EXHIBIT 4.2
OVERRIDING ROYALTY CONVEYANCE
Dated February 27, 1989
Between
BP EXPLORATION (ALASKA) INC.
("Grantor")
and
THE STANDARD OIL COMPANY
("Grantee")
RECORD THIS INSTRUMENT IN THE ▇▇▇▇▇▇ RECORDING DISTRICT.
BP EXPLORATION (ALASKA) INC. (a) was formerly known as (1) STANDARD ALASKA
PRODUCTION COMPANY, (2) SOHIO ALASKA PETROLEUM COMPANY, (3) SOHIO NATURAL
RESOURCES COMPANY, and (4) SOHIO PETROLEUM COMPANY and (b) is successor-in-
interest by merger to (1) BP ALASKA EXPLORATION INC. and (2) BP OIL
CORPORATION (which was formerly known as BP EXPLORATION U.S.A. INC.); please
index all eight of these names in the Grantor Index. THE STANDARD OIL COMPANY
is known in Alaska as SOCO INC.; please index both of these names in the
Grantee Index.
THE LANDS AFFECTED BY THIS INSTRUMENT ARE DESCRIBED IN EXHIBIT A ATTACHED
HERETO.
ADDRESSES OF THE PARTIES TO THIS INSTRUMENT ARE SET FORTH IN SECTION 10.4 OF
THIS INSTRUMENT.
RETURN THIS INSTRUMENT TO: GUESS & ▇▇▇▇
▇▇▇ ▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, ▇▇.
OVERRIDING ROYALTY CONVEYANCE
THIS INSTRUMENT OF CONVEYANCE, dated the 27th day of February, 1989,
between BP Exploration (Alaska) Inc., a Delaware corporation (Grantor), and
The Standard Oil Company, an Ohio corporation known as SOCO Inc. (Grantee).
WITNESSETH:
WHEREAS, Grantor desires to grant to Grantee an overriding royalty
interest (as hereinafter more fully defined, called the "Royalty Interest")
from and out of the Subject Interests and to transfer and convey the Royalty
Interest unto Grantee as of the Effective Date herein provided, to the end and
effect that the Royalty Interest shall burden and apply to the Subject
Interests as of such Effective Date; and
WHEREAS, Grantee desires to accept such Royalty Interest;
NOW, THEREFORE, in consideration of the premises and the mutual promises
and agreements herein contained, the parties agree as follows:
ARTICLE ONE
DEFINITIONS AND REFERENCES
Average Per Barrel Royalty for any calendar quarter shall be the average
of the Per Barrel Royalty for each of the days in such calendar quarter and in
the three preceding calendar quarters. With respect to the first three
calendar quarters after the Effective Date, the Average Per Barrel Royalty
shall be calculated for any preceding quarter as if the Royalty interest had
been conveyed to Grantee prior to the beginning of the earliest preceding
calendar quarter necessary to obtain an average of the present calendar
quarter and the three preceding calendar quarters, using Chargeable Costs
equal to $4.50 per Barrel and a Cost Adjustment Factor of 1.0 for calendar
quarters prior to the Effective Date.
Barrel shall mean 42 United States gallons corrected to 60 degrees
Fahrenheit temperature in accordance with ASTM-IP Petroleum Measurements
Tables, American Edition, ASTM Designation D-1250, and with deductions for
full basic sediment and water content as determined by recognized API
standards.
BP shall mean The British Petroleum Company, p.l.c., an English company
whose principal office is at Britannic House, Moor Lane, London EC2Y 9BU
England.
Business Day shall mean any day that is not a Saturday, Sunday, a holiday
determined by the New York Stock Exchange as "affecting 'ex' dates" or any
other day on which banking institutions in New York, New York, or in any other
city where the principal corporate trust office of the Trustee may be located,
are closed as authorized or required by law.
Chargeable Costs shall have the meaning stated in Section 4.4.
Consumer Price Index shall have the meaning stated in Section 4.5.
Conveyance shall mean this overriding royalty conveyance.
Cost Adjustment Factor shall have the meaning stated in Section 4.5.
Current Reserves shall mean the Proved Reserves as of December 31, 1987,
which is 2,035.6 million Stock Tank Barrels.
Effective Date shall mean 12:01 o'clock A.M. Alaska Time Zone on February
28, 1989. The calendar quarter in which the Effective Date occurs shall be
deemed the first calendar quarter.
Equivalent Financial Standing shall mean a Person having a rating
assigned to outstanding unsecured, unsupported long term debt from ▇▇▇▇▇'▇
Investors Service of at least A3 or from Standard & Poor's Corporation of at
least A- or an equivalent rating from at least one nationally-recognized
statistical rating agency, after giving effect to the sale or transfer to such
Person of all or substantially all of the Subject Interests and the assumption
by such Person of all of Grantor's obligations under this Conveyance.
Gas Cap Area Participation shall have the meaning stated in the Prudhoe
Bay Unit Operating Agreement.
Gas Cap Participating Area shall have the meaning stated in the Prudhoe
Bay Unit Agreement.
Grantee shall mean The Standard Oil Company, an Ohio corporation, while
it owns all or any part of or Interest in the Royalty Interest and any other
Person or Persons who acquire legal title to all or any part of or interest in
the Royalty Interest. The Standard Oil Company is known in Alaska as SOCO INC.
Grantor shall mean BP Exploration (Alaska) Inc., a Delaware corporation
while it owns all or any part of or interest in the Subject Interests and any
other Person or Persons who acquire all or any part of or interest in the
Subject Interests. BP Exploration (Alaska) Inc. (a) was formerly known as (i)
Standard Alaska Production Company, (ii) Sohio Alaska Petroleum Company, (iii)
Sohio Natural Resources Company and (iv) Sohio Petroleum Company and (b) is
successor-in-interest by merger to (i) BP Alaska Exploration Inc. and (ii) BP
Oil Corporation (which was formerly known as BP Exploration U.S.A. Inc.).
Independent Accountants shall mean such firm of independent certified
public accountants as may be designated by Grantee and approved by Grantor in
the exercise of its reasonable business judgment, except that Grantee may not
designate the firm of independent certified public accountants then utilized
by Grantor.
Independent Petroleum Engineers shall mean ▇▇▇▇▇▇ and ▇▇▇▇▇, Ltd. or such
other firm of independent petroleum engineers as may be designated by Grantee
and approved by Grantor in the exercise of its reasonable business judgment.
Interest Rate shall mean a varying rate per annum equal to the interest
rate publicly announced in New York City by The Bank of New York from time to
time as its prime commercial lending rate.
Lands shall mean the lands described in Exhibit A.
Lease shall mean and include an oil and gas lease described in Exhibit A
issued by the State of Alaska and any new oil and gas leases which may be
acquired by or for the benefit of Grantor on any Lands within one year after
the expiration of the applicable oil and gas lease or leases described in
Exhibit A covering such Lands or any subsequent lease covering such Lands and
in each case shall include, but not by way of limitation, the entire leasehold
estate, working interest and operating rights and all and any other interests
of Grantor, together with all rights, privileges and appurtenances related
thereto and all and any extensions or renewals thereof.
Lessor's Royalty shall mean the royalty reserved to the State of Alaska
as lessor pursuant to each Lease.
Lower Lower Net Profits Royalty Interest shall mean that portion of the
Net Profits Royalty Interest conveyed to The Standard Oil Company by that
certain Instrument of Conveyance and Assignment by and between BP Alaska Inc.
and The Standard Oil Company dated June 18, 1987, and subsequently conveyed to
BP Exploration (Alaska) Inc. by that certain Lower Lower NPRI Conveyance
between The Standard Oil Company and BP Exploration (Alaska) Inc. dated
February 27, 1989, and merged into the leasehold estates of BP Exploration
(Alaska) Inc. in the leases described therein.
Minimum Per Barrel Royalty shall be $8.92 per Barrel, as more fully
described in Section 4.7.
Minimum Royalty Period shall mean the period ending September 30, 1991.
Net Profits Royalty Interest shall mean the overriding royalty interest
described in Section 2.1 of that certain instrument titled Conveyances Between
BP Alaska Inc. and BP Oil Corporation, dated August 1, 1969, as amended, which
overriding royalty interest comprises the Upper Net Profits Royalty Interest
owned by BP Alaska Inc. on the Effective Date, the Upper Lower Net Profits
Royalty Interest owned by The Standard Oil Company on the Effective Date, and
the Lower Lower Net Profits Royalty Interest merged into certain leasehold
estates of BP Exploration (Alaska) Inc.
