EXHIBIT 10.8
YUCCA BUTTE PROSPECT AREA
PECOS COUNTY, TEXAS
JOINT DEVELOPMENT AGREEMENT
BY AND BETWEEN
PURE RESOURCES, L.P.
AND
X. X. XXXXX, XX., XXX XXXXXXXXX,
and XXXXXX X. XXXXXX
EFFECTIVE DATE: January 30, 2001
JOINT DEVELOPMENT AGREEMENT
YUCCA BUTTE PROSPECT AREA
PECOS COUNTY, TEXAS
THIS AGREEMENT is dated effective as of January 30, 2001 by and between PURE
RESOURCES, L.P., a Texas limited partnership, whose address is 000 Xxxx
Xxxxxxxx, Xxxxx 000, Xxxxxxx, Xxxxx 00000, hereinafter referred to as "PURE" and
X. X. XXXXX, XX.("XXXXX"), whose address is X.X. Xxx 000, Xxxxxxx, Xxxxx, 00000;
and XXXXXX X. XXXXXX, ("XXXXXX") whose address is 000 Xxxx Xxxxx, Xxxxx 000,
Xxxxxxx, Xxxxx, 00000; and XXX XXXXXXXXX ("XXXXXXXXX"), whose address is P. O.
Xxx 0000, Xxx Xxxxxx, XX,00000. MILLS, STALEY and XXXXXXXXX are hereinafter
collectively referred to as "XXXXX, ET AL".
RECITALS
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WHEREAS, XXXXX, ET AL represents, but does not warrant, that it owns various
Existing Properties in Pecos County, Texas, which cover lands located within the
black boundary shown on the plat attached hereto and identified as Exhibit "A".
Said Existing Properties owned by XXXXX, ET AL are specifically described on
Exhibit "A-2" attached hereto; and
WHEREAS, PURE and XXXXX, ET AL intend by this Agreement to provide a means to
evaluate the lands subject to this Agreement and to determine the potential for
oil and/or gas production whereby such Parties i) establish an Area of Mutual
Interest ("AMI"), ii) jointly acquire oil and gas leases, and iii) provide a
means for the drilling of exploration and development xxxxx on the Existing
Properties and such additional Properties as may be acquired under the terms and
conditions hereinafter provided.
NOW, THEREFORE, in consideration of the premises and of the mutual covenants and
agreements hereinafter set forth, it is hereby agreed as follows:
ARTICLE I
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DEFINITIONS
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As used in this Agreement, the terms indicated below shall be construed as
follows:
1.1 "Agreement" means this Agreement, including all amendments, schedules,
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plats, maps, exhibits and annexes hereto, which are incorporated herein by
this reference.
1.2 "AMI" or "Area of Mutual Interest" means the lands lying in Pecos County,
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Texas that are located within the black outline indicated on the plat
attached hereto as Exhibit "A", and further described on Exhibit "A-1"
attached hereto.
1.3 "Carried Parties" means X. X. XXXXX, XX. and XXXXXXXXX
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1.4 "Development Well" means any well drilled on lands located within the AMI
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subsequent to the drilling of an Initial Exploratory Well on lands located
within the AMI, and in accordance with the Operating Agreement therefor.
1.5 "Existing Properties" means XXXXX, ET AL's Properties existing as of the
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date of this Agreement, which are located within the AMI and further
described on Exhibit "A-2" attached hereto.
1.6 "Exploration Expenditures" means all costs attributable to operations,
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accounted for in accordance with the terms and provisions of the Operating
Agreement, on or with respect to the Initial Exploratory Well, including,
without limitation, drillsite preparation, roads, surface damages, water
xxxxx, drilling, coring and drillstem testing, completion and equipping,
and reworking until such xxxxx have been drilled, completed and equipped
and are capable of production, including gathering lines, pipelines and
facilities necessary to deliver oil or pipeline quality gas, along with the
costs of plugging and abandoning such xxxxx if no completion attempt is
made thereon. Exploration Expenditures shall not include Leasehold Costs
as defined herein.
1.7 "Initial Exploratory Well (IEW)" means the first well drilled on lands
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located within the AMI in accordance with this Agreement which well shall
be drilled free of cost to the Carried Parties. XXXXXX will participate
with a 6.25% interest and shall pay his proportionate costs of such well
and Pure will bear 93.75% of such costs.
