EXHIBIT 10.1
EXPLORATION AGREEMENT
BETWEEN
ZYDECO EXPLORATION, INC.
AND
FX ENERGY, INC.
DATED
APRIL 4, 1996
EXPLORATION AGREEMENT
INDEX
1. USE OF THE SEISMIC FUNDS.............................................. 2
2. SEISMIC FUNDS......................................................... 3
3. EXCESS SEISMIC COSTS DUE TO TURNKEY CONTRACTS......................... 4
4. DAMAGES TO THE STATE OF LOUISIANA UNDER THE EXCLUSIVE SEISMIC PERMIT.. 4
5. DISCONTINUANCE OF SEISMIC FUND PAYMENTS............................... 4
6. PROSPECTS............................................................. 6
7. PROSPECT DEVELOPMENT.................................................. 6
9. PROSPECT TEST WELL.................................................... 8
10. NON-PROPOSING PARTY'S ELECTION TO PARTICIPATE......................... 8
11. ZEI'S OBLIGATIONS..................................................... 9
12. ACCOUNTING OF SEISMIC FUNDS........................................... 9
13. RECORD TITLE.......................................................... 10
14. AREA OF MUTUAL INTEREST............................................... 10
15. SEISMIC DATA.......................................................... 11
16. GENERAL PROVISIONS.................................................... 12
EXPLORATION AGREEMENT
This Exploration Agreement is made and entered into this 4th day of April,
1996, by and between Zydeco Exploration, Inc. ("ZEI") and FX Energy, Inc.
("FX").
W I T N E S S E T H :
WHEREAS, ZEI has considerable expertise in exploration and production
activities in the formerly seismically-blind trends of southern Louisiana; and
WHEREAS, ZEI utilizes advanced seismic imaging and comprehensive well log
analysis and integration to identify new drilling opportunities in an attempt to
minimize the risk in each of the prospects so identified; and
WHEREAS, FX desires to acquire and explore for oil and gas reserves in the
on- and off-shore area of coastal Louisiana; and
WHEREAS, FX and ZEI desire to work together to generate, develop, and
exploit oil and gas exploration prospects in the coastal Louisiana area; and
WHEREAS, the parties desire to establish an area of mutual interest within
which to develop exploration and drilling prospects to be shared by them; and
WHEREAS, the parties desire to delegate to ZEI the responsibility of
managing the acquisition of seismic options and/or permits, managing the
acquisition, processing, and reprocessing of seismic data, identifying potential
prospects, acquiring leases and farmouts, interpreting geological and
geophysical data, making drilling recommendations, and managing the exploration
process, including selecting and monitoring a production operator, or
alternately, acting itself as production operator; and
WHEREAS, ZEI will contribute to the exploration program for costs a State
of Louisiana exclusive seismic survey permit obtained at the State of Louisiana
tender on February 14, 1996 (the "Exclusive Seismic Permit"), a copy of which is
attached hereto as Exhibit "A," and all overhead costs associated with the
development and interpretation of drillable prospects except for the costs of
processing and re-processing seismic data and well logs; and
WHEREAS, FX will pay 100% of Seismic Costs, as hereafter defined, up to
$13,500,000 and 50% of Seismic Costs thereafter; and
WHEREAS, the parties memorialize their undertakings pursuant to the terms
hereinafter set forth;
NOW, THEREFORE, in consideration of the foregoing, and of the mutual and
dependent covenants hereinafter set forth, and other good and valuable
consideration, the receipt and adequacy of which is hereby acknowledged, the
parties hereto agree as follows:
1. USE OF THE SEISMIC FUNDS
------------------------
ZEI shall obtain seismic data (the "Program Data") covering the lands
depicted on Exhibit "B" and modified by Exhibit "B-1" (the "Initial Prospect
Lands") using funds ("Seismic Funds") contributed by FX, subject to the
understanding that should Seismic Costs, as defined herein, exceed $13,500,000
(the "Target Costs"), ZEI and FX shall jointly bear all Seismic Costs in excess
of Target Costs. The Seismic Funds shall be advanced by FX according to the
schedule described in Section 2.
The Seismic Funds shall be applied by ZEI as follows:
a. To ZEI as reimbursement for the expenses, including bonus,
incurred to date in acquisition of the Exclusive Seismic Permit;
then
b. toward costs incurred by ZEI in acquiring and processing Program
Data, including:
i. acquisition of proprietary seismic data, including, without
limitation, the seismic data required under the Exclusive
Seismic Permit, including quality control expenses and
feasibility tests prior to commencement of acquisition of
seismic data;
ii. obtaining permits to acquire seismic data;
iii. payments for options to obtain seismic data, and out of
pocket costs incident thereto, including the state permit
for 51,350 acres, (to the extent such permit is not
reimbursed under the other provisions hereof);
iv. seismic processing and reprocessing costs;
v. licensing of seismic data owned by third parties;
vi. third party legal and professional expenses relating to the
Exclusive Seismic Permit, or the acquisition or processing
of Program Data;
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vii. weather insurance, as applicable for non-turnkey
agreements;
viii. turnkey contracts;
ix. damages paid by ZEI to landowners for damages to lands or
possessions;
x. the cost of legal defense, judgments, and settlements
relating to any claim or cause of action brought by a land
or mineral owner relating to or arising out of the
acquisition of seismic data hereunder;
xi. the cost of transmission or transportation of data from
field to office and insurance costs associated therewith;
xii. any other third party expense reasonably incurred by ZEI in
connection with the items enumerated under this Section.
c. toward costs incurred by ZEI in acquiring permits, options to
lease lands within the AMI, and leases of lands within the AMI
when necessary including:
i. bonus and other payments made to parties for such options;
ii. out-of-pocket costs incurred by ZEI in obtaining such
options, e.g., xxxxxxx costs, broker expenses, abstract
charges, etc.;
iii. third party legal, accounting, and professional expenses
incurred in obtaining such options, both in examination of
title and in negotiating options;
iv. any other third party expense reasonably incurred by ZEI in
connection with the items enumerated under this Section.
The term "Seismic Costs" shall include all items referred to in this
Section 1.
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2. SEISMIC FUNDS
-------------
FX shall pay the Seismic Funds to ZEI for deposit in the segregated account
described in Section 12.a on the following schedule.
