Exhibit 10.1
Exploration Participation Agreement
By and Between
Chevron U.S.A. Inc.
And
Ridgewood Energy Corporation, Manager Ridgewood Energy Q Fund, LLC.
September 1, 2005
Chevron / Ridgewood EPA 9-1-05.doc
Final Agreement
TABLE OF CONTENTS
ARTICLE PAGE
1. SUBJECT MATTER, DEFINITIONS, EXHIBITS AND CONSTRUCTION ....................2
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1.1 Subject Matter and Purpose ..............................................2
1.2 Defined Terms ...........................................................2
1.3 Exhibits .............................................................7
1.4 Rules of Construction ................................................7
2. CONTRACT ACREAGE ..........................................................8
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2.1 Contract Acreage ........................................................8
2.2 Primary Package Prospects ...............................................8
2.3 Additional Opportunities Prospects ......................................8
2.4 Area of Mutual Interest .................................................9
3. ASSIGNMENT OF INTEREST ...................................................10
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3.1 Leasehold Assignment ...................................................10
3.2 Ridgewood's Contribution to Well Costs .................................12
3.3 Assignment Timing ......................................................12
3.4 Proportionate Adjustment ...............................................13
3.5 Additional Earning Option ..............................................14
4. PROSPECT EVALUATION ......................................................14
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4.1 Primary Package Prospect Well Cost Sharing .............................14
4.2 Additional Opportunities Prospect Well Cost Sharing ....................16
4.3 Well Over-expenditure Limitation .......................................17
4.4 Third Party Participation in Prospects .................................18
4.5 Rights Limitation on Use of Existing ▇▇▇▇▇ .............................18
4.6 ▇▇▇▇▇ Proposed by Chevron after the Effective Date .....................18
4.7 Protection from Drainage ...............................................19
5. FARMOUT OPTION ...........................................................19
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5.1 Exhibit A or B Prospect Substitute ▇▇▇▇▇ ...............................19
5.2 Exhibit B Farmout Option ...............................................20
5.3 Chevron's Participation Options and Overriding Royalties ...............20
5.4 General Farmout Agreement Terms and Conditions .........................20
5.5 Impenetrable Substances ................................................24
5.6 Overriding Royalties ...................................................24
5.7 Joint Operations for Earned Depths .....................................24
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6. PRESSURE COMMUNICATION AND COMMON RESERVOIRS .............................25
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6.1 Pressure Communication Restriction .....................................25
7. OPERATING AGREEMENT ......................................................26
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7.1 Offshore Operating, Agreements .........................................26
7.2 Designation of Operator ................................................27
8. ADDITIONAL PARTNERS/CO-VENTURERS .........................................27
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8.1 Partners/Co-Venturers ..................................................27
9. ACREAGE RELEASE ..........................................................27
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9.1 Option to Release Acreage ..............................................27
9.2 Rights Termination .....................................................28
9.3 Automatic Release ......................................................28
10. NOTICES ..................................................................28
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10.1 Notices ...............................................................28
10.2 Change in Designated Representative ...................................29
11. EXISTING AGREEMENTS ......................................................29
11.1 Existing Agreements ...................................................29
12. RIGHTS RESERVED ..........................................................30
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12.1 Lease Rights Reservations .............................................30
13. PRODUCTION PROCESSING AND CONTRACT PUMPING ...............................30
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13.1 Production Handling Option ............................................30
13.2 Contract Operating Option .............................................31
13.3 Use of Existing Facilities ............................................31
14. TAX MATTERS ..............................................................31
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14.1 Income Tax Election ...................................................31
15. GEOPHYSICAL DATA .........................................................32
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15.1 Proprietary Seismic Data ..............................................32
15.2 Hazard Survey Data ....................................................33
15.3 Speculative Seismic Data ..............................................33
16. RENTALS, MINIMUM ROYALTY AND LEASE MAINTENANCE ...........................33
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16.1 Rentals and Minimum Royalty ...........................................33
17. MEDIA RELEASES ...........................................................34
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17.1 Public Announcements ..................................................34
17.2 Media Releases ........................................................35
18. FILES ....................................................................35
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18.1 Access to Files .......................................................35
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19. ASSIGNMENTS AND TRANSFER OF INTEREST .....................................36
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19.1 Assignment of this Agreement ..........................................36
19.2 Lease or Prospect Successors and Assigns ..............................36
20. CONFIDENTIALITY ..........................................................37
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20.1 Confidentiality .......................................................37
20.2 Speculative Seismic Data ..............................................37
20.3 Disclosure of Confidential Data .......................................38
20.4 Risk of Use of Confidential Data ......................................38
21. GOVERNING LAW ............................................................39
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21.1 Choice of Law .........................................................39
21.2 Future Litigation and Claims ..........................................39
22. FORCE MAJEURE ............................................................39
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22.1 Force Majeure .........................................................39
23. DISPUTE RESOLUTION .......................................................40
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23.1 Dispute Resolution ....................................................40
24. TERMINATION ..............................................................41
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24.1 Termination ...........................................................41
24.2 Lease Expiration or Termination .......................................41
24.3 Agreement Extension ...................................................41
25. INDEMNITY ................................................................42
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25.1 Indemnity .............................................................42
26. BREACH ...................................................................42
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26.1 Breach ................................................................42
27. SPECIAL WARRANTY .........................................................43
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27.1 Special Warranty ......................................................43
28. GENERAL PROVISIONS .......................................................44
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28.1 Prospects Treated Separately ..........................................44
28.2 Non-Interference ......................................................44
28.3 Governmental Approvals ................................................44
28.4 Amendments ............................................................45
28.5 Declaration of Agreement ..............................................45
28.6 Other Rights, Remedies Reserved .......................................45
28.7 No Waiver .............................................................45
28.8 No New Lease Burdens ..................................................45
28.9 Permitting Cost Sharing ...............................................46
28.10 Audit Rights .........................................................46
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28.11 Severability .........................................................46
28.12 Entire Agreement .....................................................46
28.13 Further Assurances ...................................................47
28.14 Surviving Obligation .................................................47
28.15 Conflict of Terms ....................................................47
Chevron / Ridgewood EPA 9-1-05.doc
Final Agreement
LIST OF EXHIBITS
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Exhibit "A" Primary Package Prospects
Exhibit "B" Additional Opportunities Prospects
Exhibit "C" List of Existing Agreement Restrictions,
Exceptions and Obligations
Exhibit "D" Area of Mutual Interest
Exhibit "E" Offshore Operating Agreement
Exhibit "F" Dispute Resolution Procedure
Exhibit "G" Declaration of Agreement
Chevron / Ridgewood EPA 9-1-05.doc
Final Agreement
EXPLORATION PARTICIPATION AGREEMENT
THIS EXPLORATION PARTICIPATION AGREEMENT ("Agreement") is made and entered
into this 1st day of September 2005, by and between Chevron U.S.A. Inc., a
Pennsylvania corporation, hereinafter sometimes referred to as "Chevron" and
Ridgewood Energy Corporation, a Delaware corporation, Manager Ridgewood Energy Q
Fund, LLC. hereinafter sometimes referred to as "Ridgewood." Chevron and
Ridgewood are sometimes hereinafter referred to individually as "Party" and/or
collectively as "Parties."
WITNESSETH:
WHEREAS, Ridgewood has expressed a desire to secure the right to earn and
subsequently own certain leasehold interests currently owned by Chevron in the
Outer Continental Shelf, Offshore in the Gulf of Mexico; and
WHEREAS, Chevron is desirous of having an entity with proven expertise in
oil and gas operations in the United States to evaluate, through exploratory
drilling, the hydrocarbon potential on a portion of the leasehold currently
owned by Chevron in such areas; and
WHEREAS, Ridgewood has demonstrated its ability to find commercial
quantities of hydrocarbons in various locations throughout the United States and
is willing to commit financial and personnel resources now and in the future to
explore and develop the acreage of Chevron as described herein; and
WHEREAS, Chevron is agreeable to grant Ridgewood the right and option to
explore certain Chevron leasehold along with Chevron to earn an interest in such
leasehold all as more particularly set forth below.
NOW THEREFORE, for and in consideration of the mutual advantages and
benefits accruing to the Parties hereto, the sufficiency of which is hereby
acknowledged, the Parties hereto agree that the following shall constitute the
agreement between Chevron and Ridgewood concerning the drilling of various ▇▇▇▇▇
hereinafter described on the "Contract Acreage" hereinafter identified and, upon
the satisfaction of certain conditions contained herein, the acquisition of
interests by Ridgewood from Chevron. This Agreement upon execution by Chevron
and Ridgewood shall supersede and replace all prior
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agreements and oral conversations between Chevron and Ridgewood regarding the
transaction set forth herein including, but not limited to, that certain Letter
from Ridgewood to Chevron dated July 19, 2005,
ARTICLE 1
1. SUBJECT MATTER, DEFINITIONS, EXHIBITS AND CONSTRUCTION
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1.1 Subject Matter and Purpose.
---------------------------
The subject matter of this Agreement is the exploration and development of
the Contract Acreage, as defined below, by Ridgewood and Chevron pursuant to the
terms and conditions hereinafter provided together with the rights and
obligations of Ridgewood and Chevron concerning such exploration and development
of the Contract Acreage.
The purpose of this Agreement is to provide a means whereby Chevron is to
make available to Ridgewood acreage for the drilling of Exploratory ▇▇▇▇▇ by
Chevron, Ridgewood and others in an attempt to find and develop economic
reserves for the benefit of the Parties. It is contemplated that situations will
arise during the term of this Agreement that is not specifically covered herein.
In the event these situations do arise the Parties agree, in the spirit of
cooperation, to use all reasonable efforts to resolve such situations to the
mutual benefit of all Parties.
1.2 Defined Terms.
--------------
For purposes of this Agreement, including the Exhibits, except as otherwise
expressly provided, the terms defined in this Section 1.2 have the meanings
assigned to them herein and the capitalized terms defined elsewhere in the
Agreement by inclusion in quotation marks and parentheses have the meanings so
ascribed to them.
"AFE" means an Authority for Expenditure prepared by a Party to this
Agreement or a Co-Working Interest Owner, for the purpose of estimating the Well
Costs to be incurred in connection with a proposal to drill, deepen, or
sidetrack a well hereunder.
"Additional Opportunities Prospects" mean the Prospects identified by the
Parties listed on Exhibit "B."
"Affiliate" means, with respect to any Person, any other Person directly or
indirectly controlling or controlled by, or under common control with, such
Person. For purposes of this definition, the term "control" (including, with
correlative meanings, the terms "controlling," "controlled by" and "under
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common control with") as applied to any Person, means the possession, directly
or indirectly, of the power to direct or cause the direction of the management
of such Person, whether through ownership of voting securities, by contract or
otherwise, and specifically with respect to a corporation, partnership or
limited liability company means ownership of fifty percent (50%) or more of the
voting stock in such corporation or of the voting interest as a partner in such
partnership or as a member of such limited liability company.
"Agreement" means this Exploration Participation Agreement between Chevron
and Ridgewood including the Exhibits attached hereto or referred to herein.
"Area of Mutual Interest" or "AMI" means the areas and blocks listed on
Exhibits "A," B," and "D" attached hereto.
"Available Acreage" shall mean Chevron's interest in the acreage described
on Exhibits "A" and "B" attached hereto and made a part hereof..
"Business Day" means a day on which the Minerals Management Service New
Orleans Regional Office is open for business.
"Casing Point" means that point in time when a well has reached the
Objective Depth, and all logs, cores and other tests have been completed that
are sufficient to make a determination concerning the running of production
casing or the plugging and abandonment of the well, and the results thereof have
been furnished to all Parties.
"Contract Acreage" means collectively those portions of the Leases and
lands described as Available Acreage on Exhibits "A" and "B" attached hereto and
made a part hereof plus any acreage that becomes jointly owned pursuant to
Section 2.4.
"Co-Working Interest Owner" is any Third Party, or their assignee, who owns
a Record Title Interest, Operating Rights Interest and/or real property
interest, with or without Chevron, in any Lease listed on or adjacent to
Exhibits "A" and "B," that either may or may not be a Party hereto.
"Effective Date" means the effective date of this Agreement, being 7:00
a.m., Central Standard Time, September 1, 2005.
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"Existing Facilities" means all property located on or associated with the
Contract Acreage as of the Effective Date used or, held for use in connection
with the production, treatment, gathering, storage and compression of oil and/or
gas from, on, or attributable to any Lease listed on Exhibits "A" or "B,"
including but not limited to, (1) platforms, caissons, fixtures, tanks, pumps,
pipelines, appurtenances and improvements, (2) all equipment or material
permanently or temporarily located on the Contract Acreage; and, (3) other
structures located on or used in connection with the Leases.
"Exploratory Objective" means any zone, interval or horizon not in pressure
communication with a zone, interval or horizon that is currently producing or is
currently known to be capable of producing oil and/or gas from an existing
wellbore located on a Lease.
"Exploratory Well" means a well proposed to be drilled to evaluate an
Exploratory Objective. A well will be considered an Exploratory Well if any bona
fide objective in a well is an Exploratory Objective, even if other objectives
in the well do not qualify as Exploratory Objectives. Any substitute well for a
previously drilled Exploratory Well shall be considered an Exploratory Well if
and only if the substitute well is proposed to be drilled to not less than the
Objective Depth of the unsuccessful Exploratory Well it is replacing.
