PARTICIPATION AGREEMENT
McMoRan 1997 Exploration Program
PAGE
I. DEFINITIONS 4
II. PURPOSE; OPERATIONS 7
2.1 Purpose 7
2.2 McMoRan's Efforts 8
2.3 Operator 9
III. INTERESTS OF THE PARTIES 9
3.1 Sharing of Exploration Expenditures 9
3.2 Ownership Interests 10
IV. EXPLORATION EXPENDITURES 10
4.1 Exploration Expenditures 10
V. ACQUISITION OF LEASEHOLD INTERESTS 13
5.1 Acquisition of Additional Leasehold Interest 13
5.2 Excluded Areas 13
5.3 Obligation 14
VI. EXPLORATION FUND 15
6.1 General 15
6.2 Limitations on McMoRan's Authority to Commit
Exploration Fund 15
6.3 Budget Meetings and Reports 16
VII. SCIENTIFIC STUDIES AND INFORMATION 16
VIII. PROSPECTS 18
8.1 Prospects 18
8.2 Designation of Prospects After Program Term 20
IX. DRILLING OF EXPLORATORY ▇▇▇▇▇ 20
9.1 During Program Term 20
9.2 After Program Term 22
X. FARMOUT OR PARTICIPATION AGREEMENTS 22
10.1 Participation Agreements 22
10.2 Farmout Agreements 23
10.3 Trade Agreements 24
XI. BURDENS 24
XII. OPERATING AGREEMENT 25
XIII. AREA OF MUTUAL INTEREST 26
13.1 Third Party Area of Mutual Interest
Agreements 26
13.2 Program Area of Mutual Interest Agreement 26
XIV. OWNERSHIP OF PRODUCTION; GAS BALANCING AGREEMENT 28
14.1 Ownership of Production 28
XV. RELATIONSHIP OF THE PARTIES 29
15.1 Tax Partnerships 29
XVI. BILLINGS; NOTICES 30
XVII. SPECIAL NON-CONSENT ELECTIONS 30
17.1 Casing Point Election - Onshore Prospects 30
17.2 Elections Prior to Platform Installation -
Offshore Prospects 31
17.3 Time Period 31
17.4 Completion Attempt by Participant - Onshore 31
XVIII. PROGRAM TERM 32
18.1 Program Term 32
18.2 Unfunded Prospects 32
XIV. OPERATIONS AFTER PROGRAM TERM 33
19.1 General 33
19.2 Exploratory ▇▇▇▇▇ 33
19.3 Development Expenditures 33
19.4 Provisions Which Do Not Survive the End of
the Program Term 34
XX. CONFIDENTIALITY 34
XXI. INSURANCE 35
21.1 Insurance for Program 35
XXII. RECORD TITLE, ASSIGNMENT 37
22.1 Record Title 37
22.2 Assignment 38
XXIII. SUBSEQUENT INTERESTS 39
XXIV. GENERAL 40
24.1 Records 40
24.2 Access 41
24.3 Claims & Litigation 41
24.4 Good Faith 42
24.5 Governing Law 42
24.6 Failure to Respond 42
24.7 Conflicts 43
25.8 Binding Effect 43
EXHIBITS
I) PROGRAM OPERATING AGREEMENT (OFFSHORE)
II) PROGRAM OPERATING AGREEMENT (ONSHORE)
III) CERTAIN EXCLUDED AREAS
IV) PROVISIONS CONCERNING TAXATION
PARTICIPATION AGREEMENT
McMoRan 1997 Exploration Program
This Participation Agreement ("the Agreement") is made
as of the 1st day of April, 1997 between McMoRan Oil & Gas
Co. ("McMoRan") and Freeport-McMoRan Resources Partners,
Limited Partnership ("Participant").
WITNESSETH:
I.
Definitions
As used in this Agreement, the following terms shall
have the meanings set forth below:
1.1 Affiliate means, with respect to any person, a person that
directly or indirectly through one or more intermediaries,
controls or is controlled by, or is under common control
with the person specified.
1.2 Area of Mutual Interest or AMI means, with respect to any
Prospect, the geographic area more particularly described
in Article XIII.
1.3 Casing Point means the point at which determination is made
either to run production string of casing and attempt a
completion, or to abandon the well.
1.4 Committed List means the list described in Paragraph 18.1
hereof.
1.5 Development Expenditures means those charges applicable to
each Prospect which are not Exploration Expenditures.
1.6 Development Well means any well which is not an Exploratory
Well.
1.7 Excluded Area means any of the areas described in Paragraph
5.2 hereof.
1.8 Exploration Expenditures means those charges described in
Article IV.
1.9 Exploration Fund means the fund created by McMoRan and
Participant for the acquisition and exploration of
Leasehold Interests and the other purposes of the
Exploration Program as more fully described in Article VI,
together with any cash contributions received by the
Program from third parties.
1.10 Exploration Program or Program means the McMoRan operated
program pursuant to which McMoRan and Participant have or
will acquire and explore Prospects in the Exploration
Program Area during the Program Term pursuant to this
Agreement.
1.11 Exploratory Well means any well drilled by the Program on
an Onshore Prospect prior to the completion thereon by the
Exploration Program of a well capable of production in
Paying Quantities or, as to an Offshore Prospect, means the
first and/or second well drilled on a Prospect by the
Program prior to the first installation thereon by the
Program of a drilling and/or production platform.
1.12 Initial Leasehold Inventory means those Leasehold Interests
described in Paragraph 2.1 hereof.
1.13 Leasehold Interest means any right, title or interest
acquired in, to and under any oil or gas lease or any other
interest in oil or gas, including, without limitation,
contractual rights, which confer on the holder thereof the
right to share, or acquire the right to share, in the
production or the proceeds of production of oil or gas.
1.14 Leasehold Interest Costs means, with respect to a
particular Leasehold interest, the actual cost incurred by
the Program for acquisition thereof, in each case
including, without limitation, all bonuses, delay rentals,
brokerage fees, and outside attorney's fees.
1.15 Non-Operator means, as to any Leasehold Interest or
Prospect, a working interest owner therein who is not
designated to act as Operator.
1.16 OCS means the outer continental shelf of the Gulf of Mexico
under Federal leasing jurisdiction.
1.17 Offshore Prospect means any Prospect located in the OCS,
and/or in that portion of the Gulf of Mexico under the
leasing jurisdiction of the adjacent states.
1.18 Onshore Prospect means a Prospect located in the Program
Area which is not an Offshore Prospect.
1.19 Operator means, as to any Leasehold Interest or Prospect,
the party hereto designated to manage and supervise the
drilling and/or completion and operation of oil or gas
▇▇▇▇▇ thereon.
1.20 Participant means Freeport-McMoRan Resources Partners,
Limited Partnership.
1.21 Paying Quantities means production of oil and/or gas in
quantities sufficient to yield a return in excess of
operating cost.
1.22 Program Area means the OCS, and that portion of the Gulf of
Mexico under the leasing jurisdiction of the adjacent
states and the balance of the lower 48 states of the
continental United States, except the Excluded Areas.
1.23 Program Operating Agreement means the Joint Operating
Agreement (Offshore) or the Joint Operating Agreement
(Onshore) attached hereto as Exhibits I and II
respectively, depending upon whether the relevant operation
is with respect to an Offshore Prospect or an Onshore
Prospect.
1.24 Program Term means the period beginning on the date hereof
and ending at the end of the Program Term as set forth in
Article XVIII.