DATE AMOUNT
---- ------
1996-05-15 $3,000,000.00
1996-06-30 1,000,000.00
1996-07-30 1,000,000.00
1996-08-30 1,000,000.00
1996-09-30 2,000,000.00
1996-10-30 1,000,000.00
1996-11-30 1,000,000.00
1996-12-30 1,000,000.00
1997-01-30 1,000,000.00
1997-02-28 1,500,000.00
Should FX fail to make the initial advance by May 15, 1996, this
agreement shall terminate and be of no further force or effect.
3. EXCESS SEISMIC COSTS DUE TO TURNKEY CONTRACTS
---------------------------------------------
The parties anticipate that ZEI may enter into one or more turnkey
contracts. The parties estimate that the premium required for turnkey contracts
may bring total Seismic Costs to $15,000,000. Should turnkey costs cause
Seismic Costs to exceed the Target Costs, the parties agree:
(i) In lieu of FX bearing 100% of Seismic Costs up to $13,500,000, FX
shall bear 100% of Seismic Costs up to $13,000,000.
(ii) FX and ZEI shall bear Seismic Costs between $13,000,000 and
$15,000,000 equally; and
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(iii) Any Seismic Costs in excess of $15,000,000 shall be borne
equally.
4. DAMAGES TO THE STATE OF LOUISIANA UNDER THE EXCLUSIVE SEISMIC PERMIT
--------------------------------------------------------------------
The Exclusive Seismic Permit requires the payment of liquidated and other
damages in certain situations. Should such be required, the parties agree that
such damages shall be borne equally by FX and ZEI.
5. DISCONTINUANCE OF SEISMIC FUND PAYMENTS
---------------------------------------
a. Should FX fail to make a Seismic Fund payment within thirty days
of the date due (a "Discontinuance"), the parties shall proceed
as follows:
i. The obligation of FX to make additional Seismic Fund
payments shall terminate, as well as the right of FX to make
such payments.
ii. ZEI shall, individually, or with the cooperation or
assistance of one or more companies, complete acquiring or
processing Program Data; provided however, it shall incur no
liability to FX for failing to do so.
iii. At such time as ZEI acquires an interest in a lease
covering a portion of the Initial Prospect Lands (which may
be acquired by direct lease, assignment from an existing
lease, or acquiring a farmout), ZEI shall determine the
aggregate amount of Seismic Costs incurred to that date.
iv. FX shall be entitled to a prospect ownership interest (the
"FX Prospect Interest") which, expressed as a percentage, is
equal to the Seismic Funds FX paid divided by twice the
total Seismic Funds expended. Thus a contribution of $3.0
of Seismic Funds by FX when total Seismic Costs were $12.0
million entitle FX to a FX Prospect Interest equal to 12.5%.
b. Where ZEI itself, following a Discontinuance, contributes funds
that otherwise would be provided by FX under the terms hereof,
ZEI shall be entitled to receive back such funds, together with
interest thereon at the prime interest rate, from revenues
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attributable to the FX Prospect Interest (including, without
limitation, any working interest or overriding royalty interest
revenues from production or front end proceeds attributable to
such interest when owned by FX under the applicable operating
agreement or proceeds from the sale or license of seismic data).
c. Subject to the provision immediately below, if a Discontinuance
occurs, and ZEI does not itself fund the deficient Seismic Costs,
ZEI may sell, trade, farm-out, lease, sublease or otherwise trade
(collectively, a "Trade") the aggregate (i.e., both that of ZEI
and FX) prospect interests to any party on arms' length terms.
For this purpose the aggregate prospect interests includes all
seismic data acquired hereunder, and revenues from a Trade
include seismic data sale or license proceeds. Any revenues
accruing from a Trade shall be applied toward the cost of
completing the project contemplated hereunder.
d. Should ZEI do a Trade and FX have funded $8,000,000 or more prior
to the Discontinuance, then the parties shall treat FX as having
earned a vested prospect ownership interest of 25%, which shall
be treated under the applicable operating agreement and not
subject to any Trade, and any revenues from a Trade, which would
in this instance cover a 75% prospect ownership interest, shall
be shared 33-1/3% by FX and 66-2/3% by ZEI.
6. PROSPECTS
---------
As used herein, "prospect" shall mean a block of acreage suitable for
exploration, including leasehold, operating, nonoperating, mineral and royalty
interests, licenses, permits, and contract rights relating thereto.
Upon acquisition of the Program Data, ZEI shall evaluate such data for
prospects. Prospects found during the initial review of such seismic data are
hereinafter referred to as the "Prospects."
7. PROSPECT DEVELOPMENT
--------------------
a. Prospect Preparation
ZEI will prepare the Prospects for evaluation, which shall include,
among other things, the following:
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i. examination of land and lease titles to determine lands and
leases available for lease or farmout;
ii. leasing of lands within the Prospect perimeters, and, where
such lands are under lease, acquiring farmouts;
iii. geological and geophysical interpretation;
iv. mapping; and
v. permitting.
b. Operating Agreement for Prospects
Each Prospect will be drilled and operated under an operating
agreement in the form of that attached hereto as Exhibit "C" (the
"Default Operating Agreement"). Each such operating agreement shall
cover the Prospect Lands for the applicable Prospect. The parties
acknowledge that for one or more of the Prospects, third parties may
participate in the drilling of xxxxx. Such parties may request
changes in the applicable operating agreement. ZEI and FX agree to
negotiate changes as may be requested in good faith. On one or more
Prospects, ZEI may itself not wish to act as operator. In such event
ZEI may designate a qualified third party to act as operator of the
Prospect.
In the event of any inconsistency or conflict between the terms and
provisions of this Agreement and of the operating agreement covering
any Prospect or other prospect developed hereunder, the terms and
provisions of this Agreement shall prevail.
c. Notice to FX of Completion of Prospect Assembly and Development
ZEI will notify FX when a Prospect's assembly and development is
complete. Subject to any applicable restrictions imposed in
confidentiality agreements or license agreements, ZEI will make
available to FX in ZEI's office all seismic materials, maps,
geological reports leases, farmout agreements or other materials in
its possession reasonably relevant to a decision to participate in the
drilling of the Prospect test well and prospect. ZEI shall give FX
access to ZEI's 3D work stations during normal business hours as
necessary or appropriate to allow FX to evaluate 3D seismic data
relevant to the prospect.