"Farmout Agreement" means a mutually acceptable form of agreement to be
entered into by the Parties for each Exhibit "A" Prospect as to the Available
Acreage in the event Chevron elects not to participate in a Substitute Well as
to operations conducted in non jointly owned depths, and for each Exhibit "B"
Prospect in the event Chevron elects not to participate in the Initial Test
Well, or an Exhibit "B" Prospect where Chevron elects to participate in the
Initial Test Well but elects not to participate in a Substitute Well as to
operations conducted in non jointly owned depths.
"Initial Test Well" shall be the first Exploratory Well proposed by Chevron
and drilled after the Effective Date of this Agreement on each Prospect located
on an Exhibit "A" or "B" Lease, or on lands pooled or unitized with an Exhibit
"A" or "B" Lease, or on a Prospect which includes all or a portion of an Exhibit
"A" or "B" Lease.
"Land Cost" shall mean the total bonus, finder fees, accumulated annual
rentals and obligations to maintain any leases paid by Chevron before and after
the Effective Date of this Agreement for each Lease listed on Exhibits "A" and
"B." Exhibits "A" and "B" list the Land Costs paid by Chevron for each Lease
prior to the Effective Date of this Agreement.
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"Lease" or "Leases" shall mean the oil and gas leases issued by the United
States of America all as listed on Exhibits "▇," "▇" and "D," but as may be
depth or interest limited thereby.
"Objective Depth" shall mean the total depth of an Initial Test Well or
Substitute Well(s) as specified in the AFE for such well as proposed in
accordance with the provisions of this Agreement and as shown on Exhibits "A"
and "B."
"Operating Agreement" means the offshore operating agreement to be entered
into by the Parties in accordance with the provisions of this Agreement to
govern operations of the Parties on ▇▇▇▇▇ drilled under this Agreement.
"Operating Rights" shall mean all of the rights, obligations, liabilities
and attributes of a working interest ownership covering less than all depths,
and potentially less than the entire surface area, in and on a Lease.
"Person" means, and shall be interpreted broadly to include, without
limitation, any individual, corporation, association, company, limited liability
company, trust, estate, partnership, joint venture, unincorporated organization,
other business entity, any government or any department or agency thereof, or
any other legal entity.
"Primary Package Prospect" shall mean those Prospects identified by Chevron
listed on Exhibit
"Prospect" shall mean an area believed to encompass an accumulation(s) of
hydrocarbons having one or more productive formations. The area encompassing
these accumulations shall be described on a surface acreage basis and subject to
any depth limitations as specified on Exhibits "A" or "B" or as agreed to by the
Parties. If Ridgewood and/or Chevron owns or acquires an interest in a lease
contiguous to a Lease subject to this Agreement that is not on acreage listed on
Exhibits "▇," "▇," or "D," such lease (or portion thereof may also be included
in a Prospect at the request of Ridgewood, but subject to the approval of
Chevron.
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"Record Title" shall mean all of the rights, obligations, liabilities and
attributes of a working interest ownership covering all depths in and on a
Lease.
"Representatives" mean the directors, officers, supervisors, employees,
partners, lenders, consultants, attorneys and legal counsel, financial advisors,
accountants, marketing representatives and other agents of the Parties.
"Reservoir" means a subsurface porous, permeable rock body that contains or
is thought to contain an accumulation of oil and/or gas, separated by faulting
or other subsurface anomaly from other areas containing accumulations of oil
and/or gas in the same or different strata.
" Ridgewood ACP Interest" shall mean the interest of Ridgewood in each
Lease as listed on Exhibits "A" and "B" under the column titled "RIDGEWOOD
Interest AFTER Casing Point."
"Ridgewood BCP Interest" shall mean the interest of Ridgewood in each Lease
as listed on Exhibits "A" and "B" under the column titled "RIDGEWOOD Interest
BEFORE Casing Point."
"Substitute Well" means a well proposed by a Party to the Objective Depth
of a Prospect as listed on Exhibits "A" or "B," or as otherwise mutually agreed
to by the Parties, as a result of the Initial Test Well, or a previous
Substitute Well, on such Prospect not reaching its Objective Depth.
"Successful Well" means a well determined by the MMS (or meeting the
requirements of the MMS without a written determination) to be a producible well
pursuant to 30 CFR Part 250, Subpart A, or any successor regulation, for Leases
located in Federal offshore waters, as used in Articles 3, 4 and 5 or if
actually completed for production by a Party hereto or Co-Working Owner.
"Third Parties" means a Person not a Party to this Agreement.
"Well Costs" means the costs and expenses of all services and materials
used and associated with drilling, sidetracking, deepening and testing a well
hereunder, including, but not limited to the costs and expenses associated with
the following items: (1) permitting with applicable government agencies; (2)
drill site preparation (excluding hazard surveys, which are provided for in
Section 15.2 of this Agreement); (3) actual drilling, deepening or sidetracking
operations (including mobilization and demobilization of the rig to the drill
site); (4) logging, coring and testing of the well for the presence of oil
6
and/or gas; (5) the costs of plugging and abandonment if the well is not saved
for production; and (6) the cost to temporarily abandon a well.. All such costs
and expenses shall be determined in accordance with the accounting procedure
attached to the applicable Operating Agreement.
"Unit" means the pooling of all or a portion of one or more Leases with all
or a portion of another lease or leases not subject to this Agreement.
1.3 Exhibits.
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The following Exhibits are attached hereto and incorporated herein by
reference:
Exhibit "A" Primary Package Prospects
Exhibit "B" Additional Opportunities Prospects
Exhibit "C" List of Existing Agreement Restrictions,
Exceptions and Obligations
Exhibit "D" Area of Mutual Interest
Exhibit "E" Offshore Operating Agreement
Exhibit "F" Dispute Resolution Procedure
Exhibit "G" Declaration of Agreement
1.4 Rules of Construction.
---------------------
For purposes of this Agreement:
(a) Unless the context otherwise requires: (1) "or" is not exclusive; (2)
an accounting term not otherwise defend has the meaning assigned to it in
accordance with accounting principles generally accepted in the United
States of America; (3) words in the singular include the plural, and words
in the plural include the singular; (4) words in the masculine include the
feminine, words in the feminine include the masculine and words with
appropriate correlative meanings include such correlative meanings; (5) any
date specified for any action that is not a Business Day shall be deemed to
mean the first Business Day after such date; (6) reference to a Person
includes such Person's successors and assigns and, in the case of
governmental bodies, Persons succeeding to their respective functions and
capacities; (7) any amounts due or payable under this Agreement shall be
paid in United States currency; and (8) the use of the words "contribute,
contributing or contribution" shall refer to a payment due from one Party
to the other as specified herein or in the applicable Operating Agreement.
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(b) References to Articles and Sections are, unless otherwise specified, to
Articles and Sections of this Agreement. Neither the captions to Articles
or Sections thereof nor the Table of Contents shall be deemed to be a part
of this Agreement but are added for convenience only.
(c) References herein to any agreement or other instrument shall, unless
the context otherwise requires (or the definition thereof otherwise
specifies), be deemed references to the same as it may from time to time be
changed, modified, supplemented, amended or extended. There is no
incorporation by reference herein unless expressly so stated.
ARTICLE 2
2. CONTRACT ACREAGE
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2.1 Contract Acreage.
----------------
This Agreement shall cover only the Available Acreage as described in
Exhibits "A" and "B." Should any acreage be jointly acquired pursuant to the
provisions of this Agreement as stated in Section 2.4 below, then said newly
acquired acreage shall automatically become part of the Contract Acreage.
2.2 Primary Package Prospects.
-------------------------
Attached hereto as Exhibit "A" is a list of Prospects Chevron has
identified covering various Leases subject to this Agreement. Prior to the
execution of this Agreement, a technical presentation was given to Ridgewood by
Chevron covering each of these Prospects. No acreage associated with the
Prospects listed on Exhibit "A" shall be expanded or contracted without the
mutual consent of the Parties. Notwithstanding the above, no approval by the
Parties will be required for the expansion of a Prospect as a result of acreage
acquired by Chevron pursuant to the provisions stated in Section 2.4; it being
understood that any such acreage acquired by Chevron pursuant to the provisions
stated in Section 2.4 would automatically be included in the affected Prospect.
2.3 Additional Opportunities Prospects.
----------------------------------
Exhibit "B" consists of a list of Leases and associated Prospects where a
technical presentation has been given to Ridgewood by Chevron. In accordance
with the provisions stated in this Agreement, it is anticipated the Parties may,
under the terms hereof, evaluate the hydrocarbon potential on these Exhibit "B"
Prospects to determine whether or not the Parties are interested in drilling an
Initial Test Well on these Prospects. Unless mutually agreed by the Parties
before, during or subsequent to the evaluation described herein regarding the
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Prospects listed on Exhibit "B," each Prospect on Exhibit "B" will not be
expanded or contracted to include or exclude acreage or Leases. Notwithstanding
the above, approval of any expansion to a Prospect will not apply to acreage
acquired by Chevron pursuant to the provisions stated in Section 2.4; it being
understood that any such acreage acquired by Chevron pursuant to the provisions
stated in Section 2.4 would automatically be included in the affected Prospect.
2.4 Area of Mutual Interest.
-----------------------
Absent an agreement to the contrary, and prior to Ridgewood earning an
interest in the Leases in a Prospect as described herein pursuant to Article 3,
should Ridgewood either (i) acquire an interest in an oil and gas lease covering
any of the blocks or acreage in such Prospect identified on Exhibits "A," "B" or
"D," or any portion of such blocks or acreage, or (.ii) acquire the right to
acquire an interest in an oil and gas lease covering any of the blocks or
acreage identified in such Prospect, or (iii) acquire an interest in an oil and
gas lease covering any of the blocks or acreage identified on Exhibit "A", "B"
or "D" for such Prospect should the original Lease expire or terminate before
termination of this Agreement, then Chevron shall have the right but not the
obligation to acquire from Ridgewood sixty-five percent (65%) interest and/or
right(s) acquired by Ridgewood covering any of the blocks or acreage identified
on Exhibit "▇," "▇" or "D," except for Mobile Blocks 945, 946 and 947, wherein,
Chevron shall have the right but not the obligation to acquire from Ridgewood
seventy-five percent (75%) interest and/or right(s) acquired by Ridgewood
covering Mobile Blocks 945, 946 and 947. Chevron shall be notified in writing by
Ridgewood within fifteen (15) days of such acquisition and shall have fen (15)
days after receipt of such notice to advise Ridgewood whether or not Chevron
elects to acquire its proportionate share of the interest and/or rights acquired
by Ridgewood. Any notice given shall include whatever supporting documentation
Ridgewood has available. If Chevron elects to exercise its right under this
Agreement, the consideration owed by Chevron to Ridgewood shall be equal to all
the consideration paid and/or tendered by Ridgewood for such interest and/or
right attributable to Chevron's proportionate share. In the event during the
term of this Agreement, Ridgewood acquires any such interest or acquires the
right to acquire any such interest as a result of an acreage exchange or
multi-property transaction, Chevron. shall be notified in writing by Ridgewood
within fifteen (15) days of such acquisition and Ridgewood and Chevron shall
make a good faith effort to negotiate a fair value wherein Chevron would have
the option to acquire from Ridgewood its proportionate share of the interest
and/or right acquired by Ridgewood in exchange for satisfactory consideration
equal to the total fair value of the acquired interest. Once Chevron and
Ridgewood have agreed on the fair value for the subject interest, Chevron shall
have fifteen (15) days after receipt of written notice from Ridgewood to advise
Ridgewood whether or not Chevron elects to acquire its proportionate share of
the interest and/or right acquired by Ridgewood. Should Chevron acquire any
9
interest, or acquires a right to acquire any interest in any acreage listed on
Exhibits "▇," "▇" or "D" prior to Ridgewood earning an interest in the Leases
included in the Prospect covering such acreage, Chevron will include the
acquired acreage, or right to acquire acreage, in such Prospect for all purposes
of this Agreement.
After earning an interest in the Leases in a Prospect by Ridgewood, the
applicable Operating Agreement will control the obligations between the Parties
in the AMI for such Prospect established under the Operating Agreement, which
will consist of the acreage identified on Exhibits "▇," "▇" and "D" for such
Prospect, plus any acreage added to such Prospect pursuant to this Agreement, if
any.
This AMI obligation shall be binding upon and shall inure to the Parties
hereto, for the longer period of either, (i) the Confidentiality/AMI Agreement
dated July 6, 2005, (ii) this Agreement or (iii) any applicable Operating
Agreement.
ARTICLE 3
3. ASSIGNMENT OF INTEREST
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3.1 Leasehold Assignment.
--------------------
Exhibits "A" and "B" list the current ownership interests of Chevron in the
Leases. Exhibits "A" and "B" also list the portions of Chevron's interest, based
on 100% leasehold working interest, that Chevron will assign to Ridgewood
subject to the earning provisions stated in this Article 3. Prospect acreage
earned and the assignment(s) due will cover Record Title or Operating Rights
Interest as to the Ridgewood ACP Interest in and to the acreage listed on
Exhibits "A" or "B" in all the Leases in the Prospect and shall be delivered
under special warranty of title and on a form of assignment approvable by the
Minerals Management Service ("MMS"). Any assignment made as a result of this
Agreement shall be made specifically subject to this Agreement and the
restrictions, exceptions, limitations and obligations stated in the agreements
listed on Exhibit "C," as applicable, for each Lease to be assigned. These
agreements will be referenced in any assignment made.
