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EXHIBIT 10.34
FARMOUT AGREEMENT
By and Between
CHEVRON U.S.A. INC.
(Farmoutor)
AND
ENERGY PARTNERS, LTD. and
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ L.L.C.
(Farmoutee)
Covering
NORTH FLANK BAY ▇▇▇▇▇▇▇▇
OFFSHORE LOUISIANA
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FARMOUT AGREEMENT
TABLE OF CONTENTS
SECTION PAGE
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1. FARMOUT LEASE & FARMOUT PREMISES; FARMOUT ▇▇▇▇▇ 1
2. PHASE I 1
3. PHASE II 1
4. TRANSFER OF WELL RIGHTS 2
5. OBLIGATION ▇▇▇▇▇ 2
6. AFE PROPOSALS BY FARMOUTEE 3
AFE PROPOSALS BY FARMOUTOR 3
7. ELECTIONS AND OWNERSHIP 3
8. SUBSTITUTE ▇▇▇▇▇ 4
9. FARMOUTOR'S TAKEOVER RIGHTS 5
10. PROSPECT EVALUATION 6
11. CHEVRON RESERVE AREAS 6
12. PHASE I-- PHASE II TIME PERIODS 7
13. ADDITIONAL OPPORTUNITIES 8
14. EXTENSION 9
15. TRANSFER OF INTEREST 9
16. PAYOUT 10
17. TRANSFER OF OPERATORSHIP 11
18. JOINT OPERATING AGREEMENT 11
19. STATE DEMANDS 12
20. CONFIDENTIALITY OBLIGATION 12
21. GEOLOGICAL AND INFORMATION REQUIREMENTS 12
22. REPORTS AND STATEMENTS 12
23. CESSATION OF PRODUCTION 14
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24. CONTRACT OPERATING AND PROCESSING FEES 14
25. OTHER AGREEMENTS 21
26. RENTALS, MINIMUM ROYALTIES 21
27. PARTNERSHIP OR JOINT VENTURE 21
28. TAX MATTERS 21
29. INDEMNIFICATION 21
30. COMPLIANCE 21
31. INSURANCE 22
32. OIL POLLUTION ACT OF 1990 22
33. PRIOR OBLIGATIONS MAINTAINED 22
34. NO LIENS OR ENCUMBRANCES 22
35. PAYMENT OF DEBTS, CHARGES 22
36. BREACH 22
37. RIGHTS AND REMEDIES 22
38. NO WAIVER 23
39 AUDIT RIGHTS 23
40. FURTHER ASSIGNMENTS 23
41. NOTICES 23
42. NO PLEDGES 23
43. AMENDMENTS 24
44. CALL ON PRODUCTION 24
45. GAS PLANT PROCESSING 27
46. PLURALS AND HEADINGS 27
47. TERM 27
Exhibit "A" - Farmout Lease Plat and Lease Schedule
Exhibit "A-I", "A-II" Farmout Premises
Exhibit "B" - Model Form Joint Operating Agreement and Accounting Procedures
Exhibit "C" - Geological and Information Requirements
Exhibit "D" - Compliance Provisions
Exhibit "E" - Tax Partnership Provisions
Exhibit "2" - Exploration Agreement
Exhibit "3" - Letter of Intent
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FARMOUT AGREEMENT
THIS AGREEMENT, made and entered into AUGUST 21, 2000, BUT
EFFECTIVE MAY 3, 2000 (the "Effective Date") by and between CHEVRON U.S.A. INC.,
("CUSA") a Pennsylvania corporation, hereinafter sometimes referred to as
"Farmoutor", or "Chevron", and ENERGY PARTNERS, LTD. ("EPL") and ▇▇▇▇▇▇▇
▇▇▇▇▇▇▇▇ L.L.C., (W-A), hereinafter sometimes referred to jointly as
"Farmoutee":
WITNESSETH:
For and in consideration of the mutual advantages and benefits accruing to the
parties hereto, the sufficiency Of which is hereby acknowledged, the parties
hereto agree that this document (the "Agreement") shall constitute the agreement
between Farmoutor and Farmoutee concerning the drilling of the well(s)
hereinafter described on the "Farmout Leases" and within the "Farmout Premises"
hereinafter identified.
1. FARMOUT LEASES and FARMOUT PREMISES
Farmoutor owns leasehold rights and interests in the North Flank of Bay ▇▇▇▇▇▇▇▇
Block 2 Field, Onshore and Offshore Louisiana, under certain oil and gas leases.
The leases, which cover and affect portions of said Block, shall hereinafter be
referred to as the "Farmout Leases", and that portion of the Farmout Leases
covered by the provisions of this Agreement shall hereinafter be referred to as
the "Farmout Premises". The Farmout Leases are more fully described and
identified in Exhibit "A" plat and schedule, which is attached hereto and made a
part hereof for all purposes. Exhibit A-I describes and represents the area and
boundaries of the Farmout Premises attributable to the Phase I period. The
boundaries of the Farmout Premises attributable to the Phase II period will be
an area, which will be defined by Farmoutee as required in Article 12.d. below,
represented by and described in a map which will be attached as Exhibit A-II. In
any conflict between this Agreement and any of its exhibits, this Agreement
shall prevail.
FARMOUT ▇▇▇▇▇
"Farmout ▇▇▇▇▇", for purposes herein, are defined as those well operations
conducted within the Farmout Premises which are proposed and approved under the
terms of this Agreement and drilled by either the Farmoutee or Farmoutor,
including Phase I obligation ▇▇▇▇▇, Phase II obligation ▇▇▇▇▇, Chevron Reserve
Area ▇▇▇▇▇ (when proposed by Farmoutor for participation by Farmoutee and under
which EPL or W-A bears a share of the costs and risks for that well or ▇▇▇▇▇) or
any other ▇▇▇▇▇ made expressly subject to the terms and conditions of this
Agreement. The aerial limit associated with or attributable to any Farmout Well
shall be a forty (40) acre square centered on that well, unless other wise
provided for herein or mutually agreed. Well operations proposed by Farmoutee
will exclude cased-hole or through tubing plug back operations (including
electric line work, snubbing, well stimulation, coiled tubing, slick line) or
any operations proposed for development of proven reserves, reserved solely for
Chevron, unless such operations are otherwise mutually agreed upon.
2. PHASE I
Phase I is defined as the period beginning simultaneously with the effective
date of the Letter of Intent entered into between the Parties which is dated May
3, 2000 ("LOI"), as amended, and ends September 5, 2000. The LOI is attached
hereto and made a part of this Agreement as Exhibit 3. During the Phase I
period, Farmoutee shall begin prospect generation efforts within the Farmout
Premises. Also during the Phase I period, Farmoutee assumes the obligation to
commence drilling operations for two (2) ▇▇▇▇▇, as more fully specified in
Article 5 below.
3. PHASE II
EPL and W-A independently and separately have the option to either (i) withdraw
from and relinquish all rights to the Agreement, or (ii) if Farmoutee is in
compliance with the obligations and requirements and has met all of the other
conditions of the Agreement, advance and proceed independently or jointly into
Phase II of the Agreement, by formal notice to Farmoutor by September 15, 2000.
While EPL and W-A hold independent election rights until September 15, 2000,
should either party elect not to proceed to Phase II, the consenting party shall
assume the Farmoutee position in this Agreement and proceed to Phase II, and the
party electing not to proceed does, by such election, assign and deliver all
rights it held in this Agreement and the LOI prior to such election to the
consenting party, less any rights previously earned. However, should EPL elect
to not proceed to Phase II and W-A proceed independently, the W-A working
interest right to participate and bear costs and the distinct right to own
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in production shall be maintained at the interests set forth in that certain
Exploration Agreement and Assignment of Interest by and between the Farmoutees
dated June 9, 2000, but effective May 3, 2000, which W-A represents is an
undivided 20.0% of 8/8 of Farmoutee's rights and interest to participate in and
bear cost for Farmout Well operations, and Farmoutor shall assume the role of
operator for the conduct of all operations hereunder, notwithstanding any other
provisions herein. In the event of any conflict between this Agreement and that
certain Exploration Agreement and Assignment of Interest by and between the
Farmoutees dated June 9, 2000, but effective May 3, 2000, this Agreement shall
prevail. Exploration Agreement is attached hereto and made a part of this
Agreement as Exhibit 2.
Subject to the other provisions of this Agreement, should both EPL and W-A
independently elect to proceed to Phase II, each party hereto, including
Farmoutor where it participates in and bears well costs, as between themselves,
is bound to and liable for its proportionate share of the well costs under this
Agreement based on each party's interest, elections and obligations provided by
the terms and provisions of this Agreement. The parties acknowledge that this
well cost bearing limitation does not bear upon the solidary obligations for
liquidated damages under Article 12 (h) or of indemnity under Article 29.
The parties mutually agree that the period of time, which shall commence at end
of Phase I and terminate no later than August 15, 2001 for the continuation of
the prospect generation/identification effort and prospect-deliverable process,
as specified in Articles 10 and 12, with the Farmoutee's timely election to
advance to Phase II, is identified herein as Phase II. During the Phase II
period, Farmoutee is obligated to commence drilling operations for six (6)
▇▇▇▇▇, as more fully specified in Articles 7 and 12 below.
4. TRANSFER OF WELL RIGHTS
During any time EPL is acting as operator of a Farmout Well and is engaged in
the drilling, completion or connecting of any well under the terms of this
Agreement, EPL and W-A shall own, and Farmoutor hereby transfers to EPL and W-A,
the farmout working interest portion of all of Farmoutor's right, title, and
interest in and to the operating rights and/or working interest in such well and
its appurtenances, if any, and such forty (40) acre square surrounding such well
and EPL, for operating purposes, shall have exclusive charge, control, and
supervision of such well. If Farmoutee does not earn an interest in any well
drilled or in the operating rights in the Farmout Premises associated with that
Farmout Well(s) pursuant hereto, this Agreement will terminate as to each forty
(40) acre square surrounding such Farmout Well to all depths drilled, when no
substitute well is timely commenced, without further notice or demand from
Farmoutor, and Farmoutor will own (and EPL and W-A will and do hereby retransfer
to Farmoutor) all right, title and interest in and to the operating rights
and/or working interest in the well(s) and appurtenances, if any, and such forty
(40) acre square surrounding such well, which were transferred by Farmoutor to
EPL and W-A, pursuant to this Article 4.
5. OBLIGATION ▇▇▇▇▇
5.1 PHASE I COMMENCEMENT
Pursuant to the LOI, Farmoutee obtained Chevron's approval to
commence and drilled the first two (2) identified farmout obligation ▇▇▇▇▇: (i)
SL 1365 No. CX68 well; or (ii) SL 1365 No. CX55 well ("Phase I Obligation
Well(s)"). EPL was designated as Operator, made, at its cost, all regulatory
filings to become Operator and did, at the costs and risks recited in Article
5.2, drill or cause the Phase I Obligation Well(s) to be drilled, and completed
for production to the "CX" Platform. Each Phase I Obligation Well was drilled,
located on a legal location, acceptable to Farmoutor, within the boundaries of
SL ▇▇▇▇, ▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, with the target objective
penetrating (I) the 7600' K sand; and (II) the 7600' V Sands, respectively, and
completed in the target sands for each well. The SL 1365 No. CX68 well was
completed for production on June 17, 2000 and the SL 1365 No. CX55 well was
completed for production on July 8, 2000. Farmoutee shall be entitled to an
assignment of the Earned Area, as defined hereinafter, for each such well upon
the connection of such well for production to the "CX" platform and shall, at
such time, redesignate Chevron as well operator at the cost of Farmoutee.
5.2 COSTS AND RISKS
Except as may otherwise herein be provided or agreed, the
drilling of the Phase I and Phase II obligation ▇▇▇▇▇ and all other ▇▇▇▇▇
drilled hereunder, their plugging and abandonment, if a dry hole, or the
completion and equipping for production, if a producer, and the cleaning and
restoration of each well site (including the removal of any structures
constructed or used by Farmoutee for drilling or operations hereunder), shall be
performed at Farmoutee's sole cost, risk, and expense. The parties acknowledge
that the costs of drilling, completing and connecting each of the two Phase 1
farmout obligation ▇▇▇▇▇ were or are to be shared as Chevron 40%, EPL 40% and
W-A 20% and that the ownership in production, from first production and the
bearing of operating costs and risks thereafter, is and shall be, until any
escalation of the Chevron interest after Payout, Chevron 49%, EPL 34% and W-A
17%.
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5.3 PHASE I REQUIREMENTS MET
The two Phase I Obligation ▇▇▇▇▇ have been drilled and completed as commercially
productive ▇▇▇▇▇ and upon connection for production, will have satisfied the
two-well drilling obligation requirement of Phase I of this Agreement and the
LOI, entitling Farmoutee to an assignment in conformity with the terms of the
LOI and this Agreement.
5.4 PHASE II COMMENCEMENT
Upon acceptance of this Agreement, Farmoutee agrees, in order to satisfy the
drilling obligation requirements of the Phase II period of the farmout
agreement, to propose and commence good faith and prudent operations for a
minimum of six (6) ▇▇▇▇▇: (a) the first three (3) Phase II farmout obligation
▇▇▇▇▇ will be proposed to Chevron for approval by November 15, 2000 on prospects
identified in the evaluation process and be spudded by the well operator, during
and within the first six (6) months of Phase 11 but no later than March 18, 2001
and (b) propose, drill and complete the last three (3) Phase II farmout
obligation ▇▇▇▇▇ before the end of the Phase II period on prospects identified
in the evaluation process. The last three (3) Phase II farmout obligation ▇▇▇▇▇
will be proposed and planned under a thirty (30) day continuous drilling program
That is, the fourth sequential well shall be commenced promptly within thirty
(30) days following the completion of the operations of the third sequential
Phase II farmout obligation well and each Phase II obligation well commenced
thereafter shall be commenced within thirty (30) days of the last drilling or
abandonment operations for the preceding well. The thirty day continuous
drilling obligation shall not extend the obligation for the completion of
drilling operations on the last three (3) Phase II farmout obligation ▇▇▇▇▇
before the end of the Phase II period on prospects identified in the evaluation
process. Failure to timely commence any of the final three Phase II obligation
well shall terminate this Agreement as to any and all unearned rights. During
Phase I or Phase II, Farmoutee will not be limited to, and may propose, any
number of additional ▇▇▇▇▇ beyond the required number of obligation ▇▇▇▇▇ but
any Farmout Well shall always be subject to the express consent and approval of
Chevron of the well plan and the Chevron right of election to participate. The
parties agree that the Phase II ▇▇▇▇▇ are an independent obligation to the Phase
I ▇▇▇▇▇.
6. AFE PROPOSALS BY EPL
At least twenty (20) days prior to the commencement of any operation proposed
by EPL, EPL will present to Farmoutor, for its approval of the well plan, a
well proposal, including well cost estimate in the form of an AFE and well
procedures to cover the drilling, completion, equipping, and hook-up for each
operation. No operation shall commence until the well plan is approved by
Farmoutor, regardless of the Farmoutor election rights under Article 7. Each
party in receipt of the well proposal from EPL shall have twenty (20) days (or
48 hours if a drilling rig is on location accumulating standby charges) after
AFE receipt (or until commencement of well operations) to provide EPL with
written election with respect to each such AFE. W-A shall hold the right to
make a well proposal through EPL but EPL shall prepare and distribute the well
plan and AFE.
