HomeMy WebLinkAboutResolution - 2822 - Operating Agreement - (Dakkar Properties) Estacado Energy - Gas Well Purchases - 04_28_1988Resolution #2822
April 28, 1988
Item 27
DGV:js
RESOLUTION
BE IT RESOLVED BY THE CITY COUNCIL OF THE CITY OF LUBBOCK:
THAT the Mayor of the City of Lubbock BE and is hereby authorized and
directed to execute for and on behalf of the City of Lubbock an Operating
Agreement (Dakkar Properties) and associated documents by and between the
City of Lubbock and Estacado Energy, Inc. for the purchase and operation of
certain properties in the Panhandle East Field situated in Wheeler and
Collingsworth Counties, Texas, attached herewith, which shall be spread upon
the minutes of the Council and as spread upon the minutes of this Council
shall constitute and be a part of this Resolution as if fully copied herein
in detail.
Passed by the City Council this 28th day of April 1988.
c
8. C. McMINN, MAYOR
APPROVED AS TO CONTENT:
Robert Massengale, Assi tant City
Manager for Financial Services
APPROVED AS TO FORM:
ld G. Vandiver, First Assistant
City Attorney
Resolution #2822
March 29, 1988
City of Lubbock
P. 0. Box 2000
Lubbock, TX 79457
Re: Dakkar Properties
Wheeler and Collingsworth Counties, Texas
Gentlemen:
This letter, including all exhibits attached hereto, shall
constitute the agreement between Estacado Energy, Inc. (herein
"Estacado") and the City of Lubbock (herein "City") concerning
the sale and purchase of a certain undivided interest in and to
the herein described properties, such agreement being as
follows:
(1) Dakkar Properties
Estacado represents that it has made an offer to
purchase all of the interest of Dakkar Production
Company in and to those certain oil, gas and mineral
leasehold properties described in Exhibit "A" at-
tached hereto and made a part hereof for all purpos-
es, said properties consisting of eighteen (18) gas
wells located in the Panhandle East Field in Wheeler
and Collingsworth Counties, Texas (herein the "Dakkar
Properties").
(2) Assignment of Interest
Subject to the terms hereof, Estacado agrees to
assign to City an undivided one-half (1/2) of all
interest acquired by Estacado in and to the Dakkar
Properties, such assignment to be delivered to City
immediately following the closing of Estacado's
acquisition of same and shall be in the form and of
the substance of that attached hereto as Exhibit "B",
the terms and provisions of which are incorporated
into this agreement by reference for all purposes.
(3)
(4)
(5)
Consideration
In consideration of this agreement, City shall pay
Estacado in Lubbock, Lubbock County, Texas, as
follows:
(a) 50% of the total purchase price paid by Estacado
for the Dakkar Properties, said sum to be paid
no less than five (5) days prior to the date of
closing of Estacado's acquisition of said
properties; and
(b) 50% of all other actual costs incurred by
Estacado, relative to the negotiation and
acquisition of the Dakkar Properties, together
with any pipeline connections or other
appurtenances necessary to the production and
operation thereof, including without limitation
attorney's fees and related expenses of title
examination, said sum to be invoiced to City on
the first of each month following the month that
such expenses are incurred and payment shall be
due within fifteen (15) days of the receipt
thereof.
Operations of Property
Following the closing of the acquisition of the
Dakkar Properties, Estacado shall serve as Operator
of the properties and all operations shall be con-
ducted in accordance with the terms and provisions of
that certain Operating Agreement dated May 1, 1988,
between Estacado, as Operator, and City, an Non -
Operator, a copy of which is attached hereto as
Exhibit "C" and incorporated herein by reference for
all purposes.
Representations by City
City hereby represents to and for the benefit of
Estacado that:
(a) City is a municipal corporation duly organized
and existing under the laws of the State of
Texas and has all prerequisite power and author-
ity to enter into and perform this agreement;
and
(b) The execution and delivery by City of this
agreement have been duly authorized by the City
Council and no further action is necessary on
the part of the City to make this agreement
valid and binding upon City.
(6)
(7)
(8)
Representations by Estacado
Estacado hereby represents to and for the benefit of
City that:
(a) Estacado is a Texas corporation duly organized
and existing under the laws of the State of
Texas and has all prerequisite power and author-
ity to enter into and perform this agreement;
and
(b) Estacado has no legal or beneficial interest in
Dakkar Production Company, and all agreements
between Estacado and Dakkar Production Company
concerning the purchase and sale of the Dakkar
Properties have been and/or will be negotiated
at arm's length.
Preferential Right to Purchase Production
The parties hereto acknowledge and agree that the
Dakkar Properties are presently subject to the terms
and provisions of a certain Gas Purchase Agreement
dated November 30, 1985, between Warren Petroleum
Company, as Buyer, and Dakkar Production Company, as
Seller (herein "Warren Contract"). In the event of
the termination of such agreement, it is agreed that
City shall have, at all times and from time to time,
the preferential right and option to purchase all
residue gas and casinghead gas produced and saved
from Estacado's interest in the Dakkar Properties at
a price of not less than $1.70 per Mcf at the tail-
gate of any processing facilities through which such
gas may be run. By use of the term "residue gas" it
is understood and agreed that prior to any such sale
to City all gas and/or casinghead gas shall be run
through an oil and gas separator or other coventional
equipment adequate to recover all liquid hydrocarbons
that may be recoverable by such means. Further, as
used herein the term "Mcf" shall mean one thousand
cubic feet at a temperature of 60 degrees Fahrenheit
and an absolute pressure of 14.65 pounds per square
inch.
Relationship of Parties
This agreement is not intended to create, and shall
not be construed to create, a relationship of part-
nership or association of any nature between the
parties hereto, and all rights, duties and obliga-
tions of the parties arising hereunder, or under the
Operating Agreement referenced herein, shall remain
at all times several and not joint or collective.
The parties hereby elect to be excluded from the
3
application of provisions of Subchapter K, Chapter 1,
Subtitle A of the Internal Revenue Code of 1986, as
Permitted and authorized under Section 761 of the
Code and the regulations promulgated thereunder.
(9) Conditions Precedent to Closing
City's obligation to close the sale and purchase set
forth herein is subject to and contigent upon the
following:
(a) Evidence satisfactory to City that Estacado can
deliver to City good and indefeasible title to
the Dakkar Properties.
(b) Satisfaction of the terms and conditions con-
tained in that certain Purchase and Sale Agree-
ment dated March 10, 1988, between E1 Ran, Inc.
and Dakkar Production Company, reference to
which is here made for all purposes.
(c) The City being satisfied that (i) the Warren
Contract is subject to cancellation as of
November 1, 1988, and (ii) that Estacado will
cooperate with City to effect the cancellation
of same.
(10) Miscellaneous
Further, by execution hereof, the parties hereto
agree as follows:
(a) This agreement contains the entire agreement of
the parties concerning the within subject
matter, and no modification or amendment thereof
shall be binding upon the parties unless evi-
denced by an instrument in writing signed by all
of the parties hereto.
(b) This agreement shall be construed under and
governed by the laws of the State of Texas, and
all obligations hereunder are performable in
Lubbock County, Texas.
(c) This agreement shall be binding upon and inure
to the benefit of the parties hereto, their
successors and assigns.
If the foregoing actually sets forth the terms and provi-
sions of our agreement, please indicate your acceptance of same
by signing in the space provided below and returning one fully
executed copy thereof to Estacado Energy, Inc.
4
ACCEPTED AND AGREED this
;Z."' day of April, 1988.
CITY OF LUBBOCK
By: e - •
gayor
_ ATTES.
City -S•ecretary
APPROVED -AS TO CONTENT:
By:
P-M City Manage
Yours very truly,
ESTACADO ENERGY, INC
Wil am a ck, Jr.,
President
APPROVED AS TO FORM:
By : ►-E %7
A rney
5
EXHIBIT "A"
LIST OF PROPERTIES
Dakkar Production
Company
Panhandle East
Field
Wheeler and Collingsworth
Counties, Texas --�
WvR1c�N4 zy-�'
RwNc`,uriscr
METER NO.
LEASE NAME
WELL
NO. 2�-csi IF EbD x*jm s; COUNTY
RRC ID NO.
IooIW �So
75% 37a7o sF4IT HrMR
280
J. W. Grogan
#1
Panhandle
East (Gas) Wheeler
027038
266
O. B. Harvey
#1
'%so%
027037
197
O. B. Harvey
#2
Ioo "/o
76 % "
027028
193
Harvey
#1
Ioo %
-750/0 "
027027
316
MacDowell
#1
too
8J.1Z5%Coll ingworth
027029
270
Malone
#1
Ioo % "
91.15�/ Wheeler
027030
269
Miro Pakan 'A'
#1
too
97.19 `.� to
027031
268
Miro Pakan 'B'
#1
100 %
87•o of
027032
291
Wallace
#1
10o Yo "
77. t 9-15 of
027040
196
Wallace
#2
100 %
gl. 5 %
027034
194
Wallace
#1
100 % ��
Sf.25 `/o ��
027033
293
Wallace 'A'
#1
10o
77.1975 �o ��
027041
292
Wallace '.A'
#2
100
77. 1975 `/o
027042
195
Wallace 'A'
#1
t oo % "
A 1.25 `/o �'
027035
307
Rippy Speed
#1
10o `/a "
77-�tZg1P
'027039
267
Columbian Fuel
#1
100
027025
294
Fee
#1
1 O0 %
lob `/o "
027026
279
Anderson
#1
too o/u "
97. 5 `/a ��
027024
EXHIBIT "B"
ASSIGNMENT AND BILL OF SALE
STATE OF TEXAS
KNOW ALL MEN BY THESE PRESENTS:
COUNTIES OF WHEELER
AND COLLINGSWORTH
WHEREAS, ESTACADO ENERGY, INC. (herein referred to as
"Assignor"), is the present owner of certain undivided interests
in and to the oil, gas and mineral leases and leasehold estates
described in Exhibit "A" attached hereto and made a part hereof
for all purposes ("Leases"), reference being here made to said
leases and to the record of same for all of the terms and
covenants thereof; and
WHEREAS, Assignor now desires to assign to Assignee herein
a certain undivided working interest in and to said leases.
NOW, THEREFORE, for and in consideration of the sum of TEN
AND N01100 DOLLARS ($10.00) cash in hand paid and other good and
valuable consideration, the receipt and sufficiency of which is
hereby acknowledged, the undersigned Assignor does hereby
bargain, sell, transfer and assign unto the CITY OF LUBBOCK, P.
0. Box 2000, Lubbock, Texas 79457 (herein referred to as
"Assignee") an undivided 50.0% of Assignor's interest in and to
said Leases, together with a like interest in and to the
following:
(1) any presently existing and valid farmout agreements,
pipeline agreements, gas contracts, transportation
agreements, oil and condensate purchase agreements,
division orders, pooling and unitization agreements,
joint operating agreements and other contracts or
agreements to the extent same cover and affect the
herein described Leases ("Agreements");
(2) all equipment, personal property, fixtures and im-
provements of any kind or character situated upon,
appurtenant to and/or used or held for use in con-
nection with the production, treatment, storage and/or
transportation of oil, gas, casinghead gas or other
liquid or vaporous hydrocarbons from the herein
described leases ("Improvements"); and
(3) to the extent assignable by Assignor, all easements,
rights -of -way, surface leases, permits, licenses,
water rights or contracts, and other interests or
rights in land appurtenant to and/or used or held for
use in connection with the operation of the herein
described leases ("Easements").
TO HAVE AND TO HOLD unto said Assignee, its successors and
assigns, and Assignor does hereby warrant title to the Leases
hereby assigned and conveyed, subject to the terms and condi-
tions hereinafter set forth, by, through and under Assignor, but
not otherwise; however, with respect to the Agreements, Improve-
ments, Easements and other interests or rights in land herein
conveyed, this Assignment is made WITHOUT ANY WARRANTY OF TITLE,
EXPRESSED OR IMPLIED, AND WITHOUT ANY WARRANTIES OF
MERCHANTIBILITY OR FITNESS OR PURPOSES, EXPRESS OR IMPLIED. ALL
PERSONAL PROPERTY, FI::TURES AND IMPROVEMENTS REFERRED TO ABOVE
ARE TRANSFERRED AND ASSIGNED "AS IS".
This Assignment is expressly made subject to (i) all of the
terms, covenants, conditions, restrictions, limitations and
provisions of the herein described leases and any mesne assign-
ments thereof; (ii) all royalties, overriding royalties, net
profits interest, payments out of production and other lease
burdens of record as of the date of execution hereof; (iii) all
contracts and agreements affecting the leases, improvements and
easements herein assigned and conveyed; (iv) all terms and
conditions of any orders, rules, regulations, and ordinances of
any federal, state or other governmental entity having jurisdic-
tion; and (v) all terms and provisions of that certain Operating
Agreement dated May 1, 1988, between Assignor, as Operator, and
Assignee, as Non -Operator.
This agreement shall inure to the benefit of and be binding
upon the parties hereto, their respective heirs, legal represen-
tatives, successors and assigns.
IN WITNESS WHEREOF, this Assignment and Bill of Sale is
executed this day of May, 1988, but effective as of March
1, 1988 at 7:00 a.m. CST.
ASSIGNOR:
ESTACADO ENERGY, INC.
By:
William W. Ranc , Jr.
President
THE STATE OF TEXAS
COUNTY OF LUBBOCK
This instrument was acknowledged before me on the day
of March, 1988 by WILLIAM W. RANCK, JR., President of ESTACADO
ENERGY, INC., a Texas corporation, on behalf of said
corporation.
