EXHIBIT "B"
Attached to and made a part of that certain Participation Agreement dated
September 1, 2005 by and between Stone Energy Corporation and Ridgewood
Energy
Corporation, Manager Ridgewood Energy P Fund, LLC.
OFFSHORE OPERATING AGREEMENT
by and between
Stone Energy Corporation
and
Ridgewood Energy Corporation
Dated September 1, 2005
covering
South ▇▇▇▇▇ Island Block 231
TABLE OF CONTENTS
TABLE OF CONTENTS .........................................................................................1
WITNESSETH: .............................................................................................. 7
ARTICLE 1 APPLICATION .................................................................................... 7
1.1 APPLICATION TO EACH LEASE ....................................................................... 7
ARTICLE 2 DEFINITIONS .................................................................................... 7
2.1 ADDITIONAL TESTING .............................................................................. 7
2.2 AFFILIATE ....................................................................................... 7
2.3 AUTHORIZATION FOR EXPENDITURE (AFE) ............................................................. 8
2.4 COMPLETE, COMPLETING, COMPLETION ................................................................ 8
2.5 COMPLETION EQUIPMENT ............................................................................ 8
2.6 CONFIDENTIAL DATA ............................................................................... 8
2.7 DEEPEN, DEEPENING ............................................................................... 8
2.8 DEVELOPMENT FACILITIES .......................................................................... 8
2.9 DEVELOPMENT OPERATION ........................................................................... 8
2.10 DEVELOPMENT WELL ............................................................................. 9
2.11 EXPLORATORY OPERATION ........................................................................ 9
2.12 EXPLORATORY WELL ............................................................................. 9
2.13 EXPORT PIPELINES ............................................................................. 9
2.14 FORCE MAJEURE ................................................................................ 9
2.15 HYDROCARBONS ................................................................................. 9
2.16 JOINT ACCOUNT ................................................................................ 9
2.17 LEASE ........................................................................................ 9
2.18 MMS .......................................................................................... 9
2.19 NON-CONSENT OPERATION ........................................................................10
2.20 NON-CONSENT PLATFORM .........................................................................10
2.21 NON-CONSENT WELL .............................................................................10
2.22 NON-OPERATOR .................................................................................10
2.23 NON-PARTICIPATING PARTY ......................................................................10
2.24 NON-PARTICIPATING PARTY'S SHARE ..............................................................10
2.25 OBJECTIVE DEPTH ..............................................................................10
2.26 OBJECTIVE HORIZON ............................................................................10
2.27 OFFSITE HOST FACILITIES ......................................................................10
2.28 OPERATOR .....................................................................................10
2.29 PARTICIPATING INTEREST .......................................................................10
2.30 PARTICIPATING PARTY ..........................................................................10
2.31 PLATFORM .....................................................................................11
2.32 PRODUCIBLE RESERVOIR .........................................................................11
2.33 PRODUCIBLE WELL ..............................................................................11
2.34 PRODUCTION INTERVAL ..........................................................................11
2.35 RECOMPLETE, RECOMPLETING, RECOMPLETION .......................................................11
2.36 REWORK, REWORKING ............................................................................11
2.37 SIDETRACK, SIDETRACKING ......................................................................11
2.38 TAKE-IN-KIND FACILITIES ......................................................................12
2.39 TRANSFER OF INTEREST .........................................................................12
2.40 WORKING INTEREST .............................................................................12
ARTICLE 3 EXHIBITS .......................................................................................12
3.1 EXHIBITS ........................................................................................12
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3.1.1 Exhibit "A" ...............................................................................12
3.1.2 Exhibit "B" ...............................................................................12
3.1.3 Exhibit "C" ...............................................................................12
3.1.4 Exhibit "D" ...............................................................................12
3.1.5 Exhibit "E ................................................................................12
3.1.6 Exhibit "F" ...............................................................................12
3.1.7 Exhibit "G" ...............................................................................12
3.1.8 Exhibit "H" ...............................................................................13
3.1.9 Exhibit "1" ...............................................................................13
3.2 CONFLICTS .......................................................................................13
ARTICLE 4 OPERATOR .......................................................................................13
4.1 OPERATOR ........................................................................................14
4.2 SUBSTITUTE OPERATOR .............................................................................14
4.2.1 Circumstances Under Which the Operator Must Conduct a Non-Consent Operation ...............14
4.2.2 Operator's Conduct of a Non-Consent Operation in Which it is a Non participating Party ....14
4.2.3 Appointment of a Substitute Operator ......................................................14
4.2.4 Redesignation of Operator .................................................................14
4.3 RESIGNATION OF OPERATOR .........................................................................15
4.4 REMOVAL OF OPERATOR .............................................................................15
4.5 SELECTION OF SUCCESSOR ..........................................................................15
4.6 EFFECTIVE DATE OF RESIGNATION OR REMOVAL ........................................................16
4.7 DELIVERY OF PROPERTY ............................................................................16
ARTICLE 5 AUTHORITY AND DUTIES OF OPERATOR ...............................................................17
5.1 EXCLUSIVE RIGHT TO OPERATE ......................................................................17
5.2 WORKMANLIKE CONDUCT .............................................................................17
5.3 LIENS AND ENCUMBRANCES ..........................................................................17
5.4 EMPLOYEES AND CONTRACTORS .......................................................................17
5.5 RECORDS .........................................................................................17
5.6 COMPLIANCE ......................................................................................17
5.7 CONTRACTORS .....................................................................................18
5.8 GOVERNMENTAL REPORTS ............................................................................18
5.9 INFORMATION TO PARTICIPATING PARTIES ............................................................18
5.10 INFORMATION TO NON-PARTICIPATING PARTIES .....................................................19
ARTICLE 6 VOTING AND VOTING PROCEDURES ...................................................................19
6.1 VOTING PROCEDURES ...............................................................................19
6.1.1 Voting Interest ...........................................................................19
6.1.2 Vote Required .............................................................................19
6.1.3 Votes .....................................................................................19
6.1.4 Meetings ..................................................................................20
ARTICLE 7 ACCESS .........................................................................................20
7.1 ACCESS TO LEASE .................................................................................20
7.2 REPORTS .........................................................................................20
7.3 CONFIDENTIALITY .................................................................................21
7.4 LIMITED DISCLOSURE ..............................................................................21
7.5 LIMITED RELEASES TO OFFSHORE SCOUT ASSOCIATION ..................................................21
7.6 MEDIA RELEASES ..................................................................................21
ARTICLE 8 EXPENDITURES ...................................................................................22
8.1 BASIS OF CHARGE TO THE PARTIES ..................................................................22
8.2 AFES ............................................................................................22
8.3 EMERGENCY AND REQUIRED EXPENDITURES .............................................................22
8.4 ADVANCE ▇▇▇▇▇▇▇▇ ................................................................................22
8.5 COMMINGLING OF FUNDS ............................................................................23
8.6 SECURITY RIGHTS (TX-MS-AL-FL OR LA) .............................................................23
8.7 OVEREXPENDITURES ................................................................................23
ARTICLE 9 NOTICES ........................................................................................24
9.1 GIVING AND RECEIVING NOTICES ....................................................................24
9.2 CONTENT OF NOTICE ...............................................................................24
9.3 RESPONSE TO NOTICES .............................................................................25
9.3.1 Platform and/or Development Facilities Proposals ..........................................25
9.3.2 Well Proposals ............................................................................25
9.3.3 Proposal for Multiple Operations ...........................................................25
9.3.4 Other Matters .............................................................................25
9.4 FAILURE TO RESPOND ..............................................................................25
9.5 RESPONSE TO COUNTERPROPOSALS ....................................................................25
9.6 TIMELY WELL OPERATIONS ...........................................................................26
9.7 TIMELY PLATFORM/DEVELOPMENT FACILITIES OPERATIONS ................................................26
ARTICLE 10 EXPLORATORY OPERATIONS ........................................................................27
10.1 PROPOSING OPERATIONS ..........................................................................27
10.2 COUNTERPROPOSALS ..............................................................................27
10.3 OPERATIONS BY ALL PARTIES .....................................................................27
10.4 SECOND OPPORTUNITY TO PARTICIPATE .............................................................27
10.5 OPERATIONS BY FEWER THAN ALL PARTIES ..........................................................28
10.6 EXPENDITURES APPROVED .........................................................................28
10.7 CONDUCT OF OPERATIONS .........................................................................28
10.8 COURSE OF ACTION AFTER REACHING OBJECTIVE DEPTH ...............................................28
10.8.1 Election by Participating Parties ..........................................................29
10.8.2 Priority of Operations .....................................................................29
10.8.3 Second Opportunity to Participate ..........................................................30
10.8.4 Operations by Fewer Than All Parties ......................................................30
10.8.5 Subsequent Operations ......................................................................31
10.9 ▇▇▇▇▇ PROPOSED BELOW DEEPEST PRODUCIBLE RESERVOIR .............................................31
ARTICLE 11 DEVELOPMENT OPERATIONS ....................................................................32
11.1 PROPOSING OPERATIONS ..........................................................................32
11.2 COUNTERPROPOSALS ..............................................................................32
11.3 OPERATIONS BY ALL PARTIES .....................................................................32
11.4 SECOND OPPORTUNITY TO PARTICIPATE .............................................................32
11.5 OPERATIONS BY FEWER THAN ALL PARTIES ..........................................................33
11.6 EXPENDITURES APPROVED .........................................................................33
11.7 CONDUCT OF OPERATIONS .........................................................................33
11.8 COURSE OF ACTION AFTER REACHING OBJECTIVE DEPTH ...............................................33
11.8.1 Election by Fewer Than All Parties .........................................................34
11.8.2 Priority of Operations .....................................................................34
11.8.3 Second Opportunity to Participate ..........................................................35
11.8.4 Operations by Fewer Than All Parties .......................................................35
11.8.5 Subsequent Operations ......................................................................36
ARTICLE 12 PLATFORM AND DEVELOPMENT FACILITIES ...........................................................36
12.1 PROPOSAL ......................................................................................36
12.2 COUNTERPROPOSALS ..............................................................................36
12.2.1 Operations by All Parties .................................................................36
12.2.2 Second Opportunity to Participate ..........................................................37
12.2.3 Operations by Fewer Than All Parties .......................................................37
12.3 OWNERSHIP AND USE OF THE PLATFORM AND DEVELOPMENT FACILITIES ..................................38
12.4 RIGHTS TO TAKE IN KIND ........................................................................38
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12.5 EXPANSION OR MODIFICATION OF A PLATFORM AND/OR DEVELOPMENT FACILITIES ........................39
12.6 OFFSITE HOST FACILITIES ......................................................................40
ARTICLE 13 NON-CONSENT OPERATIONS ........................................................................40
13.1 NON-CONSENT OPERATIONS .......................................................................40
13.1.1 Non-interference ..........................................................................40
13.1.2 Multiple Completion Limitation ............................................................40
13.1.3 Metering ..................................................................................40
13.1.4 Non-consent Well ..........................................................................40
13.1.5 Cost Information ..........................................................................41
13.1.6 Completions ...............................................................................41
13.2 RELINQUISHMENT OF INTEREST ...................................................................41
13.2.1 Production Reversion Recoupment ...........................................................42
13.2.2 Non-production Reversion ..................................................................43
13.3 DEEPENING OR SIDETRACKING OF NON-CONSENT WELL ................................................43
13.4 DEEPENING OR SIDETRACKING COST ADJUSTMENTS ...................................................43
13.5 SUBSEQUENT OPERATIONS IN NON-CONSENT WELL ....................................................44
13.6 OPERATIONS IN A PRODUCTION INTERVAL ..........................................................44
13.7 OPERATIONS UTILIZING A NON-CONSENT PLATFORM AND/OR DEVELOPMENT FACILITIES ....................44
13.8 DISCOVERY OR EXTENSION FROM NON-CONSENT DRILLING .............................................45
13.9 ALLOCATION OF PLATFORM/DEVELOPMENT FACILITIES COSTS TO NON-CONSENT OPERATIONS ................45
13.9.1 Investment Usage Fees .....................................................................45
13.9.2 Operating and Maintenance Charges .........................................................48
13.10 ALLOCATION OF COSTS BETWEEN ZONES ............................................................49
13.11 LEASE MAINTENANCE OPERATIONS .................................................................49
13.11.1 Participation in Lease Maintenance Operations ..........................................49
13.11.2 Accounting for Non-participation .......................................................50
13.12 NON-CONSENT PREMIUMS .........................................................................50
ARTICLE 14 ABANDONMENT, SALVAGE, AND SURPLUS .............................................................50
14.1 PLATFORM SALVAGE AND REMOVAL COSTS ...........................................................50
14.2 ABANDONMENT OF PLATFORMS, DEVELOPMENT FACILITIES OR ▇▇▇▇▇ ....................................50
14.3 ASSIGNMENT OF INTEREST .......................................................................51
14.4 ABANDONMENT OPERATIONS REQUIRED BY GOVERNMENTAL AUTHORITY ....................................51
14.5 DISPOSAL OF SURPLUS MATERIAL .................................................................51
ARTICLE 15 WITHDRAWAL ....................................................................................52
15.1 RIGHT TO WITHDRAW ............................................................................52
15.2 RESPONSE TO WITHDRAWAL NOTICE ................................................................52
15.2.1 Unanimous Withdrawal., ....................................................................52
15.2.2 No Additional Withdrawing Parties .........................................................52
15.2.3 Acceptance of the Withdrawing Parties' Interests ..........................................53
15.2.4 Effects of Withdrawal .....................................................................53
15.3 LIMITATION UPON AND CONDITIONS OF WITHDRAWAL .................................................53
15.3.1 Prior Expenses ............................................................................53
15.3.2 Confidentiality ...........................................................................54
15.3.3 Emergencies and Force Majeure .............................................................54
ARTICLE 16 RENTALS, ROYALTIES, AND OTHER PAYMENTS ........................................................55
16.1 OVERRIDING ROYALTY AND OTHER BURDENS .........................................................55
16.2 SUBSEQUENTLY CREATED INTEREST ................................................................55
16.3 PAYMENT OF RENTALS AND MINIMUM ROYALTIES .....................................................56
16.4 NON-PARTICIPATION IN PAYMENTS ................................................................56
16.5 ROYALTY PAYMENTS .............................................................................56
ARTICLE 17 TAXES .........................................................................................56
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17.1 PROPERTY TAXES ...............................................................................56
17.2 CONTEST OF PROPERTY TAX VALUATION ............................................................57
17.3 PRODUCTION AND SEVERANCE TAXES ...............................................................57
17.4 OTHER TAXES AND ASSESSMENTS ..................................................................57
ARTICLE 18 INSURANCE .....................................................................................57
18.1 INSURANCE ....................................................................................57
18.2 BONDS ........................................................................................57
ARTICLE 19 LIABILITY, CLAIMS, AND LAWSUITS ...............................................................58
19.1 INDIVIDUAL OBLIGATIONS .......................................................................58
19.2 NOTICE OF CLAIM OR LAWSUIT ...................................................................58
19.3 SETTLEMENTS ..................................................................................58
19.4 DEFENSE OF CLAIMS AND LAWSUITS ...............................................................58
19.5 LIABILITY FOR DAMAGES ........................................................................59
19.6 INDEMNIFICATION FOR NON-CONSENT OPERATIONS ...................................................59
19.7 DAMAGE TO RESERVOIR, Loss OF RESERVES AND PROFIT .............................................60
19.8 NON-ESSENTIAL PERSONNEL ......................................................................60
19.9 DISPUTE RESOLUTION PROCEDURE .................................................................60
ARTICLE 20 INTERNAL REVENUE PROVISION ....................................................................60
20.1 INTERNAL REVENUE PROVISION ...................................................................60
ARTICLE 21 CONTRIBUTIONS .............................................................................61
21.1 NOTICE OF CONTRIBUTIONS OTHER THAN ADVANCES FOR SALE OF PRODUCTION ...........................61
21.2 CASH CONTRIBUTIONS ...........................................................................61
21.3 ACREAGE CONTRIBUTIONS ........................................................................61
ARTICLE 22 DISPOSITION OF PRODUCTION .....................................................................62
22.1 TAKE-IN-KIND FACILITIES ......................................................................62
22.2 DUTY TO TAKE IN KIND .........................................................................62
22.3 FAILURE TO TAKE OIL AND CONDENSATE IN KIND ...................................................62
22.4 FAILURE To TAKE GAS IN KIND ..................................................................63
22.5 EXPENSES OF DELIVERY IN KIND .................................................................63
ARTICLE 23 APPLICABLE LAW ................................................................................63
23.1 APPLICABLE LAW ...............................................................................63
ARTICLE 24 LAWS, REGULATIONS, AND NONDISCRIMINATION ......................................................64
24.1 LAWS AND REGULATIONS .........................................................................64
24.2 NONDISCRIMINATION ............................................................................64
ARTICLE 25 FORCE MAJEURE .................................................................................64
25.1 FORCE MAJEURE ................................................................................64
ARTICLE 26 SUCCESSORS, ASSIGNS, AND PREFERENTIAL RIGHTS ..................................................64
26.1 TRANSFER OF INTEREST .........................................................................64
26.1.1 Exceptions to Transfer Notice .............................................................65
26.1.2 Effective Date of Transfer of Interest ....................................................65
26.1.3 Form of Transfer of Interest ..............................................................65
26.1.4 Warranty ..................................................................................65
26.2 PREFERENTIAL RIGHT TO PURCHASE ...............................................................66
26.2.1 Notice of Proposed Transfer of Interest ...................................................66
26.2.2 Exercise of Preferential Right to Purchase ................................................66
26.2.3 Transfer of Interest Not Affected by the Preferential Right to Purchase ...................67
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26.2.4 Completion of Transfer of Interest ........................................................67
ARTICLE 27 ADMINISTRATIVE PROVISIONS .....................................................................67
27.1 TERM .........................................................................................67
27.2 WAIVER .......................................................................................68
27.3 WAIVER OF RIGHT TO PARTITION .................................................................68
27.4 COMPLIANCE WITH LAWS AND REGULATIONS .........................................................68
27.4.1 Severance of Invalid Provisions ...........................................................68
27 4.2 Fair and Equal Employment .................................................................69
27.5 CONSTRUCTION AND INTERPRETATION OF THIS AGREEMENT ............................................69
27.5.1 Headings for Convenience ..................................................................69
27.5.2 Article References ........................................................................69
27.5.3 Gender and Number .........................................................................69
27.5.4 Future References .........................................................................69
27.5.5 Currency ..................................................................................69
27.5.6 Optional Provisions .......................................................................69
27.5.7 Joint Preparation .........................................................................70
27.5.8 Integrated Agreement ......................................................................70
27.5.9 Binding Effect ............................................................................70
27.5.10 Further Assurances .....................................................................70
27.5.11 Counterpart Execution ..................................................................70
27.6 RESTRICTED BIDDING ...........................................................................70
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OFFSHORE OPERATING AGREEMENT
THIS AGREEMENT, made effective the 1st day of September, 2005, 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 a leasehold interest in one or more oil and gas Leases
identified in Exhibit "A" and desire to explore, develop, produce, and operate
those Leases pursuant to this Agreement.
NOW, THEREFORE, in consideration of the premises and the mutual covenants in
this Agreement, the Parties agree as follows:
ARTICLE I
APPLICATION
1.1 Application to Each Lease
This Agreement applies separately to each oil and gas Lease or portion
thereof described in Exhibit "A".
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
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 ownership 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.
7
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
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 having jurisdiction, 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; core and core analysis; and other well
information including, but not limited to, 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 or as agreed to in writing by the Participating Parties.
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 Facilities
Production equipment other than Completion Equipment that is installed on
or outside the Lease in order to handle or process Hydrocarbon
production. Development Facilities include, but are not limited to
(a) compression, separation, dehydration, generators, treaters,
skimmers, bunkhouses and metering equipment,
(b) the flowlines, gathering lines or lateral lines that deliver
Hydrocarbons and water
1 from the Completion Equipment to the Platform or to Offsite
Host Facilities, or
2 from the Platform to Export Pipelines; and
(c) injection and disposal ▇▇▇▇▇.
Development Facilities exclude Export Pipelines.
2.9 Development Operation
An operation on the Lease other than an Exploratory Operation.
8
2.10 Development Well
A well or portion of a well proposed as a Development Operation.
