Exhibit 10.7
EXHIBIT "C"
Attached to and made a part of that certain Participation Agreement dated
effective June 20, 2006, by and between Newfield Exploration Company and
Ridgewood Energy Corporation
OFFSHORE OPERATING AGREEMENT
DATED JANUARY 17, 2006
BETWEEN
NEWFIELD EXPLORATION COMPANY
(As Operator)
AND
RIDGEWOOD ENERGY CORPORATION
AND
NORTHSTAR GOM, LLC
(as non-Operators)
WEST CAMERON
BLOCK 593
OCS-G 02023
MODEL FORM OF OFFSHORE OPERATING AGREEMENT
CONTENTS
PRELIMINARY RECITALS .......................................................1
ARTICLE 1: APPLICATION ...................................................1
1.1 Application to Each Lease ...........................................1
ARTICLE 2: DEFINITIONS ...................................................1
2.1 Additional Testing ..................................................1
2.2 Affiliate ...........................................................1
2.3 Authorization For Expenditure (AFE) .................................1
2.4 Complete, Completing, Completion ....................................1
2.5 Completion Equipment ................................................1
2.6 Confidential Data ...................................................1
2.7 Deepen, Deepening ...................................................1
2.8 Development Operation ...............................................1
2.9 Development Well ....................................................1
2.10 Exploratory Operation ...............................................1
2.11 Exploratory Well ....................................................2
2.12 Export Pipelines ....................................................2
2.13 Force Majeure .......................................................2
2.14 Hydrocarbons ........................................................2
2.15 Joint Account .......................................................2
2.16 Lease ...............................................................2
2.17 MMS .................................................................2
2.18 Non-consent Operation ...............................................2
2.19 Non-consent Platform ................................................2
2.20 Non-consent Well ....................................................2
2.21 Non-operator ........................................................2
2,22 Non-participating Party .............................................2
2.23 Non-participating Party's Share .....................................2
2.24 Objective Depth .....................................................2
2.25 Objective Horizon ...................................................2
2.26 Offsite Host Facilities .............................................2
2.27 Operator ............................................................2
2.28 Participating Interest ..............................................2
2.29 Participating Party .................................................2
2.30 Platform ............................................................2
2.31 Processing Facilities ...............................................3
2.32 Producible Reservoir ................................................3
2.33 Producible Well .....................................................3
2.34 Production Interval .................................................3
2.35 Recomplete, Recompleting, Recompletion ..............................3
2.36 Rework, Reworking ...................................................3
2.37 Sidetrack, Sidetracking .............................................3
2.38 Take-in-Kind Facilities .............................................3
2.39 Transfer of Interest ................................................3
2.40 Working Interest ....................................................3
2.41 Initial Exploratory Well ............................................3
ARTICLE 3: EXHIBITS ......................................................3
3.1 Exhibits ............................................................3
3.1.1 Exhibit "A" ............................................3
3.1.2 Exhibit "B" ............................................3
3.1.3 Exhibit "C" ............................................4
3.1.4 Exhibit "D" ............................................4
3.1.5 Exhibit "E" ............................................4
3.1.6 Exhibit "F" ............................................4
3.2 Conflicts ..............................................................4
ARTICLE 4: OPERATOR ......................................................4
4.1 Operator ............................................................4
4.2 Substitute Operator .................................................4
4.2.1 Circumstances Under Which the Operator Must Conduct a
Non-Consent Operation ........................................4
4.2.2 Operator's Conduct of a Non-Consent Operation in .............4
which it is a Non-participating Party ........................4
4.2.3 Appointment of a Substitute Operator .........................4
4.2.4 Redesignation of Operator ....................................5
4.3 Resignation of Operator .............................................5
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MODEL FORM OF OFFSHORE OPERATING AGREEMENT
4.4 Removal of Operator .................................................5
4.5 Selection of Successor ..............................................5
4.6 Effective Date of Resignation or Removal ............................6
4.7 Delivery of Property ................................................6
ARTICLE 5: AUTHORITY AND DUTIES OF OPERATOR...............................6
5.1 Exclusive Right to Operate ..........................................6
5.2 Workmanlike Conduct .................................................6
5.3 Liens and Encumbrances ..............................................6
5.4 Employees and Contractors ...........................................6
5.5 Records .............................................................6
5.6 Compliance ..........................................................7
5.7 Contractors .........................................................7
5.8 Governmental Reports ................................................7
5.9 Information to Participating Parties ................................7
5.10 Information to Non-participating Parties ............................7
ARTICLE 6: VOTING AND VOTING PROCEDURES ..................................8
6.1 Voting Procedures ...................................................8
6.1.1 Voting Interest ..........................................8
6.1.2 Vote Required ............................................8
6.1.3 Votes ....................................................8
6.1.4 Meeting ..................................................8
ARTICLE 7: ACCESS ........................................................8
7.1 Access to Lease .....................................................8
7.2 Reports .............................................................8
7.3 Confidentiality .....................................................8
7.4 Limited Disclosure ..................................................8
7.5 Media Releases ......................................................9
ARTICLE 8: EXPENDITURES ..................................................9
8.1 Basis of Charge to the Parties ......................................9
8.2 AFEs ................................................................9
8.3 Emergency and Required Expenditures .................................9
8.4 Advance ▇▇▇▇▇▇▇▇ ....................................................9
8.5 Commingling of Funds ................................................9
8.6 Security Rights .....................................................9
8.7 Over expenditures (Optional Provision) .............................14
ARTICLE 9: NOTICES ......................................................14
9.1 Giving and Receiving Notices .......................................14
9.2 Content of Notice ..................................................15
9.3 Response to Notices ................................................15
9.3.1 Platform and/or Processing Facilities Construction ......15
9.3.2 Proposal Without Platform and/or Processing Facilities...15
9.3.3 Proposal for Multiple Operations ........................15
9.3.4 Other Matters ...........................................15
9.4 Failure to Respond .................................................15
9.5 Response to Counterproposals .......................................15
9.6 Timely Well Operations .............................................15
9.7 Timely Platform/Processing Facilities Operations ...................15
ARTICLE 10: EXPLORATORY OPERATIONS .......................................16
10.1 Proposing Operations ...............................................16
10.2 Counterproposals ...................................................16
10.3 Operations by All Parties ..........................................16
10.4 Second Opportunity to Participate ..................................16
10.5 Operations by Fewer Than All Parties ...............................16
10.6 Expenditures Approved ..............................................17
10.7 Conduct of Operations ..............................................17
10.8 Course of Action After Reaching Objective Depth ....................17
10.8.1 Election by Participating Parties ...........................17
10.8.2 Priority of Operations ......................................17
10.8.3 Second Opportunity to Participate ...........................18
10.8.4 Operations by Fewer Than All Parties ........................18
10.8.5 Subsequent Operations .......................................18
10.8.6 Restoration of Damaged Well (Optional Provision) ............18
10.9 ▇▇▇▇▇ Proposed Below Deepest Producible Reservoir ...................19
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MODEL FORM OF OFFSHORE OPERATING AGREEMENT
ARTICLE 11: DEVELOPMENT OPERATIONS .......................................19
11.1 Proposing Operations ...............................................19
11.2 Counterproposals ...................................................19
11.3 Operations by All Parties ..........................................19
11.4 Second Opportunity to Participate ..................................19
11.5 Operations by Fewer Than All Parties ...............................19
11.6 Expenditures Approved ..............................................20
11.7 Conduct of Operations ..............................................20
11.8 Course of Action After Reaching Objective Depth ....................20
11.8.1 Election by Fewer Than All Parties ..........................20
11.8.2 Priority of Operations ......................................20
11.8.3 Second Opportunity to Participate ...........................21
11.8.4 Operations by Fewer Than All Parties ........................21
11.8.5 Subsequent Operations .......................................21
11.8.6 Restoration of Damaged Well (Optional Provision) ............21
ARTICLE 12: PLATFORM AND PROCESSING FACILITIES ...........................22
12.1 Approval ...........................................................22
12.2 Counterproposals ...................................................22
12.2.1 Operations by All Parties ...............................22
12.2.2 Second Opportunity to Participate .......................22
12.2.3 Operations by Fewer Than All Parties ....................22
12.3 Ownership and Use of the Platform and Processing Facilities ........23
12.4 Right to Take in Kind ..............................................23
12.5 Expansion or Modification of a Platform and/or Processing
Facilities .........................................................23
ARTICLE 13: NON-CONSENT OPERATIONS .......................................23
13.1 Non-consent Operations .............................................23
13.1.1 Non-interference ........................................23
13.1.2 Multiple Completion Limitation ..........................23
13.1.3 Metering ................................................23
13.1.4 Non-consent Well ........................................24
13.1.5 Cost Information ........................................24
13.1.6 Completions .............................................24
13.2 Relinquishment of Interest .........................................24
13.2.1 Production Reversion Recoupment .............................24
13.2.2 Non-production Reversion ....................................25
13.3 Deepening or Sidetracking of Non-consent Well ......................25
13.4 Deepening or Sidetracking Cost Adjustments .........................25
13.5 Subsequent Operations in Non-consent Well ..........................26
13.6 Operations in a Production Interval ................................26
13.7 Operations from Non-consent Platform ...............................26
13.8 Discovery or Extension from Non-consent Drilling ...................26
13.9 Allocation of Platform/Processing Facilities Costs to Non-consent
Operations .........................................................27
13.9.1 Charges .................................................27
13.9.2 Operating and Maintenance Charges .......................27
13.10 Allocation of Costs Between Zones ..................................28
13.11 Lease Maintenance Operations .......................................28
13.11.1 Participation in Lease Maintenance Operations ...........28
13.11.2 Accounting for Non-participation ........................28
13.12 Retention of Lease by Non-consent Well ............................28
ARTICLE 14: ABANDONMENT, SALVAGE, AND SURPLUS ............................29
14.1 Platform Salvage and Removal Costs .................................29
14.2 Abandonment of Platforms, Processing Facilities or ▇▇▇▇▇ ...........29
14.3 Assignment of Interest .............................................29
14.4 Abandonment Operations Required by Governmental Authority ..........29
14.5 Disposal of Surplus Material .......................................29
ARTICLE 15- WITHDRAWAL ...................................................30
15.1 Right to Withdraw ..................................................30
15.2 Response to Withdrawal Notice ......................................30
15.2.1 Unanimous Withdrawal ....................................30
15.2.2 No Additional Withdrawing Parties .......................30
15.2.3 Acceptance of the Withdrawing Parties' Interests ........30
15.2.4 Effects of Withdrawal ...................................30
15.3 Limitation Upon and Conditions of Withdrawal .......................31
15.3.2 Confidentiality .........................................31
15.3.3 Emergencies and Force Majeure ...........................31
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MODEL FORM OF OFFSHORE OPERATING AGREEMENT
ARTICLE 16: RENTALS, ROYALTIES, AND OTHER PAYMENTS .......................31
16.1 Overriding Royalty and Other Burdens ...............................31
16.2 Subsequently Created Interest ......................................32
16.3 Payment of Rentals and Minimum Royalties ...........................32
16.4 Non-participation in Payments ......................................32
16.5 Royalty Payments ...................................................32
ARTICLE 17: TAXES ........................................................32
17.1 Property Taxes .....................................................32
17.2 Contest of Property Tax Valuation ..................................32
17.3 Production and Severance Taxes .....................................33
17.4 Other Taxes and Assessments ........................................33
ARTICLE 18: INSURANCE ....................................................33
18.1 Insurance ..........................................................33
18.2 Bonds ..............................................................33
ARTICLE 19: LIABILITY, CLAIMS, AND LAWSUITS ..............................33
19.1 Individual Obligations .............................................33
19.2 Notice of Claim or Lawsuit .........................................33
19.3 Settlements ........................................................33
19.4 Defense of Claim and Lawsuits ......................................33
19.5 Liability for Damages ..............................................34
19.6 Indemnification for Non-Consent Operations .........................34
19.7 Damage to Reservoir, Loss of Reserves and Profit ...................34
19.8 Non-Essential Personnel ............................................34
ARTICLE 20: INTERNAL REVENUE PROVISION ...................................34
20.1 Internal Revenue Provision .........................................34
ARTICLE 21: CONTRIBUTIONS ................................................34
21.1 Notice of Contributions Other Than Advances for Sale of
Production .........................................................34
21.2 Cash Contributions .................................................35
21.3 Acreage Contributions ..............................................35
ARTICLE 22: DISPOSITION OF PRODUCTION ....................................35
22.1 Take-in-Kind Facilities ............................................35
22.2 Duty to Take in Kind ...............................................35
22.3 Failure to Take in Kind ............................................35
22.4 Expenses of Delivery in Kind .......................................35
ARTICLE 23: APPLICABLE LAW ...............................................36
23.1 Applicable Law .....................................................36
ARTICLE 24: LAWS, REGULATIONS, AND NONDISCRIMINATION .....................36
24.1 Laws and Regulations ...............................................36
24.2 Nondiscrimination ..................................................36
ARTICLE 25: FORCE MAJEURE ................................................36
25.1 Force Majeure ......................................................36
ARTICLE 26: SUCCESSORS AND ASSIGNS .......................................36
26.1 Transfer of Interest ...............................................36
26.1.1 Exceptions to Transfer Notice ...........................36
26.1.2 Effective Date of Transfer of Interest ..................36
26.1.3 Form of Transfer of Interest ............................37
26.1.4 Warranty ................................................37
ARTICLE 27: ADMINISTRATIVE PROVISIONS ....................................37
27.1 Term ...............................................................37
27.2 Waiver .............................................................37
27.3 Waiver of Right to Partition .......................................37
27.4 Compliance with Laws and Regulations ...............................37
27.4.1 Severance of Invalid Provisions .........................37
27.4.2 Fair and Equal Employment ...............................37
27.5 Construction and Interpretation of this Agreement ..................38
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MODEL FORM OF OFFSHORE OPERATING AGREEMENT
27.5.1 Headings for Convenience ................................38
27.5.2 Article References ......................................38
27.5.3 Gender and Number .......................................38
27.5.4 Joint Preparation .......................................38
27.5.5 Integrated Agreement ....................................38
27.5.6 Binding Effect ..........................................38
27.5.7 Further Assurances ......................................38
27.5.8 Counterpart Execution ...................................38
v
OFFSHORE OPERATING AGREEMENT
OCS-G 02023 (Portion of West Cameron Area, Block 593)
Newfield Exploration Company - Operator
Ridgewood Energy Corporation and Northstar Gulfsands, LLC - Non-Operators
THIS AGREEMENT, made effective the 17th day of January, 2006, by the
signers hereof, their respective heirs, successors, legal representatives, and
assigns, herein referred to collectively as the "Parties" and individually as a
"Party".
WITNESSETH:
WHEREAS, the Parties own the one or more oil and gas Leases identified in
Exhibit "A" and desire to explore, develop, produce, and operate those Leases.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants in this Agreement, the Parties agree as follows:
ARTICLE 1
APPLICATION
1.1 Application to Each Lease. If there is more than one Lease
identified in Exhibit "A," this Agreement shall be applicable to all Leases
collectively for the purposes herein, and all Leases shall be considered as
being covered collectively by this operating agreement.
ARTICLE 2
DEFINITIONS
2.1 Additional Testing. An operation not previously approved in the
AFE and proposed for the specific purpose of obtaining additional subsurface
data.
2.2 Affiliate. (A) For a person, another person that controls, is
controlled by or is under common control with that person. In this definition,
(a) "control" means the possession by one person, directly or indirectly, of
more than fifty percent (50%) of the voting securities of a corporation or, for
other persons, the equivalent ownership interest (such as partnership
interests), and (b) "person" means an individual, corporation, partnership,
trust, estate, unincorporated organization, association, or other legal entity;
or (B) As may be further defined, if applicable, as any limited liability
company whereby a person is designated general manager having full, exclusive
and complete discretion in the management and control of said entity.
2.3 Authorization For Expenditure (AFE). An authority to expend
funds prepared by a Party to estimate the costs to be incurred in conducting an
operation under this Agreement.
2.4 Complete, Completing, Completion. An operation to complete a
well for initial Hydrocarbon production in one or more Producible Reservoirs,
including, but not limited to, setting production casing, perforating the
casing, stimulating the well, installing Completion Equipment, and/or conducting
production tests.
2.5 Completion Equipment. That certain equipment on an Exploratory
Well or a Development Well that is required to be installed prior to the
movement of a well-completion rig of that well
(A) under 30 CFR 250.502, or any succeeding order or regulation
issued by the MMS, up to and including the tree, and
(B) by any other regulatory agency, including, but not limited
to, a caisson and navigational aids.
2.6 Confidential Data. The information and data obtained under this
Agreement, including, but not limited to, geological, geophysical, and
reservoir information; originals and copies of logs; and other information about
the progress, tests, or results of a well drilled or an operation conducted
under this Agreement, except data or information that becomes public, other than
by breach of this Agreement.
2.7 Deepen, Deepening. A drilling operation conducted in an existing
wellbore below the Objective Depth to which the well was previously drilled.
2.8 Development Operation. An operation on the Lease other than an
Exploratory Operation.
2.9 Development Well. A well or portion of a well proposed as a
Development Operation,
2.10 Exploratory Operation. An operation that is conducted on the
Lease and that is any of the following:
(A) proposed to Complete an Exploratory Well;
(B) proposed for an Objective Horizon that is not a Producible
Reservoir;
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MODEL FORM OF OFFSHORE OPERATING AGREEMENT
(C) proposed for an Objective Horizon that has a Producible
Well, but that will be penetrated at a location where the
distance between the midpoint of the Objective Horizon to be
penetrated by the proposed operation and the midpoint of the
same Objective Horizon where it is actually penetrated by a
Producible Well will be at least three thousand (3,000) feet
for a gas Completion and at least two thousand (2,000) feet
for an oil Completion;
(D) proposed for an Objective Horizon that is unanimously agreed
by the Parties not to be in an existing Producible
Reservoir.
2.11 Exploratory Well. A well or portion of a well proposed as an
Exploratory Operation.
2.12 Export Pipelines: Pipelines to which a gathering line or lateral
line downstream of the Platform and/or Processing Facilities or, if there is no
Platform, the Completion Equipment, is connected and which are used to transport
Hydrocarbons or produced water to shore.
2.13 Force Majeure: An event or cause that is reasonably beyond the
control of the Party claiming the existence of such event or cause, which
includes, but is not limited to, a flood, storm, hurricane, loop current/eddy,
or other act of God, a fire, loss of well control, oil spill, or other
environmental catastrophe, a war, a civil disturbance, a labor dispute, a
strike, a lockout, compliance with a law, order, rule, or regulation,
governmental action or delay in granting necessary permits or permit approvals,
and the inability to secure materials or a rig.
2.14 Hydrocarbons. Oil and/or gas and associated liquid and gaseous
by-products (except helium) which may be produced from a well bore located on
the Lease.
2.15 Joint Account. This term has the same definition as the defined
term "Joint Account in Exhibit "C" (Accounting Procedure).
2.16 Lease. The portion of the oil and gas lease identified in
Exhibit "A", limited to the lands covered thereby.
2.17 MMS. The Minerals Management Service, United States Department
of Interior, or its successor agency.
2.18 Non-consent Operation. An operation conducted on the Lease by
fewer than all Parties, which subjects the Non-participating Party to
Article 13 (Non-Consent Operations).
2.19 Non-consent Platform. A Platform owned by fewer than all
Parties.
2.20 Non-consent Well. An Exploratory Well or a Development Well
owned by fewer than all Parties.
2.21 Non-operator. A Party other than the Operator.
2.22 Non-participating Party. A Party other than a Participating
Party.
2.23 Non-participating Party's Share. The Participating Interest
that a Non-participating Party would have had if all Parties had participated in
the operation.
2.24 Objective Depth. A depth sufficient to test the lesser of the
Objective Horizon or the specific footage depth stated in the Authorization for
Expenditure.
2.25 Objective Horizon. The interval consisting of the deepest zone,
formation, or horizon to be tested in an Exploratory Well, Development Well,
Deepening operation, or Sidetracking operation, as stated in the Authorization
for Expenditure.
2.26 Offsite Host Facilities: Processing and handling facilities that
(a) are located of the Lease and (b) are either owned by one or more third
parties or by one or more Participating Parties in a well, whose interests in
the processing and handling facilities differ from their respective Working
Interest shares in the well.
2.27 Operator. The Party designated in Article 4.1 (Designation of
the Operator), a successor Operator selected under Article 4.5 (Selection of
Successor Operator), and, if applicable, a substitute Operator selected
under Article 4.2 (Substitute operator).
2.28 Participating Interest. The percentage of the costs and risks of
conducting an operation under this Agreement that a Participating Party agrees,
or is otherwise obligated, to pay and bear.
2.29 Participating Party. A Party that executes an AFE for a proposed
operation or otherwise agrees, or becomes liable, to pay and bear a share of the
costs and risks of conducting an operation under this Agreement.
2.30 Platform. An offshore structure that supports ▇▇▇▇▇, Completion
Equipment, or Processing Facilities, whether fixed, compliant, or floating, and
the components of that structure, including, but not limited to, caissons or
well protectors, rising above the water line and used for the exploration,
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MODEL FORM OF OFFSHORE OPERATING AGREEMENT
development, or production of Hydrocarbons from the Lease. The term "Platform"
shall also mean an offshore subsea structure or template (excluding templates
used for drilling operations) and any component thereof (including, but not
limited to, flow lines and control systems, other than those installed in
connection with Completion of a well) that is attached to the sea floor and used
to obtain production of Hydrocarbons from the Lease.
2.31 Processing Facilities. Production equipment other than
Completion Equipment that is installed on or outside the Lease in order to
handle or process Hydrocarbon production. Processing Facilities include, but are
not limited to,
(A) compression, separation, dehydration and metering equipment,
(B) the flowlines, gathering lines or lateral lines that deliver
Hydrocarbons and water
1) from the Completion Equipment to the Platform and/or
Processing Facilities or to Offsite Host Facilities, or
2) from the Platform to Export Pipelines, and
(C) injection and disposal ▇▇▇▇▇.
Processing Facilities exclude (1) Platforms, (2) Export Pipelines, and
(3) Take-in-Kind Facilities.
2.32 Producible Reservoir. An underground accumulation of oil or gas
(a) in a single and separate natural pool characterized by a distinct pressure
system, (b) not in oil or gas communication with another accumulation of oil or
gas, and (c) into which a Producible Well has been drilled.
2.33 Producible Well. A well that is drilled under this Agreement and
that (a) is producing oil or gas; or, (b) is determined to be, or meets the
criteria for being determined to be, capable of producing oil or gas in paying
quantities under an applicable order or regulation issued by the governmental
authority having jurisdiction.
2.34 Production Interval. A zone or interval producing or capable of
producing Hydrocarbons from a well without Reworking operations.
2.35 Recomplete, Recompleting, Recompletion. An operation whereby a
Completion in one Producible Reservoir is abandoned in order to attempt a
Completion in a different Producible Reservoir within the existing wellbore.
2.36 Rework, Reworking. An operation conducted in a well, after it
has been Completed in one or more Producible Reservoirs, to restore, maintain,
or improve Hydrocarbon production from one or more of those Producible
Reservoirs, but specifically excluding drilling, Sidetracking, Deepening,
Completing, or Recompleting the well.
2.37 Sidetrack, Sidetracking. The directional control and intentional
deviation of a well to change the bottom-hole location, whether it be to the
original Objective Depth or formation or another bottom hole location not deeper
than the stratigraphic equivalent of the initial Objective Depth, unless the
intentional deviation is done to straighten the hole or to drill around junk in
the hole or to overcome other mechanical difficulties.
2.38 Take-in-Kind Facilities: Facilities which (i) are not paid for
by the Joint Account and (ii) are installed for the benefit and use of a
particular Party or Parties to take its or their share of Hydrocarbon production
in kind.
2.39 Transfer of Interest. A conveyance, assignment, transfer,
farmout, exchange, or other disposition of all or part of a Party's Working
Interest.
2.40 Working Interest. The ownership of each Party in and to the
Lease and all ▇▇▇▇▇, equipment, Platform, and Processing Facilities, located on
the Lease, as well as all Hydrocarbon production from the Lease, in the
percentage set forth in Exhibit "A" except as otherwise provided by this
Agreement
2.41 Initial Exploratory Well. The first well drilled on the Lease.
ARTICLE 3
EXHIBITS
3.1 Exhibits. The following exhibits are attached to this Agreement
and incorporated into this Agreement by reference:
3.1.1 Exhibit "A." Operator, Description of Leases, Division of
Interests, Permitted Encumbrances and Notification
Addresses.
3.1.2 Exhibit "B." Insurance Provisions.
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MODEL FORM OF OFFSHORE OPERATING AGREEMENT
3.1.3 Exhibit "C." Accounting Procedure.
3.1.4 Exhibit "D. Non-discrimination Provisions.
3.1.5 Exhibit "E." Gas Balancing Agreement.
3.1.6 Exhibit "F." Declaration of Operating Agreement and
Financing Statement.
3.2 Conflicts. If a provision of an exhibit, except Exhibits "D" or
"E" is inconsistent with a provision in the body of this Agreement, the
provision in the body of this Agreement shall prevail. If a provision of Exhibit
"D" or 1 inconsistent with a provision in the body of this Agreement, however,
the provision of the exhibit shall prevail.
ARTICLE 4
OPERATOR
4.1 Operator. Newfield Exploration Company is designated as the
Operator of the Lease. The Parties promptly execute and file all documents
required by the MMS in connection with the designation of Newfield as Operator
with the designation of any other Party as a substitute or successor Operator.
4.2 Substitute Operator. Except as otherwise provided in Article
4.2.1 (Circumstances Under Which Operator Must Conduct a Non-Consent Operation),
if the Operator becomes a Non-participating Party in a Non-consent Operation,
the Participating Parties may approve the designation of any Participating Party
as the substitute Operator by the vote of two (2) or more Participating Parties
having fifty percent (50%) of the Participating Interests. The substitute
Operator shall serve only (a) for the Non-consent Operation, (b) of the Lease
affected by the Non-consent Operation, subject to these limitations, and (c)
with the same authority, rights, obligations, and duties as the operator. If a
Non-operator is the only Participating Party in a Non-consent Operation, then
the Non-operator shall be designated as the substitute Operator for that
Non-consent Operation, with no vote required, unless the Non-operator elects not
to accept designation. No Non-operator shall ever be designated as a substitute
Operator against its will. If a substitute Operator is not designated under the
foregoing procedures, the Operator shall, upon the unanimous agreement of the
Participating Parties and the Operator, conduct the Non-consent Operation on
behalf of the Participating Parties and at the Participating Parties' sole cost
and risk under Article 13 (Non-Consent Operations).
4.2.1. Circumstances Under Which the Operator Must Conduct a
Non-Consent Operation.
If:
(A) a drilling rig is on location and the Operator becomes a
Non-participating Party supplemental APE for an Exploratory
Operation, or Development Operation; or,
(B) the Operator becomes a Non-participating Party in an
operation to be conducted from a Platform operated by the
Operator, the Operator, as a Non-participating Party,
conduct the Non-consent Operation on behalf of the
Participating Parties and a, Participating Parties' sole
cost and risk under Article 13 (Non-Consent Operations).
4.2.2 Operator's Conduct of a Non-Consent Operation in which it
is a Non-participating Party.
When, under Article 4.2 (Substitute Operator) or Article 4.2.1
(Circumstances Under Which Operator Must Conduct a Non-Consent Operation), the
Operator conducts a Non-consent Operation in which it is a Non-participating
Party, it shall follow the practices and standards in Article 5 (Exclusive Right
to Operate). The Operator shall not be required to proceed with the Non-consent
Operation until the Participating Parties advanced the costs of the Non-consent
Operation to the Operator. The Operator shall never be obligated to ex any of
its own fends for the Non-consent Operation.
4.2.3. Appointment of a Substitute Operator. After expiration of
all applicable response periods for the Non-consent Operation and selection of a
substitute Operator, each Party shall promptly provide the substitute Operator
with the appropriate MMS designation of operator forms and designation of oil
responsibility forms. The Operator and the substitute Operator shall coordinate
the change of operatorship to avoid interfering with ongoing activities and
operations, if any, including but not limited to, lease maintenance acts and
operations.
4
MODEL FORM OF OFFSHORE OPERATING AGREEMENT
4.2.4. Redesignation of Operator. Within thirty (30) days after
conclusion of the Non-consent Operation, all Parties shall execute and
provide the Operator with the appropriate MMS designation of operate forms and
designation of oil spill responsibility forms to return operatorship to the
Operator, thereby superseding the Parties' designation of the substitute
operator under Article 4.23 (Appointment of a Substitute Operator).
4.3 Resignation of Operator. Subject to Article 4.5 (Selection of
Successor), The Operator may resig3 at any time by giving written notice to the
Parties, except that the Operator may not resign during a Force Majeure or an
emergency that poses a threat to life, safety, property, or the environment. If
the Operator ceases to own Working Interest, the Operator automatically shall be
deemed to have resigned as the Operator without any action b the Non-operators.
4.4 Removal of Operator. Operator may be removed by an affirmative
vote of two (2) or more of the Parties owning a combined Working Interest of
fifty percent (50%) or more of the remaining Working Interest after excluding
the Operator's Working Interest if:
(A) Operator becomes insolvent or unable to pay its debts as
they mature, makes an assignment for the benefit of
creditors, commits an act of bankruptcy, or seeks relief
under laws providing for the relic of debtors;
(B) a receiver is appointed for Operator or for substantially
all of its property or affairs;
(C) A Transfer of Interest by the Operator (excluding an
interest assigned to an Affiliate) reduce the Operator's
Working Interest to less than twenty-five percent (25%),
whether accomplished by one or more Transfer of Interest.
(D) Operator commits a substantial breach of a material
provision of this Agreement and fails to cure the breach
within thirty (30) days after notice of the breach.
(E) Operator proposes to enter into a Transfer of Interest of
more than fifty percent (50%) of its Working Interest to a
third party, advising that the interest is available for
transfer on stated terms or soliciting offers, bids, or
other term of transfer.
