instrument to be the free act
and deed of the corporation.
NOTARY PUBLIC in and for
the Parish of _________________
My Commission expires:
ACKNOWLEDGMENT
NON-OPERATING PARTIES:
STATE OF __________
PARISH OF ___________
On this ____ day of _____________, 200_, before me, appeared _____, to me
personally known, who, being by me duly sworn, did say that he is the
___________ of ________________, a ________________, and that the foregoing
instrument was signed on behalf of the corporation by authority of its Board of
Directors and that ________ acknowledged the instrument to be the free act
anddeed of the corporation.
NOTARY PUBLIC in and for
the Parish of _________________
My Commission expires:
ATTACHMENT "1" TO EXHIBIT "F"
Attached to and made a part of the
Memorandum of Operating Agreement
and Financing Statement (Louisiana)
dated effective ________, by and
between Marathon Oil Company and
Ridgewood Energy Corporation.
I. DESCRIPTION OF LANDS AND LEASES WITHIN THE CONTRACT AREA
--------------------------------------------------------
Federal Lease No. OCS-G 27012, effective June 1, 2005 covering all of
Block 259, West Cameron Area, OCS Leasing Map, Louisiana Map No. 1,
containing approximately 5000.00 acres.
Federal Lease No. OCS-G 24722, effective July 1, 2003 covering all of
Block 265, West Cameron Area, OCS Leasing Map, Louisiana Map No. 1,
containing approximately 5000.00 acres.
Federal Lease No. OCS-G 24723, effective July 1, 2003 covering all of
Block 266, West Cameron Area, OCS Leasing Map, Louisiana Map No. 1,
containing approximately 5000.00 acres.
II. OPERATOR
--------
Marathon Oil Company
III. PARTIES, REPRESENTATIVES. ADDRESSES, AND INTERESTS CONTRIBUTED
--------------------------------------------------------------
Marathon Oil Company ▇.▇. ▇▇▇▇▇▇
▇.▇. ▇▇▇ ▇▇▇▇ ▇▇▇▇▇-▇▇▇▇ ▇▇▇▇▇▇▇, Contracts and Negotiations
▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇ (▇▇▇) ▇▇▇-▇▇▇▇
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇ Alternate: ▇.▇. ▇▇▇▇▇▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇ (▇▇▇) ▇▇▇-▇▇▇▇
Ridgewood Energy Corporation W. ▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇ ▇▇▇ ▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇ ▇▇▇ Executive Vice President
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇ (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇ Alternate: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
(▇▇▇) ▇▇▇-▇▇▇▇
Working Interest of the Parties in the Contract Area:
MARATHON - 60%
RIDGEWOOD - 40%
EXHIBIT "G"
Attached to and made a part of that certain Offshore Operating Agreement
effective July 1, 2005 by and between Marathon Oil Company and Ridgewood Energy
Corporation.
DISPUTE RESOLUTION PROCEDURE
----------------------------
I. OVERVIEW
--------
A. Description and Goals: Arbitration as used in this statement is a
procedure whereby an Arbitrator resolves any claim(s),
controversy(ies) or dispute(s) (the "Dispute") between the parties
to the Agreement to which this Exhibit is attached, arising out
of, relating to, or in connection with operations under the
Agreement, including the interpretation, validity, termination or
breach thereof.
(i) Binding: The arbitration process is binding on the Parties
and this arbitration is intended to be a final resolution
of any Dispute between the Parties as described above, to
the same extent as a final judgment of a court of competent
jurisdiction. Each Party hereby expressly covenants that it
shall not resort to court remedies except as provided for
herein, and for preliminary relief in aid of arbitration.
(ii) Violation: A non-prevailing Party shall pay all legal and
court costs incurred by the other Party in connection with
the enforcement of the final resolution of any Dispute
under this Dispute Resolution Procedure. Suits, actions or
proceedings in connection with such enforcement shall be
instituted in the United States District Court for the
Eastern District of Texas, and pursuant to Title IX of the
United States Code. Each Party waives any option or
objection which it may now or hereafter have to the laying
of the venue in any such suit, action or proceeding and
irrevocably submits to the jurisdiction of such court in
any such suit, action or proceeding.
B. Duty to Negotiate: The Parties shall inform one another promptly
following the occurrence or discovery of any item or event which
might reasonably be expected to result in a Dispute in connection
with the Agreement. The Parties will attempt to resolve
satisfactorily any such matters.
C. Notice of Unresolved Dispute: Should a Dispute arise which the
Parties cannot resolve satisfactorily, either Party may deliver to
the other Party a written notice of the Dispute with supporting
documentation as to the circumstances leading to the Dispute (the
"Notice of Dispute"). The Parties, within ten (10) business days
from delivery of such notice, shall then each appoint a management
representative ("Management Representative") who has no prior
direct involvement with the subject matter of the Notice of
Dispute and who is duly authorized to investigate, negotiate and
settle the Dispute. The Management Representative for each Party
shall meet and confer as often as they deem reasonably necessary
for a period not exceeding thirty (30) days following the delivery
of the Notice of Dispute in good faith negotiations to resolve the
Dispute amicably. The Parties in their sole discretion may also
agree to utilize the service of a mediator pursuant to a joint
engagement. Unless otherwise provided herein, all such notices
shall be served in accordance with the provisions of the
Agreement.
II. ARBITRATION PROCESS
-------------------
A. Arbitration: If the Parties are unable to resolve the Dispute
within forty (40) days following the receipt of the Notice of
Dispute, or such additional time as may be mutually agreed, the
matter shall be submitted to arbitration in accordance with the
procedures set forth below.
Page 1
B. Initiation of Arbitration: The arbitration shall be initiated by
either Party delivering to the other a Notice of Intention to
Arbitrate.
C. Governing Procedures: Except as expressly provided herein, the
arbitration shall be conducted in accordance with procedures that
are mutually acceptable to the Parties, including limited
depositionless discovery.
(i) Governing Law: The Arbitrator shall apply the governing
substantive law of the state chosen by the Parties to the
Agreement excluding any conflict rules or choice of law
rules which would otherwise require the application of the
laws of another jurisdiction.
D. Arbitrator: There shall be one Arbitrator, who shall be
independent and impartial, and experienced in arbitration
proceedings. The Arbitrator shall be experienced in the oil and
gas industry and knowledgeable or specializing as to the subject
matter involved in the Dispute. The Arbitrator shall be chosen as
follows: the Parties shall have thirty (30) days from the delivery
of a Notice of Intention to Arbitrate to mutually agree on an
Arbitrator. If the Parties cannot mutually agree within said
thirty (30) day period, then the Parties shall, within three (3)
days after expiration of the thirty (30) day period, apply to the
American Arbitration Association as the appointing authority, for
the appointment of an Arbitrator for or on behalf of the Parties,
and in such case, the Arbitrator appointed by the appointing
authority shall meet the criteria set forth in this Section II.D
and shall act as if mutually agreed to by the Parties.
