UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
8-K/A
(Amendment
No. 1)
CURRENT
REPORT
Pursuant
to Section 13 or 15(d) of the Securities Exchange Act of
1934
Date
of
Report (Date of earliest event reported): June 19, 2006 (June 7, 2006)
BERRY
PETROLEUM COMPANY
(Exact
Name of Registrant as Specified in its Charter)
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DELAWARE
(State
or Other Jurisdiction of
Incorporation
or Organization)
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1-9735
(Commission
File Number)
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77-0079387
(IRS
Employer
Identification
Number)
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5201
TRUXTUN AVE., STE. 300, BAKERSFIELD, CA
(Address
of Principal Executive Offices)
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93309
(Zip
Code)
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Registrant’s
telephone number, including area code: (661)
616-3900
Check
the appropriate box below if the Form 8-K filing is intended to simultaneously
satisfy the filing obligation of the registrant under any of the following
provisions:
o
Written
communications pursuant to Rule 425 under the Securities Act (17 CFR
230.425)
o
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR
240.14a-12)
o
Pre-commencement communications pursuant to Rule 14d-2(b) under the
Exchange Act (17 CFR 240.14d-2(b))
o
Pre-commencement communications pursuant to Rule 13e-4(c) under the
Exchange Act (17 CFR 240.13e-4(c))
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EXPLANATORY
NOTE: This report on Form 8-K/A amends our Form 8-K filed on June 8, 2006
in its entirety to supplement the disclosure in Item 1.01 and
9.01.
Item 1.01 Entry
Into A Material Definitive Agreement
On
June
8, 2006, Berry Petroleum Company issued a news release announcing that
Berry
Petroleum Company (NYSE:BRY) had entered into a definitive agreement with
EnCana Oil & Gas (USA) Inc. (NYSE:ECA) to jointly develop a portion of
EnCana’s North
Parachute Ranch property
in the
Piceance Basin of western Colorado. Berry will fund the drilling of 90 natural
gas wells on EnCana’s valley lands and will acquire 4,300 gross acres
elsewhere in the North Parachute Ranch property with a working interest of
95%
and a net revenue interest of 79%.
The
information contained in the press release is incorporated herein by reference
and furnished as Exhibit 99.1. A
copy of
the definitive agreement with EnCana Oil & Gas (USA), Inc. is filed as
Exhibit 99.2 to this report and is incorporated herein by
reference.
Item 9.01 Financial
Statements and Exhibits
(c)
Exhibits
99.1
News
Release by Berry Petroleum Company dated June 8, 2006 titled "Berry
Petroleum Company Expands Piceance Basin Asset Base."
99.2
Carry and Earning Agreement, dated June 7, 2006, between Berry Petroleum
Company and EnCana Oil & Gas (USA), Inc.+
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Confidential treatment has been requested with respect to certain portions
of
this exhibit. Omitted portions have been filed separately with
the
Securities and Exchange Commission.
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant
has
duly caused this report to be signed on its behalf by the undersigned hereto
duly authorized.
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BERRY
PETROLEUM COMPANY
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By:
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/s/
Kenneth A. Olson
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Kenneth
A. Olson
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Corporate
Secretary
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Date:
June 19, 2006
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News
Release
Berry
Petroleum Company Phone
(661) 616-3900
5201
Truxtun Avenue, Suite
300 E-mail:
ir@bry.com
Bakersfield,
California
93309-0640 Internet:
www.bry.com
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Contacts:
Robert F. Heinemann, President and CEO - - Ralph J. Goehring, Executive
Vice President and CFO
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BERRY
PETROLEUM EXPANDS PICEANCE BASIN ASSET BASE
Bakersfield,
CA - June 8, 2006
- Berry
Petroleum Company (NYSE:BRY) announced that it has entered into a definitive
agreement with EnCana Oil & Gas (USA) Inc. (NYSE:ECA) to jointly develop a
portion of EnCana’s North
Parachute Ranch property
in the
Piceance Basin of western Colorado. Berry will fund the drilling of
90 natural
gas wells on EnCana’s valley lands and will acquire 4,300 gross acres
elsewhere in the North Parachute Ranch property with a working interest
of 95%
and a net revenue interest of 79%.
Robert
F.
Heinemann, president and chief executive officer of Berry said, “We are excited
to have the opportunity to expand our reserves and drilling inventory
in the
prolific Piceance Basin. Berry’s asset base is rapidly becoming balanced between
natural gas and crude oil. The Company estimates it now has proved
and probable
reserves of almost 850 billion cubic feet of natural gas equivalent
in this
basin when combined with the Grand Valley field acquisition completed
earlier
this year. This project has the size and scale to materially grow Berry’s
natural gas production in the Rockies. With an inventory of 400 drilling
locations, Berry plans to invest over $750 million of development capital
over
the next several years in this opportunity alone.”
Dan
Anderson, vice president of Rocky Mountain production added, “We are pleased to
partner with EnCana on this joint development project and look forward
to
maximizing the production and reserves from this new asset. In addition
to the
capital for the 90 participation wells, Berry will invest $24 million
in 2006 to
drill and complete wells on the Company’s acquired acreage. We have two
rigs available to start drilling in July and anticipate having a total
of six
rigs in 2006 as part of a continuous drilling program in the basin.
We expect
the productivity of the North Parachute Ranch wells to be comparable
to wells in
our adjacent Grand Valley project. Initial natural gas production from
these
wells ranges from 1.3 million to 2 million cubic feet per day.”
About
Berry Petroleum Company
Berry
Petroleum Company is a publicly traded independent oil and gas production
and
exploitation company with its headquarters in Bakersfield, California
and a
regional office in Denver, Colorado.
Safe
harbor under the “Private Securities Litigation Reform Act of
1995”
Any
statements in this news release that are not historical facts are
forward-looking statements that involve risks and uncertainties. Words
such as
“will,” “plans,” “estimates,” “expect,” “anticipate,” and forms of those words
and others indicate forward-looking statements. Important factors which
could
affect actual results are discussed in PART
1, Item 1A. Risk Factors
of
Berry’s 2005 Form 10-K filed with the Securities and Exchange Commission,
under
the heading “Other Factors Affecting the Company's Business and Financial
Results” in the section titled “Management’s Discussion and Analysis of
Financial Condition and Results of Operations.”
#
#
#
CONFIDENTIAL
TREATMENT REQUESTED. CONFIDENTIAL PORTIONS OF THIS DOCUMENT HAVE BEEN REDACTED
AND HAVE BEEN SEPARATELY FILED WITH THE COMMISSION. [***] SYMBOLIZES
CONFIDENTIAL MATERIAL REDACTED.
NORTH
PARACHUTE RANCH PROPERTY
EFFECTIVE
DATE: June
7,
2006
PARTIES: Berry
Petroleum Company
5201
Truxtun Avenue
Suite
300
Bakersfield,
California 93309-0640
Attn:
Land Manager
Fax:
661-616-3886
Phone:
661-616-3900
stb@bry.com
(“Berry”)
and
EnCana
Oil & Gas (USA) Inc.
370
Seventeenth Street
Suite
1700
Denver,
Colorado 80202
Attn:
North Piceance Team Lead
Fax:
720-876-6157
Phone:
720-876-5157
darrin.henke@encana.com
(“EnCana”
and,
together with Berry, the “Parties”)
RECITALS:
A. EnCana
owns a leasehold interest in certain lands in Garfield County, Colorado depicted
on the map attached hereto as Exhibit
A
(the
“North
Parachute Ranch Property”)
a
portion of which, for purposes of this Carry and Earning Agreement (this
“Agreement”),
has
been shaded in yellow on Exhibit A and is referred to herein as the
“Berry
Block.”
B. Berry
desires to explore and develop, and acquire a working interest in, the Berry
Block on the terms and conditions set forth herein.
C. The
Parties desire to enter into this Agreement to govern certain of their
respective rights and obligations with respect to exploration and development
of
the North Parachute Ranch Property, including the Berry Block.
AGREEMENTS:
Now,
therefore, the Parties agree as follows:
Section 1. Exhibits
The
following Exhibits are attached hereto and shall be considered part of this
Agreement:
1.1 Exhibit
A
- North
Parachute Ranch Property; Berry Block
1.2 Exhibit
B
- Form
of AFE
1.3 Exhibit
C
- EnCana
Best Practices
1.4 Exhibit
D-
Form of
Operating Agreement
1.5 Exhibit
E
- Form
of Gathering Agreement
1.6 Exhibit
F
- AMI
Lands
1.7 Exhibit
G
- Tax
Partnership Provisions
Section 2. North
Parachute Ranch Property; Title; Additional Geophysical
Work
2.1 North
Parachute Ranch Property. EnCana
represents, but does not warrant, that on the Effective Date it owns all of
the
oil and gas leasehold interest (excluding oil shale and oil shale rights) in
all
of the lands within the areas depicted as the North Parachute Ranch Property
on
Exhibit A.
2.2 Title
Matters. EnCana
does not warrant title to any of the lands included in the North Parachute
Ranch
Property but shall, upon request, furnish to Berry copies of all title
documentation material to the lands included in the Berry Block in EnCana’s
files, possession, custody or control, including without limitation copies
of
all title opinions and reports, and title curative documents. Such title
information shall be provided to Berry without warranty as to completeness
or
accuracy. EnCana shall have no obligation to purchase new or supplemental
abstracts nor to do any curative work in connection with title to the lands
included in the Berry Block. Any title examination performed by Berry with
respect to the lands included in the Berry Block or with respect to any Berry
Well (as hereinafter defined) drilled on the Berry Block portion of the North
Parachute Ranch Property by Berry pursuant to this Agreement shall be performed
at the sole cost of Berry, and Berry shall deliver copies to EnCana of any
title
opinion or report acquired by Berry with respect to such Wells.
2.3 Disclosure
of Information. Promptly
after execution hereof, EnCana shall make available to Berry all engineering,
technical, geological, geophysical, land, title
2
and
other
information, data and materials in its possession, custody or control concerning
the Berry Block (the “Information”).
2.4 Additional
Geophysical Work. If
Berry
wishes to conduct proprietary seismic and other geophysical work on the Berry
Block prior to drilling any Berry Well, the scope of the work to be performed
and the cost of the work will be agreed upon by Berry and EnCana before such
work is commenced. The cost of such agreed work will be borne by the Parties
in
proportion to their respective working interests in Berry Wells drilled by
Berry
in the Berry Block; provided that EnCana’s share of such costs will be credited,
on a Well by Well basis, toward EnCana’s cost-sharing obligation on the Berry
Wells as set forth in Section 4.2 below.
Section 3. Carry
Wells
3.1 Drilling
of Carry Wells. The
first
ninety (90) wells designated by EnCana on the North Parachute Ranch Property,
other than on the Berry Block, to test the Williams Fork Member of the Mesa
Verde Formation (the “Objective
Depth”)
which
are spudded after the date hereof and prior to December 31, 2008 are referred
to
herein as the “Carry
Wells.”
No
more than fifty-eight (58) of the Carry Wells shall be spudded prior to December
31, 2006.
3.2 Costs
of Carry Wells. Berry
agrees to be responsible for and pay 100% of the actual costs of drilling,
completing (or plugging and abandoning), and equipping each Carry Well, up
to a
maximum of $1,700,000 per Carry Well (the “Carry
Amount”).
The
aggregate Carry Amount paid by Berry for all Carry Wells shall not exceed
$153,000,000. For purposes hereof, “costs
of drilling”
a
Carry
Well shall mean the costs of obtaining and preparing the location, obtaining
permits, drilling contractor services, consultants, mud chemicals, pipe and
supplies and all other costs and expenses associated with or incurred by moving
in, rigging up, logging and testing so that a decision can be made to either
attempt to set pipe and complete such Well or to plug and abandon it as a dry
hole, and “costs
of equipping”
a
Carry
Well shall mean the costs of the acquisition and installation of equipment,
including but not limited to metering and automation equipment, on the Well
up
to and including the connection of such Well to a gas sales line and which
are
capitalized for federal income tax purposes.
3.3 Payment
of Carry Amount. EnCana
shall issue to Berry an authority for expenditure (“AFE”)
in the
form attached hereto as Exhibit
B
or a
comparable form setting forth EnCana’s best estimate of the total cost
(determined in a manner consistent with the Council of Petroleum Accountants
Societies’ accounting procedures) to drill, complete and equip each Carry Well.
The AFEs shall be issued on the schedule set forth below. Berry shall pay the
full Carry Amount set forth on each such AFE no later than the applicable date
set forth below. EnCana may, but is not obligated to, issue the full number
of
AFEs set forth below for each period. To the extent the full number of AFEs
are
not issued for a period, EnCana may issue the unissued AFEs during a subsequent
period.
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a. On
July
3, 2006, EnCana may issue to Berry AFEs for up to 30 Carry Wells. Berry shall
pay the full Carry Amount set forth on each such AFE no later than July 7,
2006.
b. On
or
before October 15, 2006, EnCana may issue to Berry AFEs for up to an additional
28 Carry Wells.
Berry
shall pay the full Carry Amount set forth on each such AFE no later than
November 1, 2006.
c. On
or
before December 15, 2006, EnCana may issue to Berry AFEs for additional wells;
provided, however, that EnCana shall not issue AFEs for more than 58 Carry
Wells
during 2006. Berry shall pay the full Carry Amount set forth on each such AFE
no
later than December 31, 2006.
d. On
or
before April 15, 2007, EnCana may issue to Berry AFEs for up to an additional
32
Carry Wells. Berry shall pay the full Carry Amount set forth on each such AFE
no
later than May 1, 2007.
e. On
or
before December 1, 2008, EnCana may issue to Berry AFEs for any of the remaining
Carry Wells, not to exceed a total of 90 Carry Wells. Berry shall pay the full
Carry Amount set forth on each such AFE within fifteen business days of receipt
of the AFE.
In
the
event the total cost of drilling, completing and equipping a Carry Well is
less
than the AFE Carry Amount paid by Berry, EnCana shall refund the difference
to
Berry within 30 days of the first to occur of (a) the date such total costs
are
finally determined by EnCana or (b) the date the Well is fully equipped. If
EnCana plugs and abandons a Carry Well, EnCana may apply any remaining AFE
Carry
Amount paid by Berry with respect to such Carry Well to the cost of one
replacement Carry Well and EnCana shall assign an interest to Berry in such
replacement Carry Well as provided in Section 3.4. If EnCana elects not to
drill
a replacement Carry Well, EnCana shall refund the remaining AFE Carry Amount,
if
any, to Berry within 30 days of the date the original Carry Well is plugged
and
abandoned.
3.4 Berry
Interest in Carry Wells. Provided
Berry has paid the Carry Amount for each such Carry Well, EnCana shall execute
and deliver to Berry an assignment, in form and substance reasonably
satisfactory to Berry, of a 5.0% of 100% working interest and a 4.17% of 100%
net revenue interest in the wellbore for such Carry Well. From and after the
date any Carry Well is completed as a producer and connected to a gas sales
line, EnCana shall bear and pay 95.0% of the working interest costs and expenses
of such Well, and Berry shall bear and pay 5.0% of such costs and
expenses.
Section 4. Berry
Block
4.1 Berry
Block Working Interest. In
consideration, among other considerations, of Berry’s agreement to pay an amount
up to the aggregate Carry Amount, after EnCana receives payment of the full
Carry Amount for the first 30 Carry Wells, EnCana shall execute and deliver
to
Berry an assignment, in form and substance
4
reasonably
satisfactory to Berry, of a 95.0% working interest in that certain June 7,
2006
Lease Agreement (the “Lease”) between EnCana, as lessee, and Pavillion Land
Development, LLC, as lessor, covering all oil, gas (including natural gas,
helium, and carbon dioxide), gas distillate, other liquid hydrocarbons in or
under all lands within the Berry Block to all depths, but excluding all oil
shale and oil shale and other rights within the Green River Formation from
the
surface to the stratigraphic equivalent of the depth of 2,105 feet as found
in
the Skelly Oil Company #1 Dry Fork Unit well, located in the SW/4NW/4SE/4 of
Section 25, T4S, R97W. Berry and EnCana acknowledge and agree that such working
interest shall be subject solely to a 16.67% landowner’s royalty in favor of
Pavillion Land Development, LLC, proportionately reduced to the working interest
assigned. Within 30 days following the fifth annual anniversary of the spud
date
of the first well drilled by Berry on the Berry Block (each well drilled by
Berry on the Berry Block being referred to herein as a “Berry
Well”),
Berry
shall reassign to EnCana all of the interest acquired by Berry pursuant to
the
assignment in each 160-acre tract within the Berry Block on which no Berry
Well
has been completed and is producing from the Williams Fork Member of the Mesa
Verde Formation as of such fifth anniversary date. Such reassignment shall
be
free and clear of all liens, burdens or encumbrances created by, through or
under Berry.
4.2 EnCana
Participation in Berry Wells. EnCana
shall pay 5.0% of the costs of drilling, completing (or plugging and abandoning)
and equipping each of the Berry Wells on the Berry Block, together with 5.0%
of
all costs of operating such Berry Wells after completion and connection to
a gas
sales line; provided that EnCana’s obligation to pay 5.0% of the costs of
drilling, completing (or plugging and abandoning) and equipping the Berry Wells
shall be limited to a maximum of $100,000 per Well for the first 85 Berry Wells
and that such cap shall not apply to any Berry Wells in excess of
85.
4.3 Berry
Drilling Program. The
pad
construction, drilling, completion, equipping and placement on production,
or
plugging and abandoning, and operating of each of the Berry Wells is referred
to
herein as the “Berry
Drilling Program.”
Berry
agrees to coordinate with EnCana in order to comply with all applicable laws,
including environmental laws, in the conduct of all aspects of the Berry
Drilling Program, including pad construction, drilling, completing and operating
phases of such Program, and to adhere to EnCana’s EH&S and Operational Best
Practices (a copy of which is attached hereto as Exhibit
C),
taking
into account applicable facts and circumstances, in the conduct of the Berry
Drilling Program. Without limiting the generality of the foregoing, Berry agrees
to drill an average of at least six Berry Wells from each surface pad. Berry
shall obtain and maintain such drilling bonds as may be required under
applicable law.
4.4 Berry
Drilling Obligation. Berry
shall spud at least 120 Berry Wells on the Berry Block on or prior to December
31, 2009 (the “Drilling
Deadline”);
provided that the Drilling Deadline shall be extended by the number of days
greater than 90 which elapse between the date of this Agreement and the first
date on which Berry has the use of two Existing Rigs (as defined in Section
9.1
below) or other suitable rigs through EnCana. The Parties acknowledge that
the
damages to EnCana for any
5
unexcused
failure by Berry to spud at least 120 Berry Wells by the Drilling Deadline
will
be difficult to ascertain and, accordingly, as EnCana’s sole and exclusive
remedy for such default and notwithstanding anything to the contrary in Section
8 or otherwise herein, Berry agrees to pay EnCana the sum of $200,000, as
liquidated damages and not as a penalty, for each unexcused well less than
120
spudded by Berry on the Berry Block on or prior to the Drilling
Deadline.
4.5 Road,
Pipeline Rights of Way and Surface Access License Across North Parachute Ranch
Property.
EnCana
hereby grants to Berry a nonexclusive license to go upon the Berry Block to
conduct all operations relating to the drilling, completion, plugging and
abandonment, and producing of the Berry Wells, and for saving, taking,
transporting, storing, handling and treating of oil, gas and other substances
produced therefrom. In addition, EnCana hereby grants Berry the right to
construct, use, maintain and repair roads, pipelines and surface access across
the balance of the North Parachute Ranch Property for the purpose of accessing,
drilling, completing, plugging and abandoning and producing the Berry Wells
at
locations and under conditions to be determined in consultation with EnCana
and
subject to EnCana’s approval which shall not be unreasonably withheld or
delayed. Berry shall not utilize any portion of the Berry Block for storage
or
staging of equipment or for a field office. Within ten days after the assignment
of the Lease to Berry, EnCana shall execute and deliver a license to Berry
evidencing such grant.
Section 5. Operations;
Operating Agreement
5.1 Operator. EnCana
shall operate each Carry Well, and Berry shall operate each Berry Block
Well.
5.2 Operating
Agreement. An
operating agreement between the Parties, designating EnCana as Operator of
each
Carry Well, Berry as the Operator of each Berry Well, and the wellbore of each
of the Carry Wells and the Berry Block as the Contract Area, shall be executed
by the Parties prior to the spudding of the first Carry Well or Berry Well
in
the form attached hereto as Exhibit
D
(the
“Operating
Agreement”).
The
Operating Agreement shall govern all operations on the Carry Wells or Berry
Wells, respectively, after completion of each such Well, except as expressly
provided herein. The Operating Agreement shall become effective as to each
Well
covered thereby after such Well has been drilled and completed. The Operating
Agreement shall be deemed amended after each Carry Well is completed to include
the Well under the Operating Agreement. In the event of any conflict or
inconsistency between the terms of this Agreement and the Operating Agreement,
this Agreement shall prevail to the extent of such conflict, as between Berry
and EnCana or their permitted successors or permitted assigns.
Section 6. Geologic
Requirements; Information; Technical Meetings
6.1 Operator
to Provide Information. With
respect to all Wells drilled hereunder or under an Operating Agreement, the
Operator thereof shall furnish to the non-operating Party access to the cores,
samples, logs and other information and data
6
relating
to such Wells, together with such other information and data reasonably
requested by the non-operating Party and normally supplied in connection with
evaluating the results of wells. Each Party shall provide access to the other
to
all geologic and geophysical data covering or relating to the Berry Wells and
Carry Wells (as hereinafter defined) within its possession upon reasonable
notice during normal business hours, subject to licensing
requirements.
6.2 Technical
Meetings. On
a
regular basis, no more frequently than bimonthly and no less frequently than
quarterly, technical representatives and, to the extent necessary, field and
operating personnel, of the Parties shall meet at mutually acceptable times
and
locations in Denver to discuss operational matters involving jointly owned
properties within the North Parachute Ranch Property and the Berry Block, to
review joint operations to date, and to discuss projected joint operations
for
the ensuing quarter.
Section 7. Indemnity
7.1 Indemnification
of EnCana. Berry,
for itself and its successors, subrogees, assigns, representatives and
affiliates covenants and agrees to protect, defend, indemnify and hold EnCana
and its employees and agents free and harmless from and against any and all
claims, demands, losses, and liabilities of every kind and nature asserted
by a
third party (collectively, “Losses”) arising out of Berry’s performance or
failure to perform hereunder or out of the acts or failure to act of Berry’s
employees and agents.
7.2 Indemnification
of Berry. EnCana,
for itself and its successors, subrogees, assigns, representatives and
affiliates covenants and agrees to protect, defend, indemnify and hold Berry
and
its employees and agents free and harmless from and against any and all Losses
arising out of EnCana’s performance or failure to perform hereunder or out of
the acts or failure to act of EnCana’s employees and agents.
Section 8. Force
Majeure
If
a
Party is rendered unable, wholly or in part, by a force majeure event to carry
out its obligations under this Agreement, other than the obligations to make
money payments and to deliver assignments of interests in the Wells and the
obligation of Berry pursuant to Section 4.4 hereof, the affected Party shall
give the other Party prompt written notice describing the force majeure event
in
reasonable detail. Thereupon, the obligations of the Party giving notice, so
far
as it is affected by the force majeure event, shall be suspended during, but
no
longer than, the continuance of the force majeure event. The affected Party
shall use all reasonable diligence to remove the force majeure event as quickly
as practicable. The requirement that any force majeure event be remedied with
all reasonable dispatch shall not require the settlement of strikes, lockouts
or
other labor difficulty by the Party affected, contrary to its wishes, and
settlement or resolution of such matters shall be within the discretion of
the
affected Party. The term “force
majeure event”
as
used
herein, shall mean an act of God, act of terrorism, strike, lockout, or other
industrial disturbance, act of the public
7
enemy,
war, blockade, public riot, lightning, fire, storm, flood, explosion,
governmental action, restraint or inaction, inability to obtain access, ingress
or egress to conduct operations (including without limitation delays in or
inability to obtain four-season road access), and any other cause, whether
similar or dissimilar, which is not reasonably within the control of the
affected Party.
Section 9. Drilling
Rigs
9.1 EnCana
to Make Rigs Available. During
the first two years of the Berry Drilling Program, EnCana agrees to use its
best
efforts to assist Berry in negotiating contracts for the use of two drilling
rigs then under contract to EnCana for its North Piceance operations
(“Existing
Rigs”)
for
use by Berry in conducting the Berry Drilling Program. For purposes of this
Section, the Berry Drilling Program shall be considered to commence when the
initial Berry Well is spud. In the event that, despite EnCana’s best efforts,
Berry is not able to secure assignments of existing contracts, or new contracts,
for such Existing Rigs, then EnCana will use its best efforts to supply Berry
with one or two, as applicable, alternative rigs which are suitable for drilling
the Berry Wells until the first to occur of (a) the end of the second year
of
the Berry Drilling Program or (b) Berry’s receipt of an assignment of the
contracts for the Existing Rigs or entry into new contracts for such Existing
Rigs.
9.2 Additional
Rigs. In
addition, upon the reasonable request of Berry, EnCana shall use its reasonable
best efforts to secure and make available to Berry one or more additional
drilling rigs for use in conducting the Berry Drilling Program if necessary
or
desirable in connection with the Berry Drilling Program.
9.3 Indemnity. Berry
shall protect, defend, indemnify and hold EnCana and its employees and agents
free and harmless from and against any and all Losses attributable to Berry’s
use of any Existing Rigs or other rigs which are contracted to
EnCana.
Section 10. Gathering,
Processing, Compression and Transportation Services
10.1 Gathering
and Other Services. Upon
first production from any of the Berry Wells, EnCana shall provide natural
gas
gathering and transportation services, and processing and compression services
necessary to meet current pipeline specifications, to Berry for all gas produced
to Berry’s interest from the Berry Wells from central delivery points located on
Long Ridge and on Old Mountain to the Rockies Express pipeline at the Meeker
Hub
for as long as the Berry shall own a working interest in the Berry Block
pursuant to the gathering, processing, compression and transportation agreement
attached hereto as Exhibit
E
(the
“Gathering
Agreement”).
Berry
shall be responsible for all costs associated with gathering, transportation
and
custody transfer measurement of gas produced from the Berry Wells from the
well
head to the central delivery points.
8
10.2 Gathering
of Other Berry Gas. Within
five (5) business days after execution of this Agreement, EnCana agrees to
offer
a gathering agreement with similar terms and conditions to the Gathering
Agreement providing similar services for all Gas (i) not dedicated under the
Gathering Agreement that is (ii) owned or controlled by Berry and that is (iii)
produced from wells operated by Berry in the area generally known as “Parachute
Creek”; provided, however, Berry and EnCana shall not be obligated to enter into
such gathering agreement until the Parties mutually agree upon definitive
terms.
Section 11. Access
Roads
11.1 Upgrade
by Berry. At
it
sole cost, risk and expense, Berry shall upgrade and improve the existing access
roads to the Long Ridge and Old Mountain areas within the North Parachute Ranch
Property such that such roads are useable on a three-season basis. Prior to
commencement of construction activities, Berry shall submit its plans and
specification to EnCana for approval.
11.2 Additional
Upgrades. If
the
Parties agree to further upgrade such access roads to year-round use, the cost
of such upgrades shall be borne 50% by each Party.
Section 12. Compliance
with Terms of Lease
Berry
shall comply with the terms of the Lease, including but not limited to the
stipulations for the protection of oil shale. If any proposed well is not
approved because its location interferes with planned oil shale operations
or
other surface use required by the lessor of the Lease, EnCana shall assign
to
Berry a comparable working interest in a mutually agreeable comparable block
of
acreage or pay to Berry the fair market value of the oil and gas reserves
attributable to the acreage on which drilling cannot be conducted. At least
six
months prior to the commencement of oil shale development or other surface
use
on the Berry Block, EnCana will provide notice to Berry of such development
or
use.
Section 13. Water
Supply and Disposal
13.1 Supply
of Water. Subject
to satisfaction of its water requirements in connection with its operations,
EnCana agrees to use its best efforts to supply all water required by Berry
directly or indirectly for drilling, completion and production operations
associated with the Berry Drilling Program. EnCana shall only be required to
supply water from its North Parachute Ranch water distribution system. Water
supplied by EnCana shall be of the quality required for EnCana’s completion
operations, and Berry shall be responsible for all treatment necessary to use
the water for any other type of operation. As consideration for such water
supply, Berry shall reimburse EnCana for (a) its documented, direct
out-of-pocket costs incurred in connection with the operation of the water
supply system insofar as such system supplies water for the Berry Drilling
Program, plus (b) a capital recovery charge
9
attributable
to the existing water supply system infrastructure, up to an aggregate maximum
of $0.50 per barrel of water, plus the cost of chemical treatment to render
the
water usable for completion operations, supplied to Berry. During times when
EnCana is supplying water to Berry, Berry personnel shall be in daily contact
with EnCana personnel to ensure that water is delivered with optimal capital
and
equipment efficiency.
13.2 Disposal
of Water. Subject
to capacity limits of its system, EnCana agrees to use its best efforts to
accept produced water from the Berry Wells. As consideration for accepting
and
treating the water, Berry shall reimburse EnCana for the cost of any chemical
treatment or filtration used to return the water to completion fluid quality
for
recycling as supply water. If EnCana disposes of produced water supplied by
Berry, Berry will reimburse EnCana for all disposal costs, including a capital
recovery charge attributable to the disposal facilities.
13.3 Capital
Improvements to Water System. In
the
event any capital improvements to the existing water supply/disposal system
are
necessary to supply water for the Berry Drilling Program or to dispose of water
from the Berry Wells, the Parties will share equally in the cost of such
improvements.
Section 14. Area
of Mutual Interest
14.1 AMI. Effective
as of the spud date of the first Well, the Parties create and establish an
Area
of Mutual Interest (“AMI”) which shall cover the lands described on Exhibit
F
hereto.
The AMI shall be in force and effect for a period ending on the third annual
anniversary of such spud date.
14.2 AMI
Interest. Within
30
days of obtaining a new lease or mineral or royalty interest with respect to
or
affecting the lands within the AMI (each, an “AMI Interest”), the acquiring
Party (“Offeror”) shall deliver to the other Party (“Offeree”) a notice of such
acquisition, including an itemized statement of the amount of consideration
paid
for the AMI Interest as well as other acquisition costs (e.g., consultant or
broker fees, etc.) and shall offer the Offeree its proportionate share of the
AMI Interest. With respect to the acquisition of an AMI Interest through the
acquisition of an interest in a corporation, partnership or other entity, the
consideration paid for the AMI Interest shall be the amount allocated to the
AMI
Interest by the parties to the transaction. For purposes hereof, “proportionate
share” shall mean 50.0%. The notice shall include a copy of all instruments of
acquisition, including by way of example and not limitation, copies of the
leases, assignments or subleases comprising or affecting the AMI Interest.
14.3 Election
to Participate. The
Offeree shall have ten business days after its receipt of the notice to furnish
the Offeror with written notice of its election to acquire and pay for its
proportionate share of the AMI Interest. Failure to provide such notice within
such ten-day period shall be deemed an election not to acquire said AMI
Interest, which shall thereafter no longer be subject to this Agreement or
the
Operating Agreement. If the Offeree elects to acquire its proportionate share
of
the AMI Interest,
10
it
shall
so notify the Offeror and pay its proportionate share of the acquisition cost
of
the AMI Interest. Upon receipt of such notice and payment, the Offeror and
Offeree shall jointly determine whether (a) the Offeror shall execute and
deliver an appropriate assignment or deed of a proportionate share of the AMI
Interest to the Offeree, in which event the jointly-owned AMI Interest shall
be
subject to the terms of this Agreement and the applicable Operating Agreement,
or (b) Offeror shall retain the entire AMI Interest and execute and deliver
an
appropriate assignment or deed of any other oil and gas interest owned by it
within the AMI that is (i) equivalent in value to the proportionate share of
the
AMI Interest to which the Offeree is entitled hereunder, (ii) adjacent or
contiguous to an interest then owned by the Offeree within the AMI, and (iii)
otherwise reasonably acceptable to the Offeree, it being the intention of the
Parties to create and maintain a checkerboard ownership pattern as between
the
Parties within the AMI such that each Party has sole ownership of an
area.
14.4 Lands
Outside AMI. If
the
AMI Interest covers lands both within and without the AMI, the Offeror may,
at
its option, offer either the entire AMI Interest, or only the portion of the
AMI
Interest covering lands within the AMI. If less than the entirety is offered,
the Offeror’s costs applicable to the offered AMI Interest shall be that portion
of the acquisition costs allocated to the AMI Interest by the parties to the
transaction.
14.5 Exclusions
from AMI. All
lands
and interests owned or leased on the date hereof by either EnCana or ExxonMobil
Corporation shall be excluded from the provisions of this Section 14. For
purposes of this Agreement, AMI Interest shall not include any rights or
interests in oil shale within the AMI, and no acquisition by either Party of
such rights or interests shall be subject to this Section 14.
Section 15. Term
The
term
of this Agreement (“Term”) shall begin on the Effective Date and, unless earlier
terminated as provided herein, shall continue until the later of (a) the fifth
annual anniversary of the spud date of the first Berry Well or (b) until there
are no longer any producing wells on the Berry Block. The indemnity obligations
of the Parties hereunder are continuing and shall survive any termination of
this Agreement, and the confidentiality obligations of the Parties shall survive
any such termination in accordance with their terms.
Section 16. Assignability;
Binding Nature
Neither
Party may assign or transfer, by assignment, sale, farmout or otherwise
(collectively,
“Transfer”)
in
whole or in part any of its rights or obligations under this Agreement, or
any
of its rights or interests in either the Carry Wells or the Berry Block, or
any
AMI Interests or other rights or interests earned or acquired hereunder
(collectively, the “Partnership
Property”),
except to an assignee or transferee (including any affiliate of the transferring
Party) who agrees in writing to assume, be bound by and fully and timely perform
the terms of this Agreement, the Operating Agreement, the tax partnership
provisions attached as Exhibit
G
and such
other transfer provisions and
11
conditions
as shall be reasonably requested by the non-assigning or non-transferring Party
based on the tax partnership provisions attached as Exhibit
G,
and
then only if any such Transfer does not cause any portion of the Partnership
Property to no longer be treated as held by the tax partnership for federal
income tax purposes or by its deemed successor tax partnership under Section
708(b)(1)(B) of the Internal Revenue Code. In addition, no such assignment
or
transfer shall be made by Berry without the prior written consent of EnCana
which shall not be unreasonably withheld or delayed.