1.8 "Leasehold Costs" means those direct charges incurred for acquisition of
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Properties, including, without limitation, records examination and title
costs, mineral and leasehold ownership reports, broker fees and expenses,
travel costs, the purchase price, option costs, rentals, recording costs
and any other costs associated with the acquisition of Properties but shall
specifically exclude the cost of the option to extend the primary term of
an oil and gas lease of an Existing Property.
1.9 "Operating Agreement" shall mean the Operating Agreement dated effective
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January 30, 2001, between the Parties hereto and executed contemporaneously
herewith. In the event of a conflict between this Agreement and the
Operating Agreement, the provisions of this Agreement shall prevail.
1.10 "Operator" shall mean the Party designated as Operator pursuant to
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Article V of the Operating Agreement.
1.11 "Party or Parties" means PURE and/or XXXXX, ET AL, their assigns or
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successors, subject to the limitations set forth in Paragraph 6.9 hereof.
1.12 "Property or Properties" means those certain existing oil and gas leases
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and mineral interests made subject to this Agreement and described on
Exhibit "A-2" attached hereto (Existing Properties) plus any additional oil
and gas leasehold interests hereafter acquired within the AMI and made
subject to the terms and conditions of this Agreement, or rights to acquire
such interests through option, purchase, extension, pooling, unitization,
top lease, renewal, farm-in, farm-in option, acreage contribution or other
agreement with third parties to earn an interest.
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1.13 "Proposing Party" means the Party who proposes one or more of the
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proposals provided for herein.
1.14 "Proration and/or Spacing Unit" means the drilling or production unit
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prescribed or permitted for a particular well for full allowable purposes
by or in accordance with the regulation of the Texas Railroad Commission or
any governmental authority having jurisdiction thereof.
ARTICLE II
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AREA OF MUTUAL INTEREST (AMI)
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2.1 Lands. The Area of Mutual Interest (AMI) means the lands lying in Pecos
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County, Texas that are located within the black outline on the plat
attached hereto as Exhibit "A" and further described on Exhibit "A-1"
attached hereto.
2.2 Acquisitions. If a Party acquires a Property or a mineral or royalty
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interest within the AMI, the acquiring Party shall, within thirty (30) days
of such acquisition, provide written notice thereof to the other Parties,
together with full details of the acquisition, including, without
limitation, the lands and minerals acquired, a copy of the assignment
and/or deed and all title information obtained, and a list of the
acquisition costs thereof. The acquiring Party shall have the option, but
not the obligation to obtain a title opinion for the acquisition of the
mineral interest or royalty interest and shall provide the non-acquiring
Party a copy of all title information it obtains as associated with the
acquisition of the interest. For a period of fifteen (15) days following
receipt of such notice, the non-acquiring Party shall have the right and
option to purchase its proportionate ownership percentage as stated in
paragraph 2.3, of the acquiring Party's interest. Failure of the non-
acquiring Party to advise the acquiring Party in writing within said
fifteen (15) days of its election, shall be deemed as an election not to
acquire the interest. Upon the non-acquiring Party electing to participate
and accepting title to the interest, it shall reimburse the acquiring Party
for the acquisition costs applicable to same and shall tender payment to
the acquiring Party pursuant to the provisions of this Agreement. In the
event that the non-acquiring Party shall reject title to any of the
interest, the acquiring Party shall have a period of thirty (30) days to
cure the applicable title defect to the reasonable satisfaction of the non-
acquiring Party. If the acquiring Party does not so cure such title defect
or if the non-acquiring Party does not accept title to the interest within
such time period, then such interest shall not be subject to any of the
terms of this Agreement. With respect to interests which the non-acquiring
Party elects to acquire, the acquiring Party shall, within thirty (30) days
of timely receipt of payment, assign to the non-acquiring Party its
proportionate ownership percentage as stated in Paragraph 2.3, of the
acquiring Party's interest, free of any additional burdens by acquiring
Party.