(i) Conflicts: Any Arbitrator, prior to his or her appointment,
shall disclose to the Parties all actual or perceived
conflicts of interest and business relationships involving
the Dispute or the Parties, including but not limited to,
any professional or social relationships, present or past,
with any Party (or its affiliates), including any Party's
(or its affiliates) directors, officers, and supervisory
personnel and counsel. Any Party may challenge in writing
the appointment or continued service of any Arbitrator for
lack of independence, partiality, or other cause likely to
impair such Arbitrator's ability to effectively participate
in the proceedings or render a fair and equitable decision.
Where such challenge is made, the appointing authority
shall uphold or dismiss the challenge. In the event a
challenge is upheld, the Arbitrator shall be replaced. A
replacement will be selected in the same manner as the
original Arbitrator was selected. If an Arbitrator resigns
or becomes unable or unwilling to continue to serve as the
Arbitrator, a replacement shall be selected in the same
manner as that Arbitrator was chosen.
(ii) Multi-Party Arbitrations: Where more than two Parties are
involved in the Dispute ("Multi-Party Arbitration"), all
Parties shall jointly name and agree as the appointment of
the Arbitrator, meeting the criteria set forth in Section
II.D above. If the parties cannot agree as to the choice of
the Arbitrator within the said thirty (30) days, any of the
Parties hereto may in like manner, within three (3) days
after written notice to the other Parties, apply to the
appointing authority for the appointment of an Arbitrator
meeting the criteria set forth in Section II.D above.
Page 2
(iii) Management of the Arbitration: The Arbitrator shall
actively manage the proceedings as he or she deems best so
as to make the same expeditious, economical, and less
burdensome and adversarial than litigation.
E. Confidentiality: All documents, briefs, testimony, transcripts, as
well as all Arbitrator decisions shall be confidential. Likewise,
the views, suggestions, admissions, proposals, and other
information exchanged in the arbitration are confidential and are
inadmissable in any other proceeding.
F. Costs and Expenses: The Parties shall be equally responsible for
all costs, fees and expenses incurred by the Arbitrator and any
other incidental costs incurred in connection with the arbitration
proceeding shall also be borne equally by the Parties. Each Party
is solely responsible for its own attorneys' fees and expenses
incurred in the Arbitration. In the event of a Multi-Party
Arbitration, all costs and expenses shall be borne equally by all
Parties.
G. Submissions: Within thirty (30) days after the selection of the
Arbitrator, each Party shall provide the Arbitrator with a short
and plain submission defining the issues to be decided and the
nature of the relief that the Arbitrator may award (the
"Submission"). This Submission shall explicitly authorize the
Arbitrator to decide these issues. This authorization shall stay
in force for six (6) months from the earliest Submission. If the
parties are unable to reach consensus as to the issues involved,
the Arbitrator in his or her sole discretion shall frame the
issues through a reasonable procedure. The Arbitrator will render
decisions on the specific issues established and shall fashion any
remedy that the Arbitrator deems appropriate so long as that
remedy is consistent with the Parties' Submissions hereunder. Any
money judgment entered by the Arbitrator shall be payable in U.S.
dollars.
H. Transcriptions: The presentations and argument will be transcribed
for the benefit of the Arbitrator and the Parties.
I. Discovery: Commencing thirty (30) days after the receipt of the
opposing Party's Submission, each Party may serve upon the other
Party up to ten (10) requests for the production of documents,
including subparts. The requests shall be made in good faith and
not be served for the purpose of delay or harassment. Each request
shall describe the type of document(s) sought and each request
shall be limited to documents that are relevant to a claim or
defense in the Arbitration proceeding, or reasonably calculated to
lead to the discovery of admissible evidence. The requests need
not be served all at once but may be served in stages.
(i) The Party served with a request under this provision shall
provide the adverse Party with copies of the requested
documents, and identify the request to which each document
is responsive, within twenty (20) days of the receipt of
the request. If the Party served with a request objects to
the production of any of the requested documents, it shall
nevertheless produce within the permitted time all
documents responsive to any request that is not objected to
by that Party.
(ii) A Party that is served with a request may challenge the
propriety of the request within the time permitted for
response by a short written objection which shall be
forwarded to the adverse party and to the Arbitrator. The
adverse Party shall submit its response, if any, to the
Page 3
objecting Party and the Arbitrator within five (5) days of
receipt of the objection. The Arbitrator shall consider the
request, the objection, and the response, if any, and
decide whether the production shall be allowed or denied or
whether the request should be modified within (10) days
after the submission of the adverse Party's response.
J. Presentations: No later than twenty-five (25) days prior to the
date that presentations to the Arbitrator are to begin, each Party
will submit to the Arbitrator and serve on the other Party a
written position statement. The original statement of each party
shall not exceed thirty-five (35) typewritten letter-size pages.
Each party shall have the right to submit reply statements no
later than fifteen (15) days prior to the date of the
presentation. Such reply statements shall not exceed fifteen (15)
typewritten letter-size pages.
(i) All documents and affidavits that a Party intends to use
during its presentation shall be submitted to the
Arbitrator and served on the other party with the position
and reply statements. All demonstrative exhibits shall be
exchanged five (5) days in advance of the presentations.
(ii) The presentations to the Arbitrator shall extend for such
time as the Arbitrator agrees to be appropriate. In the
absence of any agreement, the presentations for both
Parties shall extend for no longer than two (2) days and
shall be concluded within six (6) months after selection of
the Arbitrator. Presentations of each Party shall occur
successively with no intervening delay.
(iii) Each Party shall make an oral and/or documentary
presentation of its position in such order and in
accordance with the time schedule established by the
Arbitrator. The Arbitrator may question each of the
presenters during or following any and all presentations.
The Arbitrator shall determine a reasonable time and
location for the presentations.
K. Decision and Award: The Arbitrator shall promptly (within sixty
[60] days of conclusion of the presentations or such longer period
as the Parties may mutually agree) determine the claims of the
Parties and render their final decision in writing. The decision
shall state with specificity the findings of fact and conclusions
of law on which it rests. The decision rendered by the Arbitrator
may be enforced in any federal court having jurisdiction to do so
and may only be appealed pursuant to Section L below. The decision
shall be served upon each of the Parties by facsimile transmission
and by first class mail.
(i) If applicable law allows pre-award interest, the Arbitrator
may, in his or her discretion, grant pre-award interest
and, if so, such interest may be at commercial rates in the
state chosen by the Parties pursuant to Section II.C.(i)
during the relevant period. Each Party shall be responsible
for its own attorneys' fees and costs of arbitration. The
Arbitrator shall not award consequential or punitive
damages.
(ii) Within ten (10) days of receipt of the award either side
may submit a Motion to Modify the award. A response shall
Page 4
be due within fifteen (15) days thereafter and the
Arbitrator shall rule thereon within fifteen (15) days
after receipt of the response.
(iii) Judgment on the award may be entered in a United States
District Court for the federal district within which the
decision was made at any time within one year after the
decision is made.