If a petition for relief under the federal bankruptcy laws is filed by or
against Operator, and if a federal bankruptcy court prevents the removal of
Operator, all Non-operators and Operator shall comprise an interim operating
committee to operate until Operator has elected to reject or assume this
Agreement under the Bankruptcy Code. A election by Operator as a
debtor-in-possession or by a trustee in bankruptcy to reject this Agreement
shall be deemed to be a resignation by Operator without any action by the
Non-operators, except the selection of a successor. To b effective, a vote to
remove Operator for any cause described above must be taken within sixty (60)
days after a Nor operator receives actual knowledge of the cause. A change of
corporate name or structure of Operator or a transfer of Operator's interest to
a single Affiliate shall not be deemed to be a resignation or basis for removing
Operate. Subject to Article 8.7 (Unpaid Charges and Default), the resignation or
removal of operator shall become effective at the earlier of (a) 7:00 a.m. on
the first day of the calendar month following the expiration of ninety (90) days
after the giving of notice of resignation by Operator or action by Non-operators
to remove Operator, or (b) the time when a successor Operator assumes the duties
of Operator.
4.5 Selection of Successor. Upon resignation or removal of Operator,
a successor Operator shall be selected from among the Parties by an affirmative
vote of two (2) or more Parties having a combined Working Interest of fifty
percent (50%) or more. If the resigned or removed Operator is not entitled to
vote, fails to vote, a votes only to succeed itself, then the successor Operator
shall be selected by the affirmative vote of the Parties owning a combined
Working Interest of fifty percent (50%) or more of the remaining Working
Interest after excluding the Working Interest of the resigned or removed
Operator. If the Operator assigns all or a part of its Working Interest, then
under Article 4.3 (Resignation of Operator) or Article 4.4. (C), the Party who
acquired all or part of the former Operator's Working Interest shall not be
excluded from voting for a successor Operator. If the are only two Parties to
this Agreement when the Operator resigns or is removed, then the Non-operator
automatically has the right, but not the obligation, to become the Operator. If
no Party is willing to become the Operator, this Agreement shall terminate under
Article 27.1 (Term).
5
MODEL FORM OF OFFSHORE OPERATING AGREEMENT
4.6 Effective Date of Resignation or Removal. The resignation or
removal of the Operator shall become effective as soon as practical but no later
than 7:00 a.m. on the first day of the month following a period of ninety (90)
days after the date of resignation or removal, unless a longer period is
required for the Parties to obtain approval of the designation of the successor
Operator by the MMS. In no event shall the resignation or removal of Operator
become effective unless and until a successor Operator has assumed the duties of
Operator. The resignation or removal of the outgoing Operator shall not
prejudice any rights, obligations, or liabilities resulting from its
operatorship. The successor Operator may charge the Joint Account for the
reasonable costs incurred in connection with the change of operatorship.
4.7 Delivery of Property. On the effective date of resignation or
removal of the Operator, the outgoing Operator shall deliver to the successor
Operator possession of all items purchased for the Joint Account under this
Agreement, all Hydrocarbons that are not the separate property of a Party, all
equipment, materials, and appurtenances purchased for the Joint Account under
this Agreement, and all books, records, and inventories relating to the Joint
Account (other than those books, records, and inventories maintained by the
outgoing Operator as the owner of a Working Interest). The outgoing Operator
shall distribute or return all funds related to the Joint Account to the Parties
who contributed the funds or are otherwise entitled to receive the funds under
this Agreement. The outgoing Operator shall further use its reasonable efforts
to transfer to the successor Operator, as of the effective date of the
resignation or removal, its rights as Operator under all contracts exclusively
relating to the activities or operations conducted under this Agreement, and the
successor Operator shall assume all obligations of the Operator that are
assignable under the contracts. The Parties may audit the Joint Account and
conduct an inventory of all property and all Hydrocarbons that are not the
separate property of a Party, and the inventory shall be used in the return of,
and the accounting by the outgoing Operator of the property and the Hydrocarbons
that are not the separate property of a Party. The inventory and audit shall be
conducted under Exhibit "C."
ARTICLE 5
AUTHORITY AND DUTIES OF OPERATOR
5.1 Exclusive Right to Operate. Unless otherwise provided in this
Agreement, Operator shall have the exclusive right and duty to conduct
operations (or cause them to be conducted) under this Agreement. In performing
services under this Agreement for the Non-operators, Operator shall be an
independent contractor, not subject to the control or direction of
Non-operators, except for the type of operation to be undertaken in accordance
with the voting and election procedures in this Agreement. Operator shall not be
deemed to be, or hold itself out as, the agent or fiduciary of Non-operators.
5.2 Workmanlike Conduct. Operator shall timely commence and conduct
all operations in a good and workmanlike manner, as would a prudent operator
under the same or similar circumstances. Operator shall not be liable to
Non-operators for losses sustained or liabilities incurred, except as may result
from Operator's gross negligence or willful misconduct Operator shall never be
required under this Agreement to conduct an operation that it believes would be
unsafe or would endanger persons or property. Unless otherwise provided in this
Agreement, Operator shall consult with Non-operators and keep them informed of
all important matters.
5.3 Liens and Encumbrances. Operator shall endeavor to keep the
Lease, ▇▇▇▇▇, Platforms, Processing Facilities, and other equipment fee from all
liens and other encumbrances occasioned by operations hereunder, except those
provided in Exhibit "F' and in Article 8.6 (Security Rights).
5.4 Employees and Contractors. Operator shall select employees and
contractors and determine their number, hours of labor, and compensation. The
employees shall be employees of Operator.
5.5 Records. The Operator shall keep accurate books, accounts, and
records of activities or operations under this Agreement in compliance with the
Accounting Procedure in Exhibit "C." Unless otherwise provided in this Agreement
all records of the Joint Account shall be available to a Non-operator as
provided in Exhibit "C." The Operator shall use good-faith efforts to ensure the
settlements, ▇▇▇▇▇▇▇▇, and reports rendered to each Party under this Agreement
are complete and accurate. The Operator shall notify the other Parties promptly
6
MODEL FORM OF OFFSHORE OPERATING AGREEMENT
upon the discovery of any error or omission pertaining to the settlements,
▇▇▇▇▇▇▇▇, and reports rendered to each Party. This provision does not affect a
Party's audit rights under this Agreement.
5.6 Compliance. Operator shall comply, and shall require al agents
and contractors to comply, with all applicable laws, rules, regulations, and
orders of governmental authorities having jurisdiction.
5.7 Contractors. Operator may enter into contracts with independent
contractors for the design, construction, installation, or operation of ▇▇▇▇▇,
Platforms and Processing Facilities. Insofar as possible, Operator shall use
competitive bidding to procure goods and services for the benefit of the
Parties. All drilling operations conducted under this Agreement shall be
conducted by properly qualified and responsible drilling contractors under
current competitive contracts. A drilling contract will be deemed to be a
current competitive contract if it (a) was made within three (3) months before
the commencement of the well and (b) contains terms, rates, and provisions that,
when the contract was made, did not exceed those generally prevailing in the
area for operations involving substantially equivalent rigs that are capable of
drilling the proposed well. At its election, Operator may use its own or an
Affiliate's drilling equipment, ▇▇▇▇▇▇▇ barge, tools, or machinery to conduct
drilling operations, but the work shall be (a) performed by Operator acting as
an independent contractor, (b) approved by written agreement with the
Participating Parties before commencement of operations, and (c) conducted under
the same terms and conditions and at the same rates as are customary and
prevailing in competitive contracts of third parties doing work of similar
nature. Before awarding a drilling contract or performing work with its own or
an Affiliate's drilling equipment, ▇▇▇▇▇▇▇ barge, tools, or machinery, Operator
shall attempt to obtain competitive bids for the work from independent
contractors.
5.8 Governmental Reports. Operator shall make reports to
governmental authorities it has a duty to make as Operator and shall furnish
copies of the reports to the Participating Parties.
5.9 Information to Participating Parties. Operator shall furnish
each Participating Party the following information, if applicable, for each well
operation conducted by Operator:
5.9.1 A copy of the application for permit to drill and all
amendments thereto.
5.9.2 A daily drilling report, giving the depth, corresponding
lithological information, data on drilling fluid
characteristics, information about drilling difficulties or
delays, if any, and other pertinent information, by
facsimile transmission within twenty-four (24) hours
(exclusive of Saturdays, Sundays, and federal holidays) for
well operations conducted in the preceding twenty-four (24)
hour period.
5.9.3 A complete report of each core analysis.
5.9.4 A copy of each electrical survey, currently as it is run;
all data for each radioactivity log, temperature survey,
deviation or directional survey, caliper log, and other log
or survey obtained during the drilling of the well; and,
upon completion of the well, a composite of all
electrical-type logs, insofar as is reasonable and
customary.
5.9.5 A copy of all well test results, bottom-hole pressure
surveys, and fluid analyses.
5.9.6 Upon written request received by Operator before
commencement of drilling, samples of cuttings and cores
taken from the well (if sufficient cores are retrieved),
packaged in containers furnished by Operator at the expense
of the requesting Party, marked as to the depths from which
they were taken, and shipped collect by express courier to
the address designated by the requesting Party.
5.9.7 To the extent possible, twenty-four (24) hours' advance
notice of and access to, logging, coring, and testing
operations.
5.9.8 A monthly report on the volume of oil, gas, condensate, and
water produced from each well.
5.9.9 A copy of each report made to a governmental authority
having jurisdiction.
5.9.10 Upon written request, other pertinent information
available to Operator.
5.10 Information to Non-participating Parties. Operator shall furnish
each Non-participating Party a copy of each Operator's governmental report that
is available to the public and associated with the applicable Non-consent
Operation. Until the applicable recoupment under Article 13 (Non-consent
Operations) is complete, a Non-participating Party shall not receive or review
any other information specified by Article 59 (Information to Participating
Parties), except as maybe necessary for a payout audit of the Non-consent
Operation.
7
MODEL FORM OF OFFSHORE OPERAT1NG AGREEMENT
ARTICLE 6
VOTING AND VOTING PROCEDURES
6.1 Voting Procedures. Unless otherwise provided in this Agreement,
each matter requiring approval of the Parties shall be determined as follows:
6.1.1 Voting Interest. Subject to Exhibit "F" and Article
8.6 (Security Rights), each Party shall have a voting interest equal to its
Working Interest or its Participating Interest, as applicable.
6.1.2 Vote Required. Unless expressly stated to the contrary
herein, a matter requiring approval of the Parties shall be decided by the
affirmative vote of two (2) or more Parties having a combined voting interest of
fifty percent (50%) or more.
6.1.3 Votes. The Parties may vote at a meeting; by telephone,
promptly confirmed in writing to Operator; or by facsimile transmission.
Operator shall give each Party prompt notice of the results of the voting.
6.1.4 Meetings. Meetings of the Parties may be called by Operator
upon its own motion or at the request of a Party having a voting interest of not
less than five percent (5%). Except in an emergency, no meeting shall be called
on less than five (5) days' advance written notice, and the notice of meeting
shall include the proposed meeting agenda. The representative of Operator shall
be chairman of each meeting. Only matters included in the agenda may be
discussed at a meeting, but the agenda and items included in the agenda may be
amended by unanimous agreement of all Parties.
ARTICLE 7
ACCESS
7.1 Access to Lease. Each Party shall have access, at its sole risk
and expense and at all reasonable times, to the Lease to inspect operations and
▇▇▇▇▇ in which it participates, and to the pertinent records and data. A
Non-operator shall give Operator at least twenty-four (24) hours' notice of the
Non-operator's intention to visit the Lease. To protect Operator and the
Non-operators from unnecessary lawsuits, claims, and legal liability, if it is
necessary for a person who is not perforating services for Operator directly
related to the joint operations, but is perforating services solely for a
Non-operator or pertaining to the business or operations of a Non-operator, to
visit, use, or board a rig, ▇▇▇▇▇, Platform, or Processing Facilities on a Lease
subject to this Agreement, the Non-operator shall give Operator advance notice
of the visit, use, or boarding, and shall secure from that person an agreement,
in a form satisfactory to Operator, indemnifying and holding Operator and
Non-operators harmless, or shall itself provide the same hold harmless and
indemnification in favor of Operator and other Non-operators before the visit,
use, or boarding.
7.2 Reports. On written request Operator shall furnish a requesting
Party any information not otherwise furnished under Article 5 (Authority and
Duties of Operator) to which that Party is entitled under this Agreement.
The costs of gathering and famishing information not famished under Article 5
shall be charged to the requesting Party. Operator is not obligated to furnish
interpretative data that was generated by Operator at its sole cost
7.3 Confidentiality. Except as otherwise provided in Article 7.4
(Limited Disclosure), Article 7.5 (Media Releases), and Article 21.1 (Notice of
Contributions Other Than Advances for Sale of Production), and except for
necessary disclosures to governmental authorities having jurisdiction, or except
as agreed in writing by all Participating Parties, no Party or Affiliate shall
disclose Confidential Data to a third party.
7.4 Limited Disclosure. A Party may make Confidential Data to which
it is entitled under this Agreement available to:
(A) outside professional consultants and reputable engineering
firms for the purpose of evaluations;
(B) gas transmission companies for Hydrocarbon reserve or other
technical evaluations;
(C) reputable financial institutions for study before commitment
of funds;
(D) governmental authorities having jurisdiction or the public,
to the extent required by applicable laws or by those
governmental authorities;
(E) the public, to the extent required by the regulations of a
recognized stock exchange;
8
MODEL FORM OF OFFSHORE OPERATING AGREEMENT
(F) third parties with whom a Party is engaged in a bona fide
effort to effect a merger or consolidation, sell all or a
controlling part of that Party's stock, or sell all or
substantially all assets of that Party or an Affiliate of
that Party; and
(G) an Affiliate of a Party.
(H) third parties with whom a Party is engaged in a bona fide
effort to sell, farm out, or trade all or a portion of its
interest in the Lease;
Confidential Data made available under Articles 7.4(F) and 7.4(H) shall not be
removed from the custody or premises of the Party making the Confidential Data
available to third parties described in those Articles. A third party permitted
access under Articles 7.4, (A), (B), (C), (F), and (H) shall first agree in
writing neither to disclose the Confidential Data to others nor to use the
Confidential Data, except for the purpose for which it was disclosed. The
disclosing Party shall give prior notice to the other Parties that it intends to
make the Confidential Data available.
7.5 Media Releases. Except as agreed by all Parties or otherwise
permitted by this Article, no Party shall issue a news or media release about
operations on the Lease. In an emergency involving extensive property damage,
operations failure, loss of human life, or other clear emergency, and for which
there is insufficient time to obtain the prior approval of the Parties, Operator
may furnish the minimum, strictly factual, information necessary to satisfy the
legitimate public interest of the media and governmental authorities having
jurisdiction. Operator shall then promptly advise the other Parties of the
information furnished in response to the emergency.
ARTICLE 8
EXPENDITURES
8.1 Basis of Charge to the Parties. Subject to the other provisions
of this Agreement, Operator shall pay all costs incurred under this Agreement
and each Party shall reimburse Operator in proportion to its Participating
Interest. All charges, credits, and accounting for expenditures shall be made
and done pursuant to Exhibit "C."
8.2 AFEs. Before undertaking an operation or making a single
expenditure to be in excess of One Hundred Thousand Dollars ($100,000.00), and
before conducting an activity or operation to drill, Sidetrack, Deepen,
Complete, or Recomplete a well (regardless of the estimated cost), Operator
shall submit an APE for the operation or expenditure to the Parties for
approval. Operator shall also furnish an informational AFE to all Parties for an
operation or single expenditure estimated to cost One Hundred Thousand Dollars
($100,000.00) or less, but in excess of Fifty Thousand Dollars ($50,000.00).
8.3 Emergency and Required Expenditures. Notwithstanding anything in
this Agreement to the contrary, Operator is hereby authorized to conduct
operations and incur expenses that in its opinion are reasonably necessary to
safeguard life, property, and the environment in case of an actual or
imminently threatened blowout, explosion, accident, fire, flood, storm,
hurricane, catastrophe, or other emergency, and the expenses shall be borne by
the Participating Parties in the affected operation. Operator shall report to
the Participating Parties, as promptly as possible, the nature of the emergency
and the action taken. Operator is also authorized to conduct operations and
incur expenses reasonably required by statute, regulation, order, or permit
condition or by a governmental authority having jurisdiction, which expenses
shall be borne by the Participating Parties in the affected operation.
8.4 Advance ▇▇▇▇▇▇▇▇. Operator may require each Party to advance its
respective share of estimated expenditures pursuant to Exhibit "C."
8.5 Commingling of Funds. Funds received by Operator under this
Agreement may be commingled with its own funds.
8.6 Security Rights. In addition to any other security rights and
remedies provided by law with respect to services rendered or materials and
equipment furnished under this Agreement for and in consideration of the
covenants and mutual undertakings of the Operator and the Non-operators herein,
the Parties shall have the following security rights:
8.6.1 Mortgage in Favor of the Operator. Each Non-operator hereby
grants to the Operator a mortgage, hypothecate, and pledge of and over all of
its rights, titles, and interests in and to (a) the Lease, (b) the oil and gas
in, on, under, and that maybe produced from the lands within the Lease, and (c)
all other immovable property susceptible of mortgage situated within the Lease.
9
MODEL FORM OF OFFSHORE OPERATING AGREEMENT
This mortgage is given to secure the complete and timely performance of
and payment by each Non-operator of all obligations and indebtedness of every
kind and nature, whether now owed by such Non-operator or hereafter arising,
pursuant to this Agreement. To the extent susceptible under applicable law, this
mortgage and the security interests granted in favor of the Operator herein
shall secure the payment of all costs and other expenses properly charged to
such Party, together with (A) interest on such indebtedness, costs, and other
expenses at the rate set forth in Exhibit "C" attached hereto (the "Accounting
Procedure") or the maximum rate allowed by law, whichever is the lesser, (B)
reasonable attorneys' fees, (C) court costs, and (D) other directly related
collection costs. If any Non-operator does not pay such costs and other expenses
or perform its obligations under this Agreement when due, the Operator shall
have the additional right to notify the purchaser or purchasers of the
defaulting Non-operator's Hydrocarbon production and collect such costs and
other expenses out of the proceeds from the sale of the defaulting Non-
operator's share of Hydrocarbon production until the amount owed has been paid.
The Operator shall have the right to offset the amount owed against the proceeds
from the sale of such defaulting Non-operator's share of Hydrocarbon production.
Any purchaser of such production shall be entitled to rely on the Operator's
statement concerning the amount of costs and other expenses owed by the
defaulting Non-operator and payment made to the Operator by any purchaser shall
be binding and conclusive as between such purchaser and such defaulting
Non-operator.
The maximum amount for which the mortgage herein granted by each
Non-operator shall be deemed to secure the obligations and indebtedness of such
Non-operator to the Operator as stipulated herein is hereby fixed in an amount
equal to $25,000,000.00 (the "Limit of the Mortgage of each Non-operator").
Except as provided in the previous sentence (and then only to the extent such
limitations are required by law), the entire amount of obligations and
indebtedness of each Non-operator to the Operator is secured hereby without
limitation. Notwithstanding the foregoing Limit of the Mortgage of each Non-
operator, the liability of each Non-operator under this Agreement and the
mortgage and security interest granted hereby shall be limited to (and the
Operator shall not be entitled to enforce the same against such Non-operator
for, an amount exceeding) the actual obligations and indebtedness [including all
interest charges, costs, attorneys' fees, and other charges provided for in this
Agreement or in the Memorandum of Operating Agreement and Financing Statement
(Louisiana), as such term is defined in Article 8.6.1.4 (Recordation) hereof]
outstanding and unpaid and that are attributable to or charged against the
interest of such Non-operator pursuant to this Agreement.
8.6.1.1 Security Interest in Favor of the Operator. To secure the
complete and timely performance of and payment by each Non-operator of all
obligations and indebtedness of every kind and nature, whether now owed by such
Non-operator or hereafter arising, pursuant to this Agreement, each Non-operator
hereby grants to the Operator a continuing security interest in and to all of
its rights, titles, interests, claims, general intangibles, proceeds, and
products thereof, whether now existing or hereafter acquired, in and to (a) all
oil and gas produced from the lands or offshore blocks covered by the Lease or
attributable to the Lease when produced, (b) all accounts receivable accruing or
arising as a result of the sale of such oil and gas (including, without
limitation, accounts arising from gas imbalances or from the sale of oil and gas
at the wellhead), (c) all cash or other proceeds from the sale of such oil and
gas once produced, and (d) all Platforms and Processing Facilities, ▇▇▇▇▇,
fixtures, other corporeal property, whether movable or immovable, whether now or
hereafter placed on the lands or offshore blocks covered by the Lease or
maintained or used in connection with the ownership, use or exploitation of the
Lease, and other surface and sub-surface equipment of any kind or character
located on or attributable to the Lease and the cash or other proceeds realized
from the sale, transfer, disposition or conversion thereof, The interest of the
Non-operators in and to the oil and gas produced from or attributable to the
Lease when extracted and the accounts receivable accruing or arising as the
result of the sale thereof shall be financed at the wellhead of the well or
▇▇▇▇▇ located on the Lease. To the extent susceptible under applicable law, the
security interest granted by each Non-operator hereunder covers (A) all
substitutions, replacements, and accessions to the property of such Non-operator
described herein and is intended to cover all of the rights, titles and
interests of such Non-operator in all movable property now or hereafter located
upon or used in connection with the Lease, whether corporeal or incorporeal;
(B) all rights under any gas balancing agreement, farmout rights, option farmout
rights, acreage and cash contributions, and conversion rights of such
Non-operator in connection with the Lease, or the oil and gas produced from or
attributable to the Lease, whether now owned and existing or hereafter acquired
or arising, including, without limitation, all interests of each Non-operator in
any partnership, tax partnership, limited partnership, association, joint
▇▇
▇▇▇▇▇ ▇▇▇▇ ▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ AGREEMENT
venture, or other entity or enterprise that holds, owns, or controls any
interest in the Lease; and (C) all rights, claims, general intangibles, and
proceeds, whether now existing or hereafter acquired, of each Non-operator in
and to the contracts, agreements, permits, license rights-of-way, and similar
rights and privileges that relate to or are appurtenant to the Lease, including
the following:
(1) all of its rights, titles, and interests, whether now owned and
existing or hereafter acquired arising, in, to, and under or derived from any
present or future operating, farmout bidding, pooling, unitization, and
communitization agreements, assignments, and subleases, whether or not described
in Exhibit "A," to the extent, and only the extent that such agreements,
assignments, and subleases cover or include any of its rights, titles, and
interests, when now owned and existing or hereafter acquired or arising, in and
to all or any portion of the Lease, and all units created any such pooling,
unitization, and communitization agreements and all units formed under orders,
regulations, rules, or oil official acts of any governmental authority
having jurisdiction, to the extent and only to the extent that such units cover
include all or any portion of the Lease;
(2) all of its rights, titles, and interests, whether now owned and
existing or hereafter acquired arising, in, to, and under or derived from all
presently existing and future advance payment agreements, and oil,
casinghead gas, and gas sales, exchange, and processing contracts and
agreements, including, without limitation, those contracts a agreements that are
described on Exhibit "A," to the extent, and only to the extent, those contracts
and agreement cover include all or any portion of the Lease; and
(3) all of its rights, titles, and interests, whether now owned and
existing or hereafter acquired arising, in, to, and under or derived from all
existing and future permits, licenses, rights-of-way, and similar rights a
privileges that relate to or are appurtenant to the Lease.
8.6.1.2 Mortgage in Favor of the Non-operators. The Operator
hereby grants to each Non-operator a mortgage, hypotheca, and pledge of and over
all of its rights, titles, and interests in and to (a) the Lease; (b) the and
gas in, on, under, and that my be produced from the lands within the Lease; and
(c) all other immovable property other property susceptible of mortgage situated
within the Lease. This mortgage is given to secure the complete and timely
performance of and payment by the Operator of obligations and indebtedness of
every kind and nature, whether now owed by the Operator or hereafter arising,
pursuant this Agreement To the extent susceptible under applicable law, this
mortgage and the security interests granted in favor each Non-operator herein
shall secure the payment of all costs and other expenses properly charged to the
Operator, together with (A) interest on such indebtedness, costs, and other
expenses at the rate set forth in the Accounting Procedure or the maximum rate
allowed by law, whichever is the lesser, (B) reasonable attorneys' fees, (C)
court costs, and (D) other directly related collection costs. If the Operator
does not pay such costs and other expenses or perform its obligations under this
Agreement when due, the Non-operators shall have the additional right to notify
the purchaser or purchasers of the Operator's Hydrocarbon production and collect
such costs and other expenses out of the proceeds from the sale of Operator's
share of Hydrocarbon production until the amount owed has been paid. The
Non-operators shall have the right to offset the amount owed against the
proceeds from the sale of the Operator's share of Hydrocarbon production. A
purchaser of such production shall be entitled to rely on the Non-operators'
statement concerning the amount of costs and other expenses owed by the Operator
and payment made to the Non-operators by any purchaser shall be binding and
conclusive as between such purchaser and the Operator.
The maximum amount for which the mortgage herein granted by the
Operator shall be deemed to secure obligations and indebtedness of the Operator
to all Non-operators a stipulated herein is hereby fixed in an amount equal
$25,000,000.00 in the aggregate (the "Limit of the Mortgage of the Operator").
Except as provided in the previous sentence (and then only to the extent such
limitations are required by law), the entire amount of obligations and
indebtedness of Operator to the Non-operators is secured hereby without
limitation. Notwithstanding the foregoing Limit of the Mortgage the Operator,
the liability of the Operator under this Agreement and the mortgage and security
interest granted hereby shall be limited to (and the Non-operators shall not be
entitled to enforce the same against the Operator for, an amount exceed the
actual obligations and indebtedness [including all interest charges, costs,
attorneys' fees, and other charges provided in this Agreement or in the
Memorandum of Operating Agreement and Financing Statement as such term is
defined Article 8.6.1.4 hereof] outstanding and unpaid and that are attributable
to or charged against the interest of the Opera pursuant to this Agreement
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MODEL FORM OF OFFSHORE OPERATING AGREEMENT
8.6.1.3 Security Interest in Favor of the Non-operators. To
secure the complete and timely performance of and payment by the Operator of all
obligations and indebtedness of every kind and nature, whether now owed by the
Operator or hereafter arising, pursuant to this Agreement, the operator hereby
grants to each Non-operator a continuing security interest in and to all of its
rights, titles, interests, claim, general intangibles, proceeds, and products
thereof, whether now existing or hereafter acquired, in and to (a) all oil and
gas produced from the lands or offshore blocks covered by the Lease or included
within the Lease or attributable to the Lease when produced, (b) all accounts
receivable accruing or arising as a result of the sale of such oil and gas
(including, without limitation, accounts arising from gas imbalances or from the
sale of oil and gas at the wellhead), (c) all cash or other proceeds from the
sale of such oil and gas once produced, and (d) all Platforms and Processing
Facilities, ▇▇▇▇▇, fixtures, other corporeal property whether movable or
immovable, whether now or hereafter placed on the offshore blocks covered by the
Lease or maintained or used in connection with the ownership, use or
exploitation of the Lease, and other surface and sub-surface equipment of any
kind or character located on or attributable to the Lease and the cash or other
proceeds realized from the sale, transfer, disposition or conversion thereof The
interest of the Operator in and to the oil and gas produced from or attributable
to the Lease when extracted and the accounts receivable accruing or arising as
the result of the sale thereof shall be financed at the wellhead of the well or
▇▇▇▇▇ located on the Lease. To the extent susceptible under applicable law, the
security interest granted by the Operator hereunder covers: (A) all
substitutions, replacements, and accessions to the property of the Operator
described herein and is intended to cover all of the rights, titles and
interests of the Operator in all movable property now or hereafter located upon
or used in connection with the Lease, whether corporeal or incorporeal; (B) all
rights under any gas balancing agreement, farmout rights, option farmout rights,
acreage and cash contributions, and conversion rights of the Operator in
connection with the Lease, the oil and gas produced from or attributable to the
Lease, whether now owned and existing or hereafter acquired or arising,
including, without limitation, all interests of the Operator in any partnership,
tax partnership, limited partnership, association, joint venture, or other
entity or enterprise that holds, owns, or controls any interest in the Lease;
and (C) all rights, claims, general intangibles, and proceeds, whether now
existing or hereafter acquired, of the Operator in and to the contracts,
agreements, permits, licenses, rights-of-way, and similar rights and privileges
that relate to or are appurtenant to the Lease, including the following:
(A) all of its rights, titles, and interests, whether now owned
and existing or hereafter acquired or arising, in, to, and under or derived from
any present or future operating, farmout, bidding, pooling, unitization, and
communitization agreements, assignments, and subleases, whether or not described
in Exhibit "A," to the extent; and only to the extent, that such agreements,
assignments, and subleases cover or include any of its rights, titles, and
interests, whether now owned and existing or hereafter acquired or arising, in
and to all or any portion of the Lease, and all units created by any such
pooling, unitization, and communitization agreements and all units formed under
orders, regulations, rules, or other official acts of any governmental authority
having jurisdiction, to the extent and only to the extent that such units cover
or include all or any portion of the Lease;
(B) all of its rights, titles, and interests, whether now owned
and existing or hereafter acquired or arising, in, to, and under or derived from
all presently existing and future advance payment agreements, and oil,
casinghead gas, and gas sales, exchange, and processing contracts and
agreements, including, without limitation, those contracts and agreements that
are described on Exhibit "A," to the extent, and only to the extent, those
contracts and agreements cover or include all or any portion of the Lease; and
(C) all of its rights, tides, and interests, whether now owned
and existing or hereafter acquired or arising, in, to, and under or derived from
all existing and future permits, licenses, rights-of-way, and similar rights and
privileges that relate to or are appurtenant to any of the Lease.