(a) Upon (i) Ridgewood's participation in an Initial Test Well on a
Prospect, (ii) which reaches its Casing Point for the Objective Depth,
and (iii) regardless if the well is a Successful Well or not in the
Available Acreage for that Prospect, then Ridgewood will be entitled
to an assignment of the Ridgewood ACP Interest in each of the Leases
included in the Prospect drilled as to the Available Acreage for that
Prospect.
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(b) Upon (i) Ridgewood's participation in an Initial Test Well on a
Prospect, (ii) which fails to reach its Casing Point for the Objective
Depth, (iii) the Parties have expended at least one hundred and twenty
percent (120%) of the AFE dry hole costs estimated to drill the
Initial Test Well as stated in the original AFE for such well, and
(iv) regardless if the well is a Successful Well or not in the
Available Acreage for that Prospect, then Ridgewood will be entitled
to an assignment of the Ridgewood ACP Interest in each of the Leases
included in the Prospect drilled as to the Available Acreage for that
Prospect.
(c) Upon (i) Ridgewood's participation in an Initial Test Well on a
Prospect, (ii) which fails to reach its Casing Point for the Objective
Depth, (iii) the Parties fail to spend at least one hundred and twenty
percent (120%) of the AFE dry hole costs estimated to drill the
Initial Test Well as stated in the original AFE for such well, (iv)
the well is not a Successful Well in the Available Acreage for that
Prospect, and (v) the Parties mutually agree to cease further
operations on such well, then Ridgewood will not have earned any
interest in the Leases making up the Prospect. Upon Ridgewood
participating in a Substitute Well on such Prospect and spending its
obligated portion of the original AFE dry hole costs up to twenty
percent (20%) over the original AFE dry hole costs for the Initial
Test Well for the Prospect as further defined in this Agreement or
upon such Substitute Well reaching Casing Point for the Objective
Depth, Ridgewood will be entitled to an assignment of the Ridgewood
ACP Interest in each of the Leases included in the Prospect drilled as
to the Available Acreage for that Prospect. Ridgewood's cumulative
costs on the Initial Test Well and all Substitute ▇▇▇▇▇ shall be used
in determining when and whether Ridgewood has satisfied its spending
obligation for earning purposes for the Prospect.
(d) Upon (i) Ridgewood's participation in an Initial Test Well on a
Prospect, (ii) which fails to reach its Casing Point for the Objective
Depth, (iii) the Parties fail to spend at least one hundred and twenty
percent (120%) of the AFE dry hole costs estimated to drill the
Initial Test Well as stated in the original AFE for such well, (iv)
the well is a Successful Well in the Available Acreage for that
Prospect, (v) and the Parties mutually agree to cease further drilling
operations, then Ridgewood will be entitled to an assignment of the
11
Ridgewood ACP Interest in the Leases included in the Prospect, but
limited in depths down to the stratigraphic equivalent of the base of
the deepest interval that classifies such well to be a Successful
Well. Upon Ridgewood participating in the drilling of a Substitute
Well proposed and drilled to the original Casing Point for the
Objective Depth as approved for the Initial Test Well on a Prospect,
or upon Ridgewood spending its obligated portion of the original AFE
dry hole cost up to twenty percent (20%) over the original AFE dry
hole cost for the Initial Test Well for the Prospect, whether or not
the Substitute Well is a Successful Well in the Available Acreage for
that Prospect, Ridgewood will be entitled to an assignment of the
Ridgewood ACP Interest in the deep rights not previously assigned, if
any, for each Lease in the Prospect drilled as to the Available
Acreage for that Prospect. Ridgewood's cumulative costs on the Initial
Test Well and all Substitute ▇▇▇▇▇ shall be used in determining when
and whether Ridgewood has satisfied its spending obligation for
earning purposes for the Prospect.
3.2 Ridgewood's Contribution to Well Costs.
--------------------------------------
Subject to the proportionate and disproportionate payment obligations
stated in Sections 4.1 and 4.2 below, Ridgewood will also contribute toward
Chevron's share of the costs of drilling the Initial Test Well, or any
Substitute Well, on each Prospect an amount equal to the total Chevron Land
Costs for such Prospect multiplied by the Ridgewood ACP Interest. Such
contribution shall be paid by Ridgewood to Chevron, within 30 days after
commencement of operations to participate in the drilling of the Initial Test
Well.
3.3 Assignment Timing.
-----------------
As soon as reasonably possible, but no later than thirty (30) days after
any earning event as specified in Article 3.1, Chevron will forward to Ridgewood
the applicable executed assignments of the Leases in the Prospect drilled, in a
recordable form and in a form approvable by the MMS, if applicable. Should
Ridgewood fail to meet its financial obligations as described in this Agreement,
or under the applicable Operating Agreement, Chevron will have the right and
option to withhold execution and delivery of the earned assignments until any
funds owed have been properly paid. Any assignment made to Ridgewood will
contain a special warranty of title by, through and under Chevron, but with no
other warranty or representation.
12
3.4 Proportionate Adjustment.
------------------------
The Parties recognize that certain Prospects listed on Exhibits "B" may
involve acreage not under the ownership or control of Chevron on the Effective
Date of this Agreement. Should Chevron secure an agreement from the Third Party
owner(s) of any offsetting acreage or Prospect Contract Acreage necessary to
control a Prospect before drilling an Initial Test Well, and said agreement
results in the reduction of the interest of Chevron in the Initial Test Well and
Prospect, the obligations and duties of the Parties hereto in regard to the
Prospect included under the agreement with a Third Party shall be
proportionately adjusted to compensate for the reduction in interest by Chevron
in the Prospect, dependent upon whether such reduction in interest results from
(i) a recordable or MMS approvable cross-assignment of Record Title or Operating
Rights Interests with the Third Party or (ii) an assignment of contractual
interests in a Prospect with a Third Party.
In the event of a cross-assignment with a Third Party of Record Title or
Operating Rights Interest in a Prospect, the interest Chevron would assign to
Ridgewood in the Leases in the Prospect would be proportionately reduced by the
Ridgewood ACP Interest of the specific Prospect area, to reflect the Record
Title or Operating Rights Interest of Chevron remaining after such
cross-assignment. Ridgewood would also be entitled to an assignment of a similar
Record Title or Operating Rights Interest in lands acquired by Chevron from the
Third Party as the result of any such cross-assignment.
In the event of a reduction of Chevron's interest in a Prospect by means of
a contractual arrangement that does not result in the cross-assignment of Record
Title or Operating Rights Interest in a Prospect with a Third Party, the
interest Chevron would assign to Ridgewood in the Leases in the Prospect would
be subject to such contractual rights, and Ridgewood would be entitled to its
proportionate share, of the specific Prospect area, of the contractual rights
acquired. The interest to be assigned by Chevron to Ridgewood in the Leases in
the Prospect would be proportionately reduced by the Ridgewood ACP Interest of
the specific Prospect area to reflect the contractual arrangement. Examples of
such contractual arrangements would be a pooling arrangement or a farmin between
Chevron and a Third Party that was not approved by the MMS.
In no event shall Ridgewood be liable for or entitled to receive any
benefit from or associated with any promoted costs the Third Party may be
required to pay to Chevron. Ridgewood's obligations, rights and duties under
this Agreement would be adjusted as appropriate to recognize the interests to be
assigned to, or the contractual arrangement agreed to with, the Third Party.
Notwithstanding anything to the contrary stated in this Section 3.4, in no event
13
will the provisions of this Section further reduce or diminish the obligations
and duties under this Agreement of the Parties to each other with the exception
of any interest earned which Chevron is obligated to assign to Ridgewood as to
Exhibit "B" Prospects would be adjusted to compensate for the interest assigned
to or contractual arrangement made with a Third Party. Costs associated with any
obligation as to such prospects would also be adjusted accordingly.
3.5 Additional Earning Option.
--------------------------
During the term of this Agreement should Ridgewood fail to earn an
assignment on all or a portion of the Available Acreage in a Prospect after
participating in the Initial Test Well, Ridgewood's continuing right and option
to participate in the drilling of a Substitute Well on the Prospect to earn
rights hereunder will continue to exist until (a) the termination of this
Agreement, (b) the expiration or termination of the Leases where all depths have
not been assigned, or (c) Ridgewood elects not to participate in a Substitute
Well proposed by Chevron or a Co-Working Interest Owner and such well is
thereafter drilled as proposed. Upon the occurrence of any of these events, on a
Prospect-by-Prospect basis, Ridgewood's option to earn the unearned acreage
shall cease without any further action by Chevron.
ARTICLE 4
4. PROSPECT EVALUATION
-------------------
4.1 Primary Package Prospect Well Cost Sharing.
------------------------------------------
Chevron will have the obligation to propose to Ridgewood the drilling of an
Initial Test Well on the Primary Package Prospects listed on Exhibit "A." It is
anticipated drilling operations will commence by November 30, 2005 for the
Bristol Prospect and in the IS` quarter 2006 for the Satellite Prospect; however
Chevron is only obligated to propose such ▇▇▇▇▇ during the term of the Leases
and is not committed to any order or exact date. When proposing a well, Chevron
will provide Ridgewood, an AFE detailing the specifications of the well to be
drilled for informational purposes only. The Parties will have the obligation to
participate, pursuant to the provisions of the applicable Operating Agreement
and this Agreement, in the drilling of an Initial Test Well on each of the
Primary Package Prospects listed on Exhibit "A." For each Exhibit "A" Prospect
drilled, Ridgewood will have the obligation of paying a contribution towards
Chevron's share of Well Costs (pursuant to Section 3.2) plus a share of the
Initial Test Well based on the Ridgewood BCP Interest for that Prospect as
listed on Exhibit "A" until Casing Point or until 120% of the estimated funds to
drill the Initial Test Well as stated in the original AFE have been spent to
drill the Initial Test Well, as required for the Ridgewood ACP Interest
assignment pursuant to Section 3.1. Upon earning an interest assignment for the
Prospect, Ridgewood will have the obligation of paying a share of any additional
14
cost associated with the Initial Test Well based on the Ridgewood ACP Interest
for the Lease upon which the Initial Test Well is located, subject to the
applicable provisions stated in the controlling Operating Agreement.
The Parties shall have the option to participate in the drilling of a
Substitute Well(s). Should Ridgewood elect to participate in the drilling of a
Substitute Well, upon Ridgewood earning an interest assignment as described in
Article 3.1 herein, Ridgewood's disproportionate spending obligation will have
been satisfied for that particular Prospect and the cost of any operation
conducted thereafter shall be shared by the participating Parties in the
Substitute Well in accordance with the respective Ridgewood ACP Interest in the
Substitute Well. Upon Ridgewood earning an interest assignment as described in
Article 3.1 in each Prospect, the provisions of the applicable Operating
Agreement shall control the rights, obligations and options of the Parties
thereafter for that particular Prospect.
Should Ridgewood elect not to participate in the drilling of a Substitute
Well before earning rights in a Prospect as provided herein, Ridgewood's rights
to earn an interest in that Prospect or the remaining Prospect area shall
terminate if such well is drilled as proposed. In addition, should Ridgewood
fail to participate in a Substitute Well before earning all the interest in a
Prospect as described herein, the non-consent provisions of the applicable
Operating Agreement shall not apply to the non-jointly owned interest in such
Substitute Well and Ridgewood will have no right to use of such Substitute Well
as to the unearned, non jointly owned interest unless mutually agreed upon by
the Parties. Should Chevron elect to participate in a Substitute Well, Chevron
will pay a share of the Well Cost of the Substitute Well based on the residual
portion of the Well Cost not being paid by Ridgewood or any Co-Working Interest
Owner. Should Chevron elect not to participate in the drilling of a Substitute
Well for the Initial Test Well, it will farmout as applicable, a portion of its
interest to Ridgewood, as specified in Article 5, as to all depths not
previously earned by Ridgewood pursuant to the drilling of the Initial Test
Well. Failure by Chevron to timely make an election pursuant to the response
periods provided in the applicable Operating Agreement shall be deemed an
election by Chevron not to participate in such operation and farmout under
Article 5. As to any depths previously earned by Ridgewood, a Party's election
not to participate in such Substitute Well shall be in accordance with the
provisions of the applicable Operating Agreement. The provisions of Article 5
shall apply to any farmout.
Notwithstanding anything herein to the contrary, on any Substitute Well
being proposed on a Prospect where the Initial Test Well discovered a Reservoir,
a Party will have the right and option to limit its participation in the
drilling of any Substitute Well to those depths in the Available Acreage for
that Prospect previously drilled in the original Initial Test Well.
15
4.2 Additional Opportunities Prospect Well Cost Sharing.
---------------------------------------------------
The Parties will attempt to agree on a timetable for the drilling of one or
more Initial Test ▇▇▇▇▇ on the Additional Opportunities Prospects once the
Parties agree an Additional Opportunities Prospect is ready to be drilled.
Notwithstanding an attempt to agree on a timetable to drill the Initial Test
▇▇▇▇▇, it is the intention of the Parties not to defer drilling Additional
Opportunities Prospects that are ready to be drilled and to test all Additional
Opportunities Prospects during the term of this Agreement. Therefore the Parties
agree that after. April 1, 2006, either Party shall have the option to propose
to the other Party the drilling of an Initial Test Well on for any Prospects
listed on Exhibit "B." Between the Effective Date and April 1, 2006, the Parties
agree not to submit a proposal to the other regarding the drilling of an Initial
Test Well on any Prospect listed on Exhibit "B." After April 1, 2006, should a
Party wish to propose the drilling of an Initial Test Well on an Exhibit "B"
Prospect, the proposing Party shall provide the other Party with an AFE
detailing the specifications of the well to be drilled. The Parties will have
the option, but not the obligation, to elect to participate in the drilling of
an Initial Test Well on any Prospect listed on Exhibit "B." Should the Parties
elect to drill an Initial Test Well on any Prospect listed on Exhibit "B,"
Ridgewood will have the obligation of paying its share of the cost as set out in
Exhibit "B" or it's proportionately reduced share as applicable.