L. Vacation of Award and Appeal: The Parties agree that an award made
by the Arbitrator may only be vacated or confirmed by a federal
court of proper jurisdiction as established above. The parties
agree that an award made by the Arbitrator may be vacated by a
court only if the award was procured by or through fraud or
corruption. An appeal from an order or judgment pursuant to this
Section II.L shall be instituted in the United States District
Court for the Eastern District of Texas. Each party waives any
option or objection which it may now or thereafter have to the
laying of the venue of any such suit, action, or proceeding and
irrevocably submits to the jurisdiction of the court in any such
suit, action, or proceeding. Each party agrees that a remedy at
law for a violation of this Section II.L may not be adequate and
therefore agrees that the remedies of specific performance and
injunctive relief shall be available in the event of any violation
in addition to any other right or remedy at law or in equity to
which any Party may be entitled.
M. Res Judicata: To the extent permitted by law any decision of the
Arbitrator shall not be res judicata or have any binding effect in
any unrelated litigation or arbitration where any Party to this
Agreement may also be a Party.
Page 5
EXHIBIT "H"
Attached to and made a part of that certain Offshore Operating Agreement
effective July 1, 2005 between Marathon Oil Company and Ridgewood Energy
Corporation.
ARTICLE 8.6 ET SEQ.
SHELF OPERATING AGREEMENT
(LOUISIANA)
Security Rights; Default; Unpaid Charges; Carved-out Interests.
8.6 Security Rights (LA).
In addition to any other security rights and remedies provided by law
with respect to services rendered or materials and equipment furnished
under this Agreement, for and in consideration of the covenants and
mutual undertakings of the Operator and the Non-operators herein, the
Parties shall have the following security rights:
8.6.1 Mortgage in Favor of the Operator.
Each Non-operator hereby grants to the Operator a mortgage, hypothecate,
and pledge of and over all of its rights, titles, and interests in and to
(a) the Contract Area, (b) the Hydrocarbons in, on, under, and that may
be produced from the lands within the Contract Area, and (c) all other
immovable property susceptible of mortgage situated within the Contract
Area. This mortgage is given to secure the complete and timely
performance of and payment by each Non-operator of all obligations and
indebtedness of every kind and nature, whether now owed by such
Non-operator or hereafter arising, pursuant to this Agreement. To the
extent susceptible under applicable law, this mortgage and the security
interests granted in favor of the Operator herein shall secure the
payment of all costs and other expenses properly charged to such Party,
together with (A) interest on such indebtedness, costs, and other
expenses at the rate set forth in Exhibit "C" attached hereto (the
"Accounting Procedure") or the maximum rate allowed by law, whichever is
the lesser, (B) reasonable attorneys' fees, (C) court costs, and (D)
other directly related collection costs. If any Non-operator does not pay
such costs and other expenses or perform its obligations under this
Agreement when due, the Operator shall have the additional right to
notify the purchaser or purchasers of the defaulting Non-operator's
Hydrocarbon production and collect such costs and other expenses out of
the proceeds from the sale of the defaulting Non-operator's share of
Hydrocarbon production until the amount owed has been paid. The Operator
shall have the right to offset the amount owed against the proceeds from
the sale of such defaulting Non-operator's share of Hydrocarbon
production. Any purchaser of such production shall be entitled to rely on
the Operator's statement concerning the amount of costs and other
expenses owed by the defaulting Non-operator and payment made to the
Operator by any purchaser shall be binding and conclusive as between such
purchaser and such defaulting Non-operator.
The maximum amount for which the mortgage herein granted by each
Non-operator shall be deemed to secure the obligations and indebtedness
of such Non-operator to the Operator as stipulated herein is hereby fixed
in an amount equal to $25,000,000.00 (the "Limit of the Mortgage of each
Non-operator"). Except as provided in the previous sentence (and then
only to the extent such limitations are required by law), the entire
amount of obligations and indebtedness of each Non-operator to the
Operator is secured hereby without limitation. Notwithstanding the
foregoing Limit of the Mortgage of each Non-operator, the liability of
each Non-operator under this Agreement and the mortgage and security
interest granted hereby shall be limited to (and the Operator shall not
be entitled to enforce the same against such Non-operator for, an amount
exceeding) the actual obligations and indebtedness [including all
interest charges, costs, attorneys' fees, and other charges provided for
in this Agreement or in the Memorandum of Operating Agreement and
Financing Statement (Louisiana), as such term is defined in Section
8.6.1.4 (Recordation) hereof] outstanding and unpaid and that are
attributable to or charged against the interest of such Non-operator
pursuant to this Agreement.
1
8.6.1.1 Security Interest in Favor of the Operator.
To secure the complete and timely performance of and payment by
each Non-operator of all obligations and indebtedness of every
kind and nature, whether now owed by such Non-operator or
hereafter arising, pursuant to this Agreement, each Non-operator
hereby grants to the Operator a continuing security interest in
and to all of its rights, titles, interests, claims, general
intangibles, proceeds, and products thereof, whether now existing
or hereafter acquired, in and to (a) all Hydrocarbons produced
from the lands or offshore blocks covered by the Contract Area or
attributable to the Contract Area when produced, (b) all accounts
receivable accruing or arising as a result of the sale of such
Hydrocarbons (including, without limitation, accounts arising from
gas imbalances or from the sale of Hydrocarbons at the wellhead),
(c) all cash or other proceeds from the sale of such Hydrocarbons
once produced, and (d) all Platforms and Development Facilities,
▇▇▇▇▇, fixtures, other corporeal property, whether movable or
immovable, whether now or hereafter placed on the lands or
offshore blocks covered by the Contract Area or maintained or used
in connection with the ownership, use or exploitation of the
Contract Area, and other surface and sub-surface equipment of any
kind or character located on or attributable to the Contract Area
and the cash or other proceeds realized from the sale, transfer,
disposition or conversion thereof. The interest of the
Non-operators in and to the Hydrocarbons produced from or
attributable to the Contract Area when extracted and the accounts
receivable accruing or arising as the result of the sale thereof
shall be financed at the wellhead of the well or ▇▇▇▇▇ located on
the Contract Area. To the extent susceptible under applicable law,
the security interest granted by each Non-operator hereunder
covers: (A) all substitutions, replacements, and accessions to the
property of such Non-operator described herein and is intended to
cover all of the rights, titles and interests of such Non operator
in all movable property now or hereafter located upon or used in
connection with the Contract Area, whether corporeal or
incorporeal; (B) all rights under any gas balancing agreement,
farmout rights, option farmout rights, acreage and cash
contributions, and conversion rights of such Non-operator in
connection with the Contract Area, or the Hydrocarbons produced
from or attributable to the Contract Area, whether now owned and
existing or hereafter acquired or arising, including, without
limitation, all interests of each Non-operator in any partnership,
tax partnership, limited partnership, association, joint venture,
or other entity or enterprise that holds, owns, or controls any
interest in the Contract Area; and (C) all rights, claims, general
intangibles, and proceeds, whether now existing or hereafter
acquired, of each Non-operator in and to the contracts,
agreements, permits, licenses, rights-of-way, and similar rights
and privileges that relate to or are appurtenant to the Contract
Area, including the following:
(1) all of its rights, titles, and interests, whether
now owned and existing or hereafter acquired or
arising, in, to, and under or derived from any
present or future operating, farmout, bidding,
pooling, unitization, and communitization
agreements, assignments, and subleases, whether or
not described in Exhibit "A," to the extent, and
only to the extent, that such agreements,
assignments, and subleases cover or include any of
its rights, titles, and interests, whether now owned
and existing or hereafter acquired or arising, in
and to all or any portion of the Contract Area, and
all units created by any such pooling, unitization,
and communitization agreements and all units formed
under orders, regulations, rules, or other official
acts of any governmental authority having
jurisdiction, to the extent and only to the extent
that such units cover or include all or any portion
of the Contract Area;
2
(2) all of its rights, titles, and interests, whether
now owned and existing or hereafter acquired or
arising, in, to, and under or derived from all
presently existing and future advance payment
agreements, and oil, casinghead gas, and gas sales,
exchange, and processing contracts and agreements,
including, without limitation, those contracts and
agreements that are described on Exhibit "A," to the
extent, and only to the extent, those contracts and
agreements cover or include all or any portion of
the Contract Area; and
(3) all of its rights, titles, and interests, whether
now owned and existing or hereafter acquired or
arising, in, to, and under or derived from all
existing and future permits, licenses,
rights-of-way, and similar rights and privileges
that relate to or are appurtenant to the Contract
Area.