8.6.1.4 Recordation. To provide evidence of, and to further
perfect the Parties' security rights created hereunder, upon request each Party
shall execute and acknowledge the Memorandum of Operating Agreement and
Financing Statement attached as Exhibit "F" (the "Memorandum of Operating
Agreement and Financing Statement) in multiple counterparts as appropriate. The
Parties authorize the Operator to fide the Memorandum of Operating Agreement and
Financing Statement in the public records set forth below to serve as notice of
the existence of this Agreement as a burden on the title of the Operator and the
Non-operators to their interests in the Lease and for purposes of satisfying
otherwise relevant recording and filing requirements of applicable law and to
12
MODEL FORM OF OFFSHORE OPERATING AGREEMENT
attach an original of the Memorandum of Operating Agreement and Financing
Statement to a standard UCC-1 for filing in the UCC records set forth below to
perfect the security interests created by the Parties in this Agreement Upon the
acquisition of a leasehold interest in the Tease, the Parties shall, within five
business days following request by one of the Parties hereto, execute and
furnish to the requesting Party for recordation such a Memorandum of Operating
Agreement and Financing Statement describing such leasehold interest. Such
Memorandum of Operating Agreement and Financing Statement shall be amended from
time to time upon acquisition of additional leasehold interests in the Lease,
and the Parties shall, within five business days following request by one of the
Parties hereto, execute and furnish to the requesting Party for recordation any
such amendment.
The Memorandum of Operating Agreement and Financing Statement is to be
filed or recorded, as the case may be, in (a) the conveyance records of the
county or counties, parish or parishes adjacent to the lands or offshore blocks
covered by the Lease or contained within the Lease, (b) the mortgage records of
such county or counties, parish or parishes, and (c) the appropriate Uniform
Commercial Code records.
8.6.2 Default. If any Party does not pay its share of the
charges authorized under this Agreement when due, the Operator may give the
defaulting Party notice that unless payment is made within thirty (30) days
from delivery of the notice, the non-paying Party shall be in default A Party in
default shall have no further access to the rig, Platform or Processing
Facilities, any Confidential Data or other maps, records, data, interpretations,
or other information obtained in connection with activities or operations
hereunder or be allowed to participate in meetings. A Party in default shall not
be entitled to Vote or to make an Election until such time as the defaulting
Party is no longer in default. The voting interest of each non-defaulting Party
shall be counted in the proportion its Working Interest bears to the total
non-defaulting Working Interests. As to any operation approved during the time a
Party is in default, such defaulting Party shall be deemed to be a
Non-participating Party, except where such approval is binding on all Parties or
Participating Parties, as applicable. In the event a Party believes that such
statement of charges is incorrect, the Party shall nevertheless pay the amounts
due as provided herein, and the Operator shall attempt to resolve the issue as
soon as practicable, but said attempt shall be made no later than sixty (60)
days after receiving notice from the Party of such disputed charges.
8.6.3 Unpaid Charges. If any Participating Party fails to pay
its share of the costs and other expenses authorized under this Agreement within
thirty (30) days after receipt of an invoice therefore or to otherwise perform
any of its obligations under this Agreement when due, the Party to whom such
payment is due, in order to take advantage of the provisions of this Article
8.6, shall notify the other Party by certified or registered U.S. Mail that it
is in default and has thirty (30) days from the receipt of such notice to pay.
If such payment is not made timely by the non-paying Party after the issuance of
such notice to pay, the Party requesting such payment may take immediate steps
to diligently pursue collection of the unpaid costs and other expenses owed by
such Participating Party, to collect consequential damages as a result of the
default, and to exercise the mortgage and security rights granted by this
Agreement The bringing of a suit and the obtaining of a judgment by any Party
for the secured indebtedness shall not be deemed an election of remedies or
otherwise affect the security rights granted herein. In addition to any other
remedy afforded by law, each Party shall have, and is hereby given and vested
with, the power and authority to foreclose the lien, mortgage, pledge, and
security interest established hereby in its favor in the manner provided by law,
to exercise the Power of Sale provided for herein, if applicable, and to
exercise all rights of a secured party under the Uniform Commercial Code as
adopted by the state in which the Lease is located or such other states as such
Party may deem appropriate. The Operator shall keep an accurate account of
amounts owed by the nonperforming Party (plus interest and collection costs) and
any amounts collected with respect to amounts owed by the nonperforming Party.
In the event there become three or more Parties to this Agreement, then if any
nonperforming Party's share of costs remains delinquent for a period of sixty
(60) days, each other Participating Party shall, upon the Operator's request,
pay the unpaid amount of costs in the proportion that its Working Interest bears
to the total non-defaulting Working Interests. Each Participating Party paying
its share of the unpaid amounts of a nonperforming Party shall be subrogated to
the Operator's mortgage and security rights to the extent of the payment made by
such Participating Party.
8.6.4 Carved-out Interests. Any agreements creating any
overriding royalty, production payment net proceeds interest net profits
interest, carried interest or any other interest carved out of a Working
Interest in the Lease shall specifically make such interests inferior to the
rights of the Parties to this Agreement If any Party whose Working Interest is
so encumbered does not pay its share of costs and other expenses authorized
under this Agreement, and the proceeds from the sale of its Hydrocarbon
production pursuant to this Article 8.6 are insufficient to pay such costs and
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MODEL FORM OF OFFSHORE OPERATING AGREEMENT
expenses, the security rights provided for in this Article 8.6 may be applied
against the carved-out interests with which the defaulting or non-performing
Party's interest in the Lease is burdened. In such event, the rights of the
owner of such carved-out interest shall be subordinated to the security rights
granted by this Article 8.6.
8.7 Overexpenditures. Operator shall notify the Participating
Parties when it appears that actual expenditures for an approved operation in
an Exploratory or Development Well or for the design, construction, and
installation of a Platform (other than a Platform that solely supports
Processing Facilities) will exceed the AFE estimate (the excess being an
"Overexpenditure"). If it appears that the Overexpenditure will be no more than
twenty percent (20%), hereinafter referred to as the "Allowable Variance,"
Operator's notice shall be forwarded for information only. If Operator
determines that the Overexpenditure will exceed the Allowable Variance, Operator
shall submit a new AFE for the current operation ("Supplemental AFE") for
approval of the Participating Parties. The Participating Parties may then elect
whether to continue to participate within ten (10) days or twenty-four (24)
hours if a rig is on location, exclusive of Saturdays, Sundays, and federal
holidays, after receipt of the Supplemental APE. If fewer than all, but one (1)
or more Participating Parties elect to continue to participate in the current
operation and agree to pay and bear one hundred percent (100%) of the costs and
risks of conducting it, Operator shall continue to conduct the current
operation. Otherwise, the operation shall cease. A Participating Party that
elects not to continue to participate in the current operation shall become a
Non-participating Party in the operation, from and after the date when the
Overexpenditure exceeds the Allowable Variance, not including emergency
expenditures, and Article 13.2 (Relinquishment of Interest) shall apply to the
Party only to the extent that the costs of the operation exceed the Allowable
Variance. Unless otherwise agreed by the Participating Parties, each
Participating Party electing to continue to participate in the current operation
may, but is not obligated to, pay and bear that portion of the costs and risks
attributable to the interests of the Non-participating Parties in the ratio that
the Participating Party's interest bears to the total interests of all
Participating Parties electing to continue participating in the current
operation. If it appears to Operator that actual expenditures for an approved
operation will exceed the Supplemental AFE estimate, Operator shall again repeat
the procedure of this Article 8.7, using the estimate in the most recently
approved Supplemental AFE as the basis for determining the Overexpenditure and
Allowable Variance. An initial Participating Party in an operation shall remain
responsible for its share of all costs and risks for plugging, replugging,
capping, burying, disposing, abandoning, removing, and restoring associated with
the operation, subject to Article 14 (Abandonment, Salvage, and Surplus),
regardless of its subsequent election on a Supplemental AFE, except in the case
of a Platform and/or Processing Facilities when an election not to continue to
participate in its construction and installation is made on a Supplemental AFE
before Platform and/or Processing Facilities loadout Notwithstanding anything in
this Article to the contrary, if expenditures exceed the Allowable Variance for
an emergency, as provided in Article 8.3 (Emergency and Required Expenditures),
Operator shall not be required to secure the approval of the Participating
Parties, as the expenditures will be bore by all Participating Parties. However,
once stabilization takes place and emergency expenditures are no longer being
incurred, Operator shall promptly furnish a Supplemental AFE to the
Participating Parties for their review and election, as provided above.
ARTICLE 9
NOTICES
9.1 Giving and Receiving Notices. Except as otherwise provided in
this Agreement, all AFEs and notices required or permitted. by this Agreement
shall be in writing and shall be delivered in person or by mail, courier
service, or facsimile transmission, with postage and charges prepaid, addressed
to the Parties at the addresses in Exhibit "A." When a drilling rig is on
location and standby charges are accumulating, however, notices pertaining to
the rig shall be given orally or by telephone. All telephone or oral notices
permitted by this Agreement shall be confirmed immediately thereafter by written
notice. The originating APE or notice shall be deemed to have been delivered
only when received by the Party to whom it was directed, and the period for a
Party to deliver an AFE or notice in response thereto shall begin on the date
the originating AFE or notice is received. For proposals and responses thereto,
"receipt," for oral or telephone notice, means actual and immediate
communication to the Party to be notified, and for written notice, means actual
delivery of the notice to the address of the Party to be notified, as specified
in this Agreement, or to the facsimile machine of that Party. A responsive
notice shall be deemed to have been delivered when the Party to be notified is
14
MODEL FORM OF OFFSHORE OPERATING AGREEMENT
in receipt of same. When a response is required in forty-eight (48) hours or
less, however, the response shall be given orally or by telephone or facsimile
transmission within that period. If a Party is unavailable to receive a notice
required to be given orally or by telephone, the notice may be delivered by any
other method specified in this Article 9.1 and shall be deemed to have been
delivered in the same manner provided in this Article 9.1 for a responsive
notice. A message left on an answering machine or with an answering service or
other third person shall not be deemed to be adequate telephonic or oral notice.
9.2 Content of Notice. An AFE or notice requiring a response shall
indicate the maximum response time specified in Article 9.3 (Response to
Notices). A proposal for a Platform and/or Processing Facilities shall include
an AFE, containing a description of the Platform and/or Processing Facilities,
including, but not limited to, location, and the estimated costs of design,
fabrication, transportation, and installation. A proposal for a well operation
shall include an AFE, describing the estimated commencement date, the proposed
depth, the objective formation or formations to be penetrated or tested, the
Objective Horizon, the surface and bottomhole locations, proposed directional
drilling operations, the type of equipment to be used, and the estimated costs
of the operation, including, but not limited to, the estimated costs of
drilling, testing, and Completing or abandoning the well. If a proposed
operation is subject to Article 13.11 (Lease Maintenance Operations), the notice
shall specify that the proposal is a Lease Maintenance Operation. A proposal for
multiple operations on more than one well location by the same rig shall contain
separate AFEs or notices for each operation and shall specify in writing which
operation will take precedence. Each Party shall respond to each proposed
multiple operation in the manner provided in Article 9.3.3 (Proposal for
Multiple Operations).
9.3 Response to Notices. Each Party's response to a proposal shall
be in writing to the proposing Party. Unless otherwise provided in this
Agreement, the response time shall be as follows:
9.3.1 Platform and/or Processing Facilities Proposals. Each
Party shall respond within forty-five (45) days after its receipt of the AFE or
notice for a Platform and/or Processing Facilities.
9.3.2 Well Proposals. Except as provided in Article 9.3.3
(Proposal for Multiple Operations), each Party shall respond within thirty (30)
days after receipt of the well proposal, but if (a) a drilling rig is on
location, (b) the proposal relates to the same well or it substitute, and (c)
standby charges are accumulating, a response shall be made within forty-eight
(48) hours after receipt of the proposal, inclusive of Saturdays, Sundays and
federal holidays.
9.3.3 Proposal for Multiple Operations, When a proposal is
made to conduct multiple Exploratory or Development Operations at separate well
locations using the same rig, each Party shall respond (a) to the well operation
taking precedence, within thirty (30) days after receipt of the proposal; and
(b) to each subsequent well location, within forty-eight (48) hours, exclusive
of Saturdays, Sundays and federal holidays, after completion of approved
operations at the prior location and notification thereof by Operator, if a
drilling rig is on location and standby charges are accumulating, and if each
Party has been provided with proper notice for the proposed operation as
provided in Article 9.2 (Content of Notice) at least thirty (30) days prior to
receipt of notification by Operator.
9.3.4 Other Matters. For all other matters requiring notice,
each Party shall respond within thirty (30) days after receipt of notice.
9.4 Failure to Respond. Failure of a Party to respond to a proposal
or notice, to vote, or to elect to participate within the period required by
this Agreement shall be deemed to be a negative response, vote, or election
9.5 Response to Counterproposals. Responses must be made within the
response period for the original proposal.
9.6 Timely Well Operations. Unless otherwise provided, an approved
well shall be commenced within one hundred and twenty (120) days after the date
when the last applicable election on that well maybe made. ▇▇▇▇▇ shall be deemed
to have commenced on the day charges commence under the drilling contract for
that well. If the Operator does not commence actual drilling operations on an
approved well within one hundred and twenty (120) days from the last applicable
election on the approved well, the proposal of the well and its approval will be
deemed to have been withdrawn, Regardless of whether or not the well is
commenced, all costs incurred by the Operator, attributable to an approved
operation, shall be paid by the Participating Parties.
9.7 Timely Platform/Processing Facilities Operations. Unless
otherwise provided, Operator shall commence, or cause to commence, the
construction, acquisition, or refurbishment of an approved Platform and/or
Processing Facilities within one hundred and eighty (180) days after the date
15
MODEL FORM OF OFFSHORE OPERATING AGREEMENT
when the last applicable election on that Platform and/or Processing Facilities
may be made. The construction, acquisition, or refurbishment of an approved
Platform and/or Processing Facilities shall be deemed to have commenced on the
date the contract is awarded for the design, fabrication, or refurbishment of
the Platform and/or Processing Facilities. If the Operator does not commence the
construction, acquisition, or refurbishment of an approved Platform and/or
Processing Facilities within one hundred and eighty (180) days from the last
applicable election on the approved Platform and/or Processing Facilities, the
proposal of the Platform and/or Processing Facilities and their approval will be
deemed to have been withdrawn. Regardless of whether or not the construction,
acquisition, or refurbishment of a Platform and/or Processing Facilities is
commenced, all costs incurred by Operator, attributable to that activity, shall
be paid by the Participating Parties.
ARTICLE 10
EXPLORATORY OPERATIONS
10.1 Proposing Operations. A Party may propose an Exploratory
Operation by sending an AFE or notice to the other Parties in accordance with
Article 9 (Notices).
10.2 Counterproposals. When an Exploratory Operation is proposed, a
Party may, within ten (10) days after receipt of the AFE or notice for the
original proposal, make a proposal, hereinafter referred to as
"Counterproposal," to conduct an alternative Exploratory Operation by sending an
AFE or notice to the other Parties in accordance with Article 9.2 (Content of
Notices). The AFE or notice shall indicate that the proposal is a
Counterproposal to the original proposal. If one or more Counterproposals are
made, each Party shall elect to participate in the original proposal, or one
Counterproposal, or neither the original proposal nor a Counterproposal. Except
for the response period provided in this Article 10.2, a Counterproposal shall
be subject to the same term and conditions as the original proposal.
10.3 Operations by All Parties. If all Parties elect to participate
in the proposed operation, Operator shall conduct the operation at their cost
and risk
10 .4 Second Opportunity to Participate. If there are more than two
(2) Parties to this Agreement and if fewer than all but two (2) or more Parties
having a combined Working Interest of fifty percent (50%) or more elect to
participate, then the proposing Party shall notify the Parties of the elections
made, whereupon a Party originally electing not to participate may then elect to
participate by notifying the proposing Party within twenty-four (24) hours,
exclusive of Saturdays, Sundays, and federal holidays, after receipt of such
notice. If all Parties elect to participate in the proposed operation, Operator
shall conduct the operation at their cost and risk If there are only three (3)
Parties to this Agreement and two (2) of the Parties having fifty percent (50%)
or more elects to participate and agrees to pay and bear one hundred percent
(100%) of the costs and risks of the operation, then there shall not be a second
opportunity to elect to participate, and the Operator, subject to Article 4.2
(Substitute Operator), shall conduct the operation as a Non-consent operation
for the benefit of the Participating Party, and the provisions of Article 12
(Non-consent Operations) shall apply.
10.5 Operations by Fewer Than All Parties. If, after the election (if
applicable) made under Article 10.4 (Second Opportunity to Participate), fewer
than all but two (2) or more Parties having a combined Working interest of fifty
percent (50%) or more elect to participate in the proposed operation, the
proposing Party shall notify the Participating Parties, and each Participating
Party shall have twenty-four (24) hours, exclusive of Saturdays, Sundays, and
federal holidays, after receipt of the notice to notify the proposing Party of
the portion of costs and risks attributable to the total Non-participating
Parties' interests it elects to pay and bear. Unless otherwise agreed by the
Participating Parties, each Participating Party may, but shall not be obligated
to, pay and bear that portion of the costs and risks attributable to the total
Non-participating Parties' interests in the ratio that the Participating Party's
interest bears to the total interests of all Participating Parties who elect to
pay and bear a portion of costs and risks attributable to the total Non-
participating Parties' interests. Failure to respond shall be deemed to be an
election not to pay or bear any additional costs or risks. If the Participating
Parties agree to pay and bear one hundred percent (100%) of the costs and risks
of the operation, Operator, subject to Article 4.2 (Substitute Operator), shall
conduct the operation as a Non-consent Operation for the benefit of the
Participating Parties, and the provisions of Article 13 (Non-consent Operations)
shall apply. If such agreement is not obtained, however, the operation shall not
be conducted and the effect shall be as if the proposal had not been made.
16
MODEL FORM OF OFFSHORE OPERATING AGREEMENT
10.6 Expenditures Approved. Approval of an Exploratory Operation
shall cover all necessary expenditures associated with the operation proposed in
the AFE or notice that are incurred by Operator in connection with (a)
preparations for drilling; (b) the actual drilling; (c) evaluations, such as
testing, coring, and logging; and (d) plugging and abandonment.
10.7 Conduct of Operations. Upon commencement of drilling an
Exploratory Well, Operator shall diligently conduct the operation without
unreasonable delay until the well reaches the Objective Depth, unless the well
encounters, at a lesser depth, impenetrable conditions or mechanical
difficulties that cannot be overcome by reasonable and prudent operations and
that render further operations impracticable. If a well does not reach its
Objective Depth as a result of the conditions mentioned in this Article 10.7,
the operation shall be deemed to have been completed and Article 13 (Non-consent
Operations) shall apply to each Non-participating Party for the portion of the
well drilled.
10.8 Course of Action After Reaching Objective Depth. When an
Exploratory Well has been drilled to its Objective Depth and reasonable testing,
coring, and logging have been completed and the results have been furnished to
the Participating Parties, Operator shall notify the Participating Parties of
Operator's recommendation for further operations in the well, and the following
provisions shall apply:
10.8.1 Election by Participating Parties. The Participating
Parties shall notify Operator within forty-eight (48) hours, inclusive of
Saturdays, Sundays, and federal holidays, of receipt of the notice whether the
Participating Parties elect to (a) participate in the recommended operation, (b)
propose another operation, or (c) not participate in the recommended operation.
Failure to respond shall be deemed to be an election not to participate in the
recommended operation. To propose another operation, a Party shall submit notice
of the operation to the Participating Parties within twenty-four (24) hours,
inclusive of Saturdays, Sundays, and federal holidays, after receipt of the
notice of proposal by Operator.
10.8.2 Priority of Operations. If all Participating Parties
elect to participate in the same proposed operation, Operator shall conduct the
operation at their cost and risk. If more than one (1) operation is
approved by two (2) or more Participating Parties having a combined Working
Interest of fifty percent (50%) or more, then the approved operation with the
lowest number as indicated below shall take precedence:
1. Additional Testing, coring, or logging. (If conflicting
proposals are approved, the proposal receiving the largest percentage of Working
Interest approval shall take precedence, and in the event of a tie between two
(2) or more approved proposals, the approved proposal first received by the
Parties shall take precedence.)
2. Deepen. (If conflicting proposals are approved, the operation
proposed to the deepest depth shall take precedence.)
3. Sidetrack. (If conflicting proposals are approved, the
proposal receiving the largest percentage Working Interest approval shall take
precedence, and in the event of a tie between two (2) or more approved
proposals, the approved proposal first received by the Parties shall take
precedence.)
4. Complete at the deepest Objective Horizon
5. Complete above the deepest Objective Horizon. (If conflicting
proposals are approved, the operation proposed at the deepest depth shall take
precedence.)
6. Other operations (If conflicting proposals are approved, the
proposal receiving the largest percentage Working Interest approval shall take
precedence, and in the event of a tie between two (2) or more approved
proposals, the approved proposal first received by the Parties shall take
precedence.)
7. Temporarily abandon.
8. Plug and abandon.
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MODEL FORM OF OFFSHORE OPERATING AGREEMENT
10.8.3 Second Opportunity to Participate. If fewer than all but
two (2) or more Participating Parties having a combined Working Interest of
fifty percent (50%) or more elect to participate in an operation, the proposing
Party shall notify the Participating Parties of the elections made, whereupon a
Party originally electing not to participate in the proposed operation may then
elect to participate by notifying the proposing Party within twenty-four (24)
hours, inclusive of Saturdays, Sundays and federal holidays, after receipt of
such notice. If all Parties elect to participate in the proposed operation,
Operator shall conduct the operation at their cost and risk
10.8.4 Operations by Fewer Than All Parties. If, after the
election (if applicable) made under Article 10.8.3 Second Opportunity to
Participate. fewer than all but two (2) or more Parties having a combined
Working Interest of fifty percent (50%) or more elect to participate in the
proposed operation that takes precedence, the proposing Party shall notify the
Participating Parties and each Participating Party shall have twenty-four (24)
hours, inclusive of Saturdays, Sundays, and federal holidays, after receipt of
the notice to notify the proposing Party of the portion of the costs and risk
attributable to the total Non-participating Parties' interests it elects to pay
and bear. Unless otherwise agreed by the Participating Parties, each
Participating Party may, but shall not be obligated to, pay and bear that
portion of the costs and risks attributable to the total Non-participating
Parties' interests in the ratio that the Participating Party's interest bears to
the total interests of all Participating Parties who elect to pay and bear a
portion of costs and risks attributable to the nonparticipating interests.
Failure to respond shall be deemed to be an election not to pay or bear any
additional costs or risks. If the Participating Parties agree to bear one
hundred percent (100%) of the costs and risks of the operation, Operator,
subject to Article 4.2 (Substitute Operator), shall conduct the operation as a
Non-consent Operation for the benefit of the Participating Parties, and the
provisions of Article 13 (Non-consent Operations) shall apply. If such agreement
is not obtained, however, the operation shall not be conducted and the effect
shall be as if the proposal had not been made. If a Participating Party in a
well elects not to participate in the Deepening or Sidetracking operation in the
well, such non-consenting Party shall become a Non-participating Party in all
operations conducted after the election, through the Completing and equipping of
the Deepened or Sidetracked portion of the well. If the Non-consent Operation is
an Additional Testing, coring, or logging operation, Article 13 (Non-consent
Operations) shall not apply, however, a Party electing not to participate in the
Additional Testing, coring, or logging shall not be entitled to information
resulting from the operation.
10.8.5 Subsequent Operations. Upon completion of an operation
conducted under Article 10.8 (Course of Action After Reaching Objective Depth),
if the well is not either (a) Completed as a well capable of producing
Hydrocarbons in paying quantities, or (b) temporarily abandoned or permanently
plugged and abandoned, Operator shall notify the Participating Parties of
Operator's recommendation for further operations in the well under Articles
10.8.1 through 10.8.4, which again shall apply. If sufficient approval is not
obtained to conduct a subsequent operation in a well or if all Participating
Parties elect to plug and abandon the well, subject to Article 14 (Abandonment
and Salvage), Operator shall permanently plug and abandon the well at the cost
and risk of all Participating Parties. Each Participating Party shall be
responsible for its proportionate share of the plugging and abandonment costs
associated with the operation in which it participated.
10.8.6 Restoration of Damaged Well. If, during an Additional
Testing, coring, or logging operation or during a Deepening or Sidetracking
operation that does not result in the well being Completed as a Producible Well,
the well is damaged to the extent that the well is rendered incapable of having
a lower-priority operation conducted and a Party (a) who participated in the
well, but not in the operation being conducted when the well was damaged, (b)
who has a sufficient percentage of the Working Interest to approve an operation,
and (c) who elected to conduct a lower-priority operation still. desires to
conduct the lower-priority operation after the well has been damaged may conduct
the lower-priority operation, which would include operations to either restore
the well to a condition that will allow the lower-priority operation to be
conducted or to drill a new well to a sufficient depth to allow the
lower-priority operation to be conducted. Upon conclusion of the lower-priority
operation, the Participating Parties in the operation being conducted when the
well was damaged shall reimburse the Participating Parties conducting the
lower-priority operation all their costs associated with restoration of the well
to the point at which the lower-priority operation was conducted. In no event
however, shall Participating Parties in the operation being conducted when the
well was damaged be required to reimburse the Participating Parties conducting
the lower-priority operations an amount greater than what was actually incurred
in the damaged well.
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MODEL FORM OF OFFSHORE OPERATING AGREEMENT
10.9 ▇▇▇▇▇ Proposed Below Deepest Producible Reservoir. If a proposal
is made to conduct an Exploratory Operation involving the drilling of a well to
an Objective Horizon below the base of the deepest Producible Reservoir, a Party
may elect within the applicable period to limit its participation in the
operation down to the base of the deepest Producible Reservoir. For purposes of
this Article 10.9, a Party who elects to limit its participation in the
operation down to the base of the deepest Producible Reservoir shall be referred
to as "Shallow Participant" and a Party who elects to participate in the entire
operation shall be referred to as "Deep Participant" If a Party elects to limit
its participation to the base of the deepest Producible Reservoir, Operator
shall prepare and submit to the Shallow Participant, for informational purposes,
a separate APE covering operations down to the deepest Producible Reservoir. The
Shallow Participant shall be a Participating Party in, and shall pay and bear
the costs and risks of each operation to the base of the deepest Producible
Reservoir, according to its Participating Interest. The Shallow Participant
shall be a Non-participating Party in each operation below the deepest
Producible Reservoir, and the operation shall be considered a Non-consent
Operation, and the provisions of Article 13 (Non-consent Operations) shall
apply. If the well is Completed and produces oil or gas from a horizon below the
deepest Producible Reservoir, the Deep Participant shall reimburse the Shallow
Participant for its share of the actual well costs to the base of the deepest
Producible Reservoir. If the well is Completed and produces oil or gas from a
horizon below the deepest Producible Reservoir, the Shallow Participant shall
reimburse the Deep Participant for its Working Interest share of the actual well
costs to the base of the deepest Producible Reservoir in accordance with Article
13.4 (Deepening or Sidetracking Cost Adjustments), upon the earlier of the time
that (a) the well is plugged back to a horizon above the base of the deepest
Producible Reservoir, as determined when the original well was proposed, (b) the
well is plugged and abandoned, or (c) the amount to be recouped by the Deep
Participant under Article 13 (Non-consent Operations) is recovered.
ARTICLE 11
DEVELOPMENT OPERATIONS
11.1 Proposing Operations. A Party may propose a Development
Operation by sending an AFE or notice to the other Parties in accordance with
Article 9 (Notices).
11.2 Counterproposals. When a Development Operation is proposed, a
Party may, within ten (10) days after receipt of the AFE or notice for the
original proposal, make a proposal, hereinafter referred to as
"Counterproposal," to conduct an alternative Development Operation by sending an
AFE or notice to the other Parties in accordance with Article 9 (Notices). The
AFE or notice shall indicate that the proposal is a Counterproposal to the
original proposal. If one or more Counterproposals are made, each Party shall
elect to participate in the original proposal, one Counterproposal, or neither
the original proposal nor a Counterproposal. Except for the response period
provided in this Article 11.2, a Counterproposal shall be subject to the same
term and conditions as the original proposal.
11.3 Operations by All Parties. If all Parties elect to participate
in the proposed operation, Operator shall conduct the operation at their
cost and risk
11.4 Second Opportunity to Participate. If there are more than two
(2) Parties to this Agreement and if fewer than all but two (2) or more Parties
having a combined Working interest of fifty percent (50%) or more elect to
participate, then the proposing Party shall notify the Parties of the elections
made, whereupon a Party originally electing not to participate may then elect to
participate by notifying the proposing Party within twenty-four (24) hours,
exclusive of Saturdays, Sundays, and federal holidays, after receipt of such
notice. If all Parties elect to participate in the proposed operation, Operator
shall conduct the operation at their cost and risk. If there are only three (3)
Parties to this Agreement and two (2) of the Parties having fifty (50%) or more
elects to participate and agrees to pay and bear one hundred percent (100%) of
the costs and risks of the operation, then there shall not be a second
opportunity to elect to participate, and the Operator, subject to Article 12.13,
shall conduct the operation as a Non-consent Operation for the benefit of the
Participating Party, and the provisions of Article 12 (Non-consent Operations)
shall apply.
11.5 Operations by Fewer Than All Parties. If, after the election (if
applicable) made under Article 11.4 (Second Opportunity to Participate), fewer
than all but two (2) or more Parties having a combined Working Interest of fifty
percent (50%) or more elect to participate in the proposed operation, the
proposing Party shall notify the Participating Parties, and each Participating
Party shall have twenty-four (24) hours, exclusive of Saturdays, Sundays,
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MODEL FORM OF OFFSHORE OPERATING AGREEMENT
and federal holidays, after receipt of the notice to notify the proposing Party
of the portion of the costs and risks attributable to the total
Non-participating Parties' interests it elects to pay and bear. Unless otherwise
agreed by the Participating Parties, each Participating Party may, but shall not
be obligated to, pay and bear that portion of costs and risks attributable to
the total Non-participating Parties' interests in the ratio that the
Participating Party's interest bears to the total interests of all Participating
Parties who elect to pay and bear a portion of the costs and risks attributable
to the total Non-participating Parties' interests. Failure to respond shall be
deemed to be an election not to pay or bear any additional costs or risks. If
the Participating Parties agree to pay and bear one hundred percent (100%) of
the costs and risks of the operation, Operator, subject to Article 4.2
(Substitute Operator) shall conduct the operation as a Non-consent Operation for
the benefit of the Participating Parties, and the provisions of Article 13
(Non-consent Operations) shall apply. If such agreement is not obtained,
however, the operation shall not be conducted and the effect shall be as if the
proposal had not been made.
