EXHIBIT 10.3
A.A.P.L. FORM 610 -- MODEL FORM OPERATING AGREEMENT - 1989
A.A.P.L. FORM 610 -- 1989
MODEL FORM OPERATING AGREEMENT
DATED
SEPTEMBER 29, 2006
OPERATOR: ENERVEST OPERATING LLC, ACTING AS CONTRACT OPERATOR FOR CGAS
PROPERTIES, L.P.
STATES OF OHIO, WEST VIRGINIA, PENNSLYVANIA AND NEW YORK
A.A.P.L. FORM 610 -- MODEL FORM OPERATING AGREEMENT - 1989
TABLE OF CONTENTS
ARTICLE I. definitions................................................................................... 1
ARTICLE II. EXHIBITS..................................................................................... 2
ARTICLE III. INTERESTS OF PARTIES........................................................................ 3
A OIL AND GAS INTERESTS:.......................................................................... 3
B INTERESTS OF PARTIES IN COSTS AND PRODUCTION:................................................... 3
C SUBSEQUENTLY CREATED INTERESTS:................................................................. 4
ARTICLE IV. TITLES....................................................................................... 4
A TITLE EXAMINATION:.............................................................................. 4
B LOSS OR FAILURE OF TITLE:....................................................................... 5
ARTICLE V. OPERATOR...................................................................................... 6
A DESIGNATION AND RESPONSIBILITIES OF OPERATOR:................................................... 6
B RESIGNATION OR REMOVAL OF OPERATOR AND SELECTION OF SUCCESSOR:.................................. 7
C EMPLOYEES AND CONTRACTORS:...................................................................... 7
D RIGHTS AND DUTIES OF OPERATOR:.................................................................. 8
ARTICLE VI. DRILLING AND DEVELOPMENT..................................................................... 9
C . COMPLETION OF XXXXX; REWORKING AND PLUGGING BACK:................................................ 15
ARTICLE VII. EXPENDITURES AND LIABILITY OF PARTIES....................................................... 18
A LIABILITY OF PARTIES:........................................................................... 18
B LIENS AND SECURITY INTERESTS:................................................................... 18
C ADVANCES:....................................................................................... 19
D DEFAULTS AND REMEDIES:.......................................................................... 19
E RENTALS, SHUT-IN WELL PAYMENTS AND MINIMUM ROYALTIES:........................................... 21
F TAXES:.......................................................................................... 21
ARTICLE VIII. ACQUISITION, MAINTENANCE OR TRANSFER OF INTEREST........................................... 22
A SURRENDER OF LEASES:............................................................................ 22
B RENEWAL OR EXTENSION OF LEASES:................................................................. 22
C ACREAGE OR CASH CONTRIBUTIONS:.................................................................. 23
D ASSIGNMENT; MAINTENANCE OF UNIFORM INTEREST:.................................................... 23
E WAIVER OF RIGHTS TO PARTITION:.................................................................. 24
ARTICLE IX. INTERNAL REVENUE CODE ELECTION............................................................... 24
ARTICLE X. CLAIMS AND LAWSUITS........................................................................... 24
ARTICLE XI. FORCE MAJEURE................................................................................ 25
ARTICLE XII. NOTICES..................................................................................... 25
ARTICLE XIII. TERM OF AGREEMENT.......................................................................... 25
ARTICLE XIV. COMPLIANCE WITH LAWS AND REGULATIONS........................................................ 26
A LAWS, REGULATIONS AND ORDERS:................................................................... 26
B GOVERNING LAW:.................................................................................. 26
C REGULATORY AGENCIES:............................................................................ 26
ARTICLE XV. MISCELLANEOUS................................................................................ 27
A EXECUTION:...................................................................................... 27
B SUCCESSORS AND ASSIGNS:......................................................................... 27
C COUNTERPARTS:................................................................................... 27
D SEVERABILITY:................................................................................... 27
ARTICLE XVI. OTHER PROVISIONS............................................................................ 28
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A.A.P.L. FORM 610 -- MODEL FORM OPERATING AGREEMENT - 1989
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A.A.P.L. FORM 610 -- MODEL FORM OPERATING AGREEMENT - 1989
OPERATING AGREEMENT
THIS AGREEMENT, entered into by and between EnerVest Operating LLC, acting
as the contract operator for the other signatory party or parties, hereinafter
designated and referred to as `Operator,' 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," 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."
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 VIA.
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.
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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:
_______ A. Exhibit "A," shall include the following information:
(1) Description of lands 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.
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A.A.P.L. FORM 610 -- MODEL FORM OPERATING AGREEMENT - 1989
______ B. Exhibit "B," Form of Lease.
______ C. Exhibit "C," Accounting Procedure.
______ D. Exhibit "D," Insurance.
______ E. Exhibit "E," Gas Balancing Agreement.
______ F. Exhibit "F," Non-Discrimination and Certification of
Non-Segregated Facilities.
______ G. Exhibit "G," Tax Partnership.
______ H. Other:_________________________________________________________
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." 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, ___ 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'
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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," 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." 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 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
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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 driled 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," 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" 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" to a Lease or
Interest which is limited solely to ownership of an interest in the wellbore of
any well or xxxxx 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."
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
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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" 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 xxxxx 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 xxxxx 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";
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.X.x . 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." 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.
4. Curing Title: In the event of a Failure of Title under Article IV.X.x.
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.X.x. 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:
EnerVest Operating LLC shall be the Operator of the Contract Area, 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 of 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
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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" 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.l., such resignation or removal shall not become
effective until 7:00 o'clock AM. 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"; 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" 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."
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."
C EMPLOYEES AND CONTRACTORS:
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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 by 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 xxxxx 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 xxxxx, 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 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. Attached to and made a part
of Exhibit C hereto shall be Addenda indicating the direct charges and overhead
for specified regions within the Contract Area.
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.
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A.A.P.L. FORM 610 -- MODEL FORM OPERATING AGREEMENT - 1989
7. Drilling and Testing Operations: The following provisions shall apply
to each well drilled 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
1. Proposed Operations: If any party hereto should desire to drill any
well on the Contract Area 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 twenty-four (24) hours. 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
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A.A.P.L. FORM 610 -- MODEL FORM OPERATING AGREEMENT - 1989
expiration of the twenty-four (24) 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 twenty-four (24) 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. 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 twenty-four (24) hours
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" 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 twenty-four (24) hours. 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.