Notary Public, State of
My Commission Expires: Notary's printed name:
K
C EXHIBIT "C"
M�r
A.A.P.L. FORM.610-1982
MODEL FORM OPERATING AGREEMENT
II.. vl :'nt i,fS': ••:�; r.1 a.a�. if �.. r.iU'rtd
.'I"':dac ..•ao.,oarJ .a an4.y hY ti,,
OPERATING AGREEMENT
(DAKKAR PROPERTIES)
DATED
May 1, 19 88 ,
OPERATOR ESTACADO ENERGY, INC.
CONTRACT AREA Those certain properties in t•hP nanhaiadle
East Field situated in Wheeler and collinctsworth cGtiuntiaa,
Texas, as described in Exhibit "A" t-n this nnerating Agsaelnent.
COUNTVsftOF WHEELER ANn STATE OF TEXAS
COLLINGSWORTH
COPYRIGHT 1982 — ALL RIGHTS RESERVED
AMERICAN ASSOCIATION OF PETROLEUM
LANDMEN, 2408 CONTINENTAL LIFE BUILDING,
FORT WORTH, TEXAS, 76102, APPROVED FORM.
A.A.P.L. NO. 610 - 1982 REVISED
EEI zw
COL y
C r
A.A.P.L. FORM 610 - MODEL FORM OPERATING AGREEMENT - 1982
TABLE OF CONTENTS
Article Title Page
1. DEFINITIONS ...................................................................................... I
II. EXHIBITS .......................................................................................... I
111. INTERESTS OF PARTIES ........................................................................... 2
A. OIL AND GAS INTERESTS ......................................................................... 2
B. INTERESTS OF PARTIES IN COSTS AND PRODUCTION ............................................... 2
C. EXCESS ROYALTIES, OVERRIDING ROYALTIES AND OTHER PAYMENTS .............................. 2
D. SUBSEQUENTLY CREATED INTERESTS ............................................................. 2
IV. 11TLES ............................................................................................ 2
A. TITLE EXAMINATION ............................................................................ 2-3
B. LOSS OF TITLE ................................................................................... 3
1. Failure of Tide .................................................................................. 3
2. Loss by Non -Payment or Erroneous Payment of Amount Due ............................................. 3
3. Other Losses .................................................................................... 3
V. OPERATOR........................................................................................ 4
A. DESIGNATION AND RESPONSIBILITIES OF OPERATOR ............................................... 4
B. RESIGNATION OR REMOVAL OF OPERATOR AND SELECTION OF SUCCESSOR ......................... 4
1. Resignation or Removal of Operator ................................................................. 4
2. Selection of Successor Operator ..................................................................... 4
C. EMPLOYEES ..................................................................................... 4
D. DRILLING CONTRACTS ........................................................................... 4
VI. DRILLING AND DEVELOPMENT .................................................................... 4
A. INITIAL WELL ................................................................................... 4-5
B. SUBSEQUENT OPERATIONS .................................. .................................... 5
1. Proposed Operations .............................................................................. 5
2. Operations by Less than All Parties .................................................................. 5-6-7
3. Stand -By Time ................................................................................... 7
4. Sidetracking .................................................................................... 7
C. TAKING PRODUCTION IN KIND ................................................................... 7
D. ACCESS TO CONTRACT AREA AND INFORMATION ................................................. 8
I- ABANDONMENT OF WELLS ....................................................................... 8
1. Abandonment of Dry Holes ........................... :1* ................................ 8
2. Abandonment of Wells that have Produced ............................................................ 8.9
3. Abandonment of Non -Consent Operations ............................................................ 9
VII. EXPENDITURES AND LIABILITY OF PARTIES ......................... I ............................ 9
A. LIABILITY OF PARTIES ........................................................................... 9
B. LIENS AND PAYMENT DEFAULTS ................................................................. 9
C. PAYMENTS AND ACCOUNTING .................................................................. 9
D. UMITAT70N OF EXPENDITURES .................................................................. 9-10
1. Drill or Deepen .................................................................................. 9-10
2. Rework or Plug Back .............................................................................. 10
3. Other Operations ................................................................................. 10
E. RENTALS, SHUT-IN WELL PAYMENTS AND MINIMUM ROYALTIES ................................... 10
F. TAXES .......................................................................................... I0
G. INSURANCE ..................................................................................... 11
V11I. ACQUISITION, MAINTENANCE OR TRANSFER OF INTEREST ....................................... 11
A. SURRENDER OF LEASES ........................................................................... 11
B. RENEWAL OR EXTENSION OF LEASES ................... I .......................................... 11
C. ACREAGE OR CASH CONTRIBUTIONS ............................................................. 11-12
D. MAINTENANCE OF UNIFORM INTEREST ........................................................... 12
E. WAIVER OF RIGHTS TO PARTITION ............................................................... 12
F. PREFERENTIAL RIGHT TO PURCHASE ............................................................. 12
IX. INTERNAL REVENUE CODE ELECTION ........................................................... 12
13
X. CLAIMS AND LAWSUITS .............................................. I ..........................
X1. FORCE MAJEURE .................................................................................... 13
X11. NOTICES ........................................................................................... �-113
XIII. TERAI OF AGREEMENT ......................... I ............. ............................ i 13
XIV. COMPLIANCE WITH LAWS AND REGULATIONS .................................................... 14
A. LAWS, REGULATIONS AND ORDERS .....................................................
B. GOVERNING LAW .................................................................... '14
C. REGULATORY AGENCIES ....................................... ............................ 14
XV. OTHER PROVISIONS ......................................... ............. I ......... 1�
XVI. MISCELLANEOUS .....................................................................
•If EEI.
COL
C C
A.A.P.L. FORM 610 - MODEL FORM OPERATING AGREEMENT - 1982
OPERATING AGREEMENT
3 THIS AGREEMENT, entered into by and between ESTACADO ENERGY, INC.
4 1 hereinafter designated and
5 referred to as "Operator", and the signatory party or parties other than Operator, sometimes hereinafter referred to individually herein
6 as "Non -Operator", and collectively as "Non -Operators".
7
g W ITNESSETH:
9
10 WHEREAS, the parties to this agreement are owners of oil and gas leases and/or oil and gas interests in the land identified in
11 Exhibit "A", and the parties hereto have reached an agreement to aMa6ww drdevetop these leases and/or oil and gas interests for the
12 production of oil and gas to the extent and as hereinafter provided. 7
13 and operate
14 NOW. THEREFORE, it is agreed as follows:
15
16 ARTICLE I.
17 DEFINITIONS
18
19 As used in this agreement, the following words and terms shall have the meanings here ascribed to them:
20 A. The term `oil and gas" shall mean oil, gas, casinghead gas, gas condensate, and all other liquid or gaseous hydrocarbons
21 and other marketable substances produced therewith, unless an intent to limit the inclusiveness of this term is specifically stated.
22 B. The terms "oil and gas lease", "lease" and "leasehold" shall mean the oil and gas leases covering tracts of land
23 lying within the Contract Area which are owned by the parties to this agreement.
24 C. The term 'oil and gas interests" shall mean unleased fee and mineral interests in tracts of land lying within the
25 Contract Area which are owned by parties to this agreement.
26 D. The term "Contract Area" shall mean all of the lands, oil and gas leasehold interests and oil and gas interests intended to be
27 developed and operated for oil and gas purposes under this agreement. Such lands, oil and gas leasehold interests and oil and gas interests
28 are described in Exhibit "A".
29 E. The term "drilling unit" shall mean the area fixed for the drilling of one well by order or rule of any state or
30 federal body having authority. If a drilling unit is not fixed by any such rule or order, a drilling unit shall be the drilling unit as establish-
31 ed by the pattern of drilling in the Contract Area or as fixed by express agreement of the Drilling Parties.
32 F. The term "drillsite" shall mean the oil and gas lease or interest on which a proposed well is to be located.
33 G. The terms "Drilling Party" and "Consenting Party" shall mean a party who agrees to join in and pay its share of the cast of
34 any operation conducted under the provisions of this agreement.
35 H. The terms "Non -Drilling Party" and "Non -Consenting Party" shall mean a party who elects not to participate
36 in a proposed operation.
37
38 Unless the context otherwise clearly indicates, words used in the singular include the plural, the plural includes the
39 singular, and the neuter gender includes the masculine and the feminine.
40
41 ARTICLE II.
42 EXHIBITS
43
44 The following exhibits, as indicated below and attached hereto, are incorporated in and made a part hereof:
45 ® A. Exhibit "A", shall include the following information:
46 (1) Identification of lands subject to this agreement,
47 (2) Restrictions, if any, as to depths, formations, or substances,
48 (3) Percentages or fractional interests of parties to this agreement,
49 (4) Oil and gas leases and/or oil and gas interests subject to this agreement,
50 (5) Addresses of parties for notice purposes.
51
52 RI C. Exhibit "C", Accoundng Procedure.
53 R) D. Exhibit "D". Insurance.
54
55
56
57 If any provision of any exhibit, except Exhibits "E" and "G", is inconsistent with any provision contained in the body
58 of this agreement, the provisions in the body of this agreement shall prevail.
59
60
61
62
63
64
65
66 ' ti
67
68 .: .
69 7-
70
i_
• - 1 � E E I ��'1
C C
A.A.P.L. FORM 610 - MODEL FORM OPERATING AGREEMENT - 1982
I ARTICLE III.
2 INTERESTS OF PARTIES
4 A. Oil and Gas Interests:
6 If any party owns an oil and gas interest in the Contract Area, that interest shall be treated for all purposes of this agreement
7 and during the term hereof as if it were covered by the form of oil and gas lease attached hereto as Exhibit "B", and the owner thereof
8 shall be deemed to own both the royalty interest reserved in such lease and the interest of the lessee thereunder.
9
10 B. Interests of Parties in Costs and Production:
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
36
37
38
39
40
41
42
43
44
45
46
47
48
49
50
51
52
53
54
55
56
57
58
59
60
61
62
63
64
65
66
67
68
69
70
Unless changed by other provisions, all costs and liabilities incurred in operations under this agreement shall be borne and
paid, and all equipment and materials acquired in operations on the Contract Area shall be owned, by the parties as their interests are set
forth in Exhibit "A". In the same manner, the parties shall also own all production of oil and gas from the Contract Area subject to the
payment of royalties ,
verriding royalties, production payments or o her bu deng on
Regardless of which party has contributed the lease(s) and/or oil and gas mterest(s) hereto on whic royalty is cue and
payable, each party entitled to receive a share of production of oil and gas from the Contract Area shall bear and shall pay or deliver, or pro -
cause to be paid or delivered, to the extent of its interest in such production, the *e}uiq amount stipulated hercinabove and shall hold the d u c -
other parties free from any liability therefor.
tior
seeFwi #101 —, .
Nothing contained in this Article III.B. shall be deemed an assignment or cross -assignment of interests covered hereby.
C. Excess Royalties, Overriding Royalties and Other Payments:
Unless changed by other provisions, if the interest of any party in any lease covered hereby is subject to any royalty,
overriding royalty, production payment or other burden on production in excess of the amount stipulated in Article III.B., such party so
burdened shall assume and alone bear all such excess obligations and shall indemnify and hold the other parties hereto harmless from any
and all claims and demands for payment asserted by owners of such excess burden.
D. Subsequently Created Interests:
If any party should hereafter create an overriding royalty, production payment or other burden payable out of production
attributable to its working interest hereunder, or if such a burden existed prior to this agreement and is not set forth in Exhibit "A", or
was not disclosed in writing to all other parties prior to the execution of this agreement by all parties, or is not a jointly acknowledged and
accepted obligation of all parties (any such interest being hereinafter referred to as "subsequently created interest" irrespective of the
timing of its creation and the party out of whose working interest the subsequently created interest is derived being hereinafter referred
to as "burdened party"), and:
1. If the burdened party is required under this agreement to assign or relinquish to any other party, or parties, all or a portion
of its working interest and/or the production attributable thereto, said other party, or parties, shall receive said assignment and/or
production free and clear of said subsequently created interest and the burdened party shall indemnify and save said other party.
or parties, harmless from any and all claims and demands for payment asserted by owners of the subsequently created interest;
and,
2. If the burdened party fails to pay, when due, its share of expenses chargeable hereunder, all provisions of Article VII.B. shall be
enforceable against the subsequently created interest in the same manner as they are enforceable against the working interest of
the burdened party.
ARTICLE IV.
TITLES
A. Title Examination:
Title examination shall be made on the drillsite of any proposed well prior to commencement of drilling operations or, if
the Drilling Parties so request, title examination shall be made on the leases and/or oil and gas interests included, or planned to be includ-
ed, in the drilling unit around such well. The opinion will include the ownership of the working interest, minerals, royalty, overriding
royalty and production payments under the applicable leases. At the time a well is proposed, each party contributing leases and/or oil and
gas interests to the drillsite, or to be included in such drilling unit, shall furnish to Operator all abstracts (including federal lease status
reports), title opinions, title papers and curative material in its possession free of charge. All such information not in the possession of or
made available to Operator by the parties, but necessary for the examination of the title, shall be obtained by Operator. Operator shall
cause title to be examined by attorneys on its staff or by outside attorneys. Copies of all title opinions shall be furnish A�e•�t
itt+rst . The cost incurred by Operator in this title program shall be borne as follows: /
upon.. request.
j
EEL
.2-
COLde,,-
r
A.A.P.L. DORM 010 - MODEL DORM OPERATING AGRI'EMENT - 1982
AErCICLE. IV
continutyl
® Option No. 2: Costs incurred by Operator in procuring abstracts and fees paid outside attorneys for title miminatiun
(including preliminary, supplemental, shut-in gas royalty opinions and division order title opinions) shall be borne by the Iiviihwtt+Parties
in the proportion that the interest of each Dowt Party bears to the total interest of all JkWirM Parties as such interests appear in Ex-
hibit "A". Operator shall make no charge for services rendered by its staff attorneys or other personnel in the performance of the above
functions.