AFE PROPOSALS BY FARMOUTOR
At least twenty (20) days prior to the commencement of any operation proposed by
Farmoutor, FARMOUTOR will present to Farmoutee, a well proposal, including well
cost estimate in the form of an AFE and well procedures to cover the drilling,
completion, equipping and hook-up for any of the Phase I, Phase II ▇▇▇▇▇ or
other ▇▇▇▇▇ proposed by Farmoutor in the Farmout Premises or the Chevron Reserve
Area (where Farmoutor may at its discretion offer Farmoutee a participation
election). Each party in receipt of the well proposal from Farmoutor shall have
twenty (20) days for any ▇▇▇▇▇ proposed within the Farmout Premises, or ten (10)
days for any Farmout ▇▇▇▇▇ proposed within the Chevron Reserve Areas (or 48
hours if a drilling rig is on location accumulating standby charges) after AFE
receipt (or until commencement of well operations) to provide Farmoutor with
written election with respect to each such AFE. Farmoutor does not hold the
right to formally propose Phase I or Phase II obligation ▇▇▇▇▇ but shall hold
the right to make formal well proposals under Article 12(f). W-A shall hold the
right to make a well proposal through Farmoutor but Farmoutor shall prepare and
distribute the well plan and AFE.
7. ELECTIONS AND OWNERSHIP
a. Upon receipt by Farmoutor from Farmoutee or issuance by EPL of any well cost
estimate as an AFE, Farmoutor shall hold a right for ten (10) days to make an
election to participate in any of the Farmout Well at a participation or
investment rate of either 0%, 25.0% or 40.0% working interest. Should Farmoutor
elect a 0%, Farmoutor shall not bear any drilling, completion, connection or
equipping costs or risks but shall hold a 15% working interest (as a carried
interest of 15% of 100%) ir. production and the Earned Area from first
production. If the investment election by Farmoutor is 25.0%, Farmoutor shall
pay and bear 25% of 100% of the costs and risks of such operation, however
Farmoutor's ownership interest in the production from any such well(s) and the
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Earned Area, including the 15% carried interest, from first production until
Payout as defined below, is equivalent to a 36.25% combined working interest.
(That is 25% of 100% plus a carried interest of 15% of Farmoutee's 75% share of
the costs and risks of such operation.) If the investment election by Farmoutor
is 40.0%, Farmoutor shall pay and bear 40% of 100% of the costs and risks of
such operation, however Farmoutor's ownership interest in the production from
any such well(s) and the Earned Area, including the 15% carried interest, from
first production until Payout as defined below, is equivalent to a 49% combined
working interest. (That is 40% of 100%, plus a carried interest of 15% of
Farmoutee's 60% share of the costs and risks of such operation.) The interest of
Farmoutor as to each Earned Area is subject to escalation at Payout. For
interests after Payout, see Article 16 hereof. The parties agree that Farmoutor
elected to and did participate in the costs and risks of drilling, completing
and connecting the two Phase I farmout obligation ▇▇▇▇▇ under a 40% working
interest in the SL 1365 No. CX68 well and a 40% working interest in the SL 1365
No. CX55 well, rendering to Farmoutor a 49% working interest from and after
first production in each such well, the Earned Area and the production
therefrom.
b. The 15% carried interest shall bear only upon the operations conducted
through the drilling, completion, equipping and hook-up for production of any
earning well and thereafter Farmoutor shall bear its costs and risks in accord
with its working interest in the Earned Area. That is, Farmoutee shall bear all
cost and expense, attributable to its cost bearing working interest, through and
to first production.
c. Any election by either EPL or W-A, where both have elected to proceed to
Phase II, to not participate in any Phase II obligation well proposals made by
either EPL or W-A shall exclude the non-participating party from and releases
all rights in or to such well, its productive acreage and any production
therefrom. Subject to the Chevron Reserve Areas rights, an election by Farmoutor
to not participate in an obligation well proposal shall NOT exclude such well or
any acreage capable of being earned from this Agreement but shall limit
Farmoutor to its 15% carried working interest rights, as to the Earned Area and
production therefrom.
d. An election by Farmoutor to participate in a well shall override the cost and
risk bearing provisions of Article 5.2 hereof under which Farmoutee bears all
costs and risks of drilling, completing and connecting, if a commercial producer
or plugging and abandonment, if a dry hole, and Farmoutor shall, to the extent
of its election to participate in and bear costs, be responsible for and bear
its proportionate share of all costs and expenses associated with the drilling,
completing, connecting and operating of any such well, as well as the plugging
and abandonment, if a dry hole, or the completion and equipping for production,
if a producer, and the cleaning and restoration of each well site (including the
removal of any structures constructed or used for drilling or operations
hereunder. Such election to participate in cost and risk bearing by Farmoutor
reduces the working interest available to Farmoutee for earning but the 15%
carried interest and payout escalation remain in place as otherwise provided in
the terms of this Agreement.
e. Elections for any subsequent operations, meaning those commenced after
drilling, completion for production and hook-up for production, in any Earned
Area, regardless of whether proposed before or after Payout, as defined
hereafter, in any Farmout Well in or to its Earned Area shall be made pursuant
to the Operating Agreement provided for under Article 18, under the working
interest ownership in that Earned Area at the time the operation is proposed,
without any carry by Farmoutee for the benefit of Farmoutor but subject to any
appropriate penalty provision for a nonconsent.
8. SUBSTITUTE WELL(S)
8.1 COMMENCEMENT
a. If a Farmout Well fails to reach the Stratigraphic
Objective and a substitute well is not proposed, approved and commenced within
sixty (60) days of last operations, that well shall count toward the Phase II
well obligations, if drilled diligently and in good faith to reach Stratigraphic
Objective.
b. If any well drilled during said Phase I or Phase II, after
having reached the Stratigraphic Objective, is not deemed as qualifiable as
commercially productive under the MMS rules and orders for OCS lease or by
mutual agreement of all participating parties in that well for any State or
private leases and is abandoned by Farmoutee with Farmoutor's approval,
Farmoutee will have not earned any interest in the Farmout Premises or the
Farmout Leases as a result of that operation. However, Farmoutee will continue
to have the right to earn interests by conducting additional operations within
the remaining term of this Agreement. No Farmout Well may be abandoned without
the prior consent of Farmoutor.
8.2 SUCCESSIVE SUBSTITUTE ▇▇▇▇▇
Until Farmoutee earns an interest in the operating rights in
the Farmout Premises and for so long as Farmoutee complies with the terms
hereof, Farmoutee shall have the continuing right to drill successive substitute
▇▇▇▇▇ in the Farmout Premises, for so long as Farmoutee complies with the
applicable time periods and provisions of Article 8.1 relative to the drilling
of the first such substitute well. All provisions of this Agreement relating to
the said obligation ▇▇▇▇▇ or any Farmout ▇▇▇▇▇ shall also, unless clearly
inappropriate, be applicable to each such substitute well.
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9. FARMOUTOR'S TAKEOVER RIGHTS
9.1 TIMING; OWNERSHIP
No Farmout well drilled by Farmoutee pursuant to this Agreement shall be
abandoned by Farmoutee without Farmoutee's first giving Farmoutor written notice
thereof, together with a copy of the final electric log and copies of all other
wireline logs, sidewall core analyses and other information required to be
provided to Farmoutor under this Agreement. Within thirty (30) days (inclusive
of weekends and holidays) after Farmoutor's receipt of such notice and logs or
twenty-four (24) hours, if the rig having drilled said well is on location and a
decision has been made by Farmoutee to immediately plug and abandon the well,
Farmoutor may notify Farmoutee that it elects to take over the well for such
further operations it may wish to conduct. If Farmoutor elects to take over such
well, Farmoutor shall, at its sole risk and expense, thereupon take immediate
possession of the well and of the materials and equipment owned or controlled by
Farmoutee located at the well site in connection with Farmoutor's further
operations testing, deepening, or evaluating the well. If Farmoutor elects not
to take over the well, Farmoutee shall proceed to immediately plug and abandon
such well if the rig is on location or within thirty (30) days of receipt of
Farmoutor's election, proceed to plug and abandon such well at the costs of the
participating parties in such well. If Farmoutor drills the Farmout Well, as
well operator, and a decision is made to plug and abandon such well, Farmoutor
shall hold the same right as above and obligations under this Article 9 but
shall timely notify Farmoutee of its election to take over the well.
If, within the time provided, Farmoutor elects to take over
the well, Farmoutee shall, except as hereinafter provided, have the same rights
and responsibilities as if it had abandoned the well with Farmoutor's approval.
After taking over the well, Farmoutor shall own all operating rights and working
interest in the well and shall be responsible for and shall bear the entire
expense of further operations in connection with the well, including the cost of
completion and/or abandonment. In addition, Farmoutor shall own exclusively,
free and clear of this Agreement and of any assignment or operating agreement
entered into pursuant to this Agreement:
9.1.1 The well and all production therefrom, regardless of the
depth from which produced; and
9.1.2 The unearned portion and depths of the Farmout Premises.
Farmoutee shall, upon request from Farmoutor, furnish
Farmoutor with such documents (in recordable form) as may be
required to perfect title to such well taken over by
Farmoutor, and to the unearned portion and depths of the
Farmout Premises.
9.2 REIMBURSEMENT OF MATERIAL COSTS
If Farmoutor elects to take over a well drilled by Farmoutee
pursuant to Article 9.1 above, Farmoutor will reimburse Farmoutee a reasonable
salvage value or compensation for pipe and any other materials in the well that
could have been recovered by Farmoutee if Farmoutor had not taken over the well.
If the Farmoutor takes over a well, Farmoutor will also reasonably reimburse
Farmoutee for Farmoutee's unused materials utilized in subsequent operations by
Farmoutor.
9.3 DEFAULT ON NOTICE OBLIGATION
In the event Farmoutee abandons any well drilled on the
Farmout Lease without Farmoutor's prior approval, this Agreement shall
immediately terminate as to the unearned rights or unearned portions and
unearned depths of the Farmout Premises. As a result, Farmoutee shall forfeit
all rights hereunder as to such unearned portion and unearned depths of the
Farmout Lease. However, Farmoutee shall remain responsible for any and all costs
incurred in connection with or otherwise associated with Farmoutee's operations
on said abandoned well.
9.4 ABANDONMENT OBLIGATION
Should Farmoutor elect not to take over a well, Farmoutee
shall, at the cost and risk of the participating parties to the extent of that
participation by each, proceed to temporarily abandon any well it reentered but
shall permanently abandon any new drill, unless Farmoutor advises Farmoutee to
temporarily abandon such new drill well.
9.5 REIMBURSEMENT ON CAPROCK ▇▇▇▇▇
Notwithstanding anything else to the contrary in this
Agreement, should Farmoutee drill any Farmoutor-approved Farmout Well that
encounters and identifies a caprock prospect (as defined in Article 11.2) and
Farmoutee elects to abandon that well, Farmoutor, or its designee, may take over
that well pursuant to the provisions hereof, but Farmoutor (or its designee) may
not complete said well in any caprock prospect unless it
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agrees to reimburse Farmoutee its share of the actual drilling costs for said
Farmout Well, in addition to any amounts owed under Article 9.2 hereof.
10. PROSPECT EVALUATION.
a. Following the execution of the LOI, EPL executed a confidentiality agreement
for itself and any consultant covering Farmoutor's North Flank of Bay ▇▇▇▇▇▇▇▇
Block 2 Field data and Farmoutee has committed a petroleum geologist and
petroleum engineer ("evaluation team") and commenced evaluation, at Farmoutor's
offices during Farmoutor's business hours, for the prospect generation of
certain portions of the North Flank of Bay ▇▇▇▇▇▇▇▇ Block 2 Field within the
Farmout Premises. FARMOUTEE agrees that the evaluation team will diligently
pursue the prospect opportunities of the North Flank of the Bay ▇▇▇▇▇▇▇▇ 2 Field
during Phase I but may terminate prospect generation after the earlier of two
months of good faith prospecting or by August 31, 2000, whichever is the later,
with notice to Farmoutor. Such termination shall also terminate this Agreement
as to any unearned rights or interests.
b. During the field evaluation process, FARMOUTEE agrees that the evaluation
team will interact and maintain regular and frequent discussions with and
communicate its progress to Farmoutor, advising Farmoutor of its prospect
generation efforts and identification of those prospect areas under evaluation.
At the conclusion of prospect generation at the end of Phase I, Farmoutee shall,
at no charge or cost to Farmoutor, provide originals of all notes, materials,
prospect maps or other information generated of any kind to Farmoutor for any
work or area or prospect not made subject to this Agreement.
c. No assignment of interest or transfer of rights in the Agreement or the
Farmout Premises or any Earned Area (as defined hereafter) may be made by
Farmoutee without the prior consent of Farmoutor, which consent shall not be
unreasonably withheld, however no further assignment may be made during Phase I.
d. Following the acceptance of the LOI by Farmoutee, and in order to commence
the technical evaluation and prospect generation process in Phase I, FARMOUTEE
agrees to make its own arrangements to gain access or obtain a use license to
certain speculative 3D seismic data covering certain areas of the North Flank
of Bay ▇▇▇▇▇▇▇▇ Block 2 Field and that it shall be denied access to such data by
Farmoutor until Farmoutor is satisfied that Farmoutee has obtained rights to
such license or the right of use to the data. Failure by FARMOUTEE to conclude
arrangements to gain access to the data will not effect the Phase I two-well
farmout obligation undertaken by Farmoutee and shall not extend FARMOUTEE's
prospecting rights period defined above or effect the rights and obligation to
the Phase II ▇▇▇▇▇.
11. CHEVRON RESERVE AREAS.
11.1 At any time during the term of this Agreement, certain
areas may be and are retained by Farmoutor by prospects, reservoirs, ▇▇▇▇▇ or
operations within the Farmout Leases from the Farmout Premises. Such retained
areas will be identified by Farmoutor and are removed, excluded and reserved
from the Farmout Premises as to all depths to and by Farmoutor; these areas
("Chevron Reserve Areas") are represented by the circles drawn on the Exhibit
A-1 plat, attached hereto and made a part of this AGREEMENT, which may be
amended or supplemented from time to time by Farmoutor, so long as such
amendment, supplement or modification does not impinge upon an Earned Area or
the Earning Area of an approved proposed operation. Except as approved in
writing by Farmoutor, no Farmout Well may be drilled or operations conducted in
or to any of the Chevron Reserve Areas, and no Farmout Well may be drilled nor
any wellbore used or completed within 750 feet of any of the Chevron Reserve
Areas. Any well proposal made by Farmoutee which would create a 40 acre square
around the wellbore and affect a Chevron Reserve Area, in any way, shall be
withdrawn by Farmoutee, at the request of Farmoutor, and shall not count as a
well proposal toward the obligation well count. No spacing limit shall apply to
any well proposed by Chevron for a Chevron Reserve Area.
