Exhibit A of Exhibit 10.21, Shark Prospect Agreement
EXHIBIT "A"
(Attached to and made a part of that certain Letter Agreement dated January
6, 1999 by and between Cheniere Energy, Inc., as Operator, and Beta Oil &
Gas, Inc., as Non-Operator.)
SHARK ▇▇▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇
▇▇▇▇▇▇▇ ▇▇▇▇▇▇
LIST OF LEASES:
Cameron Ph. Recordation
Lease No. Lessor Lessee Acreage Expiration Date File # COB
------------------------- ----------- -------- ----------- --------------- ------ ---
St. Lease ▇▇. ▇▇▇▇▇ ▇▇▇▇▇ ▇▇ ▇▇ Cheniere 401.74 Acre 4/13/03 255677 ▇▇▇
▇▇. ▇▇▇▇▇ ▇▇. ▇▇▇▇▇ ▇▇▇▇▇ ▇▇ ▇▇ " 703.7 Acre 4/13/03 255676 878
*(Portion - 249 Acre
PLUS OR MINUS)
▇▇. ▇▇▇▇▇ ▇▇. ▇▇▇▇▇ ▇▇▇▇▇ ▇▇ ▇▇ " 161.0 Acre 7/13/03 256534 882
*(Portion - 101 Acre
PLUS OR MINUS)
*STATE LEASE NO. 16017. IN SO FAR and only in so far as this lease covers
lands lying southeast of a diagonal line which extends from the northeast
corner of said lease at a point with coordinates of X = 1,221,734.16 and Y =
371,274.14 in a southwesterly direction to a point on the south line of said
lease with coordinates of X = 1,218,650 and Y = 364,274 and LESS AND EXCEPT
the unitized sand in that portion of said tract which might be included in a
P-5 Sand unit created for production from a well drilled on lands not
included in this portion of State Lease No. 16017.
STATE LEASE NO. 16186. IN SO FAR and only in so far as this lease covers
lands lying southeast of a diagonal line which extends from a point on the
north line of said lease with coordinates of X = 1,218,650 and Y = 364,274 to
a point on the south line of said lease with coordinates X = 1,218,075 and
Y = 362,974 and LESS AND EXCEPT the unitized sand in that portion of said
Tract which might be included in a P-5 Sand unit created for production from
a well drilled on lands not included in this portion of State Lease No. 16186.
THERE ARE NO OVERRIDING ROYALTIES ON THE ABOVE LEASES.
Exhibit A
Shark Prospect
Page 2
EXHIBIT "A" CONTINUED
INTERESTS AND ADDRESSES OF PARTIES OWNING
AN INTEREST IN THIS PROSPECT
Beta Oil and Gas, Inc. 15%
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Cheniere Energy, Inc. or Assigns 85%
▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇ ----
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
100%
*With respect to drilling the Test Well on Shark Prospect down to Completion
Point costs will be shared as follows:
Beta Oil and Gas, Inc. 20%
Cheniere Energy, Inc. or Assigns 80%
EXHIBIT "A"
SHARK PROSPECT
[Map outlining the Shark Prospect Area]
EXHIBIT "A"
Page 5 SHARK PROSPECT
---------------------------------------------------------------------------------------------
TEST WELL COST ESTIMATE
CO: CHENIERE ENERGY, INC. DEPTH: 9,800 MD
WELL: SHALLOW/STRAIGHT BLOCK: WestCameron ▇▇▇ ▇▇
---------------------------------------------------------------------------------------------
DATE
02-NOV-98 DRILL/LOG P&A 0.00 COMPLETE
---------------------------------------------------------------------------------------------
days 16.0 2.5 0.0 0.0
1. LOCATION
101 Survey & Stake.......................... 2,500 0 0 0
102 Build & Maintain........................ 0 0 0 0
103 Cuttings Disposal....................... 80,000 0 0 0
104 Location Cleanup........................ 0 0 0 0
2. MOB/DEMOB
201 Drilling Rig............................ 125,000 0 0 0
202 Other Equipment......................... 0 0 0 0
203 Freight................................. 0 0 0 0
204 Personnel............................... 0 0 0 0
205 Miscellaneous........................... 0 0 0 0
3. CONTRACT DRILLING
301 Rig Cost........$19,500 / day........... 312,000 48,750 0 0
302 Footage Cost / Overtime................. 4,800 750 0 0
303 Other / Catering........................ 4,800 750 0 0
4. MATERIALS & SUPPLIES
401 Fuel.................................... 32,000 5,000 0 0
402 Water................................... 4,800 750 0 0
403 Mud & Chemicals......................... 90,000 0 0 0
404 Cement & Additives...................... 20,000 3,000 0 0
405 Cementing Accessories................... 1,500 2,500 0 0
406 Bits & Coreheads........................ 26,000 0 0 0
407 Miscellaneous........................... 3,200 500 0 0
5. CONTRACT SERVICES
501 Marine Services......................... 88,000 13,750 0 0
502 Helicopters............................. 0 0 0 0
503 Land Transportation..................... 12,000 1,875 0 0
504 Diving.................................. 0 0 0 0
505 Cementing............................... 15,600 5,500 0 0
506 Mud Engineer............................ 8,000 1,250 0 0
507 Electric Logging........................ 50,000 0 0 0
508 Mud Logging............................. 8,000 0 0 0