2.11 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; or
(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 four thousand (4000) feet for a gas Completion and at least
two thousand (2000) feet for an oil Completion.
2.12 Exploratory Well
A well or portion of a well proposed as an Exploratory Operation.
2.13 Export Pipelines
Pipelines to which a gathering line or lateral line downstream of the
Platform and/or Development Facilities or, if there is no Platform, the
Completion Equipment, is connected and which are used to transport
Hydrocarbons or produced water to shore.
2.14 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, terrorist act, 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.
2.15 Hydrocarbons
Oil and/or gas and associated liquid and gaseous by-products (except
helium) which may be produced from a wellbore located on the Lease.
2.16 Joint Account
This term has the same definition as the defined term "Joint Account" in
Exhibit "C" (Accounting Procedure).
2.17 Lease
Each oil and gas lease identified in Exhibit "A" and the lands covered by
that lease.
2.18 MMS
The Minerals Management Service, United States Department of Interior, or
its successor agency. Where appropriate, the reference to MMS shall
include the appropriate state agency.
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2.19 Non-consent Operation
An operation conducted on the Lease by fewer than all Parties, which
subjects the Nonparticipating Party to Article 13 (Non-Consent
Operations).
2.20 Non-consent Platform
A Platform owned by fewer than all Parties.
2.21 Non-consent Well
An Exploratory Well or a Development Well owned by fewer than all
Parties.
2.22 Non-operator
A Party other than the Operator.
2.23 Non-participating Party
A Party other than a Participating Party.
2.24 Non-participating Party's Share
The Participating Interest that a Non-participating Party would have had
if all Parties had participated in the operation.
2.25 Objective Depth
A depth sufficient to test the lesser of the Objective Horizon or the
specific footage depth stated in the AFE and approved by the
Participating Parties.
2.26 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 AFE and approved by the
Participating Parties.
2.27 Offsite Host Facilities
Development 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 development and
handling facilities differ from their respective Working Interest shares
in the well.
2.28 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).
2.29 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.
2.30 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.
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2.31 Platform
An offshore structure on the Lease that supports ▇▇▇▇▇, Completion
Equipment, or Development Facilities, whether fixed, compliant, or
floating, and the components of that structure, including, but not
limited to, caissons or well protectors to the extent same are not
Completion Equipment, rising above the water line and used for the
exploration, development, or production of Hydrocarbons. The term
"Platform" shall also mean any offshore equipment or template (excluding
templates used for drilling operations) and any component thereof, other
than Completion Equipment (including, but not limited to, flow lines and
control systems), that is resting on or attached to the sea floor and
used to obtain production of Hydrocarbons.
2.32 Producible Reservoir
An underground accumulation of Hydrocarbons (a) in a single and separate
natural pool characterized by a distinct pressure system, (b) not in
Hydrocarbon communication with another accumulation of Hydrocarbons, 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
Hydrocarbons; (b) is determined to be, or meets the criteria for being
determined to be, capable of producing Hydrocarbons in paying quantities
under an applicable order or regulation issued by the governmental
authority having jurisdiction; or (c) is determined to be a Producible
Well by one (1) or more Participating Parties having a combined Working
Interest of twenty percent (20% or more, even if the well has been
plugged and permanently or temporarily abandoned.
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.
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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 record title interest, or where applicable, the operating rights of
each Party in and to each Lease (expressed as the percentage provided in
Exhibit "A"). If a Party's record title interest is different from its
operating rights, the Working Interest of each Party is the interest
provided in Exhibit "A".
ARTICLE 3 EXHIBITS
3.1 Exhibits
The following exhibits are attached to this Agreement and incorporated
into this Agreement by reference:
(Check the exhibits the Parties wish to incorporate into this Agreement.)
3.1.1 Exhibit "A"
Operator, Description of Leases, Division of Interests, and
Notification Addresses
3.1.2 Exhibit "B"
Insurance provisions.
3.1.3 Exhibit "C"
Accounting procedure.
3.1.4 Exhibit "D"
Non-discrimination Provisions.
3.1.5 Exhibit "E"
Gas Balancing Agreement.
11.6 Exhibit "F"
Omitted
3.1.7 Exhibit "G"
Memorandum of Operating Agreement and Financing Statement.
3.1.8 Exhibit "H"
Other (e.g. Dispute Resolution).
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3.1.9 Exhibit "I"
Security Rights; Default' Unpaid Charges' Carved-out Interests
3.2 Conflicts
If a provision of an exhibit, except Exhibits "D," "E," or "F", 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," "E," or "F", is inconsistent with a provision in the body of
this Agreement, however, the provision of the exhibit shall prevail.
ARTICLE 4
OPERATOR
4.1 Operator
Stone Energy Corporation is designated as the Operator of the Lease. The
Parties shall promptly execute and provide Operator with all documents
required by the MMS in connection with the designation of Stone Energy
Corporation as Operator or with the designation of any other Party as a
substitute or successor Operator. Unless agreed to the contrary by all
Parties hereto, Operator shall also be classified as the designated
applicant for oil spill financial responsibility purposes and each
Non-operating Party shall promptly execute the appropriate documentation
reflecting this designation and promptly provide same to Operator for
filing with MMS.
4.2 Substitute Operator
Except as otherwise provided in Article 4.2.1 (Circumstances Under Which
the 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 one (1) or more of the
Participating Parties having a combined fifty-one percent (51 %) or more
of the Participating Interests. The substitute Operator shall serve only
(a) for the Non-consent Operation, (b) on the Lease, or that portion of
the Lease, affected by the Non-consent Operation, 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 the 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).
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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 in a supplemental AFE 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, shall
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).
4.2.2 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 the 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). Notwithstanding anything to the contrary in Exhibit
"C", the Operator shall not be required to proceed with the
Non-consent Operation until the Participating Parties have
advanced the total estimated costs of the Non-consent Operation to
the Operator. The Operator shall never be obligated to expend any
of its own funds for the Non-consent Operation in which it is a
Non-participating Party.
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 spill 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 activities and
operations.
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 operator 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 4.2.3 (Appointment of a
Substitute Operator).
4.3 Resignation of Operator
Subject to Article 4.5 (Selection of Successor), the Operator may resign
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
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ceases to own a Working Interest, the Operator automatically shall be
deemed to have resigned as the Operator without any action by the
Non-operators.
4.4 Removal of Operator
Operator may be removed by an affirmative vote of the Parties owning a
combined Working interest of fifty-one percent (51%) 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
relief 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) reduces the Operator's Working Interest
to less than the Working Interest of a Nonoperator, 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.
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. An 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 be
effective, a vote to remove Operator for any cause described above must
be taken within ninety (90) days after a Non-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 Operator. Subject
to Article 8.6.2 (Default) & Article 8.6.3 (Unpaid Charges), 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 one (1) or more
Parties having a combined Working Interest of fifty-one percent (51 %) or
more. If the resigned or removed Operator is not entitled to vote, fails
to vote, or 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-one percent (51 %) or more of the
remaining Working Interest after excluding the Working Interest of the
15
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 a part of the former
Operator's Working Interest shall not be excluded from voting for a
successor Operator. If there are only two Parties to this Agreement when
the Operator resigns or is removed, then the Nonoperator 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).
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, and designated
applicant for oil spill financial responsibility purposes, by the MMS;
however, in no event shall the resignation or removal of Operator become
effective 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 reasonable costs
incurred in connection with copying or obtaining the former Operator's
records, information or data except when the change of Operator results
from a merger, consolidation, reorganization or sale or transfer to an
Affiliate of the Operator.
4.7 Delivery of Property
On the effective date of resignation or removal of the Operator, the
outgoing Operator shall deliver or transfer to the successor Operator
custodianship of the Joint Account and 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, which
are not already in the possession of the successor Operator. 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 accounting to all Parties 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".
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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. No Party shall be
deemed to be, or hold itself out as, the agent or fiduciary of another
Party.
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, property or the environment. 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, Development
Facilities, and other equipment free from all liens and other
encumbrances occasioned by operations hereunder, except those provided 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 or cause to be kept 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.
5.6 Compliance
Operator shall comply, and shall require all agents and contractors to
comply, with all applicable laws, rules, regulations, and orders of
governmental authorities having jurisdiction.
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5.7 Contractors
Operator may enter into contracts with qualified and responsible
independent contractors for the design, construction, installation,
drilling, production or operation of ▇▇▇▇▇, Platforms and Development
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 twelve (12) 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 conducting the drilling operation. 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 (i) performed by Operator or its
Affiliate acting as an independent contractor, (ii) approved by written
agreement with the Participating Parties before commencement of
operations, and (iii) 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.
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
Except as provided in Article 8.6, Operator shall furnish each
Participating Party the following information, if applicable, for each
activity or 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 (or Reworking report or Recompletion
report, if applicable), giving the depth, corresponding
lithological information, data on drilling fluid characteristics,
information about drilling or operational difficulties or delays,
if any, and other pertinent information, by facsimile transmission
or electronic mail 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
18
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 at the expense
of the requesting Party by express courier to the address
designated by the requesting Party.
5.9.7 To the extent possible, forty-eight (48) hours' advance notice of,
and access to, logging, coring, and testing operations.
5.9.8 A monthly report on the volume of Hydrocarbons and water produced
from each well.
5.9.9 A copy of each report made to a governmental authority having
jurisdiction.
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 5.9 (Information to Participating
Parties), except as may be necessary for a payout audit of the Non
consent Operation.
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 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 one (1) or more Parties having a combined voting interest of
fifty-one percent (51 %) or more. If there are only two (2)
Parties to this Agreement, the matter shall be determined by the
Party having a majority voting interest or, if the interests are
equal, the matter shall require unanimous consent.
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.
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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 twenty percent (20%). 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
meeting agenda prepared by the Operator or the requesting Party.
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
prior to or during the meeting by unanimous agreement of all
Parties.
ARTICLE 7
ACCESS
7.1 Access to Lease
Except as provided in Article 8.6, each Party shall have access, at its
sole risk and expense and at all reasonable times, to the Lease,
Platform, Development Facilities and Joint Account assets to inspect
activities, operations and ▇▇▇▇▇ in which it participates, and to
pertinent records and data. A Non-operator shall give Operator at least
twenty-four (24) hours' notice of the Nonoperator'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 performing services for Operator directly related to the joint
operations, but is performing services solely for a Non-operator or
pertaining to the business or operations of a Non-operator, to visit,
use, or board a rig, well, Platform, or Development Facilities subject to
this Agreement, the Nonoperator 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 furnishing information not furnished 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.
20
7.3 Confidentiality
Except as otherwise provided in Article 7.4 (Limited Disclosure), Article
7.5 (Limited Releases to Offshore Scout Association), Article 7.6 (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 and/or submitting bids;
(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;
(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) such limited well information that is typically disclosed by
Operator's representative during meetings of the Offshore Oil
Scouts Association.
Confidential Data made available under Articles 7.4(f) and 7.4(h) [if
applicable] 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) [if applicable] 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 Limited Releases to Offshore Scout Association
The Operator may disclose Confidential Data to the Offshore Oil Scouts
Association at their regularly scheduled meetings. The Confidential Data
that may be disclosed is limited to information concerning well
locations, well operations, and well completions to the extent reasonable
and customary in industry practice or required under the by-laws of the
Offshore Oil Scouts Association.
7.6 Media Releases
Except as otherwise permitted by this Article, no Party shall issue a
news or media release about operations on the Lease without first giving
21
prior notice to the Participating Parties. In an emergency involving
extensive property or environmental 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 fifty thousand Dollars ($150,000), and before
conducting an activity or operation to drill, Sidetrack, Deepen,
Complete, Rework or Recomplete a well (regardless of the estimated cost),
Operator shall submit an AFE 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 fifty thousand Dollars ($150,000) or less, but in excess of
fifty thousand Dollars ($50,000).
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, subject to Exhibit "C".
8.4 Advance ▇▇▇▇▇▇▇▇
Operator may require each Party to advance its respective share of
estimated expenditures pursuant to Exhibit "C".
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8.5 Commingling of Funds
Funds received by Operator under this Agreement may be commingled with
its own funds.
8.6 Security Rights (LA)
Exhibit "I" (Louisiana) applies.
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 and/or Development Facilities will exceed the AFE estimate (the
excess being an "Overexpenditure"). If it appears that the
Overexpenditure will be no more than the twenty five percent (25%),
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 thirty (30) days or forty-eight
(48) hours if a rig is on location, exclusive of Saturdays, Sundays, and
federal holidays, after receipt of the Supplemental AFE. 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 8.8, 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 to the extent such costs were
increased by subsequent operations in which it elected not to
participate. Notwithstanding anything in this Article to the contrary, if
expenditures exceed the Allowable Variance for an emergency, as provided
23
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 borne 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. A 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 a response thereto begins on the date the notice is received.
"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 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 accept delivery of 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. 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 Development Facilities shall include an AFE, containing a
description of the Platform and/or Development 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
24
directional or horizontal 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
in what order the operations will be conducted. 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
Except as provided in Article 9.1, 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 Development Facilities Proposals
Each Party shall respond within ninety (90) days after its receipt
of the AFE or notice for a Platform and/or Development 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, Rework or Recompletion proposal, but if
(a) a drilling rig is on location, (b) the proposal relates to the
same well or its substitute, and (c) standby charges are
accumulating, a response shall be made within forty-eight (48)
hours after receipt of the proposal, exclusive of Saturdays,
Sundays, and federal holidays.
9.3.3 Proposal for Multiple Operations
When a proposal is made to conduct multiple 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 after
completion of approved operations at the prior location and
notification thereof 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
Should a counterproposal be allowed under this Agreement, responses to
that counterproposal must be made within the response period for the
original proposal.
25
9.6 Timely Well Operations
Unless otherwise provided, an approved well shall be commenced within
one-hundred eighty (180) days after the date when the last applicable
election on that well may be 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 the drilling of an approved
well within the one-hundred eighty (180) day time frame, the other
Participating Parties in that well may select a substitute Operator to
drill the approved well. In all events, including the occurrence of a
Force Majeure, if the substitute Operator fails to commence actual
drilling operations on an approved well within one-hundred eighty (180)
days from the proposal of the approved well, the proposal of the well and
its approval will be deemed to have been withdrawn. Subject to Exhibit
"C, if a proposal for a well is deemed to have been withdrawn, all costs
incurred in the preparation for or in furtherance of that well will be
chargeable to the Parties who voted to participate in the well proposal
for that well.
9.7 Timely Platform/Development Facilities Operations
Unless otherwise provided, Operator shall commence, or cause to commence,
the construction, acquisition, or refurbishment of an approved proposal
for a Platform and/or Development Facilities within one-hundred eighty
(180) days after the date when the last applicable election on that
Platform and/or Development Facilities may be made. The construction,
acquisition, or refurbishment of an approved Platform and/or Development
Facilities proposal shall be deemed to have commenced on the date the
contract is awarded for the design, acquisition, fabrication, or
refurbishment of the Platform and/or Development Facilities. If the
Operator does not commence the construction, acquisition, or
refurbishment of an approved Platform and/or Development Facilities
proposal within the one-hundred eighty (180) day time frame, the other
Participating Parties in that Platform and/or Development Facilities
proposal may select a substitute Operator to commence the Platform and/or
Development Facilities. In all events, including the occurrence of a
Force Majeure, if the substitute Operator fails to commence the
construction, acquisition, or refurbishment of an approved Platform
and/or Development Facilities within two-hundred forty (240) days from
the proposal of the approved Platform and/or Development Facilities, the
proposal of the Platform and/or Development Facilities and their approval
will be deemed to have been withdrawn. Subject to Exhibit "C", regardless
of whether or not the construction, acquisition, or refurbishment of a
Platform and/or Development Facilities is commenced, all costs incurred
by Operator, attributable to that activity, shall be paid by the
Participating Parties.
26
ARTICLE 10
EXPLORATORY OPERATIONS
10.1 Proposing Operations
A Party may propose an Exploratory Operation in accordance with Article 9
(Notices) to the other Parties who are entitled to vote or make an
election in regard to that operation.
10.2 Counterproposals
When an Exploratory Operation is proposed, a Party may, within fifteen
(15) days after receipt of the AFE or notice for the original proposal,
make a counterproposal to conduct an alternative Exploratory Operation by
sending an AFE or notice to such 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, such Parties shall elect to participate in either the original
proposal, one counterproposal, or neither the original proposal nor a
counterproposal. If two or more proposals receive the approval of the
number of Parties and combined Working Interests required by Article 10.5
(Operations by Fewer Than All Parties), 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
proposal first received by the Parties shall take precedence. Except for
the response period provided in this Article 10.2, a counterproposal
shall be subject to the same terms 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 one (1) or more Parties having a combined Working Interest
of twenty percent (20%) 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 two
(2) Parties to this Agreement, then there shall not be a second
opportunity to elect to participate, and if the Participating Party
agrees to pay and bear one hundred percent (100%) of the costs and risks
of the operation, then 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 13 (Non
consent Operations) shall apply.
27
10.5 Operations by Fewer Than All Parties
If there are more than two (2) Parties to this Agreement, then, after the
election made under Article 10.4 (Second Opportunity to Participate),
fewer than all but one (1) or more Parties having a combined Working
Interest of twenty percent (20%) or more have elected 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 Nonparticipating 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.
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, subject to any
limitation that may exist as provided under Article 8 above.
10.7 Conduct of Operations
After 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, except as may otherwise be provided in optional
provision Article 8.8 (Overexpenditures), if selected. 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 as set forth
28
in the approved AFE 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
A Participating Party shall have the right to propose another
operation by notifying the Operator and the other Participating
Parties of its proposed operation within twenty-four (24) hours,
exclusive of Saturdays, Sundays, and federal holidays, of receipt
of the Operator's notice. The Participating Parties shall notify
Operator within forty-eight (48) hours, exclusive of Saturdays,
Sundays, and federal holidays, of receipt of the Operator's
proposal whether the Participating Parties elect to (a)
participate in a recommended operation, or (b) not participate in
a recommended operation. Failure to respond shall be deemed to be
an election not to participate in any of the recommended
operations.
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 one
(1) or more Participating Parties having a combined Working
Interest of twenty percent (20%) or more, then the approved
operation with the lowest number as indicated below shall take
precedence:
(Indicate the order of preference.)
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 Objective Horizon
5 Complete above the 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.
29
10.8.3 Second Opportunity to Participate
If fewer than all but one (1) or more Participating Parties having
a combined Working Interest of twenty percent (20%) 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, 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.
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 one (1) or
more Parties having a combined Working Interest of twenty percent
(20%) 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, 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 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 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 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 in the
Deepened or Sidetracked portion of the well after that election.
If the Non-consent Operation is an Additional Testing, coring, or
logging operation, Article 13 (Non-consent Operations) shall not
30
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 Producible Well, 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.
10.9 ▇▇▇▇▇ 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 it 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 AFE 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 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 Hydrocarbons 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. Payment shall be due within thirty days
after receipt of notice of the well being completed below the deepest
Producible Reservoir. If the well is Completed and produces Hydrocarbons
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
31
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 in accordance with Article 9
(Notices) to the other Parties who are entitled to vote or make an
election in regard to that operation.
11.2 Counterproposals
When a Development Operation is proposed, a Party may, within fifteen
(15) days after receipt of the AFE or notice for the original proposal,
make a counterproposal to conduct an alternative Development Operation by
sending an AFE or notice to such 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, such Parties shall elect to participate in either the original
proposal, one counterproposal, or neither the original proposal nor a
counterproposal. If two or more proposals receive the approval of the
number of Parties and combined Working Interests required by Article 11.5
(Operations By Fewer Than All Parties), 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 prevail. Except for
the response period provided in this Article 11.2, a counterproposal
shall be subject to the same terms 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 one (1) or more Parties having a combined Working Interest
of twenty percent (20%) 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 forty-eight (48) 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 two
(2) Parties to this Agreement, then there shall not be a second
opportunity to elect to participate, and if the Participating Party
agrees to pay and bear one hundred percent (100%) of the costs and risks
of the operation, then 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 13 (Non
consent Operations) shall apply.
32
11.5 Operations by Fewer Than All Parties
If there are more than two (2) Parties to this Agreement, then, after the
election made under Article 11.4 (Second Opportunity to Participate),
fewer than all but one (1) or more Parties having a combined Working
Interest of twenty percent (20%) or more have elected to participate in
the proposed operation, 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, 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, subject to any
limitation that may exist as provided under Article 8 above.