The Parties shall have the option to participate in the drilling of a
Substitute Well(s). Should Ridgewood elect to participate in a Substitute Well,
upon earning an interest assignment as described in Article 3.1 herein, the
provisions of the applicable Operating Agreement shall control the rights,
obligations and options of the Parties thereafter for that particular Prospect.
Should Ridgewood elect not to participate in the drilling of a Substitute Well
before earning all leasehold rights in a Prospect as provided herein,
Ridgewood's rights to an interest in that Prospect or the remaining Prospect
area shall terminate if such well is drilled as proposed. In addition, should
Ridgewood fail to participate in a Substitute Well before earning all the
interest in a Prospect as described herein, the non-consent provisions of the
applicable Operating Agreement shall not apply to the non jointly owned interest
in such Substitute Well and Ridgewood will have no right to use of the
Substitute Well as to the unearned, non jointly owned interest unless mutually
agreed upon by the Parties. Should Chevron elect to participate in a Substitute
Well, Chevron will pay a share of the Well Cost of the Substitute Well based on
the residual portion of the Well Cost not being paid by Ridgewood or a
Co-Working Interest Owner. Should Chevron elect not to participate in the
drilling of a Substitute Well for the Initial Test Well, it will farmout as
16
applicable, a portion of its interest to Ridgewood, as specified in Article 5,
as to all depths not previously earned by Ridgewood pursuant to the drilling of
the Initial Test Well, or elect not to participate under the provisions of the
applicable Operating Agreement. Failure by Chevron to timely make an election
pursuant to the response periods provided in the applicable Operating Agreement
shall be deemed an election by Chevron not to participate in such operation and
the non-consent provisions of such Operating Agreement shall apply. As to any
depths previously earned by Ridgewood, a Party's election not to participate in
such Substitute Well shall be in accordance with the provisions of the
applicable Operating Agreement. The provisions of Article 5 shall apply to any
farmout.
Notwithstanding anything herein to the contrary, on any Substitute Well
being proposed on a Prospect where the Initial Test Well discovered a Reservoir,
a Party will have the right and option to limit its participation in the
drilling of any Substitute Well to those depths previously drilled in the
original Initial Test Well.
Should Ridgewood elect not to participate in the drilling of an Initial
Test Well drilled on a Prospect listed on Exhibit "B" the Leases associated with
that Prospect will be excluded from this Agreement and Ridgewood will no longer
have any rights or options associated with earning an interest in those Leases.
Should Chevron elect not to participate in the drilling of an Initial Test
Well on the Prospect listed on Exhibit "B" that is proposed to be drilled to the
Casing Point for the Objective Depth, Chevron will farmout, as applicable, a
portion of its interest to Ridgewood, as specified in Article 5, its available
acreage in the specific Prospect area. Should Chevron elect not to participate
in the drilling of an Initial Test Well on an Exhibit "B" Prospect, the earning
provisions for Ridgewood as described in Article 3 and this Section 4.2,
including but not limited to the Land Cost reimbursement, shall not apply and
the earning provisions under the farmout shall control.
4.3 Well Over-expenditure Limitation.
--------------------------------
Each Operating Agreement executed pursuant to this Agreement shall include
an over-expenditure provision that requires a new AFE for the current well
operation or substitute well operation if it appears that anticipated
expenditures will exceed the original well AFE estimate by twenty percent (20%),
allowing the Parties to elect not to participate in further operations on the
well.
17
4.4 Third Party Participation in Prospects.
--------------------------------------
The Prospects identified in Exhibit "B" could possibly involve arrangements
where Third Parties will be asked to assign acreage and/or participate in the
drilling of the Initial Test Well and/or Substitute Well for those Prospects as
referenced in Section 3.4. Should a Third Party join in the drilling of a
Prospect, and the Parties agree on a different cost sharing percentage than what
would be followed should a Third Party not be involved in drilling the Initial
Test Well and/or Substitute Well, the Parties agree to adjust the cost sharing
as described in Sections 4.1 and 4.2 to compensate for the Third Parties
participation. Ridgewood will continue to have the obligation to pay, as
appropriate, a proportionate share of the Well Cost, in the same manner as
provided under Sections 3.2 and 4.1 or 4.2 above, for the Initial Test Well
and/or Substitute Well on the Prospect based on the Chevron leasehold assigned
to the Prospect. Land Cost contribution will also be adjusted to reflect this
change in cost sharing percentage and Ridgewood will continue to have the
obligation to contribute its adjusted proportionate share of the Land Costs
incurred by Chevron in acquiring and maintaining the Leases in the Prospect to
be drilled as described above.
4.5 Rights Limitation on Use of Existing ▇▇▇▇▇.
------------------------------------------
Notwithstanding anything to the contrary in this Agreement, without the
express approval of Chevron, Ridgewood shall not have the right and/or option to
propose or use any existing well bore which has been drilled into the Contract
Acreage prior to the Effective Date unless otherwise mutually agreed to by the
Parties and the owners of the well bore.
4.6 ▇▇▇▇▇ Proposed by Chevron after the Effective Date.
--------------------------------------------------
During the term of this Agreement, Chevron may identify one or more new
prospects on the Contract Acreage prior to Ridgewood earning an interest in
certain Leases in the Prospects identified for such Leases. Should Chevron
identify a new prospect on unearned acreage, it will submit a proposal in
writing to Ridgewood to drill an Exploratory Well to an Exploratory Objective,
or to deepen or sidetrack an existing Chevron well or ▇▇▇▇▇ to evaluate such
prospect. Chevron's notice shall include an identification of the prospect and
the information regarding the Exploratory Well and the Exploratory Objective to
be drilled. It is agreed between the Parties hereto that in the event Chevron
identifies a new prospect and proposes an Exploratory Well after the Effective
Date of this Agreement, the rights and options of Chevron and Ridgewood as to
that prospect and well proposed shall apply as if the prospect had been listed
on Exhibit "B" at the time of execution of this Agreement. All Exhibit "B"
Prospects initiated under this Section 4.6 shall be drilled under the terms and
conditions stated in Section 4.2 above, with the exception that Chevron shall
propose the prospect to Ridgewood and Ridgewood shall have the right, for thirty
(30) days from the receipt of the well proposal, to accept the prospect for
18
inclusion under the terms of this Agreement. Should Ridgewood choose not to
include the new prospect under the terms of this Agreement, Chevron will have
the right and option to drill or cause to be drilled the prospect and exclude
the acreage associated with this prospect from this Agreement limited to the
deepest depths drilled in such well if such well is a Successful Well. The
remaining acreage and depths in the applicable Prospect area would continue to
be subject to this Agreement.
4.7 Protection from Drainage.
------------------------
The Parties hereto recognize that producible Reservoirs common to both a
Lease and adjacent or adjoining lands not listed on Exhibits "A" and "B" may
exist. In the event the Parties hereto elect to develop or produce hydrocarbons
from such common Reservoirs from adjacent lands not listed on Exhibits "A" and
`B," Chevron and Ridgewood, in good faith, shall attempt to pool or unitize with
a Third Party that portion of the Lease so as to reasonably protect the Lease
from drainage. In addition, in the event a Third Party drills a well draining or
capable of draining the Contract Acreage, the Parties hereto will take
appropriate actions, to the extent they have the right to do so, to protect the
Contract Acreage from drainage, including but not limited to pooling,
unitization or the drilling a well as needed.
ARTICLE 5
5. FARMOUT OPTION
--------------
5.1 Exhibit "A" or "B" Prospect Substitute ▇▇▇▇▇.
--------------------------------------------
Should Chevron be required to farmout a portion of Chevron's interest to
Ridgewood, in a specific Prospect area, pursuant to elections made under Section
4.1 or 4.2, the Parties will execute a separate Farmout Agreement containing the
provisions set forth herein and such additional provisions as may be mutually
agreed upon.
In as much as Chevron has or may enter into similar Agreements with other
parties or Co-Working Interest Owners which may cover Available Acreage on one
or more of the Prospects listed on Exhibit "A" and/or Exhibit "B," any Chevron
interest farmed out pursuant to this Agreement or participation agreements shall
be proportioned among the parties desiring to participate in that specific
Prospect well. Chevron's interest shall be farmed out to each party based on the
ratio of each Party's after casing point interest, as stipulated in its
respective agreement, to the total of after casing point interests for all
parties desiring to participate as stipulated in each party's applicable
agreement, unless otherwise mutually agreed by the parties.
19
5.2 Exhibit "B" Farmout Option.
--------------------------
In the event Chevron elects not to participate in the drilling of an
Initial Test Well on an Exhibit "B" Prospect, Chevron will farmout its interest
in the Prospect to Ridgewood pursuant to a separate Farmout Agreement containing
the provisions set forth herein and such additional provisions as may be
mutually agreed upon. Under the Farmout Agreement as contemplated under this
Section 5.2, the geographic acreage associated with the acreage to be
farmed-out, including any geological restrictions/depth limitations, will be
identified and specifically stated as constituting the farmout acreage. The
acreage to be covered by the Farmout Agreement will consist of the Available
Acreage as to the respective Prospect on Exhibit "B."
5.3 Chevron's Participation Options and Overriding Royalties.
--------------------------------------------------------
All the terms and conditions for each farmout executed pursuant to the
provisions of this Agreement shall be found in the applicable Farmout Agreement.
Under any Farmout Agreement contemplated pursuant to this Agreement, Chevron
shall retain the continuing rights, options and elections as follows: For
Substitute ▇▇▇▇▇ drilled on any Exhibit "A" or "B" Prospects, as to the depths
previously unearned by Ridgewood, and for the Initial Test Well on an Additional
Opportunities Prospect, as shown on Exhibit "B," Chevron will retain a
proportionately reduced one-twelfth (1/120) overriding royalty and shall have
the option at "payout," as defined in the Farmout Agreement, of the Prospect's
Initial Test Well to either (1) convert said ORRI and back-in for a
proportionately reduced undivided thirty percent (30%) working interest and
begin participating in the continued operations on the Prospect and all
subsequent operations pursuant to the terms and conditions of the applicable
Operating Agreement, or (2) escalate the retained proportionately reduced
one-twelfth (1/12`x) overriding royalty interest to a proportionately reduced
one-tenth (1/10t) overriding royalty interest and Ridgewood shall have no
obligation to reimburse Chevron for Land Costs associated with such Prospect. In
the event Chevron elects to back-in for a working interest, in no event will
Chevron be required to reimburse Ridgewood for any costs or expenses incurred or
accrued in regard to any operations conducted on or associated with the Initial
Test Well prior Chevron's working interest back-in election. Chevron's "payout"
election as to the working interest option or overriding royalty interest option
shall be proportionately reduced based on the Chevron interest as shown on
Exhibits "A" or "B" under the column entitled "Chevron Interest."
5.4 General Farmout Agreement Terms and Conditions.
----------------------------------------------
Except as otherwise provided in this Agreement, the following terms and
conditions shall be applicable to all the Farmout Agreements executed by the
Parties hereto pursuant to the provisions of this Agreement.
20
5.4.1 Within one hundred and twenty (120) days from the execution of a
Farmout Agreement, or other mutually agreed period of time, Ridgewood
will have the option to, at its sole cost, risk and expense, and
subject to rig availability and the obtaining of required permits,
commence the drilling of the initial test well under the Farmout
Agreement. The surface location, bottomhole location and primary
objective for the initial test well shall be mutually agreed upon
between Chevron and Ridgewood, provided, however, in the event the
Parties do not agree, Ridgewood's proposal(s) shall govern. The well
commencement deadlines will be reflected in the appropriate Farmout
Agreements and shall be subject to rig availability and the obtaining
of required permits.
5.4.2 If prior to reaching the objective depth on any well drilled
pursuant to the provisions stated in a Farmout Agreement, conditions
are encountered in such well which render further drilling operations
impractical, Ridgewood will have sixty (60) days in which to advise
Chevron of its election to drill a substitute well. In the event
Ridgewood elects to drill a substitute well, the well must be
commenced within forty-five (45) days after the date the rig is
released from the previous well, subject to rig availability and the
obtaining of any required permits. Any substitute well drilled will be
drilled under the same terms and conditions as the well it is
replacing.
If, after reaching the objective depth on any well drilled
pursuant to the provisions stated in a Farmout Agreement, the well
fails to satisfy the standards stated in Subsection 5.4.3 below, and
is abandoned by Ridgewood; Ridgewood will not have earned any interest
in the acreage farmed-out. Ridgewood's right to cam an interest in the
acreage farmed-out shall terminate forty-five (45) days after the date
of the release of the drilling rig from such well, without further
notice or demand from Chevron, unless within said forty-five (45) day
period, Ridgewood advises Chevron in writing that Ridgewood elected to
commence, within ninety (90) days after said release of the drilling
rig from such well, actual drilling operations for a substitute well
at a location selected by Ridgewood in the acreage farmed-out. If
Ridgewood makes such election, Ridgewood's right to earn an interest
in the acreage farmed-out by a substitute well shall terminate ninety
(90) days after said release of the drilling rig from such substitute
well without further notice or demand from the Chevron, unless within
such ninety (90) day period, Ridgewood commences operations for
drilling said substitute well.
