EXHIBIT 10.1
Exploration Participation Agreement
South Timbalier/West Delta Area
By and Between
Chevron U.S.A. Inc.
And
Ridgewood Energy Corporation
Effective
September 1, 2006
South Timbalier 135
Mussel beach
ChevronSTWDEPA
TABLE OF CONTENTS
ARTICLE PAGE
1. SUBJECT MATTER, DEFINITIONS, EXHIBITS AND CONSTRUCTION .................................2
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1.1 Subject Matter and Purpose ..........................................................2
1.2 Defined Terms .......................................................................2
1.3 Exhibits ............................................................................8
1.4 Rules of Construction ...............................................................8
2. CONTRACT ACREAGE .......................................................................9
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2.1 Contract Acreage ....................................................................9
2.2 Primary Prospect ....................................................................9
2.3 Additional Opportunities Prospects ..................................................9
2.4 Area of Mutual Interest ............................................................10
2.5 Subsequent Well Timing .............................................................11
3. ASSIGNMENT OF INTEREST ................................................................11
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3.1 Leasehold Earning and Assignment ...................................................11
3.2 Assignment Timing ..................................................................12
3.3 Additional Earning Option ..........................................................12
4. PROSPECT EVALUATION ...................................................................13
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4.1 Primary Prospect Well Cost Sharing .................................................13
4.2 Additional Opportunities Prospect Well Cost Sharing ................................15
4.3 Well Over-expenditure Limitation ...................................................16
4.4 Rights Limitation on Use of Existing ▇▇▇▇▇ .........................................17
4.5 Well Takeover Provisions (Deleted) .................................................17
4.6 Protection from Drainage ...........................................................17
5. FARMOUT OPTION ........................................................................17
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5.1 Exhibits ...........................................................................17
5.2 Chevron's Participation Options and Overriding Royalties ...........................18
5.3 General Farmout Agreement Terms and Conditions .....................................19
5.4 Impenetrable Substances ............................................................22
5.5 Overriding Royalties ..............................................................22
6. PRESSURE COMMUNICATION AND COMMON RESERVOIRS .........................................23
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6.1 Pressure Communication Restriction .................................................23
7. OPERATING AGREEMNT ....................................................................24
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7.1 Offshore Operating Agreement .......................................................24
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7.2 Designation of Operator ............................................................24
8. ADDITIONAL PARTNERS/CO-VENTURERS ......................................................25
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8.1 Chevron's Right to Transfer Its Interest ...........................................25
9. ACREAGE RELEASE .......................................................................25
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9.1 Option to Release Acreage ..........................................................25
9.2 Rights Termination .................................................................25
9.3 Automatic Release ..................................................................25
10. NOTICES ...............................................................................26
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10.1 Notices ............................................................................26
10.2 Change in Designated Representative ................................................27
11. EXISTING AGREEMENTS ...................................................................27
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11.1 Existing Agreements ................................................................27
12. RIGHTS RESERVED .......................................................................27
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12.1 Lease Rights Reservations ...........................................................27
13. PRODUCTION PROCESSING AND CONTRACT OPERATIONS .........................................28
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13.1 Production Processing ..............................................................28
13.2 Contract Operations ................................................................29
13.3 Use of Existing Facilities .........................................................29
13.4 No Duty to Replace Existing Facilities .............................................30
14. TAX MATTERS ...........................................................................30
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14.1 Tax Partnership Provision ..........................................................30
14.2 Internal Revenue Provision .........................................................30
14.3 Allocation of Tax Liabilities ......................................................31
15. GEOPHYSICAL DATA ......................................................................31
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15.1 Proprietary Seismic Data ...........................................................31
15.2 Speculative Seismic Data ...........................................................32
16. MINIMUM ROYALTY AND LEASE MAINTENANCE .................................................32
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16.1 Annual Rental and Minimum Royalty Payments .........................................32
16.2 Royalty Relief .....................................................................33
16.3 Net Profit Provision ...............................................................34
16.4 Take-in-Kind Election ..............................................................35
17. MEDIA RELEASES .... ...................................................................35
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17.1 Public Announcements ...............................................................35
17.2 Media Releases .....................................................................36
18. FILES .................................................................................36
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18.1 Access to Files ....................................................................36
19. ASSIGNMENTS AND TRANSFER OF INTEREST ..................................................37
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19.1 Assignment of this Agreement .......................................................37
19.2 Lease or Prospect Successors and Assigns ...........................................38
20. CONFIDENTIALITY .......................................................................38
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20.1 Confidentiality ....................................................................38
20.2 Speculative Seismic Data ...........................................................39
20.3 Disclosure of Confidential Data ....................................................39
20.4 Risk of Use of Confidential Data ...................................................40
21. GOVERNING LAW .........................................................................40
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21.1 Choice of Law.......................................................................40
21.2 Future Litigation and Claims .......................................................40
22. FORCE MAJEURE .........................................................................41
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22.1 Force Majeure .....................................................................41
23. DISPUTE RESOLUTION ....................................................................42
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23.1 Dispute Resolution .................................................................42
24. TERMINATION ...........................................................................42
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24.1 Termination ........................................................................42
24.2 Lease Expiration or Termination ....................................................42
24.3 Agreement Extension ................................................................43
25. INDEMNITY .............................................................................43
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25.1 Indemnity ..........................................................................43
26. BREACH ................................................................................44
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26.1 Breach .............................................................................44
27. DISCLAIMER OF WARRANTY ................................................................44
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27.1 Disclaimer of Warranty .............................................................44
28. GENERAL PROVISIONS ....................................................................45
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28.1 Prospects Treated Separately .......................................................45
28.2 Non-Interference ...................................................................45
28.3 Governmental Approvals .............................................................45
28.4 Amendments .........................................................................46
28.5 Declaration of Agreement ...........................................................46
28.6 Other Rights, Remedies Reserved ....................................................46
28.7 No Waiver ..........................................................................46
28.8 No New Lease Burdens ...............................................................46
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28.9 Permitting Cost Sharing ............................................................47
28.10 Audit Rights .......................................................................47
28.11 Severability .......................................................................47
28.12 Entire Agreement ...................................................................47
28.13 Further Assurances .................................................................48
28.14 Surviving Obligation................................................................48
28-15 Conflict of Terms ... ..............................................................48
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LIST OF EXHIBITS
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Exhibit "A" Primary Prospect(s)
Exhibit "B" Additional Opportunities Prospect(s)
Exhibit "C" List of Existing Agreements, Restrictions,
Exceptions and Obligations
Exhibit "D-1" Form of Operating Rights Assignment
Exhibit "D-2" Form of Assignment with Reservation of ORRI
Exhibit "E" Offshore Operating Agreement
Exhibit "F" Dispute Resolution Procedure
Exhibit "G" Declaration of Agreement
Exhibit "H" Processing Agreement
Exhibit "I" Area(s) of Mutual Interest
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EXPLORATION PARTICIPATION AGREEMENT
THIS EXPLORATION PARTICIPATION AGREEMENT ("Agreement") is made and
entered into effective the 1st day of September, 2006, by and between Chevron
U.S.A. Inc., a Pennsylvania corporation hereinafter sometimes referred to as
"Chevron" and Ridgewood Energy Corporation, a Delaware corporation hereinafter
sometimes referred to as "Ridgewood or "Company". Chevron and Company are
sometimes hereinafter referred to individually as "Party" and/or collectively as
"Parties."
WITNESSETH:
WHEREAS, Company has expressed a desire to secure the right to earn and
subsequently own certain leasehold interests currently owned by Chevron in the
Outer Continental Shelf, Offshore in the Gulf of Mexico; and
WHEREAS, Chevron is desirous of having an entity with proven expertise
in oil and gas operations the United States to evaluate, through exploratory
drilling, the hydrocarbon potential on a portion of 1 leasehold currently owned
by Chevron in such area; and
WHEREAS, Company has demonstrated its ability to find commercial
quantities of hydrocarbons various locations throughout the United States and is
willing to commit financial and personnel resources now and in the future to
explore and develop the acreage of Chevron as described herein; and
WHEREAS, Chevron is agreeable to grant Company the right and option to
explore certain Chevy leasehold along with Chevron to earn an interest in such
leasehold all as more particularly set forth below.
NOW THEREFORE, for and in consideration of the mutual advantages and
benefits accruing to 1 Parties hereto, the sufficiency of which is hereby
acknowledged, the Parties hereto agree that the following v constitute the
agreement between Chevron and Company concerning the drilling of various ▇▇▇▇▇
hereinafter described on the "Contract Acreage" hereinafter identified and, upon
the satisfaction of certain conditions contained herein, the acquisition of
interests by Company from Chevron. This Agreement upon execution Chevron and
Company will terminate, supersede and replace all prior agreements and oral
conversations between Chevron and Company regarding the transaction set forth
herein including, but not limited to, that certain Letter intent from Company to
Chevron dated August 10, 2006.
Page 1
ARTICLE 1
1. SUBJECT MATTER, DEFINITIONS EXHIBITS AND CONSTRUCTION
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1.1 Subject Matter and Purpose.
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The subject matter of this Agreement is the exploration and development
of the Contract Acreage, defined below, by Company and Chevron pursuant to the
terms and conditions hereinafter provided together with the rights and
obligations of Company and Chevron concerning such exploration and development
of the Contract Acreage.
The purpose of this Agreement is to provide a means whereby Chevron is
to make available I Company acreage for the drilling of Exploratory ▇▇▇▇▇ by
Chevron and Company and possible Third Parties in an attempt to find and develop
economic reserves for the benefit of the Parties. It is contemplated that
situations will arise during the term of this Agreement that is not specifically
covered herein. In the event the, situations do arise the Parties agree, in the
spirit of cooperation, to use all reasonable efforts to resolve such situations
to the mutual benefit of all Parties.
1.2 Defined Terms.
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For purposes of this Agreement, including the Exhibits, except as
otherwise expressly provided, the terms defined in this Section 1.2 have the
meanings assigned to them herein and the capitalized terms defined elsewhere in
the Agreement by inclusion in quotation marks and parentheses have the meanings
so ascribed to them.
"AFE" means the formal Authority for Expenditure prepared by a Party to
this Agreement, for the purpose of estimating and fixing the participation
interests of the Parties for the Well Costs to be incurred in connection with a
proposal to drill, deepen, or sidetrack a well hereunder.
"Additional Opportunities Prospects" mean the Prospects identified by
the Parties listed on Exhibit "B".
"Affiliate" means, with respect to any Person, any other Person directly
or indirectly controlling c controlled by, or under common control with, such
Person. For purposes of this definition, the term "control] (including, with
correlative meanings, the terms "controlling," "controlled by" and "under common
control ( with") as applied to any Person, means the possession, directly or
indirectly, of the power to direct or cause the direction of the management of
such Person, whether through ownership of voting securities, by contract or
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otherwise, and specifically with respect to a corporation, partnership or
limited liability company means 1) ownership of fifty percent (50%) or more of
the voting stock in such corporation or of the voting interest as partner in
such partnership or as a member of such limited liability company, or 2) a
limited liability company whereby a Party is its designated general manager
having full, exclusive and complete discretion in the management and control of
said entity.
"Agreement" means this Exploration Participation Agreement between
Chevron and Company including the Exhibits attached hereto or referred to
herein.
"Area of Mutual Interest" or "AMI" means the area(s) and block(s) listed
on Exhibits "A", B" an "I" attached hereto.
"Available Acreage" means Chevron's interest in the acreage and those
aliquots and depths describe on Exhibits "A" and "B" attached hereto and made a
part hereof.
"Business Day" means a day on which the Minerals Management Service New
Orleans Region, Office is open for business.
"Casing Point" means that point in time when a well has reached the
Objective Depth, and all log cores and other tests have been completed, the
results thereof have been furnished to all Parties, and operator has made its'
recommendation for further operations at Objective Depth under the terms of the
applicable Operating Agreement.
"Chevron ACP Interest" means the interest of Chevron and any Third
Parties in the Prospect(s) an Lease(s) as listed on Exhibits "A" and "B"
entitled "CHEVRON Interest AFTER Casing Point."
"Chevron BCP Interest" means the interest of Chevron and any Third
Parties in the Prospect(s) an Lease(s) as listed on Exhibits "A" and "B"
entitled "CHEVRON Interest BEFORE Casing Point."
"Company ACP Interest" means the interest of Company in the Prospect(s)
and Lease(s) as listed o Exhibits "A" and "B" under the column titled "COMPANY
Interest AFTER Casing Point" for any Prospect in which it participates and
earns.
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"Company BCP Interest" means the interest of Company in the Prospect(s)
and Lease(s) as listed on Exhibits "A" and "B" under the column titled "COMPANY
Interest BEFORE Casing Point" for any Prospect in which it participates and
earns.
"Contract Acreage" means collectively those aliquots and depths of the
Lease(s) and lands described as Available Acreage on Exhibits "A" and "B"
attached hereto and made a part hereof plus any acreage that becomes jointly
owned pursuant to Section 2.4, LESS AND EXCEPT THE EXCLUDED PROPERTY as defined
herein.
"Effective Date" means the effective date of this Agreement, being 7:00
a.m., Central Standard Time, September 1, 2006.
"Emma Beach Sand" means that certain geologic interval, the earning well
for which will be drilled to a depth of 18,000 feet TVD SS, and being the
primary objective and Objective Depth for the Initial Test Well for Emma Beach
Prospect as shown in that Prospect's AFE.
"Excluded Property" means all of Chevron's right, title and interest in
and to the following for each of the Primary and Additional Prospect
Opportunities: (1) the oil and gas lease(s) issued by the United States of
America and listed on Exhibits "A" and "B" as to all lands and depths covered
thereby, which are not described as available for earning by Company for that
particular Prospect on Exhibits "A" and "B" hereto, and those aliquots and
depths of the Leases(s) which are described as available for earning by Company
for that particular Prospect on Exhibits "A" and "B" hereto, but were not earned
by Company prior to expiration of that particular Prospect's time period allowed
for earning under the terms of this Agreement; (2) all Existing Facilities; and,
(3) all production from or through the lease(s), Lease(s), lands, depths, ▇▇▇▇▇
and facilities described in (1) and (2) of this definition, produced and sold
prior to and after the Effective Date; and, (4) all revenues received by Chevron
from the sale of production or otherwise derived by Chevron therefrom, described
in items (1), (2) and (3) of this definition. The Parties do hereby agree and
acknowledge that it is the intent of this Agreement to expressly exclude any and
all earning rights for Company to earn or have in any reservoir(s) strata or
sands currently producing or producible from any existing wellbore(s) located on
the lease(s) or Leases(s), and that such determination shall be made solely by
Chevron, in good faith. Any reservoir(s), strata or sands currently producing or
producible from any existing wellbore(s) located on the Leases(s) shall be
deemed Excluded Property.
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"Existing Facilities" means all property located on or associated with
the Contract Acreage as of the Effective Date used or held for use in connection
with the production, treatment, gathering, storage and compression of oil and/or
gas from, on, or attributable to the Lease(s) listed on Exhibits "A" or `B",
including but not limited to, (1) platforms, ▇▇▇▇▇, caissons, fixtures, tanks,
pumps, pipelines, appurtenances and improvements, (2) all equipment or material
permanently or temporarily located on the Contract Acreage; and, (3) other
structures located on or used in connection with the Lease(s); together with any
future items described in (1), (2) and/or (3) hereinabove installed for or used
in connection with any rights reserved unto Chevron under this Agreement,
including but not limited to, the drilling, reworking, recompleting,
sidetracking or deepening of any ▇▇▇▇▇, current or future, by or on the behalf
of Chevron to depths comprising the Excluded Property and for the use or benefit
of the Excluded Property.
"Exploratory Objective" means any zone, interval or horizon not in
pressure communication with a zone, interval or horizon that is currently
producing or is currently known to be capable of producing oil and/or gas from
an existing wellbore located on a Lease.
"Exploratory Well" means a well proposed to be drilled to evaluate an
Exploratory Objective. A well will be considered an Exploratory Well if any bona
fide objective in a well is an Exploratory Objective, even if other objectives
in the well do not qualify as Exploratory Objectives. Any substitute well for a
previously drilled Exploratory Well will be considered an Exploratory Well if
and only if the substitute well is proposed to be drilled to not less than the
Objective Depth of the unsuccessful Exploratory Well it is replacing.
"Farmout Agreement" means a mutually acceptable form of agreement to be
entered into by the Parties for a Prospect in the event Chevron elects not to
participate in the Initial Test Well, and Company agrees to assume and bear,
either solely or with any Third Parties, one hundred percent (100%) of the costs
and risks of said operation.
"▇▇▇▇▇ Beach Sand" means that certain geologic interval, the earning
well for which shall be drilled to a depth of 21,000 feet TVD SS, and being the
primary objective and Objective Depth for the Initial Test Well for ▇▇▇▇▇ Beach
Prospect as shown in that Prospect's AFE.
"Initial Test Well" will be the Exploratory Well proposed by Chevron or
Company and drilled after the Effective Date of this Agreement on each Prospect
located on the Exhibit "A" or Exhibit "B" Lease(s).
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"Lease(s)" means the oil and gas Lease(s) issued by the United States of
America as listed on Exhibits "A" and "B", but as may be depth, aliquot or
interest limited thereby.
"Mussel Beach Sand" means that certain geologic interval, the earning
well for which will be drill to a depth of 19,600 feet TVD SS or to a depth
sufficient to adequately test the Tex-X Sand, as seen on the TGS Deep Resolve
PSTM seismic data, in line 9770, cross line 9753, 4320 ms,, whichever is the
lesser, and being the primary objective and Objective Depth for the Initial Test
Well for Mussel Beach Prospect as shown in that Prospect's AFE.
"Objective Depth" means the total depth of an Initial Test Well or
Substitute Well(s) as specified the formal drilling AFE for such well for each
Prospect as shown on Exhibits "A" and "B".
"Operating Agreement" means the offshore operating agreement to be
entered into or ratified by the Parties in accordance with the provisions of
this Agreement to govern and bear upon notice requirements and well operations,
but not the participation elections, for the Available Acreage until reaching
Casing Point, of the Parties on ▇▇▇▇▇ drilled under this Agreement. No grant of
any operating agreement interest is intended in or the Available Acreage until
earned under this Agreement.
"Operating Rights" means all of the rights, obligations, liabilities and
attributes of a working interest ownership covering less than all depths, and
potentially less than the entire surface area, in and on a Lease.
"Person" means, and will be interpreted broadly to include, without
limitation, any individual corporation, association, company, limited liability
company, trust, estate, partnership, joint venture unincorporated organization,
other business entity, any government or any department or agency thereof or any
other legal entity.
"Primary Prospect(s)" means that certain Prospect identified by Chevron
and listed on Exhibit "A".
"Prospect" means an area believed to encompass an accumulation(s) of
hydrocarbons having one or more productive formations. The area encompassing
these accumulations will be described on a surface acreage or aliquot basis and
subject to any depth limitations as specified on Exhibits "A" or "B" or as
agreed' by the Parties.
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"Record Title" means all of the Chevron rights, obligations, liabilities
and attributes of a working interest ownership covering all depths in and on a
Lease.
"Representatives" means the directors, officers, supervisors, employees,
partners, lender, consultants, attorneys and legal counsel, financial advisors,
accountants, marketing representatives and other agents of the Parties.
"Reservoir" means a subsurface porous, permeable rock body that contains
or is thought to contain an accumulation of oil and/or gas, separated by
faulting or other subsurface anomaly from other areas containing accumulations
of oil and/or gas in the same or different strata.
"Skipper's Canyon Sand" means that certain geologic interval, the
earning well for which will be drilled to a depth of 19,520 feet TVD SS or to a
depth sufficient to adequately test the Skipper's Canyon Sand as seen on the TGS
Deep Resolve PSTM seismic data in line 9851, cross line 9381, 4516 ms, whichever
is the (lesser, and being the primary objective and Objective Depth for the
Initial Test Well for Skipper's Canyon Prospect as shown in that Prospect's AFE.
"Substitute Well" means a well proposed by a Party to the Objective
Depth of a Prospect as listed or Exhibits "A" or "B", as a result of the Initial
Test Well, or a previous Substitute Well, on such Prospect no reaching its
Objective Depth.
"Successful Well" means a well determined by the Minerals Management
Service (or meeting the requirements of the Minerals Management Service without
a written determination as mutually agreed by the Parties) to be a producible
well pursuant to 30 CFR Part 250, Subpart A, or any successor regulation, for
the (Lease(s) located in Federal offshore waters, as used in Articles 3, 4 and 5
and if actually completed for. production by a Party hereto.
"Third Parties" means a Person not a Party to this Agreement.
"Well Costs" means the costs and expenses of all services and materials
shown on the AFE and use (and associated with drilling, sidetracking, deepening
and testing a well hereunder, including, but not limited t0 (the costs and
expenses associated with the following items: (1) permitting with applicable
government agencies (2) drill site preparation and facility modifications
(including removal of existing conductors due to structural load requirements,
but excluding hazard surveys, which are provided for in Section 15.2 of this
Agreement); (3) actual drilling, deepening or sidetracking operations
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(including mobilization and demobilization of the rig to the( drill site); (4)
logging, coring and testing of the well for the presence of oil and/or gas; (5)
the costs of plugging and abandonment if the well is not completed for
production; and (6) the cost to temporarily abandon a well. Al such costs and
expenses will be determined in accordance with the accounting procedure attached
to the applicable Operating Agreement.
1.3 Exhibits.
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The following Exhibits are attached hereto and incorporated herein by
reference:
Exhibit "A" Primary Prospect
Exhibit "B" Additional Opportunities Prospect(s)
Exhibit "C" List of Existing Agreements, Restrictions,
Exceptions and Obligations For Primary Prospect
Exhibit "D-1" Form of Operating Rights Assignment
Exhibit "D-2" Form of Assignment with Reservation of ORRI
Exhibit "E" Offshore Operating Agreement
Exhibit "F" Dispute Resolution Procedure
Exhibit "G" Declaration of Agreement
Exhibit "H" Processing Agreement
Exhibit "I" Area(s) of Mutual Interest
1.4 Rules of Construction.
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For purposes of this Agreement:
(a) Unless the context otherwise requires: (1) "or" is not exclusive;
(2) an accounting term not otherwise defined has the meaning assigned to
it in accordance with accounting principles generally accepted in the
United States of America; (3) words in the singular include the plural,
and words in the plural include the singular; (4) words in the masculine
include the feminine, words in the feminine include the masculine and
words with appropriate correlative meanings include such correlative
meanings; (5) any date specified for any action that is not a Business
Day will be deemed to mean the first Business Day after such date; (6)
reference to a Person includes such Person's successors and assigns and,
in the case of governmental bodies, Persons succeeding to their
respective functions and capacities; (7) any amounts due or payable
under this Agreement will be paid in United States currency and (8) the
use of the words "contribute, contributing or contribution" will refer
to a payment due from one Party to the other as specified herein or in
the applicable Operating Agreement.
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(b) References to Articles and Sections are, unless otherwise specified,
to Articles and Sections o this Agreement. Neither the captions to
Articles or Sections thereof nor the Table of Contents will bi deemed to
be a part of this Agreement but are added for convenience only.
(c) References herein to any agreement or other instrument will, unless
the context otherwise( requires (or the definition thereof otherwise
specifies), be deemed references to the same as it may from time to time
be changed, modified, supplemented, amended or extended. There is no
incorporation b, reference herein unless expressly so stated.
ARTICLE 2
2. CONTRACT ACREAGE
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2.1 Contract Acreage.
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This Agreement will cover only the Available Acreage as described in
Exhibits "A" and "B". Should an3 acreage be jointly acquired pursuant to the
provisions of this Agreement as stated in Section 2.4 below, then said newly
acquired acreage will automatically become part of the Contract Acreage.
2.2 Primary Prospect
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Attached hereto as Exhibit "A" is the Prospect Chevron has
identified covering a portion of the Lease(s; subject to this Agreement. Prior
to the execution of this Agreement, a technical presentation was given to
Company by Chevron covering the Prospect. No acreage associated with the
Prospect listed on Exhibit "A" will be expanded or contracted without the
mutual consent of the Parties. Notwithstanding the above, no approval by the
Parties will be required for the expansion of a Prospect as a result of acreage
acquired by Chevron pursuant to the provisions stated in Section 2.4; it being
understood that any such acreage acquired by Chevron pursuant to the provisions
stated in Section 2.4 would automatically be included in the affected Prospect,
but limited as to depth: available for earning in that particular Prospect
pursuant to Exhibit "A".
2.3 Additional Opportunities Prospects.
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Exhibit "B" consists of a list of the Prospects, other than the
Primary Prospect, associated with the Lease(s), where a technical presentation
has been given to Company by Chevron. In accordance with the provisions stated
in this Agreement, it is anticipated the Parties may, under the terms hereof
evaluate the hydrocarbon potential on these Exhibit "B" Prospects to determine
whether or not the Parties are interested in drilling an Initial Test Well on
these Prospects. Unless mutually agreed by the Parties before, during or
subsequent to the evaluation described herein regarding the Prospects listed on
Exhibit "B", each Prospect on Exhibit "B" will not be expanded or contracted to
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include or exclude acreage. Notwithstanding the above, approval of any expansion
to a Prospect will not apply to acreage acquired by Chevron pursuant to the
provisions stated in Section 2.4; it being understood that any such acreage
acquired by Chevron pursuant to the provisions stated in Section 2.4 would
automatically be included in the affected Prospect, but limited as to depths
available for earning in that particular Prospect pursuant to Exhibit "B".
2.4 Area of Mutual Interest.
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Should Company either (i) acquire an interest in an oil and gas
lease covering any of the blocks or acreage in such Prospect identified on
Exhibits "A", "B" or "I," or any portion of such blocks or acreage, or (ii)
acquire the right to acquire an interest in an oil and gas lease covering any of
the blocks or acreage identified in such Prospect, or (iii) acquire an interest
in an oil and gas lease covering any of the blocks or acreage identified on
▇▇▇▇▇▇▇ "▇", "▇" or "I" for such Prospect should the original Lease expire or
terminate before termination of this Agreement, then Chevron shall have the
right but not the obligation to acquire from Company up to seventy-five percent
(75%) interest and/or right(s) acquired by Company covering any of the blocks or
acreage identified on ▇▇▇▇▇▇▇ "▇", "▇" or "I". Chevron shall be notified in
writing by Company within thirty (30) days of such acquisition and will provide
all of the terms and conditions of the offer to Chevron with said notice, and
Chevron shall have thirty (30) days after receipt of such notice to advise
Company whether or not Chevron elects to acquire its proportionate share of the
interest and/or rights acquired by Company. If Chevron elects to exercise its
right under this Agreement, the consideration owed by Chevron to Company will be
equal to all the consideration paid and/or tendered by Company for such interest
and/or right attributable to Chevron's proportionate share. Should Chevron
acquire any interest, or acquires a right to acquire any interest in any acreage
listed on ▇▇▇▇▇▇▇▇ "▇", "▇" or "I" prior to Company earning an interest in the
Leases included in the Prospect covering such acreage, Chevron shall include the
acquired acreage, or right to acquire acreage, in such Prospect for all purposes
under this Agreement, but said inclusion shall be limited as to depths available
for earning in that particular Prospect pursuant to the applicable Exhibit "A"
or "B".
After earning an interest in the Leases in a Prospect by Company,
the applicable Operating Agreement will control the obligations between the
Parties in the AMI for such Prospect established under the Operating Agreement,
which will consist of the acreage identified on ▇▇▇▇▇▇▇▇ "▇", "▇" and "I" for
such Prospect, plus any acreage added to such Prospect pursuant to this
Agreement, if any.
This AMI obligation will be binding upon and will inure to the
Parties hereto, for the longer period of either (i) this Agreement or (ii) the
applicable Operating Agreement, or (iii) December 31, 2008.
Page 10
2.5 Subsequent Well Timing
----------------------
Notwithstanding the applicable Operating Agreement under Article 7 of
this Agreement or a Farmout Agreement pursuant to Article 5, Chevron and Company
agree that, in connection with Company earning an interest in any Prospect,
whether pursuant to this Agreement or a Farmout Agreement pursuant to Article 5,
no subsequent proposal will be made by Chevron or Company to drill or sidetrack
another well in or to that Prospect until the earlier of one (1) year after
drilling rig de-mobilization from that Prospect's earning well or after ninety
(90) days of production from that Prospect's earning well, except with consent
of Chevron; Company, and any Third Party similarly bound by Chevron with respect
to that Prospect, or unless required to be drilled by the United States
government or to prevent expiration of an oil, gas and mineral lease in that
Prospect.
ARTICLE 3
3. ASSIGNMENT OF INTEREST
----------------------
3.1 Leasehold Earning and Assignment.
-------------------------------------
Exhibit "A" lists the current ownership interests of Chevron in the
Primary Prospect Lease(s). Exhibit "A" also lists the portions of Chevron's
interest, based on 100% leasehold working interest in the Lease(s), that Chevron
shall assign to Company subject to satisfaction by Company of the earning
provisions stated in this Article 3 during the term of this Agreement. The
rights of Company to earn interests in the Primary Prospect under the terms of
this Agreement shall not extend beyond December 31, 2007, and no Initial Test
Well or Substitute Well for a Primary Prospect may be proposed by either Party
after said date. Prospect acreage earned and the assignment(s) due will cover
Operating Rights Interest as to the Company ACP Interest in and to the acreage
and depths listed on Exhibit "A" in that portion of the Lease(s) in the
Prospect, and on a form of assignment as shown on Exhibits "D-1"or "D-2", as
applicable, and subject to the reversionary rights of Chevron as stated in said
assignment(s), for recordation by the Parties in the public records of the
adjacent parish. Company shall promptly file any and all assignments made
pursuant to this Agreement or a Farmout Agreement in the public records of the
adjacent parish and as a non-required filing (for any assignment of a Prospect
which is included in or subject to a federal unit agreement), or required fling,
for any assignment of a Prospect which is not included in or subject to a
federal unit agreement), whichever is applicable, with the Minerals Management
Service for the Lease(s) assigned hereunder and timely provide Chevron a
certified copy with recordation data. Any assignment earned by Company and made
by Chevron for an Additional Opportunities Prospect(s) as shown on Exhibit "B"
will be under the terms and conditions as provided for herein. Any assignment
made by Chevron as a result of this Agreement will be made specifically subject
to this Agreement, and to the restrictions, exceptions, limitations and
Page 11
obligations stated in the agreements listed on Exhibit "C", as applicable, for
that portion of the Lease(s) to be assigned. These agreements will be referenced
in any assignment made. An assignment will only be earned by Company:
(a) Upon (i) Company's participation in an Initial Test Well on a
Prospect, (ii) which reaches its Casing Point for the Objective
Depth, and (iii) regardless if the well is a Successful Well or
not in the Available Acreage for that Prospect, then Company will
be entitled to an assignment of the Company ACP Interest in that
portion of the Lease(s) included in the Prospect as to the
Available Acreage for that Prospect;
or
(b) Upon (i) Company's participation in an Initial Test Well on a
Prospect, (ii) which fails to reach its Casing Point for the
Objective Depth, and (iii) and the Parties mutually agree to cease
furher drilling operations in the Initial Test Well, then Company
will retain the right to earn an assignment of the Company ACP
Interest in that portion of the Lease(s) included in the Prospect,
provided Company satisfes the requirements for earning in
accordance with the provisions of Section 4.1 or 4.2 covering the
drilling of a Substitute Well for such Prospect.
3.2 Assignment Timing.
------------------
As soon as reasonably possible, but no later than thirty (30) days after
any earning event as specifed in Article 3.1, Chevron shall forward to Company
the applicable executed assignments of and for that earned portion and depth of
the Lease(s) in the Prospect as provided in Article 3.1. Should Company fail to
meet its fnancial obligations as described in this Agreement, or under the
applicable Operating Agreement, Chevron shall have the right and option to
withhold execution and delivery of the earned assignments until any funds owed
have been properly paid.
3.3 Additional Earning Option.
--------------------------
During the term of this Agreement, and subject to Company's obligation to
participate in the drilling of the Initial Test Well for the Primary Prospect
under the terms of this Agreement,, Company will have the option to elect to
participate in the drilling of an Initial Test Well on the Prospects listed on
Exhibit "B" and to earn rights hereunder by approving a formal drilling AFE for
each Prospect within thirty (30) days of its receipt. Failure to approve a
formal AFE will be deemed an election not to participate as of the date upon
which the thirty (30) day election period expires. In no event will this right
to participate continue to exist afer December 31, 2007 (said date shall be
extended to December 31, 2008, but only upon Company's formal election to
participate in the drilling of the Initial Test Well for either Skipper's
Page 12
Canyon or ▇▇▇▇▇ Beach) and no Exhibit "B" Initial Test Well may be proposed by
either Party after said date, unless mutually agreed to by the Parties. Upon
Company's election not to participate in a particular Prospect listed on Exhibit
"B", any and all earning rights for that Prospect will terminate as of the date
of Company's election and the particular Prospect will thereafter be excluded
from this Agreement.
In no event will Company have the right to propose the drilling of an Initial
Test Well for any Additional Opportunities Prospect prior to the time that it
has earned an interest in the Primary Prospect under the terms of this
Agreement.
ARTICLE 4
4. PROSPECT EVALUATION
-------------------
4.1 Primary Prospect Well Cost Sharing.
-----------------------------------
Chevron shall have the sole right and obligation to propose to Company
the operations for the drilling of an Initial Test Well on the Primary Prospect
listed on Exhibit "A". It is anticipated drilling operations will commence on or
before December 1, 2006 for said Primary Prospect (Mussel Beach), subject,
however, to receipt of all regulatory and permitting approvals, weather delay,
delivery of materials, (e.g. pipe) and rig availability. When proposing an
Initial Test Well for the Primary Prospect, Chevron shall provide Company, a
formal AFE detailing the specifications of the well to be drilled for Company's
information on or before thirty (30) days prior to commencement of actual
drilling operations.
The Parties will have and each undertakes, by the execution of this Agreement,
the obligation to participate in the proportions provided for herein, but
subject to those certain provisions of the applicable Operating Agreement and
this Agreement, for the drilling of an Initial Test Well of the Primary Prospect
listed on Exhibit "A" and further subject to Company's receipt of a formal
Chevron AFE to drill the Initial Test Well for the Primary Prospect.
For the Primary Prospect listed in Exhibit "A", Company will have and undertakes
the obligation of paying a disproportionate share of the Well Costs for the
Initial Test Well based on the Company BCP Interest for that Prospect as listed
on Exhibit "A" until Casing Point or until one hundred twenty percent (120%) of
the estimated funds to drill the Initial Test Well, whichever occurs first, as
stated in the AFE provided by Chevron under this Article 4.1, have been spent in
the drilling of the Initial Test Well. Upon the earlier of the two conditions
stated directly above being met by Company, Company will have and will undertake
the obligation of paying and bearing its share of any additional or further
cost, risk or expense associated with the Initial Test Well to Casing
Page 13
Point, based on the Company ACP Interest for the Primary Prospect, upon which
the Initial Test Well is located, and subject to Company retaining all of its
Company BCP Interest obligations for that Prospect, including the obligation of
Company to bear its share of the plug and abandonment costs at the Company BCP
Interest if the Initial Test Well is not completed for production.
The Parties will each have the option and election to participate in the
drilling of a Substitute Well(s) for the Primary Prospect. Either Party may
timely propose such Substitute Well. Should Company elect to participate in the
drilling of a Substitute Well, Company's disproportionate spending obligation
for that Prospect, as described in Article 4.1 above, will continue until Casing
Point or until the cumulative and combined costs of the Initial Test Well and
Substitute Well exceed one hundred twenty percent (120%) of the estimated funds
to drill the Initial Test Well, whichever occurs first, as stated in the AFE
provided by Chevron. The cost of any operation conducted thereafter will be
shared by the participating Parties in the Substitute Well in accordance with
the respective Company ACP Interest in the Substitute Well, except for the
obligation of Company to bear its share of the plug and abandonment costs at the
Company BCP Interest if the Substitute Well is not completed for production.
Upon Company earning an Operating Rights interest assignment as
described in Article 3.1 in the Primary Prospect, the provisions of the
applicable Operating Agreement will control the rights, obligations, options and
elections of the Parties thereafter for that particular Prospect.
Should Company elect not to participate in the drilling of a Substitute
Well for the Primary Prospect before earning rights in and to the Primary
Prospect, as provided herein, Company's rights to earn an interest in that
Prospect and this Agreement will terminate, effective with such election, and
without the obligation of Chevron to drill such well, and Company will forfeit
all unearned rights.
Should Chevron or Company propose and should Chevron and Company elect
to participate in a Substitute Well for the Primary Prospect, Chevron shall bear
and pay only its Chevron BCP Interest share of the Well Cost of the Substitute
Well for the Primary Prospect until Casing Point or until the Company's
cumulative and combined costs of the Initial Test Well and Substitute Well
exceed one hundred twenty percent (120%) of the estimated funds to drill the
Initial Test Well, whichever occurs first, as stated in the AFE provided by
Chevron. Thereafter Chevron's costs and risks will be borne in accord with the
Chevron ACP Interest. Should Chevron elect not to participate in the drilling of
a Substitute Well for the Initial Test Well for the Primary Prospect for a
Substitute Well in which Company elects to participate, it shall offer to
farmout as applicable, all of its interest in the Primary Prospect, as specified
in Article 5, for that Primary Prospect. Failure by Chevron to timely make an
Page 14
election pursuant to the response periods provided in the applicable Operating
Agreement will be deemed an election by Chevron to not participate in such
operation and to farmout under Article 5.
4.2 Additional Opportunities Prospect Well Cost Sharing.
---------------------------------------------------
Rights to earn any interest on and in the Exhibit "B" Additional
Opportunities Prospects will not vest in Company, until it has earned an
interest in the Primary Prospect (Mussel Beach). Subject to the provisions of
Article 3.3, should either Party propose the drilling of an Initial Test Well on
an Exhibit "B" Prospect, it will provide the other Party with an AFE detailing
the specifications of the well to be drilled. Either Party will have the option,
but not the obligation, to elect to participate in the drilling of an Initial
Test Well on any such Prospect listed on Exhibit "B" for thirty (30) days from
the receipt of the formal AFE. Should each of the Parties timely elect to drill
an Initial Test Well on any Prospect listed on Exhibit "B", Company and Chevron
will each have and bear the obligation of paying its share of the Well Cost as
set out in Exhibit "A", on the same terms and conditions as for the Primary
Prospect, and, except for ▇▇▇▇▇ Beach and Skipper's Canyon Prospects, subject to
the level of interest participation actually elected and assumed by Company in
such Additional Opportunities Prospect. Company's level of interest
participation elected and assumed by Company for a particular Additional
Opportunities Prospect Initial Test Well must conform to the conditions that (i)
Company's ACP Interest may not exceed an undivided twenty-five percent (25%) in
that well, and (ii) Company's BCP Interest in that well shall be one hundred
sixty-eight percent (168%) of Company's ACP Interest in that well, unless
mutually agreed otherwise by the Parties. Notwithstanding anything to the
contrary, it is stipulated and agreed to by Chevron and Company that Chevron
shall not propose an Initial Test Well for Skipper's Canyon Prospect for
Company's consideration prior to reaching total depth drilled in the Initial
Test Well including any subsequent operations such as sidetracking or deepening
of said well and the results of all logging and testing operations being
furnished to the Parties.
The Parties have the option to elect to participate, for thirty (30)
days from the receipt of the formal AFE, in the drilling of a Substitute Well(s)
for the Additional Opportunities Prospects under the terms of this Agreement.
Should Company elect to participate in a Substitute Well for the Additional
Opportunities Prospects, the terms of this Agreement will apply and upon earning
an interest as described in Article 3.1 herein, the provisions of the applicable
Operating Agreement will then control the rights, obligations, elections and
options of the Parties thereafter for that particular Prospect.
Should Company elect not to participate in the drilling of a Substitute
Well before earning the available rights in a Prospect identified as an
Additional Opportunities Prospect and as provided herein, Company's rights to
Page 15
earn an interest in that Prospect will terminate effective with such election,
and without the obligation of Chevron to drill such well.
Should Chevron or Company propose and should Chevron and Company elect
to participate in a Substitute Well for the Additional Opportunities Prospects,
Chevron shall pay its Chevron BCP Interest share of the Well Cost of the
Substitute Well until Casing Point or until the Company's cumulative and
combined costs of the Initial Test Well and Substitute Well exceed one hundred
twenty percent (120%) of the estimated funds to drill the Initial Test Well,
whichever occurs first, as stated in the AFE provided by Chevron. Thereafter
costs and risk will be bore in accord with the Chevron ACP Interest. Should
Chevron elect not to participate in the drilling of a Substitute Well for the
Initial Test Well for a Substitute Well in which Company participates, Chevron
shall offer to farmout its interest in that Additional Opportunities Prospect,
as specified in Article 5.
Should Company elect not to participate in the drilling of an Initial
Test Well drilled on a Prospect listed on Exhibit "B", the Lease(s) associated
with that Prospect will be excluded from this Agreement and Company will no
longer have any rights or options associated with earning an interest in that
Prospect or the Lease(s).
Should Chevron elect not to participate in the drilling of an Initial
Test Well on a Prospect listed on Exhibit "B" that is proposed to be drilled to
the Casing Point for the Objective Depth, Chevron shall offer to farmout its
interest in that specific Prospect, as specified in Article 5,. Should Chevron
elect not to participate in the drilling of an Initial Test Well on an Exhibit
"B" Prospect, the earning provisions for Company as described in Article 3 and
this Section 4.2, will not apply and the earning provisions under the farmout
will control.
4.3 Well Over-expenditure Limitation.
---------------------------------
Each Prospect or right earned by Company will be treated as a distinct
area under distinct ownership under the Operating Agreement executed pursuant to
this Agreement and the Operating Agreement will include an over-expenditure
provision that requires a new AFE and provides the right of election on certain
well operations to participate for the then-proposed well operation or
substitute well operation, if it appears that anticipated expenditures will
exceed the original well AFE estimate by twenty percent (20%), allowing the
Parties to elect not to participate in further operations on the well. However,
this over-expenditure provision with rights to participation elections, will not
become effective until Company earns an interest as to each individual Prospect
under the terms of this Agreement.
Page 16
4.4 Rights Limitation on Use of Existing ▇▇▇▇▇.
-------------------------------------------
Notwithstanding anything to the contrary in this Agreement, without the
express approval of Chevron, Company will not have the right and/or option to
propose or use any well bore existing in or on the Contract Acreage prior to the
Effective Date, unless otherwise mutually and expressly agreed to by the Parties
and the owners of the well bore.
4.5 Well Takeover Provisions (Deleted)
----------------------------------
4.6 Protection from Drainsage.
--------------------------
No Party will produce a completion in a well in any particular
productive sand or horizon on the Leases(s) or Excluded Property if that
completion in that sand or horizon is or would be within a horizontal distance
of one thousand feet (1000') of a previous well's penetration through that sand
or horizon on the Lease(s) or Excluded Property, provided that the other Party
was or is a participating party in such previous well and owns a working
interest right to production from that sand or horizon in the previous well, and
provided that the previous well is completed in, or is capable of being
completed in, or has not yet been fully depleted in, and has not yet been
abandoned in that sand or horizon, except with the express written consent of
each Party who was or is a participating party in such previous well and owns or
will own any working interest rights to production which is or might become
recoverable from that sand or interval by an existing or future completion in
the previous well. In the absence of said consent, the previous well, as the
first well through that sand or horizon, has the full opportunity to produce
from that sand or horizon until abandoned or fully depleted in that sand or
horizon without drainage by a completion in the later drilled well. This Article
4.6 does not apply to any particular two (2) ▇▇▇▇▇ which are subject to the same
Offshore Operating Agreement; it being the intent of the Parties hereto that the
applicable minimum spacing and distance limitations between ▇▇▇▇▇ drilled and
produced under that Offshore Operating Agreement will be controlled by the terms
of that Offshore Operating Agreement. This Article 4.6 does not apply to any
well in the north half (N/2) of ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇ ▇▇▇-▇▇▇▇▇.
ARTICLE 5
5. FARMOUT OPTION
--------------
5.1 Exhibits "A" and "B" Farmout Option.
------------------------------------
In the event Chevron elects not to participate in the drilling proposal
of a Substitute Well on an Exhibit "A" Prospect, or the drilling proposal of an
Initial Test Well or Substitute Well on an Exhibit "B" Prospect, Chevron shall
offer to farmout its interest in that Prospect to Company and any Third Parties
having a contractual right to earn an interest in the Prospect, in equal
Page 17
proportions, and only if Company and said Third Parties agree to pay and bear
one hundred percent (100%) of the costs and risks of the operations (the
"Participating Parties"), pursuant to a mutually agreeable separate Farmout
Agreement, containing the provisions set forth herein and such additional
provisions as shall be mutually agreed upon. The acreage to be covered by the
Farmout Agreement will consist of the Available Acreage as to the respective
Prospect on Exhibit "A" or Exhibit "B". The Chevron election to farmout is
independent as to each such Prospect and is on an Exhibit "A" or Exhibit "B"
Prospect by Prospect basis.
5.2 Chevron's Participation Options and Overriding Royalties.
---------------------------------------------------------
All the terms and conditions for each farmout executed pursuant to the
provisions of this Agreement will be found in this Article 5 and the applicable
Farmout Agreement; provided however, operations for the conduct of any farmout
well may not be commenced until the formal Farmout Agreement is fully executed
by the Participating Parties. The Parties agree to negotiate in good faith, but
the Article 3.3 timing limitation on rights to earn will continue to apply.
Should the Parties fail to execute a Farmout Agreement, within sixty (60) days
of the Chevron election, the well proposal will be deemed null and as if never
offered. Under any Farmout Agreement contemplated pursuant to this Agreement ,
Chevron shall retain the continuing rights, options and elections as follows:
For the Initial Test Well or Substitute Well on a Primary or Additional
Opportunities Prospect for which Chevron elects to farmout its interest (the
"Farmout Well"), upon completion of the Farmout Well, Chevron shall retain and
have from the Participating Parties a ten percent of eight-eighths (10% of
8/8ths) overriding royalty interest, with an option at payout of the Farmout
Well (recouping those well costs actually borne by the Participating Parties) to
either escalate the overriding royalty interest to twelve and one-half percent
of eight eighths (12.5% of 8/8ths) or convert Chevron's override to a thirty
percent of eight-eighths (30% of 8/8ths) working interest. Chevron's overriding
royalty interest (or the working interest if so elected after payout), shall,
where it owns less than one hundred percent (100%) of the leasehold interest as
of the Effective Date of this Agreement be proportionately reduced, based on the
Chevron interest shown on Exhibit "A" or Exhibit "B" under the column entitled
"Chevron Leasehold Interest." Company recognizes and acknowledges that the
Chevron Leasehold Interests are not listed on Exhibit "B" for any of the
Additional Opportunities Prospect(s). The Chevron Leasehold Interest will be
added to and included on Exhibit "B" for any Additional Opportunities Prospect
at the time of and in the event of an Initial Test Well proposal or Farmout
Agreement for that Additional Opportunities Prospect.
Page 18
5.3 General Farmout Agreement Terms and Conditions.
-----------------------------------------------
Except as otherwise provided in this Agreement, the following terms and
conditions will be applicable to all the Farmout Agreements executed by the
Parties hereto pursuant to the provisions of this Agreement.
5.3.1 Within one hundred and eighty (180) days from the execution of a
Farmout Agreement, Company will have the option to, at its sole cost,
risk and expense, and subject to rig availability and the obtaining of
required permits, commence the drilling of the Initial Test Well under
the Farmout Agreement, expressly subject to the following terms and
conditions.