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8. PROSPECT EXPENSES
-----------------
a. Program expenses ("Prospect Expenses") are to be borne equally
by ZEI and FX and include the following costs of preparing the
Prospects for evaluation, development, and drilling:
i. lease bonuses and brokerage for additional leases wholly or
partly within the Prospect Lands;
ii. delay or shut in rental payments on leases or interests
acquired hereunder;
iii. third party legal and professional expenses relating to the
acquisition or maintenance of leases or farmouts;
iv. any other third party expense reasonably incurred by ZEI in
connection with the items enumerated under this Section or
in Section 7;
v. engineering costs
provided, however, if FX fails to pay the full amount of the
Target Costs, FX shall bear a percentage of the Prospect Expenses
equal to its FX Prospect Interest. FX shall have the opportunity
to participate for a working interest in Prospect leases and
farmouts equal to its FX Prospect Interest.
b. Should FX fail to pay Prospect Expenses within thirty days of
receipt of a billing therefor, and ZEI demand payment of such
Prospect Expenses by written demand delivered by certified mail,
return receipt requested, and FX not pay the delinquent Prospect
Expenses within fifteen (15) days of receipt of the certified
mail demand; then
i. FX shall have no liability for such Prospect Expenses;
ii. FX shall be deemed to have declined to participate in the
Prospect in question; and
iii. FX shall promptly, upon request, quitclaim to ZEI any
interest it has or might have in the Prospect in question.
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9. PROSPECT TEST WELL
------------------
For a period of ninety days following ZEI's delivery of the notice provided
in Section 7.c advising that a Prospect's assembly and development is complete,
ZEI shall have the exclusive right to propose a well. Thereafter, either party
may propose a well. The proposing party shall include the following information
with its notice:
a. the spud date scheduled for the initial test well on the
Prospect, which shall not be less than 90 days from the date of
notice (subject to rig availability) unless a farmout requirement
or lease termination necessitates a shorter period;
b. the target formation;
c. an AFE for the test well, with dry hole and completion costs
shown;
d. whether the well is recommended to be drilled on a turnkey,
daywork, or footage basis;
e. an estimated economic evaluation of the Prospect; and
f. the Default Operating Agreement for signature, revised to include
the legal description of the Prospect in question.
10. NON-PROPOSING PARTY'S ELECTION TO PARTICIPATE
---------------------------------------------
Within 30 days of its receipt of the notice described in Section 9 above,
the non-proposing party shall advise the proposing party of the working
interest, if any, with which the non-proposing party will either take itself or
sell to a third party. If the aggregate working interest for which the non-
proposing party will either itself participate or sell to a third party is less
than the working interest owned by the non-proposing party, the non-proposing
party shall assign the balance of its working interest to proposing party or its
designee. Such assignment shall be in the form of that attached hereto as
Exhibit "D" (the "Assignment"). As provided in the Assignment, the non-
proposing party will reserve a 2% of 8/8ths overriding royalty until payout, as
therein defined, together with an option to convert said overriding royalty
interest to a 20% of 8/8ths working interest at payout, both the overriding
royalty and working interest to be proportionately reduced to reflect the
working interest assigned.
Any consideration received by a party for the sale or farming out of a
portion of its working interest shall be solely for such party's account.
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Should a non-proposing party fail to assign its excess interest under the
Assignment prior to ten days before the scheduled spud date, the excess interest
will be drilled subject to the non-consent provisions of the Default Operating
Agreement, which provides for a forfeiture of interest on Exploratory
Operations, as defined therein.
11. ZEI'S OBLIGATIONS
-----------------
Without further consideration, ZEI shall undertake the following:
a. to provide all management and administration necessary to prepare
the Prospects for drilling, as more fully described under Section
7.a;
b. all bonding requirements necessary to maintain leases acquired
pursuant hereto;
c. geophysical and geological evaluations of the Prospects; and
d. estimated economic evaluations of the Prospects.
Notwithstanding the foregoing, FX shall reimburse ZEI for one-half the cost
of bonding a Lease at the time ZEI delivers an assignment of an interest in the
Lease to FX.
ZEI shall have the sole authority to determine the specifications of
acquiring, processing, and reprocessing seismic data and well logs. Further,
ZEI has the option of performing all or partial sequencing of the seismic data
or well log processing utilizing its own facilities.
12. ACCOUNTING OF SEISMIC FUNDS
---------------------------
a. Segregated Account
For ease of accounting, ZEI shall segregate the Seismic Funds into a
separate account (the "Seismic Fund Account"). Such account shall be
styled to put third parties on notice that the funds are held for the
joint account of FX and ZEI. Except where impractical, all Seismic
Costs shall be withdrawn directly from the Seismic Fund Account.
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b. Accounting
Not less than 45 days after the end of each calendar quarter, ZEI
shall give FX a detailed accounting of all funds withdrawn from the
Seismic Fund Account. ZEI shall furnish documentation supporting
Seismic Fund expenditures to FX upon request.
c. Right to Audit
FX shall have such rights of audit as are available to a non-operator
under the Default Operating Agreement.
d. Internally Generated Statements
Prior to the end of each month ZEI shall forward to FX internally
prepared statements for the prior month showing revenues and expenses
charged to the Seismic Fund Account.
e. Joint Signature Account
Should the timing of Seismic Costs and payment of the Seismic Funds be
such that the Seismic Fund Account would have in excess of $2,000,000
at one time, ZEI and FX shall jointly deposit the excess funds (i.e.,
those over $2,000,000) into a joint signature account.
13. RECORD TITLE
------------
x. XXX shall obtain title to leases acquired pursuant hereto (the
"Leases"). ZEI shall assign to FX its leasehold interest in a
Lease utilizing the form of assignment provided herein. Such
assignment shall be delivered after FX has paid all Prospect
Expenses billed to it hereunder and:
i. a well is ready for drilling; or
ii. front end costs have been paid to ZEI by a third party
working interest owner, or
iii. a farmout of the prospect has been signed.
b. Each of ZEI and FX agree not to pledge, mortgage, or hypothecate
any Lease without the consent of the other prior to the time a
well is spudded on such Lease or a unit containing
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such Lease. Each of ZEI and FX further agree not to pledge,
mortgage or hypothecate any seismic data obtained hereunder.