Oil shall mean (i) for so long as the Prudhoe Bay Unit Agreement and the
Prudhoe Bay Unit Operating Agreement are in effect, crude oil and condensate
that are produced from the Prudhoe Bay (Permo-Triassic) Reservoir and saved
and allocated to the Subject Interests as Separator Liquid Production (as
defined in the Prudhoe Bay Unit Operating Agreement) from the Oil Rim
Participating Area and the Gas Cap Participating Area of the Prudhoe Bay Unit
and taken in kind or otherwise disposed of by Grantor in accordance with the
Prudhoe Bay Unit Agreement and the Prudhoe Bay Unit Operating Agreement, and
(ii) at all times after the expiration or termination of the Prudhoe Bay Unit
Agreement or the Prudhoe Bay Unit Operating Agreement, crude oil and
condensate that are produced from the Prudhoe Bay (Permo-Triassic) Reservoir
and saved and allocated to or otherwise attributable to the Subject Interests.
All other gaseous and liquid hydrocarbons and other marketable substances
produced in association with such crude oil and condensate that are
recoverable from such formations or from other reservoirs in the Prudhoe Bay
Unit and allocated to or otherwise attributable to the Subject Interests,
including natural gas liquids, shall be excluded.
Oil Rim Area Participation shall have the meaning stated in the Prudhoe
Bay Unit Operating Agreement.
Oil Rim Participating Area shall have the meaning stated in the Prudhoe
Bay Unit Agreement.
Per Barrel Royalty shall have the meaning stated in Section 4.2.
Person shall mean any individual, corporation, partnership, trust, estate
or other entity, organization or association.
Production Taxes shall mean the sum of any severance taxes, excise taxes
(including windfall profit tax), sales taxes, value added taxes or other
similar or direct taxes imposed upon the reserves or production, delivery or
sale of Royalty Production, as specified and calculated in Section 4.6.
Proved Reserves shall mean Grantor's estimate (to the extent that such
estimate has been determined to be reasonable by the Independent Petroleum
Engineers pursuant to Section 4.8 (d), unless Grantee has waived in writing
its right pursuant to Section 4.8 (d) to cause the Independent Petroleum
Engineers to determine whether Grantor's estimate of Proved Reserves is
reasonable) of the quantities of crude oil and condensate that (i) geological
and engineering data demonstrate with reasonable certainty to be recoverable
in future years under existing economic and operating conditions (i.e. prices
and costs as of the date the estimate is made; prices shall include
consideration of changes in existing prices provided only by contractual
arrangements, but not price escalations based on future conditions) from the
Prudhoe Bay (Permo-Triassic) Reservoir in the Prudhoe Bay Unit and (ii) will
be allocated to the Subject Interests as Separator Liquid Production (as
defined in the Prudhoe Bay Unit Operating Agreement) from the Oil Rim
Participating Area and the Gas Cap Participating Area of the Prudhoe Bay Unit
pursuant to the terms and provisions of the Prudhoe Bay Unit Agreement and the
Prudhoe Bay Unit Operating Agreement. In estimating the Proved Reserves,
Grantor will be guided by the following principles:
(i) Reservoirs are considered proved if economic productibility is
supported by either actual production or conclusive formation test. The area
of a reservoir considered proved includes (a) that portion delineated by
drilling and defined by gas-oil and/or oil-water contacts, if any, and (b) the
immediately adjoining portions not yet drilled, but which can be reasonably
judged as economically productive on the basis of available geological and
engineering data. In the absence of information on fluid contacts, the lowest
known structural occurrence of hydrocarbons controls the lower proved limit of
the reservoir.
(ii) Reserves which can be produced economically through application of
improved recovery techniques (such as fluid injection) are included in the
"proved" classification when successful testing by a pilot project, or the
operation of an installed program in the reservoir, provides support for the
engineering analysis on which the project or program was based.
(iii) Estimates of proved reserves do not include the following:
(a) oil that may become available from known reservoirs but is
classified separately as "indicated additional reserves";
(b) crude oil and condensate the recovery of which is subject to
reasonable doubt because of uncertainty as to geology, reservoir
characteristics, or economic factors;
(c) crude oil and condensate that may occur in undrilled
prospects;
(d) crude oil and condensate that may be recovered from oil
shales, coal, gilsonite and other such sources.
Prudent Standard shall have the meaning stated in Section 7.1.
Prudhoe Bay (Permo-Triassic) Reservoir shall have the meaning stated in
the Prudhoe Bay Unit Agreement.
Prudhoe Bay Unit is the oil and gas unit situated on the North Slope of
Alaska in which the Subject Interests have been heretofore unitized for the
production of oil and gas.
Prudhoe Bay Unit Agreement shall mean the agreement dated April 1, 1977,
as amended, among the State of Alaska and the Prudhoe Bay Unit Working
Interest Owners (as defined in said agreement) establishing the Prudhoe Bay
Unit.
Prudhoe Bay Unit Operating Agreement shall mean the agreement dated April
1, 1977, as amended, among the Prudhoe Bay Unit Working Interest Owners (as
defined in said agreement) governing Prudhoe Bay Unit operations.
Quarterly Record Date shall mean the fifteenth day of each January,
April, July and October; provided, however, that if such day is not a Business
Day then the Quarterly Record Date shall be the next Business Day after such
day and provided further that if Grantor is notified by Grantee that it has
determined that a different date is required to comply with applicable law or
the rules and regulations of any stock exchange on which the units of
beneficial interest of the Trust are listed, it means such different date.
The first Quarterly Record Date shall be April 17, 1989.
Redetermination Settlement Agreement shall mean that certain agreement
titled Redetermination Settlement Agreement among ARCO Alaska, Inc., Exxon
Corporation, Sohio Alaska Petroleum Company and BP Alaska Exploration Inc.,
dated June 30, 1982.
Royalty Interest shall mean the overriding royalty interest described in
Section 2.1.
Royalty Production for each day in a calendar quarter shall be 16.4246%
of the lesser of (1) the first 90,000 Barrels of Grantor's actual average
daily production of Oil for such quarter and (2) Grantor's actual average
daily production of Oil for such quarter. Grantor's actual average daily
production of Oil for any calendar quarter shall be the total production of
Oil for such quarter, net of Lessor's Royalty, divided by the number of days
in such quarter.
Royalty Statement means the statement prepared by Grantor for delivery to
Grantee pursuant to Section 4.8(f).
Stock Tank Barrel means a Barrel of stabilized Oil at a temperature of 60
degrees Fahrenheit and pressure of 14.7 psia.
Subject Interests shall mean each kind and character of right, title,
claim or interest owned by Grantor in the Leases insofar as the Leases affect
the Lands, as such Subject Interests are now affected by the Prudhoe Bay Unit
Agreement, the Prudhoe Bay Unit Operating Agreement, the Redetermination
Settlement Agreement and the Net Profits Royalty interest (excluding the Lower
Lower Net Profits Royalty interest), and as such Subject Interests are now or
may later be affected by applicable law, judicial decree, arbitration,
redetermination or actions of governmental agencies having jurisdiction in the
matter.
Trust shall mean the BP Prudhoe Bay Royalty Trust, a business trust under
the Delaware Trust Act administered under the terms of the BP Prudhoe Bay
Royalty Trust Agreement among The Standard Oil Company, BP Exploration
(Alaska) Inc., The Bank of New York, Trustee, and ▇. ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇, Co-
Trustee, dated February 28, 1989.
Trustee shall mean, at the time of determination, the Trustee of the
Trust other than the Co-Trustee thereunder or any ancillary trustee.
Upper Lower Net Profits Royalty Interest shall mean that portion of the
Net Profits Royalty Interest conveyed to The Standard Oil Company by that
certain Instrument of Conveyance and Assignment by and between BP Alaska Inc.
and The Standard Oil Company dated June 18, 1987, but not subsequently
conveyed to BP Exploration (Alaska) Inc. by that certain Lower Lower NPRI
Conveyance between The Standard Oil Company and BP Exploration (Alaska) Inc.
dated February 27, 1989.
Upper Net Profits Royalty Interest shall mean that portion of the Net
Profits Royalty Interest not conveyed to The Standard Oil Company by that
certain Instrument of Conveyance and Assignment by and between BP Alaska Inc.
and The Standard Oil Company dated June 18, 1987.
WTI Price shall have the meaning stated in Section 4.3.
All references to Articles, Sections or other subdivisions refer to the
corresponding Articles, Sections and other subdivisions of this Conveyance,
and the words this Conveyance, herein, hereof, hereby, hereunder and words of
similar import refer to this Conveyance as a whole and not to any particular
Article, Section or other subdivision hereof.