6
7 Each party shall lk responsible for securing curative matter and pooling amendments or agreements required in connection
8 with leases or oil and gas interests contributed by such party. Operator shall be responsible for the preparation and recording of pooling
9 designations or declarations as well as the conduct of hearings before governmental agencies for the securing of spacing or pooling orders.
10 This shall not prevent any party from appearing on its own behalf at any such hearing.
11
12 No well shall be drilled on the Contract Area until after (1) the title to the drilLsite or drilling unit has been examined as above
13 provided, and (2) the title has been approved by the examining attorney or title has been accepted by all of the parties who are to par-
14 ticipate in the drilling of the well.
15
16 B. Loss of Title:
17
18 1. Failure of Title: Should any oil and gas interest or lease, or interest therein, be lost through failure of title,
19 -- '-- -r r.... .{. . L. ..... ... R_U=. „ A .. .t.e ...... ......:6.,.:.,., .60 4r...e t I—- n.:..........L-11 1....... .:. ... ntrn J ....
20
21 this agreement, nevertheless, shall continue in force as to all remaining oil
22 and gas leases and interests: ani,
23
24 entitled to recover from Operator or the other parties any development or operating costs which it may have theretofore paid o reed,
25 but there shall be no additional liability on its part to the other parties hereto by reason of such tide failure;
26 (b) There shall be no retroactive adjustment of expenses incurred or revenues received from the operation a interest which has
27 been lost, but the interests of the parties shall be revised on an acreage basis, as of the time it is determin lly that title failure has oc-
28 turfed, so that the interest of the party whose lease or interest is affected by the title failure wi eafter be reduced in the Contract
29 Area by the amount of the interest lost;
30 (c) If the proportionate interest of the other parties hereto in any produ ' ell theretofore drilled on the Contract Area is
31 increased by reason of the title failure, the party whose tide has failed sh eive the proceeds attributable to the increase in such in-
32 terest (less costs and burdens attributable thereto) until it has bee ursed for unrecovered costs paid by it in connection with such
33 well;
34 (d) Should any person not a party to this age nt, who is determined to be the owner of any interest in the title which has
35 failed, pay in any manner any part of the cos peration, development, or equipment, such amount shall be paid to the party or parties
36 who bore the costs which are so re ;
37 (e) Any liability to ac to a third party for prior production of oil and gas which arises by reason of title failure shall be
38 borne by the party rties whose tide failed in the same proportions in which they shared in such prior production; and,
39 (f) No c e shall be made to the joint account for legal expenses, fees or salaries, in connection with the defense of the interest
40 claim any party hereto, it being the intention of the parties hereto that each shall defend title to its interest and bear all expenses in
41
42
43 2. Loss by Non -Payment or Erroneous Payment of Amount Due: If, through mistake or oversight, any rental, shut-in well
44 payment, minimum royalty or royalty payment, is not paid or is erroneously paid, anj as a result a lease or interest therein terminates,
45 there shall be no monetary liability against the party who failed to make such payment.
46 payment secures a new lease covering the same interest within ninety (90) days from the discovery of the failure to make pro -ment,
47 which acquisition will not be subject to Article VIII.B., the interests of the parties shall be revised on an acreage b ' five as of the
48 date of termination of the lease involved, and the party who failed to make proper payment will no longer tted with an interest in
49 the Contract Area on account of ownership of the lease or interest which has terminated. In the ev a party who failed to make the
50 required payment shall not have been fully reimbursed, at the time of the loss, from the pr of the sale of oil and gas attributable to
51 the lost interest, calculated on an acreage basis, for the development and operatin theretofore paid on account of such interest, it
52 shall be reimbursed for unrecovered actual costs theretofore paid by it (bu or its share of the cost of any dry hole previously drilled
53 or wells previously abandoned) from so much of the following i ecessary to effect reimbursement:
54 (a) Proceeds of oil and gas, less operating expen eretofore accrued to the credit of the lost interest, on an acreage basis,
55 up to the amount of unrecovered costs;
56 (b) Proceeds, less operating ex pen ereafter accrued attributable to the lost interest on an acreage basis, of that portion of
57 oil and gas thereafter produced arketed (excluding production from any wells thereafter drilled) which, in the absence of such lease
58 termination, would be utable to the lost interest on an acreage basis, up to the amount of unrecovered costs, the proceeds of said
59 portion of th ' nd gas to be contributed by the other parties in proportion to their respective interests; and,
60 ny monies, up to the amount of unrecovered costs, that may be paid by any party who is, or becomes, the owner of the interest
61 ,::
62 -
63 3. Other Losses: All losses incurred, shall be joisitlosses
64 and shall be borne by all parties in proportion to their interests. There shall be no readjustment of interests in' the remaining portion of
65 the Contract Area.
66
67 *except such as may result from Operator's negligence.,Q=
68
69
70
3- E E I
COL
l
r
A.A.P.L. FORM 610 - MODEL FORM OPERATING AGREEMENT - 1982
2
3
4
5
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
36
37
38
39
40
41
42
43
44
45
46
47
48
49
50
51
52
53
54
55
56
57
58
59
60
61
62
63
64
65
66
67
68
69
70
ARTICLE V.
OPERATOR
A. Designation and Responsibilities of Operator:
ESTACADO ENERGY, INC. shall be the
Operator of the Contract Area, and shall conduct and direct and have full control of all operations on the Contract Area as permitted and
required by, and within the limits of this agreement. It shall conduct all such operations in a good and workmanlike manner, but it shall
have no liability as Operator to the other parties for losses sustained or liabilities incurred, except such as may result from gross
negligence or willful misconduct.
B. Resignation or Removal of Operator and Selection of Successor:
1. Resignation or Removal of Operator: Operator may resign at any time by giving written notice thereof to Non -Operators.
If Operator terminates its legal existence, no longer owns an interest hereunder in the Contract Area, or is no longer capable of serving as
Operator, Operator shall be deemed to have resigned without any action by Non -Operators, except the selection of a successor. Operator
may be removed �n�` by the
affirmative vote of O o in re Non -Operators owning a majority interest based on ownership as shown on Exhibit "A" remaining
after excluding the voting interest of Operator. Such resignation or removal shall not become effective until 7:00 o'clock A.M. on the
first day of the calendar month following the expiration of ninety (90) days after the giving of notice of resignation by Operator or action
by the Non -Operators to remove Operator, unless a successor Operator has been selected and assumes the duties of Operator at an earlier
date. Operator, after effective date of resignation or removal, shall be bound by the terms hereof as a Non -Operator.
2. Selection of Successor Operator: Upon the resignation or removal of Operator, a successor Operator shall be selected by
the parties. The successor Operator shall be selected from the parties owning an interest in the Contract Area at the time such successor
Operator is selected. The successor Operator shall be selected by the affVmative vote of owwPosanow parties owning a majority interest
based on ownership as shown on Exhibit "A"; provided, however, if
*the parties are unable to agree upon a
successor Operator, then Non -Operator shall
C. Employees: ave the right to select such successor
Operator.
The number of employees used by Operator in conducting operations hereunder, their selection, and the hours of labor and the
compensation for services performed shall be determined by Operator, and all such employees shall be the employees of Operator.
D. Drilling Contracts:
All wells drilled on the Contract Area shall be drilled on a competitive contract basis at the usual rates prevailing in the area. If it so
desires, Operator may employ its own tools and equipment in the drilling of wells, but its charges therefor shall not exceed the prevailing
rates in the area and the rate of such charges shall be agreed upon by the parties in writing before drilling operations are commenced, and
such work shall be performed by Operator under the same terms and conditions as are customary and usual in the area in contracts of in-
dependent contractors who are doing work of a similar nature.
ARTICLE VI.
DRILLING AND DEVELOPMENT
A. Initial Well:
oil and gas at the following location:
and shall thereafter continue the drilling of the well with due diligence to q
r?••
,t
unless granite or other practically im rable substance or condition in the hole, which renders further drilling impractical, is en-
countered at a lesser depth, ess all parties agree to complete or abandon the well at a lesser depth.
Opera a I make reasonable tests of all formations encountered during drilling which give indication of containing oil and
entities sufficient to test, unless this agreement shall be limited in its application to a specific formation or formations. in which
! •.t,1 MCI 1 . •!'Ul: •. ....1•., `••, •'f
1\4I: f.
-4. EEI
C C
A.A.P.L. FORM 610 - MODEL FORM OPERATING AGREEMENT - 1982
ARTICLE VI
continued
6 B. Subsequent Operations:
7
8 1. Proposed Operations: Should any party hereto desire to drill any well on the Contract Area
9 f__ :_ A _. yn .m, or to rework, deepen or plug back a dry hole drilled at the joint expense of all parties or a well jointly owned by all
10 the parties and not then producing in paying quantities, the party desiring to drill, rework, deepen or plug back such a well shall give the
11 other parties written notice of the proposed operation, specifying the work to be performed, the location, proposed depth, objective forma-
12 lion and the estimated cost of the operation. The parties receiving such a notice shall have thirty (30) days after receipt of the notice
13 within which to notify the party wishing to do the work whether they elect to participate in the cost of the proposed operation. If a drill-
14 ing rig is on location, notice of a proposal to rework, plug back or drill deeper may be given by telephone and the response period shall be
15 limited to forty-eight (48) hours, . Failure of a party receiving such notice to reply within
16 the period above fixed shall constitute an election by that party not to participate in the cost of the proposed operation. Any notice or
17 response given by telephone shall be promptly confirmed in writing.
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
36
37
38
39
40
41
42
43
44
45
46
47
48
49
50
51
52
53
54
55
56
57
58
59
60
61
62
63
64
65
66
67
68
69
70
If all parties elect to participate in such a proposed operation, Operator shall, within ninety (90) days after expiration of the notice
period of thirty (30) days (or as promptly as possible after the expiration of the forty-eight (48) hour period when a drilling rig is on loca-
tion, as the case may be), actually commence the proposed operation and complete it with due diligence at the risk and expense of all par-
ties hereto; provided, however, said commencement date may be extended upon written notice of same by Operator to the other parties,
for a period of up to thirty (30) additional days if, in the sole opinion of Operator, such additional time is reasonably necessary to obtain
permits from governmental authorities, surface rights (including rights -of -way) or appropriate drilling equipment, or to complete title ex-
amination or curative matter required for title approval or acceptance. Notwithstanding the force majeure provisions of Article XI, if the
actual operation has not been commenced within the time provided (including any extension thereof as specifically permitted herein) and
if any party hereto still desires to conduct said operation, written notice proposing same must be resubmitted to the other parties in accor-
dance with the provisions hereof as if no prior proposal had been made.
2. Operations by Less than All Parties: If any party receiving such notice as provided in Article VI.B.1. or VII.D.1. (Option
No. 2) elects not to participate in the proposed operation, then, in order to be entitled to the benefits of this Article, the party or parties
giving the notice and such other parties as shall elect to participate in the operation shall, within ninety (90) days after the expiration of
the notice period of thirty (30) days (or as promptly as possible after the expiration of the forty-eight (48) hour period when a drilling rig is
on location, as the case may be) actually commence the proposed operation and complete it with due diligence. Operator shall perform all
work for the account of the Consenting Parties; provided, however, if no drilling rig or other equipment is on location, and if Operator is
a Non -Consenting Party, the Consenting Parties shall either: (a) request Operator to perform the work required by such proposed opera-
tion for the account of the Consenting Parties, or (b) designate one (1) of the Consenting Parties as Operator to perform such work. Con-
senting Parties, when conducting operations on the Contract Area pursuant to this Article VI.B.2., shall comply with all terms and con-
ditions of this agreement.
If less than all parties approve any proposed operation, the proposing party, immediately after the expiration of the applicable
notice period, shall advise the Consenting Parties of the total interest of the parties approving such operation and its recommendation as
to whether the Consenting Parties should proceed with the operation as proposed. Each Consenting Party, within forty-eight (48) hours
after receipt of such notice, shall advise the proposing party of its desire to (a) limit par-
ticipation to such party's interest as shown on Exhibit "A" or (b) carry its proportionate part of Non -Consenting Parties' interests, and
failure to advise the proposing parry shall be deemed an election under (a). In the event a drilling rig is on location, the time permitted for
such a response shall not exceed a total of forty-eight (48) hours (inclusive of Saturday, Sunday and legal holidays). The proposing parry,
at its election, may withdraw such proposal if there is insufficient participation and shall promptly notify all parties of such decision.
The entire cost and risk of conducting such operations shall be borne by the Consenting Parties in the proportions they have
elected to bear same under the terms of the preceding paragraph. Consenting Parties shall keep the leasehold estates involved in such
operations free and clear of all liens and encumbrances of every kind created by or arising from the operations of the Consenting Parties.