Anything in this Article 2.2 to the contrary notwithstanding, XXXXX, ET AL,
until the completion of the IEW, shall be the only Party responsible for
making an attempt to acquire Properties within the AMI which are not
Existing Properties located in Section 27, Blk A-2, TC RR CO Survey. XXXXX,
ET AL shall negotiate for and acquire Properties exercising its judgment as
a reasonable and prudent operator to determine which Properties to acquire
and the terms and provisions applicable to same. MILLS, STALEY and
XXXXXXXXX agree to pay for all of the Leasehold Costs associated with the
acquisition of such non-Existing Properties. Such non-Existing Properties
shall be offered to Pure pursuant to Article 2.2, however,
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Pure will not be required reimburse XXXXX ET AL for the acquisition costs
to pay for such acquisitions.
Any Property acquired by any Party during the term of the AMI shall be
subject to the Operating Agreement, and if less than all Parties
participate in the acquisition of such Property, the ownership percentages
in the Operating Agreement, as to the affected Tract(s), shall be adjusted
accordingly.
Anything in this Article 2.2 to the contrary notwithstanding, in the event
a Party acquires a fee mineral or royalty interest within the AMI from a
Related Party the provisions of this Article 2.2 shall not apply. As used
herein the term "Related Party" shall mean the following:
1. Any Family Member;
2. Any Family Trust; or
3. A transferee by reason of testamentary disposition or under to laws
of intestate succession upon the death of a Family Member or
beneficiary of a Family Trust;
4. A partnership or corporation in which a Family Member or Party owns
at least ten percent (10%) of the entity;
5. An Affiliate or parent corporation of a Party;
The term "Family Member" as used herein shall mean any uncle, aunt, cousin,
sibling, spouse, (Extended Members) child, grandchild, or other descendent
of a Party or the Extended Members or any other individual who is related
to a Party or the Extended Members by marriage or adoption. The term
"Family Trust" as used herein shall mean any trust in which either (a) a
Party is a trustee or has a vested or contingent interest in the income or
corpus of such trust, or (b) a Family Member has a vested or contingent
interest in the income or corpus of such trust.
2.3 Prior Acquisitions. The Properties within the AMI acquired by XXXXX, ET
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AL, prior to January 30, 2001, as described on Exhibit "A-1", shall be
owned by the Parties in the following percentages:
X. X. XXXXX, XX. 13.3333%
Xxx Xxxxxxxxx 13.3333%
Xxxxxx X. Xxxxxx 6.25%
Pure Resources, L.P. 67.0834%
The Parties agree to effectuate this ownership by delivering whatever
assignments are required, which shall be delivered to the Parties
contemporaneously with the execution of this Agreement.
There shall be no cash payment from Pure to X. X. XXXXX or Xxxxxxxxx
associated with the execution and delivery of any assignment pursuant to
the provisions of this Article 2.3. However, within fifteen (15) days after
the final execution of this Agreement, Pure shall deliver to Xxxxxx a cash
payment of $13,542.45 as full reimbursement for his share of prospect
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expenses. Further, Pure will, within 20 days of its election to participate
in the acquisition of a non-Existing Property located in Section 27,
reimburse Xxxxxx for 15/16 of 1/3 of the cost of such acquisition.
2.4 Assignment. Any assignment made pursuant to Paragraph 2.2 or 2.3 shall be
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in substantially the same form
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as Exhibit B attached hereto.
2.5 Title Loss. Should any Property, mineral interest or royalty interest be
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lost through failure of title, such loss shall for all purposes whatsoever
be considered a joint loss and shall be borne by the Parties in proportion
to their respective interest therein.
2.6 Outside Properties. Where less than all of the acquired Properties lie
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within the AMI, the acquiring Parties shall have the right only to acquire
its proportionate interest in that part of the Properties lying within the
AMI.
2.7 Term of AMI. Unless earlier terminated as herein provided, the AMI shall
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expire three (3) years from the effective date of this Agreement.
