HomeMy WebLinkAbout930466
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STATE OF WYOMING
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KNOW ALL MEN BY THESE PRESENTS:
RECEIVED 6/18/2007 at 1:52 PM
RECEIVING # 930466
BOOK: 662 PAGE: 511
JEANNE WAGNER
LINCOLN COUNTY CLERK, KEMMERER, WY
COUNTY OF LINCOLN
CONVEYANCE OF NET PROFITS INTEREST
THIS CONVEYANCE OF NET PROFITS INTEREST (this "Convevance") dated as of
June 6, 2007, is made by and between Corkran Energy, LP, a Texas limited partnership
("Grantor"), and CIT Capital USA Inc., a Delaware Corporation ("Grantee" and/or "CIT").
(Grantor and Grantee are sometimes individually referred to as a "Party" and collectively
referred to herein as the "Parties".)
RECITALS
A. Grantor (as borrower), Grantee (as administrative agent) and ce11ain Lenders
thereunder (as such term is defined therein), are party to that certain Credit Agreement dated as
of June 6, 2007 (as such has been amended or as may be amended from time to time, the "Credit
Agreement"), together with other security agreements, mortgages and other agreements and
instruments entered into in connection with the Credit Agreement (collectively, together with the
Credit Agreement, the "Loan Documents").
B. Pursuant to the Credit Agreement, the Grantor, Grantee and Lenders have agreed
that Grantor shall grant to Grantee, for the benefit of CIT, a net profits interest in leases and other
interests more particularly described on Exhibit A attached hereto (collectively, the "Subject
Leases").
C. For and in consideration of $100 in hand paid and other good and valuable
consideration acknowledged by Grantor, Grantor and Grantee hereby agree as follows:
AGREEMENTS
ARTICLE I
Certain Definitions and References
Section 1.1. Certain Defined Terms. In addition to the terms defined above, the
following terms, when used in this Conveyance, shall have the respective meanings assigned to
them in this Section 1.1:
"Month" means the period beginning at 7:00 a.m. Central Time on the first day of any
calendar month and ending at the same time on the first day of the next succeeding calendar
month.
Houston 3241406v.4
09304{;6
00051.2
"Net Profits" shall have the meaning assigned to it in Exhibit B hereto.
"Net Profits Interest" shall have the meaning assigned to it in Section 2.1.
Unless otherwise expressly indicated, all other capitalized terms that are used herein but
not otherwise defined herein shall have the meaning given such term in the Credit Agreement.
ARTICLE II
Net Profits Interest
Section 2.1 Net Profits Interest. Subject to the terms and conditions of this
Conveyance, in further consideration for Grantee's entering into to the Loan Documents, subject
to the terms hereof and further subject to the terms of the Credit Agreement, Grantor hereby
GRANTS, BARGAINS, SELLS, CONVEYS, ASSIGNS, TRANSFERS, SETS OVER AND
DELIVERS unto Grantee a net profits interest in the Subject Leases equal to five percent (5%) of
the Net Profits (as defined on Exhibit B) for any Month (the "Net Profits Interest").
Section 2.2 Audit Right. Upon not less than ten (10) days' prior written notice to
Grantor, but not more than once each three (3) Months, Grantee shall have the right, at its sole
cost and expense, to audit the accounting records of Grantor that relate to the Subject Leases.
Such accounting records shall be made available during nonnal business hours for audit at
Grantor's offices. Grantor shall keep such accounting records in accordance with customary
accounting standards and practices used by companies in the petroleum industry of similar size
to Grantor.
ARTICLE III
Additional Agreements of the Parties
Section 3.1 Assigmnents. Grantor may not assign, sell, transfer, convey, mortgage or
pledge all or any part of its interests in the Subject Leases or create a security interest therein
without prior approval of Grantee except in accordance with the Loan Documents. Any
assigmnent not complying with the preceding sentence shall be null and void ab initio. In the
event of any involuntary transfer (including without limitation judicial and non-judicial
foreclosure sales by a receiver or trustee in bankruptcy for Grantor) and any transfer pennitted
hereunder, such transfer shall be expressly subject to the continued existence of the Net Profits
Interest.
Section 3.2 Title to Subiect Leases. Grantor warrants and represents that the Subject
Leases are valid and subsisting oil and gas leases covering the properties described on Exhibit A
attached hereto, which Exhibit shall be amended from time to time to reflect the addition of new
oil and gas leases and/or properties and New Wells (as defined on Exhibit B attached hereto);
Grantor's ownership of the Subject Leases entitles Grantor to a share of all hydrocarbons
produced from or attributable to the wells as reflected on Exhibit A attached hereto, and of the
proceeds of such production, after giving effect to and/or deducting all applicable royalties,
overriding royalties, and other burdens or payments out of production (except the Net Profits
Interest), which is not less than the net revenue interest applicable to the relevant wells set forth
2
Houston 3241406v.4
o 9.3 0 L\.6H
00051.3
on Exhibit A, and obligates Grantor to pay a share of all costs of operation and development of
each well which is not greater than the working interest set forth on Exhibit A, unless there is a
corresponding and proportionate increase in the net revenue interest set forth in Exhibit A
associated therewith. Grantor hereby binds Grantor and Grantor's legal representatives,
successors, and assigns to warrant and forever defend, subject to Pennitted Encumbrances, all
and singular title to the Net Profits Interest and the hydrocarbons produced therefrom unto
assignee, its successors and assigns, against every person whomsoever lawfully claiming or to
claim the same or any part thereof arising by, through or under Grantor but not otherwise
(provided this warranty shall not diminish representations or warranties given by Grantor
elsewhere in this Conveyance).
Section 3.3 Right of First Refusal. If the Grantee proposes in good faith to sell all or
any portion of the Net Profits Interest to a third party, then the Grantee shall provide written
notice to the Grantor. Such notice shall contain the following: (i) the name and address of the
proposed transferee, (ii) the proposed amount and fonn of consideration including, if applicable,
a good faith calculation of the cash fair market value of any non-cash consideration and, in the
event that the transaction includes any assets other than the Net Profits Interest, a good faith
allocation of the consideration to the Net Profits Interest and (iii) the other material tenns and
conditions of such transaction (the "Offer"). At any time within 30 days after the date of receipt
by the Grantor of such notice, the Grantor may elect to purchase all, but not less than all, of the
Grantee's Net Profits Interest being conveyed pursuant to the tenns of the Offer (the "Offered
Interest") by delivering written notice of such election to the Grantee. A written election not to
exercise or a failure to respond in writing within such period shall be deemed a waiver by the
Grantor of its rights to acquire the Offered Interest and the Grantee shall be pennitted during the
succeeding 120-day period to sell all, but not less than all, of the Offered Interest pursuant to the
tenns of the Offer. If the Grantee fails to consummate the Offer, the Offered Interest shall once
again be subject to the right of first refusal provisions of this Section 3.3, provided that if the
Grantee does consummate the Offer, the Offered Interest shall no longer be subject to the rights
of the Grantor under this Section 3.3. If the Grantor elects to purchase from the Grantee the
Offered Interest, the Parties shall have 90 days to consummate the transaction. At the
consummation of such transaction (A) Grantee, at the sole cost of Grantor, shall reconvey the
Net Profits Interest to Grantor, without warranty or indemnity of any kind, other than (w)
Grantee having good title to the Net Profits Interest, (x) the absence of any encumbrances (other
than Pem1itted Encumbrances) with respect to the Offered Interest, (y) the Grantee's valid
existence and good standing and (z) the Grantee's authority to transfer the Net Profits Interest
and (B) the Grantor shall pay the Grantee the purchase price in cash.
Section 3.4 Additional Provisions. There shall be no light of Grantee to take in kind
any production from the Subject Leases. Grantor shall have the right to pool, communitize or
unitize, without the joinder of consent of Grantee, all or any of the Subject Leases as to anyone
or more of the fonnations or horizons thereunder, and as to any of the Subject Leases, when, in
the reasonable judgment of Grantor, it is necessary or advisable to do so in order to fom1 a
drilling or proration unit to facilitate the orderly development of the Subject Leases or to comply
with the requirements of any law or govemmental order or regulation relating to the spacing of
wells or proration of the production therefrom. If and to the extent any of the Subject Leases are
in federal units and subject to one or more paliicipating areas, any change in the interest of
Grantor in a new well resulting in the fom1ation, enlargement or contraction thereof shall not be
deemed a breach hereof.
3
Houston 3241406vA
093ü46()¡
Section 3.5 Disposition of Assets. If the Grantor desires to sell any of the Subject
Leases which are subject to the Net Profits Interest but without including the Net Profits Interest
in such sale, it shall not do so without first obtaining the prior written consent of the Grantee,
such consent not to be unreasonably withheld. If the Grantor proposes to sell any Subject
Leases which are subject to the Net Profits Interest and include the Net Profits Interest as part of
the sale, as a condition precedent to such sale, the Parties shall first reasonably agree to the terms
of such sale with the associated Net Profits Interest. Notwithstanding the foregoing, the Grantor
may, without the consent of the Grantee, enter into a fannout or tenn assignment (either for a
fixed tenn of years, so long as there is commercial production or a combination of the foregoing
(a "Tenn AssÜmment")) in favor of a third party for the well identified as Wild Cap State Com
#2.