If such an operation results in a dry hole, the Consenting Parties shall plug and abandon the well and restore the surface location at their
sole cost, risk and expense. If any well drilled, reworked, deepened or plugged back under the provisions of this Article results in a pro-
ducer of oil and/or gas in paying quantities, the Consenting Parties shall complete and equip the well to produce at their sole cost and risk,
-5-
•t
—+
EEI
A.A.P.L. FORM 610 • ,MODEL FORM OPERATING AGREEMENT - 1982
Airl'ICLE VI
continued
1 and the well shall then be turned over to Operator and shall be operated by it at the expense and for the account of the Consenting Par-
2 ties. Upon commencement of operations for the drilling, reworking, deepening or plugging back of any such well by Consenting Parties
3 in accordance with the provisions of this Article, each Non -Consenting Party shall be deemed to have relinquished to Consenting Parties,
4 and the Consenting Parties shall own and be entitled to receive, in proportion to their respective interests, all of such Non -Consenting
5 Party's interest in the well and share of production therefrom until the proceeds of the sale of such share, calculated at the well, or
6 market value thereof if such share is not said, (after deducting production taxes, excise taxes, royalty, overriding royalty and other in-
7 terests not excepted by Article III.D. payable out of or measured by the production from such well accruing with respect to such interest
8 until it reverts) shall equal the total of the following:
9
10
I 100%
12 (a) 4@04 of each such Non -Consenting Party's share of the cost of any newly acquired surface equipment beyond the wellhead
13 connections (including, but not limited to, stock tanks, separators, treaters, pumping equipment and piping), plus 100% of each such
14 Non -Consenting Party's share of the cost of operation of the well commencing with first production and continuing until each such Non-
15 Consenting Party's relinquished interest shall revert to it under other provisions of this Article, it being agreed that each Non-
16 Consenting Party's share of such costs and equipment will be that interest which would have been chargeable to such Nan -Consenting
17 Party had it participated in the well from the beginning of the operations; and
18
19
20
21 (b) 200 % of that portion of the costs and expenses of drilling, reworking, deepening, plugging back, testing and completing,
22 after deducting any cash contributions received under Article VIII.C., and -700 % of that portion of the cost of newly acquired equip-
23 ment in the well (to and including the wellhead connections), which would have been chargeable to such Non -Consenting Party if it had
24 participated therein.
25
26
27
28 An election not to participate in the drilling or the deepening of a well shall be deemed an election not to participate in any re-
29 working or plugging back operation proposed in such a well, or portion thereof, to which the initial Non -Consent election applied that is
30 conducted at any time prior to full recovery by the Consenting Parties of the Non -Consenting Party's recoupment account. Any such
31 reworking or plugging back operation conducted during the recoupment periy Il be deemed par�jthcost of operation of said well
32 and there shall be added to the sums to be recouped by the Consenting Parties eene undred percent (f1ov-96) f that portion of the costs of
33 the reworking or plugging back operation which would have been chargeable to such Non -Consenting Party had it participated therein. If
34 such a reworking or plugging back operation is proposed during such recoupment period, the provisions of this Article VI.B. shall be ap-
35 plicable as between said Consenting Parties in said well.
36
37
38
39 During the period of time Consenting Parties are entitled to receive Non -Consenting Party's share of production, or the
40 proceeds therefrom, Consenting Parties shall be responsible for the payment of all production, severance, excise, gathering and other
41 taxes, and all royalty, overriding royalty and other burdens applicable to Non -Consenting Parry's share of production not excepted by Ar-
42 title III.D.
43
44
45
46 In the case of any reworking, plugging back or deeper drilling operation, the Consenting Parties shall be permitted to use, free
47 of cost, all casing, tubing and other equipment in the well, but the ownership of all such equipment shall remain unchanged; and upon
48 abandonment of a well after such reworking, plugging back or deeper drilling, the Consenting Parties shall account for all such equip-
49 ment to the owners thereof, with each party receiving its proportionate part in kind or in value, less cost of salvage.
50
51
52 ninety (90�
53 Within enrty(60) days after a completion of any operation under this Article, the party conducting the operations for the
54 Consenting Parties shall furnish each Non -Consenting Party with an inventory of the equipment in and connected to the well, and an
55 itemized statement of the cost of drilling, deepening, plugging back, testing, completing, and equipping the well for production; or, at its
56 option, the �opUer�atin atrty, in lieu of an itemized statement of such costs of operation, may submit a detailed statement of monthly bill-
57 ings. Each Alowii►rte3fter, during the time the Consenting Parties are being reimbursed as provided above, the party conducting the
58 operations for the Consenting Parties shall furnish the Non -Consenting Parties with an itemized statement of all costs and liabilities in-
59 turfed in the operation of the well, together with a statement of the quantity of oil and gas produced from it and the amount of proceeds
60 realized from the sale of the well's working interest production during the preceding month. In determining the quantity of oil and gas
61 produced during any month, Consenting Parties shall use industry accepted methods such as, but not limited to, metering or periodic
62 weU tests. Any amount realized from the sale or other disposition of equipment newly acquired in connection with any such operation
63 which would have been owned by a Non -Consenting Party had it participated therein shall be credited against the total unreturiied costs
64 of the work done and of the equipment purchased in determining when the interest of such Non�Consenting Party shall reveri to it as
65 above provided; and if there is a credit balance. it shall be paid to such Non -Consenting Party.
66
67
68
69 r
70
.6- EEI
COL��y, r�
l C
A.A.P.L. FORM 610 - MODEL FORM OPERATING AGREEMENT - 1982
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
36
37
38
39
40
41
42
43
44
45
46
47
48
49
50
51
52
53
54
55
56
57
58
59
60
61
62
63
64
65
66
67
68
69
70
ARTICLE VI
continued
If and when the Consenting Parties recover from a Non -Consenting Party's relinquished interest the amounts provided for above,
the relinquished interests of such Non -Consenting Party shall automatically revert to it, and, from and after such reversion, such Non -
Consenting Party shall own the same interest in such well, the material and equipment in or pertaining thereto, and the production
therefrom as such Non -Consenting Party would have been entitled to had it participated in the drilling, reworking, deepening or plugging
back of said well. Thereafter, such Non -Consenting Party shall be charged with and shall pay its proportionate part of the further costs of
the operation of said well in accordance with the terms of this agreement and the Accounting Procedure attached hereto.
Notwithstanding the provisions of this Article VI.B.2., it is agreed that without the mutual consent of all parties, no wells shall
be completed in or produced from a source of supply from which a well located elsewhere on the Contract Area is producing, unless such
well conforms to the then -existing well spacing pattern for such source of supply.
The provisions of this Article shall have no application whatsoever to the drilling of the initial well described in Article VI.A.
except (a) as to Article VII.D.1. (Option No. 2), if selected, or (b) as to the reworking, deepening and plugging back of such initial well
after it has been drilled to the depth specified in Article VI.A. if it shall thereafter prove to be a dry hole or, if initially completed for pro-
duction, ceases to produce in paying quantifies.
3. Stand -By Time: When a well which has been drilled or deepened has reached its authorized depth and all tests have been
completed, and the results thereof furnished to the parties, stand-by costs incurred pending response to a party's notice proposing a
reworking, deepening, plugging back or completing operation in such a well shall be charged and borne as part of the drilling or deepen-
ing operation just completed. Stand-by costs subsequent to all parties responding, or expiration of the response time permitted, whichever
first occurs, and prior to agreement as to the participating interests of all Consenting Parties pursuant to the terms of the second gram-
matical paragraph of Article V1.B.2, shall be charged to and borne as part of the proposed operation, but if the proposal is subsequently
withdrawn because of insufficient participation, such stand-by costs shall be allocated between the Consenting Parties in the proportion
each Consenting Party's interest as shown on Exhibit "A" bears to the total interest as shown on Exhibit "A" of all Consenting Par-
ties.
4. Sidetracking: Except as hereinafter provided, those provisions of this agreement applicable to a "deepening" operation shall
also be applicable to any proposal to directionally control and intentionally deviate a well from vertical so as to change the bottom hole
location (herein called "sidetracking"). unless done to straighten the hole or to drill around junk in the hole or because of other
mechanical difficulties. Any party having the right to participate in a proposed sidetracking operation that does not own an interest in the
affected well bore at the time of the notice shall, upon electing to participate, tender to the well bore owners its proportionate share (equal
to its interest in the sidetracking operation) of the value of that portion of the existing well bore to be utilized as follows:
(a) If the proposal is for sidetracking an existing dry hole, reimbursement shall be on the basis of the actual costs incurred in
the initial drilling of the well down to the depth at which the sidetracking operation is initiated.
(b) If the proposal is for sidetracking a well which has previously produced, reimbursement shall be on the basis of the well's
salvable materials and equipment down to the depth at which the sidetracking operation is initiated, determined in accordance with the
provisions of Exhibit "C", less the estimated cost of salvaging and the estimated cost of plugging and abandoning.
In the event that notice for a sidetracking operation is given while the drilling rig to be utilized is on location, the response period
shall be limited to forty-eight (48) hours, , provided, however, any party may request and
receive up to eight (8) additional days after expiration of the forty-eight (48) hours within which to respond by paying for all stand-by time
incurred during such extended response period. If more than one party elects to take such additional time to respond to the notice, stand-
by costs shall be allocated between the parties taking additional time to respond on a day -today basis in the proportion each electing par-
ty's interest as shown on Exhibit "A" bears to the total interest as shown on Exhibit "A" of all the electing parties. In all other in-
stances the response period to a proposal for sidetracking shall be limited to thirty (30) days.
C. TAKING PRODUCTION iN KiND:
exclusive of production which may be used in development and
marketing purposes an rUtra ea
reattng oil and gas for
incurred in the taking in kind or separate disposition by any
-7. E E'I29G� �'
COL
C C
A.A.P.L. FORM 610 - MODEL FORM OPERATING AGREEMENT - 1982
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
36
37
38
39
40
41
42
43
44
45
46
47
48
49
50
51
52
53
54
55
56
57
58
59
60
61
62
63
64
65
66
67
68
69
70
ARTICLE VI
continued
Each party shall execute such division orders and contracts as may be necessary for the sale of its interest in ction from
the Contract Area, and, except as provided in Article VII.B., shall be entitled to receive payment directly from rchaser thereof for
its share of all production.
In the event any party shall fail to make the arrangements necessary to take in kind or rately dispose of its proportionate share of
the oil produced from the Contract Area, Operator shall have the right, subject to�timeev,zr
ation at will by the party owning it, but not
the obligation, to purchase such oil or sell it to others at any time and fro a to the account of the non taking party at the
best price obtainable in the area for such production. Any such pu or sale by Operator shall be subject always to the right of the
owner of the production to exerci>orsal7eby
s right a in kind, or separately dispose of, its share of all oil not previously
delivered to a purchaser. Any purcor of any other partes share of oil shall be only for such reasonable periods of
time as are consistent with the mine industry under the particular circumstances, but in no event for a period in excess
of one (1) year.
In the event one are parties' separate disposition of its share of the gas causes split -stream deliveries to separate pipelines and/or
deliveries whic a day -today basis for any reason are not exactly equal to a parry's respective proportionate share of total gas sales to
be al!2&vedTo it, the balancing or accounting between the respective accounts of the parties shall be in accordance with any gas balancing
D. Access to Contract Area and Information:
Each party shall have access to the Contract Area at all reasonable times, at its sole cost and risk to inspect or observe operations,
and shall have access at reasonable times to information pertaining to the development or operation thereof, including Operator's books
and records relating thereto. Operator, upon request, shall furnish each of the other parties with copies of all forms or reports filed with
governmental agencies, daily drilling reports, well logs, tank tables, daily gauge and run tickets and reports of stock on hand at the first of
each month, and shall make available samples of any cores or cuttings taken from any well drilled on the Contract Area. The cost of
gathering and furnishing information to Non -Operator, other than that specified above, shall be charged to the Non -Operator that re-
quests the information.
E. Abandonment of Wells:
1. Abandonment of Dry Holes: Except for any well drilled or deepened pursuant to Article VI.B.2., any well which has been
drilled or deepened under the terms of this agreement and is proposed to be completed as a dry hole shall not be plugged and abandoned
without the consent of all parties. Should Operator, after diligent effort, be unable to contact any party, or should any party fail to reply
within forty -tight (48) hours after receipt of notice of the proposal to plug and abandon
such well, such party shall be deemed to have consented to the proposed abandonment. All such wells shall be plugged and abandoned in
accordance with applicable regulations and at the cost, risk and expense of the parties who participated in the cost of drilling or deepening
such well. Any party who objects to plugging and abandoning such well shall have the right to take over the well and conduct further
operations in search of oil and/or gas subject to the provisions of Article VI.B.
2. Abandonment of Wells that have Produced: Except for any well in which a Non -Consent operation has been conducted
hereunder for which the Consenting Parties have not been fully reimbursed as herein provided, any well which has been completed as a
producer shall not be plugged and abandoned without the consent of all parties. if all parties consent to such abandonment, the well shall
be plugged and abandoned in accordance with applicable regulations and at the cost, risk and expense of all the parties hereto. If, within
thirty (30) days after receipt of notice of the proposed abandonment of any wejl, all parties do not agree to the abandonment of such well,
those wishing to continue its operation from the interval(s) of the formation(s) then open to production shall tender to each of the other
parties its proportionate share of the value of the well's salvable material and equipment, determined in accordance with the provisions of
Exhibit "C", less the estimated cost of salvaging and the estimated cost of plugging and abandoning. Each abandoning party shall assign
the non -abandoning parties, without warranty, express or implied, as to title or as to quantity, or fitness for use of the equipment and
material, all of its interest in the well and related equipment, together with its interest in the leasehold estate as to, but only as to, the in-
terval or intervals of the formation or formations then open to production. If the interest of the abandoning party is or includes an oil and
gas interest, such party shall execute and deliver to the non -abandoning party or parties an oil and gas lease, limited to the interval or in-
tervals of the formation or formations then open to production, for a term of one (1) year and so long thereafter as oil and/or gas is pro-
duced from the interval or intervals of the formation or formations covered thereby,
8 EEI 2!-141;
COL
r r
A.A.P.L. FORM 6I0 - MODEL FORM OPERATING AGREEMENT - 1982
AIMCI.E VI
continued
"8". The assignments or leases so limited shall encompass the "drilling unit" upon which the well is located. The payments by, and the
assignments or leases to, the assignors shall be in a ratio based upon the relationship of their respective percentage of participation in the
Contract Area to the aggregate of the percentages of participation in the Contract Area of all assignees. There shall be no readjustment of
interests in the remaining portion of the Contract Area.