21
Until Ridgewood earns Ridgewood's ACP Interest of Chevron's
proportionate share of the Prospect in the Record Title or Operating
Rights Interest in the acreage farmed-out, Ridgewood shall have the
continuing right to drill successive substitute ▇▇▇▇▇ in the acreage
farmed-out so long as Ridgewood complies with the applicable time
periods and provisions as stated above relative to the drilling of the
first such substitute well. All provisions of the Farmout Agreement
relating to the said initial test well shall also, unless clearly
inappropriate, be applicable to each such substitute well.
The only consequence for Ridgewood's failure to drill any well
under the Farmout Agreement shall be the forfeiture of its right to
drill such well. Ridgewood shall not be liable to Chevron or any other
Third Party for any other costs, expenses or damages related to such
failure to drill such well.
5.4.3 In the event (1) the initial test well or its substitute on any
individual Prospect is drilled to the objective depth and is a
Successful Well and (2) Ridgewood, within sixty (60) days from rig
release, commits in writing to Chevron its plans to install the
necessary facilities as soon as practicable to develop the
hydrocarbons discovered, Ridgewood will have earned an assignment from
Chevron of Chevron's Record Title or Operating Rights Interest, as
specified in the Farmout Agreement, in that portion of the Contract
Acreage associated with the Prospect drilled, subject to the
reservations stated in Section 5.3 above.
In the event any such initial test well or its substitute does
not reach the objective depth due to encountering any formation which
cannot be penetrated, or any adverse condition which cannot be
overcome by means considered reasonable and appropriate in the
industry and at reasonable cost, but such well otherwise satisfies the
criteria described above in (1) and (2) of this Section 5.4.3,
Ridgewood will have earned an assignment of Record Title or Operating
Rights Interest, as specified herein in that portion of the Contract
Acreage associated with the Prospect limited in depths down to the
stratigraphic equivalent of the base of the deepest interval that
classifies such well to be a Successful Well. Ridgewood shall have the
continuing right to ear deeper depths in such Prospect as to those
depths not previously earned by Ridgewood by drilling additional ▇▇▇▇▇
under the terms of the Farmout Agreement.
22
5.4.4 Unless otherwise specifically stated in this Agreement, any
Record Title or Operating Rights Interest assignment made by Chevron
in favor of Ridgewood where Chevron has made an election to retain
only an overriding royalty interest, pursuant to the provisions stated
in the applicable Farmout Agreement(s), will be made subject to
Chevron retaining the overriding royalty specified in Section 5.3 in
and to all production from the farmed-out acreage.
5.4.5 Ridgewood shall not earn or have the right to ear any interest
in nor be responsible or liable for any existing ▇▇▇▇▇, platforms,
flowlines or environmental conditions which are located on any portion
of the Contract Acreage prior to the effective date of the applicable
Farmout Agreement. In addition, notwithstanding anything herein to the
contrary, under no circumstances will Ridgewood be allowed to earn any
productive sand segment in pressure communication with Chevron's ▇▇▇▇▇
located in or around any acreage covered by any Farmout Agreement
executed pursuant hereto except as otherwise mutually agreed. The
pressure communication and common reservoir restrictions are found
under Article 6 below.
5.4.6 No well drilled by Ridgewood pursuant to any Farmout Agreement
shall be abandoned by Ridgewood without Ridgewood first giving Chevron
written notice thereof, together with a copy of the final electric log
and copies of all other wireline logs, sidewall core analyses and
other information required to be provided to Chevron under any Farmout
Agreement. Within thirty (30) days (inclusive of weekends and
holidays) after Chevron's receipt of such notice and logs [twenty-four
(24) hours if the rig having drilled said well is on location and a
decision has been made by Ridgewood to immediately plug and abandon
the well], Chevron may notify Ridgewood that it elects to take over
the well for such further operations it may wish to conduct. Chevron
shall, at its sole risk and expense, thereupon take immediate
possession of the well and of the materials and equipment owned or
controlled by Ridgewood located at the well site in connection with
Chevron's further operations testing, deepening, or evaluating the
well.
If, within the time provided, Chevron elects to take the well
over, Ridgewood shall, except as hereinafter provided, have the same
rights and responsibilities as if it had abandoned the well with
Chevron's approval. After taking over the well, Chevron shall own all
operating rights and working interest in the well and shall be
23
responsible for and shall bear the entire expense of further
operations in connection with the well, including the cost of
completion and/or abandonment. In addition, Chevron shall own
exclusively, free and clear of any Farmout Agreement and of any
assignment or operating agreement entered into pursuant to the Farmout
Agreement.
5.5 Impenetrable Substances.
-----------------------
If Ridgewood drills to a depth shallower than the agreed upon objective
depth and encounters "impenetrables," including any formation which cannot be
penetrated, or any adverse condition which cannot be overcome, by means
considered reasonable and appropriate in the industry and at reasonable cost,
Ridgewood shall have the right to drill a substitute well in accordance with
Subsection 5.4.2 above.
5.6 Overriding Royalties.
--------------------
Chevron's reserved overriding royalty as described in Section 5.3 above
shall be free and clear of all cost, of exploring, operating, and developing on,
and producing from, the acreage farmed-out, and maintaining said lease in force
and effect, as well as all cost for plugging, abandoning, clean-up and
restoration, but shall bear its proportionate share of all severance, production
and other taxes which are now or which may hereafter become applicable thereto.
Said overriding royalty shall be computed and paid at the same time and in the
same manner as royalties are computed and paid to the lessor under the leases
farmed-out.
If Chevron elects to participate for a working interest at "payout" in a
farmed-out well, Chevron will proportionately share in any royalty relief
granted based on its working interest starting at that time of Chevron's
election, but in no event should Chevron be entitled to any royalty relief
granted prior to payout. However, should a farmed-out well be unsuccessful and
the MMS grants royalty relief on the Lease drilled, the owners of the shallow
production on such Lease in which royalty relief is granted shall be entitled to
the royalty relief so granted if any.
5.7 Joint Operations for Earned Depths.
----------------------------------
If Ridgewood has not earned an interest in all of the Available Acreage in
a Prospect listed on Exhibits "A" or "B," but has earned an interest in
shallower portions of the Leases comprising such Prospect by participating in an
Initial Test Well, then any well drilled by Ridgewood under the terms of this
Article 5 shall be subject to the terms of the applicable Operating Agreement
governing such shallower portions of the Lease unless otherwise mutually agreed
to by the Parties.
24
ARTICLE 6
6. PRESSURE COMMUNICATION AND COMMON RESERVOIRS
--------------------------------------------
6.1 Pressure Communication Restriction.
----------------------------------
Notwithstanding anything herein to the contrary, any productive sand
interval encountered in any well drilled or caused to be drilled by the Parties
under this Agreement that is in a Reservoir or pressure communication with a
productive sand interval that is producing or is capable of producing from an
existing well in paying quantities from such sand interval drilled on a Lease by
Chevron or a Co-Working Interest Owners shall be excluded from this Agreement
and specifically reserved by Chevron. If at any time a Party proposes to drill a
well which could encounter a sand interval(s) which could potentially be in a
Reservoir or pressure communication with a productive sand interval(s) that is
producing or capable of producing in an existing well as described above, prior
to drilling such well Chevron and Ridgewood will establish the criteria for
determining whether the well once drilled would be in a Reservoir or pressure
communication. In the event the Parties drill a well and encounter a sand
interval(s) not originally anticipated to contain hydrocarbons in paying
quantities but, upon review by either Party is believed to potentially be in a
Reservoir or pressure communication with a productive sand interval(s) that is
producing or capable of producing in an existing well as described above, then
upon determination that such sand interval(s) could potentially be in a
Reservoir or pressure communication, the Parties hereto shall meet as soon as
reasonably possible to establish the criteria for determining whether or not the
well in question is actually, in a Reservoir or pressure communication.
In the event there is a disagreement between Chevron and Ridgewood as to
whether or not a Chevron well and/or interval(s) is potentially in a Reservoir
or pressure communication with the new well and/or interval(s), then within one
hundred eighty (180) days after rig release from such well, Chevron and
Ridgewood shall furnish all available geological, geophysical and engineering
data, including bottom hole pressure data and Reservoir characteristics, to a
mutually acceptable engineering firm to determine, with reasonable confidence,
whether a Reservoir or pressure communication does or does not exist between the
▇▇▇▇▇. The decision of the engineering firm shall be final and binding on the
Parties hereto. The cost of the work performed by the engineering firm shall be
shared between Chevron and Ridgewood, at the ACP Interests.
In the event the only sand interval(s) capable of producing hydrocarbons in
commercial quantities discovered in a well drilled by the Parties is in a
Reservoir or pressure communication with one or more sand interval(s) producing
or capable of producing from Chevron's well(s) on a Chevron Lease, and the well
25
has no further utility for options on the Prospect as agreed to by the Parties,
then Chevron will have the option to take over the well. If Chevron exercises
this option by giving Ridgewood written notice, Ridgewood shall be entitled to a
Well Cost adjustment for that portion of the wellbore associated with the
drilling, completing and equipping the well from the surface down to the base of
the Reservoir in pressure communication with the other well. All costs and
expenses paid by Ridgewood for the drilling of the well down to the base of said
Reservoir, along with all costs and expenses paid by Ridgewood, if any, in
completing and equipping the well for the Reservoir in pressure communication,
shall be reimbursed to Ridgewood by Chevron in an equitable manner, as agreed by
the Parties, based on the value and allocation recommended in the applicable
▇▇▇▇▇ guidelines, as amended from time to time.
ARTICLE 7
7. OPERATING AGREEMENT
-------------------
7.1 Offshore Operating Agreements.
-----------------------------
Chevron and Ridgewood shall execute an Operating Agreement, on the form set
out as Exhibit "E," no later than thirty (30) Business Days before the Initial
Test Well is drilled on a Prospect. A separate Operating Agreement shall be
executed between the Parties for each Prospect. All Contract Acreage within the
Leases and included in a Prospect shall be covered and governed by the Operating
Agreement for that Prospect.
Should any Prospect be expanded to include acreage not under the ownership
or control of Chevron or Ridgewood, and the Third Party owner of such acreage
elects to participate with the Parties in drilling an Initial Test Well on the
Prospect, the Parties shall propose utilizing the Operating Agreement attached
as Exhibit "E" to the Third Party for the controlling agreement covering
operations on the Prospect. Should the Third Party refuse to accept the use of
Exhibit "E," the Parties shall negotiate with the Third Party to enter a
mutually acceptable form of operating agreement to cover the Prospect.
Notwithstanding anything to the contrary herein, the terms of the
applicable Operating Agreement apply to all operations with regards to a
Prospect, and all payments made with respect to such Prospect under this
Agreement or the applicable Operating Agreement, unless specifically in conflict
with the terms of this Agreement, in which event the terms of this Agreement
shall control as provided under Section 28.15 below.
26
7.2 Designation of Operator.
-----------------------
As between the Parties, Chevron shall be designated as operator for the
Initial Test Well for each Prospect listed on Exhibits "A" and "B."
The Parties will, if required, execute the appropriate Designation of
Operator forms, under the terms hereof, naming Chevron as Operator. Chevron
shall also assume the responsibility of the Designated Applicant for oil spill
financial responsibility purposes; however no Party is released from any its
liabilities for expenses, losses or damages by such assumption by Chevron. The
Parties will execute as soon as requested all necessary forms to reflect the
selection of operator and Designated Applicant for oil spill financial
responsibility purposes.
ARTICLE 8
8. ADDITIONAL PARTNERS/CO-VENTURERS
--------------------------------
8.1 Partners/Co-Venturers.
---------------------
Nothing in this Agreement shall be construed to limit Chevron's right to
seek another partner/coventurer to participate in the drilling and development
of the Contract Acreage, but any such participation by a Third Party shall not
diminish Chevron's obligations under this Agreement, including, but not limited
to those obligations enumerated in Article 4. In addition, nothing herein shall
limit Chevron's right to sell, assign, transfer, exchange, burden or deliver any
Lease included under this Agreement as long as such conveyance is made
specifically subject and subordinate to this Agreement and the applicable
Operating Agreement.
ARTICLE 9
9. ACREAGE RELEASE
---------------
9.1 Option to Release Acreage.
-------------------------
At any time during the term of this Agreement, Ridgewood shall have the
right and option to relinquish its right to earn any Lease listed on Exhibit "B"
by notifying Chevron in writing. On any Lease within its primary term, such
notice shall be made at least sixty (60) days prior to the next rental date. If
the Lease is held by production, or beyond its primary term, such notice shall
be made at any time.
27
9.2 Rights Termination.
------------------
Upon receipt by Chevron of the Ridgewood release notification, the rights
and options granted Ridgewood under this Agreement as to the released Leases and
Contract Acreage shall terminate. Notwithstanding anything herein to the
contrary, in no event shall the notification of a release as described in this
Article 9 relieve Ridgewood of any financial obligation that has been incurred
or accrued pursuant to this Agreement or any Operating Agreement.
9.3 Automatic Release.
-----------------
If, under the operation of any provisions of this Agreement an interest in
the Contract Acreage or acreage made subject to this Agreement pursuant to
Section 2.4 is excluded or relinquished or is or becomes no longer subject to
this Agreement, including but not limited to a Lease terminating under the
provisions stated in said Lease, the excluded or relinquished Lease, or any
portion thereof will automatically be deemed to be released by Ridgewood and no
longer subject to this Agreement.