8.6.1.2 Mortgage in Favor of the Non-operators.
The Operator hereby grants to each Non-operator a mortgage,
hypothecate, and pledge of and over all of its rights, titles, and
interests in and to (a) the Contract Area; (b) the Hydrocarbons
in, on, under, and that my be produced from the lands within the
Contract Area; and (c) all other immovable property or other
property susceptible of mortgage situated within the Contract
Area.
This mortgage is given to secure the complete and timely
performance of and payment by the Operator of all obligations and
indebtedness of every kind and nature, whether now owed by the
Operator or hereafter arising, pursuant to this Agreement. To the
extent susceptible under applicable law, this mortgage and the
security interests granted in favor of each Non-operator herein
shall secure the payment of all costs and other expenses properly
charged to the Operator, together with (A) interest on such
indebtedness, costs, and other expenses at the rate set forth in
Exhibit "C" or the maximum rate allowed by law, whichever is the
lesser, (B) reasonable attorneys' fees, (C) court costs, and (D)
other directly related collection costs. If the Operator does not
pay such costs and other expenses or perform its obligations under
this Agreement when due, the Non-operators shall have the
additional right to notify the purchaser or purchasers of the
Operator's Hydrocarbon production and collect such costs and other
expenses out of the proceeds from the sale of the Operator's share
of Hydrocarbon production until the amount owed has been paid. The
Non-operators shall have the right to offset the amount owed
against the proceeds from the sale of the Operator's share of
Hydrocarbon production. Any purchaser of such production shall be
entitled to rely on Non-operator's statement concerning the amount
of costs and other expenses owed by the Operator and payment made
to the Non-operators by any purchaser shall be binding and
conclusive as between such purchaser and the Operator.
The maximum amount for which the mortgage herein granted by the
Operator shall be deemed to secure the obligations and
indebtedness of the Operator to all Non-operators as stipulated
herein is hereby fixed in an amount equal to $25,000,000.00 in the
aggregate (the "Limit of the Mortgage of the Operator"). Except as
provided in the previous sentence (and then only to the extent
such limitations are required by law), the entire amount of
obligations and indebtedness of the Operator to the Non-operators
is secured hereby without limitation. Notwithstanding the
foregoing Limit of the Mortgage of the Operator, the liability of
the Operator under this Agreement and the mortgage and security
interest granted hereby shall be limited to (and the Non-operators
shall not be entitled to enforce the same against the Operator
for, an amount exceeding) the actual obligations and indebtedness
[including all interest charges, costs, attorneys' fees, and other
charges provided for in this Agreement or in the Memorandum of
Operating Agreement and Financing Statement (Louisiana), as such
term is defined in Section 8.6.1.4 hereof] outstanding and unpaid
and that are attributable to or charged against the interest of
the Operator pursuant to this Agreement.
3
8.6.1.3 Security Interest in Favor of the Non-operators.
To secure the complete and timely performance of and payment by
the Operator of all obligations and indebtedness of every kind and
nature, whether now owed by the Operator or hereafter arising,
pursuant to this Agreement, the Operator hereby grants to each Non
operator a continuing security interest in and to all of its
rights, titles, interests, claims, general intangibles, proceeds,
and products thereof, whether now existing or hereafter acquired,
in and to (a) all Hydrocarbons produced from the lands or offshore
blocks covered by the Contract Area or included within the
Contract Area or attributable to the Contract Area when produced,
(b) all accounts receivable accruing or arising as a result of the
sale of such Hydrocarbons (including, without limitation, accounts
arising from gas imbalances or from the sale of Hydrocarbons at
the wellhead), (c) all cash or other proceeds from the sale of
such Hydrocarbons once produced, and (d) all Platforms and
Development Facilities, ▇▇▇▇▇, fixtures, other corporeal property
whether movable or immovable, whether now or hereafter placed on
the offshore blocks covered by the Contract Area or maintained or
used in connection with the ownership, use or exploitation of the
Contract Area, and other surface and sub-surface equipment of any
kind or character located on or attributable to the Contract Area
and the cash or other proceeds realized from the sale, transfer,
disposition or conversion thereof. The interest of the Operator in
and to the Hydrocarbons produced from or attributable to the
Contract Area when extracted and the accounts receivable accruing
or arising as the result of the sale thereof shall be financed at
the wellhead of the well or ▇▇▇▇▇ located on the Contract Area. To
the extent susceptible under applicable law, the security interest
granted by the Operator hereunder covers: (A) all substitutions,
replacements, and accessions to the property of the Operator
described herein and is intended to cover all of the rights,
titles and interests of the Operator in all movable property now
or hereafter located upon or used in connection with the Contract
Area, whether corporeal or incorporeal; (B) all rights under any
gas balancing agreement, farmout rights, option farmout rights,
acreage and cash contributions, and conversion rights of the
Operator in connection with the Contract Area, the Hydrocarbons
produced from or attributable to the Contract Area, whether now
owned and existing or hereafter acquired or arising, including,
without limitation, all interests of the Operator in any
partnership, tax partnership, limited partnership, association,
joint venture, or other entity or enterprise that holds, owns, or
controls any interest in the Contract Area; and (C) all rights,
claims, general intangibles, and proceeds, whether now existing or
hereafter acquired, of the Operator in and to the contracts,
agreements, permits, licenses, rights-of-way, and similar rights
and privileges that relate to or are appurtenant to the Contract
Area, including the following:
(a) all of its rights, titles, and interests, whether
now owned and existing or hereafter acquired or
arising, in, to, and under or derived from any
present or future operating, farmout, bidding,
pooling, unitization, and communitization
agreements, assignments, and subleases, whether or
not described in Exhibit "A," to the extent, and
only to the extent, that such agreements,
assignments, and subleases cover or include any of
its rights, titles, and interests, whether now owned
and existing or hereafter acquired or arising, in
and to all or any portion of the Contract Area, and
all units created by any such pooling, unitization,
and communitization agreements and all units formed
under orders, regulations, rules, or other official
acts of any governmental authority having
jurisdiction, to the extent and only to the extent
that such units cover or include all or any portion
of the Contract Area;
(b) all of its rights, titles, and interests, whether
now owned and existing or hereafter acquired or
arising, in, to, and under or derived from all
presently existing and future advance payment
agreements, and oil, casinghead gas, and gas sales,
exchange, and Development contracts and agreements,
including, without limitation, those contracts and
4
agreements that are described on Exhibit "A," to the
extent, and only to the extent, those contracts and
agreements cover or include all or any portion of
the Contract Area; and
(c) all of its rights, titles, and interests, whether
now owned and existing or hereafter acquired or
arising, in, to, and under or derived from all
existing and future permits, licenses,
rights-of-way, and similar rights and privileges
that relate to or are appurtenant to any of the
Contract Area.