6 Thereafter, abandoning parties shall have no further responsibility, liability, or interest in the operation of or production from
7 the well in the interval or intervals then open other than the royalties retained in any lease made under the terms of this Article. Upon re-
8 quest. Operator shall continue to operate the assigned well for the account of the non -abandoning parties at the rates and charges con-
9 templated by this agreement, plus any additional cost and charges which may arise as the result of the separate ownership of the assigned
10 well. Upon proposed abandonment of the producing interval(s) assigned or leased, the assignor or lessor shall then have the option to
11 repurchase its prior interest in the well (using the same valuation formula) and participate in further operations therein subject to the pro-
12 visions hereof.
13
14 3. Abandonment of Non -Consent Operations: The provisions of Article VI.E.1. or VI.E.2. above shall be applicable as between
15 Consenting Parties in the event of the proposed abandonment of any well excepted from said Articles; provided, however, no well shall be
16 permanently plugged and abandoned unless and until all parties having the right to conduct further operations therein have been notified
17 of the proposed abandonment and afforded the opportunity to elect to take over the well in accordance with the provisions of this Article
18 VI.E
19
20 ARTICLE VII.
21 EXPENDITURES AND LIABILITY OF PARTIES
22
23 A. Liability of Parties:
24
25 The liability of the parties shall be several, not joint or collective. Each party shall be responsible only for its obligations, and
26 shall be liable only for its proportionate share of the costs of developing and operating the Contract Area. Accordingly, the liens granted
27 among the parties in Article V1I.B. are given to secure only the debts of each severally. It is not the intention of the parties to create, nor
28 shall this agreement be construed as creating, a mining or other partnership or association, or to render the parties liable as partners.
29
30 B. Liens and Payment Defaults:
31
32 Each Non -Operator grants to Operator alien upon its oil and gas rights in the Contract Area, and a security interest in its share
33 of oil and/or gas when extracted and its interest in all equipment, to secure payment of its share of expense, together with interest thereon
34 at the rate provided in Exhibit "C". To the extent that Operator has a security interest under the Uniform Commercial Code of the
35 state, Operator shall be entitled to exercise the rights and remedies of a secured party under the Code. The bringing of a suit and the ob-
36 taining of judgment by Operator for the secured indebtedness shall not be deemed an election of remedies or otherwise affect the lien
37 rights or security interest as security for the payment thereof. In addition, upon default by any Non -Operator in the payment of its share
38 of expense, Operator shall have the right, without prejudice to other rights or remedies, to collect from the purchaser the proceeds from
39 the sale of such Non -Operator's share of oil and/or gas until the amount owed by such Non -Operator, plus interest, has been paid. Each
40 purchaser shall be entitled to rely upon Operator's written statement concerning the amount of any default. Operator grants a like lien
41 and security interest to the Non -Operators to secure payment of Operator's proportionate share of expense.
42
43 If any party fails or is unable to pay its share of expense within sixty (60) days after rendition of a statement therefor by
44 Operator, the non -defaulting parties, including Operator, shall, upon request by Operator, pay the unpaid amount in the proportion that
45 the interest of each such party bears to the interest of all such parties. Each party so paying its share of the unpaid amount shall, to obtain
46 reimbursement thereof, be subrogated to the security rights described in the foregoing paragraph.
47
48 C. Payments and Accounting:
49
50 Except as herein otherwise specifically provided, Operator shall promptly pay and discharge expenses incurred in the development
51 and operation of the Contract Area pursuant to this agreement and shall charge each of the parties hereto with their respective propor-
52 tionate shares upon the expense basis provided in Exhibit "C". Operator shall keep an accurate record of the joint account hereunder,
53 showing expenses incurred and charges and credits made and received.
54
55 Operator, at its election, shall have the right from time to time to demand and receive from the other parties payment in advance
56 of their respective shares of the estimated amount of the expense to be incurred in operations hereunder during the next succeeding
57 month, which right may be exercised only by submission to each such party of an itemized statement of such estimated expense, together
58 with an invoice for its share thereof. Each such statement and invoice for the payment in advance of estimated expense shall be submitted
59 on or before the 20th day of the next preceding month. Each party shall pay to Operator its proportionate share of such estimate within
60 fifteen (15) days after such estimate and invoice is received. If any party fails to pay its share of said estimate within said time, the. amount
61 due shall bear interest as provided in Exhibit "C" until paid. Proper adjustment shall be made monthly between advances and actual ex-
62 pense to the end that each party shall bear and pay its proportionate share of actual expenses incurred, and no more. .
63`
64 D. Limitation of Expenditures:
65 ^i
66 1. Drill or Deepen: Without the consent of all parties, no well shall be drilled or deepened, except any well drilled or deepened
67 pursuant to the provisions of Article VI.6.2. of this agreement. Consent to the drilling or deepening shall include:, �\
68 E. Affidavit:
69 On or before the fifteenth (15th) day of each month;, Opertator shall
70 furnish Non -Operator with an affidavit of sufficient form: . aA. stance
to evidence that Operator has fully paid or satisfied all statements and
invoices received by Operator on or before the end of the_.,pri.oi,:.ca i~ndar
month for actual costs and expenses incurred in the operatio ohe
Contract Area. EEIM
-- — CO L C(CC���, .
A.A.P.L. FORM 610 - MODEL FORM OPERATING AGREEMENT . 1982
continued
4 ❑ Option No. 2: All necessary expenditures for the drilling or deepening and testing; of the well. When such well has reached its
5 authorized depth, and all tests have been completed, and the results thereof furnished to the parties. Operator shall give immediate notice
6 to the Nun -Operators who have the right to participate in the completion costs. The parties receiving such notice shall have forty-eight
7 (48) hours in which to elect to participate in the setting of casing and the completion at-
8 tempt. Such election, when made, shall include consent to all necessary expenditures for the completing and equipping of such well, in-
9 eluding necessary tankage and/or surface facilities. Failure of any party receiving such notice to reply within the period above fixed shall
10 constitute an election by that party not to participate in the cost of the completion attempt. If one or more, but less than all of the parties.
11 elect to set pipe and to attempt a completion, the provisions of Article VI.B.2. hereof (the phrase "reworking, deepening or plugging
12 back" as contained in Article VI.B.2. shall be deemed to include "completing") shall apply to the operations thereafter conducted by less
13 than all parties.
14
15 2. Rework or Plug Back: Without the consent of all parries, no well shall be reworked or plugged back except a well reworked or
16 plugged back pursuant to the provisions of Article VI.B.2. of this agreement. Consent to the reworking or plugging back of a well shall
17 include all necessary expenditures in conducting such operations and completing and equipping of said well, including necessary tankage
18 and/or surface facilities.
19
20 3. Other Operations: Without the consent of all parties, Operator shall not undertake any single project reasonably estimated
21 to require an expenditure in excess of Two Thousand Five Hundred Dollars (S 2,500,00 )
22 except in connection with a well, the drilling, reworking, deepening, completing, recompleting, or plugging back of which has been
23 previously authorized by or pursuant to this agreement; provided, however, that, in case of explosion, fire, flood or other sudden
24 emergency, whether of the same or different nature, Operator may take such steps and incur such expenses as in its opinion are required
25 to deal with the emergency to safeguard life and property but Operator, as promptly as possible, shall report the emergency to the other
26 parties. If Operator prepares an authority for expenditure (AFE) for its own use, Operator shall furnish any Non -Operator so requesting
27 an information copy thereof for any single project casting in excess of Two T h n t t Q a n ei E iy e H lln d ceA and No/1 OC
28 Dollars (S 2, 500. 00 ) but less than the amount first set forth above in this paragraph. * ( see reverse side
29 of this page for additional provision)
30 E. Rentals, Shut-in Well Payments and Minimum Royalties:
31
32 Rentals, shut-in well payments and minimum royalties which may be required under the terns of any lease shall be paid by the
33 party or parties who subjected such lease to this agreement at its or their expense. In the event two or more parties own and have con-
34 tributed interests in the same lease to this agreement, such parties may designate one of such parties to make said payments for and on
35 behalf of all such parties. Any party may request, and shall be entitled to receive, proper evidence of all such payments. In the event of
36 failure to make proper payment of any rental, shut-in well payment or minimum royalty through mistake or oversight where such pay-
37 ment is required to continue the lease in force, any loss which results from such non-payment shall be borne in accordance with the pro•
38 visions of Article IV.B.2.
39
40 Operator shall notify Non -Operator of the anticipated completion of a shut-in gas well, or the shutting in or return to production
41 of a producing gas well, at least five (5) days (excluding Saturday, Sunday and legal holidays), or at the earliest opportunity permitted by
42 circumstances, prior to taking such action, but assumes no liability for failure to do so. In the event of failure by Operator to so notify
43 Now0perator, the loss of any lease contributed hereto by Non -Operator for failure to make timely payments of any shut-in well payment
44 shall be borne jointly by the parties hereto under the provisions of Article IV.B.3.
45
46 F. Taxes: ** (see reverse side of this page for additional provision)
47
48 Beginning with the first calendar year after the effective date hereof, Operator shall render for ad valorem taxation all property
49 subject to this agreement which by law should be rendered for such taxes, and it shall pay all such taxes assessed thereon before they
50 become delinquent. Prior to the rendition date, each Non -Operator shall furnish Operator information as to burdens (to include, but not
51 be limited to, royalties, overriding royalties and production payments) on leases and oil and gas interests contributed by such Non-
52 Operator. If the assessed valuation of any leasehold estate is reduced by reason of its being subject to outstanding excess royalties, over-
53 riding royalties or production payments, the reduction in ad valorem taxes resulting therefrom shall inure to the benefit of the owner or
54 owners of such leasehold estate, and Operator shall adjust the charge to such owner or owners so as to reflect the benefit of such reduc-
55 lion. If the ad valorem taxes are based in whole or in part upon separate valuations of each party's working interest, then notwithstanding
56 anything to the contrary herein, charges to the joint account shall be made and paid by the parties hereto in accordance with the tax
S7 value generated by each party's working interest. Operator shall bill the other parties for their proportionate shares of all tax payments in
58 the manner provided in Exhibit "C' •.
59 .:
60 If Operator considers any tax assessment improper, Operator may, at its discretion, protest within the time and manner
61 prescribed by law, and prosecute the protest to a final determination, unless all parties agree to abandon the protest prior to final deter-
62 mination. During the pendency of administrative or judicial proceedings, Operator may elect to pay, under protest, all such taxes and any
63 interest and penalty. When any such protested assessment shall have been finally determined, Operator shall pay the tax for the joint ac-
64 count, together with any interest and penalty accrued, and the total cost shall then be assm%ed against the parties, and be paid by'them, as
65 provided in Exhibit "C".
66
67 Each party shall pay or cause to be paid all production, severance, excise, gathering and other taxes imposed upon or wit$ respect to
68 the production or handling of such party's share of oil and/or gas produced under the terms of this agreement. `"' ' ' ` T
69
70
10 E E I
COL
Any consent required of the City of Lubbock ("City") under
this paragraph may be obtained from any one (1) of the
following persons, each of which is duly authorized by the
City to act on its behalf:
(a) Director of Electric Utilities
c/o City of Lubbock
P. 0. Box 2000
Lubbock, Texas 79457
(b) Assistant City Manager in Charge
of Financial Services
c/o City of Lubbock
P. 0. Box 2000
Lubbock, Texas 79457
(c) Deputy City Manager
c/o City of Lubbock
P. 0. Box 2000
Lubbock, Texas 79457
The terms of this paragraph notwithstanding, should the
interests of Non -Operator be exempted from the payment of
ad valorem, production, severance, excise, gathering or
other taxes, no charges shall be made to the account of
Non -Operator for same.
C
C
A.A.P.L. FORM 610 - MODEL FORM OPERATING AGREEMENT - 1982
ARTICLE VII
continual
G. Insurance:
3 At all times while operations are conducted hereunder, Operator shall comply with the workmen's compensation law of
4 the state where the operations are being conducted; provided, however, that Operator may be a self -insurer for liability under said com-
5 pensation laws in which event the only charge that shall be made to the joint account shall be as provided in Exhibit "C". Operator shall
6 also carry or provide insurance for the benefit of the joint account of the parties as outlines! in Exhibit "D attached to and made a part
7 hereof. Operator shall require all contractors engaged in work on or for the Contract Area to comply with the workmen's compensation
g law of the state where the operations are being conducted and to maintain such other insurance as Operator may require.
9
10 In the event automobile public liability insurance is specified in said Exhibit "D", or subsequently receives the approval of the
11 parties, no direct charge shall be made by Operator for premiums paid for such insurance for Operator's automotive equipment.
12
13 ARTICLE VUL
14 ACQUISITION, MAINTENANCE OR TRANSFER OF INTEREST
15
16 A. Surrender of Leases:
17
18 The leases covered by this agreement, insofar as they embrace acreage in the Contract Area, shall not be surrendered in whole
19 or in part unless all parties consent thereto.