11.7 Conduct of Operations
After 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, except as may otherwise be provided in optional
provision Article 8.8 (Overexpenditures), if elected. 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
33
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
A Participating Party shall have the right to propose another
operation by notifying the Operator and the other Participating
Parties of its proposed operation within twenty-four (24) hours,
exclusive of Saturdays, Sundays, and federal holidays, of receipt
of the Operator's notice. The Participating Parties shall notify
Operator within forty-eight (48) hours, exclusive of Saturdays,
Sundays, and federal holidays, of receipt of the Operator's
proposal whether the Participating Parties elect to (a)
participate in a recommended operation, or (b) not participate in
a recommended operation. Failure to respond shall be deemed to be
an election not to participate in any of the recommended
operations.
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 one
(1) or more Participating Parties having a combined Working
Interest of twenty percent (20%) or more, then the approved
operation with the lowest number as indicated below shall take
precedence:
(Indicate the order of preference.)
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 Objective Horizon.
3 Complete above the 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.)
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
34
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 one (1) or more Participating Parties having
a combined Working Interest of twenty percent (20%) 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, 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.
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 one (1) or
more Parties having a combined Working Interest of twenty percent
(20%) 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, 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 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 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. 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 in the
Deepened or Sidetracked portion of the well after that election.
35
If the Non-consent Operation is an Additional Testing operation,
Article 13 (Non-consent Operations) shall not apply, however, a
Party electing not to participate in the Additional Testing 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. ARTICLE 12
PLATFORM AND DEVELOPMENT FACILITIES
12.1 Proposal
A Party may propose the fabrication or acquisition and installation of a
Platform and/or Development Facilities, by sending an AFE or notice to
the other Parties in accordance with Article 9 (Notices).
12.2 Counterproposals
When a Platform and/or Development 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 counterproposal to fabricate or
otherwise acquire and install said Platform and/or Development Facilities
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
either the original proposal, one counterproposal, or neither the
original proposal nor a counterproposal. If two or more proposals receive
the approval of the number of Parties and combined Working Interests
required by Article 12.5 (Operations By Fewer Than All Parties), the
proposal receiving the largest percentage Working Interest approval shall
be deemed approved, and in the event two (2) or more approved proposals
receive the same Working Interest approval, the approved proposal first
received by the Parties shall be deemed approved.
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.
36
12.2.2 Second Opportunity to Participate
If there are more than two (2) Parties and if fewer than all but
one (1) or more Parties having a combined Working Interest of
fifty percent (50%) or more elect to participate in the Platform
and/or Development 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 Development Facilities, Operator shall
timely commence the fabrication and installation of the Platform
and/or Development Facilities at their cost and risk. If there are
only two (2) Parties to this Agreement, then there shall not be a
second opportunity to elect to participate, and if the
Participating Party agrees to pay and bear one hundred percent
(10b%) of the costs and risks of the operation, then 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 13 (Non-consent
Operations) shall apply.
12.2.3 Operations by Fewer Than All Parties
If there are more than two (2) Parties to this Agreement, then,
after the election made under Article 12.2.2 (Second Opportunity
to Participate), fewer than all but one (1) or more Parties having
a combined Working Interest of fifty percent (50%) or more elect
to participate in the Platform and/or Development 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) shall apply. If such agreement is not obtained,
37
however, the fabrication and installation of the Platform and/or
Development 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 Development
Facilities The Participating Parties in the Development Facilities own
all of the excess capacity of the Development Facilities and the excess
weight, space and buoyancy of the Platform. Each Participating Party in
the Development Facilities does not have the right to use its
Participating Interest share of the excess capacity, weight, space and
buoyancy for hydrocarbon production from outside the Lease. Each
Participating Party in the Development Facilities or Platform must obtain
the unanimous approval of the other Participating Parties in the
Development 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 Development
Facilities or Platform in order to utilize any portion of the excess
capacity, weight, space and buoyancy. Each of the Participating Parties
in the Development Facilities or Platform shall receive its Participating
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 and
Production Handling Agreement" unanimously agreed to by the Participating
Parties in the Development Facilities.
12.4 Rights to Take in Kind
Nothing in this Article 12shall 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 an approved Development Facilities proposal and (b) to
separately dispose of its share of Hydrocarbon production (the
"Separately Disposing Party), the Separately Disposing Party shall not be
subject to the provisions of Article 13.2.1.(b), but must provide proof
to the Participating Parties in the approved Development Facilities
proposal, within sixty (60) days from the last applicable response date
to the Development Facilities proposal that it has entered into
fabrication and transportation contracts to separately dispose of its own
share of Hydrocarbon production. If a Separately Disposing Party fails to
provide such proof by that deadline and if there is sufficient capacity
for the Development Facilities to accommodate the Separately Disposing
Party's share of the Hydrocarbons, it shall immediately (I) become a
Participating Party in the Development Facilities and utilize the
Development Facilities for its share of Hydrocarbon production, (II) pay
to the Participating Parties in the approved Development Facilities
proposal an amount equal to one-hundred fifty percent (150%) of what
would have been the Separately Disposing Party's share of the costs and
expense of the Development Facilities had it elected to participate in
the Development Facilities under Article 12.1 or 12.2, and (III) assume
its share of the risks and liabilities associated with the construction
and ownership of the Development Facilities as of the date of
commencement of the operations to construct same. The Participating
Parties in the original Development Facilities and the Separately
Disposing Party, which becomes a Participating Party in the original
38
Development Facilities under Article 12.4 (I), shall own the original
Development Facilities based on their Participating Interest share in the
original Development Facilities. If a Separately Disposing Party fails to
provide such proof by that deadline and if there is insufficient capacity
for the Development Facilities to accommodate the Separately Disposing
Party's share of the Hydrocarbons, the Separately Disposing Party shall
(i) become a Participating Party in the original Development Facilities
and utilize the available capacity in the original Development
Facilities, if any, for its share of Hydrocarbon production, (ii) pay one
hundred percent (100%) of the costs of an expansion or modification of
the Development Facilities, which is required to accommodate all or a
portion of its share of the Hydrocarbons, and assume one hundred percent
(100%) of the risks and liabilities associated with (A) the construction,
installation and commissioning of the expanded or modified Development
Facilities and (B) the utilization of the expanded or modified
Development Facilities for seven (7) days subsequent to the commencement
of Hydrocarbon production through same, (iii) pay to the Participating
Parties in the approved Development Facilities proposal an amount equal
to one hundred fifty percent (150%) of what would have been the
Separately Disposing Party's share of the costs and expense of the
original Development Facilities had it elected to participate in the
original Development Facilities under Article 12.1 or 12.2, (iv) assume
its share of the risks and liabilities associated with the construction
and ownership of the original Development Facilities as of the date of
commencement of the operations to construct the original Development
Facilities. The Participating Parties in the original Development
Facilities and the Separately Disposing Party, which becomes a
Participating Party in the original Development Facilities under Article
12.4 (i), shall own the expanded or modified Development Facilities based
on their Participating Interest share in the original Development
Facilities, and the Participating Parties in the original Development
Facilities shall assume their Participating Interest share of the risks
and liabilities associated with the ownership of the expanded or modified
Development Facilities seven (7) days after that the expanded or modified
Development Facilities have been utilized. 12.5 Expansion or Modification
of a Platform and/or Development Facilities After installation of a
Platform and/or Development Facilities, any Participating Party in that
Platform and/or Development Facilities may propose the expansion or
modification of that Platform and/or Development Facilities by written
notice (along with its associated AFE) to the other Participating Parties
in that Platform and/or Development Facilities. That proposal requires
approval by two of more of the Participating Parties in the Platform
and/or Development Facilities with more than seventy percent (70%) of the
Participating Interest in the Platform and/or Development Facilities. If
approved, that proposal will be binding on all Participating Parties in
that Platform and/or Development 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 Development
Facilities unless otherwise agreed.
39
12.6 Offsite Host Facilities
In the event that one (1) or more Parties with more than fifty percent
(50%) of the Participating Interest in Hydrocarbon production agree that
Hydrocarbon production can most effectively be processed and handled by
an Offsite Host Facilities, the Operator, on behalf of the Participating
Parties, shall use reasonable efforts to secure a formal "Facilities Use
and Production Handling Agreement" from the owners of the Offsite Host
Facilities. If the Operator does secure access to Offsite Host Facilities
in a Facilities Use and Production Handling Agreement, each Participating
Party shall have the right, but not the obligation, to utilize its
Participating Interest share of the capacity so secured. This Article
12.6 shall not constitute a limit on a Party's right to install its own
Take-in-Kind Facilities under Article 22 (Disposition of Production).
ARTICLE 13
NON-CONSENT OPERATIONS
13.1 Non-consent Operations
Operator or substitute Operator under Article 4.2 (Substitute Operator)
shall conduct Non-consent Operations at the sole cost and risk of the
Participating Parties in accordance with the following provisions:
13.1.1 Non-interference
Non-consent Operations shall not interfere unreasonably with
operations approved by all of the Parties.
13.1.2 Multiple Completion Limitation
Subject to Article 10.9, 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.
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
40
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 one thousand (1,000) feet for an
oil-well Completion or two thousand (2,000) 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
Non-consent Operation and equipment pertaining thereto, or (b) a
detailed statement of the monthly ▇▇▇▇▇▇▇▇. Each month thereafter,
while the Participating Parties are being reimbursed under Article
13.2.1 (Production Reversion Recoupment), Operator shall furnish
the Non-participating Parties a monthly statement detailing all
costs and liabilities incurred in the Non-consent Operation,
together with a statement of the quantities of Hydrocarbons
produced from it and the amount of the proceeds from the sale of
the Non-participating Parties' relinquished Hydrocarbon production
from the Non consent Operation for the preceding month. Operator
shall prepare the monthly statement of the quantities of
Hydrocarbons 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 assumed 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 Article 13.1 (Non-consent Operations),
each Non-consent Operation in a single wellbore shall be accounted
for separately.
13.2 Relinquishment of Interest
Upon commencement of Non-consent Operations, other than Non-consent
Operations Article 13.7 (Operations Utilizing a Non-consent Platform
and/or Development Facilities), each Nonparticipating 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
(1/2) 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
41
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 Non-Consent Operation is being
conducted or Hydrocarbon production is obtained therefrom, subject to the
following:
13.2.1 Production Reversion Recoupment
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 Development Facilities approved under Article 12.1
(Proposal) or Article 12.2 (Counterproposals); such
recoupment is limited to the Non-participating Party's
Share of the Hydrocarbon production that utilize such
Platform and/or Development Facilities;
(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/Development Facilities
Costs to Non-consent Operations) of using an existing
Platform/Development Facilities; and
(d) the Non-participating Party's Share of the costs of
operation, maintenance, treating, processing, gathering,
and transportation, including, but not limited to, an
Offsite Host Facilities' handling fees, as well as lessor's
royalties and severance, Hydrocarbon production, and excise
taxes,
then, 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 Platform or Development Facilities, and the
Hydrocarbon production therefrom as the Nonparticipating Party
would have owned or been entitled to if it had participated in the
Nonconsent 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 as set forth in this Agreement and Exhibit "C".
42
13.2.2 Non-production Reversion
If the Non-consent Operation fails to obtain Hydrocarbon
production or if the operation results 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 Development 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
If a Participating Party proposes 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 other
than the cost of setting any casing or Completion Equipment that is used
in the Deepening or Sidetracking), 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 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 from the surface to one hundred feet
(100') below the point at which the Sidetracking was initiated.
43
Such allocations shall be consistent with the guidelines
recommended by the applicable Council of Petroleum Accountants
Societies ("▇▇▇▇▇") Guideline, 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 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.
13.6 Operations in a Production Interval
A Participating Party in a Production Interval may propose Rework or
Sidetrack operations within that Production Interval, or to permanently
plug and abandon that Production Interval in a well; however, no
Production Interval in a well shall be 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 Development 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 Development Facilities shall be a
Non-participating Party for all operations utilizing the Platform and/or
Development 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 Development Facilities. If a
Non-participating Party in a Non-consent Platform and/or Development
Facilities desires to participate in the drilling of any such well
proposed by the Participating Parties in the Platform and/or Development
Facilities, the Non-participating Party desiring to join in the proposed
well shall first pay the Participating Parties in the Platform and/or
Development Facilities its proportionate share of the cost of the
Platform and/or Development 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
44
shall (a) reimburse the Participating Parties in the Platform and/or
Development Facilities in the same proportions they are sharing in the
Platforms and/or Development 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 Development 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 Development 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 Participating Parties in all
existing ▇▇▇▇▇ currently producing from the existing Producible Reservoir
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 Non participating Party's Share of all
Hydrocarbon production from the Non-consent 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/Development Facilities Costs to Non-consent
Operations
In the event a well is drilled from or produced through a Platform or is
produced through Development Facilities which are owned by the
Participating Parties in different proportions than the ownership of the
Non-consent well, the rights of the Participating Parties in such well
and the costs to utilize such Platform or Development Facilities for such
well shall be determined as follows:
13.9.1 Investment Usage Fees
The Participating Parties in such well shall pay to the Operator,
45
for credit to the owners of the Platform and/or Development
Facilities, a one-time usage fee for the right to use the Platform
and/or Development Facilities. Such usage fees shall be determined
in accordance with paragraphs (a) and (b) below:
(a) A fee for slot usage will be determined as follows:
(i) In the event the well uses a platform with well
slots and such platform has no Development
Facilities installed on it, the slot usage fee shall
be an amount equal to the ratio which one Platform
slot bears to the total number of slots on the
Platform times the total cost of the Platform.
(ii) In the event the well uses a Platform with well
slots and such Platform has Development Facilities
installed on it, the slot usage fee shall be an
amount equal to the ratio which one Platform slot
bears to the total number of slots on the Platform
times the total cost of the Platform attributable to
well slot area, determined as follows:
Slot Usage Fee = (one platform slot divided by total
platform slots) x [(Total Cost of Platform - Any Cost of
Development Facilities Included In the Total Cost of
Platform) x Well Slot Area %]
Well Slot Area % = Deck Space Dedicated to Well Slots
divided by (Deck Space Dedicated to Well Slots + Deck
Space Dedicated to Development Facilities)
The cost of Development Facilities [as used in Article
13.9.1 (a) and (b)] shall include the cost of design,
material, fabrication, transportation, installation and
modifications of such Development Facilities.
For purposes of calculating the slot usage fee [under
Article 13.9.1 (a) (i) or (ii)], the total cost of the
Platform shall be reduced by 0.83333% per month, commencing
on the first day of the month following the date the
Platform was installed and continuing every month
thereafter until the month actual drilling operations on
such well is commenced; however, the total cost of the
Platform shall not be reduced by more than forty percent
(40%) of the total Platform costs. The cost of additions to
the Platform shall be reduced in the same manner commencing
the first day of the month after the addition is installed
If such well is abandoned, having never produced, the right
of the Participating Parties in such well to utilize the
46
Platform slot through which such well was drilled shall
terminate unless such Parties commence drilling a
substitute well for the abandoned well through the same
slot within ninety (90) days of the abandonment. If such
substitute well is abandoned, having never produced, the
right of the Participating Parties in such well to utilize
the Platform slot through which such well was drilled shall
terminate. No refund or credit of the slot usage fee shall
be given or due if a subsequent well operation is conducted
through the same slot or if that Platform slot is restored
to a usable condition.
If subsequent Non-consent Operations (such as Workover,
Recompletion, Deepening, or Sidetracking operations) are
conducted in any wellbore where either all Parties to this
agreement participated in the original well drilling costs
or a previous Non-consent Operation was conducted, no slot
usage fee shall be charged to the Participating Parties in
the subsequent Non-consent Operation.
(b) The Participating Parties in such well shall pay to the
owners of the Development Facilities a sum equal to that
portion of the total cost of such Development Facilities
which the throughput volume of the Non-consent Operation
bears to the total design throughput volume of the
Development Facilities at the time such well is connected.
Throughput volume shall be estimated by the Operator using
an average daily volume of the first three months of
production from the Non consent Operation.
The Total Cost of Development Facilities shall include the cost of
design, material, fabrication, transportation, installation and
modifications of Development Facilities plus that portion of the
cost of the Platform attributable to Development Facilities Area.
The Development Facilities Usage Fee shall be based on the
following:
Development Facilities Usage Fee =Total Cost of Development
Facilities x Throughput Volume of Non-consent Well divided by
Total Design Throughput of Facilities
Total Cost of Development Facilities = Cost of Development
Facilities + [(Total Cost of Platform - Any Cost of Development
Facilities Included In the Total Cost of Platform) x Development
Facilities Area %]
Development Facilities Area % = Deck Space Dedicated to
Development Facilities divided by (Deck Space Dedicated to Well
Slots + Deck Space Dedicated to Development Facilities)
47
For purposes of calculating the Development Facilities usage fee,
the total cost of the Development Facilities, shall be reduced by
0.83333% per month, commencing from the first day of the month
following the date when the Development Facilities where installed
and continuing every month thereafter until the first day of the
month during which production from the Non-consent Operation is
commenced; however, the total cost of the Development Facilities
shall not be reduced more than forty percent (40%). If
modifications, expansions or additions to the Development
Facilities are made after commencing first production and prior to
the connection of the Non-consent Operation to the Development
Facilities, such Development Facilities investment shall be
reduced in the same manner as described above, from the first day
of the month the Development Facilities modification, expansion or
addition is completed until the first day of the month during
which production from the Non-consent Operation is commenced. If
modifications, expansions or additions are made to the Development
Facilities after connection of the Non-consent Well which benefit
the Non-consent Well, such costs shall be shared by the
Non-consent Well based on that portion which the throughput volume
of the Non-consent Well bears to the total design throughput
volume of the Development Facilities at the time of completion of
such modification, expansion or addition. The Non-consent well's
throughput volumes shall be determined in the same manner as
described above.
Payment of sums under this Article 13.9.1 is not a purchase of an
additional interest in the Platform or the Development 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 Platform and/or Development Facilities
and that proportionate part of the costs of operating and
maintaining the Platform and/or Development 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 Development 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 Development Facilities.
Operating and maintenance expense for support facilities (e.g.,
electrical systems and living quarters which do not handle
production) shall be allocated by applying a usage basis
appropriate for that support facility.
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13.10 Allocation of Costs Between Zones
Except as provided in Article 10.9 (▇▇▇▇▇ 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 recommended in the applicable ▇▇▇▇▇
Guideline, as amended from time to time.
13.11 Lease Maintenance Operations
An operation proposed within the last six (6) months 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, Assigns, [and Preferential Rights]). 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
49
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 Non-Consent Premiums
A non-consent premium paid by a Non-Participating Party to the
Participating Parties shall be allocated to the Participating Parties
based on their original Participating Interest share in the Nonconsent
Operation which generated the non-consent premium.
ARTICLE 14
ABANDONMENT, SALVAGE, AND SURPLUS
14.1 Platform Salvage and Removal Costs
When the Parties owning ▇▇▇▇▇, Platforms and/or Development Facilities
unanimously agree to dispose of the ▇▇▇▇▇, Platforms and/or Development
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, Development Facilities or ▇▇▇▇▇
Except as provided in Article 10 (Exploratory Operations) and Article
11(Development Operations), a Participating Party may propose the
abandonment of a Platform and Development Facilities or ▇▇▇▇▇ by
notifying the other Participating Parties. No Platform and Development
Facilities or wellbore shall be abandoned without the unanimous approval
of the Participating Parties. If the Participating Parties do not approve
abandoning the Platform and Development Facilities or ▇▇▇▇▇, the Operator
shall prepare a statement of the abandoning Party's share of estimated
abandonment costs, less its share of estimated salvage value, as
determined by the Operator pursuant to Exhibit "C". The Party desiring to
abandon it shall pay the Operator, on behalf of the Participating Parties
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for that Party's share of the estimated abandonment costs, less its share
of estimated salvage value, within thirty (30) days after receipt of the
Operator's statement. 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 within thirty (30) days after
the abandoning Party's receipt of the Operator's statement.