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A.A.P.L. FORM 610 -- MODEL FORM OPERATING AGREEMENT - 1989
(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 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) 400% 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) 400% 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.
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A.A.P.L. FORM 610 -- MODEL FORM OPERATING AGREEMENT - 1989
(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 400% 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 xxxxxxxx. 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, Deepening, Recompleting
or Plugging Back of said well. Thereafter, such Non-Consenting Party shall be
charged
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A.A.P.L. FORM 610 -- MODEL FORM OPERATING AGREEMENT - 1989
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" bears to the total interest as shown on
Exhibit "A" 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 twenty-four (24) 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" bears to the total interest as shown on Exhibit "A" 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
13
A.A.P.L. FORM 610 -- MODEL FORM OPERATING AGREEMENT - 1989
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, 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 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 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 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 xxxxx shall be proposed to be drilled to
or Completed in or produced from a Zone from which a
14
A.A.P.L. FORM 610 -- MODEL FORM OPERATING AGREEMENT - 1989
well located elsewhere on the Contract Area is producing, unless such well
conforms to the then-existing well spacing pattern for such Zone.
8. Paving Xxxxx. 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 XXXXX; 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:
[X] 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.
[ ] Option No. 2: All necessary expenditures for the drilling, Deepening or
Sidetracking and testing of the well. When such well has reached its
authorized depth, and all logs, cores and other tests have been completed,
and the results thereof furnished to the parties, Operator shall give
immediate notice to the Non-Operators having the right to participate in a
Completion attempt whether or not Operator recommends attempting to
Complete the well, together with Operator's AFE for Completion costs if
not previously provided. The parties receiving such notice shall have
forty-eight (48) hours (exclusive of Saturday, Sunday and legal holidays)
in which to elect by delivery of notice to Operator to participate in a
recommended Completion attempt or to make a Completion proposal with an
accompanying AFE. Operator shall deliver any such Completion proposal, or
any Completion proposal conflicting with Operator's proposal, to the other
parties entitled to participate in such Completion in accordance with the
procedures specified in Article VI.B.6. Election to participate in a
Completion attempt shall include consent to all necessary expenditures for
the Completing and equipping of such well, including necessary tankage
and/or surface facilities but excluding any stimulation operation not
contained on the Completion AFE. Failure of any party receiving such
notice to reply within the period above fixed shall constitute an election
by that party not to participate in the cost of the Completion attempt;
provided, that Article VI.B.6. shall control in the case of conflicting
Completion proposals. If one or more, but less than all of the parties,
elect to attempt a Completion, the provision of Article VI.B.2. hereof
(the phrase "Reworking, Sidetracking, Deepening, Recompleting or Plugging
Back" as contained in Article VI.B.2. shall be deemed to include
"Completing") shall apply to the operations thereafter conducted by less
than all parties; provided, however, that Article VI.B.2. shall apply
separately to each separate Completion or Recompletion attempt undertaken
hereunder, and an election to become a Non-Consenting Party as to one
Completion or Recompletion attempt shall not prevent a party from becoming
a Consenting Party in subsequent Completion or Recompletion attempts
regardless whether the Consenting Parties as to earlier Completions or
Recompletion have recouped their costs pursuant to Article VI.B.2.;
provided further, that any recoupment of costs by a Consenting Party shall
be made solely from the production attributable to the Zone in which the
Completion attempt is made. Election by a previous Non-Consenting party to
participate in a subsequent Completion or Recompletion attempt shall
require such party to pay its proportionate share of the cost of salvable
materials and equipment installed in the well pursuant to the previous
Completion or Recompletion attempt, insofar and only insofar as such
materials and equipment benefit the Zone in which such party participates
in a Completion attempt.
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.
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A.A.P.L. FORM 610 -- MODEL FORM OPERATING AGREEMENT - 1989
D. OTHER OPERATIONS:
Operator shall not undertake any single project reasonably estimated to
require an expenditure in excess of Twenty-five thousand Dollars ($25,000.00)
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 Twenty-five thousand Dollars ($25,000.00). 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 xxxxx
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 by 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 50%
of the interests of the parties entitled to participate in such operation, 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 XXXXX:
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 xxxxx 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, Sunday and legal holidays)
after delivery of notice of the proposed plugging shall take over the well as of
the end of such 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 Xxxxx 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
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A.A.P.L. FORM 610 -- MODEL FORM OPERATING AGREEMENT - 1989
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 an 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 cosst 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 50% 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.
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A.A.P.L. FORM 610 -- MODEL FORM OPERATING AGREEMENT - 1989
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 and 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.
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 xxxxx, 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
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A.A.P.L. FORM 610 -- MODEL FORM OPERATING AGREEMENT - 1989
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 marshalling 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 only by Operator, except that Operator
shall deliver any such notice and election requested by a non-defaulting
Non-Operator, and when
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A.A.P.L. FORM 610 -- MODEL FORM OPERATING AGREEMENT - 1989
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 xxx (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 of 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 xxx 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 this Article VII.D. or any other default remedy
20
A.A.P.L. FORM 610 -- MODEL FORM OPERATING AGREEMENT - 1989
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 xxxx the other parties for their proportionate
shares of all tax payments in the manner provided in Exhibit "C." 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.
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A.A.P.L. FORM 610 -- MODEL FORM OPERATING AGREEMENT - 1989
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 interests
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
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A.A.P.L. FORM 610 -- MODEL FORM OPERATING AGREEMENT - 1989
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," 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 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 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 the Contract Area.
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:
For the purpose of maintaining uniformity of ownership in the Contract
Area in the Oil and Gas Leases, Oil and Gas Interests, xxxxx, equipment and
production covered by this agreement no party shall sell, encumber, transfer or
make other disposition of its interest in the Oil and Gas Leases and Oil and Gas
Interests embraced within the Contract Area or in xxxxx, equipment and
production unless such disposition covers either:
1. the entire interest of the party in all Oil and Gas Leases, Oil and Gas
Interests, xxxxx, equipment and production; or
2. an equal undivided percent of the party's present interest in all Oil
and Gas Leases, Oil and Gas Interests, xxxxx, equipment and production in the
Contract Area.