ARTICLE III
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EXPLORATORY DRILLING
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3.1 Initial Exploratory Well. On or before June 6, 2001, PURE has the right but
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not the obligation to drill an Initial Exploratory Well ("IEW") at its
choice of location within the AMI, which well shall be drilled to a depth
sufficient to test the Devonian formation, but at PURE'S discretion may be
drilled deeper. The IEW may be drilled as a horizontal well at PURE'S
discretion. PURE shall pay 93.75% and XXXXXX shall pay 6.25% of the
Exploration Expenditures for the IEW. At such time as the IEW is completed,
equipped and ready to produce, the Carried Parties shall be vested with a
working interest in the IEW for their respective AMI percentages as set out
in Paragraph 2.3, as reflected in the Operating Agreement. Subsequent
operations for the IEW will be subject to said Operating Agreement. Failure
to drill the IEW as herein provided, as either a well capable of production
or a plugged and abandoned well, shall result in PURE'S reassigning to
XXXXX, ET AL any interest PURE acquired pursuant to Paragraph 2.3 above.
PURE shall retain its proportionate interest of any interest acquired
pursuant to Paragraph 2.2, above.
3.2 Exploratory Substitute Xxxxx. If in the drilling of the IEW, impenetrable
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substances or mechanical difficulties are encountered which, in the opinion
of PURE would make further drilling impractical or inadvisable, PURE shall
have the right to plug and abandon the IEW. In that event, and within
ninety (90) days of plugging, PURE may commence the drilling of a
substitute well to be drilled in place of the IEW and then such substitute
well shall become the IEW for all intents and purposes of this Agreement.
ARTICLE IV
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DEVELOPMENT XXXXX
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4.1 Development Operations. All proposals and operations, subsequent to the
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completion of the IEW, shall be in accordance with the terms of the
Operating Agreement executed by the Parties pursuant to Article III.
4.2 Non-Participation Penalties. Should a Party elect not to Participate in
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the drilling of a Development Well,
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provided the well begins drilling within sixty (60)days of an election not
to Participate, a Non-Participating Party shall be required to assign to
the Participating Parties, all of its undivided working interest in the
Spacing Unit for the Development Well, from the surface down to the base of
the formation from which the Development Well produces. Such assignment
supersedes and replaces making such interest subject to the non-consent
penalties set forth in the Operating Agreement. Provided, however, the Non-
Participating Party shall nevertheless retain an overriding royalty,
proportionately reduced to its interest, in an amount equal to the
difference between twenty-five percent (25%) and the existing lease burdens
on the Non-Participating Party's interest assigned to the Participating
Parties.
Notwithstanding the foregoing, if the Development Well is to be completed
in a producing horizon different from the horizon set forth in the original
proposal, the Non-Participating Party shall have thirty (30) days, or
forty-eight (48) hours if a rig is on location, from the receipt of the
proposal to complete in a different producing horizon in which to elect to
participate in the Development Well. If the Non-Participating Party elects
to participate in said well, the Non-Participating Party shall pay its
share of the cost of drilling the Development Well by multiplying the cost
of drilling the Development Well times a fraction based upon one of the
following: (i) on a Development Well to be completed above the original
proposed depth of the Development Well, the fraction shall be the Non-
Participating Party's percentage ownership times a fraction, the numerator
of which is the completion depth of the Development Well and the
denominator of which is the original proposed depth: or (ii) on a
Development Well to be completed below the original proposed depth of the
Development Well, the Non-Participating Party's or Parties ownership in
such a well shall be their original percentage ownership as set out in
Exhibit "A" of the Operating Agreement. Upon electing and paying its pro-
rata share as provided herein, the Non-Participating Party shall become a
participant in the Development Well as if it were an original participant.
ARTICLE V
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DUTIES OF THE PARTIES
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5.1 Delay Rentals and Releases. During the term of this Agreement and any
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Operating Agreement executed in connection herewith, PURE shall have the
responsibility for payment of any rentals, shut-in payments and minimum
royalty payments necessary to maintain in force and effect the leases and
agreements covering the Properties. PURE shall be reimbursed by the other
Parties for their proportionate share of these rentals, shut-in payments
and minimum royalty payments.
5.2 Insurance. At all times while operations are conducted hereunder, all
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Parties shall comply with all laws including the applicable xxxxxxx'x
compensation laws. Operator shall also carry or provide insurance for the
benefit of the joint account as outlined in Exhibit "D" attached to the
Operating Agreement. Both Parties shall require all contractors employed
by it to comply with the applicable xxxxxxx'x compensation laws and to
maintain such other insurance as both Parties may require. PURE may be a
self insurer for liability under the compensation and general liability
laws, provided however, in such event the only charge that shall be made by
Operator to the joint account shall be as provided in Article V.D.9 of the
Operating Agreement and in Exhibit "C" attached to the Operating Agreement.