00$151[4
ARTICLE IV
Miscellaneous
Section 4.1 Governing Law. Insofar as pennitted by otherwise applicable law, this
Conveyance shall be construed under and governed by the laws of the State of Texas; provided,
however, that, with respect to any portion of the Subject Leases located outside the State of
Texas, the laws of the place in which such property is located in, shall apply to the extent of
procedural and substantive matters relating only to the creation of the Net Profits Interest.
Section 4.3 No Partnership. Nothing herein contained shall be construed to constitute
either Party hereto (under state law or for tax purposes) the agent of, or in partnership with, the
other Party.
Section 4.4 Notices. All notices and other communications required or pennitted
under this Conveyance shall be in writing and, unless otherwise specifically provided, shall be
delivered in accordance with the tenns of the Credit Agreement.
Section 4.5 Further Assurances. The Parties agree to take such actions and do all such
other and further acts as may be necessary to more fully and effectively implement the tenns of
this Conveyance.
Section 4.6 Counterparts. This Conveyance may be executed in multiple originals, all
of which shall be identical, and all of such counterparts together shall constitute one and the
same instrument.
Section 4.7 Binding Effect. All of the provisions hereof shall inure to the benefit of,
and be binding upon, the Parties hereto and their respective successors and assigns.
[Signature pages begin on the next page.]
4
Houston 324 I 406vA
0930466
0005t5
2007.
IN WITNESS WHEREOF, this Acknowledgement is executed this k day of June,
GRANTOR:
CORKRAN ENERGY, LP
By: Hummingbird Investments, LLC, its
general partner
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GRANTEE:
CIT CAPITAL USA INC.
By:
Name:
Title:
WITNESS (if applicable):
Printed Name:
Printed Name:
Notary Public
Printed Name of Notary Public:
Notary Identification Number (if any):
County,
My Commission Expires:
This instrument prepared by:
Pete Broadbent
Vinson & Elkins L.L.P.
1001 Fannin Street, Suite 2500
Houston, Texas 77002
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[Signature Page to Conveyance ofNPI]
O~)304f)6
00051.6
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IN WITNESS WHEREOF, this Acknowledgement is executed this L day of June,
2007.
GRANTOR:
CORKRAN ENERGY, LP
By: Hummingbird Investments, LLC, its
general partner
By:
Name:
Title:
GRANTEE:
crT CAPITAL USA INC.
By:
Name:
Title:
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VI 'ú-- r (Y J' Ø-',-,f
WITNESS (if applicable):
Printed Name:
Printed Name:
Notary Public
Printed Name of Notary Public:
Notary Identification Number (if any):
County ,
My Commission Expires:
This instrument prepared by:
Pete Broadbent
Vinson & Elkins L.L.P.
1001 Fannin Street, Suite 2500
Houston, Texas 77002
S-1
[Signature Page to Conveyance ofNPI]
O!lJ0466
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THE STATE OF ¡;¡; Aß
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COUNTY OF ( IfItIV/ -->
§
§
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This instrument was acknowledged before me on June .6...., 2007 by Dennis Corkran, President of
Hummingbird Investments, LLC, general partner of CORKRAN ENERGY, LP, a Texas limited partnership, on
behalf of such limited partnership.
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~7 ~ GREG A. WEITHONER i
;", Notary Public, State of 1Uas ~
1 "f'I" Illy Commission Expires 1 0·28·1 0 i
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NOmry¥~1t-
State of ~
Name: ß¡/s?¡ A WØ1"?'IIåv't=rt-
My Commission Expires on W ZR-~ I ()
THE STATE OF
§
§
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COUNTY OF
This instnunent was aclmowledged before me on June _, 2007 by
of CIT CAPITAL USA INC., a Delaware corporation, on behalf of such corporation.
Notary Public in and for the
State of
Name:
My Commission Expires on
8-2
[Signature Page to Conveyance ofNPI]
0930466
OOnS;1.8
THE STATE OF
§
§
§
COUNTY OF
This instrument was acknowledged before me on June _, 2007 by Dennis Corkran, President of
Hummingbird Investments, LLC, general partner of CORKRAN ENERGY, LP, a Texas limited partnership, on
behalf of such limited partnership.
Notary Public in and for the
State of
Name:
My Commission Expires on
THE STATE OF ~A_S
COUNTY OF --.l:\ flfè..R.ì s
§
§
§
This instrument was acknowledged before me on June 1..o'1f., 2007 by 'Bil AN KERRl611 iJ
of CIT CAPITAL USA INC., a Delaware corporation, on behalf of such corporation.
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o.9.304f){)
EXHIBIT A
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0930466
Exhibit A
000520
LINCOLN COUNTY. WYOMING
. FonteneUe Unitand,Fon1 F~deraI 'Wells
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. All of Grantor's right, title and ìnterest ,in and to the following described Oil and Gas Lease(s)
! and/or Oil, Gas and MìnetaILease(s); insofar as said lease(s) covers the lands descn"bedbelow:
· Lessor.
Les'see:
, Date:
Recorded:
, Description:
United States of America - Serial No. W 38501
Unknown.
February 28, 1983
Not required.
Townsl1ip·25 North, Range 111 West, 6 th PM, Lincoln, County,
Wyoming
Section 6: Lots 6 and 7, the E/2 of the SW/4 and the SE/4
Section 7: Lots 3 and 4, the FJ2 of the SW/4 ancl the &EI-4
SectionS: The W/2
All in Lincoiln County, Wyoming
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09304f;{~
EXHIBIT B
Net Profits Computations
00(1'522
All capitalized tenns not otherwise defined herein shall have the meanings ascribed to
them in the Credit Agreement.
"Net Profits" shall be calculated for the New Wells on the Subject Leases for each Month and
shall equal the Gross Proceeds for that Month less the following: (a) Production Costs for that
Month and (b) Excess Production Costs as of the end of the immediately preceding Month, all
such proceeds and costs being detennined in accordance with generally accepted accounting
procedures ("GAAP") and, to the extent applicable, Council of Petroleum Accountants Societies
("COP AS") guidelines and procedures. Net Profits are cQmputed on an aggregate basis and not
on an individual well basis. Net Profits for a Month shall be payable within 30 days of the end of
such Month.
The definitions used for detennining "Net Profits" for the Subject Leases are as follows:
"Administrative Costs" means, in any Month, deemed general and administrative costs of
Grantor with respect to the Subject Interests in an amount equal to the lesser of Grantor's actual
administrative costs or $133,000.00, as such amount may be hereafter increased by mutual
agreement as a result of growth of Grantor. The actual administrative costs shall include all
actual general and administrative costs of Grantor, including without limitation, salaries, burdens
and benefits, office rental, insurance, for furniture and equipment purchases and rental and
travel. Actual administrative costs shall not include direct charges billed by Grantor, as operator,
under an operating agreement.
"Excess Production Costs" means, in any Month, the cumulative amount of Production Costs for
all preceding Months that are in excess of the cumulative Gross Proceeds for all preceding
Months.
"Gross Proceeds" means, in any Month, without duplication, the gross proceeds detel111ined in
accordance with GAAP, received by Grantor in such Month for the sale or other disposition of
all Hydrocarbon production produced from New Wells and which are attributable to Grantor's
working interest in the Subject Leases subject to the following:
(a) If any gas is processed before the sale thereof, the amount of the Gross Proceeds
for such gas shall be the Gross Proceeds for the sale of Grantor's proportionate share of
the residue gas and liquid hydrocarbons attributable to the processed gas as detennined
by the processing agreement covering such gas.
(b) There shall be excluded any amount for Hydrocarbon production attributable to
non-consent operations conducted with respect to any wells as to which Grantor is a non-
consenting party and which is dedicated to the recoupment or reimbursement of costs and
expenses (including non-consent penalties) of the consenting party or parties by the tenns
of the relevant operating agreement, unit agreement, contract for development or other
agreement providing for such non-consent operations. Amounts received by Grantor
Houston 3241406vA
1
[Exhibit B to Conveyance ofNPIJ
09'30466
000523
when it is a consenting party fi'om non-consenting third parties shall be included in Gross
Proceeds.
(c) If a controversy or possible controversy exists (whether by reason of any statute,
order, decree, rule, regulation, contract or otherwise) among Grantor and any purchaser
or any other third party as to the correct sales price or sales volume or Grantor
proportionate share thereof of any Hydrocarbon production produced from the Subject
Leases or as to the correct ownership of a New Well located in the Subject Leases, then,
amounts withheld by the purchaser or any such third party shall not be considered to be
received by Grantor or part of the Gross Proceeds until actually collected by Grantor.
(d) Gross Proceeds shall not include the value of any Hydrocarbon production
unavoidably lost or used in operations on the Subject Leases or lands and leases pooled,
unitized or communitized therewith and/or marketing and plant operations (including
compression, treating, transporting, lost and unaccounted for volumes, secondary
recovery, pressure maintenance, repressuring, recycling operations, plant fuel or
shrinkage).
(e) There shall be excluded from Gross Proceeds any royalties, overriding royalties,
production payments, and other burdens on the production of Hydrocarbons from the
Subject Leases that that do not reduce the net revenue interests of Grantor below that
specified herein.
(f) There shall be excluded from Gross Proceeds any amounts received by Grantor
from a purchaser of produced Hydrocarbons as advance payments and payments pursuant
to take-or-pay and similar provisions of sales contracts until such Hydrocarbon
production is actually produced and delivered to such purchaser or any gains, losses or
premiums paid in respect of swap or hedging agreements.