1.25 Prospect means an area designated as such pursuant to
Paragraph 8.1.
1.26 Technical Consultants means those geologists and
geophysicists and related personnel working therewith who
are hired or retained by McMoRan as independent consultants
some portion of whose efforts are to develop or evaluate
Prospects hereunder.
II.
Purpose; Operations
2.1 Purpose. This Agreement has been entered into to
provide Participant a means of acquiring, exploring and
developing oil and gas Prospects in the Program Area, including
but not limited to the acquisition of the Initial Leasehold
Inventory, during the Program Term.
On August 4, 1997, Participant acquired all of the interests
of MCNIC Oil & Gas Properties, Inc. and affiliates ("MCN") in the
McMoRan Participation & Exploration Program Agreement and McMoRan
and Participant entered into an amendment thereto dated the same
date (as amended, the "Prior Program"). McMoRan and Participant
thereafter continued the Prior Program on an interim basis until
the date hereof.
The parties hereto hereby contribute to the Program all of
their rights respecting each of the properties and assets of the
Prior Program excluding only those properties and assets
associated with the properties which are located in an Excluded
Area ("Excluded Properties") and the loan (the "Loan") paid the
date hereof due Participant by McMoRan under said Prior Program.
The Leasehold Interests owned by McMoRan and Participant under
the Prior Program, excluding those which are Excluded Properties,
shall be the Initial Leasehold Inventory hereunder. The costs
incurred by McMoRan and Participant with respect to those
Leasehold Interests which are included in the Initial Leasehold
Inventory and as to which Participant acquired its interest from
MCN shall be deemed to have an initial cost as of April 1, 1997
of $8,333,333, $5,000,000 of which was paid by Participant and
$3,333,333 of which was paid by McMoRan, which amount shall be
deemed to have been expended from the Exploration Fund. All
other expenditures under the Prior Program by McMoRan and
Participant together, other than with respect to the Excluded
Areas and the Loan, shall likewise be treated as having been
expended from the Exploration Fund.
2.2 McMoRan Efforts. McMoRan agrees to devote a substantial
portion of its oil and gas exploration effort to the operation
and management of the Program, which shall include all prospects,
except those in the Excluded Areas, acquired and to be acquired
by McMoRan during the Program Term within the Program Area,
including but not limited to the Initial Leasehold Inventory.
McMoRan will at all times have a staff adequate in number,
experience and competence to perform its obligations hereunder
and accomplish the purposes of the Exploration Program.
2.3 Operator. McMoRan shall be the overall manager of the
Program.
III.
Sharing of Exploration Expenditures
and Interest of the Parties
3.1 Sharing of Exploration Expenditures. Except as other-
wise provided in this Agreement, Exploration Expenditures shall
be shared as follows:
Participant McMoRan
60% 40%
If more than one Exploratory Well is drilled on a particular
Onshore Prospect, Exploration Expenditures in connection with the
drilling of any second and subsequent Exploratory Well on such
particular onshore Prospect shall not be shared in the
percentages set forth in this Paragraph 3.1 but shall be shared
in the percentages set forth in Paragraph 3.2 hereof; provided,
however, if the first Exploratory Well in such particular Onshore
Prospect fails to reach objective depth because it encounters
impenetrable substances, heaving shale, domal material, salt,
excessive salt water flow or other formation or conditions or
develops mechanical difficulty which would render further
drilling impractical and McMoRan elects to drill a substitute for
such well, the cost involved in the drilling of such substitute
well shall be shared in the percentages set forth in this
Paragraph 3.1 in the same manner as if such substitute well were
the first Exploratory Well on the particular Onshore Prospect
involved.
3.2 Ownership Interests. Except as otherwise provided in
this Agreement, the ownership of all Leasehold Interest and other
properties and production acquired by the Program shall be shared
as follows:
Participant McMoRan
50% 50%
IV.
Exploration Expenditures
4.1 Exploration Expenditures. Subject to the limitations
provided in this Agreement, McMoRan shall be entitled to expend
monies for Exploration Expenditures of the Program on behalf of
itself and Participant without the prior approval of Participant.
The term "Exploration Expenditures" means all actual charges
allocable to each Prospect in accordance with generally accepted
industry standards, which charges are incurred by the Program
prior to (i) the completion of the first Exploratory Well drilled
by the Program on an Onshore Prospect that is completed as a well
capable of production in Paying Quantities or (ii) the plugging,
or the temporary abandonment if not plugged, of the first two
Exploratory ▇▇▇▇▇ drilled by the Program on an Offshore Prospect,
as applicable, and such other costs applicable to exploration
activities in the Program Area as are otherwise provided for in
this Agreement, which charges, among others, shall include the
following:
(a) The cost of acquisition of all Leasehold Interests in
the Program Area, including but not limited to the Initial
Leasehold Inventory and any Leasehold Interest Costs paid by
McMoRan to third party program operators in connection therewith;
(b) The cost of any geological, geophysical or other
scientific, exploration or engineering work, services or data on
the Prospect;
(c) The cost of copies of all seismic records, geological
and geophysical maps and other exploration data and information
furnished to Participant;
(d) Rental and other lease maintenance payments on the
Leasehold Interests;
(e) All necessary independent legal expenses and costs of
title searches and title investigation whether or not Leasehold
Interests are acquired, together with the costs of copies of
title opinions and other title reports furnished to Participant;
(f) The cost of drilling Exploratory ▇▇▇▇▇ in a Prospect,
including the cost of plugging and abandoning or capping same, if
no completion attempt is made;
(g) Any other expenditures properly chargeable as
Exploration Expenditures under this Agreement, or as may be
specified in the accounting procedure attached to the applicable
Program Operating Agreement and which are attributable to
exploration activities, but excluding all overhead provided for
in such Program Operating Agreement until such time as the
Exploration Fund has been fully committed;
(h) Notwithstanding the foregoing, the cost of completing
an Exploratory Well shall not be considered an Exploration
Expenditure; and
(i) In addition to the foregoing, McMoRan shall be entitled
to charge as Exploration Expenditures those expenditures that
McMoRan incurs annually for salaries of employees, including but
not limited to costs of benefits programs related thereto, cost
of retained consultants, including but not limited to its
Technical Consultants, office rent, office supplies, insurance
and other general and administrative costs that McMoRan incurs
in the conduct of its activities, including but not limited to
costs allocated to MOXY from FM Services Company or its
Affiliates, less a reasonable portion of such costs that McMoRan
allocates to the Excluded Areas. Prior to committing to a
material increase in the aggregate costs contemplated by this
subparagraph (i) McMoRan shall confer with Partcipant and in
good faith consider any comments or suggestions that Participant
may offer in regard to such contemplated material change.
The term Exploration Expenditures shall also include any of
the foregoing costs incurred by the Program in attempting to
locate or acquire Leasehold Interests in Prospects for the
Program in the Program Area whether or not the Program owns or
acquires Leasehold Interest in such area or subsequently
designates a Prospect under Paragraph 8.1 for such area.
Except as may be expressly provided to the contrary in this
Agreement, all Exploration Expenditures shall be invoiced and
accounted for in accordance with the accounting procedure
attached to the Program Operating Agreement, including the period
of time set forth for joint interest auditing and adjustment.
McMoRan shall further be entitled to reimbursement as an
Exploration Expenditure or as a proper expenditure under the
applicable Program Operating Agreement, as appropriate, from
Participant for its share of reasonable inventories of pipe and
equipment (it being the intention of the parties to keep such
inventories at a minimum level consistent with the needs of the
Program).
