September 30, 1996
Delta Petroleum Corp.
000 00xx Xxxxxx, Xxxxx 0000
Xxxxxx, XX 00000
Attention: Xx. Xxxxx X. Xxxxxx
RE: West Orion Prospect Participation Agreement Colusa County,
California
Gentlemen:
In this Participation Agreement, Xxxxxxx Exploration Company,
Inc., a Kansas Corporation d/b/a Xxxxxx X. Xxxxxxx Exploration
Company, Inc. within the State of California, shall
hereinafter be refer-red to as "Xxxxxxx" and Delta Petroleum
Corp. shall hereinafter be referred to as "Delta".
The terms of this agreement are as follows:
1. Xxxxxxx and Black Coral Limited Liability Company have entered
into a Joint Venture Agreement dated January 12, 1994, a copy
of which is attached hereto as Exhibit " 1 ". This agreement
has been amended by Letter Agreement of September 30, 1996
which is also a part of Exhibit 1. West Orion Prospect covers
a portion of the "Orion" and "Orion Expansion" Prospects in
the Black Coral Agreement. Delta will acquire an undivided
15% interest in the Joint Venture Agreement, as amended,
through Xxxxxxx, as to the West Orion Prospect, which covers
the geographic area set out in paragraph 4 of this agreement.
As consideration for acquiring this interest, Delta agrees to
be bound by the terms and provisions of said Joint Venture
Agreement, as amended, and to bear its proportionate 15% share
of the obligations incurred by Xxxxxxx and created by such
Joint Venture Agreement, only as to West Orion Prospect.
Xxxxxxx shall be responsible for the remaining 85% of such
obligations and will hold Delta harmless therefrom.
2. Xxxxxxx owns an interest in the following leases and
agreements attached hereto, to which Delta will acquire a 15%
interest out of Xxxxxxx'x interest:
Exhibit "2A" This Exhibit sets out the leases acquired as of
September 15, 1996 that are subject to this agreement. After
September 15, 1996, leases acquired, under the provisions of
the AMI as described in paragraph 4 of this agreement, shall
be added to this Exhibit from time to time to reflect such
additional acquisitions.
Exhibit "2B" Seismic Option Agreement dated March 4, 1996,
amended April 25, 1996, between Xxxxxxx and The Termo Company.
3. Xxxxxxx anticipates collecting and processing approximately 14
square miles of 3D seismic at an unpromoted, estimated cost of
$30,000 per square mile. The seismic monies are being
escrowed and immediately upon execution of this agreement,
Delta shall pay Xxxxxxx the sum of $92,063 for the estimated
cost of seismic. Further, upon the execution of this
agreement, Delta will reimburse Xxxxxxx $19,513 for leasehold
costs and $672 for brokerage costs incurred within West Orion
Prospect. The above amounts are set forth on the attached
invoice and are calculated on the basis of cost plus 35% so
that Delta's share of actual costs is 20.25%. These amounts
represent Delta's share of costs as of September 15, 1996.
After September 15, 1996, Delta will reimburse Xxxxxxx for all
additional leasehold, brokerage and geophysical costs incurred
in this prospect on the basis of cost plus 35%, so that Delta
actually pays 20.25% of such additional costs. Xxxxxxx agrees
to pay the remaining 79.75% of these costs or to find other
participants to pay such costs. Reimbursement for leasehold,
brokerage and seismic costs will be made to Xxxxxxx by Delta
within 30 days from receipt of an invoice.