20
21 However, should any party desire to surrender its interest in any lease or in any portion thereof, and the other parties do not
22 agree or consent thereto, the party desiring to surrender shall assign, without express or implied warranty of title, all of its interest in
23 such lease, or portion thereof, and any well, material and equipment which may be located thereon and any rights in production
24 thereafter secured, to the parties not consenting to such surrender. If the interest of the assigning party is or includes an oil and gas in-
25 terest, the assigning party shall execute and deliver to the party or parties not consenting to such surrender an oil and gas lease covering
26 such oil and gas interest for a term of one (1) year and so long thereafter as oil and/or gas is produced from the land covered thereby, such
27 lease to be on the form attached hereto as- Exhibit "B". Upon such assignment or lease, the assigning party shall be relieved from all
28 obligations thereafter accruing, but not theretofore accrued, with respect to the interest assigned or leased and the operation of any well
29 attributable thereto, and the assigning party shall have no further interest in the assigned or leased premises and its equipment and pro-
30 duction other than the royalties retained in any lease made under the terms of this Article. The party assignee or lessee shall pay to the
31 party assignor or lessor the reasonable salvage value of the latter's interest in any wells and equipment attributable to the assigned or leas-
32 ed acreage. The value of all material shall be determined in accordance with the provisions of Exhibit "C", less the estimated cost of
33 salvaging and the estimated cost of plugging and abandoning. If the assignment or lease is in favor of more than one party, the interest
34 shall be shared by such parties in the proportions that the interest of each bears to the total interest of all such parties.
35
36 Any assignment, lease or surrender made under this provision shall not reduce or change the assignor's, lessor's or surrendering
37 party's interest as it was immediately before the assignment, lease or surrender in the balance of the Contract Area; and the acreage
38 assigned, leased or surrendered, and subsequent operations thereon, shall not thereafter be subject to the terms and provisions of this
39 agreement.
40
41 B. Renewal or Extension of Leases:
42
43 If any party secures a renewal of any oil and gas lease subject to this agreement, all other parties shall be notified promptly, and
44 shall have the right for a period of thirty (30) days following receipt of such notice in which to elect to participate in the ownership of the
45 renewal lease, insofar as such lease affects lands within the Contract Area, by paying to the party who acquired it their several proper pro-
46 portionate shares of the acquisition cost allocated to that part of such lease within the Contract Area, which shall be in proportion to the
47 interests held at that time by the parties in the Contract Area.
48
49 If some, but less than all, of the parties elect to participate in the purchase of a renewal lease, it shall be owned by the parties
50 who elect to participate therein, in a ratio based upon the relationship of their respective percentage of participation in the Contract Area
51 to the aggregate of the percentages of participation in the Contract Area of all parties participating in the purchase of such renewal lease.
S2 Any renewal lease in which less than all parties elect to participate shall not be subject to this agreement.
53
54 Each party who participates in the purchase of a renewal lease shall be given an assignment of its proportionate interest therein
55 by the acquiring party.
56
57 The provisions of this Article shall apply to renewal leases whether they are for the entire interest covered by the expiring lease
58 or cover only a portion of its area or an interest therein. Any renewal lease taken before the expiration of its predecessor lease, or taken or
S9 contracted for within six (6) months after the expiration of the existing lease shall he subject to this provision; hot any lease taken or con•
60 tracted for more than six (6) months after the expiration of an existing lease shall not be deemed a renewal lease and shall not be subject to
61 the provisions of this agreement.
o2
b3 The provisions in this Article shall also be applicable to extensions of oil and gas leases.
64
65 C. Acreage or Cash Contributions:
66
67 While this agreement is in force, if any party contracts for a contribution of cash towards the drilling of a well or any other
68 operation on the Contract Area, such contribution shall be paid to the party who conducted the drilling or other operation and shall be
G9 applied by it against the cost of such drilling or other operation. if the contribution lie in the form of acreage, the party to whom the con-
70 tribution is made shall promptly tender an assignment of the acreage, without warranty of title, to the Drilling Parties in the proportions
t l E E I
i
a
A.A.P.L. FORM 610 - MODEL FORM OPERATING AGREEMENT - 1982
ARTICLE VIII
continued
1 said Drilling Parties shared the cost of drilling the well. Such acreage shall become a separate Contract Area and, to the extent possible, be
2 governed by provisions identical to this agreement. Each party shall promptly notify all other parties of any acreage or cash contributions
3 it may obtain in support of any well or any other operation on the Contract Area. The above provisions shall also be applicable to op-
4 tional rights to earn acreage outside the Contract Area which are in support of a well drilled inside the Contract Area.
5
6 If any party contracts for any consideration relating to disposition of such party's share of substances produced hereunder, such
7 consideration shall not be deemed a contribution as contemplated in this Article VIII.C.
8
9 D. Maintenance of Uniform Interest:
10
11 For the purpose of maintaining uniformity of ownership in the oil and gas leasehold interests covered by this agreement, no
12 party shall sell, encumber, transfer or make other disposition of its interest in the leases embraced within the Contract Area and in welts,
13 equipment and production unless such disposition coven either:
14
15 1, the entire interest of the party in all leases and equipment and production; or
16
17 2. an equal undivided interest in all leases and equipment and production in the Contract Area.
18
19 Every such sale. encumbrance, transfer or other disposition made by any party shall be made expressly subject to this agreement
20 and shall be made without prejudice to the right of the other parties.
21
22 If, at any time the interest of any party is divided among and owned by four or more co -owners, Operator, at its discretion, may
23 require such co -owners to appoint a single trustee or agent with full authority to receive notices, approve expenditures, receive billings for
24 and approve and pay such parry's share of the joint expenses, and to deal generally with, and with power to bind, the co -owners of such
25 party's interest within the scope of the operations embraced in this agreement; however, all such co -owners shall have the right to enter
26 into and execute all contracts or agreements for the disposition of their respective shares of the oil and gas produced from the Contract
27 Area and they shall have the right to receive, separately, payment of the sale proceeds thereof.
28
29 E. Waiver of Rights to Partition:
30
31 If permitted by the laws of the state or states in which the property covered hereby is located, each party hereto owning an
32 undivided interest in the Contract Area waives any and all rights it may have to partition and have set aside to it in severalty its undivided
33 interest therein.
34
35 F. Preferential Right to Purchase:
36
37 Should any party desire to sell all or any part of its interests under this agreement, or its rights and interests in the Contract
38 Area, it shall promptly give written notice to the other parties, with full information concerning its proposed sale, which shall include the
39 name and address of the prospective purchaser (who must be ready, willing and able to purchase), the purchase price, and all other terms
40 of the offer. The other parties shall then have an optional prior right, for a period of ten (10) days after receipt of the notice, to purchase
41 on the same terms and conditions the interest which the other party proposes to sell; and, if this optional right is exercised, the purchas-
42 ing parties shall share the purchased interest in the proportions that the interest of each bears to the total interest of all purchasing par-
43 des.
44 ,
45 k.
46 Any mortgage given by any party shall be subject to the terms of this
47 agreement. ARTICLE IX.
48 INTERNAL REVENUE CODE ELECTION
49
50 This agreement is not intended to create, and shall not be construed to create, a relationship of partnership or an association
51 for profit between or among the parties hereto. Notwithstanding any provision herein that the rights and liabilities hereunder are several
52 and not joint or collective, or that this agreement and operations hereunder shall not constitute a partnership, if, for federal income tax
53 purposes, this agreement and the operations hereunder are regarded as a partnership, each party hereby affected elects to be excluded
S4 from the application of all of the provisions of Subchapter "K", Chapter 1, Subtitle "A", of the internal Revenue Code of 1954, as per-
55 miffed and authorized by Section 761 of the Code and the regulations promulgated thereunder. Operator is authorized and directed to ex-
56 ecute on behalf of each party hereby affected such evidence of this election as may be required by the Secretary of the Treasury of the
57 United States or the Federal Internal Revenue Service, including specifically, but not by way of limitation, all of the returns, statements,
58 and the data required by Federal Regulations 1.761. Should there be any requirement that each party hereby affected give further
S9 evidence of this election, each such party shall execute such documents and furnish such other evidence as may be required by the
fi0 Federal Internal Revenue Service or as may be necessary to evidence this election. No such party shall give any notices or take any other
61 action inconsistent with the election made hereby. if any present or future income tax laws of the state or states in which the Contract
62 Area is located or any future income tax laws of the United States contain provisions similar to those in Subchapter "K", Chapter 1.
63 Subtitle "A", of the Internal Revenue Code of 1954, under which an election similar to that provided by Section 761 of the Codeis per-
64 mitted, each party hereby affected shall make such election as may be permitted or required by such laws. In making the foregoing elec-
65 tion, each such party states that the income derived by such party from operations hereunder can be adequately determined without the
66 computation of partnership taxable income. ---
67
68- i
69 s
70
EEI�`'�
COL
A.A.P.L. FORM 610 - MODEL FORM OPERATING AGREEMENT - 1982
ARTICLE. X.
CLAIMS AND LAWSUITS
4 Operator may settle any single uninsured third party damage claim or suit arising from operations hereunder if the expenditure
5 doesnotexce�d Two Thousand Five Hundred and No/100 Dollars
6 ($ 21500.00 ) and if the payment is in complete settlement of such claim or suit. If the amount required for settlement ex-
7 eeeds the above amount, the parties hereto shall assume and take over the further handling of the claim or suit, unless such authority is
8 delegated to Operator. All costs and expenses of handling, settling, or otherwise discharging such claim or suit shall be at the joint ex-
9 pense of the parties participating in the operation from which the claim or suit arises. If a claim is made against any party or if any party is
10 sued on account of any matter arising from operations hereunder over which such individual has no control because of the rights given
11 Operator by this agreement, such party shall immediately notify all other parties, and the claim or suit shall be treated as any other claim
12 or suit involving operations hereunder.
13
14 ARTICLE XI.
15 FORCE MAJEURE
16
17 If any party is rendered unable, wholly or in part, by force majeure to carry out its obligations under this agreement, other than
18 the obligation to make money payments, that party shall give to all other parties prompt written notice of the force majeure with
19 reasonably full particulars concerning it; thereupon, the obligations of the party giving the notice, so far as they are affected by the force
20 majeure, shall be suspended during, but no longer than, the continuance of the force majeure. The affected party shall use all reasonable
21 diligence to remove the force majeure situation as quickly as practicable.
22
23 The requirement that any force majeure shall be remedied with all reasonable dispatch shall not require the settlement of strikes,
24 lockouts, or other labor difficulty by the party involved, contrary to its wishes; how all such difficulties shall be handled shall be entirely
25 within the discretion of the party concerned.
26
27 The term "force majeure as here employed, shall mean an act of God, strike, lockout, or other industrial disturbance, act of
28 the public enemy, war, blockade, public riot, lightning, fire, storm, flood, explosion, governmental action, governmental delay, restraint
29 or inaction, unavailability of equipment, and any other cause, whether of the kind specifically enumerated above or otherwise, which is
30 not reasonably within the control of the party claiming suspension.
31
32 ARTICLE XII.
33 NOTICES
34
35 AU notices authorized or required between the parties and required by any of the provisions of this agreement, unless otherwise
36 specifically provided, shall be given in writing by mail or telegram, postage or charges prepaid, or by telex or telecopier and addressed to
37 the parties to whom the notice is given at the addresses listed on Exhibit "A". The originating notice given under any provision hereof
38 shall be deemed given only when received by the party to whom such notice is directed, and the time for such party to give any notice in
39 response thereto shall run from the date the originating notice is received. The second or any responsive notice shall be deemed given
40 when deposited in the mail or with the telegraph company, with postage or charges prepaid, or sent by telex or telecopier. Each party
41 shall have the right to change its address at any time, and from time to time, by giving written notice thereof to all other parties.
42
43 ARTICLE X1II.
44 TERM OF AGREEMENT
45
46 This agreement shall remain in full force and effect as to the oil and gas leases andlor oil and gas interests subject hereto for the
47 period of time selected below; provided, however, no party hereto shall ever be construed as having any right, title or interest in or to any
48 lease or oil and gas interest contributed by any other party beyond the term of this agreement.
49
50 Option No. 1: So long as any of the oil and gas leases subject to this agreement remain or are continued in force as to any part
51 of the Contract Area, whether by production, extension, renewal or otherwise.
52
53
54
55
56
57
58
59
60
61
62
63
64
65
66
67
68
69
70
agreement, results in production of oil and/or gas in paying quantities, this agreement shall continue in force so Ion • c well or
wells produce, or are capable of production, and for an additional period of days from ,wyeo all production; provided,
however, if, prior to the expiration of such additional period, one or more of the o are engaged in drilling, reworking, deepen-
ing, plugging back, testing or attempting to complete a well or under, this agreement shall continue in force until such opera-
tions have been completed and if production r rom, this agreement shall continue in force as provided herein. In the event the
well described in Article VI subsequent well drilled hereunder, results in a dry hole, and no other well is producing, or capable
of produc or gas from the Contract Area, this agreement shall terminate unless drilling, d� -peeing, plugging back or rework -
It is agreed, however, that the termination of this agreement shall not relieve any party hereto from any liability which has
accrued or attached prior to the date of such termination.
13• E E I
C C
A.A.P.L. FORM 610 - MODEL FORM OPERATING AGREEMENT - 1982
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
36
37
38
39
40
41
42
43
44
45
46
47
48
49
50
51
52
53
54
55
56
57
58
59
60
61
62
63
64
65
66
67
68
69
70
ARTICLE XIV.
COMPLIANCE WITH LAWS AND REGULATIONS
A. Laws, Regulations and Orden:
This agreement shall be subject to the conservation laws of the state in which the Contract Area is located, to the valid rules,
regulations, and orders of any duly constituted regulatory body of said state; and to all other applicable federal, state, and local laws, or-
dinances, rules, regulations, and orders.