Section 17. Payment
Offset and Default
If
Berry
fails to make any payment to EnCana when due, in addition to, and not in lieu
of, other available remedies, EnCana may offset any amount owed by EnCana to
Berry. If Berry fails to pay any Carry Amount when due, (a) Berry’s interest in
the Lease shall terminate as to each 160-acre tract within the Berry Block
on
which no Berry Well has been completed and is producing from the Williams Fork
Member of the Mesa Verde Formation. Berry shall reassign to EnCana all of the
interest acquired by Berry in each such 160-acre tract. Such reassignment shall
be free and clear of all liens, burdens or encumbrances created by, through
or
under Berry. In addition, EnCana may pursue other available remedies for
default. Notwithstanding
the foregoing, the termination of Berry’s interest in the Lease shall not become
effective unless EnCana has given Berry 15 days’ written notice of the failure
to make such payment and Berry fails to remedy the default within such 15 day
time period.
Section 18. Notices
All
notices required or permitted under this Agreement shall be in writing and
delivered in person, by overnight courier, by certified or registered mail
return receipt requested, or by facsimile, delivered or addressed to the persons
and at the addresses as provided in the preamble to this Agreement. A notice
shall be deemed given when received by the Party to whom it is directed. When
a
response to the other Party is required, each Party’s response shall be in
writing to the other Party.
Section 19. Bankruptcy
If,
following the granting of relief under the U.S. Bankruptcy Code to either Party
as a debtor thereunder, this Agreement should be held to be an executory
contract under such Code, then the remaining Party shall be entitled to a
determination by the debtor Party or any trustee for the debtor Party within
30
days from the date an order for relief is granted under such Code as to the
rejection or assumption of this Agreement. In the event of an assumption, such
Party seeking determination shall be entitled to adequate assurances as to
the
future performance of the debtor Party’s obligation hereunder and the protection
of the interests of all Parties. The debtor Party shall satisfy its obligation
to provide adequate assurances by either advancing payments or depositing its
proportionate share of expenses in escrow.
12
Section 20. Relationship
of the Parties
This
Agreement is not intended to create, and shall not be construed to create,
an
association for profit, a trust, a joint venture, a mining partnership or other
relationship of partnership, or entity of any kind between the Parties.
Notwithstanding anything to the contrary contained herein, the Parties
understand and agree that the arrangement and undertakings evidenced by this
Agreement, taken together, result in a partnership for purposes of federal
income taxation and for purposes of certain state income tax laws which
incorporate or follow federal income tax principles as to tax partnerships.
For
these purposes, the Parties agree to be governed by the tax partnership
provisions attached as Exhibit
G,
which
are incorporated herein and made a part of this Agreement by this reference.
For
every purpose other than the above-described income tax purposes, however,
the
Parties understand and agree that the liabilities of the Parties shall be
several, not joint or collective, and that each Party shall be solely
responsible for its own obligations. In the event of any conflict or
inconsistency between the terms and conditions of Exhibit
G
and the
terms and conditions of this Agreement or any attachment or exhibit hereto
(other than Exhibit
G),
the
terms and conditions of Exhibit
G
shall
govern and control.
Section 21. Entire
Agreement
This
Agreement, the Operating Agreement and the Gathering Agreement, and the exhibits
hereto and thereto, contain the entire agreement of the Parties with respect
to
the subject matter hereof and supersede all previous agreements or
communications between the Parties, verbal or written, with respect to the
subject matter hereof.
Section 22. Governing
Law; Venue for Disputes
This
Agreement shall be governed by and construed and interpreted in accordance
with
the laws of the State of Colorado, without reference to its conflicts of laws
provisions. Forum and venue for disputes hereunder shall be exclusively in
the
state and federal courts in Denver, Colorado.
Section 23. Amendments;
Waiver
No
amendments or other modifications or changes to this Agreement shall be
effective or binding on either Party unless the same shall be in a writing
executed by both Parties. No waiver by either Party of any one or more defaults
by the other in the performance of this Agreement shall operate or be construed
as a waiver of any future default or defaults, whether of a like or different
nature.
Section 24. Confidentiality
and Public Announcements
24.1 General. Except
as
permitted herein, during the Term and for a period of one year thereafter,
both
Parties shall maintain the fact and terms of this Agreement in strict
confidence, and shall not disclose the same to any third party except (a) to
the
extent compelled by court order, discovery requests, or applicable law, (b)
to
its affiliated entities, and its and their respective attorneys, accountants,
advisors and
13
employees
who shall be advised of the confidential nature of this Agreement, or (c) to
the
extent required by the rules of any exchange on which securities of a party
or
its affiliates are listed. Prior to any such disclosures, the disclosing Party
shall notify the non-disclosing Party, except as prohibited by law, and the
non-disclosing Party shall be afforded reasonable opportunity to review the
content of the proposed disclosure and to provide reasonable comment on it.
Notwithstanding the foregoing, EnCana acknowledges that Berry has certain
disclosure obligations under applicable securities laws, and hereby consents
to
all such disclosures of this Agreement and its exhibits.
24.2 Confidentiality
of Information. Except
for Information that (a) is in Berry’s possession prior to disclosure by EnCana,
(b) is or becomes known to the public other than as a result of a breach of
this
Agreement, or (c) becomes available to Berry on a non-confidential basis from
a
source other than EnCana, provided that such source is not known to Berry to
be
bound by a confidentiality agreement with, or other fiduciary obligation of
confidentiality to, EnCana, all Information disclosed by EnCana to Berry shall
be considered confidential. During the Term and for a period of one year
thereafter, Berry agrees to keep the Confidential Information confidential
and
to use it solely for purposes of the Berry Drilling Program and for no other
purpose; provided that Berry may disclose confidential Information to such
of
its, and its affiliates’, officers, directors, employees, agents, advisors,
consultants and representatives who have a need to know the confidential
Information in connection with the Berry Drilling Program. Nothing herein shall
be deemed to prevent disclosure of any of the Confidential Information if,
in
the opinion of Berry’s legal counsel, such disclosure is required to be made in
a judicial, administrative or governmental proceeding pursuant to a subpoena
or
other applicable order; provided however, Berry shall give EnCana prompt notice
(unless notice is prohibited by order, subpoena or law) before disclosing any
of
the Confidential Information and, in making such disclosure, Berry shall
disclose only that portion of the Confidential Information required to be
disclosed and will use reasonable efforts to obtain assurance that confidential
treatment will be accorded the information.
24.3 Public
Announcements. Unless
otherwise agreed and except as provided in Section 22.1, neither Party shall
make any public announcement or statement with respect to this Agreement or
the
transactions contemplated hereby.
Section 25. Nonsolicitation
For
a
period of eighteen months after the date of this Agreement, each Party agrees
not to solicit for hire, as an officer, employee, agent, independent contractor
or otherwise, any current officer, director, employee of the other Party or
independent contractor who works solely for the other Party.
Section 26. Severability
If
a
court of competent jurisdiction determines that any clause or provision of
this
Agreement is void, illegal or unenforceable, the other clauses and provisions
hereof shall remain in full force and effect, and the clauses or provisions
that
are determined to
14
be
void,
illegal or unenforceable shall be limited so that that they remain in effect
to
the extent permitted by law.
Section 27. Counterpart
Execution
This
Agreement may be executed by signing an original or a counterpart thereof.
If
this Agreement is executed in counterparts, all counterparts taken together
shall have the same effect as if all the Parties had signed the same
instrument.
[signature
page follows]
15
In
Witness Whereof, this Agreement is executed and effective as of the Effective
Date first above written.
EnCana: Berry:
EnCana
Oil & Gas (USA) Inc. Berry
Petroleum Company
By:
______________________ By:
________________________
Its:
Vice
President
Its:
________________________
16
EXHIBIT
A
North
Parachute Ranch Property; Berry Block
17
EXHIBIT
B
Form
of AFE
18
EXHIBIT
C
EnCana
Best Practices
19
EXHIBIT
D
Form
of Operating Agreement
[see
attached]
20
A.A.P.L.
FORM 610 - 1989
MODEL
FORM OPERATING AGREEMENT
OPERATING
AGREEMENT
DATED
June
7
, 2006
,
year
OPERATOR EnCana
Oil and Gas (USA), Inc.
CONTRACT
AREA All
wellbores drilled pursuant to the Carry and Earning Agreement between EnCana
Oil
and Gas (USA), Inc. and Berry Petroleum Company dated June 7, 2006 to include
up
to the first ninety (90) wells to be designated by EnCana on the North Parachute
Ranceh Property, other than on the “Berry Block.”
COUNTY
OR
PARISH OF Garfield ,
STATE
OF Colorado
June
7 , 2006
,
year
OPERATOR Berry
Petroleum Company
CONTRACT
AREA The
Berry Block as defined in the Carry and Earning Agreement between EnCana Oil
and
Gas (USA), Inc. and Berry Petroleum Company dated June 7, 2006.
COUNTY
OR
PARISH OF Garfield,
STATE
OF Colorado
COPYRIGHT
1989 - ALL RIGHTS RESERVED
AMERICAN
ASSOCIATION OF PETROLEUM
LANDMEN,
4100 FOSSIL CREEK BLVD.
FORT
WORTH, TEXAS, 76137, APPROVED FORM.
A.A.P.L.
NO. 610 - 1989
A.A.P.L.
FORM 610 - MODEL FORM OPERATING AGREEMENT - 1989
|
TABLE
OF CONTENTS
|
||
|
Article
|
Title
|
Page
|
|
I.
|
DEFINITIONS
|
1
|
|
II.
|
EXHIBITS
|
1
|
|
III.
|
INTERESTS
OF PARTIES
|
3
|
|
A.
OIL AND GAS INTERESTS:
|
3
|
|
|
B.
INTERESTS OF PARTIES IN COSTS AND PRODUCTION:
|
3
|
|
|
C.
SUBSEQUENTLY CREATED INTERESTS:
|
3
|
|
|
IV.
|
TITLES
|
3
|
|
A.
TITLE EXAMINATION:
|
3
|
|
|
B.
LOSS OR FAILURE OF TITLE:
|
4
|
|
|
1.
Failure of Title
|
4
|
|
|
2.
Loss by Non-Payment or Erroneous Payment of Amount Due
|
4
|
|
|
3.
Other Losses
|
4
|
|
|
4.
Curing Title
|
5
|
|
|
V.
|
OPERATOR
|
5
|
|
A.
DESIGNATION AND RESPONSIBILITIES OF OPERATOR:
|
5
|
|
|
B.
RESIGNATION OR REMOVAL OF OPERATOR AND SELECTION OF SUCCESSOR:
|
5
|
|
|
1.
Resignation or Removal of Operator
|
5
|
|
|
2.
Selection of Successor Operator
|
5
|
|
|
3.
Effect of Bankruptcy
|
5
|
|
|
C.
EMPLOYEES AND CONTRACTORS:
|
5
|
|
|
D.
RIGHTS AND DUTIES OF OPERATOR:
|
5
|
|
|
1.
Competitive Rates and Use of Affiliates
|
5
|
|
|
2.
Discharge of Joint Account Obligations
|
5
|
|
|
3.
Protection from Liens
|
6
|
|
|
4.
Custody of Funds
|
6
|
|
|
5.
Access to Contract Area and Records
|
6
|
|
|
6.
Filing and Furnishing Governmental Reports
|
6
|
|
|
7.
Drilling and Testing Operations
|
6
|
|
|
8.
Cost Estimates
|
6
|
|
|
9.
Insurance
|
6
|
|
|
VI.
|
DRILLING
AND DEVELOPMENT
|
6
|
|
A.
INITIAL WELL:
|
6
|
|
|
B.
SUBSEQUENT OPERATIONS:
|
6
|
|
|
1.
Proposed Operations
|
7
|
|
|
2.
Operations by Less Than All Parties
|
7
|
|
|
3.
Stand-By Costs
|
9
|
|
|
4.
Deepening
|
9
|
|
|
5.
Sidetracking
|
9
|
|
|
6.
Order of Preference of Operations
|
9
|
|
|
7.
Conformity to Spacing Pattern
|
10
|
|
|
8.
Paying Wells
|
10
|
|
|
C.
COMPLETION OF WELLS; REWORKING AND PLUGGING BACK:
|
10
|
|
|
1.
Completion
|
10
|
|
|
2.
Rework, Recomplete or Plug Back
|
10
|
|
|
D.
OTHER OPERATIONS:
|
10
|
|
|
E.
ABANDONMENT OF WELLS:
|
11
|
|
|
1.
Abandonment of Dry Holes
|
11
|
|
|
2.
Abandonment of Wells That Have Produced
|
11
|
|
|
3.
Abandonment of Non-Consent Operations
|
11
|
|
|
F.
TERMINATION OF OPERATIONS:
|
11
|
|
|
G.
TAKING PRODUCTION IN KIND:
|
11
|
|
|
(Option
1) Gas Balancing Agreement
|
11
|
|
|
|
|
|
|
VII.
|
EXPENDITURES
AND LIABILITY OF PARTIES
|
13
|
|
A.
LIABILITY OF PARTIES:
|
13
|
|
|
B.
LIENS AND SECURITY INTERESTS:
|
14
|
|
|
C.
ADVANCES:
|
14
|
|
|
D.
DEFAULTS AND REMEDIES:
|
14
|
|
|
1.
Suspension of Rights
|
15
|
|
|
2.
Suit for Damages
|
15
|
|
|
3.
Deemed Non-Consent
|
15
|
|
|
4.
Advance Payment
|
15
|
|
|
5.
Costs and Attorneys’ Fees
|
15
|
|
|
E.
RENTALS, SHUT-IN WELL PAYMENTS AND MINIMUM ROYALTIES:
|
15
|
|
|
F.
TAXES:
|
15
|
|
|
VIII.
|
ACQUISITION,
MAINTENANCE OR TRANSFER OF INTEREST
|
16
|
|
A.
SURRENDER OF LEASES:
|
16
|
|
|
B.
RENEWAL OR EXTENSION OF LEASES:
|
16
|
|
|
C.
ACREAGE OR CASH CONTRIBUTIONS:
|
16
|
i
A.A.P.L.
FORM 610 - MODEL FORM OPERATING AGREEMENT -
1989
|
TABLE
OF CONTENTS
|
||
|
D.
ASSIGNMENT; MAINTENANCE OF UNIFORM INTEREST:
|
17
|
|
|
E.
WAIVER OF RIGHTS TO PARTITION:
|
17
|
|
|
F.
PREFERENTIAL RIGHT TO PURCHASE:
|
17
|
|
|
IX.
|
INTERNAL
REVENUE CODE ELECTION
|
17
|
|
X.
|
CLAIMS
AND LAWSUITS
|
18
|
|
XI.
|
FORCE
MAJEURE
|
18
|
|
XII.
|
NOTICES
|
18
|
|
XIII.
|
TERM
OF AGREEMENT
|
18
|
|
XIV.
|
COMPLIANCE
WITH LAWS AND REGULATIONS
|
19
|
|
A.
LAWS, REGULATIONS AND ORDERS:
|
19
|
|
|
B.
GOVERNING LAW:
|
19
|
|
|
C.
REGULATORY AGENCIES:
|
19
|
|
|
XV.
|
MISCELLANEOUS
|
19
|
|
A.
EXECUTION:
|
19
|
|
|
B.
SUCCESSORS AND ASSIGNS:
|
19
|
|
|
C.
COUNTERPARTS:
|
19
|
|
|
D.
SEVERABILITY
|
19
|
|
|
XVI.
|
OTHER
PROVISIONS
|
19
|
ii
A.A.P.L.
FORM 610 - MODEL FORM OPERATING AGREEMENT -
1989
OPERATING
AGREEMENT
THIS
AGREEMENT, entered into by and between EnCana
Oil & Gas (USA) Inc. and Berry Petroleum Company,
both
hereinafter designated and referred to as "Operator” as parties to those certain
wells designated in Exhibit “A-1” and Exhibit “A-2,”
and
the
signatory party or parties other than Operator, sometimes hereinafter referred
to individually as "Non-Operator," and collectively as
"Non-Operators."
WITNESSETH:
WHEREAS,
the parties to this agreement are owners of Oil and Gas Leases and/or Oil and
Gas Interests in the land
identified
in Exhibit “A-1” and Exhibit “A-2.” and the parties hereto have reached an
agreement to explore and develop these Leases and/or Oil
and
Gas
Interests for the production of Oil and Gas to the extent and as hereinafter
provided,
NOW,
THEREFORE, it is agreed as follows:
ARTICLE
I.
DEFINITIONS
As
used
in this agreement, the following words and terms shall have the meanings here
ascribed to them:
A.
The
term "AFE" shall mean an Authority for Expenditure prepared by a party to this
agreement for the purpose of
estimating
the costs to be incurred in conducting an operation hereunder.
B.
The
term "Completion" or "Complete" shall mean a single operation intended to
complete a well as a producer of Oil
and
Gas
in one or more Zones, including, but not limited to, the setting of production
casing, perforating, well stimulation
and
production testing conducted in such operation.
C.
The
term "Contract Area" shall mean all of the lands, Oil and Gas Leases and/or
Oil
and Gas Interests intended to be
developed
and operated for Oil and Gas purposes under this agreement. Such lands, Oil
and
Gas Leases and Oil and Gas
Interests
are described in Exhibit “A-1” and Exhibit “A-2.”
D.
The
term "Deepen" shall mean a single operation whereby a well is drilled to an
objective Zone below the deepest
Zone
in
which the well was previously drilled, or below the Deepest Zone proposed in
the
associated AFE, whichever is the
lesser.
E.
The
terms "Drilling Party" and "Consenting Party" shall mean a party who agrees
to
join in and pay its share of the
cost
of
any operation conducted under the provisions of this agreement.
F.
The
term "Drilling Unit" shall mean the area fixed for the drilling of one well
by
order or rule of any state or federal
body
having authority. If a Drilling Unit is not fixed by any such rule or order,
a
Drilling Unit shall be the drilling unit as
established
by the pattern of drilling in the Contract Area unless fixed by express
agreement of the Drilling Parties.
G.
The
term "Drillsite" shall mean the Oil and Gas Lease or Oil and Gas Interest on
which a proposed well is to be
located.
H.
The
term "Initial Well" shall mean the well required to be drilled by the parties
hereto as provided in Article VI.A.
I.
The
term "Non-Consent Well" shall mean a well in which less than all parties have
conducted an operation as
provided
in Article VI.B.2.
J.
The
terms "Non-Drilling Party" and "Non-Consenting Party" shall mean a party who
elects not to participate in a
proposed
operation.
K.
The
term "Oil and Gas" shall mean oil, gas, casinghead gas, gas condensate, and/or
all other liquid or gaseous
hydrocarbons
and other marketable substances produced therewith, unless an intent to limit
the inclusiveness of this term is
specifically
stated.
L.
The
term "Oil and Gas Interests" or "Interests" shall mean unleased fee and mineral
interests in Oil and Gas in tracts
of
land
lying within the Contract Area which are owned by parties to this
agreement.
M.
The
terms "Oil and Gas Lease," "Lease" and "Leasehold" shall mean the oil and gas
leases or interests therein
covering
tracts of land lying within the Contract Area which are owned by the parties
to
this agreement.
N.
The
term "Plug Back" shall mean a single operation whereby a deeper Zone is
abandoned in order to attempt a
Completion
in a shallower Zone.
O.
The
term "Recompletion" or "Recomplete" shall mean an operation whereby a Completion
in one Zone is abandoned
in
order
to attempt a Completion in a different Zone within the existing
wellbore.
P.
The
term "Rework" shall mean an operation conducted in the wellbore of a well after
it is Completed to secure,
restore,
or improve production in a Zone which is currently open to production in the
wellbore. Such operations include, but
are
not
limited to, well stimulation operations but exclude any routine repair or
maintenance work or drilling, Sidetracking,
Deepening,
Completing, Recompleting, or Plugging Back of a well.
Q.
The
term "Sidetrack" shall mean the directional control and intentional deviation
of
a well from vertical so as to
change
the bottom hole location unless done to straighten the hole or drill around
junk
in the hole to overcome other
mechanical
difficulties.
R.
The
term "Zone" shall mean a stratum of earth containing or thought to contain
a
common accumulation of Oil and
Gas
separately producible from any other common accumulation of Oil and
Gas.
Unless
the context otherwise clearly indicates, words used in the singular include
the
plural, the word "person" includes
natural
and artificial persons, the plural includes the singular, and any gender
includes the masculine, feminine, and neuter.
ARTICLE
II.
EXHIBITS
The
following exhibits, as indicated below and attached hereto, are incorporated
in
and made a part hereof:
X
A.Exhibit
"A-1" and Exhibit “A-2” shall include the following information:
(1)
Description of lands/wellbores subject to this agreement,
(2)
Restrictions, if any, as to depths, formations, or substances,
(3)
Parties to agreement with addresses and telephone numbers for notice
purposes,
(4)
Percentages or fractional interests of parties to this agreement,
(5)
Oil
and Gas Leases and/or Oil and Gas Interests subject to this
agreement,
(6)
Burdens on production.
X C.Exhibit
"C," Accounting Procedure.
X D.Exhibit
"D," Insurance.
X E.Exhibit
"E," Gas Balancing Agreement.
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FORM 610 - MODEL FORM OPERATING AGREEMENT - 1989
X F.Exhibit
"F," Non-Discrimination and Certification of Non-Segregated
Facilities.
X G.Exhibit
"G," Tax Partnership.
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FORM 610 - MODEL FORM OPERATING AGREEMENT -
1989
The
parties to this agreement understand that some provisions herein may not apply
and that this Operating Agreement is
subject
to that certain Carry and Earning Agreement between EnCana Oil & Gas (USA)
Inc. and Berry Petroleum Company, dated
June
7 ,
2006. In the event of any conflict or inconsistency between the terms of this
Operating Agreement and the Carry and
Earning
Agreement, the Carry and Earning Agreement shall prevail. If any provision
of
any exhibit, except Exhibits "E," "F" and "G," is
inconsistent
with any provision contained in the body of this agreement, the provisions
in
the body of this agreement shall prevail.
ARTICLE
III.
INTERESTS
OF PARTIES
A.
Oil and Gas Interests:
If
any
party owns an Oil and Gas Interest in the Contract Area, that Interest shall
be
treated for all purposes of this
agreement
and during the term hereof as if it were covered by the form of Oil and Gas
Lease attached hereto as Exhibit "B,"
and
the
owner thereof shall be deemed to own both royalty interest in such lease and
the
interest of the lessee thereunder.
B.
Interests of Parties in Costs and Production:
Unless
changed by other provisions, all costs and liabilities incurred in operations
under this agreement shall be borne
and
paid,
and all equipment and materials acquired in operations on the Contract Area
shall be owned, by the parties as their
interests
are set forth in Exhibit “A-1” and Exhibit “A-2.” In the same manner, the
parties shall also own all production of Oil and Gas from the
Contract
Area subject, however, to the payment of royalties and other burdens on
production as described hereafter.
Regardless
of which party has contributed any Oil and Gas Lease or Oil and Gas Interest
on
which royalty or other
burdens
may be payable and except as otherwise expressly provided in this agreement,
each party shall pay or deliver, or
cause
to
be paid or delivered, all burdens on its share of the production from the
Contract Area up to, but not in excess of,
16.67%
and
shall
indemnify, defend and hold the other parties free from any liability
therefor.
Except
as
otherwise expressly provided in this agreement, if any party has contributed
hereto any Lease or Interest which is
burdened
with any royalty, overriding royalty, production payment or other burden on
production in excess of the amounts
stipulated
above, such party so burdened shall assume and alone bear all such excess
obligations and shall indemnify, defend
and
hold
the other parties hereto harmless from any and all claims attributable to such
excess burden. However, so long as
the
Drilling Unit for the productive Zone(s) is identical with the Contract Area,
each party shall pay or deliver, or cause to
be
paid
or delivered, all burdens on production from the Contract Area due under the
terms of the Oil and Gas Lease(s)
which
such party has contributed to this agreement, and shall indemnify, defend and
hold the other parties free from any
liability
therefor.
No
party
shall ever be responsible, on a price basis higher than the price received
by
such party, to any other party's
lessor
or
royalty owner, and if such other party's lessor or royalty owner should demand
and receive settlement on a higher
price
basis, the party contributing the affected Lease shall bear the additional
royalty burden attributable to such higher price.
Nothing
contained in this Article III.B. shall be deemed an assignment or
cross-assignment of interests covered hereby,
and
in
the event two or more parties contribute to this agreement jointly owned Leases,
the parties' undivided interests in
said
Leaseholds shall be deemed separate leasehold interests for the purposes of
this
agreement.
C.
Subsequently Created Interests:
If
any
party has contributed hereto a Lease or Interest that is burdened with an
assignment of production given as security
for
the
payment of money, or if, after the date of this agreement, any party creates
an
overriding royalty, production
payment,
net profits interest, assignment of production or other burden payable out
of
production attributable to its working
interest
hereunder, such burden shall be deemed a "Subsequently Created Interest."
Further, if any party has contributed
hereto
a
Lease or Interest burdened with an overriding royalty, production payment,
net
profits interests, or other burden
payable
out of production created prior to the date of this agreement, and such burden
is not shown on Exhibit “A-1” and Exhibit “A-2.” such
burden
also shall be deemed a Subsequently Created Interest to the extent such burden
causes the burdens on such party's
Lease
or
Interest to exceed the amount stipulated in Article III.B. above.
The
party
whose interest is burdened with the Subsequently Created Interest (the "Burdened
Party") shall assume and
alone
bear, pay and discharge the Subsequently Created Interest and shall indemnify,
defend and hold harmless the other
parties
from and against any liability therefor. Further, if the Burdened Party fails
to
pay, when due, its share of expenses
chargeable
hereunder, all provisions of Article VII.B. shall be enforceable against the
Subsequently Created Interest in the
same
manner as they are enforceable against the working interest of the Burdened
Party. If the Burdened Party is required
under
this agreement to assign or relinquish to any other party, or parties, all
or a
portion of its working interest and/or the
production
attributable thereto, said other party, or parties, shall receive said
assignment and/or production free and clear of
said
Subsequently Created Interest, and the Burdened Party shall indemnify, defend
and hold harmless said other party, or
parties,
from any and all claims and demands for payment asserted by owners of the
Subsequently Created Interest.
ARTICLE
IV.
TITLES
A.
Title Examination:
Title
examination shall be made on the Drillsite of any proposed well prior to
commencement of drilling operations and,
if
a
majority in interest of the Drilling Parties so request or Operator so elects,
title examination shall be made on the entire
Drilling
Unit, or maximum anticipated Drilling Unit, of the well. The opinion will
include the ownership of the working
interest,
minerals, royalty, overriding royalty and production payments under the
applicable Leases. Each party contributing
Leases
and/or Oil and Gas Interests to be included in the Drillsite or Drilling Unit,
if appropriate, shall furnish to Operator
all
abstracts (including federal lease status reports), title opinions, title papers
and curative material in its possession free of
charge.
All such information not in the possession of or made available to Operator
by
the parties, but necessary for the
examination
of the title, shall be obtained by Operator. Operator shall cause title to
be
examined by attorneys on its staff or
by
outside attorneys. Copies of all title opinions shall be furnished to each
Drilling Party. Costs incurred by Operator in
procuring
abstracts, fees paid outside attorneys for title examination (including
preliminary, supplemental, shut-in royalty
opinions
and division order title opinions) and other direct charges as provided in
Exhibit "C" shall be borne by the Drilling
Parties
in the proportion that the interest of each Drilling Party bears to the total
interest of all Drilling Parties as such
interests
appear in Exhibit “A-1” and Exhibit “A-2.” Operator shall make no charge for
services rendered by its staff attorneys or other personnel
in
the
performance of the above functions.
Each
party shall be responsible for securing curative matter and pooling amendments
or agreements required in
connection
with Leases or Oil and Gas Interests contributed by such party. Operator shall
be responsible for the preparation
and
recording of pooling designations or declarations and communitization agreements
as well as the conduct of hearings
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1989
before
governmental agencies for the securing of spacing or pooling orders or any
other
orders necessary or appropriate to
the
conduct of operations hereunder. This shall not prevent any party from appearing
on its own behalf at such hearings.
Costs
incurred by Operator, including fees paid to outside attorneys, which are
associated with hearings before governmental
agencies,
and which costs are necessary and proper for the activities contemplated under
this agreement, shall be direct
charges
to the joint account and shall not be covered by the administrative overhead
charges as provided in Exhibit "C."
Operator
shall make no charge for services rendered by its staff attorneys or other
personnel in the performance of the above
functions.
No
well
shall be drilled on the Contract Area until after (1) the title to the Drillsite
or Drilling Unit, if appropriate, has
been
examined as above provided, and (2) the title has been approved by the examining
attorney or title has been accepted by
all
of
the Drilling Parties in such well.
B.
Loss or Failure of Title:
1.
Failure
of Title:
Should
any Oil and Gas Interest or Oil and Gas Lease be lost through failure of title,
which results in a
reduction
of interest from that shown on Exhibit “A-1” and Exhibit “A-2.” the party
credited with contributing the affected Lease or Interest
(including,
if applicable, a successor in interest to such party) shall have ninety (90)
days from final determination of title
failure
to acquire a new lease or other instrument curing the entirety of the title
failure, which acquisition will not be subject
to
Article VIII.B., and failing to do so, this agreement, nevertheless, shall
continue in force as to all remaining Oil and Gas
Leases
and Interests; and,
(a)
The
party credited with contributing the Oil and Gas Lease or Interest affected
by
the title failure (including, if
applicable,
a successor in interest to such party) shall bear alone the entire loss and
it
shall not be entitled to recover from
Operator
or the other parties any development or operating costs which it may have
previously paid or incurred, but there
shall
be
no additional liability on its part to the other parties hereto by reason of
such title failure;
(b)
There
shall be no retroactive adjustment of expenses incurred or revenues received
from the operation of the
Lease
or
Interest which has failed, but the interests of the parties contained on Exhibit
“A-1” and Exhibit “A-2” shall be revised on an
acreage
basis, as of the time it is determined finally that title failure has occurred,
so that the interest of the party whose Lease or
Interest
is affected by the title failure will thereafter be reduced in the Contract
Area
by the amount of the Lease or Interest failed;
(c)
If
the proportionate interest of the other parties hereto in any producing well
previously drilled on the Contract
Area
is
increased by reason of the title failure, the party who bore the costs incurred
in connection with such well attributable
to
the
Lease or Interest which has failed shall receive the proceeds attributable
to
the increase in such interest (less costs and
burdens
attributable thereto) until it has been reimbursed for unrecovered costs paid
by
it in connection with such well
attributable
to such failed Lease or Interest;
(d)
Should any person not a party to this agreement, who is determined to be the
owner of any Lease or Interest
which
has
failed, pay in any manner any part of the cost of operation, development, or
equipment, such amount shall be paid
to
the
party or parties who bore the costs which are so refunded;
(e)
Any
liability to account to a person not a party to this agreement for prior
production of Oil and Gas which arises
by
reason
of title failure shall be borne severally by each party (including a predecessor
to a current party) who received
production
for which such accounting is required based on the amount of such production
received, and each such party shall
severally
indemnify, defend and hold harmless all other parties hereto for any such
liability to account;
(f)
No
charge shall be made to the joint account for legal expenses, fees or salaries
in connection with the defense of
the
Lease
or Interest claimed to have failed, but if the party contributing such Lease
or
Interest hereto elects to defend its title
it
shall
bear all expenses in connection therewith; and
(g)
If
any party is given credit on Exhibit “A-1” and Exhibit “A-2” to a Lease or
Interest which is limited solely to
ownership
of an interest in the wellbore of any well or wells and the production
therefrom, such party's absence of interest in the remainder
of
the
Contract Area shall be considered a Failure of Title as to such remaining
Contract Area unless that absence of interest
is
reflected on Exhibit “A-1” and Exhibit “A-2.”
2.
Loss
by Non-Payment or Erroneous Payment of Amount Due:
If,
through mistake or oversight, any rental, shut-in well
payment,
minimum royalty or royalty payment, or other payment necessary to maintain
all
or a portion of an Oil and Gas
Lease
or
interest is not paid or is erroneously paid, and as a result a Lease or Interest
terminates, there shall be no monetary
liability
against the party who failed to make such payment. Unless the party who failed
to make the required payment
secures
a
new Lease or Interest covering the same interest within ninety (90) days from
the discovery of the failure to make
proper
payment, which acquisition will not be subject to Article VIII.B., the interests
of the parties reflected on Exhibit “A-1” and Exhibit
“A-2”
shall be revised on an acreage basis, effective as of the date of termination
of
the Lease or Interest involved, and the party
who
failed to make proper payment will no longer be credited with an interest in
the
Contract Area on account of ownership
of
the
Lease or Interest which has terminated. If the party who failed to make the
required payment shall not have been fully
reimbursed,
at the time of the loss, from the proceeds of the sale of Oil and Gas
attributable to the lost Lease or Interest,
calculated
on an acreage basis, for the development and operating costs previously paid
on
account of such Lease or Interest,
it
shall
be reimbursed for unrecovered actual costs previously paid by it (but not for
its share of the cost of any dry hole
previously
drilled or wells previously abandoned) from so much of the following as is
necessary to effect reimbursement:
(a)
Proceeds of Oil and Gas produced prior to termination of the Lease or Interest,
less operating expenses and lease
burdens
chargeable hereunder to the person who failed to make payment, previously
accrued to the credit of the lost Lease or
Interest,
on an acreage basis, up to the amount of unrecovered costs;
(b)
Proceeds of Oil and Gas, less operating expenses and lease burdens chargeable
hereunder to the person who failed
to
make
payment, up to the amount of unrecovered costs attributable to that portion
of
Oil and Gas thereafter produced and
marketed
(excluding production from any wells thereafter drilled) which, in the absence
of such Lease or Interest termination,
would
be
attributable to the lost Lease or Interest on an acreage basis and which as
a
result of such Lease or Interest
termination
is credited to other parties, the proceeds of said portion of the Oil and Gas
to
be contributed by the other parties
in
proportion to their respective interests reflected on Exhibit “A-1” and Exhibit
“A-2”; and,
(c)
Any
monies, up to the amount of unrecovered costs, that may be paid by any party
who
is, or becomes, the owner
of
the
Lease or Interest lost, for the privilege of participating in the Contract
Area
or becoming a party to this agreement.
3.
Other
Losses:
All
losses of Leases or Interests committed to this agreement, other than those
set
forth in Articles
IV.B.1.
and IV.B.2. above, shall be joint losses and shall be borne by all parties
in
proportion to their interests shown on
Exhibit
“A-1” and Exhibit “A-2.” This shall include but not be limited to the loss of
any Lease or Interest through failure to develop or because
express
or implied covenants have not been performed (other than performance which
requires only the payment of money),
and
the
loss of any Lease by expiration at the end of its primary term if it is not
renewed or extended. There shall be no
readjustment
of interests in the remaining portion of the Contract Area on account of any
joint loss.