8.6.1.4 Recordation.
To provide evidence of, and to further perfect the Parties'
security rights created hereunder, upon request, each Party shall
execute and acknowledge the Memorandum of Operating Agreement and
Financing Statement (Louisiana) attached as Exhibit "F" [the
"Memorandum of Operating Agreement and Financing Statement
(Louisiana)"] in multiple counterparts as appropriate. The Parties
authorize the Operator to file the Memorandum of Operating
Agreement and Financing Statement (Louisiana) in the public
records set forth below to serve as notice of the existence of
this Agreement as a burden on the title of the Operator and the
Non-operators to their interests in the Contract Area and for
purposes of satisfying otherwise relevant recording and filing
requirements of applicable law and to attach an original of the
Memorandum of Operating Agreement and Financing Statement
(Louisiana) to a standard UCC-1 in mutually agreeable forms for
filing in the UCC records set forth below to perfect the security
interests created by the Parties in this Agreement. Upon the
acquisition of a leasehold interest in the Contract Area, the
Parties shall, within five business days following request by one
of the Parties hereto, execute and furnish to the requesting Party
for recordation such a Memorandum of Operating Agreement and
Financing Statement (Louisiana) describing such leasehold
interest. Such Memorandum of Operating Agreement and Financing
Statement (Louisiana) shall be amended from time to time upon
acquisition of additional leasehold interests in the Contract
Area, and the Parties shall, within five business days following
request by one of the Parties hereto, execute and furnish to the
requesting Party for recordation any such amendment.
The Memorandum of Operating Agreement and Financing Statement
(Louisiana) is to be filed or recorded, as the case may be, in (a)
the conveyance records of the parish or parishes adjacent to the
lands or offshore blocks covered by the Contract Area pursuant to
La. R.S. 9:2731 et seq., (b) the mortgage records of such parish
or parishes, and (c) the appropriate Uniform Commercial Code
records.
8.6.2 Default.
If any Party does not pay its share of the charges authorized under this
Agreement when due, the Operator may give the defaulting Party notice
that unless payment is made within thirty (30) days from delivery of the
notice, the non-paying Party shall be in default. A Party in default
shall have no further access to the rig, Platform or Development
Facilities, any Confidential Data or other maps, records, data,
interpretations, or other information obtained in connection with
activities or operations hereunder or be allowed to participate in
meetings. A Party in default shall not be entitled to vote or to make an
election until such time as the defaulting Party is no longer in default.
The voting interest of each non-defaulting Party shall be counted in the
proportion its Participating Interest share bears to the total
non-defaulting Participating Interest shares. As to any operation
approved during the time a Party is in default, such defaulting Party
shall be deemed to be a Non-Participating Party, except where such
approval is binding on all Parties or Participating Parties, as
applicable. In the event a Party believes that such statement of charges
is incorrect, the Party shall nevertheless pay the amounts due as
provided herein, and the Operator shall attempt to resolve the issue as
soon as practicable, but said attempt shall be made no later than sixty
(60) days after receiving notice from the Party of such disputed charges.
5
8.6.3 Unpaid Charges.
If any Participating Party fails to pay its share of the costs and other
expenses authorized under this Agreement in accordance with Exhibit "C"
or to otherwise perform any of its obligations under this Agreement when
due, the Party to whom such payment is due, in order to take advantage of
the provisions of this Article 8.6, shall notify the other Party by
certified or registered U.S. Mail that it is in default and has thirty
(30) days from the receipt of such notice to pay. If such payment is not
made timely by the non-paying Party after the issuance of such notice to
pay, the Party requesting such payment may take immediate steps to
diligently pursue collection of the unpaid costs and other expenses owed
by such Participating Party and to exercise the mortgage and security
rights granted by this Agreement. The bringing of a suit and the
obtaining of a judgment by any Party for the secured indebtedness shall
not be deemed an election of remedies or otherwise affect the security
rights granted herein. In addition to any other remedy afforded by law,
each Party shall have, and is hereby given and vested with, the power and
authority to foreclose the lien, mortgage, pledge, and security interest
established hereby in its favor in the manner provided by law, to
exercise the Power of Sale provided for herein, if applicable, and to
exercise all rights of a secured party under the Uniform Commercial Code
as adopted by the state in which the Contract Area is located or such
other states as such Party may deem appropriate. The Operator shall keep
an accurate account of amounts owed by the nonperforming Party (plus
interest and collection costs) and any amounts collected with respect to
amounts owed by the nonperforming Party. In the event there become three
or more Parties to this Agreement, then if any nonperforming Party's
share of costs remains delinquent for a period of sixty (60) days, each
other Participating Party shall, upon the Operator's request, pay the
unpaid amount of costs in the proportion that its Working Interest bears
to the total non-defaulting Working Interests. Each Participating Party
paying its share of the unpaid amounts of a nonperforming Party shall be
subrogated to the Operator's mortgage and security rights to the extent
of the payment made by such Participating Party.
8.6.4 Carved-out Interests.
Any agreements creating any overriding royalty, production payment, net
proceeds interest, net profits interest, carried interest or any other
interest carved out of a Working Interest in the Contract Area shall
specifically make such interests inferior to the rights of the Parties to
this Agreement. If any Party whose Working Interest is so encumbered does
not pay its share of costs and other expenses authorized under this
Agreement, and the proceeds from the sale of its Hydrocarbon production
pursuant to this Article 8.6 are insufficient to pay such costs and
expenses, the security rights provided for in this Article 8.6 may be
applied against the carved-out interests with which the defaulting or
non-performing Party's interest in the Contract Area is burdened. In such
event, the rights of the owner of such carved-out interest shall be
subordinated to the security rights granted by this Article 8.6.