(a) Well Location and Objective Maintained. The surface location,
bottomhole location and primary objective for the Initial Test
Well will be the locations and objective proposed and under which
Chevron elected to not participate, unless otherwise mutually
agreed upon between Chevron and Company,
(b) Drilling Contractor and Drilling Contract. Within sixty (60) days
receipt of Chevron's election notice to farmout rather than
participate in a well drilled under this Agreement, Company must
furnish Chevron a complete copy of its drilling or turn-key
drilling contract for the drilling of the subject well, together
with the name and address of the proposed drilling contractor.
Chevron shall, within ten (10) days after receipt of said notice
and information, provide Company with its approval and comments
relevant thereto. If Chevron disapproves of the proposed drilling
contractor or the drilling or turn-key drilling contract, or any
portion thereof for the drilling of the subject well; or, if
Company does not agree to incorporate or alter its submitted
proposed drilling contractor or the drilling or turn-key drilling
contract, in accordance with comments furnished by Chevron
relating thereto, the Parties agree to negotiate in good faith in
an attempt to arrive at a resolution thereto mutually acceptable
to both Parties, but the Chevron decision shall be final authority
as Chevron is owner of the Existing Facilities. In such event the
Parties recognize and agree that the subject farmout well will not
be drilled as described above, and Chevron shall not be liable to
Company in any manner whatsoever for such event.
(c) Plan of Operations. Further, no farmout well will be drilled from
the Existing Facilities without a plan of operations (meaning
platform activities and operations conducted on the Lease(s),
including but not limited to a pre-approved drilling company or
contractor, pre approved drilling or turn-key drilling contract,
sym-ops, safety guidelines and policies of Chevron, "stop-work"
Page 19
authority, etc.) mutually approved by Chevron and Company. Should
Chevron and Company mutually agree as to the drilling contractor
and the drilling or turn-key drilling contract as set forth above,
Chevron shall not less than sixty (60) days prior to commencement
of actual drilling provide Company a proposed plan of operations
for Company's approval and comments relevant thereto. Company
will, within ten (10) days after receipt of said notice and
information, provide Chevron with its approval and comments
relevant thereto. If Company disapproves of the proposed plan of
operations, or, if Chevron does not agree to incorporate or alter
its submitted plan of operations in accordance with comments
furnished by Company relating thereto, the Parties agree to
negotiate in good faith in an attempt to arrive at a resolution
thereto mutually acceptable to both Parties, but the Chevron
decision shall be final authority as Chevron is owner of the
Existing Facilities. In such event the Parties recognize and agree
that the subject farmout well will not be drilled., Chevron shall
not be liable to Company in any manner whatsoever for such event.
(d) Standards and Manner of Operations. Company will conduct the well
operation in the farmout well in the same manner and conduct as
operator under the Operating Agreement, (as such term is defined
in the Operating Agreement).
(e) Costs and Reimbursements. Company will be responsible for and pay
one hundred percent (100%) of all Well Costs, risks and expenses
incurred in the performance of all well operations conducted by
Company for the interests to be earned and in accord with Article
5.1. Expenditures, accounting procedures, maintenance of records,
reimbursement of costs and payment of invoices by Company to
Chevron will be conducted in accordance with the terms of the
Operating Agreement, including but not limited to, Article 5.5
(Records), Article 8 (Expenditures) and the Accounting Procedure
in Exhibit "C" thereto, in the same manner as if the farmout well
had been a well drilled under the terms of the Operating
Agreement.
(f) The well commencement deadlines will be reflected in the
appropriate Farmout Agreements and will be subject to rig
availability and the obtaining of required permits.
5.3.2 If prior to reaching the Objective Depth on any well drilled
pursuant to the provisions stated in a Farmout Agreement, conditions are
encountered in such well which render further drilling operations
impractical, Company will have sixty (60) days in which to advise Chevron
Page 20
of its election to drill a substitute well. In the event Company elects
to drill a substitute well, the well must be commenced within sixty (60)
days after the date the rig is released from the previous well, subject
to rig availability and the obtaining of any required permits. Any
substitute well drilled will be drilled under the same terms and
conditions as the well it is replacing.
If, after reaching the Objective Depth on any well drilled
pursuant to the provisions stated in a Farmout Agreement, the well fails
to satisfy the standards stated in Subsection 5.3.3 below, and is
abandoned by Company, Company will not have earned any interest in the
acreage farmed-out. Company's right to earn an interest in the acreage
farmed-out will terminate forty-five (45) days after the date of the
release of the drilling rig from such well, without further notice or
demand from Chevron, unless within said forty-five (45) day period,
Company advises Chevron in writing that Company elected to commence,
within one hundred twenty (120) days after said release of the drilling
rig from such well, actual drilling operations for a substitute well at a
location selected by Company in the acreage farmed-out. If Company makes
such election, Company's right to ear an interest in the acreage
farmed-out by a substitute well will terminate one hundred twenty (120)
days after said release of the drilling rig from such substitute well
without further notice or demand from Chevron, unless within such one
hundred twenty (120) day period, Company commences operations for
drilling said substitute well.
Until Company ears an Operating Rights Interest in the acreage
farmed-out, Company will have the continuing right to drill successive
substitute ▇▇▇▇▇ in the acreage farmed-out so long as Company complies
with the applicable time periods and provisions as stated above relative
to the drilling of the first such substitute well. All provisions of the
Farmout Agreement relating to the said Initial Test Well will also,
unless clearly inappropriate, be applicable to each such substitute well.
The only consequences for Company's failure to drill any well
under the Farmout Agreement will be the forfeiture of its right to drill
such well and the forfeiture of any unearned rights still remaining under
this Agreement. Company will not be liable to Chevron for any other
costs, expenses or damages related to such failure to drill such well.
Page 21
5.3.3 In the event the initial test well or its substitute on any
individual Prospect is drilled under a farmout to the Objective Depth,
all required logs and tests are completed and the results furnished to
the Parties, and only if the well is a Successful Well, Company will have
earned an assignment from Chevron of Chevron's Operating Rights Interest,
as specified in the Farmout Agreement, in that portion, aliquots and
depths of the Contract Acreage associated with the Prospect drilled,
subject to the reservations stated in Section 5.2 above.
5.3.4 Unless otherwise specifically stated in this Agreement, any
Operating Rights Interest assignment made by Chevron in favor of Company
where Chevron has made an election to retain an overriding royalty
interest, pursuant to the provisions stated in the applicable Farmout
Agreement(s), will be made subject to Chevron retaining the overriding
royalty specified in Section 5.2 in and to all production from the
farmed-out acreage.
5.3.5 Company will not earn or have the right to earn any interest in nor
be responsible or liable for any existing ▇▇▇▇▇, platforms, facilities or
flowlines or environmental conditions which are located on any portion of
the Contract Acreage prior to the effective date of the applicable
Farmout Agreement. In addition, notwithstanding anything herein to the
contrary, under no circumstances will Company be allowed to earn or
complete in or produce from any productive sand segment in pressure
communication with Chevron's ▇▇▇▇▇ located in or around any acreage
covered by any Farmout Agreement executed pursuant hereto except as
otherwise mutually and expressly agreed. The pressure communication and
common reservoir restrictions are found under Article 6 below.
5.4 Impenetrable Substances.
------------------------
If Company drills a farmout well to a depth shallower than the agreed
upon Objective Depth and encounters impenetrables, including any formation which
cannot be penetrated, or any adverse condition which cannot be overcome, by
means considered reasonable and appropriate in the industry and at reasonable
cost, Company will have the right to drill a substitute well in accordance with
Subsection 5.3.2 above.
5.5 Overriding Royalties.
---------------------
Chevron's reserved overriding royalty as described in Section 5.2 above
shall be free and clear of all costs of exploring, operating, and developing on,
and producing from, the acreage farmed-out, and maintaining said Lease(s) in
force and effect, as well as all cost for plugging, abandoning, clean-up and
restoration, but shall bear its proportionate share of all severance, production
and other taxes which are now or which may hereafter become applicable thereto.
Said overriding royalty shall be computed and paid to or taken in kind by
Chevron, whichever Chevron prefers, from time to time, at the same time and in
Page 22
the same manner as royalties are computed and paid to or taken in kind by the
lessor under the Leases(s), except that said overriding royalty shall be paid to
or taken in kind by Chevron regardless of any applicable lessor royalty relief.
ARTICLE 6
6. PRESSURE COMMUNICATION AND COMMON RESERVOIRS
--------------------------------------------
6.1 Pressure Communication Restriction.
-----------------------------------
Notwithstanding anything herein to the contrary in this Agreement or any
other agreement entered into pursuant to this Agreement, any productive sand
interval encountered in any well drilled or caused to be drilled by the Parties
under this Agreement that is in a Reservoir or pressure communication with a
productive sand interval that is producing or is capable of producing from or
behind pipe in an existing well in paying quantities from such sand interval
drilled on a lease(s) by Chevron is excluded from this Agreement and
specifically reserved by Chevron. If at any time a Party proposes to drill a
well which could encounter a sand interval(s) which could potentially be in a
Reservoir or pressure communication with a productive sand interval(s) that is
producing or capable of producing in or behind pipe in an existing well as
described above, prior to drilling such well Chevron and Company will establish
the criteria for determining whether the well once drilled would be in a
Reservoir or pressure communication. In the event the Parties drill a well and
encounter a sand interval(s) not originally anticipated to contain hydrocarbons
in paying quantities but, upon review by either Party is believed to potentially
be in a Reservoir or pressure communication with a productive sand interval(s)
that is producing or capable of producing in or behind pipe in an existing well
as described above, then upon determination that such sand interval(s) could
potentially be in a Reservoir or pressure communication, the Parties hereto will
meet as soon as reasonably possible to establish the criteria for determining
whether or not the well in question is actually in a Reservoir or pressure
communication.
In the event there is a disagreement between Chevron and Company as to
whether or not a Chevron well and/or interval(s) is potentially in a Reservoir
or pressure communication with the new well and/or interval(s), then within
ninety (90) days after rig release from such well, Chevron and Company will
furnish all available geological, geophysical and engineering data, including
bottom hole pressure data and Reservoir characteristics, to an engineering firm
approved by Chevron to determine, with reasonable confidence, whether a
Reservoir or pressure communication does or does not exist between the ▇▇▇▇▇.
The decision of the engineering firm will be final and binding on the Parties
Page 23
hereto. The cost of the work performed by the engineering firm will be shared
between Chevron and Company, at the ACP Interests.
ARTICLE 7
7. OPERATING AGREEMENT
-------------------
7.1 Offshore Operating Agreement.
-----------------------------
Chevron and Company will execute the Operating Agreement, on the form
set out as Exhibit "E", before the Initial Test Well is commenced on the Primary
Prospect. Exhibit "A" to the Operating Agreement will be amended between the
Parties for each Exhibit "B" Prospect no later than ten (10) Business Days
before the Initial Test Well is commenced on such Prospect, unless Chevron
elects to farmout. All of the Prospect will be covered and governed by the
Operating Agreement for that Prospect.
In the event an existing Operating Agreement is already in place
covering one or more Leases in the Prospect, Chevron shall provide a copy of
such Operating Agreement to Company. Company will be required to accept and
ratify such existing Operating Agreement prior to participating in the drilling
of the Initial Test Well on such Prospect, but only if the applicability or use
of said existing Operating Agreement is required by or insisted on by the
Minerals Management Service in the case of an Operating Agreement for a Minerals
Management Service approved unit, or by a working interest party (ies) to said
existing Operating Agreement other than a Party hereto.
Notwithstanding anything to the contrary herein, the terms of the
applicable Operating Agreement apply to all operations conducted for that
Prospect and to all payments made and obligations arising thereunder with
respect to such Prospect and under this Agreement or the applicable Operating
Agreement, unless specifically in conflict with the terms of this Agreement, in
which event the terms of this Agreement will control as provided under Section
28.15 below.
7.2 Designation of Operator.
------------------------
As between the Parties, Chevron shall be designated as operator for the
Initial Test Well for each Prospect listed on Exhibits "A" and "B" and under the
Operating Agreement.
The Parties will, if required, execute the appropriate Designation of
Operator forms, under the terms hereof, naming Chevron as operator. Chevron
shall also assume the responsibility of the Designated Applicant for oil spill
Page 24
financial responsibility purposes; however no Party is released from any of its
liabilities for expenses, losses or damages by such assumption by Chevron. The
Parties will execute as soon as requested all necessary forms to reflect the
selection of operator and Designated Applicant for oil spill financial
responsibility purposes.
ARTICLE 8
8. ADDITIONAL PARTNERS/CO-VENTURERS
--------------------------------
8.1 Chevron's Right to Transfer Its Interest.
-----------------------------------------
Nothing in this Agreement will be construed to limit Chevron's right to
sell, assign, transfer, exchange, burden or deliver rights, in whole or in part
to the Lease(s) or this Agreement, as long as such delivery is made specifically
subject to this Agreement and the applicable Operating Agreement.
ARTICLE 9
9. ACREAGE RELEASE
---------------
9.1 Option to Release Acreage.
--------------------------
At any time during the term of the Company's right to earn under this
Agreement, Company will have the right and option to relinquish its right to
earn any Prospect listed on Exhibit "B" by notifying Chevron in writing at any
time.
9.2 Rights Termination.
-------------------
Upon receipt by Chevron of the Company release notification, the rights
and options granted Company under this Agreement as to the released Prospect
will terminate. Notwithstanding anything herein to the contrary, in no event
will the notification of a release as described in this Article 9 relieve
Company of any financial obligation that has been incurred or accrued pursuant
to this Agreement or any Operating Agreement.
9.3 Automatic Release.
------------------
If, under the operation of any provisions of this Agreement an interest
in the Contract Acreage or acreage made subject to this Agreement pursuant to
Section 2.4 is excluded or relinquished or expire or is or becomes no longer
subject to this Agreement, including but not limited to the Lease(s) terminating
under the provisions stated in said Lease(s), the excluded or relinquished
Page 25
or expired Lease(s), or any portion thereof will automatically be deemed to be
released by Company and no longer subject to earning by Company under this
Agreement.
After the release or relinquishment by Company or automatic release
under Section 9.3 of the Lease(s) or any portion thereof subject to this
Agreement as provided under this Article 9, Chevron shall be free to drill,
sell, farmout, joint venture or dispose of in any manner it so chooses, the
released acreage. Company hereby agrees and releases Chevron from any liability
whatsoever with regard to the released acreage relating to the activities of
Company and any information and/or data Company may have given to Chevron in
regard thereto. In the event Chevron discloses Company-owned confidential data
obtained under and through this Agreement to any Third Party within two (2)
years of the release of acreage, Chevron shall require the Third Party to
execute an appropriate confidentiality agreement.
ARTICLE 10
10. NOTICES
-------
10.1 Notices.
--------
All notices authorized or required between the Parties by any of the
provisions of this Agreement, unless otherwise specifically provided, will be in
writing and delivered in person or by United States mail, overnight express
delivery, courier service or facsimile (with receipt confirmed), postage or
charges prepaid, and addressed to such Parties at the addresses set forth below:
Chevron U.S.A. Inc. Ridgewood Energy Corporation
▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇ ▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇ ▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Attention: Gulf of Mexico - Land Manager Attention: W. ▇▇▇▇ ▇▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇ Fax: (▇▇▇) ▇▇▇-▇▇▇▇
Any originating notice and/or response thereto given under any provision
hereof will be deemed given only when received by the Person to whom such notice
is directed, except that; (1) any notice or response by certified U.S. mail,
return receipt requested, properly addressed pursuant to this Article 10, and
with all postage and charges prepaid, will be deemed received on the date that
the Person to whom it was directed has received it, (2) any notice or response
given by facsimile to the above facsimile phone number will be deemed received
as of the time of confirmed receipt or (3) by overnight express delivery or
courier will be deemed received upon acknowledgement of receipt by the Person to
whom it was directed, or within 72 hours of delivery of such notice whichever is
sooner.
Page 26
10.2 Change in Designated Representative.
------------------------------------
Each Party will have the right to change its address, facsimile number
and it's designated Representative at any time, and from time to time, by giving
prior written notice thereof to the other Party.
ARTICLE 11
11. EXISTING AGREEMNTS
------------------
11.1 Existing Agreements.
--------------------
Company recognizes and acknowledges that the Lease(s) is subject to
certain agreements and other contracts that may affect the rights, obligations
and/or options granted to Company under this Agreement. These existing
agreements are listed on Exhibit "C" for the Primary Prospect and will be added
and included for each of the Additional Opportunities Prospect(s) prior to the
drilling of the Initial Test Well for such Prospect. It is understood between
the Parties hereto that the rights and option of Company will be specifically
subject to these existing agreements as those agreements apply to the Contract
Acreage. Company will, upon execution of this Agreement, become bound by all
existing agreements, whether in Chevron's records or of Public records, relating
to the affected Prospects to the extent of any interest undertaken or earned by
Company. Company will have the right of access to and review of copies of such
agreements, subject to any contractual restrictions therein and any
confidentiality agreements or arrangements required. Provided however, Company
will be released from such agreements in the event Company, when not in breach,
does not drill or is unable to drill or to cause to be drilled any well governed
under this Agreement.
ARTICLE 12
12. RIGHTS RESERVED
---------------
12.1 Lease Rights Reservations.
--------------------------
Chevron EXPRESSLY RETAINS AND RESERVES EXCLUSIVELY UNTO ITSELF THE
FOLLOWING:
(a) All rights of ingress, egress, use, occupancy, and any and all
other rights granted by, through and under the federal leases
subject hereto, necessary or convenient to exercise and enjoy
all oil, gas and mineral rights reserved to Chevron, including
but not limited to, drill, complete and produce ▇▇▇▇▇,
construct, maintain and operate facilities, platforms and
pipelines on and across Leases, subject to Company's rights to
earn the assignment(s) as provided hereunder.
(b) All rights of ownership and use held by Chevron's Affiliates in
any pipeline or rights of ways.
Page 27
(c) The right of ownership and/or operatorship of the Existing
Facilities and the revenues realized therefrom.
(d) Chevron also reserves any platform, facilities, wellbores,
pipelines or rights-of-way installed, drilled or obtained in the
future located on or in the vicinity of the Contract Acreage
related to Chevron's operations on the Lease(s) subject hereto,
in which Company does not own an interest or related to
Chevron's operations on other Chevron leases.
(e) Any and all rights and interests not expressly granted to
Company in and to those Lease(s) listed on Exhibits "A" and "B"
outside of the portions and depths listed and actually earned by
Company.
Nothing contained in this Agreement will or is intended to grant,
deliver or assign to the Company any interest in or right to earn an interest
in, nor any obligation to be responsible or liable for, any ▇▇▇▇▇, Existing
Facilities or environmental conditions which are located on any portion of the
Lease(s) existing prior to the Effective Date, including but not limited to the
Excluded Property. All such existing ▇▇▇▇▇, Existing Facilities, Excluded
Property and other equipment owned by Chevron located on and/or crossing the
Lease(s) will remain the sole property of Chevron and are specifically excluded
from this Agreement. In addition, Company will not earn an interest in, nor
assume any obligation to be responsible or liable for, any future ▇▇▇▇▇,
platforms, flowlines or environmental conditions which are located on any
portion of the Lease(s) in connection or associated with Chevron's continued
operations involving the aforementioned excluded ▇▇▇▇▇, Existing Facilities and
other equipment located on and/or crossing the Lease(s) after the Effective Date
associated with or in connection to any activities of Chevron solely involving
the Excluded Property. All future ▇▇▇▇▇, platforms, flowlines and other
equipment installed and solely owned by Chevron in connection with its exclusive
operations, located on or crossing the Lease(s) and not associated with or used
in connection with the Contract Area of any Prospect in which Company may earn
or has earned an interest will be and remain the sole property of Chevron and
will be specifically excluded from this Agreement. Any required right-of-way or
servitude for new pipelines located on and/or crossing the Contract Lease(s)
servicing any Prospect area in which Company earns or has earned an interest
will require Chevron's express written approval.
ARTICLE 13
13. PRODUCTION PROCESSING AND CONTRACT OPERATIONS
---------------------------------------------
13.1 Production Processing.
----------------------
Company will, subject to 13.3, execute a mutually acceptable Processing
Agreement, on the form set out as Exhibit "H" no later than thirty (30) days
following the completion for production of the Initial Test Well for a
particular Prospect if notified in writing by Chevron that the Initial Test Well
production will be processed by Chevron at certain Chevron's facilities as
Page 28
provided in the Processing Agreement. All processing operations performed by
Chevron, as processor, will be under the terms of the Processing Agreement.
13.2 Contract Operations.
--------------------
If an earning well is drilled from, and completed for production on, an
existing Chevron solely own platform under a Chevron farmout of its interest to
Company in any Primary or Additional Opportunities Prospect, then, while Chevron
is operating that platform during the time that Chevron has no working interest
the well, and to the extent that the conditions of the well, the well's
production and the well's equipment a acceptable to Chevron, the well will be
operated as follows: (a) Chevron shall perform routine operations of, and
perform, arrange or procure repairs, maintenance, materials, parts, supplies,
chemicals, and annual inspections for, the well and the well's equipment, and
Chevron shall invoice Company for, and Company shall reimburse Chevron for,
Company's working interest share of the applicable costs, expenses and overhead
and the terms of that certain Accounting Procedure, which is attached as Exhibit
"C" to that certain Operating Agreement, which is attached as Exhibit "E" to
this Agreement; (b) Any individual project exceeding a gross charge of Twenty
Five Thousand Dollars ($25,000) for the well or the well's equipment shall be
subject to prior written approval by Company and the other working interest
owner(s) therein, and Company and those other working interest owners may elect
for one (1) of them to perform any such project in excess of Twenty Five
Thousand Dollars ($25,000) gross charge at their sole cost, risk and expense,
provided that the project applies solely to that earning well or that earning
well's equipment and that the project is accomplished to Chevron satisfaction;
(c) The terms and conditions of the Processing Agreement, if any, for processing
the well production pursuant to Article 13.1 shall additionally apply.
13.3 Use of Existing Facilities.
---------------------------
Chevron is agreeable to assisting Company with access to an Existing
Facility, if excess capacity available or projected to be available and not
planned to be utilized by Chevron; provided Company agrees to pay the reasonable
fees and charges set out in the said Processing Agreement for the use of the
Processing Agreement facilities pursuant to Article 13.1 and the Processing
Agreement attached hereto as Exhibit "H", and, for any other Existing Facility
and the services, if any, provided therewith, Company's working interest share
of applicable costs and expenses pursuant to the Accounting Procedure, attached
as Exhibit "C" to the Operating Agreement which is attached to this Agreement as
Exhibit "E". In no event will Company have any other liability obligation with
respect to any Existing Facility except as specifically provided in a separate
written agreement between Company and Chevron as the owner of said Existing
Facility.
Page 29
13.4 No Duty to Replace Existing Facilities.
---------------------------------------
Notwithstanding Article 22.1, upon damage or destruction of Existing
Facilities or Processing Agreement facilities, or any property or equipment
located thereon, located on the Lease(s) or other lease(s) or acreage, for any
reason whatsoever, or upon expiration of the Lease(s) or lease(s) upon which the
Existing Facilities or Processing Agreement facilities are located, Chevron
shall have no obligation to Company to replace or repair such platform, Existing
Facilities, Processing Agreement facilities, property and/or equipment located
thereon.
ARTICLE 14
14. TAX MATTERS
-----------
14.1 Tax Partnership Provision.
--------------------------
For each Prospect fr which the farmout option is not elected by Chevron
pursuant to Section 5 above, the Parties hereby elect not to be excluded from
the application of all or any part of the provisions of Subchapter K, Chapter 1,
Subtitle A, of the Internal Revenue Code of 1986, as amended ("the Code"), or
similar provisions of applicable state laws. For each Prospect for which the
farmout option is not elected by Chevron pursuant to Section 5 above, provisions
substantially similar to those which are stated under Exhibit "F" of Exhibit "E"
shall control the tax treatment of the Parties' participation in the ▇▇▇▇▇
described herein with respect to those Prospects. It is agreed each Prospect
shall have a separate tax partnership and that the partnership shall apply to
all the. Leases in the respective Prospect. If the farmout option is elected by
Chevron pursuant to Section 5 above for any Prospect, the relationship between
the Parties will be that of lessor-lessee and/or lessee-sublessee and the tax
partnership provisions of Exhibit "F" of Exhibit "E" will not apply.
14.2 Internal Revenue Provision
--------------------------
Notwithstanding each Party having elected pursuant to Section 14.1 above
to form a separate tax partnership with respect to each Prospect for which the
farmout option was not elected by Chevron pursuant to Section 5 above, the
Parties understand and agree that their legal relationship to each other is not
one of partnership; that their rights and liabilities hereunder are several and
not joint or collective. If, for federal income tax purposes, the Agreement and
the operations hereunder, in their entirety, are regarded as a single
partnership, each Party hereby elects to be excluded from the application of all
or any part of the provisions of Subchapter K, Chapter 1, Subtitle A, of the
Internal Revenue Code of 1986, as amended ("the Code"), or similar provisions of
applicable state laws with respect to this Agreement. For purposes of clarity it
is understood that the Agreement will cause the operations hereunder to be
treated as subject to multiple partnerships, one with respect to each Prospect.
Notwithstanding any provision herein, the Parties agree that the transaction(s)
Page 30
contemplated herein is not considered to be a sale for federal income tax
purposes under the Code, or any similar provisions of applicable state laws. If
for federal income tax purposes, any Prospect for which the farmout option was
elected by Chevron pursuant to Section 5 above is regarded as a partnership for
federal income tax purposes, each Party hereby elects to be excluded from the
application of all or any part of the provisions of Subchapter K, Chapter 1,
Subtitle A, of the Internal Revenue Code of 1986.
14.3 Allocation of Tax Liabilities
-----------------------------
All taxes and similar obligations ("Taxes") pertaining to the Contract
Acreage are the responsibility of the owner thereof if incurred prior to the
Effective Date. After the Effective Date each Party hereto shall be responsible
for all taxes and similar obligations pertaining to its interest in the Contract
Acreage. Each Party shall also be responsible for its own state or federal
income taxes or franchise taxes. After the Effective Date, each Party shall
supply the other Party all information and documents reasonably necessary to
comply with tax and financial reporting requirements and audits. Each Party
shall be responsible for its own local, state and federal income tax reporting,
recognition of gain or loss, if any, and the taxes, if any, payable with respect
to the transaction.
ARTICLE 15
15. GEOPHYSICAL DATA
----------------
15.1 Proprietary Seismic Data.
-------------------------
Should at any time prior to or during the term of this Agreement,
Company or Chevron acquire any proprietary seismic data covering a portion of
the Contract Acreage, the acquiring Party will notify and will allow the other
Party access to this proprietary seismic data subject to any contractual
limitations or restrictions bearing upon such data. The acquiring Party may
grant the other Party a license covering that portion of the acquiring Party's
proprietary seismic data covering the Contract Acreage upon the other Party's
request. The fee to be paid to license the seismic data, and the licensing
agreement to be executed between the Parties, will be negotiated at the time the
Party elects to license the data. Company or Chevron must submit a written
proposal to the acquiring Party prior to the termination of this Agreement
proposing the license of a portion of the acquiring Party's data. Failure of
Company or Chevron to submit such a proposal, or in the event the Parties are
unable to negotiate a mutually agreeable licensing fee and/or licensing
agreement, will terminate the acquiring Party's option to consider licensing its
data to the other Party. The acquiring Party makes no representation and will
have no liability to the other Party regarding the accuracy or completeness of
any data disclosed to the other Party hereunder. Any such information or
Page 31
data provided hereunder is provided as a convenience only and an reliance on or
use by Company or Chevron is at Company's or Chevron's sole risk.
15.2 Speculative Seismic Data.
-------------------------
The Parties hereto may have in their possession certain seismic data
licensed from Third Parties ("Speculative Seismic Data") which impose various
restrictions and limitations on either Party's right to use disclose and/or
display such data relating to the properties identified in Exhibit "A" or
Exhibit "B". Treatment of this Speculative Seismic Data will be controlled under
confidentiality provisions specified in Section 20.2 below.
ARTICLE 16
16. MINIMUM ROYALTY AND LEASE MAINTENANCE
-------------------------------------
16.1 Annual Rental and Minimum Royalty Payments.
-------------------------------------------
Company will be responsible for contributing a portion of any annual
rental or minimum royalty payment(s) that comes due and payable, for the
Lease(s) it is assigned as provided herein commencing on the effective date of
each such assignment. The share of the payment(s) Company will owe is
twenty-five percent (25%) of the amount due, unless Chevron has no operating
rights interest in any of the ▇▇▇▇▇ then producing of the Lease(s), in which
case Company and any Third Parties will bear their proportionate share of the
entire payment due and Chevron will bear no share of said payment. This
responsibility will continue until the first to occur of the following: (a)
Company relinquishes its right to earn an interest in the affected Lease(s) in
accordance with this Agreement or the applicable Operating Agreement, or (b) the
Lease(s) terminates Chevron shall pay or cause to be paid the annual rental or
minimum royalty payments on the Lease(s) Company agrees to contribute its
proportionate share of such annual rental or minimum royalty payment(s within
thirty (30) days after receipt of written notice from Chevron for same. However,
pursuant to Section 9. 1 of this Agreement, Company, at its sole option and
discretion, will have the right to relinquish to Chevron it rights in the
Lease(s) and thereby relieving itself of its obligation to reimburse Chevron.
Should Company elect to relinquish its interest to Chevron, but fail to provide
Chevron with the required notice under Section 9.1 of this Agreement, Company
will remain liable for the next ensuing annual rental or minimum royalty payment
of which proper notification was not received.
Chevron shall not be liable for failure to make a proper payment during
the time in which it is responsible for doing so, but agrees to use the same
degree of care used in making such payments under its other leases. Thy
termination of this Agreement will not relieve Company of its obligations to
contribute to any payments so made during the period this Agreement was in
Page 32
effect, and during the period that said Lease(s) is subject to this Agreement,
the right of such termination to be an additional right reserved by Chevron and
not a limitation of at of Chevron's rights herein.
16.2 Royalty Relief
--------------
16.2.1 Royalty Relief Qualification
----------------------------
Chevron reserves to itself any and all royalty relief, any and all royalty
suspension supplement ("RSS") under 30 CFR 203 as may from time to time be
amended or revised ("30 CFR 203") for a certified unsuccessful well drilled
to at least 18,000 feet TVD SS, and any and all royalty suspension volume
("RSV") under 30 CFR 203 earned on or which become hereafter applicable to
any or all of the Lease(: whether pursuant to this Agreement or a Farmout
Agreement, any or all of the Excluded Property or other Chevron leases,
except as expressly entitled to Company under Article 16.2.2 below. Chevron
shall make all royalty relief flings and notifications with the MMS in
consultation with Company but each will h equally responsible for the
timely exchange of information and status. Chevron shall maintain a
accounting for RSV and RSS volumes produced by and entitled to each Party's
individual account.
16.2.2 Eligibility
-----------
If, under this Agreement or a Farmout Agreement, Company earns an operating
Rights Interest in Lease(s), then Company will be entitled to a certain
portion of any RSV initially earned by a qualified we as confirmed by the
MMS., if and only if Company participated with a working interest in the
particular well which initially earned that particular RSV for said
Lease(s). Company's said certain portion of an RSV initially earned for a
Lease(s) by a qualified well in which Company participated with a working
interest will be limited to Company's earned working interest share of all
gas production volumes from a qualified ▇▇▇▇▇ to which so earned RSV
applies on said Lease(s) and further limited to only gas production volumes
produced from ▇▇▇▇▇ in which company participates. Company will not be
entitled to any RS' initially earned for a Lease(s) by a well in which
Company does not participate with a working interest in the drilling and
completing. For example:
(a) If an Initial Test Well drilled by Company initially qualifies for
15 bcf RSV for a Lease prior to the time that any RSV has been earned
on said Lease, and if Company has a twenty-five percent (25%)
working interest in the production from said well and in the
production from a subsequently drilled an qualified well to which said
15 bcf RSV also applies on said Lease, and if Company had no working
interest in the drilling and completing of another subsequently
drilled and qualified well to which such 15 bcf RSV also applies,
then:
Page 33
i. Said 15 bcf RSV will apply, without pro-ration or allocation
except upon Company's month] entitlement under (a) ii immediately
below, to all gas production from said three ▇▇▇▇▇ until the 15
bcf RSV is produced.
ii. Company's monthly entitled portion of said RSV until said RSV
is so produced will be limited to Company's entitled twenty-five
percent (25%) working interest share of gas production from only
said two (2) ▇▇▇▇▇ in which Company has a twenty-five percent
(25%)working interest.
iii. Company will not be entitled to any RSV which applies to gas
production from that third well in which Company did not
participate in drilling and completing with a working interest.
(b) If a well in which Company did not participate in drilling and
completing with a working interest: initially ears an RSV for a Lease
before a well in which Company participated with a working interest;
in drilling and completing subsequently qualifies to have said certain
amount of RSV also apply to ii production, then Company will not be
entitled to any portion of the RSV initially earned by the well in
which Company did not participate with a working interest, even though
some of that RSV may apply to some of Company's production.
16.2.3 Allocation for Additional Royalty Relief
----------------------------------------
If any RSV applies to Company's production above and beyond the amount of
RSV which Company is entitled pursuant to Article 16.2.2, and/or if any RSS
applies to Company's production, and/or if any other form of royalty relief
applies to Company' s production, then, in addition to any other overriding
royalty interest that Chevron may have in Company's production pursuant to
this Agreement, Company will thereupon pay to Chevron, and Chevron shall
thereupon have and receive from Ridgewood, a monthly payment equal to the
full amount of royalty relief above and beyond the amount of RSV to which
Company is entitled under Article 16.2.2, if any, plus the full amount of
royalty relief if any, afforded by such RSS or other form of royalty relief
Company and Chevron shall jointly monitor and reconcile said account an
payments in accordance with the payment terms of the ▇▇▇▇▇ Procedures
attached hereto as Exhibit "C to the Exhibit "E" Offshore Operating
Agreement.
16.3 Net Profit Provision
--------------------
Certain of the Lease(s) for the Exhibits "A" and "B" Prospects are subject to
that certain one-tenth (1/10) net profits obligation applicable to that certain
net profits premises pursuant to SECTION II of that certain Concurrent Agreement
Page 34
dated effective July 1, 1959, between Humble Oil & Refining Company and Gulf Oil
Corporation. Chevron hereby assigns to Company, and Company and Chevron hereby
agree to assume, bear, be subject to and pay the net profits interest owner,
their respective shares of the net profits obligation under Section II of the
Concurrent Agreement in accordance with their participations in costs, expense
and revenues of and from each well drilled to or produced from, or otherwise
subject to the net profits obligation of, the net profits premises under this
Agreement or any agreement entered into pursuant to this Agreement including,
but not limited to, any applicable Operating Agreement or Farmout Agreement.
Notwithstanding the foregoing, Company hereby agrees, to the extent that Company
has the right to do so, that Company's share of costs and expenses incurred on
or for any such well not completed for production in which Company participates
shall be allocated to Chevron solely for purposes of Chevron deducting those
costs and expenses in determining and paying Chevron's share of the net profits
obligation; provided, however, that Company is not participating in any
production from the net profits premises within eighteen (18) months after the
well reached total depth, and further provided that said share of costs shall
remain borne by Company and shall remain Company's for all other purposes
including, but not limited to, income tax purposes. If the drilling of such well
not completed for production is operated by Company or its successor or
designated operator other than Chevron, then within said eighteen (18) month
period Company will provide Chevron with, or cause or require its successor or
designated operator to provide Chevron with, an accounting of the costs and
expenses incurred on and for that well and shall assure availability of and
access to the supporting documentation and invoices as may be required in the
event of an audit by or on behalf of the net profits interest owner pursuant to
the Concurrent Agreement.
16.4 Take-in-Kind Election
---------------------
Any overriding royalty owed to Chevron pursuant to the provisions of this
Article 16 shall be computed and paid to or taken in kind by Chevron, whichever
Chevron prefers from time to time, at the same time and in the same manner as
royalties are computed and paid to or taken in kind by the lessor under the
Leases(s), except that said overriding royalty shall be paid to or taken in kind
by Chevron regardless of the lessor royalty relief.
ARTICLE 17
17. MEDIA RELEASES
--------------
17.1 Public Announcements.
---------------------
The Parties hereto agree that prior to making any public announcement or
statement with respect to the transaction contemplated by this Agreement, the
Party desiring to make such public announcement or statement will provide
Page 35
the other Party with a copy of the proposed announcement or statement at least
three (3) Business Days prior to the intended release date of such announcement.
Release of Chevron reserve estimates is never permitted. The other Party will
thereafter consult with the Party desiring to make the release, and the Parties
will exercise their reasonable best efforts to (i) agree upon the text of a
joint public announcement or statement to be made by both such Parties or (ii)
in the case of a statement to be made solely by one Party, obtain approval of
the other Party hereto to the text of a public announcement or statement.
Nothing contained in this paragraph will be construed to require either Party to
obtain approval of the other Party hereto to disclose information with respect
to the transaction contemplated by this Agreement to any state or federal
governmental authority of agency to the extent required by applicable law or
necessary to comply with disclosure requirements of the New York Stock Exchange
or any other regulated stock exchange, or affiliate of Company or for Ridgewood
Energy Fund LLC investment consideration.
17.2 Media Releases.
---------------
Except as may be otherwise authorized by the applicable Operating
Agreement, if any, neither Party will make any press release or other public
announcement regarding operations conducted pursuant to this Agreement without
the prior written consent of the other, which consent will not be unreasonably
withheld, Each Party will have three (3) Business Days within which to review
and comment prior to public disclosure, Release of reserves estimates is never
permitted. The foregoing, however, will not restrict disclosures by either Party
which are required by applicable securities or other laws or regulations or the
applicable rules of any stock exchange having jurisdiction over the disclosing
Party or its Affiliates.
ARTICLE 18
18. FILES
-----
18.1 Access to Files.
----------------
During the term of the Company's right to earn under this Agreement,
either Party ("disclosing Party") will permit, to the extent it has the right to
do so, a Party ("reviewing Party") and its Representatives al reasonable times
during normal business hours to examine, in the disclosing Party's offices at
their actual locations, the Prospect and land files (excluding all economic and
risk evaluations, reserve information, all legal files, attorney-client
communications or attorney work product, records and documents subject to
confidentiality provisions and auditor's reports) pertaining to the Prospect(s)
listed on Exhibit "A". In addition. to the extent it has the right to do so,
reviewing Party will be allowed access to the disclosing Party's geological,
geophysical, engineering and land files, subject to the same exclusions listed
above, covering the Lease(s) hereto in support of the development of the
Page 36
Lease(s) and Prospects listed on Exhibit "B". The reviewing Party will be
obligated to maintain the confidentiality of such files and information in
accordance with the provisions and limitations described in Article 20 below.
The disclosing Party and its Representatives make no representation or warranty
as to, and will have no liability to reviewing Party regarding, the accuracy or
completeness of the information disclosed to the reviewing Party hereunder. Any
information or data furnished hereunder by the disclosing Party is provided as a
convenience only and any reliance on or use of same is at the reviewing Party's
sole risk. The inadvertent disclosure by the disclosing Party to the reviewing
Party of attorney-client communications, attorney work product, legal files or
other confidential information will not be deemed to be a waiver of the
attorney-client privilege, the attorney work-product privilege, or any other
privilege or right protecting the confidentiality of data or information.
Anything in this Agreement to the contrary notwithstanding, however, the
disclosing Party and their Representatives will have no liability to the
reviewing Party for failing to allow the reviewing Party to examine, or to grant
the reviewing Party access to any of the files or materials referred herein.
Access to a disclosing Party's Prospect files is strictly and solely as an
accommodation to the reviewing Party.
ARTICLE 19
19. ASSIGNMENTS AND TRANSFER OF INTEREST
------------------------------------
19.1 Assignment of this Agreement.
-----------------------------
It is agreed that Company will not assign, mortgage or pledge, either in
whole or in part, its rights and interest in this Agreement without the prior
written consent of Chevron, which may be reasonably withheld. However, such
Consent is not required should Company wish to assign to a Ridgewood Energy LLC
Fund in which Ridgewood Energy is the General Partner. Upon receipt of Chevron's
written consent, which consent can be conditioned on, but not limited to,
requesting adequate security for the future performance by assignee or mortgagor
or pledgor, payment of all delinquent accounts and resolving all outstanding
disputes, any rights delivery made by Company hereof will 1) contain a
limitation in favor of Chevron requiring that Chevron's written consent must
also be obtained prior to any future assignments of this Agreement in whole or
in part or any prior assignment, mortgage or pledge of any interest in this
Agreement, 2) that said instrument contain a provision indicating said
assignment, mortgage or pledge is made subject and subordinate to this
Agreement, and 3) the assignee or mortgagor or pledgor agrees in writing to be
bound by or subordinated to, in the case of mortgage or pledge, all the terms
and conditions of this Agreement.
Page 37
19.2 Lease or Prospect Successors and Assigns
----------------------------------------
It is agreed that Company, before or after earning an interest under
this Agreement, will not assign, mortgage or pledge, either in whole or in part,
its interest or rights to interest in and to the Lease(s) or any Prospect
without the written consent of Chevron, which may be reasonably withheld.
However, such consent is not required should Company wish to assign to a
Ridgewood Energy LLC Fund in which Ridgewood Energy is the General Partner. Upon
receipt of Chevron's written consent, which consent can be conditioned on, but
not limited to, requesting adequate security for the future performance by
assignee or mortgagor or pledgor, payment of all delinquent accounts and
resolving all outstanding disputes, any rights delivery made by Company hereof
will 1) contain a limitation in favor of Chevron requiring that Chevron's
written consent must also be obtained prior to any future assignments of
interest in whole or in part or any prior assignment, mortgage or pledge of any
interest earned under this Agreement, 2) that said instrument contain a
provision indicating said assignment, mortgage or pledge is made subject to and
subordinate to this Agreement, and 3) the assignee or mortgagor or pledgor
agrees in writing to be bound by or subordinated to, in the case of mortgage or
pledge, all the terms and conditions of this Agreement. It will be fully
understood that in the event the assigning party encumbers or burdens the
Contract Acreage or any portion thereof after earning an interest herein, the
assigning party will indemnify, defend and hold the non-assigning party free and
clear of any and all obligations, liability and/or responsibility for such
encumbrance(s) or burden(s). Any assignment made pursuant to this Section 19.2
will be in accordance with and in compliance to the accepted practices,
guidelines and policies of the governmental agencies that may claim
jurisdiction. After Company receives an assignment in the Lease(s), future
restrictions, if any, on subsequent assignments will be covered in the
applicable Operating Agreement.
ARTICLE 20
20. CONFIDENTIALITY
---------------
20.1 Confidentiality.
----------------
It is understood and agreed that no Party to this Agreement, for a
period of thirty six (36) months from the Effective Date hereof, will divulge to
any Third Party any geophysical, geological or engineering information that is
disclosed or received from the other Party on the Contract Acreage without first
obtaining the written consent of such other Party to this Agreement to release
any such information that it disclosed or received. Such consent, however, will
not be necessary for a Party to divulge such information to any part(y)ies from
whom said Party to this Agreement may receive a contribution for the drilling of
a well under any Farmout agreement, to a financial institution (or similar
entity i.e. Ridgewood Energy Fund LLC) from whom a Party is attempting to secure
Page 38
funds or financing, or to a pipeline company for the purpose of securing a
pipeline connection. Notwithstanding the above, either Party may disclose
confidential data to its Affiliate(s), consultants or other Representatives
provided that such Affiliate, consultant or Representative agrees to maintain
the confidentiality of such confidential under the same conditions as stated
herein.
Subject to disclosures that may be authorized by any Operating Agreement
applicable to the Lea any and all data revealed and disclosed by Chevron to
Company and Company to Chevron will be treated by the Party receiving the data
as confidential, less and except any data that now or hereafter becomes
generally available to the public, was known by Chevron or Company prior to the
Effective Date of this Agreement already in Chevron's or Company's possession
prior to the Effective Date of this Agreement, or her comes into Chevron's or
Company's possession from a Third Party who has the right to disclose
information, as applicable.
20.2 Speculative Seismic Data.
-------------------------
The Parties hereto have in their possession certain seismic data
licensed from Third Parties which impose various restrictions and limitations on
either Party's right to use, disclose and/or display such data relating Lease(s)
identified in Exhibit "A" or Exhibit "B". Notwithstanding any other provision in
this Agreement contrary, Chevron and Company both agree that neither Party will
remove from each other's office, copy or reveal to any Third Party, any
Speculative Seismic Data disclosed by one Party to the other Party. Each agrees
it will only view such Speculative Seismic Data for no other purpose other than
necessary to review work product generated as a result of the purpose of this
Agreement. Under no circumstances will the Party who views the Speculative
Seismic Data be allowed to use the Speculative Seismic Data for any other
purpose what viewing the data was intended unless the viewing Party has first
obtained a license from the Third owner of such Speculative Seismic Data or the
disclosing Party, or the owner of the Speculative Seismic advises the Parties
that such data is no longer to be held confidential.
20.3 Disclosure of Confidential Data.
--------------------------------
In the event a Party hereto, or its Representatives, are required by any
court or legislative or administrative body (by oral questions, interrogatories,
requests for information or documents, subpoena, civil investigation demand, or
any similar process) to disclose any confidential information or data not owned
by said Party, the required to make such disclosure will provide the owner of
the confidential information or data with prompt notice of such requirement in
order to afford the owner of such information or data the opportunity to seek an
appropriate protective order. However, if the owner of such information or data
is unable to obtain or does not seek protective order and the Party that is
required to make such disclosure, or its Representatives, are, in the opinion
Page 39
of counsel, compelled to disclose confidential information or data under pain of
liability for contempt or other censure penalty, disclosure of such information
or data may be made without liability.
20.4 Risk of Use of Confidential Data.
---------------------------------
It is understood by the Parties hereto that any confidential information
or data, both oral and written, furnished by one Party to the other is to be
considered accurate, however, neither Party hereto makes any representations or
warranties, express, implied, statutory or otherwise, with respect to the
accuracy or completeness of the confidential information or data disclosed or
any condition or aspect thereof. To the best of its knowledge, the Party making
such disclosure represents that it has full legal or contractual authorization
or right to disclose such information and data to the other Party. Each Party
hereto agrees that it will use such confidential information and data at its
sole peril and risk, and the disclosing Party will have no liability whatsoever
with respect to the use by the receiving Party of any information or data,
whether confidential or otherwise, furnished by the disclosing Party to the
receiving Party. Any decision or action taken by the receiving Party of such
disclosed confidential information and data will be based solely on the
receiving Party's independent evaluation, judgment and decisions.
ARTICLE 21
21. GOVERNING LAW
-------------
21.1 Choice of Law.
--------------
The terms and conditions of this Agreement will be governed and
interpreted under the LAWS OF THE STATE OF LOUISIANA.
21.2 Future Litigation and Claims.
-----------------------------
Company acknowledges and agrees that Chevron and its Affiliates will
have full and unfettered discretion in the handling and settling of any such
claim, demand, action, cause of action, or lawsuit for events which occurred, or
alleged to have occurred prior to the Effective Date pursuant to any future
litigation as they relate to the Chevron Lease(s), and Company specifically
waives any claim it may otherwise have against Chevron arising out of or
relating to the handling or settling of any such claim, demand, action, cause of
action, or lawsuit asserted under future litigation; provided, however, that in
the event that such claim contemplated by this Section 21.2 covers periods after
the Effective Date, Company may assist in defending the litigation. Chevron
agrees that no such claim, demand, action, or cause of action, or lawsuit
arising out of or related to acts or omissions occurring prior to the Effective
Page 40
Date will impair or affect any interest to be assigned to Company under this
Agreement or will impose any cost or liability on Company.