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1989
4.
Curing
Title:
In the
event of a Failure of Title under Article IV.B.1. or a loss of title under
Article IV.B.2. above, any
Lease
or
Interest acquired by any party hereto (other than the party whose interest
has
failed or was lost) during the ninety
(90)
day
period provided by Article IV.B.1. and Article IV.B.2. above covering all or
a
portion of the interest that has failed
or
was
lost shall be offered at cost to the party whose interest has failed or was
lost, and the provisions of Article VIII.B.
shall
not
apply to such acquisition.
ARTICLE
V.
OPERATOR
A.
Designation and Responsibilities of Operator:
EnCana
Oil & Gas (USA) Inc. and Berry Petroleum Company
shall
each be the Operator of the Contract Area as designated
on
Exhibit “A-1” and Exhibit “A-2”, and shall conduct and direct and have full
control of all operations on the Contract Area as permitted
and
required by, and within the limits this agreement. In its performance of
services hereunder for the Non-Operators, Operator shall be an
independent
contractor not subject to the control or direction of the Non-Operators except
as to the type of operation to be undertaken in
accordance
with the election procedures contained in this agreement. Operator shall not
be
deemed, or hold itself out as, the agent of the
Non-Operators
with authority to bind them to any obligation or liability assumed or incurred
by Operator as to any third
party.
Operator shall conduct its activities under this agreement as a reasonable
prudent operator, in a good and workmanlike
manner,
with due diligence and dispatch, in accordance with good oilfield practice,
and
in compliance with applicable law and
regulation,
but in no event shall it have any liability as Operator to the other parties
for
losses sustained or liabilities incurred
except
such as may result from gross negligence or willful misconduct.
B.
Resignation or Removal of Operator and Selection of
Successor:
1.
Resignation
or Removal of Operator:
Operator
may resign at any time by giving written notice thereof to
Non-Operators.
If
Operator terminates its legal existence, no longer owns an interest hereunder
in
the Contract Area, or is no longer capable of
serving
as Operator, Operator shall be deemed to have resigned without any action by
Non-Operators, except the selection of a
successor.
Operator may be removed only for good cause by the affirmative vote of
Non-Operators owning a majority interest
based
on
ownership as shown on Exhibit “A-1” and Exhibit “A-2” remaining after excluding
the voting interest of Operator; such vote shall
not
be
deemed effective until a written notice has been delivered to the Operator
by a
Non-Operator detailing the alleged default and
Operator
has failed to cure the default within thirty (30) days from its receipt of
the
notice or, if the default concerns an
operation
then being conducted, within forty-eight (48) hours of its receipt of the
notice. For purposes hereof, "good cause" shall
mean
not
only gross negligence or willful misconduct but also the material breach of
or
inability to meet the standards of
operation
contained in Article V.A. or material failure or inability to perform its
obligations under this agreement.
Subject
to Article VII.D.1., such resignation or removal shall not become effective
until 7:00 o'clock A.M. on the first
day
of
the calendar month following the expiration of ninety (90) days after the giving
of notice of resignation by Operator
or
action
by the Non-Operators to remove Operator, unless a successor Operator has been
selected and assumes the duties of
Operator
at an earlier date. Operator, after effective date of resignation or removal,
shall be bound by the terms hereof as a
Non-Operator.
A change of a corporate name or structure of Operator or transfer of Operator's
interest to any single
subsidiary,
parent or successor corporation shall not be the basis for removal of
Operator.
2.
Selection
of Successor Operator:
Upon the
resignation or removal of Operator under any provision of this agreement,
a
successor
Operator shall be selected by the parties. The successor Operator shall be
selected from the parties owning an
interest
in the Contract Area at the time such successor Operator is selected. The
successor Operator shall be selected by the
affirmative
vote of two (2) or more parties owning a majority interest based on ownership
as
shown on Exhibit “A-1” and Exhibit “A-2”;
provided,
however, if an Operator which has been removed or is deemed to have resigned
fails to vote or votes only to
succeed
itself, the successor Operator shall be selected by the affirmative vote of
the
party or parties owning a majority
interest
based on ownership as shown on Exhibit “A-1” and Exhibit “A-2” remaining after
excluding the voting interest of the Operator that
was
removed or resigned. The former Operator shall promptly deliver to the successor
Operator all records and data relating to
the
operations conducted by the former Operator to the extent such records and
data
are not already in the possession of the
successor
operator. Any cost of obtaining or copying the former Operator's records and
data shall be charged to the joint
account.
3.
Effect
of Bankruptcy:
If
Operator becomes insolvent, bankrupt or is placed in receivership, it shall
be
deemed to have
resigned
without any action by Non-Operators, except the selection of a successor. If
a
petition for relief under the federal
bankruptcy
laws is filed by or against Operator, and the removal of Operator is prevented
by the federal bankruptcy court, all
Non-Operators
and Operator shall comprise an interim operating committee to serve until
Operator has elected to reject or
assume
this agreement pursuant to the Bankruptcy Code, and an election to reject this
agreement by Operator as a debtor in
possession,
or by a trustee in bankruptcy, shall be deemed a resignation as Operator without
any action by Non-Operators,
except
the selection of a successor. During the period of time the operating committee
controls operations, all actions shall
require
the approval of two (2) or more parties owning a majority interest based on
ownership as shown on Exhibit “A-1” and Exhibit “A-2.” In
the
event
there are only two (2) parties to this agreement, during the period of time
the
operating committee controls
operations,
a third party acceptable to Operator, Non-Operator and the federal bankruptcy
court shall be selected as a
member
of
the operating committee, and all actions shall require the approval of two
(2)
members of the operating
committee
without regard for their interest in the Contract Area based on Exhibit "A-1"
And Exhibit “A-2.”
C.
Employees and Contractors:
The
number of employees or contractors used by Operator in conducting operations
hereunder, their selection, and the
hours
of
labor and the compensation for services performed shall be determined Operator,
and all such employees or
contractors
shall be the employees or contractors of Operator.
D.
Rights and Duties of Operator:
1.
Competitive
Rates and Use of Affiliates:
All
wells drilled on the Contract Area shall be drilled on a
competitive
contract
basis at the usual rates prevailing in the area. If it so desires, Operator
may
employ its own tools and equipment in
the
drilling of wells, but its charges therefor shall not exceed the prevailing
rates in the area and the rate of such charges
shall
be
agreed upon by the parties in writing before drilling operations are commenced,
and such work shall be performed by
Operator
under the same terms and conditions as are customary and usual in the area
in
contracts of independent contractors
who
are
doing work of a similar nature. All work performed or materials supplied by
affiliates or related parties of Operator
shall
be
performed or supplied at competitive rates, pursuant to written agreement,
and
in accordance with customs and
standards
prevailing in the industry.
2.
Discharge
of Joint Account Obligations:
Except
as herein otherwise specifically provided, Operator shall promptly
pay
and
discharge expenses incurred in the development and operation of the Contract
Area pursuant to this agreement and shall
5
A.A.P.L.
FORM 610 - MODEL FORM OPERATING AGREEMENT -
1989
charge
each of the parties hereto with their respective proportionate shares upon
the
expense basis provided in Exhibit "C."
Operator
shall keep an accurate record of the joint account hereunder, showing expenses
incurred and charges and credits
made
and
received.
3.
Protection
from Liens:
Operator shall pay, or cause to be paid, as and when they become due and
payable, all accounts
of
contractors and suppliers and wages and salaries for services rendered or
performed, and for materials supplied on, to or in
respect
of the Contract Area or any operations for the joint account thereof, and shall
keep the Contract Area free from
liens
and
encumbrances resulting therefrom except for those resulting from a bona fide
dispute as to services rendered or
materials
supplied.
4.
Custody
of Funds:
Operator
shall hold for the account of the Non-Operators any funds of the Non-Operators
advanced
or
paid
to the Operator, either for the conduct of operations hereunder or as a result
of the sale of production from the
Contract
Area, and such funds shall remain the funds of the Non-Operators on whose
account they are advanced or paid until
used
for
their intended purpose or otherwise delivered to the Non-Operators or applied
toward the payment of debts as
provided
in Article VII.B. Nothing in this paragraph shall be construed to establish
a
fiduciary relationship between Operator
and
Non-Operators for any purpose other than to account for Non-Operator funds
as
herein specifically provided. Nothing in
this
paragraph shall require the maintenance by Operator of separate accounts for
the
funds of Non-Operators unless the
parties
otherwise specifically agree.
5.
Access
to Contract Area and Records:
Operator
shall, except as otherwise provided herein, permit each
Non-Operator
or
its
duly authorized representative, at the Non-Operator's sole risk and cost, full
and free access at all reasonable times to
all
operations of every kind and character being conducted for the joint account
on
the Contract Area and to the records of
operations
conducted thereon or production therefrom, including Operator's books and
records relating thereto. Such access
rights
shall not be exercised in a manner interfering with Operator's conduct of an
operation hereunder and shall not obligate
Operator
to furnish any geologic or geophysical data of an interpretive nature unless
the
cost of preparation of such
interpretive
data was charged to the joint account. Operator will furnish to each
Non-Operator upon request copies of any
and
all
reports and information obtained by Operator in connection with production
and
related items, including, without
limitation,
meter and chart reports, production purchaser statements, run tickets and
monthly gauge reports, but excluding
purchase
contracts and pricing information to the extent not applicable to the production
of the Non-Operator seeking the
information.
Any audit of Operator's records relating to amounts expended and the
appropriateness of such expenditures
shall
be
conducted in accordance with the audit protocol specified in Exhibit
"C."
6.
Filing
and Furnishing Governmental Reports:
Operator
will file, and upon written request promptly furnish copies to
each
requesting Non-Operator not in default of its payment obligations, all
operational notices, reports or applications
required
to be filed by local, State, Federal or Indian agencies or authorities having
jurisdiction over operations hereunder.
Each
Non-Operator shall provide to Operator on a timely basis all information
necessary to Operator to make such filings.
7.
Drilling
and Testing Operations:
The
following provisions shall apply to each well drilled / completed, reworked,
recompleted,
sidetracked or plugged back hereunder, including but not limited to the Initial
Well:
(a)
Operator will promptly advise Non-Operators of the date on which the well is
spudded, or the date on which
drilling
operations are commenced.
(b)
Operator will send to Non-Operators such reports, test results and notices
regarding the progress of operations on the well
as
the
Non-Operators shall reasonably request, including, but not limited to, daily
drilling reports, completion reports, and well logs.
(c)
Operator shall adequately test all Zones encountered which may reasonably be
expected to be capable of producing
Oil
and
Gas in paying quantities as a result of examination of the electric log or
any
other logs or cores or tests conducted
hereunder.
8.
Cost
Estimates:
Upon
request of any Consenting Party, Operator shall furnish estimates of current
and
cumulative costs
incurred
for the joint account at reasonable intervals during the conduct of any
operation pursuant to this agreement.
Operator
shall not be held liable for errors in such estimates so long as the estimates
are made in good faith.
9.
Insurance:
At all
times while operations are conducted hereunder, Operator shall comply with
the
workers
compensation
law of the state where the operations are being conducted; provided, however,
that Operator may be a self-
insurer
for liability under said compensation laws in which event the only charge that
shall be made to the joint account shall
be
as
provided in Exhibit "C." Operator shall also carry or provide insurance for
the
benefit of the joint account of the parties
as
outlined in Exhibit "D" attached hereto and made a part hereof. Operator shall
require all contractors engaged in work on
or
for
the Contract Area to comply with the workers compensation law of the state
where
the operations are being conducted
and
to
maintain such other insurance as Operator may require.
In
the
event automobile liability insurance is specified in said Exhibit "D," or
subsequently receives the approval of the
parties,
no direct charge shall be made by Operator for premiums paid for such insurance
for Operator's automotive
equipment.
ARTICLE
VI.
DRILLING
AND DEVELOPMENT
A.
Initial Well:
On
or
before the
day
of
,
,
Operator shall commence the drilling of the Initial
Well
at
the following location:
Not
Applicable
and
shall
thereafter continue the drilling of the well with due diligence to
The
drilling of the Initial Well and the participation therein by all parties is
obligatory, subject to Article VI.C.1. as to participation
in
Completion operations and Article VI.F. as to termination of operations and
Article XI as to occurrence of force majeure.
B.
Subsequent Operations:
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FORM 610 - MODEL FORM OPERATING AGREEMENT -
1989
1.
Proposed
Operations:
If any
party hereto should desire to drill any well on the Contract Area other than
the
Initial Well, or
if
any
party should desire to Rework, Sidetrack, Deepen, Recomplete or Plug Back a
dry
hole or a well no longer capable of
producing
in paying quantities in which such party has not otherwise relinquished its
interest in the proposed objective Zone under
this
agreement, the party desiring to drill, Rework, Sidetrack, Deepen, Recomplete
or
Plug Back such a well shall give written
notice
of
the proposed operation to the parties who have not otherwise relinquished their
interest in such objective Zone
under
this agreement and to all other parties in the case of a proposal for
Sidetracking or Deepening, specifying the work to be
performed,
the location, proposed depth, objective Zone and the estimated cost of the
operation. The parties to whom such a
notice
is
delivered shall have thirty (30) days after receipt of the notice within which
to notify the party proposing to do the work
whether
they elect to participate in the cost of the proposed operation. If a drilling
rig is on location, notice of a proposal to
Rework,
Sidetrack, Recomplete, Plug Back or Deepen may be given by telephone and the
response period shall be limited to forty-
eight
(48) hours,
exclusive of Saturday, Sunday and legal holidays.
Failure
of a party to whom such notice is delivered to reply
within
the period above fixed shall constitute an election by that party not to
participate in the cost of the proposed operation.
Any
proposal by a party to conduct an operation conflicting with the operation
initially proposed shall be delivered to all parties
within
the time and in the manner provided in Article VI.B.6.
If
all
parties to whom such notice is delivered elect to participate in such a proposed
operation, the parties shall be
contractually
committed to participate therein provided such operations are commenced within
the time period hereafter set
forth,
and Operator shall, no later than ninety (90) days after expiration of the
notice period of thirty (30) days (or as
promptly
as practicable after the expiration of the forty-eight (48) hour period when
a
drilling rig is on location, as the case
may
be),
actually commence the proposed operation and thereafter complete it with due
diligence at the risk and expense of
the
parties participating therein; provided, however, said commencement date may
be
extended upon written notice of same
by
Operator to the other parties, for a period of up to thirty (30) additional
days
if, in the sole opinion of Operator, such
additional
time is reasonably necessary to obtain permits from governmental authorities,
surface rights (including rights-of-
way)
or
appropriate drilling equipment, or to complete title examination or curative
matter required for title approval or
acceptance.
If the actual operation has not been commenced within the time provided
(including any extension thereof as
specifically
permitted herein or in the force majeure provisions of Article XI) and if any
party hereto still desires to conduct
said
operation, written notice proposing same must be resubmitted to the other
parties in accordance herewith as if no prior
proposal
had been made. Those parties that did not participate in the drilling of a
well
for which a proposal to Deepen or
Sidetrack
is made hereunder shall, if such parties desire to participate in the proposed
Deepening or Sidetracking operation,
reimburse
the Drilling Parties in accordance with Article VI.B.4. in the event of a
Deepening operation and in accordance
with
Article VI.B.5. in the event of a Sidetracking operation.
2.
Operations
by Less Than All Parties:
(a)
Determination
of Participation.
If any
party to whom such notice is delivered as provided in Article VI.B.1.
or
VI.C.1.
(Option No. 2) elects not to participate in the proposed operation, then, in
order to be entitled to the benefits of this
Article,
the party or parties giving the notice and such other parties as shall elect
to
participate in the operation shall, no
later
than ninety (90) days after the expiration of the notice period of thirty (30)
days (or as promptly as practicable after the
expiration
of the forty-eight (48) hour period when a drilling rig is on location, as
the
case may be) actually commence the
proposed
operation and complete it with due diligence. Operator shall perform all work
for the account of the Consenting
Parties;
provided, however, if no drilling rig or other equipment is on location, and
if
Operator is a Non-Consenting Party,
the
Consenting Parties shall either: (i) request Operator to perform the work
required by such proposed operation for the
account
of the Consenting Parties, / or (ii) designate one of the Consenting Parties
as
Operator to perform such work provided however,
Operator
shall not be required to do so. The rights and duties granted to and imposed
upon the Operator under this agreement are granted to
and
imposed upon the party designated as Operator for an operation in which the
original Operator is a Non-Consenting Party. Consenting
Parties,
when conducting operations on the Contract Area pursuant to this Article
VI.B.2., shall comply with all terms and conditions of this
agreement.
If
less
than all parties approve any proposed operation, the proposing party,
immediately after the expiration of the
applicable
notice period, shall advise all Parties of the total interest of the parties
approving such operation and its
recommendation
as to whether the Consenting Parties should proceed with the operation as
proposed. Each Consenting Party,
within
forty-eight (48) hours (exclusive
of Saturday, Sunday, and legal holidays)
after
delivery of such notice, shall advise the
proposing
party of its desire to (i) limit participation to such party's interest as
shown
on Exhibit “A-1” and Exhibit “A-2” or (ii) carry only
its
proportionate part (determined by dividing such party's interest in the Contract
Area by the interests of all Consenting Parties in
the
Contract Area) of Non-Consenting Parties' interests, or (iii) carry its
proportionate part (determined as provided in (ii)) of
Non-Consenting
Parties' interests together with all or a portion of its proportionate part
of
any Non-Consenting Parties'
interests
that any Consenting Party did not elect to take. Any interest of Non-Consenting
Parties that is not carried by a
Consenting
Party shall be deemed to be carried by the party proposing the operation if
such
party does not withdraw its
proposal.
Failure to advise the proposing party within the time required shall be deemed
an election under (i). In the event a
drilling
rig is on location, notice may be given by telephone, and the time permitted
for
such a response shall not exceed a
total
of
forty-eight (48) hours (exclusive
of Saturday, Sunday and legal holidays).
The
proposing party, at its election, may
withdraw
such proposal if there is less than 100% participation and shall notify all
parties of such decision within ten (10)
days,
or
within twenty-four (24) hours if a drilling rig is on location, following
expiration of the applicable response period.
If
100%
subscription to the proposed operation is obtained, the proposing party shall
promptly notify the Consenting Parties
of
their
proportionate interests in the operation and the party serving as Operator
shall
commence such operation within the
period
provided in Article VI.B.1., subject to the same extension right as provided
therein.
(b)
Relinquishment
of Interest for Non-Participation.
The
entire cost and risk of conducting such operations shall be
borne
by
the Consenting Parties in the proportions they have elected to bear same under
the terms of the preceding
paragraph.
Consenting Parties shall keep the leasehold estates involved in such operations
free and clear of all liens and
encumbrances
of every kind created by or arising from the operations of the Consenting
Parties. If such an operation results
in
a dry
hole, then subject to Articles VI.B.6. and VI.E.3., the Consenting Parties
shall
plug and abandon the well and restore
the
surface location at their sole cost, risk and expense; provided, however, that
those Non-Consenting Parties that
participated
in the drilling, Deepening or Sidetracking of the well shall remain liable
for,
and shall pay, their proportionate
shares
of
the cost of plugging and abandoning the well and restoring the surface location
insofar only as those costs were not
increased
by the subsequent operations of the Consenting Parties. If any well drilled,
Reworked, Sidetracked, Deepened,
Recompleted
or Plugged Back under the provisions of this Article results in a well capable
of producing Oil and/or Gas in
paying
quantities, the Consenting Parties shall Complete and equip the well to produce
at their sole cost and risk, and the
7
A.A.P.L.
FORM 610 - MODEL FORM OPERATING AGREEMENT -
1989
well
shall then be turned over to Operator (if the Operator did not conduct the
operation) and shall be operated by it at the
expense
and for the account of the Consenting Parties. Upon commencement of operations
for the drilling, Reworking,
Sidetracking,
Recompleting, Deepening or Plugging Back of any such well by Consenting Parties
in accordance with the
provisions
of this Article, each Non-Consenting Party shall be deemed to have relinquished
to Consenting Parties, and the
Consenting
Parties shall own and be entitled to receive, in proportion to their respective
interests, all of such Non-
Consenting
Party's interest in the well and share of production therefrom or, in the case
of a Reworking, Sidetracking,
Deepening,
Recompleting or Plugging Back, or a Completion pursuant to Article VI.C.1.
Option No. 2, all of such Non-
Consenting
Party's interest in the production obtained from the operation in which the
Non-Consenting Party did not elect
to
participate. Such relinquishment shall be effective until the proceeds of the
sale of such share, calculated at the well, or
market
value thereof if such share is not sold (after deducting applicable ad valorem,
production, severance, and excise taxes,
royalty,
overriding royalty and other interests not excepted by Article III.C. payable
out of or measured by the production
from
such
well accruing with respect to such interest until it reverts), shall equal
the
total of the following:
(i)
100
% of
each such Non-Consenting Party's share of the cost of any newly acquired surface
equipment
beyond
the wellhead connections (including but not limited to stock tanks, separators,
treaters, pumping equipment and
piping),
plus 100% of each such Non-Consenting Party's share of the cost of operation
of
the well commencing with first
production
and continuing until each such Non-Consenting Party's relinquished interest
shall revert to it under other
provisions
of this Article, it being agreed that each Non-Consenting Party's share of
such
costs and equipment will be that
interest
which would have been chargeable to such Non-Consenting Party had it
participated in the well from the beginning
of
the
operations; and
(ii)
300
% of (a)
that portion of the costs and expenses of drilling, Reworking, Sidetracking,
Deepening,
Plugging
Back, testing, Completing, and Recompleting, after deducting any cash
contributions received under Article VIII.C.,
and
of
(b) that portion of the cost of newly acquired equipment in the well (to and
including the wellhead connections),
which
would have been chargeable to such Non-Consenting Party if it had participated
therein.
Notwithstanding
anything to the contrary in this Article VI.B., if the well does not reach
the
deepest objective Zone
described
in the notice proposing the well for reasons other than the encountering of
granite or practically impenetrable
substance
or other condition in the hole rendering further operations impracticable,
Operator shall give notice thereof to each
Non-Consenting
Party who submitted or voted for an alternative proposal under Article VI.B.6.
to drill the well to a
shallower
Zone than the deepest objective Zone proposed in the notice under which the
well
was drilled, and each such Non-
Consenting
Party shall have the option to participate in the initial proposed Completion
of
the well by paying its share of the
cost
of
drilling the well to its actual depth, calculated in the manner provided in
Article VI.B.4. (a). If any such Non-
Consenting
Party does not elect to participate in the first Completion proposed for such
well, the relinquishment provisions
of
this
Article VI.B.2. (b) shall apply to such party's interest.
(c)
Reworking,
Recompleting or Plugging Back.
An
election not to participate in the drilling, Sidetracking or
Deepening
of a well shall be deemed an election not to participate in any Reworking or
Plugging Back operation proposed in
such
a
well, or portion thereof, to which the initial non-consent election applied
that
is conducted at any time prior to full
recovery
by the Consenting Parties of the Non-Consenting Party's recoupment amount.
Similarly, an election not to
participate
in the Completing or Recompleting of a well shall be deemed an election not
to
participate in any Reworking
operation
proposed in such a well, or portion thereof, to which the initial non-consent
election applied that is conducted at
any
time
prior to full recovery by the Consenting Parties of the Non-Consenting Party's
recoupment amount. Any such
Reworking,
Recompleting or Plugging Back operation conducted during the recoupment period
shall be deemed part of the
cost
of
operation of said well and there shall be added to the sums to be recouped
by
the Consenting Parties ___300____% of
that
portion of the costs of the Reworking, Recompleting or Plugging Back operation
which would have been chargeable to
such
Non-Consenting Party had it participated therein. If such a Reworking,
Recompleting or Plugging Back operation is
proposed
during such recoupment period, the provisions of this Article VI.B. shall be
applicable as between said Consenting
Parties
in said well.
(d)
Recoupment
Matters.
During
the period of time Consenting Parties are entitled to receive Non-Consenting
Party's
share
of
production, or the proceeds therefrom, Consenting Parties shall be responsible
for the payment of all ad valorem,
production,
severance, excise, gathering and other taxes, and all royalty, overriding
royalty and other burdens applicable to
Non-Consenting
Party's share of production not excepted by Article III.C.
In
the
case of any Reworking, Sidetracking, Plugging Back, Recompleting or Deepening
operation, the Consenting
Parties
shall be permitted to use, free of cost, all casing, tubing and other equipment
in the well, but the ownership of all
such
equipment shall remain unchanged; and upon abandonment of a well after such
Reworking, Sidetracking, Plugging Back,
Recompleting
or Deepening, the Consenting Parties shall account for all such equipment to
the
owners thereof, with each
party
receiving its proportionate part in kind or in value, less cost of
salvage.
Within
ninety (90) days after the completion of any operation under this Article,
the
party conducting the operations
for
the
Consenting Parties shall furnish each Non-Consenting Party with an inventory
of
the equipment in and connected to
the
well,
and an itemized statement of the cost of drilling, Sidetracking, Deepening,
Plugging Back, testing, Completing,
Recompleting,
and equipping the well for production; or, at its option, the operating party,
in lieu of an itemized statement
of
such
costs of operation, may submit a detailed statement of monthly billings. Each
month thereafter, during the time the
Consenting
Parties are being reimbursed as provided above, the party conducting the
operations for the Consenting Parties
shall
furnish the Non-Consenting Parties with an itemized statement of all costs
and
liabilities incurred in the operation of
the
well,
together with a statement of the quantity of Oil and Gas produced from it and
the amount of proceeds realized from
the
sale
of the well's working interest production during the preceding month. In
determining the quantity of Oil and Gas
produced
during any month, Consenting Parties shall use industry accepted methods such
as
but not limited to metering or
periodic
well tests. Any amount realized from the sale or other disposition of equipment
newly acquired in connection with
any
such
operation which would have been owned by a Non-Consenting Party had it
participated therein shall be credited
against
the total unreturned costs of the work done and of the equipment purchased
in
determining when the interest of such
Non-Consenting
Party shall revert to it as above provided; and if there is a credit balance,
it
shall be paid to such Non-
Consenting
Party.
If
and
when the Consenting Parties recover from a Non-Consenting Party's relinquished
interest the amounts provided
for
above, the relinquished interests of such Non-Consenting Party shall
automatically revert to it as of 7:00 a.m. on the day
following
the day on which such recoupment occurs, and, from and after such reversion,
such Non-Consenting Party shall
own
the
same interest in such well, the material and equipment in or pertaining thereto,
and the production therefrom as
such
Non-Consenting Party would have been entitled to had it participated in the
drilling, Sidetracking, Reworking,
8
A.A.P.L.
FORM 610 - MODEL FORM OPERATING AGREEMENT -
1989
Deepening,
Recompleting or Plugging Back of said well. Thereafter, such Non-Consenting
Party shall be charged with and
shall
pay
its proportionate part of the further costs of the operation of said well in
accordance with the terms of this
agreement
and Exhibit "C" attached hereto.
3.
Stand-By
Costs:
When a
well which has been drilled or Deepened has reached its authorized depth and
all
tests have
been
completed and the results thereof furnished to the parties, or when operations
on the well have been otherwise
terminated
pursuant to Article VI.F., stand-by costs incurred pending response to a party's
notice proposing a Reworking,
Sidetracking,
Deepening, Recompleting, Plugging Back or Completing operation in such a well
(including the period required
under
Article VI.B.6. to resolve competing proposals) shall be charged and borne
as
part of the drilling or Deepening
operation
just completed. Stand-by costs subsequent to all parties responding, or
expiration of the response time permitted,
whichever
first occurs, and prior to agreement as to the participating interests of all
Consenting Parties pursuant to the terms
of
the
second grammatical paragraph of Article VI.B.2. (a), shall be charged to and
borne as part of the proposed operation,
but
if
the proposal is subsequently withdrawn because of insufficient participation,
such stand-by costs shall be allocated
between
the Consenting Parties in the proportion each Consenting Party's interest as
shown on Exhibit “A-1” and Exhibit “A-2” bears to the
total
interest as shown on Exhibit “A-1” and Exhibit “A-2” of all Consenting
Parties.
In
the
event that notice for a Sidetracking operation is given while the drilling
rig
to be utilized is on location, any party
may
request and receive up to five (5) additional days after expiration of the
forty-eight hour response period specified in
Article
VI.B.1. within which to respond by paying for all stand-by costs and other
costs
incurred during such extended
response
period; Operator may require such party to pay the estimated stand-by time
in
advance as a condition to extending
the
response period. If more than one party elects to take such additional time
to
respond to the notice, standby costs shall be
allocated
between the parties taking additional time to respond on a day-to-day basis
in
the proportion each electing party's
interest
as shown on Exhibit “A-1” and Exhibit “A-2” bears to the total interest as shown
on Exhibit “A-1” and Exhibit “A-2” of all the
electing
parties.
4.
Deepening:
If less
than all parties elect to participate in a drilling, Sidetracking, or Deepening
operation proposed
pursuant
to Article VI.B.1., the interest relinquished by the Non-Consenting Parties
to
the Consenting Parties under Article
VI.B.2.
shall relate only and be limited to the lesser of (i) the total depth actually
drilled or (ii) the objective depth or Zone
of
which
the parties were given notice under Article VI.B.1. ("Initial Objective").
Such
well shall not be Deepened beyond the
Initial
Objective without first complying with this Article to afford the Non-Consenting
Parties the opportunity to participate
in
the
Deepening operation.
In
the
event any Consenting Party desires to drill or Deepen a Non-Consent Well to
a
depth below the Initial Objective,
such
party shall give notice thereof, complying with the requirements of Article
VI.B.1., to all parties (including Non-
Consenting
Parties). Thereupon, Articles VI.B.1. and 2. shall apply and all parties
receiving such notice shall have the right to
participate
or not participate in the Deepening of such well pursuant to said Articles
VI.B.1. and 2. If a Deepening operation
is
approved pursuant to such provisions, and if any Non-Consenting Party elects
to
participate in the Deepening operation,
such
Non-Consenting party shall pay or make reimbursement (as the case may be) of
the
following costs and expenses.
(a)
If
the proposal to Deepen is made prior to the Completion of such well as a well
capable of producing in paying
quantities,
such Non-Consenting Party shall pay (or reimburse Consenting Parties for, as
the
case may be) that share of costs
and
expenses incurred in connection with the drilling of said well from the surface
to the Initial Objective which Non-
Consenting
Party would have paid had such Non-Consenting Party agreed to participate
therein, plus the Non-Consenting
Party's
share of the cost of Deepening and of participating in any further operations
on
the well in accordance with the other
provisions
of this Agreement; provided, however, all costs for testing and Completion
or
attempted Completion of the well
incurred
by Consenting Parties prior to the point of actual operations to Deepen beyond
the Initial Objective shall be for the
sole
account of Consenting Parties.
(b)
If
the proposal is made for a Non-Consent Well that has been previously Completed
as a well capable of producing
in
paying
quantities, but is no longer capable of producing in paying quantities, such
Non-Consenting Party shall pay (or
reimburse
Consenting Parties for, as the case may be) its proportionate share of all
costs
of drilling, Completing, and
equipping
said well from the surface to the Initial Objective, calculated in the manner
provided in paragraph (a) above, less
those
costs recouped by the Consenting Parties from the sale of production from the
well. The Non-Consenting Party shall
also
pay
its proportionate share of all costs of re-entering said well. The
Non-Consenting Parties' proportionate part (based
on
the
percentage of such well Non-Consenting Party would have owned had it previously
participated in such Non-Consent
Well)
of
the costs of salvable materials and equipment remaining in the hole and salvable
surface equipment used in
connection
with such well shall be determined in accordance with Exhibit "C." If the
Consenting Parties have recouped the
cost
of
drilling, Completing, and equipping the well at the time such Deepening
operation is conducted, then a Non-
Consenting
Party may participate in the Deepening of the well with no payment for costs
incurred prior to re-entering the
well
for
Deepening
The
foregoing shall not imply a right of any Consenting Party to propose any
Deepening for a Non-Consent Well prior
to
the
drilling of such well to its Initial Objective without the consent of the other
Consenting Parties as provided in Article
VI.F.
5.
Sidetracking:
Any
party having the right to participate in a proposed Sidetracking operation
that
does not own an
interest
in the affected wellbore at the time of the notice shall, upon electing to
participate, tender to the wellbore owners its
proportionate
share (equal to its interest in the Sidetracking operation) of the value of
that
portion of the existing wellbore
to
be
utilized as follows:
(a)
If
the proposal is for Sidetracking an existing dry hole, reimbursement shall
be on
the basis of the actual costs
incurred
in the initial drilling of the well down to the depth at which the Sidetracking
operation is initiated.
(b)
If
the proposal is for Sidetracking a well which has previously produced,
reimbursement shall be on the basis of
such
party's proportionate share of drilling and equipping costs incurred in the
initial drilling of the well down to the depth
at
which
the Sidetracking operation is conducted, calculated in the manner described
in
Article VI.B.4(b) above. Such party's
proportionate
share of the cost of the well's salvable materials and equipment down to the
depth at which the Sidetracking
operation
is initiated shall be determined in accordance with the provisions of Exhibit
"C."
6.
Order
of Preference of Operations.
Except
as otherwise specifically provided in this agreement, if any party desires
to
propose
the conduct of an operation that conflicts with a proposal that has been made
by
a party under this Article VI, such
party
shall have fifteen (15) days from delivery of the initial proposal, in the
case
of a proposal to drill a well or to perform
an
operation on a well where no drilling rig is on location, or twenty-four (24)
hours, exclusive of Saturday, Sunday and legal
holidays,
from delivery of the initial proposal, if a drilling rig is on location for
the
well on which such operation is to be
conducted,
to deliver to all parties entitled to participate in the proposed operation
such
party's alternative proposal, such
9
A.A.P.L.
FORM 610 - MODEL FORM OPERATING AGREEMENT -
1989
alternate
proposal to contain the same information required to be included in the initial
proposal. Each party receiving such
proposals
shall elect by delivery of notice to Operator within five (5) days after
expiration of the proposal period, or within
twenty-four
(24) hours (exclusive of Saturday, Sunday and legal holidays) if a drilling
rig
is on location for the well that is the
subject
of the proposals, to participate in one of the competing proposals. Any party
not electing within the time required
shall
be
deemed not to have voted. The proposal receiving the vote of parties owning
the
largest aggregate percentage
interest
of the parties voting shall have priority over all other competing proposals;
in
the case of a tie vote, the
initial
proposal shall prevail. Operator shall deliver notice of such result to all
parties entitled to participate in the operation
within
five (5) days after expiration of the election period (or within twenty-four
(24) hours, exclusive of Saturday, Sunday
and
legal
holidays, if a drilling rig is on location). Each party shall then have two
(2)
days (or twenty-four (24) hours if a rig
is
on
location) from receipt of such notice to elect by delivery of notice to Operator
to participate in such operation or to
relinquish
interest in the affected well pursuant to the provisions of Article VI.B.2.;
failure by a party to deliver notice within
such
period shall be deemed an election not
to
participate in the prevailing proposal.