B. Governing Law:
This agreement and all matters pertaining hereto, including, but not limited to, matters of performance, non-performance, breach,
remedies, procedures, rights, duties and interpretation or construction, shall be governed and determined by the law of the state in which
the Contract Area is located. If the Contract Area is in two or more states, the law of the state of Texas
shall govern.
C. Regulatory Agencies:
Nothing herein contained shall grant, or be construed to grant, Operator the right or authority to waive or release any rights,
privileges, or obligations which Non -Operators may have under federal or state laws or under rules, regulations or orders promulgated
under such laws in reference to oil, gas and mineral operations, including the location, operation, or production of wells, on tracts offset-
ting or adjacertt to the Contract Area.
With respect to operations hereunder, Non Operators agree to release Operator from any and all losses, damages, injuries, claims
and causes of action arising out of, incident to or resulting directly or indirectly from Operator's interpretation or application of rules,.
rulings, regulations or orders of the Department of Energy or predecessor or successor agencies to the extent such interpretation or ap-
plication was made in good faith. Each Non -Operator further agrees to reimburse Operator for any amounts applicable to such Non -
Operator's share of production that Operator may be required to refund, rebate or pay as a result of such an incorrect interpretation or-.
application, together with interest and penalties thereon owing by Operator as a result of such incorrect interpretation or application.
Non -Operators authorize Operator to prepare and submit such documents as may be required to be submitted to the purchaser
of any crude oil sold hereunder or to any other person or entity pursuant to the requirements of the "Crude Oil Windfall Profit Tax Act
of 1980", as same may be amended from time to time ("Act"), and any valid regulations or rules which may be issued by the Treasury
Department from time to time pursuant to said Act. Each party hereto agrees to furnish any and all certifications or other information
which is required to be furnished by said Act in a timely manner and in sufficient detail to permit compliance with said Act.
See Page 14A
ARTICLE XV.
OTHER PROVISIONS
-14-
il/.la
EEI
COLAA
A. REMOVAL OF OPERATOR
In the event the City of Lubbock ("City") shall elect to
remove Estacado Energy, Inc. ("Estacado"), as Operator of
the Contract Area pursuant to the provisions of Article V.B.
hereof, then City agrees to purchase from Estacado, and
Estacado agrees to sell to City, all of Estacado's interest
in and to the Contract Area for a sum equal to the present
value of such interest discounted at the prime rate of
interest then announced by the First National Bank at
Lubbock, Texas, but not to exceed twelve percent (12.0%).
Present value of the Contract Area shall be determined by a
mutually agreeable petroleum engineer or engineering firm
("engineer"). In the event the parties are unable to agree
upon such engineer, each shall select an engineer and the
two so selected shall proceed to determine present value;
and if the two engineers selected are unable to agree upon
such present value, said engineers shall select a third
engineer whose determination of present value shall be
averaged with determinations of the other two engineers and
the average of the three shall be conclusive evidence as to
present value and shall be final and binding upon the
parties.
B. NONDISCRIMATION
In connection with the performance of work under this
Agreement, the Operator agrees to comply with all of the
provisions of Section 202(1) to (7), inclusive, of Executive
Order 11246 as amended, (3 C.F.R. 339), which are hereby
incorporated by reference in this Agreement.
C. DOE REPRESENTATION
This Agreement shall not be construed to provide that any
party is obligated to represent any other party hereto
before the Department of Energy or its successor agency.
D. INVOICING
Notwithstanding the provisions of this Agreement and the
attached Accounting Procedure, all invoices are payable
within fifteen (15) days of the receipt by Non -Operator. If
payment is not made within such period, the amount of the
invoice shall bear interest at the rate provided in the
Accounting Procedure attached hereto as Exhibit "C".
Upon request by Non -Operator, Operator will furnish promptly
to Non -Operator legible copies of original invoices backing
up Operator joint interest billings to Non -Operators with
operators option to charge the requesting Non -Operator cost
associated with making copies.
E. OBLIGATIONS OF CITY
Notwithstanding anything to the contrary in this agreement,
the obligations of the City of Lubbock to perform any
covenants contained herein is subject to such performance
not being contrary to laws applicable to municipal
corporations.
14A E E I
COL
Ell-
0
A.A.P.L. VO RN1 010 - MODLL FOfijjl OPERATING :1GREE"XIENT . 1982
1
3
4
5
G
7
S
9
10
11
12
13
14
15
16
17
is
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
36
37
38
39
40
41
42
43
44
45
46
47
48
49
50
51
52
53
54
55
56
57
58
59
60
61
62
63
G4
65
GG
67
68
69
70
AEZTI XE1 XVI.
MISCELLANEOUS
This agreement shall Ise binding u3xm and %hall inure to the heriehL of the parties hereto and to their respective heirs, devices,
legal reprcuntativ", succesws and assigns.
This instrument may be executed in any number of counterparts, each of which shall be considered an original ft,r all purposes.
IN WITNESS WI IERF0 F, this agreement shall he effective as of day of May 19 88
OPERATOR
ESTACADO ENERGY, INC.
Presiderit
N0N•0PFRAT0R5
ATTEST: CITY OF LUBBOCK
By: 13
City Secretary Mayor
APPROVED AS TO CONTENT:
By
sst. CiCy Manager
APPROVED AS TO FORM:
At-torney
DAKKAR PROPERTIES
•15-
EXHIBIT "A"
ATTACHED TO AND MADE A PART OF THAT CERTAIN OPERATING AGREEMENT
DATED MAY 1, 1988, BETWEEN ESTACADO ENERGY, INC., AS OPERATOR,
AND CITY OF LUBBOCK, AS NON -OPERATOR
PART I. CONTRACT AREA
The Contract Area shall consist of the following described
lands:
Tract No. 1 (Malone No. 1)
All of the Southeast Quarter (SE/4) of Section 35,
Block 23, H&GN Ry. Co. Survey, Wheeler County, Texas.
Tract No. 2 (Anderson No. 1)
All of the Northeast Quarter (NE/4) of Section 56,
Block 23, H&GPI Ry. Co. Survey, Wheeler County, Texas.
Tract No. 3 (0. B. Harvey No. 1)
All of the Northwest Quarter (NW/4) of Section 56,
Block 23, H&GN Ry. Co. Survey, Wheeler County, Texas.
Tract No. 4 (Harvey No. 1)
All of the West Half of the West Half (W/2 of W/2) of
Section 49, Block 23, H&GN Ry. Co. Survey, Wheeler
County, Texas.
Tract No. 5 (Harvey No. 2)
All of the East Half of the West Half (E/2 of W/2) of
Section 49, Block 23, H&GN Ry. Co. Survey, Wheeler
County, Texas.
Tract No. 6 (Grogan No. 1)
All of the Southeast Quarter (SE/4) of Section 57,
Block 23, H&GN Ry. Co. Survey, Wheeler County, Texas.
Tract No. 7 (Wallace No. 1)
All of the East Half of the East Half (E/2 of E/2) of
Section 48, Block 23, H&GN Ry. Co. Survey, Wheeler
County, Texas.
Tract No. 8 (Wallace No. 2)
All of the West Half of the East Half (W/2 of E/2) of
Section 48, Block 23, H&GN Ry. Co. Survey, Wheeler
County, Texas.
Tract No. 9 (Wallace No. A-1)
All of the Northeast Quarter (NE/4) of Section 31,
Block 23, H&GN Ry. Co. Survey, Wheeler County, Texas.
Tract No. 10 (Columbian Fuel Corporation No. 1)
All of the Northeast Quarter of. the Southwest Quarter
(NE/4 of SW/4) of Section 73, Block 23, H&GN Ry. Co.
Survey, Wheeler County, Texas.
Tract No. 11 (Miro Pakan "A")
All of the Southeast Quarter of the Northeast Quarter
(SE/4 of NE/4) of Section 73, Block 23, H&GN Ry. Co.
Survey, Wheeler County, Texas.
Tract No. 12 (Miro Pakan)
All of the Northwest Quarter (NV.7/4) of Section 73,
Block 23, H&GN Rv. Co. Survey, Wheeler County, Texas.
Tract No. 13 (Rippy-Speed No. 1)
All of the Northeast Quarter (NE/4) of Section 45,
Block 23, H&GN Ry. Co. Survey, Wheeler County, Texas.
Tract No. 14 (Wallace No. 2--A)
All of the Southeast Quarter (SE/4) of Section 31,
Block 23, H&GN Ry. Co. Survey, Wheeler County, Texas.
Tract No. 15 (Wallace No. 1-A)
All of the Northwest Quarter (NW/4) of Section 31,
Block 23, H&GN Ry. Co. Survey, Wheeler County, Texas.
Tract No. 16 (Wallace)
All of the Southwest Quarter (SW/4) of Section 48,
Block 23, Ii&GN Ry. Co. Survey, Wheeler County, Texas.
Tract No. 17 (McDowell)
All of the Southeast Quarter (SE/4) of Section 25,
Block 23, H&GN Ry. Co. Survey, Collingsworth County,
Texas.
Tract No. 18
All that certain tract or parcel of land, being a part
of Section 47, Block 23, H&GN Ry. Co. Survey, Wheeler
County, Texas; BEGINNING 2,310 feet west of the
Northeast corner of Section 47, and at a point in the
North line of said Section; THENCE South 2,640 feet;
THENCE West 990 feet; THENCE North 2,640 feet; THENCE
East 990 feet to the place of BEGINNING; and contain-
ing 60 acres more or less.
Depth or Formation Restrictions:
NONE, except as limited under the terms of the Oil,
Gas and Mineral Lease described below.
PART II. OIL, GAS AND MINERAL LEASE SUBJECT TO THIS AGREEMENT
Tract No. 1 (Malone No. 1)
Oil and gas lease dated November 3, 1951, from S. B.
Malone, et al, Lessors, to R. Earl and Dwight L.
2
Stubblefield, Lessees, recorded in Volume 14;. at Page 340
of the Deed Records of Wheeler County, Texas.
Tract No. 2 (Anderson No. 1)
Oil and gas lease dated December 2, 1922, from Mrs. Della
Anderson, as administratrix of the community estate of
herself and deceased husband, W. N. Anderson, Lessor, to
Mid -Kansas oil and Gas Company, Lessee, recorded in Volume
50 at Page 171 of the Deed Records of Wheeler County,
Texas.
Tract No. 3 (0. B. Harvey No. 1)
Oil and gas lease dated December 20, 1933, from 0. B.
Harvey and wife, Minnie 0. Harvey, Lessors, to B. Johnston
and Sidney Johnston, Lessees, recorded in Volume 82 at Page
119 of the Deed Records of Wheeler County, Texas.
Tract No. 4 (Harvey No. 1)
Oil and gas lease dated October 13, 1941, from E. M.
Martin, individually and as independent executor under the
will of Sarah E. Martin, Deceased; Viola Patterson, and
husband, Marvin Patterson; Charles E. Martin; Mary A.
Knight, a widow; J. G. W. Martin; J. L. Martin; T. M.
Martin; Lucy L. Darling, a widow; D. R. Martin; A. L. L.
Martin; Wm. H. Martin; W. Martin; John William Johnson;
Elizabeth Kathryn McGlumphy, a widow; and P. H. Martin,
Lessors, to E. K. Caperton, Lessee, recorded in Volume 103
at Page 80 of the Deed Records of Wheeler County, Texas.
Tract No. 5 (Harvey No. 2)
Oil and gas lease dated October 13, 1941, from E. M.
Martin, individually and as independent executor under the
will of Sarah E. Martin, Deceased; Viola Patterson, and
husband, Marvin Patterson; Charles E. Martin; Mary A.
Knight, a widow; J. G. W. Martin; J. L. Martin; T. M.
Martin; Lucy L. Darling, a widow; D. R. martin; A. L. L.
Martin; Wm. H. Martin; W. Martin; John William Johnson;
Elizabeth Kathryn McGlumphy, a widow; and P. H. Martin;
Lessors, to E. K. Caperton, Lessee, recorded in Volume 103
at Page 80 of the Deed Records of Wheeler County, Texas.
Tract No. 6 (Grogan No. 1)
Oil and gas lease dated November 26, 1948, from John W.
Grogan and wife, Mary C. Grogan, Lessors, to Russell S.
Grogan, Lessee, recorded in Volume 125 at Page 257 of the
Deed Records of Wheeler County, Texas.
Tract No. 7 (Wallace No. 1)
Oil and gas lease dated May 10, 1944, from Ed R. Wallace,
et ux, Lessors, to Smith Brothers Refinery Company, Lessee,
recorded in Volume 107 at Page 592 of the Deed Records of
Wheeler County, Texas.
Tract No. 8 (Wallace No. 2)
Oil and gas lease dated May 10, 1944 from Ed R. Wallace, et
ux, Lessors, to Smith Brothers Refinery Company, Lessee,
recorded in Volume 107 at Page 592 of the Deed Records of
Wheeler County, Texas.
91
Tract No. 9 (Wallace No. A-1)
Oil and gas lease dated May 10, 1944, from Ed R. Wallace,
et ux, Lessors, to Smith Brothers Refinery Company, Lessee,
recorded in Volume 108 at Page 46 of the Deed Records of
Wheeler County, Texas.
Tract No. 10 (Columbian Fuel Corporation No. 1)
Oil and gas lease dated April 15, 1957, from Columbian Fuel
Corporation, Lessor, to R. Earl Stubblefield and Dwight L.
Stubblefield, Lessees, recorded in Volume 157 at Page 451
of the Deed Records of Wheeler County, Texas.