(h) During any Month when Grantor is an overproduced party or an underproduced
party under any gas balancing arrangement with respect to the Subject Leases, there shall
be included in Gross Proceeds amounts received by Grantor from a purchaser of
Hydrocarbon production or an overproduced party as and when paid to Grantor and when
Grantor is required to make settlement in cash for any net overproduction, such payment
shall be deducted from the Gross Proceeds, if any.
(i) To the extent allocable to the Subject Leases, refunds of revenues previously
included as Gross Proceeds that are required to be made by Grantor (including any
interest thereon or penalties) as a result of the bankruptcy, insolvency or similar condition
of a purchaser of production or other party, an order of the Federal Energy Regulatory
Commission, tax, or other governmental unit or any other legal reason shall be deducted
from Gross Proceeds.
(k) To the extent allocable to the Subject Leases, any amounts paid by Grantor,
whether as refund, interest or penalty, to a purchaser because the amount initially
received by Grantor as sales price attributable to Hydrocarbon production purchased by
Houston 3241406v.4
2
[Exhibit B to Conveyance ofNPI]
o o 1ft¡ t:; try> ill
O~-}30466 - ,-- ,.,,~,,~~.-.JI:
." , ., such purchaser was more or allegedly more than pennitted by the tenns of any applicable
contract, statute, regulation, order, decree or other obligation shall be deducted from
Gross Proceeds.
"Miscellaneous Costs" means (i) all out of pocket costs and expense incurred by Grantor relating
to the Subject Leases and the operation thereof and which are not otherwise contained within
Production Costs, including without limitation, drilling, completion, sidetracking, recompletion,
and reworking costs, geological and geophysical costs and expenses, costs of consultants,
seismic, option payments, lease bonus, brokerage, acreage costs under fannout or participation
agreements, delay rental and legal fees. To the extent any of the foregoing are allocable to a
Non-New Well, such costs shall be excluded from the tenn Miscellaneous Costs.
"New Wells" means wells drilled on the Subject Leases in which (i) the Company has a working
interest during the drilling, and (ii) and which is initially completed after the date of the Credit
Agreement; provided that any well in which the working interest of Company is subject to a
fannout and/or a Tenn Assignment in favor of a third party shall not be considered aNew Well.
"Non-New Well" means any well on the Subject Leases other than a New Well.
"Pem1itted Encumbrances" means the Excepted Liens (as defined in the Credit Agreement) and
the following:
(a) Production burdens which do not reduce the net revenue interest of Grantor below
that set out herein;
(b) Operating agreements and other contracts or agreements entered into in the ordinary
course of business of acquiring, owning and operating the Subject Leases and selling
production therefrom;
(c) Agreements, contracts and other matters to which Grantor was made subject at the
time Grantor acquired (or acquires) its title in the Subject Leases;
(d) Orders, rules and regulations of governmental authorities havingjUlisdiction;
(e) The liens and security interests to be created pursuant to the Credit Agreement.
"Production Costs" means, for any Month, (i) the Administrative Costs, (ii) the Miscellaneous
Costs and (iii) all costs incurred that are attributable to Grantor's working interest in the Subject
Leases insofar as these costs in (iii) are allocable to the New Wells in any Month (including
without limitation plugging, abandonment and reclamation costs) using the accrual method of
accounting, subject to the following:
(a) The costs incurred in respect of the Subject Leases shall be detennined in
accordance with any joint operating agreement, if applicable, governing operations in the Subject
Leases; provided, however, that if there is no joint operating agreement governing the area or the
operation thereon, then Production Costs in respect of such area or operation shall be detennined
Houston 3241406vA
3
[Exhibit B to Conveyance ofNPI]
O~~30466
OO(~52S
in accordance with COP AS guidelines utilizing the form of COP AS accounting procedure
attached hereto as Exhibit C. Without duplication, Production Costs shall incur the cost and
expense of treating production to make it marketable, together with costs and expenses of
marketing, including without limitation, fees paid to consultants, gathering and transportation.
(b) Production Costs shall not include:
(i) general and administrative costs which may be incurred by Grantor
in excess of the Administrative Costs;
(ii) depreciation, depletion, or amortization;
(iii) costs paid or payable by Grantor under its indemnification
obligations under the Loan Documents;
(iv) payments with respect to any amounts owing by Grantor under the
Loan Documents (including any payments of principal or interest
on the Loans) or with respect to the Net Profits Interest; and
(v) any amount that has previously been used to reduce or would result
in duplicative reduction of the amount of Gross Proceeds or has
otherwise not been included therein (including, without limitation,
by way of example, royalties, overriding royalties, production
payments, and other burdens on Hydrocarbon production).
(c) Production Costs in any Month shall be reduced by (i) insurance proceeds
received by Grantor relating to the Subject Leases if the proceeds therefore relate to costs that
have been or will be included in Production Costs, (ii) proceeds received by Grantor atttibutable
to the Subject Leases received by Grantor under the applicable COP AS provision upon sales,
removals or other dispositions of equipment, materials, supplies, and other personal propeliy or
fixtures, to the extent that the costs or purchasing or constructing such items has been or will be
included as Production Costs, and (iii) proceeds received by Grantor in connection with
judgments and/or settlements for damages to the Subject Leases and/or equipment, matetial,
supplies and/or other personal property or fixtures, (including any well thereon) to the extent that
the cost of purchasing or constructing such equipment, material, supplies and/or other personal
property or fixtures has been or will be included as Production Costs; provided, however, that
this subsection (d) shall not operate to reduce any Production Costs on account of (x) any
anlounts paid by third parties to Grantor as operator under any operating agreement now or
hereafter in force coveting any part of the Subject Leases to reimburse or compensate Grantor as
operator for costs incurred or services performed for the account or benefit of such third parties
or paid to Grantor for the benefit of such third parties and (y) any amount to which Grantor is
entitled by virtue of a judgment or a settlement of a court of competent jurisdiction resolving a
dispute hereunder between the Parties in favor of Grantor, or any amount paid to Grantor in
settlement of such dispute.
Houston 3241406v.4
4
[Exhibit B to Conveyance ofNPI]
O~~I:j04G(~
non52:G
EXHIBIT C
COPAS ACCOUNTING GUIDELINES
Houston 324 I 406vA
1
[Exhibit C to Conveyance ofNPI]
~
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'-QH304f)(;
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EXHIBIT
..
..
Attl\eh@d to 8-nd made:!. plttt of
ACCOUNTING PROCEDURE
JOINT OPERATIONS
I. GENERAL PROVISIONS
1.
Definitions
2.
",Joint ProPÐrt.v" shall trlès.n the real o.nd ¡J()rso!l:l1 prope~ subject to the agreetrlent tó which thi9 ;\.ceoulltlnR Procedure
19 II.ttnehed.
".toint Operations" sha1l mean all opllrations necessary or proper for the devc1opment, opert.tion, pt'Oteetion and mainté·
nance of ~ha Joint Propêr~.
",Jl)int Accoullt" shall mean tho :J.QcolJlnt showing the eharJ!,'0a pllid and eredita receIved jll the conduct ot t.he .Toint Opera-
tions and which are to be ahared by the Pnrtle~.
"Opcratl;lr'! sho.1l mean the pnrtq de~ignB.tèd to conduct the Joint O :u!!rs.tioM.
ON on-Operators" ahall mean the Parties to this lIR'recment other thnn the Operator.
·Pnrtles" shnll mcan Opcrntor !\nd Non-Opel'lIfA)rs.
" :'ir~t T,J,we! Supervi!l(lrs" sh:\ll melln those emplo:vees whoaè prima.I'Y fUllation in Joint Opcru.1¡lon~ is 1;l1e direet slJPe¡visiol1
of other employees and/or contract ll~bor dirce1;lY omp)l)yed on toe Joint. p'ropcrw in a fiald opel'$.til1A" capa.cit:l'.
"'J.'eehnicn.1 Employe!!S" 3h:L11 m~3.n t.hose employees ha"inrc specilll and s )oclfic enrclMerlng, geolo8'ical or other profes-
sional ski11s. and whose primary function In Joint Operations is the handling of apeciíic opørlltinlt' conditions g,nd problems
rOr the benefit I)f 1:hf .JI;III11; ).'l"l)y;u,lrI;Jr.
"Personal Expenses" shall mes.rt ttl\Nela.nd other rClIßonable rcimbl J'I .'\bJp. (!xpenAea of Opel1\tor's employees.
"Materilll" shall melln pcrsonn] property, equipment or anpp1ies acquired or held for use on the Joim Proper1:y.
"Contt'ol1:lbll! M:!.tp,ria " .~hIl.1I mel!.n Ms.lerial whieh lit the time Is so classifIed In the Mat.erÎal CI:Ulaification Manua111ft
most recently recommended b)/ thé Council of Petroleum Account:lnt.s Societiea.
*nnd Shall i~clude the eupe~isor in ch~rgé of the Operations Center ~nd those foremen
r$pQrting t.0hhim if their priJt1sry function in Joint: Operanions is the direct, E1uper-
SV1~1Qn Q~ dotB~llf e~ployees ör con~r~Qt la~or directly employed on the Jo nt Property.
tätèment an 1 mgs
Op~r;LtQr ~hal.ll1jl1 N(1n-Ope~:¡,tor8 (III or before the last da,v of each month for their proportionRtc ~hllrc of tho Joint Ae·
~01lnt. fQr the Pfe~edinp': month. S1¡~h billa will be Mcompllnled by ats.1:èmenta which Idonttfy the nut.ho~itv for expendIture,
leue Dr facility, and &11 charg-èS and erodlti! summurlzed by apPTQprlutc (11~slfi(1a.tion~ of invE!~tment and expense except
th!\t items of Control1nblo Materl....l ....nd unusual eharges and credita sh3.1I be sepllrlltoly identified IIni.l1\JHy described In
det3.il.