14.3 Assignment of Interest.
Each Participating Party desiring to abandon a Platform and Development
Facilities or ▇▇▇▇▇ under Article 14.2 (Abandonment of Platforms,
Development 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
Development 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
Development Facilities or ▇▇▇▇▇, except liability for payments under
Article 14.2 (Abandonment of Platforms, Development Facilities or ▇▇▇▇▇).
14.4 Abandonment Operations Required by Governmental Authority
A well abandonment or Platform and Development 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 Development
Facilities in proportion to their Participating Interests therein. No
approval by the Parties will be necessary for Operator to proceed with
the government required well abandonment, or Platform and Development
Facilities removal. The Operator shall provide the Parties with an
informational AFE prior to commencing such an abandonment or removal.
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 one-hundred thousand Dollars ($100,000), 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 one-hundred thousand Dollars ($100,000), 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.
51
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 thirty (30) days, but not
more than one-hundred 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) subject to Article 14.4, no further operations may be
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 fifteen (15) 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 thirty (30) 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.
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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 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 all
activities, operations, rentals, royalties, taxes, damages,
Hydrocarbon imbalances, 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
53
Agreement before the effective date of the withdrawal. Before the
effective date of the withdrawal, the Operator shall provide 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, Development
Facilities, and other materiel and equipment owned by the Joint
Account, 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 as shown
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, including but not limited to overriding
royalties, net profits interest and production payments, 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 7.3
(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.
54
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, Hydrocarbon production payment, net profits
interest, mortgage, lien, security interest, or other burden or
encumbrance, other than lessor's royalty and other burdens listed in
Exhibit "A", the Party so burdened shall pay and bear all liabilities and
obligations created or secured by the burden or encumbrance and shall
indemnify and hold 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 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 which the Parties do
not unanimously agree to list on Exhibit "A", (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 if the proceeds from the
sale of Hydrocarbon production under 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 Article 8.6 (Security Rights).
55
16.3 Payment of Rentals and Minimum Royalties
Operator shall pay in a timely manner, for the joint account of the
Parties, all rental, 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 the Operator's 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 Non-operator's proceeds received or the value of
the Hydrocarbon production taken in kind 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 27
(Successors, Assigns, and Preferential Rights).
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 its
share of Hydrocarbon production taken in accordance with state or federal
regulations, as may be amended from time-to-time. Adjustments shall be
made among the Parties in accordance with Exhibit "E" (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 taken,
and shall hold the Nonparticipating 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
56
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 of any amounts due, and each Party shall be
responsible for reimbursing Operator for any such amounts paid.
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.
57
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 Dollars ($50,000) 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. Charges for services performed by the
legal staff of a Party shall be made in accordance with Exhibit "C", 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
58
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 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 BORNE BY EACH PARTY IN PROPORTION TO ITS PARTICIPATING INTEREST
SHARE IN THE ACTIVITY OR OPERATION OUT OF WHICH THAT LIABILITY ARISES,
EXCEPT TO THE EXTENT LIABILITY RESULTS FROM THE GROSS NEGLIGENCE OR
WILLFUL MISCONDUCT OF A PARTY, IN WHICH CASE 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.
59
19.7 Damage to Reservoir, Loss of Reserves and Profit
NOTWITHSTANDING ANY CONTRARY PROVISION OF THIS AGREEMENT, OTHER THAN
ARTICLES 10.8.6 AND 11.8.6, IF SELECTED, 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 TO THE EXTENT THAT THE DAMAGE OR LOSS ARISES
FROM A PARTY'S GROSS NEGLIGENCE OR WILLFUL MISCONDUCT, IN WHICH CASE THAT
PARTY SHALL BE SOLELY RESPONSIBLE FOR DAMAGE OR LOSS ARISING FROM ITS
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 (Il) ALL CLAIMS, DEMANDS, AND
LIABILITIES FOR ANY LOSS OR COST SUFFERED BY A PARTY AS AN INCIDENT
THEREOF, INCLUDING, BUT NOT LIMITED TO, INJURY, SICKNESS AND DEATH,
CAUSED BY OR OTHERWISE ARISING OUT OF THAT TRANSPORTATION OR ACCESS, OR
BOTH, EXCEPT TO THE EXTENT THAT LOSS OR COST RESULTS FROM THE GROSS
NEGLIGENCE OR WILLFUL MISCONDUCT OF THE PARTY SO INDEMNIFIED AND
PROTECTED.
19.9 Dispute Resolution Procedure
Any claim, controversy or dispute arising out of, relating to, or in
connection with this Agreement or an activity or operation conducted
under this Agreement shall be resolved under the Dispute Resolution
Procedure in Exhibit "H" to this Agreement.
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 be excluded from the application of all or any part
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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 the drilling of a well or the conducting of an operation 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 21. No Party shall release or obligate
itself to release Confidential Data in return for a contribution from a
third party without prior written consent of the Participating Parties or
Parties having the right to participate in the well.
21.2 Cash Contributions
If a Party receives a cash contribution for drilling a well on the Lease
or conducting an activity or operation 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 or the Platform and/or Development Facilities. 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.
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ARTICLE 22
DISPOSITION OF PRODUCTION
22.1 Take-in-Kind Facilities
Subject to Article 22.2, 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 activities or operations conducted under this Agreement,
subject to this Article 22. In order to avoid interference with
operations on or regarding the Platform, the Development 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 components") along with its notice informing the Operator of its
election to take in kind. If the Operator agrees to install and operate
the Take-in Kind Facilities, the Operator shall purchase the components
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 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 components. The Operator shall not be responsible
for any losses or damages to the components or the Take in Kind Party's
Hydrocarbon production metered, treated, processed or transported by the
components unless such losses or damages are the result of the Operator's
gross negligence or willful misconduct. If the Operator refuses or fails
to install the Take-in Kind Facilities by thirty (30) days prior to the
deadline provided in Section 12.4, the Take in Kind Party shall have the
right to install and operate the Take-in Kind Facilities providing that
such operations do not interfere with existing operations or proposed
operations that have been approved under terms of this Agreement.
22.3 Failure to Take Oil and Condensate 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 or condensate, Operator
shall have the right, but not the obligation, subject to revocation at
will by the Party owning the Hydrocarbon production, to purchase for its
own account, sell to others, or otherwise dispose of all or part of the
Hydrocarbon production at the same price at which Operator calculates and
pays lessor's royalty on its own portion of the oil or condensate.
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 or
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condensate shall be for such reasonable periods of time as are 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 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 or condensate. Operator, in disposing of another
Party's oil 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 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.
22.4 Failure to Take Gas in Kind
Article 22.3 (Failure to Take Oil and Condensate in Kind) shall not apply
to gas produced from the Lease. In no event shall Operator be responsible
for, or obligated to dispose of, another Party's, share of gas
production. 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".
22.5 Expenses of Delivery in Kind
A cost that is incurred by Operator in making delivery of a Party's share
of Hydrocarbons or disposing of same shall be paid by the Party.
ARTICLE 23
APPLICABLE LAW
23.1 Applicable Law
THIS AGREEMENT AND THE RELATIONSHIP OF THE PARTIES UNDER THIS AGREEMENT
SHALL BE GOVERNED BY AND INTERPRETED UNDER FEDERAL LAWS AND LAWS OF THE
STATE OF LOUISIANA, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAWS
THAT WOULD OTHERWISE REFER THE MATTER TO THE LAWS OF ANOTHER
JURISDICTION.
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ARTICLE 24
LAWS, REGULATIONS, AND NONDISCRIMINATION
24.1 Laws and Regulations
This Agreement and operations under this Agreement are subject to all
applicable laws, rules, regulations, and orders by all governmental
authorities claiming jurisdiction now and in the future. 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, that 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, ASSIGNS, AND PREFERENTIAL RIGHTS
26.1 Transfer of Interest
Except as provided in 26.1.1 (Exceptions to Transfer 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
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security rights under 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,
Development 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
A Transfer of Interest becomes effective thirty (30) days after
the day all Parties are in receipt 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 "Designation of Operator" form 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.
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. All liens, charges, and other
encumbrances, including but not limited to overriding royalties,
net profits interest and production payments, which a Party placed
(or caused to be placed) on its Working Interest shall be fully
satisfied or released prior to the effective date of a Transfer of
Interest, vesting or relinquishment of Working Interest between
that Party and another Party under this Agreement (unless the
other Party is willing to accept the Working Interest subject to
those liens, charges, and other encumbrances).
65
26.2 Preferential Right to Purchase
Any Transfer of Interest shall be subject to the following provisions:
26.2.1 Notice of Proposed Transfer of Interest
The transfer notice shall provide full information about the
proposed Transfer of Interest, including, but not limited to, the
name and address of the prospective assignee (who must be ready,
willing, and able to acquire the interest and deliver the stated
consideration therefor), the full consideration for the Transfer
of Interest, and all other terms of the offer. In the case of a
sale of oil and gas interests that includes all or part of the
assigning Party's Working Interest, or if the proposed Transfer of
Interest is structured as a like-kind exchange, the Working
Interest that is subject to the Transfer of Interest shall be
separately valued and the transfer notice shall state the monetary
value attributed to the Working Interest by that prospective
assignee. Article 26.2 (Preferential Right to Purchase) shall
apply only to the Working Interest that is subject to the Transfer
of Interest. '
26.2.2 Exercise of Preferential Right to Purchase
Within twenty (20) days from receipt of the transfer notice, each
non-assigning Party may exercise its preferential right to
purchase its Participating Interest share of the Working Interest
offered (on the same terms and conditions, or on equivalent terms
for a non-cash transaction as stated in the notice) without
reservations or conditions by written notice of that fact to all
of the Parties. If one or more non-assigning Parties, but not all
non-assigning Parties, exercise their preferential right to
purchase (the "Acquiring Parties"), then within fifteen (15) days
of the termination of the twenty (20) day notice period set forth
in the previous sentence, each Acquiring Party may exercise its
preferential right to purchase its Participating Interest share of
the Working Interest offered based on its Participating Interest
share as a non-assigning Party or based on its Participating
Interest share as an Acquiring Party. If within the fifteen (15)
day notice period set forth in the previous sentence an Acquiring
Party does not exercise its preferential right to purchase its
Participating Interest share of the Working Interest offered based
on its Participating Interest share as an Acquiring Party but does
exercise its preferential right to purchase its Participating
Interest share of the Working Interest offered based on its
Participating Interest share as a non-assigning Party, then the
other Acquiring Parties shall have ten (10) days in which to agree
to pay the remainder of the full consideration for the Transfer of
Interest and notify the assigning Party of that fact. If within
the ten (10) day period set forth in the previous sentence the
other Acquiring Parties do not agree to pay the remainder of the
full consideration for the Transfer of Interest, or if the other
Acquiring Parties do agree to pay the remainder of the full
consideration for the Transfer of Interest but do not notify the
assigning Party of the fact, the assigning Party shall be free to
66
complete the proposed conveyance on the terms disclosed in the
notice. If the non assigning Parties or the Acquiring Parties
agree to pay the full consideration for the Transfer of Interest
and accept all of the other terms of the third party offer, the
assigning Party shall transfer the Working Interest to the
non-assigning Parties or Acquiring Parties who exercised their
preferential right to purchase under this Article 26 (Successors,
Assigns, and Preferential Rights). The Transfer of Interest shall
be concluded within a reasonable time, but no later thirty (30)
days after the applicable period in which the non assigning
Parties or Acquiring Parties may exercise their preferential right
to purchase. 26.2.3 Transfer of Interest Not Affected by the
Preferential Right to Purchase Article 26.2 (Preferential Right to
Purchase) shall not apply when a Party proposes to:
(a) 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), or
(b) grant a net profits interest, or a production payment
(c) dispose of its Working Interest by:
(1) a merger, reorganization, or consolidation;
(2) a Transfer of Interest of substantially all of a
Party's exploration and production properties in the
Gulf of Mexico; or
(3) a Transfer of Interest to an Affiliate.
26.2.4 Completion of Transfer of Interest
If the proposed Transfer of Interest is not executed and fled of
record with the MMS within three (3) months after receipt of the
transfer notice by the non-assigning Parties, or if the terms of
the proposed Transfer of Interest conveyance are materially
altered, the proposed Transfer of Interest shall be deemed
withdrawn, and the Working Interest included in the proposed
Transfer of Interest shall again be governed by this Article 26.2
(Preferential Right to Purchase).
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, Development Facilities, and
equipment have been disposed by the Operator in accordance with Article
14 (Abandonment, Salvage, and Surplus); (c) all Claims as defined in
Article 19 (Liability, Claims, and Lawsuits) have been settled or
otherwise disposed of; and (d) there has been a final accounting and
settlement by all Parties.
66
In accordance with Article 4.5 (Selection of Successor Operator), this
Agreement will terminate if no Party is willing to become Operator,
effective after all conditions in clauses (a) through (d) above have been
completed. In accordance with Article 15.2.1 (Unanimous Withdrawal), this
Agreement will terminate if all Parties elect to withdraw, 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, Development 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, as
67
amended or modified, are incorporated in this Agreement by
reference. The affirmative action clauses concerning disabled
veterans and veterans of the Vietnam era (41 CFR 60-250) 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 with (and the Operator shall require each
independent contractor to comply with) the governmental
requirements in Exhibit "E" 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 Future References
A reference to a Party includes such Party's successors and
assigns and, in the case of governmental bodies, persons
succeeding to their respective functions and capacities.
27.5.5 Currency
Any amounts due or payable under this Agreement shall be paid in
United States currency.
27.5.6 Optional Provisions
In the event that any "Optional" provision of this Agreement is
not adopted by the Parties to this Agreement by a typed, printed
or handwritten indication, such provision shall not form a part of
this Agreement, and no inference shall be made concerning the
intent of the Parties in regard to the subject matter of the
"Optional" provision
27.5.7 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.
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27.5.8 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.
27.5.9 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.
27.5.10 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.
27.5.11 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. A
ratification shall have the same effect as an execution of this
Agreement.
27.6 Restricted Bidding
If more than one Party is ever on the list of restricted joint bidders
for Outer Continental Shelf ("OCS") lease sales, as issued by the MMS
under 30 CFR 256.44, as amended, the Parties shall comply with all
statutes and regulations regarding restricted joint bidders on the OCS.
IN WITNESS WHEREOF, this Agreement has been executed by the Parties as of the
day and year first above written.
WITNESSES: Stone Energy Corporation
_________________________ By:_______________________________
_________________________ Title:____________________________
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Ridgewood Energy Corporation,
Manager Ridgewood Energy P Fund, LLC.
__________________________ By: /s/ ▇.▇. ▇▇▇▇▇
-------------------------------
__________________________ Title: Executive Vice President
----------------------------
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EXHIBIT "A"
Attached to and made a part of that certain Offshore Operating Agreement dated
effective September 1, 2005, by and between Stone Energy Corporation and
Ridgewood Energy Corporation, Manager Ridgewood Energy P Fund, LLC.
DESCRIPTION OF CONTRACT AREA AND LEASE, LEASE WORKING INTEREST OWNERSHIP AND
DESIGNATED REPRESENTATIVES
--------------------------
I. Contract Area and Lease
-----------------------
Oil and Gas Lease ▇▇. ▇▇▇-▇▇▇▇▇▇ effective as of July 1, 2004, by and
between the United States of America, as Lessor, and Stone Energy
Corporation, as Lessee, covering a portion of Block 231, South ▇▇▇▇▇
Island Area, OCS Official Protraction Diagram, NG 3-D.
The Contract Area shall be limited to the surface area covered by said
leases, insofar and only insofar as said leases cover rights and depths
from the surface to a subsea true vertical depth of 16,500 feet or lesser
depth as determined per the Participation Agreement.
II. Lease Working Interest Ownership
--------------------------------
Ridgewood Energy Corporation, Manager
Ridgewood Energy P Fund, LLC. 30%
Stone Energy Corporation 70%
III. Designated Representatives
--------------------------
RIDGEWOOD ENERGY CORPORATION,
Manager Ridgewood Energy P Fund, LLC.
▇▇▇▇▇ ▇▇▇ ▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Representative: Primary-▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, Alternative-▇▇▇▇ ▇. ▇▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
STONE ENERGY CORPORATION
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇
Post Office ▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇ and 70505
Representative: Primary-▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, Alternative-▇.▇. ▇▇▇▇▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
EXHIBIT "B"
Attached to and made a part of that certain Offshore Operating Agreement dated
effective as of September l, 2005, by and between Stone Energy Corporation and
Ridgewood Energy Corporation, Manager Ridgewood Energy P Fund, LLC.
INSURANCE REQUIREMENTS
----------------------
Operator shall carry insurance as follows for the benefit and protection of the
Parties to this Agreement:
I. Worker's Compensation and Employer's Liability
Worker's Compensation Insurance in accordance with the laws of
governmental bodies having jurisdiction including, if applicable, United
States ▇▇▇▇▇▇▇▇▇ and Harbor Worker's Compensation Act with Outer
Continental Shelf Extension, Maritime Employer's Liability (including,
but not limited to, the ▇▇▇▇▇ Act, the Death on the High Seas Act, as
well as an endorsement to the effect that a claim in rem shall be treated
as a claim against the insured) and Employer's Liability Insurance.
Employer's Liability Insurance shall provide minimum coverage of
$1,000,000 for bodily injury per accident and by disease.
II. Business Automobile Liability Insurance covering all Owned, Leased, Hired
or Non-Owned Vehicles
Bodily Injury and Property Damage with minimum limits of $1,000,000 per
occurrence, combined single limit.
III. Vessels
Hull Protection and Indemnity Insurance (or equivalent coverage) shall
cover all vessels owned by Operator to the scheduled value of each
vessel, plus P and I insurance with limits of at least $1,000,000 per
occurrence.
If operator charters any vessels, Charterer's Legal Liability (or
equivalent coverage) with minimum limits of $1,000,000 will be carried.
IV. Aircraft
Aircraft Liability Insurance with limits of at least $1,000,000 per
occurrence shall cover all aircraft owned or chartered by Operator.
V. Umbrella Liability
Operator shall carry Umbrella Liability Insurance with a minimum limit of
$10,000,000 excess of all primary limits of the insurance specified in
paragraphs I through IV above.
Operator shall not be obligated or authorized to obtain or carry on behalf of
the joint account any additional insurance covering the Parties or the
operations to be conducted hereunder. Each Party individually may acquire at its
own expense such insurance as it deems proper to protect itself against claims,
losses, damage to or destruction of property, or personal injury or death of
persons arising out of joint operations. All uninsured losses and all damages to
jointly owned property shall be borne by the Parties in proportion to their
respective interests, unless the loss is caused by the gross negligence or
willful misconduct of a party hereto.
The Non-Operators shall be named as Additional Insureds on a blanket basis under
the insurance policies required by Paragraphs II through V above inclusive, with
respect to joint activities, and all such policies shall provide for Waivers of
Subrogation between Operator and Non-Operators. Operator shall furnish
Certificates of Insurance to Non-Operators if so requested.
Operator shall use reasonable efforts to require all contractors working or
performing services hereunder to comply with Worker's Compensation and
Employer's Liability laws, both State and Federal, and said contractors or
others performing services shall be required to procure and maintain
Comprehensive General Liability insurance with policy limits of at least
$1,000,000 per occurrence, combined single limit, and $2,000,000 aggregate. Said
policy, or policies, shall include Contractual Liability assumed under any
contract between the contractor and Operator. Operator may require contractors
to carry such other insurance as deemed necessary.
Operator will maintain the appropriate MMS Bond or other governmentally required
bonds required to conduct operations in the OCS, if applicable.
Operator shall charge to the joint account all premiums for the insurance
coverages required by this exhibit. All deductibles, retentions and losses not
covered by such insurance shall be charged to the joint account. To the extent
that any policy that Operator obtains for the joint account pursuant to this
exhibit also covers Operator's operations outside the scope of the Agreement,
the cost of premiums for such policies shall be allocated between the joint
account and Operator on a fair and reasonable basis.
In the event less than all Parties participate in an operation conducted under
the terms of this Agreement, then the insurance requirements and costs, as well
as all losses, liabilities and expenses incurred as the result of such
operation, shall be the burden of the Party or Parties participating therein.
Operator reserves the sole right to select the insurance carrier(s) and to
purchase from such insurance carrier(s) the types and kinds of coverage
available under the above-described policies to cover any loss that may occur.
The inability of the carrier(s) to pay the claim or the insolvency of the
insurance carrier(s) selected by Operator shall not be the responsibility of
Operator nor be deemed the negligence of Operator.