6
EXHIBIT "F"
Attached to and made a part of that certain Joint Participation Agreement
effective July 1, 2005 between Marathon Oil Company and Ridgewood Energy
Corporation.
TAX PARTNERSHIP PROVISIONS
OF THE ___________________ TAX PARTNERSHIP
1. GENERAL PROVISIONS
------------------
1.1 Designation of Documents. This exhibit is referred to in, and is
part of, that Agreement identified above and, if so provided, a
part of any agreement to which the Agreement is an exhibit. Such
agreement(s) (including all exhibits thereto, other than this
exhibit) shall be hereinafter referred to as the "Agreement"; and
this exhibit is hereinafter referred to as the "Exhibit." Except
as may be otherwise provided in this Exhibit, terms defined and
used in the Agreement shall have the same meaning when used
herein.
1.2 Relationship of the Parties. The parties to this Agreement shall
be hereinafter referred to as "Party" or collectively as
"Parties." The Parties understand and agree that the arrangement
and undertakings evidenced by the Agreement result in a
partnership for purposes of Federal income taxation and certain
State income tax laws which incorporate or follow Federal income
tax principles as to tax partnerships. Such partnership for tax
purposes is hereinafter referred to as the "Partnership." For
every other purpose of the Agreement the Parties understand and
agree that: (i) their legal relationship to each other under
applicable State law with respect to all property subject to the
Agreement is one of tenants in common, or undivided interest
owners, or lessee(s)-sublessee(s), and not a partnership; (ii)
that the liabilities of the Parties shall be several and not joint
or collective; and (iii) that each Party shall be responsible
solely for its obligations.
1.3 Priority of Provisions of this Exhibit. If there is a conflict or
inconsistency, whether direct or indirect, actual or apparent,
between the terms and conditions of this Exhibit and the terms and
conditions of the Agreement, or any other exhibit or any part
thereof, the terms and conditions of this Exhibit shall govern and
control.
1.4 Survivorship.
1.4.1 Any termination of the Agreement shall not affect
the continuing application of the Partnership
provisions for termination and liquidation.
1.4.2 Any termination of the Agreement shall not affect
the continuing application of the Partnership
provisions for the resolution of all matters
regarding Federal and State income .reporting.
1.4.3 These Partnership provisions shall inure to the
benefit of, and be binding upon, the Parties hereto
and their successors and assigns.
1.5 Term. The effective date of the Partnership shall be the effective
date of the Agreement. The Partnership shall continue in full
force and effect from and after such date, until termination and
liquidation.
1
2. INCOME TAX COMPLIANCE AND CAPITAL ACCOUNTS
------------------------------------------
2.1 Tax Returns. The Tax Matters Partner ("TMP"), as designated in
Section 3.I, shall prepare and file all required Federal and State
partnership income tax returns. In preparing such returns the TMP
shall use its best efforts and in doing so shall incur no
liability to any other Party. Not less than thirty (30) days prior
to the return due date (including extensions) the TMP shall submit
to each Party for review a copy of the return as proposed.
2.2 Fair Market Value Capital Accounts. The TMP shall establish and
maintain for each Party fair market value ("FMV") capital accounts
and tax basis capital accounts. Upon request, the TMP shall submit
to each Party along with a copy of any proposed partnership income
tax return an accounting of such Party's FMV capital accounts as
of the end of the return period.
2.3 Information Requests. Each Party agrees to furnish to the TMP not
later than sixty (60) days before the return due date (including
extensions) such information relating to the operations conducted
under this Agreement as may be required for the proper preparation
of such returns and capital accounts.
3. TAX MATTERS PARTNER
-------------------
3.1 Tax Matters Partner. The Operator is designated TMP as defined in
Internal Revenue Code (the "Code") ss.6231(a)(7). In the event of
any change in the TMP, the Party serving as TMP at the beginning
of a given taxable year shall continue as TMP with respect to all
matters concerning such year. The TMP and other Parties shall use
their best efforts to comply with responsibilities outlined in
this section and Code ss.ss.6222 through 6233 and 6050K (and the
Treasury Regulations thereunder) and in doing so shall incur no
liability to any other Party. Notwithstanding the TMP's obligation
to use its best efforts in the fulfillment of its
responsibilities, the TMP shall not be required to incur any
expenses for the preparation for, or pursuance of, administrative
or judicial proceedings, unless the Parties agree on a method for
sharing such expenses.
3.2 Information Request by the TMP. The Parties shall furnish the TMP,
within two weeks from the receipt of the request, the information
(including information specified in Code ss.ss.6230(e) on partner
identification and 6050K for transfers of partnership interests)
the TMP may reasonably request to comply with the requirements on
furnishing information to the Internal Revenue Service.
3.3 TMP Agreements with IRS.
3.3.1 The TMP shall not agree to any extension of the statute of
limitations for making assessments on behalf of the
Partnership without first obtaining the written consent of
all Parties. The TMP shall not bind any other Party to a
settlement agreement in tax audits without obtaining the
written concurrence of any such Party.
3.3.2 Any other Party who enters in a settlement agreement with
the Secretary of the Treasury with respect to any
partnership items, as defined in Code ss.6231(a)(3), shall
notify the other Parties of the terms within ninety (90)
days from the date of such settlement.
2
3.4 Inconsistent Treatment of Partnership Items. If any Party intends
to file a notice of inconsistent treatment under Code ss.6222(b),
such Party shall, prior to the filing of such notice, notify the
TMP of the (actual or potential) inconsistency of the Party's
intended treatment of a partnership item with the treatment of
that item by the Partnership. Within one week of receipt the TMP
shall remit copies of such notification to the other Parties. If
an inconsistency notice is filed solely because a Party has not
received a Schedule K-1 in time for the filing of its income tax
return, the TMP need not be notified.
3.5 Request for Administrative Adjustment. No Party shall file
pursuant to Code ss.6227 a request for an administrative
adjustment of partnership items without first notifying all other
parties. If all other Parties agree with the requested adjustment,
the TMP shall file the request on behalf of the Partnership. If
unanimous consent is not obtained within thirty (30) days from
such notice, or within the period required to timely file the
request, if shorter, any Party, including the TMP, may file a
request for administrative adjustment on its own behalf.
3.6 judicial Proceedings. Any Party intending to file a petition under
Code ss.ss.6226, 6228, or any other Code section with respect to
any partnership item, or other tax matters involving the
Partnership, shall notify the other Parties prior to such filing
of the nature of the contemplated proceeding. In the case where
the TMP is the Party intending to file such petition, such notice
shall be given within a reasonable time to allow the other Parties
to participate in the choice of the forum for such petition. If
the Parties do not agree on the appropriate forum, then the forum
shall be chosen by majority vote. Each Party shall have a vote in
accordance with its percentage interest in the Partnership for the
year under audit. If a majority cannot agree, the TMP shall choose
the forum. If a Party intends to seek review of any court decision
rendered as a result of such proceeding, the Party shall notify
the other Parties prior to seeking such review.