11.2. For all purposes of this Agreement, Farmoutor further
reserves and excludes from the Farmout Premises and Farmoutee waives any right
to earn in the area and depths designated as the caprock prospect. The term
"caprock" is geologically defined as "Any rock formation located on the top or
side of a salt dome, containing anhydrite, gypsum, calcite or celestite,
including the layers of salt, pyrite, sulphur, dolomite, barite and other minor
minerals interbedded therewith, and also including the stratigraphic equivalent
of the intervals seen (1) from 6088'-6240'MD (6004'SS to 6164'SS) in the
California Co. S.L.1365 Well No.44, (2) from 8016'-8076'MD (-7981' to 8041' SS)
in the California Co. S.L.1365 Well No.7, and (3) from 6416'-6542'MD (-5234' SS
to -5328'SS) in the California Co. S.L.1365 Well No.L-5." In Bay ▇▇▇▇▇▇▇▇
Field, the caprock interval is generally located 0-150' (vertically) above the
top of the salt.
11.3. Farmoutee agrees not to object to and not to interfere
with and Farmoutor expressly reserves and excludes, unless otherwise mutually
agreed, from the application of this Agreement, any operations conducted for the
caprock prospect, Chevron Reserve Area operations or Chevron 100% operations, or
other well operations proposed by Farmoutor or conducted pursuant and subject to
the terms of an existing agreement,
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where such operations do not unreasonably interfere with Farmoutee's ability to
conduct operations hereunder. Farmoutor shall act as the ultimate arbiter of
precedence, in good faith, in any conflict between the two or three sets of
operations, however Chevron 100% operations shall be given priority unless
waived by Farmoutor. Farmoutor agrees to give Farmoutee advance notice of
planned drilling operations for the caprock prospect, Chevron Reserve Area
operations or Chevron 100% operations.
12. PHASE I-PHASE II TIME PERIODS
a. Upon acceptance of this AGREEMENT, and from the date of its execution,
FARMOUTEE will, at its sole cost and risk, commence or continue a technical
evaluation and prospect generation process and may propose additional Phase I
▇▇▇▇▇ covering certain identified areas within the Farmout Premises, but
excluding Chevron Reserve Areas of the North Flank of Bay ▇▇▇▇▇▇▇▇ Block 2 Field
and the caprock, for a period ending September 5, 2000 (identified in Article 2
as Phase I). FARMOUTEE may terminate the Phase I evaluation at any time prior to
September 5, 2000 with notice to Farmoutor, but such early termination of the
right to earn shall not relieve FARMOUTEE of any other prior obligations or
requirements with respect to Phase I of the Agreement.
b. At the end of the Phase I period, FARMOUTEE, subject to Article 3, has the
option to either (i) terminate the farmout agreement as to any unearned or
remaining rights, or (ii) if FARMOUTEE is in compliance with all of the
obligations and requirements of and has met all of the other conditions of the
farmout, advance into Phase II of the farmout by formal notice to Farmoutor
received by September 15, 2000.
c. Phase II of this Agreement shall commence with an election to proceed
received by Farmoutor prior to September 15, 2000 and shall terminate on or no
later than August 15, 2001.
d. If FARMOUTEE timely elects to proceed with Phase II requirements of the
Farmoutor or before September 15, 2000, FARMOUTEE, will present to Farmoutor for
further approval and acceptance by Farmoutor, within ten (10) days of receipt by
Farmoutor of Farmoutee's election, an Exhibit A-ll map that, as the outcome of
the evaluation process, identifies and outlines (i) specific prospect areas with
(ii) a selection of any existing wellbores, which FARMOUTEE seeks to utilize to
initiate and propose ▇▇▇▇▇ for development and (iii) general project plans for
the well operations to be proposed in the Phase II process for the six Phase II
obligation ▇▇▇▇▇. Farmoutor will identify and outline any revisions to the
Chevron Reserve Area boundaries applicable to the Phase II period and approve or
object to Farmoutee's map, prospect areas, wellbores and plans, within ten (10)
business days of receipt of Farmoutee's Exhibit A-11 map, prospect areas,
wellbores and plans.
e. Farmoutor's prior approval is required before FARMOUTEE shall hold any use or
other rights for such specific prospect areas, or selection of wellbores, which,
when and if approved, will be made available to FARMOUTEE during Phase II in
order for FARMOUTEE to proceed with well proposals. Farmoutor may, at its sole
discretion, approve or withhold such use rights to individual wellbores or
▇▇▇▇▇. The Exhibit A-11 map, once approved by Farmoutor, describing specific
prospect areas will become and represent the Farmout Premises for the Phase II
period. No alteration of Exhibit A-11, once approved by Farmoutor, may be made
without the express consent of Farmoutor.
f. After execution of the Agreement, FARMOUTEE may propose additional Phase I
▇▇▇▇▇ within the Farmout Premises, excluding the Chevron Reserve Areas and
caprock prospect, during Phase I period. During the Phase II period, Farmoutee
is obligated and agrees to propose no later than November 15, 2000 mutually
agreeable well plans and drilling schedule and to drill or cause to drill as
provided in Article 5.4, if approved by Chevron, six (6) obligation ▇▇▇▇▇
("Phase II Obligation ▇▇▇▇▇") to be located within the specific prospect areas
as described in Article 12.d. above, and, at its election, commence operations
for new drills or utilize wellbores from the selection of existing wellbores as
outlined in Article 12.d. above in a mutually agreed upon order and sequence to
be approved by Chevron. Once approved by Chevron the order and sequence of the
Phase II obligation ▇▇▇▇▇ may be changed only by mutual consent of all parties
to this Agreement.
g. Farmoutor may propose additional ▇▇▇▇▇ within the boundaries of Farmout
Premises attributable to Phase I or Phase II (or ▇▇▇▇▇ within the Chevron
Reserve Areas for its sole account or it may propose ▇▇▇▇▇ for a participation
election to Farmoutee by, or for the sole risk, of FARMOUTEE), and, if both EPL
and W-A elect to not participate in a well proposal offered to Farmoutee by
Farmoutor, by notifying Farmoutor within ten (10) days of receipt of Farmoutor's
well proposal, Farmoutor can and may, at its sole discretion and election, then
conduct well operations for its sole account or offer said additional well(s)
and prospects to other third parties, during Phase I and Phase II periods. Upon
such election not to participate by Farmoutee, such 40 acre area or other
productive aerial limits, as determined soley by Farmoutor, surrounding that
wellbore for such well proposal as to all depths shall immediately be released
from the Farmout Premises, with all rights thereto returning to Farmoutor. Any
such well proposal by Farmoutor is outside of and independent to the six (6)
Phase II well obligation. If either EPL or W-A elect not to participate under
this subpart (f.), the well proposed by Farmoutor shall not proceed without the
further express consent of Farmoutor and may be withdrawn by Farmoutor, with all
rights to that prospect and its 40 acre square returning to Farmoutor as a
release of that acreage under and from this Agreement. If either EPL or W-A, but
not both, elect to participate in the well proposed by Farmoutor, and if
Farmoutor's express consent is granted, Farmoutor may proceed with the well
operation with one participating party's interest and the Farmoutor
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may assume the non-participating party's interest. Farmoutor shall act as
operator for any such well, and the participating party will participate in the
well under separate negotiated terms and interests that may or may not differ
from the terms and interests specified in the election provision (Article 7).
The non-participating party releases all rights in and to such prospect and will
have no rights to earn in and will never benefit from any production associated
with such well.
h. FARMOUTEE shall hold no right to propose operations under which it may earn
additional acreage after either the early termination of the right to earn under
this Agreement or after the end of the Phase II period. All Phase II farmout
obligation ▇▇▇▇▇ must be commenced by August 15, 2001. Any subsequent or
additional ▇▇▇▇▇ exclusive of obligation ▇▇▇▇▇ required under Phase I or Phase
II and proposed by FARMOUTEE, operations of which are to be commenced during
Phase II, if well plans are approved by Farmoutor, shall be spudded no later
than three (3) months after either the early termination of the right to earn
under the Agreement or the end of the Phase II period on August 15, 2001 (i.e.,
by November 15, 2001). The termination of the right to earn under the Agreement,
for all purposes, is deemed the end of the right to propose operations for the
purposes of earning an interest in any Earned Area but will not relieve
FARMOUTEE or Farmoutor of any obligations arising prior to such termination of
the right to earn. Farmoutee shall, however, remain obligated to complete
operations for subsequent or additional ▇▇▇▇▇ in which either EPL or W-A have
elected to participate and that have already been proposed and approved by
Farmoutor, where such approval was granted prior to August 15, 2001. Appropriate
and applicable provisions of this Agreement shall survive the termination of the
rights to propose and earn.
i. While any party may propose certain well operations during Phase I or Phase
II, no well operation proposed for conduct by either W-A or EPL may be commenced
nor acreage be made available or made subject to the Agreement, without the
express consent of Farmoutor, which consent may be withheld for any reason. Such
consent, if granted, shall be made subject to the other terms and provisions of
this Agreement.
j. If Farmoutee elects to proceed into Phase II, the failure by the FARMOUTEE(s)
electing to proceed timely commence and prudently and in good faith drill any of
the first three Phase II farmout obligation ▇▇▇▇▇ will subject FARMOUTEE to (i.)
a penalty and give rise to the immediate payment at the close of Phase II, as
liquidated damages, of $750,000.00 for each such well proposed by FARMOUTEE but
not commenced and diligently prosecuted, unless such well was not approved by
Farmoutor, and (ii.) the immediate termination of the rights to earn under the
Agreement. Termination by Farmoutor is unilateral and shall apply as to all
unearned rights.
k. Should EPL and W-A both elect to proceed to Phase II, EPL and
W-A shall be and remain solidarily liable for the payment and satisfaction of
any liquidated damages due under this Article 12. Failure to timely commence and
prudently and in good faith drill the fourth sequential Phase II farmout
obligation well as provided in Article 5.4 will subject FARMOUTEE to the
immediate termination of the right to earn under this Agreement. Termination
by Farmoutor is unilateral and shall apply as to all unearned rights. Any well
proposal made by Farmoutee as an obligation well but not approved by Farmoutor
shall not count toward the well count commitment.
13. ADDITIONAL OPPORTUNITIES
During the Phase I and II periods, it will be understood and is agreed that
FARMOUTEE will have the additional opportunity but will not be required to
propose or drill ▇▇▇▇▇, other than the obligatory eight (8) farmout ▇▇▇▇▇, in
prospective areas for the Farmout Premises, but excluding the Chevron Reserve
Areas and the caprock prospect, other Chevron 100% operations or operations
reserved by or made subject an existing agreement. Farmoutor shall hold all
rights of approval and election as to any obligation Farmout Well or any
additional well operations proposed by Farmoutee as a Farmout Well. Farmoutor
may propose any number of additional ▇▇▇▇▇ within the Farmout Premises
(including well proposals within the Chevron Reserve Areas for its sole account
or for participation by Farmoutee) during Phase I and Phase II periods but may
not propose obligation ▇▇▇▇▇. Operations proposed by Farmoutor, as additional
▇▇▇▇▇ within the Farmout Premises for participation by Farmoutee, exclusive of
the Chevron Reserve Areas and the caprock prospect, or under which a third party
may be entitled under an existing agreement bearing upon the Farmout Premises
shall entitle Farmoutee to an election bearing upon the farmout interest made
available by Farmoutor in keeping with Article 7. Farmoutor is under no
obligation to offer Farmoutee any election or right to any proposals made by
Farmoutor in the Chevron Reserve Areas or third party proposals for the caprock
prospect or any prospect or acreage returned to Farmoutor by the operation of
this Agreement. EPL will have the option to perform and conduct the well
operations for ▇▇▇▇▇ proposed by EPL. Farmoutor will retain the right to perform
and conduct the well operations for the ▇▇▇▇▇ proposed by Farmoutor or W-A, if
EPL elects not to proceed or elects not to participate in the well proposal. At
the conclusion of Phase II, Farmoutee's or Farmoutees' right to propose
operations terminates and all unearned rights to and in the Farmout Premises
shall immediately revert to full ownership and control of Farmoutor and are
released from this Agreement.
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14. EXTENSION
If FARMOUTEE has complied and performed in accordance with the terms of the
Agreement and if it is the mutual desire and intent of Farmoutor and any of the
other parties to allow the Agreement and continuous drilling program to
continue, those parties may, by mutual written consent and agreement evidenced
thirty (30) days prior to the end of the Phase II period, extend and renew the
Agreement, to be defined as the Phase III period, for the purpose of prospect
generation and to proceed with an additional continuous drilling program. The
parties must agree by August 15, 2001, upon a number of farmout obligation ▇▇▇▇▇
to be drilled during the Phase III period as a part of the extension agreement
and the provisions will include an option, but no obligation, to consider and
renegotiate different farmout terms applicable to the Phase III period, If the
extension is sought by Farmoutor and other parties to this Agreement, the formal
Phase III obligations must be undertaken by October 15, 2001 or the rights to
further negotiate the extension shall lapse.
15. TRANSFER OF INTEREST
15.1. Earning.
Upon meeting all of the terms and conditions to earn any
interest hereunder, FARMOUTEE would earn, once and effective from and after
production in paying quantities is commenced and established after connection
for production by FARMOUTEE at its cost and risk for any share it is obligated
to bear, a working interest pursuant to the elections made under Article 7
within a defined geographic area, not to exceed a 40-acre square around the well
bore, in and limited to those certain portions of commercially productive
reservoir sands encountered by the drilling and completion of the two (2) Phase
I Farmout ▇▇▇▇▇ and those certain other Farmout ▇▇▇▇▇ (FARMOUTEE-operated ▇▇▇▇▇,
with Farmoutor's consent or participation, or Farmoutor-operated ▇▇▇▇▇ with
FARMOUTEE's participation), from the top of the most shallow commercially
productive reservoir, as mutually determined, to the base of the deepest
commercially productive reservoir, as mutually determined. Subject to the other
provisions hereof, FARMOUTEE agrees to pay and bear 100% less Farmoutor's
participation interest election made under Article 7 of the drilling costs of
the two (2) Phase I Farmout ▇▇▇▇▇, and all other proposed Farmout ▇▇▇▇▇ in which
it participates, through completion and hook-up or abandonment, if a dry hole,
after which, with production in paying quantities and hook-up, FARMOUTEE shall
earn and hold as a working interest 85% of the interest made available to
Farmoutee under Article 7 (i.e. 65% of, Farmoutee's 100%, 75% or 60% interest in
or obligation to the drilling costs, being 100% less Farmoutor's participation
interest election made under Article 7) in the production from the Phase I or
Phase II Farmout ▇▇▇▇▇ Earned Area and other proposed Farmout ▇▇▇▇▇ as to that
applicable Earned Area' (defined below) and Farmoutor will reserve, own and
retain as a working interest 15.0% of the interest made available to Farmoutee
under Article 7 (i.e. 15% of Farmoutee's 100%, 75% or 60% interest in or
obligation for the drilling costs plus any Farmoutor's participation interest
election to bear in the drilling cost made under Article 7) in the production
from the Earned Area.
It is understood and agreed that the earned interests of each
Farmoutee will be assigned in the proportions set forth in and by virtue of that
certain Exploration Agreement and Assignment of Interest by and between the
Farmoutees dated June 9, 2000, but effective May 3, 2000. In the event of any
conflict between this Agreement and that certain Exploration Agreement and
Assignment of Interest by and between the Farmoutees dated June 9, 2000, but
effective May 3, 2000, this Agreement shall prevail.