509 Directional Drilling.................... 4,000 0 0 0
510 Special Services........................ 5,000 17,500 0 0
511 Equipment Rental........................ 73,100 10,563 0 0
512 Drill Stem Test Equipment............... 0 0 0 0
513 Inspections............................. 4,000 0 0 0
514 Casing Tools & Crew..................... 28,000 0 0 0
515 Contract Labor.......................... 12,200 1,125 0 0
516 Shorebase............................... 9,800 1,375 0 0
517 Communications.......................... 2,500 250 0 0
518 Insurance............................... 29,700 0 0 0
519 Miscellaneous........................... 1,600 0 0 0
6. DIRECT SUPERVISION
601 Drilling Management Team................ 0 0 0 0
602 Drilling Manager........................ 12,000 1,875 0 0
603 Well Site Supervision................... 13,600 2,125 0 0
7. OVERHEAD
701 Accounting.............................. 0 0 0 0
702 Other................................... 0 0 0 0
SALES TAXES (Intangibles)...................... 13,500 0 0 0
---------------------------------------------------------------------------------------------
TOTAL INTANGIBLE COST 1,097,300 119,188 0 0
---------------------------------------------------------------------------------------------
8. TUBULARS
801 Structural Pipe... 30' @ 400 feet.. 44,000 0 0 0
802 Conductor Casing.. -- @ 0 feet.. 0 0 0 0
803 Surface Casing....10 3/4" @ 4,000 feet.. 72,000 0 0 0
804 Protective Casing. @ 0 feet.. 0 0 0 0
805 Drilling Liner.... -- @ 0 feet.. 0 0 0 0
806 Production Casing. @ 0 feet.. 0 0 0 0
807 Production Liner.. @ 0 feet.. 0 0 0 0
808 Liner Equipment......................... 0 0 0 0
809 Tubing.................................. 0 0 0 0
810 Other................................... 0 0 0 0
9. WELL EQUIPMENT
901 Wellhead................................ 4,000 0 0 0
902 Mud Line Suspension..................... 0 0 0 0
903 Christmas Tree.......................... 0 0 0 0
904 Miscellaneous........................... 0 0 0 0
10. SURFACE PRODUCTION EQUIPMENT
1001 Equipment and Personnel................. 0 0 0 0
SALES TAXES (Tangibles)........................ 7,200 0 0 0
---------------------------------------------------------------------------------------------
TOTAL TANGIBLE COST 127,200 0 0 0
---------------------------------------------------------------------------------------------
CONTINGENCY (Intangibles).......... 5.0%....... 54,865 6,000 0 0
---------------------------------------------------------------------------------------------
TOTAL WELL COST $1,279,365 $125,188 $0 $0
---------------------------------------------------------------------------------------------
Approved by: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇ Approved by: Date:
------------------------- ---------------- -------
Cheniere Energy, Inc. Beta Oil & Gas, Inc.
Cover Page of Exhibit C of Exhibit 10.21, Shark Prospect Agreement
Exhibit C
(Attached to and made a part of that certain Letter Agreement dated January 6,
1999, by and between Cheniere Energy, Inc., as Operator, and Beta Oil & Gas,
Inc., as Non-Operator)
JOINT
OPERATING AGREEMENT
BETWEEN
CHENIERE ENERGY, INC.
AS OPERATOR
AND
BETA OIL AND GAS, INC., ET AL
COVERING
S.L. 16019 - WEST CAMERON AREA BLOCK 49
S.L. 16017 - WEST CAMERON AREA BLOCK 49
SL 16186 - SABINE PASS AREA BLOCK 3
DATED EFFECTIVE JANUARY 6, 1999
Exhibit A of Exhibit C of Exhibit 10.21, Shark Prospect Agreement
EXHIBIT "A"
Attached to and made a part of that particular Joint Operating Agreement
dated effective November 6, 1998 by and between CHENIERE ENERGY, INC., as
Operator, and BETA OIL & GAS, INC, as Non-Operator, covering the Oil and Gas
Leases set out herein below.
1. OIL & GAS LEASES
Cameron Ph. Recordation
Lease No. Lessor Lessee Acreage Expiration Date File# COB
------------------------- ----------- -------- ----------- --------------- ------ ---
St. Lease ▇▇. ▇▇▇▇▇ ▇▇▇▇▇ ▇▇ ▇▇ Cheniere 401.74 Acre 4/13/03 255677 ▇▇▇
▇▇. ▇▇▇▇▇ ▇▇. ▇▇▇▇▇ ▇▇▇▇▇ ▇▇ ▇▇ " 703.7 Acre 4/13/03 255676 878
*(Portion - 249 Acre
PLUS OR MINUS)
▇▇. ▇▇▇▇▇ ▇▇. ▇▇▇▇▇ ▇▇▇▇▇ ▇▇ ▇▇ " 161.0 Acre 7/13/03 256534 882
*(Portion - 101 Acre
PLUS OR MINUS)
*STATE LEASE NO. 16017. IN SO FAR and only in so far as this lease covers
lands lying southeast of a diagonal line which extends from the northeast
corner of said lease at a point with coordinates of X = 1,221,734.16 and Y =
371,274.14 in a southwesterly direction to a point on the south line of said
lease with coordinates of X = 1,218,650 and Y = 364,274 and LESS AND EXCEPT
the unitized sand in that portion of said tract which is included in a
P-5 Sand unit created for production from a well drilled on lands not
included in this portion of State Lease No. 16017.