McMoRan shall not have an obligation to spend a particular
portion of the Program Fund during any Program Year but rather
McMoRan shall commit Exploration Expenditures as the occasion
arises to secure Prospects which McMoRan deems would be
appropriate for the Exploration Program, subject to the
provisions of Paragraph 6.1 hereof.
McMoRan agrees to make available its entire geological and
geophysical data base for use in operations under the Program at
no cost to the Participant, except to the extent setforth in the
immediately following sentence. The amounts expended in
acquiring seismic data from Western Geophysical pursuant to the
Licensing Agreement between McMoRan and Western Geophysical dated
November 20, 1996 shall constitute proper charges to Exploration
Expenditures, notwithstanding the fact that some of the costs
incurred pursuant to such agreement were incurred prior to the
beginning of the Program Term, except to the extent that any of
such seismic data so acquired relates to Excluded Areas.
Participant agrees to bear its proportionate part of all
Exploration Expenditures of the Program, subject to the
limitations hereinafter set forth under Article VI.
V.
Acquisition of Leasehold Interests
5.1 Acquisition of Leasehold Interest. On behalf of the
Program and subject to the limitations and guidelines herein set
forth, McMoRan shall evaluate and acquire Leasehold Interests in
the Program Area during the Program Term which it believes to be
potentially productive of oil or gas.
5.2 Excluded Areas. McMoRan and Participant agree that the
following areas ("Excluded Areas") shall not be subject to the
terms of this Agreement unless any such area, or portion thereof,
has been recommended for inclusion herein by McMoRan in writing
and Participant has concurred in writing in that recommendation:
(a) Any Leasehold Interest or prospect lying outside the
Program Area;
(b) Any Leasehold Interest or Prospect which at the time of
acquisition contains proven reserves unless (i) the then proven
reserves do not constitute a material consideration in the
acquisition, and (ii) the primary objective of the acquisition is
to explore for oil and gas other than the then proven reserves;
(c) Those areas identified on attached Exhibit III; and
(d) Any Leasehold Interest or prospect acquired through
merger, acquisition, corporate reorganization or consolidation
with or purchase of substantially all of the assets of an
individual, a corporation or a partnership, provided that the
primary purpose of such merger, acquisition, reorganization,
consolidation or purchase is not to acquire a specific Prospect
or Leasehold Interest which otherwise would be subject to this
Agreement; provided, however, if in such an acquisition McMoRan
acquires an inventory of exploratory prospects not associated
with any proven production acquired in such acquisition, McMoRan
shall meet with Participant and, in good faith, attempt to have
the exploratory prospects transferred to the Exploration Program
5.3 Obligation. Subject to the limitations otherwise
provided in this Agreement, Participant agrees to participate for
its proportionate share of Exploration Expenditures as to all
Leasehold Interest acquired or committed to by McMoRan in the
Program Area during the Program Term. Without limiting or
altering the effect of the AMI provisions of Article XIII hereof,
from and after the end of the Program Term, McMoRan shall not be
obligated to search for and offer to Participant any interest in
Leasehold Interests within the Program Area.
VI.
Exploration Fund
6.1 General. The Program shall have a budget of
$200,000,000 for Exploration Expenditures to be incurred or
committed during the Program Term (the _Exploration Fund_).
Notwithstanding that the Exploration Fund is for the entire
Program Term, unless McMoRan and Participant agree otherwise in
writing, McMoRan will schedule its activities so that Exploration
Expenditures are not likely to exceed on a cumulative basis one
hundred fifty percent (150%) of $40,000,000 per twelve months
period times the number of twelve months periods that have
elapsed since the Program Term commenced.
6.2 Limitations on McMoRan's Authority to Commit
Exploration Fund. In addition to the other limitations imposed
upon McMoRan's authority to commit Participant hereunder, once
the actual and committed Exploration Expenditures reach the
budgeted total, it is understood and agreed that McMoRan (i) will
not undertake any additional drilling commitments on behalf of
the Exploration Program, and (ii) will not acquire any additional
Leasehold Interests on behalf of the Exploration Program.
Additionally, McMoRan shall not make any commitment on behalf of
the Program for the drilling of any well which is anticipated to
commence more than six (6) months after the end of the Program
Term.
6.3 Budget Meetings and Reports.
(a) On a quarterly basis, McMoRan shall hold a meeting in
McMoRan's offices with Participant to discuss the contemplated
activities of the Program for the following period. In such
meetings, McMoRan shall advise Participant of the amounts of the
Exploration Fund which have been committed to Prospects on which
an Exploratory Well has not yet commenced. Such advise shall
include the name of the Prospect, the amount of the Exploration
Fund anticipated to be spent thereon and the anticipated
commencement date of the Exploratory Well to be drilled thereon.
On a monthly basis, McMoRan shall provide Participant with an
accounting of the Exploration Expenditures of the prior month and
Program Term to date reconciling prior ▇▇▇▇▇▇▇▇ and advance
▇▇▇▇▇▇▇▇ with expenditures. McMoRan will promptly advise
Participant in writing when McMoRan reasonably believes that
actual and committed Exploration Expenditures of the Program
equal the Exploration Fund and will furnish reasonable data
supporting such conclusion. In addition to the foregoing,
McMoRan will furnish Participant on request and at Participant's
expense any other data or information needed by Participant to
comply with any governmental laws, rules and regulations,
including those promulgated by the Securities and Exchange
Commission.
VII.
Scientific Studies and Information
7.1 Scientific Studies and Information. During the Program
Term, McMoRan shall conduct geological, geophysical, engineering
and other scientific studies with respect to the acquisition
and/or exploration of Leasehold Interest ("Scientific Studies")
in the Program Area and the cost thereof shall be Exploration
Expenditures.
It is agreed that any seismic records, and other exploration
data (not including any interpretation thereof by McMoRan or its
Technical Consultants) that may be acquired by McMoRan under the
terms of this Agreement shall become and remain the joint
property of McMoRan and Participant. If McMoRan designates a
Prospect under Paragraph 8.1 hereof affecting such acquired data,
McMoRan shall at such time furnish copies of all such data, upon
written request of Participant, including geological and
geophysical maps, to Participant unless McMoRan is prohibited
from furnishing a copy or disclosing it to Participant under the
agreement by which McMoRan acquired such data. Except as
otherwise provided in this Agreement, Participant shall be
permitted full access to such data in McMoRan's offices unless
prohibited from doing so under the agreement by which McMoRan
acquires such data. McMoRan shall not be precluded from entering
into data exchange agreements which McMoRan in good faith
believes will benefit the Program and all data acquired pursuant
to any such exchange agreement shall be the joint property of
McMoRan and Participant. During and after the Program Term,
McMoRan shall have the exclusive right to sell any such data
which McMoRan in good faith believes no longer must be kept
confidential for the purposes of the Program and the proceeds of
such sale shall be shared by the Participant and McMoRan on the
same basis as the said parties own such data. At the end of the
Program Term, McMoRan shall identify seismic records and other
pertinent acquired data (not including any interpretation thereof
by McMoRan or its Technical Consultants) as to which Prospects
have not been designated during the Program Term and McMoRan
shall, upon written request by Participant, provide it copies of
all or any part of such data, unless prohibited from doing so
under the agreement by which McMoRan acquired such data.
Notwithstanding anything herein to the contrary, Participant
shall not have or acquire any property interest in any
interpretations by McMoRan or its Technical Consultants of any
seismic or other exploration data unless and until a Prospect
based thereon has been designated by McMoRan hereunder.