15.2. Earned Area.
The "Earned Area(s)" shall be defined as consisting of a 40-acre square
surrounding the well bore as it traverses the entire length of the welibore (a
maximum areal configuration of four (4)10-acre squares with the wellbore
situated in the center) encompassing that portion of each reservoir, penetrated
by, sidetracked or completed for production in paying quantities if the portion,
of those reservoirs do not encroach upon Chevron Reserve Areas, from the
stratigraphic equivalent of the most shallow productive reservoir in which
FARMOUTEE earns operating rights down to the stratigraphic equivalent of the
deepest productive reservoir encountered in that well operation, only insofar as
said area, extent and depths are restricted to and bounded by the limits of the
fault block associated with the productive reservoir encountered by the well
operation. If the well proposal and well plan as proposed by Farmoutee pursuant
to Article 6 is approved by Farmoutor and if the well is drilled in accordance
with the well proposal and well plan and results in the Earned Area encroaching
on a portion of a Chevron Reserve Area, the Earned Area shall include the
portion of acreage within the Chevron Reserve Area. Productive reservoir as used
in this Article 15 or elsewhere herein is defined as a sand or zone mutually
agreed by the participating parties and Farmoutor as capable of production in
paying quantities. Earned Areas shall be made the subject of a mutually
acceptable operating agreement required under Article 18 from the date of first
production.
15.3. Assignments/Sublease.
a. Once a Farmout Well is completed as capable of producing in
paying quantities and connected to production facilities for
the purposes of production, an acknowledgment of no
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outstanding debts or obligations, of any kind, against and
that all accounts are current for, the well, the Farmout
Premises and the lease is delivered by FARMOUTEE and all other
obligations of the farmout are met, an assignment or sublease
of rights in any earned interest to the Earned Area, in a form
similar to that attached as Exhibit "G" hereto, will be
submitted to FARMOUTEE, within 90 days of the last of such
events, covering solely the Earned Area to be described as and
limited to the stratigraphic equivalent of the productive
reservoir in the most shallow depth or interval in which
FARMOUTEE earns such rights down to the stratigraphic
equivalent of the deepest productive reservoir encountered in
that well operation. FARMOUTEE shall, at its cost and expense,
be solely responsible for the timely filing with and obtaining
the approval of any such assignment by the State Mineral Board
or MMS and all costs associated therewith. The parties agree
to execute any instruments necessary to carry out the terms of
the AGREEMENT.
b. If requested by Farmoutor, Farmoutee shall also provide
Farmoutor with a sworn affidavit that no delinquent debts,
charges, or liens affect or burden the Farmout Lease as a
result of Farmoutee's operations on said well but Farmoutee
shall, at all times, seek to maintain the Farmout Premises,
the Farmout ▇▇▇▇▇ and any appurtenances thereto lien free.
Within ninety (90) days after Farmoutor's receipt of such
notice and affidavit, and if Farmoutee is in compliance with
all the requirements of this Agreement, Farmoutor will assign,
sublease, transfer and deliver to Farmoutee the earned working
interest in the operating rights interests consistent with
Article 15.3 part (a), to the extent of the interest earned
hereunder.
16. PAYOUT
16.1. Escalation. At Payout, as defined below, Farmoutor's
interest shall escalate from fifteen 15% percent to a working interest of
thirty-five (35%) percent of the interest made available to Farmoutee under
Article 7 (i.e. 35% of Farmoutee's 100%, 75% or 60% interest in or obligation
for the drilling costs plus any Farmoutor's participation interest election to
bear in the drilling cost made under Article 7) . The initial carried interest
and any escalation to a thirty five percent working interest shall be in
addition to any participating or invested working interest, if any, made by the
election by Farmoutor, as provided in Section 7, to participate in an operation,
and FARMOUTEE would and shall thereafter own a 65.0% working interest in the
interest made available by Farmoutor for farmout in each of the farmout ▇▇▇▇▇.
If the investment election under Article 7 by Farmoutor is 0%, Farmoutor shall
not pay and bear any of the costs and risks of such operation until payout,
however, after payout, Farmoutor's ownership interest in the production and
costs from any such obligation well(s) or other Farmout Well and the Earned Area
will be equivalent to a 35% working interest. (That is an interest of 35% of
Farmoutee's 100% share of the costs and risks of such operation.) If the
investment election under Article 7 by Farmoutor is 25.0%, Farmoutor shall pay
and bear 25% of the costs and risks of such operation, however, after payout,
Farmoutor's ownership interest in the production and costs from any such
obligation well(s) or other Farmout Well and the Earned Area will be equivalent
to a 51.25% combined working interest. (That is 25% of 100% plus a working
interest of 35% of Farmoutee's 75% share of the costs and risks of such
operation.). If the investment election under Article 7 by Farmoutor is 40.0%,
Farmoutor shall pay and bear 40% of the costs and risks of such operation,
however, after payout, Farmoutor's ownership interest in the production and
costs from any such obligation well(s) or other Farmout Well and the Earned Area
is equivalent to a 61% combined working interest. (That is 40% of 100% plus a
working interest of 35% of Farmoutee's 60% share of the costs and risks of such
operation.)
16.2. Payout. "Payout" is defined as that point in time when
gross production proceeds received by Farmoutee from its working interest in the
any obligation well or substitute well or other Farmout Well, less its share of
operating expenses, lessor's royalties, additional tax royalties, facility use
fees, processing fees, monthly well contract operating fees, transportation
fees, severance taxes and production taxes equals Farmoutee's share of costs of
drilling, testing, sidetracking, reworking and completing such well for
production and operating said well, including but not limited to cost of
facilities and other equipment individually associated with such well. ▇▇▇▇▇
shall not be pooled to account for Payout and Farmoutee shall be limited to
recovery of well costs solely from that well. Payout is on a well by well basis
but the costs of any subsequent operations in the well prior to Payout shall be
debited against the Payout account at Farmoutee's interest after hook-up and the
FARMOUTEE's proceeds of production credited thereto.
16.3. No Warranty. The transfer of any interest in the Farmout
Premises pursuant to this Agreement shall be made by Farmoutor without express
or implied warranty of any kind, but shall grant and convey full subrogation to
the rights of the party or parties making the transfer.
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16.4 No New Lease Burdens. Until Farmoutee earns an interest
under this Agreement, or until the right to earn any portion of the Farmout
Premises pursuant to this Agreement terminates, Farmoutor agrees not to create
any additional lease burdens on the Farmout Premises. It is provided, however,
that Farmoutee shall pay or otherwise discharge any burdens created by Farmoutee
which affect the Farmout Lease.
16.5 Approvals. In the event that the transfer of any interest
in and to the Farmout Lease requires approval of the lessor or of any federal
agency having jurisdiction, the obligation so to transfer shall be subject to
Farmoutee's obtaining the pertinent approval. Farmoutor agrees to assist
Farmoutee in any reasonable way necessary to help Farmoutee secure such
approvals.
16.6 Proportionate Reduction. If the lease interest
transferred to Farmoutee pursuant to this Agreement covers less than the full
mineral interest, then the interests reserved to Farmoutor in any such transfer
shall be reduced proportionately as to any production affected thereby.
16.7 Farmoutor's Interest. Farmoutor's carried working
interest shall be free and clear of all cost through the completion, inspection
and testing of the connection of the well for production and sales into the
sales line. Said interest shall be computed and paid at the same time and in the
same manner as royalties are computed and paid to the lessor under the Farmout
Lease. With first commercial production, Farmoutor shall thereafter bear and pay
its proportionate working interest share of costs, subject to any elections made
pursuant to the operating agreement.
16.8 Retained Rights -- No Unreasonable Interference. Any
transfer of interests made pursuant to this Agreement or affecting rights or
interests earned or delivered under this Agreement shall provide that Farmoutor
or its designee shall retain all rights necessary to drill to, produce from, and
operate in and to all unearned operating right depths on the Farmout Lease, and
that each party agrees not to interfere unreasonably with the operations of the
other.
16.9 Accounting Matters. As to the Farmout Lease, all costs
and expenses which are accruing or incurred pursuant to this Agreement and under
any transfer of interest in the Farmout Lease executed pursuant hereto, if any,
shall be determined and accounted for in accordance with the Accounting
Procedure attached hereto as Exhibit "B" and made a part hereof for all
purposes.
17. TRANSFER OF OPERATORSHIP
Any drilling, completion and hook-up operations will be performed and conducted
by EPL, as operator, under competitive contracts with qualified independent
drillers; and all regulatory approvals for such operations will be obtained
under permit of EPL. Connection and tie-in to a third party pipeline or facility
will be preformed by Farmoutee, at the cost and risk of Farmoutee, to the extent
of its working interest in the cost of drilling, completing and connecting the
well for production. Hook-up to or on any Chevron platform shall mean tying the
riser to the platform but the final hook-up to production facilities and any
re-piping upon a Chevron platform shall be done by Chevron, at the cost and risk
of Farmoutee to the extent of its working interest for the cost of drilling,
completing and connecting the well for production, unless otherwise agreed. Once
the well has established production in paying quantities, and once the well is
hooked-up by FARMOUTEE for production, the production operations will be
transferred to Farmoutor, and Farmoutor will be re-designated operator of all
such Farmout ▇▇▇▇▇, at FARMOUTEE's cost for such re-designation. If any Farmout
Well or operation conducted by FARMOUTEE is a dry hole or does not reach Payout
from the zones of the Earned Area, FARMOUTEE shall offer all of its interest and
ownership the well and the Earned Area of that well to Farmoutor free of charge,
cost and burdens. If such well and its Earned Area interest are not accepted by
Farmoutor within thirty (30) days of that offer, Farmoutee, at the working
interest owners sole cost, shall promptly either temporarily abandon any well
re-entered by Farmoutee, which well pre-existed this Agreement, or permanently
plug and abandon any new drill, unless instructed otherwise by Farmoutor. Any
such abandonment work shall be conducted in accordance with all regulatory
requirements, within sixty (60) days of Farmoutor's non-acceptance of such
well. For any Farmout Well completed as a producer and connected for production
and which reaches Payout, the abandonment obligations for any Earned Area or
that well shall be borne in accord with the working interest in the well at the
time the abandonment is conducted, as an operation under the operating
agreement, but Farmoutor shall hold a takeover election for such well under the
same terms as Article 9.
18. JOINT OPERATING AGREEMENT
The parties agree to and do simultaneously herewith execute the Joint Operating
Agreement and ▇▇▇▇▇ Accounting Procedure attached hereto as Exhibit "F". Such
operating agreement will be effective from the date of
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first production for earliest producer between the two Phase I ▇▇▇▇▇, and any
Earned Area shall be added to coverage under the Joint Operating Agreement
effective from and after first production for that Earned Area.
19. STATE DEMANDS
It is further understood and agreed that in and during the Phase I and Phase II
periods, Farmoutor will prioritize for, and direct FARMOUTEE to, review and
technically evaluate certain State leased lands within the Farmout Premises
that may be targeted by the Fact Finding Committee of the State of Louisiana
Mineral Board as non-producing areas ("demand areas"), which, without production
or drilling, may result in a demand for the release of certain Farmoutor-leased
lands. FARMOUTEE, in its interaction with Farmoutor, agrees to address and
assign as a first priority the geologic and technical evaluation of those
certain demand areas for prospect generation and further development and
production enhancement of those non-producing areas in an attempt to preclude a
demand for a release of acreage within certain State leased lands. FARMOUTEE
consents to the release of any farmout acreage required by the State or deemed
necessary by Farmoutor in the Bay ▇▇▇▇▇▇▇▇ 2 Field as the sole right of
Farmoutor and without the need of notice, whether or not such acreage is or is
not included as farmout acreage within the Farmout Premises.
20. CONFIDENTIALITY OBLIGATION
All evaluation analysis and results, including any notes or reports prepared for
or by FARMOUTEE, shall remain strictly confidential and may not be disclosed by
FARMOUTEE, without the express consent of Farmoutor. The parties agree that
FARMOUTEE will not be and is not entitled to earn and shall not hold any rights
to any prospect by undertaking the field study, but may only earn those rights
or interests by the drilling and completion and hookup of the farmout ▇▇▇▇▇
described herein. All evaluation analysis and results, including any notes or
reports prepared for or by FARMOUTEE and which result in an Earned Area shall be
owned by the Farmoutor and the participating parties in that earning well and
shall be made subject to the operating agreement provisions. All evaluation
analysis and results, including any notes or reports prepared for or by
FARMOUTEE but which do not result in an Earned Area shall remain the property of
Farmoutor and shall be delivered to Farmoutor at the end of Phase II, unless a
Phase III extension is timely executed. This confidentiality obligation shall
survive the termination of the right to propose and earn for any data retained
solely for the account of the Farmoutor.
21. GEOLOGICAL AND INFORMATION REQUIREMENTS
Farmoutee shall comply with the requirements of Exhibit "C", and supplement,
attached hereto and made a part hereof for all purposes, and at Farmoutee's cost
and expense to the extent of its interest in the costs of drilling completing,
equipping and connecting the well, shall furnish Farmoutor the materials therein
specified for all ▇▇▇▇▇ drilled on the Farmout Lease. Farmoutor shall be
entitled to receive all such materials pertaining to any well(s) drilled on the
Farmout Lease, while this Agreement and any rights earned hereunder continue in
force and effect.
22. REPORTS AND STATEMENTS
22.1 NOTICE OF COMMENCEMENT
Prior to moving any drilling equipment for
purposes of drilling a well under this Agreement, Farmoutee shall give a 36-hour
written/verbal notice to:
Chevron U.S.A. Inc.
Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Telephone: ▇▇▇-▇▇▇-▇▇▇▇
Facsimile:
22.2 INVENTORY OF MATERIAL AND EQUIPMENT
Upon receipt of a transfer of an interest in and to the operating rights in and
to the Farmout Lease pursuant to this agreement, Farmoutee shall furnish
Farmoutor an inventory of the material and equipment in and associated with the
well(s) by which Farmoutee earned such interest and an itemized statement of the
costs of drilling, testing, completing, and equipping such well for production.
Monthly thereafter, Farmoutee shall furnish each Farmoutor with a statement of
the quantity of oil and/or gas produced from such well and the amount of
proceeds realized from the sale thereof and the status of the payout account of
such well(s).
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One copy of said inventory and statements shall be forwarded
to each of the following parties:
Land Manager
Chevron U.S.A. Inc.
▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Manager, Joint Interest Accounting
Chevron U.S.A. Inc.
▇.▇. ▇▇▇ ▇
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
22.3 OTHER NOTICES AND REPORTS
22.3.1 Monthly Reports. For each well drilled
by Farmoutee hereunder, Farmoutee will forward to Farmoutor, at the address
listed below, the well costs report (3.1.1), but Farmoutor shall furnish
Farmoutee, at the last address known, each month from the date of initial
production those reports required hereunder as 3.1.2 and 3.1.3:
22.3.1.1 Well Costs. The final and total well
costs, including drilling, testing, completion and hook-up
costs.
22.3.1.2 Evidence of Royalty Payment. Copies
of State royalty checks for each month's production.
22.3.1.3 Regulatory Reports. Copies of any
and all reports required by the regulatory body or bodies
having jurisdiction, including, but not limited to, copies of
monthly producer's reports or operator's reports on ▇▇▇▇▇
producing oil and/or gas.