STATE LEASE NO. 16186. IN SO FAR and only in so far as this lease covers
lands lying southeast of a diagonal line which extends from a point on the
north line of said lease with coordinates of X = 1,218,650 and Y = 364,274 to
a point on the south line of said lease with coordinates X = 1,218,075 and
Y = 362,974 and LESS AND EXCEPT the unitized sand in that portion of said
Tract which is included in a P-5 Sand unit created for production from
a well drilled on lands not included in this portion of State Lease No. 16186.
11. PARTICIPANTS WORKING INTERESTS
-------------------------------------------------------------------
Prior to After Reaching
Reaching Completion
Completion Point in Test
Point in Well and in all
Test Well Subsequent ▇▇▇▇▇
--------- ----------------
Beta Oil and Gas, Inc. 20% 15%
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Cheniere Energy, Inc. or Assigns 80% 85%
▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇ --- ---
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
100% 100%
Exhibit A-1 of Exhibit C of Exhibit 10.21, Shark Prospect Agreement
EXHIBIT "A-1"
SHARK PROSPECT
(Attached to and made a part of that particular Joint Operating Agreement dated
effective November 6, 1998, by and between Cheniere Energy, Inc., as Operator,
and Beta Oil & Gas, Inc. , as Non-Operator)
[Map outlining the Shark Prospect Area]
Exhibit C of Exhibit C of Exhibit 10.21, Shark Prospect Agreement
EXHIBIT "C"
(Attached and made a part of that particular Joint Operating Agreement dated
effective November 6, 1998, by and between Cheniere Energy, Inc., as
Operator, and Beta Oil & Gas, Inc. as Non-Operator, covering S.L. 16019,
16017 and 16186 as more fully set out on Exhibit "A" of the Joint Operating
Agreement.)
ACCOUNTING PROCEDURE
OFFSHORE JOINT OPERATIONS
I. GENERAL PROVISIONS
1. DEFINITIONS
"Joint Property" shall mean the real and personal property subject to the
Agreement to which this Accounting Procedure is attached.
"Joint Operations" shall mean all operations necessary or proper for the
development, operation, protection and maintenance of the Joint Property.
"Joint Account" shall mean the account showing the charges paid and
credits received in the conduct of the Joint Operations and which are to be
shared by the Parties.
"Operator" shall mean the party designated to conduct the Joint
Operations.
"Non-Operators" shall mean the Parties of this Agreement other than the
Operator.
"Parties" shall mean Operator and Non-Operators.
"First Level Supervisors" shall mean those employees whose primary
function in Joint Operations is the direct supervision of other employees
and/or contract labor directly employed on the Joint Property in a field
operating capacity.
"Technical Employees" shall mean those employees having special and
specific engineering, geological or other professional skills, and whose
primary function in Joint Operations is the handling of specific operating
conditions and problems for the benefit of the Joint Property.
"Personal Expenses" shall mean travel and other reasonable reimbursable
expenses of Operator's employees.
"Material" shall mean personal property, equipment or supplies acquired or
held for use on the Joint Property.
"Controllable Material" shall mean Material which at the time is so
classified in the Material Classification Manual as most recently
recommended by the Council of Petroleum Accountants Societies.
"Shore Base Facilities" shall mean onshore support facilities that during
drilling, development, maintenance and producing operations provide such
services to the Joint Property as receiving and transshipment point for
supplies, materials and equipment; debarkation point for drilling and
production personnel and services; communication, scheduling and
dispatching center; other associated functions benefiting the Joint
Property.
"Offshore Facilities" shall mean platforms and support systems such as
oil and gas handling facilities, living quarters, offices, shops, cranes,
electrical supply equipment and systems, fuel and water storage and
piping, heliport, marine docking installations, communication facilities,
navigation aids, and other similar facilities necessary in the conduct of
offshore operations.
2. STATEMENTS AND ▇▇▇▇▇▇▇▇
Operator shall ▇▇▇▇ Non-Operators on or before the last day of each month
for their proportionate share of the Joint Account for the preceding
month. Such bills will be accompanied by statements which identify the
authority for expenditure, lease or facility, and all charges and
credits, summarized by appropriate classifications of investment and
expense except that items of Controllable Material and unusual charges
and credits shall be separately identified and fully described in detail.
3. ADVANCES AND PAYMENTS BY NON-OPERATORS
A. Unless otherwise provided for in the Agreement, the Operator may
require the Non-Operators to advance their share of estimated cash
outlay for the succeeding month's operation within fifteen (15) days
after receipt of the billing or by the first day of the month for
which the advance is required, whichever is later. Operator shall
adjust each monthly billing to reflect advances received from the
Non-Operators.
B. Each Non-Operator shall pay its proportion of all bills within fifteen
(15) days after receipt. If payment is not made within such time, the
unpaid balance shall bear interest monthly at the prime rate in effect
at Chase Manhatten Bank NY, NY on the first day of the month in which
delinquency occurs plus 1% or the maximum contract rate permitted by
the applicable usury laws of the jurisdiction in which the Joint
Property is located, whichever is the lesser, plus attorney's fees,
court costs, and other costs in connection with the collection of
unpaid amounts.