11.6 Expenditures Approved. Approval of a Development Operation shall
cover all necessary expenditures associated with the operation proposed in the
AFE or notice that are incurred by Operator in connection with (a) preparations
for drilling; (b) the actual drilling; (c) evaluations, such as testing, coring,
and logging; and (d) plugging and abandonment.
11.7 Conduct of Operations. Upon commencement of a Development Well,
Operator shall diligently conduct the operation without unreasonable delay until
the well reaches the Objective Depth, unless the well encounters, at a lesser
depth, impenetrable conditions or mechanical difficulties that cannot be
overcome by reasonable and prudent operations and render further operations
impracticable. If a well does not reach its Objective Depth as a result of the
conditions mentioned in this Article 11.7, the operation shall be deemed to have
been completed and Article 13 (Non-consent Operations) shall apply to each
Non-participating Party for the portion of the well drilled.
11.8 Course of Action After Reaching Objective Depth. When a
Development Well has been drilled to its Objective Depth and reasonable testing,
coring, and logging have been completed and the results have been furnished to
the Participating Parties, Operator shall notify the Participating Parties of
Operator's recommendation for further operations in the well and the following
provisions shall apply:
11.8.1 Election by Fewer Than All Parties. The Participating
Parties shall notify Operator within forty-eight (48) hours, inclusive of
Saturdays, Sundays, and federal holidays, of receipt of the notice whether the
Participating Parties elect to (a) participate in the recommended operation, (b)
propose another operation, or (c) not participate in the recommended operation.
Failure to respond shall be deemed to be an election not to participate in the
recommended operation. To propose another operation, a Party shall submit notice
of the operation to the Participating Parties within twenty-four (24) hours,
inclusive of Saturdays, Sundays, and federal holidays, after receipt of notice
of the proposal by Operator.
11.8.2 Priority of Operations. If all Participating Parties
elect to participate in the same proposed operation, Operator shall conduct the
operation at their cost and risk If more than one (1) operation is approved by
two (2) or more Participating Parties having a combined Working Interest of
fifty percent (50%) or more, then the approved operation with the lowest number
as indicated below shall take precedence:
1. Additional Testing, coring, or logging. (If conflicting
proposals are approved, the proposal receiving the largest percentage of Working
Interest approval shall take precedence, and in the event of a tie between two
(2) or more approved proposals, the approved proposal first received by the
Parties shall take precedence.)
2. Complete at the deepest Objective Horizon.
3. Complete above the deepest Objective Horizon. (If conflicting
proposals are approved, the operation proposed to the deepest depth shall take
precedence.)
4. Deepen. (If conflicting proposals are approved, the operation
proposed to the deepest depth shall take precedence.)
5. Sidetrack. (If conflicting proposals are approved, the
proposal receiving the largest percentage of Working interest approval shall
take precedence, and in the event of a tie between two (2) or more approved
proposals, the approved proposal first received by the Parties shall take
precedence.)
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MODEL FORM OF OFFSHORE OPERATING AGREEMENT
6. Other operations. (If conflicting proposals are approved, the
proposal receiving the largest percentage of Working Interest approval shall
take precedence, and in the event of a tie between two (2) or more approved
proposals, the approved proposal first received by the Parties shall take
precedence)
7. Temporarily abandon
8. Plug and abandon.
11.8.3 Second Opportunity to Participate. If fewer than all but
two (2) or more Participating Parties having a combined Working Interest of
fifty percent (50%) or more elect to participate in an operation, the proposing
Party shall notify the Participating Parties of the elections made, whereupon a
Party originally electing not to participate in the proposed operation may then
elect to participate by notifying the proposing Party within twenty-four (24)
hours, inclusive of Saturdays, Sundays, and federal holidays, after receipt of
such notice. If all Parties elect to participate in the proposed operation,
Operator shall conduct the operation at their cost and risk.
11.8.4 Operations by Fewer Than All Parties. If, after the
election (if applicable) made under Article 11.8.3 (Second Opportunity to
Participate), fewer than all but two (2) or more Parties having a combined
Working Interest of fifty percent (50%) or more elect to participate in the
proposed operation that takes precedence, the proposing Party shall notify the
Participating Parties and each Participating Party shall have twenty-four (24)
hours, inclusive of Saturdays, Sundays, and federal holidays, after receipt of
the notice to notify the proposing Party of the portion of the costs and risks
attributable to the total Non-participating Parties' interests it elects to pay
and bear. Unless otherwise agreed by the Participating Parties, each
Participating Party may, but shall not be obligated to, pay and bear that
portion of the costs and risks attributable to the total Non-participating
Parties' interests in the ratio that the Participating Party's interest bears to
the total interests of all Participating Parties who elect to pay and bear a
portion of costs and risks attributable to the non-participating interests.
Failure to respond shall be deemed to be an election not to pay or bear any
additional costs or risks. If the Participating Parties agree to pay and bear
one hundred percent (100%) of the costs and risks of the operation, Operator,
subject to Article 4.2 (Substitute Operator), shall conduct the operation as a
Non-consent Operation for the benefit of the Participating Parties, and the
provisions of Article 13 (Non-consent Operations) shall apply. If such agreement
is not obtained, however, the operation shall not be conducted and the effect
shall be as if the proposal had not been made. If a Participating Party in a
well elects not to participate in the Deepening or Sidetracking operation in the
well, such non-consenting Party shall become a Non-participating Party in all
operations conducted after the. election, through the Completing and equipping
of the Deepened or Sidetracked portion of the well. If the Non-consent operation
is an Additional Testing, coring, or logging operation, Article 13 (Non-consent
operations) shall not apply, however, a Party electing not to participate in the
Additional Testing, coring, or logging shall not be entitled to information
resulting from the operation.
11.8.5 Subsequent Operations. Upon the completion of an
operation conducted under Article 11.8 (Course of Action After Reaching
Objective Depth), if the well is not either (a) Completed as a well capable of
producing Hydrocarbons in paying quantities, or (b) temporarily abandoned or
permanently plugged and abandoned, Operator shall notify the Participating
Parties of Operator's recommendation for operations in the well under Articles
11.8.1 through 11.8.4, which again shall apply. If sufficient approval is not
obtained to conduct a subsequent operation in a well or if all Participating
Parties elect to plug and abandon the well, subject to Article 14 (Abandonment,
Salvage, and Surplus), Operator shall permanently plug and abandon the well at
the expense of all Participating Parties. Each Participating Party shall be
responsible for its proportionate share of the plugging and abandonment costs
associated with the operation in which it participated.
11.8.6 Restoration of Damaged Well. If, during an Additional
Testing, coring, or logging operation or during a Deepening or Sidetracking
operation that does not result in the well being Completed as a Producible Well,
the well is damaged to the extent that the well is rendered incapable of having
a lower-priority operation conducted and a Party (a) who participated in the
well, but not in the operation being conducted when the well was damaged, (b)
who has a sufficient percentage of the Working Interest to approve an operation,
and (c) who elected to conduct a lower-priority operation, still desires to
conduct the lower-priority operation after the well has been damaged, may
conduct the lower-priority operation, which would include operations to either
restore the well to a condition that will allow the lower-priority operation
21
MODEL FORM OF OFFSHORE OPERATING AGREEMENT
to be conducted or to drill a new well to a sufficient depth to allow the
lower-priority operation to be conducted. Upon conclusion of the
lower-priority operation, the Participating Parties in the operation being
conducted when the well was damaged shall reimburse the Participating Parties
conducting the lower-priority operation all their costs associated with
restoration of the well to the point at which the lower-priority operation was
conducted. In no event, however, shall Participating Parties in the operation
being conducted when the well was damaged be required to reimburse the
Participating Parties conducting the lower-priority operations an amount greater
than what was actually incurred in the damaged well.
ARTICLE 12
PLATFORM AND PROCESSING FACILITIES
12.1 Approval. A Party may propose the fabrication and installation
of a Platform and/or Processing Facilities, with information adequate to
describe the proposed Platform and/or Processing Facilities and their estimated
costs. Any proposal for a Platform to be installed hereunder shall include an
AFE or AFEs for the attendant Processing Facilities necessary to appropriately
achieve (whether alone or by a tie-in to another Platform and/or Processing
Facilities or to any other platform, facilities and/or pipeline) Hydrocarbon
production to sales arising from the ▇▇▇▇▇ (i) drilled at the Platform's
proposed location and/or (ii) proposed to be drilled from, tied back to, or tied
into connections upon such Platform (the "Associated ▇▇▇▇▇"); and the Parties
shall only be entitled to elect as provided herein whether to participate in all
or none of said Platform and Processing Facilities proposals as packaged
together.
12.2 Counterproposals. When a Platform and/or Processing Facilities
is proposed under Article 12.1, a Party may, within thirty (30) days after
receipt of the AFE or notice for the original proposal, make a proposal,
hereinafter referred to as "Counterproposal," to fabricate and install said
Platform and/or Processing Facilities by sending an APE or notice to the other
Parties in accordance with Article 9 (Notices). The APE or notice shall indicate
that the proposal is a Counterproposal to the original proposal. If one or more
Counterproposals are made, each Party shall elect to participate in the original
proposal, one Counterproposal, or neither the original proposal nor a
Counterproposal.
12.2.1 Operations by All Parties. If all Parties elect to
participate in the proposed operation, Operator shall conduct the operation at
their cost and risk.
12.2.2 Second Opportunity to Participate. If there are more than
two (2) Parties and if fewer than all but two (2) or more Parties having a
combined Working Interest of fifty percent (50%) or more elect to participate
in the Platform and/or Processing Facilities, then the proposing Party shall
notify the Parties of the elections made, whereupon a Party originally electing
not to participate may then elect to participate by notifying the proposing
Party within forty-eight (48) hours, exclusive of Saturdays, Sundays and federal
holidays, after receipt of such notice. If all Parties elect to participate in
the Platform and/or Processing Facilities, Operator shall timely commence the
fabrication and installation of the Platform and/or Processing Facilities at
their cost and risk
12.2.3 Operations by Fewer Than All Parties. If, after the
election made under Article 12.4 (Second Opportunity to Participate), fewer than
all but two (2) or more Parties having a combined Working Interest of fifty
percent (50%) or more elect to participate in the Platform and/or Processing
Facilities, the proposing Party shall notify the Participating Parties, and each
Participating Party shall have forty-eight (48) hours, exclusive of Saturdays,
Sundays, and federal holidays, after receipt of the notice to notify the
proposing Party of the portion of the costs and risks attributable to the total
Non-participating Parties' interests it elects to pay and bear. Unless otherwise
agreed by the Participating Parties, each Participating Party may, but shall not
be obligated to, pay and bear that portion of costs and risks attributable to
the total Non-participating Parties' interests in the ratio that the
Participating Party's interest bears to the total interests of all Participating
Parties who elect to pay and bear a portion of the costs and risks attributable
to the total Non-participating Parties' interests. Failure to respond shall be
deemed to be an election not to pay or bear any additional costs or risks. If
the Participating Parties agree to pay and bear one hundred percent (100%) of
the costs and risks of the operation, the Operator, subject to Article 4.2
(Substitute Operator), shall conduct the operation as a Non-consent Operation
for the benefit of the Participating Parties, and except as provided in Article
12.4 (Rights to Take in Kind), the provisions of Article 13.2.1. (B)
22
MODEL FORM OF OFFSHORE OPERATING AGREEMENT
shall apply. If such agreement is not obtained, however, the fabrication and
installation of the Platform and/or Processing Facilities shall not be
commenced, and the effect shall be as if the proposal had not been made.
12.3 Ownership and Use of the Platform and Processing Facilities. The
Participating Parties in the Processing Facilities own all of the excess
capacity of the Processing Facilities and the excess weight, space and buoyancy
of the Platform, and each Participating Party in the Processing Facilities does
not have the right to use its Working Interest share of the excess capacity,
weight space and buoyancy for hydrocarbon production from outside the Lease at
its sole discretion and for its sole account Each Participating Party in the
Processing Facilities or Platform must obtain the unanimous approval of the
other Participating Parties in the Processing Facilities or Platform in order to
utilize any portion of the excess capacity, weight, space and buoyancy. It must
negotiate the payment of a fee with the Participating Parties in the Processing
Facilities or Platform in order to utilize any portion of the excess capacity,
weight space and buoyancy. Each of the Participating Parties in the Processing
Facilities or Platform shall receive its Working Interest share of all fees
derived from the utilization of the excess capacity, weight space and buoyancy.
All hydrocarbon production from outside the Lease shall be processed under a
"Facilities Use ad Production Handling Agreement' unanimously agreed to by the
Participating Parties in the Processing Facilities.
12.4 Rights to Take in Kind. Nothing in this Article 12 shall act to
limit a Party's rights under Article 22 (Disposition of Production), or to
otherwise separately dispose of its share of Hydrocarbon production. If a Party
elects (a) not to participate in a approved Processing Facilities proposal and
(b) to separately dispose of its share of Hydrocarbon production (the
"Separately Disposing Party"), the Separately Disposing Party must provide proof
to the Participating Parties in the approved Processing Facilities proposal,
within one hundred and eighty (180) days from the last applicable response date
to the Processing Facilities proposal that it has begun disposing (i.e. the
actual "flowing") its own share of Hydrocarbon production. If a Separately
Disposing Party fails to provide such proof by that deadline, it must
immediately (i) utilize the Processing Facilities for its share of Hydrocarbon
production, (ii) pay to the Participating Parties in the approved Processing
Facilities proposal, in proportion to their ownership percentages in the
Processing Facilities, a sum equal to one hundred and twenty-five percent (125%)
of the Separately Disposing Party's share of the costs and expense of the
Processing Facilities, and (iii) assume its share of the risks and liabilities
associated with the construction and ownership of the Processing Facilities as
of the date of commencement of the operations to construct same.
12.5 Expansion or Modification of a Platform and/or Processing
Facilities. After installation of a Platform and/or Processing Facilities, any
Participating Party in that Platform and/or Processing Facilities may propose
the expansion or modification of that Platform and/or Processing Facilities by
written notice (along with its associated APE) to the other Participating
Parties in that Platform and/or Processing Facilities. That proposal requires
approval by two of more of the Participating Parties in the Platform and/or
Processing Facilities with more than fifty percent (50%) of the Participating
Interest in the Platform and/or Processing Facilities. If approved, that
proposal will be binding on all Participating Parties in that platform and/or
Processing Facilities, and the Operator shall commence that expansion or
modification at the sole cost and risk of all of the Participating Parties in
that Platform and/or Processing Facilities unless otherwise agreed.
ARTICLE 13
NON-CONSENT OPERATIONS
13.1 Non-consent Operations. Operator or substitute Operator under
Article 4.2 (Substitute Operator) shall provisions:
13.1.1 Non-interference. Non-consent Operations shall not
interfere unreasonably with operations being conducted by all Parties.
13.1.2 Multiple Completion Limitation. A Non-consent Operation
shall not be conducted in a well having multiple Completions unless (a) each
Completion is owned by the same Parties in the same proportions; (b) the well is
incapable of producing from any Completion; or (c) all Participating Parties in
the well consent to the operation.
13.1.3 Metering. In Non-consent Operations, Hydrocarbon
production shall be determined upon the basis of appropriate well tests, unless
separate metering devices are required by a governmental authority having
jurisdiction.
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MODEL FORM OF OFFSHORE OPERATING AGREEMENT
13.1.4 Non-consent Well. Operations on a Non-consent Well shall
not be conducted in a Producible Reservoir without approval of all Parties
unless (a) the Producible Reservoir is designated in the notice as a Completion
objective; (b) Completion of the well in the Producible Reservoir will not
increase the rates of Hydrocarbon production that are prescribed and approved
for the Producible Reservoir by the governmental authority having jurisdiction;
and (c) the horizontal distance between the vertical projections of the midpoint
of the Producible Reservoir in the well and an existing well currently completed
in and producing from the same Producible Reservoir will be at least two
thousand (2,000) feet for an oil-well Completion or three thousand (3,000) feet
for a gas-well Completion.
13.1.5 Cost Information. Operator shall, within one hundred
twenty (120) days after completion of a Non-consent Operation, furnish the
Parties either, (a) an inventory and an itemized statement of the cost of the
well and equipment pertaining thereto, or (b) a detailed statement of the
monthly ▇▇▇▇▇▇▇▇. Each quarter thereafter, while the Participating Parties are
being reimbursed under Article 13.2.1 (Production Reversion Recoupment),
Operator shall furnish the Non-participating Parties a quarterly statement of
all costs and liabilities incurred in the operation of the well, together with a
statement of the quantities of oil and gas produced from it and the amount of
the proceeds from the sale of the Non-participating Parties' relinquished
Hydrocarbon production from the well for the preceding quarter. Operator shall
prepare the monthly statement of the quantities of oil and gas produced and the
amounts of the proceeds from the sale of Non-participating Parties' relinquished
Hydrocarbon production based on the proceeds received for the Operator's share
of Hydrocarbon production. When Operator's payout calculation indicates that
payout has occurred, Operator shall promptly notify all Parties. The
Participating Parties who carried a portion of the Non participating Parties'
relinquished interest shall then provide Operator all information pertaining to
the cumulative proceeds received from the sale of the Non-participating Parties'
relinquished Hydrocarbon production. Operator shall revise the payout date using
the actual proceeds from the sale of the Non-participating Parties' relinquished
Hydrocarbon production and administer any subsequent adjustments between the
Parties.
13.1.6 Completions. For determinations under 13.1(Non-consent
Operations), each Completion shall be considered a separate well.
13.2 Relinquishment of Interest, Upon commencement of Non-consent
Operations, other than Non-consent Operations governed by the Acreage Out Option
under Article 10.5 (Operations by Fewer Than All Parties) or Article 13.7
(Operations Utilizing a Non-consent Platform and/or Processing Facilities), each
Non-participating Party's interest and Leasehold operating rights in the
Non-consent Operation and title to Hydrocarbon production resulting therefrom;
and if Article 13.8 (Discovery or Extension from Non-consent Drilling) is
effective, one-half (112) of each Non-participating Party's interest and
leasehold operating rights and title to Hydrocarbon production from ▇▇▇▇▇
mentioned in Article 13.8 (Discovery or Extension from Non-consent Drilling);
shall be owned by and vested in each Participating Party in proportion to its
Participating Interest or in the proportions otherwise agreed by the
Participating Parties for as long as the operations originally proposed are
being conducted or Hydrocarbon production is obtained, subject to the following:
13.2.1 Production Reversion Recoupment. The interest, right, and
title described in Article 13.2 (Relinquishment of Interest) shall revert to
each Non-participating Party when the Participating Parties have recouped out of
Hydrocarbon production from the Non-consent Operations attributable to the
Non-participating Party's interest an amount which when added to amounts
received under Article 13.3 (Deepening or Sidetracking of Non-consent Well),
equals the sum of the following:
(A) eight hundred percent (800%) of the Non participating
Party's share of the costs of the following Non-consent Exploratory Operations,
or four hundred percent (400%) of the Non-participating Party's share of the
costs of the following Non-consent Development Operations: drilling, testing,
Completing, Recompleting, Deepening, Sidetracking, Reworking, plugging back, and
temporarily abandoning a well, reduced by the Non participating Party's Share of
a cash contribution received under Article 21.2 (Cash Contributions);
(B) if applicable, three hundred percent (300%) of
Non-participating Party's Share of the cost of Platforms and/or Processing
Facilities; such recoupment is limited to the Non-participating Party's Share of
the Hydrocarbon production that utilize such Platform and/or Processing
Facilities.
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MODEL FORM OF OFFSHORE OPERATING AGREEMENT
(C) three hundred percent (300%) of the Non-participating
Party's Share of the cost charged in accordance with Article 13.9 (Allocation of
Platform/Processing Facilities Costs to Non-consent Operations) of using an
existing Platform/Processing Facilities; and
(D) the Non participating Party's Share of the costs of
operation, maintenance, treating, processing, gathering, and transportation, as
well as lessor's royalties and severance, Hydrocarbon production, and excise
taxes.
When the Participating Parties have recovered from a Non-participating
Party's relinquished interests the specified sums, the relinquished interests of
the Non-participating Party shall automatically revert to the Non-participating
Party as of 7:00 a.m. of the day after the recoupment occurs. Thereafter, the
Non-participating Party shall own the same interest in the Non-consent Well,
equipment pertaining thereto, including, but not limited to, any applicable
▇▇▇▇▇, Platform or Processing Facilities, and the Hydrocarbon production
therefrom as the Non-participating Party would have owned or been entitled to if
it had participated in the Non-consent Operation. Upon reversion, the Non
participating Party shall become a Participating Party and, as such, shall
become liable for its proportionate share of the further costs of the operation
under this Agreement and Exhibit "C."
13.2.2 Non-production Reversion. If the Non-consent Operations
fail to obtain Hydrocarbon production or if the operations result in Hydrocarbon
production that ceases before complete recoupment by the Participating Parties
under Article 13.2.1 (Production Reversion Recoupment), such leasehold operating
rights shall revert to each Non participating Party, except that all Non-consent
▇▇▇▇▇, Platforms, and Processing Facilities shall remain vested in the
Participating Parties (but the salvage value in excess of the sum remaining
under Article 13.2.1 shall be credited to all Parties).
13.3 Deepening or Sidetracking of Non-consent Well. Operator shall
notify Non-operators of each proposal by a Participating Party to Deepen or
Sidetrack a Non-consent Well. A Non-participating Party may then elect to
participate in the Deepening or Sidetracking operation by notifying Operator
within thirty (30) days, or within forty-eight (48) hours, exclusive of
Saturdays, Sundays, and federal holidays, if a rig is on location and standby
charges are being incurred, after receiving notice of the proposal. A Non
participating Party that elects to participate in Deepening or Sidetracking the
well, as proposed; shall immediately pay the Participating Parties, in
accordance with Article 13.4 (Deepening or Sidetracking Cost Adjustments), its
Working Interest share of actual well costs (excluding logging, coring, testing,
and Completion costs), less all amounts recovered by the Participating Parties
from the proceeds of Hydrocarbon production from the well, as if the
Non-participating Party had originally participated to the initial Objective
Depth or formation, in the case of a Deepening operation, or the depth at which
the Sidetracking operation is initiated. Thereafter, the Non-participating Party
shall be deemed to be a Participating Party for the Deepening or Sidetracking
operations, and Article 13.2.1(A) shall not apply to that Party for the Deepened
or Sidetracked portion of the well. The initial Participating Parties, however,
shall continue to recoup out of the proceeds of Hydrocarbon production from the
non-consent portion of the well any balance for the Non-consent Well remaining
to be recovered under Article 13.2.1 (Production Reversion Recoupment), less the
amounts paid by the Non-participating Party under this Article 13.3.
13.4 Deepening or Sidetracking Cost Adjustments. If a proposal is
made to Deepen or Sidetrack a Non- consent Well, a well cost adjustment will be
performed as follows:
(A) Intangible drilling will be valued at the actual cost
incurred by the Participating Parties.
(B) Tangible materials will be valued as transfers of new
material in accordance with the provisions of Exhibit"C."
(C) For Sidetracking operations, the values determined in
Articles 13.4(A) and 13.4(B) shall be reduced by the amount
allocated to that portion of the well one hundred (100) feet
below the point of Sidetrack Such allocations shall be
accomplished consistent with guidelines recommended by the
Council of Petroleum Accountants Societies (▇▇▇▇▇) in ▇▇▇▇▇
▇▇▇▇▇▇▇▇ ▇▇. ▇, ▇▇▇▇▇▇▇▇▇▇▇▇▇ of Values for Well Cost
Adjustments Joint Operations, September 1965, as amended
from time to time.
(D) Amortization/depreciation shall be applied to both
intangible and tangible values at the rate of ten percent
(10%) per annum from the date the well commenced Hydrocarbon
production to the date operations commence to Deepen or
Sidetrack the well, provided, however, the value of tangible
25
MODEL FORM OF OFFSHORE OPERATING AGREEMENT
materials after applying depreciation shall never be less than fifty percent
(50%) of the value determined in Article 13.4(B).
13.5 Subsequent Operations in Non-consent Well. Except as provided in
Article 13.3 (Deepening or Sidetracking of Non-consent Well), an election not to
participate in the drilling, Sidetracking, or Deepening of a well shall be
deemed to be an election not to participate in any subsequent operations in the
well before full recovery by the Participating Parties of the Non-participating
Party's recoupment amount. A subsequent operation conducted during the
recoupment period by the Parties entitled to participate shall be subject to the
recoupment provided in Article 13.2.1 (Production Reversion Recoupment).
13.6 Operations in a Production Interval. An owner in the Production
Interval may propose Rework or Sidetrack operations within a Production
Interval, or to permanently plug and abandon a Production Interval in a well;
however, no Production Interval in a well shall be plugged and abandoned
without the unanimous approval of the Participating Parties in the Production
Interval. If a proposal, estimated to exceed the amount specified in Article 8.2
(Authorization), is made to Rework or Sidetrack a Production Interval, the
unanimous approval of the Parties owning an interest in the Production Interval
shall be required to conduct the operation. A proposal to Rework an interval,
other than a Production Interval, shall be made and approved in accordance with
Article 11.5 (Operations by Fewer Than All Parties).
13.7 Operations Utilizing a Non-consent Platform and/or Processing
Facilities. Except as otherwise provided in Article 12.4 (Rights to Take in
Kind) and this Article 13.7, if applicable, a Party that did not originally
participate in a Platform and/or Processing Facilities shall be a
Non-participating Party for all operations utilizing the Platform and/or
Processing Facilities and shall be subject to Article 13.2 (Relinquishment of
Interest). Notice, in accordance with Article 9 (Notices), shall be given to the
Non-participating Party for all ▇▇▇▇▇ proposed to be drilled from or tied-back
to the Non-consent Platform and/or handled by non-consent Processing Facilities.
If a Non participating Party in a Non-consent Platform and/or Processing
Facilities desires to participate in the drilling of any such well proposed by
the Participating Parties in the Platform and/or Processing Facilities, the
Non-participating Party desiring to join in the proposed well shall first pay
the Participating Parties in the Platform and/or Processing Facilities its
proportionate share of the cost of the Platform and/or Processing Facilities,
including, but not limited to, costs of material, fabrication, transportation,
and installation plus any remaining amounts to be recouped under Article
13.2.1(B). The Non-participating Party shall remit payment to Operator and
Operator shall (a) reimburse the Participating Parties in the Platform and/or
Processing Facilities in the same proportions they are sharing in the Platforms
and/or Processing Facilities recoupment account, and (b) credit the applicable
payout account. Upon payment of that amount, the original Non-participating
Party shall become an owner and a Participating Party in the Platform and/or
Processing Facilities in the same manner as if recoupment had occurred under
Article 13.2.1 (Production Reversion Recoupment), and may participate in all
future ▇▇▇▇▇ drilled from or tied back to the Platform. As to well operations
conducted from the Platform and/or Processing Facilities prior to payment under
this Article 13.7, the original Non-participating Party shall remain a
Non-participating Party in such Non-consent Operations until such time as the
entire recoupment balance applicable to all such Non-consent Operations in the
aggregate has occurred, as provided for in Articles 13.2.1(A) and 13.2.1(D).
13.8 Discovery or Extension from Non-consent Drilling. If a
Non-consent Well (a) discovers a new Producible Reservoir or (b) extends an
existing Producible Reservoir beyond its recognized boundaries, as unanimously
agreed by the Parties before commencement of drilling operations, the recoupment
of costs for the well shall be governed by Article 13.2 (Relinquishment of
Interest) and shall be recovered by the Participating Parties in one of the
following ways:
(A) if the Non-consent Well is not completed and produced,
recoupment shall be out of one-half (1/2) of each Non
participating Party's interest in Hydrocarbon production
from all subsequently drilled and completed ▇▇▇▇▇ on the
Lease that are completed in the Producible Reservoir
discovered, or in that portion extended, by the Non consent
Well and in which the Non-participating Party has a
Participating Interest; or
(B) if the Non-consent Well is completed and produced,
recoupment shall be out of the Nonparticipating Party's
Share of all Hydrocarbon production from the Non-consent
26
MODEL FORM OF OFFSHORE OPERATING AGREEMENT
Well and one-half (1/2) of the Non participating Party's
interest in Hydrocarbon production from all subsequently
drilled and completed ▇▇▇▇▇ on the Lease that are completed
in the Producible Reservoir discovered, or in that portion
extended, by the Non-consent Well and in which the
Non-participating Party has a Participating Interest.
13.9 Allocation of Platform/Processing Facilities Costs to
Non-consent Operations. Non-consent Operations shall be subject to farther
conditions as follows:
13.9.1 Charges. In the event a well is drilled or produced from
a Platform or is produced through Processing Facilities whose Participating
Parties are different from the Participating Parties in that well or if the
Participating Parties' Participating Interest shares in that Platform or
Processing Facilities are different from their Participating Interest shares in
that well, the rights of the Participating Parties in that well and the costs to
use the Platform or Processing Facilities for that well shall be determined as
follows:
(A) The Participating Parties in that well shall pay to the
Operator a one-time slot usage fee for the use of a slot on
the Platform equal to that portion of the total costs of the
Platform, which one Platform slot bears to the total number
of Platform slots then being utilized. Within fifteen (15)
days of its receipt of that fee, the Operator shall
distribute to the Participating Parties in the Platform
their Participating Interest share of that payment.
If that well is abandoned, having never produced
Hydrocarbons, the right of the Participating Parties in that
well to use the Platform slot through which the well was
drilled shall terminate unless those Parties commence
drilling a substitute well for the abandoned well through
the same slot within ninety (90) days of the abandonment. If
that substitute well is abandoned, having never produced
Hydrocarbons, the right of the Participating Parties in that
well to use the Platform slot through which the well was
drilled shall terminate.