ARTICLE 22
22. FORCE MAJEURE
-------------
22.1 Force Majeure.
--------------
Should either Party be prevented from complying with any express or
implied covenant of this Agree (other than the obligation to make monetary
payments), or from meeting any deadline under this Agreement reason of "Force
Majeure," as hereinafter defined, the express or implied covenant or deadline so
affected will automatically be extended so long as the cause or causes for such
delays or interruptions continue and I additional sixty (60) days following the
cessation of such delay or interruption. "Force Majeure" is herein defined as an
act of God, adverse weather conditions, inability to obtain materials in the
open market or transportation thereof, war, strikes, lockouts, riots,
insurrections or any other conditions or circumstances not wholly with control
of a Party hereto (other than financial) or any federal, state or municipal law,
order, permit, rule or regulation. The Party subject to the Force Majeure event
will not be liable to the other Party in damages for failure to perform as
required hereunder or to comply with any covenant, agreement or requirement
hereof during the time the Party subject to the Force Majeure event is relieved
from its obligations hereunder, provided that the Party subject to the Force
Majeure event has given written notice to the other Party within thirty (30)
days after occurrence of the cause relied upon to suspend the obligations of the
Party subject to the Force Majeure event. The Party subject to the Force Majeure
event will not be relieved from any express or implied obligations under the
Lease(s) by operation of Force Majeure hereunder, unless said Lease(s) also
suspends such obligations for the same cause. Further, if the Lease(s) provides
for a time for the suspension of obligations less than sixty (60) the provisions
of said Lease(s) will control. The Parties recognize that time is of the essence
in the performance of the obligations under this Agreement, and every reasonable
effort should be made by the Party affected by the Force Majeure event to avoid
delay or suspension of any work or acts to be performed under this Agreement and
to make all reasonable efforts to overcome the impact of the Force Majeure as
soon as possible. The requirement that the Force Majeure be remedied with all
reasonable dispatch will not require a Party to settle strikes or labor
difficulties.
Page 41
ARTICLE 23
23. DISPUTE RESOLUTION.
-------------------
23.1 Dispute Resolution.
-------------------
Notwithstanding anything contained heretofore in this Agreement to the
contrary, with the exceptions of decisions made by engineering firms or
consultants as provided under Article 6, the Parties specifically acknowledge
and agree that any claim, controversy or dispute arising out of relating to, or
in connection with this Agreement, including the interpretation, validity,
termination or breach thereof will be resolved solely accordance with the
Dispute Resolution Procedure set forth in Exhibit "F" attached hereto and made a
part hereof. Disputes related to pressure communication or common reservoir
issues will be addressed accordance with the procedures stated under Article 6
as applicable and not Exhibit "F".
ARTICLE 24
24. TERMINATION
-----------
24.1 Termination.
------------
This Agreement will begin on the Effective Date, will remain in effect
as to earned and un-reverted portions of each Lease and unless terminated
pursuant to another provision in this Agreement or unless extent pursuant to
another provision, the Company right to earn will remain in effect until
December 31, 2007, at which time this Agreement will automatically terminate
without any other action by any Party hereto as to any unearned interests. As to
each Prospect listed on Exhibits "A" and "B", and any acreage made subject to
this Agreement pursuant to Section 2.4, as each such interest or right to earn
an interest expires or terminates, it will no longer subject to this Agreement.
It is understood between the Parties hereto that after termination of the
Company's right to earn under this Agreement, the only acreage Company will have
rights to will be that acreage it has already earned or has committed to drill
under this Agreement as provided under Section 24.3 belt Notwithstanding the
termination of the Company right to earn under this Agreement, each Party will
continue be obligated to fulfill its existing commitments, obligations,
liabilities, both financial and otherwise, and of undertakings theretofore
incurred hereunder or incurred under the terms of those agreements attached
Exhibits hereto.
24.2 Lease Expiration or Termination.
--------------------------------
Although Chevron shall use business-like efforts to monitor ongoing
activities on the Lease(s), Chevron shall not be liable to Company for the
Lease(s) termination and/or Chevron's failure to maintain the Lease during the
term of this Agreement but Chevron shall attempt, so long as Chevron owns Record
Page 42
Title or Operating Rights Interest in the Lease(s), to notify Company at least
thirty (30) days before said Lease(s) will terminate.
24.3 Agreement Extension.
--------------------
At the termination of this Agreement, should operations for the drilling
of an Initial Test Well o Substitute Well have been commenced on a Prospect,
this Agreement will continue in effect so long operations are continuously
prosecuted on such well. On the expiration of such period this Agreement v
automatically terminate without any further action from any Party hereto as to
any unearned interest. As stated in Section 24.1 above, each Party will continue
to be obligated to fulfill its existing commitments, obligations, liabilities
both financial and otherwise, and other undertakings theretofore incurred
hereunder or incurred under the terms of those agreements attached as Exhibits
hereto.
ARTICLE 25
25. INDEMNITY
---------
25.1 Indemnity.
----------
Company, to the extent of the obligations undertaken herein, agrees to
protect, indemnify, and save Chevron, its parent, subsidiaries, affiliates,
and/or successors and the directors, officers, employees or agents each
("Chevron Company Group") free and harmless from all obligations, business
dealings, liabilities, del charges, claims, damages, demands, costs (including
attorneys' fees and court costs), penalties and causes of act arising directly
or indirectly out of all of Company's actions or inactions under this Agreement,
and related to a dealing with any Third Party that Company has or may have with
regard to financing or the assignment of, whole or in part, any rights under
this Agreement, and to relieve the Chevron Company Group from any and liability
(exclusive of business debts and charges) incurred as a result of such actions.
The indemnities a covenants of this Section 25.1 will be effective whether or
not such obligations, business dealings, liabilities, debts, charges, claims,
damages, demands, costs (including attorneys' fees and court costs), penalties
and causes action aforesaid are caused wholly or partly by negligence attributed
to the Chevron Company Group, or by any other means, excepting those occurrences
involving the gross negligence or willful misconduct of the Chevron Company
Group.
Page 43
ARTICLE 26
26. BREACH
26.1 Breach.
-------
Anything herein to the contrary notwithstanding, any failure by Company
to comply with any material obligation hereunder will be considered a breach of
this Agreement. In the event of any such breach, Chevron shall notify Company of
such breach and if Company does not correct or is not in good faith attempting
to correct such breach within thirty (30) days of receipt of such notice,
Chevron may terminate this Agreement in whole or in part by notifying Company in
writing of such termination, without prior notice or demand being made upon
Company and without the necessity of placing Company in default; provided,
however, the failure by Chevron to exercise at any time or from time to time
such right of termination will not effect a waiver of any breach or of Chevron's
right subsequently to terminate this Agreement.
ARTICLE 27
27. DISCLAIMER OF WARRANTY
----------------------
27.1 Disclaimer of Warranty.
-----------------------
THIS AGREEMENT IS MADE WITHOUT ANY WARRANTY OF TITLE TO THE LEASE(S).
CHEVRON DOES NOT WARRANT EITHER EXPRESS, STATUTORY OR IMPLIED, AS TO TITLE,
MERCHANTABILITY, CONDITION, QUALITY OR FITNESS FOR A PARTICULAR PURPOSE AS TO
THE CHEVRON LEASE(S), AND ALL OTHER PROPERTY COVERED BY THIS AGREEMENT,
INCLUDING, BUT NOT LIMITED TO THE WELL BORES, EQUIPMENT AND FACILITIES UTILIZED
BY THE PARTIES HEREUNDER, OR ANY OTHER SORT OF WARRANTY AND IS WITHOUT RECOURSE
AGAINST CHEVRON WHATSOEVER, EVEN AS TO THE RETURN OF CONSIDERATION. CHEVRON
MAKES NO REPRESENTATIONS OR WARRANTIES REGARDING COMPANY'S RIGHT OF INGRESS TO
AND EGRESS FROM THE CHEVRON LEASE(S) ACROSS ADJACENT OR ADJOINING LANDS.
CHEVRON SPECIFICALLY DISCLAIMS, AND COMPANY EXPRESSLY WAIVES THE IMPLIED
WARRANTY OF TITLE NOTED IN LA. R. S. 31:120 WITH RESPECT TO THE CHEVRON
LEASE(S). COMPANY ACKNOWLEDGES THAT THIS EXPRESS WAIVER WILL BE CONSIDERED A
MATERIAL AND INTEGRAL PART OF THIS AGREEMENT AND PART OF THE CONSIDERATION GIVEN
THEREFOR. COMPANY FURTHER ACKNOWLEDGES THAT THIS WAIVER HAS BEEN SPECIFICALLY
BROUGHT TO COMPANY'S ATTENTION AND THAT COMPANY HAS VOLUNTARILY AND KNOWINGLY
Page 44
CONSENTED TO THIS WAIVER. THE PARTIES AGREE TH, FOR THE PURPOSES OF THIS WAIVER
OF THE IMPLIED WARRANTY OF TITLE, CHEVRON AT THEIR AFFILIATES WILL BE CONSIDERED
AS THE SELLER HEREUNDER AND COMPAI EXPRESSLY WAIVES ALL RIGHTS OF SUBROGATION IN
WARRANTY OF THE SELLER AGAIN OTHER PERSONS GRANTED TO A BUYER BY LOUISIANA CIVIL
CODE ARTICLE 2503.
COMPANY ACKNOWLEDGES THAT (i) IT IS A SOPHISTICATED INVESTOR AND
OPERATOR IN THE OIL AND GAS BUSINESS; (ii) IT UNDERSTANDS THE RISKS INVOLVED IN
OIL AND GAS EXPLORATION AND DEVELOPMENT; AND (iii) IT UNDERSTANDS THAT ITS
PARTICIPATION THIS AGREEMENT IS A HGHLY RISKY UNDERTAKING AND THAT COMPANY MIGHT
NOT RECOVER ANY OF ITS INVESTMENT MADE HEREUNDER.
ARTICLE 28
28. GENERAL PROVISIONS
------------------
28.1 Prospects Treated Separately.
-----------------------------
Unless otherwise provided, the terms and provisions stated herein will
apply separately to each Prospect listed on Exhibit "A" or Exhibit "B".
28.2 Non-Interference.
-----------------
Any and all operations conducted and/or performed on the Lease(s) for
which Company is or becomes the well operator, if any, will be conducted and
performed with due diligence and in a workmanlike manner a will be coordinated
and scheduled so as not to unreasonably interfere with existing or anticipated
operatic located on the interests in the Lease(s) and Excluded Property not
transferred hereunder by Chevron, applicable. In the event that the proposed
drilling of an Initial Test Well on any Prospect is delayed because potential
interference with operations on the Lease(s) or Excluded Property by Chevron,
then Chevron a Company agree that the period to commence operations on the
Initial Test Well will be extended, if request by Company, for the duration of
the interference plus a reasonable amount of time for Company to coordinate its
activities after cessation of operations by Chevron.
28.3 Governmental Approvals.
-----------------------
From and after the execution hereof, each of the Parties hereto, without
further consideration, will use its business-like efforts to execute, deliver,
submit, gain approvals of and record (or cause to be executed, delivered,
Page 45
submitted, and recorded) good and suffcient permits, designations, other
regulatory documents, and instruments of conveyance and transfer (as
applicable), and take such other action as may be reasonably required to carry
out the purposes of this Agreement and to give effect to the covenants,
stipulations and obligations of the Parties hereto.
28.4 Amendments.
-----------
This Agreement will not be modifed or amended except by mutual agreement
of the Parties in writing. No action or failure to act on the part of either
Party hereto will be construed as a modifcation or amendment to, or a waiver of,
any of the provisions of this Agreement.
28.5 Declaration of Agreement.
-------------------------
Should either Party request a Declaration of Agreement be executed for
fling in the applicable public records, both Parties agree to execute a
Declaration of Agreement similar in form as that which is attached hereto as
Exhibit "G". Either Party will have the right and option, at its own expense, of
fling such Declaration of record in the appropriate State and/or Federal offces.
28.6 Other Rights, Remedies Reserved.
--------------------------------
No provision contained herein providing for the termination of this
Agreement will be construed as precluding, nor will it preclude, Chevron from
asserting its respective rights to specifc performance, damages, or any other
rights or remedies to which it may be entitled.
28.7 No Waiver.
----------
Chevron's or Company's failure to enforce any of the provisions of this
Agreement will not efect a waiver of any violation thereof nor preclude
enforcement of that or any other provisions hereof at that or any other time.
28.8 No New Lease Burdens.
---------------------
As to the Lease(s) that are subject to this Agreement, until Company has
earned and received an assignment of an interest, or relinquishes its rights to
earn any interest therein, or until this Agreement terminates, Chevron agrees
not to create any additional lease burdens, marketing commitments, or other
contractual obligations on such Lease(s) as to the Available Acreage. Prior to
Company receiving an assignment of an interest in a Prospect, Chevron shall not
create or allow the creation of any additional lease burdens afecting the
Contract Acreage which Company has a right to earn hereunder. During the term of
the Company's right to ear under this Agreement, Chevron shall use business-like
Page 46
efforts not to unnecessarily prejudice the rights and options Company as
stipulated hereunder.
28.9 Permitting Cost Sharing.
------------------------
In addition to the obligations under Section 3.2, Company will be
obligated to contribute Company's Interest share of all direct permitting and
regulatory costs incurred by Chevron subsequent to the Effective Date of this
Agreement on the Lease(s) subject hereto. This contribution will only come due
once Company agrees to participate in the drilling of the Initial Test Well on a
Prospect. Payment will be due upon receipt of Chevron written notice of all such
costs.
28.10 Audit Rights.
-------------
Upon written notice to the other Party, any Party ("requesting Party")
may examine the accounts records of the other Party from time to time during
normal business hours required to verify a Party's compliance with the financial
obligations assumed by that Party in this Agreement. Such examinations will be
made din by the requesting Party at its expense or through an independent
accounting firm of the requesting Party's choice retained at the requesting
Party's expense. If performed, the requesting Party will commence its initial
audit of the other Party's accounts and records pursuant hereto, within
twenty-four (24) months from the Effective Date of Agreement. After the initial
audit has been conducted or the initial audit period has expired without such
being commenced, the requesting Party may commence subsequent audits only
covering those periods following, the end of the previous twenty-four (24) month
period.
28.11 Severability.
-------------
Every provision in this Agreement is intended to be severable. If any
term or provision hereof is held court of competent jurisdiction to be illegal
or invalid for any reason whatsoever, all other conditions and provisions of
this Agreement will nevertheless remain in full force and effect.
28.12 Entire Agreement.
-----------------
This Agreement constitutes the entire understanding between the Parties
with respect to the subject matter hereof, superseding all negotiations, prior
discussions and prior agreements and understandings rely to the subject matter
hereof including that certain Letter from Company to Chevron dated August 10,
2006.
Page 47
28.13 Further Assurances.
-------------------
Each Party agrees to execute and deliver all such additional documents,
instruments and assurances to perform such additional acts as may be necessary
or appropriate to effectuate and perform all of the t and conditions of this
Agreement.
28.14 Surviving Obligation.
---------------------
THE TERMINATION OF THIS AGREEMENT WILL NOT RELIEVE ANY PARTY HER FROM
ANY EXPENSE, LIABILITY OR OTHER OBLIGATION OR ANY REMEDY THEREFOR WH HAS ACCRUED
OR ATTACHED PRIOR TO THE DATE OF SUCH TERMINATION.
28.15 Conflict of Terms.
------------------
In the event of any conflict between the main body of this Agreement and
attached Exhibits, provisions of the main body of this Agreement will control.
IN WITNESS WHEREOF, this Agreement is executed and made effective by the
Parties hereto the Effective Date as defined herein.
WITNESSES:
----------
CHEVRON U.S.A. INC.
By: /s/ ▇.▇. ▇▇▇▇▇
-------------------------- --------------------
Name: ▇. ▇. ▇▇▇▇▇
-------------------
Title: Assistant Secretary
-------------------------- -------------------
RIDGEWOOD ENERGY CORPORATION
(Signature Illegible) By: /s/ W. ▇▇▇▇ ▇▇▇▇▇
-------------------------- ------------------------
Name: W. ▇▇▇▇ ▇▇▇▇▇
------------------------
(Signature Illegible) Title: Executive Vice President
-------------------------- ------------------------
Page 48
ACKNOWLEDGMNTS
--------------
STATE OF LOUISIANA
PARISH OF ORLEANS
BEFORE ME, the undersigned authority, a Notary Public in and for said
Parish and State, on this day personally appeared ▇.▇ ▇▇▇▇▇, Assistant Secretary
of Chevron U.S.A. Inc., a Pennsylvania corporation, known to me to be the person
whose name is subscribed to the foregoing instrument, and who acknowledged to me
that he executed the same as the act and deed of said corporation, for the
purposes and consideration therein expressed, in the capacity therein stated.
GIVEN under my hand and seal of office this 9th day of October, 2006.
---------------------------------------------------
Notary Public in and for the State of Louisiana
My commission is for life.
STATE OF TEXAS
COUNTY OF ▇▇▇▇▇▇
BEFORE ME, the undersigned authority, a Notary Public in and for said
Parish and State, on this day personally appeared, W. ▇▇▇▇ ▇▇▇▇▇, Executive Vice
President of Ridgewood Energy Corporation, a Delaware corporation, known to me
to be the person whose name is subscribed to the foregoing instrument, and who
acknowledged to me that he executed the same as the act and deed of said
corporation, for the purposes and consideration therein expressed, in the
capacity therein stated.
GIVEN under my hand and seal of office this 19th day of October, 2006.
[SEAL] ▇▇▇▇▇ ▇▇▇▇▇ /s/ ▇▇▇▇▇ ▇▇▇▇▇
Notary Public, State of Texas --------------------------------------------
MY Commission Expires Notary Public in and for the State of Texas.
October 01, 2008
Page 49
EXHIBIT "A"
-----------
PRIMARY PROSPECT
----------------
Attached to and made a part of that certain Exploration Participation Agreement
dated effective the 1st day of September, 2006, by and between Chevron U.S.A.
Inc. and Ridgewood Energy Corporation
Mussel Beach Prospect
---------------------
OCS Block: A portion of South Timbalier Block 135
Lease: OCS 0462
Chevron Leasehold Interest: One Hundred Percent (100%)
Lease Burdens: 1/6 of 8/8ths MMS royalty, further subject to an Overriding
Royalty Interest of 1/12 of 8/8ths OR a Net Profit Interest of 10% of 8/8ths due
to ExxonMobil and an ORRI of 0.01 due to various parties collectively referred
to MPT.
OCS Block: A portion of South Timbalier Block 136
Lease: OCS-G 26097
Chevron Leasehold Interest: One Hundred Percent (100%)
Lease Burdens: 1/6 of 8/8ths MMS royalty
Chevron Interest Before-Casing Point Chevron BCP Interest: Fifty-eight percent (58%)
---------------------------------------------------------
* Ridgewood Interest Before Casing Point (Ridgewood BCP Interest): Forty-two Percent (42%)
-----------------------------------------------------------------
* Ridgewood will have and bear the obligation of paying its
disproportionate BCP Interest share of the Well Costs stated
above until Casing Point or until one hundred twenty percent
(120%) of the associated AFE to drill the Initial Test Well,
whichever occurs first, have been spent in the drilling of said
Well and any Substitute Well(s).
Chevron Interest After Casing Point (Chevron ACP Interest): Seventy-five percent (75%)
----------------------------------------------------------
Ridgewood Interest After Casing Point (Ridgewood ACP Interest): Twenty-five Percent (25%)
--------------------------------------------------------------
Operator: Chevron U.S.A. Inc.
Description of Exploratory Well, Objective Depth and Primary Objective for
--------------------------------------------------------------------------
Mussel Beach Prospect:
----------------------
The Initial Exploratory Well shall be drilled to: (1) a True Vertical Depth of
19,600 feet subsea, or (2) a depth sufficient to adequately test the Mussel
Beach Sand, whichever is the lesser depth, with a surface location of the
Initial Exploratory Well on MMS Lease OCS ▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇ ▇▇▇,
▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ being approximately X = _________ and Y = ________ and
bottom hole location target of the Initial Exploratory Well being approximately
X = __________ and Y = ___________.
Page 1 of 2
Chevron/Ridgewood EPA 2006
Exhibit A - ST/WD EPA EXHIBIT A.doc
Mussel Beach Prospect - Available Acreage for an Assignment of Operating Rights
-------------------------------------------------------------------------------
Interest that May Be Earned for a well to be drilled and logged to Objective
----------------------------------------------------------------------------
Depth:
------
Mussel Beach Prospect shall consist of the following:
The Oil and Gas Lease of Submerged Lands under the Outer Continental Shelf Lands
Act designated by S ▇▇. ▇▇▇ ▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇ 135, dated
effective January 1, 1955 (the "Lease"), INSOFAR AND ONLY INSOFAR as said Lease
covers W/2 of NW/4 of South Timbalier Block 135, A FURTHER LIMITED WITHIN SAID
AREA as to those depths located on the Lease from below the of the stratigraphic
equivalent of the J-8 Sand, as seen at 17,810' measured depth in the electrical
log of Great Western Offshore Company's OCS-G 8720 Well No. 1 in South Timbalier
Block 136, to one hundred feet (100') below the deepest depth drilled and logged
in the Earning Well, and
The Oil and Gas Lease of Submerged Lands under the Outer Continental Shelf Lands
Act designated by Serial No. OCS-G 26097, South Timbalier Area, Block 136, dated
effective June 1, 2004 (the "Lease"), INSOFAR AND ONLY INSOFAR as said Lease
covers NE/4 of South Timbalier Block 136, AND FURTHER LIMITED WITHIN SAID AREA
as to those depths located on the Lease from below the base of stratigraphic
equivalent of the J-8 Sand, as seen at 17,810' measured depth in the electrical
log of the Great Western Offshore Company's OCS-G 8720 Well No. 1 in South
Timbalier Block 136, to one hundred (100') below the deepest depth drilled and
logged in the Earning Well, and
Ridgewood expressly agrees that Chevron will reserve and except unto itself all
rights, title and interest in to the Excluded Property, less and except the
rights of ingress, egress and access to the earned area.
Page 2 of 2
EXHIBIT "B"
-----------
ADDITIONAL OPPORTUNITIES PROSPECT(S)
------------------------------------
Attached to and made a part of that certain Exploration Participation Agreement
dated effective the 1st of September, 2006, by and between Chevron U.S.A. Inc.
and Ridgewood Energy Corporation
▇▇▇▇▇ Beach Prospect
--------------------
OCS Block: A portion of West Delta Block 109
Lease: OCS-G 2937
Chevron Leasehold Interest: One Hundred Percent (100%)
Lease Burdens: 1/6 of 8/8ths MMS royalty
Chevron/Other Interest Before Casing Point (Chevron BCP Interest): Fifty-eight percent (58%)
-----------------------------------------------------------------
* Ridgewood Interest Before Casing Point (Ridgewood BCP Interest): Forty-two Percent (42%)
-----------------------------------------------------------------
* Ridgewood will have and bear the obligation of paying its disproportionate BCP
Interest share of the Well Costs stated above until Casing Point or until one
hundred twenty percent (120%) of the associated AF drill the Initial Test Well,
whichever occurs first, have been spent in the drill said Well and Substitute
Well(s).
Chevron/Other Interest After Casing Point (Chevron ACP Interest: Seventy-five percent (75%)
---------------------------------------------------------------
Ridgewood Interest After Casing Point (Ridgewood ACP Interest): Twenty-five Percent (25%)
--------------------------------------------------------------
Operator: Chevron U.S.A. Inc.
Description of Exploratory Well, Objective Depth and Primary Objective for Holy
-------------------------------------------------------------------------------
Beach Prosper
-------------
The Initial Exploratory Well shall be drilled to: True Vertical Depth of 21,000
feet subsea, with a surface location of the Initial Exploratory Well on MMS
Lease OCS-G ▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ being
approximately X = __________ and Y = ___________ and bottom hole location to of
the Initial Exploratory Well being approximately X = _________ and
Y = ___________.
▇▇▇▇▇ Beach Prospect - Available Acreage for an Assignment of Operating Rights
------------------------------------------------------------------------------
Interest that May Be Earned for a well to be drilled and logged to Objective
-----------------------------------------------------------------------------
Depth:
------
▇▇▇▇▇ Beach Prospect shall consist of the following:
The Oil and Gas Lease of Submerged Lands under the Outer Continental Shelf Lands
Act designated by Si\erial ▇▇. ▇▇▇-▇ ▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇ 109, dated
effective November 1, 1974 (the "Lease"), INSOFAR AND ONLY INSOFAR as said Lease
covers SW/4; S/2 of SE/4; and SW/4 of N/2 of SE/4 of West E Block 109, AND
FURTHER LIMITED WITHIN SAID AREA as to those depths located on the Lease between
a depth of 16,500 feet true vertical depth subsea to one hundred feet (100')
below the deepest depth drilled and logged in the Earning Well.
Ridgewood expressly agrees that Chevron will reserve and except unto itself all
rights, title and interest in to the Excluded Property, less and except the
rights of ingress, egress and access to the earned area.
Page 1 of 5
Chevron/Ridgewood EPA 2006
Exhibit B - ST/WD EPA EXHIBIT B.doc
Skipper's Canyon Prospect
-------------------------
OCS Block: A portion of South Timbalier Block 151
Lease: OCS 0463
Chevron Leasehold Interest: One Hundred Percent (100%)
Lease Burdens: 1/6 of 8/8ths MMS royalty, further subject to Net Profit Interest
of 10% of 8/8ths due t, ExxonMobil and an ORRI of 0.01 due to various parties
collectively referred to MPT.
Chevron/Other Interest Before Casing Point (Chevron BCP Interest: Fifty-eigh percent (58%)
-----------------------------------------------------------------
* Ridgewood Interest Before Casing Point (Ridgewood BCP Interest: Forty-two Percent (42%)
----------------------------------------------------------------
* Ridgewood will have and bear the obligation of paying its disproportionate BCP
Interest share of the Well Costs stated above until Casing Point or until one
hundred twenty percent (120%) of the associated AFE drill the Initial Test Well,
whichever occurs first, have been spent in the drilling of said Well and
Substitute Well(s).
Chevron/Other Interest After Casing Point (Chevron ACP Interest: Seventy-five percent (75%)
---------------------------------------------------------------
Ridgewood Interest After Casing Point (Ridgewood ACP Interest): Twenty-five Percent (25%)
--------------------------------------------------------------
Operator: Chevron U.S.A. Inc.
Description of Exploratory Well, Objective Depth and Primary Objective for
--------------------------------------------------------------------------
Skipper's Canyon Prospect:
--------------------------
The Initial Exploratory Well shall be drilled to: (1) a True Vertical Depth of
19,520 feet subsea, or (2) a depth sufficient to adequately test the Skipper's
Canyon Sand, whichever is the lesser depth, with a surface location of the
Initial Exploratory Well on MMS Lease OCS ▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇ ▇▇▇,
▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ being approximately X = ________ and Y = ________ and bottom
hole location target of the Initial Exploratory Well being approximately
X = __________ and Y = ___________.
Skipper's Canyon Prospect - Available Acreage for an Assignment of Operating
----------------------------------------------------------------------------
Rights Interest May Be Earned for a well to be drilled and logged to Objective
------------------------------------------------------------------------------
Depth:
------
Skipper's Canyon Prospect shall consist of the following:
The Oil and Gas Lease of Submerged Lands under the Outer Continental Shelf Lands
Act designated by Serial ▇▇. ▇▇▇ ▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇ 151, dated
effective January 1, 1955 (the "Lease"), INSOFAR AND ONLY INSOFAR as said Lease
covers NW/4; N/2 of SW/4; and W/2 of W/2 of NE/4 of South Timbalier Block 151,
AND FURTHER LIMITED WITHI SAID AREA as to those depths located or. Lease from
below the base of the stratigraphic equivalent of the J-7 Sand, as seen at
12,811' measured depth in the electrical log of the Gulf Oil Corporation's OCS
0463 Well No. G-1 in South Timbalier Block to one hundred feet (100') below the
deepest depth drilled and logged in the Earning Well, and
Ridgewood expressly agrees that Chevron will reserve and except unto itself all
rights, title and interest in to the Excluded Property, less and except the
rights of ingress, egress and access to the earned area.
Page 2 of 5
Emma Beach Prospect
-------------------
OCS Block: A portion of South Timbalier Block 132
Lease: OCS-G 24965
Chevron Leasehold Interest: One Hundred Percent (100%)
Lease Burdens: 1/6 of 8/8ths MMS royalty
OCS Block: A portion of South Timbalier Block 133
Lease: OCS 0459
Chevron Leasehold Interest: One Hundred Percent (100%)
Lease Burdens: 1/6 of 8/8ths MMS royalty and an ORRI of 0.01 due to various
parties collectively referred to MPT.
OCS Block: A portion of Grand Isle Block 86
Lease: OCS-G 5660
Chevron Leasehold Interest: Ninety and Four-Tenths Percent (90.4%)
Lease Burdens: 1/6 of 8/8ths MMS royalty
OCS Block: A portion of Grand Isle Block 88
Lease: OCS-G 26127
Chevron Leasehold Interest: One Hundred Percent (100%)
Lease Burdens: 1/6 of 8/8ths MMS royalty
Chevron Interest Before Casing Point (Chevron BCP Interest): Fifty-eight percent (58%)
-----------------------------------------------------------
* Ridgewood Interest Before Casing Point (Ridgewood BCP Interest): Forty-two Percent (42%)
-----------------------------------------------------------------
* Ridgewood will have and bear the obligation of paving its disproportionate BCP
Interest share of the Well Costs stated above until Casing Point or until one
hundred twenty percent (120%) of the associated AF drill the Initial Test Well,
whichever occurs first, have been spent in the drilling of said Well and
Substitute Well(s).
Chevron Interest After Casing Point (Chevron ACP Interest): Seventy-five percent (75%)
----------------------------------------------------------
Ridgewood Interest After Casing Point (Ridgewood ACP Interest): Twenty-five Percent (25%)
--------------------------------------------------------------
Operator: Chevron U.S.A. Inc.
Description of Exploratory Well, Objective Depth and Primary Objective for Emma
-------------------------------------------------------------------------------
Beach Prospect:
---------------
The Initial Exploratory Well shall be drilled to: a True Vertical Depth of
14,000 feet subsea, with a surface location of the Initial Exploratory Well on
MMS Lease OCS-G ▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇ ▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ being
approximately X = _________ and Y = _________ and bottom hole location target of
Initial Exploratory Well being approximately X = _________ and Y = ____________.
Emma Beach Prospect - Available Acreage for an Assignment of Operating Rights
-----------------------------------------------------------------------------
Interest that May Be Earned for a well to be drilled and logged to Objective
---------------------------------------------------------------------------
Depth:
------
Emma Beach Prospect shall consist of the following:
The Oil and Gas Lease of Submerged Lands under the Outer Continental Shelf Lands
Act designated by Serial No. OCS-G 24965, South Timbalier Area, Block 132, dated
effective July 1, 2003 (the "Lease"), INSOFAR AND ONLY INSOFAR as said Lease
Page 3 of 5
covers the S/2; S/2 of N/2; E/2 of N/2 of N/2 of South Timbalier Block 132, AND
FURTHER LIMITED WITHN SAID AREA as to those depths located on the Lease from
13,000' TVD SS to one hundred feet (100') below the deepest depth drilled and
logged in the Earning Well, and
The Oil and Gas Lease of Submerged Lands under the Outer Continental Shelf Lands
Act designated by Serial ▇▇. ▇▇▇ ▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇ 133, dated
effective January 1, 1955 (the "Lease"), INSOFAR AND ONLY INSOFAR as said Lease
covers the SE/4; SE/4 of NE/4 of South Timbalier Block 133, AND FURTHER LIMITED
WITHIN SAID AREA as to those depths located on the Lease from 13,000' TVD SS to
one hundred feet (100') below the deepest depth drilled and logged in the
Earning Well, and
The Oil and Gas Lease of Submerged Lands under the Outer Continental Shelf Lands
Act designated by Serial ▇▇. ▇▇▇-▇ ▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇ 86, dated
effective July 1, 1983 (the "Lease"), INSOFAR AND ONLY INSOFAR as said Lease
covers the SW/4; S/2 of SE/4; NW/4 of SE/4 of Grand Isle Block 86, AND FURTHER
LIMITED WITHIN SAID AREA as to those depths located on the Lease from 13,000'
TVD SS to one hundred feet (100') below the deepest depth drilled and logged in
the Earning Well, and
The Oil and Gas Lease of Submerged Lands under the Outer Continental Shelf Lands
Act designated by Serial ▇▇. ▇▇▇-▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇ 88, dated
effective June 1, 2004 (the "Lease"), INSOFAR AND ONLY INSOFAR as said Lease
covers the NW/4; NW/4 of NE/4 of Grand Isle Block 88, AND FURTHER LIMITED WITHIN
SAID AREA as to those depths located on the Lease from 13,000' TVD SS to one
hundred feet (100') below the deepest depth drilled and logged in the Earning
Well.
Ridgewood expressly agrees that Chevron will reserve and except unto itself all
rights, title and interest in and to the Excluded Property, less and except the
rights of ingress, egress and access to the earned area.
Page 4 of 5
Mt. Hood Prospect
-----------------
Earning rights limited from depths below 15,000' TVD SS to 100' below the
deepest depth drilled and logged in the Initial Test Well, in the following
Lease(s):
South Timbalier Block 134 (W/2); OCS-0461: (Portion)
▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇ (▇/▇); ▇▇▇-▇▇▇▇: (Portion)
Wahoo Prospect
--------------
Earning rights limited from depths starting at ten feet (10') above the
stratigraphic equivalent of the E-10 Sand, as seen at 15,352' MD in the array
induction/gamma ray/sp wireline log of the ▇▇▇▇▇▇ Oil and Gas Corporation OCS-G
3336 Well ▇▇. ▇ ▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇, ▇▇▇ # 177154116800, to 100' below
the deepest depth drilled and logged in the Initial Test Well, in the
followingLease(s):
South Timbalier Block 35 (S/2); OCS-G 3336: (Portion)
Kapolei Prospect
----------------
Earning rights limited from depths below 15,000' TVD SS to 100' below the
deepest depth drilled and logged in the Initial Test Well, in the
following Lease(s):
South Timbalier Block 129 (N/2), OCS 0465: (Portion)
Simon Says Prospect
-------------------
Earning rights limited from depths starting at ten feet (10') above the
stratigraphic equivalent of the J-6 Sand, as seen at 15,912' MD in the______ log
of the Chevron U.S.A. Inc. OCS 0498 Well No. X-3 in ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇,
▇▇▇ # _________ , to 100' below the deepest depth drilled and logged in the
Initial Test Well, in the following Lease(s):
South Timbalier Block 128, OCS 0498: S/2 NW/4, SW/4 NE/4, N/2 SW/4, SW/4 SW/4,
NW/4 SE/4 SW/4, N/2 NW/4 SE/4, and SW/4 NW/4 SE/4
Lewes Beach Prospect
--------------------
Earning rights limited from depths below 15,000' TVD SS to 100' below the
deepest depth drilled and logged in the Initial Test Well, in the
following Lease(s):
▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇, ▇▇▇-▇ 24964: (Portion)
Page 5 of 5
EXHIBIT "C"
-----------
Attached to and made a part of that certain Exploration Participation Agreement
dated effective the 1st day of September, 2006, by and between Chevron U.S.A.
Inc. and Ridgewood Energy Corporation
List of Existing Agreements, Restrictions, Exceptions and Obligations
---------------------------------------------------------------------
For Primary Prospect
--------------------
MUSSEL BEACH PROSPECT
---------------------
OCS 0462 South Timbalier Block 135
----------------------------------
LIS No. 822630 Confidentiality Agreement dated June 16, 2006 between Chevron
U.S.A. Inc. and Ridgewood Energy Corporation.
LIS No. 109141 OCS 0462 Lease Agreement dated January 1,1955 between Gulf
Refining Company and The United States, as it may have been
amended.
LIS No. 109141 Assignment of Overriding Royalty Interest dated effective
September 8, 1955 from Gulf Refining Company, as Assignor, to
San Jacinto Petroleum Corporation, as Assignee.
LIS No. 109141 Assignment of Overriding Royalty Interest dated effective May
28, 1956 from Gulf Refining Company, as Assignor, to Marine
Instrument Company, as Assignee.
LIS No. 109141 Assignment of Overriding Royalty Interest dated effective May
28, 1956 from Gulf Oil Corporation, as Assignor, to Marine
Petroleum Corporation, as Assignee.
LIS No. 109141 Assignment dated effective July 1, 1959 between Humble Oil &
Refning Company and Gulf Oil Corporation, as it may have been
amended.
LIS No. 159837 Concurrent Agreement dated effective July 1, 1959 between
Humble Oil & Refining Company and Gulf Oil Corporation, as it
may have been amended.
LIS No. 002229 Block 135 South Timbalier Area Federal Unit Agreement dated
effective December 16, 1959 between Gulf Oil Corporation and
the United States Geological Survey, as it may have been
amended.
LIS No. 023795 Venice Natural Gas Gathering Agreement (the "VGGA") and that
certain Venice Gas Processing Agreement (the "VGPA") -- both
dated effective November 1, 1996 between Chevron U.S.A. Inc.
and Venice Energy Services Company ("▇▇▇▇▇"), and that certain
Venice Reserve Commitment Agreement (the "VRCA") dated
effective December 10, 1997 between Chevron U.S.A. Inc. and
Venice Gathering System, L.L.C. ("VGS"), as they may have been
amended, renewed or replaced. Any interest assigned in the
Lease will be subject to the VGGA, the VGPA and the VRCA,
unless the assignee enters into separate agreements with ▇▇▇▇▇
Page 1 of 2
Chevron/Ridgewood EPA 2006
Exhibit C - ST/WD EPA EXHIBIT C.doc
and VGS, or their successors or assigns, containing terms and
provisions similar to those in, and replacing, the VGGA, the
VGPA and the VRCA as between that assignee in the Lease and
▇▇▇▇▇ and VGS, or their successors or assigns.
LIS No. 161657 Natural Gas Processing Agreement - Gulf of Mexico dated
effective March 1, 2002 between Chevron U.S.A. Inc., Texaco
Exploration and Production Inc. and Dynegy Midstream Services,
Limited Partnership (the "Dynegy GPA"), as it may have been
amended, renewed or replaced. The Dynegy GPA commitment
applies to gas from the Lease only if that gas is not
processed pursuant to the VGPA, in which case, any assignee
in the lease shall enter into a separate Natural Gas
Processing Agreement with Dynegy Midstream Services, Limited
Partnership, or its successors or assigns, covering the
assigned interest and containing terms and provisions similar
to those in the Dynegy GPA for the processing of gas that is
not processed pursuant to the VGPA.
OCS-G 26097 South Timbalier Block 136
-------------------------------------
LIS No. 822630 Confidentiality Agreement dated June 16, 2006 between Chevron
U.S.A. Inc. and Ridgewood Energy Corporation.
LIS No. 697315 OCS-G 26097 Lease Agreement dated June 1, 2004 between
Chevron U.S.A. Inc. and The United States, as it may have been
amended.
LIS No. 023795 Venice Natural Gas Gathering Agreement (the "VGGA") and that
certain Venice Gas Processing Agreement (the "VGPA") - both
dated effective November 1, 1996 between Chevron U.S.A. Inc.
and Venice Energy Services Company ("▇▇▇▇▇"), and that certain
Venice Reserve Commitment Agreement (the "VRCA") dated
effective December 10, 1997 between Chevron U.S.A. Inc. and
Venice Gathering System, L.L.C. ("VGS"), as they may have been
amended, renewed or replaced. Any interest assigned in the
Lease will be subject to the VGGA, the VGPA and the VRCA,
unless the assignee enters into separate agreements with ▇▇▇▇▇
and VGS, or their successors or assigns, containing terms and
provisions similar to those in, and replacing, the VGGA, the
VGPA and the VRCA as between that assignee in the Lease and
▇▇▇▇▇ and VGS, or their successors or assigns.
LIS No. 161657 Natural Gas Processing Agreement -- Gulf of Mexico dated
effective March 1, 2002 between Chevron U.S.A. Inc., Texaco
Exploration and Production Inc. and Dynegy Midstream Services,
Limited Partnership (the "Dynegy GPA"), as it may have been
amended, renewed or replaced. The Dynegy GPA commitment
applies to gas from the Lease only if that gas is not
processed pursuant to the VGPA, in which case, any assignee in
the lease shall enter into a separate Natural Gas Processing
Agreement with Dynegy Midstream Services, Limited Partnership,
or its successors or assigns, covering the assigned interest
and containing terms and provisions similar to those in the
Dynegy GPA for the processing of gas that is not processed
pursuant to the VGPA.
Page 2 of 2
EXHIBIT "D-1"
-------------
Attached to and made a part of that certain Exploration Participation Agreement
dated effective the 1st day of September, 2006, by and between Chevron U.S.A.
Inc. and Ridgewood Energy Corporation
STATE OF LOUISIANA
OFFSHORE LOUISIANA
PARTIAL ASSIGNMENT OF OPERATING RIGHTS
THIS PARTIAL ASSIGNMENT OF OPERATING RIGHTS ("this Assignment") effective from
and after ________ , 200_______ by and between Chevron U.S.A. Inc., a
Pennsylvania corporation, with a mailing address of ▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇, hereinafter called "ASSIGNOR"; and Ridgewood Energy
Corporation, a Delaware limited liability corporation, with a mailing address of
▇▇▇▇▇ ▇▇▇ ▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇ ▇▇▇, ▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇, hereinafter called
"ASSIGNEE"; individually, a "Party" and collectively, the "Parties";
WITNESSETH:
-----------
That for and in consideration of the mutual advantages and benefits accruing to
the Parties hereto, including the express assumption of obligations made
hereinafter by ASSIGNEE, the sufficiency of which is hereby acknowledged,
ASSIGNOR, the present legal owner and holder of one-hundred per cent (100%)
right, title and interest in and to the hereinafter identified oil and gas
lease, does hereby transfer, assign, sublease, set over and deliver to ASSIGNEE
an undivided TWENTY-FIVE PERCENT (25%) of ASSIGNOR's interest in the operating
rights in and to the following identified oil and gas lease and well:
OCS ______ , effective___________ , ____________ , by the United
States Department of the Interior, covering all of the Federal
portion of Block ___, __________ Area (the "Lease"),
INSOFAR AND ONLY INSOFAR as said operating rights cover and
affect the _________ QUARTER of said ___________ Block______,
limited as to depths from _______ feet total vertical depth
subsea to ___________ feet total vertical depth subsea,
being one hundred feet below the deepest depth drilled by
ASSIGNEE'S earning well, the OCS _____ Well No.__________ (API
No. ________).
The above assigned interest in the aforementioned portion and depths within and
under the Lease, have been earned by ASSIGNEE pursuant to and subject to that
certain Exploration Participation Agreement by and between ASSIGNOR and ASSIGNEE
dated ____________, 2006.
TO HAVE AND TO HOLD exclusively unto ASSIGNEE, its heirs, successors, sublessees
and assigns, and subject to the following reservations, terms and conditions,
to-wit:
1. This Partial Assignment of Operating Rights is delivered, accepted and
made expressly subject to and with the express assumption of all of the
obligations under (i) that certain Exploration Participation Agreement
between ASSIGNOR and ASSIGNEE dated effective ____________ , 2006, and
any amendments thereto, said agreement being made a part hereof by
reference for all purposes. Additionally, each of the Parties agrees and
accepts to be bound by the terms and provisions of the Lease and the
certain agreements identified on Exhibit "A", attached hereto and made a
Page 1 of 6
Chevron/Ridgewood EPA 2006
Exhibit D-1 - ST/WD EPA EXHIBIT D-1.doc
part hereof for all purposes. In case of any conflict between the terms
and provisions of said Exploration Participation Agreement and the terms
and provisions of this Assignment, the said Exploration Participation
Agreement shall prevail.
2. This Partial Assignment of Operating Rights is given without warranty of
any kind, express implied, except against ASSIGNOR's own acts and
omissions, but does grant and transfer ASSIGNEE full subrogation and
substitution in and to all of ASSIGNOR's rights and actions warranty
which ASSIGNOR has or may have against all former owners or vendors of
said operating rights.
3. ASSIGNOR retains all rights in and to all depths and portions of the
said OCS _______ , Block _______, _______Area, not herein expressly
assigned to ASSIGNEE. ASSIGNOR expressly excel and reserves from this
Assignment all rights necessary to drill to, produce from, and operate
in said, depths and portions not assigned to ASSIGNEE herein or earned
by Assignee pursuant to the Exploration Participation Agreement, but
insofar and only insofar as these retained rights of Assignor do not
interfere or negatively impact Assignee's earned interest or production
associated therewith.
4. ASSIGNOR retains and reserves to itself and shall own, from and after
the effective date of this Partial Assignment, as defined in the
aforementioned Exploration Participation Agreement, undivided
seventy-five percent (75%) of the operating rights interest in the
earning well, the production therefrom and the assigned portion of the
Lease, all as more particularly described in said Exploration
Participation Agreement dated effective________, 2006, any amendments
thereto, a one hundred percent (100%) of the ownership of all ▇▇▇▇▇,
equipment, facilities, structures a platforms on or serving the Lease.
5. ASSIGNEE warrants that it has not caused any liens, production payments
or other burdens encumbrances to become attached to the Lease, pursuant
to its rights or interest in any well(s) drill under the Exploration
Participation Agreement or and the assigned portion of said Lease.
ASSIGN] further warrants that any overriding royalty interest,
production payment or obligation or other encumbrance of any kind, that
it creates or allows or has created or allowed to become a burden any
production from an earning well or and the assigned portion or any
portion of the assign portion of the Lease will not be a burden on
ASSIGNOR'S interest, on any production from earning well(s) or other
▇▇▇▇▇ drilled in or to the assigned portion of the Lease, pursuant to
the Exploration Participation Agreement. ASSIGNEE shall indemnify,
defend and hold ASSIGNC harmless for any such obligations, encumbrances
or burdens.
6. ASSIGNEE hereby agrees, with respect to the said operating rights herein
assigned, to comply with all applicable governmental laws, orders and
regulations (specifically, in connection with the performance of
operations under this Assignment, ASSIGNEE agrees to comply with all
provisions of Section 202(1) through (7), inclusive, of Executive Order
11246, dated September 24, 1965 (30 CFR 12319), as amended, which are
hereby incorporated by reference) and to perform all of the duties and
obligations of the Lessee under said Lease.
7. ASSIGNEE agrees to protect, indemnify and save ASSIGNOR free and
harmless from all claims, damages, defenses, demands and causes of
action arising directly or indirectly in connection with ASSIGNEE'S
operations on the Lease and to relieve ASSIGNOR from any and all
liability incurred as a result of such operations, whether caused by
ASSIGNOR's negligence or by any other means.
8. This Assignment is a covenant running with the land and shall inure to
the benefit of and be binding upon the heirs, successors, sublessees and
assigns of the Parties hereto. ASSIGNEE may not transfer or assign in
whole or in part its interest in the operating rights herein assigned,
without first obtaining ASSIGNOR's written consent, which consent shall
not be unreasonably withheld. However, such Consent is not required
Page 2 of 6
should Company wish to assign to a Ridgewood Energy LLC Fund in which
Ridgewood Energy Corporation is the General Partner.