7.
Conformity
to Spacing Pattern.
Notwithstanding the provisions of this Article VI.B.2., it is agreed that no
wells shall be
proposed
to be drilled to or Completed in or produced from a Zone from which a well
located elsewhere on the Contract
Area
is
producing, unless such well conforms to the then-existing well spacing pattern
for such Zone.
8.
Paying
Wells.
No party
shall conduct any Reworking, Deepening, Plugging Back, Completion, Recompletion,
or
Sidetracking
operation under this agreement with respect to any well then capable of
producing in paying quantities except
with
the
consent of all parties that have not relinquished interests in the well at
the
time of such operation.
C.
Completion of Wells; Reworking and Plugging Back:
1.
Completion:
Without
the consent of all parties, no well shall be drilled, Deepened or Sidetracked,
except any well
drilled,
Deepened or Sidetracked pursuant to the provisions of Article VI.B.2. of this
agreement. Consent to the drilling,
Deepening
or Sidetracking shall include:
|
þ
|
Option
No. 1:
All necessary expenditures for the drilling, Deepening or Sidetracking,
testing, Completing and
|
equipping
of the well, including necessary tankage and/or surface facilities.
|
¨
|
|
2.
Rework,
Recomplete or Plug Back:
No well
shall be Reworked, Recompleted or Plugged Back except a well
Reworked,
Recompleted,
or Plugged Back pursuant to the provisions of Article VI.B.2. of this agreement.
Consent to the Reworking,
Recompleting
or Plugging Back of a well shall include all necessary expenditures in
conducting such operations and
Completing
and equipping of said well, including necessary tankage and/or surface
facilities.
D.
Other Operations:
Operator
shall not undertake any single project reasonably estimated to require an
expenditure in excess of
One
Hundred Thousand
Dollars
($ 100,000.00 )
except
in connection with the
drilling,
Sidetracking, Reworking, Deepening, Completing, Recompleting or Plugging Back
of
a well that has been previously
authorized
by or pursuant to this agreement; provided, however, that, in case of explosion,
fire, flood or other sudden
emergency,
whether of the same or different nature, Operator may take such steps and incur
such expenses as in its opinion
are
required to deal with the emergency to safeguard life and property but Operator,
as promptly as possible, shall report the
emergency
to the other parties. If Operator prepares an AFE for its own use, Operator
shall furnish any Non-Operator so
requesting
an information copy thereof for any single project costing in excess of
One
Hundred Thousand Dollars
($ 100,000.00).
Any
party who has not relinquished its interest in a well shall have the right
to
propose that
Operator
perform repair work or undertake the installation of artificial lift equipment
or ancillary production facilities such as
salt
water disposal wells or to conduct additional work with respect to a well
drilled hereunder or other similar project (but
not
including the installation of gathering lines or other transportation or
marketing facilities, the installation of which shall
be
governed by separate agreement between the parties) reasonably estimated to
require an expenditure in excess of the
amount
first set forth above in this Article VI.D. (except in connection with an
operation required to be proposed under
Articles
VI.B.1. or VI.C.1. Option No. 2, which shall be governed exclusively be those
Articles). Operator shall deliver such
proposal
to all parties entitled to participate therein. If within thirty (30) days
thereof Operator secures the written consent
of
any
party or parties owning at least 51 %
of the
interests of the parties entitled to participate in such operation,
10
A.A.P.L.
FORM 610 - MODEL FORM OPERATING AGREEMENT -
1989
each
party having the right to participate in such project shall be bound by the
terms of such proposal and shall be obligated
to
pay
its proportionate share of the costs of the proposed project as if it had
consented to such project pursuant to the terms
of
the
proposal.
E.
Abandonment of Wells:
1.
Abandonment
of Dry Holes:
Except
for any well drilled or Deepened pursuant to Article VI.B.2., any well which
has
been
drilled or Deepened under the terms of this agreement and is proposed to be
completed as a dry hole shall not be
plugged
and abandoned without the consent of all parties. Should Operator, after
diligent effort, be unable to contact any
party,
or
should any party fail to reply within forty-eight (48) hours (exclusive
of Saturday, Sunday and legal holidays)
after
delivery
of notice of the proposal to plug and abandon such well, such party shall be
deemed to have consented to the
proposed
abandonment. All such wells shall be plugged and abandoned in accordance with
applicable regulations and at the
cost,
risk and expense of the parties who participated in the cost of drilling or
Deepening such well. Any party who objects to
plugging
and abandoning such well by notice delivered to Operator within forty-eight
(48)
hours (exclusive
of Saturday,
forty-eight
(48) hour notice period and conduct further operations in search of Oil and/or
Gas subject to the provisions of
Article
VI.B.; failure of such party to provide proof reasonably satisfactory to
Operator of its financial capability to conduct
such
operations or to take over the well within such period or thereafter to conduct
operations on such well or plug and
abandon
such well shall entitle Operator to retain or take possession of the well and
plug and abandon the well. The party
taking
over the well shall indemnify Operator (if Operator is an abandoning party)
and
the other abandoning parties against
liability
for any further operations conducted on such well except for the costs of
plugging and abandoning the well and
restoring
the surface, for which the abandoning parties shall remain proportionately
liable.
2.
Abandonment
of Wells That Have Produced:
Except
for any well in which a Non-Consent operation has been
conducted
hereunder for which the Consenting Parties have not been fully reimbursed as
herein provided, any well which has
been
completed as a producer shall not be plugged and abandoned without the consent
of all parties. If all parties consent to
such
abandonment, the well shall be plugged and abandoned in accordance with
applicable regulations and at the cost, risk
and
expense of all the parties hereto. Failure of a party to reply within sixty
(60)
days of delivery of notice of proposed
abandonment
shall be deemed an election to consent to the proposal. If, within sixty (60)
days after delivery of notice of the
proposed
abandonment of any well, all parties do not agree to the abandonment of such
well, those wishing to continue its
operation
from the Zone then open to production shall be obligated to take over the well
as of the expiration of the
applicable
notice period and shall indemnify Operator (if Operator is an abandoning party)
and the other abandoning parties
against
liability for any further operations on the well conducted by such parties.
Failure of such party or parties to provide
proof
reasonably satisfactory to Operator of their financial capability to conduct
such operations or to take over the well
within
the required period or thereafter to conduct operations on such well shall
entitle operator to retain or take possession
of
such
well and plug and abandon the well.
Parties
taking over a well as provided herein shall tender to each of the other parties
its proportionate share of the value of
the
well's salvable material and equipment, determined in accordance with the
provisions of Exhibit "C," less the estimated cost
of
salvaging and the estimated cost of plugging and abandoning and restoring the
surface; provided, however, that in the event
the
estimated plugging and abandoning and surface restoration costs and the
estimated cost of salvaging are higher than the
value
of
the well's salvable material and equipment, each of the abandoning parties
shall
tender to the parties continuing
operations
their proportionate shares of the estimated excess cost. Each abandoning party
shall assign to the non-abandoning
parties,
without warranty, express or implied, as to title or as to quantity, or fitness
for use of the equipment and material, all
of
its
interest in the wellbore of the well and related equipment, together with its
interest in the Leasehold insofar and only
insofar
as such Leasehold covers the right to obtain production from that wellbore
in
the Zone then open to production. If the
interest
of the abandoning party is or includes and Oil and Gas Interest, such party
shall execute and deliver to the non-
abandoning
party or parties an oil and gas lease, limited to the wellbore and the Zone
then
open to production, for a term of
one
(1)
year and so long thereafter as Oil and/or Gas is produced from the Zone covered
thereby, such lease to be on the form
attached
as Exhibit "B." The assignments or leases so limited shall encompass the
Drilling Unit upon which the well is located.**
The
payments by, and the assignments or leases to, the assignees shall be in a
ratio
based upon the relationship of their
respective
percentage of participation in the Contract Area to the aggregate of the
percentages of participation in the Contract
Area
of
all assignees. There shall be no readjustment of interests in the remaining
portions of the Contract Area.
Thereafter,
abandoning parties shall have no further responsibility, liability, or interest
in the operation of or production
from
the
well in the Zone then open other than the royalties retained in any lease made
under the terms of this Article. Upon
request,
Operator shall continue to operate the assigned well for the account of the
non-abandoning parties at the rates and
charges
contemplated by this agreement, plus any additional cost and charges which
may
arise as the result of the separate
ownership
of the assigned well. Upon proposed abandonment of the producing Zone assigned
or leased, the assignor or lessor
shall
then have the option to repurchase its prior interest in the well (using the
same valuation formula) and participate in
further
operations therein subject to the provisions hereof.
3.
Abandonment
of Non-Consent Operations:
The
provisions of Article VI.E.1. or VI.E.2. above shall be applicable
as
between
Consenting Parties in the event of the proposed abandonment of any well excepted
from said Articles; provided,
however,
no well shall be permanently plugged and abandoned unless and until all parties
having the right to conduct further
operations
therein have been notified of the proposed abandonment and afforded the
opportunity to elect to take over the well
in
accordance with the provisions of this Article VI.E.; and provided further,
that
Non-Consenting Parties who own an interest
in
a
portion of the well shall pay their proportionate shares of abandonment and
surface restoration cost for such well as
provided
in Article VI.B.2.(b).
F.
Termination of Operations:
Upon
the
commencement of an operation for the drilling, Reworking, Sidetracking, Plugging
Back, Deepening, testing,
Completion
or plugging of a well, including but not limited to the Initial Well, such
operation shall not be terminated without
consent
of parties bearing _51____% of the costs of such operation; provided, however,
that in the event granite or other
practically
impenetrable substance or condition in the hole is encountered which renders
further operations impractical,
Operator
may discontinue operations and give notice of such condition in the manner
provided in Article VI.B.1, and the
provisions
of Article VI.B. or VI.E. shall thereafter apply to such operation, as
appropriate.
G.
Taking Production in Kind:
þ Option
No. 1:
Gas Balancing Agreement Attached
Each
party shall take in kind or separately dispose of its proportionate share of
all
Oil and Gas produced from the
Contract
Area, exclusive of production which may be used in development and producing
operations and in preparing and
11
A.A.P.L.
FORM 610 - MODEL FORM OPERATING AGREEMENT -
1989
treating
Oil and Gas for marketing purposes and production unavoidably lost. Any extra
expenditure incurred in the taking
in
kind
or separate disposition by any party of its proportionate share of the
production shall be borne by such party. Any
party
taking its share of production in kind shall be required to pay for only its
proportionate share of such part of
Operator's
surface facilities which it uses.
Each
party shall execute such division orders and contracts as may be necessary
for
the sale of its interest in
production
from the Contract Area, and, except as provided in Article VII.B., shall be
entitled to receive payment
12
A.A.P.L.
FORM 610 - MODEL FORM OPERATING AGREEMENT -
1989
directly
from the purchaser thereof for its share of all production.
If
any
party fails to make the arrangements necessary to take in kind or separately
dispose of its proportionate
share
of
the Oil produced from the Contract Area, Operator shall have the right, subject
to the revocation at will by
the
party
owning it, but not the obligation, to purchase such Oil or sell it to others
at
any time and from time to
time,
for
the account of the non-taking party. Any such purchase or sale by Operator
may
be terminated by
Operator
upon at least ten (10) days written notice to the owner of said production
and
shall be subject always to
the
right
of the owner of the production upon at least ten (10) days written notice to
Operator to exercise at any
time
its
right to take in kind, or separately dispose of, its share of all Oil not
previously delivered to a purchaser.
Any
purchase or sale by Operator of any other party's share of Oil 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 (1) year.
Any
such
sale by Operator shall be in a manner commercially reasonable under the
circumstances but Operator
shall
have no duty to share any existing market or to obtain a price equal to that
received under any existing
market.
The sale or delivery by Operator of a non-taking party's share of Oil under
the
terms of any existing
contract
of Operator shall not give the non-taking party any interest in or make the
non-taking party a party to said
contract.
No purchase shall be made by Operator without first giving the non-taking party
at least ten (10) days
written
notice of such intended purchase and the price to be paid or the pricing basis
to be used.
All
parties shall give timely written notice to Operator of their Gas marketing
arrangements for the following
month,
excluding price, and shall notify Operator immediately in the event of a change
in such arrangements.
Operator
shall maintain records of all marketing arrangements, and of volumes actually
sold or transported, which
records
shall be made available to Non-Operators upon reasonable request.
In
the
event one or more parties' separate disposition of its share of the Gas causes
split-stream deliveries to separate
pipelines
and/or deliveries which on a day-to-day basis for any reason are not exactly
equal to a party's respective proportion-
ate
share
of total Gas sales to be allocated to it, the balancing or accounting between
the parties shall be in accordance with
any
Gas
balancing agreement between the parties hereto, whether such an agreement is
attached as Exhibit "E" or is a
separate
agreement. Operator shall give notice to all parties of the first sales of
Gas
from any well under this agreement.
o Option
No. 2:
No Gas Balancing Agreement:
ARTICLE
VII.
EXPENDITURES
AND LIABILITY OF PARTIES
A.
Liability of Parties:
The
liability of the parties shall be several, not joint or collective. Each party
shall be responsible only for its obligations,
and
shall
be liable only for its proportionate share of the costs of developing the
operating the Contract Area. Accordingly, the
liens
granted among the parties in Article VII.B. are given to secure only the debts
of each severally, and no party shall have
any
liability to third parties hereunder to satisfy the default of any other party
in the payment of any expense or obligation
hereunder.
It is not the intention of the parties to create, nor shall this agreement
be
construed as creating, a mining or other
partnership,
joint venture, agency relationship or association, or to render the parties
liable as partners, co-venturers, or
principals.
In their relations with each other under this agreement, the parties shall
not
be considered fiduciaries or to have
established
a confidential relationship but rather shall be free to act on an arm's-length
basis in accordance with their own
respective
self-interest, subject, however, to the obligation of the parties to act in
good
faith in their dealings with each other
with
respect to activities hereunder.
13
A.A.P.L.
FORM 610 - MODEL FORM OPERATING AGREEMENT -
1989
B.
Liens and Security Interests:
Each
party grants to the other parties hereto a lien upon any interest it now owns
or
hereafter acquires in Oil and Gas
Leases
and Oil and Gas Interests in the Contract Area, and a security interest and/or
purchase money security interest in any
interest
it now owns or hereafter acquires in the personal property and fixtures on
or
used or obtained for use in connection
therewith,
to secure performance of all of its obligations under this agreement including
but not limited to payment of expense,
interest
and fees, the proper disbursement of all monies paid hereunder, the assignment
or relinquishment of interest in Oil
and
Gas
Leases as required hereunder, and the proper performance of operations
hereunder. Such lien and security interest
granted
by each party hereto shall include such party's leasehold interests, working
interests, operating rights, and royalty and
overriding
royalty interests in the Contract Area now owned or hereafter acquired and
in
lands pooled or unitized therewith or
otherwise
becoming subject to this agreement, the Oil and Gas when extracted therefrom
and
equipment situated thereon or
used
or
obtained for use in connection therewith (including, without limitation, all
wells, tools, and tubular goods), and accounts
(including,
without limitation, accounts arising from gas imbalances or from the sale of
Oil
and/or Gas at the wellhead),
contract
rights, inventory and general intangibles relating thereto or arising therefrom,
and all proceeds and products of the
foregoing.
To
perfect the lien and security agreement provided herein, each party hereto
shall
execute and acknowledge the recording
supplement
and/or any financing statement prepared and submitted by any party hereto in
conjunction herewith or at any time
following
execution hereof, and Operator is authorized to file this agreement or the
recording supplement executed herewith as
a
lien or
mortgage in the applicable real estate records and as a financing statement
with
the proper officer under the Uniform
Commercial
Code in the state in which the Contract Area is situated and such other states
as Operator shall deem appropriate
to
perfect the security interest granted hereunder. Any party may file this
agreement, the recording supplement executed
herewith,
or such other documents as it deems necessary as a lien or mortgage in the
applicable real estate records and/or a
financing
statement with the proper officer under the Uniform Commercial
Code.
Each
party represents and warrants to the other parties hereto that the lien and
security interest granted by such party to
the
other
parties shall be a first and prior lien, and each party hereby agrees to
maintain the priority of said lien and security
interest
against all persons acquiring an interest in Oil and Gas Leases and Interests
covered by this agreement by, through or
under
such party. All parties acquiring an interest in Oil and Gas Leases and Oil
and
Gas Interests covered by this agreement,
whether
by assignment, merger, mortgage, operation of law, or otherwise, shall be deemed
to have taken subject
to
the
lien and security interest granted by this Article VII.B. as to all obligations
attributable to such interest hereunder
whether
or not such obligations arise before or after such interest is
acquired.
To
the
extent that parties have a security interest under the Uniform Commercial Code
of the state in which the
Contract
Area is situated, they shall be entitled to exercise the rights and remedies
of
a secured party under the Code.
The
bringing of a suit and the obtaining of judgment by a party for the secured
indebtedness shall not be deemed an
election
of remedies or otherwise affect the lien rights or security interest as security
for the payment thereof. In
addition,
upon default by any party in the payment of its share of expenses, interests
or
fees, or upon the improper use
of
funds
by the Operator, the other parties shall have the right, without prejudice
to
other rights or remedies, to collect
from
the
purchaser the proceeds from the sale of such defaulting party's share of Oil
and
Gas until the amount owed by
such
party, plus interest as provided in "Exhibit C," has been received, and shall
have the right to offset the amount
owed
against the proceeds from the sale of such defaulting party's share of Oil
and
Gas. All purchasers of production
may
rely
on a notification of default from the non-defaulting party or parties stating
the amount due as a result of the
default,
and all parties waive any recourse available against purchasers for releasing
production proceeds as provided in
this
paragraph.
If
any
party fails to pay its share of cost within one hundred twenty (120) days after
rendition of a statement therefor by
Operator,
the non-defaulting parties, including Operator, shall upon request by Operator,
pay the unpaid amount in the
proportion
that the interest of each such party bears to the interest of all such parties.
The amount paid by each party so
paying
its share of the unpaid amount shall be secured by the liens and security rights
described in Article VII.B., and each
paying
party may independently pursue any remedy available hereunder or
otherwise.
If
any
party does not perform all of its obligations hereunder, and the failure to
perform subjects such party to foreclosure
or
execution proceedings pursuant to the provisions of this agreement, to the
extent allowed by governing law, the defaulting
party
waives any available right of redemption from and after the date of judgment,
any required valuation or appraisement
of
the
mortgaged or secured property prior to sale, any available right to stay
execution or to require a marshaling of assets
and
any
required bond in the event a receiver is appointed. In addition, to the extent
permitted by applicable law, each party
hereby
grants to the other parties a power of sale as to any property that is subject
to the lien and security rights granted
hereunder,
such power to be exercised in the manner provided by applicable law or otherwise
in a commercially reasonable
manner
and upon reasonable notice.
Each
party agrees that the other parties shall be entitled to utilize the provisions
of Oil and Gas lien law or other lien
law
of
any state in which the Contract Area is situated to enforce the obligations
of
each party hereunder. Without limiting
the
generality of the foregoing, to the extent permitted by applicable law,
Non-Operators agree that Operator may invoke or
utilize
the mechanics' or materialmen's lien law of the state in which the Contract
Area
is situated in order to secure the
payment
to Operator of any sum due hereunder for services performed or materials
supplied by Operator.
C.
Advances:
Operator,
at its election, shall have the right from time to time to demand and receive
from one or more of the other
parties
payment in advance of their respective shares of the estimated amount of the
expense to be incurred in operations
hereunder
during the next succeeding month, which right may be exercised only by
submission to each such party of an
itemized
statement of such estimated expense, together with an invoice for its share
thereof. Each such statement and invoice
for
the
payment in advance of estimated expense shall be submitted on or before the
20th
day of the next preceding month.
Each
party shall pay to Operator its proportionate share of such estimate within
fifteen (15) days after such estimate and
invoice
is received. If any party fails to pay its share of said estimate within said
time, the amount due shall bear interest as
provided
in Exhibit "C" until paid. Proper adjustment shall be made monthly between
advances and actual expense to the end
that
each
party shall bear and pay its proportionate share of actual expenses incurred,
and no more.
D.
Defaults and Remedies:
If
any
party fails to discharge any financial obligation under this agreement,
including without limitation the failure to
make
any
advance under the preceding Article VII.C. or any other provision of this
agreement, within the period required for
such
payment hereunder, then in addition to the remedies provided in Article VII.B.
or elsewhere in this agreement, the
remedies
specified below shall be applicable. For purposes of this Article VII.D., all
notices and elections shall be delivered
14
A.A.P.L.
FORM 610 - MODEL FORM OPERATING AGREEMENT -
1989
only
by
Operator, except that Operator shall deliver any such notice and election
requested by a non-defaulting Non-Operator,
and
when
Operator is the party in default, the applicable notices and elections can
be
delivered by any Non-Operator.
Election
of any one or more of the following remedies shall not preclude the subsequent
use of any other remedy specified
below
or
otherwise available to a non-defaulting party.
1.
Suspension
of Rights:
Any
party may deliver to the party in default a Notice of Default, which shall
specify the default,
specify
the action to be taken to cure the default, and specify that failure to take
such action will result in the exercise of one
or
more
of the remedies provided in this Article. If the default is not cured within
thirty (30) days of the delivery of such
Notice
of
Default, all of the rights of the defaulting party granted by this agreement
may
upon notice be suspended until the
default
is cured, without prejudice to the right of the non-defaulting party or parties
to continue to enforce the obligations of
the
defaulting party previously accrued or thereafter accruing under this agreement.
If Operator is the party in default, the
Non-Operators
shall have in addition the right, by vote of Non-Operators owning a majority
in
interest in the Contract Area
after
excluding the voting interest of Operator, to appoint a new Operator effective
immediately. The rights of a defaulting
party
that may be suspended hereunder at the election of the non-defaulting parties
shall include, without limitation, the right
to
receive information as to any operation conducted hereunder during the period
of
such default, the right to elect to
participate
in an operation proposed under Article VI.B. of this agreement, the right to
participate in an operation being
conducted
under this agreement even if the party has previously elected to participate
in
such operation, and the right to
receive
proceeds of production from any well subject to this agreement.
2.
Suit
for Damages:
Non-defaulting parties or Operator for the benefit of non-defaulting parties
may
sue (at joint
account
expense) to collect the amounts in default, plus interest accruing on the
amounts recovered from the date of default
until
the
date of collection at the rate specified in Exhibit "C" attached hereto. Nothing
herein shall prevent any party from
suing
any
defaulting party to collect consequential damages accruing to such party as
a
result of the default.
3.
Deemed
Non-Consent:
The
non-defaulting party may deliver a written Notice of Non-Consent Election to
the
defaulting
party at any time after the expiration of the thirty-day cure period following
delivery of the Notice of Default, in
which
event if the billing is for the drilling a new well or the Plugging Back,
Sidetracking, Reworking or Deepening of a
well
which is to be or has been plugged as a dry hole, or for the Completion or
Recompletion of any well, the defaulting
party
will be conclusively deemed to have elected not to participate in the operation
and to be a Non-Consenting Party with
respect
thereto under Article VI.B. or VI.C., as the case may be, to the extent of
the
costs unpaid by such party,
notwithstanding
any election to participate theretofore made. If election is made to proceed
under this provision, then the
non-defaulting
parties may not elect to sue for the unpaid amount pursuant to Article
VII.D.2.
Until
the
delivery of such Notice of Non-Consent Election to the defaulting party, such
party shall have the right to cure
its
default by paying its unpaid share of costs plus interest at the rate set forth
in Exhibit "C," provided, however, such
payment
shall not prejudice the rights of the non-defaulting parties to pursue remedies
for damages incurred by the non-
defaulting
parties as a result of the default. Any interest relinquished pursuant to this
Article VII.D.3. shall be offered to the
non-defaulting
parties in proportion to their interests, and the non-defaulting parties
electing to participate in the ownership
of
such
interest shall be required to contribute their shares of the defaulted amount
upon their election to participate therein.
4.
Advance
Payment:
If a
default is not cured within thirty (30) days of the delivery of a Notice of
Default, Operator, or
Non-Operators
if Operator is the defaulting party, may thereafter require advance payment
from
the defaulting
party
of
such defaulting party's anticipated share of any item of expense for which
Operator, or Non-Operators, as the case may
be,
would
be entitled to reimbursement under any provision of this agreement, whether
or
not such expense was the subject of
the
previous default. Such right includes, but is not limited to, the right to
require advance payment for the estimated costs of
drilling
a well or Completion of a well as to which an election to participate in
drilling or Completion has been made. If the
defaulting
party fails to pay the required advance payment, the non-defaulting parties
may
pursue any of the remedies provided
in
the
Article VII.D. or any other default remedy provided elsewhere in this agreement.
Any excess of funds advanced remaining
when
the
operation is completed and all costs have been paid shall be promptly returned
to the advancing party.
5.
Costs
and Attorneys' Fees:
In the
event any party is required to bring legal proceedings to enforce any
financial
obligation
of a party hereunder, the prevailing party in such action shall be entitled
to
recover all court costs, costs of
collection,
and a reasonable attorney's fee, which the lien provided for herein shall also
secure.
E.
Rentals, Shut-in Well Payments and Minimum Royalties:
Rentals,
shut-in well payments and minimum royalties which may be required under the
terms of any lease shall be paid
by
the
party or parties who subjected such lease to this agreement at its or their
expense. In the event two or more parties
own
and
have contributed interests in the same lease to this agreement, such parties
may
designate one of such parties to
make
said
payments for and on behalf of all such parties. Any party may request, and
shall
be entitled to receive, proper
evidence
of all such payments. In the event of failure to make proper payment of any
rental, shut-in well payment or
minimum
royalty through mistake or oversight where such payment is required to continue
the lease in force, any loss which
results
from such non-payment shall be borne in accordance with the provisions of
Article IV.B.2.
Operator
shall notify Non-Operators of the anticipated completion of a shut-in well,
or
the shutting in or return to
production
of a producing well, at least five (5) days (excluding Saturday, Sunday, and
legal holidays) prior to taking such
action,
or at the earliest opportunity permitted by circumstances, but assumes no
liability for failure to do so. In the event of
failure
by Operator to so notify Non-Operators, the loss of any lease contributed hereto
by Non-Operators for failure to make
timely
payments of any shut-in well payment shall be borne jointly by the parties
hereto under the provisions of Article
IV.B.3.
F.
Taxes:
Beginning
with the first calendar year after the effective date hereof, Operator shall
render for ad valorem taxation all
property
subject to this agreement which by law should be rendered for such taxes, and
it
shall pay all such taxes assessed
thereon
before they become delinquent. Prior to the rendition date, each Non-Operator
shall furnish Operator information as
to
burdens (to include, but not be limited to, royalties, overriding royalties
and
production payments) on Leases and Oil and
Gas
Interests contributed by such Non-Operator. If the assessed valuation of any
Lease is reduced by reason of its being
subject
to outstanding excess royalties, overriding royalties or production payments,
the reduction in ad valorem taxes
resulting
therefrom shall inure to the benefit of the owner or owners of such Lease,
and
Operator shall adjust the charge to
such
owner or owners so as to reflect the benefit of such reduction. If the ad
valorem taxes are based in whole or in part
upon
separate valuations of each party's working interest, then notwithstanding
anything to the contrary herein, charges to
the
joint
account shall be made and paid by the parties hereto in accordance with the
tax
value generated by each party's
working
interest. Operator shall bill the other parties for their proportionate shares
of all tax payments in the manner
provided
in Exhibit "C."
15
A.A.P.L. FORM 610 - MODEL FORM OPERATING AGREEMENT - 1989
If
Operator considers any tax assessment improper, Operator may, at its discretion,
protest within the time and manner
prescribed
by law, and prosecute the protest to a final determination, unless all parties
agree to abandon the protest prior to final
determination.
During the pendency of administrative or judicial proceedings, Operator may
elect to pay, under protest, all such taxes
and
any
interest and penalty. When any such protested assessment shall have been finally
determined, Operator shall pay the tax for
the
joint
account, together with any interest and penalty accrued, and the total cost
shall then be assessed against the parties, and be
paid
by
them, as provided in Exhibit "C."
Each
party shall pay or cause to be paid all production, severance, excise, gathering
and other taxes imposed upon or with respect
to
the
production or handling of such party's share of Oil and Gas produced under
the
terms of this agreement.
ARTICLE
VIII.
ACQUISITION,
MAINTENANCE OR TRANSFER OF INTEREST
A.
Surrender of Leases:
The
Leases covered by this agreement, insofar as they embrace acreage in the
Contract Area, shall not be surrendered in whole
or
in
part unless all parties consent thereto.
However,
should any party desire to surrender its interest in any Lease or in any portion
thereof, such party shall give written
notice
of
the proposed surrender to all parties, and the parties to whom such notice
is
delivered shall have thirty (30) days after
delivery
of the notice within which to notify the party proposing the surrender whether
they elect to consent thereto. Failure of a
party
to
whom such notice is delivered to reply within said 30-day period shall
constitute a consent to the surrender of the Leases
described
in the notice. If all parties do not agree or consent thereto, the party
desiring to surrender shall assign, without express or
implied
warranty of title, all of its interest in such Lease, or portion thereof, and
any well, material and equipment which may be
located
thereon and any rights in production thereafter secured, to the parties not
consenting to such surrender. If the interest of the
assigning
party is or includes an Oil and Gas Interest, the assigning party shall execute
and deliver to the party or parties not
consenting
to such surrender an oil and gas lease covering such Oil and Gas Interest for
a
term of one (1) year and so long
thereafter
as Oil and/or Gas is produced from the land covered thereby, such lease to
be on
the form attached hereto as Exhibit "B."
Upon
such
assignment or lease, the assigning party shall be relieved from all obligations
thereafter accruing, but not theretofore
accrued,
with respect to the interest assigned or leased and the operation of any well
attributable thereto, and the assigning party
shall
have no further interest in the assigned or leased premises and its equipment
and production other than the royalties retained
in
any
lease made under the terms of this Article. The party assignee or lessee shall
pay to the party assignor or lessor the
reasonable
salvage value of the latter's interest in any well's salvable materials and
equipment attributable to the assigned or leased
acreage.
The value of all salvable materials and equipment shall be determined in
accordance with the provisions of Exhibit "C," less
the
estimated cost of salvaging and the estimated cost of plugging and abandoning
and restoring the surface. If such value is less
than
such
costs, then the party assignor or lessor shall pay to the party assignee or
lessee the amount of such deficit. If the
assignment
or lease is in favor of more than one party, the interest shall be shared by
such parties in the proportions that the
interest
of each bears to the total interest of all such parties. If the interest of
the
parties to whom the assignment is to be made
varies
according to depth, then the interest assigned shall similarly reflect such
variances.
Any
assignment, lease or surrender made under this provision shall not reduce or
change the assignor's, lessor's or surrendering
party's
interest as it was immediately before the assignment, lease or surrender in
the
balance of the Contract Area; and the acreage
assigned,
leased or surrendered, and subsequent operations thereon, shall not thereafter
be subject to the terms and provisions of this
agreement
but shall be deemed subject to an Operating Agreement in the form of this
agreement.
B.
Renewal or Extension of Leases:
If
any
party secures a renewal or replacement of an Oil and Gas Lease or Interest
subject to this agreement, then all other parties
shall
be
notified promptly upon such acquisition or, in the case of a replacement Lease
taken before expiration of an existing Lease,
promptly
upon expiration of the existing Lease. The parties notified shall have the
right
for a period of thirty (30) days following
delivery
of such notice in which to elect to participate in the ownership of the renewal
or replacement Lease, insofar as such Lease
affects
lands within the Contract Area, by paying to the party who acquired it their
proportionate shares of the acquisition cost
allocated
to that part of such Lease within the Contract Area, which shall be in
proportion to the interest held at that time by the
parties
in the Contract Area. Each party who participates in the purchase of a renewal
or replacement Lease shall be given an
assignment
of its proportionate interest therein by the acquiring party.
If
some,
but less than all, of the parties elect to participate in the purchase of a
renewal or replacement Lease, it shall be owned
by
the
parties who elect to participate therein, in a ratio based upon the relationship
of their respective percentage of participation in
the
Contract Area to the aggregate of the percentages of participation in the
Contract Area of all parties participating in the
purchase
of such renewal or replacement Lease. The acquisition of a renewal or
replacement Lease by any or all of the parties hereto
shall
not
cause a readjustment of the interests of the parties stated in Exhibit "A-1"
and
Exhibit “A-2” but any renewal or replacement Lease
in
which
less than all parties elect to participate shall not be subject to this
agreement but shall be deemed subject to a separate Operating
Agreement
in the form of this agreement.
If
the
interests of the parties in the Contract Area vary according to depth, then
their right to participate proportionately in
renewal
or replacement Leases and their right to receive an assignment of interest
shall
also reflect such depth variances.
The
provisions of this Article shall apply to renewal or replacement Leases whether
they are for the entire interest covered by
the
expiring Lease or cover only a portion of its area or an interest therein.
Any
renewal or replacement Lease taken before the
or
nominated for sale
expiration
of its predecessor Lease, or taken or contracted for or becoming effective
/
within six (6) months after the expiration of the
existing
Lease, shall be subject to this provision so long as this agreement is in effect
at the time of such acquisition or at the time
or
nominated for sale
the
renewal or replacement Lease becomes effective; but any Lease taken or
contracted for / more than six (6) months after the
expiration
of an existing Lease shall not be deemed a renewal or replacement Lease and
shall not be subject to the provisions of this
agreement.
The
provisions in this Article shall also be applicable to extensions of Oil and
Gas
Leases.
C.
Acreage or Cash Contributions:
While
this agreement is in force, if any party contracts for a contribution of cash
towards the drilling of a well or any other
operation
on the Contract Area, such contribution shall be paid to the party who conducted
the drilling or other operation and shall
be
applied by it against the cost of such drilling or other operation. If the
contribution be in the form of acreage, the party to whom
the
contribution is made shall promptly tender an assignment of the acreage, without
warranty of title, to the Drilling Parties in the
proportions
said Drilling Parties shared the cost of drilling the well. Such acreage shall
become a separate Contract Area and, to the
extent
possible, be governed by provisions identical to this agreement. Each party
shall promptly notify all other parties of any
acreage
or cash contributions it may obtain in support of any well or any other
operation on the Contract Area. The above
provisions
shall also be applicable to optional rights to earn acreage outside the Contract
Area which are in support of well drilled
inside
Contract Area.