4. An Area of Mutual Interest ("AMI") is hereby established
consisting of the following lands lying within Colusa County,
California:
Township 14 North, Range 1 East Township 14 North,Range 1 West
Section 29: SW/4 Section 25: S/2
Section 30: S/2 Section 36: AR
Section 3 1: All
Section 32: W/2
Township 13 North, Range 1 East Township 13 North, Range 1 West
Section 5: N/2, SW/4 Section 1: AR
Section 6: AU Section 11: E/2SE/4
Section 7: AU Section 12: AU
Section 8: SW/4 Section 13: AU
Section 18: W/2E/2, W/2 Section 14: E/2NE/4, SE/4
Section 19: AU Section 23: E/2
Section 30: AU Section 24: All
Section 25: All
Section 26: E/2
Section 35: NE/4
Section 36: N/2
This AMI shall remain in effect for the term of any oil and
gas leases which become subject to this agreement, whether by
acquisition, extension or renewal, and shall thereafter
terminate unless production is established on any portion of
said lands through this agreement, and shall then continue so
long as there is production. If additional leasehold or
leasehold interest is acquired after the date of this
agreement, Xxxxxxx will promptly notify Delta in writing of
such acquisition, describing same and the cost thereof Delta
will have 20 days from receipt of such notice to elect whether
or not to participate for its proportionate share of such
acquisition, insofar only as same covers lands in the subject
AMI. The failure of Delta to reply positively within the 20
day time period will be deemed an election not to participate
in the acquisition. Delta shall not acquire any interest
within this AMI except through this agreement, while in
effect, without the express written consent of Xxxxxxx.
5. Xxxxxxx shall be responsible for payment of all delay rentals,
minimum and shut-in royalties, as well as any other payments
required to maintain leases in full force and effect. Xxxxxxx
shall not be liable for failure to properly make such
payments, in the absence of gross negligence. Upon receipt of
an invoice, Delta shall, within 30 days, reimburse Xxxxxxx for
its proportionate share of such payments, or, at Delta's
election, notify Xxxxxxx that it no longer desires to hold an
interest in the applicable lease(s), in which case Delta's
interest shall be relinquished to Xxxxxxx.
6. Xxxxxxx will retain Delta's proportionate share of title to
all acquired leasehold and/or farmin agreements beneficially
for Delta until such time as a well is drilled and completed
and a pooling agreement, if required, has been filed. Xxxxxxx
will then deliver an assignment to Delta of its proportionate
share of leasehold in the revenue sharing unit or acreage held
by the well's production, on a well-by-well basis, subject to
obtaining any required consent to assign under the provisions
of the lease and/or farmin agreements. If such consent to
assign cannot be readily obtained, Xxxxxxx shall hold title to
the leasehold and agreements on behalf of Delta. If such
consent is obtained, Xxxxxxx will promptly make assignment
under the terms of this paragraph. To the extent that Xxxxxxx
may acquire leases within this prospect area through farmin,
Xxxxxxx shall hold its contract rights under said farmin
agreements beneficially for Delta's proportionate 15%
interest, and Delta shall be subrogated to the rights of
Xxxxxxx under said farmin agreements to the extent of Delta's
interest. It is understood that the intent of this paragraph
is for Xxxxxxx to hold title beneficially for Delta in order
to avoid the administrative time and expense involved in
making assignments; however, notwithstanding the provisions of
this paragraph, Delta has the right to demand assignment from
Xxxxxxx of all leasehold to which it holds an interest under
the terms of this agreement. If such a request is made,
Xxxxxxx will make all reasonable efforts to provide the
assignments in a timely manner, subject to the provisions of
this agreement. All leasehold acquired by any method under
this agreement (whether by Xxxxxxx or Delta) will be subject
to a proportionately reduced 3.00% of 8/8ths overriding
royalty interest in favor of Xxxxxxx.
7 . It is anticipated that Xxxxxxx will propose xxxxx to be
drilled within this AMI on an ongoing basis. At the time of
proposal, Xxxxxxx will provide Delta with written notice of
its intended operation, specifying the location of the well,
estimated spud date, the depth and formations) to be
drilled, and an Authorization For Expenditure ("AFE")
setting out estimated dry hole and completion costs, and any
other pertinent information. It is expressly understood
that Xxxxxxx will make best efforts to insure that its AFEs
represent actual anticipated costs. Upon receipt of notice
of a proposed well, Delta shall have 20 days within which to
notify Xxxxxxx, in writing, of its election to participate.