The slot usage fee shall not apply to a slot deemed to be
"surplus." A slot may be deemed surplus only by the
unanimous agreement of the owners of the Platform.
(B) The Participating Parties in that well shall pay to the
owners of the Processing Facilities a lump sum equal to that
portion of the total cost of those Processing Facilities
that the throughput volume of the Non-consent Operation
bears to the total design throughput volume of the
Processing Facilities. Throughput volume shall be estimated
by the Operator in barrels produced per day (with 1 barrel
of oil equaling 5.8 mcf of gas), using an average daily
volume of the first three months of Hydrocarbon production
from the Non-consent Operation.
Payment of sums under this Article 13.9.1 is not a purchase
of an additional interest in the Platform or the Processing
Facilities. Such payment shall be included in the total
amount that the Participating Parties are entitled to recoup
out of Hydrocarbon production from the Non-consent Well.
13.9.2 Operating and Maintenance Charges. The Participating
Parties shall pay all costs necessary to connect a Non-consent Well to the
Processing Facilities and that proportionate part of the costs of operating and
maintaining the Platform and Processing Facilities applicable to the Non-consent
Well. Platform operating and maintenance costs that are costs not directly
attributable to a wellbore shall be allocated equally to all actively producing
Completions. Operating and maintenance costs for the Processing Facilities shall
be allocated on a volume throughput basis, that is, in the proportion that the
volume throughput of the well bears to the total volume throughput of all ▇▇▇▇▇
connected to the Processing Facilities. Volume throughput, as used in this
Article 13.92, shall be determined by considering all Hydrocarbons and water
volumes.
27
MODEL FORM OF OFFSHORE OPERATING AGREEMENT
13.10 Allocation of Costs Between Zones. Except as provided in Article
10.10 (▇▇▇▇▇ Proposed Below Deepest Producible Reservoir), if for any reason the
Participating Interests of the Parties in a well are not the same for the entire
depth or the Completion thereof, the costs of drilling, Completing, and
equipping the well shall be allocated in an equitable manner, as agreed by the
Parties, based on the value and allocation guidelines recommended by the Council
of Petroleum Accountants Societies (▇▇▇▇▇) in ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇. ▇,
▇▇▇▇▇▇▇▇▇▇▇▇▇ of Values for Well Costs Adjustments Joint Operations, September
1965, as amended from time to time.
13.11 Lease Maintenance Operations. An operation proposed within the
last one (1) year of the primary term or, subsequent thereto, an operation
proposed to perpetuate the lease or portion thereof at its expiration date or
otherwise, including, but not limited to, well operations, regulatory relief
(for example, course of action necessary to satisfy the statutory or regulatory
requirements of the governmental authority having jurisdiction), and other Lease
operations, shall be deemed to be a "Lease Maintenance Operation." To invoke
this Article 13.11, a notice or AFE that proposes an operation must state that
the proposed operation is a Lease Maintenance Operation.
13.11.1 Participation in Lease Maintenance Operations. A Party
may propose a Lease Maintenance Operation by giving notice to the other Parties.
If fewer than all Parties elect to participate in the proposed Lease Maintenance
Operation, the proposing Party shall notify the Parties of the elections made.
Each Party electing not to participate shall then have a second opportunity to
participate in the proposed operation by notifying the other Parties of its
election within forty-eight (48) hours after receipt of the notice. A Lease
Maintenance Operation shall not require minimum approval, either of the number
of Parties or the percentage of the voting interests of the Parties otherwise
required in Article 6.1.2 (Vote Required). For a Lease Maintenance Operation to
be conducted, the Participating Parties must agree to pay and bear one hundred
percent (100%) of the costs and risks of the operation. If more than one Lease
Maintenance Operation is proposed, the operation with the greatest percentage
approval shall be conducted. Notwithstanding the recoupment provisions of this
Agreement, a Party electing not to participate in a well operation proposed as a
Lease Maintenance Operation shall promptly assign, effective as of the date the
operation commences, to the Participating Parties all of its right, title, and
interest in and to that portion of the Lease that would otherwise expire and the
property and equipment attributable thereto, in accordance with Article 26
(Successors and Assigns). If more than one Lease Maintenance Operation is
proposed and there is a tie between two proposed operations, both operations
shall be conducted and the costs and risks of conducting both operations shall
be paid and borne by the Participating Parties. If the drilling of a well is
undertaken as a Lease Maintenance Operation, further operations conducted by the
Participating Parties in the well shall be governed by Article 10.9 (Course of
Action After Reaching Objective Depth) or Article 11.9 (Course of Action After
Reaching Objective Depth), whichever applies. If more than one well operation is
conducted, any of which would perpetuate the Lease or such portion thereof an
assignment shall not be required from a Party participating in any such well
operation.
13.11.2 Accounting for Non-participation. If after one (1) year
from completion of a well operation conducted as a Lease Maintenance Operation,
the Lease or portion thereof is being perpetuated by a Lease Maintenance
Operation, as provided in Article 13.11.1 (Participation in Lease Maintenance
Operations), Operator shall render a final statement, if applicable, to the
assigning Party for its share of all expenses attributed to the assigned
interest before the effective date of the assignment, plus any credit or
deficiency in salvage value calculated under Article 15.3.1 (Prior Expenses).
The assigning Party shall settle any deficiency owed the non-assigning Parties
within thirty (30) days after receipt of Operator's statement.
13.12 Retention of Lease by Non-consent Well. If, at the expiration of
the primary term of the Lease, one or more Non-consent ▇▇▇▇▇, except ▇▇▇▇▇
drilled under the Acreage Out Option under Article 10.5 (Operations by Fewer
Than All Parties), if selected, are the only ▇▇▇▇▇ perpetuating the Lease,
Operator shall give written notice to each Nonparticipating Party that the
Non-consent ▇▇▇▇▇ are serving to perpetuate the Lease. Each Non-participating
Party shall, within thirty (30) days after receipt of Operator's written notice,
elect one of the following:
(A) to assign its entire interest in the Lease to the
Participating Parties in the proportions in which the
Non-consent ▇▇▇▇▇ are owned, or
(B) to pay the Participating Parties, within sixty (60)
days after its election, the lesser of its
proportionate share of the actual well costs of the
▇▇▇▇▇, as if the Non-participating Party had originally
participated, or the balance of the recoupment account.
The payment shall be made to Operator and credited to
28
MODEL FORM OF OFFSHORE OPERATING AGREEMENT
the account of each Participating Party. The Non
participating Party shall remain as a Non participating
Party until full recoupment is obtained, but the
payment shall be credited against the total amount to
be recouped by the Participating Parties.
A Non-participating Party that fails to make the required election shall be
deemed to have elected under Article 13.12 (A) to relinquish its entire interest
in the Tease. If a Non-participating Party elects to make payment under Article
13.12(B) but fails to make the required payment within sixty (60) days after its
election, the Non-participating Party shall either remain liable on the
obligation to pay or, by unanimous vote of the Participating Parties, be deemed
to have elected under Article 13.12 (A) to relinquish its entire interest in the
Lease. Each relinquishing Non participating Party shall promptly execute and
deliver an assignment of its interest to the Participating Parties, in
accordance with Article 26 (Successors and Assigns).
ARTICLE 14
ABANDONMENT, SALVAGE, AND SURPLUS
14.1 Platform Salvage and Removal Costs. When the Parties owning
▇▇▇▇▇, Platforms and/or Processing Facilities unanimously agree to dispose of
the ▇▇▇▇▇, Platforms and/or Processing Facilities, it shall be disposed of by
Operator in the time and manner approved by the Parties. The costs, risks, and
net proceeds, if any for the disposal shall be shared by the Parties in
proportion to their Participating Interests therein.
14.2 Abandonment of Platforms, Processing Facilities or ▇▇▇▇▇. Except
as provided in Article 10 (Exploratory Operations) and Article 11 (Development
Operations), a Party may propose the abandonment of a Platform and Processing
Facilities or ▇▇▇▇▇ by notifying the other Participating Parties. No Platform
and Processing Facilities or wellbore shall be abandoned without the unanimous
approval of the Participating Parties. If all Parties do not approve abandoning
the Platform and Processing Facilities or ▇▇▇▇▇, the Party desiring to abandon
it shall pay the Operator, on behalf of the Participating Parties for that
Party's share of the estimated costs of abandonment, removal, and site clearance
of the Platform and Processing Facilities or plugging and abandonment of the
▇▇▇▇▇, less estimated salvage value, as determined under Exhibit "C." If an
abandoning Party's respective share of the estimated salvage value is greater
than its share of the estimated costs, Operator, on behalf of the Participating
Parties, shall pay a sum equal to the deficiency to the abandoning Party.
14.3 Assignment of Interest. Each Participating Party desiring to
abandon a Platform and Processing Facilities or ▇▇▇▇▇ under Article 14.2
(Abandonment of Platforms, Processing Facilities or ▇▇▇▇▇) shall assign,
effective as of the last applicable election date, to the non-abandoning
Parties, in proportion to their Participating Interests, its interest in the
Platform and Processing Facilities or ▇▇▇▇▇ and the equipment therein and its
ownership in the Hydrocarbon production from the ▇▇▇▇▇. A Party so assigning
shall be relieved from further liability for the Platform and Processing
Facilities or ▇▇▇▇▇, except liability for payments under Article 14.2
(Abandonment of Platforms, Processing Facilities or ▇▇▇▇▇).
14.4 Abandonment Operations Required by Governmental Authority. A well
abandonment or Platform and Processing Facilities removal required by a
governmental authority having jurisdiction shall be accomplished by Operator
with the costs, risks, and net proceeds, if any, to be shared by the Parties
owning the well or Platform and Processing Facilities in proportion to their
Participating Interests therein.
14.5 Disposal of Surplus Material. Material and equipment acquired
hereunder may be classified as surplus by Operator when deemed no longer needed
in present or foreseeable operations. Operator shall determine the value and
cost of disposing of the materials in accordance with Exhibit "C." If the
material is classified as junk or if the value, less cost of disposal, is less
than or equal to Seventy-five Thousand Dollars ($75,000.00), Operator shall
dispose of the surplus materials in any manner it deems appropriate. If the
value, less the cost of disposal of the surplus material, is greater than
Seventy-five Thousand Dollars ($75,000.00), Operator shall give written notice
thereof to the Parties owning the material. Unless purchased by Operator, the
surplus material shall be disposed of in accordance with the method of disposal
approved by the Parties owning the material. Proceeds from the sale or transfer
of surplus material shall be promptly credited to each Party in proportion to
its ownership of the material at the time of retirement or disposition.
29
MODEL FORM OF OFFSHORE OPERATING AGREEMENT
ARTICLE 15
WITHDRAWAL
15.1 Right to Withdraw. Subject to this Article 15.1, any Party may
withdraw from this Agreement as to one or more Leases (the "Withdrawing Party")
by giving prior written notice to all other Parties stating its decision to
withdraw (`the withdrawal notice). The withdrawal notice shall specify an
effective date of withdrawal that is at least sixty (60) days, but not more than
one hundred and twenty (120) days, after the date of the withdrawal notice.
Within thirty (30) days of receipt of the withdrawal notice, the other Parties
may join in the withdrawal by giving written notice of that fact to the Operator
(`written notice to join in the withdrawal") and upon giving written notice to
join in the withdrawal are "Other Withdrawing Parties." The withdrawal notice
and the written notice to join in the withdrawal are unconditional and
irrevocable offers by the Withdrawing Party and the Other Withdrawing Parties to
convey to the Parties who do not join in the withdrawal (`the Remaining
Parties") the Withdrawing Party's and the Other Withdrawing Parties' entire
Working Interest in all of the Lease or Leases, Hydrocarbon production, and
other property and equipment owned under this Agreement.
15.2 Response to Withdrawal Notice. Failure to respond to a
withdrawal notice is deemed a decision not to join in the withdrawal.
15.2.1. Unanimous Withdrawal
If all the other Parties join in the withdrawal,
(A) no assignment of Working Interests shall take place;
(B) no father operations maybe conducted under this
Agreement unless agreed to by all Parties;
(C) the Parties shall abandon all activities and
operations within the Lease and relinquish all of their
Working Interests to the MMS within ninety (90) days of
the conclusion of the thirty (30) day joining period; and
(D) notwithstanding anything to the contrary in Article
14 (Abandonment, Salvage and Surplus), the Operator
shall:
(1) furnish all Parties a detailed abandonment plan,
if applicable, and a detailed cost estimate for the
abandonment within sixty (60) days after the
conclusion of the thirty (30) day joining period; and
(2) cease operations and begin to permanently plug
and abandon all ▇▇▇▇▇ and remove all Facilities in
accordance with the abandonment plan.
15.2.2. No Additional Withdrawing Parties. If none of the other
Parties join in the withdrawal, then the Remaining Parties must accept an
assignment of their Participating Interest share of the Withdrawing Party's
Working Interest.
15.2.3. Acceptance of the Withdrawing Parties' Interests. If one
or more but not all of the other Parties join in the withdrawal and become
Other Withdrawing Parties, then within forty-eight (48) hours (exclusive of
Saturdays, Sundays, and federal holidays) of the conclusion of the thirty (30)
day joining period, each of the Remaining Parties shall submit to the Operator a
written rejection or acceptance of its Participating Interest share of the
Withdrawing Party's and Other Withdrawing Parties' Working Interest. Failure to
make that written rejection or acceptance shall be deemed a written acceptance.
If the Remaining Parties are unable to select a successor Operator, if
applicable, or if a Remaining Party submits a written rejection and the other
Remaining Parties do not agree to accept one hundred percent (100%) of the
Withdrawing Party's and Other Withdrawing Parties' Working Interest within ten
(10) days of the conclusion of the forty-eight (48) hour period to submit a
written rejection or acceptance, the Remaining Parties will be deemed to have
joined in the withdrawal, and Article 15.2.1 (Unanimous Withdrawal) will apply.
15.2.4. Effects of Withdrawal. Except as otherwise provided in
this Agreement, after giving a withdrawal notice or a written notice to join in
the withdrawal, the Withdrawing Party and Other Withdrawing Parties are not
entitled to approve or participate in any activity or operation in the Lease,
other than those activities or operations for which they retain a financial
30
MODEL FORM OF OFFSHORE OPERATING AGREEMENT
responsibility. The Withdrawing Party and Other Withdrawing Parties shall take
all necessary steps to accomplish their withdrawal by the effective date
referred to in Article 15.1 (Right to Withdraw) and shall execute and deliver to
the Remaining Parties all necessary instruments to assign their Working Interest
to the Remaining Parties. A Withdrawing Party and Other Withdrawing Parties
shall bear all expenses associated with their withdrawal and the transfer of
their Working Interest.
15.3 Limitation Upon and Conditions of Withdrawal.
15.3.1. Prior Expenses. The Withdrawing Party and Other
Withdrawing Parties remain liable for their Participating Interest share of the
costs of activities, operations, rentals, royalties, taxes, damages, or other
liability or expense accruing or relating to (i) obligations existing as of the
effective date of the withdrawal, (ii) operations conducted before the effective
date of the withdrawal, (iii) operations approved by the Withdrawing Party and
Other Withdrawing Parties before the effective date of the withdrawal, or (iv)
operations commenced by the Operator under one of its discretionary powers under
this Agreement before the effective date of the withdrawal. Before the effective
date of the withdrawal, the Operator shall render a statement to the Withdrawing
Party and Other Withdrawing Parties for (1) their respective shares of all
identifiable costs under this Article 15.3.1 and (2) their respective
Participating Interest shares of the estimated current costs of plugging and
abandoning all ▇▇▇▇▇ and removing all Platforms, Processing Facilities, and
other materiel and equipment serving the Lease, less their respective
Participating Interest Shares of the estimated salvage value of the assets at
the time of abandonment, as approved by vote. This statement of expenses, costs,
and salvage value shall be prepared by the Operator under Exhibit "C." Before
withdrawing, the Withdrawing Party and Other Withdrawing Parties shall either
pay the Operator, for the benefit of the Remaining Parties, the amounts
allocated to them in the statement or provide security satisfactory to the
Remaining Parties for all obligations and liabilities they have incurred and all
obligations and liabilities attributable to them before the effective date of
the withdrawal. All liens, charges, and other encumbrances which the Withdrawing
Party and Other Withdrawing Parties placed (or caused to be placed) on their
Working Interest shall be fully satisfied or released prior to the effective
date of its withdrawal (unless the Remaining Parties are willing to accept the
Working Interest subject to those liens, charges, and other encumbrances).
15.3.2. Confidentiality. The Withdrawing Party and Other
Withdrawing Parties will continue to be bound by the confidentiality provisions
of Article 1.3 (Confidentiality) after the effective date of the withdrawal but
will have no further access to technical information relating to activities or
operations under this Agreement. The Withdrawing Party and Other Withdrawing
Parties are not required to return to the Remaining Parties Confidential Data
acquired prior to the effective date of the withdrawal.
15.3.3. Emergencies and Force Majeure. No Party may withdraw
during a Force Majeure or emergency that poses a threat to life, safety,
property or the environment but may withdraw from this Agreement after
termination of the Force Majeure or emergency. The Withdrawing Party and Other
Withdrawing Parties remain liable for their share of all costs and liabilities
arising from the Force Majeure or emergency, including but not limited to the
drilling of relief ▇▇▇▇▇, containment and cleanup of oil spills and pollution,
and all costs of debris removal made necessary by the Force Majeure or
emergency.
ARTICLE 16
RENTALS, ROYALTIES, AND OTHER PAYMENTS
16.1 Overriding Royalty and Other Burdens. If the Working Interest or
Participating Interest of a Party is subject to an overriding royalty,
production payment, net profits interest, mortgage, lien, security interest, or
other burden or encumbrance, other than lessor's royalty, the Party so burdened
shall pay and bear all liabilities and obligations created or secured by the
burden or encumbrance and shall indemnify and bold the other Parties harmless
from all claims and demands for payment asserted by the owners of the burdens or
encumbrances. If a Party becomes entitled to an assignment under this Agreement
or as a result of Non-consent Operations hereunder becomes entitled to receive a
relinquished interest, as provided in Article 13.2 (Relinquishment of Interest),
otherwise belonging to a Non-participating Party whose Working Interest in the
operations is so burdened or encumbered, the Party entitled to receive the
assignment from the Non-participating Party or the relinquished interest of the
Non-participating Party's Hydrocarbon production shall receive same free and
clear of all such burdens and encumbrances, and the Non participating Party
31
MODEL FORM OF OFFSHORE OPERATING AGREEMENT
whose interest is subject to the burdens and encumbrances shall hold the
Participating Parties harmless for the burdens and encumbrances, and will bear
same at its own expense.
16.2 Subsequently Created Interest. Notwithstanding anything in this
Agreement to the contrary, if a Party after execution of this Agreement, creates
an overriding royalty, Hydrocarbon production payment, net profits interest,
carried interest; or any other interest out of its Working Interest (hereinafter
called "Subsequently Created Interest"), the Subsequently Created Interest shall
be made specifically subject to this Agreement. If the Party owning the interest
from which the Subsequently Created Interest was established fails to pay, when
due, its share of costs and the proceeds from the sale of Hydrocarbon production
under Exhibit "F" and Article 8.6 (Security Rights) are insufficient for that
purpose, or elects to abandon a well, or elects to relinquish its interest in
the Lease, the Subsequently Created Interest shall be chargeable with a pro rata
portion of all costs in the same manner as if the Subsequently Created Interest
were a Working Interest and Operator may enforce against the Subsequently
Created Interest the lien and other rights granted or recognized under this
Agreement to secure and enforce collection of costs chargeable to the
Subsequently Created Interest. The rights of the owner of the Subsequently
Created Interest shall be, and hereby are, subordinated to the rights granted or
recognized by Exhibit "F' and Article 8.6 (Security Rights).
16.3 Payment of Rentals and Minimum Royalties. Operator shall pay in
a timely manner, for the joint account of the Parties, all rentals, minimum
royalties, and other similar payments accruing under the Lease and shall, on
request, submit evidence of each such payment to the Parties. Operator
shall not be held liable to the other Parties in damages for loss of the Lease
or interest therein if, through mistake or oversight, a rental, minimum royalty,
or other payment is-not paid or is erroneously paid. The loss of a Lease or
interest therein resulting from a failure to pay or erroneous payment of rental
or minimum royalty shall be a joint loss, and there shall be no readjustment of
interests. For Hydrocarbon production delivered in kind by Operator to a
Non-operator or to another for the account of a Non operator, the Non-operator
shall provide Operator with information about the proceeds or value of the
Hydrocarbon production in order that Operator may make payments of minimum
royalties due.
16.4 Non-participation in Payments. A Party that desires not to pay
its share of a rental, minimum royalty, or similar payment shall notify the
other Parties in writing at least sixty (60) days before the payment is due.
Operator shall then make the payment for the benefit of the Parties that do
desire to maintain the Lease. In such event, the Non-participating Party shall
assign to the Participating Parties, upon their request the portions of its
interest in the Lease maintained by the payment. The assigned interest shall be
owned by each Participating Party in proportion to its Participating Interest.
The assignment shall be made in accordance with Article 26 (Successors and
Assigns).
16.5 Royalty Payments. Each Party shall be responsible for and shall
separately bear and properly pay or cause to be paid all royalty and other
amounts due on Hydrocarbon production in accordance with state or federal
regulations, as maybe amended from time-to-time. Adjustments shall be made among
the Parties in accordance with Exhibit 'B" (Gas Balancing Agreement). During a
period when Participating Parties in a Non-consent Operation are receiving a
Non-participating Party's share of Hydrocarbon production, the Participating
Parties shall bear and properly pay or cause to be paid the Lease royalty on the
Hydrocarbon production, and shall hold the Non-participating Parties harmless
from liability for the payment
ARTICLE 17
TAXES
17.1 Property Taxes. Operator shall render property covered by this
Agreement for ad valorem taxation, if applicable, and shall pay the property
taxes for the benefit of each Party. Operator shall charge each Party its
share of the tax payments. If the ad valorem taxes are based in whole or in part
upon separate valuations of each Party's Working Interest then notwithstanding
anything in this Agreement to the contrary, each Party's share of property taxes
shall be in proportion to the tax value generated by that Party's Working
Interest.
17.2 Contest of Property Tax Valuation. Operator shall timely and
diligently protest to a final determination each tax valuation it deems
unreasonable. Pending such determination, Operator may elect to pay under
protest. Upon final determination, Operator shall pay the taxes and the interest
penalties, and costs accrued as a result of the protest in either event,
Operator shall charge each Party its share.
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MODEL FORM OF OFFSHORE OPERATING AGREEMENT
17.3 Production and Severance Taxes. Each Party shall pay, or cause
to be paid, all production and severance taxes due on Hydrocarbon production
that it receives under this Agreement
17.4 Other Taxes and Assessments. Operator shall pay other applicable
taxes (other than income taxes, excise taxes, or other similar types of taxes)
or assessments and charge each Party its share.
ARTICLE 18
INSURANCE
18.1 Insurance. Operator shall provide and maintain the insurance
prescribed in Exhibit "B" and charge those costs to the Joint Account. No other
insurance shall be carried for the benefit of the Parties under this
Agreement; except as provided in Exhibit "B."
18.2 Bonds. Operator shall obtain and maintain all bonds or financial
guarantees required by an applicable law, regulation or rule. The costs of those
bonds or financial guarantees acquired exclusively for the conduct of activities
and operations under this Agreement shall be charged to the Joint Account,
including an amount equivalent to the reasonable cost of that bond or financial
guarantee if Operator provides that bond or guarantee itself and does not engage
a third party to do so. Operator shall require all contractors to obtain and
maintain all bonds required by an applicable law, regulation or rule.
ARTICLE 19
LIABILITY, CLAIMS, AND LAWSUITS
19.1 Individual Obligations. The obligations, duties, and liabilities
of the Parties under this Agreement are several, not joint or collective.
Nothing in this Agreement shall ever be construed as creating a partnership of
any kind, joint venture, agency relationship, association, or other character of
business entity recognizable in law for any purpose. In their relations with
each other under this Agreement, the Parties shall not be considered to be
fiduciaries or to have established a confidential relationship, except as
specifically provided in Article 7.3 (Confidentiality) and Article 7.4 (Limited
Disclosure), but rather shall be free to act at arm's length in accordance with
their own respective self-interests. Each Party shall hold all other Parties
harmless from liens and encumbrances on the Lease arising as a result of its
acts.
19.2 Notice of Claim or Lawsuit. If, on account of a matter involving
activities or operations under this Agreement, or affecting the Lease, a claim
is made against a Party, or if a party outside of this Agreement files a lawsuit
against a Party, or if a Party files a lawsuit, or if a Party receives notice of
a material administrative or judicial hearing or other proceeding, that Party
shall give written notice of the claim, lawsuit, hearing, or proceeding
("Claim") to the other Parties as soon as reasonably practicable.
19.3 Settlements. The Operator may settle a Claim, or multiple Claims
arising out of the same incident; involving activities or operations under this
Agreement or affecting the Lease, if the aggregate expenditure does not exceed
Fifty Thousand ($50,000.00) and if the payment is in complete settlement of
these Claims. If the amount required for settlement exceeds this amount; the
Parties shall determine the further handling of the Claims under Article 19.4
(Defense of Claims and Lawsuits).
19.4 Defense of Claims and Lawsuits. The Operator shall supervise the
handling, conduct, and prosecution of all Claims involving activities or
operations under this Agreement or affecting the Lease. Claims may be settled in
excess of the amount specified in Article 19.3 (Settlements) if the settlement
is approved by vote in accordance with Article 6.1.2 of the Participating
Parties in the activity or operation out of which the Claim arose, but a Party
may independently settle a Claim or the portion of a Claim which is attributable
to its Participating Interest share alone as long as that settlement does not
directly adversely affect the interest or rights of the other Participating
Parties. No charge shall be made for services performed by the staff attorneys
of a Party, but all other expenses incurred by the Operator in the prosecution
or defense of Claims for the Parties, together with the amount paid to discharge
a final judgment are costs and shall be paid by the Parties in proportion to
their Participating Interest share in the activity or operation out of which the
Claim arose. The employment of outside counsel, but not the selection of that
counsel, requires approval by vote of the Participating Parties in the activity
or operation out of which the Claim arose. If the use of outside counsel is
approved, the fees and expenses incurred as a result thereof shall be charged to
the Parties in proportion to their Participating Interest share in the activity
33
MODEL FORM OF OFFSHORE OPERATING AGREEMENT
or operation out of which that Claim arose. Each Party has the right to hire its
own outside counsel at its sole cost with respect to its own defense.
19.5 Liability for Damages. Unless specifically provided otherwise in
this Agreement, liability for losses, damages, costs, expenses or Claims
involving activities or operations under this Agreement or affecting the Lease
which are not covered by or in excess of the insurance carried for the Joint
Account shall be bore by each Party in proportion to its Participating Interest
share in the activity or operation out of which that liability arises, except
that when liability results from the gross negligence or willful misconduct of a
Party, that Party shall be solely responsible for liability resulting from its
gross negligence or willful misconduct.
19.6 Indemnification for Non-Consent Operations. To the extent
allowed by law, the Participating Parties will hold the Non-participating
Parties (and their Affiliates, agents, insurers, directors, officers, and
employees) harmless and release, defend, and indemnity them against all claims,
demands, liabilities, regulatory decrees, and liens for environmental pollution
and property damage or personal injury, including sickness and death, caused by
or otherwise arising out of Non-consent Operations, and any loss and cost
suffered by a Non-participating Party as an incident thereof except where that
loss or cost results from the sole, concurrent or joint negligence, fault or
strict liability of that Non-participating Party, in which case each Party shall
pay or contribute to the settlement or satisfaction of judgment in the
proportion that its negligence, fault or strict liability caused or contributed
to the incident. If an indemnity in this Agreement is determined to violate law
or public policy, that indemnity shall then be enforceable only to the maximum
extent allowed by law.
19.7 Damage to Reservoir, Loss of Reserves and Profit.
Notwithstanding any contrary provision of this Agreement, no Party is liable to
any other Party for damage to a reservoir, loss of Hydrocarbons, loss of
profits, or other consequential damages, damages for business interruption, or.
punitive damages, except if that damage or loss arises from a Party's gross
negligence or willful misconduct, nor does a Party indemnify any other Party for
that damage or loss.
19.8 Non-Essential Personnel. A Non-operator that requests
transportation or access to a drilling rig, Platform, vessel, or other
facility used for activities or operations under this Agreement shall hold the
other Parties harmless and shall release, defend, and indemnify them against (i)
all claims, demands, and liabilities for property damage and (ii) all claims,
demands, and liabilities for any loss or cost suffered by a Party as an incident
thereof including, but not limited to, sickness and death, caused by or
otherwise arising out of that transportation or access, or both, except if that
loss or cost results from the gross negligence or willful misconduct of the
Party so indemnified and protected.
ARTICLE 20
INTERNAL REVENUE PROVISION
20.1 Internal Revenue Provision. Notwithstanding any provision in
this Agreement to the effect that the rights and liabilities of the Parties are
several, not joint or collective, and that the Agreement and the activities and
operations under this Agreement do not constitute a partnership under state law,
each Party elects to not be excluded from the application of all or any part of
the provisions of Subchapter K, Chapter 1, Subtitle A, of the Internal Revenue
Code of 1986, as amended, or similar provisions of applicable state laws
regardless of whether for federal income tax purposes this Agreement and the
activities and operations under this Agreement are regarded as a partnership.
ARTICLE 21
CONTRIBUTIONS
21.1 Notice of Contributions Other Than Advances for Sale of
Production. Each Party shall promptly notify the other Parties of all offers of
contributions that it may obtain, or contributions it is attempting to obtain,
for drilling a well on the Lease. Payments received as consideration for
entering into a contract for the sale of Hydrocarbon production from the Lease,
loans, and other financial arrangements shall not be considered contributions
for the purpose of this Article 22. No Party shall release or obligate itself to
release Confidential Data in return for a contribution from a third party for
drilling a well without prior written consent of the Participating Parties or
Parties having the right to participate in the well.