ARTICLE TWO
OVERRIDING ROYALTY CONVEYANCE
Section 2.1 Conveyance. Grantor, for and in consideration of the sum of
Ten Dollars ($10.00) and other good and valuable consideration to it paid by
Grantee, the receipt and sufficiency of which are hereby acknowledged, has
bargained, sold, granted, conveyed, transferred, assigned, set over and
delivered, and by these presents does hereby bargain, sell, ▇▇▇▇▇, convey,
transfer, assign, set over and deliver unto Grantee an overriding royalty
interest (the Royalty Interest) consisting of the right to receive a Per
Barrel Royalty for each Barrel of Royalty Production, if, as and when there is
Royalty Production, as more fully provided herein. Grantee shall have no
right to take Oil in kind.
TO HAVE AND TO HOLD the Royalty Interest unto Grantee, its successors and
assigns, for the term set forth in Section 10.2; subject, however, to the
terms and provisions of this Conveyance.
ARTICLE THREE
PAYMENT
Section 3.1 Payment. The aggregate payments from Grantor to Grantee
under the Royalty Interest for any calendar quarter will equal, except for the
first calendar quarter as set forth in Section 4.1, the sum of the product for
each day of such calendar quarter of (1) the Royalty Production and (2) the
Per Barrel Royalty; provided that the total payment under the Royalty Interest
for any calendar quarter (including any quarter during the Minimum Royalty
Period) shall not be (1) less than zero or (2) more than the aggregate value
of the total production of Oil for such calendar quarter, net of Lessor's
Royalty and less the value of any applicable payments made to the owners of
the Net Profits Royalty Interest (excluding the Lower Lower Net Profits
Royalty Interest).
Grantor hereby agrees to pay to Grantee on the Quarterly Record Date
following the end of each calendar quarter all payments that are then due to
Grantee under the Royalty Interest in respect of such calendar quarter
(including, without limitation, all payments, if any, that are due pursuant to
the Minimum Per Barrel Royalty provisions of Section 4.7). Grantor will make
all payments due to Grantee by wire transfer (or such other manner as Grantor
and Grantee may agree) to an account designated by Grantee in finally
collected same day funds.
Section 3.2 Overpayment. If at any time Grantor inadvertently pays
Grantee more than the amount due, Grantee shall not be obligated to return any
such overpayment, but the amount or amounts otherwise payable to Grantee for
any subsequent period or periods shall be reduced by such overpayment, plus an
amount equal to the product of (i) the amount of such overpayment, (ii) the
Interest Rate, and (iii) a fraction, the numerator of which is the number of
days from the date of the overpayment to the date of the payment subject to
reduction as a result of such overpayment, and the denominator of which is 360
days.
Section 3.3 Underpayment. If at any time Grantor inadvertently pays
Grantee less than the amount due, Grantor shall pay to Grantee, in accordance
with the provisions of the next succeeding sentence, the amount of such
underpayment, together with interest thereon in an amount equal to the
product of (i) the amount of such underpayment, (ii) the Interest Rate, and
(iii) a fraction, the numerator of which is the number of days from the date
of the underpayment to the date of the payment subject to increase as a result
of such underpayment, and the denominator of which is 360 days. Grantor will
make all payments due to Grantee pursuant to this Section 3.3 on the Quarterly
Record Date next following the calendar quarter in which the underpayment in
question is discovered by wire transfer (or such other manner as Grantor and
Grantee may agree) to an account designated by Grantee in finally collected
same day funds. Should Grantor knowingly fail to pay to Grantee when due the
entire amount owing pursuant to Section 3.1. Grantor shall pay to Grantee
interest as provided in this Section 3.3 and, in addition to and not in lieu
of such interest, all damages to which Grantee shall be entitled as a result
of such knowing failure to pay.
ARTICLE FOUR
COMPUTATION OF ROYALTY
Section 4.1 Calculation of Royalty Amount. The Royalty Interest entitles
Grantee to receive, for the first calendar quarter ending March 31, 1989, the
sum of the product for each day in such quarter from the Effective Date to the
end of such quarter of, and for each calendar quarter thereafter the sum of
the product for each day in such quarter of, (1) the Royalty Production and
(2) the Per Barrel Royalty, subject to the Minimum Per Barrel Royalty
provisions of Section 4.7; provided, that the payment under the Royalty
Interest for any calendar quarter (including any quarter during the Minimum
Royalty Period) shall not be (1) less than zero or (2) more than the aggregate
value of the total production of Oil for such calendar quarter, net of
Lessor's Royalty and less the value of any applicable payments made to the
owners of the Net Profits Royalty Interest (excluding the Lower Lower Net
Profits Royalty Interest).
Section 4.2 Per Barrel Royalty. The Per Barrel Royalty in effect for any
day shall equal the WTI Price for such day less the sum of (1) the product of
the Chargeable Costs and the Cost Adjustment Factor and (2) Production Taxes.
Section 4.3 WTI Price. WTI Price for any trading day shall mean (1) the
latest price (expressed in dollars per Barrel) for West Texas intermediate
crude oil of standard quality having a specific gravity of 40 degrees API for
delivery at Cushing, Oklahoma (West Texas Crude), quoted for such trading day
by the Dow ▇▇▇▇▇ International Petroleum Report (which is published in The
Wall Street Journal) or if the Dow ▇▇▇▇▇ International Petroleum Report does
not publish such quotes, then such price as quoted by Reuters, or if Reuters
does not publish such quotes, then such price as quoted in ▇▇▇▇▇'▇ Oilgram
Price Report, or (2) if for any reason such publications do not publish such
price, then the WTI Price will mean, until (1) shall again be applicable, the
simple average of the daily mean prices expressed in dollars per Barrel)
quoted for West Texas Crude by one major oil company, one petroleum broker and
one petroleum trading company, in each case unaffiliated with Grantor. Such
major oil company, petroleum broker and petroleum trading company shall have
substantial United States operations and will be designated by Grantor from
time to time in an officer's certificate delivered to Grantee. In the event
that prices for West Texas Crude shall not be quoted so as to permit the
calculation of WTI Price, West Texas Crude, for the purpose of calculating the
WTI Price first for (1) and then (2) above, shall mean such other light sweet
domestic crude oil of standard quality as shall be designated by Grantor in an
officer's certificate delivered to Grantee and approved by Grantee in the
exercise of its reasonable business judgment with appropriate allowance for
transportation costs to the Gulf Coast (or other appropriate location) to
equilibrate such price to the WTI ▇▇▇▇▇ as contemplated hereunder. The WTI
Price for any day which is not a trading day shall be the WTI Price for the
next preceding day which is a trading day.
Section 4.4 Chargeable Costs. The Chargeable Costs per Barrel of Royalty
Production shall be the amount set forth in the following table opposite the
calendar year stated:
For the Chargeable
Year Ending Costs Per
December 31 Barrel
1989 4.50
1990 4.50
1991 4.50
1992 6.00
1993 6.75
1994 8.00
1995 8.25
1996 8.50
1997 8.85
1998 9.30
1999 9.80
2000 10.00
2001 10.75
2002 11.25
2003 11.75
2004 12.00
2005 12.25
2006 12.50
2007 12.75
2008 13.00
2009 13.25
2010 14.50
2011 16.60
2012 16.70
2013 16.80
2014 16.90
2015 17.00
2016 17.10
2017 17.20
2018 20.00
2019 23.75
2020 26.50
thereafter increasing by
$2.75 each year
Chargeable Costs shall be subject to a maximum reduction of $1.20 per
year in years subsequent to 1995 in the following circumstances, irrespective
of whether the number of Proved Reserves added during any applicable period is
a positive number, a negative number, or zero:
(a) If, by December 31, 1995, 100,000,000 or more Stock Tank Barrels
(STB) of Proved Reserves have not been added to Current Reserves (before
taking into account any production therefrom) then for each year 1996 through
2000, inclusive, Chargeable Costs as set forth in the table above shall be
reduced, as of January 1 in each such year, by an amount equal to the lesser
of (A) $1.20 or (B) the product of $1.20 and a fraction, the numerator of
which shall be the difference between 100,000,000 STB of Proved Reserves and
the actual number of STB of Proved Reserves so added to Current Reserves from
January 1, 1988 through December 31, 1995, and the denominator of which shall
be 100,000,000 STB of Proved Reserves.