9. ASSIGNEE through its Manager, Ridgewood Energy Corporation, represents
and warrants ASSIGNOR that the participants and owners in or comprising
the Ridgewood Energy _____ Fund, LLC are experienced and knowledgeable
investors and operators in the oil and gas business and that each such
party is entering is accepting this Partial Assignment for its/their own
account and not with a view to, or for offer or resale in connection
with, a distribution thereof, within the meaning of the Securities Act
of 1933, 15 U.S.C. Section 77a et seq., and any other rules,
regulations, and laws pertaining to the distribution of securities. In
the event of an assignment, transfer or conveyance interest by
ASSIGNEE's aforementioned Manager, Ridgewood Energy Corporation, to a
subsequent assignee, including any individual participant(s) and /or
owner(s) in or comprising the Ridgewood Energy _____ Fund, LLC, such
assignment, transfer or conveyance made by ASSIGNEE hereof must (1)
contain a limitation in favor of ASSIGNOR requiring that ASSIGNOR's
written consent must also be obtained prior to any future assignment,
transfer or conveyance of interest whole or in part; (2) that said
instrument must contain a provision indicating said assignment, transfer
or conveyance is made subject to the Agreement and this Assignment; (3)
the assignee, transferee conveyee expressly agree(s), in writing, to be
bound by all the terms and conditions of the aforementioned Exploration
Participation Agreement, that certain Operating Agreement dated _______,
20 ________ described on Exhibit "A" hereto, and this Partial
Assignment; and (4) the assignee, transferee or conveyee represent(s)
that it is an experienced and knowledgeable investor a operator in the
oil and gas business and that such assignee, transferee or conveyee is
entering into agreement with ASSIGNEE for its own account and not with a
view to, or for offer or resale connection with, a distribution thereof
within the meaning of the Securities Act of 1933, 15 U.S. Section 77a et
seq., and any other rules, regulations, and laws pertaining to the
distribution of securities.
10. Notwithstanding anything contained herein to the contrary, ASSIGNEE
agrees and recognizes for itself, its successors and assigns, that
ASSIGNOR hereby retains and possesses a reversionary right in and the
interest assigned hereunder. If, at any time, production of oil, gas
and/or gas condensate in paying quantities shall cease from any and all
well(s) located on and producing from the assigned tract(s) a; depths
covered hereby (the "Assigned Premises"), ASSIGNOR, if operator) shall
thereafter notify Assignee of such fact, in writing. Unless (1)
production of oil, gas and/or gas condensate from such we a replacement
or substitute well therefore, within one hundred eighty (180) days after
such cessation production therefrom is restored to paying quantities
status, or actual drilling operations are commenced on the ASSIGNED
PREMISES AND (2) ASSIGNEE participates as "Participating Party", as such
term is defined in the aforementioned Operating Agreement, in said
operations to restore such production, ASSIGNEE shall, upon ASSIGNOR's
written request, immediately but, in no event later than thirty (30)
days of the receipt of said request from ASSIGNOR, execute and deliver
to ASSIGNOR an instrument recordable form to be prepared by ASSIGNOR, at
no cost to ASSIGNOR, duly reassigning and re-conveying all rights, title
and interests assigned hereunder. Should ASSIGNEE fail, neglect or
refuse participate in any operation conducted and/or permitted under the
aforementioned Operating Agreement in an attempt restore production from
the Assigned Premises, ASSIGNEE shall immediately, but, in event later
than thirty (30) days of written request from ASSIGNOR, execute and
deliver to ASSIGNC an instrument in recordable form to be prepared by
ASSIGNOR, at no cost to ASSIGNOR, duly reassigning and re-conveying all
rights, title and interests assigned hereunder. Should ASSIGNEE
obligated to reassign and re-convey ASSIGNEE's interest in the Assigned
Premises as required hereunder, ASSIGNEE's interest shall be reassigned
or re-conveyed to ASSIGNOR shall be free a clear of any overriding
royalty(ies), payment(s) out of production, net profit obligation(s) or
carried interest(s), or any obligation(s) to which it may have been
subjected by ASSIGNEE. All such obligations created or made by ASSIGNEE
shall automatically cease, terminate and be of no further force and
effect as to the Assigned Premises reassigned or re-conveyed,
notwithstanding that ASSIGNOR may have expressly or impliedly consented
to the assignment or the instrument in which such obligation(s)
Page 3 of 6
was(were) reserved or created. Furthermore, any reassignment or
re-conveyance by ASSIGNEE as required hereunder shall not relieve
ASSIGNEE from any liabilities or obligations which ASSIGNEE had already
accrued.
IN WITNESS WHEREOF, this instrument is signed by the Parties hereto in the
presence of the indicated witnesses.
WITNESSES: ASSIGNOR:
_________________________ Chevron U.S.A. Inc.
_________________________ By: _________________________
Title: Assistant Secretary
WITNESSES: ASSIGNEE:
_________________________ Ridgewood Energy Corporation
_________________________ By:_________________________
Title:______________________
Page 4 of 6
ACKNOWLEDGMENTS
▇▇▇▇▇ ▇▇ ▇▇▇▇▇▇▇▇▇
▇▇▇▇▇▇ ▇▇ ▇▇▇▇▇▇▇
▇▇ this _____ day of ________, 200___, before me appeared to me
personally known, who being by me duly sworn, did say that he is the Assistant
Secretary of Chevron U.S.A. Inc., a Pennsylvania corporation, and that said
instrument was signed on behalf of said corporation by authority of its Board of
Directors, and said appearer acknowledged that he executed the same as the free
act and deed of said corporation.
IN WITNESS WHEREOF, I have hereunto set my official hand and seal on the
date hereinabove written.
__________________________________
Notary Public in and for Louisiana
My Commission expires at death.
STATE OF TEXAS
COUNTY OF ___________
On this _____ day of __________ , 200___, before me personally came and
appeared to me personally known, who being by me duly sworn, did say that he is
the _______________ of Ridgewood Energy Corporation, a Delaware corporation,
acting on behalf of and for Ridgewood Energy ____ Fund, LLC, a Delaware limited
liability company, and said appearer acknowledged to me, Notary, that the
foregoing instrument was executed on behalf of said corporation by authority of
its Board of Directors for uses, purposes and consideration therein recited and
said appearer acknowledged said instrument to be the free act and deed of said
corporation.
IN WITNESS WHEREOF, I have hereunto set my official hand and seal on the
date hereinabove written.
________________________
Notary Public in and for
__________ County, Texas
My Commission expires__________________.
Page 5 of 6
EXHIBIT "A"
Attached to and made a part of that certain PARTIAL ASSIGNMENT OF OPERATING
RIGHTS from Chevron U.S.A. Inc., as Assignor, to Ridgewood Energy Corporation,
as Assignee, dated effective ______________, 2O_____.
Existing Contracts
Page 6 of 6
EXHIBIT "D-2"
-------------
Attached to and made a part of that certain Exploration Participation Agreement
dated effective the 1st day of September, 2006, by and between Chevron U.S.A.
Inc. and Ridgewood Energy Corporation
STATE OF LOUISIANA
OFFSHORE LOUISIANA
PARTIAL ASSIGNMENT OF OPERATING RIGHTS
THIS PARTIAL ASSIGNMENT OF OPERATING RIGHTS ("this Assignment") effective from
and after ____, 200__ by and between Chevron U.S.A. Inc.., a Pennsylvania
corporation, with a mailing address of ▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇▇▇,
▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇, hereinafter called "ASSIGNOR"; and Ridgewood Energy
Corporation, a Delaware limited liability corporation, with a mailing address of
▇▇▇▇▇ ▇▇▇ ▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇ ▇▇▇, ▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇, hereinafter called
"ASSIGNEE"; individually, a "Party" and collectively, the "Parties";
WITNESSETH:
-----------
That for and in consideration of the mutual advantages and benefts accruing to
the Parties hereto, including the express assumption of obligations made
hereinafer by ASSIGNEE, the suffciency of which is hereby acknowledged,
ASSIGNOR, the present legal owner and holder of one-hundred per cent (100%)
right, title and interest in and to the hereinafer identifed oil and gas lease,
does hereby transfer, assign, sublease, set over and deliver to ASSIGNEE an
undivided ____ PERCENT (___%) of ASSIGNOR's interest in the operating rights in
and to the following identifed oil and gas lease and well:
OCS ____, effective _____, _____, by the United States
Department of the Interior, covering all of the Federal portion
of Block _______, ________ Area (the "Lease"),
INSOFAR AND ONLY INSOFAR as said operating rights cover and
affect the______ QUARTER of said _____ Block ____, limited as to
depths from feet total vertical depth subsea to _____ feet total
vertical depth subsea, being one hundred feet (100') below the
deepest depth drilled by ASSIGNEE'S earning well, the OCS _____
Well No. _____ (API No. ______________________ ).
The above assigned interest in the aforementioned portion and depths within and
under the Lease, have been earned by ASSIGNEE pursuant to and subject to that
certain Exploration Participation Agreement by and between ASSIGNOR and ASSIGNEE
dated __________, 2006.
TO HAVE AND TO HOLD exclusively unto ASSIGNEE, its heirs, successors, sublessees
and assigns, subject to the following reservations, terms and conditions,
to-wit:
1. This Partial Assignment of Operating Rights is delivered, accepted and
made expressly subject to and with the express assumption of all of the
obligations under that certain Exploration Participation Agreement
between ASSIGNOR and ASSIGNEE dated effective , 2006, and any amendments
thereto, said agreements being made a part hereof by reference for all
purposes. Additionally, each of the Parties agrees and accepts to be
bound by the terms and provisions of the Lease and the certain
agreements identifed on Exhibit "A", attached hereto and made a part
Page 1 of 6
Chevron/Ridgewood EPA 2006
Exhibit D-2 - ST/WD EPA EXHIBIT D-2.doc
hereof for all purposes. In case of any conflict between the terms and
provisions of said Exploration Participation Agreement and the terms and
provisions of this Assignment, the said Exploration Participation
Agreement shall prevail.
2. This Partial Assignment of Operating Rights is given without warranty of
any kind, express or implied, except against ASSIGNOR's own acts and
omissions, but does grant and transfer to ASSIGNEE full subrogation and
substitution in and to all of ASSIGNOR's rights and actions in warranty
which ASSIGNOR has or may have against all former owners or vendors of
said operating rights.
3. ASSIGNOR retains all rights in and to all depths and portions of the
said OCS _______, Block ________, _________ Area, not herein expressly
assigned to ASSIGNEE. ASSIGNOR expressly excepts and reserves from this
Assignment all rights necessary to drill to, produce from, and operate
in said depths and portions not assigned to ASSIGNEE herein or earned by
Assignee pursuant to the Exploration Participation Agreement, but
insofar and only insofar as these retained rights of Assignor do not
interfere or negatively impact Assignee's earned interest or production
associated therewith.
4. ASSIGNOR retains and reserves to itself and shall own, from and after
the effective date of this Partial Assignment, as defined in the
aforementioned Exploration Participation Agreement, an overriding
royalty of_____ percent of one hundred percent (____% of 100%) of the
total production produced from or attributable to the said Lease as
provided for in the aforementioned Exploration Participation Agreement,
all as more particularly described in said Exploration Participation
Agreement dated effective __________, 2006, any amendments thereto, and
one hundred percent (100%) of the ownership of all ▇▇▇▇▇, equipment,
facilities, structures and platforms on or serving the Lease prior to
the effective date hereof. Total production shall include all gas,
condensate, oil, casinghead gas and all other hydrocarbon substances
produced from or used and sold from or attributable to the operating
rights assigned hereunder in said Lease. Assignor's reserved overriding
royalty shall be free and clear of all costs, including, but not limited
to, exploring, operating, developing on and production from, and
maintaining said Lease in force and effect, as well as all costs for
plugging, abandoning, clean-up and restoration. Said overriding royalty
shall be computed and paid at the same time and in the same manner as
royalties are computed and paid to the Lessor under said Lease.
5. ASSIGNEE warrants that it has not caused any liens, production payments
or other burdens or encumbrances to become attached to the Lease,
pursuant to its rights or interest in any well(s) drilled under the
Exploration Participation Agreement or and the assigned portion of said
Lease. ASSIGNEE further warrants that any overriding royalty interest,
production payment or obligation or other encumbrance of any kind, that
it creates or allows or has created or allowed to become a burden on any
production from an earning well or and the assigned portion or any
portion of the assigned portion of the Lease will not be a burden on
ASSIGNOR'S interest, on any production from an earning well(s) or other
▇▇▇▇▇ drilled in or to the assigned portion of the Lease, pursuant to
the Exploration Participation Agreement. ASSIGNEE shall indemnify,
defend and hold ASSIGNOR harmless for any such obligations, encumbrances
or burdens.
6. ASSIGNEE hereby agrees, with respect to the said operating rights herein
assigned, to comply with all applicable governmental laws, orders and
regulations (specifically, in connection with the performance of
operations under this Assignment, ASSIGNEE agrees to comply with all
provisions of Section 202(1) through (7), inclusive, of Executive Order
11246, dated September 24, 1965 (30 CFR 12319), as amended, which are
hereby incorporated by reference) and to perform all of the duties and
obligations of the Lessee under said Lease.
7. ASSIGNEE agrees to protect, indemnify and save ASSIGNOR free and
harmless from all claims, damages, defenses, demands and causes of
action arising directly or indirectly in connection with ASSIGNEE'S
Page 2 of 6
operations on the Lease and to relieve ASSIGNOR from any and all
liability incurred as a result of such operations, whether caused by
ASSIGNOR's negligence or by any other means.
8. This Assignment is a covenant running with the land and shall inure to
the benefit of and be binding upon the heirs, successors, sublessees and
assigns of the Parties hereto. ASSIGNEE may not transfer or assign in
whole or in part its interest in the operating rights herein assigned,
without first obtaining ASSIGNOR's written consent, which consent shall
not be unreasonably withheld. However, such Consent is not required
should Company wish to assign to a Ridgewood Energy LLC Fund in which
Ridgewood Energy Corporation is the General Partner.
9. ASSIGNEE through its Manager, Ridgewood Energy Corporation, represents
and warrants to ASSIGNOR that the participants and owners in or
comprising the Ridgewood Energy _____ Fund, LLC are experienced and
knowledgeable investors and operators in the oil and gas business and
that each such party is entering is accepting this Partial Assignment
for its/their own account and not with a view to, or for offer or resale
in connection with, a distribution thereof within the meaning of the
Securities Act of 1933, 15 U.S.C. Section 77a et seq., and any other
rules, regulations, and laws pertaining to the distribution of
securities. In the event of an assignment, transfer or conveyance of
interest by ASSIGNEE's aforementioned Manager, Ridgewood Energy
Corporation, to any subsequent assignee, including any individual
participant(s) and /or owner(s) in or comprising the Ridgewood Energy
_____ Fund, LLC, such assignment, transfer or conveyance made by
ASSIGNEE hereof must (1) contain a limitation in favor of ASSIGNOR
requiring that ASSIGNOR's written consent must also be obtained prior to
any future assignment, transfer or conveyance of interest in whole or in
part; (2) that said instrument must contain a provision indicating said
assignment, transfer or conveyance is made subject to the Agreement and
this Assignment; (3) the assignee, transferee or conveyee expressly
agree(s), in writing, to be bound by all the terms and conditions of the
aforementioned Exploration Participation Agreement, that certain Side
Letter Agreement, that certain Operating Agreement dated ______, 20___
described on Exhibit "A" hereto, and this Partial Assignment; and (4)
the assignee, transferee or conveyee represent(s) that it is an
experienced and knowledgeable investor and operator in the oil and gas
business and that such assignee, transferee or conveyee is entering into
an agreement with ASSIGNEE for its own account and not with a view to,
or for offer or resale in connection with, a distribution thereof within
the meaning of the Securities Act of 1933, 15 U.S.C. Section 77a et
seq., and any other rules, regulations, and laws pertaining to the
distribution of securities.
10. Notwithstanding anything contained herein to the contrary, ASSIGNEE
agrees and recognizes for itself its successors and assigns, that
ASSIGNOR hereby retains and possesses a reversionary right in and to the
interest assigned hereunder. If, at any time, production of oil, gas
and/or gas condensate in paying quantities shall cease from any well
located on and producing from the assigned tract(s) and depths covered
hereby (the "Assigned Premises"), ASSIGNOR, if operator) shall promptly
thereafter notify Assignee of such fact, in writing. Unless (1)
production of oil, gas and/or gas condensate from such well, a
replacement or substitute well therefore, within one hundred eighty
(180) days after such cessation of production therefrom is restored to
paying quantities status, or actual drilling operations are commenced on
the ASSIGNED PREMISES AND (2) ASSIGNEE participates as "Participating
Party", as such term is defined in the aforementioned Operating
Agreement, in said operations to restore such production, ASSIGNEE
shall, upon ASSIGNOR's written request, immediately but, in no event
later than thirty (30) days of the receipt of said request from
ASSIGNOR, execute and deliver to ASSIGNOR an instrument in recordable
form to be prepared by ASSIGNOR, at no cost to ASSIGNOR, duly
reassigning and re-conveying all rights, title and interests assigned
hereunder. Should ASSIGNEE fail, neglect or refuse to participate in any
operation conducted and/or permitted under the aforementioned Operating
Agreement in an attempt restore production from the Assigned Premises,
ASSIGNEE shall immediately, but, in no event later than thirty (30) days
of written request from ASSIGNOR, execute and deliver to ASSIGNOR an
instrument in recordable form to be prepared by ASSIGNOR, at no cost to
ASSIGNOR, duly reassigning and re-conveying all rights, title and
interests assigned hereunder. Should ASSIGNEE be obligated to reassign
Page 3 of 6
and re-convey ASSIGNEE's interest in the Assigned Premises as required
hereunder, ASSIGNEE's interest shall be reassigned or re-conveyed to
ASSIGNOR shall be free and clear of any overriding royalty (ies),
payment(s) out of production, net profit obligation(s) or carried
interest(s), or any obligation(s) to which it may have been subjected by
ASSIGNEE. All such obligations created or made by ASSIGNEE shall
automatically cease, terminate and be of no further force and effect as
to the Assigned Premises reassigned or re-conveyed, notwithstanding that
ASSIGNOR may have expressly or impliedly consented to the assignment or
the instrument in which such obligation(s) was(were) reserved or
created. Furthermore, any reassignment or re-conveyance by ASSIGNEE as
required hereunder shall not relieve ASSIGNEE from any liabilities or
obligations which ASSIGNEE had already accrued.
IN WITNESS WHEREOF, this instrument is signed by the Parties hereto in the
presence of the indicated witnesses.
WITNESSES: ASSIGNOR:
________________________ Chevron U.S.A. Inc.
By: ______________________
________________________ Title: Assistant Secretary
WITNESSES: ASSIGNEE:
________________________ Ridgewood Energy Corporation
By: ________________________
________________________ Title: _____________________
Page 4 of 6
ACKNOWLEDGMENTS
▇▇▇▇▇ ▇▇ ▇▇▇▇▇▇▇▇▇
▇▇▇▇▇▇ ▇▇ ▇▇▇▇▇▇▇
▇▇ this _________ day of __________________, 200___, before me appeared
______________________ to me personally known, who being by me duly sworn, did
say that he is the Assistant Secretary of Chevron U.S.A. Inc., A Pennsylvania
corporation, and that said instrument was signed on behalf of said corporation
by authority of its Board of Directors, and said appearer acknowledged that he
executed the same as the free act and deed of said corporation.
IN WITNESS WHEREOF, I have hereunto set my official hand and seal on the
date hereinabove written.
-------------------------
Notary Public in and for
Orleans Parish, Louisiana
My Commission expires at death.
STATE OF TEXAS
COUNTY OF ______________
On this _______________ day of ______________, 200___, before me
personally came and appeared ______________________ to me personally known, who
being by me duly sworn, did say that he is the ________________________ of
Ridgewood Energy Corporation. a Delaware corporation, acting on behalf of and
for Ridgewood Energy ____ Fund, LLC, a Delaware limited liability company, and
said appearer acknowledged to me, Notary, that the foregoing instrument was
executed on behalf of said corporation by authority of its Board of Directors
for uses, purposes and consideration therein recited and said appearer
acknowledged said instrument to be the free act and deed of said corporation.
IN WITNESS WHEREOF, I have hereunto set my official hand and seal on the
date hereinabove written.
------------------------
Notary Public in and for
__________County, Texas
My Commission expires ___________________.
Page 5 of 6
EXHIBIT "A"
Attached to and made a part of that certain PARTIAL ASSIGNMENT OF OPERATING
RIGHTS from Chevron U.S.A. Inc., as Assignor, to Ridgewood Energy Corporation,
as Assignee, dated effective
______________, 2O_____.
Existing Contracts
Page 6 of 6
EXHIBIT "E"
-----------
Attached to and made a part of that certain Exploration Participation Agreement
dated effective the 1st day of September, 2006, by and between Chevron U.S.A.
Inc. and Ridgewood Energy Corporation
OFFSHORE OPERATING AGREEMENT
----------------------------
Chevron/Ridgewood EPA 2006
Exhibit E - ST/WD EPA EXHIBIT E.doc
Exhibit "E"
OFFSHORE OPERATING AGREEMENT
SOUTH TIMBALIER AND WEST DELTA AREAS
By and between
Chevron U.S.A. Inc.,
Dominion Exploration & Production, Inc.
And
Ridgewood Energy Corporation
Effective
___________________,2006
ST/WDJOA
1
TABLE OF CONTENTS
ARTICLE 1. APPLICATION ... ....................................................................................1
1.1 Application to Contract Area ..................................................................... 1
ARTICLE 2. DEFINITIONS ... ....................................................................................2
2.1 Additional Testing ... ............................................................................2
2.2 Affiliate ... .....................................................................................2
2.3 Authorization For Expenditure .....................................................................2
2.4 Complete, Completing, Completion ..................................................................2
2.5 Completion Equipment ..............................................................................2
2.6 Confidential Data .................................................................................2
2.7 Contract Area......................................................................................3
2.8 Deepen, Deepening .................................................................................3
2.9 Development Facilities ... ........................................................................3
2.10 Development Operation .............................................................................3
2.11 Development Well ..................................................................................3
2.12 Exploratory Operation .............................................................................3
2.13 Exploratory Well ..................................................................................3
2.14 Export Pipelines ..................................................................................3
2.15 Force Majeure .....................................................................................4
2.16 Hydrocarbons ......................................................................................4
2.17 Joint Account .....................................................................................4
2.18 Lease(s) ..........................................................................................4
2.19 MMS ... ...........................................................................................4
2.20 Non-consent Operation .............................................................................4
2.21 Non-consent Platform ..............................................................................4
2.22 Non-consent Well ..................................................................................4
2.23 Non-operator ......................................................................................4
2.24 Non-participating Party ...........................................................................4
2.25 Non-participating Party's Share ... ...............................................................4
2.26 Objective Depth ...................................................................................4
2.27 Objective Horizon .................................................................................5
2.28 Operator ..........................................................................................5
2.29 Participating Interest ............................................................................5
2.30 Participating Party ...............................................................................5
2.31 Platform ..........................................................................................5
2.32 Producible Reservoir ..............................................................................5
2.33 Producible Well ...................................................................................5
2.34 Production Interval ...............................................................................6
2.35 Recomplete, Recompleting, Recompletion ............................................................6
2.36 Rework, Reworking .................................................................................6
2.37 Sidetrack, Sidetracking ...........................................................................6
2.38 Take-in-Kind Facilities ...........................................................................6
2.39 Transfer of Interest ..............................................................................6
2.40 Working Interest ..................................................................................6
ARTICLE 3. EXHIBITS............................................................................................7
3.1 Exhibits ..........................................................................................7
3.1.1 Exhibit A.-- Operator, Description of Leases, etc ..............................................7
3.1.2 Exhibit B - Insurance Provisions ..............................................................7
3.1.3 Exhibit C -- Accounting Procedure ..............................................................7
3.1.4 Exhibit D -- Non-discrimination Provisions .....................................................7
i
3.1.5 Exhibit E- Gas Balancing Agreement ............................................................7
3.1.6 Exhibit F - Tax Partnership Provision ..........................................................7
3.1.7 Exhibit G - Memorandum of Operating Agreement and Financing Statement ..........................7
3.1.8 Exhibit H - Dispute Resolution Procedure .......................................................7
3.1.9 Exhibit I - Security Rights, Default, Unpaid Charges, Carved-out Interests .....................7
3.2 Conflicts .........................................................................................7
ARTICLE 4. OPERATOR ...........................................................................................8
4.1 Operator ..........................................................................................8
4.2 Substitute Operator ...............................................................................8
4.2.1 Circumstances Under Which the Operator Must Conduct a Non-Consent Operation ....................8
4.2.2 Operator's Conduct of a Non-Consent Operation in Which it is a Non participating Party .........9
4.2.3 Appointment of a Substitute Operator ...........................................................9
4.2.4 Redesignation of Operator ......................................................................9
4.3 Resignation of Operator ...........................................................................9
4.4 Removal of Operator ...............................................................................9
4.5 Selection of Successor Operator ..................................................................10
4.6 Effective Date of Resignation or Removal .........................................................10
4.7 Delivery of Property .............................................................................11
ARTICLE 5. AUTHORITY AND DUTIES OF OPERATOR ..................................................................11
5.1 Exclusive Right to Operate .......................................................................11
5.2 Workmanlike Conduct ..............................................................................12
5.3 Liens and Encumbrances ...........................................................................12
5.4 Employees and Contractors ........................................................................12
5.5 Records ..........................................................................................12
5.6 Compliance .......................................................................................13
5.7 Contractors ......................................................................................13
5.8 Governmental Reports .............................................................................13
5.9 Information to Participating Parties .............................................................13
5.10 Information to Non-participating Parties .........................................................14
ARTICLE 6. VOTING AND VOTING PROCEDURES ......................................................................14
6.1 Voting Procedures .................................................................................14
6.1.1 Voting Interest ...............................................................................14
6.1.2 Vote Required .................................................................................14
6.1.3 Votes .........................................................................................14
6.1.4 Meetings ......................................................................................15
ARTICLE 7. ACCESS 5 ..........................................................................................15
7.1 Access to Contract Area ..........................................................................15
7.2 Reports ..........................................................................................15
7.3 Confidentiality ..................................................................................15
7.4 Limited Disclosure ...............................................................................16
7.5 Limited Releases to Offshore Scout Association ...................................................16
7.6 Media Releases ...................................................................................16
ARTICLE 8. EXPENDITURES ......................................................................................17
8.1 Basis of Charge to the Parties ...................................................................17
8.2 AFEs .............................................................................................17
8.3 Emergency and Required Expenditures ..............................................................17
8.4 Advance ▇▇▇▇▇▇▇▇ .................................................................................18
8.5 Commingling of Funds .............................................................................18
8.6 Security Rights (LA) .............................................................................18
8.7 Overexpenditures .................................................................................18
ii
ARTICLE 9. NOTICES ...........................................................................................19
9.1 Giving and Receiving Notices .....................................................................19
9.2 Content of Notice ................................................................................19
9.3 Response to Notices ..............................................................................20
9.3.1 Platform and/or Development Facilities Proposals ..............................................20
9.3.2 Well Proposals ................................................................................20
9.3.3 Proposal for Multiple Operations ..............................................................20
9.3.4 Other Matters .................................................................................20
9.4 Failure to Respond ...............................................................................21
9.5 Response to Counterproposals .....................................................................21
9.6 Timely Well Operations ...........................................................................21
9.7 Timely Platform/Development Facilities Operations ................................................21
ARTICLE 10. EXPLORATORY OPERATIONS ............................................................................22
10.1 Proposing Operations .............................................................................22
10.2 Counterproposals .................................................................................22
10.3 Operations by All Parties ........................................................................22
10.4 Second Opportunity to Participate ................................................................22
10.5 Operations by Fewer Than All Parties .............................................................22
10.6 Expenditures Approved ............................................................................23
10.7 Conduct of Operations ............................................................................23
10.8 Course of Action After Reaching Objective Depth ..................................................23
10.8.1 Election by Participating Parties .............................................................23
10.8.2 Priority of Operations ........................................................................24
10.8.3 Second Opportunity to Participate .............................................................24
10.8.4 Operations by Fewer Than All Parties ..........................................................25
10.8.5 Subsequent Operations .........................................................................25
10.9 ▇▇▇▇▇ Proposed Below Deepest Producible Reservoir ................................................26
ARTICLE 11. DEVELOPMENT OPERATIONS ............................................................................27
11.1 Proposing Operations .............................................................................27
11.2 Counterproposals .................................................................................27
11.3 Operations by All Parties ........................................................................27
11.4 Second Opportunity to Participate ................................................................27
11.5 Operations by Fewer Than All Parties .............................................................27
11.6 Expenditures Approved ............................................................................28
11.7 Conduct of Operations ............................................................................28
11.8 Course of Action After Reaching Objective Depth ..................................................28
11.8.1 Election by Fewer Than All Parties ............................................................28
11.8.2 Priority of Operations ........................................................................29
11.8.3 Second Opportunity to Participate .............................................................29
11.8.4 Operations by Fewer Than All Parties ..........................................................30
11.8.5 Subsequent Operations .........................................................................30
ARTICLE 12. PLATFORM AND DEVELOPMENT FACILITIES .............................................................31
12.1 Proposal .........................................................................................31
12.2 Counterproposals .................................................................................31
12.2.1 Operations by All Parties .....................................................................31
12.2.2 Second Opportunity to Participate .............................................................32
12.2.3 Operations by Fewer Than All Parties ..........................................................32
12.3 Ownership and Use of the Development Facilities ..................................................32
12.4 Rights to Take in Kind ...........................................................................33
12.5 Expansion or Modification of a Platform and/or Development Facilities ............................34
iii
ARTICLE 13. NON-CONSENT OPERATIONS ............................................................................34
13.1 Non-consent Operations ...........................................................................34
13.1.1 Non-interference ..............................................................................34
13.1.2 Multiple Completion Limitation ................................................................35
13.1.3 Metering ......................................................................................35
13.1.4 Non-consent Well ..............................................................................35
13.1.5 Cost Information ..............................................................................35
13.1.6 Completions ...................................................................................36
13.2 Relinquishment of Interest .......................................................................36
13.2.1 Production Reversion Recoupment ...............................................................36
13.2.2 Non production Reversion .....................................................................37
13.3 Deepening or Sidetracking of Non-consent Well ....................................................37
13.4 Deepening or Sidetracking Cost Adjustments .......................................................38
13.5 Subsequent Operations in Non-consent Well ........................................................38
13.6 Operations in a Production Interval ..............................................................38
13.7 Operations Utilizing a Non-consent Platform and/or Development Facilities .................39
13.8 Discovery or Extension from Non-consent Drilling .................................................39
13.9 Allocation of Platform/Development Facilities Costs to Non-consent Operations ....................40
13.9.1 Investment Usage Fees .........................................................................40
13.9.2 Operating and Maintenance Charges .............................................................43
13.10 Allocation of Costs Between Zones ................................................................43
13.11 Maintenance Operations ...........................................................................43
13.11.1 Participation in Contract Area Maintenance Operations .........................................44
13.11.2 Accounting for Non participation ..............................................................44
13.12 Retention of Contract Area by Non-consent Well ...................................................45
13.13 Non-Consent Premiums .............................................................................45
ARTICLE 14. ABANDONMENT, SALVAGE AND SURPLUS ..................................................................46
14.1 Platform Salvage and Removal Costs ...............................................................46
14.2 Abandonment of Platforms, Development Facilities or ▇▇▇▇▇ ........................................46
14.3 Assignment of Interest ...........................................................................46
14.4 Abandonment Operations Required by Governmental Authority ........................................46
14.5 Disposal of Surplus Material .....................................................................47
ARTICLE 15. WITHDRAWAL ........................................................................................47
15.1 Right to Withdraw ................................................................................47
15.2 Response to Withdrawal Notice ....................................................................47
15.2.1 Unanimous Withdrawal ..........................................................................48
15.2.2 No Additional Withdrawing Parties .............................................................48
15.2.3 Acceptance of the Withdrawing Parties' Interests ..............................................48
15.2.4 Effects of Withdrawal .........................................................................48
15.3 Limitation Upon and Conditions of Withdrawal .....................................................49
15.3.1 Prior Expenses ................................................................................49
15.3.2 Confidentiality ...............................................................................50
15.3.3 Emergencies and Force Majeure .................................................................50
ARTICLE 16. RENTALS, ROYALTIES AND OTHER PAYMENTS ............................................................50
16.1 Overriding Royalty and Other Burdens .............................................................50
16.2 Subsequently Created Interest ....................................................................51
16.3 Payment of Rentals and Minimum Royalties .........................................................51
16.4 Non-participation in Payments ....................................................................51
16.5 Royalty Payments .................................................................................52
iv
ARTICLE 17. TAXES .............................................................................................52
17.1 Property Taxes ...................................................................................52
17.2 Contest of Property Tax Valuation ................................................................52
17.3 Production and Severance Taxes ...................................................................52
17.4 Other Taxes and Assessments ......................................................................52
ARTICLE 18. INSURANCE .........................................................................................53
18.1 Insurance ........................................................................................53
18.2 Bonds ............................................................................................53
ARTICLE 19. LIABILITY, CLAIMS AND LAWSUITS ....................................................................53
19.1 Individual Obligations ...........................................................................53
19.2 Notice of Claim or Lawsuit .......................................................................53
19.3 Settlements ......................................................................................54
19.4 Defense of Claims and Lawsuits ...................................................................54
19.5 Liability for Damages ............................................................................54
19.6 Indemnification for Non-Consent Operations .......................................................55
19.7 Damage to Reservoir, Loss of Reserves and Profit .................................................55
19.8 Non-Essential Personnel ..........................................................................55
19.9 Dispute Resolution Procedure .....................................................................56
ARTICLE 20. INTERNAL REVENUE PROVISION ........................................................................56
20.1 Internal Revenue Provision .......................................................................56
ARTICLE 21 CONTRIBUTIONS .....................................................................................56
21.1 Notice of Contributions Other Than Advances for Sale of Production ...............................56
21.2 Cash Contributions ...............................................................................56
21.3 Acreage Contributions ............................................................................57
ARTICLE 22. DISPOSITION OF PRODUCTION .........................................................................57
22.1 Take-in-Kind Facilities ..........................................................................57
22.2 Duty to Take-in-Kind .............................................................................57
22.3 Failure to Take Oil and Condensate in-Kind .......................................................58
22.4 Failure to Take Gas in-Kind ......................................................................58
22.5 Expenses of Delivery in-Kind .....................................................................58
ARTICLE 23. APPLICABLE LAW ....................................................................................58
23.1 Applicable Law ...................................................................................58
ARTICLE 24. LAWS, REGULATIONS AND NON-DISCRIMINATION ..........................................................59
24.1 Laws and Regulations .............................................................................59
24.2 Non-discrimination ...............................................................................59
ARTICLE 25. FORCE MAJEURE .....................................................................................59
25.1 Force Majeure ....................................................................................59
ARTICLE 26. SUCCESSORS, ASSIGNS AND PREFERENTIAL RIGHTS .......................................................60
26.1 Successors and Assigns ...........................................................................60
26.2 Transfer of Interest .............................................................................60
26.3 Consent to Assign ................................................................................60
26.4 Transfers Between Parties ........................................................................61
26.5 Division of Interest .............................................................................61
26.6 Preferential Rights ..............................................................................61
V
ARTICLE 27. ADMINISTRATIVE PROVISIONS .........................................................................62
27.1 Term .............................................................................................62
27.2 Waiver ...........................................................................................63
27.3 Waiver of Right to Partition .....................................................................63
27.4 Compliance With Laws and Regulations .............................................................63
27.4.1 Severance of Invalid Provisions ...............................................................63
27.4.2 Fair and Equal Employment .....................................................................63
27.5 Construction and Interpretation of this Agreement ................................................64
27.5.1 Headings for Convenience ......................................................................64
27.5.2 Article References ............................................................................64
27.5.3 Gender and Number .............................................................................64
27.5.4 Future References .............................................................................64
27.5.5 Currency ......................................................................................64
27.5.6 Optional Provisions ...........................................................................64
27.5.7 Joint Preparation .............................................................................64
27.5.8 Integrated Agreement ..........................................................................65
27.5.9 Binding Effect ................................................................................65
27.5.10 Further Assurances ............................................................................65
27.5.11 Counterpart Execution .........................................................................65
27.6 Restricted Bidding ...............................................................................65
27.7 Conflict of Terms ................................................................................65
vi
OFFSHORE OPERATING AGREEMENT
THIS OFFSHORE OPERATING AGREEMENT ("Agreement"), made effective the _______ day
of ______________ 2006, by and between Chevron U.S.A. Inc. ("Chevron"), Dominion
Exploration & Production, Inc. ("Dominion") and Ridgewood Energy Corporation
("Ridgewood"), their respective heirs, successors, legal representatives, and
assigns, herein referred to collectively as the "Parties" and individually as a
"Party."
WITNESSETH:
WHEREAS, the Parties will, with an earning of interests by Dominion and
Ridgewood, co-own operating rights interests in one or more oil and gas
Lease(s), as to one or more Contract Areas, as identified in Exhibit "A" and
desire to explore an area governed by the "Dominion EPA" and the "Ridgewood
EPA", as defined hereafter, and under limited application this Agreement, but to
develop, produce, and operate those Contract Areas pursuant to this Agreement.
NOW, THEREFORE, in consideration of the premises and the mutual covenants in
this Agreement, the Parties agree as follows:
ARTICLE 1
APPLICATION
1.1 Application to Contract Area
This Agreement applies independently to the entirety of each Contract
Area. For purposes of this Agreement, activities or operations affecting
one Contract Area are considered activities or operations affecting only
that Contract Area. Unless otherwise provided in this Agreement, the
Parties, according to their respective Working Interests, own and hold
all rights and obligations in and under each of the listed Contract
Area(s) and, all property acquired with funds from the Joint Account,
and all Hydrocarbons from or attributed to that Contract Area. Until an
earning by Dominion in and to each of the Contract Area(s) cited on
Exhibit "A" attached hereto, in accordance with the terms of that
certain Exploration Participation Agreement ("Dominion EPA") dated
September 1, 2006 between Chevron U.S.A. Inc. and Dominion Exploration &
Production, Inc., and/or an earning by Ridgewood in and to each of the
listed Contract Area(s) under that certain Exploration Participation
Agreement ("Ridgewood EPA") dated September 1, 2006 between Chevron
U.S.A. Inc. and Ridgewood Energy Corporation, the application of the
terms and provisions of this Agreement shall be limited to and shall
govern and bear solely upon the operations of and conducted for the well
or ▇▇▇▇▇ drilled under that EPA. The parties agree that the execution of
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this Agreement effective as of _________, 2006 is not intended to grant
or recognize any right to interest in ownership in the Contract Area by
Dominion or Ridgewood and that full application of this Agreement become
effective only with an earning under the EPA.
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.
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 installedprior 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.
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2.7 Contract Area
The portions, area and depths of the Lease(s) but solely within the
Contract Area, listed on Exhibit "A" to this Agreement.
2.8 Deepen, Deepening
A drilling operation conducted in an existing wellbore below the
Objective Depth to which the well was previously drilled.
2.9 Development Facilities
Production equipment, other than Completion Equipment, that is acquired
under this Agreement under an approved AFE and installed on or outside
the Contract Area. Development Facilities include, but are not limited
to,
(a) proposed to Complete an Exploratory Well;
(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 include Export Pipelines.
2.10 Development Operation
An operation on the Contract Area other than an Exploratory Operation.
2.11 Development Well
A well or portion of a well proposed as a Development Operation.
2.12 Exploratory Operation
An operation that is conducted on the Contract Area and that is any of
the following:
(a) proposed for an Objective Horizon that is not a Producible
Reservoir; or
(b) proposed for an Objective Horizon that has a Producible Well,
but that will be penetrated at a location where the distance
between the midpoint of the Objective Horizon to be penetrated
by the proposed operation and the midpoint of the same Objective
Horizon where it is actually penetrated by a Producible Well
will be at least three thousand five hundred (3,500) feet from a
Gas Completion or one thousand seven hundred fifty (1,750) feet
from an Oil Completion.
2.13 Exploratory Well
A well or portion of a well proposed as an Exploratory Operation.
2.14 Export Pipelines
Pipelines installed after the effective date hereof for the benefit of a
Contract Area and 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.
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2.15 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.
2.16 Hydrocarbons
Oil and/or gas and associated liquid and gaseous by-products (except
helium) which may be produced from a wellbore located on and in the
Contract Area.
2.17 Joint Account
This term has the same definition as the defined term "Joint Account" in
Exhibit "C" (Accounting Procedure).
2.18 Lease(s)
That portion of the oil and gas Lease(s) identified in Exhibit "A" and
the lands covered by that Contract Area.
2.19 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.
2.20 Non-consent Operation
An operation conducted on the Contract Area by fewer than all Parties,
which subjects the Nonparticipating Party to Article 13 (Non-Consent
Operations).
2.21 Non-consent Platform
A Platform installed after the effective date hereof for the benefit of
a Contract Area and owned by fewer than all Parties.
2.22 Non-consent Well
An Exploratory Well or a Development Well owned by fewer than all
Parties.
2.23 Non-operator
A Party other than the Operator.
2.24 Non-participating Party
A Party other than a Participating Party.
2.25 Non-participating Party's Share
The Participating Interest that a Non-participating Party would have had
if all Parties had participated in the operation.
2.26 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.
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2.27 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.
2.28 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.
2.31 Platform
An offshore structure installed after the effective date hereof and for
the benefit of a Contract Area 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 two (2) or more Participating Parties having a combined Working
Interest of fifty percent (50%) or more, even if the well has been
plugged and permanently or temporarily abandoned.
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2.34 Production Interval
A zone or interval producing or capable of producing Hydrocarbons from a
well without Reworking operations.
2.35 Recomplete, Recompleting, Recompletion
An operation whereby a Completion in one Producible Reservoir is
abandoned in order to attempt a Completion in a different Producible
Reservoir within the existing wellbore.
2.36 Rework, Reworking
An operation conducted in a well, after it has been Completed in one or
more Producible Reservoirs, to restore, maintain, or improve Hydrocarbon
production from one or more of those Producible Reservoirs, but
specifically excluding drilling, Sidetracking, Deepening, Completing, or
Recompleting the well.
2.37 Sidetrack, Sidetracking
The directional control and intentional deviation of a well to change
the bottom-hole location, whether it be to the original Objective Depth
or formation or another bottom-hole location not deeper than the
stratigraphic equivalent of the initial Objective Depth, unless the
intentional deviation is done to straighten the hole or to drill around
junk in the hole or to overcome other mechanical difficulties.
2.38 Take-in-Kind Facilities
Facilities which (i) are not paid for by the Joint Account and (ii) are
installed and intended to be used for the benefit of a Contract Area on
a Platform but 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, farm out, 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 leasehold interest
or the operating rights of each Party in and to each Contract Area
(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".
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ARTICLE 3
EXHIBITS
3.1 Exhibits
The following exhibits are attached to this Agreement
and incorporated into this Agreement by reference:
3.1.1 Exhibit "A"
Operator, Description of the Lease and Contract Area(s),
Division of After Casing Point 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.
3.1.6 Exhibit "F"
Tax Partnership Provision.
3.1.7 Exhibit "G"
Memorandum of Operating Agreement and Financing
Statement.
3.1.8 Exhibit "H"
Dispute Resolution Procedure.
3.1.9 Exhibit "I"
Security Rights; Default' Unpaid Charges' Carved-out
Interests
3.2 Conflicts.
If a provision of this Agreement is inconsistent with a provision of the
Dominion EPA or the Ridgewood EPA, the provision in the EPA shall
prevail 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.
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ARTICLE 4
OPERATOR
4.1 Operator
Chevron U.S.A. Inc. is designated as the Operator of the Contract Area
covered by this Offshore Operating Agreement. The Parties shall promptly
execute and provide Operator with all documents required by the MMS in
connection with the designation of Chevron 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 percent (50%) or more of
the Participating Interests. The substitute Operator shall serve only
(a) for the Non-consent Operation, (b) on the Contract Area, or that
portion of the Contract Area governed hereby, 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).
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,
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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 (Authorities and
Duties of Operator). 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, Contract Area
maintenance activities and operations.
4.2.4 Redesignation of Operator Within five (5) 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 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 percent (50%) or
more of the remaining Working Interest after excluding the
Operator's Working Interest if:
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(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 which reduces the
Operator's Working Interest to less than twenty five percent
(25%), whether accomplished by one or more Transfer of Interest;
or
(d) Operator commits a substantial breach of a material provision of
this Agreement and fails to cure the breach within sixty (60)
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 sixty (60) days after a Non-operator receives actual
knowledge of the cause. A change of corporate name or structure
of Operator shall not be deemed to be a resignation or basis for
removing 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 percent (50%) 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 percent (50%) or more of the remaining Working Interest
after excluding the Working Interest of the resigned or removed Operator.
If the Operator assigns all or a part of its Working Interest, then under
Article 4.3 (Resignation of Operator) or Article 4.4. (c), the Party who
acquired all or 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;
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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, and all books,
records, and inventories relating to the Joint Account (other than those
books, records, and inventories maintained by the outgoing Operator as the
owner of a Working Interest). The outgoing Operator shall distribute or
return all funds related to the Joint Account to the Parties who
contributed the funds or are otherwise entitled to receive the funds under
this Agreement. The outgoing Operator shall further use its reasonable
efforts to transfer to the successor Operator, as of the effective date of
the resignation or removal, its rights as Operator under all contracts
exclusively relating to the activities or operations conducted under this
Agreement, and the successor Operator shall assume all obligations of the
Operator that are assignable under the contracts. The Parties may audit the
Joint Account and conduct an inventory of all property and all Hydrocarbons
that are not the separate property of a Party, and the inventory shall be
used in the 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".
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
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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 Contract Area, ▇▇▇▇▇, 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.
The Operator shall notify the other Parties promptly upon the discovery
of any error or omission pertaining to the settlements, ▇▇▇▇▇▇▇▇, and
reports rendered to each Party.
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.
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,
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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. The Operator shall provide each Non-operating
Party with a copy of each notice, order, and directive received from the
MMS. As soon as reasonably practicable, each Party shall give written
notice to the other Parties before each meeting with government
authorities of which it has notice and that affects the Contract Area.
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 (inclusive of
Saturdays, Sundays, and federal holidays) for well operations
conducted in the preceding twenty-four (24) hour period.
5.9.3 A complete report of each core analysis.
5.9.4 A copy of each electrical survey, currently as it is run; all data
for each radioactivity log, temperature survey, deviation or
directional survey, caliper log, and other log or survey obtained
during the drilling of the well; and, upon completion of the well,
a composite of all electrical-type logs, insofar as is reasonable
and customary.
5.9.5 A copy of all well test results, bottom-hole pressure surveys, and
fluid analyses.
5.9.6 Upon written request received by Operator before commencement of
drilling, samples of cuttings and cores taken from the well (if
sufficient cores are retrieved), packaged in containers furnished
by Operator at the expense of the requesting Party, marked as to
the depths from which they were taken, and shipped at the expense
of the requesting Party by express courier to the address
designated by the requesting Party.
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5.9.7 To the extent possible, twenty-four (24) hours' advance notice of,
and access to, logging, coring, and testing operations.
5.9.8 A monthly report on the volume of Hydrocarbons and water produced
from each well; however, Operator shall provide reports more often
if feasible.
5.9.9 A copy of each report made to a governmental authority having
jurisdiction.
5.9.10 Upon written request, other pertinent information available to
Operator, including, but not limited to, those portions of the
contracts to be used for the benefit of the Joint Account and
which pertain to the Contract Area, but excluding the Operator's
proprietary or secret information and its subsurface
interpretations that have been independently developed at
Operator's sole cost and expense.
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 Nonparticipating 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 two (2) or more Parties having a combined voting interest of
fifty-one percent (51 %) or more.
6.1.3 Votes
The Parties may vote at a meeting; by telephone, promptly
confirmed in writing to Operator; or by facsimile transmission.
Operator shall give each Party prompt notice of the results of the
voting.