4. ADJUSTMENTS
Payment of any such bills shall not prejudice the right of any
Non-Operator to protest or question the correctness thereof; provided,
however, all bills and statements rendered to Non-Operators by Operator
during any calendar year shall conclusively be presumed to be true and
correct after twenty-four (24) months following the end of any such
calendar year, unless within the said twenty-four (24) month period a
Non-Operator takes written exception thereto and makes claim on Operator
for adjustment. No adjustment favorable to Operator shall be made unless
it is made within the same prescribed period. The provisions of this
paragraph shall not prevent adjustments resulting from a physical
inventory of Controllable Material as provided for in Section V.
COPYRIGHT-C- 1987 by the Council of Petroleum Accountants Societies.
47
5. AUDITS
A. A Non-Operator, upon notice in writing to Operator and all other
Non-Operators, shall have the right to audit Operator's accounts and
records relating to the Joint Account for any calendar year within the
twenty-four (24) month period following the end of such calendar year;
provided, however, the making of an audit shall not extend the time
for the taking of written exception to and the adjustments of accounts
as provided for in Paragraph 4 of this Section I. Where there are two
or more Non-Operators, the Non-Operators shall make every reasonable
effort to conduct a joint audit in a manner which will result in a
minimum of inconvenience to the Operator. Operator shall bear no
portion of the Non-Operators' audit cost incurred under this paragraph
unless agreed to by the Operator. The audits shall not be conducted
more than once each year without prior approval of Operator, except
upon the resignation or removal of the Operator, and shall be made at
the expense of those Non-Operators approving such audit.
B. The Operator shall reply in writing to an audit report within 180 days
after receipt of such report.
6. APPROVAL BY NON-OPERATORS
Where an approval or other agreement of the Parties or Non-Operators is
expressly required under other sections of this Accounting Procedure and if
the agreement to which this Accounting Procedure is attached contains no
contrary provisions in regard thereto, Operator shall notify all
Non-Operators of the Operator's proposal, and the agreement or approval of
a majority in interest of the Non-Operators shall be controlling on all
Non-Operators.
II. DIRECT CHARGES
Operator shall charge the Joint Account with the following items.
1. RENTALS AND ROYALTIES
Lease rentals and royalties paid by Operator for the Joint Operations.
2. LABOR
A. (1) Salaries and wages of Operator's field employees directly employed
on the Joint Property in the conduct of Joint Operations.
(2) Salaries and wages of Operator's employees directly employed on
Shore Base Facilities or other Offshore Facilities serving the
Joint Property if such costs are not charged under Paragraph 7 of
this Section II.
(3) Salaries of First Level Supervisors in the field.
(4) Salaries and wages of Technical Employees directly employed on the
Joint Property if such charges are excluded from the Overhead rates.
(5) Salaries and wages of Technical Employees either temporarily or
permanently assigned to and directly employed in the operation of
the Joint Property if such charges are excluded from the overhead
rates.
B. Operator's cost of holiday, vacation, sickness and disability benefits
and other customary allowances paid to employees whose salaries and
wages are chargeable to the Joint Account under Paragraph 2A of this
Section II. Such costs under this Paragraph 2B may be charged on a
"when and as paid basis" or by "percentage assessment" on the amount
of salaries and wages chargeable to the Joint Account under Paragraph
2A of this Section II. If percentage assessment is used, the rate
shall be based on the Operator's cost experience.
C. Expenditures or contributions made pursuant to assessments imposed by
governmental authority which are applicable to Operator's costs
chargeable to the Joint Account under Paragraphs 2A and 2B of this
Section II.
D. Personal Expenses of those employees whose salaries and wages are
chargeable to the Joint Account under Paragraph 2A of this Section II.
3. EMPLOYEE BENEFITS
Operator's current costs of established plans for employees' group life
insurance, hospitalization, pension, retirement, stock purchase, thrift,
bonus, and other benefit plans of a like nature, applicable to Operator's
labor cost chargeable to the Joint Account under Paragraphs 2A and 2B of
this Section II shall be Operator's actual cost not to exceed the percent
most recently recommended by the Council of Petroleum Accountants
Societies.
4. MATERIAL
Material purchased or furnished by Operator for use on the Joint Property
as provided under Section IV. Only such Material shall be purchased for
or transferred to the Joint Property as may be required for immediate use
and is reasonably practical and consistent with efficient and economical
operations. The accumulation of surplus stocks shall be avoided.
5. TRANSPORTATION
Transportation of employees and Material necessary for the Joint
Operations but subject to the following limitations:
A. If Material is moved to the Joint Property from the Operator's
warehouse or other properties, no charge shall be made to the Joint
Account for a distance greater than the distance from the nearest
reliable supply store where like material is normally available or
railway receiving point nearest the Joint Property unless agreed to by
the Parties.
B. If surplus Material is moved to Operator's warehouse or other storage
point, no charge shall be made to the Joint Account for a distance
greater than the distance to the nearest reliable supply store where
like material is normally available, or railway receiving point
nearest the Joint Property unless agreed to by the Parties. No charge
shall be made to the Joint Account for moving Material to other
properties belonging to Operator, unless agreed to by the Parties.