16
A.A.P.L.
FORM 610 - MODEL FORM OPERATING AGREEMENT -
1989
If
any
party contracts for any consideration relating to disposition of such party's
share of substances produced hereunder,
such
consideration shall not be deemed a contribution as contemplated in this Article
VIII.C.
D.
Assignment; Maintenance of Uniform Interest:
Every
sale, encumbrance, transfer or other disposition made by any party shall be
made
expressly subject to this agreement and shall be made without prejudice to
the
right of the other parties, and any transferee of an ownership interest in
any
Oil and
Gas
Lease
or Interest shall be deemed a party to this agreement as to the interest
conveyed from and after the effective date of the transfer of ownership;
provided, however, that the other parties shall not be required to recognize
any
such sale, encumbrance, transfer or other disposition for any purpose hereunder
until thirty (30) days after they have received a copy of the instrument of
transfer or other satisfactory evidence thereof in writing from the transferor
or transferee. No assignment or other disposition of interest by a party shall
relieve such party of obligations previously incurred by such party hereunder
with respect to the interest transferred, including without limitation the
obligation of a party to pay all costs attributable to an operation conducted
hereunder in which such party has agreed to participate prior to making such
assignment, and the lien and security interest granted by Article VII.B. shall
continue to burden the interest transferred to secure payment of any such
obligations.
Every
sale, encumbrance, transfer or other disposition by any party of any Oil and
Gas
Leases or Interest covered by this agreement shall be made expressly subject
to
this agreement and to the provisions of Exhibit G hereto, and shall be made
without prejudice to the rights of the other parties, and any transferee of
any
Oil and Gas Lease or Interest shall be deemed a party to this agreement as
to
the interest conveyed from and after the effective date of the transfer of
ownership; provided, however that the other parties shall not be required to
recognize any such sale, encumbrance, transfer or other disposition for any
purpose hereunder, and no such transfer shall be deemed effective for any
purpose, until thirty (30) days after the other parties have received a copy
of
the instrument of transfer or other satisfactory evidence thereof from the
transferor or transferee and an executed copy of an undertaking by the
transferee to abide and be bound by the terms of this agreement and Exhibit
G
hereto.
two
If,
at
any time the interest of any party is divided among and owned by four
or more
co-owners, Operator, at its discretion,
may
require such co-owners to appoint a single trustee or agent with full authority
to receive notices, approve expenditures,
receive
billings for and approve and pay such party's share of the joint expenses,
and
to deal generally with, and with power to
bind,
the
co-owners of such party's interest within the scope of the operations embraced
in this agreement; however, all such co-
owners
shall have the right to enter into and execute all contracts or agreements
for
the disposition of their respective shares of
the
Oil
and Gas produced from the Contract Area and they shall have the right to
receive, separately, payment of the sale
proceeds
thereof.
E.
Waiver of Rights to Partition:
If
permitted by the laws of the state or states in which the property covered
hereby is located, each party hereto owning an
undivided
interest in the Contract Area waives any and all rights it may have to partition
and have set aside to it in severalty its
undivided
interest therein.
F.
Preferential Right to Purchase:
þ (Optional;
Check if applicable.)
Should
Berry Petroleum Company desire to sell all or any part of its interests under
this agreement in the Carry Wells as described on
Exhibit
A-1, it shall promptly give written notice to EnCana Oil & Gas (USA) Inc.,
with full information concerning its proposed
disposition,
which shall include the name and address of the prospective transferee (who
must
be ready, willing and able to purchase), the
purchase
price, a legal description sufficient to identify the property, and all other
terms of the offer. EnCana Oil & Gas (USA) Inc. shall
then
have
an optional prior right, for a period of ten (10) days after the notice is
delivered, to purchase for the stated consideration on the
same
terms and conditions the interest which Berry Petroleum Company proposes to
sell; and, if
this optional right is exercised, the
Should
EnCana Oil & Gas (USA) Inc. desire to sell all or any part of its interests
under this agreement in the Berry Block as described on
Exhibit
A-2, it shall promptly give written notice to Berry Petroleum Company, with
full
information concerning its proposed
disposition,
which shall include the name and address of the prospective transferee (who
must
be ready, willing and able to purchase), the
purchase
price, a legal description sufficient to identify the property, and all other
terms of the offer. Berry Petroleum Company. shall
then
have
an optional prior right, for a period of ten (10) days after the notice is
delivered, to purchase for the stated consideration on the
same
terms and conditions the interest which EnCana Oil & Gas (USA) Inc. proposes
to sell; and, if
this optional right is exercised, the
However,
there shall be no preferential right to purchase in those cases where any party
wishes to mortgage
its
interests, or to transfer title to its interests to its mortgagee in lieu of
or
pursuant to foreclosure of a mortgage of its interests,
or
to
dispose of its interests by merger, reorganization, consolidation, or by sale
of
all or substantially all of its Oil and Gas assets
to
any
party, or by transfer of its interests to a subsidiary or parent company or
to a
subsidiary of a parent company, or to any
company
in which such party owns a majority of the stock.
ARTICLE
IX.
INTERNAL
REVENUE CODE ELECTION
This
Agreement is not intended to create, and shall not be construed to create,
an
association for profit, a trust, a joint venture, a mining partnership or other
relationship of partnership, or entity of any kind between the Parties.
Notwithstanding anything to the contrary contained herein, the Parties
understand and agree that the arrangement and undertakings evidenced by this
Agreement, taken together, result in a partnership for purposes of federal
income taxation
17
A.A.P.L.
FORM 610 - MODEL FORM OPERATING AGREEMENT - 1989
and
for
purposes of certain state income tax laws which incorporate or follow federal
income tax principles as to tax partnerships. For these purposes, the Parties
agree to be governed by the tax partnership provisions attached as Exhibit
[ ]
which
are incorporated herein and made a part of this Agreement by this reference.
For
every purpose other than the above-described income tax purposes, however,
the
Parties understand and agree that the liabilities of the Parties shall be
several, not joint or collective, and that each Party shall be solely
responsible for its own obligations. In the event of any conflict or
inconsistency between the terms and conditions of Exhibit
[
]and the
terms and conditions of this Agreement or any attachment or exhibit hereto
(other than Exhibit
[]),
the
terms and conditions of Exhibit
[
]shall
govern and control.
ARTICLE
X.
CLAIMS
AND LAWSUITS
Operator
may settle any single uninsured third party damage claim or suit arising from
operations hereunder if the expenditure
does
not
exceed One
Hundred Thousand
Dollars
($ 100,000.00)
and if
the payment is in complete settlement
of
such
claim or suit. If the amount required for settlement exceeds the above amount,
the parties hereto shall assume and take over
the
further handling of the claim or suit, unless such authority is delegated to
Operator. All costs and expenses of handling settling,
or
otherwise discharging such claim or suit shall be a the joint expense of the
parties participating in the operation from which the
claim
or
suit arises. If a claim is made against any party or if any party is sued on
account of any matter arising from operations
hereunder
over which such individual has no control because of the rights given Operator
by this agreement, such party shall
immediately
notify all other parties, and the claim or suit shall be treated as any other
claim or suit involving operations hereunder.
ARTICLE
XI.
FORCE
MAJEURE
If
any
party is rendered unable, wholly or in part, by force majeure to carry out
its
obligations under this agreement, other
than
the
obligation to make money payments or that party shall give to all other
parties
prompt
written notice of the force majeure with reasonably full particulars concerning
it; thereupon, the obligations of the
party
giving the notice, so far as they are affected by the force majeure, shall
be
suspended during, but no longer than, the
continuance
of the force majeure. The term "force majeure," as here employed, shall mean
an
act of God, strike, lockout, or
other
industrial disturbance, act of the public enemy, war, blockade, public riot,
lightening, fire, storm, flood or other act of
nature,
explosion, governmental action, governmental delay, restraint or inaction,
inability to obtain access, ingress or egress to conduct
operations
and any other cause, whether of the kind specifically enumerated above or
otherwise, which is not reasonably within the control
of
the
party claiming suspension.
The
affected party shall use all reasonable diligence to remove the force majeure
situation as quickly as practicable. The
requirement
that any force majeure shall be remedied with all reasonable dispatch shall
not
require the settlement of strikes,
lockouts,
or other labor difficulty by the party involved, contrary to its wishes; how
all
such difficulties shall be handled shall
be
entirely within the discretion of the party concerned.
ARTICLE
XII.
NOTICES
All
notices authorized or required between the parties by any of the provisions
of
this agreement, unless otherwise
specifically
provided, shall be in writing and delivered in person or by United States mail,
courier service, telegram, telex,
telecopier
or any other form of facsimile, postage or charges prepaid, and addressed to
such parties at the addresses listed on
Exhibit
"A-1" and Exhibit “A-2.” All telephone or oral notices permitted by this
agreement shall be confirmed immediately thereafter by
written
notice. The originating notice given under any provision hereof shall be deemed
delivered only when received by the party to
whom
such
notice is directed, and the time for such party to deliver any notice in
response thereto shall run from the date
the
originating notice is received. "Receipt" for purposes of this agreement with
respect to written notice delivered hereunder
shall
be
actual delivery of the notice to the address of the party to be notified
specified in accordance with this agreement, or
to
the
telecopy, facsimile or telex machine of such party. The second or any responsive
notice shall be deemed delivered when
deposited
in the United States mail or at the office of the courier or telegraph service,
or upon transmittal by telex, telecopy
or
facsimile, or when personally delivered to the party to be notified, provided,
that when response is required within 24 or
48
hours,
such response shall be given orally or by telephone, telex, telecopy or other
facsimile within such period. Each party
shall
have the right to change its address at any time, and from time to time, by
giving written notice thereof to all other
parties.
If a party is not available to receive notice orally or by telephone when a
party attempts to deliver a notice required
to
be
delivered within 24 or 48 hours, the notice may be delivered in writing by
any
other method specified herein and shall
be
deemed
delivered in the same manner provided above for any responsive
notice.
ARTICLE
XIII.
TERM
OF AGREEMENT
This
agreement shall remain in full force and effect as to the Oil and Gas Leases
and/or Oil and Gas Interests subject
hereto
for the period of time selected below; provided, however, no party hereto shall
ever be construed as having any right, title
or
interest in or to any Lease or Oil and Gas Interest contributed by any other
party beyond the term of this agreement.
þ Option
No. 1:
So long
as any of the Oil and Gas Leases subject to this agreement remain or are
continued in
force
as
to any part of the Contract Area, whether by production, extension, renewal
or
otherwise.
o Option
No. 2:
In the
event the well described in Article VI.A., or any subsequent well drilled under
any provision
18
A.A.P.L.
FORM 610 - MODEL FORM OPERATING AGREEMENT -
1989
The
termination of this agreement shall not relieve any party hereto from any
expense, liability or other obligation or any
remedy
therefor which has accrued or attached prior to the date of such
termination.
Upon
termination of this agreement and the satisfaction of all obligations hereunder,
in the event a memorandum of this
Operating
Agreement has been filed of record, Operator is authorized to file of record
in
all necessary recording offices a
notice
of
termination, and each party hereto agrees to execute such a notice of
termination as to Operator's interest, upon
request
of Operator, if Operator has satisfied all its financial
obligations.
ARTICLE
XIV.
COMPLIANCE
WITH LAWS AND REGULATIONS
A.
Laws, Regulations and Orders:
This
agreement shall be subject to the applicable laws of the state in which the
Contract Area is located, to the valid rules,
regulations,
and orders of any duly constituted regulatory body of said state; and to all
other applicable federal, state,
and
local
laws, ordinances, rules, regulations and orders.
B.
Governing Law:
This
agreement and all matters pertaining hereto, including but not limited to
matters of performance, non-
performance,
breach, remedies, procedures, rights, duties, and interpretation or
construction, shall be governed and
determined
by the law of the state in which the Contract Area is located.
If
the Contract Area is in two or more states,
C.
Regulatory Agencies:
Nothing
herein contained shall grant, or be construed to grant, Operator the right
or
authority to waive or release any
rights,
privileges, or obligations which Non-Operators may have under federal or state
laws or under rules, regulations or
orders
promulgated under such laws in reference to oil, gas and mineral operations,
including the location, operation, or
production
of wells, on tracts offsetting or adjacent to the Contract Area.
With
respect to the operations hereunder, Non-Operators agree to release Operator
from any and all losses, damages,
injuries,
claims and causes of action arising out of, incident to or resulting directly
or
indirectly from Operator's interpretation
or
application of rules, rulings, regulations or orders of the Department of Energy
or Federal Energy Regulatory Commission
or
predecessor or successor agencies to the extent such interpretation or
application was made in good faith and does not
constitute
gross negligence. Each Non-Operator further agrees to reimburse Operator for
such Non-Operator's share of
production
or any refund, fine, levy or other governmental sanction that Operator may
be
required to pay as a result of such
an
incorrect interpretation or application, together with interest and penalties
thereon owing by Operator as a result of such
incorrect
interpretation or application.
ARTICLE
XV.
MISCELLANEOUS
A.
Execution:
This
agreement shall be binding upon each Non-Operator when this agreement or a
counterpart thereof has been
executed
by such Non-Operator and Operator notwithstanding that this agreement is not
then or thereafter executed by all of
the
parties to which it is tendered or which are listed on Exhibit “A-1” and Exhibit
“A-2” as owning an interest in the Contract Area or
which
own, in fact, an interest in the Contract Area. Operator may, however, by
written notice to all Non-Operators who have
become
bound by this agreement as aforesaid, given at any time prior to the actual
spud
date of the Initial Well but in no
event
later than five days prior to the date specified in Article VI.A. for
commencement of the Initial Well, terminate this
agreement
if Operator in its sole discretion determines that there is insufficient
participation to justify commencement of
drilling
operations. In the event of such a termination by Operator, all further
obligations of the parties hereunder shall cease
as
of
such termination. In the event any Non-Operator has advanced or prepaid any
share of drilling or other costs
hereunder,
all sums so advanced shall be returned to such Non-Operator without interest.
In
the event Operator proceeds
with
drilling operations for the Initial Well without the execution hereof by all
persons listed on Exhibit “A-1” and Exhibit “A-2” as having
a
current
working interest in such well, Operator shall indemnify Non-Operators with
respect to all costs incurred for the
Initial
Well which would have been charged to such person under this agreement if such
person had executed the same and
Operator
shall receive all revenues which would have been received by such person under
this agreement if such person had
executed
the same.
B.
Successors and Assigns:
This
agreement shall be binding upon and shall inure to the benefit of the parties
hereto and their respective heirs,
devisees,
legal representatives, successors and assigns, and the terms hereof shall be
deemed to run with the Leases or
Interests
included within the Contract Area.
C.
Counterparts:
This
instrument may be executed in any number of counterparts, each of which shall
be
considered an original for all
purposes.
D.
Severability:
For
the
purposes of assuming or rejecting this agreement as an executory contract
pursuant to federal bankruptcy laws,
this
agreement shall not be severable, but rather must be assumed or rejected in
its
entirety, and the failure of any party to
this
agreement to comply with all of its financial obligations provided herein shall
be a material default.
ARTICLE
XVI.
OTHER
PROVISIONS
None
19
A.A.P.L.
FORM 610 - MODEL FORM OPERATING AGREEMENT -
1989
IN
WITNESS WHEREOF, this agreement shall be effective as of the 7th
day of
June ,
2006 .
ATTEST
OR WITNESS: ENCANA
OIL & GAS (USA) INC.
OPERATOR
(EXHIBIT
“A-1”)
NON-OPERATOR
(EXHIBIT
“A-2”)
/s/
Douglas
Jones /s/
Eric D. Marsh
By
Eric
D. Marsh
Type
or print
name
Title
Vice
President
Date
June
7,
2006
Tax
ID or S.S.
No.
ATTEST
OR WITNESS:
BERRY
PETROLEUM COMPANY
OPERATOR
(EXHIBIT
“A-2”)
NON-OPERATOR
(EXHIBIT
“A-1”)
/s/ Stephen
T.
Burke /s/
Michael Duginski
By
0;
Michael
Duginski
Type
or print
name
Title
Executive Vice President
Date
June
7,
2006
Tax
ID or S.S.
No. 77-0079387
20
A.A.P.L.
FORM 610 - MODEL FORM OPERATING AGREEMENT -
1989
ACKNOWLEDGMENTS
Note:
The
following forms of acknowledgment are the short forms approved by the Uniform
Law on Notarial Acts.
The
validity and effect of these forms in any state will depend upon the statutes
of
that state.
Individual
acknowledgment:
State
of Colorado)
)
ss.
County
of Denver )
This
instrument was acknowledged before me on June 7, 2006 by Eric
D. Marsh ,
as
Vice President
for
EnCana Oil & Gas (USA) Inc.
(Seal,
if
any)
/s/
Eve M.
Mullaney
Title
(and
Rank)
My
commission expires: 11/10/2009
Acknowledgment
in representative capacity:
State
of
Colorado )
)
ss.
County
of
Denver )
This
instrument was acknowledged before me on June 7, 2006
by Michael Duginski as
Executive
Vice President of Berry Petroleum Company.
(Seal,
if
any)
/s/
Eve M. Mullaney
Title
(and
Rank)
My
commission expires: 11/10/2009
21
EXHIBIT
"A-1"
Attached
to and made a part of that certain Operating Agreement dated Effective June
7,
2006 by and between EnCana Oil & Gas (USA) Inc., and Berry Petroleum
Company.
CONTRACT
AREA AND LEASES
I.
DESCRIPTION
OF LANDS SUBJECT TO THIS AGREEMENT
All
wellbores drilled pursuant to that certain Carry and Earning Agreement by and
between EnCana Oil & Gas (USA) Inc. and Berry Petroleum Company dated June
7, 2006, to include up to the first ninety wells designated by EnCana on the
North Parachute Ranch Property, as depicted on the attached plat, specifically
excluding all wells drilled on the “Berry Block.”
All
“Carry Wells” drilled shall be subject to the terms and provisions of this Joint
Operating Agreement. This Exhibit “A-1” shall be deemed amended after each Carry
Well is completed to include the Well under this Operating
Agreement.
II.
RESTRICTIONS
AS TO DEPTHS, FORMATIONS, PREVIOUSLY EXISTING
WELLS
AND SUBSTANCES
Limited
to oil and gas
(including natural gas , helium, and carbon dioxide), gas distillate and other
liquid hydrocarbons, but excluding oil shale and any other rights within the
Green River Formation from the surface to a depth that is stratigraphically
equivalent to the “Orange Marker” within the Garden Gulch member of the Green
River Formation, such depth being the stratigraphic equivalent to a depth of
2,105’ in the Skelly Oil Company #1 Dry Fork Unit well, SW/4NW/4SE/4, Section
25, Township 4 South, Range 97 West of the 6th
PM,
Garfield County, Colorado).
III.
PARTIES
TO THE AGREEMENT AND PERCENTAGE PARTICIPATION
EnCana
Oil & Gas (USA) Inc. 95%
370
17th
Street,
Suite 1700
Denver,
Colorado 80202
Berry
Petroleum Company 5%
5201
Truxtun Avenue, Suite 300
Bakersfield,
California 93309-0640
IV. LEASES
AND AGREEMENTS SUBJECT TO THIS AGREEMENT
See
I.
above
V. NOTICE
ADDRESSES FOR THE PARTIES
EnCana
Oil & Gas (USA) Inc.
370
17th
Street,
Suite 1700
Denver,
Colorado 80202
Phone:
303-623-2300
Fax:
303-623-2400
Attention:
North Piceance Team Lead
Berry
Petroleum Company
5201
Truxtun Avenue, Suite 300
Bakersfield,
California 93309-0640
Attention:
Land Manager
Page
1 of
1
EXHIBIT
"A-2"
Attached
to and made a part of that certain Operating Agreement dated Effective June
7,
2006, by and between EnCana Oil & Gas (USA) Inc., and Berry Petroleum
Company.
CONTRACT
AREA AND LEASES
I.
DESCRIPTION
OF LANDS SUBJECT TO THIS AGREEMENT
The
Berry
Block as defined in that certain Carry and Earning Agreement by and between
EnCana Oil & Gas (USA) Inc. and Berry Petroleum Company dated June 7 ,
2006.
II.
RESTRICTIONS
AS TO DEPTHS, FORMATIONS, PREVIOUSLY EXSITING
WELLS
AND SUBSTANCES
Limited
to oil and gas
(including natural gas , helium, and carbon dioxide), gas distillate and
other
liquid hydrocarbons, but excluding oil shale and any other rights within
the
Green River Formation from the surface to a depth that is stratigraphically
equivalent to the “Orange Marker” within the Garden Gulch member of the Green
River Formation, such depth being the stratigraphic equivalent to a depth
of
2,105’ in the Skelly Oil Company #1 Dry Fork Unit well, SW/4NW/4SE/4, Section
25, Township 4 South, Range 97 West of the 6th
PM,
Garfield County, Colorado).
III.
PARTIES
TO THE AGREEMENT AND PERCENTAGE PARTICIPATION
EnCana
Oil & Gas (USA) Inc. 5%
370
17th
Street,
Suite 1700
Denver,
Colorado 80202
Berry
Petroleum Company 95%
5201
Truxtun Avenue, Suite 300
Bakersfield,
California 93309-0640
IV. LEASES
AND AGREEMENTS SUBJECT TO THIS AGREEMENT
Oil
and Gas Lease contributed by Berry Petroleum Company.:
All
of
Berry Petroleum Company’s interest in that certain Lease Agreement dated, June
_____,
2006
between Pavillion Land Development, LLC, (Lessor) and
EnCana
Oil & Gas (USA), Lessee,
only
as
to the Lands described below:
Township
5 South, Range 95 West, 6th
P.M.,
Garfield County, Colorado
Section
16: SE/4SW/4, S/2SE/4, NE/4SE/4, SE/4NE/4 and that portion of the NE/4NE/4
lying
south of the southernmost Mahogony marker as it existed on September 14,
1970
Section
15: S/2, S/2N/2
Section
21: N/2
Section
22: N/2NW/4, NE/4
Section
32: S/2
Section
33: S/2
Section
34: S/2, NW/4
Township
6 South, Range 96 West, 6th
P.M.,
Garfield County, Colorado
Section
1: Lots 3, 4, 9, 10, 11, & 12
Section
2: Lots 1, 2, 7, 8, 9, 10, & SE/4
Section
3: Lots 1, 2, 7, 8, 9, 10, & SE/4
Section
10: Lots 1, 2, NE/4, and E/2NW/4
Section
15: W/2, W/2E/2
Section
21: NE/4
Page
1 of
2
Oil
and Gas Lease contributed by
EnCana Oil & Gas (USA) Inc.
All
of
EnCana
Oil & Gas (USA) Inc.’s interest
in that certain Lease Agreement dated, June _____, 2006 between Pavillion
Land
Development, LLC, (Lessor) and
EnCana
Oil & Gas (USA), Lessee, as it relates to the lands described in IV.
above
V. NOTICE
ADDRESSES FOR THE PARTIES
EnCana
Oil & Gas (USA) Inc.
370
17th
Street,
Suite 1700
Denver,
Colorado 80202
Phone:
303-623-2300
Fax:
303-623-2400
Attention:
North Piceance Team Lead
Berry
Petroleum Company
5201
Truxtun Avenue, Suite 300
Bakersfield,
California 93309-0640
Attention:
Land Manager
Page
2 of
2
Exhibit
“C”
ACCOUNTING PROCEDURE
JOINT
OPERATIONS
Attached
to and made part of that
certain Joint Operating Agreement dated June , 2006, by and
between EnCana Oil and Gas (USA) Inc.
And
Berry Petroleum Company
I.
GENERAL PROVISIONS
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 (COPAS).
“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
COPAS.
“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:
|
•Responsibility
for field employees and contract labor engaged in activities that
can
include field operations, maintenance,
|
construction,
well remedial work, equipment movement and drilling
|
•Responsibility
for day-to-day direct oversight of rig
operations
|
|
•Responsibility
for day-to-day direct oversight of construction
operations
|
|
•Coordination
of job priorities and approval of work
procedures
|
|
•Responsibility
for optimal resource utilization (equipment, Materials,
personnel)
|
|
•Responsibility
for meeting production and field operating expense
targets
|
|
•Representation
of the Parties in local matters involving community, vendors, regulatory
agents and landowners, as an incidental
|
part
of
the supervisor’s operating responsibilities
|
•Responsibility
for all emergency responses with field
staff
|
|
•Responsibility
for implementing safety and environmental
practices
|
|
•Responsibility
for field adherence to company policy
|
|
•Responsibility
for employment decisions and performance appraisals for field
personnel
|
|
•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.
COPYRIGHT
© 2005 by COPAS, Inc.
1
“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
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.
2. STATEMENTS
AND BILLINGS
The
Operator shall bill 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 the 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. Each Non-Operator individually
shall
elect to receive statements and billings
electronically,
if available from the Operator, or request paper copies. Such election may
be
changed upon thirty (30) days prior written
notice
to
the Operator.
2
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
(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 or letter in-lieu.
Notwithstanding the foregoing, the Non-Operator
shall
remain responsible for paying bills attributable to the interest it sold
or
transferred for any bills rendered during the thirty
(30)
day
period following the Operator’s receipt of such written notice; or
(4) charges
outside the adjustment period, as provided in Section I.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 I.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.A
Non-Operator, upon written notice to the Operator and all other
Non-Operators, shall have the right to audit the
Operator’s
|
accounts
and records relating to the Joint Account within the twenty-four (24) month
period following the end of such calendar year in
which
such bill 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 I.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.
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
3
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.B or 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.
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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.
If the Operator fails to provide substantive
response
to an exception within this one hundred eighty (180) day period, the Operator
will owe interest on that exception or portion
thereof,
if ultimately granted, from the date it received the audit report. Interest
shall be calculated using the rate set forth in Section
I.3.B
(Advances
and Payments by the Parties).
|
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. Unless otherwise provided for in Section I.5.E, if
the
Operator fails to provide substantive response
to
an
exception within this ninety (90) day period, the Operator will owe interest
on
that exception or portion thereof, if ultimately
granted,
from the date it received the audit report. Interest shall be calculated
using
the rate set forth in Section I.3.B (Advances
and
Payments
by the Parties).
|
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 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
Parties. 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.
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E.
|
o
(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 or Non-Operators is expressly
required under other Sections of this Accounting
Procedure
and if the Agreement to which this Accounting Procedure is attached contains
no
contrary provisions in regard thereto, the
4
Operator
shall notify all Non-Operators of the Operator’s proposal and the agreement or
approval of a majority in interest of the
Non-Operators
shall be controlling on all Non-Operators.
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.
|
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 ALL
( )
or
more Parties,
one of which is the Operator,
having
a
combined working interest of at least 100
percent
( 100%),
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 majority in interest of the Non-Operator(s)
after excluding the interest of the Operator’s
Affiliate.
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 COPAS
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).
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 II.2.A and B.
5
|
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 COPAS 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 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
COPAS 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 COPAS.
|
H.
|
Award
payments to employees, in accordance with COPAS MFI-49 (“Awards to
Employees and Contractors”) for personnel whose
|
salaries
and wages are chargeable under Section II.2.A.
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 the 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 COPAS 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.The
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 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
6
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, less twenty percent (20%). 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 COPAS as the official source
of
rates.
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 (i) the Affiliate is
identified and the Affiliate goods and services are
specifically
detailed in the approved AFE or other authorization, and (ii) the total costs
for such Affiliate’s goods and services billed
to
such
individual project do not exceed $ N/A
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 $ N/A
in a
given calendar year.
|
C.
|
The
cost of the Affiliate’s goods or services shall not exceed average
commercial rates prevailing in the area of the Joint Property,
|
unless
the Operator obtains the Non-Operators’ approval of such rates. The Operator
shall adequately document and support
commercial
rates and shall periodically review and update the rate and the supporting
documentation; provided, however,
documentation
of commercial rates shall not be required if the Operator obtains Non-Operator
approval of its Affiliate’s rates or
charges
prior to billing Non-Operators for such Affiliate’s goods and services.
Notwithstanding the foregoing, direct charges for
Affiliate-owned
communication facilities or systems shall be made pursuant to Section II.12
(Communications).
If
the
Parties fail to designate an amount in Sections II.7.A or II.7.B, in each
instance the amount deemed adopted by the Parties as a
result
of
such omission shall be the amount established as the Operator’s expenditure
limitation in the Agreement. If the Agreement
does
not
contain an Operator’s expenditure limitation, the amount deemed adopted by the
Parties as a result of such omission shall be
zero
dollars ($ 0.00).
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.
7
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 Jones 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 COPAS 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. The Operator
shall
adequately document and support commercial rates and shall periodically review
and update the rate and the supporting
documentation.
13. ECOLOGICAL,
ENVIRONMENTAL, AND SAFETY
Costs
incurred for Technical Services and drafting to comply with ecological,
environmental and safety Laws or standards recommended by
Occupational
Safety and Health Administration (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.
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 the Operator,
Operator’s Affiliates or third parties and regardless
of
location, shall include, but not be limited to, costs and expenses
of:
|
•warehousing,
other than for warehouses that are jointly owned under this
Agreement
|
|
•design
and drafting (except when allowed as a direct charge under Sections
II.13,
III.1.A(ii), and III.2, Option B)
|
|
•inventory
costs not chargeable under Section V (Inventories
of Controllable Material)
|
|
•procurement
|
|
•administration
|
|
•accounting
and auditing
|
|
•gas
dispatching and gas chart integration
|
|
•human
resources
|
|
•management
|
|
•supervision
not directly charged under Section II.2 (Labor)
|
|
•legal
services not directly chargeable under Section II.9 (Legal
Expense)
|
|
•taxation,
other than those costs identified as directly chargeable under Section
II.10 (Taxes
and Permits)
|
|
•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.
8
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.
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:
þ (Alternative
1)
Fixed
Rate Basis, Section III.1.B.
o (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:
þ (Alternative
1 - Direct)
shall be
charged direct
to the
Joint Account.
o (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:
þ (Alternative
1 - All Overhead)
shall be
covered by the overhead
rates.
o (Alternative
2 - All Direct)
shall be
charged direct to
the
Joint Account.
|
o
|
(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 wells, 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 $ 6,000
(prorated for less than a full month)
Producing
Well Rate per month
$600
(2) Application
of Overhead—Drilling Well Rate shall be as follows:
(a) Charges
for onshore drilling wells 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 wells 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 first. No charge shall
be
made during suspension of drilling
and/or
completion operations for fifteen (15) or more consecutive calendar
days.
9
(b) Charges
for any well undergoing any type of workover, recompletion, and/or abandonment
for a period of five (5) or more
consecutive
work-days 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 fifteen (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 III.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 COPAS.
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 COPAS MFI-47 (“Adjustment of Overhead
Rates”).
C. OVERHEAD—PERCENTAGE
BASIS
|
(1)
|
Operator
shall charge the Joint Account at the following
rates:
|
(a) Development
Rate
percent
( )
% 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
percent
( %)
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.
10
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.
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) 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.
|
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
wells 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.
On
each
project, the Operator shall advise the Non-Operator(s) in advance which of
the
above options shall apply.
For
the
purposes of calculating Catastrophe Overhead, the cost of drilling relief
wells,
substitute wells, 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).
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.
11
2. TRANSFERS
A
transfer is determined to occur when the Operator (i) furnishes Material
from a
storage facility or 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 COPAS Historical Price Multiplier (HPM)
|
or
prices
provided by the COPAS Computerized Equipment Pricing System (CEPS).
|
(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
defined 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
defined 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 COPAS 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 COPAS
MFI-38 (“Material Pricing
Manual”)
and other COPAS 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 mills, 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.
C. TAXES
Sales
and
use taxes shall be added to the Material transfer price using either the
method
contained in the COPAS 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.
12
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),
IV.2.B
(Freight),
and
IV.2.C (Taxes).
Material transferred from the
Joint
Property 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
IV.2.C (Taxes)
by
seventy-five percent
(75%).
Except
as
provided in Section IV.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%).
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 for 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 used as line pipe shall be
priced
as
Grade A and B seamless line pipe of comparable size and weight. Used casing,
tubing, or drill pipe utilized as line
pipe
shall be priced at used line pipe prices. 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
COPAS
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 COPAS MFI-38 (“Material Pricing Manual”).
13
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
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 disposal of surplus Material,
the following terms shall apply:
|
•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.
• If
the
gross sale value exceeds the Agreement expenditure limit, the disposal must
be
agreed to by the Parties owning such
Material.
• 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).
• 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.
• 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 premium
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.
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
Section
IV.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.
14
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.
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
fieldwork.
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).
15
EXHIBIT
D
Attached
to and made a part of the certain Joint Operating Agreement, dated June
7, 2006,
by and between, EnCana Oil & Gas (USA) Inc. and Berry Petroleum
Company.
INSURANCE
| 1. |
Operator
shall at all times while performing under this Agreement carry
and charge
to the Joint Account the following minimum amounts of insurance
for the
benefit of the parties hereto:
|
| A. |
Workmen's
Compensation for Operator's employees in accordance with Federal law
and the laws of the State in which operations will be conducted
and/or
other applicable jurisdiction.
|
| B. |
Employer's
Liability
|
a. Bodily
Injury by Accident $1,000,000
each accident
b. Bodily
Injury by Disease $1,000,000
policy limit
c. Bodily
Injury by Disease $1,000,000
each employee
| C. |
Comprehensive
General Public Liability
|
Combined
Single Limit $2,000,000
aggregate
For
Bodily Injury and Property Damage $1,000,000
per occurrence
| D. |
Comprehensive
Automobile Public Liability
|
a. Bodily
Injury $2,000,000
per occurrence
or
$1,000,000 per occurence in combination with umbrella
liability
coverage
of a minimum of $1,000,000.
b. Property
Damage $2,000,000
per occurrence
or
$1,000,000 per occurence in combination with umbrella
liability
coverage
of a minimum of $1,000,000.
| 2. |
No
other instance will be required other than that set forth above
nor will
premiums thereon be charged to the joint
account.
|
| 3. |
The
insurance provided for herein for the benefit of the Joint Account
may
provide for certain deductibles to be borne by the insured parties.