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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-five percent (25%). Except in an emergency,
no meeting shall be called on less than ten (10) 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 Contract Area
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 Contract Area,
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 Non-operator's intention to visit
the Contract Area. 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 Non-operator shall
give Operator advance notice of the visit, use, or boarding, and shall
secure from that person an agreement, in a form satisfactory to Operator,
indemnifying and holding Operator and Non-operators harmless, or shall
itself provide the same hold harmless and indemnification in favor of
Operator and other Non-operators before the visit, use, or boarding.
7.2 Reports
On written request, Operator shall furnish a requesting Party any
information not otherwise furnished under Article 5 (Authority and Duties
of Operator) to which that Party is entitled under this Agreement. The
costs of gathering and 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.
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
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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. This Article 7.3 shall be in
force and effect for a term of two (2) years after termination of this
Agreement.
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.
(i) third parties with whom a Party is engaged in a bona fide effort
to sell, farm out, or trade all or a portion of its interest in
the Contract Area;
Confidential Data made available under Articles 7.4(f) and 7.4(i) 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 (i) 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
Without the prior written consent of the other Participating Parties, no
Party shall issue a news or media release about operations on the
Contract Area. 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
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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. The foregoing, however, shall not restrict
disclosures by either Party which are required by applicable securities
or other laws or regulations or the applicable rules of any stock
exchange having jurisdiction over the disclosing Party or its Affiliates.
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 Two Hundred and Fifty Thousand Dollars ($250,000), 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 Two
Hundred and Fifty Thousand Dollars ($250,000) or less, but in excess of
One Hundred Thousand Dollars ($100,000), if Operator prepares same for
its own use.
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".
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8.4 Advance ▇▇▇▇▇▇▇▇
Operator may require each Party to advance its respective share of
estimated expenditures pursuant to Exhibit "C".
8.5 Commingling of Funds
Funds received by Operator under this Agreement may be commingled with
its own funds.
8.6 Security Rights (LA)
Exhibit "I" (LOUISIANA) if applicable, 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 or Development Facilities will exceed the AFE estimate (the
excess being an "Overexpenditure") by more than twenty percent (20%),
hereinafter referred to as the "Allowable Variance". Except for
Exploratory Well operations after Casing Point on an Initial Test Well or
its Substitute Well, as such terms are defined in the Dominion EPA and
the Ridgewood EPA, Operator's notice shall be forwarded for information
only.
For an Exploratory Well operation after Casing Point on an Initial Test
Well or its Substitute Well, as such terms are defined in the Dominion
EPA and the Ridgewood EPA, 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, inclusive of Saturdays, Sundays, and
federal holidays, after receipt of the Supplemental AFE. If one (1) or
more Participating Parties elect to continue to participate in the
current operation and agree to pay and bear one hundred percent (100%) of
the costs and risks of conducting it, Operator shall continue to conduct
the current operation. Otherwise, the operation shall cease. A
Participating Party that elects not to continue to participate in the
current operation shall become a Non-participating Party in the
operation, from and after the date when the Overexpenditure exceeds the
Allowable Variance, not including emergency expenditures, and Article
13.2 (Relinquishment of Interest) shall apply to the Party only to the
extent that the costs of the operation exceed the Allowable Variance.
Unless otherwise agreed by the Participating Parties, each Participating
Party electing to continue to participate in the current operation may,
but is not obligated to, pay and bear that portion of the costs and risks
attributable to the interests of the Non-participating Parties in the
ratio that the Participating Party's interest bears to the total
interests of all Participating Parties electing to continue participating
in the current operation. If it appears to Operator that actual
expenditures for an approved operation will exceed the Supplemental AFE
estimate, Operator shall again repeat the procedure of this Article 8.7,
using the estimate in the most recently approved Supplemental AFE as the
basis for determining the Overexpenditure and Allowable Variance. An
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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 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
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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 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 plugging and abandoning the well, if applicable. If a proposed
operation is subject to Article 13.11 (Contract Area Maintenance
Operations), the notice shall specify that the proposal is a Contract
Area 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 forty-five (45) days for
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, inclusive 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) daysafter receipt of notice.
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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.
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 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. Notwithstanding the above, each one hundred eighty (180) day period
set forth above shall be three hundred sixty-five days in the case of an
approved operation for a well on Chevron's existing Platform "A" on West
Delta Block 109.
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.
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ARTICLE 10
EXPLORATORY OPERATIONS
10.1 Proposing Operations
Subject to the limitations and provisions of the Dominion EPA and the
Ridgewood EPA for an Additional Opportunities Prospect's Initial Test
Well, as those terms are defined in the respective Dominion EPA and
Ridgewood EPA, any 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 ten (10)
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 fewer than all but two (2) or more Parties having a combined Working
Interest of fifty-one percent (51 %) 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.
10.5 Operations by Fewer Than All Parties
If after the election (if applicable) made under Article 10.4 (Second
opportunity to Participate), fewer than all but two (2) or more Parties
having a combined Working Interest of fifty-one percent (51%) 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,
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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.
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, including site preparation and facility modifications; (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.
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
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,
inclusive of Saturdays, Sundays, and federal holidays, of receipt
of the Operator's notice. The Participating Parties shall notify
Operator within forty-eight (48) hours, inclusive of Saturdays,
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Sundays, and federal holidays, of receipt of the Operator's
proposal whether the Participating Parties elect to (a)
participate in Operator's recommended operation, (b) participate
in another proposed operation, or (c) not participate in any
operation. Failure to respond shall be deemed to be an election
not to participate in any of the proposed operations. The
Participating Parties shall respond to all proposals within the
period allotted to the original proposal.
10.8.2 Priority of Operations
If all Participating Parties elect to participate in the same
proposed operation, Operator shall conduct the operation at their
cost and risk. If more than one (1) operation is approved by two
(2) or more Participating Parties having a combined Working
Interest of fifty-one percent (51%) 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 at the
deepest depth shall take precedence.)
4 Deepen. (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.)
5 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.)
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.
10.8.3 Second Opportunity to Participate If fewer than all but two (2) or
more Participating Parties having a combined Working Interest of
fifty-one percent (51%) or more elect to participate in an
operation, the proposing Party shall notify the Participating
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Parties of the elections made, whereupon a Party originally
electing not to participate in the proposed operation may then
elect to participate by notifying the proposing Party within
twenty four (24) hours, inclusive of Saturdays, Sundays, and
federal holidays, after receipt of such notice. If all Parties
elect to participate in the proposed operation, Operator shall
conduct the operation at their cost and risk.
10.8.4 Operations by Fewer Than All Parties
If, after the election (if applicable) made under Article 10.8.3
(Second Opportunity to Participate), fewer than all but one (2) or
more Parties having a combined Working Interest of fifty-one
percent (51%) or more elect to participate in the proposed
operation that takes precedence, the proposing Party shall notify
the Participating Parties and each Participating Party shall have
twenty four (24) hours, inclusive of Saturdays, Sundays, and
federal holidays, after receipt of the notice to notify the
proposing Party of the portion of the costs and risks attributable
to the total Non-participating Parties' interests it elects to pay
and bear. Unless otherwise agreed by the Participating Parties,.
each Participating Party may, but shall not be obligated to, pay
and bear that portion of the costs and risks attributable to the
total Non-participating Parties' interests in the ratio that the
Participating Party's interest bears to the total interests of all
Participating Parties who elect to pay and bear a portion of costs
and risks attributable to the Non-participating 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.
If the Non-consent Operation is an Additional Testing, coring, or
logging operation, Article 13 (Non-consent Operations) shall not
apply, however, a Party electing not to participate in the
Additional Testing, coring, or logging shall not be entitled to
information resulting from the operation.
10.8.5 Subsequent Operations
Upon completion of an operation conducted under Article 10.8
(Course of Action After Reaching Objective Depth), if the well is
not either (a) Completed as a Producible Well, or
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(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, Salvage, and Surplus),
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 its participation in the operation down to the base of
the deepest Producible Reservoir shall be referred to as "Shallow
Participant" and a Party who elects to participate in the entire
operation shall be referred to as "Deep Participant". If a Party elects
to limit its participation to the base of the deepest Producible
Reservoir, Operator shall prepare and submit to the Shallow Participant,
for informational purposes, a separate 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 be a
Non-participating Party in each operation below the deepest Producible
Reservoir, and the operation shall be considered a Non consent Operation,
and the provisions of Article 13 (Non-consent Operations) shall apply. If
the well is Completed and produces 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
and abandoned, or (c) the amount to be recouped by the Deep Participant
under Article 13 (Non consent Operations) is recovered.
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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 ten (10)
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 fewer than all but two (2) or more Parties having a combined Working
Interest of fifty-one (51 %) 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.
11.5 Operations by Fewer Than All Parties
If after the election (if applicable) made under Article 11.4 (Second
Opportunity to Participate), fewer than all but two (2) or more Parties
having a combined Working Interest of fifty-one percent (51%) 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
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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 8.7 (Overexpenditures), if elected.
11.8 Course of Action After Reaching Objective Depth
When a Development Well has been drilled to its Objective Depth and
reasonable testing, coring, and logging have been completed and the
results have been furnished to the Participating Parties, Operator shall
notify the Participating Parties of Operator's recommendation for further
operations in the well and the following provisions shall apply:
11.8.1 Election by Fewer Than All Parties
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,
inclusive of Saturdays, Sundays, and federal holidays, of receipt
of the Operator's notice. The Participating Parties shall notify
Operator within forty-eight (48) hours, inclusive of Saturdays,
Sundays, and federal holidays, of receipt of the Operator's
proposal whether the Participating Parties elect to (a)
participate in Operator's recommended operation, (b) participate
in another proposed operation, or (c) not participate in any
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operation. Failure to respond shall be deemed to be an election
not to participate in any of the proposed operations. The
Participating Parties shall respond to all proposals within the
period allotted to the original proposal.
11.8.2 Priority of Operations
If all Participating Parties elect to participate in the same
proposed operation, Operator shall conduct the operation at their
cost and risk. If more than one (1) operation is approved by two
(2) or more Participating Parties having a combined Working
Interest of fifty-one percent (51 %) 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 proposal
receiving thelargest percentage of Working Interest approval
shall take precedence, and inthe event of a tie between two
(2) or more approved proposals, the approved proposal first
received by the Parties 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 more approved proposals, the
approved proposal first received by the Parties shall take
precedence.)
7 Temporarily abandon.
8 Plug and abandon.
11.8.3 Second Opportunity to Participate
If fewer than all but two (2) or more Participating Parties having
a combined Working Interest of fifty-one percent (51%) or more
elect to participate in an operation, the proposing Party shall
notify the Participating Parties of the elections made, whereupon
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a Party originally electing not to participate in the proposed
operation may then elect to participate by notifying the proposing
Party within twenty four (24) hours, inclusive of Saturdays,
Sundays, and federal holidays, after receipt of such notice. If
all Parties elect to participate in the proposed operation,
Operator shall conduct the operation at their cost and risk.
11.8.4 Operations by Fewer Than All Parties
If, after the election (if applicable) made under Article 11.8.3
(Second Opportunity to Participate), fewer than all but two (2) or
more Parties having a combined Working Interest of fifty-one
percent (51%) or more elect to participate in the proposed
operation that takes precedence, the proposing Party shall notify
the Participating Parties and each Participating Party shall have
twenty four (24) hours, inclusive of Saturdays, Sundays, and
federal holidays, after receipt of the notice to notify the
proposing Party of the portion of the costs and risks attributable
to the total Non-participating Parties' interests it elects to pay
and bear. Unless otherwise agreed by the Participating Parties,
each Participating Party may, but shall not be obligated to, pay
and bear that portion of the costs and risks attributable to the
total Non-participating Parties' interests in the ratio that the
Participating Party's interest bears to the total interests of all
Participating Parties who elect to pay and bear a portion of costs
and risks attributable to the Non-participating 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.
If the Non-consent Operation is an Additional Testing, coring, or
logging operation, Article 13 (Non-consent Operations) shall not
apply, however, a Party electing not to participate in the
Additional Testing, coring, or logging shall not be entitled to
information resulting from the operation.
11.8.5 Subsequent Operations
Upon the completion of an operation conducted under Article 11.8
(Course of Action After Reaching Objective Depth), if the well is
not either (a) Completed as a well capable of producing
Hydrocarbons in paying quantities, or (b) temporarily abandoned or
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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). Any proposal by
a Party for a Platform and/or Development Facilities shall not provide
for excess capacity and/or space which is greater than ten percent (10%)
of what is required for such Platform and/or Development Facilities based
upon the expected size of the Producible Reservoir(s); the number of
existing Producible ▇▇▇▇▇; the quality of Hydrocarbons to be produced,
processed, and transported; and the number of scheduled Development
▇▇▇▇▇.
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 12.2.3 (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.
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12.2.2 Second Opportunity to Participate
if fewer than all but two (2) or more Parties having a combined
Working Interest of fifty-one percent (51%) 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, inclusive 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.
12.2.3 Operations by Fewer Than All Parties
If after the election (if applicable) made under Article 12.2.2
(Second Opportunity to Participate), fewer than all but two (2) or
more Parties having a combined Working Interest of fifty-one
percent (51%) 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, inclusive of Saturdays, Sundays, and
federal holidays, after receipt of the notice to notify the
proposing Party of the portion of the costs and risks attributable
to the total Non-participating Parties' interests it elects to pay
and bear. Unless otherwise agreed by the Participating Parties,
each Participating Party may, but shall not be obligated to, pay
and bear that portion of 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 Nonparticipating
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, 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 Development Facilities
The Participating Parties in the Development Facilities own all of the
excess capacity of the Development Facilities. Each Participating Party
in the Development Facilities shall have the right to use its
Participating Interest share of the excess capacity for hydrocarbon
production from outside the Contract Area and shall indemnify and hold
harmless the other Participating Parties or such use, subject to the
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successful negotiation of a mutually agreeable arrangement addressing
the usage of such excess capacity. This right is subject to outside
production compatibility and non-interference with Contract Area
production, and further subject to the requirement that the Party
exercising this right shall bear its share of costs pursuant to Article
13.9.2 as though the outside production were from a Non-consent Well.
12.4 Rights to Take in Kind
Nothing in this Article 12 shall act to limit a Party's rights under
Article 22 (Disposition of Production), or to otherwise separately
dispose of its share of Hydrocarbon production. If a Party elects (a) not
to participate in 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
Development Facilities under Article 12.4 (1), 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
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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 five percent (75%) 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.
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.
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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
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 three thousand fve hundred (3,500) feet
from another Gas Completion or one thousand seven hundred fifty
(1,7500) feet from another Oil 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 Nonconsent 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
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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 governed by Article 13.7 (Operations Utilizing a Non-consent
Platform and/or Development Facilities), each Non-participating Party's
interest and Contract Area 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 efective,
one-half (1/2) of each Non-participating Party's interest and Contract
Areahold operating rights and title to Hydrocarbon production from ▇▇▇▇▇
mentioned in Article 13.8 (Discovery or Extension from Non-consent
Drilling); shall be owned by and vested in each Participating Party in
proportion to its Participating Interest, or in the proportions otherwise
agreed by the Participating Parties, for as long as the 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) Six hundred percent (600%) 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) 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
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production that utilize such Platform and/or Development
Facilities;
(c) One hundred percent (100%) 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
ofsite 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 Non participating Party
would have owned or been entitled to if it had participated in the
Non consent Operation. Upon reversion, the Non-participating Party
shall become a Participating Party and, as such, shall become
liable for its proportionate share of the further costs of the
operation as set forth in this Agreement and Exhibit "C".
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 Contract Areahold 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, inclusive 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
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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 at the actual cost incurred by
the Participating Parties.
(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.
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 I 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 and
the Participating Parties elect to participate
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in the proposed operation, Operator shall conduct the operation at their
sole cost and risk. If fewer than all but two (2) or more Parties having
a combined Participating Interest of fifty-one percent (51%) or more
elect to participate in the proposed operation, Operator shall conduct
the Reworking or Sidetracking operation at the cost and risk of the
Participating Parties owning an interest in the Production Interval. 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
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
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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 Contract Area 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 Contract Area 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,
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:
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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, repairs and modifications of such
Development Facilities.
For purposes of calculating the slot usage fee [under Article 13.9.1 (a)
(1) 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
twenty-five percent (25%) 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 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,
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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, repairs 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 toDevelopment Facilities)
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 twenty-five
percent (25%). 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
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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.
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 Maintenance Operations
An operation proposed within the last six (6) months of the
primary term or, subsequent thereto, an operation proposed to
perpetuate the Contract Area or portion thereof at its expiration
date or otherwise, including, but not limited to, well operations,
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regulatory relief (for example, course of action necessary to satisfy the
statutory or regulatory requirements of the governmental authority having
jurisdiction), and other Contract Area operations, shall be deemed to be
a "Contract Area Maintenance Operation." To invoke this Article 13.11, a
notice or AFE that proposes an operation must state that the proposed
operation is a Contract Area Maintenance Operation.
13.11.1 Participation in Contract Area Maintenance Operations
A Party may propose a Contract Area Maintenance Operation by
giving notice to the other Parties. If fewer than all Parties
elect to participate in the proposed Contract Area 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 Contract Area
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 Contract Area 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 Contract Area 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 Contract Area 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 Contract Area, being the affected
Contract Area, 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
Contract Area 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 Contract Area Maintenance
Operation, further operations conducted by the Participating
Parties in the well shall be governed by Article 10.9 (Course of
Action After Reaching Objective Depth) or Article 11.9 (Course of
Action After Reaching Objective Depth), whichever applies. If more
than one well operation is conducted, any of which would
perpetuate the Contract Area 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 Contract Area Maintenance Operation, the Contract
Area or portion thereof is being perpetuated by a Contract Area
Maintenance Operation, as provided in Article 13.11.1
(Participation in Contract Area Maintenance Operations),
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Operator shall render a final statement, if applicable, to the
assigning Party for its share of all expenses attributed to the
assigned interest before the effective date of the assignment,
plus any credit or deficiency in salvage value calculated under
Article 15.3.1 (Prior Expenses). The assigning Party shall settle
any deficiency owed the non-assigning Parties within thirty (30)
days after receipt of Operator's statement.
13.12 Retention of Contract Area by Non-consent Well
If, at the expiration of the primary term of the Contract Area, one or
more Non-consent ▇▇▇▇▇ are the only ▇▇▇▇▇ perpetuating that lease,
Operator shall give written notice to each Non-participating Party that
the Non-consent ▇▇▇▇▇ are serving to perpetuate the lease. Each
Non-participating Party shall, within thirty (30) days after receipt of
Operator's written notice, elect one of the following:
(a) to assign its entire interest in the Contract Area to the
Participating Parties in the proportions in which the Non-consent
▇▇▇▇▇ are owned; or
(b) to pay the Participating Parties, within sixty (60) days after its
election, the lesser of its proportionate share of the actual well
costs of the ▇▇▇▇▇, as if the Non-participating Party had
originally participated, or the balance of the recoupment account.
The payment shall be made to Operator and credited to the account
of each Participating Party. The Nonparticipating Party shall
remain as a Non-participating Party until full recoupment is
obtained, but the payment shall be credited against the total
amount to be recouped by the Participating Parties.
A Non-participating Party that fails to make the required election shall
be deemed to have elected under Article 13.12(a) to relinquish its entire
interest in the Contract Area. If a Non-participating Party elects to
make payment under Article 13.12(b) but fails to make the required
payment within sixty (60) days after its election, the Non-participating
Party shall either remain liable on the obligation to pay or, by
unanimous vote of the Participating Parties, be deemed to have elected
under Article 13.12 (a) to relinquish its entire interest in the Contract
Area. Each relinquishing Non-participating Party shall promptly execute
and deliver an assignment of its interest to the Participating Parties,
in accordance with Article 26 (Successors, Assigns, [and Preferential
Rights]).
13.13 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 Non-consent
Operation which generated the non-consent premium.
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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
wellbore plugging and abandonment costs, Platform and Development
Facilities removal costs and/or any related reclamation 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 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
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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.
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 Contract Areas (the "Withdrawing Party") by giving
prior written notice to all other Parties stating its decision to
withdraw ("the withdrawal notice"). The withdrawal notice shall specify
an effective date of withdrawal that is at least sixty (60) days, but not
more than one hundred 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 Contract Area or Contract Areas, 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.
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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 Contract Area 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.
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
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the Contract Area, 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
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).
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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.
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" to this Agreement or in Exhibits "A", "B" or "C" of the
Dominion EPA or the Ridgewood EPA, 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.
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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 Contract Area, 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).
16.3 Payment of Rentals and Minimum Royalties
Operator shall pay in a timely manner, for the joint account of the
Parties, all rentals, minimum royalties, and other similar payments
accruing under the Contract Area 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 Contract Area or interest
therein if, through mistake oversight, a rental, minimum royalty, or
other payment is not paid or is erroneously paid. The loss of a Contract
Area 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
Contract Area. In such event, the Non-participating Party shall assign to
the Participating Parties, upon their request, the portions of its
interest in the Contract Area 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
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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 Nonparticipating Party's share of Hydrocarbon
production, the Participating Parties shall bear and properly pay, or
cause to be paid, the Contract Area royalty on the Hydrocarbon production
taken, and shall hold the Non-participating Parties harmless from
liability for the payment.
ARTICLE 17
TAXES
17.1 Property Taxes
Operator shall render property covered by this Agreement for ad valorem
taxation, if applicable, and shall pay the property taxes for the benefit
of each Party. Operator shall charge each Party its share of the tax
payments. If the ad valorem taxes are based in whole or in part upon
separate valuations of each Party's Working Interest, then
notwithstanding anything in this Agreement to the contrary, each Party's
share of property taxes shall be in proportion to the tax value generated
by that Party's Working Interest.
17.2 Contest of Property Tax Valuation
Operator shall timely and diligently protest to a final determination
each tax valuation it deems unreasonable. Pending such determination,
Operator may elect to pay under protest. Upon final determination,
Operator shall pay the taxes and the interest, penalties, and costs
accrued as a result of the protest. In either event, Operator shall
charge each Party its share 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.
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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 or separately by the Parties
under this Agreement, except as provided in Exhibit "B".
18.2 Bonds
Operator shall obtain and maintain all bonds or financial guarantees
required by an applicable law, regulation or rule. The costs of those
bonds or financial guarantees acquired exclusively for the conduct of
activities and operations under this Agreement shall be charged to the
Joint Account, including an amount equivalent to the reasonable cost of
that bond or financial guarantee if Operator provides that bond or
guarantee itself and does not engage a third party to do so. Operator
shall require all contractors to obtain and maintain all bonds required
by an applicable law, regulation or rule.
ARTICLE 19
LIABILITY, CLAIMS, AND LAWSUITS
19.1 Individual Obligations
The obligations, duties, and liabilities of the Parties under this
Agreement are several, not joint or collective. Nothing in this Agreement
shall ever be construed as creating a partnership of any kind, joint
venture, agency relationship, association, or other character of business
entity recognizable in law for any purpose. In their relations with each
other under this Agreement, the Parties shall not be considered to be
fiduciaries or to have established a confidential relationship, except as
specifically provided in Article 7.3 (Confidentiality) and Article 7.4
(Limited Disclosure), but rather shall be free to act at arm's length in
accordance with their own respective self-interests. Each Party shall
hold all other Parties harmless from liens and encumbrances on the
Contract Area 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 Contract Area, 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.
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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 Contract Area, if the aggregate expenditure does not exceed
Two Hundred Fifty Thousand Dollars ($250,000) 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 Contract Area. Claims may be settled in excess of the
amount specified in Article 19.3 (Settlements) if the settlement is
approved by vote of the Participating Parties (in accordance with Article
6.1.2) 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
which the Claim arose. The employment of outside counsel, but not the
selection of that counsel, requires unanimous approval by the Parties
involved 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 in which case
the Party would not be obligated to participate in the cost of retaining
outside counsel selected by Operator.
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 CONTRACT AREA 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
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SOLELY RESPONSIBLE FOR LIABILITY RESULTING FROM ITS GROSS NEGLIGENCE OR
WILLFUL MISCONDUCT.
19.6 Indemnification for Non-Consent Operations
TO THE EXTENT ALLOWED BY LAW, THE PARTICIPATING PARTIES WILL HOLD THE
NON-PARTICIPATING PARTIES (AND THEIR AFFILIATES, AGENTS, INSURERS,
DIRECTORS, OFFICERS, AND EMPLOYEES) HARMLESS AND RELEASE, DEFEND, AND
INDEMNITY THEM AGAINST ALL CLAIMS, DEMANDS, LIABILITIES, REGULATORY
DECREES, AND LIENS FOR ENVIRONMENTAL POLLUTION AND PROPERTY DAMAGE OR
PERSONAL INJURY, INCLUDING SICKNESS AND DEATH, CAUSED BY OR OTHERWISE
ARISING OUT OF NON-CONSENT OPERATIONS, AND ANY LOSS AND COST SUFFERED BY
A NON-PARTICIPATING PARTY AS AN INCIDENT THEREOF, EXCEPT WHERE THAT LOSS
OR COST RESULTS FROM THE SOLE, CONCURRENT, OR JOINT NEGLIGENCE, FAULT OR
STRICT LIABILITY OF THAT NON-PARTICIPATING PARTY, IN WHICH CASE EACH
PARTY SHALL PAY OR CONTRIBUTE TO THE SETTLEMENT OR SATISFACTION OF
JUDGMENT IN THE PROPORTION THAT ITS NEGLIGENCE, FAULT OR STRICT LIABILITY
CAUSED OR CONTRIBUTED TO THE INCIDENT. IF AN INDEMNITY IN THIS AGREEMENT
IS DETERMINED TO VIOLATE LAW OR PUBLIC POLICY, THAT INDEMNITY SHALL THEN
BE ENFORCEABLE ONLY TO THE MAXIMUM EXTENT ALLOWED BY LAW.
19.7 Damage to Reservoir, Loss of Reserves and Profit
NOTWITHSTANDING ANY CONTRARY PROVISION OF THIS AGREEMENT, 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 (1I) 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
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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 this Agreement and the activities and operations
under this Agreement do not constitute a partnership under state law;
however, the Parties agree that the activities and operations under this
Agreement shall constitute a partnership for federal and, to the extent
allowable, state and local income tax law and shall be governed for such
purposes by the terms of Exhibit F hereto.
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 Contract Area. Payments received as consideration for entering into a
contract for the sale of Hydrocarbon production from the Contract Area,
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
Contract Area or conducting an activity or operation on the Contract
Area, 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
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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 Contract Area, the acreage contribution shall be shared by each
Participating Party that accepts it in proportion to its Participating
Interest in the well. As between the Participating Parties, this
Agreement shall apply separately to the acreage.
ARTICLE 22
DISPOSITION OF PRODUCTION
22.1 Take-in-Kind Facilities
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 Contract Area, 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 Contract Area, 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 commence the installation of 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
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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
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 Contract Area. 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
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LAWS THAT WOULD OTHERWISE REFER THE MATTER TO THE LAWS OF ANOTHE
JURISDICTION.
ARTICLE 24
LAWS, REGULATIONS AND NON-DISCRIMINATION
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 Non-discrimination
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.
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ARTICLE 26
SUCCESSORS, ASSIGNS AND PREFERENTIAL RIGHTS
26.1 Successors and Assigns
This Agreement binds and inures to the benefit of the Parties and their
respective heirs, successors, and assigns and shall constitute a covenant
running with the Contract Area. Each Party shall incorporate in each
assignment of an interest in the Contract Area a provision that the
assignment is subject to this Agreement.
26.2 Transfer of Interest
No transfer, assignment, or other disposition of interest by a Party
shall relieve the Party of liabilities and obligations it has incurred or
that are attributable to the interest transferred before the date of the
transfer, and the obligation to pay and bear all costs and risks
attributable to an operation in which the Party was a Participating Party
before making the transfer, and the lien and security rights granted by
Section 8.6 (Security Rights) shall continue to burden the interest
transferred to secure payment of the obligations. The transferor shall be
liable for all costs, expenses, and liabilities for well plugging and
abandonment, Platform and Development Facilities removal and disposal,
and site clearance for property and equipment attributable to the
assigned interest before the date of the transfer, net of salvage
proceeds.
26.3 Consent to Assign
Dominion, Ridgewood and their successors-in-interest may not sell,
transfer, farm out, assign, or otherwise dispose of all or part of its
Working Interest in the Contract Area without the prior written consent
of Chevron, which consent shall not be unreasonable withheld. Said
consent shall not be unreasonably withheld and in the event Ridgewood
desires to assign to a Ridgewood Energy LLC Fund this Article 26.3 and
Article 26.4 and 26.6 below shall not apply. No Party may sell, transfer,
farm out, assign, or otherwise dispose of all or part of its Working
Interest in the Contract Area unless:
(a) the transferee is financially capable of assuming the obligations
hereunder and, in accordance with Subsection 26.3(c), the
transferor furnishes the Parties with proof of such financial
capability that, in the case of Outer Continental Shelf Contract
Areas, shall be proof that the transferee is currently qualified
by the Minerals Management Service, an agency of the United States
Department of the Interior, or a successor agency having
jurisdiction (hereinafter "MMS"), to own Outer Continental Shelf
Contract Areas and that the transferee would not be required by
the MMS to post a supplemental bond pursuant to 30 CFR ss.
256.53(d) & (e) if such transferee owned 100% of the Working
Interest in the Contract Area.
(b) the transferee agrees in writing to assume all obligations and
liabilities under this Agreement related to the interest acquired
arising from and after the effective date of the transfer; and
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(c) the transferor has given the other Parties written notice of the
transfer at least fifteen (15) days before the date of the
transfer, such notice to include the name of each proposed
transferee, a description of the interests to be transferred, and
the proof set forth in Subsection 26.3(a).
The requirements of this Section 26.3 shall not apply to a merger,
consolidation, reorganization, sale or transfer to an Affiliate, a
mortgage by a Party of its interest in the Contract Area, a sale of all,
or substantially all, of a Party's domestic exploration and production
properties, or a transfer or disposition between the Parties hereto.
26.4 Transfers Between Parties
A transfer, relinquishment, or other disposition of interests in the
Contract Area between Parties under the Acreage Out Option (if selected)
under Section 10.5 (Operations by Fewer Than All Parties); Section 13.11
(Contract Area Maintenance Operations); Section 13.12 (Retention of
Contract Area by Non-consent Well); Article 15 (Withdrawal); or Section
16.4 (Non-participation in Payments) shall be made without warranty of
title. Any such transfer between the Parties, if applicable, shall be
free and clear of all Subsequently Created Interests, as defined in
Section 16.2 (Subsequently Created Interest), and all mortgages, liens,
and encumbrances.
26.5 Division of Interest
If, at any time, the interest of a Party is divided among and owned by
four (4) or more co-owners, Operator, at its discretion, may require the
co-owners to appoint a single trustee or agent with full authority to
receive notices, approve expenditures, receive ▇▇▇▇▇▇▇▇ for, and approve
and pay the Party's share of the joint expenses, and to deal generally
with, and with power to bind the co owners of the Party's interest within
the scope of the operations embraced in this Agreement. All such
co-owners may separately dispose of their respective shares of the oil,
gas, and condensate produced from the Contract Area and may receive,
separately, payment of the sale proceeds thereof.
26.6 Preferential Rights
If any Party or any of their successors-in-interest, desires to transfer,
sell, farm out, assign, or otherwise dispose of all or part of its
Working Interest ("Disposing Party"), it shall promptly give written
notice to the other Parties and any of the other Parties'
successors-in-interest ("Acquiring Party(ies)") with full information
about the proposed transaction, including, but not limited to, the name
and address of the prospective transferee (who must be ready, willing,
and able to acquire the interest and deliver the stated consideration
therefore), the consideration for the transfer, farm out terms, and all
other terms of the offer. In the case of a package sale of oil and gas
interests that includes all or part of the Disposing Party's Working
Interest, or if the proposed transaction is structured as a
non-simultaneous, like-kind exchange under Section 1031 of the Internal
Revenue Code of 1986, as amended ("Code"), the Working Interest that is
subject to this preferential right shall be separately valued in good
faith and the notice shall state the value attributed to the interest by
the prospective transferee. The Acquiring Party (ies) shall then have
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an optional prior right, for a period of thirty (30) days after receipt
of the notice, to elect to purchase or acquire on the same terms and
conditions, or on equivalent terms for a non-cash transaction, all of the
Working Interest that the Disposing Party is proposing to transfer. If
this preferential right is exercised by an Acquiring Party (ies), the
purchasing or Acquiring Party (ies) shall share the purchased or acquired
interest in the proportions that the Working Interest of each bears to
the total Working Interest of all Acquiring Party (ies), or in such
proportions as the Acquiring Party (ies) otherwise agree. This
preferential right shall apply separately to each Working Interest or
part thereof covered by this Agreement, regardless of whether it is
included in the proposed transaction along with other oil and gas
interests, whether as a sale, farm out, or non-simultaneous, like-kind
exchange, and no provision in this Agreement shall be interpreted to
defeat this preferential right. Upon exercise of this preferential right,
the acquiring Party (ies) shall agree to perform all obligations of the
prospective transferee under the proposed transaction only for the
Working Interest subject to the proposed transaction. This preferential
right, however, shall not exist or apply when a Party proposes (a) to
mortgage its interest; (b) to dispose of or transfer its interest to a
third party by (i) merger, (ii) reorganization, or (iii) consolidation;
(c) to sell all of its exploration and production properties located in
the Gulf of Mexico, Outer Continental Shelf of the United States of
America; or (d) to transfer the interest under a property exchange
transaction other than a non-simultaneous, like-kind exchange under
Section 1031 of the Code. If the proposed transaction is not consummated
within six (6) months after receipt of the notice by the other Parties,
the Working Interest shall again be governed by this Section 26.6 and the
preferential right shall again arise for the offered interest as herein
described.
ARTICLE 27
ADMINISTRATIVE PROVISIONS
27.1 Term
This Agreement shall remain in effect so long as any Contract Area
remains in effect and thereafter until (a) all ▇▇▇▇▇ have been abandoned
and plugged or turned over to the Parties owning an interest in the
Contract Area 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. 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
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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
obligation 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 Contract Area, ▇▇▇▇▇, 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 Contract Areas
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 federal, state, and local
governmental authorities having jurisdiction over the Contract Area.
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
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
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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 Contract Area. 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.
27.7 Conflict of Terms
Chevron and Dominion hereby agree and acknowledge that this Agreement is
made subject and subordinate to that certain Exploration Participation
Agreement (EPA) dated _____, 2006 between Chevron U.S.A. Inc. and
Dominion, and that in the event of a conflict between the terms and
provisions of this Agreement and the Dominion EPA, the terms and
provisions of the EPA shall control. Chevron and Ridgewood hereby agree
and acknowledge that this Agreement is made subject and subordinate to
that certain Exploration Participation Agreement (EPA) dated _____, 2006
between Chevron and Ridgewood, and that in the event of a conflict
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between the terms and provisions of this Agreement and the Ridgewood EPA,
the terms and provisions of the EPA shall control.
IN WITNESS WHEREOF, this Agreement has been executed by the Parties as of the
day and year first above written.
WITNESSES: Chevron U.S.A. Inc.
By: /S/ ▇.▇. ▇▇▇▇▇
------------------------------- -------------------------------
Title: ASSISTANT SECRETARY
------------------------------- -------------------------------
Dominion Exploration & Production, Inc
By:
------------------------------- -------------------------------
Title:
------------------------------- -------------------------------
Ridgewood Energy Corporation
/s/ [ILLEGIBLE SIGNATURE] By: /s/ ▇.▇. ▇▇▇▇▇
------------------------------- -------------------------------
/s/ [ILLEGIBLE SIGNATURE] Title: EXECUTIVE VICE PRESIDENT
------------------------------- -------------------------------
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Exhibit "A"
Attached to and made a part of that certain Offshore Operating Agreement dated
effective as of the ____ day of _________, 20___, between Chevron U.S.A. inc.,
Dominion Exploration & Production, Inc. and Ridgewood Energy Corporation,
covering ______________ Block ___________ , Federal Offshore, Gulf of Mexico
1. Chevron U.S.A. Inc. (Chevron) is designated as Operator.
2. Contract Area:
That portion of that certain Oil and Gas Lease of Submerged Lands bearing
Serial No. OCS ______, dated effective __________, _________, by and between
the United States of America, as Lessor, and ____________ as Lessee, covering
all or a portion of Block ________, ___________ Area, insofar and only insofar
as it covers and affects Prospect " ______ ", as defined in Exhibit " ___ " of
that certain Exploration Participation Agreement dated effective ___________,
20___ between Chevron and Dominion Exploration & Production, Inc. and in Exhibit
"___" of that certain Exploration Participation Agreement dated effective
____________, 20____ between Chevron and Ridgewood Energy Corporation.
3. Division of Interest
Company *After Casing Point Working Interest Percentage
---------------------------------------------------------------------------
Chevron U.S.A. Inc. (Chevron) 50.000%
Dominion Exploration & Production, Inc. (Dominion) 25.000%
Ridgewood Energy Corporation (Ridgewood) 25.000%
-------
100.000%
* The Parties' respective interest is subject to that certain Exploration
Participation Agreement (Dominion EPA) dated September 1, 2006 between
Chevron and Dominion and that certain Exploration Participation Agreement
(Ridgewood EPA) dated September 1, 2006 between Chevron and Ridgewood. The
working interests shown represent the After Casing Point interest in the
Contract Area as referenced in the respective EPA.
4. Notification Addressees
Chevron U.S.A. Inc. Dominion Exploration & Production, Inc.
▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇. ▇▇▇▇▇▇ ▇. ▇▇▇▇ Attention: ▇▇. ▇▇▇▇▇ ▇▇▇▇▇
Tel.: (▇▇▇) ▇▇▇-▇▇▇▇ Tel.: (504)
Fax: (▇▇▇) ▇▇▇-▇▇▇▇ Fax: (504)
Ridgewood Energy Corporation
▇▇▇▇▇ ▇▇▇ ▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Attention: Mr. W. ▇▇▇▇ ▇▇▇▇▇
Tel: (▇▇▇) ▇▇▇-▇▇▇▇
Fax: (281)
STWDJOA Exhibit "A"
1
Exhibit "B"
Attached to and made a part of that certain Offshore Operating Agreement dated
effective as of the _____ day of _________, 20__, between Chevron U.S.A. Inc.,
Dominion Exploration & Production, Inc. and Ridgewood Energy Corporation,
covering __________ Block _____, Federal Offshore, Gulf of Mexico
INSURANCE REQUIREMENTS
----------------------
1. Operator shall carry insurance as follows for the benefit and protection of
the Parties to this Agreement:
a) Worker's Compensation Insurance in accordance with laws of
governmental bodies having jurisdiction including, if applicable,
United States ▇▇▇▇▇▇▇▇▇ and Harbor Workers' Compensation Act with
Outer Continental Shelf Extension, Maritime Employers' Liability
(including, but not limited to, the ▇▇▇▇▇ Act and Death on the High
Seas Act) and Employers' Liability Insurance. Employers' Liability
Insurance shall provide coverage of $10,000,000 per accident.
b) Any other insurance or surety bond that may be required elsewhere in
this agreement or by applicable federal, state and local laws and
regulations.
Operator may include the aforesaid risks under its qualified self-insurance
program provided Operator complies with applicable laws, and in such event
Operator shall charge to the Joint Account a premium determined by applying
manual insurance rates to the payroll.
2. Each Party to this Agreement shall carry the following insurance for their
percentage interest:
a) Commercial General Liability (Bodily Injury and Property Damage)
Insurance, including coverage for; premises-operations, products and
completed operations, independent contractors liability, contractual
liability to cover liabilities assumed under this Agreement, coverage
for explosion, collapse and underground hazards, and sudden and
accidental pollution. The limits of such insurance shall not be less
than $25,000,000 combined single limit per occurrence.
b) Operator's Extra Expense Insurance including, but not limited to:
coverage for control of well (including underground control of well);
redrill and extra expense; extended and unlimited redrill; seepage,
pollution, clean-up and contamination; evacuation expense; making
▇▇▇▇▇ save and care custody and control. The limits for such insurance
shall not be less than $25,000,000 combined single limit per
occurrence.
The above insurance shall contain waivers of subrogation in favor of the
other Parties to this Agreement.
Each Party shall provide evidence of the above insurance, satisfactory to
Operator, prior to commencement of any work under this Agreement and
subsequently with each policy's renewal date.
Alternatively, prior to the commencement of any drilling or work under this
Agreement and subsequently with any policy renewal, each Party may
affirmatively elect to self insure this Article 2 insurance where such
Party holds and maintains a market capitalization, or has provided
Operator, annually, as of the effective anniversary date, evidence of
ownership of unencumbered assets, in excess of One Billion
($1,000,000,000.00) Dollars (U.S.) or shall provide evidence of the above
insurance under policies and with insurers, satisfactory to Operator.
STWDJOA - Exhibit "B"
1
3. 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 of third
parties, or personal injury or death of third persons arising out of the
joint operations. All uninsured losses and all damages to jointly owned
property shall be borne by the Parties in proportion to their respective
interests.
4. Operator shall require all contractors engaged in operations under this
Agreement to comply with the applicable Worker's Compensation and
Employers' Liability laws and to maintain such other insurance and in such
amounts as Operator deems necessary.
5. In the event less than all Parties participate in an operation conducted
under the terms of this Agreement, then the insurance requirement 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.
STWDJOA - Exhibit "B"
2
2005 ▇▇▇▇▇ Accounting Procedure
▇▇▇▇▇ 2005 ACCOUNTING PROCEDURE
INSTRUCTIONS FOR COMPLETING
ACCOUNTING PROCEDURE - JOINT OPERATIONS
These instructions and guidelines refer to every blank and optional or
alternative provision in the model form to be considered by users in preparation
of their agreements. Users should seek the advice of counsel to ensure that the
selections and completed provisions are applicable, reflect the actual intent of
the Parties, and are proper under the prevailing business circumstances.
The first two paragraphs of Section I (General Provisions) provide that if the
Parties fail to select either one of competing "Alternative" provisions, or
select all the competing "Alternative" provisions, Alternative 1 in each such
instance shall be deemed to have been adopted by the Parties as a result of any
such omission.
If an Option is not selected by a typed, printed or handwritten indication, it
will not form part of the Accounting Procedure.
It is suggested that the optional or alternative provisions not desired in the
agreement be deleted in their entirety.
Title - Fill in the pertinent information (e.g. the name/type of agreement to
which this Accounting Procedure is attached, the date, and the Parties). The
date on the heading should be consistent with the date on the Agreement to which
it is attached; however, if this Accounting Procedure is an amendment to an
existing agreement, include the effective date of the amendment.
Section I.5.E (Optional) -- Select the optional provision if the Parties wish to
impose additional penalties for failure to meet audit resolution deadlines.
Section I.6.B - Fill in the blanks with the number of Parties and percentages
required to approve amendments to this Accounting Procedure.
Section II.6.A - Insert the interest rate on the undepreciated facility
investment amount.
Section II.7 A&B - Insert the thresholds for the level of authority required to
charge Affiliate goods and services.
Section II.13 (Alternative) - Select the preferred alternative for the
treatment of Off-site ecological, environmental, and safety costs.
Section III.1 (Alternative) - Select the preferred alternative provision for
assessing drilling and producing overhead - either through the use of the Fixed
Rate Basis or the Percentage Basis.
STWDJOA - Exhibit "C"
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2005 ▇▇▇▇▇ Accounting Procedure
Section II.1.A.i (Alternative) - Select the preferred alternative for the
treatment of On-site Technical Services as either direct or overhead.
Section III.1.A.ii (Alternative) - Select the preferred alternative for the
treatment of Off-site Technical Services as either All Overhead, All Direct, or
Drilling Direct.
Section III.1.B - Insert the drilling and producing well overhead rates, if
using the Fixed Rate method of assessing overhead.
Section III.1.C - Insert the Development and Operating overhead rates if using
the Percentage Basis method of assessing overhead.
Section III.2 A&B - Insert the Major Construction and Catastrophe overhead
rates.
STWDJOA - Exhibit "C"
ii
2005 ▇▇▇▇▇ Accounting Procedure
EXHIBIT "C"
_____________ BLOCK _____
ACCOUNTING PROCEDURE
JOINT OPERATIONS
Attached to and made a part of that certain Offshore Operating Agreement dated
effective as of the ______ day of __________, 20__, between Chevron U.S.A. Inc.,
Dominion Exploration & Production, Inc. and Ridgewood Energy Corporation,
covering _____________ Block _________, Federal Offshore, Gulf of Mexico
I. GENERAL PROVISIONS - ACCOUNTING PROCEDURE
IF THE PARTIES FAIL TO SELECT EITHER ONE OF COMPETING "ALTERNATIVE" PROVISIONS,
OR SELECT ALL THE COMPETING "ALTERNATIVE" PROVISIONS, ALTERNATIVE 1 IN EACH SUCH
INSTANCE SHALL BE DEEMED TO HAVE BEEN ADOPTED BY THE PARTIES AS A RESULT OF ANY
SUCH OMISSION OR DUPLICATE NOTATION.
IN THE EVENT THAT ANY "OPTIONAL" PROVISION OF THIS ACCOUNTING PROCEDURE IS NOT
ADOPTED BY THE PARTIES TO THE AGREEMENT BY A TYPED, PRINTED OR HANDWRITTEN
INDICATION, SUCH PROVISION SHALL NOT FORM A PART OF THIS ACCOUNTING PROCEDURE,
AND NO INFERENCE SHALL BE MADE CONCERNING THE INTENT OF THE PARTIES IN SUCH
EVENT.
1. DEFINITIONS
All terms used in this Accounting Procedure shall have the following
meaning, unless otherwise expressly defined in the Agreement:
"Affiliate" means 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.
"Agreement" means the operating agreement, farmout agreement, or other
contract between the Parties to which this Accounting Procedure is
attached.
"Controllable Material" means Material that, at the time of acquisition or
disposition by the Joint Account, as applicable, is so classified in the
Material Classification Manual most recently recommended by the Council of
Petroleum Accountants Societies (▇▇▇▇▇).
"Equalized Freight" means the procedure of charging transportation cost to
the Joint Account based upon the distance from the nearest Railway
Receiving Point to the property.
"Excluded Amount" means a specified excluded trucking amount most recently
recommended by ▇▇▇▇▇.
STWDJOA - Exhibit "C"
1
2005 ▇▇▇▇▇ Accounting Procedure
"Field Office" means a structure, or portion of a structure, whether a
temporary or permanent installation, the primary function of which is to
directly serve daily operation and maintenance activities of the Joint
Property and which serves as a staging area for directly chargeable field
personnel.
"First Level Supervision" means those employees whose primary function in
Joint Operations is the direct oversight of the Operator's field employees
and/or contract labor directly employed On-site in a field operating
capacity. First Level Supervision functions may include, but are not
limited to:
o Responsibility for field employees and contract labor engaged in
activities that can include field operations, maintenance,
construction, well remedial work, equipment movement and drilling
o Responsibility for day-to-day direct oversight of rig operations
o Responsibility for day-to-day direct oversight of construction
operations
o Coordination of job priorities and approval of work procedures
o Responsibility for optimal resource utilization (equipment,
Materials, personnel)
o Responsibility for meeting production and fled operating expense
targets
o Representation of the Parties in local matters involving
community, vendors, regulatory agents and landowners, as an
incidental part of the supervisor's operating responsibilities
o Responsibility for all emergency responses with field staff
o Responsibility for implementing safety and environmental
practices
o Responsibility for field adherence to company policy
o Responsibility for employment decisions and performance
appraisals for field personnel
o Oversight of sub-groups for field functions such as electrical,
safety, environmental, telecommunications, which may have group
or team leaders.
"Joint Account" means the account showing the charges paid and credits
received in the conduct of the Joint Operations that are to be shared by
the Parties, but does not include proceeds attributable to hydrocarbons and
by-products produced under the Agreement.