22.3.1.4.1 Report on Well Status. Farmoutee
shall furnish Farmoutor a monthly statement
for all ▇▇▇▇▇ drilled or being drilled by
Farmoutee pursuant to the terms hereof, the
status of all such ▇▇▇▇▇ and current
production information for all producing
▇▇▇▇▇, including, but not limited to,
volumes, values, and proceeds realized.
22.3.1.4.2 Payout Statements. Farmoutor shall
furnish Farmoutee monthly statements showing
a comparison of the revenues and expenses
associated with activity in or on the Farmout
Premises, on a well by well basis during the
Payout period for each Farmout Well.
Such costs, copies, statements, reports and notices shall be
mailed to Farmoutor at the following addresses:
Land Manager
Chevron U.S.A. Inc.
▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Manager, Joint Interest Accounting
Chevron U.S.A. Inc.
▇.▇. ▇▇▇ ▇
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Such costs, copies, statements, reports and notices shall be
mailed to Farmoutee at the following addresses:
Energy Partners, Ltd.
▇▇▇ ▇▇. ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇. ▇. ▇▇▇▇▇ ▇▇▇▇▇▇▇
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ L.L.C.
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: Mr. R. E. Bounds, Jr.
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22.3.2. Notice of Hearings. Farmoutee shall hold the responsibility to
cause and bear the cost of any filing of any application with any
regulatory body or bodies having jurisdiction for the issuance of any
orders which would have the effect of establishing drilling,
development or production units including all or a portion of the
Farmout Lease, shall give Farmoutor fifteen (15) days' written notice
prior to the filing of any application with any regulatory body or
bodies having jurisdiction for the issuance of any orders which would
have the effect of establishing drilling, development or production
units including all or a portion of the Farmout Lease and withhold such
filing until approved by Farmoutor.
23. CESSATION OF PRODUCTION
Should production in paying quantities cease from any Earned Area for a period
of greater than one hundred eighty (180) days without any operations commenced
to re-establish commercial production therefrom, any party may propose
abandonment at the cost of the participating parties, and, following
abandonment, Farmoutee shall, immediately or upon demand from Farmoutor,
re-assign, in the same form as delivered to Farmoutee, all right title and
interest in and to such Earned Area to Farmoutor, free of cost and burden.
24. TERMS FOR CONTRACT OPERATIONS AND PROCESSING
24.1 Farmoutee shall conduct, in accord with the other provisions
hereof, certain drilling, workover, recompletion, facility construction
and other non-production operations associated with any ▇▇▇▇▇ it
completes for production pursuant to this Agreement. In order to
facilitate Farmoutee's accomplishment of its obligations hereunder,
Farmoutor agrees, at the cost of Farmoutee, to file all documents,
including Designations of Operatorship, necessary for Farmoutee to
conduct said operations.
24.2. Farmoutor shall contract operate the ▇▇▇▇▇ completed
for production under this Agreement and shall contract operate
and process the production from said ▇▇▇▇▇ subject to capacity
availability and pursuant to the terms of this Section 24.
Farmoutee commits, subject to any rights of termination
arising under the Production Handling and Field Processing
Agreement contemplated by the parties under Article 24.4, its
share of production to this Agreement for its term for
processing, subject to the other terms hereof or until
released by Farmoutor.
24.3. Subject to Section 24.5, the terms for Contract Operations, as
defined under 24.7, shall include the following provisions:
24.3.1. Notwithstanding the terms and conditions of the
Operating Agreement and its Accounting Procedure, Farmoutor shall bear
all costs and expenses of the Contract Operations except as expressly
provided otherwise in this Section 24, and, as compensation for the
Contract Operations, Farmoutor shall charge Farmoutee and Farmoutee
shall pay its operating interest share, or participating interest if
different, of the Contract Fee defined under 24.8.
24.3.2. The Contract Fee shall be subject to an annual
escalation effective April 1st each year. The adjustment shall be
computed by multiplying the Contract Fee then currently in use by the
percentage increase recommended by ▇▇▇▇▇ each year. The adjusted
Contract Fee shall be the Contract Fee currently in use, plus the
computed adjustment. If any dispute arises over acceptance of any
adjustment to the Contract Fee requested and if such dispute remains
unresolved for one hundred twenty (120) days, Farmoutor shall
thereafter have the right to suspend the Contract Operations until
Farmoutee pays the Contract Fee in use prior to such dispute plus at
least 75% of the disputed adjustment, and the Parties shall diligently
strive to resolve such dispute in good faith as soon as possible.
24.3.3. The Contract Fee does include Farmoutor's extra
overhead for performing and accounting for the Contract Operations;
provided, however, that Farmoutor's basic overhead as operator under
the Accounting Procedure applicable to the Operating Agreement shall be
an additional charge under the Operating Agreement.
24.3.4. The Contract Fee includes recovery of Farmoutor's
existing investment in facilities, equipment and
pipelines as of the Effective Date and no separate
investment recovery charge shall be made against
Farmoutee for same. The parties agree that no rights
of ownership in or to Farmoutor's facilities or
equipment or
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pipelines arise or are delivered with or by the
payment of the Contract Fee by Farmoutee.
24.3.5. THE CONTRACT FEE DOES NOT INCLUDE ANY COSTS AND
EXPENSES OF ANY AND ALL ADVERSE EVENTS ARISING OUT OF THE CONTRACT
OPERATIONS, AND ALL SUCH COSTS AND EXPENSES (INCLUDING BUT NOT LIMITED
TO AWARDED DAMAGES, FINES, PENALTIES, JUDGMENTS AND COSTS OF DEFENSE)
SHALL BE CHARGED TO THE WELL (OR EQUALLY TO EACH WELL) SERVED BY THE
SPECIFIC CONTRACT OPERATIONS OUT OF WHICH SUCH ADVERSE EVENT AROSE AND
ALL SAID COSTS AND EXPENSES SO CHARGED TO SAID WELL OR ▇▇▇▇▇ SHALL BE
PAID AND BORNE BY THE PARTIES IN PROPORTION TO THEIR OPERATING
INTERESTS, OR PARTICIPATING INTERESTS IF DIFFERENT, IN SAID WELL OR
▇▇▇▇▇. EACH PARTY SHALL BE GIVEN PROMPT BUT REASONABLE NOTICE UNDER THE
CIRCUMSTANCES OF THE OCCURRENCE OF ANY AND ALL ADVERSE EVENT
POTENTIALLY CHARGEABLE IN WHOLE OR PART TO SUCH PARTY AND EACH SUCH
PARTY SHALL HAVE THE OPPORTUNITY TO PROMPTLY PARTICIPATE IN THE DEFENSE
AND THE RESOLUTION OF SAME. NO SETTLEMENT OR COMPROMISE SHALL BE
ENTERED INTO WHICH CAUSES ANY PARTY TO ASSUME OR BEAR ANY OBLIGATION OR
MAKE ANY PAYMENT WITHOUT SUCH PARTY'S WRITTEN CONSENT. ADVERSE EVENTS,
FOR THE PURPOSES OF THIS ARTICLE 24.3.5, ARE INTENDED TO COVER DEATHS,
INJURIES, ILLNESSES, ACCIDENTS, FIRES, EXPLOSIONS, RUPTURES, SPILLS,
POLLUTION, INSTANCES OF NON-COMPLIANCE, AND OTHER LIKE EVENTS AND THEIR
INCURRED LOSSES AND DAMAGES.
24.3.6. The Contract Fee is based on Farmoutor's current
practices and methods in place in the Farmout Leases for operation of
its own ▇▇▇▇▇ and production in a manner similar to the Contract
Operations and on current conditions assuming normal cost escalations
under normal market conditions, all as of the Effective Date. Given the
foregoing, Farmoutor, under certain demonstrable economic hardships,
shall have the option to notify Farmoutee of the particulars (including
but not limited to the nature of the hardship and an estimate of the
associated costs, expenses and economic circumstances supporting such
claim), and enter into good faith negotiations to amend the terms in
this Agreement to provide for continued Contract Operations and
compensate Farmoutor for additional costs and expenses; however, in no
event shall Farmoutor be entitled to recover more than Farmoutee's pro
rata share of same given the ownership of the production benefiting, or
to benefit, therefrom. If the Parties are unable to agree upon and
enter into such a mutually acceptable amendment, each Party shall have
the right to terminate the Contract Operations by and upon six (6)
month's prior written notice to the other Party; provided, however, any
and all obligations accrued prior to such termination shall remain in
force and effect until performed, fulfilled and satisfied. Those
certain circumstances are as follows:
24.3.6.1. Additional costs and expenses are, or would have to
be, incurred in order to bring the Contract Operations into compliance
with, or to modify the Contract Operations as necessary to be in
compliance with, applicable laws, orders, permits, rules, regulations
and governmental requirements. Farmoutor considers its processes and
methods to be utilized to perform the Contract Operations to be in
compliance with applicable laws, orders, rules, regulations and
requirements existing as of Effective Date, but Farmoutor does not
represent or warrant the same because of the volume and complexity of
such laws, orders, rules, regulations and governmental requirements
taken together with the varying interpretations within government and
industry.
24.3.6.2. Additional costs and expenses are, or would have to
be, incurred in the event of any unusual fluctuation in a market or a
change in the regulations causes or results in a greater than normal
escalation of prices for chemicals, materials, goods, services and/or
labor.
24.3.6.3. Additional costs and expenses are, or would have to
be, incurred because a well or production therefrom is of an unfit
quality for performance of the Contract Operations.
24.3.6.4. Additional costs and expenses in excess of $50,000
per occasion or situation are, or would have to be, incurred in order
to mitigate or eliminate circumstances, arising for reasons other than
those itemized hereinabove, which prevent or limit performance of the
Contract Operations without incurring such additional costs and
expenses.
24.3.6.5. It becomes uneconomic for the Farmoutor to continue
to perform the Contract Operations.
24.3.7. Notwithstanding anything contained herein or elsewhere
in this Agreement, if Farmoutor is rendered unable to perform the
Contract Operations by reason of, due
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to or to the extent of any laws, orders, permits, rules, regulations
and requirements promulgated by any commission or governmental agency
of the United States or of the State of Louisiana or subdivision
thereof in which operations are being conducted, or any governmental
demand or requisition, or of the action, judgment, or decree of any
court of law, or floods, storms, lightning, earthquake, washouts, high
water, fires, acts of God or public enemies, wars, blockades,
epidemics, riots, insurrections, strikes, labor troubles, accidents,
explosions, freezing of ▇▇▇▇▇ or facilities, bursting of pipes or
vessels, breakdowns, repairs, modifications or installations of
equipment, failures of manufacturers to deliver material or carriers to
transport the same, or any similar cause, which forbids or prevents the
performance of all or any part of such work or acts to be performed by
Farmoutor under Section 7.3 of this Agreement, such performance of the
Contract Operations shall be suspended for the period of continuance
upon receipt of notice by the other party. It is, however, expressly
agreed and understood that promptness of performance of the Contract
Operations is of the essence of the Contract Operations and that
reasonable efforts will be made to avoid delay or suspension of any
work or acts to be performed under Section 7.3 of this Agreement;
provided, however, Farmoutor shall not be required to incur costs in
excess of $50,000 per occasion or situation nor to settle any labor
dispute against its best interests in order to restore the Contract
Operations.
24.3.8. In the event that any facilities, equipment, piping or
property in, on, upstream or downstream of the Farmout Premises are
wholly or partially destroyed or damaged or become obsolete so as to
render same unfit for performance or continuance of the Contract
Operations or are not replaced at the election of the Farmoutor,
Farmoutor shall be under no obligation to incur costs or expenses in
excess of $50,000 per occasion or situation to repair or replace same
or to continue performance or continuance of the Contract Operations.
24.4. The parties agree to enter into a Production Handling and Field
Processing Agreement, to be made effective from and with the date of
first production from the Farmout Premises, by November 1, 2000,
however, the terms of this Article 24 shall apply until replaced and
superceded. Retroactive adjustments shall be made if required. Subject
to Section 24.5, the terms for Processing shall include the following
provisions:
24.4.1. Farmoutor agrees to provide Farmoutee with Processing
capacity for Farmoutee's production from the Farmout Premises to the
extent that excess processing capacity exists and until said excess
capacity is needed for any other purpose, providing that, prior to
restricting Farmoutee's access to any excess processing capacity, the
Parties agree to meet in good faith and attempt to determine if any
mutually acceptable options are available (e.g., purchase or leasing of
capacity or facilities, etc.) that would allow Farmoutee to continue to
access all or a portion of Farmoutor's excess processing capacity.
In the event curtailment of Processing is required below capacity made
available to Farmoutee at the time of hook-up, curtailments of sales
volumes shall be made ratably between the Parties upstream of the
constraint(s) or limitation(s) from which such curtailment arises and
such curtailment shall be based on the capabilities of ▇▇▇▇▇ which are
upstream of the constraint(s) or limitation(s) from which such
curtailment arises. Such well capabilities shall be determined based
upon equivalent barrels of production according to the most recent well
tests. As used in this Agreement, six (6) MCF of natural gas shall be
considered equivalent to one (1) barrel of oil or condensate when
calculating equivalent barrels of production.
24.4.2. Said Processing capacity shall not be required to be
provided to Farmoutee by Farmoutor in case of force majeure or in any
instance where facilities costs are necessary to provide and guarantee
said capacity and said costs would exceed $50,000.00 per instance of
installation, repair, upgrade or modification, or if it becomes
uneconomic for Farmoutor to continue to provide said capacity.
24.4.3. Farmoutee may, at its own cost and expense to be
recovered through Payout without penalty, add facilities to ensure
sufficient throughput capacity for the Earned Areas and/or the Farmout
Well if Farmoutor approves any such additions or modifications on or to
its facilities, equipment or piping. Farmoutor shall not unreasonably
withhold such approval.
24.4.4. Notwithstanding the terms and conditions of the
Operating Agreement and its Accounting Procedure, Farmoutor shall bear
all costs and expenses of the Processing, except as expressly provided
otherwise in this Section 24, and, as compensation for the Processing,
Farmoutor shall charge to Farmoutee and Farmoutee shall pay the
Processing Fees to Farmoutor defined under 24.6.
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24.4.5. The Processing Fees are subject to annual escalation
effective April 1st each year. The adjustment shall be computed by
multiplying the Processing Fees then currently in use by the percentage
increase recommended by ▇▇▇▇▇ each year. The adjusted Processing Fees
shall be the Processing Fees currently in use, plus the computed
adjustment. If any dispute arises over acceptance of any adjustment to
the Processing Fees requested and if such dispute remains unresolved
for one hundred twenty (120) days Farmoutor shall thereafter have the
right to suspend the Processing until Farmoutee pays the Processing
Fees in use prior to such dispute plus at least 75% of the disputed
adjustment, and the Parties shall diligently strive to resolve such
dispute in good faith as soon as possible.
24.4.6. The Processing Fees do include Farmoutor's extra
overhead for performing and accounting for the Processing; provided,
however, that Farmoutor's basic overhead as operator under the
Accounting Procedure applicable to the Operating Agreement shall be an
additional charge under the Operating Agreement.