C. In the application of subparagraphs A and B above, the option to
equalize or charge actual trucking cost is available when the actual
charge is $400 or less excluding accessorial charges. The $400 will
be adjusted to the amount most recently recommended by the Council of
Petroleum Accountants Societies.
-2-
6. SERVICES
The cost of contract services, equipment and utilities provided by
outside sources, except services excluded by Paragraph 9 of Section II
and Paragraphs i and ii of Section III. The cost of professional
consultant services and contract services of technical personnel directly
engaged on the Joint Property if such charges are excluded from the
overhead rates. The cost of professional consultant services or contract
services of technical personnel directly engaged in the operation of the
Joint Property shall be charged to the Joint Account if such charges are
excluded from the overhead rates.
7. EQUIPMENT AND FACILITIES FURNISHED BY OPERATOR
A. Operator shall charge the Joint Account for use of Operator-owned
equipment and facilities, including Shore Base and/or Offshore
Facilities, at rates commensurate with costs of ownership and
operation. Such rates may include labor, maintenance, repairs, other
operating expense, insurance, taxes, depreciation and interest on
gross investment less accumulated depreciation not to exceed Twelve
percent (12%) per annum. In addition, for platforms only, the rate
may include an element of the estimated cost of platform
dismantlement. Such rates shall not exceed average commercial rates
currently prevailing in the immediate area of the Joint Property.
B. In lieu of charges in Paragraph 7A above, Operator may elect to use
average commercial rates prevailing in the immediate area of the Joint
Property less twenty percent (20%). For automotive equipment,
Operator may elect to use rates published by the Petroleum Motor
Transport Association.
8. DAMAGES AND LOSSES TO JOINT PROPERTY
All costs or expenses necessary for the repair or replacement of Joint
Property made necessary because of damages or losses incurred by fire,
flood, storm, theft, accident, or other causes, except those resulting
from Operator's gross negligence or willful misconduct. Operator shall
furnish Non-Operator written notice of damages or losses incurred as soon
as practicable after a report thereof has been received by Operator.
9. LEGAL EXPENSE
Expense of handling, investigating and settling litigation or claims,
discharging of liens, payments of judgements and amounts paid for
settlement of claims incurred in or resulting from operations under the
Agreement or necessary to protect or recover the Joint Property, except
that no charge for services of Operator's legal staff or fees or expense
of outside attorneys shall be made unless previously agreed to by the
Parties. All other legal expense is considered to be covered by the
overhead provisions of Section III unless otherwise agreed to by the
Parties, except as provided in Section I, Paragraph 3.
10. TAXES
All taxes of every kind and nature assessed or levied upon or in
connection with the Joint Property, the operation thereof, or the
production therefrom, and which taxes have been paid by the Operator for
the benefit of the Parties. If the ad valorem taxes are based in whole
or in part upon separate valuations of each party's working interest,
then notwithstanding anything to the contrary herein, charges to the
Joint Account shall be made and paid by the Parties hereto in accordance
with the tax value generated by each party's working interest.
11. INSURANCE
Net premiums paid for insurance required to be carried for the Joint
Operations for the protection of the Parties. In the event Joint
Operations are conducted at offshore locations in which Operator may act
as self-insurer for Workers' Compensation and Employers' Liability,
Operator may include the risk under its self-insurance program in
providing coverage under State and Federal laws and charge the Joint
Account at Operator's cost not to exceed manual rates.
12. COMMUNICATIONS
Costs of acquiring, leasing, installing, operating, repairing and
maintaining communication systems including radio and microwave
facilities between the Joint Property and the Operator's nearest Shore
Base Facility. In the event communication facilities systems serving the
Joint Property are Operator-owned, charges to the Joint Account shall be
made as provided in Paragraph 7 of this Section II.
13. ECOLOGICAL AND ENVIRONMENTAL
Costs incurred on the Joint Property as a result of statutory regulations
for archaeological and geophysical surveys relative to identification and
protection of cultural resources and/or other environmental or ecological
surveys as may be required by the Bureau of Land Management or other
regulatory authority. Also, costs to provide or have available pollution
containment and removal equipment plus costs of actual control and cleanup
and resulting responsibilities of oil spills as required by applicable laws
and regulations.
14. ABANDONMENT AND RECLAMATION
Costs incurred for abandonment of the Joint Property, including costs
required by governmental or other regulatory authority.
15. OTHER EXPENDITURES
Any other expenditure not covered or dealt with in the foregoing
provisions of this Section II, or in Section III and which is of direct
benefit to the Joint Property and is incurred by the Operator in the
necessary and proper conduct of the Joint Operations.
-3-
III. OVERHEAD
As compensation for administrative, supervision, office services and
warehousing costs, Operator shall charge the Joint Account in accordance with
this Section III.
Unless otherwise agreed to by the Parties, such charge shall be in lieu of
costs and expenses of all offices and salaries or wages plus applicable
burdens and expenses of all personnel, except those directly chargeable under
Section II. The cost and expense of services from outside sources in
connection with matters of taxation, traffic, accounting or matters before or
involving governmental agencies shall be considered as included in the
overhead rates provided for in this Section III unless such cost and expense
are agreed to by the Parties as a direct charge to the Joint Account.
i. Except as otherwise provided in Paragraph 2 of this Section III, the
salaries, wages and Personal Expenses of Technical Employees and/or the
cost of professional consultant services and contract services of
technical personnel directly employed on the Joint Property:
( ) shall be covered by the overhead rates.