"Joint Operations" means all operations necessary or proper for the
exploration, appraisal, development, production, protection, maintenance,
repair, abandonment, and restoration of the Joint Property.
"Joint Property" means the real and personal property subject to the
Agreement.
"Laws" means any laws, rules, regulations, decrees, and orders of the
United States of America or any state thereof and all other governmental
bodies, agencies, and other authorities having jurisdiction over or
affecting the provisions contained in or the transactions contemplated by
the Agreement or the Parties and their operations, whether such laws now
exist or are hereafter amended, enacted, promulgated or issued.
"Material" means personal property, equipment, supplies, or consumables
acquired or held for use by the Joint Property.
"Non-Operators" means the Parties to the Agreement other than the Operator.
"Offshore Facilities" means platforms, surface and subsea development and
production systems, and other support systems such as oil and gas handling
facilities, living quarters, offices, shops, cranes, electrical supply
STWDJOA- Exhibit "C"
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2005 ▇▇▇▇▇ Accounting Procedure
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, all of
which are located offshore.
"Off-site" means any location that is not considered On-site as defined in
this Accounting Procedure.
"On-site" means on the Joint Property when in direct conduct of Joint
Operations. The term "On-site" shall also include that portion of Offshore
Facilities, Shore Base Facilities, fabrication yards, and staging areas
from which Joint Operations are conducted, or other facilities that
directly control equipment on the Joint Property, regardless of whether
such facilities are owned by the Joint Account.
"Operator" means the Party designated pursuant to the Agreement to conduct
the Joint Operations.
"Parties" means legal entities signatory to the Agreement or their
successors and assigns. Parties shall be referred to individually as
"Party."
"Participating Interest" means the percentage of the costs and risks of
conducting an operation under the Agreement that a Party agrees, or is
otherwise obligated, to pay and bear.
"Participating Party" means a Party that approves 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 the Agreement.
"Personal Expenses" means reimbursed costs for travel and temporary living
expenses.
"Railway Receiving Point" means the railhead nearest the Joint Property for
which freight rates are published, even though an actual railhead may not
exist.
"Shore Base Facilities" means onshore support facilities that during Joint
Operations provide such services to the Joint Property as a receiving and
transshipment point for Materials; debarkation point for drilling and
production personnel and services; communication, scheduling and
dispatching center; and other associated functions serving the Joint
Property.
"Supply Store" means a recognized source or common stock point for a given
Material item.
"Technical Services" means services providing specific engineering,
geoscience, or other professional skills, such as those performed by
engineers, geologists, geophysicists, and technicians, required to handle
specific operating conditions and problems for the benefit of Joint
Operations; provided, however, Technical Services shall not include those
functions specifically identified as overhead under the second paragraph of
the introduction of Section III (Overhead). Technical Services may be
provided by the Operator, Operator's Affiliate, Non-Operator, Non-Operator
Affiliates, and/or third parties.
"Well DECC" (Well Design & Execution Collaboration Center) means a drilling
operation center with technology to plan, design, monitor, advise, and
control a drilling well or ▇▇▇▇▇ on a real time/online basis. Operator
shall have the right but not the obligation to use a drilling operation
center for planning, drilling, re-drilling, sidetracking, or deepening of a
well, plugback or workover operations, plugging and abandonment,
monitoring, and control of ▇▇▇▇▇.
STWDJOA - Exhibit "C"
3
2005 ▇▇▇▇▇ Accounting Procedure
2. STATEMENTS AND BILLIGS
The Operator shall ▇▇▇▇ Non-Operators on or before the last day of the
month for their proportionate share of the Joint Account for the preceding
month. Such bills shall be accompanied by statements that identify the AFE
(authority for expenditure), lease or facility, and all charges and credits
summarized by appropriate categories of investment and expense.
Controllable Material shall be separately identified and fully described in
detail, or at the Operator's option, Controllable Material may be
summarized by major Material classifications. Intangible drilling costs,
audit adjustments, and unusual charges and credits shall be separately and
clearly identified.
The Operator may make available to Non-Operators any statements and bills
required under Section I.2 and/or Section I.3.A (Advances and Payments by
the Parties) via email, electronic data interchange, internet websites or
other equivalent electronic media in lieu of paper copies. The Operator
shall provide the Non-Operators instructions and any necessary information
to access and receive tht statements and bills within the timeframes
specified herein. A statement or billing shall be deemed as delivered
twenty-four (24) hours (exclusive of weekends and holidays) after the
Operator notifies the Non-Operator that the statement or billing is
available on the website and/or sent via email or electronic data
interchange transmission.
3. ADVANCES AND PAYMENTS BY THE PARTIES
A. Unless otherwise provided for in the Agreement, the Operator may
require the Non-Operators to advance their share of the estimated cash
outlay for the succeeding month's operations within fifteen (15) days
after receipt of the advance request or by the first day of the month
for which the advance is required, whichever is later. The Operator
shall adjust each monthly billing to reflect advances received from
the Non-Operators for such month. If a refund is due, the Operator
shall apply the amount to be refunded to the subsequent month's
billing or advance, unless the Non-Operator sends the Operator a
written request for a cash refund. The Operator shall remit the refund
to the Non-Operator within fifteen (15) days of receipt of such
written request.
B. Except as provided below, each Party shall pay its proportionate share
of all bills in full within fifteen (15) days of receipt date. If
payment is not made within such time, the unpaid balance shall bear
interest compounded monthly at the prime rate published by the Wall
Street Journal on the first day of each month the payment is
delinquent, plus three percent (3%), per annum, or the maximum
contract rate permitted by the applicable usury Laws governing the
Joint Property whichever is the lesser, plus attorney's fees, court
costs, and other costs in connection with the collection of unpaid
amounts. If the Wall Street Journal ceases to be published or
discontinues publishing a prime rate, the unpaid balance shall bear
interest compounded monthly at the prime rate published by the Federal
Reserve plus three percent (3%) per annum. Interest shall begin
accruing on the first day of the month in which the payment was due.
Payment shall not be reduced or delayed as a result of inquiries or
anticipated credits unless the Operator has agreed. Notwithstanding
the foregoing, the Non-Operator may reduce payment, provided it
furnishes documentation and explanation to the Operator at the time
payment is made, to the extent such reduction is caused by:
(1) being billed at an incorrect working interest or Participating
Interest that is higher than such Non-Operator's actual working
interest or Participating Interest, as applicable; or
STWDJOA - Exhibit "C"
4
2005 ▇▇▇▇▇ Accounting Procedure
(2) being billed for a project or AFE requiring approval of the
Parties under the Agreement that the Non-Operator has not
approved or is not otherwise obligated to pay under the
Agreement; or
(3) being billed for a property in which the Non-Operator no longer
owns a working interest, provided the Non-Operator has furnished
the Operator a copy of the recorded assignment letter in-lieu.
Notwithstanding the foregoing, the Non-Operator shall remain
responsibly paying bills attributable to the interest it sold or
transferred for any bills rendered during thirty (30) day period
following the Operator's receipt of such written notice; or
(4) charges outside the adjustment period, as provided in Section 1.4
(Adjustments).
4. ADJUSTMENTS
A. Payment of any such bills shall not prejudice the right of any Party
to protest or question the correctness thereof; however, all bills and
statements, including payout statements, rendered during any calendar
year shall conclusively be presumed to be true and correct, with
respect only to expenditures, after twenty-four (24) months following
the end of any such calendar year, unless within said period a Party
takes specific detailed written exception thereto making a claim for
adjustment. The Operator shall provide a response to all written
exceptions, whether or not contained in an audit report, within the
time periods prescribed in Section 1.5 (Expenditure Audits).
B. All adjustments initiated by the Operator, except those described in
items (1) through (4) of this Section I.4.B, are limited to the
twenty-four (24) month period following the end of the calendar year
in which the original charge appeared or should have appeared on the
Operator's Joint Account statement or payout statement. Adjustments
that may be made beyond the twenty-four (24) month period are limited
to adjustments resulting from the following:
(1) a physical inventory of Controllable Material as provided for in
Section V (Inventories of Controllable Material), or
(2) an offsetting entry (whether in whole or in part) that is the
direct result of a specific joint interest audit exception
granted by the Operator relating to another property, or
(3) a government/regulatory audit, or
(4) a working interest ownership or Participating Interest
adjustment.
5. EXPENDITURE AUDITS
A. Except for the audit of payout accounts, this Article 5 does not apply
to revenue items or rev audits. A Non-Operator, upon written notice to
the Operator and all other Non-Operators shall have the right to
conduct an audit the Operator's expenditure accounts and records
relating to the Joint Account within the twenty-four (24) month period
following the end of such calendar year which such ▇▇▇▇ was rendered;
however, conducting an audit shall not extend the time for the taking
of written exception to and the adjustment of accounts as provided for
in Section 1.4 (Adjustments). Any Party that is subject to payout
accounting under the Agreement shall have the right to audit the
accounts and records of the Party responsible for preparing the payout
statements, or of the party furnishing information to the Party
responsible for preparing payout statements. Audits of payout accounts
may include the volumes of hydrocarbons produced and saved and
proceeds received for such hydrocarbons as they pertain to payout
accounting required under the Agreement. Unless otherwise provided in
the Agreement, audits of a payout account shall be conducted within
the twenty-four (24) month period following the end of the calendar
year in which the payout statement was rendered.
STWDJOA - Exhibit "C"
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2005 ▇▇▇▇▇ Accounting Procedure
Where there are two or more Non-Operators, the Non-Operators shall
make every reasonable effort to conduct a joint audit in a manner that
will result in a minimum of inconvenience to the Operator. The
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 the Operator, except upon the resignation or removal of
the Operator, and shall be made at the expense of those Non-Operators
approving such audit.
The Non-Operator leading the audit (hereinafter "lead audit company")
shall issue the audit report within ninety (90) days after completion
of the audit testing and analysis; however, the ninety (90) day time
period shall not extend the twenty-four (24) month requirement for
taking specific detailed written exception as required in Section
I.4.A (Adjustments) above. All claims shall be supported with
sufficient documentation.
A timely filed written exception or audit report containing written
exceptions (hereinafter "written exceptions") shall, with respect to
the claims made therein, preclude the Operator from asserting a
statute of limitations defense against such claims, and the Operator
hereby waives its right to assert any statute of limitations defense
against such claims for so long as any Non-Operator continues to
comply with the deadlines for resolving exceptions provided in this
Accounting Procedure. If the Non-Operators fail to comply with the
additional deadlines in Section I.5.C, the Operator's waiver of its
rights to assert a statute of limitations defense against the claims
brought by the Non-Operators shall lapse, and such claims shall then
be subject to the applicable statute of limitations; provided that
such waiver shall not lapse in the event that the Operator has failed
to comply with the deadlines in Section I.5.B or I.5.C.
B. The Operator shall provide a written response to all exceptions in an
audit report within one hundred eighty (180) days after Operator
receives such report. Denied exceptions should be accompanied by a
substantive response.
C. The lead audit company shall reply to the Operator's response to an
audit report within ninety (90) days of receipt, and the Operator
shall reply to the lead audit company's follow-up response within
ninety (90) days of receipt; provided however, each Non-Operator shall
have the right to represent itself if it disagrees with the lead audit
company's position or believes the lead audit company is not
adequately fulfilling its duties.
D. If any Party fails to meet the deadlines in Sections I.5.B or I.5.C or
if any audit issues are outstanding fifteen (15) months after Operator
receives the audit report, the Operator or any Non Operator
participating in the audit has the right to call a resolution meeting,
as set forth in this Section I.5.D or it may invoke the dispute
resolution procedures included in the Agreement, if applicable. The
meeting will require one month's written notice to the Operator and
all Non-Operators participating in the audit. The meeting shall be
held at the Operator's office or mutually agreed location, and shall
be attended by representatives of the Parties with authority to
resolve such outstanding issues. Any Party who fails to attend the
resolution meeting shall be bound by any resolution reached at the
meeting. The lead audit company will make good faith efforts to
coordinate the response and positions of the Non-Operator participants
throughout the resolution process; however, each Non-Operator shall
have the right to represent itself. Attendees will make good faith
STWDJOA - Exhibit "C"
6
2005 ▇▇▇▇▇ Accounting Procedure
efforts to resolve outstanding issues, and each Party will be required
to present substantive information supporting its position. A
resolution meeting may be held as often as agreed to by the Parries.
Issues unresolved at one meeting may be discussed at subsequent
meetings until each such issue is resolved.
If the Agreement contains no dispute resolution procedures and the
audit issues cannot be resolved by negotiation, the dispute shall be
submitted to mediation. In such event, promptly following one Party's
written request for mediation, the Parties to the dispute shall choose
a mutually acceptable mediator and share the costs of mediation
services equally. The Parties shall each have present at the mediation
at least one individual who has the authority to settle the dispute.
The Parties shall make reasonable efforts to ensure that the mediation
commences within sixty (60) days of the date of the mediation request.
Notwithstanding the above, any Party may file a lawsuit or complaint
(1) if the Parties are unable after reasonable efforts, to commence
mediation within sixty (60) days of the date of the mediation request,
(2) for statute of limitations reasons, or (3) to seek a preliminary
injunction or other provisional judicial relief, if in its sole
judgment an injunction or other provisional relief is necessary to
avoid irreparable damage or to preserve the status quo. Despite such
action, the Parties shall continue to try to resolve the dispute by
mediation.
E. (X) Optional Provision -Forfeiture Penalties)
If the Non-Operators fail to meet the deadline in Section I. 5. C, any
unresolved exceptions that were not addressed by the Non-Operators
within one (1) year following receipt of the last substantive response
of the Operator shall be deemed to have been withdrawn by the
Non-Operators. If the Operator fails to meet the deadlines in Section
I.5.B or I.5.C, any unresolved exceptions that were not addressed by
the Operator within one (1) year following receipt of the audit report
or receipt of the last substantive response of the Non-Operators,
whichever is later, shall be deemed to have been granted by the
Operator and adjustments shall be made, without interest, to the Joint
Account.
6. APPROVAL BY PARTIES
A. General Matters
Where an approval or other agreement of the Parties 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, the Operator shall notify all
Parties of the Operator's proposal and the agreement or approval of
two ( 2 ) or more Parties owing at least fifty-one percent (51%)
working interest or Participating Interest shall be controlling on all
Parties, provided however, the approval of at least one Non-Operator
shall be required. Failure of a Party to respond to a matter within
thirty (30) days from receipt of notice or within the time prescribed
in the Agreement for general voting matters, whichever is later, shall
be deemed an affirmative vote by that Party in favor of the proposal.
This Section I.6.A applies to specific situations of limited duration
where a Party proposes to change the accounting for charges from that
prescribed in this Accounting Procedure. This provision does not apply
to amendments to this Accounting Procedure, which are covered by
Section I.6.B.
STWDJOA - Exhibit "C"
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2005 ▇▇▇▇▇ Accounting Procedure
B. Amendments
If the Agreement to which this Accounting Procedure is attached
contains no contrary provisions in regard thereto, this Accounting
Procedure can be amended by an affirmative vote of two (2) or more
Parties, one of which is the Operator, having a combined working
interest of at least eighty percent (80%), which approval shall be
binding on all Parties, provided, however, approval of at least one
(1) Non-Operator shall be required.
C. Affiliates
For the purpose of administering the voting procedures of Sections
I.6.A and I.6.B, if Parties to this Agreement are Affiliates of each
other, then such Affiliates shall be combined and treated as a single
Party having the combined working interest or Participating Interest
of such Affiliates.
For the purposes of administering the voting procedures in Section
I.6.A, if a Non-Operator is an Affiliate of the Operator, votes under
Section I.6.A shall require the approval of at least one Non-Operator
that is not an Affiliate of Operator.
II. DIRECT CHARGES
The Operator shall charge the Joint Account with the following items:
1. RENTALS AND ROYALTIES
Lease rentals and royalties paid by the Operator, on behalf of all Parties,
for the Joint Operations.
2. LABOR
A. Salaries and wages, including incentive compensation programs as set
forth in ▇▇▇▇▇ MFI-37 ("Chargeability of Incentive Compensation
Programs"), for:
(1) Operator's field employees directly employed On-site in the
conduct of Joint Operations,
(2) Operator's employees directly employed on Shore Base Facilities,
Offshore Facilities, or other facilities serving the Joint
Property if such costs are not charged under Section II.6
(Equipment and Facilities Furnished by Operator) or are not a
function covered under Section III (Overhead),
(3) Operator's employees providing First Level Supervision,
(4) Operator's employees providing On-site Technical Services for the
Joint Property if such charges are excluded from the overhead
rates in Section III (Overhead),
(5) Operator's employees providing Off site Technical Services for
the Joint Property if such charges are excluded from the overhead
rates in Section III (Overhead).
STWDJOA - Exhibit "C"
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2005 ▇▇▇▇▇ Accounting Procedure
Charges for the Operator's employees identified in Section II.2.A may
be made based on the employee's actual salaries and wages, or in lieu
thereof a day rate representing the Operator's average salaries and
wages of the employee's specific job category.
Charges for personnel chargeable under this Section II.2.A who are
foreign nationals shall not exceed comparable compensation paid to an
equivalent U.S. employee pursuant to this Section II.2, unless
otherwise approved by the Parties pursuant to Section I.6.A (General
Matters).
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 Section
II.2.A, excluding severance payments or other termination allowances.
Such costs under this Section II.2.B 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 Section II.2.A. 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 that are applicable to costs chargeable to the
Joint Account under Sections 11.2.A and B.
D. Personal Expenses of personnel whose salaries and wages are chargeable
to the Joint Account under Section II.2.A when the expenses are
incurred in connection with directly chargeable activities.
E. Reasonable relocation costs incurred in transferring to the Joint
Property personnel whose salaries and wages are chargeable to the
Joint Account under Section II.2.A. Notwithstanding the foregoing,
relocation costs that result from reorganization or merger of a Party,
or that are for the primary benefit of the Operator, shall not be
chargeable to the Joint Account. Extraordinary relocation costs, such
as those incurred as a result of transfers from remote locations, such
as Alaska or overseas, shall not be charged to the Joint Account
unless approved by the Parties pursuant to Section I.6.A (General
Matters).
F. Training costs as specified in ▇▇▇▇▇ MFI-35 ("Charging of Training
Costs to the Joint Account") for personnel whose salaries and wages
are chargeable under Section II.2.A. This training charge shall
include the wages, salaries, training course cost, and Personal
Expenses incurred during the training session. The training cost shall
be charged or allocated to to the property or properties directly
benefiting from the training. The cost of the training course shall
not exceed prevailing commercial rates, where such rates are
available.
G. Operator's current cost of established plans for employee benefits, as
described in ▇▇▇▇▇ MFI-27 ("Employee Benefits Chargeable to Joint
Operations and Subject to Percentage Limitation"), applicable to the
Operator's labor costs chargeable to the Joint Account under Sections
II.2.A and B based on the Operator's actual cost not to exceed the
employee benefits limitation percentage most recently recommended by
▇▇▇▇▇.
H. Award payments to employees, in accordance with ▇▇▇▇▇ MFI-49 ("Awards
to Employees and Contractors") for personnel whose salaries and wages
are chargeable under Section II.2.A.
STWDJOA - Exhibit "C"
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3. MATERIAL
Material purchased or furnished by the Operator for use on the Joint
Property in the conduct of Joint Operations as provided under Section IV
(Material Purchases, Transfers, and Dispositions). Only such Material shall
be purchased for or transferred to the Joint Property as may be required
for immediate use or is reasonably practical and consistent with efficient
and economical operations. The accumulation of surplus stocks shall be
avoided.
4. TRANSPORTATION
A. Transportation of the Operator's, Operator's Affiliate's, or
contractor's personnel necessary for Joint Operations.
B. Transportation of Material between the Joint Property and another
property, or from the Operator's warehouse or other storage point to
the Joint Property, shall be charged to the receiving property using
one of the methods listed below. Transportation of Material from the
Joint Property to Operator's warehouse or other storage point shall be
paid for by the Joint Property using one of the methods listed below.
(1) If the actual trucking charge is less than or equal to the
Excluded Amount the Operator may charge actual trucking cost or a
theoretical charge from the Railway Receiving Point to the Joint
Property. The basis for the theoretical charge is the per hundred
weight charge plus fuel surcharges from the Railway Receiving
Point to the Joint Property. The Operator shall consistently
apply the selected alternative.
(2) If the actual trucking charge is greater than the Excluded
Amount, the Operator shall charge Equalized Freight. Accessorial
charges such as loading and unloading costs, split pick-up costs,
detention, call out charges, and permit fees shall be charged
directly to the Joint Property and shall not be included when
calculating the Equalized Freight.
5. SERVICES
The cost of contract services, equipment, and utilities used in the conduct
of Joint Operations, except for contract services, equipment, and utilities
covered by Section III (Overhead), or Section II.7 (Affiliates), or
excluded under Section II.9 (Legal Expense). Awards paid to contractors
shall be chargeable pursuant to ▇▇▇▇▇ MFI- 49 ("Awards to Employees and
Contractors").
The costs of third party Technical Services are chargeable to the extent
excluded from the overhead rates under Section III (Overhead).
6. EQUIPMENT AND FACILITIES FURNISHED BY OPERATOR
In the absence of a separately negotiated agreement, equipment and
facilities furnished by the Operator will be charged as follows:
A. Operator shall charge the Joint Account for use of Operator-owned
equipment and facilities, including but not limited to production
facilities, Shore Base Facilities, Offshore Facilities, and Field
Offices, at rates commensurate with the costs of ownership and
operation. The cost of Field Offices shall be chargeable to the
STWDJOA - Exhibit "C"
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2005 ▇▇▇▇▇ Accounting Procedure
extent the Field Offices provide direct service to personnel who are
chargeable pursuant to Section II.2.A (Labor). Such rates may include
labor, maintenance, repairs, other operating expense, insurance,
taxes, depreciation using straight line depreciation method, and
interest on gross investment less accumulated depreciation not to
exceed twelve percent (12%) per annum; provided, however, depreciation
shall not be charged when the equipment and facilities investment have
been fully depreciated. The rate may include an element of the
estimated cost for abandonment, reclamation, and dismantlement. Such
rates shall not exceed the average commercial rates currently
prevailing in the immediate area of the Joint Property.
B. In lieu of charges in Section II.6.A above, the Operator may elect to
use average commercial rates prevailing in the immediate area of the
Joint Property. If equipment and facilities are charged under this
Section II.6.B, the Operator shall adequately document and support
commercial rates and shall periodically review and update the rate and
the supporting documentation. For automotive equipment, the Operator
may elect to use rates published by the Petroleum Motor Transport
Association (PMTA) or such other organization recognized by ▇▇▇▇▇ as
the official source of rates.
C. Operator may, under ▇▇▇▇▇ Accounting Guideline 25 ("Allocation of Rig
Related Expenditures"), charge the Joint Account an allocated portion
of any drillship or rig related commissioning and/or modification
costs pursuant to the provisions of Paragraphs 6.A. and 6.B. above,
provided such drillship or rig related commissioning and/or
modification costs are not included in the drillship or rig rate
charged by the drilling contractor.
D. Operator may charge the Joint Account an allocated portion of Well
DECC costs for planning, designing, drilling, and/or completion of a
well pursuant to the provisions of Paragraphs 6.A. and 6. B. above.
Such charges shall include but are not limited to the following:
facilities, communications, computers, software, system support, and
Well DECC personnel provided by the Operator, contract services, or
Affiliates.
7. AFFILIATES
A. Charges for an Affiliate's goods and/or services used in operations
requiring an AFE or other authorization from the Non-Operators may be
made without the approval of the Parties provided the total costs for
such Affiliate's goods and services billed to such individual project
do not exceed $500,000 per calendar year. If the total costs for an
Affiliate's goods and services charged to such individual project are
not specifically detailed in the approved AFE or authorization or
exceed such amount, charges for such Affiliate shall require approval
of the Parties, pursuant to Section I.6.A (General Matters).
B. For an Affiliate's goods and /or services used in operations not
requiring an AFE or other authorization from the Non-Operators,
charges for such Affiliate's goods and services shall require approval
of the Parties, pursuant to Section I.6.A (General Matters), if the
charges exceed $500,000.00 in a given calendar year.
C. Affiliate services shall be charged to the Joint Account on a standard
daily/hourly rate or actual cost basis as charged by the Affiliate for
personnel and/or services. Affiliate charges may also include any
direct purchases for Materials required for the services rendered as
STWDJOA - Exhibit "C"
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2005 ▇▇▇▇▇ Accounting Procedure
well as any charges for the use of Affiliate-owned equipment and
facilities including computer applications, software and associated
computer time utilized.
Charges to the Joint Account for any Materials, facilities, or
services provided by an Affiliate shall not exceed average commercial
rates, when such rates are available. In the event a Party determines
such charges to be excessive compared with third-party rates, that
Party must substantiate that such charges exceed average commercial
rates and shall provide sufficient documentation to support all such
claims in accordance with Section I, Paragraph 5. The Parties agree
that Affiliates' records relating to the Materials, facilities, or
services provided by the Affiliates will not be made available for
audit. Notwithstanding the foregoing, direct charges for
Affiliate-owned communication facilities or systems shall be made
pursuant to Section II.12 (Communications).
8. DAMAGES AND LOSSES TO JOINT PROPERTY
All costs or expenses necessary for the repair or replacement of Joint
Property resulting from damages or losses incurred, except to the extent
such damages or losses result from a Party's or Parties' gross negligence
or willful misconduct, in which case such Party or Parties shall be solely
liable.
The Operator shall furnish the Non-Operator written notice of damages or
losses incurred as soon as practicable after a report has been received by
the Operator.
9. LEGAL EXPENSE
Recording fees and costs of handling, settling, or otherwise discharging
litigation, claims, and liens incurred in or resulting from operations
under the Agreement, or necessary to protect or recover the Joint Property,
to the extent permitted under the Agreement. Costs of the Operator's or
Affiliate's legal staff or outside attorneys, including fees and expenses,
are not chargeable unless approved by the Parties pursuant to Section I.6.A
(General Matters) or otherwise provided for in the Agreement.
Notwithstanding the foregoing paragraph, costs for procuring abstracts,
fees paid to outside attorneys for title examinations (including
preliminary, supplemental, shut-in royalty opinions, division order title
opinions), and curative work shall be chargeable to the extent permitted as
a direct charge in the Agreement.
10. TAXES AND PERMITS
All taxes and permitting fees of every kind and nature, assessed or levied
upon or in connection with the Joint Property, or the production therefrom,
and which have been paid by the Operator for the benefit of the Parties,
including penalties and interest, except to the extent the penalties and
interest result from the Operator's gross negligence or willful misconduct.
If ad valorem taxes paid by the Operator are based in whole or in part upon
separate valuations of each Party's working interest, then notwithstanding
any contrary provisions, the charges to the Parties will be made in
accordance with the tax value generated by each Party's working interest.
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Costs of tax consultants or advisors, the Operator's employees, or
Operator's Affiliate employees in matters regarding ad valorem or other tax
matters, are not permitted as direct charges unless approved by the Parties
pursuant to Section I.6.A (General Matters).
Charges to the Joint Account resulting from sales/use tax audits, including
extrapolated amounts and penalties and interest, are permitted, provided
the Non-Operator shall be allowed to review the invoices and other
underlying source documents which served as the basis for tax charges and
to determine that the correct amount of taxes were charged to the Joint
Account. If the Non-Operator is not permitted to review such documentation,
the sales/use tax amount shall not be directly charged unless the Operator
can conclusively document the amount owed by the Joint Account.
11. INSURANCE
Net premiums paid for insurance required to be carried for Joint Operations
for the protection of the Parties. If Joint Operations are conducted at
locations where the Operator acts as self-insurer in regard to its worker's
compensation and employer's liability insurance obligation, the Operator
shall charge the Joint Account manual rates for the risk assumed in its
self-insurance program as regulated by the jurisdiction governing the Joint
Property. In the case of offshore operations in federal waters, the manual
rates of the adjacent state shall be used for personnel performing work
On-site, and such rates shall be adjusted for offshore operations by the
U.S. Longshoreman and Harbor Workers (USL&H) or ▇▇▇▇▇ Act surcharge, as
appropriate.
12. COMMUNICATIONS
Costs of acquiring, leasing, installing, operating, repairing, and
maintaining communication facilities or systems, including satellite, radio
and microwave facilities, between the Joint Property and the Operator's
office(s) directly responsible for field operations in accordance with the
provisions of ▇▇▇▇▇ MFI-44 ("Field Computer and Communication Systems"). If
the communications facilities or systems serving the Joint Property are
Operator-owned, charges to the Joint Account shall be made as provided in
Section II.6 (Equipment and Facilities Furnished by Operator). If the
communication facilities or systems serving the Joint Property are owned by
the Operator's Affiliate, charges to the Joint Account shall not exceed
average commercial rates prevailing in the area of the Joint Property.
13. ECOLOGICAL, ENVIRONMNTAL, AND SAFETY
Costs incurred for Technical Services and drafting to comply with
ecological, environmental and safety Laws or standards recommended by
Occupational Safety Hazards Act (OSHA) or other regulatory authorities. All
other labor and functions incurred for ecological, environmental and safety
matters, including management, administration, and permitting, shall be
covered by Sections II.2 (Labor), II.5 (Services), or Section III
(Overhead), as applicable.
Costs to provide or have available pollution containment and removal
equipment plus actual costs of control and cleanup and resulting
responsibilities of oil and other spills as well as discharges from
permitted outfalls as required by applicable Laws, or other pollution
containment and removal equipment deemed appropriate by the Operator for
prudent operations, are directly chargeable.
STWDJOA - Exhibit "C"
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14. ABANDONMENT AND RECLAMATION
Costs incurred for abandonment and reclamation of the Joint Property,
including costs required by lease agreements or by Laws.
15. OTHER EXPENDITURES
Any other expenditure not covered or dealt with in the foregoing provisions
of this Section II (Direct Charges), or in Section III (Overhead) 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. Charges made
under this Section II.15 shall require approval of the Parties, pursuant to
Section I.6.A (General Matters).
III. OVERHEAD
As compensation for costs not specifically identified as chargeable to the
Joint Account pursuant to Section II (Direct Charges), the Operator shall
charge the Joint Account in accordance with this Section III.
Functions included in the overhead rates regardless of whether performed by
Operator, Operator's Affiliates or third parties and regardless of
location, shall include, but not be limited to, costs and expenses of:
o warehousing, other than for warehouses that are jointly owned
under this Agreement
o design and drafting (except when allowed as a direct charge under
Sections II. 13, III.1.A(ii), and III.2 Option B)
o inventory costs not chargeable under Section V (Inventories of
Controllable Material)
o procurement
o administration
o accounting and auditing
o gas dispatching and gas chart integration
o human resources
o management
o supervision not directly charged under Section II.2 (Labor)
o legal services not directly chargeable under Section II.9 (Legal
Expense)
o taxation, other than those costs identified as directly
chargeable under Section II.10 (Taxes and Permits)
o preparation and monitoring of permits and certifications;
preparing regulatory reports; appearances before or meetings with
governmental agencies or other authorities having jurisdiction
over the Joint Property, other than On-site inspections;
reviewing, interpreting, or submitting comments on or lobbying
with respect to Laws or proposed Laws.
Overhead charges shall include the salaries or wages plus applicable
payroll burdens, benefits, and Personal Expenses of personnel performing
overhead functions, as well as office and other related expenses of
overhead functions.
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1. OVERHEAD-DRILLING AND PRODUCING OPERATIONS
As compensation for costs incurred but not chargeable under Section II
(Direct Charges) and not covered by other provisions of this Section III,
the Operator shall charge on either:
(_) (Alternative 1) Fixed Rate Basis, Section III.1.B.
(X) (Alternative 2) Percentage Basis, Section III.1.C.
A. Technical Services
(i) Except as otherwise provided in Section II.13 (Ecological
Environmental, and Safety) and Section III.2 (Overhead - Major Construction
and Catastrophe), or by approval of the Parties pursuant to Section I.6.A
(General Matters), the salaries, wages, related payroll burdens and
benefits, and Personal Expenses for On-site Technical Services, including
third party Technical Services:
(X) (Alternative 1- Direct) shall be charged direct to the Joint
Account.
(_) (Alternative 2 - Overhead) shall be covered by the overhead
rates.
(ii) Except as otherwise provided in Section II.13 (Ecological,
Environmental, and Safety) and Section III.2 (Overhead - Major Construction
and Catastrophe), or by approval of the Parties pursuant to Section I.6.A
(General Matters), the salaries, wages, related payroll burdens and
benefits, and Personal Expenses for Off site Technical Services, including
third party Technical Services:
(_) (Alternative 1- All Overhead) shall be covered by the overhead
rates.
(_) (Alternative 2 - All Direct) shall be charged direct to the Joint
Account.
(X) (Alternative 3 - Drilling Direct) shall be charged direct to the
Joint Account, only to the extent such Technical Services are directly
attributable to drilling, redrilling, deepening, or sidetracking
operations, through completion, temporary abandonment, or abandonment
if a dry hole. Off-site Technical Services for all other operations,
including workover, Recompletion, abandonment of producing ▇▇▇▇▇, and
the construction or expansion of fixed assets not covered by Section
III.2 (Overhead - Major Construction and Catastrophe) shall be covered
by the overhead rates.
Notwithstanding anything to the contrary in this Section III, Technical
Services provided by Operator's Affiliates are subject to limitations set
forth in Section II.7 (Affiliates). Charges for Technical personnel
performing non-technical work shall not be governed by this Section
III.1.A, but instead governed by other provisions of this Accounting
Procedure relating to the type of work being performed.
B. Overhead-Fixed Rate Basis
(1) The Operator shall charge the Joint Account at the following
rates per well per month:
Drilling Well Rate per month $ ______________(prorated for less
than a full month)
STWDJOA - Exhibit "C"
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2005 ▇▇▇▇▇ Accounting Procedure
Producing Well Rate per month $___________________________
(2) Application of Overhead-Drilling Well Rate shall be as follows:
(a) Charges for onshore drilling ▇▇▇▇▇ shall begin on the spud
date and terminate on the date the drilling and/or
completion equipment used on the well is released, whichever
occurs later. Charges for offshore and inland waters
drilling ▇▇▇▇▇ shall begin on the date the drilling or
completion equipment arrives on location and terminate on
the date the drilling or completion equipment moves off
location, or is released, whichever occurs frst. No charge
shall be made during suspension of drilling and/or
completion operations for ffeen (15) or more consecutive
calendar days.
(b) Charges for any well undergoing any type of workover,
recompletion, and/or abandonment for a period of fve (5) or
more consecutive workdays shall be made at the Drilling Well
Rate. Such charges shall be applied for the period from date
operations, with rig or other units used in operations,
commence through date of rig or other unit release, except
that no charges shall be made during suspension of
operations for ffeen (15) or more consecutive calendar days.
(3) Application of Overhead-Producing Well Rate shall be as follows:
(a) An active well that is produced, injected into for recovery
or disposal, or used to obtain water supply to support
operations 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 shall be
considered as a one-well charge provided each completion is
considered a separate well by the governing regulatory
authority.
(c) A one-well charge shall be made for the month in which
plugging and abandonment operations are completed on any
well, unless the Drilling Well Rate applies, as provided in
Sections III. 1.B.(2)(a) or (b). This one-well charge shall
be made whether or not the well has produced.
(d) An active gas well shut in because of overproduction or
failure of a purchaser, processor, or transporter to take
production shall be considered as a one-well charge provided
the gas well is directly connected to a permanent sales
outlet.
(e) Any well not meeting the criteria set forth in Sections
I1.1.B.(3) (a), (b), (c), or (d) shall not qualify for a
producing overhead charge.
(4) The well rates shall be adjusted on the first day of April each
year following the effective date of the Agreement; provided
however, if this Accounting Procedure is attached to or otherwise
governing the payout accounting under a farmout agreement, the
rates shall be adjusted on the first day of April each year
following the effective date of such farmout agreement. The
adjustment shall be computed by applying the adjustment factor
most recently published by ▇▇▇▇▇. The adjusted rates shall be the
initial or amended rates agreed to by the Parties increased or
decreased by the adjustment factor described herein, for each
year from the effective date of such rates, in accordance with
▇▇▇▇▇ MFI-47 ("Adjustment of Overhead Rates").
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C. Overhead Percentage Basis
(1) Operator shall charge the Joint Account at the following rates:
(a) Development Rate three Percent (3%) of the cost of development of
the Joint Property, exclusive of costs provided under Section
II.9 (Legal Expense) and all Material salvage credits.
(b) Operating Rate thirteen Percent (13%) of the cost of operating
the Joint Property, exclusive of costs provided under Sections
II.1 (Rentals and Royalties) and II.9 (Legal Expense); all
Material salvage credits; the value of substances purchased for
enhanced recovery; all property and ad valorem taxes, and any
other taxes and assessments that 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:
(a) The Development Rate shall be applied to all costs in connection with:
[i] drilling, redrilling, sidetracking, or deepening of a well
[ii] a well undergoing plugback or workover operations for a period of
five (5) or more consecutive work-days
[iii]preliminary expenditures necessary in preparation for drilling
[iv] expenditures incurred in abandoning when the well is not
completed as a producer
[v] construction or installation of fixed assets, the expansion of
fixed assets and any other project clearly discernible as a fixed
asset, other than Major Construction or Catastrophe as defined in
Section III.2 (Overhead-Major Construction and Catastrophe).
(b) The Operating Rate shall be applied to all other costs in connection
with Joint Operations, except those subject to Section III.2
(Overhead-Major Construction and Catastrophe).
2. OVERHEAD-MAJOR CONSTRUCTION AND CATASTROPHE
To compensate the Operator for overhead costs incurred in connection with a
Major Construction project or Catastrophe, the Operator shall either
negotiate a rate prior to the beginning of the project, or shall charge the
Joint Account for overhead based on the following rates for any Major
Construction project in excess of the Operator's expenditure limit under
the Agreement, or for any Catastrophe regardless of the amount. If the
Agreement to which this Accounting Procedure is attached does not contain
an expenditure limit, Major Construction Overhead shall be assessed for any
single Major Construction project costing in excess of $100,000 gross.
Major Construction shall mean the construction and installation of fixed
assets, the expansion of fixed assets, and any other project clearly
discernible as a fixed asset required for the development and operation of
the Joint Property, or in the dismantlement, abandonment, removal, and
restoration of platforms, production equipment, and other operating
facilities.
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Catastrophe is defined as a sudden calamitous event bringing damage, loss,
or destruction to property or the environment, such as an oil spill,
blowout, explosion, fire, storm, hurricane, or other disaster. The overhead
rate shall be applied to those costs necessary to restore the Joint
Property to the equivalent condition that existed prior to the event.
A. If the Operator absorbs the engineering, design and drafting costs
related to the project:
(1) __6___% of total costs if such costs are 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 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 cost shall mean the gross cost of any one project. For the purpose of
this paragraph, the component parts of a single Major Construction project
shall not be treated separately, and the cost of drilling and workover
▇▇▇▇▇ and purchasing and installing pumping units and downhole artificial
lift equipment shall be excluded. For Catastrophes, the rates shall be
applied to all costs associated with each single occurrence or event.
For the purposes of calculating Catastrophe Overhead, the cost of drilling
relief ▇▇▇▇▇, substitute ▇▇▇▇▇, or conducting other well operations
directly resulting from the catastrophic event shall be included.
Expenditures to which these rates apply shall not be reduced by salvage or
insurance recoveries. Expenditures that qualify for Major Construction or
Catastrophe Overhead shall not qualify for overhead under any other
overhead provisions.
In the event of any conflict between the provisions of this Section III.2
and the provisions of Sections II.2 (Labor), II.5 (Services), or II.7
(Affiliates), the provisions of this Section III.2 shall govern.
3. AMENDMENT OF OVERHEAD RATES
The overhead rates provided for in this Section III may be amended from
time to time if, in practice, the rates are found to be insufficient or
excessive, in accordance with the provisions of Section I.6.B (Amendments).
STWDJOA - Exhibit "C"
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2005 ▇▇▇▇▇ Accounting Procedure
IV. MATERIAL PURCHASES, TRANSFERS, AND DISPOSITIONS
The Operator is responsible for Joint Account Material and shall make proper and
timely charges and credits for direct purchases, transfers, and dispositions.
The Operator shall provide all Material for use in the conduct of Joint
Operations; however, Material may be supplied by the Non-Operators, at the
Operator's option. Material furnished by any Party shall be furnished without
any express or implied warranties as to quality, fitness for use, or any other
matter.
1. DIRECT PURCHASES
Direct purchases shall be charged to the Joint Account at the price paid by
the Operator after deduction of all discounts received. The Operator shall
make good faith efforts to take discounts offered by suppliers, but shall
not be liable for failure to take discounts except to the extent such
failure was the result of the Operator's gross negligence or willful
misconduct. A direct purchase shall be deemed to occur when an agreement is
made between an Operator and a third party for the acquisition of Material
for a specific well site or location. Material provided by the Operator
under "vendor stocking programs," where the initial use is for a Joint
Property and title of the Material does not pass from the manufacturer,
distributor, or agent until usage, is considered a direct purchase. If
Material is found to be defective or is returned to the manufacturer,
distributor, or agent for any other reason, credit shall be passed to the
Joint Account within sixty (60) days after the Operator has received
adjustment from the manufacturer, distributor, or agent.
2. TRANSFERS
A transfer is determined to occur when the Operator (i) furnishes Material
from or a storage facility from another operated property, (ii) has assumed
liability for the storage costs and changes in value, and (iii) has
previously secured and held title to the transferred Material. Similarly,
the removal of Material from the Joint Property to a storage facility or to
another operated property is also considered a transfer; provided, however
Material that is moved from the Joint Property to a storage location for
safe-keeping pending disposition may remain charged to the Joint Account
and is not considered a transfer. Material shall be disposed of in
accordance with Section IV.3 (Disposition of Surplus) and the Agreement to
which this Accounting Procedure is attached.
A. PRICING
The value of Material transferred to/from the Joint Property should
generally reflect the market value on the date of physical transfer.
Regardless of the pricing method used, the Operator shall make
available to the Non-Operators sufficient documentation to verify the
Material valuation. When higher than specification grade or size
tubulars are used in the conduct of Joint Operations, the Operator
shall charge the Joint Account at the equivalent price for well design
specification tubulars, unless such higher specification grade or
sized tubulars are approved by the Parties pursuant to Section I.6.A
(General Matters). Transfers of new Material will be priced using one
of the following pricing methods; provided, however, the Operator
shall use consistent pricing methods, and not alternate between
methods for the purpose of choosing the method most favorable to the
Operator for a specific transfer:
(1) Using published prices in effect on date of movement as adjusted
by the appropriate ▇▇▇▇▇ Historical Price Multiplier (HPM) or
prices provided by the ▇▇▇▇▇ Computerized Equipment Pricing
System (CEPS).
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(a) For oil country tubulars and line pipe, the published price
shall be based upon eastern mill carload base prices
(Houston, Texas, for special end) adjusted as of date of
movement, plus transportation cost as defned in Section
IV.2.B (Freight).
(b) For other Material, the published price shall be the
published list price in effect at date of movement, as
listed by a Supply Store nearest the Joint Property where
like Material is normally available, or point of manufacture
plus transportation costs as defned in Section IV.2.B
(Freight).
(2) Based on a price quotation from a vendor that reflects a current
realistic acquisition cost.
(3) Based on the amount paid by the Operator for like Material in the
vicinity of the Joint Property within the previous twelve (12)
months from the date of physical transfer.
(4) As agreed to by the Participating Parties for Material being
transferred to the Joint Property, and by the Parties owning the
Material for Material being transferred from the Joint Property.
B. FREIGHT
Transportation costs shall be added to the Material transfer price
using the method prescribed by the ▇▇▇▇▇ Computerized Equipment
Pricing System (CEPS). If not using CEPS, transportation costs shall
be calculated as follows:
(1) Transportation costs for oil country tubulars and line pipe shall
be calculated using the distance from eastern mill to the Railway
Receiving Point based on the carload weight basis as recommended
by the ▇▇▇▇▇ MFI-3 8 ("Material Pricing Manual") and other ▇▇▇▇▇
MFIs in effect at the time of the transfer.
(2) Transportation costs for special mill items shall be calculated
from that mill's shipping point to the Railway Receiving Point.
For transportation costs from other than eastern ▇▇▇▇▇, the
30,000-pound interstate truck rate shall be used. Transportation
costs for macaroni tubing shall be calculated based on the
interstate truck rate per weight of tubing transferred to the
Railway Receiving Point.
(3) Transportation costs for special end tubular goods shall be
calculated using the interstate truck rate from Houston, Texas,
to the Railway Receiving Point.
(4) Transportation costs for Material other than that described in
Sections IV.2.B.(1) through (3), shall be calculated from the
Supply Store or point of manufacture, whichever is appropriate,
to the Railway Receiving Point.
Regardless of whether using CEPS or manually calculating
transportation costs, transportation costs from the Railway Receiving
Point to the Joint Property are in addition to the foregoing, and may
be charged to the Joint Account based on actual costs incurred. All
transportation costs are subject to Equalized Freight as provided in
Section II.4 (Transportation) of this Accounting Procedure.
STWDJOA - Exhibit "C"
20
2005 ▇▇▇▇▇ Accounting Procedure
C. TAXES
Sales and use taxes shall be added to the Material transfer price using
either the method contained in the ▇▇▇▇▇ Computerized Equipment Pricing
System (CEPS) or the applicable tax rate in effect for the Joint Property
at the time and place of transfer. In either case, the Joint Account shall
be charged or credited at the rate that would have governed had the
Material been a direct purchase.
D. CONDITION
(1) Condition "A" - New and unused Material in sound and serviceable
condition shall be charged at one hundred percent (100%) of the price
as determined in Sections IV.2.A (Pricing), JV.2.B (Freight), and
IV.2.C (Taxes). Material transferred from the Joint I that was not
placed in service shall be credited as charged without gain or loss;
provided, however, any unused Material that was charged to the Joint
Account through a direct purchase will be credited to the Joint
Account at the original cost paid less restocking fees charged by the
vendor. New and unused Material transferred from the Joint Property
may be credited at a price other than the price originally charged to
the Joint Account provided such price is approved by the Parties
owning such Material, pursuant to Section I.6.A (General Matters). All
refurbishing costs required or necessary to return the Material to
original condition or to correct handling, transportation, or other
damages will be borne by the divesting property. The Joint Account is
responsible for Material preparation, handling, and transportation
costs for new and unused Material charged to the Joint Property either
through a direct purchase or transfer. Any preparation costs incurred,
including any internal or external coating and wrapping, will be
credited on new Material provided these services were not repeated for
such Material for the receiving property.
(2) Condition "B" - Used Material in sound and serviceable condition and
suitable for reuse without reconditioning shall be priced by
multiplying the price determined in Sections IV.2.A (Pricing), IV.2.B
(Freight), and N.2.C (Taxes) by seventy-five percent (75%).
Except as provided in Section N.2.D (3), all reconditioning costs
required to return the Material to Condition "B" or to correct
handling, transportation or other damages will be borne by the
divesting property.
If the Material was originally charged to the Joint Account as used
Material and placed in service for the Joint Property, the Material
will be credited at the price determined in sections IV.2.A (Pricing),
IV.2.B (Freight), and IV.2.C (Taxes) multiplied by sixty-five percent
(65%).
Unless otherwise agreed to by the Parties that paid for such Material,
used Material transferred from the Joint Property that was not placed
in service on the property shall be credited as charged without gain
or loss.
(3) Condition "C" - Material that is not in sound and serviceable
condition and not suitable for its original function until after
reconditioning shall be priced by multiplying the price determined in
Sections IV.2.A (Pricing), IV.2.B (Freight), and IV.2.C (Taxes) by
fifty percent (50%).