The failure of Delta to so elect within the time specified
shall be deemed an election by Delta not to participate in
the proposed well. If Delta elects not to participate in a
proposed well, or is deemed to have so elected, it shall
forfeit all of its interest in the leasehold, farmins,
options, etc. covering the lands within the revenue sharing
unit for the proposed well, and also in all direct and
diagonal offsetting revenue sharing units, of the same size
and shape as the revenue sharing unit for the proposed well,
as to formations lying between the surface and the
stratigraphic equivalent of 100' below the total depth
drilled in the proposed well.
Should Delta elect to participate in a well, it will be
obligated to participate in the entire proposed operation to
casing point. An election to participate will also obligate
Delta to acquire its proportionate share of all interest
acquired by Xxxxxxx in the well through lease acquisition,
farmin acreage and/or non-consent interest. In order to be
entitled to the benefits of this numbered paragraph, Xxxxxxx
shall, within 90 days from expiration of the initial notice
period, spud the proposed well. The parties agree to make any
and all assignments necessary to accomplish the above
provisions. Except in the case of an expiring lease, farmout
agreement, farmout option agreement or similar circumstance,
only one well proposal may be made every 20 days under the
terms of this numbered paragraph. In all instances within
this numbered paragraph, the names Xxxxxxx and Delta may be
interchanged so that either party may propose xxxxx. It is
recognized that there are additional working interest owners
in this project area that have ongoing working interest
capabilities in each proposed well. Further, it is recognized
that said additional working interest owners m this project
area also have the ability to propose xxxxx as set forth
herein.
8.8 Delta shall pay a $1,500 spud fee to Xxxxxxx for each well
drilled under the terms of this agreement, in which it
participates.
9. An Operating Agreement in the form attached hereto as Exhibit
"3" will be executed for each well drilled under the terms of
this agreement. The Contract Area for each Operating
Agreement will be comprised of the designated revenue sharing
unit for the well. In the event of a conflict between the
terms of this agreement and any such Operating Agreement, the
terms of this agreement shall prevail.
10. It is understood that the parties hereto may be required to
negotiate operating agreements with third parties. 'Me
parties agree that if there are any conflicts between the
Operating Agreement attached hereto and any third party
operating agreement, the terms of the Operating Agreement
attached hereto shall control the relationship between Xxxxxxx
and Delta.
11. An Escrow Agreement in the form attached hereto as Exhibit "4"
shall be entered into between Xxxxxxx and Delta for each well
drilled under the terms of this agreement. Article 1 of the
Escrow Agreement provides a date by which the participants in
the well will deposit their funds into the Escrow Account.
Such date will be established by Xxxxxxx to be approximately
10 days prior to spud of each well. If Delta fails to deposit
its share of the applicable costs, including its spud fee as
set out in paragraph 8 of this agreement, by this date, it
will be assumed that Delta does not wish to participate in the
well. In this event, Xxxxxxx shall give Delta notice that it
has not received its funds and Delta will either deliver such
funds to Xxxxxxx by 1:00 PM MST on the next business day or be
subject to the provisions of paragraph 7 of this agreement,
covering non participation. Xxxxxxx shall be obligated to
place funds received from all participants in the same escrow
account, in pro rata amounts, based on their share of costs.
12. Delta's representatives shall have free access to any well,
within the West Orion Prospect, in which it participates at
all times and to all records pertaining thereto. In addition,
all geological information obtained in the drilling of any
well, in which Delta participates, shall be made available.
Delta may provide a list of its geological requirements to
Xxxxxxx, which shall be provided by Xxxxxxx, as reasonable.