24.4.7. The Processing Fees includes recovery of Farmoutor's
existing investment in facilities, equipment and pipelines as of the
Effective Date and no separate investment recovery charge shall be made
against Farmoutee for same. The parties agree that no rights of
ownership in or to Farmoutor's facilities or equipment or pipelines
arise or are delivered with or by the payment of the Processing Fees by
Farmoutee.
24.4.8. THE PROCESSING FEES DO NOT INCLUDE ANY COSTS AND
EXPENSES OF ANY AND ALL ADVERSE EVENTS ARISING OUT OF THE PROCESSING
AND ALL SUCH COSTS AND EXPENSES (INCLUDING BUT NOT LIMITED TO AWARDED
DAMAGES, FINES, PENALTIES, JUDGMENTS AND COSTS OF DEFENSE) SHALL BE
CHARGED TO THE WELL (OR EQUALLY TO EACH WELL) SERVED BY THE SPECIFIC
PROCESSING OUT OF WHICH SUCH ADVERSE EVENT AROSE AND ALL SAID COSTS AND
EXPENSES SO CHARGED TO SAID WELL OR ▇▇▇▇▇ SHALL BE PAID AND BORNE BY
THE PARTIES IN PROPORTION TO THEIR OPERATING INTERESTS, OR
PARTICIPATING INTERESTS IF DIFFERENT, IN SAID WELL OR ▇▇▇▇▇. EACH PARTY
SHALL BE GIVEN PROMPT BUT REASONABLE NOTICE UNDER THE CIRCUMSTANCES OF
THE OCCURRENCE OF ANY AND ALL ADVERSE EVENT POTENTIALLY CHARGEABLE IN
WHOLE OR PART TO SUCH PARTY AND EACH SUCH PARTY SHALL HAVE THE
OPPORTUNITY TO PROMPTLY PARTICIPATE IN THE DEFENSE AND THE RESOLUTION
OF SAME. NO SETTLEMENT OR COMPROMISE SHALL BE ENTERED INTO WHICH CAUSES
ANY PARTY TO ASSUME OR BEAR ANY OBLIGATION OR MAKE ANY PAYMENT WITHOUT
SUCH PARTY'S WRITTEN CONSENT. ADVERSE EVENTS, FOR THE PURPOSES OF THIS
ARTICLE 24.4.8, ARE INTENDED TO COVER DEATHS, INJURIES, ILLNESSES,
ACCIDENTS, FIRES, EXPLOSIONS, RUPTURES, SPILLS, POLLUTION, INSTANCES OF
NON-COMPLIANCE, AND OTHER LIKE EVENTS AND THEIR INCURRED LOSSES AND
DAMAGES.
24.4.9. The Processing Fees are based on Farmoutor's current
practices and methods in place for processing its own production from
the Farmout Premises through its existing facilities in a manner
similar to the Processing and on current conditions assuming normal
cost escalations under normal market conditions, all as of the
Effective Date. Given the foregoing, the Farmoutor, under certain
demonstrable economic hardships, shall have the option to notify
Farmoutee of the particulars (including but not limited to the nature
of the hardship and an estimate of the associated costs, expenses and
economic circumstances supporting such claim), and enter into good
faith negotiations to amend this Agreement to provide for continued
Processing and to compensate Farmoutor for additional costs and
expenses; however, in no event shall Farmoutor be entitled to recover
more than Farmoutee's pro rata share of same given the ownership of the
production benefiting, or to benefit, therefrom. If the Parties are
unable to agree upon and enter into such a mutually acceptable
amendment, each Party shall have the right to terminate performance of
the Processing, irrespective of any other provisions hereof, by and
upon six (6) month's prior written notice to the other Party; provided,
however, any and all obligations accrued prior to such termination
shall remain in force and effect until performed, fulfilled and
satisfied. Those certain circumstances are as follows:
24.4.9.1. Additional costs and expenses are, or would have to
be, incurred in order to bring the Processing into compliance with, or
to modify the Processing as necessary to be in compliance with,
applicable laws, orders, permits, rules, regulations and governmental
requirements. Farmoutor considers the facilities, equipment, processes
and methods to be utilized to perform the Processing to be in
compliance with applicable laws, orders, rules, regulations and
requirements existing as of the Effective Date, but the Farmoutor does
not represent or warrant the same because of the volume and complexity
of such laws, orders, rules,
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regulations and governmental requirements taken together with the
varying interpretations within government and industry.
24.4.9.2. Additional costs and expenses are, or would have to
be, incurred if treating of oil, condensate or produced water becomes
necessary in the future in order to deliver Farmoutee's production to
Chevron Pipe Line Company or other regulated common carrier pipelines
and facilities. The Parties acknowledge that treating of oil,
condensate and produced water are not included in the Processing or the
Processing Fees.
24.4.9.3. Additional costs and expenses are, or would have to
be, incurred in the event of any unusual fluctuation in a market or a
change in the regulations causes or results in a greater than normal
escalation of prices for chemicals, materials, goods, services and/or
labor.
24.4.9.4. Additional costs and expenses are, or would have to
be, incurred because the production is of an unfit quality for
performance of the Processing through existing pipelines, facilities
and equipment.
24.4.9.5. Additional costs and expenses in excess of $50,000
per occasion or situation are, or would have to be, incurred in order
to mitigate or eliminate circumstances, arising after initial
commencement of the Processing for reasons other than those itemized
hereinabove, which prevent or limit performance of the Processing
without further modifications, additions, installations, repairs,
restorations and/or replacements of facilities, equipment or piping by
the Farmoutor costing in excess of $50,000 per occasion or situation.
24.4.9.6. It becomes uneconomic for the Farmoutor to continue
to perform the Processing.
24.4.10. Notwithstanding anything contained herein or
elsewhere in this Agreement, if Farmoutor is rendered unable to perform
the Processing or Farmoutee is rendered unable to deliver its
production to Farmoutor for Processing by reason of, due to or to the
extent of any laws, orders, permits, rules, regulations and
requirements promulgated by any commission or governmental agency of
the United States or of the State of Louisiana or subdivision thereof
in which operations are being conducted, or any governmental demand or
requisition, or of the action, judgment, or decree of any court of law,
or floods, storms, lightning, earthquake, washouts, high water, fires,
acts of God or public enemies, wars, blockades, epidemics, riots,
insurrections, strikes, labor troubles, accidents, explosions, freezing
of ▇▇▇▇▇ or facilities, bursting of pipes or vessels, breakdowns,
repairs, modifications or installations of equipment, failures of
manufacturers to deliver material or carriers to transport the same, or
any similar cause, which forbids or prevents the performance of all or
any part of such work or acts to be performed by any party or parties
under Section 24.4 of this Agreement, such performance of the
Processing or delivering of the Production to the Farmoutor for
Processing shall be suspended for the period of continuance upon
receipt of notice by the other party. It is, however, expressly agreed
and understood that promptness of performance of the Processing is of
the essence of the Processing and that reasonable efforts will be made
to avoid delay or suspension of any work or acts to be performed under
Section 24.4 of this Agreement; provided, however, neither Party shall
be required to make any repairs, restorations, replacements,
modifications, additions nor installations of facilities, equipment or
piping costing in excess of $50,000 per occasion or situation nor to
settle any labor dispute against its best interests in order to restore
the Processing.
24.4.11. In the event that any facilities, equipment, piping
or property in, on, upstream or downstream of the Farmout Premises are
wholly or partially destroyed or damaged or become obsolete so as to
render same unfit for performance or continuance of the Processing or
are not replaced at the election of the Farmoutor, no party or parties
to this Agreement shall be under any obligation to incur cost in excess
of $50,000 per occasion or situation to repair or replace same or to
continue performance or continuance of the Processing.
24.4.12. Farmoutee shall bear in kind its direct and
reasonably allocated operating rights interest, or participating
interest if different, share of shrinkage, loss, fuel, including
but not limited to compressor fuel, and emergency or temporary flare
resulting from, consumed, released or lost by, during or in direct
connection or association with the Processing. Farmoutee shall bear
and pay Farmoutor at the NYMEX index price for the month the gas was
consumed (or at the price provided for in Article 44, if Farmoutor has
exercised its call rights) for any such natural gas so used on
Farmoutee's behalf in the event that Farmoutee's produced natural gas
volumes are insufficient to bear same in kind.
24.4.13. Gas and liquid hydrocarbon production and produced
water from the Earned Areas shall be commingled with other production
at facilities existing in or adjacent to
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the Farmout Premises for delivery to Chevron Pipe Line Company or other
regulated common carrier pipelines and facilities for transportation to
market and for further treating and handling.
24.4.14. Whether (a) paid and borne by Farmoutee (and/or its
purchaser other than Farmoutor) or (b) paid by Farmoutor and billed to
and paid by Farmoutee or deducted from Farmoutee's proceeds under this
Agreement, Farmoutee (rather than Farmoutor) shall bear any and all
cost of transportation and any treating charges or other charges or
penalties incurred against Farmoutee or Farmoutee's share of production
downstream of delivery to Chevron Pipe Line Company or other regulated
common carrier pipelines and facilities.
24.4.15. Farmoutee and Farmoutor shall, proportionately, bear
and be responsible for any increase in (or credited with any decrease
to) Farmoutor's revenues caused by Farmoutee's share of production due
to changes in the "per unit" price (inclusive of transportation costs)
received by Farmoutor for its share of production as a result of the
commingled processing and transportation of production from Farmout
▇▇▇▇▇ and other production.
24.4.16. From time to time as necessary for prudent and
efficient performance of the Processing, Farmoutor shall remove and
dispose of sand, sediments and scale (hereafter "Sand") accumulating in
the Farmoutor's equipment and piping as a result of performance of the
Processing. Said removal and disposal shall be performed at the expense
of the Parties hereto as allocated to the well (or equally to ▇▇▇▇▇)
served thereby since the date last cleaned out and in accordance with
each Party's operating interest, or participating interest if
different, in said well or ▇▇▇▇▇. Notwithstanding the foregoing,
removal and disposal of such Sand with non-exempt levels of naturally
occurring radioactive material ("NORM") which requires removal,
handling or disposal by methods more costly than removal, handling or
disposal of Sand with exempt NORM levels shall be performed at the
expense of the parties hereto as to the well (or equally to ▇▇▇▇▇)
served thereby since the date last cleaned out and in accordance with
each Party's operating interest, or participating interest if
different, from only said well or ▇▇▇▇▇ which produced Sand with such
non-exempt levels of NORM. For purposes of this subsection, the terms
"non-exempt" and "exempt" shall be used as defined under the provisions
of La. Rev. State. 33.XV:1404.
24. 5 Commencing four (4) years after the Effective Date, each
Party shall have the right to terminate Contract Operations by and upon
six (6) month's prior written notice to the other Party; provided,
however, that such matters shall thereafter be handled under the terms
of this Agreement (less this Section 24) and the Operating Agreement,
and further provided that any and all obligations accrued prior to such
termination shall remain in force and effect until performed, fulfilled
and satisfied.
24. 6 Processing and Processing Fees
Subject to the further terms and limitations of Section 24 and the
replacement of this Article 24.6 by the provisions of that certain
contemplated Production Handling and Field Processing agreement
referred to in Article 24.4, the Processing is the field handling and
field processing of Farmoutee's production from the Earned Area
through Farmoutor's facilities, equipment and pipelines existing as of
the Effective Date in or adjacent to the Farmout Premises upstream of
delivery to Chevron Pipe Line Company or other regulated common
carrier pipelines and facilities, and without any additions,
modifications or improvements thereto, all in a manner similar to the
processing of Farmoutor's production from the Farmout Leases through
same as of the Effective Date. The Processing and the Processing Fees
do and shall not include any hydrocarbon or produced water
transportation for which a tariff does or should apply.
Subject to the further terms and limitations of Section 24 (including
but not limited to subject to annual ▇▇▇▇▇ escalation pursuant to
Section 24), the Processing Fees are as follows:
24.6.1. $.10/MSCFG for Farmoutee's share of high pressure
natural gas production volumes processed through Farmoutor's existing
or future facilities and $.15/MSCFG for Farmoutee's share of all low
pressure natural gas requiring compression and processed through
Farmoutor's existing or future facilities. Farmoutor's share of such
high and low pressure natural gas volumes shall include, but not be
limited to, Farmoutee's allocated share of gas lift gas, fuel and flare
processed by the Processing through Farmoutor's existing or future
facilities.
24.6.2. $.40/barrel for Farmoutee's share of all liquid
hydrocarbons processed by the Processing through Farmoutor's existing
or future facilities and
24.6.3. $.10/barrel of Farmoutee's share of water processed by
the Processing through Farmoutor's existing or future facilities.
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24.7 CONTRACT OPERATIONS
SUBJECT TO THE FURTHER TERMS AND LIMITATIONS OF SECTION 24, THE
CONTRACT OPERATIONS ARE (i) NORMAL AND ROUTINE OPERATIONS AND MINOR
MAINTENANCE, BUT LIMITED TO NORMAL AND ROUTINE OPERATIONS AND MINOR
MAINTENANCE TYPICALLY AND ROUTINELY PERFORMED BY FARMOUTOR'S OPERATING
PERSONNEL IN THE FIELD, OF EACH FARMOUT WELL AND ASSOCIATED PRODUCTION
EQUIPMENT AFTER COMPLETION AND HOOK UP FOR PRODUCTION BY OR ON BEHALF
OF FARMOUTEE INCLUDING, BUT NOT LIMITED TO, ROUTINE CHOKE CHANGES,
ROUTINE WELL TESTS, ROUTINE WELL GAUGING, RELATED GAS AND LIQUID METER
CALIBRATIONS, AND RELATED FIELD METERING SERVICES (LESS AND EXCEPT ANY
DOWNHOLE WELL WORK AND LESS AND EXCEPT ANY WELLHEAD WORK OTHER THAN
SAID ROUTINE CHOKE CHANGES AND GAUGING), (ii) MARINE AND AIR
TRANSPORTATION FOR FARMOUTOR'S OPERATIONS PERSONNEL PERFORMING THE
NORMAL AND ROUTINE OPERATIONS AND MINOR MAINTENANCE ITEMIZED IN ITEM
(i) ABOVE, (iii) ADMINISTRATIVE WORK TYPICALLY DONE IN THE FIELD, AND
(iv) FIELD SUPERVISION OF ITEMS (i) THROUGH (iii).
24.8 CONTRACT FEE OR FEES
SUBJECT TO THE FURTHER TERMS AND LIMITATIONS OF SECTION 24, THE
CONTRACT FEE OR FEES ARE AS FOLLOWS:
24.8.1 $5,000.00 PER CALENDAR MONTH PER PRODUCING WELL,
SUBJECT TO ANNUAL ▇▇▇▇▇ ESCALATION PURSUANT TO SECTION 7, FOR CONTRACT
OPERATIONS OF EACH FARMOUT WELL PRODUCING FROM THE EARNED AREAS FOR ALL
OR ANY PORTION OF SUCH APPLICABLE MONTH. $500.00 PER CALENDAR MONTH PER
NON-PRODUCING WELL, SUBJECT TO ANNUAL ▇▇▇▇▇ ESCALATION PURSUANT TO
SECTION 7, FOR CONTRACT OPERATIONS OF EACH FARMOUT WELL COMPLETED IN
THE EARNED AREAS BY OR ON BEHALF OF FARMOUTEE PURSUANT TO THIS
AGREEMENT, NON-PRODUCING FOR SUCH APPLICABLE MONTH, AND NOT PLUGGED AND
ABANDONED (MEANING THE WELL ITSELF IS NOT ABANDONED AND PERMANENT
CEMENT SURFACE PLUGS HAVE NOT BEEN SET) PRIOR TO THE END OF SUCH MONTH,
EXCEPT THAT IN THE CASE OF EITHER (i) A FARMOUT WELL ON STRUCTURE
HEREAFTER INSTALLED TO SERVE THE WELL OR (ii) A FARMOUT WELL ON A
SINGLE WELL CAISSON, SAID FEE SHALL APPLY UNTIL THE WELL is PLUGGED AND
ABANDONED, THE SURFACE LOCATION IS CLEARED, AND THE STRUCTURE OR
CAISSON IS REMOVED.