After the release or relinquishment by Ridgewood or automatic release under
Section 9.3 of any Lease subject to this Agreement as provided under this
Article 9, Chevron shall be free to drill, sell, farmout, joint venture or
dispose of, in any manner it so chooses, the released acreage. Ridgewood hereby
agrees and releases Chevron from any liability whatsoever with regard to the
released acreage relating to the activities of Ridgewood and any information
and/or data Ridgewood may have given to Chevron in regard thereto. In the event
Chevron discloses Ridgewood solely-owned confidential data obtained under and
through this Agreement to any Third Party within two (2) years of the release of
acreage, Chevron will require the Third Party to execute an appropriate
confidentiality agreement.
ARTICLE 10
10. NOTICES
-------
10.1 Notices.
-------
All notices authorized or required between the Parties by any of the
provisions of this Agreement, unless otherwise specifically provided, shall be
in writing and delivered in person or by United States mail, overnight express
delivery, courier service or facsimile (with receipt confirmed), postage or
charges prepaid, and addressed to such Parties at the addresses set forth below:
28
Chevron U.S.A. Inc. ** Ridgewood Energy Corporation
▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇ ▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Attention: Gulf of Mexico - Land Manager Attention: W. ▇▇▇▇ ▇▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇ Fax: (281) 293 - 7391
**This address is temporary and will be amended as necessary by Letter
Agreement.
Any originating notice and/or response thereto given under any provision
hereof shall be deemed given only when received by the Person to whom such
notice is directed, except that; (1) any notice or response by certified U.S.
mail, return receipt requested, properly addressed pursuant to this Article 10,
and with all postage and charges prepaid, shall be deemed received on the date
that the Person to whom it was directed has received it, (2) any notice or
response given by facsimile to the above facsimile phone number shall be deemed
received as of the time of confirmed receipt or (3) by overnight express
delivery or courier shall be deemed received upon acknowledgement of receipt by
the Person to whom it was directed, or within 72 hours of delivery of such
notice whichever is sooner.
10.2 Change in Designated Representative.
-----------------------------------
Each Party shall have the right to change its address, facsimile number and
it's designated Representative at any time, and from time to time, by giving
prior written notice thereof to the other Party.
ARTICLE 11
11. EXISTING AGREEMENTS
-------------------
11.1 Existing Agreements.
-------------------
Ridgewood recognizes and acknowledges that certain Leases are subject to
certain agreements and other contracts that may affect the rights, obligations
and/or options granted to Ridgewood under this Agreement. These existing
agreements are listed on Exhibit "C." It is understood between the Parties
hereto that the rights and option of Ridgewood shall be specifically subject to
these existing agreements as those agreements apply to the Contract Acreage.
Ridgewood shall, upon execution of this Agreement, become bound by all existing
agreements, whether in Chevron's records or of Public records, relating to the
affected Prospects to the extent of any interest undertaken or earned by
Ridgewood. Ridgewood shall have the right of access to and review of copies of
29
such agreements, subject to any contractual restrictions therein and any
confidentiality agreements or arrangements required. Provided however, Ridgewood
shall be released from such agreements in the event Ridgewood, when not in
breach, does not drill or is unable to drill or to cause to be drilled any well
governed under this Agreement.
ARTICLE 12
12. RIGHTS RESERVED
---------------
12.1 Lease Rights Reservations.
-------------------------
Chevron EXPRESSLY RETAINS AND RESERVES EXCLUSIVELY UNTO ITSELF THE
FOLLOWING:
(a) All rights of ingress, egress, use, occupancy, and any and all other
rights granted by, through and under the federal leases subject
hereto, necessary or convenient to exercise and enjoy all oil, gas and
mineral rights reserved to Chevron, including but not limited to,
construct, maintain and operate facilities, platforms and pipelines on
and across Leases, subject to Ridgewood's rights to earn the
assignment(s) as provided hereunder.
(b) All rights of ownership and use held by Chevron's Affiliates in any
pipeline or rights of ways.
(c) The right of ownership and/or operatorship of the Existing Facilities
and the revenues realized therefrom.
(d) Chevron also reserves any platform, facilities, wellbores, pipelines
or rights-of-way installed, drilled or obtained in the future located
on or in the vicinity of the Contract Acreage related to Chevron's
operations on the Leases subject hereto, in which Ridgewood does not
own an interest.
(e) Any and all rights and interests not expressly granted to Ridgewood.
ARTICLE 13
13. PRODUCTION PROCESSING AND CONTRACT PUMPING
------------------------------------------
13.1 Production Handling Option.
--------------------------
The basic terms of production handling agreements will not be a part of
this Agreement but the Parties agree that it is the general intention of the
Parties to independently and in good faith evaluate the use of existing, nearby
sole ownership facilities of Chevron, if any and where appropriate, for the
handling of Prospect production from successful Prospect ▇▇▇▇▇; however, neither
30
party is committed to bring its share of Prospect production to a Party's nearby
sole ownership facility or to accept production at a Party's nearby sole
ownership facility. The Parties will negotiate any such use in good faith, where
the Parties see mutual benefit to such use; however, the use of an Existing
Facility, or near by facility, will require the consent of both Parties to all
terms and condition of such use prior to such use.
13.2 Contract Operating Option.
-------------------------
Should the Parties decide to transport co-owned production to a facility
owned by one of the Party's hereto but not the other, and the Parties are
successful in negotiating an agreement with the owners of the facility to handle
the production, as an accommodation to the non-owning Party, the owning Party
will consider, but will not have the obligation, to contract operate any
producing ▇▇▇▇▇ owned by the Party not an owner of the facility.
13.3 Use of Existing Facilities.
--------------------------
Notwithstanding any rights and/or options provided Ridgewood under the
terms and conditions of this Agreement, this Agreement shall in no way be
construed in any manner whatsoever as a right and/or option for Ridgewood to
utilize any Existing Facility; provided, however, Chevron is agreeable to
assisting Ridgewood to provide Ridgewood with access to an Existing Facility if
capacity is available or projected to be available and not planned to be
utilized by Chevron and/or any Co-Working Interest Owners; provided Ridgewood
agrees to pay reasonable fees for the use of any such Existing Facility and the
services, if any, provided therewith. Notwithstanding the willingness of
Ridgewood to pay reasonable fees, under no circumstances will it be construed
that Chevron is under any obligation whatsoever to provide access to or capacity
on any Existing Facility located on any Lease subject to this Agreement. In no
event shall Ridgewood have any liability or obligation with respect to any
Existing Facility except as specifically provided in a separate written
agreement between Ridgewood and the owners of such facilities.
ARTICLE 14
14. TAX MATTERS
-----------
14.1 Income Tax Election.
-------------------
Notwithstanding any other provision herein, the rights and liabilities
hereunder are several and not joint or collective and this Agreement shall not
constitute a partnership. If for federal income tax purposes this Agreement and
the operations or activity hereunder are regarded as a partnership, then for
federal income tax purposes each party elects to be excluded from the
31
application of all provisions of Subchapter K, Chapter 1, Subtitle A, Internal
Revenue Code of 1986 as amended ("Code"), as permitted and authorized by Section
761 of said Code and the regulations promulgated thereunder. Chevron is hereby
authorized and directed to execute on behalf of each Party such evidence of this
election as may be required, including specifically, but not by way of
limitation, all of the returns, statements and data required by law.
Should there be any requirement that each Party further evidence this
election, each Party agrees to execute such documents and furnish such other
evidence as may be required. Each Party further agrees not to give any notices
or take any other action inconsistent with the election made hereby. If any
present or future income tax law of the United States or any state contains
provisions similar to those contained in Subchapter K, Chapter 1, Subtitle "A"
of the Code, under which an election similar to that provided by Section 761 of
said Subchapter K is permitted, each Party agrees to make such election as may
be permitted by such laws. In making this election, each Party states that the
income derived by it from the operations or activities under this Agreement can
be adequately determined without the computation of partnership taxable income.
The provisions of this Article 14 shall not affect or demise the Parties
rights and obligations under any Operating Agreement entered into pursuant to
this Agreement. Notwithstanding anything herein to the contrary under this
Article 14, for purposes of operations to be conducted under the applicable
Operating Agreements, the Parties hereto agree to use that form of tax
partnership as shown on Exhibit "F" of Exhibit "E."
ARTICLE 15
15. GEOPHYSICAL DATA
----------------
15.1 Proprietary Seismic Data.
------------------------
Should at any time prior to or during the term of this Agreement, Ridgewood
or Chevron acquire any proprietary seismic data covering a portion of the
Contract Acreage, the acquiring Party will allow the other Party access to this
proprietary seismic data. The acquiring Party will consider granting the other
Party a license covering that portion of the acquiring Party's proprietary
seismic data covering the Contract Acreage upon the other Party's request. The
fee to be paid to license the seismic data, and the licensing agreement to be
executed between the Parties, shall be negotiated at the time the Party elects
to license the data. Ridgewood or Chevron must submit a written proposal to the
acquiring Party prior to the termination of this Agreement proposing the license
of a portion of the acquiring Party's data. Failure of Ridgewood or Chevron to
submit such a proposal, or in the event the Parties are unable to negotiate a
32
mutually agreeable licensing fee and/or licensing agreement, shall terminate the
acquiring Party's option to consider licensing its data to the other Party. The
acquiring Party makes no representation and shall have no liability to the other
Party regarding the accuracy or completeness of any data disclosed to the other
Party hereunder. Any such information or data provided hereunder is provided as
a convenience only and any reliance on or use by Ridgewood or Chevron is at
Ridgewood's or Chevron's sole risk.
15.2 Hazard Survey Data.
------------------
Should Chevron possess or acquire any shallow hazard. data covering any
Leases subject hereto, and that data is used in support of permitting a location
to drill a well as a result of this Agreement or the applicable Operating
Agreement, then the cost Chevron paid for the shallow hazard data will be added
to the cost Ridgewood is required to contribute. Only Ridgewood's proportionate
share of the actual cost paid by Chevron for the shallow hazard survey, based on
the interest Ridgewood will be assigned in the Lease were the well will be
drilled, will be owed to Chevron. Ridgewood will contribute such amount upon
receipt of written notice from Chevron detailing the hazard survey charge.
15.3 Speculative Seismic Data.
------------------------
The Parties hereto may have in their possession certain seismic data
licensed from Third Parties ("Speculative Seismic Data") which impose various
restrictions and limitations on either Parties right to use, disclose and/or
display such data relating to the properties identified in Exhibit "A" or "B."
Treatment of this Speculative Seismic Data shall be controlled under
confidentiality provisions specified in Section 20.2 below.
ARTICLE 16
16. RENTALS, MINIMUM ROYALTY AND LEASE MAINTENANCE
----------------------------------------------
16.1 Rentals and Minimum Royalty.
---------------------------
Notwithstanding the obligations to compensate Chevron for Land Costs as
described under Section 3.2 above, Ridgewood shall be responsible for
contributing a portion of any rental or minimum royalty that comes due and
payable, on a lease-by-lease basis, for each Lease it is assigned as provided
herein commencing on the effective date of each such assignment. The share of
the rental or minimum royalty Ridgewood will owe will be calculated based on the
interest assigned in a Lease. This responsibility shall continue until the first
to occur of the following: (a) Ridgewood relinquishes its right to earn an
interest in the affected Lease in accordance with this Agreement or the
33
applicable Operating Agreement, or (b) the Lease terminates. Chevron shall pay
or cause to be paid the rental and/or minimum royalty on each Lease. Ridgewood
agrees to contribute its proportionate share of such rental and/or minimum
royalty within thirty (30) days after receipt of written notice from Chevron for
same. However, on a lease-by-lease basis and pursuant to Section 9.1 of this
Agreement, Ridgewood, at its sole option and discretion, shall have the right to
relinquish to Chevron its rights in a Lease and thereby relieving itself of its
obligation to reimburse Chevron. Should Ridgewood elect to relinquish its
interest to Chevron, but fail to provide Chevron with the required notice under
Section 9.1 of this Agreement, Ridgewood will remain liable for the next ensuing
rental or minimum royalty payment for which proper notification was not
received.
Chevron shall not be liable for failure to make a proper payment during the
time in which it is responsible for doing so, but agrees to use the same degree
of care used in making such payments under its other leases. The termination of
this Agreement shall not relieve Ridgewood of its obligations to contribute to
any payments so made during the period this Agreement was in effect, and during
the period that such Lease(s) are subject to this Agreement, the right of such
termination to be an additional right reserved by Chevron and not a limitation
of any of Chevron's rights herein.
ARTICLE 17
17. MEDIA RELEASES
--------------
17.1 Public Announcements.
--------------------
The Parties hereto agree that prior to making any public announcement or
statement with respect to the transaction contemplated by this Agreement, the
Party desiring to make such public announcement or statement shall provide the
other Party with a copy of the proposed announcement or statement at least three
(3) Business Days prior to the intended release date of such announcement.
Release of reserves estimates is never permitted. The other Party shall
thereafter consult with the Party desiring to make the release, and the Parties
shall exercise their reasonable best efforts to (i) agree upon the text of a
joint public announcement or statement to be made by both such Parties or (ii)
in the case of a statement to be made solely by one Party, obtain approval of
the other Party hereto to the text of a public announcement or statement.
Nothing contained in this paragraph shall be construed to require either Party
to obtain approval of the other Party hereto to disclose information with
respect to the transaction contemplated by this Agreement to any state or
34
federal governmental authority or agency to the extent required by applicable
law or necessary to comply with disclosure requirements of the New York Stock
Exchange or any other regulated stock exchange.