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
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A.A.P.L. FORM 610 -- MODEL FORM OPERATING AGREEMENT - 1989
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.
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 xxxxxxxx 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.
ARTICLE IX.
INTERNAL REVENUE CODE ELECTION
If, for federal income tax purposes, this agreement and the operations
hereunder are regarded as a partnership, and if the parties have not otherwise
agreed to form a tax partnership pursuant to Exhibit "G" or other agreement
between them, each party thereby affected elects to be excluded from the
application of all of the provisions of Subchapter "K," Chapter 1, Subtitle "A,"
of the Internal Revenue Code of 1986, as amended ("Code"), as permitted and
authorized by Section 761 of the Code and the regulations promulgated
thereunder. Operator is authorized and directed to execute on behalf of each
party hereby affected such evidence of this election as may be required by the
Secretary of the Treasury of the United States or the Federal Internal Revenue
Service, including specifically, but not by way of limitation, all of the
returns, statements, and the data required by Treasury Regulation Section 1.761.
Should there be any requirement that each party hereby affected give further
evidence of this election, each such party shall execute such documents and
furnish such other evidence as may be required by the Federal Internal Revenue
Service or as may be necessary to evidence this election. No such party shall
give any notices or take any other action inconsistent with the election made
hereby. If any present or future income tax laws of the state or states in which
the Contract Area is located or any future income tax laws of the United States
contain provisions similar to those in Subchapter "K," Chapter 1, Subtitle "A,"
of the Code, under which an election similar to that provided by Section 761 of
the Code is permitted, each party hereby affected shall make such election as
may be permitted or required by such laws. In making the foregoing election,
each such party states that the income derived by such party from operations
hereunder can be adequately determined without the computation of partnership
taxable income.
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 twenty-five
thousand Dollars ($25,000.00) and if the payment is in complete settlement of
such claim or suit. If the amount required for settlement exceeds the above
amount, the
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A.A.P.L. FORM 610 -- MODEL FORM OPERATING AGREEMENT - 1989
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 at 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
indemnify or make money payments or furnish security, 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, lightning, fire, storm, flood or other act of nature, explosion,
governmental action, governmental delay, restraint or inaction, unavailability
of equipment, 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."
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
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A.A.P.L. FORM 610 -- MODEL FORM OPERATING AGREEMENT - 1989
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.
[X] 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.
[ ] Option No. 2: In the event the well described in Article VI.A., or any
subsequent well drilled under any provision of this agreement, results in
the Completion of a well as a well capable of production of Oil and/or Gas
in paying quantities, this agreement shall continue in force so long as
any such well is capable of production, and for an additional period of
____ days thereafter; provided, however, if, prior to the expiration of
such additional period, one or more of the parties hereto are engaged in
drilling, Reworking, Deepening, Sidetracking, Plugging Back, testing or
attempting to Complete or Re-complete a well or xxxxx hereunder, this
agreement shall continue in force until such operations have been
completed and if production results therefrom, this agreement shall
continue in force as provided herein. In the event the well described in
Article VI.A., or any subsequent well drilled hereunder, results in a dry
hole, and no other well is capable of producing Oil and/or Gas from the
Contract Area, this agreement shall terminate unless drilling, Deepening,
Sidetracking, Completing, Re-completing, Plugging Back or Reworking
operations are commenced within ____ days from the date of abandonment of
said well. "Abandonment" for such purposes shall mean either (i) a
decision by all parties not to conduct any further operations on the well
or (ii) the elapse of 180 days from the conduct of any operations on the
well, whichever first occurs.
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, NONPERFORMANCE, 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, THE LAW OF THE STATE OF TEXAS SHALL
GOVERN.
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
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A.A.P.L. FORM 610 -- MODEL FORM OPERATING AGREEMENT - 1989
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 xxxxx, 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" 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" 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.
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A.A.P.L. FORM 610 -- MODEL FORM OPERATING AGREEMENT - 1989
ARTICLE XVI.
OTHER PROVISIONS
A. TERMINATION OF AGREEMENT
CGAS Properties, L.P. may terminate this agreement upon the giving of
sixty (60) days notice to EnerVest Operating LLC.
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A.A.P.L. FORM 610 -- MODEL FORM OPERATING AGREEMENT - 1989
IN WITNESS WHEREOF, this agreement shall be effective as of the 29th day of
September 2006.
ATTEST OR WITNESS: OPERATOR
EnerVest Operating LLC, as contract
operator for CGAS Properties, L.P.
By________________________
/s/ Xxxxxxx Xxxxxxx
-------------------
Name /s/ Xxxx Xxxxxx
------------------------------
Title_____________________________
Date______________________________
Tax ID or S.S. No.________________
NON-OPERATOR
CGAS Properties, L.P.
By: EVCG, L.L.C.
A Delaware limited liability company,
its General Partner
By: EV Properties L.P.
a Delaware limited partnership,
its Sole Member
By: EV Properties GP, LLC
a Delaware limited liability company,
its General Partner
By: EnerVest Management Partners, Ltd.,
a Texas limited partnership,
its sole Member
By: EnerVest Management GP, L.C.,
a Texas limited liability company,
its General Partner
By: /s/ Xxxx Xxxxxx
------------------------------
Xxxx X. Xxxxxx
Executive Vice President and
Chief Operating Officer
/s/ Xxxxxxx Xxxxxxx
----------------------------
Date__________________________
Tax ID or S.S. No.____________
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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__________________ Section
Section
Section
County of________________ Section
This instrument was acknowledged before me on____________ by_____________.
(Seal, if any) _________________________________
Title (and Rank)_________________
_______________________________________
My commission expires:______________
Acknowledgment in representative capacity:
State of__________________ Section
Section
Section
County of________________ Section
This instrument was acknowledged before me on___________ by _____________
as________________ of__________________________.
(Seal, if any) _________________________________
Title (and Rank)_________________
_______________________________________
My commission expires:______________
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A.A.P.L. FORM 610 -- MODEL FORM OPERATING AGREEMENT - 1989
EXHIBIT " "
Attached to and made a part of_____________________________
ACCOUNTING PROCEDURE
JOINT OPERATIONS
I. GENERAL PROVISIONS
1. DEFINITIONS
"Joint Property" shall mean the real and personal property subject to the
agreement to which this Accounting Procedure is attached.