14. AREA OF MUTUAL INTEREST
-----------------------
The parties hereby designate an Area of Mutual Interest ("AMI"). The AMI
shall encompass the Initial Prospect Lands. Should ZEI acquire as a Seismic
Cost data covering lands outside the Initial Prospect Lands, the AMI shall be
deemed enlarged to cover all lands covered by such seismic data. Any interest
taken by either party after May 16, 1996 and prior to May 15, 2001 in an oil and
gas lease, exploration option, operating agreement, farm-in, deed coupled with
mineral interest, or any similar agreement which creates or effects an interest
in hydrocarbons in lands within the AMI (an "Interest"), or acquisition of a
contractual right to acquire an Interest, shall be deemed taken for development
under this agreement. The party acquiring an Interest shall, within thirty (30)
days of the time of such acquisition, notify, in writing, the non-acquiring
party. The notice shall describe the interest and set forth the terms of such
acquisition, the consideration paid, any other acquisition costs, and other
obligations assumed. The non-acquiring party will then have the right, within
thirty (30) days of the receipt of such notice, to elect in writing to receive
an assignment of one half (or, if smaller, its working interest ownership
determined by the FX Prospect Interest, as applicable) of each such acquired
Interest and the obligations connected therewith. If the non-acquiring party
elects to take such an assignment, the non-acquiring party shall tender to the
acquiring party, at the time it gives notice of its election, its share of the
consideration and acquisition costs actually paid by the acquiring party, and in
consideration thereof, shall receive an assignment of its share of the Interest
with covenants of special warranty. The failure to make such election and to
tender its share of the consideration and costs within such thirty (30) day
period shall constitute a waiver of the non-acquiring party's right to receive
such an interest. During such thirty (30) day notice period, the non-acquiring
party shall have the right to inspect all leases, documents, title information,
and contracts reflecting the interest to be acquired.
15. SEISMIC DATA
------------
a. Licensed Data
When licensing data for use in evaluation of the Prospects, ZEI
shall endeavor to secure a joint license which would allow FX and ZEI
to use the licensed data independently. However, if a joint license
can be obtained only by the payment of an additional premium, ZEI
shall license such data with only itself as the licensee.
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b. Marketing of Proprietary Data
ZEI will acquire proprietary seismic data in its prospect
development program. Absent the agreement of both parties, such data
shall not be marketed to third parties. FX shall own an interest in
such seismic data equal to the FX Prospect Interest and ZEI the own
the remaining interest in such data.
Notwithstanding the ownership in the seismic data described
above, if FX funds the entire seismic acquisition program contemplated
hereunder, then until such time, if any, as proceeds from the sale or
license of proprietary seismic data equal Seismic Funds advanced by
FX, FX shall receive all proceeds from any license or sale of
proprietary seismic data. After such proceeds equal the Seismic Funds
advanced by FX, any further proceeds shall be shared equally by ZEI
and FX.
16. GENERAL PROVISIONS
------------------
a. Additional Documents
The parties agree to execute such further documents as may be
necessary or appropriate to more fully reflect the agreements and
understandings reflected herein.
b. Amendment.
This Agreement may be amended only by an instrument signed by the
party against whom such amendment is sought to be enforced.
c. Arbitration.
Subject to any restriction imposed by law on agreements for
compulsory arbitration, the parties agree that any controversy or
dispute arising out of, in connection with, or related to this
Agreement, any provision or breach thereof, or any transaction
contemplated hereby shall be submitted to and settled by binding and
conclusive arbitration before a panel of three (3) arbitrators in
Houston, Texas in accordance with the applicable rules of the American
Arbitration Association (or any other form of arbitration agreed to by
the parties) then in effect; provided, however, that only actual
damages and attorney fees of the prevailing party reasonably incurred
in connection with the arbitration proceeding shall be awarded in
connection therewith. Judgment on any award rendered pursuant to any
such arbitration proceeding may be entered in any court, Federal or
state, having jurisdiction thereof, and
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the parties shall be deemed to have waived their right to any form of
appeal of such award to the extent permitted by law.
d. Assignment
This agreement may be assigned in whole or part by FX with the
approval of ZEI, which approval shall not be unreasonably denied.
e. Successors and Assigns.
Except as otherwise expressly provided herein, the provisions
hereof shall inure to the benefit of, and be binding upon, the
successors, assigns, heirs, executors and administrators of the
parties hereto.
f. Consequential Damages.
Neither party hereto shall be liable to the other for special,
indirect, consequential or incidental damages resulting from or
arising out of this Agreement or the obligations contemplated
hereunder, including, but not limited to, loss of production, loss of
anticipated profits or business interruptions, however same may be
caused.
g. Contractual Liabilities
Should ZEI incur a contractual liability to a third party in
performing its undertakings hereunder, such contractual liability
shall be treated as a Prospect Expense. Should ZEI incur a tort
liability to a third party in performing its undertakings hereunder,
and such liability be a result of gross negligence or willful
malfeasance, such liability, and all attorneys fees and expenses
relating thereto, shall be solely for ZEI's account. Should ZEI incur
a tort liability to a third party in performing its undertakings
hereunder, and such liability not be a result of gross negligence or
willful malfeasance, such liability, and all attorneys fees and
expenses relating thereto, shall be borne equally by FX (or its
assigns) and ZEI.
h. Counterparts.
This Agreement may be executed in any number of counterparts,
each of which shall be an original, but all of which together shall
constitute one instrument.
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i. WAIVER OF CONSUMER RIGHTS
-------------------------
(Texas Deceptive Trade Practices Act)
It is the belief of the parties that this agreement is exempt
from the provisions of the Texas Deceptive Trade Practices-Consumer
Protection Act (the "Act"). Should, however, the Act be construed to
not exempt this transaction, the following waiver shall apply. For
the purpose of the following waiver, ZEI is deemed the Seller and FX
the Purchaser:
PURCHASER REPRESENTS AND STIPULATES TO SELLER THAT:
(I) THE PURCHASER IS NOT IN A SIGNIFICANTLY DISPARATE BARGAINING
POSITION;
(II) THE PURCHASER IS REPRESENTED BY LEGAL COUNSEL IN SEEKING OR
ACQUIRING THE GOODS OR SERVICES WHICH IT ACQUIRES UNDER THIS
AGREEMENT; AND
(III) CONSUMER'S LEGAL COUNSEL WAS NOT DIRECTLY OR INDIRECTLY
IDENTIFIED, SUGGESTED, OR SELECTED BY SELLER OF AN AGENT OF THE
SELLER.