13. If Xxxxxxx terminates its legal existence, transfers its
interest to a successor and no longer owns an interest in the
West Orion Prospect, or becomes insolvent or bankrupt, or is
placed in receivership, it shall cease to be Operator without
any action by Delta or Xxxxxxx'x other Non-Operating partners,
except the selection of a successor. Xxxxxxx may be removed
if it fails or refuses to carry out its duties hereunder or is
no longer capable of serving as Operator by the affirmative
vote of Delta and Xxxxxxx'x other Non-Operating partners
owning a majority interest based on ownership in the West
Orion Prospect, after excluding the voting interest of
Xxxxxxx. Such resignation or removal shall not become
effective until 7:00 o'clock A.M. on the first day of the
calendar month following the expiration of 60 days after the
giving of notice of resignation by Xxxxxxx or action by the
Non-Operators to remove Xxxxxxx, unless a successor Operator
has been selected and assumes the duties of Operator at an
earlier date. Xxxxxxx, after the effective date of
resignation or removal, shall be bound by the terms hereof as
Non-Operator. A change of a corporate name or structure of
Xxxxxxx or transfer of Xxxxxxx'x interest to any single
subsidiary or parent corporation shall not be the basis for
removal of Xxxxxxx.
Upon the resignation or removal of Xxxxxxx, a successor
Operator shall be selected by the affirmative vote of Delta
and Xxxxxxx'x other Non-Operating partners owning a majority
interest based on the ownership in the West Orion Prospect.
The successor Operator shall be selected from the parties
owning an interest in the West Orion Prospect at the time such
successor Operator is selected. If Xxxxxxx is 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 Delta and Xxxxxxx'x other Non-
Operating partners in the West Orion Prospect owning a
majority interest, and after excluding the voting interest of
Xxxxxxx.
This provision shall also apply to the resignation or removal
of any successor Operators.
14. The parties hereto agree that all disputes between them
arising out of, or in connection with, this Agreement shall be
resolved by arbitration as provided herein. This agreement to
arbitrate shall survive the rescission or termination of this
contract. All arbitration shall be conducted pursuant to the
Commercial Arbitration Rules of the American Arbitration
Association. If available, the panel used shall be selected
from arbitrators having at least 10 years of oil and gas
experience and employed by the American Arbitration
Association and the decision of the arbitrators shall be final
and binding on all parties. All arbitration shall be
undertaken pursuant to the Federal Arbitration Act, where
applicable, and the decision of the arbitrators shall be
enforceable in any court of competent jurisdiction.
15. Delta shall be an equity owner for its proportionate 15% share
of the 3D seismic data. If such data is ever sold, Delta will
be entitled to 15% of the proceeds of such sale. Delta will
not trade the data, or allow a third party other than its
consultants to review the data, without Xxxxxxx'x express
written consent.
16. All notices required herein shall be considered given when
delivered personally or when sent by facsimile or deposited in
the U.S. Mail properly addressed as follows:
Xxxxxxx Exploration Company, Inc. Delta Petroleum Corp.
0000 Xxxxxxxx, Xxxxx 0000 000 00xx Xx., Xxxxx 0000
Xxxxxx, XX 00000 Xxxxxx, XX 00000
FAX: (000) 000-0000 FAX: (000) 000-0000
17. The liabilities of the parties shall be several and not joint
or collective, and each party shall be responsible only for
its share of the costs and liabilities incurred as provided
herein. It is not the purpose or intention of this agreement
to create any partnership, mining partnership or association,
and neither this agreement nor the operations herein shall be
construed or considered as creating any such legal
relationship.
18. The terms and covenants hereof shall extend to, and be binding
on, the parties hereto, their heirs, successors, legal
representatives and assigns; however, Delta will not assign
its interest in this agreement without the express written
consent of Xxxxxxx. Such consent shall not be unreasonably
withheld. This agreement sets forth the entire agreement
between the parties hereto, and there are no oral agreements
not set out herein in writing.
If the foregoing correctly sets forth our understanding, please
execute and return one copy of this agreement.
Very Truly Yours,
s/Xxxxx Xxxxxxx
Xxxxx Xxxxxxx
District Xxxxxxx
AGREED TO AND ACCEPTED THIS 10th DAY OCTOBER, 1996.
DELTA PETROLEUM CORP.
BY: s/Xxxxx X. Xxxxxx, President