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MODEL FORM OF OFFSHORE OPERATING AGREEMENT
21.2 Cash Contributions. If a Party receives a cash contribution for
drilling a well on the Lease, the cash contribution shall be paid to Operator
and Operator shall credit the amount thereof to the Parties in proportion to
their Participating Interests in the well. If the well is a Non-consent Well,
the amount of the contribution shall be deducted from the cost specified in
Article 13.2.1(A) before computation of the amount to be recouped out of
Hydrocarbon production.
21.3 Acreage Contributions. If a Party receives an acreage
contribution for the drilling of a well on the Lease, the acreage contribution
shall be shared by each Participating Party that accepts it in proportion to its
Participating Interest in the well. As between the Participating Parties, this
Agreement shall apply separately to the acreage.
ARTICLE 22
DISPOSITION OF PRODUCTION
22.1 Take-in-Kind Facilities. A Party may, at its sole cost and risk,
construct Take-in-Kind Facilities to take its share of Hydrocarbon production in
kind.
22.2 Duty to Take in Kind. Each Party shall own and, at its own cost
and risk, shall take in kind or separately dispose of its share of the oil, gas,
and condensate produced and saved from the Lease, exclusive of Hydrocarbon
production used by Operator in developing and producing operations, subject to
this Article 22. In order to avoid interference with operations on or regarding
the Platform, the Processing Facilities, and the Lease, a Party exercising its
right to construct Take-in Kind Facilities (`the Take in Kind Party") shall
provide the operator with a list of equipment it deems necessary for its Take in
Kind Facilities ("the Equipment") along with its notice informing the Operator
of its election to take in kind. The Operator shall purchase the Equipment and
install it on behalf of the Take in Kind Party at the Take in Kind Party's sole
risk and cost, including, but not limited to, any fees, penalties or other costs
incurred as a result of any cancellation of placed orders as may be requested by
the Take in Kind Party. The Take in Kind Party shall have the right, upon
providing the Operator with two week's written notice prior to a scheduled order
of Equipment, to stop or postpone the Operator's placing of the scheduled order.
The cancellation provisions contained in any Equipment order shall be similar in
all material respects to the cancellation provisions used by the operator for
similar project equipment orders. The Operator shall provide the Take in Kind
Party with monthly updates on the progress of the ordering and installation of
the Take in Kind Facilities. The Operator, based on the instructions of Take in
Kind Party, shall install and operate all of the Equipment. The Operator shall
not be responsible for any losses or damages to the Equipment or the Take in
Kind Party's Hydrocarbon production metered, treated, processed or transported
by the Equipment unless such losses or damages are the result of the Operator's
gross negligence or willful misconduct.
22.3 Failure to Take in Kind, Notwithstanding Article 22.2 (Duty to Take
in Kind), if a Party fails to take in kind or dispose of its share of the oil,
gas or condensate produced and saved from the Lease, Operator shall have the
right, but not the obligation, subject to revocation at will by the Party owning
the oil, gas or condensate production, to purchase for its own account, sell to
others, or otherwise dispose of all or part of the oil, gas or condensate
production at the same price at which Operator calculates and pays lessor's
royalty on its own portion of the oil, gas or condensate production. Operator
shall notify the non-taking Party when the option is exercised. A purchase or
sale by Operator of any other Party's share of the oil, gas or condensate
production shall be for such reasonable periods of time as arc consistent with
the minimum needs of the industry under the circumstances, but in no event shall
a contract be for a period in excess of one (1) year. Proceeds of the oil, gas
or condensate purchased, sold, or otherwise disposed of by Operator under this
Article 22.3 shall be paid to the Party that had, but did not exercise, the
right to take in kind and separately dispose of the oil, gas or condensate.
Operator, in disposing of another Party's oil, gas or condensate, shall not be
responsible for making any filing with regulatory agencies not required by law
to be made by it in respect to another Party's share of oil, gas or condensate.
Unless required by governmental authority having jurisdiction or by judicial
process, no Party shall be forced to share an available market with a non-taking
Party. If for any reason a Party fails to take or market its full share of gas
as produced, that Party may later take, market, or receive a cash accounting for
its full share in accordance with Exhibit "E."
22.4 Expenses of Delivery in Kind. A cost that is incurred by
Operator in making delivery of a Party's share of oil, gas, or condensate or
disposing of same shall be paid by the Party.
35
MODEL FORM OF OFFSHORE OPERATING AGREEMENT
ARTICLE 23
APPLICABLE LAW
23.1 Applicable Law. This Agreement shall be governed by and
construed, interpreted, and applied under the laws of Texas, excluding choice of
law rules that would refer the matter to the laws of another jurisdiction.
ARTICLE 24
LAWS, REGULATIONS, AND NONDISCRIMINATION
24.1 Laws and Regulations. This Agreement and operations under this
Agreement are subject to applicable laws, rules, regulations, and orders. A
provision of this Agreement found to be contrary to or inconsistent with any
such law, rule, regulation, or order shall be deemed to have been modified
accordingly.
24.2 Nondiscrimination. In performing work under this Agreement, the
Parties shall comply and Operator shall require each independent contractor to
comply with the governmental requirements in Exhibit "D" and with Articles
202(1) to (7), inclusive, of Executive Order 11246, as amended.
ARTICLE 25
FORCE MAJEURE
25.1 Force Majeure. If a Party is unable, wholly or in part because
of a Force Majeure, to carry out its obligations under this Agreement, other
than the obligation to make money payments, such Party shall give the other
Parties prompt written notice of the Force Majeure with full particulars about
it. Effective upon the date notice is given, the obligations of the Party, so
far as they are affected by the Force Majeure, shall be suspended during, but no
longer than, the continuance of the Force Majeure. Time is of the essence in the
performance of this Agreement, and every reasonable effort will be made by the
Party to avoid delay or suspension of any work or acts to be performed under
this Agreement The requirement that the Force Majeure be remedied with all
reasonable dispatch shall not require a Party to settle strikes or other labor
difficulties.
ARTICLE 26
SUCCESSORS AND ASSIGNS
26.1 Transfer of Interest. Except as provided in 26.1.1 (Exceptions
to Prior Written Notice), a Transfer of Interest shall be preceded by written
notice to the Operator and the other Parties ("the transfer notice"). Any
Transfer of Interest shall be made to a party financially capable of assuming
the corresponding obligations under this Agreement. No Transfer of Interest
shall release a Party from its obligations and liabilities under this Agreement,
and the security rights under Exhibit "F" and Article 8.6 (Security Rights)
shall continue to burden the Working Interest transferred and to secure the
payment of those obligations and liabilities.
26.1.1 Exceptions to Transfer Notice. Notwithstanding any
contrary provision of this Agreement, the transfer notice is not required when a
Party proposes to mortgage, pledge, hypothecate or grant a security interest in
all or a portion of its Working Interest (including Assignments of Hydrocarbon
production executed as further security for the debt secured by that security
device), any ▇▇▇▇▇, Platforms, Processing Facilities or other equipment.
However, an encumbrance arising from the financing transaction shall be
expressly made subject and subordinated to this Agreement.
26.1.2. Effective Date of Transfer of Interest. The effective date of a
Transfer of Interest shall be at least sixty (60) days, but not more than one
hundred eighty (180) days, after the date of the transfer notice. No
Transfer of Interest, other than those provided in Article 15.1 (Right to
Withdraw) and Article 26.1.1 (Exceptions to Prior Written Notice), is binding
upon the Parties unless and until (i) the assignor or assignee provides all
remaining Parties with a photocopy of a fully executed Transfer of Interest, an
executed MMS Form 1123, "Designation of Operator" and a designation of oil spill
responsibility form and (ii) evidence of receipt of all necessary approvals by
the MMS. The Parties shall promptly undertake all reasonable actions necessary
to secure those approvals and shall execute and deliver all documents necessary
to effectuate that Transfer of Interest. All costs attributable to a Transfer of
Interest are the sole obligation of the assigning Party.
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MODEL FORM OF OFFSHORE OPERATING AGREEMENT
26.1.3 Form of Transfer of Interest. Any Transfer of
Interest shall incorporate provisions that the Transfer of Interest is
subordinate to and made expressly subject to this Agreement and provide for the
assumption by the assignee of the performance of all of the assigning Party's
obligations under this Agreement. Any Transfer of Interest not in compliance
with this provision is voidable by the non-assigning Parties.
26.1.4. Warranty. Any Transfer of Interest, vesting or
relinquishment of Working Interest between the Parties under this Agreement
shall be made without warranty of title.
26.1.5. Completion of Transfer of Interest. If the proposed
Transfer of Interest is not executed and filed of record with the MMS within six
(6) months after receipt of the transfer notice by the non-assigning Parties, or
if the term of the proposed Transfer of Interest conveyance are materially
altered, the proposed Transfer of Interest shall be deemed withdrawn.
ARTICLE 27
ADMINISTRATIVE PROVISIONS
27.1 Term. This Agreement shall remain in effect so long as a Lease
remains in effect and thereafter until (a) all ▇▇▇▇▇ have been abandoned and
plugged or turned over to the Parties owning an interest in the Lease on which
the ▇▇▇▇▇ are located; (b) all Platforms, Processing Facilities, and equipment
have been disposed by the Operator in accordance Article 14 (Abandonment,
Salvage, and Surplus); (c) all Claims as defied in Article 19 (Liability,
Claims, and Lawsuits) have been settled or otherwise disposed of; and (d) there
has been a final accounting and settlement. In accordance with Article 4.5
(Selection of Successor Operator), this Agreement will also terminate if no
Party is willing to become operator, effective after all conditions in clauses
(a) through (d) above have been completed. Termination of this Agreement shall
not relieve a Party of a liability or obligation accrued or incurred before
termination and is without prejudice to all continuing confidentiality
obligations or other obligations in this Agreement.
27.2 Waiver. A term, provision, covenant, representation, warranty,
or condition of this Agreement may be waived only by written instrument executed
by the Party waiving compliance. The failure or delay of a Party in
the enforcement or exercise of the rights granted under this Agreement
shall not constitute a waiver of said rights nor shall it be considered as a
basis for estoppel, Time is of the essence in the performance of this Agreement
and all time limits shall be strictly construed and enforced.
27.3 Waiver of Right to Partition. Each Party waives the right to
bring an action for partition of its interest in the Lease, ▇▇▇▇▇, Platform,
Processing Facilities, and other equipment held under this Agreement, and
covenants that during the existence of this Agreement it shall not resort at any
time to an action at law or in equity to partition any or all of the Leases and
lands or personal property subject to this Agreement.
27.4 Compliance With Laws and Regulations. This Agreement, and all
activities or operations conducted by the Parties under this Agreement, are
expressly subject to, and shall comply with, all laws, orders, rules, and
regulations of all federal, state, and local governmental authorities having
jurisdiction over the Lease.
27.4.1. Severance of Invalid Provisions. If, for any reason
and for so long as, a clause or provision of this Agreement is held by a court
of competent jurisdiction to be illegal, invalid, unenforceable or
unconscionable under a present or future law (or interpretation thereof), the
remainder of this Agreement will not be affected by that illegality or
invalidity. An illegal or invalid provision will be deemed severed from this
Agreement, as if this Agreement had been executed without the illegal or invalid
provision. The surviving provisions of this Agreement will remain in full force
and effect unless the removal of the illegal or invalid provision destroys the
legitimate purposes of this Agreement; in which event this Agreement shall be
null and void.
27.4.2. Fair and Equal Employment. Each of the Parties is an
Equal Opportunity Employer, and the equal opportunity provisions of 30 CFR 270
and 41 CFR 60-1 are incorporated in this Agreement by reference. The affirmative
action clauses concerning disabled veterans and veterans of the Vietnam era (41
CFR 60250) and the affirmative action clauses concerning employment of the
handicapped (41 CFR 60-741) are also incorporated in this Agreement by
reference. In performing work under this Agreement, the Parties shall comply
37
MODEL FORM OF OFFSHORE OPERATING AGREEMENT
with (and the Operator shall require each independent contractor to comply with)
the governmental requirements in Exhibit "D" that pertain to non-segregated
facilities,
27.5. Construction and Interpretation of this Agreement
27.5.1. Headings for Convenience. Except for the definition
headings in Article 2 (Definitions), all the table of contents, captions,
numbering sequences, and paragraph headings in this Agreement are inserted for
convenience only and do not define, expand or limit the scope, meaning, or
intent of this Agreement.
27.5.2 Article References. Except as otherwise provided in
this Agreement, each reference to an article of this Agreement includes all of
the referenced article and its sub-articles.
27.5.3. Gender and Number. The use of pronouns in whatever
gender or number is a proper reference to the Parties to this Agreement though
the Parties may be individuals, business entities, or groups thereof. Reference
in this Agreement to the singular of a noun or pronoun includes the plural and
vice versa.
27.5.4. Joint Preparation. This Agreement shall be deemed for
all purposes to have been prepared through the joint efforts of the Parties and
shall not be construed for or against one Party or the other as a result of the
preparation, submittal, drafting, execution or other event of negotiation
hereof.
27.5.5. Integrated Agreement. This Agreement contains the
final and entire agreement of the Parties for the matters covered by this
Agreement and, as such, supersedes all prior written or oral communications and
agreements. This Agreement may not be modified or changed except by written
amendment signed by the Parties.
27.5.6 Binding Effect. To the extent it is assignable, this
Agreement shall bind and inure to the benefit of the Parties and their
respective successors and assigns, and shall constitute a covenant running with
the land comprising the Lease. This Agreement does not benefit or create any
rights in a person or entity that is not a Party to this Agreement.
27.5.7. Further Assurances. Each Party will take all actions
necessary and will sign all documents necessary to implement this Agreement.
Except as otherwise provided in this Agreement, within (30) days after their
receipt of a valid written request for those documents from a Party, all other
Parties shall prepare and execute the documents.
27.5.8. Counterpart Execution. This Agreement may be executed
by signing the original or a counterpart. If this Agreement is executed in
counterparts, all counterparts taken together shall have the same effect as if
all Parties had signed the same agreement. No Party shall be bound to this
Agreement until all Parties have executed a counterpart or the original of this
Agreement. This Agreement may also be ratified by a separate instrument that
refers to this Agreement and adopts by reference all provisions of this
Agreement. Ratification shall have the same effect as an execution of this
Agreement.
27.5.9. Other Agreement. This Agreement is subject to the
terms and conditions of that certain Participation Agreement dated January 17,
2006 ("Participation Agreement'), by and between the Parties. In the event of
conflict between this Agreement and the Participation Agreement, the provisions
of the Participation Agreement shall prevail.
IN WITNESS WHEREOF, this Agreement has been executed by the Parties as
of the year and day first written above.
WITNESSES: NEWFIELD EXPLORATION COMPANY (Operator)
/s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇ /s/ ▇.▇. ▇▇▇▇▇▇▇▇▇▇▇
-------------------- --------------------
Printed Name: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇ ▇.▇ ▇▇▇▇▇▇▇▇▇▇▇
--------------- Attorney-in-Fact
/s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇
------------------
Printed Name: ▇▇▇▇▇ ▇. ▇▇▇▇▇
--------------
38
MODEL FORM OF OFFSHORE OPERATING AGREEMENT
NON-OPERATORS:
RIDGEWOOD ENERGY CORPORATION
/s/ (Signature illegible) /s/ W. ▇▇▇▇ ▇▇▇▇▇
------------------------ -------------------------------
Printed Name:(illegable) Name: W. ▇▇▇▇ ▇▇▇▇▇
Title: Executive Vice President
/s/ ▇▇▇▇▇ ▇▇▇▇▇
---------------
Printed Name: ▇▇▇▇▇ ▇▇▇▇▇
/s/ (Signature illegible)
-------------------------
Printed Name:(illegable)
NORTHSTAR GULFSANDS, LLC
----------------------
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
Vice President-Land
---------------------------------
Printed Name: ___________________
---------------------------------
Printed Name: ___________________
39
MODEL FORM OF OFFSHORE OPERATING AGREEMENT
EXHIBIT "A"
Attached to and made a part of that certain Operating Agreement dated
effective January 17, 2006, between Newfield Exploration Company, as Operator,
and Ridgewood Energy Corporation and Northstar Gulfsands, LLC, as Non-Operators.
I. The Contract Area of the Operating Agreement covers the following
-----------------------------------------------------------------
described Lease(s):
-------------------
Oil and Gas Lease dated February 1, 1971, bearing serial number OCS-G 02023, by
and between the United States of America, as Lessor, and Texas Eastern
Exploration Co., et al, as Lessees, covering all of Block 593, West Cameron
Area, South Addition, OCS Leasing Map, Louisiana Map No. ▇▇▇▇, INSOFAR AND ONLY
INSOFAR AS said lease covers and affects the South Half (S/2) of said Block 593,
containing approximately 5,000 acres.
II. Interests of the Parties in the Contract Area:
-----------------------------------------------
Newfield Exploration Company 50.00000%
Ridgewood Energy Corporation 43.28499%
Northstar Gulfsands, LLC 6.71501%
III. The Operator for the Lease shall be:
------------------------------------
Newfield Exploration Company
IV. Notification and addresses of the designated representatives are as
-------------------------------------------------------------------------
follows:
--------
Newfield Exploration Company
▇▇▇ ▇. ▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
Telephone:(▇▇▇) ▇▇▇-▇▇▇▇
Facsimile:(▇▇▇) ▇▇▇-▇▇▇▇
Email: ▇▇▇▇▇▇▇▇▇@▇▇▇▇▇▇▇▇.▇▇▇
Ridgewood Energy Corporation
▇▇▇▇▇ ▇▇▇ ▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇ ▇▇▇▇▇
Telephone (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
Email: ▇▇▇▇▇▇@▇▇▇▇▇▇▇▇▇▇▇▇▇▇▇.▇▇▇
Northstar Gulfsands, LLC
▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
Email: ▇▇▇▇▇▇@▇▇▇▇▇▇▇▇▇▇▇▇▇▇.▇▇▇
End of Exhibit "A"
40
MODEL FORM OF OFFSHORE OPERATING AGREEMENT
EXHIBIT "B"
Attached to and made a part of that certain Operating Agreement dated
effective January 17, 2006, between Newfield Exploration Company, as
Operator, and Ridgewood Energy Corporation and Northstar Gulfsands, LLC, as
Non-Operators.
INSURANCE PROVISIONS
--------------------
1. Operator shall carry the following insurance for the joint account:
a. Workmen's Compensation and Employer's Liability Insurance covering
employees of Operator engaged in operations hereunder in compliance with
all applicable State and Federal Laws. The Workmen's Compensation policy
shall have attached the "Longshoreman's Harbor Workers Compensation Act
(Federal) Endorsement" and "Outer Continental Shelf Lands Endorsement".
b. Contingent Maritime Employer's Liability Insurance shall provide for a
limit of liability of not less than $1,000,000 per accident.
2. Each PARTY shall self-insure or carry the insurance noted below with the
minimum limits as set out:
a. General Liability Insurance covering operations conducted
hereunder with a combined single limit each occurrence of
$1,000,000 for bodily injury and property damage, including:
i. Premises and Operations coverages.
ii. Independent Contractor's Contingent coverage.
iii. Contractual Liability covering liabilities assumed under
this Operating Agreement.
iv. Products and Completed Operations coverage.
v. Coverage for explosion, collapse and underground resources
and property damage under both Premises/Operations and
Contractual Liability coverage parts, where applicable.
vi. Broad Form Property Damage Liability endorsement.
vii. Personal Injury Liability.
viii. In Rem endorsement.
ix. Territorial extension shall cover all work areas.
x. Where applicable, coverage for liability resulting from the
consumption of food prepared or served by contractor or
subcontractor.
xi. Watercraft exclusion deleted or Protection & Indemnity
provided.
xii. Coverage is provided for "Action Over" suits.
xiii. Coverage is silent as respects Punitive Damages.
xiv. Sudden and Accidental Pollution Liability Coverage.
41
MODEL FORM OF OFFSHORE OPERATING AGREEMENT
xv. Coverage for Offshore/Marine Operations.
b. Commercial Automobile Liability Insurance covering owned,
non-owned and hired automobiles with a combined single limit of
$1,000,000 per occurrence and Property Damage Insurance covering
operations conducted hereunder with a combined single limit each
occurrence of $500,000 for bodily injury and property damage.
c. Excess Liability Insurance, including sudden and accidental
pollution liability, with a limit of $25,000,000.00.
d. Non-Owned Aircraft Liability Insurance with a limit of
$5,000,000 each occurrence.
e. Insurance for Control of Well, Redrilling and Restoration due to
blowout and/or catering above or below surface, and Seepage and
Pollution Liability coverage including cleanup and containment
with a minimum limit of $25,000,000 per occurrence. Coverage
shall also include Care Custody and Control Insurance with a
minimum limit of $500,000 per occurrence.
3. Any PARTY hereto may acquire such additional insurance as it deems
proper to protect itself against any claims, losses, damages or
destruction arising out of operations hereunder.
4. Operator shall use reasonable efforts to require all contractors and
subcontractors working or performing services hereunder to comply with
the Workmen's Compensation and Employer's Liability Laws, both State
and Federal, and to carry Comprehensive General Liability and such
other insurance as Operator deems necessary.
5. In the event that construction operations are performed, Operator
shall determine the amount(s) of Builder's Risks Insurance appropriate
for the project and shall: (i) cause the pertinent contractor(s) and,
as applicable, subcontractor(s) to carry, in the aggregate and as
Operator deems appropriate, such coverage and/or (ii) carry for the
joint account (and charge it accordingly) for such portion of, of all,
the coverage as operator deems appropriate. In any such event,
Operator shall cause certificates of insurance reflective of such
coverage to be forwarded to the Non-Operator(s).
6. Once offshore properties are installed, each Party must carry its own
Physical Damage Insurance for its own insurable interest to be
effective at the expiration date of the Builder's Risk Policy.
End of Exhibit "B"
42
MODEL FORM OF OFFSHORE OPERATING AGREEMENT
EXHIBIT "C"
Attached to and made a part of that certain Operating Agreement dated
effective January 17, 2006, between Newfield Exploration Company, as Operator,
and Ridgewood Energy Corporation and Northstar Gulfsands, LLC, as Non-Operators.
ACCOUNTING PROCEDURE
OFFSHORE JOINT OPERATIONS
I. GENERAL PROVISIONS
1. Definitions
"Joint Property" shall mean the real and personal property subject to
the Agreement to which this Accounting Procedure is attached.
"Joint Operations" shall mean all operations necessary or proper for the
development, operation, protection and maintenance of the Joint Property.
"Joint Account" shall mean the account showing the charges paid and
credits received in the conduct of the Joint Operations and which are to
be shared by the Parties.
"Operator" shall mean the party designated to conduct the Joint
Operations.
"Non-Operators" shall mean the Parties of this Agreement other than the
Operator.
"Parties" shall mean Operator and Non-Operators.
"First Level Supervisors" shall mean those employees whose primary
function in Joint Operations is the direct supervision of other employees
and/or contract labor directly employed on the Joint Property in a field
operating capacity. The First Level Supervisor shall not be required to
be located on the Joint Property, but shall be located at a field
location near the Joint Property.
"Technical Employees" shall mean those employees having special and
specific engineering, geological or other professional skills, and whose
primary function in Joint Operations is the handling of specific
operating conditions and problems for the benefit of the Joint Property.
"Personal Expenses" shall mean travel and other reasonable reimbursable
expenses of Operator's employees.
"Material" shall mean personal property, equipment or supplies acquired
or held for use on the Joint Property.
"Controllable Material" shall mean Material, which at the time is so
classified in the Material Classification Manual as most recently
recommended by the Council of Petroleum Accountants Societies.
"Shore Base Facilities" shall mean onshore support facilities that
during drilling, development, maintenance and producing operations
provide such services to the Joint Property as receiving and
transshipment point for supplies, materials and equipment, debarkation
point for drilling and production personnel and services; communication,
scheduling and dispatching center; other associated functions benefiting
the Joint Property.
"Offshore Facilities" shall mean platforms and support systems such as
oil and gas handling facilities, living quarters, offices, shops, cranes,
electrical supply equipment and systems, fuel and water storage and
piping, heliport, marine docking installations, communication facilities,
navigation aids, and other similar facilities necessary in the conduct of
offshore operations.
2. Statements and ▇▇▇▇▇▇▇▇
Operator shall ▇▇▇▇ Non-Operators on or before the last day of each
month for their proportionate share of the Joint Account for the
preceding month. Such bills will be accompanied by statements which
identify the authority for expenditure, lease or facility, and all
charges and credits, summarized by appropriate classifications of
investment and expense except that items of Controllable Material and
unusual charges and credits shall be separately identified and fully
described in detail.
43
MODEL FORM OF OFFSHORE OPERATING AGREEMENT
3. Advances and Payments by Non-Operators
A. Unless otherwise provided for in the Agreement, the Operator may
require the Non-Operators to advance their share of estimated cash
outlay for the succeeding month's operation within fifteen (15) days
after receipt of the billing or by the first day of the month for
which the advance is required, whichever is later. Operator shall
adjust each monthly billing to reflect advances received from the
Non-Operators.
B. Each Non-Operator shall pay its proportion of all bills within fifteen
(15) days after receipt. If payment is not made within such time, the
unpaid balance shall bear interest monthly at the prime rate in effect
at Chase Manhattan Bank on the first day of the month in which
delinquency occurs plus 1% or the maximum contract rate permitted by
the applicable usury laws of the jurisdiction in which the Joint
Property is located, whichever is the lesser, plus attorney's fees,
court costs, and other costs in connection with the collection of
unpaid amounts.
4. Adjustments
Payment of any such bills shall not prejudice the right of any
Non-Operator to protest or question the correctness thereof; provided,
however, all bills and statements rendered to Non-Operators by Operator
during any calendar year shall conclusively be presumed to be true and
correct after twenty-four (24) months following the end of any such
calendar year, unless within the said twenty-four (24) month period a
Non-Operator takes written exception thereto and makes claim on Operator
for adjustment. No adjustment favorable to Operator shall be made
unless it is made within the same prescribed period. The provisions of
this paragraph shall not prevent adjustments resulting from a physical
inventory of Controllable Material as provided for in Section V.
5. Audits
A. A Non-Operator, upon notice in writing to Operator and all other
Non-Operators, shall have the right to audit Operator's accounts and
records relating to the Joint Account for any calendar year within the
twenty-four (24) month period following the end of such calendar year;
provided, however, the making of an audit shall not extend the time
for the taking of written exception to and the adjustments of accounts
as provided for in Paragraph 4 of this Section I. Where there are two
or more Non-Operators, the Non-Operators shall make every reasonable
effort to conduct a joint audit in a manner which will result in a
minimum of inconvenience to the Operator. Operator shall bear no
portion of the Non-Operators' audit cost incurred under this paragraph
unless agreed to by the Operator. The audits shall not be conducted
more than once each year without prior approval of Operator, except
upon the resignation or removal of the Operator, and shall be made at
the expense of those Non-Operators approving such audit.
B. The Operator shall reply in writing to an audit report within 180 days
after receipt of such report.
6. Approval by Non-Operators
Where an approval or other agreement of the Parties or Non-Operators is
expressly required under other sections of this Accounting Procedure and
if the agreement to which this Accounting Procedure is attached contains
no contrary provisions in regard thereto, Operator shall notify all
Non-Operators of the Operator's proposal, and the agreement or approval
of a majority in interest of the Non-Operators shall be controlling on
all Non-Operators.
II. DIRECT CHARGES
Operator shall charge the Joint Account with the following items:
1. Rentals and Royalties
Lease rentals and royalties paid by Operator for the Joint Operations.
2. Labor
A. (l) Salaries and wages of Operator's field employees directly employed
on the Joint Property In the conduct of Joint Operations.
(2) Salaries and wages of Operator's employees directly employed on Shore
Base Facilities or other Offshore Facilities serving the Joint
Property if such costs are not charged under Paragraph 7 of this
Section H.
(3) Salaries of First Level Supervisors in the field.
(4) Salaries and wages of Technical Employees directly employed on the
Joint Property if such charges are excluded from the Overhead rates.
44
MODEL FORM OF OFFSHORE OPERATING AGREEMENT
(5) Salaries and wages of Technical Employees either temporarily or
permanently assigned to and directly employed in the operation of the
Joint Property if such charges are excluded from the overhead rates.
B. Operator's cost of holiday, vacation, sickness and disability benefits
and other customary allowances paid to employees whose salaries and
wages are chargeable to the Joint Account under Paragraph 2A of this
Section I. Such costs under this Paragraph 2B may be charged on a
"when and as paid basis" or by "percentage assessment" on the amount
of salaries and wages chargeable to the Joint Account under Paragraph
2A of this Section I. If percentage assessment is used, the rate shall
be based on the Operator's cost experience.
C. Expenditures or contributions made pursuant to assessments imposed by
governmental authority which are applicable to Operator's costs
chargeable to the Joint Account under Paragraphs 2A and 2B of this
Section 11.
D. Personal Expenses of those employees whose salaries and wages are
chargeable to the Joint Account under Paragraph 2A of this Section U.
3. Employee Benefits
Operators current costs of established plans for employees' group life
insurance, hospitalization, pension, retirement, stock purchase, thrift,
bonus, and other benefit plans of a like nature, applicable to Operator's
labor cost chargeable to the Joint Account under Paragraphs 2A and 2B of
this Section I shall be Operator's actual cost not to exceed the percent
most recently recommended by the Council of Petroleum Accountants
Societies.
4. Material
Material purchased or furnished by Operator for use on the Joint Property
as provided under Section IV. Only such Material shall be purchased for
or transferred to the Joint Property as may be required for immediate use
and is reasonably practical and consistent with efficient and economical
operations. The accumulation of surplus stocks shall be avoided. However,
all surplus material purchased for the Joint Account will remain charged
to the Joint Account until disposition of such surplus materials by
Operator. Operator shall use its best efforts to dispose of such surplus
materials on a reasonable and timely basis; however Operator shall
consult with and obtain a Non-Operator's consent provided Non-Operator's
consent is received within five (5)days after receipt of notice from
Operator of its intent to. dispose of such surplus material(s). Failure
by Non-Operator to provide Operator with its consent within said five 5
days shall be an indication that Non-Operator consents or approves
of the disposal of said surplus material.