In the
event a claim is made by the Operator on behalf of the Joint Account,
and
the insurance proceeds are subject to reduction as a result of
a
deductible provision, said deductible amount shall be a direct
charge to
the Joint Account.
|
| 4. |
Operator
will require that each Contractor and Subcontractor carry and maintain
insurance and provide evidence of same at their sole expense in
amounts
deemed necessary to cover risk inherent to the work and services
performed, but no less than $1,000,000 in the categories set forth
above
in 1(A)-(D); and where permitted by law, Contractor's underwriter
shall
waive subrogation against Non-Operators, and make Non-Operators
additional
insured’s, except for Employer's
Liability.
|
| 5. |
Operator
shall notify Non-Operators as soon as practicable after the occurrence
of
any accident involving either damage to property or injuries to
or death
of persons.
|
| 6. |
Non-Operator
shall elect whether it shall be covered under Operator's insurance,
carry
its own insurance or elect to be self-insured. If Non-Operator
elects to
carry its own insurance, or is self-insured, it shall provide a
Certificate of Insurance or letter confirming self insurance as
to well
control and liability insurance to the Operator. If no election
is made
prior to spud date, Non-Operator will be covered under Operator's
policy
and will be billed a proportionate share of the premium.
|
-END-
EXHIBIT
"E"
GAS
BALANCING
AGREEMENT
Attached
to and made a part of that certain Joint Operating Agreement dated June 7,
2006 ,
by and
between EnCana Oil & Gas (USA) Inc. and Berry Petroleum
Company.
| 1. |
Ownership
of Gas Production
|
| (a) |
It
is the intent of the parties that each party shall have the right
to take
in kind and separately dispose of its proportionate share of gas
(including casinghead gas) produced from each formation in each well
located on acreage ("Contract Area") covered by the Operating Agreement
to
which this Exhibit is attached ("Operating
Agreement").
|
| (b) |
Operator
shall control the gas production and be responsible for administering
the
provisions of this Agreement and shall make reasonable efforts to
deliver
or cause to be delivered gas to the parties' gas purchasers as may
be
required in order to balance the accounts of the parties in accordance
with the provisions herein contained. For purposes of this Agreement,
Operator shall maintain production accounts of the parties based
upon the
number of MMBTU's actually contained in the gas produced from completed
intervals in a well and delivered at the outlet of lease equipment
for
each party's account regardless of whether sales of such gas are
made on a
wet or dry basis. All references in this Agreement to quantity or
volume
shall refer to the number of MMBTU's contained in the gas stream.
Toward
this end, Operator shall periodically determine or cause to be determined
the BTU content of gas produced from completed intervals in each
well on a
consistent basis and under standard conditions pursuant to any method
customarily used in the industry.
|
| 2. |
Balancing
of Production Accounts
|
| (a) |
Either
Party desiring to take gas will notify the Operator, or cause the
Operator
to be notified, of the volumes nominated, pursuant to the terms and
conditions of the Gas Gathering Agreement between the Parties dated
June
7, 2006 (“Gas Gathering Agreement”).
|
| (b) |
Each
Party shall make a commercially 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 production.
|
| (c) |
Any
time a party, or such party's purchaser, is not taking or marketing
its
full share or any portion thereof of gas produced from completed
intervals
in a well ("Non-Marketing Party"), the remaining parties ("Marketing
Parties") shall have the right, but not the obligation, to produce,
take,
sell and deliver for such Marketing Parties' accounts, in addition
to the
full share of gas to which the Marketing Parties are otherwise entitled,
all of the gas attributable to a Non-Marketing Party which is not
currently being marketed by such party. That portion of the gas produced
which is attributable to a Non-Marketing Party, not taken by such
Non-Marketing Party, is referred to in this Agreement as "Overproduction."
If there is more than one Marketing Party taking gas attributable
to a
Non-Marketing Party, each Marketing Party shall be entitled to take
a
Non-Marketing Party's gas in the ratio that such Marketing Party's
interest in production bears to the total interest in production
of all
Marketing Parties; provided, however, that such gas shall be made
available initially to each Underproduced Party in the proportion
that its
interest in production bears to the total 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 interests
in
production bears to the total interest of such other parties. Each
Marketing Party shall be credited with such Overproduction toward
its
working interest share of recoverable reserves as determined pursuant
to
Paragraph 2(e).
|
A
party
that has not taken its proportionate share of gas produced from any formation
in
a well ("Underproduced Party") shall be credited with gas in storage equal
to
its share of gas produced but not taken, less its share of gas used in lease
operations, vented or lost ("Underproduction"). Such Underproduced Party,
upon
giving not less than fifteen (15) days written notice to Operator, shall
be
entitled, on a monthly basis beginning the month following receipt of notice,
to
produce, take, sell and deliver, in addition to the full share of gas to
which
such party is otherwise entitled, a quantity of gas ("Make-Up gas") equal
to
fifty percent (50%) of the total share of gas attributable to all parties
having
cumulative Overproduction (individually called "Overproduced Party").
The
Operator will promptly notify all Overproduced Parties of the election of
an
Underproduced Party to begin taking Make-Up gas.
Page
1 of
5
| (d) |
|
Such
Make-Up gas shall be credited against such Underproduced Party's
accrued
Underproduction in order of accrual (first in, first out accounting
method). Notwithstanding the foregoing and subject to subsection
(e)
below, (i) an Overproduced Party shall never be obligated to reduce
its takes to less than fifty percent (50%) of the quantity to which
such
party is otherwise entitled and (ii) any Overproduced Party shall
never be obligated to reduce its takes to less than seventy-five
percent
(75%) of the quantity to which such party is otherwise entitled
during the
production months of November, December, January, February and
March.
|
| (e) |
If
there is more than one Underproduced Party desiring Make-Up gas,
each
Underproduced Party shall be entitled to Make-Up gas in the ratio
that
such party's interest in production bears to the total interest in
production of all Underproduced Parties then desiring Make-Up gas.
Any
portion of the Make-Up gas to which an Underproduced Party is entitled
and
which is not taken by such Underproduced Party may be taken by any
other
Underproduced Party(ies).
|
| (f) |
If
there is more than one Overproduced Party required to furnish Make-Up
gas,
each such Overproduced Party shall furnish Make-Up gas in the ratio
that
such party's interest in production bears to the total interest in
production of all Overproduced Parties then required to furnish Make-Up
gas. Except as provided in (e) below, each Overproduced Party in
any
formation in a well shall be entitled, on a monthly basis, to take
its
full share of gas less its share of the Make-Up gas then being produced
from the particular formation in the well in which it is overproduced.
|
| (g) |
If
any party, in good faith reliance upon a reputable third party engineering
reserve report, believes that an Overproduced Party has recovered
one
hundred percent (100%) or more of such Overproduced Party's share
of the
recoverable reserves from completed intervals in a well, such Overproduced
Party, upon being notified in writing of such fact by Operator, or
any
Non-Operator in the event Operator is the party to whom such notice
is
directed, shall cease taking gas from such formation in such well
and the
remaining parties shall be entitled to take one hundred percent (100%)
of
such production until the accounts of the parties are balanced.
Thereafter, such Overproduced Party shall again have the right to
take its
share of the remaining production, if any, in accordance with the
provisions herein contained. Provided, however, after an Overproduced
Party has recovered one hundred percent (100%) or more of its full
share
of the recoverable reserves as determined hereinabove from completed
intervals in a well, such Overproduced Party may continue to produce
if
such continued production is (i) necessary for lease maintenance
purposes, (ii) permitted by a majority in interest of the parties who
have not produced one hundred percent (100%) of their recoverable
reserves
from such formation in such well, such majority approval to be evidenced
by a written ballot conducted by Operator, or (iii) a subsequent
third
party engineering report indicates an upward revision in reserves
that
would result in such party not having produced one hundred percent
(100%)
of its recoverable reserves. For purposes of this Agreement, such
engineering reserve reports may not be commissioned more than once
each
calendar year.
|
| 3. |
Cash
Balancing Upon Depletion
|
| (a) |
Upon
the earlier of the plugging and abandonment of the last producing
interval
in a well, the termination of the Operating Agreement or any pooling
or
unit agreement covering a well, or at any time gas production from
completed intervals in a well ceases and no attempt is made to restore
production (or substitute therefor) within one hundred eighty (180)
days
thereafter, Operator shall distribute, within thirty days of such
event, a
statement of net unrecouped Underproduction and Overproduction and
the
months and years in which such unrecouped production accrued ("Final
Accounting").
|
| (b) |
Within
thirty (30) days of receipt of such Final Accounting, each Overproduced
Party shall remit to Operator for disbursement to the Underproduced
Party(ies) a sum of money (which sum shall not include interest)
equal to
the amount actually received by such Overproduced Party for sales
during
the month(s) of overproduction, calculated in order of accrual but
less
applicable taxes, royalties and reasonable costs of marketing,
compressing, treating, gathering, processing and transporting such
gas
actually paid by such Overproduced Party. Such remittance shall be
based
on the number of MMBTU's of overproduction and shall be accompanied
by a
statement showing volumes and prices for each month with accrued
unrecouped Overproduction.
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
Contract 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.
|
Page
2 of
5
| (c) |
Within
thirty (30) days of receipt of any such remittance by Operator from
an
Overproduced Party, Operator shall disburse such funds to the
Underproduced Party(ies) in accordance with the Final Accounting.
Operator
assumes no liability with respect to any such payment (unless such
payment
is attributable to Operator's Overproduction), it being the intent
of the
parties that each Overproduced Party shall be solely responsible
for
reimbursing each Underproduced Party for such Underproduced Party's
respective share of overproduction taken by such Overproduced Party
in
accordance with the provisions herein contained. If any party fails
to pay
any sum due under the terms hereof after demand therefor by the Operator,
the Operator shall turn responsibility for the collection of such
sum to
the Underproduced Party(ies) to whom it is owed, upon which Operator
shall
have no further responsibility for
collection.
|
| (d) |
In
determining the amount of overproduction for which settlement is
due,
production taken during any month by an Underproduced Party in excess
of
such Underproduced Party's share shall be treated as Make-Up and
shall be
applied to reduce prior deficits in the order of accrual of such
deficits.
|
| (e) |
For
Overproduction sold under a gas purchase contract providing for payment
based on a percentage of the proceeds obtained by the purchaser upon
resale of residue gas and liquid hydrocarbons extracted at a gas
processing plant, the values used for calculating cash settlement
will
include proceeds received by the Overproduced Party for both the
liquid
hydrocarbons and the residue gas attributable to the
Overproduction.
|
| (f) |
For
Overproduction sold under a keep whole contract that is 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
for
the sale of the gas attributable to the Overproduction without regard
to
proceeds attributable to liquid hydrocarbons which may have been
extracted
from the Overproduction.
|
| (g) |
For
Overproduction processed for the account of the Overproduced Party
at a
gas processing plant for the extraction of liquid hydrocarbons, the
values
used for calculating cash settlement will include the proceeds received
by
the Overproduced Party for the sale of the liquid hydrocarbons extracted
from the Overproduction, less the actual reasonable costs incurred
by the
Overproduced Party to process the Overproduction and to transport,
fractionate and handle the liquid hydrocarbons extracted therefrom
prior
to sale.
|
| (h) |
If
refunds are later required by any governmental authority, each party
shall
be accountable for its respective share of such refunds as finally
balanced hereunder.
|
| 4. |
Deliverability
Tests
|
|
At
the request of any party, Operator may produce the entire well
stream for
a deliverability test not to exceed seventy-two (72) hours in duration
(or
such longer period of time as may be mutually agreed upon by the
parties)
if required under such requesting party's gas sales or transportation
contract.
|
| 5. |
Nominations
|
|
Each
party shall, on a monthly basis, give Operator sufficient time
and data
either to nominate such party's respective share of gas to the
transporting pipeline(s) or, if Operator is not nominating such
party's
gas, to inform Operator of the manner in which to dispatch such
party's
gas. Except as and to the extent caused by Operator's gross negligence
or
willful misconduct, Operator shall not be responsible for any fees
and/or
penalties associated with imbalances charged by any pipeline to
any
Non-Operator(s).
|
| 6. |
Statements
|
|
On
or before the twenty-fifth (25th) day of the month following the
month of
production, each party taking gas shall furnish or cause to be
furnished
to Operator a statement of gas taken expressed in terms of MMBTU's.
If
actual volume information sufficient to prepare such statement
is not made
available to the taking party in sufficient time to prepare it,
such
taking party shall nevertheless furnish a statement of its good
faith
estimate of volumes taken and shall furnish Operator with a revised
statement as soon as actual volume information is available. Within
twenty
(20) days of the receipt of all such statements, Operator shall
furnish to
each party a statement of the gas balance among the parties, including
the
total quantity of gas produced from completed intervals in each
well, the
portion thereof used in operations, vented or lost, and the total
quantity
delivered for each party's account.
|
Any
error
or discrepancy in Operator's monthly statement shall be promptly reported
to
Operator and Operator shall make a proper adjustment thereof within thirty
(30)
days after final determination of the correct quantities involved; provided,
however, that if no errors or discrepancies are reported to Operator within
two
(2) years from the date of any statement, such statement shall be conclusively
deemed to be correct. Additionally, within ninety (90) days from the end
of each
calendar year, or from a transfer of interest of a party hereto, non-operators
or such transferring party shall furnish to Operator, for the sole purpose
of
establishing records sufficient to verify cash balancing values, a statement
reflecting amounts actually received on a monthly basis for the year preceding
the calendar year. Any party who fails to provide such statements shall be
notified by Operator of its delinquency. If the delinquent statements are
not
received by Operator within thirty (30) days from the delinquent party's
receipt
of such notice, Operator shall not allow the delinquent party to produce
gas for
its account during any month when such party is delinquent in so furnishing
the
statements.
Page
3 of
5
| 7. |
Payment
of Taxes
|
|
Each
party taking gas shall pay or cause to be paid any and all production,
severance, utility, sales, excise, or other taxes due on such
gas.
|
| 8. |
Operating
Expenses
|
|
The
operating expenses are to be borne as provided in the Operating
Agreement,
regardless of whether all parties are selling or using gas or whether
the
sales and use of each are in proportion to their respective interests
in
such gas.
|
| 9. |
Overproducing
Allowable
|
|
Each
party shall give Operator sufficient time and data to enable Operator
to
make appropriate nominations, forecasts and/or filings with the
regulatory
bodies having jurisdiction to establish allowables. Each party
shall at
all times regulate its takes and deliveries from the Contract Area
so that
the well(s) covered hereby shall not be curtailed and/or shut-in
for
overproducing the allowable production assigned thereto by the
regulatory
body having jurisdiction.
|
| 10. |
Payment
of Royalties
|
| (a) |
Any
party taking more than its full share of current production in a
given
month will pay to the Non-Marketing Party for such month an amount
equal
to the share of the proceeds attributable to royalty, overriding
royalty,
production payment or similar burdens (“Royalties) received by the
Marketing Party for that portion of the Non-Marketing Party’s full share
of current production taken by the Marketing Party; provided, however,
that such payment will not exceed the royalty percentage that is
common to
all Royalty burdens in the Contract Area. Payments made pursuant
to this
subparagraph will be deemed payments to the under produced Party’s owners
for purposes of cash balancing.
|
| (b) |
It
is the intent of the parties that Royalties be paid in accordance
with
Paragraph 10(a). However, if such arrangement is superseded by
statute, rule, regulation, order, or any decision by a court having
jurisdiction thereover, each party (whether a Marketing Party or
Non-Marketing Party) to the extent required to comply with such decision,
shall make appropriate payment of all Royalties burdening its interest
just as if each such party was taking or delivering its full share
and
only its full share of such gas production, exclusive of gas used
in
operations, vented or lost, and each party and shall protect, indemnify
and hold harmless all other parties from any and all claims relating
thereto.
|
| 11. |
Application
of Agreement
|
|
The
provisions of this Agreement shall be separately applicable and
shall
constitute a separate agreement with respect to gas produced from
each
formation in each well located on the Contract
Area.
|
| 12. |
Term
|
|
This
Agreement shall terminate when gas production under the Operating
Agreement permanently ceases and the accounts of the parties are
finally
settled in accordance with the provisions herein
contained.
|
| 13. |
Operator's
Liability
|
Except
as
otherwise provided herein, 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.
| 14. |
Audits
|
Notwithstanding
any provision in this Agreement, for a period of two (2) years from the end
of
the calendar year in which any information to be furnished under paragraph
3 or
paragraph 6 is supplied, any party shall have the right to audit the records
of
any other party regarding volumes, including but not limited to information
regarding BTU content. Any Under produced Party shall have the right for
a
period of two (2) years after receipt of payment pursuant to a Final Accounting
and after giving
Page
4 of
5
written
notice to all parties, to audit an Overproduced Party's accounts and records
relating to such payment. Any Overproduced Party shall have the right for
a
period of two (2) years after tender of payment for unrecouped volumes and
upon
giving written notice to all parties, to audit an Underproduced Party's records
as to volumes. The party conducting such audit shall bear its costs of the
audit. Additionally, Operator shall have the right for a period of two (2)
years
after receipt of annual statement from a non-operator under paragraph 6 after
giving written notice to the affected non-operator, to audit such non-operator's
accounts and records relating to such payment. Costs of such audit shall
be
borne by the joint account.
| 15. |
Successors
and Assigns
|
|
The
terms, covenants, and conditions of this Agreement shall be binding
upon
and shall inure to the benefit of the parties and to their respective
successors and assigns, and may be assigned in whole or in part
from time
to time; provided, however, that (a) any such assignment shall be
made subject to the Operating Agreement to which this Agreement
is
attached (if any) and as among the parties shall not be valid without
the
written acceptance of the terms of this Agreement by the Assignee;
(b) the Assignee shall acquire such interest subject to any
Overproduction and/or Underproduction imbalances existing at such
time as
well as any cash balancing obligation created
thereby.
|
| 16. |
Liquefiable
Hydrocarbons Not Covered Under
Agreement
|
|
The
parties shall share proportionately in and own all liquid hydrocarbons
recovered with the gas sales by lease equipment in accordance with
their
respective interests.
|
| 17. |
Conflict
|
|
If
there is a conflict between the terms of this Agreement and the
terms of
any gas sales contract covering the Contract Area entered into
by any
party, or in the event of any conflict between the terms of this
Agreement
and the terms of the Joint Operating Agreement, the terms of this
Agreement shall govern. If there is a conflict between the terms
of this
Agreement and the Gas Gathering Agreement, then the Gas Gathering
Agreement shall govern.
|
| 18. |
Arbitration
|
|
Any
controversy or claim arising out of or relating to this Agreement,
or the
breach thereof, shall be settled by binding arbitration in accordance
with
the Commercial Arbitration Rules of the American Arbitration Association
and judgment upon the award may be entered in any Court having
jurisdiction thereof. The arbitrator shall not award punitive or
consequential damages in settlement of any controversy or
claim.
|
Page
5 of
5
EXHIBIT
“F”
Attached
to and made a part of that certain Joint Operating Agreement dated June 6,
2006,
by and between, EnCana Oil & Gas (USA) Inc., and Berry Petroleum
Company.
NON-DISCRIMINATION
AND CERTIFICATION
OF
NON-SEGREGATED FACILITIES
In
the
performance of work under this Agreement, Operator agrees to comply with
all the
provisions of Section 202 (1) to (7), inclusive, of Executive Order 11246
(30
F.R 12319), as amended by Executive Order 11758 - Employment of the Handicapped,
Equal Employment Opportunity 11701 - Employment of Veterans, and Equal
Employment Opportunity 11625 - Minority Business Enterprise.
The
foregoing obligations of Operator shall be modified as necessary to comply
with
current executive orders, regulations and statutes, federal or state, relating
to non-discrimination in employment.
-END-
Exhibit
G
to
Joint
Operating Agreement dated June
7, 2006
between Berry Petroleum Company and EnCana Oil & Gas (USA)
Inc.
and
Carry
and Earning Agreement North Parachute Ranch Property dated June
7, 2006 between
Berry Petroleum Company and EnCana Oil & Gas (USA) Inc.
TAX
PARTNERSHIP PROVISIONS
OF
THE BERRY-ENCANA FARMOUT PARTNERSHIP
(EIN:
[TBD])
(For
Name of Tax Reporting Partner and Special Elections, See Secs. 8 and
9)
|
Table
of Contents
|
||
|
1
|
General
Provisions
|
2
|
|
1.1.
|
Designation
Of Documents.
|
2
|
|
1.2.
|
Relationship
of the Parties.
|
2
|
|
1.3.
|
Priority
Of Provisions Of This Exhibit.
|
2
|
|
1.4.
|
Survivorship.
|
2
|
|
2
|
Tax
Reporting Partner
|
3
|
|
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 §761(a).
|
4
|
|
4.4.
|
Consent
Requirements For Subsequent Tax Or FMV Capital Account
Elections.
|
5
|
|
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.
|
7
|
|
7
|
Termination
and Liquidating Distribution
|
8
|
|
7.1.
|
Termination
of the Partnership.
|
8
|
|
7.2.
|
Balancing
of FMV Capital Accounts.
|
8
|
|
7.3.
|
Deemed
Sale Gain/Loss Charge Back.
|
8
|
|
7.4.
|
No
Deficit Restoration Obligation.
|
8
|
|
7.5.
|
Distribution
to balance capital accounts.
|
9
|
|
7.6.
|
FMV
determination.
|
9
|
|
7.7.
|
Final
Distribution.
|
9
|
|
8
|
Transfers,
Indemnification, and Correspondence
|
9
|
|
8.1.
|
Transfer
of Partnership Interests.
|
9
|
|
8.2.
|
Correspondence.
|
9
|
|
9
|
Elections
and Changes to above Provisions
|
10
|
|
9.1.
|
Special
Tax Elections.
|
10
|
|
9.2.
|
Special
Allocations.
|
10
|
1. General
Provisions
1.1. Designation
Of Documents.
This
exhibit is referred to in, and is part of, the agreements identified above
and,
if so provided, a part of any agreement to which the agreements are an exhibit.
Such agreements (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 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
reporting.
2
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 the Agreement shall be the effective date of these TPPs.
The
Partnership shall continue in full force and effect from, and after such
date,
until termination and liquidation.
2. Tax
Reporting Partner
Berry
Petroleum Company 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.
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, 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 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 §6050K(c),
a Party transferring its interest must notify the TRP to allow compliance
with
Code §6050K(a)
(see also Sec. 8.1).
3.4. Best
Efforts
Without
Liability.
The
TRP
and the other Party shall use their best efforts to comply with responsibilities
outlined in this Section, and with respect to the service as TRP as outlined
Sec. 2,
and in
doing so shall incur no liability to any other Party.
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:
4.1.1. to
deduct
when incurred intangible drilling and development costs ("IDC");
4.1.2. to
use
the maximum allowable accelerated tax method and the shortest permissible
tax
life for depreciation;
4.1.3. the
accrual method of accounting;
4.1.4. to
report
income on a calendar year basis;
and
the
Partnership shall also make any elections as specially noted in Sec.
9.1,
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.§1.704-1(b)(2)(iv)(k)(2),
unless the use of simulated percentage depletion is elected in Sec. 9.1,
below.
The simulated cost depletion allowance shall be determined under the principles
of Code §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 §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 effective election-out, the TRP's rights and obligations, other
than
the relief from tax return filing obligations of the partnership, shall
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 cumulative gas balancing method as described
in
Treas. Reg. §1.761-2(d)(2).
4
4.4. Consent
Requirements For Subsequent Tax Or FMV Capital Account Elections.
Future
elections, in addition to or in amendment of those in this agreement, must
be
approved by the affirmative consent of Berry Petroleum Company and EnCana
Oil
& Gas (USA) Inc.
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. §1.704-1(b)
and shall be interpreted and applied in a manner consistent with such
regulations. Specific special allocations to so comply shall be provided
in Sec.
9.2.
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 Sec.
9.2;
and
(iii) that
Party's share of any Code §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
and Sec.
9.2
allocated share of Partnership loss and deductions, or items thereof; and,
5
(iii) that
Party's share of any Code §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 §1011,
of
that property unless the Parties agree otherwise as indicated in Sec.
9.1.
5.2.4. As
provided in Treas. Reg. §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. 9.1,
under
the rules of Treas. Reg. §
1.704-1(b)(2)(iv)(f),
the FMV
capital accounts shall be revalued at certain times to reflect value changes
of
the Partnership property.
6. Partnership
Allocations
6.1. FMV
Capital Account Allocations.
Unless
otherwise provided in Sec. 9.2,
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
6
to
the
Parties so that the FMV capital account balances of the Parties will most
closely reflect their respective percentage or fractional interests in such
property 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.
6.2.2. The
Parties recognize that under Code §613A(c)(7)(D)
the depletion allowance is to be computed separately by each Party. For this
purpose, each Party's share of the adjusted tax basis in each oil and gas
property shall be equal to its contribution to the adjusted tax basis of
such
property.
6.2.3. Under
Code §613A(c)(7)(D)
gain or loss on the disposition of an oil and gas property is to be computed
separately by each Party. According
to Treas. Reg. §1.704-1(b)(4)(v),
the amount realized shall be allocated as follows: (i) an amount that
represents recovery of adjusted simulated depletion basis is allocated (without
being 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) any 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. §1.1245-1(e),
depreciation recapture shall be allocated, to the extent possible, among
the
Parties to reflect their prior sharing of the depreciation.
6.2.6. In
accordance with the principles of Treas. Reg. §1.1254-5,
any recapture of IDC is determined and reported by each Party separately.
Similarly, any recapture of 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
7
in
this Section 6.2
constitute a "reasonable method" of allocating gain or loss under Treas.
Reg.
§1.704-3(a)(1).
6.2.8. Take-in-kind.
If
checked "Yes" in Sec. 9.1,
below,
each Party has the right to determine the market for its proportionate share
of
production. All items of income, deductions, and credits arising from such
marketing of production shall be recognized by the Partnership and 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 §708(b)(1)(A),
the business shall be 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 date of such termination).
The assets shall be valued and distributed to the Parties in the 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 any property
in
which no interest has been earned by any other Party under the Agreement
shall
be returned to the contributor.
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 order
to cause the Parties' FMV capital accounts to reflect as closely as possible
their interests under the Agreement. 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 as "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
in
accordance with Secs. 6.1.5
and
6.1.6.
7.4. No
Deficit Restoration Obligation.
Notwithstanding
anything to the contrary, upon a liquidation within the meaning of Treas.
Reg.
§1.704-1(b)(2)(ii)(g),
if any
Party has a Deficit Capital Account (after giving effect to all contributions,
distributions, allocations and other FMV capital account adjustments for
all
years, including the year during which such liquidation occurs), such Party
shall have no obligation to make any contribution so as to restore its FMV
capital account to zero, and the negative balance of such Party's FMV capital
8
account
shall not be considered a debt owed by such Party to the other Party(ies),
to
the tax partnership, or to any other person for any purpose
whatsoever.
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
of
balancing the FMV capital accounts.
7.5.2. Unless
Sec.7.5.1
applies,
an undivided interest in each and every property shall be distributed to
one or
more Parties in accordance with their FMV capital 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 the 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.7.2
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.
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 two (2) 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
|
"Att
to:" reference
|
|
|
Berry
Petroleum Company
5201
Truxtun Avenue, Suite 300
Bakersfield,
CA 93309
|
Tax
Department
|
|
|
Other
Party:
|
||
|
EnCana
Oil & Gas (USA)
370
17th
Street, Suite 1700
Denver,
CO 80202
|
Tax
Department
|
|
9
9. Elections
and Changes to above Provisions
9.1. Special
Tax Elections.
With
respect to Sec. 4.1,
the
Parties agree (if not agreed, insert "No"):
|
a)
that the Partnership shall elect to account for dispositions of
depreciable assets under the general asset method to the extent
permitted
by Code §168(i)(4);
|
No
|
|
b)
that the Partnership shall elect under Code §754
to adjust the basis of Partnership property, with the adjustments
provided
in Code §734
for a distribution of property and in Code §743
for a transfer of a partnership interest. In case of distribution
of
property the TRP shall adjust all tax basis capital accounts. In
the case
of a transfer of a partnership interest the acquiring party(ies)
shall
establish and maintain its (their) tax basis capital
account(s);
|
Yes
|
|
c)
that the Partnership shall elect under Code §6231
to be subject to the TEFRA rules.
|
No
|
|
d)
that the Partnership shall elect under Code §709
to amortize over the shortest permissible period all deferred
organizational expenses.
|
Yes
|
|
e)
that the Partnership shall elect under Code §195
to amortize over the shortest permissible period all deferred business
start-up expenses.
|
Yes
|
|
With
respect to Sec. 4.2,
Depletion
the Parties agree that the Partnership shall use simulated percentage
depletion instead of simulated cost depletion.
|
No
|
|
With
respect to Sec.5.2.4,
under the rules of Treas. Reg. §
1.704-1(b)(2)(iv)(f)
the 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.
|
Yes
|
|
With
respect to Sec. 6.2.8,
the income attributable to take-in-kind production will be reflected
on
the tax return.
|
No
|
With
respect to Sec. 5.2.3,
the FMV
for the listed properties are determined on Schedule 5.2.3,
which
shall describe each property that becomes subject to the Agreement and the
agreed fair market value of such property at the time it becomes subject
to the
Agreement.
9.2. Special
Allocations.
9.2.1. Notwithstanding
the provisions of Sec. 6,
if any
Party unexpectedly receives any adjustments, allocations or distributions
described in Treas. Reg. §1.704
1(b)(2)(ii)(d)(4),
(5)
or
(6),
which
reduces the Party's adjusted FMV capital account balance to below zero (a
"Deficit Capital Account"), gross income shall be specially allocated to
such
Party in an amount and manner sufficient to eliminate, to the
10
extent
required by the Treasury Regulations, the adjusted capital account deficit
of
such Party as quickly as possible. For purposes of this Sec. 9.2.1
and Sec.
9.2.3,
a
Party's adjusted FMV capital account balance shall be the same as the Party's
capital account balance increased by the sum of (i) amount, if any, which
the
Party is unconditionally obligated to contribute to the tax partnership,
and
(ii) the amount, if any, which the Party is deemed to be obligated to contribute
to the tax partnership under Treasury Regulations under Code §704(b).
9.2.2. If
there
is a net decrease in partnership minimum gain for a taxable year of the tax
partnership, each Party shall be allocated items of income and gain for that
year equal to that Party's share of the net decrease in partnership minimum
gain, all in accordance with Treas. Reg. § 1.704-2(f). If, during a taxable year
of the tax partnership, there is a net decrease in partner nonrecourse debt
minimum gain, any Party with a share of that partner nonrecourse debt minimum
gain as of the beginning of the year shall be allocated items of income and
gain
for the year (and, if necessary, for succeeding years) equal to that partner's
share of the net decrease in partner nonrecourse debt minimum gain, all in
accordance with Treas. Reg. §1.704-2(i)(4). Pursuant to Treas. Reg.
§1.704-2(i)(1), deductions attributable to "partner nonrecourse liability"
shall
be allocated to the Party that bears the economic risk of loss for such
liability (or is treated as bearing such risk).
9.2.3. If
any
Party would be allocated an item of deduction or loss which would reduce
its
adjusted FMV capital account balance to below zero, the Party shall be allocated
only the amount of such item which would reduce its adjusted FMV capital
account
balance to zero, and any remaining amount of such item shall be allocated
to the
other Parties.
9.2.4. The
allocations set forth in Secs. 9.2.1,
9.2.2
and
9.2.3
(the
"Regulatory Allocations") are intended to comply with certain requirements
of
Treasury Regulations. It is the intent of the Parties that, to the extent
possible, all Regulatory Allocations shall be offset either with other
Regulatory Allocations or with special allocations of other items of income,
gain, loss or deduction pursuant to this Sec. 9.2.4.
Therefore, notwithstanding any other provisions of Sec. 6,
the TRP
shall make such offsetting special allocations of income, gain, loss or
deduction in whatever manner it determines appropriate so that, after such
offsetting allocations are made, each Party's FMV capital account balance
is, to
the extent possible, equal to the capital account balance such Party would
have
had if the Regulatory Allocations were not part of this Exhibit and all items
were allocated pursuant to Sec. 6
without
regard to the Regulatory Allocations. The TRP shall have the discretion to
administer this Sec. 9.2.4
in any
reasonable manner which eliminates, to the extent reasonably feasible, any
character discrepancy between the amounts allocated under Regulatory Allocations
and the corresponding amounts allocated under this Sec. 9.2.4.
3560099_6.DOC
11
EXHIBIT
E
Form
of Gathering Agreement
21
GAS
GATHERING AGREEMENT
This
Gas
Gathering Agreement (“Agreement”) is made and entered into this 7th day of June,
2006 (the “Effective
Date”)
by and
between
BERRY PETROLEUM COMPANY (“Shipper”),
and
ENCANA
OIL & GAS (USA) INC. (“Gatherer”).
Shipper and Gatherer may be referred to individually as “Party,”
or
collectively as “Parties.”
Section
1. Commitments.
A.
Shipper
dedicates and agrees to deliver, and shall cause its Affiliates to dedicate
and
deliver to Gatherer, at the Receipt Points, for Gathering, all of Shipper’s Gas
produced from the leases located on the lands described in the attached Exhibit
“A” (the “Dedication
Area”).
B. Gatherer
agrees to gather and deliver to Shipper, or for the account of Shipper, at
the
Redelivery Points designated on Exhibit "B," the total Thermal Content of the
Gas received from Shipper at the Receipt Points, less FLU allowed under this
Agreement. Shipper shall accept, or cause acceptance of, the Gas gathered by
Gatherer, less the FLU allowed under this Agreement, at the Redelivery
Points.
C. For
wells
operated by Gatherer in which Shipper holds an Interest, Gatherer shall Gather
Shipper’s Gas, water and Shipper Condensate from the outlet meters at the well
pad locations (“Well
Pad Receipt Points”)
and
redeliver Shipper’s Gas in accordance with this Agreement.
D.
Gatherer
shall use commercially reasonable efforts to provide and construct the CDP
Receipt Points in a timely fashion by October 1, 2006 or another date mutually
agreed to by the Parties.
E. Within
five (5) business days after execution of this Agreement, Gatherer agrees to
offer a gathering agreement with similar terms and conditions providing similar
services for all Gas (i) not dedicated under this Agreement that is (ii) owned
or controlled by Shipper and that is (iii) produced from wells operated by
Shipper in the area generally known as “Parachute Creek”; provided, however,
Shipper and Gatherer shall not be obligated to enter into such gathering
agreement until the Parties mutually agree upon definitive terms.
F. Gatherer
and Shipper agree to enter into discussions related to the purchase and/or
transportation of Shipper’s Gas from the Redelivery Points; provided, however,
Shipper and Gatherer shall not be obligated to enter into any agreement until
the Parties mutually agree upon definitive terms.
Section
2. General
Terms and Conditions.
This
Agreement incorporates and is subject to all of the General Terms and Conditions
attached hereto, together with any other Exhibits attached hereto.