If any of the above described insurance policies not required by law are not
available (or become unavailable) at reasonable premium rates in the judgment of
the Operator, then Operator thereafter shall not be required to obtain or
continue such insurance in force. In the event of such occurrence, Operator
shall use its best efforts to notify Non-Operators before the coverage lapses.
WC 95#4 E-AFE (2)
[TABLE ILLEGIBLE]
Time
West Cameron 95 No.4
DRILLING TIME ESTIMATE DAYS SUM
Skid Rig, RDMO Rig 2.50 2.50
NU, DO 0.50 3.00
Drill 26" HOLE to 1000' 0.86 3.86
Set 20" casing, N/U, DO 2.70 6.56
Directionally drill 17-1/2" HOLE to 4852' MD / 4500' TVD 4.60 11.16
Set 13.3/8" casing 1.00 12.16
N/D diverter. NU BOP's 1.00 13.16
DO, CIO to OBM, LOT 1.10 14.26
Directionally drill 12-1/4" HOLE to 12,158' MD / 11.000' TVD 13.50 27.76
Log, Set 9.7/8" casing 2.60 30.36
N/D diverter, NU BOP's 1.50 31.86
DO, LOT 2.50 34.36
Directionally drill 8-1/2" x 9-1/2" HOLE to 15,658' MD / 14.500' TVD 16.10 50.46
EVALUATE - Triple Combo 2.50 52.96
52.96
52.96
52.96
52.96
52.96
52.96
52.96
52.96
52.96
52.96
62.96
52.96
52.96
52.96
52.96
52.96
TOTAL DRILLING TIME - this will be placed in drilling column of AFE 52.96 52.96
52.96
PRODUCTION Casing/Liner TIME ESTIMATE 52.96
52.96
52.96
52.96
52.96
52.96
52.96
52.96
52.96
52.96
52.96
52.96
TOTAL PROD CSG/LNR TIME - This will be summed in compl column 0.00 0.00
0.00
COMPLETION TIME ESTIMATE 0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
O.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
TOTAL COMPLETION TIME - this will be summed in compl column 0.00 0.00
Page 1
Stone Energy Corporation
Form modeled after the ▇▇▇▇▇ 1986
Offshore Accounting Procedure
EXHIBIT "C"
Attached to and made a part of that certain Offshore Operating Agreement dated
effective September 1, 2005 by and between Stone Energy Corporation and
Ridgewood Energy Corporation, Manager Ridgewood Energy P Fund, LLC.
ACCOUNTING PROCEDURE
OFFSHORE JOINT OPERATIONS
I. GENERAL PROVISIONS
1. Definitions
"Joint Property" shall mean the real and personal property subject to the
Agreement to which this Accounting Procedure is attached.
"Joint Operations" shall mean all operations necessary or proper for the
development, operation, protection and maintenance of the Joint Property.
"Joint Account" shall mean the account showing the charges paid and credits
received in the conduct of the Joint Operations and which are to be shared
by the Parties.
"Operator" shall mean the party designated to conduct the Joint Operations.
"Non-Operators" shall mean the Parties of this Agreement other than the
Operator.
"Parties" shall mean Operator and Non-Operators.
"First Level Supervisors" shall mean those employees whose primary function
in Joint Operations is the direct supervision of other employees and/or
contract labor directly employed on the Joint Property in a field operating
capacity.
"Technical Employees" shall mean those employees having special and
specific engineering, geological or other professional skills, and whose
primary function in Joint Operations is the handling of specific operating
conditions and problems for the benefit of the Joint Property.
"Personal Expenses" shall mean travel and other reimbursable expenses of
Operator's employees.
"Material" shall mean personal property, equipment or supplies acquired or
held for use on the Joint Property.
"Controllable Material" shall mean Material which at the time is so
classified in the Material Classification Manual as most recently
recommended by the Council of Petroleum Accountants Societies.
"Shore Base Facilities" shall mean onshore support facilities that during
drilling, development, maintenance and producing operations provide such
services to the Joint Property as receiving and transshipment point for
supplies, materials and equipment; debarkation point for drilling and
production personnel and services; communication, scheduling and
dispatching center; other associated functions benefiting the Joint
Property.
"Offshore Facilities" shall mean platforms and support systems such as oil
and gas handling facilities, living quarters, offices, shops, cranes,
electrical supply equipment and systems, fuel and water storage and piping,
heliport, marine docking installations, communication facilities,
navigation aids, and other similar facilities necessary in the conduct of
offshore operations.
2. Statements and ▇▇▇▇▇▇▇▇
Operator shall ▇▇▇▇ Non-Operators on or before the last day of each month
for their proportionate share of the Joint Account for the preceding month.
Such bills will be accompanied by statements which identify the authority
for expenditure, lease or facility, and all charges and credits, summarized
by appropriate classifications of investment and expense except that items
of Controllable Material and unusual charges and credits shall be
separately identified and fully described in detail.
3. Advances and Payments by Non-Operators
A. Unless otherwise provided for in the Agreement, the Operator may
require the Non-Operators to advance their share of estimated cash
outlay for the succeeding month's operation within fifteen (15) days
after receipt of the billing or by the first day of the month for
which the advance is required, whichever is earlier. 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 Citibank, New York, New York 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
-1-
effort to conduct a joint audit in a manner which will result in a
minimum of inconvenience to the Operator. Operator shall bear no
portion of the Non-Operators' audit cost incurred under this paragraph
unless agreed to by the Operator. The audits shall not be conducted
more than once each year without prior approval of Operator, except
upon the resignation or removal of the Operator, and shall be made at
the expense of those Non-Operators approving such audit.
B. The Operator shall reply in writing to an audit report within 180 days
after receipt of such report.
6. Approval by Non-Operators
Where an approval or other agreement of the Parties or Non-Operators is
expressly required under other sections of this Accounting Procedure and if
the agreement to which this Accounting Procedure is attached contains no
contrary provisions in regard thereto, Operator shall notify all
Non-Operators of the Operator's proposal, and the agreement or approval of
a majority in interest of the Non-Operators shall be controlling on all
Non-Operators.
II. DIRECT CHARGES
Operator shall charge the Joint Account with the following items:
1. Rentals and Royalties
Lease rentals and royalties paid by Operator for the Joint Operations.
2. Labor
A. (1) Salaries and wages of Operator's field employees directly employed
on the Joint Property in the conduct of Joint Operations.
(2) Salaries and wages of Operator's employees directly employed on
Shore Base Facilities or other Offshore Facilities serving the Joint
Property if such costs are not charged under Paragraph 7 of this
Section II.
(3) Salaries of First Level Supervisors in the field.
(4) Salaries and wages of Technical Employees directly employed on the
Joint Property if such charges are excluded from the Overhead rates.
(5) Salaries and wages of Technical Employees either temporarily or
permanently assigned to and directly employed in the operation of the
Joint Property if such charges are excluded from the overhead rates.
B. Operator's cost of holiday, vacation, sickness and disability benefits
and other customary allowances paid to employees whose salaries and
wages are chargeable to the Joint Account under Paragraph 2A of this
Section IT. Such costs under this Paragraph 2B may be charged on a
"when and as paid basis" or by "percentage assessment" on the amount
of salaries and wages chargeable to the Joint Account under Paragraph
2A of this Section II. If percentage assessment is used, the rate
shall be based on the Operator's cost experience.
C. Expenditures or contributions made pursuant to assessments imposed by
governmental authority which are applicable to Operator's costs
chargeable to the Joint Account under Paragraphs 2A and 2B of this
Section H.
D. Personal Expenses of those employees whose salaries and wages are
chargeable to the Joint Account under Paragraph 2A of this Section II.
3. Employee Benefits
Operator's current costs of established plans for employee's 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 maybe required for immediate use and
is reasonably practical and consistent with efficient and economical
operations. The accumulation of surplus stocks shall be avoided.
5. Transportation
Transportation of employees and Material necessary for the Joint Operations
but subject to the following limitations:
A. If Material is moved to the Joint Property from the Operator's
warehouse or other properties, no charge shall be made to the Joint
Account for a distance greater than the distance from the nearest
reliable supply store where like material is normally available or
railway receiving point nearest the Joint Property unless agreed to by
the Pasties.
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 I 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, Facilities and Affiliate Services Furnished by Operator
A. Operator shall charge the Joint Account for use of Operator-owned
equipment and facilities, including Shore Base and/or Offshore
Facilities, at rates commensurate with costs of ownership and
operation. Such rates may include labor, maintenance, repairs, other
operating expense, insurance, taxes, depreciation, abandonment,
reclamation and interest on gross investment less accumulated
depreciation not to exceed eight-percent (8%) per annum. In addition,
-2-
for platforms and facilities only, the rate may include an element of
the estimated cost of 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. For automotive equipment, Operator may elect to use rates
published by the Petroleum Motor Transport Association.
8. Damages and Losses to Joint Property
All costs or expenses necessary for the repair or replacement of Joint
Property made necessary because of damages or losses incurred by fire,
flood, storm, theft, accident, or other causes, except those resulting from
Operator's gross negligence or willful misconduct. Operator shall furnish
Non-Operator written notice of damages or losses incurred as soon as
practicable after the report thereof has been received by Operator.
9. Legal Expense
Expense of handling, investigating and settling litigation or claim,
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 Bureau of Land Management or other
regulatory authority. Also, costs to provide or have available pollution
containment and removal equipment plus costs of actual control and cleanup
and resulting responsibilities of oil spills as required by applicable laws
and regulations.
14. Abandonment and Reclamation
Costs incurred for abandonment and reclamation 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.
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 H. The
cost and expense of services from outside sources in connection with matters of
taxation, traffic, accounting or matters before or involving governmental
agencies shall be considered as included in the overhead rates provided for in
this Section II 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 lB
A. Overhead - Fixed Rate Basis
(1) Operator shall charge the Joint Account at the following rates
per well per month: Drilling Well Rate $_40,000 (Prorated for
less than a full month) Producing Well Rate $_4,000
(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 the date of rig or other unit release,
except that no charge shall be made during suspension of
operations for fifteen (15) or more consecutive calendar
days.
(3) Application of Overhead - Fixed Rate Basis for Producing Well
Rate shall be as follows:
(a) An active well either produced or injected into for any
portion of the month shall be considered as a one-well
charge for the entire month.
(b) Each active completion in a multi-completed well in which
production is not commingled down hole shall be considered
as a one-well charge providing each completion is considered
a separate well by the governing regulatory authority.
(c) An inactive gas well shut in because of overproduction or
failure of purchaser to take the production shall be
considered as a one-well charge providing the gas well is
directly connected to a permanent sales outlet.
(d) A one-well charge shall be made for the month in which
plugging and abandonment operations are completed on any
well. This one-well charge shall be made whether or not the
well has produced except when drilling well rate applies.
(e) All other inactive ▇▇▇▇▇ (including but not limited to
inactive ▇▇▇▇▇ covered by unit allowable, lease allowable,
transferred allowable, etc.) shall not qualify for an
overhead charge.
(4) The well rates shall be adjusted as of the first day of April
each year following the effective date of the agreement to which
this Accounting Procedure is attached by the percent increase or
decrease published by ▇▇▇▇▇.
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 I 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, or deepening
of any or all ▇▇▇▇▇, and shall also include any remedial
operations requiring a period of five (5) consecutive work days
or more on any or all ▇▇▇▇▇; 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
To compensate Operator for overhead costs incurred in the construction and
installation of fixed assets, the expansion of fixed assets, and any other
project clearly discernible as a fixed asset or in the abandonment of fixed
assets and any associated reclamation required for the exploration,
development and operation of the Joint Property, Operator shall either
negotiate a rate prior to the beginning of construction, or shall charge
the Joint Account for Overhead based on the following rates for any Major
Construction project in excess of $ 25,000.
A. If the Operator absorbs the engineering, design and drafting costs
related to the project:
(1) 6 % of total costs if such costs are more than $ 25000 but less
than $100,000; plus
(2) 4 % of total costs in excess of $100,000 but less than
$1,000,000; plus
(3) 3 % 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) 5 % of total costs if such costs are more than $ 25,000 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.
Total costs shall mean the gross cost of any one project. For the purposes
of this paragraph, the component parts of a single project shall not be
treated separately and the cost of drilling and workover ▇▇▇▇▇ and
artificial lift equipment shall be excluded. On each project, Operator
shall advise Non-Operator(s) in advance which of the above options shall
apply. In the event of any conflict between the provisions of this
paragraph and those provisions under Section II, Paragraph 2 or Paragraph
6, the provisions of this paragraph shall govern.
3. Overhead - Catastrophe
To compensate Operator for overhead costs incurred in the event of
expenditures resulting from a single occurrence due to oil spill, blowout,
explosion, fire, storm, hurricane, or other catastrophes as agreed to by
the Parties, which are necessary to restore the Joint Property to the
equivalent condition that existed prior to the event causing the
expenditures, Operator shall either negotiate a rate prior to charging the
Joint Account or shall charge the Joint Account for overhead based on the
following rates:
(1) 5 % of total costs through $100,000; plus
(2) 3 % of total costs in excess of $100,000 but less than $1,000,000;
plus
(3) 2 % of total costs in excess of $1,000,000.
Expenditures subject to the overheads above will not be reduced by
insurance recoveries, and no other overhead provisions of this Section III
shall apply.
4. Amendment of Rates
The Overhead rates provided for in this Section III may be amended from
time to time only by mutual agreement between the Parties hereto if, in
practice, the rates are found to be insufficient or excessive.
IV. PRICING OF JOINT ACCOUNT MATERIAL PURCHASES, TRANSFERS AND DISPOSITIONS
Operator is responsible for Joint Account Material and shall make proper
and timely charges and credits for all Material movements affecting the
Joint Property. Operator shall provide all Material for use on the Joint
Property; however, at Operator's option, such Material may be supplied by
the Non-Operator. Operator shall make timely disposition of idle and/or
surplus Material, such disposal being made either through sale to Operator
or Non-Operator, division in kind, or sale to outsiders. Operator may
purchase, but shall be under no obligation to purchase, interest of
Non-Operators in surplus condition A or B Material. The disposal of surplus
Controllable Material not purchased by the Operator shall be agreed to by
the Parties.
1. Purchases
Material purchased shall be charged at the price paid by Operator after
deduction of all discounts received. In case of Material found to be
defective or returned to vendor for any other reasons, credit shall be
passed to the Joint Account when adjustment has been received by the
Operator.
2. Transfers and Dispositions
Material furnished to the Joint Property and Material transferred from the
Joint Property or disposed of by the Operator, unless otherwise agreed to
by the Parties, shall be priced on the following basis exclusive of cash
discounts:
A. New Material (Condition A)
(1) Tubular Goods Other than Line Pipe
(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.(l)(a). For transportation cost from points
other than Eastern ▇▇▇▇▇, the 30,000 pound Oil Field Haulers
Association interstate truck rate shall be used.
(c) Special end finish tubular goods shall be priced at the
lowest published out-of-stock price, f.o.b. Houston, Texas,
plus transportation cost, using Oil Field Haulers
Association interstate 30,000 pound truck rate, to the
railway receiving point nearest the Joint Property.
(d) Macaroni tubing (size less than 2 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 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 at the current new price, in effect on
date of movement, as listed by a reliable supply store nearest
the Joint Property, or point of manufacture, plus transportation
costs, if applicable, to the railway receiving point nearest the
Joint Property. Unused new tubulars will be priced as provided
above in Paragraph 2.A.(l) and (2).
-5-
B. Good Used Material (Condition B)
Material in sound and serviceable condition and suitable for reuse
without reconditioning:
(1) Material moved to the Joint Property At seventy-five percent
(75%) of current new price, as determined by Paragraph A.
(2) Material used on and moved from the Joint Property
(a) At seventy-five percent (75%) of current new price, as
determined by paragraph A, if Material was originally
charged to the Joint Account as new Material or
(b) At sixty-five percent (65%) of current new price, as
determined by Paragraph A, if Material was originally
charged to the Joint Account as used Material.
(3) Material not used on and moved from the Joint Property
At seventy-five percent (75%) of current new price as determined by
Paragraph A. The cost of reconditioning, if any, shall be absorbed by
the transferring property.
C. Other Used Material
(1) Condition C
Material which is not in sound and serviceable condition and not
suitable for its original function until after reconditioning
shall be priced at fifty percent (50%) of current new price as
determined by Paragraph A. The cost of reconditioning shall be
charged to the receiving property, provided Condition C value
plus cost of reconditioning does not exceed Condition B value.
(2) Condition D
Material, excluding junk, no longer suitable for its original
purpose, but usable for some other purpose shall be priced on a
basis commensurate with its use. Operator may dispose of
Condition D Material under procedures normally used by Operator
without prior approval of Non-Operators.
(a) Casing, tubing, or drill pipe used as line pipe shall be
priced as Grade A and B seamless line pipe of comparable
size and weight. Used casing, tubing or drill pipe utilized
as line pipe shall be priced at used line pipe prices.
(b) Casing, tubing or drill pipe used as higher pressure service
lines than standard line pipe, e.g., power oil lines, shall
be priced under normal pricing procedures for casing,
tubing, or drill pipe. Upset tubular goods shall be priced
on a non-upset basis.
(3) Condition E
Junk shall be priced at prevailing prices. Operator may dispose
of Condition E Material under procedures normally utilized by
Operator without prior approval of Non-Operators.
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 (250) 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 II, Paragraph 1.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 famished. In case of defective
Material, credit shall not be passed to the Joint Account until adjustment
has been received by Operator from the manufacturers or their agents.
V. INVENTORIES
The Operator shall maintain detailed records of Controllable Material.
1. Periodic Inventories, Notice and Representation
At reasonable intervals, inventories shall be taken by Operator of the
Joint Account Controllable Material. Written notice of intention to take
inventory shall be given by Operator at least thirty (30)'days before any
inventory is to begin so that Non-Operators may be represented when any
inventory is taken. Failure of Non-Operators to be represented at an
inventory shall bind Non-Operators to accept the inventory taken by
Operator.
2. Reconciliation and Adjustment of Inventories
Adjustments to the Joint Account resulting from the reconciliation of a
physical inventory shall be made within six months following the taking of
the inventory. Inventory adjustments shall be made by Operator to the Joint
Account for overages and shortages, but, Operator shall be held accountable
only for shortages due to lack of reasonable diligence.
3. Special Inventories
Special inventories may be taken whenever there is any sale, change of
interest, or change of Operator in the Joint Property. It shall be the duty
of the party selling to notify all other Parties as quickly as possible
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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.
EXHIBIT "D"
Attached to and made a part of that certain Offshore Operating Agreement
dated effective September 1, 2005, by and between Stone Energy Corporation
and Ridgewood Energy Corporation, Manager Ridgewood Energy P Fund, LLC.
NONDISCRIMINATION CLAUSE
During the performance of this Agreement, the "contractor" (meaning and
referring separately to each party hereto) agrees, unless exempt therefrom to
comply with all provisions of Executive Order 11246 which are incorporated
herein by reference, and (a) if contractor has more than 50 employees or
contracts with another party hereto in excess of $10,000, contractor must file
Standard Form 1Q0 (EEO-1), (b) if contractor has 50 or more employees and a
contract of $50,000 or more, contractor is required to develop a written
"Affirmative Action Compliance Program" for each of its establishments according
to the Rules and Regulations published by the United States Department of Labor
in 41 CFR, Chapter 60. Further, contractor hereby certifies that it does not now
and will not maintain any facilities provided for its employees in a segregated
manner or permit its employees to perform their services at any location under
its control where segregated facilities are maintained, as such segregated
facilities are defined in Title 41, Chapter 60-1.8, Code of Federal Regulations,
revised as of January 1, 1969, unless exempt therefrom. Contractor further
warrants that no other law, regulation or ordinance of the United States, or any
state, or any governmental authority or agency has been violated in the
manufacture, procurement or sale of any good furnished, work performed or
service rendered pursuant to this contract.