3. J\.dval1ccs nnd Pnymentll by Non-Clperators
A. Unles~ otherwise provided for in the aR'reCmel1t, the Ope · l.1:or m~,3' re( ,¡irfi! the Non.OpertLtor~ to advanCe thair
ahl\rt of eatimnœd enah olltln.v 1~or tl,c 8uc~eeðing mnnth's opel':¡,t.inn within fifteen (15) daya t\ft~r roeoipt of tho bil1·
InR' or by the first dny of the mcmt.h fm' which the advance \a required, whichever is later. Operntor shlll1 ndjust en,ch
mont.hly billing to re{lfi!~t :¡,dval1cea recáivÐd from tho Non-Operntors.
B. Each Non-Operator shaH pay its proportionl)f:lll !;Ji1l~ within MbjE!l1 (\1;) d:!.,"B after receipt. If paYl'I\ent is hOt l11!\de
withIn SllCh tim/), the unpnid bld:¡'l1~e sha1t bear intèrœt trlonthly at thl!1 prime tllt.e in stfect 11t
_On tho 'fIrst dllY or. the mOTlt.h In which ¡Jp.1inqnency Occurs plUG 1% or the maximum
contra<.:t l'à.te pormitted by tbe IIPpHcn.ble usnry laws in the state in which the Joint P~OP¡¡I·t.y is locat.ed. whiehever
i~ the lesser, pins a.ttorney's fee~, court eo.~1:s, nnd oth~r co.~h In conneetion with tho eoUcction of unpaid IImOl1nts.
4. Adjustments
Payment of any such bil1a shall not pre,iudic~ thc right or IIny Non·Opero.tor to protest 01' queation the ~ol'l'cçtness thel'cot;
provided, howevêr, nU bills !\nd stntflmcnt., rCl1del'èd t.n N0I1-0pcl·:ttor~ by Opemt.or during any co.lenda.r yanr shall con-
clnsively be pr/jaump,d fA) h0 true and ~orr&!ct after twánty-fonr (24) months folJowing thc cnd of nny such .mlcndl\r YCflr,
unlèRII within the u.id twenty-four (24) month period (\ Non-OperntQr tnltcs wrltt.en exception theret.o and makes claim on
Opcrntor for adjustment. No adjustment f:tvorable to Opera.tor ah:¡,l1 hI! mMp. unless it is ma.de within thl:! slune práacrlbÐd
period. Tho provi! iona 1)1' tni! l;lIIragrr.lph shall not prevøht nd.iusttrlenta reaulting from II physicnl invp.ntl)\'Y of Con1;rol1:1blp.
Material as provided for in Section V.
COPYRIGHTI\I! 1985 by the Council of Petroleum Accountants Societies.
-1-
000527
1)9304f~f~
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5. Al.Id¡t"
A. A Non.Operator, upon notice in writln!;\' to Oþèrator and 1\11 other Non·Opèr1\l.òr5, 3ha1l have the rir<hL to audit Oþera-
f.or's accounts and recorda relatlnp; to the Joln1: ðccouI1t for nny cl\lendar !'car within t.he twent,y-f.our (24) mnnth
period following- tho end of ~uch calendar year: provided. however. the makinII' of BJllI.udit shall nct extend the time
ror the: l:i\kinl,l; of written excoption to find the I\djustmcn~ of Mcol1nb liS þrovided for in Pl\ra¡;(rl\ph 4 of thw Sèotion
T. Whp.ro th",re arc t;w,) 0>:' mort! N'n".Ùpel'atorR, the No,,-Qp..,rat.()1"(I ~hl1t1 maJ(.., every rea-Ronable êffort t.o conduct."
joint lIoudit in a manner which will result in 8. minimum of inconvenience to the Operator. Opèt1l.tor shall bear no por-
t.ion 0(1:ho Non-Opcrntors' nudlt eo~t inourred under t¡'i~ p(lr(l¡;(rlJ.ph unlœn "greed to by t.he 0])01'1\.1:01'. The oudlts
sha.1t not he conducted more t.lmn once ea.ch yea.r without prior approval of Operator, eXCI!Iþt (1)ol1 the reaignat.ion or
removal of the Opmrntor, and ahall be mnde at the cxp')11se of those Non-OperMors approving Ruch audit.
B. The Opêrator shall reply in writing to an audit t(jþort within 180 dnn I!.£t~t reeeipt. o( such reporl~.
6, AJ;lproval By Non·Operators
Where an approval Qr other ;1¡troement ot the Pa.rtieR or Non·Opel'atl)l"a ill expr41l\aly required nndar other sectiona 01' thi!
Accounting Procedure and if the agreement to which this Accounting Procedure Is attnched contnins no contrary )rovisions
in regarð t.l'tereto, Qpert\tor shall no·tHY all Non-Oper:J.t.orB Qt t.he Qperator's propos¡¡.(, ;lnd the agreement. or npprovl\\ of
1\ maJority in intereat of t.he Non-Op'~rators Rhall be controlling on a.1l N on-Operatora.
II. DIRECT CHARGES
Operator ahn.!1 charR'e the Joint. Account. wit.h t.he foUowing items:
1. 1!:cological anrJ F.Jnvlronmen~1
Coots incurred for the bonêfit of tho Jöínt PropcrW 39 1\ result or ¡¡:overnmcntnl or rey,ullltory 'equÎrement¡¡ to satisfY environ-
mental conaiderat.lonR n.pplicn.bll! to t.he .Tolnt Operations. Such coata ,may include aurveyl\ of IIn ecological or a.rchaeDlogÎcn.1
n:tture :tnd !)ollutfon eontrol procodurc8 o.S required by (lppJlcllbJc Jaw! nnd rCJ!;ulations.
2. Rentals and Royalties
Ui\8e rental! and rO)'3.lti"" paid by ()perator for the Joint. Opers.tionR.
3. Labor
A. (1) S(llo.rlcs nnd WII¡;(CS of Operntor's fj¡¡Jd employ¡¡CJ:! direct.1¡r employcd 01') t.he Joint Þroper1.y În th", I)ondu~t. of .Joint.
Operat.iDnR.
(2) Sa1aril!R of FirRt r.,ßvel SlJperviacra in the field.
(11) Salaries ~I')d wa t'Cs of Technical );mp!oyep,s dh:octly employed on the Joint Property if such chal'R'\!s arc excluded
from the overhead rn.te~.
(oj) Salaries and wages of Teehnien1 Elnpl~!'cOS either tQmporariJY Or permnnGntly I\Ðsi~Md to tthd directly employed
in Mle oper:ttJon o:r the JoInt. Ji'roPp.I·ty IT. such cha\' :fl1S arc exeludcd from the overl1c(l.d rat.o~.
B. O\>crator's east of hðlid!\\', \lncati(lI\, sicJrness o.nd dls(lblllty beMrits nnd other customllry tl]1oVITIl11ces patd to employees
whose ct\l(lrfcs (In<1 wl\P;ea lire chm·¡tenble to t.h", .Yoint ACco1Jnt \lIu)",r 'P(lrll.graph SA nf thia Se<;tion II. Snch cQstJ ul1ðl!r
this ParagJ'aph 3B m3¥ be charged on II. "when and Ð.a paid bl1èie" or by "percÐntngc t\GseGamont" on the nmonnt of
salarims and waites ehar«à!lblm to the Joint Ao¡¡ouot unðe\' ParRR'ro.ph 3A or this 8e~tion U. 1f peroef\1.IlRC :\5SIJ$sme 11.
is used, thc r~t.e S)1¡¡.1! be bllSed on t.he Operator'R CORt eJ..-periencp..
C. EJtlX!nditures or contributions mnde I'ursuo.nt to :lS91.\,nmcnt.., Imposed by ¡to,'crnment.'I. authority which arc aPplicable
to Oper:ttor's CORt..~ oharR'IJ."lbl", t.e the ,Toint Account nr¡der Paragrapha SA Ilnd 3B of thia Section II.
D, Pel"ROnal Expenllee o,t those emplC1yeea whORe alllarieR and WBINa Ilre oÞ¡¡.r fen.ble 1.0 the .toint. Acconnt. m\de\' P.n~nPi'r(\ph
3A of this Sòction II.
4. Employee BeneCit.q
Operat.or'R current. coat.~ or cst."lb1îahel plllnR for employees' gronp life inaurance, hospitalization. pension. retirement, staelt
rJ\1rChes0. thrift, bonus, and other bønefit plo.l\ß of II. 1J1<:e \'Illt.l,\rC, (lpplicnblc to Opcr~(:or'e [a\)nr cnR1: char :feabip, to t.ho .Tolnt.
Account under f'a.ral!Ts.pha 3A and BE: of this Section II shnU be Operator's actual coet not to exceed the percent moat tecènt·
y rceommended by thl!! Cðuneil of P-ctrolcum Accoun1;nnt.n Sooleties.