VIII.
Prospects
8.1 Prospects. From time to time McMoRan will obtain
information upon which it can determine and define a particular
portion of the Program Area with sufficient specificity as to be
identified as a Prospect. The term "Prospect" means a contiguous
area which can reasonably be interpreted from geological and/or
geophysical data as encompassing a geological structure,
stratigraphic trap or other common geologic feature which makes
its treatment as a single Prospect for oil and gas production
purposes reasonable and some portion of which is considered
prospective for commercial oil or gas production and is
designated as such pursuant to this Article VIII. Based on such
information, McMoRan shall from time to time designate an area as
a Prospect of the Program. The size and configuration of a
Prospect, as well as all details incident thereto, shall be
determined by McMoRan. During the Program Term, McMoRan alone
shall determine the time when an area is designated as a
Prospect, whether or not Leasehold Interests have previously been
acquired therein. After the Program Term and in accordance with
Paragraph 8.2 hereof, McMoRan or Participant shall have the right
to designate a Prospect which includes Leasehold Interests
theretofore acquired through the Program. Without the prior
consent of Participant, McMoRan shall not commit to the Program
any Prospects which (1) McMoRan's economic analysis indicates
will not have at least a before taxes rate of return of twenty-
five (25) percent, or (2) the water depth for the first expected
platform location is greater than 1,000 feet.
At the time that McMoRan designates a Prospect it shall
furnish to Participant a land plat showing the approximate
outline of the Prospect and the proposed AMI therefor. Subject
to Paragraph 5.2, McMoRan shall as soon as possible thereafter,
upon written request of Participant, furnish Participant (to the
extent not previously furnished) with all pertinent data then
available with respect to the evaluation of such Prospect for oil
or gas development excluding only such data as McMoRan is
prohibited from disclosing by reason of confidentiality
agreements with third parties respecting such data. Such data
shall include a land and geophysical or geological report on such
Prospect, including with respect to the drillsite for the first
Exploratory Well proposed to be drilled thereon, a land plat,
farmin, farmout and other trade agreements, copies of leases,
drilling title opinions, assignments, unit designation
agreements, operating agreements and other documents necessary
for Participant to maintain adequate records relative to such
Prospect and operations thereon, together with such of the
following, as and when available, which are applicable to each
such Prospect:
(a) An itemized list of all Exploration Expenditures
charged to such Prospect;
(b) An itemized estimate of probable additional costs which
may have to be incurred in connection with such Prospect;
(c) Any other information in McMoRan's possession relevant
to an evaluation of such Prospect, including geological data,
including but not limited to cross-sections, maps, key logs, and
geophysical data, including copies of proprietary reprocessed
data, sepias of lines; and
(d) A description of the primary geologic objective and
prospective zone(s) for which the Prospect was acquired. At the
time each such Prospect is designated, McMoRan will
separately allocate to it all Exploration Expenditures
theretofore incurred and properly attributable to such Prospect,
including but not limited to those expenditures made pursuant to
Paragraph 4.1 above.
8.2 Designation of Prospects After Program Term. To the
extent any Leasehold Interests acquired by the Program are not
included in Prospects designated by McMoRan on or prior to the
end of the Program Term, then after such date McMoRan or
Participant or their respective successors in interest shall have
the right to propose a Prospect at the time that it proposes an
Exploratory Well thereon. The geographic limits of such Prospect
so designated shall meet the criteria set forth in Paragraph 8.1
and the AMI therefor shall be subject to the provisions of
Article XIII hereof.
IX.
Drilling of Exploratory ▇▇▇▇▇
9.1 During Program Term. During the Program Term, at the
same time as McMoRan designates a Prospect under Paragraph 8.1
above or thereafter when it commits the Exploration Fund to the
drilling of an Exploratory Well thereon or as soon as possible
after McMoRan has received notice from a third party joint
interest owner that it proposes the drilling of a well thereon,
McMoRan shall provide to Participant (if not previously furnished
and requested in writing by Participant) the following
information:
(a) An AFE for such well both as a dry hole and as a
completed well;
(b) A land plat depicting the Prospect, the proposed AMI
for such Prospect and the Program's Leasehold Interests within
the AMI for such prospect;
(c) A schedule of the Program's Leasehold Interests in the
Prospect AMI;
(d) Maps depicting McMoRan's geological and geophysical
interpretations of the Prospect;
(e) McMoRan's economic analysis of the Prospect's potential
and timing and estimated costs to develop, including description
of facilities to be used, if then known;
(f) Information as to whether any other third party joint
interest owner has elected to join or not to join in the drilling
of such well;
(g) The surface location, proposed bottom hole location,
proposed depth and well prognosis including casing program, mud
program and logging program for such well (to the extent
available in those cases where a third party is the operator of
the well) and any other information in McMoRan's possession
relevant to an evaluation of such well; and
(h) Any acreage or cash contribution pledged in support of
the proposed operation.
Beginning with the permitting process for any Exploratory
Well drilled hereunder, and continuing through the drilling and
completion, temporary abandonment or plugging and abandonment for
such well, McMoRan shall provide the following information if
requested in writing by Participant (to the extent available to
McMoRan and not previously furnished):
(a) name of well, name of Prospect, and identification
number;
(b) drilling permits, plugging and abandonment permits and
permission to produce;
(c) all daily drilling reports, State completion reports,
well completion schematic diagram, stimulation reports and
workover reports;
(d) all core analyses, fluid analyses, PVT. analyses, water
sample analyses;
(e) all pressure survey, DST reports, and pressure buildup
or drawdown data;
(f) all well logs.
9.2 After Program Term. After the Program Term, McMoRan or
Participant shall have the right to propose the drilling of an
Exploratory Well on any Prospect within which an Exploratory Well
could be drilled consistent with the definition of "Exploratory
Well" set out herein. The terms and provisions of the applicable
Program Operating Agreement shall govern any such proposal.
X.
Farmout or Participation Agreements
10.1 Participation Agreements. During the Program Term, if
in the process of evaluation of a Prospect the data and
information lead McMoRan to the good faith determination that
because of the large expenditures required, the extraordinary
risk involved or other facts deemed relevant by McMoRan, an
outside venturer should be obtained in such Prospect, McMoRan
shall have the right to undertake to negotiate an agreement with
a third party to join in the drilling of the Exploratory Well on
the Prospect and thereby acquire a portion of the Exploration
Program's interest in such Prospect; provided, however, that if
any such agreement would reduce the interest of the Exploration
Program by more than fifty percent (50%), McMoRan must obtain the
prior approval of Participant. McMoRan shall give notice to
Participant of its intention to negotiate an agreement with an
outside venturer which would reduce the interest of the
Exploration Program by more than fifty percent (50%), stating the
time within which the circumstances require an expression of
approval or disapproval by the Participant. Failure of
Participant to disapprove the proposed negotiation within the
stated period of time may be deemed by McMoRan to be approval by
Participant. Any agreement with an outside venturer shall be on
the basis of the outside venturer paying and bearing not less
than the proportionate part of all drilling costs and expenses of
the Exploratory Well attributable to the undivided interest
transferred to such outside venturer, and the interest in the
Prospect transferred to or earned by such outside venturer shall
reduce the respective interests of McMoRan and Participant
proportionately. Any promotion or other consideration received
by McMoRan incident to such agreement with an outside venturer
shall be held for the benefit of the Exploration Program and the
Participant shall be entitled to participate therein in
proportion to its interest in the Prospect.