"Joint Operations" shall mean all operations necessary or proper for the
development, operation, protection and maintenance of the Joint Property.
"Joint Account" shall mean the account showing the charges paid and credits
received in the conduct of the Joint Operations and which are to be shared by
the Parties.
"Operator" shall mean the party designated to conduct the Joint Operations.
"Non-Operators" shall mean the Parties to this agreement other than the
Operator.
"Parties" shall mean Operator and Non-Operators.
"First Level Supervisors" shall mean those employees whose primary function in
Joint Operations is the direct supervision of other employees and/or contract
labor directly employed on the Joint Property in a field operating capacity.
"Technical Employees" shall mean those employees having special and specific
engineering, geological or other professional skills, and whose primary function
in Joint Operations is the handling of specific operating conditions and
problems for the benefit of the Joint Property.
"Personal Expenses" shall mean travel and other reasonable reimbursable expenses
of Operator's employees.
"Material" shall mean personal property, equipment or supplies acquired or held
for use on the Joint Property.
"Controllable Material" shall mean Material which at the time is so classified
in the Material Classification Manual as most recently recommended by the
Council of Petroleum Accountants Societies.
2. STATEMENT AND XXXXXXXX
Operator shall xxxx Non-Operators on or before the last day of each month for
their proportionate share of the Joint Account for the preceding month. Such
bills will be accompanied by statements which identify the authority for
expenditure, lease or facility, and all charges and credits summarized by
appropriate classifications of investment and expense except that items of
Controllable Material and unusual charges and credits shall be separately
identified and fully described in detail.
3. ADVANCES AND PAYMENTS BY NON-OPERATORS
A. Unless otherwise provided for in the agreement, the Operator may
require the Non-Operators to advance their share of estimated cash
outlay for the succeeding month's operation within fifteen (15) days
after receipt of the billing or by the first day of the month for
which the advance is required, whichever is later. Operator shall
adjust each monthly billing to reflect advances received from the
Non-Operators.
B. Each Non-Operator shall pay its proportion of all bills within
fifteen (15) days after receipt. If payment is not made within such
time, the unpaid balance shall bear interest monthly at the prime
rate in effect at___________________ on the first day of the month
in which delinquency occurs plus 1% or the maximum contract rate
permitted by the applicable usury laws in the state in which the
Joint Property is located, whichever is the lesser, plus attorney's
fees, court costs, and other costs in connection with the collection
of unpaid amounts.
4. ADJUSTMENTS
Payment of any such bills shall not prejudice the right of any Non-Operator to
protest or question the correctness thereof; provided, however, all bills and
statements rendered to Non-Operators by Operator during any calendar year shall
conclusively be presumed to be true and correct after twenty-four (24) months
following the end of any such calendar year, unless within the said twenty-four
(24) month period a Non-Operator takes written exception thereto and makes claim
on Operator for adjustment. No adjustment favorable to Operator shall be made
unless it is made within the same prescribed period. The provisions of this
paragraph shall not prevent adjustments resulting from a physical inventory of
Controllable Material as provided for in Section V.
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A.A.P.L. FORM 610 -- MODEL FORM OPERATING AGREEMENT - 1989
5. AUDITS
A. A Non-Operator, upon notice in writing to Operator and all other
Non-Operators, shall have the right to audit Operator's accounts and
records relating to the Joint Account for any calendar year within
the twenty-four (24) month period following the end of such calendar
year; provided, however, the making of an audit shall not extend the
time for the taking of written exception to and the adjustments of
accounts as provided for in Paragraph 4 of this Section I. Where
there are two or more Non-Operators, the Non-Operators shall make
every reasonable effort to conduct a joint audit in a manner which
will result in a minimum of inconvenience to the Operator. Operator
shall bear no portion of the Non-Operators' audit cost incurred
under this paragraph unless agreed to by the Operator. The audits
shall not be conducted more than once each year without prior
approval of Operator, except upon the resignation or removal of the
Operator, and shall be made at the expense of those Non-Operators
approving such audit.
B. The Operator shall reply in writing to an audit report within 180
days after receipt of such report.
6. APPROVAL BY NON-OPERATORS
Where an approval or other agreement of the Parties or Non-Operators is
expressly required under other sections of this Accounting Procedure and
if the agreement to which this Accounting Procedure is attached contains
no contrary provisions in regard thereto, Operator shall notify all
Non-Operators of the Operator's proposal, and the agreement or approval of
a majority in interest of the Non-Operators shall be controlling on all
Non-Operators.
II. DIRECT CHARGES
Operator shall charge the Joint Account with the following items:
1. ECOLOGICAL AND ENVIRONMENTAL
Costs incurred for the benefit of the Joint Property as a result of
governmental or regulatory requirements to satisfy environmental
considerations applicable to the Joint Operations. Such costs may include
surveys of an ecological or archaeological nature and pollution control
procedures as required by applicable laws and regulations
2. RENTALS AND ROYALTIES
Lease rentals and royalties paid by Operator for the Joint Operations.
3. LABOR
A. (1) Salaries and wages of Operator's field employees directly
employed on Joint Property in the conduct of Joint Operations.
(2) Salaries of First Level Supervisors in the field.
(3) Salaries and wages of Technical Employees directly employed on
the Joint Property if such charges are excluded from the
overhead rates.
(4) Salaries and wages of Technical Employees either temporarily
or permanently assigned to and directly employed in the
operation of the Joint Property if such charges are excluded
from the overhead rates.
B. Operator's cost of holiday, vacation, sickness and disability
benefits and other customary allowances paid to employees whose
salaries and wages are chargeable to the Joint Account under
Paragraph 3A of this Section II. Such costs under this Paragraph 3B
may be charged on a "when and as paid basis" or by "percentage
assessment" on the amount of salaries and wages chargeable to the
Joint Account under Paragraph 3A of this Section II. If percentage
assessment is used, the rate shall be based on the Operator's cost
experience.