Unless exempt by rules, regulations or orders of the United States Secretary of
Labor, issued pursuant to Section 204 of Executive Order 11246, dated September
24, 1965, during the performance of this contract, the contractor agrees as
follows:
"(1) The contractor will not discriminate against any employee or applicant for
employment because of race, color, religion, sex or national origin. The
contractor will take affirmative action to ensure that applicants are
employed and that employees are treated during employment, without regard
to their race, color, religion, sex or national original. Such action shall
include, but not be limited to, the following: Employment, upgrading,
demotion, transfer, recruitment or recruitment advertising; layoff or
termination; rates of pay or other forms of compensation; and selection for
training, including apprenticeship. The contractor agrees to post in
conspicuous places, available to employees and applicants for employment,
notices to be provided by the contracting officer setting forth the
provisions of this nondiscrimination clause."
"(2) The contractor will, in all solicitations or advertisements for employees
placed by or on behalf of the contractor, state that all qualified
applicants will receive consideration for employment without regard to
race, color, religion, sex or national origin." '
"(3) The contractor will send to each labor union or representative of workers
with which he has a collective bargaining agreement or other contract or
understanding, a notice to be provided by the agency contracting officer,
advising the labor union or workers' representative of the contractor's
commitments under Section 202 of Executive Order 11246 of September 24,
1965, and shall post copies of the notice in conspicuous places available
to employees and applicants for employment."
"(4) The contractor will comply with all provisions of Executive Order 11246 of
September 24, 1965, and of the rules, regulations and relevant orders of
the Secretary of Labor."
"(5) The contractor will furnish all information and reports required by
Executive Order 11246 of September 24, 1965, and by the rules, regulations
and orders of the Secretary of Labor, or pursuant thereto, and will permit
access to his books, records and accounts by the contracting agency and the
Secretary of Labor for purposes of investigating to ascertain compliance
with such rules, regulations and orders."
"(6) In the event of the contractor's noncompliance with the nondiscrimination
clauses of this contract or with any of such rules, regulations or orders,
this contract may be canceled, terminated or suspended in whole or in part
and the contractor may be declared ineligible for further Government
contracts in accordance with procedures authorized in Executive Order 11246
of September 24, 1965, or by rule, regulation or order of the Secretary of
Labor, or as otherwise provided by law."
"(7) The contractor will include the provisions of paragraph (1) through (8) in
every subcontract or purchase order unless exempted by rules, regulations
or orders of the Secretary of Labor issued pursuant to Section 204 of
Executive Order 11246 of September 24, 1965, so that such provisions will
be binding upon each subcontractor or vendor. The contractor will take such
action with respect to any subcontract or purchase order as the contracting
agency may direct as a means of enforcing such provisions including
sanctions for noncompliance; provided, however, that in the event the
contractor becomes involved in, or is result of such direction by the
contracting agency, the contractor may request the United States to enter
into such litigation to protect the interests of the United States."
"(8) Contractor agrees and covenants that none of its employees or employees of
its subcontractors who provided services pursuant to this contract are
unauthorized aliens, as defined in the Immigration, Reform and Control Act
of 1986."
EXHIBIT "E"
ATTACHED TO AND MADE PART OF THAT CERTAIN OPERATING AGREEMENT
DATED SEPTEMBER 1, 2005 BY AND BETWEEN STONE ENERGY CORPORATION AND
RIDGEWOOD ENERGY CORPORATION, MANAGER RIDGEWOOD ENERGY P FUND, LLC.
GAS BALANCING AGREEMENT
1. Definitions
The following definitions shall apply to this Agreement:
1.1. "Arm's Length Agreement" shall mean any gas sales agreement with
an unaffiliated purchaser or any gas sales agreement with an
affiliated purchaser where the sales price and delivery conditions
under such agreement are representative of prices and delivery
conditions existing under other similar agreements in the area
between unaffiliated parties at the same time for natural gas of
comparable quality and quantity.
1.2. "Balancing Area" shall mean all of the acreage and depths subject
to the Operating Agreement.
1.3. "Full Share of Current Production" shall mean the Percentage
interest of each Party in the Gas actually produced from the
Balancing Area during each month.
1.4. "Gas" shall mean all hydrocarbons produced or producible from the
Balancing Area, whether from a well classified as an oil well or
gas well by the regulatory agency having jurisdiction in such
matters, which are or may be made available for sale or separate
disposition by the Parties, excluding oil, condensate and other
liquids recovered by field equipment operated for the joint
account. "Gas" does not include gas used in joint operations, such
as for fuel, recycling or reinjection, or which is vented or lost
prior to its sale or delivery from the Balancing Area.
1.5. "Makeup Gas" shall mean any Gas taken by an Underproduced Party
from the Balancing Area in excess of its Full Share of Current
Production, whether pursuant to Section 3.3. or Section 4.1.
hereof.
1.6. "Mcf' shall mean one thousand cubic feet. A cubic foot of Gas
shall mean the volume of gas contained in one cubic foot of space
at a standard pressure base and at a standard temperature base.
1.7. "MMBtu" shall mean one million British Thermal Units. A British
Thermal Unit shall mean the quantity of heat required to raise one
pound avoirdupois of pure water from 58.5 degrees Fahrenheit to
59.5 degrees Fahrenheit at a constant pressure of 14.73 pounds per
square inch absolute.
1.8. "Operator" shall mean the individual or entity designated under
the terms of the Operating Agreement or, in the event this
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Agreement is not employed in connection with an operating
agreement, the individual or entity designated as the operator of
the well(s) located in the Balancing Area.
1.9. "Overproduced Party" shall mean any Party having taken a greater
quantity of Gas from the Balancing Area than the Percentage
Interest of such Party in the cumulative quantity of all Gas
produced from the Balancing Area.
1.10. "Overproduction" shall mean the cumulative quantity of Gas taken
by a Party in excess of its Percentage Interest in the cumulative
quantity of all Gas produced from the Balancing Area.
1.11. "Party" shall mean those individuals or entities subject to this
Agreement, and their respective heirs, successors, transferees and
assigns.
1.12. "Percentage Interest' shall mean the percentage or decimal
interest of each Party in the Gas produced from the Balancing Area
pursuant to the Operating Agreement covering the Balancing Area. I
1.13. "Royalty" shall mean payments on production of Gas from the
Balancing Area to all owners of royalties, overriding royalties,
production payments or similar interests.
1.14. "Underproduced Party" shall mean any Party having taken a lesser
quantity of Gas from the Balancing Area than the Percentage
Interest of such Party in the cumulative quantity of all Gas
produced from the Balancing Area.
1.15. "Underproduction" shall mean the deficiency between the cumulative
quantity of Gas taken by a Party and its percentage Interest in
the cumulative quantity of all Gas produced from the Balancing
Area.
1.16. "Winter Period" shall mean the months of November and December in
one calendar year and the months of January, February and March in
the succeeding calendar year.
2. Balancing Area
2.1. If this Agreement covers more than one Balancing Area, it shall be
applied as if each Balancing Area were covered by separate but
identical agreements. All balancing hereunder shall be on the
basis of Gas taken from the Balancing Area measured in MMBtus.
2.2. In the event that all or part of the Gas deliverable from a
Balancing Area is or becomes subject to one or more lawful prices,
any Gas not subject to price controls shall be considered as
produced from a single Balancing Area and Gas subject to each
price category shall be considered produced from a separate
Balancing Area.
3. Right of Parties to Take Gas
3.1. Each Party desiring to take Gas will notify the Operator, or cause the
Operator to be notified, of the volumes nominated, the name of the
transporting pipeline and the pipeline contract number (if available) and
meter station relating to such delivery, sufficiently in advance for the
Operator, acting with reasonable diligence, to meet all nomination and
other requirements. Operator is authorized to deliver the volumes so
nominated and confirmed (if confirmation is required) to the transporting
pipeline in accordance with the terms of this Agreement.
3.2. Each Party shall make a reasonable, good faith effort to take its Full
Share of Current Production each month, to the extent that such
production is required to maintain teases in effect, to protect the
producing capacity of a well or reservoir, to preserve correlative
rights, or to maintain oil production.
3.3. When a Party fails for any reason to take its full Share of Current
Production (as such Share may be reduced by the right of the other
parties to make up for Underproduction as provided herein), the other
Parties shall be entitled to take any Gas which such Party fails to take.
To the extent practicable, such Gas shall be made available initially to
each Underproduced Party in the proportion that its Percentage Interest
in the Balancing Area bears to the total Percentage Interests of all
Underproduced Parties desiring to take such Gas. If all such Gas is not
taken by the Underproduced Parties, the portion not taken shall then be
made available to the other Parties in the proportion that their
respective Percentage Interests in the Balancing Area bear to the total
Percentage Interests of such Parties.
3.4. All Gas taken by a Party in accordance with the provisions of this
Agreement, regardless of whether such Party is underproduced or
overproduced, shall be regarded as Gas taken for its own account with
title thereto being in such taking Party.
3.5. Notwithstanding the provisions of Section 3.3. hereof, no Overproduced
Party shall be entitled in any month to take any Gas in excess of three
hundred percent (300%) of its Percentage Interest of the Balancing Area's
then-current Maximum Monthly Availability; provided, however, that this
limitation shall not apply to the extent that it would preclude
production that is required to maintain lease in effect, to protect the
producing capacity of a well or reservoir, to preserve correlative
rights, or to maintain oil production. "Maximum Monthly Availability"
shall mean the maximum average monthly rate of production at which Gas
can be delivered from the Balancing Area, as determined by the Operator,
considering the maximum efficient well rate for each well within the
Balancing Area, the maximum allowable(s) set by the appropriate
regulatory agency, mode of operation, production facility capabilities
and pipeline pressures.
3.6. In the event that a Party fails to make arrangements to take its Full
Share of Current Production required to be produced to maintain leases in
effect, to protect the producing capacity of a well or reservoir, to
preserve correlative rights, or to maintain oil production, the Operator
may sell any part of such Party's Full Share of Current Production that
such Party fails to take for the account of such Party and render to such
Party, on a current basis, the full proceeds of the sale, less any
reasonable marketing, compression, treating, gathering or transportation
costs incurred directly in connection with the sale of such Full Share of
Current Production. In making the sale contemplated herein, the Operator
shall be obligated only to obtain such price and conditions for the sale
as are reasonable under the circumstances and shall not be obligated to
share any of its markets. Any such sale by Operator under the terms
hereof shall be only for such reasonable periods of time as are
consistent with the minimum needs of the industry under the particular
circumstances, but in no event for a period in excess of one year.
Notwithstanding the provisions of Article 3.4. hereof, Gas sold by
Operator for a Party under the provisions hereof shall be deemed to be
Gas taken for the account of such Party.
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4. In-Kind Balancing
4.1. Effective the first day of any calendar month following at least
thirty (30) days' prior written notice to the Operator, any
Underproduced Party may begin taking, in addition to its Full
Share of Current Production and any Makeup Gas taken pursuant to
Section 3.3. of this Agreement, a share of current production
determined by multiplying thirty-seven and one-half percent
(37.5%) of the Full Shares of Current Production of all
Overproduced Parties by a fraction, the numerator of which is the
Percentage Interest of such Underproduced Party and the
denominator of which is the total of the Percentage Interests of
all Underproduced Parties desiring to take Makeup Gas. In no event
will an Overproduced Party be required to provide more than
thirty-seven and one-half percent (37.5%) of its Full Share of
Current Production for Makeup Gas. The Operator will promptly
notify all Overproduced Parties of the election of an
Underproduced Party to begin taking Makeup Gas.
4.2. Notwithstanding the provisions of Section 4.1., the average
monthly amount of Makeup Gas taken by an Underproduced Party
during the Winter Period pursuant to Section 4.1. shall not exceed
the average monthly amount of Makeup Gas taken by such
Underproduced Party during the six (6) months immediately
preceding the Winter Period.
5. Statement of Gas Balances
5.1. The Operator will maintain appropriate accounting on a monthly and
cumulative basis of the volumes of Gas that each Party is entitled
to receive and the volumes of Gas actually taken or sold for each
Party's account. Within forty-five (45) days after the month of
production, the Operator will furnish a statement for such month
showing (1) each Party's Full Share of Current Production, (2) the
total volume of Gas actually taken or sold for each Party's
account, (3) the difference between the volume taken by each Party
and that Party's Full Share of Current Production, (4) the
Overproduction or Underproduction of each Party, and (5) other
data as recommended by the provisions of the Council of Petroleum
Accountants Societies Bulletin No. 24, as amended or supplemented
hereafter. Each Party taking Gas will promptly provide to the
Operator any data required by the Operator for preparation of the
statements required hereunder.
5.2. If any Party fails to provide the data required herein for four
(4) consecutive production months, the Operator, or where the
Operator has failed to provide data, another Party, may audit the
production and Gas sales and transportation volumes of the
non-reporting Party to provide the required data. Such audit shall
be conducted only after reasonable notice and during normal
business hours in the office of the Party whose records are being
audited. All costs associated with such audit will be charged to
the account of the Party failing to provide the required data.
6. Payments on Production
6.1. Each Party taking Gas shall pay or cause to be paid all production
and severance taxes due on all volumes of Gas actually taken by
such Party.
6.2. [_] (Alternative 1 - Sales) Each Party shall pay or cause to be
paid Royalty due with respect to Royalty owners to whom it
is accountable based on the volume of Gas actually taken
for its account.
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[_] (Alternative 2 - Entitlements) Each Party shall pay or
cause to be paid all Royalty due with respect to Royalty
owners to whom it is accountable as if such Party were
taking its Full Share of Current Production, and only its
Full Share of Current Production.
6.3. In the event that any governmental authority requires that Royalty
payments be made on any other basis than that provided for in this
Section 6., each Party agrees to make such Royalty payments
accordingly, commencing on the effective date required by such
governmental authority, and the method provided for herein shall
be thereby superseded.
7. Cash Settlements
7.1. Upon the earlier of the plugging and abandonment of the last
producing interval in the Balancing Area, the termination of the
Operating Agreement or any pooling or unit agreement covering the
Balancing Area, or at any time no Gas is taken from the Balancing
Area for a period of twelve (12) consecutive months, any Party may
give written notice calling for cash settlement of the Gas
production imbalances among the Parties. Such notice shall be
given to all Parties in the Balancing Area.
7.2. Within sixty (60) days after the notice calling for cash
settlement under Section 7.1., the Operator will distribute to
each Party a Final Gas Settlement Statement detailing the quantity
of Overproduction owed by each Overproduced Party to each
Underproduced Party and identifying the month to which such
Overproduction is attributed, pursuant to the methodology set out
in Section 7.4.
7.3. Within sixty (60) days after receipt of the Final Gas Settlement
Statement, each Overproduced Party will pay to each Underproduced
Party entitled to settlement the appropriate cash settlement,
accompanied by appropriate accounting detail. At the time of
payment, the Overproduced Party will notify the Operator of the
Gas imbalance settled by the Overproduced Party's payment.
7.4. The amount of the cash settlement will be based on the proceeds
received by the Overproduced Party under an Arm's Length Agreement
for the Gas taken from time to time by the Overproduced Party in
excess of the Overproduced Party's Full Share of Current
Production. Any Makeup Gas taken by the Underproduced Party prior
to monetary settlement hereunder will be applied to offset
Overproduction chronologically in the order of accrual.
7.5. The values used for calculating the cash settlement under Section
7.4. will include all proceeds received for the sale of the Gas by
the Overproduced Party calculated at the Balancing Area, after
deducting any production or severance taxes paid and any Royalty
actually paid by the Overproduced Party to an Underproduced
Party's Royalty owner(s), to the extent said payments amounted to
a discharge of said Underproduced Party's Royalty obligation, as
well as any reasonable marketing, compression, treating, gathering
or transportation costs incurred directly in connection with the
sale of the Overproduction.
7.6. For Overproduction processed for the account of the Overproduced
Party at a gas processing plant for the extraction of liquid
hydrocarbons, the full quantity of the Overproduction will be
valued for purposes of cash settlement at the prices received by
the Overproduced Party for the sale of the residue gas
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attributable to the Overproduction without regard to proceeds
attributable to liquid hydrocarbons which may have been extracted
from the Overproduction.
7.7. To the extent the Overproduced Party did not sell all
Overproduction under an Arm's Length Agreement, the cash
settlement will be based on the weighted average price received by
the Overproduced Party for any gas sold from the Balancing Area
under Arm's Length Agreements during the months to which such
Overproduction is attributed. In the event that no sales under
Arm's Length Agreements were made during any such month, the cash
settlement for such month will be based on the spot sales prices
published for the applicable geographic area during such month in
a mutually acceptable pricing bulletin.
7.8. Interest per annum at the then-current prime rate of Citibank
N.A., New York, New York, as published under "Money Rates" by the
Wall Street Journal, or the maximum lawful rate of interest
applicable to the Balancing Area, whichever is less, will accrue
for all amounts due under Section 7.1., beginning the first day
following the date payment is due pursuant to Section 7.3. Such
interest shall be borne by the Overproduced Party in the
proportion that its respective delays beyond the deadlines set out
in Sections 7.2. or 7.3. contributed to the accrual of the
interest.
7.9. In lieu of the cash settlement required by Section 7.3., an
Overproduced Party may deliver to the Underproduced Party an offer
to settle its Overproduction in-kind and at such rates,
quantities, times and sources as may be agreed upon by the
Underproduced Party. If the Parties are unable to agree upon the
manner in which such in-kind settlement gas will be furnished
within sixty (60) days after the Overproduced Party's offer to
settle in kind, which period may be extended by agreement of said
Parties, the Overproduced Party shall make a cash settlement as
provided in Section 7.3. The making of an in-kind settlement offer
under this Section 7.9. will not delay the accrual of interest on
the cash settlement should the Parties fail to reach agreement on
an in-kind settlement.
7.10. At any time during the term of this Agreement, any Overproduced
Party may, in its sole discretion, make cash settlement(s) with
the Underproduced Parties covering all or part of its outstanding
Gas imbalance, provided that such settlements must be made with
all Underproduced Parties proportionately based on the relative
imbalances of the Underproduced Parties, and provided further that
such settlements may not be made more often than once every
twenty-four (24) months. Such settlements will be calculated in
the same manner provided above for final cash settlements. The
Overproduced Party will provide Operator a detailed accounting of
any such cash settlement within thirty (30) days after the
settlement is made.
8. Testing
Notwithstanding any provision of this Agreement to the contrary, any
Party shall have the right, from time to time, to produce and take up to
one hundred percent (100%) of a well's entire Gas stream to meet the
reasonable deliverability test(s) required by such Party's Gas purchaser,
and the right to take any Makeup Gas shall be subordinate to the right of
any Party to conduct such tests; provided, however, that such tests shall
be conducted in accordance with prudent operating practices only after
thirty (30) days' prior written notice to the Operator and shall last no
longer than twenty-four (24) hours.
-6-
9. Operating Costs
Nothing in this Agreement shall change or affect any Party's obligation
to pay its proportionate share of all costs and liabilities incurred in
operations on or in connection with the Balancing Area, as its share
thereof is set forth in the Operating Agreement, irrespective of whether
any party is at any time selling and using Gas or whether such sales or
use are in proportion to its Percentage Interest in the Balancing Area.
10. Liquids
The Parties shall share proportionately in and own all liquid
hydrocarbons recovered with Gas by field equipment operated for the joint
account in accordance with their Percentage Interests in the Balancing
Area.
11. Audit Rights
Notwithstanding any provision in this Agreement or any other agreement
between them Parties hereto, and further notwithstanding any termination
or cancellation of this Agreement, for a period of two (2) years from the
end of the calendar year in which any information to be furnished under
Section 5. or 7. hereof is supplied, any Party shall have the right to
audit the records of any other Party regarding quantity, including but
not limited to information regarding Btu content. Any Underproduced Party
shall have the right for a period of two (2) years from the end of the
calendar year in which any cash settlement is received pursuant to
Section 7. to audit the records of any Overproduced Party as to all
matters concerning values, including but not limited to information
regarding prices and disposition of Gas from the Balancing Area. Any such
audit shall be conducted at the expense of the Party or Parties desiring
such audit, and shall be conducted, after reasonable notice, during
normal business hours in the office of the Party whose records are being
audited. Each Party hereto agrees to maintain records as to the volumes
and prices of Gas sold each month and the volumes of Gas used in its own
operations, along with the Royalty paid on any such Gas used by a Party
in its own operations. The audit rights provided for in this Section 11.
shall be in addition to those provided for in Section 5.2. of this
Agreement.