(b) If, between January 1, 1996 and December 31, 2000, an additional
200,000,000 STB of Proved Reserves (that is, 200,000,000 STB of Proved
Reserves in addition to the 100,000,000 STB of Proved Reserves that are
referred to in Section 4.4 (a)) have not been added to Current Reserves
(before taking into account any production therefrom) then for each year from
2001 through 2005, inclusive, Chargeable Costs as set forth in the table above
shall be reduced, as of January 1 in each such year, by an amount equal to the
lesser of (A) $1.20 or (B) the product of $1.20 and a fraction, the numerator
of which shall be the difference between (1) 200,000,000 STB of Proved
Reserves and (2) the sum of (i) the actual number of STB of Proved Reserves so
added to Current Reserves from January 1, 1996 through December 31, 2000 plus
(ii) the excess, if any, of the number of STB of Proved Reserves so added to
Current Reserves from January 1, 1988 through December 31, 1995 over
100,000,000 STB of Proved Reserves (provided that the sum of (i) and (ii)
shall not exceed 200,000,000 STB of Proved Reserves), and the denominator of
which shall be 200,000,000 STB of Proved Reserves.
(c) The tests set forth in (i) and (ii) below shall be utilized to
calculate the reduction, if any, in Chargeable Costs for the year 2006 and
each year thereafter. If the calculations under both such tests produce a
reduction in Chargeable Costs, the greater of such reductions shall apply. If
the calculation under one of such tests produces a reduction in Chargeable
Costs but the calculation under the other test does not, the calculation that
produces the reduction shall apply. In applying the tests below, it is the
intention of Grantor and Grantee that test (i) allow as a credit toward the
400,000,000 STB of Proved Reserves that must be added to Current Reserves
during the period set forth in such test an amount equal to the excess, if
any, of the number of STB of Proved Reserves added to Current Reserves prior
to December 31, 2000 over 300,000,000 STB of Proved Reserves, while test (ii)
sets a level of only 100,000,000 STB of Proved Reserves that must be added to
Current Reserves during the period set forth in such test, but does not allow
a credit for additions of STB of Proved Reserves accrued prior to December 31,
2000.
(i) If, between January 1, 2001 and December 31, 2005, an additional
400,000,000 STB of Proved Reserves (that is, 400,000,000 STB of Proved
Reserves in addition to the 100,000,000 STB of Proved Reserves that are
referred to in Section 4.4(a) and the 200,000,000 STB of Proved Reserves that
are referred to in Section 4.4(b)) have not been added to Current Reserves
(before taking into account any production therefrom), then for the year 2006
and each year thereafter Chargeable Costs as set forth in the table above
shall be reduced, as of January 1 of each such year, by an amount equal to the
lesser of (A) $1.20 or (B) the product of $1.20 and a fraction, the numerator
of which shall be the difference between (1) 400,000,000 STB of Proved
Reserves and (2) the sum of (i) the actual number of STB of Proved Reserves so
added to Current Reserves from January 1, 2001 through December 31, 2010 plus
(ii) the excess, if any, of the number of STB of Proved Reserves so added to
Current Reserves from January 1, 1988 through December 31, 2000 over
300,000,000 STB of Proved Reserves (provided that the sum of (i) and (ii)
shall not exceed 400,000,000 STB of Proved Reserves) and the denominator of
which shall be 400,000,000 STB of Proved Reserves.
(ii) If between January 1, 2001 and December 31, 2005, an additional
100,000,000 STB of Proved Reserves (that is, 100,000,000 STB of Proved
Reserves in addition to any and all STB of Proved Reserves that are added to
Current Reserves prior to January 1, 2001) have not been added to Current
Reserves (before taking into account any production therefrom), then for the
year 2006 and each year thereafter Chargeable Costs as set forth in the table
above shall be reduced, as of January 1 of each such year, by an amount equal
to the lesser of (A) $1.20 or (B) the product of $1.20 and a fraction, the
numerator of which shall be the difference between 100,000,000 STB of Proved
Reserves and the number of STB of Proved Reserves added to Current Reserves
from January 1, 2001 through December 31, 2005 and the denominator of which
shall be 100,000,000 STB of Proved Reserves.
Grantor shall report to Grantee the amount of Proved Reserves added in
any year, taking into account the reductions, if any, to Proved Reserves
resulting from modifications of Grantor's estimates which were made of Proved
Reserves for prior years, it being agreed that only the net amount of Proved
Reserves (that is, additions net of reductions resulting from modifications of
previous estimates of Proved Reserves) shall be utilized in determining
whether the requisite number of STB of Proved Reserves have been added
pursuant to the provisions of this Section 4.4.
Section 4.5 Cost Adjustment Factor. The Cost Adjustment Factor shall
mean the ratio of (1) the Consumer Price Index published for the most recently
past February, May, August or November, as the case may be, to (2) the
Consumer Price Index published most recently prior to the Effective Date,
provided, however, that (a) If for any calendar quarter the average WTI Price
was $18.00 or less, then in such event the Cost Adjustment Factor for such
quarter shall be the Cost Adjustment Factor for the immediately preceding
quarter, and (b) the Cost Adjustment Factor for any calendar quarter in which
the average WTI Price exceeds $18.00, after a calendar quarter during which
the average WTI Price is equal to or less than $18.00, and for each following
calendar quarter in which the average WTI Price is greater than $18.00, shall
be the product of (x) the Cost Adjustment Factor for the most recently past
calendar quarter in which the average WTI Price is equal to or less than
$18.00 and (y) a fraction, the numerator of which shall be the Consumer Price
Index published for the most recently past February, May, August or November,
as the case may be, and the denominator of which shall be the Consumer Price
Index published for the most recently past February, May, August or November
during a quarter in which the average WTI Price was equal to or less than
$18.00. The Consumer Price Index shall mean the U.S. Consumer Price Index, all
items and all urban consumers, U.S. city average, 1982-84 equals 100, as first
published, without seasonal adjustment, by the Bureau of Labor Statistics,
Department at Labor, without regard to subsequent revisions or corrections by
such Bureau.
Section 4.6 Production Taxes. Production Taxes in existence on the
Effective Date or subsequently imposed shall be computed at defined statutory
rates. In the case of taxes based upon wellhead or field value, WTI Price
less the product of $4.50 times the Cost Adjustment Factor shall be deemed to
be the wellhead or field value. At the Effective Date the Production Taxes
payable with respect to the Royalty Production are the Alaska Oil and Gas
Properties Production Tax ("Alaska Production Tax") and the Alaska Oil and Gas
Conservation Tax ("Alaska Conservation Tax"). For the purposes of the Royalty
Interest, the Alaska Production Tax shall be computed without regard to the
"economic limit factor" as the greater of the "percentage of value amount"
(based on the statutory rate and the wellhead value as defined above) and the
"cents per barrel amount" as such terms are used with respect to such tax.
Grantor hereby agrees to pay to the appropriate taxing authorities when due
all Production Taxes in respect of the Royalty Interest, except those
Production Taxes which Grantor is contesting in good faith and which Grantor
is not required to then pay by law. As of the Effective Date, the statutory
rate for the purpose of calculating the "percentage of value amount" is 15%
with respect to the Alaska Production Tax and four ▇▇▇▇▇ per Barrel of Oil
production wine respect to the Alaska Conservation Tax.
Section 4.7 Minimum Royalty. If, with respect to any calendar quarter
during the Minimum Royalty Period, the Average Per Barrel Royalty is less than
$8.92 per Barrel, Grantor will make an additional payment to Grantee at the
time specified in Section 3.1 equal to the sum of the product for each day of
such calendar quarter of (1) the difference between the Minimum Per Barrel
Royalty and the Average Per Barrel Royalty and (2) the Royalty Production;
provided, that the total payments under the Royalty Interest for any calendar
quarter (including any payments under this Section 4.7) shall not exceed the
aggregate value of the total production of Oil for such calendar quarter, net
of Lessor's Royalty and less the value of any applicable payments made to the
owners of the Net Profits Royalty Interest (excluding the Lower Lower Net
Profits Royalty Interest).