C. Expenditures or contributions made pursuant to assessments imposed
by governmental authority which are applicable to Operator's costs
chargeable to the Joint Account under Paragraphs 3A and 3B of this
Section II.
D. Personal Expenses of those employees whose salaries and wages are
chargeable to the Joint Account
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A.A.P.L. FORM 610 -- MODEL FORM OPERATING AGREEMENT - 1989
under Paragraph 3A of this Section II.
4. EMPLOYEE BENEFITS
Operator's current costs of established plans for employees' group life
insurance, hospitalization, pension, retirement, stock purchase, thrift,
bonus, and other benefit plans of a like nature, applicable to Operator's
labor cost chargeable to the Joint Account under Paragraphs 3A and 3B of
this Section II shall be Operator's actual cost not to exceed the percent
most recently recommended by the Council of Petroleum Accountants
Societies.
5. MATERIAL
Material purchased or furnished by Operator for use on the Joint Property
as provided under Section IV. Only such Material shall be purchased for or
transferred to the Joint Property as may be required for immediate use and
is reasonably practical and consistent with efficient and economical
operations. The accumulation of surplus stocks shall be avoided.
6. TRANSPORTATION
Transportation of employees and Material necessary for the Joint
Operations but subject to the following limitations:
A. If Material is moved to the Joint Property from the Operator's
warehouse or other properties, no charge shall be made to the Joint
Account for a distance greater than the distance from the nearest
reliable supply store where like material is normally available or
railway receiving point nearest the Joint Property unless agreed to
by the Parties.
B. If surplus Material is moved to Operator's warehouse or other
storage point, no charge shall be made to the Joint Account for a
distance greater than the distance to the nearest reliable supply
store where like material is normally available, or railway
receiving point nearest the Joint Property unless agreed to by the
Parties. No charge shall be made to the Joint Account for moving
Material to other properties belonging to Operator, unless agreed to
by the Parties.
C. In the application of subparagraphs A and B above, the option to
equalize or charge actual trucking cost is available when the actual
charge is $400 or less excluding accessorial charges. The $400 will
be adjusted to the amount most recently recommended by the Council
of Petroleum Accountants Societies.
7. SERVICES
The cost of contract services, equipment and utilities provided by outside
sources, except services excluded by Paragraph 10 of Section II and
Paragraph i, ii, and iii, of Section III. The cost of professional
consultant services and contract services of technical personnel directly
engaged on the Joint Property if such charges are excluded from the
overhead rates. The cost of professional consultant services or contract
services of technical personnel not directly engaged on the Joint Property
shall not be charged to the Joint Account unless previously agreed to by
the Parties.
8. EQUIPMENT AND FACILITIES FURNISHED BY OPERATOR
A. Operator shall charge the Joint Account for use of Operator owned
equipment and facilities at rates commensurate with costs of
ownership and operation. Such rates shall include costs of
maintenance, repairs, other operating expense, insurance, taxes,
depreciation, and interest on gross investment less accumulated
depreciation not to exceed ___percent ( ___%) per annum. Such rates
shall not exceed average commercial rates currently prevailing in
the immediate area of the Joint Property.
See Attached Addenda
B. In lieu of charges in paragraph 8A above, Operator may elect to use
average commercial rates prevailing in the immediate area of the
Joint Property less 20%. For automotive equipment, Operator may
elect to use rates published by the Petroleum Motor Transport
Association.
9. DAMAGES AND LOSSES TO JOINT PROPERTY
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A.A.P.L. FORM 610 -- MODEL FORM OPERATING AGREEMENT - 1989
All costs or expenses necessary for the repair or replacement of Joint
Property made necessary because of damages or losses incurred by fire,
flood, storm, theft, accident, or other cause, except those resulting from
Operator's gross negligence or willful misconduct. Operator shall furnish
Non-Operator written notice of damages or losses incurred as soon as
practicable after a report thereof has been received by Operator.
10. LEGAL EXPENSE
Expense of handling, investigating and settling litigation or claims,
discharging of liens, payment of judgements and amounts paid for
settlement of claims incurred in or resulting from operations under the
agreement or necessary to protect or recover the Joint Property, except
that no charge for services of Operator's legal staff or fees or expense
of outside attorneys shall be made unless previously agreed to by the
Parties. All other legal expense is considered to be covered by the
overhead provisions of Section III unless otherwise agreed to by the
Parties, except as provided in Section I, Paragraph 3.
11. TAXES
All taxes of every kind and nature assessed or levied upon or in
connection with the Joint Property, the operation thereof, or the
production therefrom, and which taxes have been paid by the Operator for
the benefit of the Parties. If the ad valorem taxes are based in whole or
in part upon separate valuations of each party's working interest, then
notwithstanding anything to the contrary herein, charges to the Joint
Account shall be made and paid by the Parties hereto in accordance with
the tax value generated by each party's working interest.
12 INSURANCE
Net premiums paid for insurance required to be carried for the Joint
Operations for the protection of the Parties. In the event Joint
Operations are conducted in a state in which Operator may act as
self-insurer for Worker's Compensation and/or Employers Liability under
the respective state's laws, Operator may, at its election, include the
risk under its self-insurance program and in that event, Operator shall
include a charge at Operator's cost not to exceed manual rates.
13. ABANDONMENT AND RECLAMATION
Costs incurred for abandonment of the Joint Property, including costs
required by governmental or other regulatory authority.
14. COMMUNICATIONS
Cost of acquiring, leasing, installing, operating, repairing and
maintaining communication systems, including radio and microwave
facilities directly serving the Joint Property. In the event communication
facilities/systems serving the Joint Property are Operator owned, charges
to the Joint Account shall be made as provided in Paragraph 8 of this
Section II.
15. OTHER EXPENDITURES
Any other expenditure not covered or dealt with in the foregoing
provisions of this Section II, or in Section III and which is of direct
benefit to the Joint Property and is incurred by the Operator in the
necessary and proper conduct of the Joint Operations,.