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ARTICLE VI
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MISCELLANEOUS
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6.1 Relationship of the Parties. This Agreement and the rights and liabilities
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under this Agreement are several and not joint or collective, and are not
intended to create, and shall not be construed to create, an association
for profit, a trust, a joint venture, a mining partnership or other
relationship of partnership, or entity of any kind between or among the
Parties, except as provided in Paragraph 6.2 or in the Tax Partnership
Provisions attached to the Operating Agreement as Exhibit "H".
6.2 Tax Partnership. Notwithstanding Paragraph 6.1 above, the Parties intend
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that the execution of this Agreement and the joint operations hereunder
shall be treated as the formation and operation of a partnership for
federal income tax purposes ("Tax Partnership"). In that regard, the
Parties understand and intend that the provisions of the Agreement shall be
interpreted and applied in a manner consistent with such treatment and that
Subchapter K of the Internal Revenue Code of 1986, as amended, shall apply
to all actions taken pursuant to the terms of this Agreement. Thus,
without limitation or exclusion of other provisions hereof, the Parties
intend that the following provisions of this Agreement shall be treated and
interpreted in the manner hereafter specified for federal income tax
purposes:
a) The Parties will make capital contributions to the Tax Partnership as
follows:
i) Existing Properties, as described in Paragraphs 1.5 and 2.3; and
ii) Leasehold Costs, as described in Paragraphs 1.8, 2.2 and 2.3; and
iii) Exploration Expenditures, as described in Paragraphs 1.6, 1.7 and
3.1; and
iv) Development Well costs, as described in Paragraphs 1.4, 1.6 and
4.1; and
All acquired Properties will be acquired on behalf of the Tax Partnership
and the Parties will hold title to all Properties as nominees of the Tax
Partnership;
b) The Tax Partnership shall allocate all costs, deductions and
credits described in Paragraph 6.2(a) above, to the Parties based
on each Party's contribution to such costs.
c) Except as provided in subparagraphs 6.2(b) above, the Tax
Partnership shall allocate all income, gain, loss, deduction, or
credit, 26.66667% to the Carried Parties (based on the
percentages reflected in Paragraphs 2.2 and 2.3 and 67.083344% to
PURE and 6.25% to XXXXXX. As described in Articles III and IV,
the Tax Partnership shall make all cash distributions pursuant to
subparagraphs 6.2(c) in the following percentages;
All cash distributions shall be made 26.66667 to the Carried
Parties, 6.25% to XXXXXX and 67.083344% to PURE.
d) The Parties capital accounts will be charged for in-kind
distributions in accordance with the non-
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participating penalties provisions as described in Paragraph 4.2.
For example, in the event a Non-Participating Party assigns all
of it's right, title and interest in the Spacing Unit for the
Development Well, such Party's capital account will be charged
with its tax basis in the Spacing Unit and any overriding royalty
interest retained by such Party will be reported outside of the
Tax Partnership (i.e., the in-kind distribution of partnership
property).
Additional provisions relating to this Tax Partnership are contained in
Exhibit "H" attached to the Operating Agreement. Notwithstanding anything
to the contrary in this Agreement, the terms of this Article VI will
survive any termination of this Agreement.
6.3 Notices. Unless otherwise provided herein, all notices, advice or
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communications required or convenient to be given by any Party to the other
Party hereto, shall be deemed to have been properly given when given in
writing by registered, certified, U.S. mail, return receipt requested, or
by telegram, fax, telex or cable when addressed to the Parties at the
following address:
PURE RESOURCES, L. P.