STWDJOA - Exhibit "C"
21
2005 ▇▇▇▇▇ Accounting Procedure
The cost of reconditioning may be charged to the receiving property to
the extent Condition "C" value, plus cost of reconditioning, does not
exceed Condition "B" value.
(4) Condition "D" - Material that (i) is no longer suitable for its
original purpose but useable some other purpose, (ii) is obsolete, or
(iii) does not meet original specifications but still has value and
can be used in other applications as a substitute for items with
different specifications, is considered Condition "D" Material.
Casing, tubing, or drill pipe line pipe shall be priced as Grade A and
B seamless line pipe of comparable size and weight. Used casing,
tubing, or drill pipe used as line pipe shall be priced at used line
pipe 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. For other
items, the price used should result in the Joint Account being charged
or credited with the value of the service rendered or use of the
Material, or as agreed to by the Parties pursuant to section 1.6. A
(General Matters).
(5) Condition "E" - Junk shall be priced at prevailing scrap value prices.
E. OTHER PRICING PROVISIONS
(1) Preparation Costs
Subject to Section II (Direct Charges) and Section III (Overhead) of
this Accounting Procedure, costs incurred by the Operator in making
Material serviceable including inspection, third party surveillance
services, and other similar services will be charged to the Joint
Account at prices which reflect the Operator's actual costs of the
services. Documentation must be provided to the Non-Operators upon
request to support the cost of service. New coating and/or wrapping
shall be considered a component of the Materials and priced in
accordance with Sections IV.1 (Direct Purchases) or IV.2.A (Pricing),
as applicable. No charges or credits shall be made for used coating or
wrapping. Charges and credits for inspections shall be made in
accordance with ▇▇▇▇▇ MFI-38 ("Material Pricing Manual").
(2) Loading and Unloading Costs
Loading and unloading costs related to the movement of the Material to
the Joint Property shall be charged in accordance with the methods
specified in ▇▇▇▇▇ MFI-38 ("Material Pricing Manual").
3. DISPOSITION OF SURPLUS
Surplus Material is that Material, whether new or used, that is no longer
required for Joint Operations. The Operator may purchase, but shall be
under no obligation to purchase, the interest of the Non-Operators in
surplus Material.
Dispositions for the purpose of this procedure are considered to be the
relinquishment of title of the Material from the Joint Property to either a
third party, a Non-Operator, or to the Operator. To avoid the accumulation
STWDJOA - Exhibit "C"
22
2005 ▇▇▇▇▇ Accounting Procedure
of surplus Material, the Operator should make good faith efforts to dispose
of surplus within twelve (12) months through buy/sale agreements, trade,
sale to a third party, division in kind, or other dispositions as agreed to
by the Parties.
Disposal of surplus Materials shall be made in accordance with the terms of
the Agreement to which this Accounting Procedure is attached. If the
Agreement contains no provisions governing disposeal of surplus Material,
the following terms shall apply:
o The Operator may, through a sale to an unrelated third party or
entity, dispose of surplus Material having a gross sale value
that is less than or equal to the Operator's expenditure limit as
set forth in the Agreement to which this Accounting Procedure is
attached without the prior approval of the Parties owning such
Material.
o If the gross sale value exceeds the Agreement expenditure limit,
the disposal must be agreed to by the Parties owning such
Material.
o Operator may purchase surplus Condition "A" or "B" Material
without approval of the Parties owning such Material, based on
the pricing methods set forth in Section IV.2 (Transfers).
o Operator may purchase Condition "C" Material without prior
approval of the Parties owning such Material if the value of the
Materials, based on the pricing methods set forth in section IV.2
(Transfers), is less than or equal to the Operator's expenditure
limitation set forth in the Agreement. The Operator shall provide
documentation supporting the classification of the Material as
Condition C.
o Operator may dispose of Condition "D" or "E" Material under
procedures normally utilized by Operator without prior approval
of the Parties owning such Material.
4. SPECIAL PRICING PROVISIONS
A. PREMIUM PRICING
Whenever Material is available only at inflated prices due to national
emergencies, strikes, government imposed foreign trade restrictions,
or other unusual causes over which the operator has no control, for
direct purchase the Operator may charge the Joint Account for the
required Material at the Operator's actual cost incurred in providing
such Material, making it suitable for use, and moving it to the Joint
Property. Material transferred or disposed of during premuim pricing
situations shall be valued in accordance with Section IV.2 (Transfers)
or Section IV.3 (Disposition of Surplus), as applicable.
B. SHOP-MADE ITEMS
Items fabricated by the Operator's employees, or by contract laborers
under the direction of the Operator, shall be priced using the value
of the Material used to construct the item plus the cost of labor to
fabricate the item. If the Material is from the Operator's scrap or
junk account, the Material shall be priced at either twenty-five
percent (25%) of the current price as determined in Section IV.2.A
(Pricing) or scrap value, whichever is higher. In no event shall the
amount charged exceed the value of the item commensurate with its use.
STWDJOA - Exhibit "C"
23
2005 ▇▇▇▇▇ Accounting Procedure
C. MILL REJECTS
Mill rejects purchased as "limited service" casing or tubing shall be
priced at eighty percent (80%) of K-55/J-55 price as determined in
Sections JV.2 (Transfers). Line pipe converted to casing or tubing
with casing or tubing couplings attached shall be priced as K-55/J-55
casing or tubing at the nearest size and weight.
V. INVENTORIES OF CONTROLLABLE MATERIAL
The Operator shall maintain records of Controllable Material charged to the
Joint Account, with sufficient detail to perform physical inventories.
Adjustments to the Joint Account by the Operator resulting from a physical
inventory of Controllable Material shall be made within twelve (12) months
following the taking of the inventory or receipt of Non-Operator inventory
report. Charges and credits for overages or shortages will be valued for the
Joint Account in accordance with Section IV.2 (Transfers) and shall be based on
the Condition "B" prices in effect on the date of physical inventory unless the
inventorying Parties can provide sufficient evidence another Material condition
applies.
1. DIRECTED INVENTORIES
Physical inventories shall be performed by the Operator upon written
request of a majority in working interests of the Non-Operators
(hereinafter, "directed inventory"); provided, however, the Operator shall
not be required to perform directed inventories more frequently than once
every five (5) years. Directed inventories shall be commenced within one
hundred eighty (180) days after the Operator receives written notice that a
majority in interest of the Non-Operators has requested the inventory. All
Parties shall be governed by the results of any directed inventory.
Expenses of directed inventories will be borne by the Joint Account;
provided, however, costs associated with any post-report follow-up work in
settling the inventory will be absorbed by the Party incurring such costs.
The Operator is expected to exercise judgment in keeping expenses within
reasonable limits. Any anticipated disproportionate or extraordinary costs
should be discussed and agreed upon prior to commencement of the inventory.
Expenses of directed inventories may include the following:
A. A per diem rate for each inventory person, representative of actual
salaries, wages, and payroll burdens and benefits of the personnel
performing the inventory or a rate agreed to by the Parties pursuant
to Section I.6.A (General Matters). The per diem rate shall also be
applied to a reasonable number of days for pre-inventory work and
report preparation.
B. Actual transportation costs and Personal Expenses for the inventory
team.
C. Reasonable charges for report preparation and distribution to the
Non-Operators.
STWDJOA - Exhibit "C"
24
2005 ▇▇▇▇▇ Accounting Procedure
2. NON-DIRECTED INVENTORIES
A. OPERATOR INVENTORIES
Physical inventories that are not requested by the Non-Operators may
be performed by the Operator, at the Operator's discretion. The
expenses of conducting such Operator-initiated inventories shall not
be charged to the Joint Account.
B. NON-OPERATOR INVENTORIES
Subject to the terms of the Agreement to which this Accounting
Procedure is attached, the Non-Operators may conduct a physical
inventory at reasonable times at their sole cost and risk after giving
the Operator at least ninety (90) days prior written notice. The
Non-Operator inventory report shall be furnished to the Operator in
writing within ninety (90) days of completing the inventory field
work.
C. SPECIAL INVENTORIES
The expense of conducting inventories other than those described in
Sections V.1 (Directed Inventories), V.2.A (Operator Inventories), or
V.2.B (Non-Operator Inventories), shall be charged to the Party
requesting such inventory; provided, however, inventories required due
to a change of Operator shall be charged to the Joint Account in the
same manner as described in Section V.1 (Directed Inventories).
STWDJOA - Exhibit "C"
25
Exhibit "D"
Attached to and made a part of that certain Offshore Operating Agreement dated
effective as of the ______ day of _________, 20___, between Chevron U.S.A. Inc.,
Dominion Exploration & Production, Inc. and Ridgewood Energy Corporation,
covering __________ Block _______, Federal Offshore, Gulf of Mexico
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 100 (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."
STWDJOA - Exhibit "D"
1
"(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."
STWDJOA - Exhibit "D"
2
Exhibit "E"
Attached to and made a part of that certain Offshore Operating Agreement dated
effective as of the ______ day of ___________, 20___, between Chevron U.S.A.
Inc., Dominion Exploration & Production, Inc. and Ridgewood Energy Corporation,
covering ____________Block _____________, Federal Offshore, Gulf of Mexico
GAS BALANCING AGREEMENT ("AGREEMENT")
Definitions
The following definitions shall apply to this Agreement:
o "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.
o "Balancing Area" shall mean all of the acreage and depths subject to
the Offshore Operating Agreement.
o "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.
o "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.
o "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 2.3. or Section 3.1. hereof.
o "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.
o "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.
o "Operator" shall mean the individual or entity designated under the
terms of the Offshore Operating Agreement or, in the event this
Agreement is not employed in connection with an operating agreement,
STWDJOA - Exhibit "E"
-1-
the individual or entity designated as the operator of the well(s)
located in the Balancing Area.
o "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.
o "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.
o "Party" shall mean those individuals or entities subject to this
Agreement, and their respective heirs, successors, transferees and
assigns.
o "Percentage Interest" shall mean the percentage or decimal interest of
each Party in the Gas produced from the Balancing Area pursuant to the
Offshore Operating Agreement covering the Balancing Area.
o "Royalty" shall mean payments on production of Gas from the Balancing
Area to all owners of royalties, overriding royalties, production
payments or similar interests.
o "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.
o "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.
o "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.
1. Balancing Area
1.1. 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.
1.2. 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.
2. Right of Parties to Take Gas
2.1. 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.
STWDJOA - Exhibit "E"
-2-
2.2. 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 leases in effect, to protect the
producing capacity of a well or reservoir, to preserve correlative
rights, or to maintain oil production.
2.3. 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.
2.4. 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.
2.5. Notwithstanding the provisions of Section 2.3. 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.
2.6. 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 2.4. 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.
3. In-Kind Balancing
3.1. 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 2.3.
of this Agreement, a share of current production determined by
multiplying thirty-seven and one-half percent (37.5%) of the Full
STWDJOA - Exhibit "E"
-3-
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.
3.2. Notwithstanding the provisions of Section 3.1., the average monthly
amount of Makeup Gas taken by an Underproduced Party during the Winter
Period pursuant to Section 3.1. 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.
4. Statement of Gas Balances
4.1. 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.
4.2. 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.
5. Payments on Production
5.1. 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.
5.2. [X] (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.
[_] (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.
5.3. In the event that any governmental authority requires that Royalty
payments be made on any other basis than that provided for in this
Section 5., 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.
STWDJOA - Exhibit "E"
-4-
6. Cash Settlements
6.1. Upon the earlier of the plugging and abandonment of the last producing
interval in the Balancing Area, the termination of the Offshore
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.
6.2. Within sixty (60) days after the notice calling for cash settlement
under Section 6.1., 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 6.4.
6.3. 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.
6.4. 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.
6.5. The values used for calculating the cash settlement under Section 6.4.
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.
6.6. 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 attributable to the Overproduction without
regard to proceeds attributable to liquid hydrocarbons which may have
been extracted from the Overproduction.
6.7. 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.
STWDJOA - Exhibit "E"
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6.8. 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 6.1., beginning the first day following the date payment
is due pursuant to Section 6.3. Such interest shall be borne by the
Overproduced Party in the proportion that its respective delays beyond
the deadlines set out in Sections 6.2. or 6.3. contributed to the
accrual of the interest.
6.9. In lieu of the cash settlement required by Section 6.3., 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 6.3. The making of an
in-kind settlement offer under this Section 6.9. will not delay the
accrual of interest on the cash settlement should the Parties fail to
reach agreement on an in-kind settlement.
6.10. 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.
7. 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.
8. 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.
9. 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.
STWDJOA - Exhibit "E"
-6-
10. Audit Rights
Notwithstanding any provision in this Agreement or any other agreement
between the 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
4. or 6. 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 6. 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
ofice 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 10. shall be in addition to those
provided for in Section 4.2. of this Agreement.
11. Miscellaneous
11.1. 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.
11.2. 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.
11.3. 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 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.
11.4. This Agreement shall remain in full force and efect for as long as
the Ofshore Operating Agreement shall remain in force and efect 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.
11.5. 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.
STWDJOA - Exhibit "E"
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11.6. 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.
11.7. 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
thereafer 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 afecting
the Balancing Area.
11.8. The Parties to this Agreement agree to abide by the requirements of
Treas. Reg. Sec. 1.761-2(d)(2). This regulation requires that all
co-producers of natural gas operating under the same operating
agreement must use the cumulative gas balancing method, as described
under Treas. Reg. Sec. 1.761-2(d)(3), to compute and report gross
income from sales of natural gas for tax purposes. In the event of a
conflict between the provisions of this Section and any other
provisions of this Agreement, the provisions of this Section shall
control.
12. Assignment and Rights upon Assignment
12.1. Subject to the provisions of Section 12.2. and 12.3. hereof, and
notwithstanding anything in this Agreement or in the Ofshore 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 or to which it may be entitled, and shall cause its
assignee or other transferee to assume its obligations hereunder.
12.2. Notwithstanding anything in this Agreement (including but not limited
to the provisions of Section 12.1. hereof) or in the Ofshore Operating
Agreement to the contrary, and subject to the provisions of Section
12.3. 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 afer 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 12., and the Overproduction and Underproduction of each
Party shall be adjusted accordingly. Any cash settlement pursuant to
this Section 12. shall be paid by the Overproduced Party, accompanied
by appropriate accounting detail, on or before the earlier to occur
(1) of sixty (60) 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 6.3. through 6.7., and shall bear interest at the
STWDJOA - Exhibit "E"
-8-
rate set forth in Section 6.8. 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 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 12.1.
hereof.
12.3. The provisions of this Section 12. 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.
13. 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 [date].
ATTEST OR WITNESS: OPERATOR
-----------------------------------
By:
-------------------------- --------------------------------
-------------------------- -----------------------------------
Type or print name
Title
-----------------------------
Date
------------------------------
Tax ID or S.S. No.
-----------------
ATTEST OR WITNESS: NON-OPERATOR(S)
-----------------------------------
By:
--------------------------- --------------------------------
--------------------------- -----------------------------------
Type or print name
Title
------------------------------
Date
------------------------------
Tax ID or S.S. No.
-----------------
STWDJOA - Exhibit "E"
-9-
Exhibit "F"
Attached to and made a part of that certain Offshore Operating Agreement dated
effective as of the ________day of ______, 20____, between Chevron U.S.A. Inc.,
Dominion Exploration & Production, Inc. and Ridgewood Energy Corporation,
covering ____________Block __________, Federal Offshore, Gulf of Mexico
TAX PARTNERSHIP PROVISIONS
OF THE ________PROSPECT PARTNERSHIP (For Name of Tax Reporting Partner and
Special Elections, See Secs. 8 and 9)
Table of Contents
1. GENERAL PROVISIONS ..................................................................................1
1.1 DESIGNATION OF DOCUMENTS ........................................................................1
1.2 RELATIONSHIP OF THE PARTIES .....................................................................1
1.3 PRIORITY OF PROVISIONS OF THIS EXHIBIT ..........................................................1
1.4 SURVIVORSHIP ....................................................................................1
2. TAX REPORTING PARTNER AND TAX MATTERS PARTNER .......................................................2
2.1 TAX REPORTING PARTNER . .........................................................................2
2.2 IF SMALL PARTNERSHIP EXCEPTION FROM TEFRA NOT APPLICABLE ........................................2
3. INCOME TAX COMPLIANCE AND CAPITAL ACCOUNTS ..........................................................3
3.1 TAX RETURNS .....................................................................................3
3.2 FAIR MARKET VALUE CAPITAL ACCOUNTS ..............................................................3
3.3 INFORMATION REQUESTS ............................................................................3
3.4 BEST EFFORTS WITHOUT LIABILITY ..................................................................3
4. TAX AND FMV CAPITAL ACCOUNT ELECTIONS ...............................................................4
4.1 GENERAL ELECTIONS ...............................................................................4
4.2 DEPLETION .......................................................................................4
4.3 ELECTION OUT UNDER CODE ss761(a) ................................................................4
4.4 CONSENT REQUIREMENTS FOR SUBSEQUENT TAX OR FMV CAPITAL ACCOUNT ELECTIONS.........................4
5. CAPITAL CONTRIBUTIONS AND FMV CAPITAL ACCOUNTS ......................................................5
5.1 CAPITAL CONTRIBUTIONS ...........................................................................5
5.2 FMV CAPITAL ACCOUNTS ............................................................................5
6. PARTNERSHIP ALLOCATIONS .............................................................................6
6.1 FMV CAPITAL ACCOUNT ALLOCATIONS .................................................................6
6.2 TAX RETURN AND TAX BASIS CAPITAL ACCOUNT ALLOCATIONS ............................................6
7. TERMINATION AND LIQUIDATING DISTRIBUTION ............................................................7
7.1 TERMINATION OF THE PARTNERSHIP ..................................................................7
7.2 BALANCING OF FMV CAPITAL ACCOUNTS ...............................................................8
7.3 DEEMED SALE GAIN/LOSS CHARGE BACK ...............................................................8
7.4 DEFICIT MAKE-UP OBLIGATION AND BALANCING CASH CONTRIBUTIONS .....................................8
7.5 DISTRIBUTION TO BALANCE CAPITAL ACCOUNTS ........................................................8
7.6 FMV DETERMINATION ...............................................................................8
7.7 FINAL DISTRIBUTION ..............................................................................8
8. TRANSFERS, INDEMNIFICATION, AND CORRESPONDENCE ......................................................9
8.1 TRANSFER OF PARTNERSHIP INTERESTS ...............................................................9
8.2 CORRESPONDENCE ..................................................................................9
9. ELECTIONS AND CHANGES TO ABOVE PROVISIONS ...........................................................9
STW DJOA - Exhibit "F"
i
9.1 OPERATOR NOT THE TRP ............................................................................9
9.2 SPECIAL TAX ELECTIONS ...........................................................................9
9.3 CHANGE OF MAJORITY FOR OTHER TAX ELECTIONS .....................................................10
JOA - Exhibit "F"
ii
1. GENERAL PROVISIONS
1.1 DESIGNATION OF DOCUMENTS.
This exhibit is referred to in, and is part of, that Agreement identified above
and, if so provided, a part of any agreement to which the Agreement is an
exhibit. Such agreement(s) (including all exhibits thereto, other than this
exhibit) shall be hereinafter referred to as the "Agreement;" and this exhibit
is hereinafter referred to as the "Exhibit" or the "Tax Partnership Provisions"
(the "TPPs"). Except as may be otherwise provided in this Exhibit, terms defined
and used in the Agreement shall have the same meaning when used herein.
1.2 RELATIONSHIP OF THE PARTIES.
The parties to the Agreement shall be hereinafter referred to as "Party" or
"Parties." The Parties understand and agree that the arrangement and
undertakings evidenced by the Agreement result in a partnership for purposes of
Federal income taxation and certain State income tax laws which incorporate or
follow Federal income tax principles as to tax partnerships. Such partnership
for tax purposes is hereinafter referred to as the "Partnership." For every
other purpose of the Agreement the Parties understand and agree that their legal
relationship to each other under applicable State law with respect to all
property subject to the Agreement is one of tenants in common, or undivided
interest owners, or lessee(s)-sublessee(s) and not a partnership; that the
liabilities of the Parties shall be several and not joint or collective; and
that each Party shall be responsible solely for its own obligations.
1.3 PRIORITY OF PROVISIONS OF THIS EXHIBIT.
If there is a conflict or inconsistency, whether direct or indirect, actual or
apparent, between the terms and conditions of this Exhibit and the terms and
conditions of the Agreement, or any other exhibit or any part thereof, the terms
and conditions of this Exhibit shall govern and control.
1.4 SURVIVORSHIP.
1.4.1 Any termination of the Agreement shall not affect the continuing
application of the TPPs for the termination and liquidation.
1.4.2 Any termination of the Agreement shall not affect the continuing
application of the TPPs for the resolution of all matters regarding Federal and
State income tax reporting.
1.4.3 These TPPs shall inure to the benefit of, and be binding upon, the Parties
hereto and their successors and assigns.
1.4.4 The effective date of these TPPs shall be the commencement of well cost
sharing on the Prospect under the Agreement. The Partnership shall continue in
full force and effect from, and after such date, until termination and
liquidation.
JOA - Exhibit "F"
1
2. TAX REPORTING PARTNER AND TAX MATTERS PARTNER
2.1 TAX REPORTING PARTNER.
The Operator (or the Party listed in Sec. 9.1) as the Tax Reporting Partner
("TRP") is responsible for compliance with all tax reporting obligations of the
Partnership, see Sec. 3.1, below. In the event of any change in the TRP, the
Party serving as TRP at the beginning of a given taxable year shall continue as
TRP with respect to all matters concerning such year.
2.2 IF SMALL PARTNERSHIP EXCEPTION FROM TEFRA NOT APPLICABLE.
If the Partnership does not qualify for the "small partnership exception"
from, or if the Partnership elects (see infra Elections at Secs. 4.1 and
9.2) to be subject to, ss.ss.6221 et seq., Subchapter C of Chapter 53 of
Subtitle A (the "TEFRA rules") of the Internal Revenue Code (the "Code")
the TRP shall also be the Tax Matters Partner as defined in Code ss.6231(a)
(the "TMP") and references to the TRP shall then include references to the
TMP and vice versa.
2.2.1 The TMP shall not be required to incur any expenses for the
preparation for, or pursuance of, administrative or judicial proceedings,
unless the Parties agree on a method for sharing such expenses.
2.2.2 The Parties shall furnish the TMP, within two weeks from the receipt
of the request, the information the TMP may reasonably request to comply
with the requirements on furnishing information to the Internal Revenue
Service.
2.2.3 The TMP shall not agree to any extension of the statute of
limitations for making assessments on behalf of the Partnership without
first obtaining the written consent of all Parties. The TMP shall not bind
any other Party to a settlement agreement in tax audits without obtaining
the written concurrence of any such Party.
2.2.4 Any other Party who enters in a settlement agreement with the
Secretary of the Treasury with respect to any partnership items, as defined
in Code ss.6231(a)(3), shall notify the other Parties of the terms within
ninety (90) days from the date of such settlement.
2.2.5 If any Party intends to file a notice of inconsistent treatment under
Code ss.6222(b), such Party shall, prior to the filing of such notice,
notify the TMP of the (actual or potential) inconsistency of the Party's
intended treatment of a partnership item with the treatment of that item by
the Partnership. Within one week of receipt the TMP shall remit copies of
such notification to the other Parties. If an inconsistency notice is fled
solely because a Party has not received a Schedule K-1 in time for filing
of its income tax return, the TMP need not be notified.
2.2.6 No Party shall file pursuant to Code ss.6227 a request for an
administrative adjustment of partnership items (the "RFAA") without first
notifying all other Parties. If all other Parties agree with the requested
adjustment, the TMP shall file the RFAA on behalf of the Partnership. If
unanimous consent is not obtained within thirty (30)
JOA - Exhibit "F"
2
days from such notice, or within the period required to timely file the
RFAA, if shorter, any Party, including the TMP, may file a RFAA on its own
behalf.
2.2.7 Any Party intending to file with respect to any partnership item, or
any other tax matter involving the Partnership, a petition under Code
ss.ss.6226, 6228, or any other provision, shall notify the other Parties
prior to such filing of the nature of the contemplated proceeding. In the
case where the TMP is the Party intending to file such petition, such
notice shall be given within a reasonable time to allow the other Parties
to participate in the choice of the forum for such petition. If the Parties
do not agree on the appropriate forum, then the forum shall be chosen by
majority vote. Each Party shall have a vote in accordance with its
percentage interest in the Partnership for the year under audit, If a
majority cannot agree, the TMP shall choose the forum. If a Party intends
to seek review of any court decision rendered as a result of such
proceeding, the Party shall notify the other Parties prior to seeking such
review.
3. INCOME TAX COMPLIANCE AND CAPITAL ACCOUNTS
3.1 TAX RETURNS.
The TRP shall prepare and file all required Federal and State partnership income
tax returns. Not less than thirty (30) days prior to the return due date
(including extensions), the TRP shall submit to each Party for review a copy of
the return as proposed.
3.2 FAIR MARKET VALUE CAPITAL ACCOUNTS.
The TRP shall establish and maintain for each Party fair market value ("FMV")
capital accounts and tax basis capital accounts. Upon request, the TRP shall
submit to each Party along with a copy of any proposed partnership income tax
return an accounting of such Party's FMV capital accounts as of the end of the
return period.
3.3 INFORMATION REQUESTS.
In addition to any obligation under Sec. 2.2.2, each Party agrees to furnish to
the TRP not later than sixty (60) days before the return due date .(including
extensions) such information relating to the operations conducted under the
Agreement as may be required for the proper preparation of such returns.
Similarly, each Party agrees to furnish timely to the TRP, as requested, any the
information and data necessary for the preparation and/or filing of other
required reports and notifications, and for the computation of the capital
accounts. As provided in Code ss.6050K(c), a Party transferring its interest
must notify the TRP to allow compliance with Code ss.6050K (a) (see also Sec.
8.1).
3.4 BEST EFFORTS WITHOUT LIABILITY.
The TRP and the other Party(ies) shall use its/their best efforts to comply with
responsibilities outlined in this Section, and with respect to the service as
TMP as outlined Sec. 2.2, and in doing so shall incur no liability to any other
Party.
JOA - Exhibit "F"
3
4. TAX AND FMV CAPITAL ACCOUNT ELECTIONS
4.1 GENERAL ELECTIONS.
For both income tax return and capital account purposes, the Partnership shall
elect:
a) to deduct when incurred intangible drilling and development costs ("IDC");
b) to use the maximum allowable accelerated tax method and the shortest
permissible tax life for depreciation;
c) the accrual method of accounting;
d) to report income on a calendar year basis; and the Partnership shall also
make any elections as specially noted in Sec. 9.2, below.
4.2 DEPLETION.
Solely for FMV capital account purposes, depletion shall be calculated by using
simulated cost depletion within the meaning of Treas. Reg. s.s. 1.704-1
(b)(2)(iv)(k)(2), unless the use of simulated percentage depletion is elected in
Sec. 9.2, below. The simulated cost depletion allowance shall be determined
under the principles of Code s.s.612 and be based on the FMV capital account
basis of each Lease. Solely for purposes of this calculation, remaining reserves
shall be determined consistently by the TRP.
4.3 ELECTION OUT UNDER CODE s.s.761(a).
4.3.1 The TRP shall notify all Parties of an intended election to be excluded
from the application of Subchapter K of Chapter 1 of the Code not later than
sixty (60) days prior to the filing date or the due date (including extensions)
for the Federal partnership income tax return, whichever comes earlier. Any
Party that does not consent must provide the TRP with written objection within
thirty (30) days of such notice. Even after an efective election-out the TRP's
rights and obligations, other than the relief from tax return filing obligations
of the partnership, continue.
4.3.2 After an election-out, to avoid an unintended impairment of the
election-out: The Parties will avoid, without prior coordination, any
operational changes which would terminate the qualification for the election-out
status; all Parties will monitor the continuing qualification of the Partnership
for the election-out status and will notify the other Parties if, in their
opinion, a change in operations will jeopardize the election-out; and, all
Parties will use, unless agreed to by them otherwise, the cumulatve gas
balancing method as described in Treas. Reg. s.s. 1.761-2(d)(2).
4.4 CONSENT REQUIREMENTS FOR SUBSEQUENT TAX OR FMV CAPITAL ACCOUNT ELECTIONS.
Unless stipulated diferently in Sec. 9.3, future elections, in addition to or in
amendment of those in this agreement, must be approved by the afirmative vote of
two (2) or more Parties owning a majority of the working interest based upon
post-Payout ownership.
JOA - Exhibit "F"
4
5. CAPITAL CONTRIBUTIONS AND FMV CAPITAL ACCOUNTS
The provisions of this Sec. 5 and any other provisions of the TPPs relating to
the maintenance of the capital accounts are intended to comply with Treas. Reg.
ss.1.704-1(b) and shall be interpreted and applied in a manner consistent with
such regulations.
5.1 CAPITAL CONTRIBUTIONS.
The respective capital contributions of each Party to the Partnership shall be
(a) each Party's interest in the oil and gas lease(s), including all associated
lease and well equipment, committed to the Partnership, and (b) all amounts of
money paid by each Party in connection with the acquisition, exploration,
development, and operation of the lease(s), and all other costs characterized as
contributions or expenses borne by such Party under the Agreement. The
contribution of the leases and any other properties committed to the Partnership
shall be made by each Party's agreement to hold legal title to its interest in
such leases or other property as nominee of the Partnership.
5.2 FMV CAPITAL ACCOUNTS.
The FMV capital accounts shall be increased and decreased as follows:
5.2.1 The FMV capital account of a Party shall be increased by:
(i) the amount of money and the FMV (as of the date of contribution) of any
property contributed by such Party to the Partnership (net of liabilities
assumed by the Partnership or to which the contributed property is subject);
(ii) that Party's share of Partnership items of income or gain, allocated in
accordance with Sec. 6.1; and
(iii) that Party's share of any Code ss.705(a)(1)(B) item.
5.2.2 The FMV capital account of a Party shall be decreased by:
(i) the amount of money and the FMV of property distributed to a Party (net of
liabilities assumed by such Party or to which the property is subject);
(ii) that Party's Sec. 6.1 allocated share of Partnership loss and deductions,
or items thereof; and,
(iii) that Party's share of any Code ss.705(a)(2)(B) item.
5.2.3 "FMV" when it applies to property contributed by a Party to the
Partnership shall be assumed, for purposes of 5.2.1, to equal the adjusted tax
basis, as defined in Code ss.1011, of that property unless the Parties agree
otherwise as indicated in Sec. 9.2.
5.2.4 As provided in Treas. Reg. ss.1.704-1(b)(2)(iv)(e), upon distribution of
Partnership property to a Party the capital accounts will be adjusted to reflect
the manner in which the unrealized income, gain, loss and deduction inherent in
distributed property (not previously reflected in the capital accounts) would be
allocated among the Parties if there were a disposition of such property at its
FMV as of the time of distribution. Furthermore, if so agreed to in Sec. 9.2,
under the rules of Treas. Reg. ss. 1.7041 (b)(2)(iv)(f), the FMV capital
accounts shall be revalued at certain times to reflect value changes of the
Partnership property.
JOA - Exhibit "F"
5
6. PARTNERSHIP ALLOCATIONS
6.1 FMV CAPITAL ACCOUNT ALLOCATIONS.
Each item of income, gain, loss, or deduction shall be allocated to each Party
as follows:
6.1.1 Actual or deemed income from the sale, exchange, distribution or other
disposition of production shall be allocated to the Party entitled to such
production or the proceeds from the sale of such production. The amount received
from the sale of production and the amount of the FMV of production taken in
kind by the Parties are deemed to be identical; accordingly, such items may be
omitted from the adjustments made to the Parties' FMV capital accounts.
6.1.2 Exploration cost, IDC, operating and maintenance cost shall be allocated
to each Party in accordance with its respective contribution, or obligation to
contribute, to such cost.
6.1.3 Depreciation shall be allocated to each Party in accordance with its
contribution, or obligation to contribute, to the cost of the underlying asset.
6.1.4 Simulated depletion shall be allocated to each Party in accordance with
its FMV capital account adjusted basis in each oil and gas property of the
Partnership.
6.1.5 Loss (or simulated loss) upon the sale, exchange, distribution,
abandonment or other disposition of depreciable or depletable property shall be
allocated to the Parties in the ratio of their respective FMV capital account
adjusted bases in the depreciable or depletable property.
6.1.6 Gain (or simulated gain) upon the sale, exchange, distribution, or other
disposition of depreciable or depletable property shall be allocated to the
Parties so that the FMV capital account balances of the Parties will most
closely reflect their respective percentage or fractional interests under the
Agreement.
6.1.7 Costs or expenses of any other kind shall be allocated to each Party in
accordance with its respective contribution, or obligation to contribute, to
such costs or expense.
6.1.8 Any other income item shall be allocated to the Parties in accordance with
the manner in which such income is realized by each Party.
6.2 TAX RETURN AND TAX BASIS CAPITAL ACCOUNT ALLOCATIONS.
6.2.1 Unless otherwise expressly provided in this Sec. 6.2, the allocations of
the Partnership's items of income, gain, loss, or deduction for tax return and
tax basis capital account purposes shall follow the principles of the
allocations under Sec. 6.1. However, the Partnership's gain or loss on the
taxable disposition of a Partnership property in excess of the gain or loss
under Sec. 6.1, if any, is allocated to the contributing Party to the extent of
such Party's pre-contribution gain or loss.
JOA - Exhibit "F"
6
6.2.2 The Parties recognize that under Code ss.613A(c)(7)(D) the depletion
allowance is to be computed separately by each Party. For this purpose, each
Party's share of adjusted tax basis in each oil and gas property shall be equal
to its contribution to adjusted tax basis of such property.
6.2.3 Under Code ss.613A(c)(7)(D) gain or loss on the disposition of an oil and
c property is to be computed separately by each Party. According to Treas. Reg.
ss.1.701-(b)(4)(v), the amount realized shall be allocated as follows: (i) An
amount It represents recovery of adjusted simulated depletion basis is allocated
(without be credited to the capital accounts) to the Parties in the same
proportion as the aggregate; simulated depletion basis was allocated to such
Parties under Sec. 5.2; and (ii) remaining realization is allocated in
accordance with Sec. 6.1.6.
6.2.4 Depreciation shall be allocated to each Party in accordance with its
contribution to the adjusted tax basis of the depreciable asset.
6.2.5 In accordance with Treas. Reg. ss.1.1245-1(e), depreciation recapture
shall allocated, to the extent possible, among the Parties to reflect their
prior sharing of depreciation.
6.2.6 In accordance with the principles of Treas. Reg. ss.1.1254-5, any
recapture of II is determined and reported by each Party separately. Similarly,
any recapture depletion shall be computed separately by each Party, in
accordance with its depletion allowance computed pursuant to Sec. 6.2.2.
6.2.7 For Partnership properties with FMV capital account values different from
their adjusted tax bases the Parties intend that the allocations described in
this Section 6.2 constitute a "reasonable method" of allocating gain or loss
under Treas. Reg. ss.1.704-3(a)(1).
6.2.8 Take-in-kind.
If checked "Yes" in Sec. 9.2, below, each Party has the right to determine the
market its proportionate share of production. All items of income, deductions,
and credits arising from such marketing of production shall be recognized by the
Partnership c shall be allocated to the Party whose production is so marketed.
7. TERMINATION AND LIQUIDATING DISTRIBUTION
7.1 TERMINATION OF THE PARTNERSHIP.
7.1.1 Upon termination, as provided in Code ss.708(b)(1)(A), the business shall
wound-up and concluded, and the assets shall be distributed to the Parties as
described below by the end of such calendar year (or, if later, within ninety
(90) days after the d of such termination). The assets shall be valued and
distributed to the Parties in order provided in Secs. 7.1.2, 7.5, and 7.7.
7.1.2 First, all cash representing unexpended contributions by any Party and
property in which no interest has been earned by any other Party under the
Agreement shall be returned to the contributor.
JOA - Exhibit "F"
7
7.2 BALANCING OF FMV CAPITAL ACCOUNTS.
Second, the FMV capital accounts of the Parties shall be determined as described
hereafter. The TRP shall take the actions specified under Secs. 7.2 through 7.5
in on to cause the ratios of the Parties' FMV capital accounts to reflect as
closely as possible their interests under the Agreement. The ratio of a Party's
FMV capital account represented by a fraction, the numerator of which is the
Party's FMV capital account balance and the denominator of which is the sum of
all Parties' FMV capital account balances. This is hereafter referred to as the
"balancing of the FMV capital accounts" and, when completed, the FMV capital
accounts of the Parties shall be referred to "balanced."
7.3 DEEMED SALE GAIN/LOSS CHARGE BACK.
The FMV of all Partnership properties shall be determined and the gain or loss
for each property, which would have resulted if sold at such FMV, shall be
allocated accordance with Secs. 6.1.5 and 6.1.6.
7.4 DEFICIT MAKE-UP OBLIGATION AND BALANCING CASH CONTRIBUTIONS.
If hereafter a Party has a negative FMV capital account balance, that is a
balance less than zero, in accordance with of Treas. Reg.
ss.1.704-1(b)(2)(ii)(b)(3) such Part obligated to contribute, by the end of the
taxable year or, if later, within 90 days from Partnership's liquidation, an
amount of money to the Partnership sufficient to achieve zero balance FMV
capital account (the "Deficit Make-Up Obligation"). Moreover, Party may
contribute an amount of cash to the Partnership to facilitate the balancing the
FMV capital accounts. If after these adjustments the FMV capital accounts are
balanced, Secs. 7.5 shall apply.
7.5 DISTRIBUTION TO BALANCE CAPITAL ACCOUNTS.
7.5.1 If all Parties agree, any cash or an undivided interest in certain
selected properties shall be distributed to one or more Parties as necessary for
the purpose balancing the FMV capital accounts.
7.5.2 Distribution of undivided interests.
Unless Sec. 7.5.1 applies, an undivided interest in each and every property
shall distributed to one or more Parties in accordance with the ratios of their
FMV cap accounts.
7.6 FMV DETERMINATION.
If a property is to be valued for purposes of balancing the capital accounts and
making a distribution under this Sec. 7, the Parties must first attempt to agree
on the FMV of property; failing such an agreement, the TRP shall cause a
nationally recognized independent engineering firm to prepare an appraisal of
the FMV of such property.
7.7 FINAL DISTRIBUTION.
After the FMV capital accounts of the Parties have been adjusted pursuant to
Secs. 7 to 7.5, all remaining property and interests then held by the
Partnership shall be distributed to the Parties in accordance with their
positive FMV capital account balances.
JOA - Exhibit "F"
8
8. TRANSFERS, INDEMNIFICATION, AND CORRESPONDENCE
8.1 TRANSFER OF PARTNERSHIP INTERESTS.
Transfers of Partnership interests shall be governed by the Agreement. A Party
transferring its interest, or any part thereof, shall notify the TRP in writing
within weeks after such transfer.
8.2 CORRESPONDENCE.
All correspondence relating to the preparation and filing of the Partnership's
income tax returns and capital accounts shall be sent to:
(Attach separate list, if necessary)
================================================================================
TRP "Attention to:" reference
--------------------------------------------------------------------------------
Chevron U.S.A. Inc. Attention: Partnership Compliance
P. O. ▇▇▇ ▇▇▇▇
▇▇▇ ▇▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇
================================================================================
Other Parties:
================================================================================
Company Attention:
--------------------------------------------------------------------------------
================================================================================
9. ELECTIONS AND CHANGES TO ABOVE PROVISIONS
9.1 OPERATOR NOT THE TRP.
With respect to Sec. 2.1, (insert name of Party to be TRP instead of Operator,
or indicate "N/A") _______________ N/A______________ is designated as TRP.
9.2 SPECIAL TAX ELECTIONS.
With respect to Sec. 4.1, the Parties agree (if not applicable insert "N/A" or
strike):
=========================================================================================================
e) that the Partnership shall elect to account for dispositions of depreciable NO
assets under the general asset method to the extent permitted by Code ss. 168(i)(4);
---------------------------------------------------------------------------------------------------------
f) that the Partnership shall elect under Code ss.754 to adjust the basis Upon
of Partnership property, with the adjustments provided in Code ss.734 for a any
distribution of property and in Code ss.743 for a transfer of a partnership Party's
interest. In case of distribution of property the TRP shall adjust all tax basis written
capital accounts. In the case of a transfer of a partnership interest the requet
acquiring party (ies) shall establish and maintain its (their) tax basis capital
account(s);
---------------------------------------------------------------------------------------------------------
g) that the Partnership shall elect under Code ss.6231 to be subject to the TEFRA rules. NO
=========================================================================================================
=========================================================================================================
With respect to Sec. 4.2, Depletion the Parties agree that the Partnership shall NO
use simulated percentage depletion instead of simulated cost depletion.
=========================================================================================================
JOA - Exhibit "F"
9
=========================================================================================================
With respect to Sec. 5.2.4, under the rules of Treas. Reg. ss. 1.704-1 NO
(b)(2)(IV)(f) the N Parties agree that the FMV capital accounts shall be
revalued to reflect value changes of the Partnership property upon the
occurrence of the events specified in (5)(i) through (iii) of said -1
(b)(2)(iv) (f) regulations.
---------------------------------------------------------------------------------------------------------
With respect to Sec. 6.2.8, the income attributable to take-in-kind NO
production will be reflected on the tax return.
=========================================================================================================
With respect to Sec. 5.2.3 the FMV for the listed properties are
determined as follows (▇▇▇▇ as "N/A" if not applicable; use separate
sheet if necessary)
=========================================================================================================
Property Description FMV
---------------------------------------------------------------------------------------------------------
N/A $_________
---------------------------------------------------------------------------------------------------------
=========================================================================================================
9.3 CHANGE OF MAJORITY FOR OTHER TAX ELECTIONS.
Instead of the Sec. 4.4 majority for other tax elections, a majority shall
be considered if consisting of (specify or line out blanks) ==============
======================
THE END
JOA - Exhibit "F"
10
Exhibit "G"
Attached to and made a part of that certain Offshore Operating Agreement dated
effective as of the ______day of _________, 20____, between Chevron U.S.A. Inc.,
Dominion Exploration & Production, Inc. and Ridgewood Energy Corporation,
covering ________________Block _____________, Federal Offshore, Gulf of Mexico
MEMORANDUM OF OPERATING AGREEMENT
---------------------------------
AND FINANCING STATEMENT
-----------------------
(LOUISIANA)
To be filed in the conveyance records and in the
mortgage records and as a non-standard financing
statement in accordance with Paragraph 6.0 herein.
1.0 This Memorandum of Operating Agreement and Financing Statement (Louisiana)
(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
the undersigned, duly authorized representative of ___________________, a
____________________ corporation, whose taxpayer identification number is
____________________ and whose address is ________________________(the
"Operator"), and the undersigned, duly authorized representative of
____________________, a ________________ limited liability company, whose
taxpayer identification number is ____________________ and whose address
is _____________________ and the undersigned, duly authorized
representative of ______________, a __________________ limited liability
company, whose taxpayer identification number is ___________________ and
whose address is _______________________ (the "Non-Operating Parties").
2.0 The Operator and the Non-Operating Parties are parties to that certain
Offshore Operating Agreement dated effective ________________ (the
"Operating Agreement") which Operating Agreement provides for the
development and production of crude oil, natural gas and associated
substances from the OCS block(s), or portions thereof, described in Exhibit
"A" of the Operating Agreement and in Attachment "1" to this Memorandum, or
covered by the Leases (hereinafter called the "Contract Area") and which
designates ________________, as the Operator, to conduct such operations
for itself and the Non-Operating Parties.
3.0 Among other provisions, the Operating Agreement (a) provides for certain
liens, mortgages, pledges and security interests to secure payment by the
parties of their respective share of costs and performance of other
obligations under the Operating Agreement, (b) contains an Accounting
Procedure, which establishes, among other things, interest to be charged on
indebtedness, certain costs, and other expenses under the Operating
Agreement at the rate set forth therein, (c) 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, (d) grants each party to the
Operating Agreement the right to take in kind its proportionate share of
all oil and gas produced from the Contract Area, and (e) includes a
volumetric Gas Balancing Agreement which is attached as Exhibit "E" to the
Operating Agreement.
4.0 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.
5.0 In addition to any other security rights and remedies provided for by law
with respect to services rendered or materials and equipment furnished
under the Operating Agreement, for and in consideration of the covenants
STWDJOA - Exhibit "G
1
and mutual undertakings of the Operator and the Non-Operating Parties set
forth in the Operating Agreement, the Operator and the Non-Operating
Parties hereby agree as follows:
5.1 Each Non-operator hereby grants to the Operator a mortgage, hypotheca,
and pledge of and over all of its rights, titles, and interests in and
to (a) the Contract Area, (b) the Hydrocarbons in, on, under, and that
may be produced from the lands within the Contract Area, and (c) all
other immovable property susceptible of mortgage situated within the
Contract Area. This mortgage is given to secure the complete and
timely performance of and payment by each Non-operator of all
obligations and indebtedness of every kind and nature, whether now
owed by such Non-operator or hereafter arising, pursuant to this
Agreement. To the extent susceptible under applicable law, this
mortgage and the security interests granted in favor of the Operator
herein shall secure the payment of all costs and other expenses
properly charged to such Party, together with (A) interest on such
indebtedness, costs, and other expenses at the rate set forth in 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 the
Operating Agreement when due, the Operator shall have the additional
right to notify the purchaser or purchasers of the defaulting
Non-operator's Hydrocarbon production and collect such costs and other
expenses out of the proceeds from the sale of the defaulting
Non-operator's share of Hydrocarbon production until the amount owed
has been paid. The Operator shall have the right to offset the amount
owed against the proceeds from the sale of such defaulting
Non-operator's share of Hydrocarbon production. Any purchaser of such
production shall be entitled to rely on the Operator's statement
concerning the amount of costs and other expenses owed by the
defaulting Non-operator and payment made to the Operator by any
purchaser shall be binding and conclusive as between such purchaser
and such defaulting Non-operator.
The maximum amount for which the mortgage herein granted by each
Non-operator shall be deemed to secure the obligations and
indebtedness of such Non-operator to the Operator as stipulated herein
is hereby fixed in an amount equal to $25,000,000.00 (the "Limit of
the Mortgage of each Non-operator"). Except as provided in the
previous sentence (and then only to the extent such limitations are
required by law), the entire amount of obligations and indebtedness of
each Non-operator to the Operator is secured hereby without
limitation. Notwithstanding the foregoing Limit of the Mortgage of
each Non-operator, the liability of each Non-operator under this
Agreement and the mortgage and security interest granted hereby shall
be limited to (and the Operator shall not be entitled to enforce the
same against such Non-operator for, an amount exceeding) the actual
obligations and indebtedness [including all interest charges, costs,
attorneys' fees, and other charges provided for in the Operating
Agreement] outstanding and unpaid and that are attributable to or
charged against the interest of such Non-operator pursuant to the
Operating Agreement.
5.2 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 the Operating 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 Contract Area or attributable to the Contract Area 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
STWDJOA - Exhibit "G"
2
or immovable, whether now or hereafter placed on the lands or offshore
blocks covered by the Contract Area or maintained or used in
connection with the ownership, use or exploitation of the Contract
Area, and other surface and sub-surface equipment of any kind or
character located on or attributable to the Contract Area 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 Contract Area 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 Contract Area. To the extent susceptible
under applicable law, the security interest granted by each Non
operator hereunder covers: (A) all substitutions, replacements, and
accessions to the property of such Non-operator described herein and
is intended to cover all of the rights, titles and interests of such
Non-operator in all movable property now or hereafter located upon or
used in connection with the Contract Area, 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 Contract
Area, or the Hydrocarbons produced from or attributable to the
Contract Area, 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 Contract Area; 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
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 commoditization agreements,
assignments, and subleases, whether or not described on
Attachment "1," to the extent, and only to the extent, that such
agreements, assignments, and subleases cover or include any of
its rights, titles, and interests, whether now owned and existing
or hereafter acquired or arising, in and to all or any portion of
the Contract Area, and all units created by any such pooling,
unitization, and commoditization 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 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, and oil, casinghead gas, and gas sales, exchange, and
processing contracts and agreements, including, without
limitation, those contracts and agreements that are described on
Attachment "1," to the extent, and only to the extent, those
contracts and agreements cover or include all or any portion of
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 Contract Area.