III. OVERHEAD
1. OVERHEAD - DRILLING AND PRODUCING OPERATIONS
i. As compensation for administrative, supervision, office services and
warehousing costs, Operator shall charge drilling and producing
operations on either:
See Attached Addenda
( ) Fixed Rate Basis, Paragraph 1A, or
( ) Percentage Basis, Paragraph lB
Unless otherwise agreed to by the Parties, such charge shall be in
lieu of costs and expenses of all offices and salaries or wages plus
applicable burdens and expenses of all personnel, except those
directly chargeable
34
A.A.P.L. FORM 610 -- MODEL FORM OPERATING AGREEMENT - 1989
under Paragraph 3A, Section II. The cost and expense of services
from outside sources in connection with matters of taxation,
traffic, accounting or matters before or involving governmental
agencies shall be considered as included in the overhead rates
provided for in the above selected Paragraph of this Section III
unless such cost and expense are agreed to by the Parties as a
direct charge to the Joint Account.
ii. The salaries, wages and Personal Expenses of Technical Employees
and/or the cost of professional consultant services and contract
services of technical personnel directly employed on the Joint
Property:
See Attached Addenda
( ) shall be covered by the overhead rates,
( ) or shall not be covered by the overhead rates.
iii. The salaries, wages and Personal Expenses of Technical Employees
and/or costs of professional consultant services and contract
services of technical personnel either temporarily or permanently
assigned to and directly employed in the operation of the Joint
Property:
See Attached Addenda
( ) shall be covered by the overhead rates, or
( ) shall not be covered by the overhead rates.
A. Overhead -- Fixed Rate Basis
(1) Operator shall charge the Joint Account at the following rates
per well per month:
See Attached Addenda
Drilling Well Rate $___
(Prorated for less than a full month)
Producing Well Rate $___
(2) Application of Overhead -- Fixed Rate Basis shall be as
follows:
(a) Drilling Well Rate
(1) Charges for drilling xxxxx shall begin on the date
the well is spudded and terminate on the date the
drilling rig, completion rig, or other units used
in completion of the well is released, whichever
is later, except that no charge shall be made
during suspension of drilling or completion
operations for fifteen (15) or more consecutive
calendar days.
(2) Charges for xxxxx undergoing any type of workover
or recompletion for a period of five (5)
consecutive work days or more shall be made at the
drilling well rate. Such charges shall be applied
for the period from date workover operations, with
rig or other units used in workover, commence
through date of rig or other unit release, except
that no charge shall be made during suspension of
operations for fifteen (15) or more consecutive
calendar days.
(b) Producing Well Rates
(1) An active well either produced or injected into
for any portion of the month shall be considered
as a one-well charge for the entire month.
(2) Each active completion in a multi-completed well
in which production is not commingled down hole
shall be considered as a one-well charge providing
each completion is considered a separate well by
the governing regulatory authority.
(3) An inactive gas well shut in because of
overproduction or failure of purchaser to take the
production shall be considered as a one-well
charge providing the gas well is directly
connected to a permanent sales outlet.
(4) A one-well charge shall be made for the month in
which plugging and abandonment operations are
completed on any well. This one-well charge shall
be made whether or not the well has produced
except when drilling well rate applies.
(5) All other inactive xxxxx (including but not
limited to inactive xxxxx covered by unit
allowable, lease allowable, transferred allowable,
etc.) shall not qualify for an overhead charge.
(3) The well rates shall be adjusted as of the first day of April
each year following the effective date of the agreement to
which this Accounting Procedure is attached. The adjustment
shall be computed by
35
'
A.A.P.L. FORM 610 -- MODEL FORM OPERATING AGREEMENT - 1989
multiplying the rate currently in use by the percentage
increase or decrease in the average weekly earnings of Crude
Petroleum and Gas Production Workers for the last calendar
year compared to the calendar year preceding as shown by the
index of average weekly earnings of Crude Petroleum and Gas
Production Workers as published by the United States
Department of Labor, Bureau of Labor Statistics, or the
equivalent Canadian, index as published by Statistics Canada,
as applicable. The adjusted rates shall be the rates currently
in use, plus or minus the computed adjustment.
B. Overhead -- Percentage Basis
(1) Operator shall charge the Joint Account at the following
rates: See Attached Addenda
(a) Development
___Percent ( ___%) of the cost of development of the
Joint Property exclusive of costs provided under
Paragraph 10 of Section II and all salvage credits.
(b) Operating
___Percent ( ___%) of the cost of operating the Joint
Property exclusive of costs provided under Paragraphs 2
and 10 of Section II, all salvage credits, the value of
injected substances purchased for secondary recovery and
all taxes and assessments which are levied, assessed and
paid upon the mineral interest in and to the Joint
Property.
(2) Application of Overhead -- Percentage Basis shall be as
follows:
For the purpose of determining charges on a percentage basis
under Paragraph lB of this Section III, development shall
include all costs in connection with drilling, redrilling,
deepening, or any remedial operations on any or all xxxxx
involving the use of drilling rig and crew capable of drilling
to the producing interval on the Joint Property; also,
preliminary expenditures necessary in preparation for drilling
and expenditures incurred in abandoning when the well is not
completed as a producer, and original cost of construction or
installation of fixed assets, the expansion of fixed assets
and any other project clearly discernible as a fixed asset,
except Major Construction as defined in Paragraph 2 of this
Section III. All other costs shall be considered as operating.
2. OVERHEAD -- MAJOR CONSTRUCTION
To compensate Operator for overhead costs incurred in the construction and
installation of fixed assets, the expansion of fixed assets, and any other
project clearly discernible as a fixed asset required for the development
and operation of the Joint Property, Operator shall either negotiate a
rate prior to the beginning of construction, or shall charge the Joint
Account for overhead based on the following rates for any Major
Construction project in excess of $ ___:
See Attached Addenda
A. ___% of first $100,000 or total cost if less, plus
B. ___% of costs in excess of $100,000 but less than $1,000,000, plus
C. ___% of costs in excess of $1,000,000.
Total cost shall mean the gross cost of any one project. For the purpose
of this paragraph, the component parts of a single project shall not be
treated separately and the cost of drilling and workover xxxxx and
artificial lift equipment shall be excluded.