000 Xxxx Xxxxxxxx
Xxxxxxx, Xxxxx 00000
Attn: Land Manager
Phone: (000) 000-0000
Fax: (000) 000-0000
X. X. XXXXX, XX.
X.X. Xxx 000
Xxxxxxx, Xxxxx 00000
Phone: (000) 000-0000
Fax: (000) 000-0000
XXXXXX X. XXXXXX
000 X. Xxxxxxxx
Xxxxxxx, Xxxxx 00000
Phone: (000) 000-0000
Fax: (000) 000-0000
Xxx Xxxxxxxxx
P. X. Xxx 0000
Xxx Xxxxxx, XX,00000
Phone:
Fax:
The originating notice shall be deemed given when received and the
responsive notice shall be deemed given when mailed. Each Party shall have
the right to change its address from time to time by written notice to the
other Party as prescribed herein; provided, however, that nothing herein
shall supersede the notice provisions
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specified in the Operating Agreement.
6.4 Laws. This Agreement shall be conducted in conformity with all valid
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applicable federal, state and local laws, rules, orders and regulations of
any constituted federal, state or local regulatory body hereunder.
6.5 Operations. All operations or other activities conducted hereunder shall
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be conducted in a reasonable and prudent manner in accordance with good oil
field practices. Provided, however, that the Operator shall be liable to
the other Parties only for losses sustained or liabilities incurred which
result from Operator's gross negligence or willful misconduct.
6.6 Governing Law. This Agreement shall be construed and enforced in accordance
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with the laws of the State of Texas and shall bind and inure to the benefit
of the Parties hereto and their respective successors and assigns.
6.7 Waiver. The failure of a Party to insist on the strict performance of any
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provision of this Agreement or to exercise any right, power or remedy upon
a breach thereof shall not constitute a waiver of any provision of this
Agreement or limit the Party's right thereafter to enforce any provision or
exercise any right.
6.8 Waiver of Implied Obligations. There are no implied covenants contained in
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this Agreement.
6.9 Assignment. No Party shall assign any right or interest under this
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Agreement to other parties without the written consent of the other Parties
hereto. However, such consent shall not be unreasonably withheld. The
foregoing notwithstanding and subject to the other provisions of this
Agreement, each of the Parties may pledge or encumber the Properties
provided that such pledge or encumbrance is limited to that interest in the
Properties owned by such Party and that such pledge or encumbrance is
expressly made subject to the terms and conditions of this Agreement.
6.10 Ownership of Information. Subject to the limitations of Paragraph 6.9, any
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and all Information, whether completed or not shall be the joint property
of the Parties for their copying, use, modification, distribution or
disclosure without accounting to the other Parties in whatever way the
Party may determine notwithstanding copyright or other restrictive legends
placed thereon.
6.11 Covenants Running with Land. All covenants and obligations provided for
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herein shall be deemed to be covenants running with the land and the
leasehold estates therein and any transfer or other disposition of any of
the Properties shall be made subject to the terms of this Agreement.
6.12 Entire Understanding. The terms of this Agreement and the Schedules, Maps,
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Plats, Exhibits and Annexes, attached hereto constitute the entire contract
of the Parties hereto, and there are no Agreements, undertaking,
obligations, promises, assurances or conditions, whether precedent or
otherwise, except those specifically set forth herein. No modification of
this Agreement shall be valid unless made in writing and duly executed by
the Parties.
6.13 Media Release. No Party shall use any other Party's name in any promotional
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material or in any publicity release regarding the program conducted under
this Agreement without first obtaining the written permission
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of the Party whose name is going to be used.
6.14 No Third Party Beneficiary. Except as expressly provided herein, this
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Agreement is not intended to create, nor shall it be construed to create,
any rights in any third party under doctrines concerning third party
beneficiaries.
6.15 Term. The term of this agreement shall be for three (3) years from the
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effective date of this Agreement.
IN WITNESS WHEREOF the Parties have executed this Agreement on the dates shown
below, but effective as of the 30th day of January, 2001.
PURE RESOURCES, L.P. by and through
its General Partner PURE RESOURCES I, INC.
By:/s/ Xxxx Lodge____________________
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Xxxx Xxxxx, Attorney-in-Fact
Date:4-26-01_________________________
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X. X. XXXXX, XX.
/s/ X.X. Xxxxx, Xx.__________________
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Date:4-27-01________________________
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XXX XXXXXXXXX
/s/ Lon Slaughter_____________________
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Date:4-27-01________________________
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XXXXXX X. XXXXXX
/s/ Xxxxxx X. Staley__________________
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Date:5/7/01_________________________
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