4. TAX AND FMV CAPITAL ACCOUNT ELECTIONS
-------------------------------------
4.1 General Elections. For both income tax return and capital account
purposes, the Partnership shall elect:
(a) to deduct currently intangible drilling and
development costs ("IDC");
(b) to use the maximum allowable accelerated tax method
and the shortest permissible tax life for
depreciation;
(c) to use the accrual method of accounting;
(d) to report income on a calendar year basis;
if checked below:
[_](e) to account for dispositions of depreciable assets under the
general asset method to the extent permitted by Code ss.
I68(I)(4);
[X](f) under Code ss.754 to adjust the basis of partnership
property, with the adjustments provided in Code ss.734 for
a distribution of property and in Code ss.743 for a
transfer of a partnership interest. In the case of a
3
distribution of property the TMP shall adjust all tax basis
capital accounts. In the case of a transfer of a
partnership interest the acquiring party(ies) shall
establish and maintain its (their) tax basis capital
accounts(s). The acquiring Party(ies) shall pay all costs
incurred by the Partnership in connection with the transfer
including, without limitation, reasonable attorney's and
accountant's fees. Furthermore, the acquiring Party(ies)
shall indemnify and hold harmless the Partnership in
connection with the acquiring Party(ies) partnership basis,
including the reasonable cost of legal and accounting
services and any penalty or interest assessed by the
Internal Revenue Service. Any Party who enters into a
transfer of a Partnership interest with respect to which a
Section 754 election is made shall provide the TMP, within
thirty (30) days after the transfer, with all necessary
information for filing the Partnership Federal Income Tax
return.
4.2 Depletion. Solely for FMV capital account purposes, depletion
shall be calculated by using simulated cost depletion within the
meaning of Treas. Reg. ss. 1.704 1 (b)(2)(iv)(k)(2), to be
determined under the principles of Code ss.612 and be based on the
FMV capital account basis of each Lease. Solely for purposes of
this calculation, remaining reserves shall be as determined
consistently by the TMP.
4.3 Election Out Under Code ss.761 a. The TMP shall notify all
Parties of an intended election to be excluded from the
application of Subchapter K of Chapter 1 of the Code not later
than sixty (60) days prior to the fling date or the due date
(including extensions) for the Federal partnership income tax
return, whichever comes earlier. Any Party that does not consent
must provide the TMP with written objection within thirty (30)
days of such notice.
4.4 Other Tax or FMV Capital Account Elections or Consents. Any
election other than those referenced above must be approved by the
affirmative vote of two (2) or more Parties owning a Majority
Working Interest based upon post-Payout ownership.
5. CAPITAL CONTRIBUTIONS AND FMV CAPITAL ACCOUNTS
----------------------------------------------
5.1 Capital Contributions. The respective capital contributions of
each Party to the Partnership shall be (a) each Party's interest
in the oil and gas lease(s), including all associated lease and
well equipment, committed to the Partnership, and (b) all amounts
of money paid by each Party in connection with the acquisition,
exploration, development, and operation of the lease(s), and all
other costs characterized as contributions or expenses borne by
such Party under the Agreement. The contribution of the leases and
any other properties committed to the Partnership shall be made by
each Party's agreement to hold legal title to its interest in such
leases or other property as nominee of the Partnership.
5.2 FMV Capital Accounts. The FMV capital accounts shall be increased
and decreased as follows:
5.2.1 The FMV capital accounts shall be increased by: (i) the
amount of money and the fair market value of any property
contributed by each Party to the Partnership (net of
liabilities assumed by the Partnership or to which the
contributed property is subject); (ii) a Party's ss.6.1
allocated share of Partnership income and gain, or items
thereof; and (iii) that Party's share of Code
ss.705(a)(1)(B) items.
4
5.2.2 The FMV capital accounts shall be decreased by: (i) the
amount of money and the fair market value of property
distributed to each Party (net of liabilities assumed by
such Party or to which the property is subject), (ii) that
Party's ss.6.1 allocated share of Partnership loss and
deductions, or items thereof; and (iii) that Party's share
of Code ss.705(a)(2)(B) items.
5.2.3 "Fair Market Value" when it applies to property contributed
by a Party to the Partnership shall be assumed to equal the
adjusted tax basis, as defined in Code ss.1011, of that
property unless the Parties agree otherwise as indicated
below.
Property Contributed Agreed Fair Market Value
-------------------- ------------------------
-----
-----
-----
if checked below:
[_]5.3 FMV Capital Account Revaluation. The FMV capital accounts
will be revalued to reflect revaluation of partnership
property according to Treas. Reg. ss.1.704-1(b)(2)(iv)(f)
if the Parties agree pursuant to ss.4.4.
6. PARTNERSHIP ALLOCATIONS
-----------------------
6.1 FMV Capital Account Allocations. Each items of income, gain, loss,
or deduction shall be allocated to each party as follows:
6.1.1 Actual or deemed income from the sale, exchange,
distribution or other disposition of production shall be
allocated to the Party entitled to such production or the
proceeds from the sale of such production. The amounts
received from the sale of production and of the fair market
value of production taken in kind by the Parties are deemed
to be identical; accordingly, such items may be omitted
from the adjustments made to the Parties' FMV capital
accounts.
6.1.2 Exploration cost, IDC, and operating and maintenance cost
shall be allocated to each Party in accordance with its
respective contribution, or obligation to contribute, to
such cost.
6.1.3 Depreciation shall be allocated to each Party in accordance
with its contribution, or obligation to contribute, to the
cost of the underlying asset.
6.1.4 Simulated depletion shall be allocated to each Party in
accordance with its FMV capital account adjusted basis in
each oil and gas property of the Partnership.
6.1.5 Loss (or simulated loss) upon the sale, exchange,
distribution, abandonment or other disposition of
depreciable or depletable property shall be allocated to
the Parties in the ratio of their respective FMV capital
account adjusted basis in the depreciable or depletable
property.
5
6.1.6 Gain (or simulated gain) upon the sale, exchange,
distribution, abandonment or other disposition of
depreciable or depletable property shall be allocated to
the Parties so that the FMV capital account balances of the
Parties will most closely reflect their respective
percentage or fractional interests under the Agreement.