3. CATASTROPHE OVERHEAD
To compensate Operator for overhead costs incurred in the event of
expenditures resulting from a single occurrence due to oil spill, blowout,
explosion, fire, storm, hurricane, or other catastrophes as agreed to by
the Parties, which are necessary to restore the Joint Property to the
equivalent condition that existed prior to the event causing the
expenditures, Operator shall either negotiate a rate prior to charging the
Joint Account or shall charge the Joint Account for overhead based on the
following rates: A. ___% of total costs through $100,000; plus
36
A.A.P.L. FORM 610 -- MODEL FORM OPERATING AGREEMENT - 1989
See Attached Addenda
B. ___% of total costs in excess of $100,000 but less than $1,000,000;
plus
See Attached Addenda
C. ___% of total costs in excess of $1,000,000.
See Attached Addenda
Expenditures subject to the overheads above will not be reduced by
insurance recoveries, and no other overhead provisions of this Section III
shall apply.
4. AMENDMENT OF RATES
The overhead rates provided for in this Section III may be amended from
time to time only by mutual agreement between the Parties hereto if, in
practice, the rates are found to be insufficient or excessive.
IV. PRICING OF JOINT ACCOUNT MATERIAL PURCHASES, TRANSFERS AND
DISPOSITIONS
Operator is responsible for Joint Account Material and shall make proper and
timely charges and credits for all Material movements affecting the Joint
Property. Operator shall provide all Material for use on the Joint Property;
however, at Operator's option, such Material may be supplied by the
Non-Operator. Operator shall make timely disposition of idle and/or surplus
Material, such disposal being made either through sale to Operator or
Non-Operator, division in kind, or sale to outsiders. Operator may purchase, but
shall be under no obligation to purchase, interest of Non-Operators in surplus
condition A or B Material. The disposal of surplus Controllable Material not
purchased by the Operator shall be agreed to by the Parties.
1. PURCHASES
Material purchased shall be charged at the price paid by Operator after
deduction of all discounts received. In case of Material found to be
defective or returned to vendor for any other reasons, credit shall be
passed to the Joint Account when adjustment has been received by the
Operator.
2. TRANSFERS AND DISPOSITIONS
Material furnished to the Joint Property and Material transferred from the
Joint Property or disposed of by the Operator, unless otherwise agreed to
by the Parties, shall be priced on the following basis exclusive of cash
discounts:
A. New Material (Condition A)
(1) Tubular Goods Other than Line Pipe
(a) Tubular goods, sized 2% inches OD and larger, except
line pipe, shall be priced at Eastern mill published
carload base prices effective as of date of movement
plus transportation cost using the 80,000 pound carload
weight basis to the railway receiving point nearest the
Joint Property for which published rail rates for
tubular goods exist. If the 80,000 pound rail rate is
not offered, the 70,000 pound or 90,000 pound rail rate
may be used. Freight charges for tubing will be
calculated from Lorain, Ohio and casing from Youngstown,
Ohio.
(b) For grades which are special to one mill only, prices
shall be computed at the mill base of that mill plus
transportation cost from that mill to the railway
receiving point nearest the Joint Property as provided
above in Paragraph 2.A.(1)(a). For transportation cost
from points other than Eastern xxxxx, the 30,000
pound Oil Field Haulers Association interstate truck
rate shall be used.
(c) Special end finish tubular goods shall be priced at the
lowest published out-of-stock price, f.o.b. Houston,
Texas, plus transportation cost, using Oil Field Haulers
Association interstate 30,000 pound truck rate, to the
railway receiving point nearest the Joint Property.
37
A.A.P.L. FORM 610 -- MODEL FORM OPERATING AGREEMENT - 1989
(d) Macaroni tubing (size less than 2% inch OD) shall be
priced at the lowest published out-of-stock prices
f.o.b. the supplier plus transportation costs, using the
Oil Field Haulers Association interstate truck rate per
weight of tubing transferred, to the railway receiving
point nearest the Joint Property.
(2) Line Pipe
(a) Line pipe movements (except size 24 inch OD and larger
with walls 3/4 inch and over) 30,000 pounds or more
shall be priced under provisions of tubular goods
pricing in Paragraph A.(1)(a) as provided above. Freight
charges shall be calculated from Lorain, Ohio.
(b) Line pipe movements (except size 24 inch OD and larger
with walls 3/4 inch and over) less than 30,000 pounds
shall be priced at Eastern mill published carload base
prices effective as of date of shipment, plus 20
percent, plus transportation costs based on freight
rates as set forth under provisions of tubular goods
pricing in Para-graph A.(1)(a) as provided above.
Freight charges shall be calculated from Lorain, Ohio.
(c) Line pipe 24 inch OD and over and 3/4 inch wall and
larger shall be priced f.o.b. the point of manufacture
at current new published prices plus transportation cost
to the railway receiving point nearest the Joint
Property.
(d) Line pipe, including fabricated line pipe, drive pipe
and conduit not listed on published price lists shall be
priced at quoted prices plus freight to the railway
receiving point nearest the Joint Property or at prices
agreed to by the Parties.
(3) Other Material shall be priced at the current new price, in
effect at date of movement, as listed by a reliable supply
store nearest the Joint Property, or point of manufacture,
plus transportation costs, if applicable, to the railway
receiving point nearest the Joint Property.
(4) Unused new Material, except tubular goods, moved from the
Joint Property shall be priced at the current new price, in
effect on date of movement, as listed by a reliable supply
store nearest the Joint Property, or point of manufacture,
plus transportation costs, if applicable, to the railway
receiving point nearest the Joint Property. Unused new
tubulars will be priced as provided above in Paragraph 2.A.(1)
and (2).
B. Good Used Material (Condition B)
Material in sound and serviceable condition and suitable for
reuse without reconditioning:
(1) Material moved to the Joint Property
At seventy-five percent (75%) of current new price, as
determined by Paragraph A.
(2) Material used on and moved from the Joint Property
(a) At seventy-five percent (75%) of current new
price, as determined by Paragraph A, if Material
was originally charged to the Joint Account as new
Material or
(b) At sixty-five percent (65%) of current new price,
as determined by Paragraph A, if Material was
originally charged to the Joint Account as used
Material.
(3) Material not used on and moved from the Joint Property
At seventy-five percent (75%) of current new price as
determined by Paragraph A.
The cost of reconditioning, if any, shall be absorbed by the
transferring property.