Section 4.8 Information and Reports. Grantor shall:
(a) provide Grantee with such information concerning the Royalty
Interest as Grantee may need and to which Grantor has access to permit Grantee
(i) to comply with any reporting or disclosure obligations of Grantee pursuant
to applicable law and the requirements of any stock exchange in which the
securities of Grantee are listed, (ii) to prepare Alaska, federal and other
income tax returns and (iii) to prepare reports required to be forwarded by
Grantee to its security holders;
(b) provide Grantee and the Independent Accountants (the expenses of
such Independent Accountants to be borne by ▇▇▇▇▇▇▇) with access, at the
office of Grantor during reasonable business hours, to inspect Grantor's books
and records, which books and records shall be true and correct in all material
respects and sufficient to enable the Independent Accountants to verify the
correctness of the amounts paid and payable to Grantee as the owner of the
Royalty Interest and to discuss with representatives of Grantor the affairs,
finances and accounts of Grantor relating to the Leases and the Subject
Interests; provided that Grantee and the Independent Accountants shall keep
the information therein confidential except for information which Grantee is
required by law to disclose;
(c) furnish to Grantee on or before February 28 of each year a report
containing all information of a nature, of a standard and in a form consistent
with the requirements of the Securities and Exchange Commission respecting the
inclusion of reserve and reserve valuation information in filings under the
Securities Act of 1933 and the Securities Exchange Act of 1934 and with
applicable accounting rules. Such report shall set forth, among other things,
▇▇▇▇▇▇▇'s estimates of future net cash flows from Proved Reserves attributable
to the Royalty Interest, the discounted present value thereof, the assumptions
utilized in arriving at the estimates contained therein, and the estimate of
the quantities of Proved Reserves (including reductions of Proved Reserves as
a result of modification of Grantor's estimates of Proved Reserves from prior
years) added to Current Reserves during the preceding year. Current Reserves
shall not be reduced by production of Oil since December 31, 1987;
(d) unless such right is waived in writing by Grantee, provide to the
Independent Petroleum Engineers (the expenses of such Independent Petroleum
Engineers to be borne by Grantee) all access and information which the
Independent Petroleum Engineers deem necessary to determine whether the
methods and procedures employed by Grantor to accumulate and evaluate the
necessary information and to estimate and document the Proved Reserves and
annual production rate forecasts and to prepare the report referred to in
Section 4.8 (c) are effective and in accordance with generally accepted
geological and engineering practices in the petroleum industry and whether
▇▇▇▇▇▇▇'s estimate of the quantities of Proved Reserves set forth in such
report are, in the aggregate, reasonable, and if not, to determine and specify
that portion of Grantor's estimate of Proved Reserves that, in the opinion of
the Independent Petroleum Engineers, is reasonable, it being agreed that in
the event of a material disagreement with respect to the correct quantities of
Proved Reserves, the opinion of the Independent Petroleum Engineers shall
govern for all purposes of this Conveyance; in carrying out their
investigation the Independent Petroleum Engineers may review, among other
things they deem relevant, (i) Grantor's procedures for estimating and
documenting Proved Reserves, (ii) Grantor's estimates of in-place reservoir
volumes, (iii) Grantor's estimates of recovery factors and production profiles
for the various areas, pay zones, projects and recovery processes that are
included in Grantor's estimate of Proved Reserves, (iv) Grantor's production
strategy and procedures for implementing that strategy, (v) the sufficiency of
data available for making estimates of Proved Reserves and production
profiles, and (vi) pertinent provisions of the Prudhoe Bay Unit Agreement and
the Prudhoe Bay Unit Operating Agreement; provided, that, the Independent
Petroleum Engineers shall keep the information so provided confidential except
for information which is required by law to be disclosed;
(e) provide Grantee on a date no later than twelve calendar days prior
to each Quarterly Record Date (unless otherwise agreed by Grantee) information
as to the amount to be paid to Grantee on the next Quarterly Record Date.
(f) provide to Grantee, and to ▇▇▇▇▇▇▇'s designee, a Royalty Statement
within five working days after the end of each calendar quarter which shall
consist of a computation, supported by data required to perform the
computations hereunder, of the amount to be paid to Grantee at the next
Quarterly Record Date;
(g) provide Grantee with such other information as Grantee may
reasonably request from time to time and to which Grantor has access.
All costs and (expenses incurred by Grantor in providing reports and
information under this Conveyance shall be borne by Grantor.
Section 4.9 Indemnification. Grantor hereby agrees to indemnify and save
harmless Grantee from and against any expense (including, without limitation,
the expense of suit and attorneys' fees), claim, damage, loss or liability
incurred by Grantee as a result of or arising out of the information provided
to Grantee by Grantor pursuant to Section 4.8 being untimely provided or
incorrect or untrue or misleading in any material respect.
ARTICLE FIVE
NON-LIABILITY OF GRANTEE
Section 5.1 Non-Expense Bearing Interest; Non-Liability of Grantee;
Indemnification. It is the express intent of Grantor and Grantee that the
Royalty Interest shall constitute (and this Conveyance shall conclusively be
construed for all purposes as creating) a non-expense bearing interest for all
purposes. Grantor and Grantee acknowledge that, pursuant to the terms of the
Prudhoe Bay Unit Operating Agreement, if Grantor fails to pay any costs or
expenses chargeable to Grantor under the Prudhoe Bay Unit Operating Agreement
and the production of Oil is insufficient to pay such costs and expenses, then
the Royalty Interest is chargeable with a pro rate portion of such cost and
expenses and is subject to the enforcement against it of liens granted to the
unit operators of the Prudhoe Bay Unit. However, as more fully set forth in
Section 7.2, Grantor has agreed to pay timely all costs and expenses
chargeable to it pursuant to the Prudhoe Bay Unit Operating Agreement and to
insure that no such costs and expenses will be chargeable against the Royalty
Interest. Grantor and Grantee acknowledge that in no event shall Grantee ever
be liable or responsible in any way for any expense, claim, damage, loss,
obligation or liability incurred by Grantor or Grantee or others attributable
to the Subject Interests or to Oil produced therefrom (including, without
limitation, those incurred in connection with or attributable to the
developing, exploring, drilling, equipping, testing, operating, reworking,
maintaining, plugging or abandoning of any well or the storing, handling,
treating or marketing of the production therefrom), and Grantor hereby agrees
to indemnify and save harmless Grantee from and against any such expense
(including, without limitation, the expense of suit and attorneys' fees),
claim, damage, loss, obligation and liability, irrespective of whether same
arises pursuant to the provisions of the Prudhoe Bay Unit Operating Agreement
or otherwise.
ARTICLE SIX
UNITIZATION
Section 6.1 Prudhoe Bay Unit. The Subject Interests have been heretofore
unitized for the production of oil and gas in the Prudhoe Bay Unit. The
Subject Interests are and shall be subject to the terms and provisions of the
Prudhoe Bay Unit Agreement and the Prudhoe Bay Unit Operating Agreement, the
Leases, and any other type of contract, conveyance, or Instrument, recorded or
unrecorded, relating to the Subject Interests or Grantor's interest therein in
effect at the Effective Date.
Section 6.2 Right to Amend. Grantor shall have the right and power to
alter, change, amend or terminate the Prudhoe Bay Unit Agreement, the Prudhoe
Bay Unit Operating Agreement, the Leases, and any other type of contract,
conveyance, or instrument, recorded or unrecorded, as heretofore or hereafter
entered into, as to all or any part of the Subject Interests, upon such terms
and provisions as Grantor shall in its sole discretion determine, but, if
Grantor exercises such right and power in breach of the Prudent Standard, it
will, and ▇▇▇▇▇▇ agrees to, indemnify and save harmless Grantee from and
against any and all expense (including, without limitation, the expense of
suit and attorneys' fees), claim, damage, loss, obligation and liability
incurred by ▇▇▇▇▇▇▇ as a result of or arising out of Grantor's exercise of the
aforesaid right and power in breach of the Prudent Standard. If and whenever,
through the exercise of such right and power, or pursuant to any law hereafter
enacted or any rule, regulation or order of any governmental body or official
hereafter promulgated, any of the Subject Interests are altered, changed,
amended or terminated in any manner, the Royalty Interest insofar as it
affects such Subject Interests shall also be altered, changed, amended or
terminated, and in any such event such Royalty Interest, insofar as it is
affects such Subject Interests, shall apply to and affect only the Royalty
Production which is allocated to such Subject Interests, but no such
alteration, change, amendment or termination shall affect the definition of
Royalty Production as set forth in Article One or the method of making
payments under the Royalty Interest as set forth in Article Three or the
method of computing the payments under the Royalty Interest as set forth in
Article Four. Grantee hereby agrees that it will never challenge the right
and power of the Grantor to so alter, change, amend or terminate the Prudhoe
Bay Unit Agreement, the Prudhoe Bay Unit Operating Agreement, the Leases and
any other type of contract conveyance or instrument, recorded or unrecorded,
as heretofore or hereafter entered into, as to all or any part of the Subject
Interests, upon such terms and provisions as Grantor shall in its sole
discretion determine, but nothing in this Section 6.2 shall be construed to
release Grantor from its indemnity obligation to Grantee as set forth in the
first sentence of this Section 6.2 and in other provisions of this Conveyance
or to deny Grantee any of the benefits to which it is entitled under this
Conveyance or at law or in equity.