5. Ml\tc\'¡n1
M!1terial pt,rehQMd or fùrnished by O¡W:ätor for use on tho Joint Propcrt,v II!! pro...idcd under Section IV. Only auch Mt>.terìnl
ahalt be pU1"\:hnaed for o~ transferred 1:0 tho .toint. Propl1rtv' n..~ may be 1"equi~e<l for JmmP.ðlllte liRe and in re.....'IOllably prMt!e~,l
and conajRt.ent, with efficient. and ecol')omica.l operationR. The accumula.tion of RUI'plu! at.ooke shall be avoided.
6. Trnnspont\tion
Transpl)rtlttlon of emplo,'ccs Ilnd M~tl:!riJll neceaRaty for the .Joint OpcrationR hnt anbject to the following limitationR:
A. If Mäteri!l.l is mOiled to the Joint Property from t.he Operatol"e wnro\101)Se or othl1r ])I'opertiea, no charge eha ] be \'T1llde
to the Joint Account (or a diatance gre:/.ter than thè diattlßce from the neareS!: ré1íl\blø $\lþpIY 913.'11"0 whQrc ¡¡¡to!: !!\\'I.t€rlø.l
in normally available or I'IlHway receiving point !lnrent the .Toint Property unleu a.greed to by the Parties.
-2-
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"
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09304G6
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13, If aurplus Ml\terinl is movød to Ol'ørntor's wnrchousc or other storo,l\'c polne, no cl1arge IIhaIl be made t(1 r.he ,Toint Pt.c-
count: :for. a (list,lmeo P.'rclltcr t.han thr¡ distance 1.0 the nearl'_qt reliable aupply atore v.'here liI(e rnäteril\l is normally
available, or raHwa.y receiving point nell.roat the ,Toint Proþllrt)' unless nJ1,'recd to by th(\ PÐ ·t.ie~. NQ ch:t.1"~ 5hll11 1:>0
mnde to thO! Joint Account. for ItIOV!"p: MIlI~r.ial 1.0 other properti~ belonging- to Operl1.tor, un!eaa agreed to by the
Partica.
c. Tn t.h~ :t.pplication of ßubparagra]JhR A a.nd B above. the otltion to eQualize or chnrp;e nct1ml trucking C05t. la availa1:>le
whon the I\Ctunl chargm is $400 (II' less cxcludinR' acccßßorinl chargp.s. The $400 will be ad,iuMed to the i\t'nount most
rccl) 1tly recommended by t,he Cr.luncil of Petrolenm Accountanl:!l Societiea.
7. Servioes
Tha cost of contract services, èl¡uiþm.l!nt o.nd utl1ltle~ provided by outsldc ~ourccs, except ßC1'viceR excluded by Po.l'llR'l'lIph
1,0 of Section II I\nd Pl\rl\A'ro.ph i, Ii, :md iii, of Section Ill. The caRt. of profeRAiona1 consulta.nt services and contract ser-
vices oC technical pii!raonnel diractly en~l\ged on the Joint Property if aucll CharA'êS o.rc excluded from the overhead rl\tc~.
Th!! cost of professionAl conaultllnt ~(!rVICe5 or cont1'nl)t.IiICJ'VicCl'lo{ t,c:!chnicn.J personnel not directly engaged on the ;foint
'Property 5hal1 not be charged to the ,Taint Account unlcaa previoualy IIgreéd to by the Pn1"tlcs.
8. Equipment. ..nd Fo.eillties F"rnlsñ,~d By Operator
A. Operator aho.ll eharA'e thO!: Joint AeCO\lnt Cor nRe of Operator owned equipment and CI\cílitiG8 I\t rl\te9 commenSuM\te
with coatoll of ownp.l'!lhip and operution. Such M\te~ aho.ll include coats of malntcnnnce, rep:¡ir.s, other opel'/Lt.i!\R' expeMe,
insurnnee:J taxes, depreclntion, &I,d !ntereßt on II'ro~a inveRtTnent leaa necumula.ted depreciation not to exceed _
---.:J:E.I.~_ perCl)nt <-!1-.'1i» per annum. SUch rAtes ahall not exceed a.verage commercial ratea eurrently prE!'
va.íJin~ in tha immediate area of the Joint Property,
E. In lieu of charp,q in par:L \'l'aph SA above. Operator may elect to URe avera.¡¡e commercial rates prQ1/niling in the immedi.
a.te a.rea of thtl Joint Propel't,y Itlu20%. For nutomot.lve cQuipment. Operator mny eject to use rat.cs publißhecl b¡' t.he
PetroJcum Motor Transport Associat.ion.
9, Damagea and LoRRea to .Joint. Prop!!rt-y
All CORtA or eX~nR~q neC~.!L,ary for the repa.ir or rep1Mement of Joint Properf¥ made neccssnry becllllse of damnltc.s or losses
incurred by fire. flood, storn'l, thtl£t. Mcidcnt.. I)r ot.her CRuse, e;l(cept. those l'CIIult.lng' ~r\lm Operator'R grollll negligence or
will{ul miseond\1ct. Operator shaH fumiAh Non·Opera.tor written notice of damal!1!R or 10Bsèa incurred as SOOn lIS prilcticable
after a. report thereof haR been recei"ed bY' Operfl.tor.
10.
J.() I;I1.1 F.Jxpcnse t:j,tJ.e mnterinls and examJ,no:tion of
. iH·t:le,
ExpE!nse of h~ndhng, investiga.tin~ lAnd sott!lnK UtlR'ation or elnlma,íd[acharp;lnp; of liens, PI\Yl11,~"t of juc!p;emcnts and
a11'10unts paid for sct1:1emcnt (If e1~,jriis fncurrAd in or reRulting -from opcrlltlon.q Undel' the agreement or neCeRRary to protect
or recover the .10int Proper~', except, rohat no ohl!.l'g'e for àérvicos of Operator's legnJ starr or feo$ or expense 0'[ 0\1tsldo attor-
neYI' shall be made unlesa previously Agreed to by tho pari.ies. All 01:her leR'n expenSe IR conRidered to be covered by the
overhead provisions of Sr.ctlon IU Unlli'_qR otherwise agreed to by the Parties, except as provided in Section I, Pl\rl\P;raph
3. All oo~ts, whothér laqa:L, profcsaion~l Or otherwise incurred in compliance w~th statê
and/or feder-al r.~~es anð rogulat~ons with rÐspect to apacing, proration, production and
>the NGPA of 1978 ~ha;!.1 co,,-wl:;I;t.uto a <'U....."ct charge to the ",oint Account.
TMCCS
n.
Al1 taXeR of every kind and nature M!RSàéd or laviad uþon or it! connection with thm Joint Prol,crty, t,hc opern.tion thereof,
or the productIon therefrom, ~,nd \Vhl,~h tnxe~ have 001)11 paid by tJJC Operator f.OI' the benefit or the P:J.rtie!;. Ii: t.hl) lie) vnlo-
rem t.'lXfte are o~ed in whole or in PiJ,.t, upon aeþar:.te valuations of each p:u-ty's working inter!!st, then notwithRtanding
anything w the contrary herein, char¡!;6~ to the Joint Account shl\l1 be tnade and paid by ch.) Parties hereto in I\Ocordllncc
with the ta:< value J¡'Onorat:ød by el\Ch pnr.ty's workinp; interest,
12. TnRuranee
Net premiums pnfd for !nsurnnce rC<luired to be carried for the .70int Operations for thl! protection of the Parties. In the
event ;rolnt OperlltionR are conducted in a atattl In which O~erator mt\3 act M sclH!lsurer tor WQI'kAr'l) Compen~at.ion andl
or Etnþlo.l"ers Liability under thtl r~s"ectlve st.;tt.c'1) I/Lwa, Operator 1'\'1;\y, ;tt. ft,ß election, include the risk under it.ll self·
Inaurance proP.'r;tm aM j' 1 that event, Operator sha.n include 1\ charge at Opera1xJr's cont not to exceed mnnunl rl\tes.
l3. Abandonment and Reclama.tion
Costs inc1Jrred tor ahandonment of the .Toint PropeI't,v, including ooRt.llrequired b.v govcrnrnenct\! or oth~r rèp.;ull\toI'Y
t\uthority.
H. CommunlclltloTIII
CORt (If IICQUirillg, Ip.:rning, inst.·dling, operating, rElpa.irlni$ IInd maintnlning cornmunict\tion '9Y6tenJ~, fnc.ludinR' rad 10 and
mlcrowtlve ftlcilititls direct1y serving- the Joint 'Property. In the event. communication facilities/systems serving the Joint
Property lire Operator owned, cb:¡rÌto6 tl) the .Toint AcCount shall be made lIB providéd in ParClp':rnph 8 of this Section II.
Hi. Other Expf!nd,1tqre~
Any other expenditure not covQrod or' dOlllt with ill t\1e ~(1r.egoin~ provisions of. this Ser.tion n, or in S",ction UT n.nd whl()h
iR of direct. !;K¡.n\\fit to thl Joint. P1'l)p(\r~ and i.!l incurred bt the Operator in the naèeasat'y and proper cOnduct of the .Joint
Operation~.
-3·
0005,29
O~Ja0466
~'"
........