(X ) shall not be covered by the overhead rates.
ii. Except as otherwise provided in Paragraph 2 of this Section III, the
salaries, wages and Personal Expenses of Technical Employees and/or
costs of professional consultant services and contract services of
technical personnel either temporarily or permanently assigned to and
directly employed in the operation of the Joint Property:
( ) shall be covered by the overhead rates.
(X ) shall not be covered by the overhead rates.
1. OVERHEAD - DRILLING AND PRODUCING OPERATIONS
As compensation for overhead incurred in connection with drilling and
producing operations, Operator shall charge on either:
(X ) Fixed Rate Basis, Paragraph 1A or
( ) Percentage Basis, Paragraph 1B
A. Overhead - Fixed Rate Basis * includes 1998 ▇▇▇▇▇ adjustment
(1) Operator shall charge the Joint Account at the following rates
per well per month:
Drilling Well Rate $25,558.05* (Prorated for less than a full
month)
Producing Well Rate $2,555.75*
(2) Application of Overhead - Fixed Rate Basis for Drilling Well
Rate shall be as follows:
(a) Charges for drilling ▇▇▇▇▇ shall begin on the date when
drilling or completion equipment arrives on location and
terminate on the date the drilling or completion equipment
moves off location or rig is released, whichever occurs
first, except that no charge shall be made during suspension
of drilling operations for fifteen (15) or more consecutive
calendar days.
(b) Charges for ▇▇▇▇▇ undergoing any type of workover or
recompletion for a period of five (5) consecutive work days
or more shall be made at the drilling well rate. Such
charges shall be applied for the period from date workover
operations, with rig or other units used in workover,
commence through date of rig or other unit release, except
that no charge shall be made during suspension of operations
for fifteen (15) or more consecutive calendar days.
(3) Application of Overhead - Fixed Rate Basis for Producing Well
Rate shall be as follows:
(a) An active well either produced or injected into for any
portion of the month shall be considered as a one-well
charge for the entire month.
(b) Each active completion in a multi-completed well in which
production is not commingled down hole shall be considered
as a one-well charge providing each completion is considered
a separate well by the governing regulatory authority.
(c) An inactive gas well shut in because of overproduction or
failure of purchaser to take the production shall be
considered as a one-well charge providing the gas well is
directly connected to a permanent sales outlet.
(d) A one-well charge shall be made for the month in which
plugging and abandonment operations are completed on any
well. This one-well charge shall be made whether or not the
well has produced except when drilling well rate applies.
(e) All other inactive ▇▇▇▇▇ (including but not limited to
inactive ▇▇▇▇▇ covered by unit allowable, lease
allowable, transferred allowable, etc.) shall not qualify
for an overhead charge.
(4) The well rates shall be adjusted as of the first day of April
each year following the effective date of the agreement to which
this Accounting Procedure is attached. The adjustment shall be
computed by multiplying the rate currently in use by the
percentage increase or decrease in the average weekly earnings
of Crude Petroleum and Gas Production Workers for the last
calendar year compared to the calendar year preceding as shown
by the index of average weekly earnings of Crude Petroleum and
Gas Fields Production Workers as published by the United States
Department of Labor, Bureau of Labor Statistics, or the
equivalent Canadian index as published by Statistics Canada, as
applicable. The adjusted rates shall be the rates currently in
use, plus or minus the computed adjustment.
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2. OVERHEAD - MAJOR CONSTRUCTION
To compensate Operator for overhead costs incurred in the construction
and installation of fixed assets, the expansion of fixed assets, and any
other project clearly discernible as a fixed asset required for the
development and operation of the Joint Property, or in the dismantling
for abandonment of platforms and related production facilities,
Operator shall either negotiate a rate prior to the beginning of
construction, or shall charge the Joint Account for Overhead based on the
following rates for any Major Construction project in excess of $25,000.00
A. If the Operator absorbs the engineering, design and drafting costs
related to the project:
(1) 5% of total costs if such costs are more than $25,000.00 but less
than $100,000; plus
(2) 3% of total costs in excess of $100,000 but less than $1,000,000;
plus
(3) 2% of total costs in excess of $1,000,000.
B. If the Operator charges engineering, design and drafting costs related
to the project directly to the Joint Account:
(1) 3% of total costs if such costs are more than $25,000.00 but less
than $100,000; plus
(2) 2% of total costs in excess of $100,000 but less than $1,000,000;
plus
(3) 1.5% of total costs in excess of $1,000,000.
Total cost shall mean the gross cost of any one project. For the purpose
of this paragraph, the component parts of a single project shall not be
treated separately and the cost of drilling and workover ▇▇▇▇▇ and
artificial lift equipment shall be excluded.
On each project, Operator shall advise Non-Operator(s) in advance which
of the above options shall apply. In the event of any conflict between
the provisions of this paragraph and those provisions under Section II,
Paragraph 2 or Paragraph 6, the provisions of this paragraph shall govern.