ARTICLE SEVEN
OPERATION OF SUBJECT INTERESTS
Section 7.1 Prudent Operator Standard. Grantor agrees, to the extent it
has the legal right to do so under the Prudhoe Bay Unit Agreement, the Prudhoe
Bay Unit Operating Agreement, the Leases and applicable law affecting or
pertaining to the Subject Interests, that it will conduct and carry on the
development, exploration, production, maintenance and operation of the Subject
Interests with reasonable and prudent business judgment, in accordance with
the provisions of this Article Seven and good oil and gas field practices, as
a reasonable and prudent operator, and without regard to the existence of the
Royalty Interest or any other royalty, overriding royalty, or other interest
created subsequent to the Effective Date (the "Prudent Standard"). However,
nothing contained in this Section 7.1 shall be deemed to prevent or restrict
Grantor from electing not to participate in any operation which is to be
conducted under the terms of either the Prudhoe Bay Unit Agreement or the
Prudhoe Bay Unit Operating Agreement if such election is made by Grantor in
accordance with the Prudent Standard. Grantor shall not be obligated to
continue to produce Oil from the Subject Interests in the Prudhoe Bay Unit or
to maintain such production at any particular level so long as Grantor acts in
accordance with Prudent Standard. Notwithstanding anything elsewhere herein
to the contrary, Grantor shall never be liable to Grantee for the manner in
which Grantor performs its duties hereunder as long as ▇▇▇▇▇▇▇ has acted in
accordance with the Prudent Standard. Grantee shall have no right to operate
or direct operations of the Subject Interests.
Section 7.2 Assurances. (1) Grantor agrees, to the extent it has the
legal right to do so under the terms of the Prudhoe Bay Unit Agreement, the
Prudhoe Bay Unit Operating Agreement, the Leases and applicable law affecting
or pertaining to the Subject Interests, that it will perform all material
obligations to be performed by it (including without limitations making timely
payment of all costs and expenses chargeable to it pursuant to any applicable
agreement to insure that the Royalty Interest is not charged with any portion
of any such costs or expenses and that no lien or security Interest is
enforced against the Royalty Interest by virtue of any matter arising by
through or under Grantor) under all material contracts and agreements
applicable to the Subject Interests and the production and transportation to
market of Oil (including, without limitation, the Prudhoe Bay Unit Agreement
and the Prudhoe Bay Unit Operating Agreement) and will use its best efforts
(by taking such action as is available to it by contract, at law, or in
equity) to enforce the performance under such contracts and agreements of the
other parties thereto.
(ii) The provisions set forth in this Conveyance that require Grantor to
perform certain duties or take certain actions (but subject to the express and
implied limitations in this Conveyance) that can only be performed or taken by
the operator of the Prudhoe Bay Unit, acting under the direction and
supervision of the working interest owners of the Prudhoe Bay Unit, or the
operators of facilities or pipelines separate from the Prudhoe Bay Unit, shall
be construed to require Grantor to use its best efforts (by taking such action
as is available to it by contract (including, without limitation, exercising
its right to vote and to initiate proposals), at law or in equity) to cause
the operator to perform the duty or to take the action in question. Without
limitation of the generality of the foregoing, if the operator elects,
pursuant to the applicable operating agreement, to become a nonconsenting
party with respect to such duty or action, and if Grantor may cause such duty
or action to be performed or taken by becoming a consenting party under the
applicable operating agreement, then Grantor shall so elect to become a
consenting party unless a reasonable and prudent operator, acting in
accordance with good oil and gas field practices and without regard to the
existence of the Royalty Interest or any other royalty, overriding royalty or
other interest created subsequent to the Effective Date, would refuse to
undertake the performance of the duty or the taking of the action in question.
Section 7.3 Abandonment of Properties. Nothing herein contained shall
obligate Grantor to continue to operate any well or maintain in force or
attempt to maintain in force any of the Subject Interests when, in Grantor's
opinion, formed in accordance with the Prudent Standard, such well or Subject
Interest ceases to produce or is not capable of producing oil or gas in paying
quantities. The expiration of a Subject Interest in accordance with the terms
and conditions applicable thereto shall not be considered to be a voluntary
surrender or abandonment thereof.
Section 7.4 Non-Operating Interest In Minerals. It is the express intent
of Grantor and Grantee that the Royalty Interest shall constitute (and this
Conveyance shall conclusively be construed for all purposes as creating) a
non-operating interest in minerals for all purposes. Without limitation of
the generality of the immediately preceding sentence, Grantor and Grantee
acknowledge that Grantee has no right or power to participate in the selection
of a drilling contractor, to propose the drilling of a well, to determine the
timing or sequence of drilling operations, to commence or shut down
production, to take over operations or to share in any operating decision
whatsoever (including, without limitation, the alteration, change, amendment
of termination of the Prudhoe Bay Unit Agreement, the Prudhoe Bay Unit
Operating Agreement, the Leases or any other type of contract, conveyance, or
instrument, recorded or unrecorded, as heretofore or hereafter entered into,
as to all or any part of the Subject Interests hereunder). Grantor and
Grantee hereby expressly negate any intent to create (and this Conveyance
shall never be construed as creating) a mining or other partnership or joint
venture.
ARTICLE EIGHT
GOVERNMENT REGULATION
Section 8.1 Government Regulations. All obligations of Grantor hereunder
shall be subject to all applicable laws, regulations and rules of the State of
Alaska and the United States of America and all other governmental agencies or
authorities having jurisdiction in the matter (except those being contested in
good faith). Grantor shall be entitled to use its reasonable discretion in
making filings, for itself and on behalf of Grantee, with any governmental
body, agency, board or commission having jurisdiction, affecting the Subject
Interests or the Royalty Interest, provided that any such filings shall be
limited to notice required in connection with the grant or transfer of the
Royalty Interest.
Section 8.2 Government Approval. This Conveyance shall not be effective
until approved by the Commissioner of the Department of Natural Resources,
State of Alaska, or his designee.
ARTICLE NINE
ASSIGNMENTS
Section 9.1 Assignment by Grantor. Grantor shall have the right to
assign, sell, transfer, convey, mortgage or pledge the Subject Interests, or
any part thereof, provided that same is expressly made subject to the Royalty
Interest and the terms and provisions of this Conveyance and that a certified
copy of the recorded instrument accomplishing same is promptly furnished to
Grantee by Grantor. From and after the effective date of any such assignment,
sale, transfer or Conveyance by Grantor, the grantee thereunder shall succeed
to all the requirements upon and responsibilities of Grantor hereunder as to
the interests so acquired by such grantee, and, from and after said effective
date, Grantor shall be relieved of such requirements and responsibilities,
excepting only for those accrued or due for performance prior to such
effective date and except as otherwise provided in Section 9.2. The kind of
notice provided herein shall be exclusive, and no other kind, whether actual
or constructive, shall be binding on Grantee.
Section 9.2 Effect of Assignment by Grantor. Notwithstanding any
provision of this Conveyance to the contrary, no assignment, sale, transfer,
conveyance, mortgage or pledge of the Subject Interests, or any part thereof,
shall adversely affect any of Grantee's rights hereunder, including, without
limitation, the amount, computation or method of payment of the Royalty
Interest, it being the intent of Grantor and Grantee that for the purpose of
determining the Royalty Interest payable to Grantee no disposition will be
deemed to have been effected during the term of this Conveyance. Should
Grantor dispose of its interest in the Subject Interests as to some of the
Subject Interests, or as to some part thereof, then, effective as of the date
of such disposition, BP Exploration (Alaska) Inc. shall automatically be
designated by all owners of the Subject Interests as their agent, throughout
the term of this Conveyance, (i) to make all designations that Grantor is
entitled to make pursuant to Section 4.3, (ii) to obtain all information and
take such other steps as may be necessary to permit the Independent Petroleum
Engineers and the Independent Accountants and Grantor to perform their
respective obligations and duties under this Conveyance (including, without
limitation, the calculations to be made pursuant to Article Three and Article
Four) and (iii) to make all payments and to deliver and receive all
communications on behalf of Grantor, it being agreed that during such time, if
any, that the Subject Interests are owned by more than one Person, Grantee
shall never be obligated without its consent to receive payments from or to
deliver or receive communications under this Conveyance from or to any Grantor
other than BP Exploration (Alaska) Inc.; provided, however, that BP
Exploration (Alaska) Inc. shall be released from its obligations under this
Conveyance upon the sale or transfer by it of all or substantially all of the
Subject Interests, if the transferee is of Equivalent Financial Standing and
unconditionally agrees to assume and be bound by all of BP Exploration
(Alaska) Inc.'s obligations under this Conveyance in a writing in form and
substance reasonably satisfactory to Grantee.