(IV) I (THE PURCHASER) WAIVE MY RIGHTS UNDER THE DECEPTIVE TRADE
PRACTICES-CONSUMER PROTECTION ACT, SECTION 17.41 ET SEQ.,
BUSINESS & COMMERCE CODE, A LAW THAT GIVES CONSUMERS SPECIAL
RIGHTS AND PROTECTIONS. AFTER CONSULTATION WITH AN ATTORNEY OF
MY OWN SELECTION, I VOLUNTARILY CONSENT TO THIS WAIVER."
j. Due Authorization.
Each party hereto represents that the execution, delivery and
performance of this Agreement by such party has been duly authorized
by all necessary corporate action.
k. Entire Agreement.
This Agreement, including the schedules and exhibits hereto
constitutes the entire Agreement, and supersedes all other prior
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agreements, understandings, representations and warranties both
written and oral, among the parties, with respect to the subject
matter hereto.
l. Force Majeure
In the event that any party is rendered unable, in whole or in
part, by force majeure to carry out its obligations under this
Agreement (other than the obligation to make payments of money due),
upon such party giving notice and reasonably full particulars of such
force majeure in writing to the other party within a reasonable time
after the occurrence of the cause relied upon, the obligations of the
party giving such notice, so far as they are affected by such force
majeure, shall be suspended during the continuance of any inability so
caused, but for no longer period; and the cause of the force majeure
as far as possible shall be remedied with all reasonable dispatch.
The term "force majeure" as employed herein shall mean an act of God,
strike, lockout or other industrial disturbance, war, blockade, riot,
lightning, fire, storm, flood, explosion, governmental restraint and
any other cause whether of the kind herein enumerated, or otherwise,
not reasonably within the control of the party claiming suspension.
The settlement of strikes, lockouts and other labor difficulties shall
be entirely within the discretion of the party having the difficulty.
The above requirement that any force majeure shall be remedied with
all reasonable dispatch shall not require the settlement of labor
difficulties by acceding to the demands of opponents therein when such
course is inadvisable in the discretion of the party having the
difficulty.
m. Governing Law
Except as otherwise required by mandatory provisions of
applicable law, this Agreement shall be governed by and construed in
accordance with the laws of the State of Texas, without reference to
principles of conflicts of law.
n. Headings.
Section headings in this Agreement are included herein for
convenience of reference only and shall not constitute a part of this
Agreement for any other purpose.
o. Relationship of the parties
The parties to this Agreement are independent contractors. There
is no relationship of agency, partnership, joint venture, employment,
or franchise between the parties in any way. Neither party
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nor its employees has the authority to bind or commit the other party
in any way or to incur any obligation on its behalf.
p. Notices
Any notice or report herein required or permitted to be given
shall be addressed to the parties as follows:
If to FX:
FX Energy, Inc.
000 Xxxx Xxxxxx, Xxxxx 0000
Xxx Xxxx, XX 00000
Tel: 000 000 0000
Fax: 000 000 0000
If to ZEI:
Zydeco Exploration, Inc.
Suite 1160
000 Xxxxx Xxx Xxxxxxx Xxxxxxx Xxxx
Xxxxxxx, Xxxxx 00000-0000
Tel: 000 000 0000
Fax: 000 000 0000
Any notice required to be given hereunder shall be sufficient if
in writing, and sent by nationally recognized overnight courier
service, hand delivery, telecopy or registered mail (return receipt
requested and first-class postage prepaid), addressed to the address
first set forth above for each party (or to such other address as any
party shall specify by written notice so given), and shall be deemed
to have been delivered as of the date sent.
q. Performance Standards
In performing their duties or exercising their rights hereunder,
one party shall be liable to the other only for gross negligence or
willful malfeasance. It is not the intent that either party have a
fiduciary obligation to the other, any such obligation being expressly
waived and disclaimed.
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r. Severability
If any part of this Agreement is found invalid or unenforceable,
that part will be amended to achieve as nearly as possible the same
economic effect as the original provision and the remainder of this
Agreement will remain in full force.
s. Statute of limitations.
No action arising under this Agreement may be brought at any time
more than thirty six (36) months after discovery or acquisition of
knowledge of the facts upon which the cause of action is based
occurred.
t. Tax Matters
As to all operations hereunder, the parties hereto shall be
subject to and shall comply and abide with the tax election provisions
set out in Exhibit "E" attached hereto and made a part hereof for all
purposes.
u. Third Party Beneficiary.
This Agreement is not intended to benefit or to create any
obligations to, or rights in respect of, any persons other than the
parties hereto, and their respective legal representatives, heirs or
estates.
v. Time
Time is of the essence in all matters pertaining to this
Agreement.
w. Titles
The parties acknowledge that the determination of adequate or
marketable title to Louisiana lands and leases is, to a great extent,
subjective. As to any option, permit, or land or lease acquired
hereunder, ZEI shall make all title materials in its possession
available to FX upon request. ZEI makes no warranty or representation
that the title of any party granting any option, permit, land or lease
hereunder is adequate, good, or marketable. Further, ZEI shall have
no liability to FX of any nature upon the total or partial failure of
title to any option, permit, land or lease acquired hereunder.
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IN WITNESS WHEREOF, this Exploration Agreement is executed as of the date
first above written.
ZYDECO EXPLORATION, INC.
By: /s/ Xxx Xxxxx
----------------------------------
Xxx Xxxxx, President
FX ENERGY, INC.