3. OVERHEAD - CATASTROPHE
To compensate Operator for overhead costs incurred in the event of
expenditures resulting from a single occurrence due to oil spill,
blowout, explosion, fire, storm, hurricane, or other catastrophes as
agreed to by the Parties, which are necessary to restore the Joint
Property to the equivalent condition that existed prior to the event
causing the expenditures, Operator shall either negotiate a rate prior to
charging the Joint Account or shall charge the Joint Account for overhead
based on the following rates:
(1) 5% of total costs through $100,000; plus
(2) 3% of total costs in excess of $100,000 but less than $1,000,000; plus
(3) 2% of total costs in excess of $1,000,000.
Expenditures subject to the overheads above will not be reduced by
insurance recoveries, and no other overhead provisions of this Section III
shall apply.
4. AMENDMENT OF RATES
The Overhead rates provided for in this Section III may be amended from
time to time only by mutual agreement between the Parties hereto if, in
practice, the rates are found to be insufficient or excessive.
IV. PRICING OF JOINT ACCOUNT MATERIAL PURCHASES, TRANSFERS AND DISPOSITIONS
Operator is responsible for Joint Account Material and shall make proper and
timely charges and credits for all Material movements affecting the Joint
Property. Operator shall provide all Material for use on the Joint
Property; however, at Operator's option, such Material may be supplied by
the Non-Operator. Operator shall make timely disposition of idle and/or
surplus Material, such disposal being made either through sale to Operator or
Non-Operator, division in kind, or sale to outsiders. Operator may purchase,
but shall be under no obligation to purchase, interest of Non-Operators in
surplus condition A or B Material. The disposal of surplus Controllable
Material not purchased by the Operator shall be agreed to by the Parties.
1. PURCHASES
Material purchased shall be charged at the price paid by Operator after
deduction of all discounts received. In case of Material found to be
defective or returned to vendor for any other reasons, credit shall be
passed to the Joint Account when adjustment has been received by the
Operator.
2. TRANSFERS AND DISPOSITIONS
Material furnished to the Joint Property and Material transferred from
the Joint Property or disposed of by the Operator, unless otherwise
agreed to by the Parties, shall be priced on the following basis
exclusive of cash discounts.
A. New Material (Condition A)
(1) Tubular Goods Other than Line Pipe
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(a) Tubular goods, sized 2 1/8 inches OD and larger, except line
pipe, shall be priced at Eastern mill published carload base
prices effective as of date of movement plus transportation
cost using the 80,000 pound carload weight basis to the
railway receiving point nearest the Joint Property for which
published rail rates for tubular goods exist. If the 80,000
pound rail rate is not offered, the 70,000 pound or 90,000
pound rail rate may be used. Freight charges for tubing will
be calculated from Lorain, Ohio and casing from Youngstown,
Ohio.
(b) For grades which are special to one mill only, prices shall be
computed at the mill base of that mill plus transportation
cost from that mill to the railway receiving point nearest the
Joint Property as provided above in Paragraph 2.A.(1)(a). For
transportation cost from points other than Eastern ▇▇▇▇▇, the
30,000 pound Oil Field Haulers Association interstate truck
rate shall be used.
(c) Special end finish tubular goods shall be priced at the lowest
published out-of-stock price, f.o.b. Houston, Texas; plus
transportation cost, using Oil Field Haulers Association
interstate 30,000 pound truck rate, to the railway receiving
point nearest the Joint Property.
(d) Macaroni tubing (size less than 2 1/8 inch OD) shall be priced
at the lowest published out-of-stock prices f.o.b. the
supplier plus transportation costs, using the Oil Field
Haulers Association interstate truck rate per weight of tubing
transferred, to the railway receiving point nearest the Joint
Property.
(2) Line Pipe
(a) Line pipe movements (except size 24 inch OD and larger with
walls 1/4 inch and over) 30,000 pounds or more shall
be priced under provisions of tubular goods pricing in
Paragraph A.(1)(a) as provided above. Freight charges shall be
calculated from Lorain, Ohio.
(b) Line pipe movements (except size 24 inch OD and larger with
walls 1/4 inch and over) less than 30,000 pounds shall
be priced at Eastern mill published carload base prices
effective as of date of shipment, plus 20 percent, plus
transportation costs based on freight rates as set forth under
provisions of tubular goods pricing in Paragraph A.(1)(a) as
provided above. Freight charges shall be calculated from
Lorain, Ohio.
(c) Line pipe 24 inch OD and over and 1/4 inch wall and
larger shall be priced f.o.b. the point of manufacture at
current new published prices plus transportation cost to the
railway receiving point nearest the Joint Property.
(d) Line pipe, including fabricated line pipe, drive pipe and
conduit not listed on published price lists shall be priced at
quoted prices plus freight to the railway receiving point
nearest the Joint Property or at prices agreed to by the
Parties.
(3) Other Material shall be priced at the current new price, in effect
at date of movement, as listed by a reliable supply store nearest
the Joint Property, or point of manufacture, plus transportation
costs, if applicable, to the railway receiving point nearest the
Joint Property.
(4) Unused new Material, except tubular goods, moved from the Joint
Property shall be priced at the current new price, in effect on
date of movement, as listed by a reliable supply store nearest the
Joint Property, or point of manufacture, plus transportation costs,
if applicable, to the railway receiving point nearest the Joint
Property. Unused new tubulars will be priced as provided above in
Paragraph 2.A.(1) and (2).