17.2 Media Releases.
--------------
Except as may be otherwise authorized by the applicable Operating
Agreement, if any, neither Party shall make any press release or other public
announcement regarding operations conducted pursuant to this Agreement without
the prior written consent of the other, which consent shall not be unreasonably
withheld. Each Party will have three (3) Business Days within which to review
and comment prior to public disclosure. Release of reserves estimates is never
permitted. The foregoing, however, shall not restrict disclosures by either
Party which are required by applicable securities or other laws or regulations
or the applicable rules of any stock exchange having jurisdiction over the
disclosing Party or its Affiliates.
ARTICLE 18
18. FILES
-----
18.1 Access to Files.
---------------
During the term of this Agreement, either Party ("disclosing Party") shall
permit, to the extent it has the right to do so, a Party ("reviewing Party") and
its Representatives at reasonable times during normal business hours to examine,
in the disclosing Party's offices at their actual locations, the Prospect and
land files (excluding all economic and risk evaluations, reserve information,
all legal files, attorney-client communications or attorney work product,
records and documents subject to confidentiality provisions and auditor's
reports) pertaining to the Prospects listed on Exhibits "A." In addition, to the
extent it has the right to do so, reviewing Party will be allowed access to the
disclosing Party's geological, geophysical, engineering and land files, subject
to the same exclusions listed above, covering the Leases hereto in support of
the development of the Leases and Prospects listed on Exhibit "B." The reviewing
Party shall be obligated to maintain the confidentiality of such files and
information in accordance with the provisions and limitations described in
Article 20 below. The disclosing Party and its Representatives make no
representation or warranty as to, and shall have no liability to reviewing Party
regarding, the accuracy or completeness of the information disclosed to the
reviewing Party hereunder. Any information or data furnished hereunder by the
disclosing Party is provided as a convenience only and any reliance on or use of
same is at the reviewing Party's sole risk. The inadvertent disclosure by the
disclosing Party to the reviewing Party of attorney-client communications,
attorney work product, legal files or other confidential information shall not
35
be deemed to be a waiver of the attorney-client privilege, the attorney
work-product privilege, or any other privilege or right protecting the
confidentiality of data or information. Anything in this Agreement to the
contrary notwithstanding, however, the disclosing Party and their
Representatives shall have no liability to the reviewing Party for failing to
allow the reviewing Party to examine, or to grant the reviewing Party access to
any of the files or materials referred herein. Access to a disclosing Party's
Prospect files is strictly and solely as an accommodation to the reviewing
Party.
ARTICLE 19
19. ASSIGNMENTS AND TRANSFER OF INTEREST
------------------------------------
19.1 Assignment of this Agreement.
----------------------------
It is agreed that Ridgewood shall not assign, either in whole or in part,
its rights and interest in this Agreement without the prior written consent of
Chevron. Upon receipt of Chevron's written consent, which consent can be
conditioned on, but not limited to, requesting adequate security for the future
performance by assignee, payment of all delinquent accounts and resolving all
outstanding disputes, any assignment made by Ridgewood hereof shall 1) contain a
limitation in favor of Chevron requiring that Chevron's written consent must
also be obtained prior to any future assignments of this Agreement in whole or
in part, 2) that said instrument contain a provision indicating said assignment
is made subject to this Agreement, and 3) the assignee agrees in writing to be
bound by all the terms and conditions of this Agreement.
19.2 Lease or Prospect Successors and Assigns
----------------------------------------
It is agreed that Ridgewood, before earning an interest therein, shall not
assign, either in whole or in part, its interest or rights to interest in and to
any Lease or Prospect without the written consent of Chevron. Upon receipt of
Chevron's written consent any assignment made by Ridgewood hereof shall 1)
contain a limitation in favor of Chevron requiring that Chevron's written
consent must also be obtained prior to any future assignments of interest in
whole or in part, 2) that said instrument contain a provision indicating said
assignment is made subject to this Agreement, and 3) the assignee agrees in
writing to be bound by all the terms and conditions of this Agreement. It shall
be fully understood that in the event the assigning party encumbers or burdens
the Contract Acreage or any portion thereof after earning an interest herein,
the assigning party shall hold the non-assigning party free and clear of any and
all obligations, liability and/or responsibility for such encumbrance(s) or
burden(s). Any assignment made pursuant to this Section 19.2 shall be in
accordance with and in compliance to the accepted practices, guidelines and
policies of the Minerals Management Service or other governmental agencies that
36
my claim jurisdiction. After Ridgewood receives an assignment in a Lease, future
restrictions, if any, on subsequent assignments will be covered in the
applicable Operating Agreement.
ARTICLE 20
20. CONFIDENTIALITY
---------------
20.1 Confidentiality.
---------------
It is understood and agreed that no Party to this Agreement, for a period
of thirty-six (36) months from the Effective Date hereof, shall divulge to any
Third Party any geophysical, geological or engineering information that is
disclosed or received from the other Party on the Contract Acreage without first
obtaining the written consent of such other Party to this Agreement to release
any such information that it disclosed or received. Such consent, however, shall
not be necessary for a Party to divulge such information to any part(y)ies from
whom said Party to this Agreement may receive a contribution for the drilling of
a well under any farmout agreement, to a financial institution (or similar
entity) from whom a Party is attempting to secure funds or financing, or to a
pipeline company for the purpose of securing a pipeline connection.
Notwithstanding the above, either Party may disclose confidential data to its
Affiliate(s), consultants or other Representatives provided that such Affiliate,
consultant or Representative agrees to maintain the confidentiality of such
confidential data under the same conditions as stated herein.
Subject to disclosures that may be authorized by any Operating Agreement
applicable to a particular Lease, any and all data revealed and disclosed by
Chevron to Ridgewood and Ridgewood to Chevron shall be treated as confidential,
less and except any data that now or hereafter becomes generally available to
the public, was blown by Chevron or Ridgewood prior to the Effective Date of
this Agreement, was already in Chevron's or Ridgewood's possession prior to the
Effective Date of this Agreement, or hereafter comes into Chevron's or
Ridgewood's possession from a Third Party who has the right to disclose such
information as applicable.
20.2 Speculative Seismic Data.
------------------------
The Parties hereto have in their possession certain seismic data licensed
from Third Parties which impose various restrictions and limitations on either
Parties right to use, disclose and/or display such data relating to the Leases
identified in Exhibits "A" or "B." Notwithstanding any other provision in this
Agreement to the contrary, Chevron and Ridgewood both agree that neither Party
shall remove from each other's office, copy, or reveal to any Third Party, any
37
Speculative Seismic Data disclosed by one Party to the other Party. Each Party
agrees it will only view such Speculative Seismic Data for no other purpose
other than necessary to review the work product generated as a result of the
purpose of this Agreement. Under no circumstances will the Party who views the
Speculative Seismic Data be allowed to use the Speculative Seismic Data for any
other purpose than what viewing the data was intended unless the viewing Party
has first obtained a license from the Third Party owner of such Speculative
Seismic Data or the disclosing Party, or the owner of the Speculative Seismic
Data advises the Parties that such data is no longer to be held confidential.
20.3 Disclosure of Confidential Data.
-------------------------------
In the event a Party hereto, or its Representatives, are required by any
court or legislative or administrative body (by oral questions, interrogatories,
requests for information or documents, subpoena, civil investigation demand, or
any similar process) to disclose any confidential information or data not owned
by said Party, the Party required to make such disclosure shall provide the
owner of the confidential information or data with prompt notice of such
requirement in order to afford the owner of such information or data the
opportunity to seek an appropriate protective order. However, if the owner of
such information or data is unable to obtain or does not seek such protective
order and the Party that is required to make such disclosure, or its
Representatives, are, in the opinion of counsel, compelled to disclose
confidential information or data under pain of liability for contempt or other
censure penalty, disclosure of such information or data may be made without
liability.
20.4 Risk of Use of Confidential Data.
--------------------------------
It is understood by the Parties hereto that any confidential information or
data, both oral and written, furnished by one Party to the other is to be
considered accurate, however, neither Party hereto makes any representations or
warranties, express, implied, statutory or otherwise, with respect to the
accuracy or completeness of the confidential information or data disclosed or
any condition or aspect thereof. To the best of its knowledge, the Party making
such disclosure represents that it has full legal or contractual authorization
or right to disclose such information and data to the other Party. Each Party
hereto agrees that it will use such confidential information and data at its
sole peril and risk, and the disclosing Party shall have no liability whatsoever
with respect to the use by the receiving Party of any information or data,
whether confidential or otherwise, furnished by the disclosing Party to the
receiving Party. Any decision or action taken by the receiving Party of such
disclosed confidential information and data shall be based solely on the
receiving Party's independent evaluation, judgment and decisions.
38
ARTICLE 21
21. GOVERNING LAW
-------------
21.1 Choice of Law.
-------------
The terms and conditions of this Agreement shall be governed and
interpreted under the LAWS OF THE STATE OF ALABAMA excluding, however, any
provisions of Louisiana law which might direct or refer such determination to
the laws of any other jurisdiction.
21.2 Future Litigation and Claims.
----------------------------
Ridgewood acknowledges and agrees that Chevron and its Affiliates shall
have full and unfettered discretion in the handling and settling of any such
claim, demand, action, cause of action, or lawsuit for events which occurred, or
alleged to have occurred prior to the Effective Date pursuant to any future
litigation as they relate to the Chevron Leases, and Ridgewood specifically
waives any claim it may otherwise have against Chevron arising out of or
relating to the handling or settling of any such claim, demand, action, cause of
action, or lawsuit asserted under future litigation; provided, however, that in
the event that such claim contemplated by this Section 21.2 covers periods after
the Effective Date, Ridgewood may assist in defending the litigation. Chevron
agrees that no such claim, demand, action, or cause of action, or lawsuit
arising out of or related to acts or omissions occurring prior to the Effective
Date will impair or affect any interest to be assigned to Ridgewood under this
Agreement or will impose any cost or liability on Ridgewood.
ARTICLE 22
22. FORCE MAJEURE
-------------
22.1 Force Majeure.
-------------
Should either Party be prevented from complying with any express or implied
covenant of this Agreement (other than the obligation to make monetary
payments), or from meeting any deadline under this Agreement by reason of "Force
Majeure," as hereinafter defined, the express or implied covenant or deadline so
affected shall automatically be extended so long as the cause or causes for such
delays or interruptions continue and for an additional sixty (60) days following
the cessation of such delay or interruption. "Force Majeure" is herein defined
as an act of God, adverse weather conditions, inability to obtain materials in
the open market or transportation thereof, war, strikes, lockouts, riots,
insurrections or any other conditions or circumstances not wholly within the
39
control of a Party hereto (other than financial) or any federal, state or
municipal law, order, permit, rule or regulation. The Party subject to the Force
Majeure event shall not be liable to the other Party in damages for failure to
perform as required hereunder or to comply with any covenant, agreement or
requirement hereof during the time the Party subject to the Force Majeure event
is relieved from its obligations hereunder, provided that the Party subject to
the Force Majeure event has given written notice to the other Party within
thirty (30) days after the occurrence of the cause relied upon to suspend the
obligations of the Party subject to the Force Majeure event. The Party subject
to the Force Majeure event shall not be relieved from any express or implied
obligations under any Lease by operation of Force Majeure hereunder, unless such
Lease also suspends such obligations for the same cause. Further, if any Lease
provides for a time for the suspension of obligations less than sixty (60) days,
the provisions of such Lease shall control. The Parties recognize that time is
of the essence in the performance of the obligations under this Agreement, and
every reasonable effort should be made by the Party affected by the Force
Majeure event to avoid delay or suspension of any work or acts to be performed
under this Agreement and to make all reasonable efforts to overcome the impact
of the Force Majeure as soon as possible. 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 23
23. DISPUTE RESOLUTION.
-------------------
23.1 Dispute Resolution.
------------------
Notwithstanding anything contained heretofore in this Agreement to the
contrary, with the exceptions of decisions made by engineering firms or
consultants as provided under Article 6, the Parties specifically acknowledge
and agree that any claim, controversy or dispute arising out of relating to, or
in connection with this Agreement, including the interpretation, validity,
termination or breach thereof shall be resolved solely in accordance with the
Dispute Resolution Procedure set forth in Exhibit "F" attached hereto and made a
part hereof. Disputes related to pressure communication or common reservoir
issues will be addressed in accordance with the procedures stated under Article
6 as applicable and not Exhibit "F."
40
ARTICLE 24
24. TERMINATION
-----------
24.1 Termination.
-----------
This Agreement shall begin on the Effective Date, and unless terminated
pursuant to another provision in this Agreement or unless extended pursuant to
another provision, shall remain in effect for a period of twenty-four (24)
months from the Effective Date at which time this Agreement shall automatically
terminate without any other action by any Party hereto. As to each Lease listed
on Exhibit "A" and "B," and any acreage made subject to this Agreement pursuant
to Section 2.4, as each Lease expires or terminates, it will no longer be
subject to this Agreement. It is understood between the Parties hereto that
after termination of this Agreement the only acreage Ridgewood will have access
to will be that acreage it has already earned or has committed to drill under
this Agreement as provided under Section 24.3 below. Notwithstanding the
termination of this Agreement, each Party shall continue to be obligated to
fulfill its existing commitments, obligations, liabilities both financial and
otherwise, and other undertakings theretofore incurred hereunder or incurred
under the terms of those agreements attached as Exhibits hereto.