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oJ
n.1I
~~r~~
III.OVER.f{liJAU
1. Ovcrhéad - Drilling and ,P"ocluclttg Operations
i. A., compenRßt.ion 1'01' ßdmini8trßtivf.!, \lupel'Vision, oWee Mrvices ;lncl warchou$inA' eoat.~, Operjlt.or 8hal1 char.FCc drllHng
IInd producing OpertltiOn~ on either:
(X) Fixed Rate Baais. Påra.grnph lA, or
( ) Perccnt.n,F.Q Ea.,!s, Pllrl!.R'n\ph HI
lIntes., otherwise a8Tced tn by th,~ Parties, such charge shall be in lieu of caatJl and expenses of all of£ìce.q and aa1aries
or wal'fêa plu3 tlþplicl\ble burdens a.nd expenSeS of nil personM\, excl1!þt those directlY charltcttblc under Pø.rnp;ra )h
:lA, Sect.ion n. The cn.,t. and eXJu~nlle of sel'Vicl!I\ from ontaìrle aourcl!!I in connection with mattel'a of t,ax:!.tion. trdfic,
accounting Or rtlnttén before or invo]vìnA' ~vcrnmen1:ll11\t¡;Gncics ahall be considered tIG Ineludod [n tho ovorl1end r1\1:O$
prnvider.1 for in t.hp' Ilbove $l)loctClr) Pß,ragraph of thill Sectinn tl1Un]eSR such cost and expense are agreed t.o by the
Pllrtics M n direct CI1t\f>.','Ð to th... .Jolnt Account.
ii. The sl\)[l.rlos, wnA'l'..8 Md P.r:raonal Ex\'Cnscs of Tcchnlcal Emplo~é3 II.nd/or the cost or proCQssiònn] èonllultant sérvices
and contract serviceR of technical personnel directly employed on t.he .10il'l ; PI'OPp.d~:
( ) shall be covered by t,he¡ ovp.l"helld rates. or
(x ) ahn1l not be covtrad by the oVérhead r!\tes.
iii. The slI.la.riell. wngelland Per!lOM] Expenses of Tcchniel1.1 EmploYl!es and/or costa of proÎòssiona consulttlnt servicea
n.nd contract $orv(ecs of teehnlenl per.sollllel (,'lit-11m' tempol'llrl1¡' or ¡¡ermnnently ~8sil\'ner.l to line] direeJ:1y employed In
the operß,tion of the .Joint. I'ropert,v:
(X) shaH be covered by the overhead rates, or
( ) shnll not be covered by thé o''I!rhélld rntc!,
A. OVGrhssd - Fixed Rate Baais
(1) Open-tor aha.1I chllrS'e the .1pint Account at the following \·ß,t.es per well pel' mont,h:
DriJIillR' WeB Rate !II _Ei...5.0.C,..O.o_
(Pron!.ted for less than a full month)
Producing Wen Ra.te $ 650,00
(2) A¡)ÞlIca.tion of Overhead - Fixed Rate BlUIià shall bo Q follows:
(a) Drillinlf We1l Rflté
(1) Chll.rgS3 for dril!ìhg wells IIhal1 bép';in on the dntÐ the wsll is spuddGd Qnd terminllte on the date the drill-
ing rig. eomple1:ion rig, 1)1' other \Jniœ \Jeed În complotion of. tJ¡e well is "eleaRed, whichever is IIlOOI', except
that no chlLrge sha1l be màde durin~ àuspGnsion of drilling or completion oper:!ltio\1$ for fifteen (15) 01'
morc consccutivc co.lcndnr r.\IlYS,
(2) Ch3.rges for WenR undergoing a.ny tYPé of workover or recompletion for a pe1'Ìod of five (I») (;onaee\]~ive
work dll.y!l 01' more ~hl\ll ba made e.t the drillin{1: wall rate. Such chnr~s ahall be a.pplied for the period
from dlltc worleovcr opern.t.t()n~, with r.iA' 01' 01,hcr units uilCd in worleover. commenac throu~h data 0:1 riA"
or othel' unit. I'cle:ta4~, except that no cha.rge shß,1I he made dUJ'ing suspension of: operations for fin.een
(11) or more CO\1ào!ccltive eo.lcndtlr dll.Ys.
(b) Producing Well Rà.tes
(1) An act.ive w...11 p.it.hel· produced or in,lectéd ioto for any portion of the month $hl\1I be considered II.~ a one-
well charge for the uhtire month.
(2) Each IICtiva comp]etion in n multi-completed well in which prodnction is not commihltlcd down hole ahllll
be considered 119 II OM-wo1l oharFre proviði\1R' elWh completion Is considered Q. ~ep¡¡rate well by the srovorn-
ing 'egulatOl'y al,lt.h(II,it~. "
(3) An InlletivQ ¡ 'I\:! well shut In bec¡¡usc of overlJroduccion or Ill.lhlrG of purchO,Sol' to tnlœ the production shl\11
l;e considered M 1\ 1.1Op.-wellchllrg'e providing t.hl¡! RM well is dÎ1'ectly r,onnect.er! to 1\ perm:l.nent. sn.I,-,_~
outlet.
(.3) A one-well charge Rhall be made for tho! month in which pluning IInd abll.ndonmeht oporationR lire com·
pleted on any well. ThIs one-well cho.rl-!C shttll be mndo whether or not. t.he we11 Ims pl'f)dIJCp,(1 C;I;ocpt wÞen
drilling w,,1I rlltP, ß,pplies.
(I';i) All other in:u:tive W~l1R (induding but not limit.l ð tl) inn,çt.ive wens covered by nnit nllowlJ.ble, le:l$p. i1l1ow-
able. transferred n\]owable, etc.) nhl\lInot qna.lîfy for IIn overhead chnrge.
(:~) The well rates shall he adjusted IlR of the fir!lt d~y of April elloh yeat' {ollowing the effective dllte of the agrep.menl.
to which thl9 Aceountln.q: Pr<lOedurc Is nttll.ehod. Tho ndjustmGnt ahall be computO!!d by multip]yinJ1: the rtLte CtTl'-
rently in URf! by t.he perc;p.nta {e ¡ncreaae 01' decl'eMI! in thf,\ ;lver~p:e weelcly ellrninl!'ß of CnJrle PAt.roleum ~,nd Gn.~
Production Workers for the lant caIo!ndllr yell.r compared to the calend:lr year preceding an shown by the index
or IlVerll.n wealdy earning/.! t,r Cruele Pewoleun\ nnc1 GII9 ProdllCtion WOrkers O~ l)ubHshocl by the Uniood Statl~
Department of T.ß,bor. Búrellu at Labor Statistics, or the eQnivalent Canadisn:indeJl I1S publi~hed by Statistics
(;n.nn.r):l, :lS nppli/)n.1)le. '1"he Ildjusted rates shall be the rates currently in uee, plus 01" minus the computed !ld·
.iustmen t.
13. G'l'trlu:ø rei ccnMtgc: 13~,,:..
II} ~)i!III'.r Aha\l...c\:l"pp!f\o-t~HIt. .''oeRust lit ilke fel1s./Î!lr¡ I Mes.
-4-
'^,]E
000:530
, ..~........._w., ..-... ..,
....
u
\ :
(f~:l3046f)
~~~~~
f~) Se.~~"mt;\M
Percent, ( %) of. tJ,,, eo.,t of dl!vl!lopml!n1: of tlle .Joint Proporw exclusive 0,
under Parn¡¡:rnph 10 oJ Section II I1nd 1111 Ralvllge credits.
(b) OpérAtinl,(
Percent ( _ %) o[ the cost of operat.ing the ,¡oi 'Opl!rty axclusive or 00.'1:3 prol/lded under
ParaRr¡¡phs 2 IInd 10 of Saçt.ion 11, 8.11 R8.lva,ge crtdita. the v of injected substl\ncc~ pl1rChMecl for ~econðßry
I'p-cnvery ßnd all taxeR and lWIéuménta which Rre ]e . I\:!seSllcd lInd paid upnn t.he mineral ¡nt.ereat. in flnd
to the Joint Proporty.
(2)
For t.he purpœe of determini . . ar !'cs on 1\ perce11f.'lRe bl\.,i~ under 'Pn.ra 'raph IB or this Sèction III, dèVe!opmenL
shall include nil costs . I'Hlection with driUing. rÐdrllllng, deepéning, or I\ny remerli:tI operatinna on any Dr all
we1!R involving ae of dl'illinø: rip: IInd erew cl1pl1ble of ðrUHng to t.he producin~ interval on the Joint Prop-
erty; nlso, . tnnry e:l:penr:\iturè.q necl!R!1l1ry in pI'Q'Ønration for drillinl( IlMd expendit.ureR incurred in abandoning:
whl!n wall is not complcted 11.'1 II. producer, and origin.l COAt of construction or Ins1:a,l\llt.i(ll'l of fIxed :II\~c¡t"" the
nsi~n of (i¡r;er,! ~sset.s I!.Jlo:1, any other proj~et clcarly discernible lIS þ. ~j¡ced aIIset, e:'œ~t Major Construction aa
2. Overhead - Ma,jor Construction
1'0 Cl)mpenSllto Operator for overhead CORta incurred in the construction 9.nd inut:âIJAtion 01. fixed 3!lset.s, tl1.e e;J:;p:;\nsion of
fixed BRRl!ta. and any other projéct clearly dlsccrnlble lIS II. fixed u.øsct requIred 1.01' the development and operation or the
Joint Property, Opera.tor shAll eith@lr ne¡¡:otinte a r....~ prior to th", beginning of conRtruction. or shall chargc the Joint
ACCl)unt for f)verhear:! bnsed (In the fDllowing I'lI.tea for any Ms.!or Construction project In exce¡¡s ot $ . :
A. 5 ?ó of first $100.000 or t.l)t.a.1 CaRt if··!e.B, plua
Ð. _4-- % of costa in cxce9S or $100,000 but leRR than $l,aOO,Ooo, plUR
c.