By: /s/ Xxxxxxx X. Xxxxxxx
---------------------------------
Its: President
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EXHIBIT "B"
INITIAL PROSPECT LANDS
EXHIBIT "D"
PARTIAL ASSIGNMENT OF OIL AND GAS LEASE
STATE OF LOUISIANA (S)
PARISH OF _______________ (S)
This Assignment, from _______________, a __________ corporation whose
address is ____________________________ (hereinafter called "Assignor") to
____________________, a _______ corporation whose address is
_______________________ (hereinafter called "Assignee");
Assignor, for and in consideration of the sum of Ten and No/100
Dollars ($10.00) and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, does hereby SELL, TRANSFER,
ASSIGN, SET OVER AND CONVEY unto Assignee, subject to the terms and provisions
set forth herein, an undivided _______________ interest in and to the Oil and
Gas Lease (the "Lease") described below:
[Lease Description]
ASSIGNOR hereby reserves unto itself, its successors and assigns, and
saves and excepts from this assignment an undivided 2% of 8/8ths overriding
royalty interest in all oil, gas or other hydrocarbons or minerals produced,
saved, and sold from the lands subject to the Lease. Such reserved overriding
royalty (the "Overriding Royalty") is subject to the following terms and
conditions:
(a) The Overriding Royalty shall be free and clear of all cost
and expense of production.
(b) The Overriding Royalty shall be paid at the same time as
provided for payment of royalties under the Lease.
(c) The Overriding Royalty may be pooled and unitized with other
lands and leases without the consent or joinder of the owner or
owners of said overriding royalty.
(d) The Overriding Royalty is based on the assumption that the
Lease covers the full and entire mineral interest in the lands
described therein. In the event that it shall be found that the
Lease covers less than the entirety of the minerals in said
lands, the Overriding Royalty shall be reduced proportionately.
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(e) To the extent that Assignor is assigning less than 100% of
the working interest in the Lease, the Overriding Royalty shall
be reduced proportionately.
(f) The Overriding Royalty shall not apply to nor be payable upon
oil, gas or other hydrocarbons used for recycling, repressuring
or similar operations benefiting the Lease or any portion thereof
or other lands and leases pooled therewith or unavoidably lost.
If the Lease provides that shut-in gas payments shall be made as
royalty rather than as rental, Assignor shall not be entitled to
any such royalty interest.
(g) "Project Payout" as used herein, is the first day of the next
calendar month at the point when the net value of the total
production from or attributable to the Lease (i.e., the gross
income from such production, less operating expenses, lease
royalties, production and/or other applicable taxes unless
reimbursed to Assignee by the purchaser of such production, and
less the hereinabove reserved overriding royalty to be paid by
Assignee to Assignor) equals the total costs of drilling, testing
and completing all Lease xxxxx for production, including but not
limited to costs associated with each well's separator, line
heater, dehydrator, measuring equipment, flowlines, and
facilities located on the Lands and utilized with such Lease
production, and other equipment individually associated with
Lease xxxxx and not part of a processing plant or an existing
central tank battery. Gross income shall include any prepayment
from a purchaser. Total costs shall not include any costs
associated with any facility which services, or is designed to
service, in whole or part, off lease production.
Upon Project Payout, Assignor shall have the option (the "Option") to
convert all of the Overriding Royalty into an undivided twenty percent (20%)
working interest in the Lease proportionately reduced to reflect that Assignor
is converting less than a 2% of 8/8ths overriding royalty, together with a like
interest in all personal property and equipment on the Lease lands (including
platforms and pipelines to the extent then owned by Assignee) used or obtained
in connection with xxxxx located thereon. At such time as Project Payout
occurs, Assignee shall so notify Assignor. Notification shall be by certified
mail, return receipt requested, as well as by telecopy. Assignor shall have
thirty (30) days in which to exercise the Option. If Assignor exercises the
Option, Assignee shall assign to Assignor the described working interest. Such
assignment shall be effective as of the first day of the month next following
the time in which Project Payout has occurred. The assignment shall be with
warranty of title by, through and under the assignor, but not otherwise.
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This Assignment is made by Assignor and accepted by Assignee subject to the
following:
a. the terms, provisions and conditions of the Lease and any
limitation on or contained in the Lease;
b. the terms, conditions and burdens imposed by or contained in
instruments appearing in Assignor's chain of title, or appearing
in instruments referenced in instruments appearing in Assignor's
chain of title, or amendments thereto; and
c. the term, obligations, and burdens contained in that certain
Agreement between Assignor and Assignee dated ____________ (the
"Agreement"). Should the terms of this Assignment conflict with
the terms of the Agreement, the terms of the Agreement shall
control.
TO HAVE AND TO HOLD the Lease unto Assignee, its successors and assigns
forever. This Assignment is given without warranty, express or implied, except
for a limited warranty by Assignor that Assignor has not previously conveyed or
encumbered or agreed to convey or encumber the Lease in favor of any other
party.
With respect to the Overriding Royalty reserved by Assignor, Assignee
shall, upon request, furnish Assignor with monthly reports showing the number of
producing xxxxx and producing days, lease stocks and runs.
The terms and conditions of this Assignment shall extend to and be binding
upon the successors and assigns of the parties.
The covenants, obligations and agreements contained herein shall be
construed as covenants running with the land.
This assignment is made effective ____________.
3
IN WITNESS WHEREOF, the parties have executed this instrument on the dates
acknowledged below.
WITNESSES ASSIGNOR:
Name: _______________________
Witness
By:
Its:
Name: _______________________
Witness
WITNESSES ASSIGNEE:
Name: _______________________
Witness By:
Its:
Name: _______________________
Witness
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State of (S)
(S)
County of (S)
On this ___ day of ________, 199_, before me appeared ______________, to
me personally known, who, being by me duly sworn, did say that he is the _____
president, of FX Energy, Inc., a Delaware corporation, and that said instrument
was signed and sealed on behalf of said corporation, and said appearer
acknowledged that he executed the same as the free act and deed of said
corporation.
IN WITNESS WHEREOF, I have hereunto set my official hand and seal on the
date hereinabove written.
___________________________________
Notary Public in and for
[SEAL] the State of
My Commission Expires:_______________
State of Texas (S)
(S)
County of Xxxxxx (S)
On this ___ day of ________, 199_, before me appeared Xxxxxxx X. Xxxxxx,
to me personally known, who, being by me duly sworn, did say that he is the Vice
President, of ZYDECO EXPLORATION, INC., a Texas corporation, and that said
instrument was signed and sealed on behalf of said corporation by authority of
its Board of Directors, and said appearer acknowledged that he executed the same
as the free act and deed of said corporation.
IN WITNESS WHEREOF, I have hereunto set my official hand and seal on the
date hereinabove written.