24.9 Notwithstanding anything contained herein or elsewhere in this
Agreement, if Farmoutor is rendered unable to perform the
Contract Operations by reason of, due to or to the extent of
any laws, orders, permits, rules, regulations and requirements
promulgated by any commission or governmental agency of the
United States or of the State of Louisiana or subdivision
thereof in which operations are being conducted, or any
governmental demand or requisition, or of the action,
judgment, or decree of any court of law, or floods, storms,
lightning, earthquake, washouts, high water, fires, acts of
God or public enemies, wars, blockades, epidemics, riots,
insurrections, strikes, labor troubles, accidents, explosions,
freezing of ▇▇▇▇▇ or facilities, bursting of pipes or vessels,
breakdowns, repairs, modifications or installations of
equipment, failures of manufacturers to deliver material or
carriers to transport the same, or any similar cause, which
forbids or prevents the performance of all or any part of such
work or acts to be performed by Farmoutor under Section 7.3 of
this Agreement, such performance of the Contract Operations
shall be suspended for the period of continuance upon receipt
of notice by the other party. It is, however, expressly agreed
and understood that promptness of performance of the Contract
Operations is of the essence of the Contract Operations and
that reasonable efforts will be made to avoid delay or
suspension of any work or acts to be performed under Section
7.3 of this Agreement; provided, however, Farmoutor shall not
be required to incur costs in excess of $30,000 per occasion
or situation nor to settle any labor dispute against its best
interests in order to restore the Contract Operations.
In the event that any facilities, equipment, piping or property in, on,
upstream or downstream of the Farmout Area are wholly or partially
destroyed or damaged or become obsolete so as to render same unfit for
performance or continuance of the Contract Operations or are not
replaced at the election of the Farmoutor, Farmoutor shall be under no
obligation to incur costs or expenses in excess of $30,000 per occasion
or situation to repair or replace same or to continue performance or
continuance of the Contract Operations.
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25. OTHER AGREEMENTS.
This AGREEMENT will be and is accepted as subordinate and subject to and
contingent upon the terms of any and all applicable oil and gas leases,
applicable farmout agreements, joint operating agreements, workover agreements,
joint venture, confidentiality, seismic license or other existing agreements and
an anticipated third party caprock farmout agreement within the North Flank of
Bay ▇▇▇▇▇▇▇▇ Block 2 Field, as of the date of this AGREEMENT.
26. RENTALS, MINIMUM ROYALTIES AND ROYALTIES
Farmoutor shall be responsible to pay all rentals, minimum royalties and
royalties due against any Farmout Lease and any production from the Farmout
Premises. Should any party fail to bear its working interest share of such costs
or obligations, such party shall immediately transfer to Farmoutor all right,
title and interest in and to the Farmout Premises, free and clear of all cost,
obligation and burden. Attached as Exhibit A is a list of Farmout Leases which
describes all such rentals and minimum royalties associated with each Farmout
Lease.
27. PARTNERSHIP OR JOINT VENTURE
Anything herein to the contrary notwithstanding, the transfer by
Farmoutor of a portion of the Farmout Lease and interests therein, as
hereinabove provided, shall be considered as a contribution of leasehold
interests by Farmoutor to the pool of capital for the development of the mineral
interests by the parties only. It is not the purpose or intention of this
Agreement to create any partnership or mining partnership and neither this
Agreement nor the operations hereunder shall be construed or considered as
creating any such relation.
28. TAX MATTERS
As to all operations hereunder, the Parties elect not to be excluded
from the application of Subchapter K, Chapter 1, Subtitle A, Internal Revenue
Code of 1986, as amended, as permitted and authorized by Article 761 of said
Code and the regulations promulgated thereunder, and similar provisions of
applicable state law. The tax partnership shall be governed by Exhibit E,
attached hereto and made a part hereof for all purposes.
29. INDEMNIFICATION.
As to and to the full extent of the operating rights interests and participating
interests in costs, risks, liabilities and/or expenses held or assumed pursuant
to this AGREEMENT, and any other costs, risks, liabilities and/or expenses which
FARMOUTEE has agreed to bear pursuant to this AGREEMENT, FARMOUTEE agree to
protect, defend, indemnify, and hold Farmoutor harmless from any and all claims,
losses, and expenses (including and without limitation all costs, demands,
damages, suits, judgments, liabilities, fines, penalties, damages, attorneys'
fees, costs of defense and all causes of action of whatsoever nature or
character) incurred by operation of Section 2702 of the Oil Pollution Act of
1990 ("OPS" 33 U.S.C. Sections 2710 et seq.) or arising in favor of any entity
or person, including without limitation, FARMOUTEE its employees, agents,
contractors, contractor's employees or otherwise, on account of illness,
disease, bodily injury or death, property loss or damage, environmental damage
or pollution in any way directly or indirectly arising out of or related to
operations and/or activities contemplated and/or performed, including but not
limited to acts or omissions, under this AGREEMENT or any agreement entered into
pursuant to this AGREEMENT on or after the date of this AGREEMENT, even though
caused by the negligence, fault or strict liability of Farmoutor, its employees,
or contractor's accept to the extent caused by gross negligence or willful
misconduct by Farmoutor or its employees. This indemnity extends to Farmoutor's
parent and affiliated corporations, their directors, officers, employees, agents
and contractors and their employees. In addition to these indemnities, EPL shall
carry policies of insurance sufficient to cover all of risks undertaken under
the AGREEMENT, including contractual indemnity and naming and waiving Farmoutor
as an additional assured under all such policies taken from insurers acceptable
to Farmoutor. If EPL and WAL both proceed to Phase II, EPL and WAL shall be
solidarily liable to Farmoutor for the indemnification provisions of this
paragraph.
30. COMPLIANCE
All operations performed by Farmoutee, including but not limited to its
employees, agents or contractor(s), pursuant to this Agreement shall be
conducted in accordance with all the terms, provisions, and conditions of the
Farmout Lease and in compliance with all applicable laws, rules, regulations and
permits of state and federal governments, or any agency thereof. Without
limiting the generality of the foregoing, Farmoutee shall comply with all
provisions of Sections 202 (1) through (7), inclusive, of Executive Order 11246,
as revised, and the other requirements set forth in Exhibit "D", attached hereto
and made a part hereof for all purposes.
Farmoutor and Farmoutee agree that EPL is obligated to perform or cause the
performance of its operations in a diligent, skillful and workmanlike manner,
using equipment in good working order and fully trained personnel
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capable of carrying out, safely and prudently, the operations of EPL, however
the parties agree that any acts or incidences of noncompliance with any law or
regulatory scheme are and remain the primary responsibility of the well
operator. Farmoutee agrees to timely and fully address or resolve, under
reasonable commercial terms, if required, any safety or compliance concerns,
legitimately and in good faith, raised by Farmoutor, regarding the operations of
or by or for EPL.
31. INSURANCE
31.1 PROVISION OF CERTIFICATE
Farmoutee shall secure and maintain ample and adequate
insurance protection as determined by Farmoutor in its sole discretion
against all risks occasioned by its operations hereunder. Farmoutee
shall commence no operations hereunder before Farmoutor receives from
Farmoutee's insurer a "Certificate of Insurance". Said certificate
shall describe the type, policy, limits, deductibles, and period of
coverage of the policy, and shall state the party insured by
Farmoutee's insurance.
31.2 SPECIFIC INSURANCE OF FARMOUT RISKS
Farmoutee agrees to require its insurer to insert a provision
in any policy included in the Certificate of Insurance specified in
Section 31.1 to cover all of the obligations assumed by Farmoutee
hereunder, including contractual indemnity.
32. OIL POLLUTION ACT OF 1990
Farmoutee shall be responsible for and shall defend, indemnify and hold
Farmoutor harmless from any and all liability, claims, fines, penalties, causes
of action and damages incurred by operation of Section 2702 of the Oil Pollution
Act of 1990 ("OPA" 33 U.S.C. Sections 2710 et seq.) in any way, directly or
indirectly arising out of or resulting from Farmoutee's conduct of operations
under this Agreement.
33. PRIOR OBLIGATIONS MAINTAINED
The termination of this Agreement, or the retransfer of interests held or earned
by Farmoutee, in whole or in part, for any reason whatsoever, shall not relieve
Farmoutee of any obligation heretofore incurred or which may subsequently occur
as a result of its acceptance of this Agreement, any operations hereunder, or
the noncompliance with any of the provisions of this Agreement. Farmoutee hereby
undertakes and agrees to indemnify Farmoutor and to hold Farmoutor free and
harmless from and against any obligation or liability incurred by Farmoutee
pursuant to the terms of this Agreement.
34: NO LIENS OR ENCUMBRANCES
Farmoutee agrees to maintain the Farmout Lease, the lease premises, the well(s),
and all permanently installed equipment used in connection with its operations
hereunder free of debts, charges, liens, or other encumbrances.
35. PAYMENT OF DEBTS, CHARGES
Farmoutee agrees to pay or satisfy all such debts and charges incurred in its
operations hereunder within thirty (30) days after such become due and payable.
36. BREACH
Anything herein to the contrary notwithstanding, any failure by Farmoutee to
comply with any obligation hereunder shall be considered an active and material
breach of this Agreement, and in the event of any such failure Farmoutor shall
notify Farmoutee in writing of such failure and, unless remedied within thirty
(30) days, Farmoutor may terminate this Agreement in whole or in part by
notifying Farmoutee in writing of such termination, without prior notice or
demand being made upon Farmoutee and without the necessity of placing Farmoutee
in default; provided, however, the failure by Farmoutor to exercise at any time
or from time to time such right of termination shall not effect a waiver of any
breach or of Farmoutor's right subsequently to terminate this Agreement.
37: RIGHTS AND REMEDIES
Except for the liquidated damages and termination provisions of this Agreement
for the failure of Farmoutee to drill obligation ▇▇▇▇▇, no other provision shall
be construed as limiting Farmoutor's right and remedies (including damages or
specific performance) for matters other than the drilling of the obligation
▇▇▇▇▇.
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38. NO WAIVER
Farmoutor's failure to enforce any of the provisions of this Agreement shall not
effect a waiver of any violation thereof nor preclude enforcement of that or any
other provisions hereof at that or any other time.
39. AUDIT RIGHTS
On written notice, each party may examine, during normal business hours, the
accounts and records of the other party related to activities under this
Agreement for any calendar year to verify said parties compliance with the
financial obligations assumed in this Agreement. Such examinations shall be made
directly by the party requesting same at its expense or through an independent
accounting firm of the electing parties choice retained at its expense. If
performed, the party shall commence its audit of the accounts and records
generated pursuant to this Agreement (including but not limited to the audit of
the production and sales of all hydrocarbons received from or as a result of the
property) within twenty-four (24) months from the end of the calendar year
subject to such audit.
40. FURTHER ASSIGNMENTS
40.1 SUCCESSORS AND ASSIGNS; ASSIGNABILITY
This Agreement, and the transfer or retransfer of an interest in and to
the Farmout Premises as herein provided, shall inure to the benefit of and be
binding upon the heirs, successors, sublessees, and assigns of the parties
hereto; provided, however, Farmoutee may not transfer, assign, or sublease, in
whole or in part, its interest in this Agreement or in its interests earned in
the Farmout Premises without Farmoutor's prior written consent. Any transferee,
assignee, or sublessee shall agree in writing to be bound by all of the terms
and provisions contained in this Agreement and shall assume all duties and
obligations set forth in and arising from this Agreement, and any such transfer,
assignment, or sublease shall so provide, provided such assignment shall not
relieve Farmoutee of any of its obligations and duties under this Agreement or
under the Farmout Lease, and Farmoutor shall look solely to Farmoutee for the
performance of obligations and duties under this Agreement.
40.2 APPOINTMENT OF AGENT
If at any time the interest of Farmoutor or Farmoutee is divided among
or is assigned to and owned by three or more co-owners or an entity in which
equity ownership is held by three or more co-owners, any party hereto may, at
its discretion, require such co-owners to designate in writing a trustee,
mandatary or agent with full authority and all rights necessary to settle,
compromise, dismiss, or release on behalf of such co-owners any loss, expense,
claim, damage, penalty, fine, lawsuit, or similar matter arising from operations
hereunder, including full authority to act for all said co-owners as insureds
under or with respect to any policy of insurance relevant to such matters.
41. NOTICES
Except as otherwise herein provided, any notice required hereunder shall be
addressed to the parties hereto as follows:
Chevron U.S.A. Inc.
Attention: Land Manager
▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Telephone: ▇▇▇-▇▇▇-▇▇▇▇
Fax: ▇▇▇-▇▇▇-▇▇▇▇
Energy Partners, Ltd.
▇▇▇ ▇▇. ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇. ▇. ▇▇▇▇▇ ▇▇▇▇▇▇▇
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ L.L.C.
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: Mr. R. E. Bounds, Jr.
42. NO PLEDGES
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This Agreement and any interest or right earned hereunder shall not be made
subject to mortgage, pledge, or hypothecation by Farmoutee in any manner
whatsoever, without the prior written consent of Farmoutor. Any such action
shall constitute a serious breach of this Agreement and subject the offending
party to all rights or remedies at the disposal of Farmoutor, including specific
performance to remove such burden.
43. AMENDMENTS
This Agreement shall not be modified or amended except by mutual Agreement of
the parties in writing, and no action or failure to act on the part of either
party hereto shall be construed as a modification or amendment to. or a waiver
of, any of the provisions of this Agreement.
44. CALL ON PRODUCTION
44.1 Reservation of Call
Farmoutor hereby reserves the option (hereinafter referred to as
Farmoutor's call on production) to purchase or designate the
purchaser of all or any part of Farmoutee's share of the oil and gas,
or either of them separately, which may be produced from the Farmout
Premises or attributed or allocated to the Farmout Premises under any
unitization, pooling, or similar agreement (the "Callable Production,"
also sometimes referred to as "Callable Gas Production" or "Callable
Oil Production"). Farmoutor shall have the right to exercise its call
on production as provided herein at any time and from time to time
during the life of the oil and gas lease(s) or other interest(s)
assigned pursuant to this Agreement. As to Callable Gas Production,
Farmoutor or its designee shall have the right to purchase the full
stream of gas at or near the wellhead, if the gas is not processed, or
the residue gas at the tailgate of the applicable processing plant, if
the gas is to be processed. During any period when Farmoutor is
exercising its right to purchase or designate the purchaser of
Farmoutee's Callable Oil Production, Farmoutor also reserves the right
to designate the transporter of such Callable Oil Production.