Section 9.3 Assignment by ▇▇▇▇▇▇▇. Grantee has the right to assign the
Royalty Interest in whole or in part. No such assignment will affect the
method of computing the Royalty Interest, and if more than one Person becomes
entitled to participate in the Royalty Interest, Grantor may withhold from
such other Person payments to which such Person would otherwise be entitled
hereunder and the furnishing of any data or information which Grantor is
required by the terms hereof to furnish Grantee until Grantor is furnished a
recordable instrument executed by or binding upon all Persons interested in
the Royalty Interest designating one Person who is to receive such payments,
data and information.
Section 9.4 Change In Ownership. No change of ownership or right to
receive payment of the Royalty Interest, or of any part thereof, however
accomplished, shall be binding upon Grantor until notice thereof shall have
been furnished by the Person claiming the benefit thereof, and then only with
respect to payments thereafter made. Notice of sale or assignment shall
consist of a certified copy of the recorded instrument accomplishing the same;
notice of change of ownership or right to receive payment accomplished in any
other manner (for example by reason of incapacity, death or dissolution) shall
consist of certified copies of such documents and complete proceedings as are
legally binding and conclusive of the rights of all parties. Until such
notice shall have been furnished to Grantor as above provided, the payment or
tender of all sums payable on the Royalty Interest may be made in the manner
provided herein precisely as if no such change in interest or ownership or
right to receive payment had occurred. The kind of notice herein provided
shall be exclusive, and no other kind, whether actual or constructive, shall
be binding on Grantor.
Section 9.5 Rights of Mortgagee or Trustee. If Grantee shall at any time
execute a mortgage or deed of trust covering all or part of the Royalty
Interest, subject to the notice provisions of Section 9.4, the mortgagee(s) or
trustee(s) therein named or the holder of any obligation secured thereby
shall be entitled, to the extent such mortgage or deed of trust so provides,
to exercise all the rights, remedies, powers and privileges conferred upon
Grantee by the terms of this Conveyance, but the provisions of this Section
9.5 shall in no way be deemed or construed to impose upon Grantor any
obligation or liability undertaken by Grantee under such mortgage or deed of
trust or under the obligation secured thereby.
ARTICLE TEN
MISCELLANEOUS
Section 10.1 Proportionate Reduction. In the event of failure or
deficiency in title of the State of Alaska to any of the Lands which affects
any of the Subject Interests, or any modification of the Subject Interests as
provided in Article Six, the portion of the Royalty Production from such
affected or modified Subject Interests out of which the Royalty Interest
attributable to such Subject Interests shall be payable shall be reduced in
the same proportion that such Subject Interests are reduced, but such failure
or deficiency in title shall not affect the definition of Royalty Production
as set forth in Article One or the method of paying the Royalty Interest as
set forth in Article Three or the method of computing the payments to be made
under the Royalty Interest as act forth in Article Four.
Section 10.2 Term. Subject to the limitations stated herein, this
Conveyance shall remain in force so long as any of the Subject Interests are
in effect, provided, however, that all warranties and indemnities set forth in
this Conveyance shall survive for the maximum period permitted by law.
Section 10.3 Further Assurances. Should any additional instrument of
assignment or conveyance be required to describe more specifically any
interests subject hereto or to vest in any Person to whom Grantee assigns the
Royalty Interest in whole or in part the benefit of all covenants,
representations, warranties and indemnities made by Grantor to or for the
benefit of Grantee pursuant to this Conveyance, ▇▇▇▇▇▇▇ agrees to execute and
deliver the same. Also, if any other or additional instruments are required
in connection with the transfer of interests in the Leases to comply with
applicable law, regulations, the Prudhoe Bay Unit Agreement, the Prudhoe Bay
Unit Operating Agreement or any other applicable agreements, Grantor will
execute and deliver the same.
Section 10.4 Notices. Any notice, request, demand, report, statement or
other instrument which may be required or permitted to be given to any party
hereto or other Person succeeding to any interest of a party hereto shall be
deemed sufficiently given if in writing and delivered to such party or Person
or to an officer of such party or Person or deposited in the United States
mail in a sealed envelope, first class mail, with postage prepaid, addressed
to such party or Person at its or his address stated in this Conveyance, or at
such other address as the party or Person to be addressed shall have
designated by written notice to each such party or Person. Each party's
proper address shall be deemed to be that set forth herein below until such
party gives to the other party, in the manner above prescribed, notice of a
new address, after which such new address shall be deemed the proper address
until changed in like manner. Notice shall be deemed given when actually
received by the party or Person to which such notice was intended.
Grantor: BP Exploration (Alaska) Inc.
P.O. Box 196612
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇▇▇-6612
Grantee: The Standard Oil Company
▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
Section 10.5 Covenants and Warranties with Respect to Participating
Interest and Net Profits Royalty Interest. Grantor hereby covenants and
warrants that its Oil Rim Area Participation as of the Effective Date is
50.6848339% and its Gas Cap Area Participation as of the Effective Date is
13.8398950%, that as of the Effective Date its Oil Rim Area Participation and
its Gas Cap Area Participation is subject only to the Net Profits Royalty
Interest (exclusive of the Lower Lower Net Profits Royalty Interest) and that
such interests are subject to change or adjustment only as provided herein or
as may be provided under the terms of the Prudhoe Bay Unit Operating Agreement
and the Prudhoe Bay Unit Agreement, including, without limitation, any
adjustments which might result from the final redetermination of hydrocarbon
pore volume as provided in Article 37 of the Prudhoe Bay Unit Operating
Agreement. Grantor further covenants that if the existence of the Net Profits
Royalty Interest or the making of any payments under the Net Profits Royalty
Interest results in a decrease in any payment to Grantee under the Royalty
Interest, Grantor shall and hereby agrees to pay Grantee, in addition to and
independent of payments required to be made to Grantee under the Royalty
Interest, the amount of any such decrease, together with interest thereon in
an amount equal to the product of (i) the amount of such decrease, (ii) the
Interest Rate, and (iii) a fraction, the numerator of which is the number of
days from the date of such decrease until the date of payment to Grantee of
the amount owing pursuant to this Section 10.5 and the denominator of which is
360 days, together with such other damages (but not including interest) to
which Grantee may be entitled under this Conveyance, or at law or in equity,
it being the express intent of Grantor and Grantee that Grantee is not to be
prejudiced in any way by the existence of or the making of any payments under
the Net Profits Royalty Interest.
Section 10.6 Other Covenants. Grantor hereby covenants and warrants that
it is a corporation duly organized, validly existing, and in good standing
under the laws of the State of Delaware, is qualified to transact business and
is in good standing in the State of Alaska and is qualified with the Alaska
Department of Natural Resources to hold interests in state oil and gas leases;
that it has the legal right and authority to bargain, grant, sell, convey,
transfer, assign, set over and deliver the Royalty Interest to Grantee and
that it has the legal right and authority to execute, deliver and perform this
Conveyance; that the execution, delivery and performance of this Conveyance by
it (i) does not require the consent of any other Person except as set forth in
Section 8.2; (ii) does not require any action by or filing with any
governmental body, agency, or official that has not been accomplished, other
than the filings which are required under the terms of the Leases and the
terms of applicable statutes of the State of Alaska and the administrative
regulations of the Alaska Department of Natural Resources, which filings will
be promptly made upon execution of this Conveyance; and, (iii) will not
violate or conflict with any law, statute, regulation, agreement, judgment,
injunction, order, decree or other instrument to which Grantor is subject or
is party or by which Grantor or the Leases or the Subject Interests are bound
and that this Conveyance is a valid and binding agreement of Grantor,
enforceable against Grantor in accordance with its terms. Grantor hereby
binds itself and its successors and assigns to forever defend the title to the
Royalty Interest unto Grantee and its successors and assigns against every
Person claiming the same or any part thereof by, through or under Grantor, but
not otherwise. This Conveyance is made with full substitution and subrogation
of Grantee in and to all covenants, representations and warranties by others
heretofore given or made in respect of the Leases or the Subject Interests.
Section 10.7 Binding Effect. This Conveyance and all of the rights and
obligations hereunder (including, without limitation, those arising out of the
covenants, representations, warranties and indemnities made by Grantor to or
for benefit of Grantee pursuant to this Conveyance) shall bind and inure to
the benefit of the successors and assigns of Grantor and ▇▇▇▇▇▇▇.
Section 10.8 Headings for Convenience. The headings used in this
Conveyance are inserted for convenience only and shall be disregarded in
construing this Conveyance.