24.2 Lease Expiration or Termination.
-------------------------------
Although Chevron will use business-like efforts to monitor ongoing
activities on the Leases, Chevron shall not be liable to Ridgewood for any Lease
termination and/or Chevron's (or its co-owners) failure to maintain any Lease
during the term of this Agreement but Chevron will attempt, so long as Chevron
owns Record Title or Operating Rights Interest in any such Lease, to notify
Ridgewood at least sixty (60) days before such Lease will terminate.
24.3 Agreement Extension.
-------------------
At the termination of this Agreement, should operations for the drilling of
an Initial Test Well or a Substitute Well have been commenced on a Prospect,
this Agreement shall continue in effect so long as operations are continuously
prosecuted on such well and any subsequent earning well with no more than ninety
(90) days elapsing from rig release of the preceding well and commencement of
operations on the next well. On the expiration of such period this Agreement
shall automatically terminate without any further action from any Party hereto.
As stated in Section 24.1 above, each Party shall continue to be obligated to
fulfill its existing commitments, obligations, liabilities both financial and
otherwise, and other undertakings theretofore incurred hereunder or incurred
under the terms of those agreements attached as Exhibits hereto.
41
ARTICLE 25
25. INDEMNITY
---------
25.1 Indemnity.
---------
Ridgewood, to the extent of the obligations undertaken herein, agrees to
protect, indemnify, and save Chevron, its parent, subsidiaries, affiliates,
and/or successors and the directors, officers, employees or agents of each
("Chevron Company Group") free and harmless from all obligations, business
dealings, liabilities, debts, charges, claims, damages, demands, costs
(including attorneys' fees and court costs), penalties and causes of action
arising directly or indirectly out of all of Ridgewood's actions or inactions
under this Agreement, and related to any dealing with any Third Party that
Ridgewood has or may have with regard to financing or the assignment of, in
whole or in part, any rights under this Agreement, and to relieve the Chevron
Company Group from any and all liability (exclusive of business debts and
charges) incurred as a result of such actions. The indemnities and covenants of
this Section 25.1 shall be effective whether or not such obligations, business
dealings, liabilities, debts, charges, claims, damages, demands, costs
(including attorneys' fees and court costs), penalties and causes of action
aforesaid are caused wholly or partly by negligence attributed to the Chevron
Company Group, or by any other means, excepting those occurrences involving the
gross negligence or willful misconduct of the Chevron Company Group.
ARTICLE 26
26. BREACH
------
26.1 Breach.
------
Anything herein to the contrary notwithstanding, any failure by Ridgewood
to comply with any material obligation hereunder shall be considered a breach of
this Agreement. In the event of any such breach, Chevron shall notify Ridgewood
of such breach and if Ridgewood does not correct or is not in good faith
attempting to correct such breach within thirty (30) days of receipt of such
notice, Chevron may terminate this Agreement in whole or in part by notifying
Ridgewood in writing of such termination, without prior notice or demand being
made upon Ridgewood and without the necessity of placing Ridgewood in default;
provided, however, the failure by Chevron to exercise at any time or from time
to time such right of termination shall not effect a waiver of any breach or of
Chevron's right subsequently to terminate this Agreement.
42
ARTICLE 27
27. SPECIAL WARRANTY
----------------
27.1 Special Warrant.
---------------
THIS AGREEMENT IS MADE WITHOUT ANY WARRANTY OF TITLE TO THE LEASES EXCEPT
BY, THROUGH AND UNDER Chevron. WITH THE EXCEPTION OF THIS LIMITED WARRANTY,
Chevron DOES NOT WARRANT EITHER EXPRESS, STATUTORY OR IMPLIED, AS TO TITLE,
MERCHANTABILITY, CONDITION, QUALITY OR FITNESS FOR A PARTICULAR PURPOSE AS TO
THE Chevron LEASES, AND ALL OTHER PROPERTY COVERED BY THIS AGREEMENT, INCLUDING,
BUT NOT LIMITED TO THE WELL BORES, EQUIPMENT AND FACILITIES UTILIZED BY THE
PARTIES HEREUNDER, OR ANY OTHER SORT OF WARRANTY AND IS WITHOUT RECOURSE AGAINST
Chevron WHATSOEVER, EVEN AS TO THE RETURN OF CONSIDERATION. Chevron REPRESENTS
THAT IT HAS NOT ASSIGNED OR MORTGAGED THE Chevron LEASES. Chevron MAKES NO
REPRESENTATIONS OR WARRANTIES REGARDING RIDGEWOOD'S RIGHT OF INGRESS TO AND
EGRESS FROM THE Chevron LEASES ACROSS ADJACENT OR ADJOINING LANDS.
Chevron SPECIFICALLY DISCLAIMS, AND RIDGEWOOD EXPRESSLY WAIVES THE IMPLIED
WARRANTY OF TITLE NOTED IN LA. R. S. 31:120 WITH RESPECT TO THE Chevron LEASES.
RIDGEWOOD ACKNOWLEDGES THAT THIS EXPRESS WAIVER SHALL BE CONSIDERED A MATERIAL
AND INTEGRAL PART OF THIS AGREEMENT AND PART OF THE CONSIDERATION GIVEN
THEREFOR. RIDGEWOOD FURTHER ACKNOWLEDGES THAT THIS WAIVER HAS BEEN SPECIFICALLY
BROUGHT TO RIDGEWOOD'S ATTENTION AND THAT RIDGEWOOD HAS VOLUNTARILY AND
KNOWINGLY CONSENTED TO THIS WAIVER. THE PARTIES AGREE THAT FOR THE PURPOSES OF
THIS WAIVER OF THE IMPLIED WARRANTY OF TITLE, Chevron AND THEIR AFFILIATES SHALL
BE CONSIDERED AS THE SELLER HEREUNDER AND RIDGEWOOD EXPRESSLY WAIVES ALL RIGHTS
OF SUBROGATION IN WARRANTY OF THE SELLER AGAINST OTHER PERSONS GRANTED TO A
BUYER BY LOUISIANA CIVIL CODE ARTICLE 2503.
RIDGEWOOD ACKNOWLEDGES THAT (i) IT IS A SOPHISTICATED INVESTOR AND OPERATOR
IN THE OIL AND GAS BUSINESS; (ii) IT UNDERSTANDS THE RISKS INVOLVED IN OIL AND
43
GAS EXPLORATION AND DEVELOPMENT; AND (iii) IT UNDERSTANDS THAT ITS PARTICIPATION
IN THIS AGREEMENT IS A HIGHLY RISKY UNDERTAKING AND THAT RIDGEWOOD MIGHT NOT
RECOVER ANY OF ITS INVESTMENT MADE HEREUNDER.
ARTICLE 28
28. GENERAL PROVISIONS
------------------
28.1 Prospects Treated Separately.
----------------------------
Unless otherwise provided, the terms and provisions stated herein shall
apply separately to each Prospect listed on Exhibit "A" or "B."
28.2 Non-Interference.
----------------
Any and all operations conducted and/or performed on any Lease for which
Ridgewood is or becomes the well operator shall be conducted and performed with
due diligence and in a workmanlike manner and shall be coordinated and scheduled
so as not to unreasonably interfere with existing or anticipated operations
located on the interests in the Leases not transferred hereunder by Chevron, if
applicable. In the event that the proposed drilling of an Initial Test Well on
any Prospect is delayed because of potential interference with operations on a
Lease by Chevron or any of the Co-Working Interest Owner(s), then Chevron and
Ridgewood agree that the period to commence operations on the Initial Test Well
shall be extended, if requested by Ridgewood, for the duration of the
interference plus a reasonable amount of time for Ridgewood to coordinate its
activities after cessation of operations by Chevron or the Co-Working Interest
Owners.
28.3 Governmental Approvals.
----------------------
From and after the execution hereof, each of the Parties hereto, without
further consideration, shall use its business-like efforts to execute, deliver,
submit, gain approvals of and record (or cause to be executed, delivered,
submitted, and recorded) good and sufficient permits, designations, other
regulatory documents, and instruments of conveyance and transfer (as
applicable), and take such other action as may be reasonably required to carry
out the purposes of this Agreement and to give effect to the covenants,
stipulations and obligations of the Parties hereto.
44
28.4 Amendments.
----------
This Agreement shall not be modified or amended except by mutual agreement
of the Parties in writing. No action or failure to act on the part of either
Party hereto shall be construed as a modification or amendment to, or a waiver
of any of the provisions of this Agreement.
28.5 Declaration of Agreement.
------------------------
Should either Party request a Declaration of Agreement be executed for
filing in the applicable public records, both Parties agree to execute a
Declaration of Agreement similar in form as that which is attached hereto as
Exhibit "G." Either Party shall have the right and option, at its own expense,
of filing such Declaration of record in the appropriate State and/or Federal
offices.
28.6 Other Rights, Remedies Reserved.
-------------------------------
No provision contained herein providing for the termination of this
Agreement shall be construed as precluding, nor shall it preclude, Chevron from
asserting its respective rights to specific performance, damages, or any other
rights or remedies to which it may be entitled.
28.7 No Waiver.
---------
Chevron's or Ridgewood's failure to enforce any of the provisions of this
Agreement shall not effect a waiver of any violation thereof nor preclude
enforcement of that or any other provisions hereof at that or any other time.
28.8 No New Lease Burdens.
--------------------
As to each Lease that remains subject to this Agreement, until Ridgewood
has earned and received an assignment of an interest, or relinquishes its rights
to earn any interest therein, or until this Agreement terminates, Chevron agrees
not to create any additional lease burdens, marketing commitments, or other
contractual obligations on such Leases as to the Available Acreage and agrees
not to assign all or a portion of its interest in the Contract Acreage, except
as contemplated by Sections 3, 4 and 8. Prior to Ridgewood receiving an
assignment of an interest in a Prospect Chevron shall not create or allow the
creation of any additional lease burdens affecting the Contract Acreage which
Ridgewood has a right to earn hereunder. During the term of this Agreement,
Chevron will use business-like efforts not to unnecessarily prejudice the rights
and options of Ridgewood as stipulated hereunder.
45
28.9 Permitting Cost Sharing.
-----------------------
In addition to the obligations under Section 3.2, Ridgewood will be
obligated to contribute Ridgewood's ACP Interest share of all direct permitting
and regulatory costs incurred by Chevron subsequent to the Effective Date of
this Agreement on each of the Leases subject hereto. This contribution will only
come due once Ridgewood agrees to participate in the drilling of the Initial
Test Well on a Prospect. Ridgewood's ACP Interest share of such cost shall be
based on the interest it will be entitled to cam on the Lease to be drilled.
Payment will be due upon receipt of Chevron's written notice of all such costs.
28.10 Audit Rights.
------------
Upon written notice to the other Party, any Party ("requesting Party") may
examine the accounts and records of the other Party from time to time during
normal business hours required to verify a Party's compliance with the financial
obligations assumed by that Party in this Agreement. Such examinations shall be
made directly by the requesting Party at its expense or through an independent
accounting firm of the requesting Party's choice retained at the requesting
Party's expense. If performed, the requesting Party shall commence its initial
audit of the other Party's accounts and records pursuant hereto, within
twenty-four (24) months from the Effective Date of this Agreement. After the
initial audit has been conducted or the initial audit period has expired without
such audit being commenced, the requesting Party may commence subsequent audits
only covering those periods following the end of the previous twenty-four (24)
month period.
28.11 Severability.
------------
Every provision in this Agreement is intended to be severable. If any term
or provision hereof is held by a court of competent jurisdiction to be illegal
or invalid for any reason whatsoever, all other conditions and provisions of
this Agreement shall nevertheless remain in full force and effect.
28.12 Entire Agreement.
----------------
This Agreement constitutes the entire understanding between the parties
with respect to the subject matter hereof, superseding all negotiations, prior
discussions and prior agreements and understandings relating to the subject
matter hereof including that certain Letter from Ridgewood to Chevron dated July
19, 2005.
46
28.13 Further Assurances.
------------------
Each Party agrees to execute and deliver all such additional documents,
instruments and assurances and to perform such additional acts as may be
necessary or appropriate to effectuate and perform all of the terms and
conditions of this Agreement.
28.14 Surviving Obligation.
--------------------
THE TERMINATION OF THIS AGREEMENT SHALL NOT RELIEVE ANY PARTY HERETO FROM
ANY EXPENSE, LIABILITY OR OTHER OBLIGATION OR ANY REMEDY THEREFOR WHICH HAS
ACCRUED OR ATTACHED PRIOR TO THE DATE OF SUCH TERMINATION.
28.15 Conflict of Terms.
-----------------
In the event of any conflict between the main body of this Agreement and
attached exhibits, the provisions of the main body of this Agreement shall
control.
IN WITNESS WHEREOF, this Agreement is executed and made effective by the
Parties hereto on the Effective Date as defined herein.
WITNESSES:
---------
CHEVRON U.S.A. INC.
[SIGNATURE ILLEGIBLE] By: /s/ ▇. ▇. ▇▇▇▇
--------------------- -----------------------------------------------------
Name: ▇. ▇. ▇▇▇▇
---------------------------------------------------
[SIGNATURE ILLEGIBLE] Title: Assistant Secretary & Gulf of Mexico Land Manager
--------------------- --------------------------------------------------
RIDGEWOOD ENERGY CORPORATION
MANAGER, RIDGEWOOD ENERGY Q FUND, LLC.
By: /s/ ▇.▇. ▇▇▇▇▇
--------------------- -----------------------------
Name: W. ▇▇▇▇ ▇▇▇▇▇
---------------------------
Title: Executive Vice President
--------------------- --------------------------
47