B. Good Used Material (Condition B)
Material in sound and serviceable condition and suitable for reuse
without reconditioning:
(1) Material moved to the Joint Property
At seventy-five percent (75%) of current new price, as determined
by Paragraph A.
(2) Material used on and moved from the Joint Property
(a) At seventy-five percent (75%) of current new price, as
determined by Paragraph A, if Material was originally charged
to the Joint Account as new Material or
(b) At sixty-five percent (65%) of current new price, as
determined by Paragraph A, if Material was originally charged
to the Joint Account as used Material.
(3) Material not used on and moved from the Joint Property
At seventy-five percent (75%) of current new price as determined
by Paragraph A.
The cost of reconditioning, if any, shall be absorbed by the
transferring property.
C. Other Used Material
(1) Condition C
Material which is not in sound and serviceable condition and not
suitable for its original function until after reconditioning
shall be priced at fifty percent (50%) of current new price as
determined by Paragraph A. The cost of reconditioning shall be
charged to the receiving property, provided Condition C value plus
cost of reconditioning does not exceed Condition B value.
(2) Condition D
Material, excluding junk, no longer suitable for its original
purpose, but usable for some other purpose shall be priced on a
basis commensurate with its use. Operator may dispose of
Condition D Material under procedures normally used by Operator
without prior approval of Non-Operators.
(a) Casing, tubing, or drill pipe used as line pipe shall be
priced as Grade A and B seamless line pipe of comparable size
and weight. Used casing, tubing or drill pipe utilized as
line pipe shall be priced at used line pipe prices.
(b) Casing, tubing or drill pipe used as higher pressure service
lines than standard line pipe, e.g. power oil lines, shall be
priced under normal pricing procedures for casing, tubing, or
drill pipe. Upset tubular goods shall be priced on a
non-upset basis.
(3) Condition E
Junk shall be priced at prevailing prices. Operator may dispose
of Condition E Material under procedures normally utilized by
Operator without prior approval of Non-Operators.
-6-
D. Obsolete Material
Material which is serviceable and usable for its original function but
condition and/or value of such Material is not equivalent to that
which would justify a price as provided above may be specially priced
as agreed to by the Parties. Such price should result in the Joint
Account being charged with the value of the service rendered by such
Material.
E. Pricing Conditions
(1) Loading or unloading costs may be charged to the Joint Account at
the rate of twenty-five cents (25 CENTS) per hundred weight on all
tubular goods movements, in lieu of actual loading or unloading
costs sustained at the stocking point. The above rate shall be
adjusted as of the first day of April each year following January
1, 1985 by the same percentage increase or decrease used to adjust
overhead rates in Section III, Paragraph 1.A(1). Each year, the
rate calculated shall be rounded to the nearest cent and shall be
the rate in effect until the first day of April next year. Such
rate shall be published each year by the Council of Petroleum
Accountants Societies.
(2) Material involving erection costs shall be charged at applicable
percentage of the current knocked-down price of new Material.
3. PREMIUM PRICES
Whenever Material is not readily obtainable at published or listed prices
because of national emergencies, strikes or other unusual causes over
which the Operator has no control, the Operator may charge the Joint
Account for the required Material at the Operator's actual cost incurred
in providing such Material, in making it suitable for use, and in moving
it to the Joint Property; provided notice in writing is furnished to
Non-Operators of the proposed charge prior to billing Non-Operators for
such Material. Each Non-Operator shall have the right, by so electing
and notifying Operator within ten days after receiving notice from
Operator, to furnish in kind all or part of his share of such Material
suitable for use and acceptable to Operator.
4. WARRANTY OF MATERIAL FURNISHED BY OPERATOR
Operator does not warrant the Material furnished. In case of defective
Material, credit shall not be passed to the Joint Account until
adjustment has been received by Operator from the manufacturers or their
agents.
V. INVENTORIES
The Operator shall maintain detailed records of Controllable Material.
1. PERIODIC INVENTORIES, NOTICE AND REPRESENTATION
At reasonable intervals, inventories shall be taken by Operator of the
Joint Account Controllable Material. Written notice of intention to take
inventory shall be given by Operator at least thirty (30) days before any
inventory is to begin so that Non-Operators may be represented when any
inventory is taken. Failure of Non-Operators to be represented at an
inventory shall bind Non-Operators to accept the inventory taken by
Operator.
2. RECONCILIATION AND ADJUSTMENT OF INVENTORIES
Adjustments to the Joint Account resulting from the reconciliation of a
physical inventory shall be made within six months following the taking of
the inventory. Inventory adjustments shall be made by Operator to the
Joint Account for overages and shortages, but, Operator shall be held
accountable only for shortages due to lack of reasonable diligence.
3. SPECIAL INVENTORIES
Special inventories may be taken whenever there is any sale, change of
interest, or change of Operator in the Joint Property. It shall be the
duty of the party selling to notify all other Parties as quickly as
possible after the transfer of interest takes place. In such cases, both
the seller and the purchaser shall be governed by such inventory. In cases
involving a change of Operator, all Parties shall be governed by such
inventory.
4. EXPENSE OF CONDUCTING INVENTORIES
A. The expense of conducting periodic inventories shall not be charged to
the Joint Account unless agreed to by the Parties.
B. The expense of conducting special inventories shall be charged to the
Parties requesting such inventories, except inventories required due to
change of Operator shall be charged to the Joint Account.