5. Transportation
Transportation of employees and Material necessary for the Joint
Operations but subject to the following limitations:
A. If Material is moved to the Joint Property from the Operator's
warehouse or other properties, no charge shall be made to the Joint
Account for a distance greater than the distance from the nearest
reliable supply store where like material is normally available or
railway receiving point nearest the Joint Property unless agreed to by
the Parties.
B. If surplus Material is moved to Operator's warehouse or other storage
point, no charge shall be made to the Joint Account for a distance
greater than the distance to the nearest reliable supply store where
like material is normally available, or railway receiving point
nearest the Joint Property unless agreed to by the Parties. No charge
shall be made to the Joint Account for moving Material to other
properties belonging to Operator, unless agreed to by the Parties.
C. In the application of subparagraphs A and B above, the option to
equalize or charge actual trucking cost is available when the actual
charge is $400 or less excluding accessorial charges. The $400 will be
adjusted to the amount most recently recommended by the Council of
Petroleum Accountants Societies.
6. Services
The cost of contract services, equipment and utilities provided by
outside sources, except services excluded by Paragraph 9 of Section II
and Paragraphs i and ii of Section III. The cost of professional
consultant services and contract services of technical personnel directly
engaged on the Joint Property if such charges are excluded from the
overhead rates. The cost of professional consultant services or contract
services of technical personnel directly engaged in the operation of the
Joint Property shall be charged to the Joint Account if such charges are
excluded from the overhead rates.
7. Equipment and Facilities Furnished by Operator
A. Operator shall charge the Joint Account for use of Operator-owned
equipment and facilities, including Shore Base and/or Offshore
Facilities, at rates commensurate with costs of ownership and
45
MODEL FORM OF OFFSHORE OPERATING AGREEMENT
operation. Such rates may include labor, maintenance, repairs, other
operating expense, insurance, taxes, depreciation and interest on
gross investment less accumulated depreciation not to exceed ten
percent (10%) per annum. In addition, for platforms only, the rate
may include an element of the estimated cost of platform
dismantlement. Such rates shall not exceed average commercial rates
currently prevailing in the immediate area of the Joint Property.
B. In lieu of charges in Paragraph 7A above, Operator may elect to use
average commercial rates prevailing in the immediate area of the Joint
Property less twenty percent (20%). For automotive equipment, Operator
may elect to use rates published by the Petroleum Motor Transport
Association.
8. Damages and Losses to Joint Property
All costs or expenses necessary for the repair or replacement of Joint
Property made necessary because of damages or losses incurred by fire,
food, storm, theft, accident, or other causes, except those resulting
from Operator's gross negligence or willful misconduct. Operator shall
furnish Non-Operator written notice of damages or losses incurred as
soon as practicable after a report thereof has been received by
Operator.
9. Legal Expense
Expense of handling, investigating and settling litigation or claims,
discharging of liens, payments of judgments and amounts paid for
settlement of claims incurred in or resulting from operations under
the Agreement or necessary to protect or recover the Joint Property,
except that no charge for services of Operator's legal staff or fees
or expense of outside attorneys shall be made unless previously agreed
to by the Parties. All other legal expense is considered to be covered
by the overhead provisions of Section III unless otherwise agreed to
by the Parties, except as provided in Section I, Paragraph 3.
10. Taxes
All taxes of every kind and nature assessed or levied upon or in
connection with the Joint Property, the operation thereof, or the
production therefrom, and which taxes have been paid by the Operator for
the benefit of the Parties. If the ad valorem taxes are based in whole or
in part upon separate valuations of each party's working interest, then
notwithstanding anything to the contrary herein, charges to the Joint
Account shall be made and paid by the Parties hereto in accordance with
the tax value generated by each party's working interest.
11. Insurance
Net premiums paid for insurance required to be carried for the Joint
Operations for the protection of the Parties. In the event Joint
Operations are conducted at offshore locations in which Operator may act
as self-insurer for Workers' Compensation and Employers' Liability,
Operator may include the risk under its self-insurance program in
providing coverage under State and Federal laws and charge the Joint
Account at Operator's cost not to exceed manual rates.
12. Communications
Costs of acquiring, leasing, installing, operating, repairing and
maintaining communication systems including radio and microwave
facilities between the Joint Property and the Operator's nearest Shore
Base Facility. In the event communication facilities systems serving the
Joint Property are Operator-owned, charges to the Joint Account shall be
made as provided in Paragraph 7 of this Section II.
13. Ecological and Environmental
Costs incurred on the Joint Property as a result of statutory regulations
for archaeological and geophysical surveys relative to identification and
protection of cultural resources and/or other environmental or ecological
surveys as may be required by the Minerals Management Service or other
regulatory authority. Also, costs to provide or have available pollution
containment and removal equipment plus costs of actual control and
cleanup and resulting responsibilities of oil spills as required by
applicable laws and regulations.
14. Abandonment and Reclamation
Costs incurred for abandonment of the Joint Property, including costs
required by governmental or other regulatory authority.
15. Other Expenditures
Any other expenditure not covered or dealt with in the foregoing
provisions of this Section II, or in Section III and which is of direct
benefit to the Joint Property and is incurred by the Operator in the
necessary and proper conduct of the Joint Operations.
46
MODEL FORM OF OFFSHORE OPERATING AGREEMENT
III. OVERHEAD
As compensation for administrative, supervision, office services and warehousing
costs, Operator shall charge the Joint Account in accordance with this Section
III.
Unless otherwise agreed to by the Parties, such charge shall be in lieu of costs
and expenses of all offices and salaries or wages plus applicable burdens and
expenses of all personnel, except those directly chargeable under Section II.
The cost and expense of services from outside sources in connection with matters
of taxation, traffic, accounting or matters before or involving governmental
agencies, except as herein described, shall be considered as included in the
overhead rates provided for in this Section III unless such cost and expense are
agreed to by the Parties as a direct charge to the Joint Account.
i. Except as otherwise provided in Paragraph 2 of this Section III, the
salaries, wages and Personal Expenses of Technical Employees and/or
the cost of professional consultant services and contract services of
technical personnel directly employed on the Joint Property:
(_) shall be covered by the overhead rates.
(x) shall not be covered by the overhead rates.
ii. Except as otherwise provided in Paragraph 2 of this Section III, the
salaries, wages and Personal Expenses of Technical Employees and/or
costs of professional consultant services and contract services of
technical personnel either temporarily or permanently assigned to and
directly employed in the operation of the Joint Property:
(x) shall be covered by the overhead rates.
(_) shall not be covered by the overhead rates.
1. Overhead - Drilling and Producing Operations
As compensation for overhead incurred in connection with drilling and
producing operations, Operator shall charge on either:
(x) Fixed Rate Basis, Paragraph 1A, or
(_) Percentage Basis, Paragraph 1B
A. Overhead - Fixed Rate Basis
(1) Operator shall charge the Joint Account at the following rates per
well per month: Drilling Well Rate $30,000.00 (Prorated for less than a
full month) Producing Well Rate $3,000.00
(2) Application of Overhead - Fixed Rate Basis for Drilling Well Rate
shall be as follows:
(a) Charges for drilling ▇▇▇▇▇ shall begin on the date when drilling
or completion equipment arrives on location and terminate on the
date the drilling or completion equipment moves off location or
rig is released, whichever occurs first, except that no charge
shall be made during suspension of drilling operations for fifteen
(15) or more consecutive calendar days.
(b) Charges for ▇▇▇▇▇ undergoing any type of workover or recompletion
for a period of five (5) consecutive work days or more shall be
made at the drilling well rate. Such charges shall be applied for
the period from date workover operations, with rig or other units
used in workover, commence through date of rig or other unit
release, except that no charge shall be made during suspension
of operations for fifteen (15) or more consecutive calendar days.
(3) Application of Overhead - Fixed Rate Basis for Producing Well Rate
shall be as follows:
(a) An active well either produced or injected into for any portion of
the month shall be considered as a one-well charge for the entire
month.
(b) Each active completion in a multi-completed well in which
production is not commingled down hole shall be considered as a
one-well charge providing each completion is considered a separate
well by the governing regulatory authority.
(c) An inactive gas well shut in because of overproduction or failure
of purchaser to take the production shall be considered as a
one-well charge providing the gas well is directly connected to a
permanent sales outlet.
47
MODEL FORM OF OFFSHORE OPERATING AGREEMENT
(d) A one-well charge shall be made for the month in which plugging
and abandonment operations are completed on any well. This
one-well charge shall be made whether or not the well has produced
except when drilling well rate applies.
(e) All other inactive ▇▇▇▇▇ (including but not limited to inactive
▇▇▇▇▇ covered by unit allowable, lease allowable, transferred
allowable, etc.) shall not qualify for an overhead charge.
(4) The well rates shall be adjusted as of the first day of April each
year following the effective date of the agreement to which this
Accounting Procedure is attached. The adjustment shall be computed by
multiplying the rate currently in use by the percentage increase or
decrease in the average weekly earnings of Crude Petroleum and Gas
Fields Production Workers for the last calendar year compared to the
calendar year preceding as shown by the index of average weekly
earnings of Crude Petroleum and Gas Fields Production Workers as
published by the United States Department of Labor, Bureau of Labor
Statistics, or the equivalent Canadian index as published by
Statistics Canada, as applicable. The adjusted rates shall be the
rates currently in use, plus or minus the computed adjustment.
B. Overhead - Percentage Basis
(1) Operator shall charge the Joint Account at the following rates:
(a) Development
_______________Percent (______%) of cost of Development of the
Joint Property exclusive of costs provided under Paragraph 9 of
Section II and all salvage credits.
(b) Operating
_______________Percent (______ %) of the cost of Operating the
Joint Property exclusive of costs provided under Paragraphs 1 and 9 of
Section II, all salvage credits, the value of injected substances
purchased for secondary recovery and all taxes and assessments which are
levied, assessed and paid upon the mineral interest in and to the Joint
Property.
(2) Application of Overhead - Percentage Basis shall be as follows:
For the purpose of determining charges on a percentage basis under
Paragraph 1B of this Section III, development shall include all costs in
connection with drilling, redrilling, deepening, or any project with a
primary purpose to extend or expand a wellbore in order to recover new
reserves not previously recoverable by the wellbore; also, preliminary
expenditures necessary in preparation for drilling and expenditures
incurred in abandoning when the well is not completed as a producer, and
original cost of construction or installation of fixed assets, the
expansion of fixed assets and any other project clearly discernible
as a fixed asset, except Major Construction as defined in Paragraph 2 of
this Section III. All other costs shall be considered as Operating except
that catastrophe costs shall be assessed overhead as provided in Section
III, Paragraph 3.
2. Overhead - Major Construction
A. If the Operator absorbs the engineering, design and drafting costs
related to the project:
(1) 5 % of total costs if such costs are more than $50,000 but less
------- than $100,000; plus
(2) 3 % of total costs in excess of $100,000 but less than
------- $1,000,000; plus
(3) 2 % of total costs in excess of $1,000,000.
-------
B. If the Operator charges engineering, design and drafting costs
related to the project directly to the Joint Account:
(1) 4 % of total costs if such costs are more than$ 50,000 but less
------- than $100,000; plus
(2) 2 % of total costs in excess of $100,000 but less than
------- $1,000,000; plus
(3) 2 % of total costs in excess of $1,000,000.
------
Total cost shall mean the gross cost of any one project. For the purpose of this
paragraph, the component parts of a single project shall not be treated
separately and the cost of drilling and workover ▇▇▇▇▇ and artificial lift
equipment shall be excluded.
On each project, Operator shall advise Non-Operator(s) in advance which of the
above options shall apply. In the event of any conflict between the provisions
of this paragraph and those provisions under Section I, Paragraph 2 or Paragraph
6, the provisions of this paragraph shall govern.
48
MODEL FORM OF OFFSHORE OPERATING AGREEMENT
3. Overhead - Catastrophe
To compensate Operator for overhead costs incurred in the event of
expenditures resulting from a single occurrence due to oil spill,
blowout, explosion, fire, storm, hurricane, or other catastrophes as
agreed to by the Parties, which are necessary to restore the Joint
Property to the equivalent condition that existed prior to the event
causing the expenditures, Operator shall either negotiate rate prior to
charging the Joint Account or shall charge the Joint Account for
overhead based on the following rates:
(1) 5 % of total costs through $100,000; plus
------
(2) 3 % of total costs in excess of $100,000 but less than
------ $1,000,000; plus
(3) 2 % of total costs in excess of $1,000,000.
------
Expenditures subject to the overheads above will not be reduced by
insurance recoveries, and no other overhead provisions of this Section
III shall apply.
4. Amendment of Rates
The Overhead Parties hereto if, in practice, the rates are found to be
insufficient or excessive rates provided for in this Section III may be
amended from time to time only by mutual agreement between the Parties.
IV. PRICING OF JOINT ACCOUNT MATERIAL PURCHASES, TRANSFERS AND DISPOSITIONS
Operator is responsible for Joint Account Material and shall make proper
and timely charges and credits for all Material movements affecting the
Joint Property. Operator shall provide all Material for use on the Joint
Property; however, at Operator's option, such Material may be supplied by
the Non-Operator. Operator shall make timely disposition of idle and/or
surplus Material, such disposal being made either through sale to
Operator or Non-Operator, division in kind, or sale to outsiders.
Operator may purchase, but shall be under no obligation to purchase,
interest of Non-Operators in surplus condition A or B Material. The
disposal of surplus Controllable Material not purchased by the Operator
shall be agreed to by the Parties.
1. Purchases
Material purchased shall be charged at the price paid by Operator after
deduction of all discounts received. In case of Material found to be
defective or returned to vendor for any other reasons, credit shall be
passed to the Joint Account when adjustment has been received by the
Operator.
2. Transfers and Dispositions
Material furnished to the Joint Property and Material transferred from
the Joint Property or disposed of by the Operator, unless otherwise
agreed to by the Parties, shall be priced on the following basis
exclusive of cash discounts:
A. New Material (Condition A)
(1) Tubular Goods Other than Line Pipe
(a) Tubular goods, sized 2 3/8 inches OD and larger, except line
pipe, shall be priced at Eastern mill published carload base
prices effective as of date of movement plus transportation cost
using the 80,000 pound carload weight basis to the railway
receiving point nearest the Joint Property for which published
rail rates for tubular goods exist. If the 80,000 pound rail
rate is not offered, the 70,000 pound or 90,000 pound rail rate
may be used. Freight charges for tubing will be calculated
from Lorain, Ohio and casing from Youngstown, Ohio.
(b) For grades which are special to one mill only, prices shall be
computed at the mill base of that mill plus transportation cost
from that mill to the railway receiving point nearest the Joint
Property as provided above in Paragraph 2.A.(1)(a). For
transportation cost from points other than Eastern ▇▇▇▇▇, the
30,000 pound Oil Field Haulers Association interstate truck rate
shall be used.
49
MODEL FORM OF OFFSHORE OPERATING AGREEMENT
(c) Special end finish tubular goods shall be priced at the lowest
published out-of-stock price, f.o.b. Houston, Texas, plus
transportation cost, using Oil Field Haulers Association
interstate 30,000 pound truck rate, to the railway receiving
point nearest the Joint Property.
(d) Macaroni tubing (size less than 2 3/8 inch OD) shall be priced
at the lowest published out-of stock prices f.o.b. the supplier
plus transportation costs, using the Oil Field Haulers
Association interstate truck rate per weight of tubing
transferred, to the railway receiving point nearest the Joint
Property.
(2) Line Pipe
(a) Line pipe movements (except size 24 inch OD and larger with
walls 3/4 inch and Over) 30,000 pounds or more shall be priced
under provisions of tubular goods pricing in Paragraph A. (1)
(a) as provided above. Freight charges shall be calculated from
Lorain, Ohio.
(b) Line pipe movements (except size 24 inch OD and larger with
walls 3/4 inch and over) less than 30,000 pounds shall be priced
at Eastern mill published carload base prices effective as of
date of shipment, plus 20 percent, plus transportation costs
based on freight rates as set forth under provisions of
tubular goods pricing in Paragraph A. (1) (a) as provided above.
Freight charges shall be calculated from Lorain, Ohio.
(c) Line pipe 24 inch OD and over and 3/4 inch wall and larger shall
be priced f.o.b. the point of manufacture at current new
published prices plus transportation cost to the railway
receiving point nearest the joint Property.
(d) Line pipe, including fabricated line pipe, drive pipe and
conduit not listed on published price lists shall be priced at
quoted prices plus freight to the railway receiving point
nearest the Joint Property or at prices agreed to by the
Parties.
(3) Other Material shall be priced at the current new price, in effect
at date of movement, as listed by a reliable supply store nearest
the Joint Property, or point of manufacture, plus transportation
costs, if applicable, to the railway receiving point nearest the
Joint Property.
(4) Unused new Material, except tubular goods, moved from the Joint
Property shall be priced it the current new price, in effect on date
of movement, as listed by a reliable supply store nearest the Joint
Property, or point of manufacture, plus transportation costs, if
applicable, to the railway receiving point nearest the Joint
Property. Unused new tubulars will be priced as provided above in
Paragraph 2 A (1) and (2).
B. Good Used Material (Condition B)
Material in sound and serviceable condition and suitable for reuse
without reconditioning:
(1) Material moved to the Joint Property
At seventy-five percent (75%) of current new price, as determined by
Paragraph A.
(2) Material used on and moved from the Joint Property
(a) At seventy-five percent (75%) of current new price, as determined
by Paragraph A, if Material was originally charged to the Joint
Account as new Material or
(b) At sixty-five percent (65%) of current new price, as determined
by Paragraph A, if Material was originally charged to the Joint
Account as used Material.
(3) Material not used on and moved from the Joint Property
At seventy-five percent (75%) of current new price as determined by
Paragraph A.
The cost of reconditioning, if any, shall be absorbed by the
transferring property.
C. Other Used Material
(1) Condition C
Material which is not in sound and serviceable condition and not suitable
for its original function until after reconditioning shall be priced at
fifty percent (50%) of current new price as determined by Paragraph A.
The cost of reconditioning shall be charged to the receiving property,
provided Condition C value plus cost of reconditioning does not exceed
Condition B value.
50
MODEL FORM OF OFFSHORE OPERATING AGREEMENT
(
(2) Condition D
Material, excluding junk, no longer suitable for its original purpose,
but usable for some other purpose shall be priced on a basis commensurate
with its use. Operator may dispose of Condition D Material under
procedures normally used by Operator without prior approval of
Non-Operators.
(a) Casing, tubing, or drill pipe used as line pipe shall be priced
as Grade A and B seamless line pipe of comparable size and
weight. Used casing, tubing or drill pipe utilized as line pipe
shall be priced at used line pipe prices.
(b) Casing, tubing or drill pipe used as higher pressure service
lines than standard line pipe, e.g. power oil lines, shall be
priced under normal pricing procedures for casing, tubing, or
drill pipe. Upset tubular goods shall be priced on a non-upset
basis.
(3) Condition E
Junk shall be priced at prevailing prices. Operator may dispose of
Condition E Material under procedures normally utilized by Operator
without prior approval of Non-Operators.
D. Obsolete Material
Material which is serviceable and usable for its original function but
condition and/or value of such Material is not equivalent to that which
would justify a price as provided above may be specially priced as agreed
to by the Parties. Such price should result in the Joint Account being
charged with the value of the service rendered by such Material.
E. Pricing Conditions
(1) Loading or unloading costs may be charged to the Joint Account at
the rate of twenty-five cents ($0.25) per hundred weight on all
tubular goods movements, in lieu of actual loading or unloading
costs sustained at the stocking point. The above rate shall be
adjusted as of the first day of April each year following January 1,
1985 by the same percentage increase or decrease used to adjust
overhead rates in Section III, Paragraph I.A(4). Each year, the rate
calculated shall be rounded to the nearest cent and shall be
the rate in effect until the first day of April next year. Such rate
shall be published each year by the Council of Petroleum Accountants
Societies.
(2) Material involving erection costs shall be charged at applicable
percentage of the current knocked-down price of new Material.
3. Premium Prices
Whenever Material is not readily obtainable at published or listed prices
because of national emergencies, strikes or other unusual causes over which the
Operator has no control, the Operator may charge the Joint Account for the
required Material at the Operator's actual cost incurred in providing such
Material, in making it suitable for use, and in moving it to the Joint Property;
provided notice in writing is furnished to Non-Operators of the proposed charge
prior to billing Non-Operators for such Material. Each Non-Operator shall have
the right, by so electing and notifying Operator within ten days after receiving
notice from Operator, to furnish in kind all or part of his share of such
Material suitable for use and acceptable to Operator.
4. Warranty of Material Furnished By Operator
Operator does not warrant the Material furnished. In case of defective
Material, credit shall not be passed to the Joint Account until adjustment has
been received by Operator from the manufacturers or their agents.
V. INVENTORIES
The Operator shall maintain detailed records of Controllable Material.
1. Periodic Inventories, Notice and Representation
At reasonable intervals, inventories shall be taken by operator of the
Joint Account Controllable Material. Written notice of intention to take
inventory shall be given by Operator at least thirty (30) days before any
inventory is to begin so that Non-Operators may be represented when any
inventory is taken. Failure of Non-Operators to be represented at an
inventory shall bind Non-Operators to accept the inventory taken by
Operator.
51
MODEL FORM OF OFFSHORE OPERATING AGREEMENT
2. Reconciliation and Adjustment of Inventories
Adjustments to the Joint Account resulting from the reconciliation of a
physical inventory shall be made within six months following the taking
of the inventory, Inventory adjustments shall be made by Operator to the
Joint Account for overages and shortages, but, Operator shall be held
accountable only for shortages due to lack of reasonable diligence.
3. Special Inventories
Special inventories may be taken whenever there is any sale, change of
interest, or change of Operator in the Joint Property. It shall be the
duty of the party selling to notify all other Parties as quickly as
possible after the transfer of interest takes place. In such cases, both
the seller and the purchaser shall be governed by such inventory. In
cases involving a change of Operator, all Parties shall be governed by
such inventory.
4. Expense of Conducting Inventories
A. The expense of conducting periodic inventories shall not be charged
to the Joint Account unless agreed to by the Parties.
B. The expense of conducting special inventories shall be charged to the
Parties requesting such inventories, except inventories required due
to change of Operator shall be charged to the Joint Account.
End of Exhibit "C"
52
MODEL FORM OF OFFSHORE OPERATING AGREEMENT
EXHIBIT "D"
Attached to and made a part of that certain Operating Agreement dated
effective January 17, 2006, between Newfield Exploration Company, as
Operator, and Ridgewood Energy Corporation and Northstar Gulfsands, LLC, as
Non-Operators.
CERTIFICATION OF NONSEGREGATED FACILITIES
-----------------------------------------
Contractor certifies that it does not maintain or provide for its
employees any segregated facilities at any of its establishments and that it
does not permit its employees to perform their services at any location, under
its control, where segregated facilities are maintained. Contractor certifies
further that it will not maintain or provide for its employees any segregated
facilities at any of its establishments and that it will not permit its
employees to perform their services at any location, under its control, where
segregated facilities are maintained. Contractor agrees that a breach of this
certification is a violation of the Equal Opportunity Clause in any Government
contract between Contractor and Corporation. As used in this certification, the
term "segregated facilities" means any waiting rooms, work areas, rest rooms and
wash rooms, restaurants and other eating areas, time clocks, locker rooms and
other storage or dressing areas, parking lots, drinking fountains, recreation or
entertainment areas, transportation, and housing facilities provided for
employees which are segregated by explicit directive or are in fact segregated
on the basis of race, color, religion, or national origin, because of habit,
local customs or otherwise. Contractor further agrees that (except where it has
obtain identical certifications from proposed subcontractors for specific time
periods) it will obtain identical certifications from proposed subcontractors
prior to the award of subcontracts exceeding $10,000 which are not exempt from
the provisions of the Equal Opportunity Clause; that it will retain such
certifications in its files; and that it will forward the following notice to
such proposed subcontractors (except where the proposed subcontractors have
submitted identical certifications for specific time periods):
NOTICE TO PROSPECTIVE SUBCONTRACTORS OF REQUIREMENT FOR CERTIFICATIONS OF
NONSEGREGATED FACILITIES. A Certification of Non-segregated Facilities, as
required by the May 9, 1967, order on Elimination of Segregated Facilities,
by the Secretary of Labor (32 Fed. Reg. 7439, May 19, 1967), must be submitted
prior to the award of a subcontract exceeding $10,000, which is not exempt from
the provisions of the Equal Opportunity Clause. The certification may be
submitted either for each subcontract or for all subcontracts during a period
(i.e., quarterly, semi-annually or annually) (1968 MAR.) (Note: The penalty for
making false statements in offers is prescribed in 18 U.S.C. 1001.)
Whenever used in the foregoing Section, the term "contractor" refers to each
party to this Agreement.
End of Exhibit "D"
53
MODEL FORM OF OFFSHORE OPERATING AGREEMENT
EXHIBIT "E"
Attached to and made a part of that certain Operating Agreement dated
effective January 17, 2006, between Newfield Exploration Company, as
Operator, and Ridgewood Energy Corporation and Northstar Gulfsands, LLC, as
Non-Operators.
GAS BALANCING AGREEMENT
I. Definitions
-----------
A. "Agreement" shall mean this Gas Balancing Agreement.
B. "Balanced" is that condition which occurs when a party hereto has
taken the same percentage of the cumulative volume of Gas production
it is entitled to take pursuant to the terms of the Operating
Agreement.
C. "Gas" includes natural gas produced from a Well that produces Natural
Gas, including all constituent parts of such natural gas except
liquid hydrocarbons and condensate recovered by primary separation
equipment.
D. "Overproduced" is the status of a party when the percentage of the
cumulative volume of Gas taken by that party exceeds that part's
percentage interest of the volume of cumulative Gas production of all
parties to the Operating Agreement under and pursuant to the terms of
the Operating Agreement.
E. "Underproduced" is the status of a party when the percentage of
cumulative volume of Gas taken by that party is less than that
party's percentage interest of the volume of cumulative Gas
production of all parties to the Operating Agreement under and
pursuant to the terms of said Operating Agreement.
F. "Well" is defined as each well subject to the Operating Agreement
that produces Gas. If a single Well is completed in two or more
reservoirs, such Well shall be considered a separate Well with
respect to, but only with respect to, each reservoir from which the
Gas produced is not commingled in the well bore.
II. Application of this Agreement
------------------------------
The parties to the Operating Agreement own the working or operating
interests in the Gas underlying the LEASE covered by the Operating
Agreement and are entitled to share in the percentages therein stated in
the Operating Agreement.
In accordance with the terms of the Operating Agreement, each day each
party is responsible for marketing its share and shall take its full
share of Gas produced from the LEASE and market or otherwise dispose of
same, In the event a party hereto elects in writing not to take in kind
or market its full share o Gas or has contracted to sell its share of Gas
produced from the LEASE to a purchaser which, at any time while this
Agreement is in effect, fails to take the share of Gas attributable to
the interest of such party, the terms of this Agreement shall
automatically become effective, provided, however, that within
any given calendar month should one or more parties fail to take its
daily entitlement(s) of Gas then in order to allow the party(s) to get
back into balance within that month before implementation of this
provision Operator will first notify the underproduced party(s) and it
will fully utilize all pipeline operational flexibility afforded it, to
specifically include that allowed under a governing pipeline Operational
Balancing Agreement.
The Operator is responsible for administering the provisions of this
Agreement and as such shall have the sole option of administering all
reporting of the same for the parties or retaining the services of third
party professionals for this specific purpose. The costs of such third
party services by Operator shall be considered as included in the
overhead rates. The Operator shall cause deliveries to be made to the Gas
purchasers at such rates as may be required to give effect to the extent
practicable, to be or become Balanced.
The provisions of this Agreement shall be applied to the LEASE,
regardless of the number of ▇▇▇▇▇.
III. Storing and Making Up Gas Production
------------------------------------
A. Right to Take and Market Gas
----------------------------
During any periods or periods when any party hereto does not
take, has no market for, or the market of a party is not
sufficient to take, that party's full share of the Gas produced
from any Well located on the LEASE, or such party's
purchaser otherwise fails to take such party's share of Gas
produced from any such Well located on the LEASE, resulting in
such party becoming Underproduced (such party being herein
referred to as an "Underproduced Party"), the other party or
parties shall be entitled, but not required, to produce from
said Well on the LEASE (and take or deliver to their respective
purchaser(s)), each month all or a part of that portion of the
allowable
54
MODEL FORM OF OFFSHORE OPERATING AGREEMENT
Gas production assigned to such Well by the regulatory body having
jurisdiction. Any party so taking or delivering Gas which results in such
party becoming Overproduced is herein referred to as an "Overproduced
Party".
Those parties which are capable of taking and/or marketing quantities of
Gas allocable to an Underproduced Party, in the absence of any other
agreement between them, shall each take a share of the Gas attributed to
the Underproduced Party or Parties in the direct proportion that their
respective interests bear to the total interest of all parties taking Gas
which are also considered Overproduced.
All parties hereto shall share in and own the liquid hydrocarbons
recovered from such Gas by primary separation equipment in accordance
with their respective interests and subject to the terms of the
above-described Operating Agreement, whether or not such parties are
actually taking and/or marketing Gas at such time.