10.2 Farmout Agreements. During the Program Term McMoRan
shall have the right to enter into farmout agreements with
unrelated third parties on such terms as it deems appropriate
respecting Leasehold Interests or portions thereof which are not
anticipated to be drilled or committed to be drilled by the
Exploration Program during the Program Term; provided, however,
McMoRan shall keep Participant advised as to any such farmout
proposals or plans and shall honor the request of Participant
that its interest in such Leasehold Interest or Prospect not be
farmed out if Participant advises McMoRan within ten (10) days,
or forty-eight (48) hours if a drilling rig is on location with
stand-by rig charges accumulating, of McMoRan's notice of
intention to farmout that it will participate as to its ownership
interest in the drilling of the anticipated farmout well.
McMoRan shall not farmout any of Participant's Interest in a
Prospect on which the Program has a producing well without the
prior consent of Participant.
10.3 Trade Agreements. During the Program Term, in
connection with the drilling of an Exploratory Well on a
Prospect, McMoRan shall have complete authority to enter into
unit agreements, acreage swap agreements, bottom hole and dry
hole contribution agreements and any similar agreements with
unrelated third parties. The cost or proceeds of any of the
forgoing agreements shall be credited or charged to the
Participants (1) in the proportion that it participated in the
drilling of the affected Exploratory Well, or (2) if the costs
relate to the payment by the Exploratory Program of a dry hole or
bottom hole contribution to a third party, in the proportion that
Participant bears Exploration Expenditures hereunder, and any
interest in leases or oil or gas thus acquired by exchange shall
constitute Leasehold Interests subject hereto and be owned by
McMoRan and Participant in proportion to their ownership interest
in such Prospect.
XI.
Burdens
11.1 Burdens. The Leasehold Interests to be acquired by the
Program shall be subject to and McMoRan and Participant each
shall bear its proportionate part of all third party overriding
royalties and other burdens on Leasehold Interest (including
subsequently acquired Leasehold Interests in the Prospect AMI)
which McMoRan contracts for incidental to the acquisition or
evaluation of such Leasehold Interests. Participant acknowledges
that McMoRan has heretofore entered into a retainer agreement
with a Technical Consultant and may enter into similar agreements
with others during the Program Term. Without the consent of
Participant, McMoRan agrees not to subject any Leasehold Interest
to overriding royalty burdens to its Technical Consultants which
exceed the amounts deliverable to its current Technical
Consultant, CLK Company, L.L.C.(CLK),under their existing
agreement as described in the letter to Participant dated the
date hereof. McMoRan has provided Participant with a copy of its
current consulting agreement with CLK and Participant agrees
that it will bear its proportionate part of the overriding
royalties to which CLK is entitled pursuant to the terms of said
consulting agreement as to any Leasehold Interest acquired
hereunder as well as to any Leasehold Interest that Participant
may acquire pursuant to an AMI agreement subject hereto.
XII.
Operating Agreement
12.1 Operating Agreement. Except as otherwise provided in
this Agreement, all operations on each Prospect will be carried
out in accordance with the provisions of the Program Operating
Agreement, Offshore or Onshore as applicable, with charges and
credits to the join account to be made in accordance therewith,
including all overhead as to the drilling of Development ▇▇▇▇▇.
In the event of conflict between the terms of the Program
Operating Agreement and the terms of this Agreement, this
Agreement shall control. A particular Leasehold Interest or
Prospect may be subject to a different form of operating
agreement (third party) with one or more third parties not
related to McMoRan, which operating agreement (third party) shall
apply and control at the time it becomes effective in the event
of conflict therewith and the Program Operating Agreement. In
the event of conflict between such operating agreement (third
party) and this Agreement (other than the Program Operating
Agreement), this Agreement shall control as between McMoRan and
Participant.
XIII.
Area of Mutual Interest
13.1 Third Party Area of Mutual Interest Agreements. McMoRan
may be obligated to enter into third party AMI agreements in
connection with the acquisition of additional Prospects for the
Program. Participant agrees to be bound by the provisions of
such AMI agreements.
13.2 Program Area of Mutual Interest Agreement. At the time
a Prospect is identified by McMoRan pursuant to Paragraph 8.1
hereof, there shall be created an Area of Mutual Interest among
McMoRan and Participant. The lands within such Area of Mutual
Interest shall include the involved Prospect and shall be fixed
and determined in the following manner:
(a) McMoRan shall submit to Participant a plat delineating
the area which it determines on a sound geological basis should
be considered as the area which, even though outside the
boundaries of the Prospect, should be considered an area of
mutual interest in connection with the Prospect.
(b) In the event that Participant does not accept the
proposed area of mutual interest, consultation shall be had
between McMoRan and Participant in an effort to fix and determine
the area to constitute the area of mutual interest.
(c) If McMoRan and Participant are able to agree on such
area, the area agreed upon shall constitute the Area of Mutual
Interest, or if agreement cannot be reached, the area of the
Leasehold Interests as to a Prospect all of which is under
Federal leasing jurisdiction, or as to any other Prospect the
area within one-half (1/2) mile surrounding the outer perimeter
of the Prospect, shall constitute the Area of Mutual Interest;
provided however, any such AMI shall not include any portion of
an Excluded Area.
The AMI shall be effective so long as any Leasehold Interest
in such AMI is owned by any of the parties or is subject to this
Agreement, but in no event longer than the earlier of (i)
December 31, 2006 or (ii) one (1) year after the plugging and
abandoning of an Exploratory Well thereon unless another
Exploratory Well has been commenced thereon or McMoRan and
Participant have agreed to install a drilling and production
platform on such Prospect within such one (1) year period.
Any acquisition of Leasehold Interests within such AMI after
the establishment thereof by McMoRan or Participant shall be made
available to be shared by McMoRan and Participant. Subject to
the rights of any third party under third party AMI agreements as
described in Paragraph 13.1, the other party shall have the
option to participate in any such acquisition in the same
proportion as such party's then interest in such Prospect, which
option is to be exercised in the following manner: the acquiring
party shall notify each of the other parties of such acquisition,
furnish a copy thereof and such title information as the
acquiring party has, stating the cost of such acquisition and/or
obligations that must be assumed in connection therewith. The
other parties shall have a period of fifteen (15) days with
respect to the interests not related to a drilling well, and
forty-eight (48) hours (or such lesser period as required by the
circumstances and stated in the notice) with respect to interests
related to a drilling well after receipt of such notice within
which to elect and notify the acquiring party whether or not such
party desires to participate in such acquisition. Failure to
respond shall be deemed an election on the part of such party not
to participate in such acquisition. Upon election and payment to
the acquiring party of such other party's share of the cost of
such acquisition and assumption of its share of such obligations,
such other party shall be entitled to an assignment of such
party's interest in such acquisition. The foregoing provision of
this paragraph shall not apply nor shall they alter Participant's
obligation to purchase its proportionate part of any Leasehold
Interests acquired by McMoRan hereunder in those cases where the
costs of acquiring such interests are Exploration Expenditures.
In the event any party does not elect to participate in an
interest tendered to it under this Paragraph 13.2 the
participating parties may, within twenty-four (24) hours after
notice thereof, elect to take their proportionate shares of the
non-participating party's interest. Time periods expressed in
this Paragraph 13.2 are inclusive of Saturdays, Sundays and legal
holidays.