12. Miscellaneous
12.1. As between the Parties, in the event of any conflict between the
provisions of this Agreement and the provisions of any gas sales
contract, or in the event of any conflict between the provisions
of this Agreement and the provisions of the Operating Agreement,
the provisions of this Agreement shall govern.
12.2. Each Party agrees to defend, indemnify and hold harmless all other
Parties from and against any and all liabilities for any claims,
which may be asserted by any third party which now or hereafter
stands in a contractual relationship with such indemnifying Party
and which arise out of the operation of this Agreement or any
activities of such indemnifying Party under the provisions of this
Agreement, and does further agree to save the other Parties
harmless from all judgments or damages sustained and costs
incurred in connection therewith.
12.3. Except as otherwise provided in this Agreement, Operator is
authorized to administer the provisions of this Agreement, but
shall have no liability to the other Parties for losses sustained
or liability incurred which arise out of or in connection with the
performance of Operator's duties hereunder, except such as may
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result from Operator's gross negligence or willful misconduct.
Operator shall not be liable to any Underproduced Party for the
failure of any Overproduced Party (other than Operator) to pay any
amounts owed pursuant to the terms hereof.
12.4. This Agreement shall remain in full force and effect for as long
as the Operating Agreement shall remain in force and effect as to
the Balancing Area, and thereafter until the Gas accounts between
the Parties are settled in full, and shall inure to the benefit of
and be binding upon the Parties hereto, and their respective
heirs, successors, legal representatives and assigns, if any. The
Parties hereto agree to give notice of the existence of this
Agreement to any successor in interest of any such Party and to
provide that any such successor shall be bound by this Agreement,
and shall further make any transfer of any interest subject to the
Operating Agreement, or any part thereof, also subject to the
terms of this Agreement.
12.5. Unless the context clearly indicates otherwise, words used in the
singular include the plural, the plural includes the singular, and
the neuter gender includes the masculine and the feminine.
12.6. This Agreement shall bind the Parties in accordance with the
provisions hereof, and nothing herein shall be construed or
interpreted as creating any rights in any person or entity not a
signatory hereto, or as being a stipulation in favor of any such
person or entity.
12.7. If contemporaneously with this Agreement becoming effective, or
thereafter, any Party requests that any other Party execute an
appropriate memorandum or notice of this Agreement in order to
give third parties notice of record of same and submits same for
execution in recordable form, such memorandum or notice shall be
duly executed by the Party to which such request is made and
delivered promptly thereafter to the Party making the request.
Upon receipt, the Party making the request shall cause the
memorandum or notice to be duly recorded in the appropriate real
property or other records affecting the Balancing Area.
12.8. In the event Internal Revenue Service regulations require a
uniform method of computing taxable income by all Parties, each
Party agrees to compute and report income to the Internal Revenue
Service as if such Party were taking its Full Share of Current
Production during each relevant tax period in accordance with such
regulations, insofar as same relate to entitlement method tax
computations.
13. Assignment and Rights upon Assignment
13.1. Subject to the provisions of Section 13.2. and 13.3. hereof, and
notwithstanding anything in this Agreement or in the Operating
Agreement to the contrary, if any Party assigns (including any
sale, exchange or other transfer) any of its working interest in
the Balancing Area when such Party is an Underproduced or
Overproduced Party, the assignment or other act of transfer shall,
insofar as the Parties hereto are concerned, include all interest
of the assigning or transferring Party in the Gas, all rights to
receive or obligations to provide or take Makeup Gas and all
rights to receive or obligations to make any monetary payment
which may ultimately be due hereunder, as applicable. Operator and
each of the other Parties hereto shall thereafter treat the
assignment accordingly, and the assigning or transferring Party
shall look solely to its assignee or other transferee for any
interest in the Gas or monetary payment that such Party may have
-8-
or to which it may be entitled, and shall cause its assignee or
other transferee to assume its obligations hereunder.
13.2. Notwithstanding anything in this Agreement (including but not
limited to the provisions of Section 13.1. hereof) or in the
Operating Agreement to the contrary, and subject to the provisions
of Section 13.3. hereof, in the event an Overproduced Party
intends to sell, assign, exchange or otherwise transfer any of its
interest in a Balancing Area, such Overproduced Party shall notify
in writing the other working interest owners who are Parties
hereto in such Balancing Area of such fact at least sixty (60)
days prior to closing the transaction. Thereafter, any
Underproduced Party may demand from such Overproduced Party in
writing, within thirty (30) days after receipt of the Overproduced
Party's notice, a cash settlement of its Underproduction from the
Balancing Area. The Operator shall be notified of any such demand
and of any cash settlement pursuant to this Section 13., and the
Overproduction and Underproduction of each Party shall be adjusted
accordingly. Any cash settlement pursuant to this Section 13.
shall be paid by the Overproduced Party, accompanied by
appropriate accounting detail, on or before the earlier to occur
(1) of sixty (6O) days after receipt of the Underproduced Party's
demand or (2) at the closing of the transaction in which the
Overproduced Party sells, assigns, exchanges or otherwise
transfers its interest in a Balancing Area on the same basis as
otherwise set forth in Sections 7.3. through 7.7., and shall bear
interest at the rate set forth in Section 7.8. hereof, beginning
sixty (60) days after the Overproduced Party's sale, assignment,
exchange or transfer of its interest in the Balancing Area for any
amounts not paid. Provided, however, if any Underproduced Party
does not so demand such cash settlement of its Underproduction
from the Balancing Area, such Underproduced Party shall look
exclusively to the assignee or other successor in interest of the
Overproduced Party giving notice hereunder for the satisfaction of
such Underproduced Party's Underproduction in accordance with the
provisions of Section 13.1. hereof.
13.3. The provisions of this Section 13. shall not be applicable in the
event any Party mortgages its interest or disposes of its interest
by merger, reorganization, consolidation or sale of substantially
all of its assets to a subsidiary or parent company, or to any
company in which any parent or subsidiary of such party owns a
majority of the stock of such company.
14. Counterparts
This Agreement may be executed in counterparts, each of which when taken
with all other counterparts shall constitute a binding agreement between
the Parties hereto; provided, however, that if a Party or Parties owning
a Percentage Interest in the Balancing Area equal to or greater than
[percent] percent therein fail(s) to execute this Agreement on or before
[date], this Agreement shall not be binding upon any Party and shall be
of no further force and effect.
IN WITNESS WHEREOF, this agreement shall be effective as of
September 1, 2005.
-9-
WITNESSES: OPERATOR
STONE ENERGY CORPORATION
_________________________________ By:__________________________________
▇.▇. ▇▇▇▇▇▇▇▇, ▇▇. Vice President, Land
_________________________________
Date:________________________________
Tax ID or S.S. No. __________________
NON-OPERATOR
RIDGEWOOD ENERGY
CORPORATION, MANAGER
RIDGEWOOD ENERGY P
FUND, LLC.
__________________________________ By:__________________________________
W. ▇▇▇▇ ▇▇▇▇▇, Executive Vice President
__________________________________
Date_________________________________
Tax ID or S.S. No.___________________
-10-
EXHIBIT "G"
Attached to and made a part of that certain Offshore Operating Agreement
dated effective September 1, 2005, by and between Stone Energy Corporation and
Ridgewood Energy Corporation, Manager Ridgewood Energy P Fund, LLC.
MEMORANDUM OF OPERATING AGREEMENT
AND FINANCING STATEMENT
-----------------------
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 .Offshore
Operating, Agreement referred to in Paragraph 2.0 below and is executed
by Forest Oil Corporation, whose address is ▇▇▇▇ ▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇, ▇▇
▇▇▇▇▇, Stone Energy Corporation, whose address is ▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇, ▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇, and Dominion Exploration & Production, Inc.,
whose mailing address is ▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇,
(the "Non-Operator(s)").
2.0 The Operator and the Non-Operator are parties to that certain Offshore
Operating Agreement dated ' the _ day of September, 2005 ("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 Stone Energy
Corporation, to conduct such operations for itself and the Non-Operator.
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 Leases. Certain provisions of Section 8.6
of the Operating Agreement are set forth as follows:
First Lien in Favor of the Operator. For valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, and
in consideration of the mutual covenants and agreements contained
in this Agreement, each Non-Operator, to secure the performance of
and payment by such Non-Operator to the Operator of all
obligations and indebtedness, whether now owed or hereafter
arising, of such Non-Operator to the Operator pursuant to this
Agreement, grants to the Operator a lien upon the following
described property:
(a) all of its rights, titles, and interests, including,
without limitation, any Working Interest, whether
now owned and existing or hereafter acquired or
arising, in and to (1) the Leases, subject to any
surface acreage or depth limitations set forth in
Exhibit "A", attached hereto and incorporated herein
for all purposes, (2) all fixtures on or used or
obtained for use in connection with the Leases or
the Contract Area, and (3) all other real property
susceptible of the lien granted hereby located
within the Contract Area;
(b) all of its rights, titles, and interests, whether
now owned and existing or hereafter acquired or
arising, in' and to any rights-of-way or other
documents described in Exhibit "A" and all renewals
and extensions thereof and all new oil, gas and
mineral Leases, rights-of-way, or other documents
(i) in which it acquires an interest after the
termination or expiration of any Leases,
right-of-way, or other document described in Exhibit
"A", and (ii) that cover all or any part of the
property described in and covered by such terminated
or expired Leases, right-of-way, or other document,
to the extent, and only to the extent, such new oil,
gas and mineral Leases, rights-of-way, or other
documents may cover the property that was described
in and covered by such terminated or expired Leases,
right-or-way or other document; and
(c) all of its rights, titles, and interests, whether
now owned and existing or hereafter acquired or
arising, in and to any of the oil, gas, and minerals
in, on, or under the Contract Area, including,
without limitation, all contractual rights,
operating rights, leaseshold interests, working
interests, royalty interests, overriding royalty
interests, non-participating royalty interests,
mineral interests, production payments, net profits
interests, or any other interest measured by or
payable out of production of oil, gas, or other
minerals attributable to the Leases or Contract Area
(as such interests may be enlarged by the discharge
of any payments out of production or by the removal
of any charges or encumbrances).
Security Interest in Favor of the Operator. For valuable
consideration, the receipt and sufficiency of which are hereby
acknowledged, and in consideration of the mutual covenants and
agreements contained in this Agreement, each Non-Operator, to
secure the performance of and payment by such Non-Operator to the
Operator of all obligations and indebtedness, whether now owed or
hereafter arising, of such Non-Operators to the Operator pursuant
to this Agreement, each such Non-Operator 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 or arising, in
and to (a) all oil, gas, and other minerals produced from or
attributable to the Leases or the Contract Area when produced; (b)
all accounts receivable accruing or arising as a result of the
sale of such oil, gas, and other minerals (including, without
limitation, accounts arising from gas imbalances or from the sale
of oil, gas and other minerals at the wellhead); (c) all cash or
other proceeds from the sale of such oil, gas, and other minerals
once produced; and (d) all platforms, ▇▇▇▇▇, facilities, fixtures,
tools, tubular goods, other personal property, whether now or
hereafter placed on the Leases or the Contract Area or maintained
or used or obtained for use in connection with the ownership, use
or exploitation of the Leases or the Contract Area, and other
surface and sub-surface equipment of any kind or character located
on or attributable to the Leases or the Contract Area, and the
cash or other proceeds realized from the sale, transfer,
disposition or conversion thereof, excluding, however, any
platforms, ▇▇▇▇▇, facilities, fixtures, equipment or property
located on the Leases or the Contract Area and used exclusively in
connection with the ownership, use or exploitation of acreage or
depths not included within the Leases or Contract Area. The
interest of the Non-Operators in and to the oil, gas, and other
minerals produced from or attributable to the Leases 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 Leases or the Contract Area. To
the extent permissible 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
personal property now or hereafter located upon or used in
connection with the Contract Area, whether tangible or intangible,
except for property used exclusively in connection with acreage or
depths not included in the Leases or Contract Area as aforesaid;
(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
Leases or the Contract Area, or the oil, gas and other minerals
produced from or attributable to the Leases or the Contract Area,
whether now owned and existing or hereafter acquired or arising,
including, without limitation, all interests of each of the
Non-Operators in any partnership, tax partnership, limited
partnership, association, joint venture, or other entity or
enterprise to the extent that it holds, owns, or controls any
interest in the Contract Area; and (c) all rights, claims, general
intangibles, and proceeds, whether now existing or hereafter
acquired, in and to the contracts, agreements, permits, licenses,
rights-of-way, and similar rights and privileges that relate to or
are appurtenant to the Leases or the Contract Area, 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 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 Leases or the
Contract Area, 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
and are attributable to all or any portion of the
Leases or the Contract Area;
(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, 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 Leases or the Contract Area; 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 Leases or the
Contract Area.
Obligations and Indebtedness of Non-Operators Secured. To the
extent permissible under applicable law, the liens and security
interests granted by each Non-Operator in this Agreement shall
secure (a) the performance of and payment by such Non-Operator to
the Operator of all of its obligations ' and indebtedness, whether
now owed or hereafter arising pursuant to this Agreement, and (b)
the payment of all expenses incurred by the Operator and the
Participating Parties for (or on account of) any and all
operations conducted pursuant to this Agreement ("Costs") and
other expenses properly charged to such Non-Operator, together
with (1) 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, (2) reasonable attorneys' fees, (3) court
costs, and (4) other directly related collection costs. If any
Non-Operator does not pay such Costs and other expenses when due,
the Operator shall have the additional right to notify the
purchaser or purchasers of the defaulting Non-Operator's
production and collect such Costs and other expenses out of the
proceeds from the sale of the defaulting Non-Operator's share of
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 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.
First Lien in Favor of the Non-Operators. For valuable
consideration, the receipt and sufficiency of which are hereby
acknowledged, and in consideration of the mutual covenants and
agreements contained in this Agreement, to secure the performance
of and payment by the Operator to each of the Non-Operators of all
obligations and indebtedness, whether now owed or hereafter
arising, of the Operator to such Non-Operators pursuant ,to this
Agreement, the Operator grants to each such Non-Operator a lien
upon the following described property:
(a) all of its rights, titles, and interests, including,
without limitation, any Working Interest, whether
now owned and existing or hereafter acquired or
arising, in and to (1) the Leases, subject to any
surface acreage or depth limitations set forth in
Exhibit "A", attached hereto and incorporated herein
for all purposes, (2) all fixtures on or used or
obtained for use in connection with the Leases or
the Contract Area, and (3) all other real property
susceptible of the lien granted hereby located
within the Contract Area;
(b) all of its rights, titles, and interests, whether
now owned and existing or hereafter acquired or
arising, in and to any rights-of-way or other
documents described in Exhibit "A" and all renewals
and extensions thereof and all new oil, gas and
mineral Leases, rights-of-way, or other documents
(1) in which it acquires an interest after the
termination or expiration of any Leases,
right-of-way, or other document described in Exhibit
"A", and (2) that cover all or any part of the
property described in and covered by such terminated
or expired Leases, right-of-way, or other document,
to the extent, and only to the extent, such new oil,
gas and mineral Leases, rights-of-way, or other
documents may cover the property that was described
in and covered by such terminated or expired Leases,
right-of-way or other document; and
(c) all of its rights, titles, and interests, whether
now owned and existing or hereafter acquired or
arising, in and to any of the oil, gas, and minerals
in, on, or under the Contract Area, including,
without limitation, all contractual rights,
operating rights, leaseshold interests, working
interests, royalty interests, overriding royalty
interests, non-participating royalty interests,
mineral interests, production payments, net profits
interests, or any other interest measured by or
payable out of production of oil, gas, or other
minerals attributable to the Leases or Contract Area
(as such interests may be enlarged by the discharge
of any payments out of production or by the removal
of any charges or encumbrances).
Security Interest in Favor of the Non-Operators. For valuable
consideration, the receipt and sufficiency of which are hereby
acknowledged, and in consideration of the mutual covenants and
agreements contained in this Agreement, to secure the performance
of and payment by the Operator to each of the Non-Operators of all
obligations and indebtedness, whether now owed or hereafter
arising, of the Operator to such Non-Operators pursuant to this
Agreement, the Operator grants to each of the Non-Operators 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 or arising, in
and to (a) all oil, gas, and other minerals produced from or
attributable to the Leases or the Contract Area--when produced;
(b) all accounts receivable accruing or arising as a result of the
sale of such oil, gas, and other minerals (including, without
limitation, accounts arising from gas imbalances or from the sale
of oil, gas and other minerals at the wellhead); (c) all cash or
other proceeds from the sale of such oil, gas, and other minerals
once produced; and (d) all platforms; ▇▇▇▇▇, facilities, fixtures,
tools, tubular goods, other personal property, whether now or
hereafter placed on the Leases or the Contract Area or maintained
or used or obtained for use in connection with the ownership, use
or exploitation of the Leases or the Contract Area, and other
surface and sub-surface equipment of any kind or character located
on or attributable to the Leases or the Contract Area, and the
cash or other proceeds realized from the sale, transfer,
disposition or conversion thereof, excluding, however, any
platforms, ▇▇▇▇▇, facilities, fixtures, equipment or property
located on the Leases or the Contract Area and used exclusively in
connection with the ownership, use or exploitation of acreage or
depths not included within the Leases or Contract Area. The
interest of the, Operator in and to the oil, gas, and other
minerals produced from or attributable to the Leases 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 Leases or the Contract Area. To
the extent permissible 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 personal property now
or hereafter located upon or used in connection with the Contract
Area, whether tangible or intangible, except for property used
exclusively in connection with acreage or depths not included in
the Leases or Contract Area as aforesaid; (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 Leases or the Contract Area, or
the oil, gas and other minerals produced from or attributable to
the Leases or the Contract Area, 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 to the extent that it holds, owns, or controls any
interest in the Contract Area; and (c) all rights, claims, general
intangibles, and proceeds, whether now existing or hereafter
acquired or arising, in and to the contracts, agreements, permits,
licenses, rights-of-way, and similar rights and privileges that
relate to or are appurtenant to the Leases or the Contract Area,
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 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 Leases or the
Contract Area, 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
and are attributable to all or any portion of the
Leases or the Contract Area;
(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, 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 Leases or the Contract Area, 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 Leases or
the Contract Area.
Obligations and Indebtedness of the Operator Secured. To the
extent permissible under applicable law, the liens and security
interests granted by the Operator in this Agreement shall secure
(a) the performance of and payment by the Operator to each of the
Non-Operators of all of its obligations and indebtedness, whether
now owed or hereafter arising pursuant to this Agreement, and (b)
the payment of all Costs and other expenses properly charged to
the Operator, together with (1) 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, (2) reasonable attorneys' fees, (3) court costs, and (4)
other directly related collection costs. If the Operator does not
pay such Costs and other expenses when due, any Non-Operator shall
have the additional right to notify the purchaser or purchasers of
the defaulting Operator's production and collect such Costs and
other expenses out of the proceeds from the sale of the defaulting
Operator's share of production until the amount owed has been
paid. The Non-Operator shall. have the right to offset the amount
owed against the proceeds from the sale of such defaulting
Operator's share of 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
Operator and payment made to the Non-Operator by any purchaser
shall be binding and conclusive as between such purchaser and such
defaulting Operator.
Priority; Successors. Each Party represents and warrants to the
other Parties hereto that the lien and security interest granted
by such Party to the other Parties shall be a first and prior lien
and security interest, and each Party hereby agrees to maintain
the priority of said lien and security interest against all
persons acquiring an interest in the Leases or the Contract Area
by, through or under such Party. All Parties acquiring an interest
in the Leases or the Contract Area, whether by assignment, merger,
mortgage, operation of law, or otherwise, shall be deemed to have
taken subject to the lien and security interest hereunder as to
all obligations attributable to such interest hereunder whether or
not such obligations arise before or after such interest is
acquired.
Waiver. If any Party does not perform all of its obligations
hereunder, and the failure to perform subjects such Party to
foreclosure or execution proceedings pursuant to the provisions of
this Agreement, to the extent allowed by governing law, the
defaulting Party waives any available right of redemption from and
after the date of judgment, and any available right to require a
marshaling of assets.
Other Lien Rights. Each Party agrees that the other Parties shall
be entitled to utilize the provisions of oil and gas lien law or
other lien law of any state adjacent to the Contract Area, or that
is otherwise applicable, to enforce the obligations and
indebtedness of each Party hereunder. Without limiting the
generality of the foregoing, to the extent permitted by applicable
law, each of the Non-Operators agree that the Operator may invoke
or utilize the mechanics' or materialmen's lien law of the state
adjacent to the Contract Area, or that is otherwise applicable, in
order to secure the payment to the Operator of any sum due
hereunder for services performed or materials supplied by the
Operator.