Section
3. Term. This
Agreement shall become effective on the Effective Date and, unless terminated
as
provided under this Agreement, shall remain in full force and effect for as
long
as Shipper and/or its Affiliates and/or any of their respective successors
and
assigns own any Interests in the Dedication Area (the “Term”).
1
[***]
SYMBOLIZES CONFIDENTIAL MATERIAL
REDACTED AND FILED SEPARATELY WITH THE COMMISSION PURSUANT TO AN APPLICATION
FOR
CONFIDENTIAL TREATEMENT.
Section 4. Fees and Consideration.
A.
Gatherer
shall charge and Shipper shall pay Gatherer an initial Gathering fee equal
to [***] per Receipt Point MMBtu (“Fee”), plus Shipper’s actual pro rata
share of electric power cost directly related to Gathering and Redelivering
Shipper’s Gas. In the event that a material portion of Gatherer’s compression
Facilities is converted to Gas or fueled by Gas, then Gatherer shall provide
notice to Shipper of such conversion, along with the option to either (i)
reimburse Gatherer for Shipper’s share of the associated fuel usage in the form
of an increased Fee or (ii) adjust Shipper’s responsibility for FLU, as provided
for in Section 4.D. below; provided, however, that any increased Fee or FLU
adjustment under this Section 4.A. shall be upon commercially reasonable
terms.
B.
At such
time Gatherer is capable of providing a CO2 blending service, Gatherer shall
provide such services at no additional cost to Shipper. In the event Gatherer
is
subject to additional Treating fees or expenses, due to Gatherer’s combined Gas
stream exceeding 3.0% CO2, Shipper shall be charged as follows: If Shipper’s Gas
exceeds three percent (3.0%) carbon dioxide by volume, Shipper shall pay
Gatherer an additional amount calculated as the product of (i) [***] and
(ii) the actual volume percentage carbon dioxide of Shipper’s Gas, less three
percent (3.0%) per Receipt Point MMBtu. By way of illustration, in the event
that Shipper delivers Gas containing three and one quarter percent (3.25%)
carbon dioxide by volume, the additional fee describe in this Section 4.A would
be calculated as follows: [***].
C. Beginning
on the first anniversary of the Effective Date, and every year thereafter on
such date, the Fee set forth in Section 4.A. above shall be adjusted by the
percentage increase or decrease, if any, in the Consumer Price Index for All
Urban Consumers (“CPI-U”). This percentage adjustment shall be calculated based
upon the difference between the most recent calendar year and the previous
calendar year, as published in the U.S. Department of Labor, Bureau of Labor
Statistics. If the CPI-U ceases to be published, the parties shall use
commercially reasonable efforts to negotiate a replacement index. In no event
will the fees be reduced below those stated in this Agreement.
D. In
addition to payment of the Fee, Shipper shall be obligated for actual pro-rata
FLU on the system, however, Shippers pro-rata share is not to exceed one percent
(1%). FLU will be provided by Shipper to Gatherer at the Receipt Points.
E. Unless
otherwise agreed by the Parties, Gatherer shall provide or secure keep whole
services for Processing of Shipper’s Gas prior to returning such Gas to Shipper
at the Redelivery Points. Gatherer, at its sole election, may return PTR
associated with Processing Shipper’s Gas to Shipper in kind or pay Shipper for
PTR based on the market price during the applicable month (“Shrink Price”). The
“Shrink Price” shall equal the price that Gatherer receives to replace PTR,
which is currently the monthly index price for CIG, Rocky Mountains, as reported
in Inside FERC, less [***]. Should this existing pricing change, Shipper shall
continue to receive the same price that Gatherer pays for Gatherer’s PTR.
F. In
order
to provide the services contemplated by the Parties under the terms of this
Agreement, Gatherer will use commercially reasonable efforts to maintain an
average pressure of 150 to 200 psig at the Middle Fork Compressor Station.
Accordingly, in the event that additional compression is desired by Gatherer
to
maximize production from the Dedication Area by providing a lower pressure
service, Gatherer shall provide notice to Shipper of its plans to install
additional compression, along with (i) the anticipated benefits and economic
justification underlying such
2
additional
compression and (ii) the corresponding increase in the Fee associated with
the
lower pressure service. Any increased Fee under this Section 4.F. shall be
upon
commercially reasonable terms, and Shipper may not unreasonably withhold,
condition or delay approval of such increase in the Fee.
Section
5. Notices.
All
notices, statements, invoices or other communications required or permitted
between the Parties shall be in writing and shall be considered as having been
given if delivered by mail, courier, hand delivery, or facsimile to the other
Party at the designated address or facsimile numbers, as designated below.
Normal operating instructions can be delivered by telephone or other agreed
means. Notice of events of Force Majeure may be made by telephone and confirmed
in writing within a reasonable time after the telephonic notice. Monthly
statements, invoices, payments and other communications shall be deemed
delivered when actually received. Either Party may change its address or
facsimile and telephone numbers upon written notice to the other
Party:
Gatherer:
If
by
mail or facsimile delivery:
EnCana
Oil & Gas (USA) Inc.
370
17th
Street,
Suite 1700
Denver,
CO 80202
Facsimile:
720-876-4680
Attention:
Gathering Services
With
copy
to:
General
Counsel
EnCana
Oil & Gas (USA) Inc.
370
17th
Street,
Suite 1700
Facsimile:
720-876-3655
Denver,
CO 80202
Shipper:
If
by
mail or facsimile delivery:
Berry
Petroleum Company
5201
Truxton Avenue
Suite
300
Bakersfield,
CA 93309-0640
Attention:
Gas Marketing
Section
6. Execution. This
Agreement may be executed in any number of counterparts, each of which shall
be
considered and original, and all or which shall be considered one
instrument.
3
IN
WITNESS WHEREOF, the Parties have executed this Agreement on the date first
set
forth above.
GATHERER:
By:
_/s/__________________________
Name:
Title:
SHIPPER:
By:
_/s/ Michael Duginski__________________
Name:
Michael Duginski
Title:
Executive Vice President
4
EXHIBIT
“A”
DEDICATION
AREA
Township
5 South, Range 94 West Sections
1-36
Township
5 South, Range 95 West Sections
1-36
Township
6 South, Range 95 West Sections
1-36
Township
6 South, Range 96 West Sections
1-4, 9-16, 21-28, and 33-36
All
located in Garfield County, Colorado
5
EXHIBIT
“B”
RECEIPT
& REDELIVERY POINTS
Receipt
Points:
CDP
Receipt Points: Central Delivery Point Locations for Shipper’s Gas from leases
within the Dedication Area as jointly agreed to by the Parties at locations
on
the top of Long Ridge mesa and Old Mountain mesa.
Well
Pad
Receipt Points: The outlet meter at the well pad locations for wells operated
by
Gatherer in which Shipper holds an Interest.
Redelivery
Points: Rockies Express Pipeline at the Meeker Hub.
6
GENERAL
TERMS AND CONDITIONS
Attached
to and made a part of that certain
Gas
Gathering Agreement dated June 7, 2006
between
EnCana
Oil & Gas (USA) Inc. “Gatherer”
and
Berry
Petroleum Company “Shipper”
ARTICLE
1: DEFINITIONS
|
1.0
|
Accounting
Period.
The period commencing at 8:00 a.m., Gatherer Time, on the first day
of a
calendar month and ending at 8:00 a.m., Gatherer Time, on the first
day of
the next succeeding month.
|
|
1.1
|
Affiliate.
Any Person that directly
or
indirectly through one or more intermediaries, controls or is controlled
by or is under common control with another Person. The term “control”
(including its derivatives and similar terms) means possessing the
power
to direct or cause the direction of the management and policies of
a
Person, whether through ownership, by contract, or otherwise. Any
Person
shall be deemed to be an Affiliate of any specified Person or entity
if
such Person or entity owns fifty percent (50%) or more of the voting
securities of the specified Person, if the specified Person owns
fifty
percent (50%) or more of the voting securities of such Person, or
if fifty
percent (50%) or more of the voting securities of the specified Person
and
such Person are under common
control.
|
|
1.2
|
Btu.
The amount of heat required to raise the temperature of 1 pound of
water
from 59°F to 60°F.
|
|
1.3
|
CDP. A
CDP Receipt Point or Middle Fork CDP, whatever the case may under
this
Agreement.
|
|
1.4
|
CDP
Receipt Points.
The
central delivery points in the field where Shipper tenders two separate
streams, (i) one stream consisting of Gas and (ii) the other stream
consisting of Shipper Condensate and water. Gas, Shipper Condensate,
and
water delivered to the CDP Receipt Points originate from wells operated
by
Shipper.
|
|
1.5
|
Contract
Year.
Each consecutive twelve-Month period beginning with the Effective
Date
hereof or, if the Effective Date is not the first day of a Month,
then
with the first day of the Month following the Effective
Date.
|
|
1.6
|
Cubic
Foot.
The volume of Gas contained in one Cubic Foot of space at a standard
pressure base of 14.73 pounds per square inch absolute (psia) and
a
standard temperature base of 60° F.
|
1.7 Dedication
Area.
The
lands, wells and/or leaseholds described on Exhibit A.
1.8 Dedication.
As
defined in Section 2.2 of the General Terms and Conditions.
1.9 EFM.
As
defined in Section 8.6 of the General Terms and Conditions.
|
1.10
|
Facilities.
The Gathering System together with the Processing Plant or Treating
Plant,
as applicable.
|
7
1.11 Flare
Gas.
All Gas
measured or estimated and released to the atmosphere.
|
1.12
|
Fuel,
Lost
and Unaccounted for Gas Quantity or "FLU" or "FLU
Quantity".
That volume of Shipper's Gas, in terms of MMBtus, received by Gatherer
which is retained by Gatherer for fuel, or is released or lost through
piping, equipment, or operations or is vented. The FLU Quantity is
stated
as a percentage of the Gas delivered by Shipper at the Receipt Points.
Title to FLU Quantity shall vest in Gatherer upon receipt at the
Receipt
Points at no cost to Gatherer, and free and clear of all adverse
claims
and liabilities
|
|
1.13
|
Gas.
Any Mixture of gaseous hydrocarbons or of hydrocarbons and other
gasses,
in a gaseous state, consisting primarily of
methane.
|
|
1.14
|
Gas
or Liquid Specifications.
The required specifications for Shipper’s Gas, water and/or Condensate
delivered by Shipper to the Receipt Points, as defined in Section
7.1 of
the General Terms and Conditions.
|
|
1.15
|
Gather,
Gathered, or Gathering. The
movement of Gas through Gatherer's facilities, equipment, devices,
or
pipeline from the Receipt Points to the Redelivery
Points.
|
|
1.16
|
Gatherer
Condensate. Liquid
hydrocarbons that (i) have condensed from the Gas in the Gathering
System
immediately downstream of the Middle Fork compressor station or (ii)
are
collected at a Plant prior to Processing or
Treating.
|
|
1.17
|
Gathering
System.
Gas gathering facilities, from the Receipt Points to the Redelivery
Points, exclusive of any Processing Plant or Treating Plant that
may, from
time to time, be included in the Facilities.
|
|
1.18
|
Gross
Heating Value.
The number of Btu's produced by the combustion, on a saturated basis
and
at a constant pressure, of the amount of the Gas which would occupy
a
volume of 1 Cubic Foot at a temperature of 60°F and at a pressure of 14.73
psia, with air of the same temperature and pressure as the Gas, when
the
products of combustion are cooled to the initial temperature of the
Gas
and air and when the water formed by combustion is condensed to the
liquid
state.
|
1.19 Indemnifying
Party and
Indemnified
Party.
As
defined in Article 11, below.
|
1.20
|
Interconnecting
Pipelines.
Any pipeline connected immediately downstream of the Redelivery
Points.
|
|
1.21
|
Interests.
Any right, title, or interest in lands and the right to produce oil
and/or
Gas therefrom whether arising from fee ownership, working interest
ownership, mineral ownership, leasehold ownership, or arising from
any
pooling, unitization or communitization of any of the foregoing
rights.
|
1.22 Losses.
Any
actual
loss, cost, expense, liability, damage, demand, suit, sanction, claim, judgment,
lien, fine or penalty, including attorney’s fees, asserted by a third party
unaffiliated with the Party incurring such, and which are incurred by the
applicable Indemnified Party on account of injuries (including death) to any
person or damage to or destruction of any property, sustained or alleged to
have
been sustained in connection with or arising out of the matters for which the
Indemnifying Party has indemnified the applicable Indemnified
Party.
8
|
1.23
|
Lost
and Unaccounted For Gas.
Any Gas lost or otherwise not accounted for incident to or occasioned
by
the gathering, treating, processing, or compressing and redelivery,
as
applicable of Gas, including Gas released through leaks, instrumentation,
relief valves, unmeasured flares, ruptured pipelines, and blow downs
of
pipelines, vessels, and equipment.
|
1.24 Mcf.
1,000
Cubic Feet.
1.25 MMBtu.
1,000,000 Btu’s.
1.26 MMcf.
1,000,000 Cubic Feet.
1.27. Person.
Any
individual, firm, corporation,
trust,
partnership, limited liability company, association, joint venture, other
business enterprise or governmental authority.
|
1.28
|
Plant.
The Processing Plant and/or Treating Plant, as
applicable.
|
|
1.29
|
Plant
Products.
Liquid hydrocarbons and concomitant materials separated, extracted,
or
condensed from Gas that is Gathered, Processed, and/or Treated in
the
Facilities.
|
|
1.30
|
Processing
Plant.
Any Gas processing facilities where Shipper’s Gas is delivered for
processing, including Gas refrigeration and chilling equipment, membrane
separation equipment, absorption vessels, product separation and
fractionation vessels, product storage vessels, and associated condensing,
heating, compressing, pumping, conveying, and other equipment and
instrumentation; including any recompression required by Processing
Plant
operations; and including any refrigeration compression required
by
Processing Plant operations; and including all structures associated
with
those facilities; and including all easements, rights-of-way, and
other
property rights pertaining to the construction and operation of those
facilities, wherever those facilities, structures, easements,
rights-of-way, and other property rights are
located.
|
|
1.31
|
Process,
Processed, or Processing.
The liquefaction and removal of hydrocarbons from Gas at the
Plant.
|
|
1.32
|
PTR
or Plant Thermal Reduction. The
Thermal Content stated in MMBTUs removed from Gas as a result of
Processing which is (i) associated with the extraction of Plant Products
or Stabilized Condensate, (ii) consumed as fuel in the operation
of the
Plant, or (iii) flared in the operation of the
Plant.
|
|
1.33
|
Receipt
Points.
The inlet flange of the custody transfer meter(s), or of the field
dehydration facilities(s), whichever first occurs, where Gas is delivered
to Gatherer, as designated on Exhibit
“B”.
|
|
1.34
|
Receipt
Point Thermal Content.
The Thermal Content of the Gas delivered to Gatherer by Shipper at
the
Receipt Point.
|
|
1.35
|
Redelivery
Point.
The points at which Shipper’s Gas is redelivered by Gatherer to Shipper,
or to Shipper’s designee, or to others entitled thereto, as designated on
Exhibit “B.”
|
1.36 Residue
Gas. That
portion of the Gas delivered to the Processing Plant that remains after
Processing.
9
|
1.37
|
Section
16 Officers.
Officers of Shipper and/or Gatherer, as applicable, as such term
is
defined by Rule 16a-1(f) promulgated under the Securities Exchange
Act of
1934, as amended.
|
|
1.38
|
Shipper
Condensate. Liquid
hydrocarbons that are received by Gatherer from Shipper at the Well
Pad
Receipt Points and CDP Receipt
Points.
|
|
1.39
|
Shipper’s
Gas.
All Gas attributable to Shipper’s
Interests.
|
|
1.40
|
Stabilized
Condensate.
The liquefied hydrocarbon product remaining after stabilization of
the
Condensate at the Plant.
|
|
1.41
|
Taxes.
All
gross production, severance, conservation, ad valorem and similar
or other
taxes measured by or based upon production, together with all taxes
on the
right or privilege of ownership of the Gas, or upon the handling,
transmission, compression, processing, treating, conditioning,
distribution, sale, delivery or redelivery of the Gas, including
all of
the foregoing now existing or in the future imposed or
promulgated.
|
|
1.42
|
Thermal
Content.
For
Gas, the product of the measured volume in Mcf multiplied by the
Gross
Heating Value per Mcf, adjusted to the same pressure base and expressed
in
MMBtu’s; and for a liquid, the product of the measured volume in gallons
multiplied by the gross heating value per
gallon.
|
|
1.43
|
Treat,
Treating or Treatment.
The removal, reduction or dilution of hydrogen sulfide, carbon dioxide
or
other impurities in Gas.
|
1.44 Treating
Plant. Any
Gas
treating facilities where Shipper’s Gas is delivered for Treating including all
structures associated with those facilities.
1.45 Treating
Fuel.
All Gas
measured and utilized as fuel in the Treating Plant.
|
1.46
|
Middle
Fork CDP.
The central delivery point where Shipper tenders a single commingled
(three-phase) stream consisting of (i) Gas, (ii) Shipper Condensate
and
(iii) water at the separator nearby the Middle Fork Compressor Station
operated by Gatherer. Gas, Shipper Condensate, and water delivered
to the
Middle Fork CDP originate from wells operated by Gatherer in which
Shipper
holds an Interest.
|
1.47 Well
Pad Receipt Points.
As
defined in Section 1.C. of the Agreement.
ARTICLE
2: SHIPPER
COMMITMENTS
AND RIGHTS
2.1
Dedication.
Shipper
hereby warrants that it has the right to dedicate, and does hereby dedicate
and
agree to deliver, and shall cause its Affiliates to dedicate and deliver, at
the
Receipt Points, all of Shipper’s Gas now or hereafter produced from all
formations, from the wells now or hereafter located within the Dedication Area
attributable to Interests now owned or hereafter acquired by Shipper and/or
its
Affiliates, or from wells located on lands pooled, unitized or communitized
within any portion of the Dedication Area (the “Dedication”).
2.2 Subsequently
Acquired Interests.
In the
event that after the date hereof Shipper and/or any of its Affiliates acquire
Interests within the Dedication Area, then the Gas produced
10
from
such
Interests shall automatically be included within the Dedication; provided,
however, if any of the Gas produced from such Interests is subject to a prior
written dedication or commitment for gathering at the time of any such
acquisition, then such Gas shall be excluded from the Dedication until such
prior dedication or commitment expires. In the event that any such prior
dedication or commitment expires or terminates, then the Gas subject to such
prior dedication or commitment shall automatically be included within the
Dedication and subject to this Agreement without any further actions by the
Parties. In the event that at any time in the future Shipper or any of its
Affiliates has the right or ability to terminate any such prior dedication
or
commitment, then Shipper shall terminate, or cause its Affiliate to terminate,
such prior dedication or commitment, and upon such termination, the Gas subject
to such prior dedication or commitment shall automatically be included within
the Dedication and subject to this Agreement without any further actions by
the
Parties. Shipper
represents and warrants to Gatherer that as of the date hereof (i) there are
no
prior dedications and/or commitments covering the gathering and/or
transportation of any Gas produced from any Interests owned by Shipper and/or
its Affiliates within the Dedication Area and (ii) Shipper’s Affiliates do not
own any Interests within the Dedication Area.
2.3 Covenant
Running with the Land.
So
long
as this Agreement is in effect, this Agreement shall (i) be a covenant running
with the Interests now owned or hereafter acquired by Shipper and/or its
Affiliates within the Dedication Area and (ii) be binding on and enforceable
by
Gatherer and its successors and assigns against Shipper and/or its Affiliates
and all subsequent owners of all or any part of the Dedication Area and their
respective successors and assigns. Shipper shall cause any conveyance of all
or
any Interests in the Dedication Area to be made expressly subject to this
Agreement.
2.4 Conveyance
of Rights to Gatherer.
Shipper
hereby grants, sells, transfers, conveys and assigns to Gatherer (i) the
exclusive right to Gather, Treat, and Process Shipper’s Gas, (ii) all right,
title, interest and/or ownership in Plant Products, Gatherer Condensate, and
Stabilized Condensate recovered from the Gathering, Treating, and/or Processing
of Shipper’s Gas, and (iii) the right to consume Shipper’s Gas as PTR in
connection with the Processing of Shipper’s Gas under this Agreement. Shipper
shall retain and own its share of Shipper Condensate allocated in accordance
with this Agreement
2.5 Memorandum
of Agreement.
Contemporaneously
with the execution of this Agreement, the Parties shall execute, acknowledge,
deliver and record a "short form" memorandum of this Agreement in the form
of
Exhibit “C” attached hereto which shall be placed of record in Garfield County,
Colorado.
2.6 Upstream
Processing Prohibited.
Shipper
agrees that it shall not remove or permit to be removed any liquefiable
hydrocarbons from Shipper’s Gas or remove Condensate from such Gas prior to
delivery to the Receipt Points, except for liquefiable hydrocarbons that
condense from such Gas during transportation to the Receipt Points that are
removed by conventional mechanical type Gas liquid field separators commonly
used in the industry to separate liquid hydrocarbons and free water from
Shipper’s Gas, to the extent, and only to the extent, reasonably necessary for
the safe transportation of such Gas to the Receipt Points.
2.7 Information.
Shipper
shall provide Gatherer timely information with respect to Shipper’s drilling
plans and volume forecasts with respect to its Interests in the Dedication
Area,
and shall provide reasonable advance notice to Gatherer of scheduled well
shut-ins.
2.8
Compression.
Shipper
shall have the right to install compression facilities and plunger lifts
upstream of each Receipt Point. Any compression facilities or plunger lifts
installed
11
by
Shipper shall be installed, operated, and maintained in a manner that does
not
materially and adversely affect Gatherer's dehydration, measurement, gathering
or other facilities. Nothing in this Agreement shall obligate Gatherer to
compress Shipper’s Gas subject to this Agreement.
2.9
Gas
for Lease Operations.
Shipper
reserves the right to withhold from delivery any Gas (i) that Shipper is
required to deliver to its lessor under the terms of any leases; or (ii) that
Shipper reasonably requires for oil and gas producing operations with respect
to
Shipper’s wells.
2.10
Control
of Shipper’s Wells.
Shipper
may, at any time, clean out, deepen or abandon any wells within Shipper's
Interests, or may use any efficient, modern or improved method for the
production of Gas; provided, before any well is taken out of service for any
reason, Shipper shall first shut-off the well’s connection with the Receipt
Point.
2.11
Units.
Shipper
may form, dissolve and/or participate in units encompassing portions of
Shipper’s Interests, provided that the exercise of those rights shall not
diminish Gatherer’s rights under this Agreement nor increase Gatherer’s
obligations under this Agreement.
2.12 Access
to Facilities.
Shipper
shall provide Gatherer such access to its facilities as necessary and convenient
for Gatherer to perform its obligations under this Agreement. Shipper grants
Gatherer the use of all easements and rights-of-way held by Shipper that are
necessary and convenient for Gatherer to perform its obligations under this
Agreement. Such use shall include, but not be limited, to, those rights under
Shipper’s oil and Gas leases to construct, operate, and maintain pipelines and
appurtenant facilities for the purpose of Gathering Gas from the leasehold.
Shipper shall be responsible for maintaining such access, easements and
rights-of-way at its sole cost and expense.
ARTICLE
3: OPERATION
OF GATHERER’S FACILITIES
3.1
Operational
Control of Gatherer’s Facilities.
Gatherer shall be entitled to complete operation control of its Facilities
and
shall operate its Facilities in a manner which, in Gatherer’s sole opinion, is
consistent with its obligations under this Agreement. Gatherer shall have the
unqualified right to commingle Shipper’s Gas received by Gatherer at the Receipt
Points with other Gas in Gatherer’s Gathering Facilities. However, this Section
3.1 shall not be interpreted to relieve Gatherer of its obligations under this
Agreement.
3.2 Maintenance.
Gatherer shall, without liability, be entitled to perform such maintenance,
testing, alteration, modification, repair or replacement of the Gathering System
or Plant, or any part thereof, as would be done by a prudent operator
(“Maintenance”).
3.3 Capacity
Allocations.
If Gas
available from all Receipt Points, including Shipper’s Gatherer’s and others’,
upstream of any point in the Facilities exceeds the capacity of the Facilities
at such point, Gatherer shall, without liability, allocate the available
capacity pro-rata between Shipper, Gatherer and others, based on Shipper’s,
Gatherer’s and others confirmed nominations until such time as the capacity of
the Facilities is not exceeded.
3.4
Other
Allocations.
During
any period when (i) all or any portion of the Facilities is shut down because
of
mechanical failure, Maintenance, non-routine operating conditions, or Force
Majeure; or (ii) the Gas available for receipt exceeds the capacity of the
Facilities; or (iii) Gatherer determines that the operation of all or any
portion of the Facilities will cause injury or harm to Persons or property
or to
the integrity of the Facilities, Shipper’s Gas may be curtailed on a pro-rata
basis as described in Section 3.3.
12
3.5 Gatherer’s
Redelivery Obligations.
Gatherer shall redeliver the portions of the Gas that it is required to
redeliver to Shipper, or for Shipper’s account, at the Redelivery Points at a
quality meeting the most restrictive specifications required by the
Interconnecting Pipelines receiving Shipper’s Gas at the Redelivery Points.
Gatherer shall redeliver Shipper’s Gas at pressure sufficient to enter
Interconnecting Pipelines not to exceed 1280 psig.
3.6 Arrangements
Prior to Receipt and After Redelivery.
It
shall be Shipper’s obligation to make any required arrangements with other
parties for delivery of Shipper’s Gas into the Gathering System at the Receipt
Points and following redelivery by Gatherer at the Redelivery
Points.
ARTICLE
4:
FACILITIES; CONNECTION TO GATHERING SYSTEM
4.1 Construction
of Facilities.
Shipper, at its sole expense, shall construct, or arrange to construct,
facilities necessary to deliver Gas to Gatherer at the Receipt Points. Gatherer
shall construct, operate, own, and maintain the facilities necessary to receive
and measure Gas from Shipper at the Receipt Points at Shipper’s cost.
4.2 Shipper’s
Condensate/CDP Receipt Points.
With
respect to Shipper’s Condensate delivered to the CDP Receipt Points, Shipper
shall be allocated its share of Shipper Condensate by an amount equal to
following: (i) a ratio, the (x) numerator of which is the total volume of
Shipper’s Gas in MMBTUs measured at the CDP Receipt Points and the (y)
denominator of which is the total volume of all shippers’ Gas in MMBTUs measured
or allocated at all Receipt Points upstream of the Middle Fork compressor
station or other point, as modified from time to time, (ii) multiplied by total
barrels of field condensate sold at the Middle Fork compressor station. Shipper
shall receive Gatherer’s netback price for Condensate, for this location, for
Shipper’s allocated share of Condensate.
| 4.3 |
Shipper’s
Gas and Condensate/Well Pad Receipt Points.
|
(a) Notwithstanding
anything to the contrary in this Agreement, with respect to Shipper’s Gas
delivered to a Well Pad Receipt Point, Shipper shall be allocated its share
of
Shipper’s Gas under the following measurement and testing procedure: Within two
weeks of the connection to the Gathering System of any well operated by Gatherer
in which Shipper holds an Interest, Gatherer shall measure and test each such
well utilizing a test separator and test meter to establish Shipper’s allocated
share of Shipper’s Gas. Each such measurement and test shall be conducted every
ninety (90) days, or sooner at Gatherer’s sole election, and such measurement
and test shall conclusively establish the allocation of Shipper’s Gas until such
measurement and test is conducted again. Shipper reserves the right to witness
such tests.
(b) With
respect to Shipper’s Condensate delivered to the Well Pad Receipt Points,
Shipper shall be allocated its share of Shipper Condensate by an amount equal
to
following: (i) a ratio, the (x) numerator of which is the total volume of
Shipper’s allocated share of Gas in MMBTUs, as calculated in accordance with
Section 4.3(a) above, and the (y) denominator of which is the total volume
of
all shippers’ Gas in MMBTUs measured or allocated at all Receipt Points upstream
of the Middle Fork compressor station or other point, as modified from time
to
time, (ii) multiplied by total barrels of field condensate sold at the Middle
Fork compressor station. Shipper shall receive Gatherer’s netback price for
Condensate, for this location, for Shipper’s allocated share of Condensate.
13
ARTICLE
5: RECEIPT
POINTS AND CONDITIONS
5.1
Receipt
Points.
Shipper
shall deliver Gas to the Receipt Points as specified on Exhibit “B”, which shall
be located at a mutually acceptable location downstream of Shipper’s production
facilities.
5.2
Rate
of Flow.
Shipper
shall deliver Gas at a reasonably uniform rate of flow, or Shipper shall accept
and follow a schedule for delivery of Shipper’s Gas to be established by
Gatherer as to not materially affect Shippers overall gas deliveries.
5.3
Pressure
at Receipt Points.
Shipper
shall deliver Gas hereunder at a pressure sufficient to enter Gathering System
at the Receipt Points, which pressures shall not average more than 50 psig
more
than the average inlet pressures at the Middle Fork Compressor Station each
over
the same three (3) month period; otherwise, Shipper shall install additional
pipeline capacity within 6 months following the end of such three (3) month
period to bring inlet pressures back below the 50 psig differential pressure.
At
each Receipt Points, Shipper shall provide equipment acceptable to Gatherer
that
will prevent over-pressuring of the Gathering Facilities (“Pressure Regulation
Devices”). Gatherer, in its sole discretion, may require Shipper to install,
operate and maintain, at its own expense, such Pressure Regulation Devices
as
may be necessary to regulate the pressure of Gas prior to receipt by Gatherer.
If regulation equipment is installed on Gatherer’s Gathering system, it shall be
installed in a manner that does not interfere with measurement or induce
measurement errors.
ARTICLE
6: NOMINATION AND BALANCING PROCEDURES
6.1 Nomination
Procedures.
Pursuant to the terms of this Agreement, the nomination procedures detailed
in
this Section will be utilized by Shipper with respect to the deliveries and
receipt of Gas hereunder. All nominations must be made by Shipper or Shipper’s
designee. Should transporters receiving Gas revise their nomination requirements
in a manner that conflicts with the nomination procedures herein, the Parties
agree to negotiate changes to the nomination procedures herein as are reasonably
required. The
Parties agree as follows with respect to the nomination and balancing
procedures:
(a) Shipper’s
nominations shall be accepted and scheduled for delivery by Gatherer to the
extent that (i) Gas is sufficient to support the nominations, (ii) Gatherer
has
available capacity to Gather the nominated Gas subject to Section 3.3 Capacity
Allocations, and (iii) the party receiving Gas at the Redelivery Points accepts
Shipper’s nominations.
(b) Each
nomination shall be made as follows, the timeline may change from time to time
(all timelines are stated in Mountain Time):
Nomination
Due:For
Flow at:
Cycle
1
(Timely)9:30
AM8:00
AM
Next Day
Cycle
2
(Evening) 3:00
PM8:00
AM
Next Day
Cycle
3
(Intra-day 1) 8:00
AM4:00
PM
Same Day
Cycle
4
(Intra-day 2)4:00
PM8:00
PM
Same Day
(Cycle
4
is on a REASONABLE EFFORTS BASIS)
(c) Shipper
shall provide to Gatherer’s dispatcher in writing, via fax, e-mail, or web-based
nomination process the actual daily nominations of the quantities to be
delivered by Gatherer for Shipper’s account at each Redelivery Point in
accordance with Gatherer’s requirements. Such
14
nominations
shall include the information requested by Gatherer, and Gatherer shall maintain
a record of such nominations. Shipper shall provide two days notice for
nominations for deliveries on the first day of any given month.
(d) Gatherer
may, but is not obligated to accept (i) any nomination which exceeds Shipper’s
allocated capacity on the Gathering System subject to Section 3.3 Capacity
Allocations, (ii) nomination changes on weekends or holidays, or (iii) any
revisions to a prior nomination which result in an increase in quantities of
Gas
Shipper desires to deliver to a Redelivery Point which are not supported by
operational improvements or additional wells. Gatherer’s dispatcher shall
thereupon advise Shipper of the quantity it will accept for Gathering
(“Scheduled
Nomination”).
6.2 Shipper
Gas Balancing.
(a) Imbalances.
If the number of MMBtus of Gas received by Gatherer at the Receipt Points,
after
subtracting FLU do not equal Shipper’s Scheduled Nominations, an imbalance
exists. If the number of MMBtus of Gas received by Gatherer at the Receipt
Points, after subtracting FLU are less than Shipper’s Scheduled Nomination(s), a
positive imbalance exists. If the number of MMBtus of Gas received by Gatherer
at the Receipt Points, after subtracting FLU are greater than Shipper’s
Scheduled Nominations, a negative imbalance exists. The term balance or
balancing refers to equalizing the number of MMBtus of Gas received by Gatherer
at the Receipt Points with the number of MMBtus constituting Shipper’s Scheduled
Nominations plus FLU. Parties shall use reasonable efforts to minimize these
imbalances and agree to make the daily and monthly adjustments as outlined
herein. At Gatherer’s sole discretion, Gatherer may decline such nomination
and/or shut-in production if necessary to balance Shipper.
(b) Daily
Balancing.
Each
day Shipper shall cause the number of MMBtus of Gas being delivered at the
Receipt Points to equal as closely as practicable Shipper’s Scheduled
Nominations plus FLU. Whenever the number of MMBtus of Gas being delivered
at
the Receipt Points is insufficient to support Shipper’s Scheduled Nomination(s)
plus FLU, Shipper shall promptly decrease its daily Scheduled Nomination.
Whenever the number of MMBtus of Gas being delivered at the Receipt Points
exceeds Shipper’s Scheduled Nominations plus FLU, Shipper shall promptly
increase Scheduled Nominations. If Shipper does not adjust such nomination,
Gatherer may, in its sole discretion, decline such nomination and/or shut-in
production if necessary to balance Shipper. Notwithstanding the foregoing,
Shipper may request the right to create a daily imbalance when necessary to
counteract a prior daily imbalance. Whether such request will be granted is
within the sole discretion of Gatherer.
(c) Monthly
Balancing.