44.2 Notification
Farmoutee shall notify Farmoutor as soon as possible following a
determination by Farmoutee that Farmoutee will have Callable Production
available for sale. Such notice shall include Farmoutee's best estimate
as to the quantity and quality of Callable Production that will be
available and the location at which Farmoutee proposes to sell such
production. Notices pertaining to Farmoutor's call on production shall
be addressed as follows, unless Farmoutor has provided Farmoutee
written notice of a change of address for call on production notices:
--------------------------------------------------------------------------------
For Natural Gas Production For Oil Production
--------------------------------------------------------------------------------
Chevron U.S.A. Inc. Chevron U.S.A. Inc.
Attention: Land Manager Chevron Products Company
▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇ Crude Marketing Division
▇▇▇ ▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇ Attention: Call On Production Notices
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇ ▇.▇. ▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇
With a copy to: Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
Chevron U.S.A. Inc. With a copy to:
Attention: Call On Production Notices
Midstream Unit Chevron U.S.A. Inc.
P.O. Box 2100 Attention: Land Manager
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Facsimile: ▇▇▇ ▇▇▇-▇▇▇▇
--------------------------------------------------------------------------------
44.3 Details of Notification Procedure and Determination of Price
Applicable to Callable Gas Production-
Farmoutee may include in its notice of the availability of Callable Gas
Production a request for an offer by Farmoutor or Farmoutor's designee
to purchase the Callable Gas Production, or Farmoutee may submit a
bona fide offer from a third party that Farmoutee is willing to accept
and offer Farmoutor or Farmoutor's designee an opportunity to match
such bona fide third party offer and purchase the Callable Gas
Production on the same terms.
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If Farmoutor elects to purchase or designate the purchaser of the
Callable Oil Production, the price shall be determined using the first
of the following methods which is available on the date the oil is
purchased: (1) Farmoutor's posted price for oil of like gravity and
quality in the field where the oil is produced, (2) the average of the
prices posted by others in the same field for oil of like gravity and
quality, or (3) a price specified by Farmoutor or its designated
purchaser which represents the reasonable value of the oil in question.
Notwithstanding the foregoing, if at any time while Farmoutor is not
exercising its call on oil production Farmoutee receives a bona fide
third party offer, which Farmoutee is willing to accept, to purchase
Farmoutee's Callable Oil Production from the Subject Property for a
term longer than one month, Farmoutee may submit such-offer to
Farmoutor and request that Farmoutor either match such offer or waive
its call on oil production for the term necessary to allow Farmoutee to
accept such offer. Farmoutor shall exercise its right to match such an
offer within 30 days after receipt of the offer from Farmoutee or
Farmoutor shall be deemed to have waived its right as to that
particular offer. If Farmoutor waives its right to match an offer and
Farmoutee does not enter into a contract based on that offer, then
Farmoutor's call on production shall remain in effect and Farmoutor
shall have the same rights as to any subsequent offer received by
Farmoutee.
CALL ON OIL
44.4. Initial Exercise
With respect to "crude oil" as hereinafter defined, Farmoutee shall
give thirty (30) days' written notice to Farmoutor of Farmoutee's
anticipated date of first production. Upon receipt of such notice
Farmoutor shall have the option to purchase Farmoutee's share of the
crude oil (the term "crude oil" as used herein shall include condensate
and other liquid hydrocarbons) produced from or attributable to the
Earned Areas for a period of three (3) years commencing the date of
first production. Within ten (10) days of the anticipated date of first
production, Farmoutor shall inform Farmoutee whether it will purchase
Farmoutee's share of crude oil. Should Farmoutor elect not to purchase
Farmoutee's share of crude oil hereunder, Farmoutor reserves the
option, exercisable at the time of its election not to purchase for its
own account, and exercisable in accordance with the terms of this
Section 14, to designate, the person, firm, or corporation to which
such crude oil shall be sold. Only after Farmoutee has so notified
Farmoutor and Farmoutor has elected not to purchase such crude oil or
to designate a purchaser therefor, can Farmoutee dispose of any crude
oil produced from or attributable to the Earned Areas.
44.5. Pricing
With respect to crude oil, Farmoutor, or its designated purchaser,
shall pay for Farmoutee's share of crude oil the posted price per
barrel in the field or at the first pipeline terminal to which such
production is transported, less the cost of transportation to such
terminal and any treating charges or any other charges incurred against
Farmoutee's share of production at such terminal or downstream of
delivery to Chevron Pipe Line Company or other regulated common carrier
pipelines and facilities for transportation to market and for further
treating and handling that have riot otherwise been borne or paid by
Farmoutee. The posted price in the field or at the terminal shall mean
the average of the three highest POSTED prices being paid in the area
by crude oil purchasers for crude oil of like quantity and quality.
44.6. Subsequent Exercise Of Call
44.6.1. Subsequent Periods
Farmoutor or its designated purchaser shall also have the option to
purchase Farmoutee's share of crude oil for successive additional
periods of three (3) years each, the first of which shall commence at
the end of the initial three-year period referred to in this Section
14. Farmoutor shall inform Farmoutee at least three (3) months in
advance of the commencement of any three-year period following the
initial period whether Farmoutor, or a purchaser designated by
Farmoutor, will purchase Farmoutor's proportionate share of Farmoutee's
share of crude oil during such three-year period.
44.6.2. Price for Subsequent Periods
The price provisions applicable under this Section 44 to the initial
three-year period shall be applicable to subsequent three-year periods.
44.6.3. No One-Time Election
Farmoutor's election for any reason not to purchase Farmoutee's share
of crude oil during any three-year period, or not to designate a
purchaser for such share of crude oil during any three-
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year period, shall not affect Farmoutor's option to purchase or to
designate a purchaser for subsequent three-year periods.
44.7. Separate Disposition If No Call
During any three-year period in which Farmoutor or its designated
purchaser is not purchasing Farmoutee's share of crude oil produced
from the Earned Areas, Farmoutee shall be obligated to take in kind or
separately dispose of its share of such crude oil and shall bear all
costs and expenses of doing so. If and so long as Farmoutee fails to
take in kind or separately dispose of its share of crude oil, Farmoutor
may dispose of Farmoutee's share of crude oil at the best price
obtainable (not to exceed the price Farmoutor receives for its own
production from the Earned Areas) and at Farmoutee's sole risk, cost,
and expense. Farmoutee shall be bound by delivery obligations incurred
by Farmoutor for such purpose; however, any contract made by Farmoutor
for the sale of Farmoutee's share of crude oil shall bear a term no
longer than is commensurate with the minimum needs of the industry
under the circumstances and in no event for a term exceeding one (1)
year.
44.8. Disposition of Farmoutor's Share
Farmoutor shall have the right to take in kind and separately dispose
of its share of oil produced from or attributable to the Earned Areas.
44.9. Severance Taxes
Farmoutee shall bear any severance taxes owing on its share of
production.
44.10. Subsidiaries and Affiliates
This Section 44 shall include and apply separately to not only
Farmoutor but also any one of its subsidiaries or affiliates.
CALL ON GAS
44.11.1. Exercise
With respect to natural gas, Farmoutee shall notify Farmoutor in
writing immediately upon the receipt from a responsible third party of
a bona fide offer to purchase any natural gas owned by Farmoutee in the
Earned Areas. Prior to Farmoutee's completing a sale of such natural
gas to said third party, Farmoutor will have the option of purchasing
Farmoutee's share of such natural gas, or of designating a purchaser
for such sale of gas from Farmoutee, on overall terms and conditions as
favorable as those set out in the offer from said third party, by
notifying Farmoutee in writing within ten (10) days after receiving
Farmoutee's notice of Farmoutor's desire to purchase such natural gas,
or identifying the purchaser designated by Farmoutor. Failure by such
Farmoutor to give such written notice to Farmoutee within the aforesaid
ten (10) day period will be considered an election by such Farmoutor
not to purchase and not to designate a purchaser for such gas. If,
however, Farmoutor timely elects to purchase Farmoutee's share of such
natural gas or to designate a purchaser therefor, Farmoutor or its
designated purchaser will, as soon as possible thereafter, enter into a
gas purchase contract with Farmoutee on terms and conditions as
favorable as those set out in the offer from said third party.
Farmoutee shall not be required to give Farmoutor notice if Farmoutee's
natural gas is being sold on the spot market in a contract for a term
of forty-five (45) days or less.
44.11.2. Disposition If No Call
If Farmoutor elects not to purchase Farmoutee's share of natural gas,
and elects not to designate a purchaser therefor, Farmoutee may then
enter into a gas purchase contract with said third party on terms
and conditions no more favorable to said third party than those
submitted by Farmoutee to Farmoutor. However, if Farmoutee does not
execute a gas purchase contract with said third party within one
hundred and twenty (120) days after Farmoutor's election not to
purchase, Farmoutor's prior rights to purchase such natural gas from
Farmoutee, or to designate a purchaser for such gas, will be
reinstated.
44.11.3. Farmoutor's Offer To Purchase
At any time prior to receiving written notice from Farmoutee that
Farmoutee has received from a responsible third party a bona fide
contract offer, Farmoutor or its designated purchaser may submit to
Farmoutee in writing an offer to purchase Farmoutee's share of such
natural gas. Within ten (10) days after receipt of Farmoutor's or its
designated purchaser's offer, Farmoutee may either accept Farmoutor's
or its designated purchaser's offer to purchase, in which event
Farmoutee and Farmoutor or its designated purchaser will enter into a
gas purchase contract embodying the terms and conditions of said
offer; or confer with Farmoutor or its designated purchaser in order to
negotiate the terms and conditions of the purchase of such natural gas
by Farmoutor or its designated purchaser. If such terms and conditions
cannot be agreed upon within the aforesaid ten (10) day period,
Farmoutee may thereafter dispose of its share of the
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natural gas after submitting to Farmoutor any bona fide offer from a
responsible third party in accordance with this Section 44.
44.11.4. Subsequent Elections
Upon termination of the primary term of any gas purchase contract
consummated under the applicable provisions of this Section 13,
Farmoutor's right to purchase Farmoutee's share of any remaining
natural gas reserves within the dedicated zone and area of such gas
purchase contract, or to designate a purchaser therefor, will be
automatically reinstated and both the Farmoutee and the Farmoutor will
be subject to the provisions of this Section 44.
44.11.5. Disposition of Farmoutor's Share
Farmoutor shall have the right to take in kind and separately dispose
of its share of gas produced from or attributable to the Earned Areas.
44.11.6. Severance Taxes
Farmoutee shall bear any severance taxes owing on its share of
production.
44.11.7. Subsidiaries and Affiliates
This Section 44 shall include and apply separately to not only
Farmoutor but also to any one of its subsidiaries or affiliates.
45. GAS PLANT PROCESSING
Farmoutor's interest in the property covered by this Agreement is
subject to that certain Natural Gas Processing Agreement - Gulf of Mexico,
effective September 1,1996, between Farmoutor and ▇▇▇▇▇▇ Petroleum Company (now
called "Dynegy Midstream Services, Limited Partnership") (the "Chevron GPA").
Upon or immediately following any assignment to Farmoutee under this Agreement,
Farmoutee shall enter into a separate Natural Gas Processing Agreement with
Dynegy Midstream Services, Limited Partnership, covering the interest assigned
to Farmoutee hereunder and containing terms and provisions similar to those in
the Chevron GPA.
46. PLURALS AND HEADINGS
The headings and table of contents used in this Agreement are inserted
for convenience only and shall be disregarded in construing this Agreement.
Reference to the plural form of a noun, pronoun, or verb shall, whenever
appropriate, be deemed to include the singular form, and vice versa.
47. TERM
This Agreement shall be effective from May 3. 2000, if fully executed
prior to August 21, 2000 and shall remain in force and effect for so long as any
of the Farmout ▇▇▇▇▇ is yet to be abandoned and a final accounting for all costs
has been made. This Agreement shall run contemporaneously with the operating
agreement but any conflict between this Agreement and the operating agreement
shall be resolved in favor of this Agreement.
IN WITNESS WHEREOF, this Agreement is executed by each party on the date of the
acknowledgment of its signature below.
FARMOUTOR: FARMOUTEE:
CHEVRON U.S.A. INC. ENERGY PARTNERS, LTD.
BY: /s/ ▇. ▇. ▇▇▇▇▇ BY: /s/ L. ▇▇▇▇▇ ▇▇▇▇▇▇▇
----------------------------- ---------------------------
TITLE: Assistant Secretary TITLE: Vice President Land
-------------------------- -------------------------
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ L.L.C.
BY: /s/ R.E. BOUNDE, JR.
---------------------------
TITLE: VICE PRESIDENT
-------------------------
▇▇▇▇▇▇▇▇ Oil & Gas, Inc.
Manager
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▇▇
▇▇▇▇▇ ▇▇ ▇▇▇▇▇▇▇▇▇
▇▇▇▇▇▇ ▇▇ ▇▇▇▇▇▇▇
▇▇ this 23rd day of August, 2000, before me appeared I. M. Tarre, to
me personally known, who, being by me duly sworn, did say that he is an
Assistant Secretary of CHEVRON U.S.A. INC., a Pennsylvania corporation, and that
said instrument was signed on behalf of said corporation by authority of its
Board of Directors, and said appearer acknowledged that he executed the same as
the free act and deed of said corporation.
IN WITNESS WHEREOF, I have hereunto set my official hand and seal on
the date herein above written.
/s/ WITNESS
-------------------------
Notary Public in and for
Orleans Parish, LA
My commission expires at death.
▇▇▇▇▇ ▇▇ ▇▇▇▇▇▇▇▇▇
▇▇▇▇▇▇ ▇▇ ▇▇▇▇▇▇▇
▇▇ this 24th day of AUGUST, 2000 before me appeared L. ▇▇▇▇▇ ▇▇▇▇▇▇▇ to
me personally known, who, being by me duly sworn, did say that he is the VICE
PRESIDENT of Energy Partners, Ltd. a Delaware corporation, and that said
instrument was signed on behalf of said corporation by authority of its Board of
Directors, and said appearer acknowledged that he executed the same as the free
act and deed of said corporation.
IN WITNESS WHEREOF, I have hereunto set my official hand and seal on
the date herein above written.
/s/ WITNESS
-------------------------
Notary Public in and for
Orleans Parish, LA
My commission expires at death.
▇▇▇▇▇ ▇▇ ▇▇▇▇▇▇▇▇▇
▇▇▇▇▇▇ ▇▇ ▇▇▇▇▇▇▇
▇▇ this 24th day of August, 2000 before me appeared R. E. Bounds, Jr.
to me personally known, who, being by me duly sworn, did say that he is the Vice
President of ▇▇▇▇▇▇▇-▇▇▇▇▇▇▇▇, L.L.C. a Louisiana LLC, and that said instrument
was signed on behalf of said corporation by authority of its Board of Directors,
and said appearer acknowledged that he executed the same as the free act and
deed of said corporation.
IN WITNESS WHEREOF, I have hereunto set my official hand and seal on
the date herein above written.
/s/ WITNESS
-------------------------
Notary Public in and for
Orleans Parish, LA
My commission expires at death.
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