Section 10.9 Counterparts. This Conveyance may be executed in several
original counterparts. Each such counterpart shall for all purposes be deemed
an original, and all such counterparts shall constitute but one and the same
Conveyance.
Section 10.10 Interest Affecting Real Property. The Royalty Interest
created and transferred by this Conveyance is an interest affecting real
property within the meaning of AS 40.17.110(b)(59). The parties intend that
the covenants contained in this Conveyance run with and burden the Lands and
the Subject Interests to the maximum extent possible under applicable law.
Section 10.11 Waiver; Estoppel. The failure of Grantor or Grantee to
insist upon strict performance of any provision of this Conveyance shall not
constitute a waiver of or estoppel against asserting the right to require such
performance in the future, nor shall a waiver or estoppel in any one instance
constitute a waiver or estoppel with respect to a later breach of a similar
nature or otherwise.
Section 10.12 Right to Information. The Standard Oil Company shall
remain entitled throughout the term of this Conveyance to receive from Grantor
a copy of all information that is furnished to Grantee by ▇▇▇▇▇▇▇,
irrespective of the assignment by The Standard Oil Company of the Royalty
Interest in whole to any other Person.
Section 10.13 Indemnification. ▇▇▇▇▇▇▇ hereby agrees to indemnify and
save harmless Grantee from and against any expense (including, without
limitation, the expense of suit and attorneys' fees), claim, damage, loss or
liability incurred by Grantee as a result of or arising out of the breach by
Grantor of any of its representations, warranties or covenants set forth in
this Conveyance.
Section 10.14 Independent Payments. All payments to which ▇▇▇▇▇▇▇ is
entitled by reason of the indemnities set forth in this Conveyance by Grantor
to Grantee or by reason of any breach by Grantor of its representations,
warranties or covenants shall be in addition to and independent of all
payments required to be made to Grantee under the Royalty Interest.
Section 10.15 Governing Law. The validity, effect and construction of
this Conveyance shall be governed by the laws of the State of Alaska.
Section 10.16 Amendment. This Conveyance may not be amended, altered or
modified except pursuant to a written Instrument executed by ▇▇▇▇▇▇▇ and
▇▇▇▇▇▇▇.
IN WITNESS WHEREOF, the parties hereto have caused this Conveyance to be
duly executed as of the day and year first written.
GRANTOR:
[SEAL]
Attest: BP Exploration (Alaska) Inc.
/s/ ▇▇▇▇ ▇. ▇▇▇▇▇▇ By /s/ ▇.▇. ▇▇▇▇▇▇
--------------------------- --------------------------
Assistant Secretary ▇.▇. ▇▇▇▇▇▇, President
GRANTEE:
[SEAL]
Attest: The Standard Oil Company
/s/ ▇.▇. Cesarik By /s/ ▇▇▇▇▇ ▇. ▇▇▇▇
--------------------------- --------------------------
ACKNOWLEDGMENT
STATE OF ALASKA )
) ss
THIRD JUDICIAL DISTRICT )
Before me, a notary public, in and for the State of Alaska, personally
appeared ▇.▇. ▇▇▇▇▇▇, known to me to be the person who, as President of BP
Exploration (Alaska) Inc., the corporation which executed the foregoing
instrument, signed the same, and acknowledged to me that he did so sign said
instrument in the name and upon behalf of said corporation as such officer;
that the same is his free act and deed as such officer, and the free and
corporate act and deed of said corporation; that he was duly authorized
thereunto by its board of directors; and that the seal affixed to said
instrument is the corporation seal of said corporation. In testimony whereof,
I have hereunto subscribed my name, and affixed my official seal, at
Anchorage, Alaska, this 20th day of February, 1989.
[SEAL] /s/ ▇▇▇▇ ▇. ▇▇▇▇▇▇▇
-------------------------------
Notary Public in and for Alaska
My Commission Expires: 1-14-93
STATE OF OHIO )
) ss
COUNTY OF CUYAHOGA )
Before me, a notary public, in and for said county, personally appeared
▇▇▇▇▇ ▇. ▇▇▇▇ and ▇.▇. ▇▇▇▇▇▇▇, known to me to be the persons who, as Chairman
and Chief Executive Officer and Corporate Secretary, respectively, of The
Standard Oil Company, the corporation which executed the foregoing instrument,
signed the same, and acknowledged to me that they did so sign said instrument
in the name and upon behalf of said corporation as such officers,
respectively; that the same is their free act and deed as such officers,
respectively, and the free and corporate act and deed of said corporation;
that they were duly authorized thereunto by its board of directors; and that
the seal affixed to said instrument is the corporation seal of said
corporation. In testimony whereof, I have hereunto subscribed my name, and
affixed my official seal, at Cleveland, Ohio this 15th day of February, 1989.
[SEAL] /s/ ▇▇▇▇▇ ▇▇▇▇▇▇
---------------------------------
Notary Public in and for Ohio
My Commission Expires:
▇▇▇▇▇ ▇▇▇▇▇▇
Notary Public, State of Ohio
Recorded in Cuyahoga County
My Comm. Expires 9-14-92
EXHIBIT A
OVERRIDING ROYALTY CONVEYANCE
STATE OF ALASKA
▇▇▇▇▇▇▇'s Recorded
PBU Lease Lands Working Book/
Tract Serial No. Description Interest Page*
16 ADL-25637 Secs. 13,24 50% 42/609
T12N-R10E, UM
47 ADL-28260 Secs. 1,2,11,12 100%** 52/40
T11N-R13E, UM
25 ADL-28277 Secs. 26,35,36 100%** 52/44
T12N-R13E, UM
24 ADL-28278 Secs. 27,28,33,34 100%** 52/50
T12N-R13E, UM
23 ADL-28279 Secs. 29,30,31,32 100%** 52/56
T12N-R13E, UM
44 ADL-28280 Secs. 1,2,11,12 100%** 52/62
T11N-R13E, UM
45 ADL-28281 Secs. 3,4,9,10 100%** 52/68
T11N-R13E, UM
46 ADL-28282 Secs. 5,6,7,8 100%** 52/74
T11N-R13E, UM
57 ADL-28283 Secs. 17,18,19,20 100%** 52/80
T11N-R13E, UM
58 ADL-28284 Secs. 15,16,21,22 100%** 52/86
T11N-R13E, UM
59 ADL-28285 Secs. 13,14,23,24 100%** 52/92
T11N-R13E, UM
76 ADL-28286 Secs. 25,26,35,36 100%** 52/98
T11N-R13E, UM 29/178
77 ADL-28287 Secs. 27,28,33,34 100%** 47/235
T11N-R13E, UM
60 ADL-28305 Secs. 17,18,19,20 100%** 47/223
T11N-R14E, UM
74 ADL-28309 Secs. 27,28,33,34 100%** 42/336
T11N-R14E, UM
75 ADL-28310 Secs. 29,30,31,32 100%** 47/241
T11N-R14E, UM
90 ADL-28311 Secs. 1,2,11,12 100%** 47/229
T10N-R14E, UM
89 ADL-28312 Secs. 3,4,9,10 100%** 52/104
T10N-R14E, UM
101 ADL-28315 Secs. 13,14,23,24 100%** 52/110
T10N-R14E, UM
38 ADL-28320 Secs. 1,2,11,12 100%** 47/199
T11N-R15E, UM
100 ADL-28330 Secs. 17,18,19,20 100%** 52/116
T10N-R15E, UM
99 ADL-28331 Secs. 15,16,21,22 100%** 52/122
T10N-R15E, UM
110 ADL-28333 Secs. 25,26,35,36 100%** 42/341
T10N-R15E, UM
108 ADL-28335 Secs. 29,30,31,32 100%** 52/128
T10N-R15E, UM
66 ADL-28339 Secs. 17,18,19 100%** 47/193
T11N-R16E, UM
69 ADL-28343 Secs. 30,31,32 100%** 42/356
T11N-R16E, UM
111 ADL-28349 Secs. 29,30,31 100%** 42/370
T10N-R16E, UM
31 ADL-34630 Secs. 25,26,35,36 100%** 47/205
T12N-R15E, UM
* All book and page references are to the lease records of the Noatak-Kobuk
Recording District, except: (i) Lease ADL 25637 is recorded in the
Miscellaneous Records of the Fairbanks Recording District; and (ii) Lease ADL
28286 is recorded both in the Lease Records of the Noatak-Kobuk Recording
District (Book 52/page 98) and the Lease Records of the Fairbanks Recording
District (Book 29/page 178).
** The interest of BP Exploration (Alaska) Inc. in these leases is subject to
the Net Profits Royalty Interest (excluding the Lower Net Profits Royalty
Interest).