C. Other Used Material
(1) Condition C
Material which is not in sound and serviceable condition
and not suitable for its original function until after
reconditioning shall be priced at fifty percent (50%) of
current new price as determined by Paragraph A. The cost
of reconditioning shall be charged to the receiving
property, provided Condition C value plus cost of
reconditioning does not exceed Condition B
38
A.A.P.L. FORM 610 -- MODEL FORM OPERATING AGREEMENT - 1989
value.
(2) Condition D
Material, excluding junk, no longer suitable for its
original purpose, but usable for some other purpose
shall be priced on a basis commensurate with its use.
Operator may dispose of Condition D Material under
procedures normally used by Operator without prior
approval of Non-Operators.
(a) Casing, tubing, or drill pipe used as line pipe
shall be priced as Grade A and B seamless line
pipe of comparable size and weight. Used casing,
tubing or drill pipe utilized as line pipe shall
be priced at used line pipe prices.
(b) Casing, tubing or drill pipe used as higher
pressure service lines than standard line pipe,
e.g. power oil lines, shall be priced under normal
pricing procedures for casing, tubing, or drill
pipe. Upset tubular goods shall be priced on a non
upset basis.
(3) Condition E
Junk shall be priced at prevailing prices. Operator may
dispose of Condition E Material under procedures
normally utilized by Operator without prior approval of
Non-Operators.
D. OBSOLETE MATERIAL
Material which is serviceable and usable for its original function
but condition and/or value of such Material is not equivalent to
that which would justify a price as provided above may be specially
priced as agreed to by the Parties. Such price should result in the
Joint Account being charged with the value of the service rendered
by such Material.
E. PRICING CONDITIONS
(1) Loading or unloading costs may be charged to the Joint Account
at the rate of twenty-five cents ($0.25) per hundred weight on
all tubular goods movements, in lieu of actual loading or
unloading costs sustained at the stocking point. The above
rate shall be adjusted as of the first day of April each year
following January 1,1985 by the same percentage increase or
decrease used to adjust overhead rates in Section III,
Paragraph 1.A(3). Each year, the rate calculated shall be
rounded to the nearest cent and shall be the rate in effect
until the first day of April next year. Such rate shall be
published each year by the Council of Petroleum Accountants
Societies.
(2) Material involving erection costs shall be charged at
applicable percentage of the current knocked-down price of new
Material.
3. PREMIUM PRICES
Whenever Material is not readily obtainable at published or listed prices
because of national emergencies, strikes or other unusual causes over
which the Operator has no control, the Operator may charge the Joint
Account for the required Material at the Operator's actual cost incurred
in providing such Material, in making it suitable for use, and in moving
it to the Joint Property; provided notice in writing is furnished to
Non-Operators of the proposed charge prior to billing Non-Operators for
such Material. Each Non-Operator shall have the right, by so electing and
notifying Operator within ten days after receiving notice from Operator,
to furnish in kind all or part of his share of such Material suitable for
use and acceptable to Operator.
4. WARRANTY OF MATERIAL FURNISHED BY OPERATOR
Operator does not warrant the Material furnished. In case of defective
Material, credit shall not be passed to the Joint Account until adjustment
has been received by Operator from the manufacturers or their agents.
V. INVENTORIES
The Operator shall maintain detailed records of Controllable Material.
1. PERIODIC INVENTORIES, NOTICE AND REPRESENTATION
39
A.A.P.L. FORM 610 -- MODEL FORM OPERATING AGREEMENT - 1989
At reasonable intervals, inventories shall be taken by Operator of the
Joint Account Controllable Material. Written notice of intention to take
inventory shall be given by Operator at least thirty (30) days before any
inventory is to begin so that Non-Operators may be represented when any
inventory is taken. Failure of Non-Operators to be represented at an
inventory shall bind Non-Operators to accept the inventory taken by
Operator.
2. RECONCILIATION AND ADJUSTMENT OF INVENTORIES
Adjustments to the Joint Account resulting from the reconciliation of a
physical inventory shall be made within six months following the taking of
the inventory. Inventory adjustments shall be made by Operator to the
Joint Account for
overages and shortages, but, Operator shall be held accountable only for
shortages due to lack of reasonable diligence.
3. SPECIAL INVENTORIES
Special inventories may be taken whenever there is any sale, change of
interest, or change of Operator in the Joint Property. It shall be the
duty of the party selling to notify all other Parties as quickly as
possible after the transfer of interest takes place. In such cases, both
the seller and the purchaser shall be governed by such inventory. In cases
involving a change of Operator, all Parties shall be governed by such
inventory.
4. EXPENSE OF CONDUCTING INVENTORIES
A. The expense of conducting periodic inventories shall not be charged
to the Joint Account unless agreed to by the Parties.
B. The expense of conducting special inventories shall be charged to
the Parties requesting such inventories, except inventories required
due to change of Operator shall be charged to the Joint Account.
40
A.A.P.L. FORM 610 -- MODEL FORM OPERATING AGREEMENT - 1989
ADDENDUM - 1
This Addendum is attached to and made a part of that certain 1984 XXXXX Onshore
Model Accounting Procedure which is Exhibit C to that certain Operating
Agreement dated September 29, 2006, by and between CGAS Properties, L.P. and
EnerVest Operating, L.L.C. (the contract operator). With respect to Direct
Charges pursuant to Section II.8.A and Overhead pursuant to Section III.1.i,
III.1.ii, III.1.iii, III.1.A(1) and III.3-A-C, the following elections are
hereby made for the following region:
________________, LP - STATES OF OHIO, WEST VIRGINIA, PENNSYLVANIA AND NEW YORK
II.8.A 10%
III.1.I x Fixed Rate Basis
___ Percentage Rate Basis
III.1.II ___ shall be covered by the overhead rates
x shall not be covered by the overhead rates
III.1.III ___ shall be covered by the overhead rates
x shall not be covered by the overhead rates
III.1.A(1) Drilling Well Rate: $10,000
Producing Well Rate: $0
III.1.B(1)(a) N/A% NOTE: Utilizing Fixed Rate not Percentage Rate Basis
III.1.B(1)(b) N/A%
III.2-A 10%
III.2-B 10%
III.2-C 10%
III.3-A N/A% NOTE: Covered by WI ownership well insurance.
III.3-B N/A%
III.3-C N/A%
41