The provisions of this Paragraph 13.2 shall not be
applicable to acquisitions by any party hereto of an interest
acquired through merger, corporate reorganization or
consolidation with or purchase of all or substantially all of the
assets of a corporation, an individual or a partnership;
provided, however, that the primary purpose of such merger,
corporate reorganization, consolidation or purchase is not to
acquire Leasehold Interests in a specific Prospect which
otherwise would be subject to this Agreement.
XIV.
Ownership of Production
14.1 Ownership of Production. All the oil, gas and
casinghead gas produced for the account of the Leasehold
Interests from any well shall be owned by McMoRan and Participant
severally, in proportion to the respective interests of each
therein as set forth in Paragraph 3.2. above, except as otherwise
provided in this Agreement, and subject to the right, if any,
that others may have under the terms of this Agreement or any
operating agreement relating to such well. Anything to the
contrary herein notwithstanding, each party shall at all times
have the right to take in kind or separately dispose of such
party's share of the production from any such well, subject to
the provisions of the applicable Program Operating Agreement.
McMoRan shall, however, attempt to give Participant at least
seven (7) days advance written notice of the anticipated date of
first deliveries of any production from a Prospect.
XV.
Relationship of the Parties
15.1 Tax Partnership. This Agreement is not intended and
shall not be considered to create a partnership within the
meaning of the federal common law or under the applicable laws of
any state or under the laws of the state in which any party
hereto is incorporated, organized or conducting business or to
create a relationship whereby any of the parties shall be held
liable for the acts, either of omission or commission, of any
other party thereto; provided, however, that in the event a party
should suffer a loss by reason of an unauthorized act of the
other party hereto, the latter shall indemnify and save harmless
the former.
The parties expressly agree that no party hereto shall be
responsible for the obligations of any other party, each party
being severally responsible only for its obligations arising
hereunder and liable only for its allocated share of the costs
and expenses incurred hereunder. It is not the purpose or
intention of this Agreement to create, and this Agreement should
never be construed as creating, a relationship whereby any of the
parties shall be held liable for acts, either of omission or
commission, of any other party hereto. Notwithstanding the
foregoing, each party hereto agrees that this Agreement creates a
partnership for Federal and State income tax reporting purposes
only, which tax partnership shall function and exist in
accordance with the terms and provisions of Exhibit IV attached
hereto. McMoRan agrees to provide to the Participant on a best
efforts basis, by April 30th of each year, any information
available to it relating to operations conducted pursuant to the
Program that is necessary for Participant to prepare Schedule K-1
of its federal income tax return.
XVI.
Billings; Notices
16.1 Billings; Notices . All ▇▇▇▇▇▇▇▇ and notices shall be
as provided in the applicable Program Operating Agreement.
XVII.
Special Non-Consent Elections
17.1 Casing Point Election - Onshore Prospects. At such time
as an Exploratory Well has been drilled to the final total depth
on an Onshore Prospect, McMoRan shall notify Participant that the
Casing Point has been reached on such well, and whether or not
McMoRan recommends that an attempt be made to complete such well.
McMoRan shall also furnish, if requested in writing by
Participant, the estimated costs of completing and equipping the
well and plugging and abandoning same if the completion is
unsuccessful, and all well logs, core analyses and other
information in its possession not theretofore furnished relevant
to evaluation of a completion attempt. Within forty-eight (48)
hours (inclusive of Saturday, Sunday and legal holidays) of
receipt of such recommendation, Participant shall advise McMoRan
whether or not it desires to participate in the recommended
completion attempt. If McMoRan and Participant agree to attempt
completion, McMoRan shall thereupon be authorized to proceed with
the completion attempt and to charge the cost thereof as a
Development Expenditure; provided, however, the cost of plugging
and abandoning the well shall be charged as an Exploration
Expenditure if the completion attempt is unsuccessful. If
Participant does not elect to participate in such completion
attempt, it shall have no further rights hereunder as to the
Prospect involved. If McMoRan recommends abandonment without a
completion attempt, McMoRan shall have the well plugged and
abandoned, charging the cost thereof as an Exploration
Expenditure. Additionally, if Participant does not elect to
participate in a second or subsequent Exploratory Well in a
particular Prospect, Participant shall have no further rights
hereunder as to the Prospect involved.
17.2 Elections Prior to Platform Installation - Offshore
Prospects. If Participant does not elect to participate in (a)
the drilling of any well on an Offshore Prospect proposed by
McMoRan to be drilled after the drilling of the first two (2)
Exploratory ▇▇▇▇▇ thereon and prior to the installation of the
first drilling and/or production platform on such Prospect or (b)
Participant does not elect to participate in the installation of
the first drilling and/or production platform on such Prospect,
the Participant shall have no further rights hereunder as to the
Prospect involved.
17.3 Time Periods. Whenever an election right is provided in
the body of this Agreement and no time period for response is
stipulated then the applicable time periods provided in the
applicable Program Operating Agreement shall apply.
17.4 Completion Attempt by Participant - Onshore. If McMoRan
does not recommend the completion of an Onshore Exploratory Well
and Participant advises McMoRan within forty-eight (48) hours
(inclusive of Saturday, Sunday and legal holidays) of the receipt
by Participant of such recommendation from McMoRan that
Participant elects to attempt to complete such well, McMoRan
shall undertake the completion thereof, and any subsequent
plugging and abandoning thereof, for the account of Participant
and Participant shall bear all costs, risks and expenses of such
completion attempt and abandonment thereof and Participant agrees
to indemnify and hold McMoRan harmless therefrom. If such
completion attempt is successful McMoRan will assign Participant
all of its interest in the borehole of such well and any
production therefrom, but such assignment shall not confer any
additional interest to the Participant in the balance of the
particular Prospect involved.
XVIII.
Program Term
18.1 Program Term. The Program Term shall commence on April
1, 1997 and shall terminate, except for completion of operations
which were theretofore commenced or committed, on the earlier of
five (5) years from the date hereof, or the date that all of the
Exploration Fund has been spent or committed. At the end of the
Program Term, McMoRan shall provide Participant with a list (the
"Committed List") of the undrilled ▇▇▇▇▇, Prospects and farmout
agreements as to which it has committed the Exploration Fund.
Once such Committed List has been provided to Participant, no
substitution shall be made by McMoRan without the consent of
Participant.
18.2 Unfunded Prospects. At the same time as McMoRan submits
the Committed List, McMoRan shall also submit a listing of all
Prospects which would have been committed to the Exploration
Program except for the fact that the Exploration Fund had been
fully expended and/or committed. Within fifteen (15) days of
receipt of such listing from McMoRan, Participant will have the
option to commit additional funds to the Exploration Fund for the
drilling of the first Exploratory Well on any such Prospect or
Prospects or to advise MOXY that it does not elect to so commit
any such additional funds. If the Participant does so commit,
the drilling of such first Exploratory Well on a Prospect where
Participant commits such additional funds shall be charged as
Exploration Expenditures and shall be deemed included in the
Committed List. If the Participant does not commit such addi-
tional funds for a Prospect on such listing, MOXY shall have the
right to acquire Participant's interest in such Prospect, free of
any liens, burdens, or overriding royalties not provided for by
Article XI hereof, by reimbursing Participant for any direct
costs incurred by Participant in acquiring Leasehold Interests in
such Prospect; if MOXY so reimburses Participant, such Prospect
shall be excluded from this Agreement and Participant shall have
no further right hereunder as to such Prospect.
XIX.