5.3 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 Chapter 9 of the Louisiana
Commercial Laws, La. R.S. 10:9-101 et seq. (the "Uniform Commercial
Code," as adopted in the State of Louisiana) 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 Clerk of Court of any parish in
the State of Louisiana, with the Operator being the secured party and
the Non-Operating Parties being the debtors with respect to such
filing.
STWDJOA - Exhibit "G"
3
5.4 The Operator hereby grants to each Non-operator a mortgage, hypothec,
and pledge of and over all of its rights, titles, and interests in and
to (a) the Contract Area; (b) the Hydrocarbons in, on, under, and that
my be produced from the lands within the Contract Area; and (c) all
other immovable property or other property susceptible of mortgage
situated within the Contract Area. This mortgage is given to secure
the complete and timely performance of and payment by the Operator of
all obligations and indebtedness of every kind and nature, whether now
owed by the Operator or hereafter arising, pursuant to this Agreement.
To the extent susceptible under applicable law, this mortgage and the
security interests granted in favor of each Non-operator herein shall
secure the payment of all costs and other expenses properly charged to
the Operator, together with (A) interest on such indebtedness, costs,
and other expenses at the rate set forth in the Accounting Procedure
or the maximum rate allowed by law, whichever is the lesser, (B)
reasonable attorneys' fees, (C) court costs, and (D) other directly
related collection costs. if the operator does not pay such costs and
other expenses or perform its obligations under the Operating
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 the Operating Agreement and the
mortgage and security interest granted hereby shall be limited to (and
the Non-operators shall not be entitled to enforce the same against
the Operator for, an amount exceeding) the actual obligations and
indebtedness [including all interest charges, costs, attorneys' fees,
and other charges provided for in the Operating Agreement] outstanding
and unpaid and that are attributable to or charged against the
interest of the Operator pursuant to this Agreement.
5.5 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 the
Operating 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
Contract Area or included within the Contract Area or attributable to
the Contract Area 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 Contract Area or maintained or
used in connection with the ownership, use or exploitation of the
Contract Area, and other surface and sub-surface equipment of any kind
STWDJOA - Exhibit "G"
4
or character located on or attributable to the Contract Area 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 Contra Area 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 Contra Area. 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 used in connection with
the Contract Area, 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 Contra Area, the Hydrocarbons produced
from or attributable to the Contract Area, whether now owned. and
existing or hereafter acquired or arising, including, without
limitation, interests of the Operator in any partnership, tax
partnership, limited partnership association, joint venture, or other
entity or enterprise that holds, owns, or controls a interest in the
Contract Area; and (C) all rights, claims, general intangibles, and
proceeds, whether now existing or hereafter acquired, of the Operator
in and to the contras agreements, permits, licenses, rights-of-way,
and similar rights and privileges that rely to or are appurtenant to
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 Attachment
"1," to the extent, and only to the extent, that such agreements,
assignments, and subleases cover or include any of its rights,
titles, and interests, whether now owned and existing or
hereafter acquired or arising, in and to all any portion of the
Contract Area, and all units created by any such pooling,
unitization, and communitization agreements and all units formed
under order 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 or any
portion of 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 a future advance payment
agreements, and oil, casinghead gas, and gas salt exchange, and
Development contracts and agreements, including, without
limitation, those contracts and agreements that are described on
Attachment "1" to the extent, and only to the extent, those
contracts and agreements cover include all or any portion of 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
are appurtenant to any of the Contract Area.
5.6 For the purposes of the security interest in favor of each
Non-Operating Party, this Memorandum (including a carbon,
photographic, or other reproduction thereof a hereof) may be filed as
a non-standard form of financing statement pursuant to t Uniform
Commercial Code in the office of the Clerk of Court of any parish in
the State Louisiana, with each Non-Operating Party being the secured
parties and the Opera being the debtor with respect to such filing.
6.0 To serve as notice of the existence of the Operating Agreement as a burden
on the title of the Operator and for the Non-Operating Parties to their
interests in and to the Contract Area and purposes of satisfying otherwise
relevant recording and filing requirements of applicable law, this
Memorandum is to be filed or recorded, as the case may be, in (a) the
STWDJOA - Exhibit "G"
5
conveyance records of the parish or parishes in which the offshore blocks
covered by the Contract Area are located or adjacent 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. All parties to the
Operating Agreement are identified on Attachment "1" hereto.
7.0 If performance of any obligation under the Operating Agreement or payment
of any indebtedness created thereunder does not occur or is not made when
due under the Operating Agreement or upon default of any covenant or
condition of the Operating Agreement, in addition to any other remedy
afforded by law, each party to the Operating Agreement and any successor to
such par by assignment, operation of law, or otherwise, shall have, and is
hereby given and vested with, the power and authority to foreclose the
mortgage, pledge, and security interest established in its favor herein and
in the Operating Agreement in the manner provided by law and to exercise
rights of a secured party under the Uniform Commercial Code.
8.0 Upon expiration of the Operating Agreement and the satisfaction of all
obligations and indebtedness arising thereunder, the Operator, on behalf of
all parties to the Operating Agreement, shall file of record an appropriate
release and termination of all security and other rights created under the
Operating Agreement and this Memorandum executed by all parties to the
Operating Agreement. Upon the filing of such release and termination
instrument, all benefits and obligations under this Memorandum shall
terminate as to all parties who have executed or ratified this Memorandum.
In addition, at any time prior to the filing of such release an termination
instrument, each of the Operator and the Non-Operating Parties shall have
the right to (i) file a continuation statement pursuant to the Uniform
Commercial Code with respect to any financing statement filed in their
favor under the terms of this Memorandum and (ii) reinscribe this act in
the appropriate mortgage records.
9.0 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.
10.0 This Memorandum shall be binding upon and shall inure to the benefit of the
parties hereto and 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.
11.0 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.
12.0 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 6 above, duplicate copies of this Memorandum with individual
signature pages attached thereto may be filed of record, one copy of each
to be indexed in the name of the Operator, as grantor, and one copy of each
to be indexed in the name of each Non-Operating Party, 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-Operating Parties, as secured parties. The respective addresses
of the Operator, as both secured party and debtor, and the Non-Operating
Parties, as both debtors and secured parties, 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.
STWDJOA - Exhibit "G"
6
13.0 The Operator and the Non-Operating Parties 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.
14.0 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, an specific enumeration shall not
exclude the general, but shall be construed as cumulative.
STWDJOA - Exhibit "G"
7
EXECUTED on the dates set forth below each signature but effective as of the
____day of 20___.
OPERATOR:
---------
WITNESSES:
---------------------------
By:
--------------------- -----------------------
Title:
---------------------
Date:
-------------------- ----------------------
NON-OPERATING PARTY:
---------------------------
WITNESSES:
By:
--------------------- -----------------------
Title:
---------------------
Date:
--------------------- ----------------------
NON-OPERATING PARTY:
---------------------------
WITNESSES:
By:
--------------------- ------------------------
Title:
---------------------
Date:
--------------------- ----------------------
STWDJOA - Exhibit "G"
8
ACKNOWLEDGMENT
OPERATOR:
STATE OF ___________
PARISH/COUNTY OF ___________
On this _______________ day of __________, 200 _______, before me, appeared
_______________, to me personally known, who, being by me duly sworn, did say
that he is the _______________ of ____________, a _______________ corporation,
and that the foregoing instrument was signed on behalf of the corporation by
authority of its Board of Directors and that _______________ acknowledged the
instrument to be the free act and deed of the corporation.
---------------------------
NOTARY PUBLIC in and for
the State of _______________
My Commission expires:
-------------------
ACKNOWLEDGMENT
NON-OPERATING PARTY
STATE OF ____________
PARISH/COUNTY OF _________
On this _________ day of __________, 20 _____, before me, appeared ______
_______________, to me personally known, who, being by me duly sworn, did say
that he is the _______________________ of ___________________, a ____________
limited liability company, and that the foregoing instrument was signed on
behalf of the company by authority of its members and that ____________
acknowledged the instrument to be the free act and deed of the limited liability
company.
---------------------------
NOTARY PUBLIC in and for
the State of _______________
My Commission expires:
-------------------
STWDJOA - Exhibit "G"
9
NON-OPERATING PARTY
STATE OF ___________
PARISH/COUNTY OF ___________
On this _________ day of __________, 20 _____, before me, appeared ______
_______________, to me personally known, who, being by me duly sworn, did say
that he is the _______________________ of ___________________, a ____________
limited liability company, and that the foregoing instrument was signed on
behalf of the company by authority of its members and that ____________
acknowledged the instrument to be the free act and deed of the limited liability
company.
---------------------------
NOTARY PUBLIC in and for
the State of _______________
My Commission expires:
-------------------
STWDJOA - Exhibit "G
10
ATTACHMENT "1" TO EXHIBIT "G"
Attached to and made a part of the
Memorandum of Operating Agreement and Financing Statement (Louisiana)
effective ___________________, by and between
_________________, as Operator, and
_________________________, as Non-Operator.
1. DESCRIPTION OF LANDS AND LEASES WITHIN THE CONTRACT AREA
--------------------------------------------------------
II. OPERATOR
---------
III. PARTIES, REPRESENTATIVES, ADDRESSES, AND INTERESTS CONTRIBUTED
--------------------------------------------------------------
STWDJOA - Exhibit "G"
11
Exhibit "H"
Attached to and made a part of that certain Offshore Operating Agreement dated
effective as of the _____day of ______, 20____, between Chevron U.S.A. Inc.,
Dominion Exploration & Production, Inc. and Ridgewood Energy Corporation,
covering _____________Block _____________, Federal Offshore, Gulf of Mexico
Dispute Resolution Procedure
----------------------------
1. OVERVIEW
--------
A. Description and Goals. Arbitration as used in this statement is a
procedure whereby an Arbitration Panel ("Panel") resolves any claim(s),
controversy(ies) or dispute(s) between Chevron U.S.A. Inc., Dominion Exploration
& Production, Inc. and Ridgewood Energy Corporation (hereinafter referred to
singularly as "Party" and collectively as "Parties") arising out of, relating to
or in connection with each Party's respective Exploration Participation
Agreement (hereinafter "Agreement") including the interpretation, validity,
termination or breach thereof.
(i) Binding. The arbitration process is binding on the Parties and
this arbitration is intended to be a final resolution of the dispute(s)
between the Parties as described above, to the same extent as a final
judgment of a court of competent jurisdiction. Each Party hereby expressly
covenants that it shall not resort to court remedies except as provided for
herein, and for preliminary relief in aid of arbitration.
(ii) Violation. A Party who violates the covenants in Section IA. (i)
shall pay all legal costs incurred by the other Party in connection with
the enforcement thereof. Suits, actions or proceedings in connection with
violations of the covenants in Section IA. (i) shall be instituted in the
United States District Court for the Eastern District of Louisiana, and
pursuant to Title IX of the United States Code. Each Party waives any
option or objection which it may now or thereafter have to the laying of
the venue in any such suit, action or proceeding and irrevocably submits to
the jurisdiction of such court in any such suit, action or proceeding.
B. Duty to Negotiate. The Parties shall inform one another promptly
following the occurrence or discovery of any item or event which might
reasonably be expected to result in a dispute in connection with the Agreement.
The Parties will attempt to resolve satisfactorily any such matters.
C. Notice of Unresolved Dispute. Should a dispute arise which the Parties
cannot resolve satisfactorily, either Party may deliver to the other Party a
written notice of the dispute with supporting documentation as to the
circumstances leading to the dispute (the "Notice of Dispute"). The Parties,
within ten (10) Business Days from delivery of such notice, shall then each
appoint a management representative ("Management Representative") who has no
prior direct involvement with the subject matter of the Notice of Dispute and
who is duly authorized to investigate, negotiate and settle the dispute. The
Management Representative for each Party shall meet and confer as often as they
deem reasonably necessary for a period not exceeding thirty (30) days following
the delivery of the Notice of Dispute in good faith negotiations to resolve the
dispute amicably. The parties in their sole discretion may also agree to utilize
the service of a mediator pursuant to a joint engagement. Unless otherwise
provided herein, all such notices shall be served in accordance with the
provisions of the Agreement.
STWDJOA - Exhibit "H"
1
II. ARBITRATION PROCESS
-------------------
A. Arbitration. If the Parties are unable to resolve the dispute within
thirty (30) days following the receipt of the Notice of Dispute, the matter
shall be submitted to arbitration in accordance with the procedures set forth
below.
B. Initiation of Arbitration. The arbitration shall be initiated by either
party delivering to the other aNotice of Intention to Arbitrate as provided for
in Section 6 of the Commercial Arbitration Rules and the Supplementary
Procedures for Large, Complex Disputes of the American Arbitration Association
(collectively, the "AAA Guidelines")
C. Governing Procedures. Except as expressly provided herein, the
arbitration shall be conducted in accordance with applicable New York law
regarding arbitration. To the extent that a matter is not addressed by this
Agreement or New York law, the arbitration shall be conducted with reference to
the AAA Guidelines. The action of a majority of the members of the arbitration
Panel shall govern and their decision in writing shall be final and binding on
the Parties hereto.
(i) Conflicts. In the event of a conflict between the AAA Guidelines
and this Dispute Resolution Procedure, this Procedure shall govern.
(ii) Governing Law. The Panel shall apply the governing substantive
law chosen by the Parties the Agreement.
D. Arbitration Panel. There shall be three arbitrators, all of whom shall
be independent and impartial, and experienced in arbitration proceedings. For
those disputes involving the transfer of, or title to, any real property rights
or interests, including but not limited to mineral rights, or involving the
development of a mineral interest or the marketing of mineral production, each
arbitrator shall be experienced in the oil and gas industry and knowledgeable or
specializing as to the subject matter involved in the dispute. The arbitrators
shall be chosen as follows: each Party shall have thirty (30) days from the
delivery of a Notice of Intention to Arbitrate to designate an arbitrator and
notify the other Party of the name of such arbitrator. If such other Party shall
fail to name a second arbitrator within thirty (30) days, then the Party who
first served the notice may, within three (3) days after written notice to the
other Party, apply to the American Arbitration Association as the Appointing
Authority, for the appointment of such second arbitrator for or on behalf of the
other Party, and in such case the arbitrator appointed by the Appointing
Authority shall meet the criteria set forth in this Section II.D. and shall act
as if named by the other Party.
(1) Selection of Third Arbitrator. The two (2) arbitrators chosen as
provided for above shall, within thirty (30) days after the appointment of
the second arbitrator, choose the third arbitrator who shall meet the
criteria set forth in this Section II.D., and in the event of their failure
to do so within said thirty (30) days, either of the Parties hereto may in
like manner, within three (3) days after written notice to the other Party,
apply to the Appointing Authority for the appointment of a third
arbitrator. The third arbitrator shall then disclose any and all conflicts
of interest and any business relationship that he or she has with any
Party. Following that disclosure, the Parties shall agree to appoint the
chosen third arbitrator or to continue the selection process in the same
manner. The three (3) arbitrators selected shall constitute the Panel. The
third arbitrator shall serve as Chairman of the Panel.
(ii) Conflicts. All arbitrators, prior to their appointment shall
disclose to the Parties, and to the other members of the Panel all actual
or perceived conflicts of interest and business relationships involving the
dispute or the Parties, including but not limited to, any professional c
relationships, present or past, with any Party (or its affiliates),
including any Party's (or its affiliates) directors, officers, and
supervisory personnel and counsel. Any Party may challenge in writing the
appointment or continued service of any arbitrator for lack of
independence, partiality, or any other cause likely to impair such
arbitrator's ability to effectively participate in the proceedings or
render a fair and equitable decision. Where such challenge is made, the
Appointing Authority shall uphold or dismiss the challenge. In the event a
challenge is upheld, the arbitrator as to whom the challenge was upheld
STWDJOA - Exhibit "H"
2
shall cease to be a member of the Panel. A replacement will be selected in
the same manner as the original arbitrator was selected. If an arbitrator
resigns or becomes unable or unwilling to continue to serve on the Panel, a
replacement shall be selected in the same manner as that arbitrator was
chosen.
(iii) Multi-Party Arbitrations. Where more than two Parties are
involved in the dispute ("Multi-Party Arbitration"), all Parties shall
jointly name and agree as the appointment of the two arbitrators meeting
the criteria set forth in Section II.D. above. The third arbitrator shall
be appointed as set forth in Section ll.b. (i) above. If the Parties cannot
agree as to the choice of the two arbitrators within the said thirty (30)
days, either of the Parties hereto may in like manner, within three (3)
days after written notice to the other Party, apply to the Appointing
Authority for the appointment of the two arbitrators meeting the criteria
set forth in Section II.D. above.
(iv) Management of the Arbitration. The Panel shall actively manage
the proceedings as it deems best so as to make the same expeditious,
economical, and less burdensome and adversarial than litigation.
E. Confidentiality. All documents, briefs, testimony, transcripts, as well
as, all Panel decisions shall be confidential, except that, upon prior written
consent of both Parties, such information may be divulged to third parties who
agree in writing to keep such information confidential if such disclosure is
deemed necessary pursuant to common business practice or is required by law.
Likewise, the views, suggestions, admissions, proposals, and other information
exchanged in the arbitration are confidential and are inadmissible in any other
proceeding.
F. Costs and Expenses. Each side shall be solely responsible for all costs,
fees and expenses incurred by its party-appointed arbitrator. The fees, costs,
and expenses of the third arbitrator and any other incidental costs incurred in
connection with the arbitration proceeding shall be borne equally by the
Parties. Each Party is solely responsible for its own attorneys' fees and
expenses incurred in the arbitration. In the event of a Multi-Party arbitration,
all costs and expenses shall be borne equally by all Parties.
G. Submissions. Within thirty (30) days after the selection of the Panel,
each Party shall provide the Panel with a short and plain submission defining
the issues to be decided and the nature of the relief that the Panel may award
(the "Submission"). This Submission shall explicitly authorize the Arbitration
Panel to decide these issues. This authorization shall stay in force for six (6)
months from this Submission. If the Parties are unable to reach consensus as to
the issues involved, the Panel in its sole discretion shall frame the issues
through a reasonable procedure. The Panel will render decisions on the specific
issues established and shall fashion any remedy that the Panel deems appropriate
so long as that remedy is consistent with the Parties' Submissions hereunder.
Any money judgment entered by the Panel shall be payable in U.S. dollars.
H. Transcriptions. The presentations and argument will be transcribed for
the benefit of the Panel and the Parties.
I. Discovery. Commencing thirty (30) days after the receipt of the opposing
Party's Submission, each Party may serve upon the other Party up to fifteen (15)
requests for the production of documents, including sub-parts. The requests
shall be made in good faith and not be served for the purpose of delay or
harassment. Each request shall describe the type of document(s) sought and each
request shall be limited to documents that are relevant to a claim or defense in
the arbitration proceeding, or reasonably calculated to lead to the discovery of
admissible evidence. The requests need not be served all at once but may be
served in stages.
(i) The Party served with a request under this provision shall provide
the adverse Party with copies of the requested documents, and identify the
request to which each document is responsive, within twenty (20) days of
the receipt of the request. If the Party served with a request objects to
STWDJOA - Exhibit "H"
3
the production of any of the requested documents, it shall nevertheless
produce within the permitted time all documents responsive to any request
that is not objected to by that Party.
(ii) A Party that is served with a request may challenge the propriety
of the request within the time permitted for response by a short written
objection which shall be forwarded to the adverse Party and to each member
of the Panel. The adverse Party shall submit its response, if any, to the
objecting Party and each member of the Panel within five (5) days of
receipt of the objection. The Panel shall consider the request, the
objection, and the response, if any, and decide whether the production
shall be allowed or denied or whether the request should be modified within
ten (10) days after the submission of the adverse Party's response.
J. Presentations. No later than twenty-five (25) days prior to the date
that presentations to the Panel are to begin, each Party will submit to the
Panel and serve on the other Party a written position statement. The original
statement of each Party shall not exceed thirty-five (35) typewritten
letter-sized pages. Each Party shall have the right to submit reply statements
no later than fifteen (15) days prior to the date of the presentation. Such
reply statements shall not exceed fen (15) typewritten letter-sized pages.
(i) All documents and affidavits that a Party intends to use during
its presentation shall be submitted to the Panel and served on the other
Party with the position and reply statements. All demonstrative exhibits
shall be exchanged five (5) days in advance of the presentations.
(ii) The presentations to the Panel shall extend for such time as the
Panel agrees to be appropriate. In the absence of any agreement, the
presentations for both Parties shall extend for no longer than two (2) days
and shall be concluded within six (6) months after selection of the Panel.
Presentations of each Party shall occur successively with no intervening
delay.
(iii) Each Party shall make an oral and/or documentary presentation of
its position in such order and in accordance with the time schedule
established by the Panel. The Panel may question each of the presenters
during or following any and all presentations.
The Panel shall determine a reasonable time and location for the presentations.
K. Decision and Award. The Panel shall promptly (within sixty (60) days of
conclusion of the presentations or such longer period as the Parties may
mutually agree) determine the claims of the Parties and render their final
decision in writing. All decisions and awards shall be decided by a majority of
the Panel. The decision shall state with specificity the findings of fact and
conclusions of law on which it rests. The decision rendered by the Panel may be
enforced in any federal court having jurisdiction to do so and may only be
appealed pursuant to Section L below. The decision shall be served upon each of
the Parties by facsimile transmission and by first class mail. If there be no
majority as to any part of the award, such part of the award shall be made by
the third arbitrator.
(i) If applicable law allows pre-award interest, the Panel may, in
their discretion, grant pre-award interest and, if so, such interest may be
at commercial rates during the relevant period. The Panel may award all or
a part of a Party's reasonable attorney's fees and costs of arbitration,
taking into account the final result of the arbitration, the conduct of the
Parties and their counsel in the course of the arbitration, and other
relevant factors. The Panel shall not award consequential or punitive
damages.
(ii) Within ten (10) days of receipt of the award either side may
submit a Motion to Modify the award. A response shall be due within fifteen
(15) days thereafter and the Panel shall rule thereon within fifteen (15)
days after receipt of the response.
(iii) Judgment on the award may be entered in a United States District
Court for the federal district within which the decision was made at any
time within one year after the decision is made.
STWDJOA - Exhibit "H"
4
L. Vacation of Award and Appeal. The Parties agree that an award made by
the Panel may only be vacated or confirmed by a federal court of proper
jurisdiction as established above. The Parties agree that an award made by the
Panel may be vacated by a court only if the award was procured by or through
fraud or corruption or because the Panel refused to hear evidence material to
the controversy or otherwise so conducted the hearing as to substantially
prejudice the rights of a Party. An appeal from an order or judgment pursuant to
this Section II.L. shall be instituted in the United States District Court for
the Eastern District of Louisiana. Each Party waives any option or objection
which it may now or thereafter have to the laying of the venue of any such suit,
action or proceeding and irrevocably submits to the jurisdiction of the court in
any such suit, action or proceeding. Each Party agrees that a remedy at law for
a violation of this Section II.L. may not be adequate and therefore agrees that
the remedies of specific performance and injunctive relief shall be available in
the event of any violation in addition to any other right or remedy at law or in
equity to which any Party may be entitled.
M. Res Judicata. To the extent permitted by law, any decision of the Panel
shall not be res judicata or have any binding effect in any unrelated litigation
or arbitration.
STWDJOA - Exhibit "H"
5
Exhibit "I"
Attached to and made a part of that certain Offshore Operating Agreement dated
effective as of the _________day of _____ , 20 ___, between Chevron U.S.A. Inc.,
Dominion Exploration & Production, Inc. and Ridgewood Energy Corporation,
covering ________________Block _____________, Federal Offshore, Gulf of Mexico
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, hypothec, and
pledge of and over all of its rights, titles, and interests in and to (a)
the Contract Area, (b) the Hydrocarbons in, on, under, and that may be
produced from the lands within the Contract Area, and (c) all other
immovable property susceptible of mortgage situated within the Contract
Area.
This mortgage is given to secure the complete and timely performance of and
payment by each Non-operator of all obligations and indebtedness of every
kind and nature, whether now owed by such Non-operator or hereafter
arising, pursuant to this Agreement. To the extent susceptible under
applicable law, this mortgage and the security interests granted in favor
of the Operator herein shall secure the payment of all costs and other
expenses properly charged to such Party, together with (A) interest on such
indebtedness, costs, and other expenses at the rate set forth in Exhibit
"C" attached hereto (the "Accounting Procedure") or the maximum rate
allowed by law, whichever is the lesser, (B) reasonable attorneys' fees,
(C) court costs, and (D) other directly related collection costs. If any
Non-operator does not pay such costs and other expenses or perform its
obligations under this Agreement when due, the Operator shall have the
additional right to notify the purchaser or purchasers of the defaulting
Non-operator's Hydrocarbon production and collect such costs and other
expenses out of the proceeds from the sale of the defaulting Non-operator's
share of Hydrocarbon production until the amount owed has been paid. The
operator shall have the right to offset the amount owed against the
proceeds from the sale of such defaulting Non-operator's share of
Hydrocarbon production. Any purchaser of such production shall be entitled
to rely on the Operator's statement concerning the amount of costs and
other expenses owed by the defaulting Non-operator and payment made to the
Operator by any purchaser shall be binding and conclusive as between such
purchaser and such defaulting Non-operator.
STWDJOA - Exhibit "I"
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
Contract Area or attributable to the Contract Area 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 Contract Area or maintained or used in connection with
the ownership, use or exploitation of the Contract Area, and other
surface and sub-surface equipment of any kind or character located on
or attributable to the Contract Area 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 Contract Area 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 Contract Area. To the extent susceptible under applicable law,
the security interest granted by each Non-operator hereunder covers:
(A) all substitutions, replacements, and accessions to the property of
such Non-operator described herein and is intended to cover all of the
STWDJOA - Exhibit "I"
2
rights, titles and interests of such Non-operator in all movable
property now or hereafter located upon or used in connection with the
Contract Area, 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 Contract Area, or the Hydrocarbons
produced from or attributable to the Contract Area, 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
Contract Area; 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 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 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 all
or any portion of 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, 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 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 Contract Area.
8.6.1.2 Mortgage in Favor of the Non-operators.
The Operator hereby grants to each Non-operator a mortgage, hypothec,
STWDJOA - Exhibit "I"
3
and pledge of and over all of its rights, titles, and interests in and
to (a) the Contract Area; (b) the Hydrocarbons in, on, under, and that
my be produced from the lands within the Contract Area; and (c) all
other immovable property or other property susceptible of mortgage
situated within the Contract Area.
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
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
STWDJOA - Exhibit "I"
4
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 ofshore blocks covered by the Contract Area or included within
the Contract Area or attributable to the Contract Area 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 ofshore blocks covered by the Contract
Area or maintained or used in connection with the ownership, use
or exploitation of the Contract Area, and other surface and
sub-surface equipment of any kind or character located on or
attributable to the Contract Area 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 Contract Area 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 Contract Area. 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 Contract Area, 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 Contract Area, the Hydrocarbons produced from
or attributable to 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 that 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, 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 Contract
Area, including the following:
STWDJOA - Exhibit "I"
5
(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 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 all
or any portion of the Contract Area;
(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 Contract Area; 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 Contract
Area.
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 Staterrient
(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 Contract Area
and for purposes of satisfying otherwise relevant recording and filing
requirements of 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 filing in the UCC
records set forth below to perfect the security interests created by
the Parties in this Agreement. Upon the acquisition of a leasehold
interest in the Contract Area, the Parties shall, within five business
STWDJOA - Exhibit "I"
6
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 Contract
Area, 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 Contract Area or contained within the
Contract Area 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 (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
STWDJOA - Exhibit "I"
7
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 afect 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
Contract Area 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 Contract Area 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 insuficient to pay such costs and
expenses, then subject to the provisions of Article 16.2, the security
rights provided for in this Article 8.6 may be applied against the
carved-out interests with which the defaulting or nonperforming Party's
interest in the Contract Area 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.
STWDJOA - Exhibit"I"
8
EXHIBIT "F"
-----------
Attached to and made a part of that certain Exploration Participation Agreement
dated effective the 1st day of September, 2006, by and between Chevron U.S.A.
Inc. and Ridgewood Energy Corporation
Dispute Resolution Procedure
----------------------------
I. OVERVIEW
--------
A. Description and Goals. Arbitration as used in this statement is a
procedure whereby an Arbitration Panel ("Panel") resolves any claim(s),
controversy(ies) or dispute(s) between Chevron U.S.A. Inc and Ridgewood Oil &
Gas Corporation (hereinafter referred to singularly as "Party" and collectively
as "Parties") arising out of, relating to or in connection with the Exploration
Participation Agreement (hereinafter "Agreement") including the interpretation,
validity, termination or breach thereof.
(i) Binding. The arbitration process is binding on the Parties and
this arbitration is intended to be a final resolution of the dispute(s)
between the Parties as described above, to the same extent as a final
judgment of a court of competent jurisdiction. Each Party hereby expressly
covenants that it shall not resort to court remedies except as provided for
herein, and for preliminary relief in aid of arbitration.
(ii) Violation. A Party who violates the covenants in Section I.A.(i)
shall pay all legal costs incurred by the other Party in connection with
the enforcement thereof. Suits, actions or proceedings in connection with
violations of the covenants in Section I.A.(i) shall be instituted in the
United States District Court for the Eastern District of Louisiana, and
pursuant to Title IX of the United States Code. Each Party waives any
option or objection which it may now or thereafter have to the laying of
the venue in any such suit, action or proceeding and irrevocably submits to
the jurisdiction of such court in any such suit, action or proceeding.
B. Duty to Negotiate. The Parties shall inform one another promptly
following the occurrence or discovery of any item or event which might
reasonably be expected to result in a dispute in connection with the Agreement.
The Parties will attempt to resolve satisfactorily any such matters.
C. Notice of Unresolved Dispute. Should a dispute arise which the Parties
cannot resolve satisfactorily, either Party may deliver to the other
Party a written notice of the dispute with supporting documentation as
to the circumstances leading to the dispute (the "Notice of Dispute").
The Parties, within ten (10) Business Days from delivery of such
notice, shall then each appoint a management representative
("Management Representative") who has no prior direct involvement with
the subject matter of the Notice of Dispute and who is duly authorized
to investigate, negotiate and settle the dispute. The Management
Representative for each Party shall meet and confer as often as they
deem reasonably necessary for a period not exceeding thirty (30) days
following the delivery of the Notice of Dispute in good faith
negotiations to resolve the dispute amicably. The parties in their
sole discretion may also agree to utilize the service of a mediator
pursuant to a joint engagement. Unless otherwise provided herein, all
such notices shall be served in accordance with the provisions of the
Agreement.
Page 1 of 5
Chevron/Ridgewood EPA 2006
Exhibit F - ST/WD EPA EXHIBIT F.doc
II. ARBITRATION PROCESS
-------------------
A. Arbitration. If the Parties are unable to resolve the dispute within
thirty (30) days following the receipt of the Notice of Dispute, the matter
shall be submitted to arbitration in accordance with the procedures set forth
below.
B. Initiation of Arbitration. The arbitration shall be initiated by either
party delivering to the other a Notice of Intention to Arbitrate as provided for
in Section 6 of the Commercial Arbitration Rules and the Supplementary
Procedures for Large, Complex Disputes of the American Arbitration Association
(collectively, the "AAA Guidelines")
C. Governing Procedures. Except as expressly provided herein, the
arbitration shall be conducted in accordance with applicable New York law
regarding arbitration. To the extent that a matter is not addressed by this
Agreement or New York law, the arbitration shall be conducted with reference to
the AAA Guidelines. The action of a majority of the members of the arbitration
Panel shall govern and their decision in writing shall be final and binding on
the Parties hereto.
(i) Conflicts. In the event of a conflicts between the AAA
Guidelines and this Dispute Resolution Procedure, this Procedure shall
govern.
(ii) Governing Law. The Panel shall apply the governing
substantive law chosen by the Parties to the Agreement.
D. Arbitration Panel. There shall be three arbitrators, all of whom shall
be independent and impartial, and experienced in arbitration proceedings. For
those disputes involving the transfer of, or title to, any real property rights
or interests, including but not limited to mineral rights, or involving the
development of a mineral interest or the marketing of mineral production, each
arbitrator shall be experienced in the oil and gas industry and knowledgeable or
specializing as to the subject matter involved in the dispute. The arbitrators
shall be chosen as follows: each Party shall have thirty (30) days from the
delivery of a Notice of Intention to Arbitrate to designate an arbitrator and
notify the other Party of the name of such arbitrator. If such other Party shall
fail to name a second arbitrator within thirty (30) days, then the Party who
first served the notice may, within three (3) days after written notice to the
other Party, apply to the American Arbitration Association as the Appointing
Authority, for the appointment of such second arbitrator for or on behalf of the
other Party, and in such case the arbitrator appointed by the Appointing
Authority shall meet the criteria set forth in this Section II.D. and shall act
as if named by the other Party.
(i) Selection of Third Arbitrator. The two (2) arbitrators chosen
as provided for above shall, within thirty (30) days after the
appointment of the second arbitrator, choose the third arbitrator who
shall meet the criteria set forth in this Section II.D., and in the
event of their failure to do so within said thirty (30) days, either
of the Parties hereto may in like manner, within three (3) days after
written notice to the other Party, apply to the Appointing Authority
for the appointment of a third arbitrator. The third arbitrator shall
then disclose any and all conflicts of interest and any business
relationship that he or she has with any Party. Following that
disclosure, the Parties shall agree to appoint the chosen third
arbitrator or to continue the selection process in the same manner.
The three (3) arbitrators selected shall constitute the Panel. The
third arbitrator shall serve as Chairman of the Panel.
(ii) Conflicts. All arbitrators, prior to their appointment shall
disclose to the Parties, and to the other members of the Panel all
actual or perceived conflicts of interest and business relationships
involving the dispute or the Parties, including but not limited to,
any professional or social relationships, present or past, with any
Party (or its affiliates), including any Party's (or its affiliates)
Page 2 of 5
directors, officers, and supervisory personnel and counsel. Any Party
may challenge in writing the appointment or continued service of any
arbitrator for lack of independence, partiality, or any other cause
likely to impair such arbitrator's ability to effectively participate
in the proceedings or render a fair and equitable decision. Where such
challenge is made, the Appointing Authority shall uphold or dismiss
the challenge. In the event a challenge is upheld, the arbitrator as
to whom the challenge was upheld shall cease to be a member of the
Panel. A replacement will be selected in the same manner as the
original arbitrator was selected. If an arbitrator resigns or becomes
unable or unwilling to continue to serve on the Panel, a replacement
shall be selected in the same manner as that arbitrator was chosen.
(iii) Multi-Party Arbitrations. Where more than two Parties are
involved in the dispute ("Multi-Party Arbitration"), all Parties shall
jointly name and agree as the appointment of the two arbitrators
meeting the criteria set forth in Section II.D. above. The third
arbitrator shall be appointed as set forth in Section II.D.(i) above.
If the Parties cannot agree as to the choice of the two arbitrators
within the said thirty (30) days, either of the Parties hereto may in
like manner, within three (3) days after written notice to the other
Party, apply to the Appointing Authority for the appointment of the
two arbitrators meeting the criteria set forth in Section II.D. above.
(iv) Management of the Arbitration. The Panel shall actively
manage the proceedings as it deems best so as to make the same
expeditious, economical, and less burdensome and adversarial than
litigation.
E. Confidentiality. All documents, briefs, testimony, transcripts, as well
as, all Panel decisions shall be confidential, except that, upon prior written
consent of both Parties, such information may be divulged to third parties who
agree in writing to keep such information confidential if such disclosure is
deemed necessary pursuant to common business practice or is required by law.
Likewise, the views, suggestions, admissions, proposals, and other information
exchanged in the arbitration are confidential and are inadmissible in any other
proceeding.
F. Costs and Expenses. Each side shall be solely responsible for all costs,
fees and expenses incurred by its party-appointed arbitrator. The fees, costs,
and expenses of the third arbitrator and any other incidental costs incurred in
connection with the arbitration proceeding shall be borne equally by the
Parties. Each Party is solely responsible for its own attorneys' fees and
expenses incurred in the arbitration. In the event of a Multi-Party arbitration,
all costs and expenses shall be borne equally by all Parties.
G. Submissions. Within thirty (30) days after the selection of the Panel,
each Party shall provide the Panel with a short and plain submission defining
the issues to be decided and the nature of the relief that the Panel may award
(the "Submission"). This Submission shall explicitly authorize the Arbitration
Panel to decide these issues. This authorization shall stay in force for six (6)
months from this Submission. If the Parties are unable to reach consensus as to
the issues involved, the Panel in its sole discretion shall frame the issues
through a reasonable procedure. The Panel will render decisions on the specific
issues established and shall fashion any remedy that the Panel deems appropriate
so long as that remedy is consistent with the Parties' Submissions hereunder.
Any money judgment entered by the Panel shall be payable in U.S. dollars.
H. Transcriptions. The presentations and argument will be transcribed for
the benefit of the Panel and the Parties.
I. Discovery. Commencing thirty (30) days after the receipt of the opposing
Party's Submission, each Party may serve upon the other Party up to fifteen (15)
requests for the production of documents, including sub-parts. The requests
shall be made in good faith and not be served for the purpose of delay or
harassment. Each request shall describe the type of document(s) sought and each
request shall be limited to documents that are relevant to a claim or defense
Page 3 of 5
in the arbitration proceeding, or reasonably calculated to lead to the discovery
of admissible evidence. The requests need not be served all at once but may be
served in stages.
(i) The Party served with a request under this provision shall
provide the adverse Party with copies of the requested documents, and
identify the request to which each document is responsive, within
twenty (20) days of the receipt of the request. If the Party served
with a request objects to the production of any of the requested
documents, it shall nevertheless produce within the permitted time all
documents responsive to any request that is not objected to by that
Party.
(ii) A Party that is served with a request may challenge the
propriety of the request within the time permitted for response by a
short written objection which shall be forwarded to the adverse Party
and to each member of the Panel. The adverse Party shall submit its
response, if any, to the objecting Party and each member of the Panel
within five (5) days of receipt of the objection. The Panel shall
consider the request, the objection, and the response, if any, and
decide whether the production shall be allowed or denied or whether
the request should be modified within ten (10) days after the
submission of the adverse Party's response.
J. Presentations. No later than twenty-five (25) days prior to the date
that presentations to the Panel are to begin, each Party will submit to the
Panel and serve on the other Party a written position statement. The original
statement of each Party shall not exceed thirty-five (35) typewritten
letter-sized pages. Each Party shall have the right to submit reply statements
no later than fifteen (15) days prior to the date of the presentation. Such
reply statements shall not exceed fifteen (15) typewritten letter-sized pages.
(i) All documents and affidavits that a Party intends to use
during its presentation shall be submitted to the Panel and served on
the other Party with the position and reply statements. All
demonstrative exhibits shall be exchanged five (5) days in advance of
the presentations.
(ii) The presentations to the Panel shall extend for such time as
the Panel agrees to be appropriate. In the absence of any agreement,
the presentations for both Parties shall extend for no longer than two
(2) days and shall be concluded within six (6) months after selection
of the Panel. Presentations of each Party shall occur successively
with no intervening delay.
(iii) Each Party shall make an oral and/or documentary
presentation of its position in such order and in accordance with the
time schedule established by the Panel. The Panel may question each of
the presenters during or following any and all presentations.
The Panel shall determine a reasonable time and location for the presentations.
K. Decision and Award. The Panel shall promptly (within sixty (60) days of
conclusion of the presentations or such longer period as the Parties may
mutually agree) determine the claims of the Parties and render their final
decision in writing. All decisions and awards shall be decided by a majority of
the Panel. The decision shall state with specificity the findings of fact and
conclusions of law on which it rests. The decision rendered by the Panel may be
enforced in any federal court having jurisdiction to do so and may only be
appealed pursuant to Section L below. The decision shall be served upon each of
the Parties by facsimile transmission and by first class mail. If there be no
majority as to any part of the award, such part of the award shall be made by
the third arbitrator.
(i) If applicable law allows pre-award interest, the Panel may,
in their discretion, grant pre-award interest and, if so, such
interest may be at commercial rates during the relevant period. The
Panel may award all or a part of a Party's reasonable attorney's fees
and costs of arbitration, taking into account the final result of the
Page 4 of 5
arbitration, the conduct of the Parties and their counsel in the
course of the arbitration, and other relevant factors. The Panel shall
not award consequential or punitive damages.
(ii) Within ten (10) days of receipt of the award either side may
submit a Motion to Modify the award. A response shall be due within
fifteen (15) days thereafter and the Panel shall rule thereon within
fifteen (15) days after receipt of the response.
(iii) Judgment on the award may be entered in a United States
District Court for the federal district within which the decision was
made at any time within one year after the decision is made.
L. Vacation of Award and Appeal. The Parties agree that an award made by
the Panel may only be vacated or confirmed by a federal court of proper
jurisdiction as established above. The Parties agree that an award made by the
Panel may be vacated by a court only if the award was procured by or through
fraud or corruption or because the Panel refused to hear evidence material to
the controversy or otherwise so conducted the hearing as to substantially
prejudice the rights of a Party. An appeal from an order or judgment pursuant to
this Section II.L. shall be instituted in the United States District Court for
the Eastern District of Louisiana. Each Party waives any option or objection
which it may now or thereafter have to the laying of the venue of any such suit,
action or proceeding and irrevocably submits to the jurisdiction of the court in
any such suit, action or proceeding. Each Party agrees that a remedy at law for
a violation of this Section II.L. may not be adequate and therefore agrees that
the remedies of specific performance and injunctive relief shall be available in
the event of any violation in addition to any other right or remedy at law or in
equity to which any Party may be entitled.
M. Res Judicata. To the extent permitted by law, any decision of the Panel
shall not be res judicata or have any binding effect in any unrelated litigation
or arbitration.
Page 5 of 5
EXHIBIT "G"
-----------
Attached to and made a part of that certain Exploration Participation Agreement
dated effective the 1st day of September, 2006, by and between Chevron U.S.A.
Inc. and Ridgewood Energy Corporation
Declaration of Agreement
------------------------
THE UNITED STATES OF AMERICA ss.
STATE OF LOUISIANA ss. KNOW ALL MEN BY THESE PRESENT
OUTER CONTINENTAL SHELF ss.
Pursuant to LSA-R.S. 9:2732, Chevron U.S.A. Inc.. ("Chevron") whose address
is ▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇ and Ridgewood Energy
Corporation ("Ridgewood") whose address is ▇▇▇▇▇ ▇▇▇ ▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇ ▇▇▇,
▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇, file this Declaration in Lieu of Agreement.
WHEREAS, Chevron and Ridgewood have entered into a certain Exploration
Participation Agreement dated _____________, 2006, (the "Exploration
Agreement"); and
WHEREAS, the Exploration Agreement involves, among other things, the
ownership of and the exploration for oil and gas on certain leasehold interests
in the Outer Continental Shelf Offshore; and
WHEREAS, Chevron and Ridgewood are desirous of placing all third parties on
notice of the Exploration Agreement and its impact on the leasehold interests
described herein.
NOW THEREFORE, Chevron and Ridgewood file the following declaration for the
purpose of placing all third parties on notice of the Exploration Agreement and
its effect on the leasehold interests described herein.
1. Lands Affected. The lands affected by the operating rights that are the
subject of the Exploration Agreement are those described below:
============================================================================
CHEVRON'S
AREA & BLOCK OCS # GROSS CURRENT
ACRES INTEREST
-----------------------------------------------------------------------------
============================================================================
Chevron/Ridgewood EPA 2006
Exhibit G - ST/WD EPA EXHIBIT G.doc
Page 1 of 3
2. Nature of the Exploration Agreement. Pursuant to the terms of the
Exploration Agreement, Ridgewood is entitled to earn assignments of leasehold
rights from Chevron with respect to certain real property interests covering the
lands described herein.
3. Location of the Exploration Agreement. Original, executed copies of the
Exploration Agreement are maintained at the offices of Chevron located at ▇▇▇
▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇, and at the offices of Ridgewood
located at ▇▇▇▇▇ ▇▇▇ ▇▇▇▇ ▇▇▇▇ - ▇▇▇▇▇ ▇▇▇, ▇▇▇▇▇▇▇ ▇▇, ▇▇▇▇▇.
4. It is Chevron's and Ridgewood's intention that this Declaration serves
as full and complete notice of the Exploration Agreement to the same extent as
if the original Exploration Agreement had been fled and recorded.
IN WITNESS WHEREOF, this Declaration of Agreement is executed by the
parties hereto as of this ___________ day of ______ 200____.
WITNESSES: Chevron U.S.A. Inc.
By:
---------------------------- ------------------------------
Title:
---------------------------- ---------------------------
WITNESSES: Ridgewood Energy Corporation
By:
---------------------------- ------------------------------
Title:
---------------------------- ---------------------------
Page 2 of 3
STATE OF LOUISIANA }
PARISH OF ORLEANS }
On this ___________ day of _______, 200___, before me appeared ___________,
to me personally known, who, being by me duly sworn, did say that he is the
Assistant Secretary of CHEVRON U.S.A. INC., and that the foregoing instrument
was signed on behalf of the corporation by authority of its Board of Directors,
and that he acknowledged the instrument to be the free act and deed of the
corporation.
WITNESS my hand and official seal this __________day of _________, 200__.
My Commission Is For Life.
----------------------------
Notary Public
STATE OF ____________}
COUNTY OF __________ }
On this day of _________, 200 ___ , before me appeared __________________,
to me personally known, who, being by me duly swore, did say that he is the
__________________ of RIDGEWOOD ENERGY CORPORATION, a Delaware corporation, and
that the foregoing instrument was signed on behalf of the corporation
by authority of its Board of Directors, and that he acknowledged the
instrument to be the free act and deed of the corporation.
WITNESS my hand and official seal this __________ day of ________ 200 ___.
My Commission Expires _________________. ____________________________
Page 3 of 3
EXHIBIT "H"
-----------
Attached to and made a part of that certain Exploration Participation Agreement
dated effective the 1st day of September, 2006, by and between Chevron U.S.A.
Inc. and Ridgewood Energy Corporation
PROCESSING AGREEMENT
--------------------
Chevron/Ridgewood EPA 2006
Exhibit H - ST/WD EPA EXHIBIT H.doc
EXHIBIT "I"
-----------
Attached to and made a part of that certain Exploration Participation Agreement
dated effective the 1st day of September, 2006, by and between Chevron U.S.A.
Inc. and Ridgewood Energy Corporation
"Area of Mutual Interest"
-------------------------
Wahoo Prospect
--------------
===============================================================================
===============================================================================
Block No. OCS Serial No. Lease Status
--------- -------------- ------------
South Timbalier 50 G-4119 SOP
===============================================================================
Kapolei Prospect
----------------
===============================================================================
===============================================================================
Block No. OCS Serial No. Lease Status
--------- -------------- ------------
South Timbalier 125 G-24963 Primary Term
===============================================================================
Lewes Beach Prospect
--------------------
===============================================================================
===============================================================================
Block No. OCS Serial No. Lease Status
--------- -------------- ------------
South Timbalier 107 G-15319 HBP
===============================================================================
1
Chevron/Ridgewood EPA 2006
Exhibit J - ST/WD EPA EXHIBIT I.doc