___________________________________
Notary Public in and for
[SEAL] the State of Texas
My Commission Expires:_______________
5
EXHIBIT "D"
TAX PARTNERSHIP PROVISIONS
--------------------------
1. RELATIONSHIP OF THE PARTIES.
This agreement shall not create any mining partnership, commercial
partnership or other partnership relations or joint venture, and the
liabilities of each of the Parties hereto shall be several and not joint.
However, solely for the United States federal income tax purposes, this
Agreement shall be considered as a partnership, but such relationship shall
not be a partnership to any other extent or for any other purposes.
2. ELECTION TO REMAIN WITHIN SUBCHAPTER K.
Notwithstanding anything to the contrary herein or in the Operating
Agreement (the "Operating Agreement") to which this is also to be
considered an Exhibit, the Parties hereto agree with respect to all
operations conducted hereunder:
Each Party, now having or hereinafter acquiring an interest under this
Agreement, agrees not to elect to be excluded from the application of
Subchapter K of Chapter 1 of Subtitle A of the Internal Revenue Code of
1986, as amended (the "Code"), and each party agrees to join in the
execution of such additional documents and elections as may be required by
the Internal Revenue Service in order to effectuate the foregoing. In
addition, if the income tax laws of any state in which the Parties conduct
operations pursuant to the terms of this Exhibit or the Operating
Agreement, contain provisions similar to those contained in Subchapter R of
Chapter 1 of Subtitle A of the Code, the Parties hereby agree not to elect
to be excluded from the application of such provisions.
3. INCOME TAX COMPLIANCE AND CAPITAL ACCOUNTS.
The Operator shall prepare and file all federal and state partnership
income tax returns. In preparing such returns Operator shall use its best
efforts and in doing so shall incur no liability to any other Party with
regard to such returns. Not less than two weeks prior to the due date
(including extensions) Operator shall submit to each Party a copy of the
return as proposed for review.
The Operator shall establish and maintain fair market ("FMV") capital
accounts and tax basis capital accounts for each Party. Operator shall
submit to each Party, along with a copy of any proposed partnership income
tax return, an accounting of its respective capital accounts as of the end
of the tax return period.
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Each Party agrees to furnish to Operator not later than 30 days before the
return due date (including extensions) such information relating to the
operations conducted under this Agreement as may be required for the proper
preparation of such returns and capital accounts.
4. TAX MATTERS PARTNER.
4.1 Operator is Tax Matters Partner. Operator is designated tax matters
partner ("TMP") as defined in Internal Revenue Code (Code) Section 6231 (a)
(7). In the event of any change in Operator, the Party serving as TMP for
a given taxable year shall continue as TMP with respect to all matters
concerning such year. The TMP and other Parties shall use their beat
efforts to comply with the responsibilities outlined in this Section and in
Code Sections 6222 through 6233 and 6050(K) (including any Treasury
Regulations promulgated thereunder) and in doing so shall incur no
liability to any other Party. Notwithstanding TMP's obligation to use its
best efforts in the fulfillment of its responsibilities, TMP shall not be
required to incur any expenses for the preparation for, or pursuance of
administrative, or judicial proceedings, unless the Parties agree on a
method for sharing such expenses.
4.2 Information Request by TMP. The Parties shall furnish TMP within two
weeks from the receipt of the request with such information including
information[ specified in Code Sections 6230(e) and 6050(K)] as TMP may
reasonably request to permit it to provide the Internal Revenue Service
with sufficient information for purposes of Code Sections 6230(e) and
6050(K).
4.3 TMP Agreements with IRS. The TMP shall not agree to any extension of
the statue of limitations for making assessments on behalf of any other
Party without first obtaining the written consent of that Party. The TMP
shall not bind any other Party to a settlement agreement in tax audits
without obtaining the concurrence of any such Party.
Any such Party who enters into a settlement agreement with the
Secretary of the Treasury with respect to any partnership items, as defined
by Code Section 6231(a)(3), shall notify the other Parties of such
settlement agreement and its terms within 90 days from the date of
settlement.
4.4 Inconsistent Treatment of Partnership Item. If any party intends to
file a notice of inconsistent treatment under code Section 6222(b), such
Party shall, prior to filing such notice, notify the TMP of such intent and
the manner in which the Party's intended treatment of a partnership item is
(or may be) inconsistent with the treatment of that item by the
partnership. Within one week of receipt, the TMP shall remit copies of
such notification to other Parties to the Partnership. If an inconsistency
notice is filed solely because of the
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Party not having received a Schedule K-1 in time for filing of its income
tax return, the TMP need not be notified.
4.5 Request for Administrative Adjustment. No Party shall file a request
pursuant to Code section 6227 for an administrative adjustment of
partnership items for any Partnership taxable year without first notifying
all other Parties. If all other Parties agree with the requested
adjustment, the TMP shall file the request for administrative adjustment on
behalf of the Partnership. If unanimous consent is not obtained within 30
days from such notice, or within the period required to timely file the
request for administrative adjustment, if shorter, any Party, including the
TMP, may file a request for administrative adjustment on its own behalf.
4.6 Judicial Proceedings. Any Party intending to file a petition under
Code Sections 6226, 6228, or any other Code Section with respect to any
partnership item, or other tax matters involving the Partnership, shall
notify the other Parties of such intention and the nature of the
contemplated proceedings. In the case where the TMP is the Party intending
to file such petition, such notice shall be given within a reasonable time
to allow the other Parties to participate in the choosing of the forum,
then the appropriate forum shall be decided by majority vote. Each Party
shall have a vote in accordance with its percentage interest in the
Partnership for the year under audit. If a majority cannot agree, the TMP
shall choose the forum. If a Party intends to seek review of any court
decision rendered as a result of such a proceeding, such Party shall notify
the other Parties.
4.7 Windfall Profit Tax. The parties agree to take appropriate action
under Code Section 6232(c) and any Treasury Regulations thereunder to
assure that items required to compute the Windfall Profit Tax as imposed by
Chapter 45 of the Code not be treated as partnership items.