Operations After Program Term
19.1 General. After the Program Term, all Leasehold
Interests of the Program will be subject to the provisions of the
applicable Program Operating Agreement and the provisions of this
Agreement except as set forth in Paragraph 18.2 and this Article
XIX. Any Leasehold Interest which is included in a Prospect on
which an Exploratory Well has been committed as shown on the
Committed List shall become subject to this Article XIX after the
drilling of such committed well.
19.2 Exploratory ▇▇▇▇▇. After the Program Term, McMoRan
and/or Participant shall have the right to propose the drilling
of an Exploratory Well on a Prospect in accordance with Paragraph
9.2 hereof.
19.3 Development Expenditures. All Development Expenditures
shall be borne by the parties according to their interest and
subject to the provisions of the applicable Program Operating
Agreement, whether incurred before or after the Program Term.
19.4 Provisions Which Do Not Survive the End of the Program
Term. From and after the end of the Program Term, McMoRan shall
have no right to commit Participant to any expenditures except in
accordance with the applicable Program Operating Agreement and
with respect to the conclusion of then drilling or committed
operations. McMoRan shall have no obligation thereafter to offer
Participant the right to acquire any Leasehold Interest unless
such acquisition is subject to an AMI agreement with Participant.
Further, McMoRan shall have no further right to bind
Participant's interest to any trade agreement except as may be
expressly authorized by Participant.
XX.
Confidentiality.
20.1 Confidentiality. Except to the extent provided to the
contrary hereunder and subject to any agreements with third
parties entered into pursuant to the Program, each party agrees
that at all times prior to, but not after, December 31, 2007, it
will take all reasonable steps to keep secret and confidential
and not disclose to any third party, geological or geophysical
data, progress reports or other information which it may receive
as a result of operations carried out under this Agreement;
provided, however, that these restrictions shall not apply to
information which (i) is in, or has entered into, the public
domain without breach of the provisions of this Paragraph 20.1;
(ii) is in the possession of a party receiving same as a result
of prior receipt thereof from another party (not a party to this
Agreement) prior to the time of such receipt under this
Agreement, (iii) may lawfully be obtained as a matter of right by
the party receiving same from another source, (iv) is required to
be disclosed by law or the rules of any governmental agency or an
applicable stock exchange, by McMoRan or Participant, or (v) is
furnished to Affiliates, or to bona fide prospective purchasers,
mortgagees, prospective mortgagees, lenders, prospective lenders,
prospective joint program participants and consultants for
evaluation purposes provided that any person furnished
information pursuant to this clause (v) agrees not to communicate
such information to any other party or to use it for their own
benefit in a manner adverse to the interests of McMoRan and/or
Participant. Notwithstanding the foregoing, the parties
recognize that from time to time information (such as logs) may
be acquired by the Program which should not be disclosed to
anyone other than those persons who must have such information.
Each party shall take all reasonable steps to require its
employees and consultants to be bound by the provisions of this
paragraph in the same manner as it is bound hereunder. News
releases concerning discoveries or operations of the Program
shall only be made in accordance with guidelines attached to the
applicable Program Operating Agreement, subject to the
requirements of applicable laws and regulations and requirements
of applicable stock exchanges.
XXI.
Insurance
21.1 Insurance for Program. McMoRan shall, at the expense of
the Exploration Program, procure and maintain with responsible
companies insurance in the amounts and covering the risks set
forth below:
(a) Worker's Compensation:
Such insurance shall be in full compliance with the law
in the state where the work is to take place and shall
contain a voluntary compensation endorsement and a
waiver of subrogation as to Participant. Where
applicable, coverage shall also be provided to comply
with the:
(i) U.S. Longshoremen's and Harbor Worker's
Compensation Act, and the
(ii) Outer Continental Shelf Lands Act.
(b) Employer's Liability:
Such insurance shall have a limit of liability of
$500,000 per accident and shall be endorsed, where
applicable, to provide:
(i) Maritime (Amendment to Coverage B), to include
transportation, wages, maintenance and cure.
(ii) A claim "in rem" will be treated as a claim "in
personam".
(iii)A waiver of subrogation as to Participant.
(c) Comprehensive General Liability Insurance:
Such insurance shall have a limit of $1,000,000 per
occurrence and shall be endorsed, where applicable, to
provide:
(i) Deletion of the watercraft exclusion.
(ii) Contractual liability coverage.
(iii)That Participant be named as an additional
insured.
(d) Control of Well Insurance in the minimum amount of
$50,000,000 for the total loss, endorsed to name
Participant as an additional insured.
(e) All vessels owned or chartered by McMoRan shall be
adequately covered by Hull and Protection and Indemnity
Insurance.
(f) No insurance other than as specified above shall be
provided by McMoRan.
(g) McMoRan shall require contractors and subcontractors
performing work for the Program to provide such
insurance as deemed reasonable by McMoRan in relation
to the work to be performed by said contractors or
subcontractors.
(h) Upon request, certificates of insurance evidencing the
insurance obtained by McMoRan hereunder shall be
furnished to Participant.
(i) Unless otherwise agreed in writing, McMoRan and
Participant shall separately carry their own
policies of the following insurance:
(i) Where applicable, Blanket Charters' Legal
Liability and Cargo Legal Liability with a limit
of liability of $500,000.
(ii) Umbrella liability Insurance in the amount of
$25,000,000 excess of all primary limits
(iii) Above insurance coverages including, but not
limited to, any and all deductibles, self-insured
retentions or primary layers, shall contain
waivers of subrogation as to McMoRan and
Participant.
XXII.
Record Title, Assignment
22.1 Record Title. For convenience, McMoRan shall initially
hold record title to the Leasehold Interests acquired hereunder;
provided however, upon written request by Participant, McMoRan
will, within 120 days following the completion by the Program on
an Onshore Prospect of a well capable of producing in paying
quantities, or within 120 days following the installation of the
first drilling and/or production platform on an Offshore Prospect
by the Program, as applicable, execute and deliver to Participant
a recordable assignment of Participant's interest in all
Leasehold Interests in such Prospect, unless Participant has no
further rights hereunder as to a particular Prospect as the
result of a decision not to participate pursuant to Paragraph
17.1, Paragraph 17.2 or Paragraph 18.2, as applicable. In
addition, at the end of Program ▇▇▇▇ ▇▇▇▇▇▇▇ shall execute and
deliver to Participant a recordable assignment of Participant's
interest in any Leasehold Interest not included in a Prospect
during the Program Term pursuant to any provision of this
Agreement. Such assignment shall warrant title against all
parties claiming by, through or under McMoRan, but not otherwise;
but McMoRan shall assign to Participant, with full right of
subrogation, to the extent so transferable, the benefit of and
the right to enforce the covenants and warranties, if any, which
McMoRan is entitled to enforce with respect to the interest
assigned or any part thereof. Each assignment shall be subject
to this Agreement and shall be charged with and burdened by the
proportionate part of the royalties provided for in each lease
covered thereby, any overriding royalty or similar interest with
which such Leasehold Interests are burdened as authorized by
Paragraph 11.1 hereof and any other contracts or agreements with
which such Leasehold Interests are burdened by McMoRan as
expressly authorized by other provisions of this Agreement and
which continue to burden such Leasehold Interests at the time of
such assignment. If, however, there are restrictions on
assignability with respect to a Prospect or Leasehold Interest
prohibiting McMoRan as nominee for the Program from transferring
interests in such Prospect or Leasehold Interest, McMoRan shall
continue to hold record title in its name on behalf of the
parties owning interests therein rather than for the Program, and
at the request of such parties will execute a mutually acceptable
nominee agreement.