B. Making Up Underproduction
-------------------------
Any Underproduced Party shall endeavor to bring its taking of Gas into a
Balanced condition. Upon thirty (30) days prior written notice to the
Operator, any Underproduced Party may thereafter begin taking or
delivering to its purchaser its full share of the Gas produced from a
Well (less any used in operations, vented or lost). To balance the Gas
account of the parties in accordance with their respective interests,
Underproduced Party shall be entitled to take or deliver to a
purchaser its full share of Gas produced from such Well (less any used in
operations, vented or lost) plus, (i) for the months of March, April,
May, June, July, August, September and October only of any calendar year
during which this Agreement may be in place, an amount up to an
additional fifty percent (50%) of the monthly quantity of Gas
attributable to the Overproduced Party or Parties, or (ii) for the months
of November, December, January and February only of any calendar year or
years during which this Agreement may be in place, an amount up to an
additional twenty-five percent (25%) of the monthly quantity of Gas
attributable to the Overproduced Party or Parties. If more than one
Underproduced Party is entitled to take additional Gas, they shall divide
the additional Gas in proportion to their respective Underproduced
accounts. The first Gas made up shall be assumed to be the first Gas
Underproduced.
C. Gas Balance Reporting
---------------------
Each party taking will promptly provide to the Operator any data required
by the Operator for preparation of the statements required hereunder. The
Operator will maintain appropriate accounting on a monthly and cumulative
basis of the quantities of Gas each party is entitled to take and/or
market and the quantities of Gas taken and/or marketed by each of the
parties to their respective Gas purchasers. Within ninety (90) days after
the end of each producing calendar month, the Operator shall furnish each
party a statement showing the status of the Overproduced and
Underproduced accounts of all parties.
To determine respective volumes of Gas taken by separate gas pipelines
connected to the Well, measurement of Gas for overproduction and
underproduction shall be accomplished by use of sales meters and lease
measurement equipment, which shall be in accordance with AGA
requirements.
Each party to this Agreement agrees that it will not utilize any
information obtained hereunder for any purpose other than implementing or
administering the terms of this Agreement.
D. Royalty and Production Tax
---------------------------
At all times while Gas is produced from the LEASE, unless otherwise
required by any State or Federal law or regulations, each party shall pay
or cause to be paid all royalty due and payable on the actual volumes of
gas taken for its account. Each party agrees to hold each other party
harmless from any and all claims for royalty payments asserted by its
royalty owners. The term "royalty owner" shall include owners of royalty,
overriding royalties, production payments and similar interests payable
out of production.
Each party producing or taking or delivering Gas to its Gas purchaser
shall pay, or cause to be paid, all production and severance taxes due on
all volumes of Gas actually taken or sold by such party.
IV. Cash Settlement
---------------
A. Volume/Value
------------
If, at the permanent termination of production of Gas from the
LEASE, an imbalance exists between the parties, a cash settlement of
the imbalance between the parties relative to such LEASE shall be
made. The amount of the cash settlement will be limited to the
proceeds actually received by the Overproduced Party or Parties at
the time of overproduction, less transportation and applicable
treating charges and production and severance taxes paid on such
overproduction. Royalty shall only be deducted from such proceeds
attributable to the overproduction if actually paid to royalty
owners by the Overproduced Party or Parties. No interest shall be
55
MODEL FORM OF OFFSHORE OPERATING AGREEMENT
added to any cash settlement hereunder. If there is more than one
Overproduced Party, the cash settlement shall be based on a weighted
average of the proceeds actually received as above described by all
Overproduced Parties.
B. Collection and Distribution
---------------------------
Operator shall provide to all parties hereto within sixty (60) days
of permanent determination of Gas production a final accounting of
the Gas balance. Overproduced Parties, within thirty (30) days of
receipt of the final accounting of the Gas balance, shall pay their
respective shares of the above described cash settlement to the
Underproduced Parties in that proportion that each such Underproduced
Party's volume of gas in storage bears to the total of all Underproduced
Parties' volumes of gas in storage.
V. Miscellaneous
-------------
A. Term
----
This Agreement shall remain in force and effect as long as the
Operating Agreement to which it is attached remains in force and
effect, and thereafter until the Gas balance accounts between the
parties are settled in full, and shall inure to the benefit of and
be binding upon the parties hereto, their heirs, successors, legal
representatives and assigns.
B. Expenses
--------
Nothing herein shall change or affect each party's obligations to
pay its proportionate share of all costs and liabilities incurred
in operations on the LEASE as its share thereof is set forth in the
Operating Agreement to which this Agreement is attached.
C. Well Tests
----------
Nothing herein shall be construed to deny any party the right, from
time to time, to produce and take or deliver to its Gas purchaser
up to one hundred percent (100%) of the entire Well stream to meet
the deliverability test required by its Gas purchaser, provided
that such tests are reasonable in light of overall industry
standards.
D. Monitoring of Takes of Production
---------------------------------
Each party shall, at all times, use its best efforts to regulate
its takes and deliveries from each Well on the LEASE so that no
Well will be shut-in for overproducing the allowable assigned
thereto by the regulatory body having jurisdiction. Additionally,
each party shall communicate, as necessary, the contents of this
Agreement to its respective Gas purchaser(s) or transporter(s)
and shall monitor its deliveries to ifs respective Gas purchaser(s)
or transporter(s) so as to ensure to the greatest extent
practicable that its Gas purchaser(s) or transporter(s) does not
take Gas in excess of the quantities provided for herein.
E. Liquefiable Hydrocarbons Not Covered Under Agreement
----------------------------------------------------
The parties shall share proportionately in and own all liquid
hydrocarbons recovered with the Gas by lease equipment in
accordance with their respective interests.
End of Exhibit "E"
56
MODEL FORM OF OFFSHORE OPERATING AGREEMENT
EXHIBIT "F"
-----------
MEMORANDUM OF OPERATING AGREEMENT
---------------------------------
AND FINANCING STATEMENT
-----------------------
(Louisiana)
To be filed in the conveyance records and in the mortgage
records and as a non-standard financing statement in accordance
with Paragraph 11.0 herein.
1.0 This Memorandum of Operating Agreement and Financing Statement (this
"Memorandum") is effective as of the effective date of the Operating
Agreement referred to in Paragraph 2.0 below and is executed by Newfield
Exploration Company, (the "Operator"), whose mailing address is ▇▇▇ ▇.
▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇ and Ridgewood
Energy Corporation, whose address is ▇▇▇▇▇ ▇▇▇ ▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇ ▇▇▇,
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇ and Northstar Gulfsands, LLC, whose address is ▇▇
▇▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇ (the "Non-Operators").
2.0 The Operator and the Non-Operators are parties to that certain Operating
Agreement dated effective the 20th day of June, 2006 (the "Operating
Agreement") providing for the development and production of crude oil,
natural gas and associated substances from the lands and oil and gas
leases described in Exhibit "A" of the Operating Agreement (therein and
herein called the "Contract Area"), and described more particularly on
Attachment "1" to this Memorandum, and designating Newfield Exploration
Company as the Operator, to conduct such operations for itself and the
Non-Operators. Reference is made hereby to the Operating Agreement for
all purposes, and its terms and provisions are incorporated herein by
this reference to the same extent as if the Operating Agreement were
reproduced herein. Capitalized terms not otherwise defined herein
are defined and shall have the same meaning herein as set forth in the
Operating Agreement.
3.0 The Operator hereby certifies that a true and correct copy of the
Operating Agreement is on file and is available for inspection by third
parties at the offices of the Operator at the address set forth in this
Memorandum.
4.0 Among other provisions, the Operating Agreement (i) provides for certain
liens and' security interests to secure payment by the Parties of their
respective share of costs and performance of other obligations under the
Operating Agreement and contains a power of sale, (ii) contains an
Accounting Procedure, and (iii) includes non-consent clauses which
establish that Parties who elect not to participate in certain operations
shall be deemed to have relinquished their interest in production until
the carrying consenting Parties recover their costs of such operations
plus a specified amount, or in some cases to permanently forfeit their
interest in all or part of the Lease. Certain provisions of Section 8.6
of the Operating Agreement are set forth as follows:
Mortgage in Favor of the Operator. Each Non-Operator hereby grants
to the Operator a mortgage, hypothecate and pledge of and over all
of its rights, titles and interests in and to the (a) the Lease,
(b) the oil and gas in, on under and that may be produced from
the lands within the Lease and (c) all other immovable property
susceptible of mortgage situated within the Lease.
This mortgage is given to secure the complete and timely
performance of and payment by each Non-Operator of all obligations
and indebtedness of every kind and nature, whether now owned by
such Non-Operator or hereafter arising pursuant to this Agreement.
To the extent susceptible under applicable law, this mortgage and
the security interests granted in favor of the Operator herein
shall secure the payment of all costs and other expenses properly
charged to such Party, together with (A) interest on such
indebtedness, costs and other expenses at the rate set forth in
Exhibit "C" attached hereto (the "Accounting Procedure") or the
maximum rate allowed by law, whichever is the lesser, (B)
57
MODEL FORM OF OFFSHORE OPERATING AGREEMENT
reasonable attorneys' fees, (C) court costs and (D) other directly
related collection costs. If any Non-Operator does not pay such costs
and other expenses or perform its obligations under this Agreement
when due, the Operator shall have the additional right to notify the
purchaser or purchasers of the defaulting Non-Operator's Hydrocarbon
production and collect such costs and other expenses out of the
proceeds from the sale of the defaulting Non-Operator's Hydrocarbon
production until the amount owed has been paid. The Operator shall
have the right to offset the amount owed against the proceeds from
the sale of such defaulting Non-Operator's share of Hydrocarbon
production. Any purchaser of such production shall be entitled to
rely on the Operator's statement concerning the amount of costs and
other expenses owed by the defaulting Non-Operator and payment shall
be made to the Operator by any purchaser shall be binding and
conclusive as between such purchaser and such defaulting
Non-Operator.
The maximum amount for which the mortgage herein granted by each
Non-Operator shall be deemed to secure the obligations and
indebtedness of such Non-Operator to the Operator as stipulated
herein is hereby fixed in an amount equal to $25,000,000.00 (the
"Limit of the Mortgage of each Non-Operator"). Except as
provided in the previous sentence (and then only to the extent such
limitations are required by law), the entire amount of obligations
and indebtedness of each Non-Operator to the Operator is secured
hereby without limitation. Notwithstanding the foregoing Limit of the
Mortgage of each Non-Operator, the liability of each Non-Operator
under this Agreement and the mortgage and security interest granted
hereby shall be limited to (and the Operator shall not be entitled to
enforce the same against such Non-Operator for, an amount
exceeding) the actual obligations and indebtedness [including all
interest charges, costs, attorneys' fees, and other charges provided
for in this Agreement or in the Memorandum of Operating Agreement and
Financing Statement(Louisiana), as such term is defined in Article
8.6.1.4 (Recordation) hereof] outstanding and unpaid and that are
attributable to or charged against the interest of such Non-Operator
pursuant to this Agreement.
Security Interest in Favor of the Operator. To secure the complete
and timely performance of and payment by each Non-Operator of all
obligations and indebtedness of every kind and nature, whether now
owed by such Non-Operator or hereafter arising, pursuant to this
Agreement, each Non-Operator hereby grants to the Operator a
continuing security interest in and to all of its rights, titles,
interests, claims, general intangibles, proceeds, and products
thereof whether now existing or hereafter acquired, in and to (a) all
oil and gas produced from the lands or offshore blocks covered by the
Lease or attributable to the Lease when produced, (b) all accounts
receivable accruing or arising as a result of the sale of such oil
and gas (including, without limitation, accounts arising from gas
imbalances or from the sale of oil and gas at the wellhead),
(c) all cash or other proceeds from the sale of such oil and gas once
produced, and (d) all Platforms and Processing Facilities, ▇▇▇▇▇,
fixtures, other corporeal property, whether movable or immovable,
whether now or hereafter placed on the lands or offshore blocks
covered by the Lease or maintained or used in connection with the
ownership, use or exploitation of the Lease, and other surface and
sub-surface equipment of any kind or character located on or
attributable to the Lease and the cash or other proceeds realized
from the sale, transfer, disposition or conversion thereof. The
interest of the Non-Operators in and to the oil and gas produced from
or attributable to the Lease when extracted and the accounts
receivable accruing or arising as the result of the sale thereof
shall be financed at the wellhead of the well or ▇▇▇▇▇ located on
the Lease. To the extent susceptible under applicable law, the
security interest granted by each Non-Operator hereunder covers: (A)
all substitutions, replacements, and accessions to the property of
such Non-Operator described herein and is intended to cover all of
the rights, titles and interests of such Non-Operator in all movable
property now or hereafter located upon or used in connection with the
Lease, whether corporeal or incorporeal; (B) all rights under any gas
balancing agreement, farmout rights, option farmout rights, acreage
58
MODEL FORM OF OFFSHORE OPERATING AGREEMENT
and cash contributions, and conversion rights of such Non-Operator in
connection with the Lease, or the oil and gas produced from
or attributable to the Lease, whether now owned and existing or
hereafter acquired or arising, including, without limitation, all
interests of each Non-Operator in any partnership, tax partnership,
limited partnership, association, joint venture, or other entity or
enterprise that holds, owns, or controls any interest in the Lease;
and (C) all rights, claims, general intangibles, and proceeds,
whether now existing or hereafter acquired, of each Non-Operator in
and to the contracts, agreements, permits, licenses, rights-of-way,
and similar rights and privileges that relate to or are appurtenant
to the Lease, including the following:
(1) all of its rights, titles, and interests, whether now owned and
existing or hereafter acquired or arising, in, to, and under or
derived from any present or future operating, farmout, bidding,
pooling, unitization, and communitization agreements,
assignments, and subleases, whether or not described in
Attachment "l", to the extent, and only to the extent, that such
agreements, assignments, and subleases cover or include any of
its rights, titles, and interests, whether now owned and existing
or hereafter acquired or arising, in and to all or any portion of
the Lease, and all units created by any such pooling,
unitization, and communitization agreements and all units formed
under orders, regulations, rules, or other official acts of any
governmental authority having jurisdiction, to the extent and
only to the extent that such units cover or include all or any
portion of the Lease;
(2) all of its rights, titles, and interests, whether now owned and
existing or hereafter acquired or arising, in, to, and under or
derived from all presently existing and future advance payment
agreements, and oil, casinghead gas, and gas sales, exchange, and
processing contracts and agreements, including, without
limitation, those contracts and agreements that are described on
Attachment "l," to the extent, and only to the extent, those
contracts and agreements cover or include all or any portion of
the Lease; and
(3) all of its rights, titles, and interests, whether now owned and
existing or hereafter acquired or arising, in, to, and under or
derived from all existing and future permits, licenses,
rights-of-way, and similar rights and privileges that relate to
or are appurtenant to the Lease.
Mortgage in Favor of the Non-Operators. The Operator hereby grants to
each Non-Operator a mortgage, hypotheca, and pledge of and over all
of its rights, titles, and interests in and to (a) the Lease; (b) the
oil and gas in, on, under, and that my be produced from the lands
within the Lease; and (c) all other immovable property or other
property susceptible of mortgage situated within the Lease.
This mortgage is given to secure the complete and timely performance
of and payment by the Operator of all obligations and indebtedness of
every kind and nature, whether now owed by the Operator or hereafter
arising, pursuant to this Agreement. To the extent susceptible under
applicable law, this mortgage and the security interests granted in
favor of each Non-Operator herein, shall secure the payment of all
costs and other expenses properly charged to the Operator, together
with (A) interest on such indebtedness, costs, and other expenses at
the rate set forth in the Accounting Procedure or the maximum rate
allowed by law, whichever is the lesser, (B) reasonable attorneys'
fees, (C) court costs, and (D) other directly related collection
costs. If the Operator does not pay such costs and other expenses or
perform its obligations under this Agreement when due, the
Non-Operators shall have the additional right to notify the purchaser
or purchasers of the operator's Hydrocarbon production and collect
such costs and other expenses out of the proceeds from the sale of
the Operator's share of Hydrocarbon production until the amount owed
has been paid. The Non-Operators shall have the right to offset the
amount owed against the proceeds from the sale of the Operator's
share of Hydrocarbon production. Any purchaser of such production
shall be entitled to rely on the Non-Operators' statement concerning
59
MODEL FORM OF OFFSHORE OPERATING AGREEMENT
the amount of costs and other expenses owed by the Operator and
payment made to the Non-Operators by any purchaser shall be binding
and conclusive as between such purchaser and the Operator.
The maximum amount for which the mortgage herein granted by the
Operator shall be deemed to secure the obligations and indebtedness
of the Operator to all Non-Operators as stipulated herein is hereby
fixed in an amount equal to $25,000,000.00 in the aggregate (the
"Limit of the Mortgage of the Operator"). Except as provided in the
previous sentence (and then only to the extent such limitations are
required by law), the entire amount of obligations and indebtedness
of the Operator to the Non-Operators is secured hereby without
limitation. Notwithstanding the foregoing Limit of the Mortgage of
the Operator, the liability of the Operator under this Agreement and
the mortgage and security interest granted hereby shall be limited to
(and the Non-Operators shall not be entitled to enforce the same
against the Operator for, an amount exceeding) the actual obligations
and indebtedness [including all interest charges, costs, attorneys'
fees, and other charges provided for in this Agreement or in the
Memorandum of Operating Agreement and Financing Statement, as such
term is defined in Article 8.6.1.4 hereof] outstanding and unpaid and
that are attributable to or charged against the interest of the
Operator pursuant to this Agreement.
Security Interest in Favor of the Non-Operators. To secure the
complete and timely performance of and payment by the Operator of all
obligations and indebtedness of every kind and nature, whether now
owed by the Operator or hereafter arising, pursuant to this
Agreement, the Operator hereby grants to each Non-Operator a
continuing security interest in and to all of its rights, titles,
interests, claims, general intangibles, proceeds, and products
thereof whether now existing or hereafter acquired, in and to (a) all
oil and gas produced from the lands or offshore blocks covered by the
Lease or included within the Lease or attributable to the Lease when
produced, (b) all accounts receivable accruing or arising as a result
of the sale of such oil and gas (including, without limitation,
accounts arising from gas imbalances or from the sale of oil and gas
at the wellhead), (c) all cash or other proceeds from the
sale of such oil and gas once produced, and (d) all Platforms and
Processing Facilities, ▇▇▇▇▇, fixtures, other corporeal property
whether movable or immovable, whether now or hereafter placed on the
offshore blocks covered by the Lease or maintained or used in
connection with the ownership, use or exploitation of the Lease, and
other surface and sub-surface equipment of any kind or character
located on or attributable to the Lease and the cash or other
proceeds realized from the sale, transfer, disposition or conversion
thereof. The interest of the Operator in and to the oil and gas
produced from or attributable to the Lease when extracted and the
accounts receivable accruing or arising as the result of the sale
thereof shall be financed at the wellhead of the well or ▇▇▇▇▇
located on the Lease. To the extent susceptible under applicable law,
the security interest granted by the Operator hereunder covers:
(A) all substitutions, replacements, and accessions to the property of
the Operator described herein and is intended to cover all of the
rights, titles and interests of the Operator in all movable property
now or hereafter located upon or used in connection with the Lease,
whether corporeal or incorporeal; (B) all rights under any gas
balancing agreement, farmout rights, option farmout rights, acreage
and cash contributions, and conversion rights of the Operator in
connection with the Lease, the oil and gas produced from or
attributable to the Lease, whether now owned and existing or
hereafter acquired or arising, including, without limitation, all
interests of the Operator in any partnership, tax partnership,
limited partnership, association, joint venture, or other entity or
enterprise that holds, owns, or controls any interest in the Lease;
and (C) all rights, claims, general intangibles, and proceeds,
whether now existing or hereafter acquired, of the Operator in and to
the contracts, agreements, permits, licenses, rights-of-way,
and similar rights and privileges that relate to or are appurtenant
to the Lease, including the following:
▇▇
▇▇▇▇▇ ▇▇▇▇ ▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ AGREEMENT
(A) all of its rights, titles, and interests, whether now owned and
existing or hereafter acquired or arising, in to and under or
derived from any present of future operating, farm out bidding,
pooling, unitization and communitization agreements, assignments
and subleases, whether or not described in Attachment "1", to the
extent, and only to the extent, that such agreements, assignments
and subleases cover or include any of its rights, titles and
interests, whether now owned and existing or hereafter acquired
or arising, in and to all or any portion of the Lease, and all
units created by any such pooling, unitization and
communitization agreements and all units formed under orders,
regulations, rules or other official acts of any governmental
authority having jurisdiction, to the extent and only to the
extent that such units cover or include all or any portion of the
Lease.
(B) all of its rights, titles, and interests, whether now owned and
existing or hereafter acquired or arising, in, to, and under or
derived from all presently existing and future advance payment
agreements, and oil, casinghead gas, and gas sales, exchange, and
processing contracts and agreements, including, without
limitation, those contracts and agreements that are described on
Exhibit "A," to the extent, and only to the extent, those
contracts and agreements cover or include all or any portion of
the Lease; and
(C) all of its rights, titles, and interests, whether now owned and
existing or hereafter acquired or arising, in, to, and under or
derived from all existing and future permits, licenses,
rights-of-way, and similar rights and privileges that relate to
or are appurtenant to any of the Lease.
5.0 To provide evidence of, and to further perfect the Parties' security
rights created hereunder, upon request, each Party shall execute and
acknowledge the Memorandum of Operating Agreement and Financing Statement
attached as Exhibit "F" (the "Memorandum of Operating Agreement and
Financing Statement) in multiple counterparts as appropriate. The Parties
authorize the Operator to file the Memorandum of Operating Agreement and
Financing Statement in the public records set forth below to serve as
notice of the existence of this Agreement as a burden on the title of the
Operator and the Non-Operators to their interests in the Lease and for
purposes of satisfying otherwise relevant recording and fling
requirements of applicable law and to attach an original of the
Memorandum of Operating Agreement and Financing Statement to a standard
UCC-1 for filing in the UCC records set forth below to perfect the
security interests created by the Parties in this Agreement. Upon the
acquisition of a leasehold interest in the Lease, the Parties shall,
within five business days following request by one of the Parties hereto,
execute and furnish to the requesting Party for recordation such a
Memorandum of Operating Agreement and Financing Statement describing such
leasehold interest. Such Memorandum of Operating Agreement and Financing
Statement shall be amended from time to time upon acquisition of
additional leasehold interests in the Lease, and the Parties shall,
within five business days following request by one of the Parties hereto,
execute and furnish to the requesting Party for recordation any such
amendment.
The Memorandum of Operating Agreement and Financing Statement is to be
fled or recorded, as the case may be, in (a) the conveyance records of
the county or counties, parish or parishes adjacent to the lands or
offshore blocks covered by the Lease or contained within the Lease, (b)
the mortgage records of such county or counties, parish or parishes, and
(c) the appropriate Uniform Commercial Code records.
6.0 If payment of any indebtedness created under the Operating Agreement is
not made when due under the Operating Agreement, in addition to any other
remedyafforded by law, each Party to the Operating Agreement and any
successor to such Party by assignment, operation of law, or otherwise,
shall have, and is hereby given and vested with, the power and authority
to foreclose the lien and security interest established in its favor in
the Operating Agreement in the manner provided by law or therein and to
exercise all rights of a secured party under the Uniform Commercial Code.
61
MODEL FORM OF OFFSHORE OPERATING AGREEMENT
7.0 Upon expiration of the Operating Agreement and the satisfaction of all
obligations and indebtedness established thereunder, on behalf of all
Parties to the Operating Agreement, the Operator and the Non-Operators,
as appropriate, shall file of record an appropriate release and
termination of all security and other rights created under the Operating
Agreement and this Memorandum. Upon the fling of such release and
termination instrument, all benefits and obligations under this
Memorandum shall terminate as to all Parties who have executed or
ratified this Memorandum. In addition, at any time prior to the filing of
such release and termination instrument, the Operator and the
Non-Operators shall have the right to file a continuation statement
pursuant to the Uniform Commercial Code with respect to any financing
statement filed in their favor under the terms of this Memorandum.
8.0 It is understood and agreed by the Parties hereto that if any part, term,
or provision of this Memorandum is held by the courts to be illegal or in
conflict with any law of the state where made, the validity of the
remaining portions or provisions shall not be affected, and the rights
and obligations of the Parties shall be construed and enforced as if the
Memorandum did not contain the particular part, term or provision held to
be invalid.
9.0 This Memorandum shall be binding upon and shall inure to the benefit of
the Parties hereto and to their respective legal representatives,
successors and permitted assigns. The failure of one or more persons
owning an interest in the Contract Area to execute this Memorandum shall
not in any manner affect the validity of the Memorandum as to those
persons who execute this Memorandum.
10.0 A Party having an interest in the Contract Area may ratify this
Memorandum by execution and delivery of an instrument of ratification,
adopting and entering into this Memorandum, and such ratification shall
have the same effect as if the ratifying Party had executed this
Memorandum or a counterpart thereof. By execution or ratification of this
Memorandum, such Party hereby consents to its ratification and adoption
by any Party who acquires or may acquire any interest in the Contract
Area.
11.0 The Operator and the Non-Operators hereby agree to execute, acknowledge
and deliver or cause to be executed, acknowledged and delivered any
instrument, or take any action necessary or appropriate to effectuate the
terms of the Operating Agreement or any Exhibit, instrument, certificate
or other document pursuant thereto.
12.0 Whenever the context requires, reference herein made to the single number
shall be understood to include the plural, and the plural shall likewise
be understood to include the singular, and specific enumeration shall not
exclude the general, but shall be construed as cumulative.
EXECUTED on the dates set forth below each signature but effective as
of the 17th day of January, 2006.
OPERATOR
--------
WITNESSES:
NEWFIELD EXPLORATION COMPANY
--------------------------
Printed Name:
Name: _______________________
Title: ______________________
--------------------------
Printed Name:
62
MODEL FORM OF OFFSHORE OPERATING AGREEMENT
NON-OPERATORS:
--------------
WITNESSES: RIDGEWOOD ENERGY CORPORATION
--------------------------
Printed Name:
Name: _______________________
Title: ______________________
---------------------------
Printed Name:
WITNESSES: NORTHSTAR GULFSANDS, LLC
--------------------------
Printed Name:
Name: _______________________
Title: ______________________
--------------------------
Printed Name:
63
MODEL FORM OF OFFSHORE OPERATING AGREEMENT
ACKNOWLEDGMENT
OPERATOR:
STATE OF TEXAS .ss
COUNTY OF ▇▇▇▇▇▇ .ss
On this______________ day of______________________, 2006, before me
appeared ▇.▇. ▇▇▇▇▇▇▇▇▇▇▇, to me personally known, who, being by me duly sworn,
did say that he is the Attorney-in-Fact of Newfield Exploration Company and that
said instrument was signed on behalf of said company by authority of its Board
of Directors and said appearer acknowledged said instrument to be the free act
and deed of said company.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official
seal of the day and year first above written.
----------------------
Notary Public
ACKNOWLEDGMENT
NON-OPERATORS:
STATE OF TEXAS .ss
COUNTY OF ▇▇▇▇▇▇ .ss
BEFORE ME, the undersigned authority, on this________day of_____________,
2006, personally appeared______________________________ , to me personally known
who, being by me duly sworn, did say that he is the____________________________
of Ridgewood Energy Corporation and that said instrument was signed on behalf of
said company by authority of its Board of Directors and said appearer
acknowledged said instrument to be the free act and deed of said company.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official
seal of the day and year first above written.
----------------------
Notary Public
STATE OF TEXAS .ss
COUNTY OF ▇▇▇▇▇▇ .ss
BEFORE ME, the undersigned authority, on this___________day of___________
2006, personally appeared ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇, to me personally known, who, being
by me duly sworn, did say that he is the Vice President-Land of Northstar
Gulfsands, LLC and that said instrument was signed on behalf of said company by
authority of its Board of Directors and said appearer acknowledged said
instrument to be the free act and deed of said company.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official
seal of the day and year first above written.
----------------------
Notary Public
64
MODEL FORM OF OFFSHORE OPERATING AGREEMENT
ATTACHMENT "1"
Attached to and made a part of the Memorandum of
Operating Agreement and Financing Statement (Louisiana)
dated effective January 17, 2006, by and between
Newfield Exploration Company, as Operator and Ridgewood
Energy Corporation and Northstar Gulfsands, LLC, as
Non-Operators.
I. DESCRIPTION OF LANDS AND LEASES WITHIN THE CONTRACT AREA
--------------------------------------------------------
Oil and Gas Lease dated February 1, 1971, bearing serial number OCS-G
02023, by and between the United States of America, as Lessor, and Texas
Eastern Exploration Co., et al, as Lessees, covering all of Block 593,
West Cameron Area, South Addition, OCS Leasing Map, Louisiana Map No.
LA1B, INSOFAR AND ONLY INSOFAR AS said lease covers and affects the South
Half (S/2) of said Block 593, containing approximately 5,000 acres.
II. INTERESTS OF THE PARTIES IN THE CONTRACT AREA:
----------------------------------------------
Newfield Exploration Company 50.00000%
Ridgewood Energy Corporation 43.28499%
Northstar Gulfsands, LLC 6,71501%
III. THE OPERATOR FOR THE LEASE SHALL BE:
------------------------------------
Newfield Exploration Company
IV. NOTIFICATION AND ADDRESSES OF THE DESIGNATED REPRESENTATIVES ARE AS
-------------------------------------------------------------------
FOLLOWS:
--------
Newfield Exploration Company
▇▇▇ ▇. ▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇., ▇▇▇. ▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
Telephone: ▇▇▇-▇▇▇-▇▇▇▇
Facsimile: ▇▇▇-▇▇▇-▇▇▇▇
Email: ▇▇▇▇▇▇▇▇▇@▇▇▇▇▇▇▇▇.▇▇▇
Ridgewood Energy Corporation
▇▇▇▇▇ ▇▇▇ ▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇. ▇▇▇▇ ▇▇▇▇▇
Telephone: ▇▇▇-▇▇▇-▇▇▇▇
Facsimile: ▇▇▇-▇▇▇-▇▇▇▇
Email: ▇▇▇▇▇▇@▇▇▇▇▇▇▇▇▇▇▇▇▇▇▇.▇▇▇
Northstar Gulfsands, LLC
▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Telephone: ▇▇▇-▇▇▇-▇▇▇▇
Facsimile: ▇▇▇-▇▇▇-▇▇▇▇
Email: ▇▇▇▇▇▇@▇▇▇▇▇▇▇▇▇▇▇▇▇▇.▇▇▇
65