'I
% of Cðsts in I!xeeaa 0:/ $1,000.000,
Total caRt Rhall mean the graM coat c.f anyone project. For the purpose or this p;1.rnltl'aph, the eomponent parta nf 11 Ringle
p 'f)ject shnH not be trented sCI)t\rat~:ly n.nd the CORt. of drming and warkovel' welJR Bnd IIrtiiicil\llift equipment shall bc
excluded.
a. Clltnlltrophc Overhcnd
To oompel1aatè Operator for oVl!rhéDd eosts Inc1,Ir\"ed in I;hr. ev(\nt of. expt;m(l11;\U'M rl!Rnlt.ing from a Ringle occurrence dne
t.o oi! ~pi1!, blowout, 1)Jq\1(1slon, rh'c, storm, hurric8.M, or othèr clltl1.atrophBR 8.R Ql t'sed to by the Ptlrt es, whIch nre I\Ccc9sIlry
to reRtore thl! .Joint Propl!rt,v to the I!quivllJent condition thl1.t existed prior to the event enuRing the expenditureR, Opl!l·at.or
gl1nl1 clt!'er nel1,Otlnr.c n rllt:c prlo\' t(l charging the .TDint Account or Rhall charge the Joint Aceo\lnt, Cor ol/orhet\d bnscd on
the followinlr rates:
A,
B,
C.
5
% of total CORta thron ¡ch $100,000: plus
% of total CORta in exceaS of $100,000 but less than $1,000,000: plus
, ~, of t.ot.'11 cost.a in I!x~:e~s of $1.000,000.
1I
3
'ExPIJllditUI."C9 sul;ijer.t. t,o the ovcr.hcads ahove wi!! not be rednel!d by inRUranC! recoverieR, a.nd no other overhl!ad provi-
.iDnR of thiil Saction III ahall Bpply.
4. Amenrlmcnt ot' ~:Ltes
The ovc~hcod ratcs provided for In this $p,ction III ma.,v be aml!nded from timl! to time only by mutual !\r¡:rcemGnt betWGén
the PartieR herl!to it, in practice. the rl!.tes I\re found to be Insufficient or excessive.
TV. PRICING OF .JOINT ACCOUNT MATERIAL PURCHASES, TRANSFERS AND DISPOSITIONS
Opera.tor Îs rl'-SPI)TI/!iÞle for Joint Aeeount M:aterinlnnd shl\l1 mo.l(c proper I\ncl tbnl! y charges nnd credits for an Material mov~
ments o.fEeding thl! ,Joint Property. Oper:¡tor :11111.11 provide all Mat.el·ial for U6e on the JOh11; T;'rQpe\"ty: 110W¡¡I'er, (It Opcrlltor's
option, such Materia! roily be supplied b,y thé Non.Operator. Operator ahall make timely dlapoaition of idle :ind/nr RurptuR
Material, Ruch rii~P06n.1 belny, rop.do oJthc:r 1:!'rol)gn 6111e to Operlltor or Non·Oporl\tor, division 11'\ 1(lnd. or sale to ol1tsidor9.
Oport\tor !'rilly purchaRe. but shall be undl!r no obligation to purchaae. intereRt of Non-Operatora in snrpluR condition A or B
Material The rJiRposn.1 (If surphls Controllllbll) Material nof; pnrChlllled by the Opernt.or shan be np:I'eed to by the pp.rtie~.
1_ Pu'·chl1(1lo!!
Mo.tarinl þurchs.Md Rha1l be charlled at the price plJ.id by Opel'l1tor aft.er rJl\(1110tin11 I)f all diacount.ll rl!ceived. tn (¡Me (lr.
Mat.oria1 (o11n<1 to be defectiva or r~turnod tf) vcndor (or tiny other rellROnB. credit Bhnl1 be IlnsBed to the Joint ACÇQ~lnt
whel1 ~.djustment has been rl!ceivl!d by the Opera.tor.
2. Trl\ttsCcra and DiapoRitionR
Material furniahed to the ,foint 'J;>ropllr1;y and Matl!ria.! tt'anafen'ed from t.he Joint Pl'oper1:y or rlj~pnRed ofl'lY 1;he 0\)01"111.0r,
unless otherwIse IlfiI'reod to by the PlLrtles. 9hl\11 bl! priced on the roHowing baala excluah'o oC cash dlsoount/;!
-5-
......
000531.
.........".........., .-..
--. ....-. -
.,
'IØ'
O~~.3046G
.:tQ1lõ1",rltlll~
~~~~ð
A. New Material (Condition A)
(1) Tubular Goada Othol' t.han 1,jno Pipl
(a) Tubular gooda. ai?ed 2% ¡nchell OD and largoI', I¡:(cept lin/) pipe, $hllll be priIJod (It. )j]1l9torn mill published
clI.r]oad bMC prices offectivÐ as ot date of movement plUR tranaportatlon cost nsing the 80.000 p01n1å Cal'!(lAd
weight ba~;~ t.o t.llo railway receiving point nev.rr.st. the Joint Property for whloh p\1bll.9hod 1'1111 rates for
tubu1a.r goods exist. If the 130,000 pound r&i1 rate is not offered, the 70,000 pound or 90.000 pound raj] rate
mny be u90ð, Frcllì'ht chnrlre9 for t,uòlng wi1l be c,'1Jeulv.ood from Lorn,!n, Ohio Ilnd en.~'nl\' from YouMstown,
Ohio.
(b) For Jt¡'ades whioh I\re spooilL] to one mill only. prices shll.ll be oomputed At the mill bäSé of that mill plus tmn!\"
portlltion cost trom thnt miH to the r;1i1wny reeeivÎTlR' point nel\rcst the Joint P"opertlV M provided (lbove in
Paragraph 2.A.(1)(a). For transportation cost from poinœ nther t.han EIIßtern mills. the 30.000 pound Oil Field
anulcrs Association IntcrstJltc trt~c\l r.~tQ shl\l1 be u~ed,
(0) Special end finish tubulllr R,:oods 9hlll1 be priced lit the lowest published out;..of-stock price, f.o.b, Houaton,
Tex(l.'!, plus trl\nsport.~t[on cOßt, using Oil Field ijaulers Association Interstate 30.000 pound tnlelc rate. to
the railw3¥ receiving point nearest the Joint Property.
(d) Maca",ni t.ubins;r (ßI~o tess (¡hR.n 2% inch OD) shall be priced at the lowest pUblished out-of-atocl\ priee~ r.o,b.
the supplier plua tranapot-tRtlôn coata, uainJl.' the Oil Field Houlers ASBôcil\tion intcratl\tc tt\lclt tl\tÆl pCr weight
"r tl)bmg trnns(crrod, to the raj[w9:y receiving point. neare$t the Joint Property_
(2) Line Plpc
(a) ¡"inli! piPII mOVI101/1nt., (I'.xcept si?e 24 Înch OD and larger with wal1ß % inch II.nd over) 30,000 poundR or 0101'/1
sha.1l be priced under provisions of tubular goods pricing in Parllgrs-ph A.(l)(a) 118 provided above. Freight
char«es shn.U be el1.leulllted trom Lorp-(n, Ohio.
(b) Line pipe movement.. (except ilize 211 inch OD II.rId larger with walla % Inch and over) leAR t.han 30,000 pounds
shan be priced At EAStern n,m published ellrlolld bASe prices effecti'.lt 1\9 of dlLte of shipment. plus 20 percent,
ph)5 trn.n5 )OT,~tion co~ts bfl~ed on 11'eight rates :!II set fOT.t" under provisions ot tubulaT. gQor;]s prioinp,',ln Paia,
graph A.(l)(a) IIR prnvided wove. Freight oharges ahall be calculated from Lorl1in, Ohio.
(c) r"inc pipII 24 inch 0» anð Qver and .~ inch willi and larger sh:l.lI be prked f.o.b. the point nf manufacture
lit currant new publishGd :prices nlu9 trRn.~portl\tion eoat to the fail WilY recelvlnlì' poInt nellrcst the Joint
T:'ropert~ .
(d) Line \,>Ipe, Ineludinø.; rnbrlcnted line ph)e, drive pipe a.nd conduit not listed on publißhed prico lists shall be
pr.ice(1 at qllote') prices plus freight t.o the railwBY' receiving- point. neal'eRt the .Joint Property OJ' at pricM
a.¡\'reEld to by tht! Pat-tiea.
(:!) Other Materia! aha1] be p\'Î~ð at the Cllrrent new p,'ice, in effect. I\t date or movement, :!llIiRted by a r/11iable supply
store nGAt-est tht! Joint Property, or point of mnnufl\eture, plus transportation oosts. If A )þlicabla, to the railway
receiving point n/1:!.T.C5r. the John. Property.