22.2 Assignment. Except as permitted below, without the
prior written consent of the other party, neither McMoRan nor
Participant shall assign any rights in this Agreement. Until the
Program has completed a well capable of production in Paying
Quantities on an Onshore Prospect or prior to the election
provided in Paragraph XVII hereof as to an Offshore Prospect, or
the end of the Program Term, whichever first occurs, no party
hereto may assign its interest in the Leasehold Interests within
said Prospect acquired pursuant to the Program without first
obtaining the consent of the other party hereto (which approval
will not be unreasonable withheld); provided that granting of a
lien or security interest by any party shall not require such
consent. The assignees of any Leasehold Interest acquired
pursuant to the Program shall be bound by all of the assignor's
obligations with respect to such Leasehold Interest as to the
interest assigned. Notwithstanding the foregoing, either
Participant or McMoRan without the necessity of obtaining consent
may transfer all or any part of its interests and rights in this
Agreement or in any Prospect to any Affiliate provided that the
assigning party shall remain liable hereunder. Notwithstanding
the foregoing, if a Prospect involves the acquisition of a
Leasehold interest from a third party, the period hereinabove
provided for the delivery of assignments shall be extended, if
required, until 60 days following the receipt of an assignment of
interest by McMoRan from such third party; provided however, in
the event that such an assignment requires the approval of a
governmental authority then such period will be extended for 60
days following the receipt by McMoRan of the required approval
from the governmental authority.
XXIII.
Subsequent Interests
23.1 Subsequent Interest. Except with respect to burdens
described in Paragraph 11.1, or as otherwise provided in this
Agreement, a party who creates any burden against such party's
interest in any Leasehold Interest shall be solely responsible
for such burden; and in the event such party is required,
pursuant to other provisions of this Agreement including the
applicable Program Operating Agreement or a third party operating
agreement, to assign its interest in any Leasehold Interest to
any other party, such assignment shall convey and vest title to
such interest in such assignee free and clear of any such burden.
XXIV.
General
24.1 Records. McMoRan shall maintain complete and accurate
records of all Leasehold Interests acquired and held hereunder,
the acquisition and disposition of all equipment hereunder, and
of all expenditures made hereunder in accordance with generally
accepted industry standards. McMoRan will maintain complete and
accurate records of all correspondence with any operator who may
be operating properties in which the parties hereto have an
interest under this Agreement, and will retain a copy of all
statements, bills and other instruments furnished by any such
operator in accordance with generally accepted industry
standards. Such records, together with receipts, vouchers and
other supporting evidence thereof in McMoRan's possession and
control, will be available for inspection, copying and audit by
Participant or its duly authorized representatives on reasonable
notice at McMoRan's office during regular business hours then in
effect. Participant's right to audit McMoRan's records for the
purpose of challenging the correctness of any charge made by
McMoRan hereunder shall terminate as provided in the accounting
procedure attached to the Program Operating Agreement.
Participant shall be entitled to join McMoRan in any audit made
by McMoRan of the records of third party operators of properties
in which Participant acquired an interest under this Agreement.
At the request of Participant, McMoRan shall conduct or cause to
be conducted an audit of the records of any such third party
operator hereunder, said audit right to be as specified in such
third party agreement including the polling of other non-
operators to determine if they desire to participate, at which
time McMoRan may decline to participate and therefore not bear
any cost related to such audit. In addition, Participant shall
have the same audit rights as held by McMoRan under third party
agreements including the right to elect participation in any
audit performed by another non-operator if McMoRan elects not to
participate in such audit and Participant shall receive copies of
all reports of joint venture audits which are conducted.
24.2 Access. Participant or its duly authorized
representative shall have access at all reasonable times, at its
expense and risk, to the ▇▇▇▇▇▇▇ floor of any well being drilled
hereunder in which Participant is participating; and Participant
shall have the right to inspect all materials on hand for the
account of the Program and to observe any such operations
conducted hereunder.
24.3 Claims and Litigation. Except as to matters arising
with respect to a particular Prospect after the Program Operating
Agreement has become applicable as to all further operations
thereon under the provisions of this Agreement (as to which the
provisions of such Program Operating Agreement will govern), all
investigation, litigation and settlements in connection with
titles, claims and causes of action of every kind and joint
rights and interests of McMoRan and Participant in the Program
Area in connection with the Program shall be carried on,
conducted and defended for and on behalf of McMoRan and
Participant. Each party shall notify the other of any process
served upon it in any such suit or claim. Where a claim has been
made or a suit has been filed against McMoRan or Participant for
damages caused by or arising out of operations the expense of
which is charged to the Exploration Fund as authorized herein,
McMoRan shall retain legal counsel to handle the defense of such
suit or claim and notify Participant of the retention of such
legal counsel. The cost of such legal services shall be charged
in the same manner as Exploration Expenditures are charged.
Participant may, if it so chooses, elect to retain its own legal
counsel (at Participant's expense) to defend its interests in any
such suit or claim; and in such event the claim or suit shall be
defended by a committee of attorneys selected by and representing
the separate interests of McMoRan and Participant (with such
party being responsible for the fees and expenses of its own
counsel), with McMoRan's counsel as chairperson. All settlements
of suits and claims shall be subject to the approval of
Participant; except that McMoRan may settle any claim under
$100,000 without first receiving Participant's approval, provided
the payment is in complete settlement. The costs and expenses
involved in those matters which are subject to the provisions of
this Paragraph 24.3 shall be shared and borne solely by the
parties who participated in such operation or Leasehold Interest
in proportion to their respective participation in the applicable
operation or Leasehold Interest. McMoRan agrees to keep
Participant advised as to claims for which Participant may be
partly responsible hereunder.
24.4 Good Faith. McMoRan and Participant agree to act in
good faith with respect to their respective activities under this
Agreement.
24.5 Governing Law. This Agreement and the documents
provided for herein shall be deemed to be governed by, and
construed in accordance with, the laws of the State of Louisiana.
24.6 Failure to Respond. Except as provided in Paragraph
10.1 hereof, whenever under this Agreement (exclusive of the
applicable Program Operating Agreement) Participant is given the
right to approve or disapprove or participate or decline to
participate in a proposed operation or acquisition; failure to
respond shall be deemed a response to disapprove or decline to
participate in the proposed operation or acquisition unless
McMoRan is recommending and electing to plug and abandon a well,
in which event failure to respond shall be an election to plug
and abandon.
24.7 Conflicts. Should there be any conflict between the
body of this Agreement and any Exhibit hereto, the provisions
contained in the body of this Agreement shall control.
24.8 Binding Effect. This Agreement shall be binding upon
and inure to the benefit of the parties hereto and their
respective successors and assigns; provided, however, nothing
herein contained shall be construed as permitting an assignment
contrary to the terms and provisions of this Agreement.
IN WITNESS WHEREOF, this Agreement is executed in multiple
copies each of which shall be deemed to be an original on
November 14, 1997 but effective as of the date first above
written.
McMoRan Oil & Gas Co.
By:/s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
----------------
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
Senior Vice President
Freeport-McMoRan Resource
Partners, Limited Partnership
By: Freeport-McMoRan Inc.,
its Administrative
Managing General Partner
By:/s/ ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
-----------------
▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
President
The remainder of the Exhibits to the Amendment to
Participation Agreement McMoRan 1997 Exploration Program dated as
of April 1, 1997 between McMoRan Oil & Gas Co. and Freeport-
McMoRan Resource Partners, Limited Partnership, have been
intentionally omitted and will be provided upon request.