Power of Sale. To the extent permitted by applicable law, each
Party hereby grants to the other parties a power of sale ("Power
of Sale") as to any property that is subject to the lien and
security rights granted hereunder, such power to be exercised in
the manner provided by these Power of Sale provisions and in the
manner provided by applicable law or otherwise in a commercially
reasonable manner and upon reasonable notice, including reasonable
notice of intent to foreclose said lien or security right by
exercise of such Power of Sale of not less than thirty (30) days.
Subject to the provisions of this Agreement, if a Party should
elect to foreclose the lien (the "Lien") granted to such party
(the "Foreclosing Party") pursuant to this Agreement against the
interests in the leaseshold estate of the Leases or any future
Leases comprising the Contract Area ("Real Property Interest") of
a Party that has failed to pay any liquidated and undisputed
portion of its payment obligations hereunder (the "Defaulting
Party"), the Parties hereby authorize a non-judicial sale under
the laws of the State of Texas ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇ is hereby
appointed as Trustee for such purpose (whether the Trustee named
herein or appointed as a substitute or successor Trustee pursuant
to the terms of this Agreement, the "Trustee"). The Foreclosing
Party may appoint a substitute or successor Trustee in the event
the Trustee above named resigns or is unable for any reason to
serve, or if the Foreclosing Party should elect at any time (with
or without cause) to remove the Trustee. Upon such default, and
upon request by the Foreclosing Party to the Trustee to foreclose
the Lien pursuant to this Power of Sale, the Trustee shall, at
least twenty-one (21) days preceding the date of non-judicial
sale, serve written notice of the proposed sale by certified mail
on the Defaulting Party according to the records of the
Foreclosing Party. Service of such notice shall be deemed
completed upon the deposit in a post office or other official
depository under the care and custody of the United States Postal
Service of such notice enclosed in a post-paid wrapper properly
addressed to the Defaulting Party, together with each other Party
obligated to pay the obligations secured by the Lien, at the most
recent address or addresses shown on the records of the
Foreclosing Party. The affidavit of any person having knowledge of
the facts to the effect that such service was completed shall be
prima facie evidence of the facts of service. After such notice,
the Trustee shall proceed to sell all of the Real Property
Interest of the Defaulting Party in the Contract Area at public
auction to the highest bidder for cash after having given notice
of the time and place of sale and in the manner and after the
advertisement of such sale as required by the statutes of the
State of Texas in making sales of real estate under deeds of
trust. Sale of a part of the Defaulting Party's Real Property
Interest in the Contract Area shall not exhaust the Power of Sale,
and subsequent sales may be made from time to time until all of
such Real Property -Interest is sold or the obligations of the
Defaulting Party secured by the Lien are paid in full. The Trustee
shall have the authority to appoint an attorney in fact to act as
Trustee in conducting the foreclosure sale and executing a deed to
the purchasers. It is further agreed that the Trustee may sell the
full Real Property Interest of the Defaulting Party in the
Contract Area or may limit such sale to such portions of the Real
Property Interest of the Defaulting Party in the Contract Area as
the Trustee shall deem expedient. After the completion of any sale
pursuant hereto, the Trustee shall make, execute, and deliver to
the purchaser or purchasers of the Real Property Interest of the
Defaulting Party in the Contract Area good and sufficient deeds,
assignments, or other lawful conveyances to vest in such purchaser
or purchasers title to such Real Property Interest in fee simple
together with all personal property used or obtained in connection
therewith and together with all of the proceeds of production
attributable thereto on or subsequent to the effective date of
such sale. From the proceeds of such sale, the Trustee shall make
disbursements in the following order:
(a) pay all charges, costs, and expenses of executing
these provisions;
(b) pay any sums due and paid by the Trustee for taxes
in the preservation of the security;
(c) pay to the Foreclosing Party up to the amount
necessary to satisfy the Defaulting Party's
obligations and indebtedness hereunder; and
(d) the balance, if any, shall be paid to the Defaulting
Party.
It is agreed that such sale shall be a perpetual bar
against the Defaulting Party and its heirs, successors, assigns,
legal representatives, and all other persons claiming under him,
them, or any of them. It is further agreed that the Trustee, or
any holder or holders of the obligation of the Defaulting Party,
or the Foreclosing Party shall have the right to become the
purchaser or purchasers at such sale if such Party is the highest
bidder or bidders, in which event the bid or bids may be credited
upon the indebtedness of the Defaulting Party. It is stipulated
and agreed that, in case of any sale hereunder by Trustee or its
successor, all prerequisites of such sale shall be presumed to
have been performed; and any conveyance given hereunder and all
statements of fact or recitals therein made as to (a) the
nonpayment of money secured, (b) any default under the terms
hereof, (c) the request by the Foreclosing Party to the Trustee to
foreclose the Lien, (d) the proper and due appointment of any
successor or substitute Trustee, (e) the advertisement of sale,
(f) the time, place, and terms of sale, or (g) any other
preliminary act or thing shall be taken in all courts of law and
equity as prima facie evidence that the facts so stated are true.
If the Foreclosing Party consists of more than one Party, actions
and directions of the Foreclosing Party under this Power of Sale
shall require the approval of the holders of a majority in amount
of the Defaulting Party's liquidated and undisputed payment
obligations which are then due.
5.0 This Memorandum is to be flied or recorded, as the case may be, in (a)
the applicable real estate records of the parish or parishes adjacent to
the offshore blocks contained within the Contract Area, (b) the mortgage
records or lien records or other appropriate records of such parish or
parishes, (c) the appropriate Uniform Commercial Code records of such
county or counties and the Secretary of State of Louisiana, and (d) the
Minerals Management Service. This Memorandum (including a carbon,
photographic, or other reproduction thereof and hereof) shall constitute
a non-standard form of financing statement under the terms of the Uniform
Commercial Code as adopted in the State of Louisiana (the "Uniform
Commercial Code,") and, as such, for the purposes of the security
interest in favor of the Operator, may be filed for record in the office
of the Secretary of State of the State of Louisiana, with the Operator
being the secured party and the Non-Operator being the debtor with
respect to such filing. For the purposes of the security interest in
favor of the Non-Operator, this Memorandum (including a carbon,
photographic, or other reproduction thereof and hereof) may be filed in
such office as a non-standard form of financing statement with the
Non-Operator being the secured party and the Operator being the debtor
with respect to such fling. With respect to such fling as a financing
statement, the security interests created in the Operating Agreement
cover minerals or the like (including oil and gas) and accounts subject
to subsection (e) of Section 9.103 of the Uniform Commercial Code. In
addition, this Memorandum also constitutes a financing statement fled as
a fixture filing. All parties to the Operating Agreement are identified
on Attachment "I" hereto.
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
remedy afforded 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.
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-Operator, as
appropriate, shall file of record an appropriate releases and termination
of all security and other rights created under the Operating Agreement
and this Memorandum. Upon the filing of such releases 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 fling of such releases
and termination instrument, the Operator and the Non-Operator shall have
the right to file a continuation statement pursuant to the Uniform
Commercial Code with respect to any financing statement fled 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 This Memorandum may be executed or ratified in one or more counterparts
and all of the executed or ratified counterparts shall together
constitute one instrument. For purposes of recording, in each of the
records described in Paragraph 5 above, duplicate copies of this
Memorandum with individual signature pages attached thereto may be filed
of record, one copy to be indexed in the name of the Operator, as
grantor, and one copy to be indexed in the name of the Non-Operator, as
grantor, and duplicate copies of this Memorandum with individual
signature pages attached thereto may be fled in the appropriate Uniform
Commercial Code records, one filing for the Operator, as secured party,
and another filing for the Non-Operator, as secured party. The respective
addresses of the Operator, as both secured party and debtor, and the Non
Operator, as both debtor and secured party, at which information with
respect to" the security interests created in the Operating Agreement may
be obtained, are set forth in Paragraph 1.0 of this Memorandum.
12.0 The Operator and the Non-Operator 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.
13.0 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
September 1, 2005.
STONE ENERGY CORPORATION
By:_________________________________
▇.▇. ▇▇▇▇▇▇▇▇, ▇▇. Vice President, Land
Date:_______________________________
RIDGEWOOD ENERGY CORPORATION,
MANAGER RIDGEWOOD ENERGY P FUND, LLC.
By:___________________________________
W. ▇▇▇▇ ▇▇▇▇▇, Executive Vice President
Date:_________________________________
STATE OF TEXAS ss.
COUNTY OF ▇▇▇▇▇▇ ▇▇.
BEFORE ME, the undersigned authority, on this day personally appeared W. ▇▇▇▇
▇▇▇▇▇ known to me to be the person whose name is subscribed to the foregoing
instrument as Executive Vice President of RIDGEWOOD ENERGY CORPORATION, MANAGER
RIDGEWOOD ENERGY P FUND, LLC. a Delaware limited liability corporation, and
acknowledged to me that he executed the same for an on behalf of said
corporation, for the purposes and consideration therein expressed, and in the
capacity therein stated.
GIVEN under my hand and seal of office this ___ of ______________ 2005.
____________________________________
Notary Public, State of Texas
My Commission Expires______________
STATE OF LOUISIANA ss.
PARISH OF LAFAYETTE ss.
BEFORE ME, the undersigned authority, on this day personally appeared ▇. ▇.
▇▇▇▇▇▇▇▇ known to me to be the person whose name is subscribed to the foregoing
instrument as Sr. Vice President, Land of STONE ENERGY CORPORATION a Delaware
corporation, and acknowledged to me that he executed the same for an on behalf
of said corporation, for the purposes and consideration therein expressed, and
in the capacity therein stated.
GIVEN under my hand and seal of office this ___ of _____________________ 2005.
_____________________________________
Notary Public, State of Louisiana
My Commission Expires at Death
ATTACHMENT "1" TO EXHIBIT "G"
Attached to and made a part of the Memorandum of Offshore Operating Agreement
and Financing Statement (Louisiana) dated effective September 1, 2005
by and between Stone Energy Corporation and
Ridgewood Energy Corporation, Manager Ridgewood Energy P Fund, LLC.
I. DESCRIPTION OF LANDS AND LEASES WITHIN THE CONTRACT AREA
--------------------------------------------------------
OCS-G Area Block Dated
----- ---- ----- -----
26014 South ▇▇▇▇▇ Island 231 (Portion) 7/1/04
II. CONTRACT AREA AND DEPTHS
------------------------
All of South ▇▇▇▇▇ Island Block Block 231, INSOFAR AND ONLY INSOFAR as
said block is covered by OCS-G 26014 and further limited to depths from
the surface to a subsea true vertical depth of 16,500 feet.
III. OPERATOR
--------
Stone Energy Corporation
IV. PARTIES, REPRESENTATIVES, ADDRESSES, AND INTERESTS
--------------------------------------------------
RIDGEWOOD ENERGY CORPORATION,
MANAGER RIDGEWOOD ENERGY P FUND, LLC. 30%
▇▇▇▇▇ ▇▇▇ ▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
PHONE: ▇▇▇-▇▇▇-▇▇▇▇
FAX: ▇▇▇-▇▇▇-▇▇▇▇
ATTN: ▇▇. ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
STONE ENERGY CORPORATION 70%
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
PHONE: ▇▇▇-▇▇▇-▇▇▇▇
FAX: ▇▇▇-▇▇▇-▇▇▇▇
ATTN: ▇▇. ▇.▇. ▇▇▇▇▇▇▇▇
EXHIBIT "H"
Attached to and made part of that certain Offshore Operating Agreement
dated effective September 1, 2005, by and between Stone Energy Corporation
and Ridgewood Energy Corporation, Manager Ridgewood Energy P Fund, LLC.
DISPUTE RESOLUTION PROCEDURE
----------------------------
The parties shall attempt in good faith to resolve any dispute arising out of or
relating to this Agreement promptly by negotiation either 1) between the Parties
or 2) by mediation if mutually agreed upon. Any such mediation shall take place
in New Orleans, Louisiana, and shall be conducted by a mediator who is a neutral
third party having no direct or personal interest in the outcome of the dispute,
appointed by agreement of the Parties. In the ▇▇▇▇▇; the Parties are unable to
agree to a mediator, the Parties agree to appointment of a mediator pursuant to
the Commercial Mediation Rules of the American Arbitration Association ("AAA).
The cost of mediation shall be shared equally between the parties and each party
shall bear its own expenses.
In the event the Parties are unsuccessful in their good faith attempt to
negotiate the dispute within sixty (60) days of a Party's request for
negotiation, either Party may demand in writing that the Dispute be resolved by
binding arbitration ("Arbitration Demand"}in accordance with the Arbitration
Rules of the American Arbitration Association ("AAA"), subject to the following
modifications:
a. The arbitration shall be conducted by a sole arbitrator to be agreed
upon by the Parties within thirty (30) days of the Arbitration Demand,
unless any claim or counterclaim (excluding interests and costs)
exceeds one million dollars ($1,000,000.00), in which case the
arbitration shall be conducted by a panel of three arbitrators, which
shall be mutually agreed upon by the Parties within thirty (30) days
of the Arbitration Request.
b. Should the Parties be unable to mutually agree as to the selection of
the sole arbitrator for disputes involving claims not greater than one
million dollars ($1,000,000.00), the arbitrator shall be selected as
follows:
1) the AAA shall designate five persons meeting the qualifications
set out in section (d) below, each Party shall be entitled to
strike two designees on a peremptory basis, and any designee not
stricken may be appointed by the AAA;
2) the arbitrator shall be appointed within sixty (60) days of the
Arbitration Demand.
c. Should the Parties be unable to mutually agree as to the selection of
the three arbitrators for the panel for disputes involving claims
exceeding one million dollars ($1,000,000.00), the panel shall be
selected as follows:
1) each Party shall select an arbitrator with the qualifications set
out in section (d), subject to three peremptory strikes by the
other Party;
2) the third arbitrator shall be mutually agreed upon by the Parties
by selection from a list of arbitrators submitted by the AAA, or
if the Parties are unable to agree then the AAA shall designate
five persons meeting the qualifications set out in section (d)
below, each Party shall be entitled to strike two designees on a
peremptory basis, and any designee not stricken may be appointed
by the AAA;
3) the panel shall be selected within sixty (50) days of the
Arbitration Demand.
d. Every person nominated or selected to serve as an arbitrator under
this Agreement shall be a neutral and impartial person with excellent
academic and professional credentials who has had both training and
experience as an arbitrator, and who is either 1) a lawyer with at
least ten years of experience specializing in commercial litigation
and with experience in the natural gas industry, or 2) a business
person who has had at least ten years of experience in the natural gas
industry. Any dispute as to whether a nominated or selected person
meets these qualifications shall be submitted to the AAA to determine
whether that person should be disqualified, which decision shall be
conclusive.
e. The arbitration shall take place in New Orleans, Louisiana.
f. A preliminary hearing shall be held, at which the arbitrator(s) shall
order the exchange of non-privileged documents and other information
on which the Parties will rely in support of their position and/or
which they intend to introduce as exhibits at the arbitration hearing,
and the identification of witnesses who the Parties may call as
witnesses or experts to testify at the arbitration hearing. Each Party
may take one deposition of an opposing Party or a person under the
opposing Party's control. Other discovery may be ordered by the
arbitrator(s) to the extent that the arbitrator(s) deems additional
discovery relevant and necessary. The arbitrator(s) may address other
administrative matters at the preliminary hearing as appropriate to
expedite and simplify the arbitration proceedings.
g. Completion of the process and a decision by the arbitrator(s) shall be
made no later than 120 days after the Arbitration Request or as soon
thereafter as possible.
h. The decision by the arbitrator(s) shall be based on the terms of this
Agreement, the laws of the State of Louisiana and judicial precedent.
Any decision not so based will not be eligible for confirmation.
i. Each party shall pay its own fees and costs no matter which Party
prevails, unless the arbitrator(s) finds that the claim or defense
brought by any Party was frivolous, lacked a reasonable basis in fact
or law, or made in bad faith, in which case the arbitrator(s) may
assess against that Party all or a portion of the fees and costs of
the other Party.
j. The arbitration award shall be in writing and shall specify the
factual and legal basis for the award. The arbitration award shall be
final and binding. Any sums awarded by the arbitrator(s) shall be
payable within sixty (60) days from the date of the award.
k. The Parties hereby agree to forego any claim for and the arbitrator(s)
shall have no power to award punitive damages.
l. The award may be enforced by judgment or otherwise in any court having
jurisdiction over the award or over the persons or the assets of the
owing Party. Applications may be made to such court for judicial
recognition of the award and/or an order of enforcement, as the case
may be.
All negotiations pursuant to this clause are confidential and shall be
treated as compromise and settlement negotiations for purposes of the Federal
Rules of Evidence and State Rules of Evidence.
Notwithstanding the provisions of this clause, either Party may seek from
any court having jurisdiction hereof any interim, provisional or injunctive
relief that may be necessary to protect the rights or property of any party or
maintain the status quo before, during or after the pendency of the arbitration
proceeding; provided, however, that after an arbitrator(s) has been selected and
qualified, the arbitrator(s) shall have the sole authority to hear and determine
an application for such relief, and the parties agree that the relief ordered by
the arbitrator(s) may be immediately and specifically enforced by a court
otherwise having jurisdiction over the parties. The institution and maintenance
of any judicial action or proceeding for any such interim, provisional or
injunctive relief shall not constitute a waiver of the right or obligation of
either Party to submit the dispute to negotiation, mediation and arbitration as
described above, including any claims or disputes arising from the exercise of
such interim, provisional or injunctive relief.
EXHIBIT "I"
Attached to and made a part of that certain Offshore Operating Agreement
dated effective September 1, 2005, by and between Stone Energy Corporation and
Ridgewood Energy Corporation, Manager Ridgewood Energy P Fund, LLC
ARTICLE 8.6 ET SEQ.
SHELF OPERATING AGREEMENT
(LOUISIANA)
Security Rights; Default; Unpaid Charges; Carved-out Interests.
8.6 Security Rights (LA).
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 Hydrocarbons 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 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 property 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.
1
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 Hydrocarbons 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
Hydrocarbons (including, without limitation, accounts arising from
gas imbalances or from the sale of Hydrocarbons at the wellhead),
(c) all cash or other proceeds from the sale of such Hydrocarbons
once produced, and (d) all Platforms and Development 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
2
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 Hydrocarbons
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 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;
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 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
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 ail existing and future permits,
licenses, rights-of-way, and similar rights and privileges
that relate to or are appurtenant to the Lease.
3
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 Hydrocarbons 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 Exhibit "C" 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 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
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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
hereof] outstanding and unpaid and that are' attributable
to or charged against the interest of the Operator pursuant
to this 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, claims, general intangibles, proceeds,
and products thereof, whether now existing or hereafter acquired,
in and to (a) all Hydrocarbons 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
Hydrocarbons (including, without limitation, accounts arising from
gas imbalances or from the sale of Hydrocarbons at the wellhead),
(c) all cash or other proceeds from the sale of such Hydrocarbons
once produced, and (d) all Platforms and Development 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 Hydrocarbons 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 Hydrocarbons
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
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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 Development 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.
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 (Louisiana) attached as Exhibit "G" (the
"Memorandum of Operating Agreement and Financing Statement
(Louisiana)") in multiple counterparts as appropriate. The Parties
authorize the Operator to file the Memorandum of Operating
Agreement and Financing Statement (Louisiana) 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
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applicable law and to attach an original of the Memorandum of
Operating Agreement and Financing Statement (Louisiana) to a
standard UCC-1 in mutually agreeable forms for fling 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
(Louisiana) describing such leasehold interest. Such Memorandum of
Operating Agreement and Financing Statement (Louisiana) 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 (Louisiana) is to be filed or recorded, as the
case may be, in (a) the conveyance records of the parish or
parishes adjacent to the lands or offshore blocks covered by the
Lease or contained within the Lease pursuant to La. R.S. 9:2731 et
seq., (b) the mortgage records of such 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 Development
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 Participating Interest share bears to the total
non-defaulting Participating Interest shares. 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 in accordance with Exhibit "C"
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
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(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 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
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.
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