However, as provided in Treas. Reg. ss. 1 .704- 1 (b)(4)(v)
for oil and gas properties, the amount realized is
allocated as follows: (i) first, an amount that represents
recovery of adjusted simulated depletion basis is allocated
(without being credited to the capital accounts) to the
Parties in the same proportion as the aggregate simulated
depletion basis was allocated to such Parties under this
section; (ii) next, from the remainder of the amount
realized, if any, an amount up to any remaining
pre-contribution gain under Code ss.704(c), but only to the
extent not included in the allocation under the first
allocation step, is allocated to the Parties having
contributed the respective property; and (iii) finally, any
amount of realization remaining after the allocations under
(i) and (ii) is allocated in accordance with the first
sentence of this ss.6.1.6.
6.1.7 Costs or expenses of any other kind shall be allocated to
each Party in accordance with its respective contribution,
or obligation to contribute, to such costs or expenses.
6.1.8 Any other income items shall be allocated to the Parties in
accordance with the manner in which such income is realized
by each Party.
6.2 Tax Return and Tax Basis Capital Account Allocations
6.2.1 Unless otherwise expressly provided in this Section 6.2,
the allocations of partnership items of income, gain, loss,
or deduction for tax return and tax basis capital account
purposes shall follow the principles of the allocations
under Section 6.1. However, the partnership's gain or loss
on the taxable disposition of a partnership property in
excess of the gain or loss under Section 6.1, if any, is
allocated to the contributing Party to the extent of such
Party's pre-contribution gain or loss.
6.2.2 The Parties recognize that under Code ss.613A(c)(7)(D) the
depletion allowance is to be computed separately by each
Party. For this purpose, each Party's share of the adjusted
tax basis in each oil and gas property shall be equal to
its contribution to the adjusted tax basis of such
property.
6.2.3 The Parties recognize that under Code ss.613A(c)(7)(D) the
computation of gain or loss on the disposition of an oil
and gas property is to be computed separately by each
Party.
6.2.4 Depreciation shall be allocated to each Party in accordance
with its contribution to the adjusted tax basis of the
depreciable asset.
6.2.5 Any recapture of depreciation, IDC, and any other item of
deduction or credit shall, to the extent possible, be
allocated among the Parties in accordance with their
sharing of the depreciation, IDC, or other item of
deduction or credit which is recaptured.
6
6.2.6 Any recapture of depletion shall be computed separately by
each Party, in accordance with its depletion allowance
computed pursuant to ss.6.2.2.
6.2.7 For partnership properties with FMV capital account values
different from their adjusted taxes bases the Parties
intend that the allocations described in this ss.6.2
constitute a "reasonable method" of allocating gain or loss
under Treas. Reg. ss.1.704-3(a)(1).
6.2.8 Take-in-kind:
6.2.8.1 Unless checked below, the income attributable to
take-in-kind production will not be reflected on the
tax return.
6.2.8.2 _____ The provision for taking production in-kind,
as provided in the Agreement, is recognized as each
Party's right to determine the market for its
proportionate share of production. All items of
income, deductions, and credits arising from such,
marketing of production shall be recognized by the
Partnership and shall be allocated to each Party who
designated such a market.
7. TERMINATION AND LIQUIDATING DISTRIBUTION
----------------------------------------
7.1 Termination of the Partnership. Termination shall occur on the
earlier of the events described in Code ss.708(b)(1)(A) or (B).
7.1.1 Upon termination under Code ss.708(b)(1)(B), each Party's
FMV capital account shall be adjusted as provided in Treas.
Reg. ss.1.704-1(b)(2)(iv)(1) and Section 7.3. The
distributions provided in Sections 7.2 through 7.4 shall be
deemed to have occurred with the Partnership cash and
properties deemed contributed to a new Partnership to which
this Exhibit also applies.
7.1.2 Upon termination under Code ss.708(b)(1)(A), the business
shall be wound-up and concluded, and the assets shall be
distributed to the Parties as described below by the end of
such calendar year (or, if later, within ninety (90) days
after the date of such termination). The assets shall be
valued and distributed to the parties in the order provided
in Sections 7.2 through 7.4.
7.2 Reversion. First, all cash representing unexpended contributions
by any Party and any property in which no interest has been earned
by any other Party under the Agreement shall be returned to the
contributor.
7.3 Balancing. Second, the FMV capital accounts of the Parties shall
be determined as described hereafter. The TMP shall take the
actions specified under this Section 7.3 in order to cause the
ratios of the Parties' FMV capital accounts to reflect as closely
as possible their interests under the Agreement. The ratio of a
Party's FMV capital account is represented by a fraction, the
numerator of which is the Party's FMV capital account balance and
the denominator of which is the sum of all Parties' FMV capital
account balances. This is hereafter referred to as the "balancing
of the FMV capital accounts" and, when completed, the FMV capital
accounts of the Parties shall be referred to as "balanced."
7
7.3.1 The fair market value of all Partnership properties shall
be determined and the gain or loss for each property, which
would have resulted if sold at such fair market, value,
shall be allocated in accordance with Sections 6.1.5 and
6.1.6. If hereafter any Party has a negative FMV capital
account balance, that is a balance of less than zero, in
accordance with Treas. Reg. ss.ss.1.704-1(b)(2)(ii)(b)(3)
such Party is obligated to contribute an amount of money to
the Partnership sufficient to achieve a zero balance FMV
capital account (the "Deficit Make-Up Obligation").
Moreover, any Party may contribute an amount of cash to the
Partnership to facilitate the balancing of the FMV capital
accounts. If after these adjustments the FMV capital
accounts are not balanced; Sections 7.3.2 and 7.3.3 shall
apply.
7.3.2 If all Parties agree, any cash or an undivided interest in
certain selected properties shall be distributed to one or
more Parties as necessary for the purpose of balancing the
FMV capital accounts.
7.3.3 Unless Section 7.3.2 applies, an undivided interest in each
and every property shall be distributed to one or more
Parties in accordance with the ratios of their FMV capital
accounts.
7.3.4 If a property is to be valued under Section 7.3.1 or
distributed pursuant to Sections 7.3.2 or 7.3.3 the Parties
must first attempt to agree on the FMV of the property;
failing such an agreement, the TMP shall cause a nationally
recognized independent engineering firm to prepare an
appraisal of the FMV of such property.
7.4 Final Distribution. After the FMV capital accounts of the Parties
have been adjusted pursuant to Section 7.3, all remaining property
and interests then held by the Partnership shall be distributed to
the Parties in accordance with their positive FMV capital account
balances.
8. TRANSFERS INDEMNIFICATION, AND CORRESPONDENCE
---------------------------------------------
8.1 Transfer of Partnership Interests. Transfers of Partnership
interests shall be governed by the Agreement. A Party transferring
its interest, or any part thereof, shall notify the TMP in writing
within two weeks after such transfer.
8.2 Indemnification. This agreement does not provide for any
indemnification to protect Parties against any tax cost from a
Code ss.708(b)(1)(B) termination. If the Parties desire such
indemnification, it must be expressly stipulated as a variation
from this Exhibit.
8.3 Correspondence. All correspondence relating to the preparation and
filing of the Partnership's income tax returns and capital
accounts shall be sent to:
Marathon Oil Company
Ridgewood Energy Corporation
8