(4-) Unuscd new Mntcria.I, except Þ.lbl1lnr Itooðs, moved from the Joint Property 3hl\I\ be prir.!ecI at.1¡h,~ e11rT.ent flOW
price, in erroot on d:1.r.c of movement, 8a listed by 1\ re1iable supply Rtm'e nes.reRt the ,Joint Propt!rty. or point or
mAnufacture, plus tt-ansporta.ti,)n oosts, 1:1: ð,ppl!cetb]lJ, 1:0 the railway rccéivlnlì' point, neaT.es!: t.he Joint T:'ropcrt¥.
Unused new tubulaiS w1ll be pl'iced aR provided above in Par:!. T:!ph 2 A (1.) and (2).
B. ("..,,0(\ Used Mnterl.nl (Condition B)
Mllteria] in Round Bnd aervkeable condition I?ond $ultäblt! Cor reURe without rl!l:ond¡tionlnJ~;
(I) Material moved t.o t.he ,Joint t'rnpert.y
At 9~vcnty-r[ve perccnt (75%) oj' cur,'ent new price, A.~ determined by p(lral!'l'aph A_
(2) Mnterial uR~d on Ilnd moved it(Im the Joint. rropcr1~
(~) At sl!J'lenty-rìve percé11t (75%) or CUI.Tp,nt new pl'ke, ~ det.(lrmlr)l)d hI' P:'lI'agraph A, if Ma.terial waR original1y
charged to the ,10int AccoUl1t as new Material or
(b) At. ~ixt.y-live percent (61\%) Df current new price, liB determined by Pars.gre.ph A. if Material WM origlm\l1y
charged to the .Toint Account as uged Material,
(3) Ms-teria! not uRed on 3.nd moved from the .Toint Propért,v
At 9cvenW-five percent (75%) cf current new price IIJ det.ermined by Pnr:\A'r:lph A.
The cost of rcconditiolling, if nny. shall be absorbed by the transferring property.
C. Other Used Mllt.erial
(1) Con~litiol1 C
Material which is not in Round and aervicellble condition and not Ruitahle for itA ol'Îginal funct,ion until after reeDn-
dltloninfl; shnH be priced lit flCt.,y percent (50%) of. current new þrlcc a3 determined by Parnlì'tn.ph A. The Cost of
reconditioning shaH be charged t.o the receiving property, provided Condition C value plus coat of rer;onðitioniTlR"
ðOM not exceed Condition B 1/\!ohlo.
-6-
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()00532
......,..
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~~r~~
(2) Condition D
Máteri:!.l, exc1nding junk. ho longèr suItable for its originnl purpose, but usnole for ~(lmp. (lther purpose shal1 be
prioed on II, bnaia commensuräte with itB use. Operator may disP(lae (If Condition D Material under procedures
normally uBed by Oper.at(lr withoul. prior a.ppl'oval of Non-Operr.tora.
(a) CMing, tubing. or drii1 pipe nsed as line pipe shaH be pr!csd as Gn\do A nnd B sonmloss line pipe of com-
parablo site IInd wéigh1:. U~ed casinl\', tubln¡r or. drill pipe utHl~e(1 :,is lin!!! pipe shn.H be priced 'at. used line
pipe pl:"io0J5,
(b) Cn.sing. t,1 bing (II' dr.ill pÎpe ulled ILII higher prl!Bsnre service linea than atandard line pipe, B.g. power oil lines,
sh3.1I be priced under n['1'ml\l prielnl\' procedures for oasinll.', tubinp:, or drill pipe. Upset I:ublllo.r p:oods shall
be pricod on a non Utlse'\ 00.-,1B. '
(3) CÓhditj( n:li:
Junk sh!\1l bo priood nt pre\'t\l1inR' PI'iceR_ Operator mn.y dispose of Condition E Materinl under prooodllres hOr-
mn.1Iy utilized by Operator without prior approval of Non-Oþèratota.
D. OhRoletP, Mat.erin.1
Mnto\"jal which is servIceable IlTlð u~ahle for it.a original function but condition and/or vnlulIJ of such Materinl is not
er¡nivalent to that which would jnstify II priM ns provided Above mll,V be apeoial1y priced tiS nFCreed to by the Parties.
Such priM should ro~u]t in the Joint Acceunt being cltn.rKed with the vnlue of the Rervice rendereå by Ruch Mal.eriat.
E. Pr!cinJr Conditions
(1) Loading 01' unloading coatH mll3' be èhar~d to the Joint Aooount nt the rt\to af twcntJr-flvo ceni:8 (26~) POl" hundred
we¡~ht on aH tubular @ods, movcml.lnt\!, in lieu of AQtu;¡11oadilJl\' 01' unloading costs sustained at the stocking
point. 1hp. n.b(IVp' ratJi! aha!! bl! adjusted as oÏthe first da.,v of April er.ch year foHawing Janunry 1, 1985 by tlte snml!
percentage increllRe or decrease used to I\djust ovorhead rates in SectIon III. PnrllR'rnp¡' ),.A(3), Ðn.ch year, the
rate ol\lculntc(l shnl] be rounded t.o the nen.r,P.BI. een1; a.nd sh(1.lI be the ralA! in effect. until the first da,v of April next
year. Such rn.tl! ohal\ be pnbli~hed each year by the Collncil of Petroleum Accounta.n!:ll Societies.
(2) M:d,erial involviTlF( cMQI.ion uoSt5 shall be c.harged at applicable pel:cp-nl.1.lI'e Qf the elll'rent Imocked-do\vn price of
new Material.
3. P"cmlum J:'rlccs
Whenever Mn.tar1n.1 iß not reacli13' nbt!linn.ble at pnblished or HRted priceR be~auRe of national emergencies, strikes or other
unusual CtlUses over which the OpeJ:1\tor hns no control, the Op~ri\tor rnny chl\r~ the JoInt: A.c·COUf)t fOI:" 1,]1e reClu1rc,d
Mnterin.1 Ill, t:h(! Opern.tQr'g :u;1:uIlI co~;I. incurred in praviding snch Mn.terial. in making it sUitable for use. and in moving
It to the .Joint Property: provided notice in writinr. is furnished to Non-Qperntor$ or.1J1f! J,lro"o5ecl chn.rgf, Pri(lr to billlnl\'
Non-Opel"ators for such Mllt.erln.I. F,1!ICh Non·OpeMl.tor shan hava t.he right. by so electing Ilnd notifying Ope1'l\tor within
tan dá.va after receiving notice from Operator, to furnish in Icind all or ptlrt of his shllI"C or. ~1,J()h Mn.I;¡¡rio.l suit:p.1)le :(or u~o
:ine! nccl!ptabte to Operator,
4. W:trrn.n1Jr of Material Furnished By Operator
Opetlltor does not warrant the Materia] fnrnished. In case of defective Material, credit shall not be paRscd to the .Ioint
Account until ndjustment hils been received by Opcrator from the tYlahufi.~'turers or their IIltents.
V. INVENTORIES
The OperRtor shaH maintain dètl'liled rocords of Controllable Material.
1. Periodic Inventories. Noti~e and lte"l:1!s"nt.xtioll
At reaaonable intervals. inventorlC!á Eho.lJ be 1:''1lcen by Operat.m· of the .Toint Ac~ount Controllo.blc Ml.\tcril\l, Written Mtlce
of intcntion t-O t.'1kf.! jnventol'y ahaH be given bJl Operntor at least thirty (30) do.ys before any inventory is to begin so that
Non-Operators may be tepreRented when ony Inventor:,' ia f.al~en, Fo.ihJrl) of Non-Operators to be reproaented nt nn inven-
tory sha]l bind Non-Operllt,ora t.o ac(:~pt the inventory taken by Operllotor.
2. Reconcmntion and A(ljustmoflt. of ~nventorieR
Ad,justl1'lènts to the ,r oint Account I'csultinp: (r(lm the J~ecnnciliat,jon (If II phYRical inventory ahäU bo made within $Ix
monthg (ol1owlny, the taltlng of the inventory. Inventory I\djustml~nts shnlJ bo mode by Oper;l.I.IJ1· to the .Toint Acconnt Îor
overages anri RhortageR, but, Opers.t,r shnl! ba h/Jld aCC(lunt.able (lnly f(l\" snort.ages dne to Inck or rl~o.~ono.blc dlli«eMé.
1.1. Special ~I1Ve\'ltor l)a
Spec!nllnvontorlc9 ml1Y bc t.'1I~el\ w1¡cnever there ia any sale, chtmJtÐ uf interest, or OhMFCC of Operali1r in I.he ,Ioint ÞroJ1el'I~.
II. ahal1 bp. t.he r!u~ of thp. party ReJtj 1g to notify n.1I other Portles' M QUicldy 115 pt).~aible aft.!!!' t.he I.ranafer of interèst takes
plllce, In such cs.ses. both the selJer lind the plJrt)nn~er Rha.1I be governed by Ruch inventory, In ense,! Involv!ng n chl\np;o
or OperalJ)I:", o.H Pn.\"t.if.'-s ~hall be &,ovltrned hy such inventory.
01, ExpenRe of Conducting Inventol'i.!s
A. The e;'t )ensc Dr conduotinF( pcrio(ti<: invenl.ories shr.lJ not be charged to the Joint A'jcount unloss !lI1:reed to by the
Pllrtip,s.
1'\. The CXPI\n1)C of conrJncting ßpecial inventories sho,l) be chnrFCcd to the 1.'art.ic~ requeRting such inventories, except in·
ventorles required dne to chnng,a of Opcrntor shaH be ¡¡ha.rll'ed 1.0 t.he ,Toinl. Acconnt.
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