5. ELECTIONS.
5.1 General Elections. For both income tax return and capital account
purposes, the Partnership shall elect (a) to deduct currently intangible
drilling and development costs ("IDC"), (b) to use maximum allowable
accelerated tax method and the shortest permissible tax life for
depreciation purposes, (c) to use the accrual method of accounting, (d) to
report income on a calendar year basis or other "required" year-end in
accordance with the regulations under Code Section 706(b), and (e)
dispositions of depreciable assets be accounted for under the General Asset
account method to the extent permitted by Code Section 168(i)(4).
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5.2 Depletion. Solely for FMV capital account purposes, depletion shall
be calculated by using simulated percentage depletion within the meaning of
the Treasury Regulation Section 1.704-l(b)(2)(iv)(2).
5.3 Other Elections. Any other elections must be approved by the
affirmative vote of two (2) or more Parties owning a majority interest
based on the post payout ownership as shown in Exhibit "A".
6. CAPITAL CONTRIBUTIONS AND FMV CAPITAL ACCOUNTS.
6.1 Capital Contributions. The respective capital contributions of each
party to the Partnership shall be (a) each Party's interest in the oil and
gas leases committed to the Partnership, and all properties associated with
the leases, and (b) all amounts paid by each Party in connection with
acquisition, exploration, development and operation of the leases and all
other costs characterized as contributions or expenses borne by such Party
under this Partnership. The contribution of the leases and other
properties committed to this Partnership shall be made by each Party's
agreement to hold legal title to its interest in such leases or any other
properties as nominee for this Partnership.
6.2 FMV Capital Accounts. The FMV capital accounts shall be increased and
decreased as follows:
(a) The FMV capital accounts shall be increased by: (i) the amount of
money and the fair market value of any property contributed by
each Party, respectively, to the Partnership (net of liabilities
assumed by the partnership or to which the contributed property
is subject); (ii) that Party is Sec. 7.1 allocated share of
Partnership income and gains, or items thereof; (iii) any basis
increases required by Code Sections 48(q) and 1016(a)(22); and
(iv) that Party's share of Code Section 705(a)(1)(8) and (C)
items.
(b) The FMV capital accounts shall be decreased by: (i) the amount of
money and the fair market value of property distributed to each
Party (net of liabilities assumed by such Party which the
property is subject); (ii) that Party is Sec. 7.1 allocated share
of Partnership loss and deductions, or items thereof; (iii) any
basis decreases required by Code Sections 48(q) and 1016(a)(22);
and (iv) that Party is share of Code Section 705 (a)(2)(B) items
and Code Section 709 non-deductible and non-amortizable items.
"Fair Market Value" when it applies to property contributed by a Party to
the Partnership, shall be assumed to equal the adjusted basis, as defined
in Code
4
Section 1011, of that property unless the Parties agree otherwise in a
separate written agreement.
7. PARTNERSHIP ALLOCATIONS.
7.1 FMV Capital Account Allocations. Each item of income, gain, loss or
deduction shall be allocated to each Party as follows:
(a) Actual or deemed income from the sale, exchange, distribution or
other disposition of production shall be allocated to the Party
entitled to such production or the proceeds from the sale of such
production. In the event that deemed income arising from the
inkind distribution of production equals that fair market value
of the production distributed to a Party, the Parties recognize
that the corresponding adjustments would be a net zero adjustment
and accordingly, may be omitted from the FMV capital accounts;
(b) Exploration cost, IDC, operating and maintenance costs shall be
allocated to each Party in accordance with its respective
contribution to such cost;
(c) Depreciation shall be allocated to each Party in accordance with
its contribution to the FMV capital account adjusted basis of the
underlying asset;
(d) Simulated depletion shall be allocated to each Party in
accordance with its FMV capital account adjusted basis in each
oil and gas property;
(e) Loss (or simulated logs) upon the sale, exchange, distribution,
abandonment or other disposition of depreciable or depletable
property, shall be allocated to the Parties in the ratio of their
respective FMV capital account adjusted basis in the depreciable
or depletable property;
(f) Gain (or simulated gain) upon the sale, exchange, distribution or
other disposition of depreciable or depletable property, shall be
allocated to the Parties so that the FMV capital account balances
of the Parties, with respect to such property, will most closely
reflect their respective percentages or fractional interest under
the Agreement;
(g) Costs or expenses of any kind shall be allocated to and accounted
for by each Party in accordance with its respective contribution
to such costs or expenses; and,
5
(h) Any other income item shall be allocated to the Parties in
accordance with the allocation of realization.
7.2 Tax Returns and Tax Basis Capital Account Allocations
-----------------------------------------------------
(a) Unless otherwise expressly provided herein the allocations of
Partnership items of income, gain, loss or deduction for tax
return and tax basis capital account purposes shall be the same
as those contained in Section 7.1
(b) If all the Parties consent, any money or an undivided interest in
each and every property shall be distributed to one or more
Parties as necessary for the purpose of balancing the FMV capital
accounts:
(c) Unless (b) above applies, an undivided interest in each and every
property shall be distributed to one or more Parties in
accordance with the ratios of their FMV capital accounts:
(d) If a property is to be valued under (a) above or distributed
pursuant to (b) or (c) above, the fair market value of the
property shall be agreed to by the parties. In the event all of
the parties do not reach agreement as to the fair market value of
property, the Operator shall cause a nationally recognized
independent engineering firm to prepare an evaluation of fair
market value of such property.
8.4 Final Distribution. Third, after the FMV capital accounts of the
Parties have been adjusted, pursuant to Sec. 8.3 above, all other or
remaining property and interest then held by the Partnership shall be
distributed to the Parties in accordance with their FMV capital account
balances.
9. TRANSFERS, SURVIVORSHIP AND CORRESPONDENCE.
9.1 Transfers. These Partnership provisions shall inure to the benefit of
and be binding upon the Parties hereto and their successors and assigns.
The Parties agree that if any one of them makes a sale or assignment of its
interest under this Agreement such sale or assignment will be structured,
if possible, so as not to cause a termination under Code Section
708(b)(1)(B).
9.2 Survivorship. Any Termination of the Agreement shall not affect the
continuing application of the Tax Partnership provisions as necessary for
the termination and liquidation of the Tax Partnership.
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9.3 Correspondence. All correspondence relating to the preparation and
filing of the Partnership's income tax return and capital accounts shall be
forwarded to the Tax Manager of the TMP at the address provided in the
Operating Agreement-1.
7