Within
twenty (20) working Days after the Month of production, Gatherer shall provide
Shipper with Shipper’s gathering Imbalance statement by facsimile or electronic
mail to be followed by a hard copy by mail. Shipper shall be given an Imbalance
tolerance equal to 5% of
actual
gas receipts, within which the cash out price will be 100% of Average Market
Index. The Average Market index shall be the average gas daily index for CIG,
Rocky Mountain as published in Gas Daily for the month the imbalance occurred
minus an additional $0.10/MMBtu. Should Shipper’s Imbalance exceed
zero,
Gatherer
shall bring Shipper’s Imbalance to zero by charging or crediting Shipper’s
account, as applicable. Such charges or credits shall be made according to
a
percentage of the Average Market index applicable to the Month in which the
Imbalance occurred, as stated in the schedule below:
15
|
Imbalance
as a
|
||
|
%
of Gas at Receipt Points
|
If
deficient receipts
|
If
excess receipts
|
|
less
FLU
|
Gatherer
Charges
|
Gatherer
Credits
|
|
5%
or less
|
100%
|
100%
|
|
Over
5% through 10%
|
110%
|
90%
|
|
Over
10% through 20%
|
115%
|
85%
|
|
Over
20%
|
125%
|
70%
|
(d) Third
Party Cooperation.
Both
Parties recognize that Gatherer’s ability to schedule Daily Balance Gas is
dependent upon the cooperation of third parties.
(e) Interconnecting
Pipelines.
Whenever an Interconnecting Pipeline requires Gatherer to balance, Gatherer
may
require Shipper to make adjustments to nominations as imposed by the
Interconnecting Pipeline.
(f) Duty
to Maintain Balance.
Gatherer shall use reasonable efforts to require all shippers using the
Gathering System to maintain balance.
6.3 Unscheduled
Capacity Allocations.
(a) Gatherer
will use reasonable efforts to provide timely notification to Shipper by
telephone, with subsequent e-mail notification, of the potential size and
duration of any unscheduled capacity disruption. If Shipper does not adjust
its
nomination within two (2) hours, Gatherer may adjust Shipper’s nomination and/or
not confirm the nominations requested by Shipper in the next nomination cycle;
provided however, Gatherer shall at all times use its reasonable efforts to
avoid cycle four curtailments of Gas. Gatherer will determine Shipper nomination
adjustments in accordance with Section 6 of the Standard Terms and
Conditions.
(b) Gatherer
also may request that Shipper shut in wells to match production with
nominations. In the event that Shipper does not adjust its nomination as
reasonably directed by Gatherer, and such failure to adjust nominations
materially impacts operations on the Gathering System, Gatherer may curtail
or
shut in Gas for a reasonable period of time. Gatherer shall not be liable for
Losses caused by any curtailment imposed by Gatherer unless such curtailment
is
due to negligence of Gatherer.
ARTICLE
7: GAS
QUALITY
7.1 Receipt
Point Gas Specifications.
Gas
delivered by Shipper to the Receipt Points shall meet the following
specifications (the “Gas
Specifications”):
(a) commercially
free from dust, gum, gum-forming constituents or solid or liquid matter that
might cause injury or interfere with proper operation of the Facilities or
the
Interconnecting Pipelines;
(b) free
of
hydrocarbons and water in their liquid state;
(c) commercially
free of crude oil, mineral seal, distillate and other impurities that would
adversely affect Gatherer’s delivery to other third party
transporters;
(d) at
a
temperature not in excess of one hundred twenty degrees Fahrenheit
(120°F);
(e) a
Gross
Heating Value of not less than nine hundred fifty (950) Btu per Cubic Foot;
and,
16
(f)
Except
for hydrocarbon and water dewpoint and Carbon Dioxide restrictions, Gas
delivered by Shipper shall meet the most restrictive quality specifications
required from time to time by the Processing Plant, Treating Plant and/or the
Interconnecting Pipelines.
7.2 Receipt
Point Water and/or Condensate Specifications.
Water
and/or Condensate delivered by Shipper to the Receipt Points shall meet the
following specifications (the “Liquid
Specifications”):
(a) commercially
free from dust, gum, gum-forming constituents or solid or liquid matter that
might cause injury or interfere with proper operation of the Facilities or
the
Interconnecting Pipelines; and,
| (b) |
at
a temperature not in excess of one hundred twenty degrees Fahrenheit
(120°F).
|
7.3 Non-Conforming
Gas or Liquids.
If at
any time Shipper’s Gas, water and/or Condensate at the Receipt Points fails to
conform to such quality specifications, Gatherer shall give Shipper written
notice of the deficiency and Shipper shall immediately remedy the deficiency.
If
Shipper fails to immediately remedy the deficiency, Gatherer may:
(a)
take
receipt of the non-conforming Gas, water and/or Condensate and that receipt
shall not be construed as a waiver or change of standards for future volumes;
or
(b)
at
its sole discretion, cease receiving the non-conforming Gas, water and/or
Condensate from Shipper, and shall notify Shipper that it has, or will, cease
receiving the non-conforming Gas, water and/or Condensate.
(c)
if the
Gas, water and/or Condensate as delivered contains contaminants not in
conformance with the Gas Specifications or Liquid Specifications, then Shipper
shall be responsible for, and shall reimburse Gatherer for all actual expenses,
damages and costs resulting therefrom.
7.4 Water.
Shipper
shall retain title to all water removed from Shipper’s Gas by whatever method,
whether removed by Shipper or Gatherer. Unless accepted by Gatherer at the
Receipt Points and disposed of by Gatherer, Shipper shall be responsible for
the
proper disposal of all such water and shall release, indemnify and defend
Gatherer from and against any and all Losses relating to such disposal unless
due to Gatherer’s negligence or willful misconduct.
7.5 Carbon
Dioxide.
To the
extent that Gatherer removes carbon dioxide from Shipper’s Gas and Shipper has
not made arrangements to utilize, market or dispose of the carbon dioxide,
Gatherer shall dispose of the carbon dioxide by venting. In the event Gatherer
is requested by Shipper to deliver the carbon dioxide rather than vent it,
a fee
acceptable to Gatherer shall be negotiated prior to Gatherer delivering the
carbon dioxide. If venting the carbon dioxide is ever disallowed for any reason
or is deemed to be uneconomic by Gatherer, Shipper shall make alternate
arrangements to utilize, market or dispose of the carbon dioxide at Shipper’s
sole cost and expense and shall reimburse Gatherer for any costs incurred by
Gatherer in delivering the carbon dioxide. Shipper shall release, indemnify
and
defend Gatherer from and against any and all damages, claims, actions, expenses,
penalties and liabilities, including attorney’s fees, arising from personal
injury, death, property damage, environmental damage, pollution, or
contamination relating to the utilization, marketing or disposal of Shipper’s
carbon dioxide unless due to Gatherer’s negligence or willful misconduct.
17
ARTICLE
8: MEASUREMENT EQUIPMENT AND PROCEDURES
8.1
Measurement
Equipment.
All Gas
measurements required hereunder shall be made with equipment of standard make
to
be furnished, installed, operated, and maintained by Gatherer in accordance
with
the recommendations contained in ANSI/API 2530 as then published. Shipper,
or
others having Shipper's consent, may, at its option and expense, install and
operate measuring equipment upstream of the measuring equipment to check the
measuring equipment provided the installation of the check measuring equipment
in no way interferes with the operation of Gatherer’s measuring equipment.
8.2
Measurement
Factors.
All Gas
volume measurements shall be based on an assumed atmospheric pressure of 11.7
psia, regardless of actual atmospheric pressure at which the Gas is measured.
The factors used in computing Gas volumes from orifice meter measurements shall
be the latest factors published by the AGA. These factors shall
include:
|
(a)
a basic orifice factor;
|
|
(b)
a pressure base factor based on a pressure base of 14.73 psia;
|
|
(c)
a temperature base factor based on a temperature base of 60oF;
|
(d)
a
flowing temperature factor, based on the flowing temperature as measured by
an
industry accepted recording device, if, at Gatherer’s option, a recording device
has been installed, otherwise the temperature shall be assumed to be
60oF;
(e)
a
super compressibility factor, obtained from the latest AGA Manual for the
Determination of Super Compressibility Factors for Natural Gas (AGA 8);
and
(f)
a
specific gravity factor, based on the specific gravity of the Gas as determined
under the provisions set forth below.
8.3 Testing
of Equipment.
Gatherer shall test the accuracy of its measuring equipment at least
semi-annually if the average production delivered to the particular measuring
equipment during the previous six (6) Accounting Periods exceeds one-hundred
(100) Mcf per day. If the average production is less than or equal to 100 Mcf
per day, Gatherer shall test the accuracy of its measuring equipment annually.
Additional tests shall be promptly performed upon notification by either Party
to the other. If any additional test requested by Shipper indicates that no
inaccuracy of more than 2% exists, at a recording rate corresponding to the
average rate of flow for the period since the last preceding test, then Shipper
shall reimburse Gatherer for all its direct costs in connection with that
additional test within 15 days following receipt of a detailed invoice and
supporting documentation setting forth those costs.
8.4
Adjustment
of Inaccuracies.
This
Section 8.4 specifically excludes wells operated by Gatherer in which Shipper
holds an Interest. If, upon test, any measuring equipment is found to be in
error by an amount not exceeding 2%, at a recording rate corresponding to the
average rate of flow for the period since the last preceding test, previous
recordings of that equipment shall be considered correct in computing deliveries
hereunder. If the measuring equipment shall be found to be in error by an amount
exceeding 2%, at a recording rate corresponding to the average rate of flow
for
the period since the last preceding test, then any preceding recordings of
that
equipment since the last preceding test shall be corrected to zero error for
any
period which is known definitely or agreed upon. If the period is not known
definitely or agreed upon, the correction shall be for a
18
period
extending back one-half of the time elapsed since the last test. In the event
a
correction is required for previous deliveries, the volumes delivered shall
be
calculated by the first of the following methods which is feasible: (i) by
using
the registration of any check meter or meters if installed and accurately
registering; or (ii) by correcting the error if the percentage of error is
ascertainable by calibration, test, or mathematical calculations; or (iii)
by
estimating the quantity of delivery by deliveries during periods of similar
conditions when the meter was registering accurately.
8.5
Gas
Composition.
The
composition and Gross Heating Value shall be determined on a continuous basis
by
Gatherer at CDP Receipt Points using a proportionate to flow sampler located
at
the point where the measurement equipment is located with such sampler paid
for
by Shipper and operated by Gatherer. Gas delivered at the Receipt Points,
downstream of any dehydration equipment, having a water content of 7 pounds
per
Mcf, or less, shall be considered dry, otherwise the Gas shall be considered
fully saturated.
8.6
Approvals.
Gatherer may request Shipper to seek any requisite approvals from and notify
the
appropriate governmental agencies that electronic flow measurement
(“EFM”)
equipment will be utilized for custody transfer measurement from Shipper at
the
Receipt Points as designated by Gatherer. If Shipper receives the necessary
approvals, Gatherer will install, operate, and maintain EFM and communication
equipment required for data acquisition, at any Receipt Point for which the
approvals have been obtained and Gatherer will provide Shipper with electronic
access to the daily EFM data. Gatherer shall pay for all EFM’s installed on
wells operated by Gatherer in which Shipper holds an Interest, and Shipper
shall
pay for all remaining EFM’s installed at other CDP’s.
8.7
Access.
Each
Party, at its sole risk and liability, shall have access at all reasonable
business hours to all facilities which are related to Gas measurement and
sampling. Each Party, at its sole risk and liability, shall have the right
to be
present for any installing, reading, cleaning, changing, repairing, testing,
calibrating and/or adjusting of either Party's measuring equipment.
ARTICLE
9: PAYMENTS
9.1
Invoices.
Gatherer shall provide Shipper with a statement explaining how all consideration
due (including deductions) under the terms of this Agreement was determined
not
later than the last day of the Accounting Period following the Accounting Period
for which the consideration is due.
9.2
Netting.
Any
sums due Shipper under this Agreement shall be paid no later than the last
day
of the Accounting Period following the Accounting Period for which the payment
is due.
During
any Accounting Period, if Shipper owes any amount to Gatherer under this
Agreement, or any other contract between the Parties, Gatherer may deduct the
amount from any amount otherwise due Shipper hereunder before making payment
to
Shipper.
9.3
Audit
Rights.
Either
Party, on 30
days
prior written notice, shall have the right at its expense, at reasonable times
during business hours, to audit the books and records of the other Party to
the
extent necessary to verify the accuracy of any statement, allocation,
measurement, computation, charge, or payment made under or pursuant to this
Agreement. The scope of any audit shall be limited to transactions affecting
the
Gas hereunder within the immediate geographic region of the Facilities, and
shall be limited to the 24
month
period immediately prior to the month in which the notice requesting an audit
was given. However, no audit may include any time period for which a prior
audit
hereunder was conducted, and no audit may occur more frequently than once
19
each
12
months.
All statements, allocations, measurements, computations, charges, or payments
made in any period prior to the 24
month
period immediately prior to the month in which the audit is requested, or made
in any 24
month
period for which the audit is requested but for which a written claim for
adjustments is not made within 90 days after the audit is requested shall be
conclusively deemed true and correct and shall be final for all purposes. To
the
extent that the foregoing varies from any applicable statute of limitations,
the
Parties expressly waive all such other applicable statutes of
limitations.
9.4 Right
to Suspend on Failure to Pay.
If
any
amount due hereunder remains unpaid for sixty (60) days after the due date,
Gatherer shall have the right to suspend or discontinue services hereunder
until
any such past due amount is paid. Shipper agrees to pay all costs incurred
by
Gatherer in connection with the collection of any amounts due hereunder,
including, without limitation, reasonable attorney’s fees and court
costs.
9.5 Payment
Disputes.
In the
event of any dispute with respect to any payment hereunder, Shipper shall make
timely payment of all undisputed amounts.
9.6 Interest
on Late Payments.
In the
event that Shipper shall fail to make timely payment of any sums, except those
contested in good faith or those in a good faith dispute, when due under this
Agreement, interest will accrue at an annual rate equal to the prime rate as
published in the “Money Rates” section of The Wall
Street Journal
plus two
percent (2%) from the date payment is due until the date payment is made.
ARTICLE
10: FORCE MAJEURE
10.1
Definition
of Force Majeure.
The
term
"Force
Majeure"
as used
in this Agreement, shall mean any cause or causes not reasonably within the
control of the Party claiming suspension and which, by the exercise of due
diligence, such Party is unable to prevent or overcome. Such term shall likewise
include, but not be limited to: Acts of God; acts of terrorism, acts, omissions
to act and or delays in action of federal, state or local government or any
agency thereof; compliance with rules, regulations or orders of any governmental
authority or any office, department, agency or instrumentality thereof; strikes,
lockouts or other industrial disturbances; acts of the public enemy; wars;
blockades; insurrections; riots; epidemics; landslides; lightning; earthquakes;
fires; storms; floods; washouts; arrest or restraint of rulers of peoples;
civil
disturbances; interruptions by governmental or court orders; present and future
valid orders of any regulatory body having jurisdiction; explosions; the
interruption or suspension of the receipt or delivery of Gas hereunder due
to
the inability, failure of any Party not a Party to this Agreement to receive
or
deliver such Gas; breakage or accident to, or routine maintenance and repair
of,
machinery or lines or pipes, compressors or plants; failure to obtain materials
and supplies due to governmental regulations; the inability of either Party
to
acquire, or the delays on the part of such Party in acquiring, at reasonable
cost and after the exercise of reasonable diligence, materials and supplies,
permits and consents, and easements and/or rights-of-way.
10.2 Effect
of Force Majeure.
In the
event any Party hereto is rendered, wholly or in part, by Force Majeure, unable
to carry out its obligations under this Agreement due to any event of Force
Majeure, other than to indemnify or to make payments of any amount due
hereunder, it is agreed upon such Party giving notice and full particulars
of
such Force Majeure, in writing, to the other Party as soon as possible after
the
occurrence of the causes relied on, then the obligation of the Party giving
such
notice, so far as they are affected by such Force Majeure, shall be cancelled
during the continuance of any inability so caused, but for no longer period,
and
such cause shall, so far as possible, be remedied with all reasonable dispatch;
provided, however, that this provision
20
shall
not
require the settlement of strikes or lockouts by acceding to the demands of
the
opposing parties when such course is inadvisable at the discretion of the Party
hereto having the difficulty.
ARTICLE
11: LIABILITY AND INDEMNIFICATION
11.1
Shipper
Custody.
As
among the Parties hereto, Shipper and any of its designees shall be in custody,
control and possession of the Gas hereunder, including any portion thereof
which
accumulates as liquids, until that Gas is delivered to the Receipt Points,
and
after any portion of the Gas is redelivered to Shipper at the Redelivery Points.
11.2
Gatherer
Custody.
As
among the Parties hereto, Gatherer and any of its designees shall be in custody,
control and possession of the Gas hereunder, including any portion thereof
which
accumulates as liquids, after that Gas is delivered at the Receipt Points and
until any portion of the Gas is redelivered to Shipper at the Redelivery Points.
11.3
Indemnification.
Each
Party (“Indemnifying Party”) hereby covenants and agrees with the other Party,
and its affiliates, and each of their directors, officers and employees
(“Indemnified Parties”), that except to the extent caused by the Indemnified
Parties’ negligence or willful misconduct, the Indemnifying Party shall protect,
defend, indemnify and hold harmless the Indemnified Parties from, against and
in
respect of any and all Losses incurred by the Indemnified Parties to the extent
those Losses arise from or are caused by the negligence or willful misconduct
of
the Indemnifying Party.
ARTICLE
12: TITLE
12.1
Shipper
Warranty.
Shipper
represents and warrants that it owns, or has the right to dedicate, all
Shipper’s Gas dedicated under this Agreement and to deliver that Gas to the
Receipt Points for the purposes of this Agreement, free and clear of all liens,
encumbrances and adverse claims. If the title to Shipper’s Gas delivered by
Shipper hereunder is disputed or is involved in any legal action, Gatherer
shall
have the right to withhold payment (without interest), or cease receiving the
Gas, to the extent of the interest disputed or involved in legal action, during
the pendency of the action or until title is freed from the dispute, or until
Shipper furnishes, or causes to be furnished, indemnification to save Gatherer
harmless from all Losses arising out of the dispute or action, with surety
acceptable to Gatherer. Shipper hereby indemnifies Gatherer against and holds
Gatherer harmless from any and all Losses arising out of or related to any
breach of the foregoing representation and warranty.
12.2 Title.
Title
to all Gas delivered under this Agreement, including all constituents thereof,
shall remain with and in Shipper at all times; provided, however, (i) title
to
Plant Products extracted by Gatherer shall transfer to Gatherer upon extraction
and (ii) title to Gatherer Condensate shall pass from Shipper to Gatherer
immediately downstream of the Middle Fork compressor station . Gatherer shall
be
entitled to use Shipper’s Gas for operational purposes at the Plant, provided
that Gatherer complies with all other requirements under this Agreement. Title
to any Gas provided or caused to be provided by Gatherer to replace the Thermal
Content of the PTR associated with Shipper’s Gas shall pass to Shipper at the
Redelivery Point.
ARTICLE
13: ROYALTY AND TAXES
13.1
Proceeds
of Production.
Shipper
shall have the sole and exclusive obligation and liability for the payment
of
all Persons due any proceeds derived from the Gas delivered under this
Agreement, including royalties, overriding royalties, and similar interests,
in
accordance with the provisions of the leases or agreements creating those rights
to proceeds. In no event will Gatherer
21
have
any
obligation to those Persons due any of those proceeds of production attributable
to the Gas under this Agreement.
13.2
Taxes.
Shipper
shall pay and be responsible for all Taxes levied against or with respect to
Gas
delivered or services provided under this Agreement. Gatherer shall under no
circumstances become liable for those Taxes, unless designated to remit those
Taxes on behalf of Shipper by any duly constituted jurisdictional agency having
authority to impose such obligations on Gatherer, in which event the amount
of
those Taxes remitted on Shipper's behalf shall (i) be reimbursed by Shipper
upon
receipt of invoice, with corresponding documentation from Gatherer setting
forth
such payments, or (ii) deducted from amounts otherwise due Shipper under this
Agreement.
13.3 Indemnification.
Shipper
hereby agrees to defend and indemnify and hold Gatherer harmless from and
against any and all Losses, arising from the payments made by Shipper in
accordance with Sections 13.1 and 13.2, above, including, without limitation,
Losses arising from claims for the nonpayment, mispayment, or wrongful
calculation of those payments.
ARTICLE
14: UNPROFITABLE GAS OR OPERATIONS
In
the
event it has become unprofitable for Gatherer, in its reasonable discretion,
to
(i) continue to receive Gas at any Receipt Points or (ii) continue to operate
its Facilities, in each case for a period of at least two (2) consecutive
Accounting Periods and Gatherer reasonably determines that the unprofitable
receipt of Gas or operations of its Facilities will likely continue, Gatherer
shall have the right to give Shipper a written notice of unprofitability.
If
the
unprofitable circumstances affect the receipt of Gas at particular Receipt
Points, the Parties shall then attempt in good faith to negotiate mutually
acceptable terms to provide for continued delivery of Gas at the affected
Receipt Points. If the Parties cannot agree on those terms within thirty (30)
days following the notice of unprofitability, then either Party may terminate
this Agreement as to, and only as to, the affected Receipt Points. If
the
unprofitable circumstances affect the operation of the Facilities, Gatherer
may
terminate this Agreement upon the expiration of sixty (60) days following the
written notice of unprofitable operations.
ARTICLE
15: RIGHTS-OF-WAY
Shipper
hereby grants to Gatherer, insofar as Shipper has the right to do so, all
requisite easements and rights-of-way over, across, and under the Dedication
Area, with full right of ingress and egress, for the purposes of constructing,
operating, repairing, replacing and maintaining communication facilities,
measurement facilities, pipeline gathering facilities, compression facilities,
dehydration facilities, treating facilities, processing facilities and other
underground and surface equipment necessary for the performance of Gatherer's
obligations set forth in this Agreement; provided, the exercise of those rights
by Gatherer will not unreasonably interfere with Shipper’s lease operations or
with the rights of owners in fee. All facilities and other equipment acquired,
placed, or installed by Gatherer for the purposes of this Agreement pursuant
to
the provisions of this Article, shall remain the property of Gatherer and may
be
removed by Gatherer at any time.
ARTICLE
16: DISPUTE RESOLUTION AND ARBITRATION
16.1 Negotiation.
Prior
to submitting any dispute for resolution by a court, a Party shall provide
written notice to the other of the occurrence of such dispute. If the Parties
have failed to resolve the dispute within fifteen (15) Business Days after
such
notice was given, the Parties shall seek to resolve the dispute by negotiation
between Section 16 Officers of each Party. Such Officers shall
22
endeavor
to meet and attempt to amicably resolve the dispute. If the Parties are unable
to resolve the dispute for any reason within thirty (30) Business Days after
the
original notice of dispute was given, then either Party shall be entitled to
pursue any remedies available at law or in equity.
16.2 Jurisdiction
and Venue.
The
Parties hereby irrevocably consent to the exclusive jurisdiction of the federal
courts situated in the State of Colorado; provided, however, in the event that
such federal courts do not have jurisdiction over the dispute in question,
then
the Parties hereby irrevocably consent to the exclusive jurisdiction of the
state courts situated in the State of Colorado with respect to such dispute.
The
Parties hereby irrevocably and unconditionally waive, to the fullest extent
they
may legally and effectively do so, any objection which they may now or hereafter
have to the laying of venue of any suit, action or proceeding arising out of
or
relating to this Agreement or the transactions contemplated hereby in the
Colorado federal or state courts.
16.3 Waiver
of Jury Trial.
The
Parties hereby waive all rights to a trial by jury for disputes arising from
or
under this Agreement.
ARTICLE
17: MISCELLANEOUS
17.1
Rights.
The
failure of any Party hereto to exercise any right granted hereunder shall not
impair nor be deemed a waiver of that Party's privilege of exercising that
right
at any subsequent time or times.
17.2 Applicable
Laws.
This
Agreement is subject to all valid present and future laws, regulations, rules
and orders of governmental authorities now or hereafter having jurisdiction
over
the Parties, this Agreement, or the services performed or the Facilities
utilized under this Agreement. It is the intent of the Parties that Gatherer
provide Gathering to Shipper on a negotiated contract basis only and the Parties
hereby agree that, in the event that (i) the Facilities, or any part thereof,
become subject to regulation by the Federal Energy Regulatory Commission, or
any
successor agency thereto (“FERC”),
or
any other governmental body or agency of the rates, terms and conditions for
Gathering service, (ii) Gatherer becomes obligated by FERC or any other
governmental body or agency to provide Gathering on an open access,
nondiscriminatory basis as a result of Gatherer's execution, performance or
continued performance of this Agreement, or (iii) FERC or any other governmental
body or agency seeks to modify any rates under, or term or conditions of, this
Agreement, then:
(a)
in
the event that FERC or governmental body or agency having jurisdiction modifies
the rates or terms and conditions set forth in this Agreement, the Parties
hereby agree to attempt to enter into such amendments to this Agreement and
or
enter into a separate arrangement in order to give effect, to the greatest
extent possible, to the rates and other terms and conditions set forth herein;
and
(b)
in
the event that the Parties are not successful in accomplishing the objectives
set forth in (a) above such that the Parties are in substantially the same
economic position as they were prior to any such regulation, then either Party
may terminate this Agreement upon the delivery of written notice of termination
to the other Party.
17.3.
Governing
Law.
This
Agreement shall be governed by, construed, and enforced in accordance with
the
laws of the State of Colorado without regard to choice of law principles.
17.4 Interconnecting
Pipelines; Third-Party Gatherers.
Gatherer may from time to time become subject to new requirements imposed by
the
Interconnecting Pipelines or a third party
23
gatherer.
Gatherer shall provide timely written notice to Shipper of any such new
requirements. Thereafter, Shipper shall comply with such new requirements or
Gatherer may suspend or terminate this Agreement upon Shipper’s refusal or
failure to comply with such new requirements after thirty days (30) days written
notice that Shipper is in default of its obligations to comply with such new
requirements.
17.5
Successors
and Assigns.
This
Agreement shall extend to and inure to the benefit of and be binding upon the
Parties, and their respective successors and assigns, including any assigns
of
Shipper’s Interests covered by this Agreement. Each Party shall have the right
to assign its respective rights and obligations in whole or in part under this
Agreement; provided, however, (i) this Agreement shall not be assigned by a
Party without the prior written consent of the other Party, such consent not
to
be unreasonably withheld, conditioned or delayed; (ii) Shipper may only assign
an interest in this Agreement to a party which acquires Shipper’s Interests
within the Dedication Area; and, (iii) any transfer by Shipper of any of its
Interests within the Dedication Area shall be expressly made subject to the
terms and conditions of this Agreement.
17.6 Severability.
Should
any part of this Agreement be found to be unenforceable or be required to be
modified by a court or governmental authority, then only that part of this
Agreement shall be affected. The remainder of this Agreement shall remain in
force and unmodified.
17.7 Waiver.
A
waiver by either party of any one or more defaults by the other party shall
not
operate as a waiver of any future defaults, whether of a like or different
character.
17.8
Confidentiality.
The
Parties agree to keep the terms of this Agreement confidential and not disclose
the same to any other persons, firms or entities without the prior written
consent of the other Party; provided, the foregoing shall not apply to (i)
disclosures compelled by law, securities exchange or court order or (ii)
disclosures to a Party’s financial advisors, consultants, attorneys, banks,
institutional investors and prospective purchasers of property provided those
persons, firms or entities likewise agree to keep this Agreement
confidential.
17.9
Published
Indices.
In the
event any published price index referred to in this Agreement ceases to be
published, the Parties shall mutually agree to an alternative published price
index representative of the published price index referred to in this
Agreement.
17.10 Amendments.
Any
amendment, change, modification or alteration of this Agreement shall be in
writing, signed by the Parties.
17.11
Entire
Agreement.
This
Agreement, including all exhibits and appendices, contains the entire agreement
between the Parties with respect to the subject matter hereof, and there are
no
oral or other promises, agreements, warranties, obligations, assurances, or
conditions precedent, affecting it.
17.12 Waiver
of Consequential Damages.
NO
BREACH OF THIS AGREEMENT OR CLAIM FOR LOSSES UNDER ANY INDEMNITY OBLIGATION
CONTAINED IN THIS AGREEMENT SHALL CAUSE ANY PARTY TO BE LIABLE FOR, NOR SHALL
LOSSES INCLUDE, ANY DAMAGES OTHER THAN ACTUAL AND DIRECT DAMAGES, AND EACH
PARTY
EXPRESSLY WAIVES ANY RIGHT TO CLAIM ANY OTHER DAMAGES, INCLUDING, WITHOUT
LIMITATION, CONSEQUENTIAL, SPECIAL, INDIRECT, PUNITIVE OR EXEMPLARY DAMAGES,
OR
LOST PROFITS;
PROVIDED, HOWEVER, THE FOREGOING SHALL NOT BE CONSTRUED AS LIMITING THE
OBLIGATION
24
OF
EITHER PARTY UNDER THIS AGREEMENT TO INDEMNIFY THE OTHER PARTY AGAINST CLAIMS
ASSERTED BY UN-AFFILIATED THIRD PARTIES, INCLUDING, BUT NOT LIMITED TO,
UN-AFFILIATED THIRD PARTY CLAIMS FOR CONSEQUENTIAL, SPECIAL, INDIRECT, PUNITIVE
OR EXEMPLARY DAMAGES.
25
EXHIBIT
C
MEMORANDUM
OF GAS GATHERING AGREEMENT
THIS
MEMORANDUM OF GAS GATHERING AGREEMENT (this “Memorandum”)
is
made and entered into this 7th day of June, 2006 (the “Effective
Date”),
by
and between BERRY
PETROLEUM COMPANY (“Shipper”)
with
an address of 5201 Truxton Avenue, Suite 300, Bakersfield, CA 93309-0640,
and ENCANA
OIL & GAS (USA) INC.,
with an
address of 370 17th
Street,
Suite 1700, Denver, Colorado 80202 (“Gatherer”).
WHEREAS,
Shipper
and Gatherer and entered into that certain Gas Gathering Agreement dated
June 7,
2006 (the “Agreement”),
pursuant to which Gatherer will provide Gathering and, unless otherwise agreed
by the Parties, shall provide or secure services for Treating and Processing
of
Shipper’s Gas;
WHEREAS,
any
capitalized term used, but not defined, in this Memorandum shall have the
meaning ascribed to such term in the Agreement; and
WHEREAS,
the
Parties desire to file this Memorandum of record in the real property records
of
Garfield County,
Colorado,
to give
notice of the existence of the Agreement and certain provisions contained
therein;
NOW
THEREFORE, FOR GOOD AND VALUABLE CONSIDERATION, the receipt and sufficiency
of
which are hereby acknowledged, the Parties agree as follows:
1. Notice.
Notice
is hereby given of the existence of the Agreement and all of its terms,
covenants and conditions to the same extent as if the Agreement was fully
set
forth herein. Certain provisions of the Agreement are summarized in Sections
2
through 5 below.
2. Dedication.
Subject
to the terms and conditions of the Agreement, Shipper has dedicated
and agreed to deliver, and shall cause its Affiliates to dedicate and deliver,
to Gatherer, for Gathering, (i) all of Shipper’s Gas produced from the leases
located on the lands described on Schedule
I
attached
hereto (referred to as the “Dedication
Area”)
during
the Term.
3. Gathering
Services.
Subject
to the terms and conditions of the Agreement, Gatherer will Gather Shipper’s Gas
and, unless otherwise agreed by the Parties, shall provide or secure services
for Treating and Processing of Shipper’s Gas.
4. Covenant
Running with the Land.
So long
as the Agreement is in effect, the Agreement shall (i) be a covenant running
with the Interests now
owned
or hereafter acquired by Shipper and/or its Affiliates within the Dedication
Area and (ii) be binding on and enforceable by Gatherer and its successors
and
assigns against Shipper and/or its Affiliates and all subsequent owners of
all
or any part of the Dedication Area and their respective successors and assigns.
Shipper shall cause any conveyance of all or any Interests in the Dedication
Area to be made expressly subject to the Agreement.
5. Conveyance
of Rights to Gatherer. Shipper
has granted, sold, conveyed and assigned to Gatherer (i)
the
exclusive right to Gather, Treat, and Process Shipper’s Gas, (ii) all
right,
title, interest and/or ownership in Plant Products, Gatherer Condensate,
and
Stabilized Condensate recovered from the Gathering, Treating, and/or Processing
of Shipper’s Gas, and (iii) the right to consume Shipper’s Gas as PTR in
connection with the Processing of Shipper’s Gas under this Agreement. Shipper
has retained and will own its share of Shipper Condensate allocated in
accordance with the Agreement.
6. No
Amendment to Agreement.
This
Memorandum is executed and recorded solely for the purpose of giving notice
and
shall not amend nor modify the Agreement in any way.
IN
WITNESS WHEREOF,
this
Memorandum has been signed by or on behalf of each of the Parties as of the
day
first above written.
ENCANA
OIL & GAS (USA) INC.
By:
/s/ Eric D. Marsh
Name:
Eric D. Marsh
Title:
Vice President
BERRY
PETROLEUM COMPANY
By:
/s/ Michael Duginski
Name:
Michael Duginski
Title:
Executive Vice President
2
Acknowledgements
STATE
OF
COLORADO §
§
COUNTY
OF
DENVER §
The
foregoing instrument was acknowledged before me on the 7th day of
June, 2006, by Eric D. Marsh, Vice President of
EnCana Oil & Gas (USA) Inc., a Delaware corporation, on behalf of said
corporation.
/s/
Eve M. Mullaney
Notary
Public in and for Denver, CO
Eve
M. Mullaney
Printed
or Typed Name of Notary
STATE
OF
COLORADO §
§
COUNTY
OF
DENVER §
The
foregoing instrument was acknowledged before me on the 7th day of
June, 2006, by Michael Duginski, Executive Vice
President of Berry Petroleum Company, a Delaware corporation, on behalf
of said corporation.
/s/
Eve M. Mullaney
Notary
Public in and for Denver, CO
Eve
M. Mullaney
Printed
or Typed Name of Notary
3
SCHEDULE
I
DEDICATION
AREA
Township
5 South, Range 94 West Sections
1-36
Township
5 South, Range 95 West Sections
1-36
Township
6 South, Range 95 West Sections
1-36
Township
6 South, Range 96 West Sections
1-4, 9-16, 21-28, and 33-36
All
located in Garfield County, Colorado
EXHIBIT
F
AMI
Lands
Township
5 South, Ranges 94 and 95 West: All
Township
6 South, Range 95 West: All
Township
6 South, Range 96 West: Sections
1-4, 9-16, 21-28, and 33-36
All
lands
and interests owned or leased on the date of the Agreement by either EnCana
or
ExxonMobil Corporation shall be excluded from the AMI Lands. AMI Interest shall
not include any rights or interests in oil shale within the AMI, and no
acquisition by either Party of such rights or interests shall be subject to
Section 14 of the Agreement.
22
EXHIBIT
G
Tax
Partnership Provisions
[incorporated
in exhibit above]
23