Tract No. 11 (Miro Pakan "A")
Oil and gas lease dated May 9, 1959, from Miro Paul Pakan
and wife, Irene K. Pakan, Lessors, to R. Earl Stubblefield
and Dwight L. Stubblefield, Lessees, recorded in Volume 169
at Page 257 of the Deed Records of Wheeler County, Texas.
Tract No. 12 (Miro Pakan)
Oil and gas lease dated May 9, 1959 from Miro Paul Pakan
and wife, Irene K. Pakan, Lessors, to R. Earl Stubblefield
and Dwight L. Stubblefield, Lessees, recorded in Volume 169
at Page 256 of the Deed Records of Wheeler County, Texas.
Tract No. 13 (Rippy-Speed No. 1)
Oil and gas lease dated April 1, 1952, from C. G. Speed and
wife, Mary E. Speed, Lessors, to Allen J. Bryan, Lessee,
recorded in Volume 132 at Page 216 of the Deed Records of
Wheeler County, Texas.
Tract No. 14 (Wallace No. 2-A)
Oil and gas lease dated May 10, 1944, from Ed R. Wallace,
et ux, Lessors, to Smith Brothers Refinery Company, Lessee,
recorded in Volume 108 at Page 46 of the Deed Records of
Wheeler County, Texas.
Tract No. 15 (Wallace No. 1-A)
Oil and gas lease dated May 10, 1944, from Ed R. Wallace,
et ux, Lessors, to Smith Brothers Refinery Company, Lessee,
recorded in Volume 108 at Page 46 of the Deed Records of
Wheeler County, Texas.
Oil and gas lease dated June 11, 1945, from B. F. Kersh,
Trustee, Lessor.,to Smith Brothers Refinery Company, Lessee,
recorded in Volume 111 at Page 153, in the Deed Records of
Wheeler County, Texas.
Tract No. 16 (Wallace)
Oil and gas lease dated May 10, 1944, from Ed R. Wallace,
et ux, Lessors, to Smith Brothers Refinery Company, Lessee,
recorded in Volume 107 at Page 592 of the Deed Records of
Wheeler County, Texas.
Tract No. 17 (McDowell)
Oil and gas lease dated June 20, 1962, from Dee McDowell
and wife, Rae McDowell; Hattie Mae Sims and husband, W. S.
Sims; and Lucy McDowell Green; Lessors, to Earl
4
Stubblefield & Sons, a partnership composed of R. Earl
Stubblefield, Robert E. Stubblefield, Jr. and Jerry A.
Stubblefield, Lessees, recorded in Volume 149 at Page 197
of the Deed Records of Collingsworth County, Texas.
Tract No. 18
None.
PART III: PARTIES, INTEREST AND ADDRESSES FOR NOTICE PURPOSES:
Names and Addresses Interest
Estacado Energy, Inc. 50.0%
1603 Broadway
Lubbock, TX 79401
City of Lubbock
P. 0. Box 2000
Lubbock, TX 79457
50.0%
5
EXHIBIT "B"
INTENTIONALLY OMITTED
r
ff
r
/(QyiCJV 601• 8TUL9AQOK 7A101
COPAS — 1974
Recommended by the
Council of Polroloum
Accountants Societies
EXHIBIT " C "
Attached to and made a part of _ P p e r a t rtg_Ag r e e m e rit—bet-egn-
EstacadoEnergy,_Inc_j_�as Oge A_torL and City__Q,_
Lubbock,i,_as Non-ODerator,�_coverng,�l�,�Q ��.X'.�.b1L
Properties situated in Wheeler Amd__r._cZl�],,i,{ig Wgrth
Counties, Texas. (Dakkar Properties)
ACCOUNTING PROCEDURE
JOINT OPERATIONS
L GENERAL PROVISIONS
1. Definitions
"Joint Property" shall mean the real and personal property subject to the agreement to which this Accounting
Procedure is attached.
"Joint Operations" shall mean all operations necessary or proper for the development, operation, protection and
maintenance of the Joint Property.
"Joint Account" shall mean the account showing the charges paid and credits received in the conduct of the Joint
Operations and which are to be shared by the Parties.
"Operator" shall mean the party designated to conduct the Joint Operations.
"Non -Operators" shall mean the parties to this agreement other than the Operator.
"Parties" shall mean Operator and Non -Operators.
"First Level Supervisors" shall mean those employees whose primary function in Joint Operations is the direct
supervision of other employees and/or contract labor directly employed on the Joint Property in a field operat-
ing capacity.
"Technical Employees" shall mean those employees having special and specific engineering, geological or other
professional skills, and whose primary function in Joint Operations is the handling of specific operating condi-
tions and problems for the benefit of the Joint Property.
"Personal Expenses" shall mean travel and other reasonable reimbursable expenses of Operator's employees.
"Material" shall mean personal property, equipment or supplies acquired or held for use on the Joint Property.
"Controllable Material" shall mean Material which at the time is so classified in the Material Classification Manual
as most recently recommended by the Council of Petroleum Accountants Societies of North America.
2. Statement and Billings
Operator shall bill Non -Operators on or before the last day of each month for their proportionate share of the
Joint Account for the preceding month. Such bills will be accompanied by statements which identify the author-
ity for expenditure, lease or facility, and all charges and credits, summarized by appropriate classifications of in-
vestment and expense except that items of Controllable Material and unusual charges and credits shall be sep-
arately identified and fully described in detail.
3. Advances and Payments by Non -Operators
Unless otherwise provided for in the agreement, the Operator may require the Non -Operators to advance their
share of estimated cash outlay for the succeeding month's operation. Operator shall adjust each monthly billing
to reflect advances received from the Non -Operators.
Each Non -Operator shall pay its proportion of all bills within fifteen (15) days after receipt. If payment is not
made within such time, the unpaid balance shall bear interest monthly at the rate of twelve percent (129o') per
annum or the maximum contract rate permitted by the applicable usury laws in the state in which the Joint
Property is located, whichever is the lesser, plus attorney's fees, court costs, and other costs in connection with
the collection of unpaid amounts.
4. Adjustments
.Payment of any such bills shall not prejudice the right of any Non -Operator to protest or question the correct-
ness thereof; provided, however, all bills and statements rendered to Non -Operators by Operator during any
calendar year shall conclusively be presumed to be true and correct after twenty-four (24) months following
the end of any such calendar year, unless within the said twenty-four (24) month period a Non -Operator takes
written exception thereto and makes claim on Operator for adjustment. No adjustment favorable to Operator shall
be made unless it is made within the same prescribed period. The provisions of this paragraph shall not prevent
adjustments resulting from a physical inventory of Controllable Material as provided for in Section V.
5. Audits
A. Non -Operator, upon notice in writing to Operator and all other Non -Operators, shall have the right to audit Ope-
rator's accounts and records relating to the Joint Account for any calendar year within the twenty-four (24) month
period following the end of such calendar year; provided, however, the making of an audit shall not extend the
time for the taking of written exception to and the adjustments of accounts as provided for in Paragraph 4 of this
Section I. Where there are two or more Non -Operators, the Non -Operators shall make every reasonable effort to
conduct joint or simultaneous audits in a manner which will result in a minimum of inconvenience to the Opera-
tor. Operator shall bear no portion of the Non -Operators' audit cost incurred under this paragraph unless agreed
to by the Operator.
6. Approval by Non -Operators
Where an approval or other agreement of the Parties or Non -Operators is expressly required under other sec-
tions of this Accounting Procedure and if the agreement to which this Accounting Procedure is attached contains
no contrary provisions in regard thereto, Operator shall notify all Non -Operators of the Operator's proposal, and
the agreement or approval of a majority in interest of the Non -Operators shall be controlling on a Non -Opera-
tors.
EEI
—1—
COL
II. DIRECT CHARGES
Operator shall charge the Joint Account with the following items:
1. Rentals and Royalties
Lease rentals and royalties paid by Operator for the Joint Operations.
2. Labor
A. (1) Salaries and wages of Operator's field employees directly employed on the Joint Property in the conduct
of Joint Operations.
(2) Salaries of First Level Supervisors in the field.
(3) Salaries and wages of Technical Employees directly employed on the Joint Property if such charges are
excluded from the Overhead rates.
B. Operator's cost of holiday, vacation, sickness and disability benefits and other customary allowances paid to
employees whose salaries and wages are chargeable to the Joint Account under Paragraph 2A of this Section
II. Such costs under this Paragraph 2B may be charged on a "when and as paid basis" or by "percentage as-
sessment" on the amount of salaries and wages chargeable to the Joint Account under Paragraph 2A of this
Section II. If percentage assessment is used, the rate shall be based on the Operator's cost experience.
C. Expenditures or contributions made pursuant to assessments imposed by governmental authority which are
applicable to Operator's costs chargeable to the Joint Account under Paragraphs 2A and 2B of this Sec-
tion II.
D. Personal Expenses of those employees whose salaries and wages are chargeable to the Joint Account under
Paragraph 2A of this Section II.
3. Employee Benefits
Operator's current costs of established plans for employees' group life insurance, hospitalization, pension, re-
tirement, stock purchase, thrift, bonus, and other benefit plans of a like nature, applicable to Operator's labor
cost chargeable to the Joint Account under Paragraphs 2A and 2B of this Section II shall be Operator's actual
cost not to exceed twenty per cent (20%).
4. Material
Material purchased or furnished by Operator for use on the Joint Property as provided under Section IV. Only
such Material shall be purchased for or transferred to the Joint Property as may be required for immediate use
and is reasonably practical and consistent with efficient and economical operations. The accumulation of sur-
plus stocks shall be avoided.
5. Transportation
Transportation of employees and Material necessary for the Joint Operations but subject to the following limita-
tions:
A. If Material is moved to the Joint Property from the Operator's warehouse or other properties, no charge shall
be made to the Joint Account for a distance greater than the distance from the nearest reliable supply store,
recognized barge terminal, or railway receiving point where like material is normally available, unless agreed
to by the Parties.
B. If surplus Material is moved to Operator's warehouse or other storage point, no charge shall be made to the
Joint Account for a distance greater than the distance to the nearest reliable supply store, recognized barge
terminal, or railway receiving point unless agreed to by the Parties. No charge shall be made to the Joint Ac-
count for moving Material to other properties belonging to Operator, unless agreed to by the Parties.
C. In the application of Subparagraphs A and B above, there shall be no equalization of actual gross trucking cost
of $200 or less excluding accessorial charges.
6. Services
The cost of contract services, equipment and utilities provided by outside sources, except services excluded by
Paragraph 9 of Section II and Paragraph 1. ii of Section III. The cost of professional consultant services and con-
tract services of technical personnel directly engaged on the Joint Property if such charges are excluded from the
Overhead rates. The cost of professional consultant services or contract services of technical personnel not di-
rectly engaged on the Joint Property shall not be charged to the Joint Account unless previously agreed to by
the Parties.
7. Equipment and Facilities Furnished by Operator
A. Operator shall charge the Joint Account for use of Operator owned equipment and facilities at rates com-
mensurate with costs of ownership and operation. Such rates shall include costs of maintenance, repairs, other
operating expense, insurance, taxes, depreciation, and interest on investment not to exceed eight per cent (Belo)
per annum. Such rates shall not exceed average commercial rates currently prevailing in the immediate area
of the Joint Property.
B.. In lieu of charges in Paragraph 7A above, Operator may elect to use average commercial rates prevailing in
the immediate area of the Joint Property less 207o. For automotive equipment, Operator may elect to use rates
published by the Petroleum Motor Transport Association.
B. Damages and Losses to Joint Property
All costs or expenses necessary for the repair or replacement of Joint Property made necessary because of dam-
ages or losses incurred by fire, flood, storm, theft, accident, or other cause, except those resulting from Operator's
gross negligence or willful misconduct. Operator shall furnish Non -Operator written notice of damages or losses
incurred as soon as practicable after a report thereof has been received by Operator.
9. Legal Expense
Expense of handling, investigating and settling litigation or claims, discharging of liens, payment of judgments
and amounts paid for settlement of claims incurred in or resulting from operations under the agreement or
necessary to protect or recover the Joint Property, except that no charge for services of Operator's legal staff
or fees or expense of outside attorneys shall be made unless previously agreed to by the Parties. All of er legal
expense is considered to be covered by the overhead provisions of Section III unless otherwise a r o by the
Parties, except as provided in Section I, Paragraph 3.
EEI�_
—2— COL
10. Taxes *(see reverse side of this page for additional provision)
All taxes of every kind and nature assessed or levied upon or in connection with the Joint Property, the opera-
tion thereof, or the production therefrom, and which taxes have been paid by the Operator for the benefit of the
Parties.
11. Insurance
Net premiums paid for insurance required to be carried for the Joint Operations for the protection of the Par-
ties. In the event Joint Operations are conducted in a state in which Operator may act as self -insurer for Work-
men's Compensation and/or Employers Liability under the respective state's laws, Operator may, at its election,
include the risk under its self-insurance program and in that event, Operator shall include a charge at Operator's
cost not to exceed manual rates.
12. Other Expenditures
Any other expenditure not covered or dealt with in the foregoing provisions of this Section II, or in Section III,
and which is incurred by the Operator in the necessary and proper conduct of the Joint Operations.
III. OVERHEAD
1. Overhead - Drilling and Producing Operations
I. As compensation for administrative, supervision, office services and warehousing costs, Operator shall charge
drilling and producing operations on either:
( X) Fixed Rate Basis, Paragraph 1A, or
Unless otherwise agreed to by the Parties, such charge shall be in lieu of costs and expenses of all offices
and salaries or wages plus applicable burdens and expenses of all personnel, except those directly chargeable
under Paragraph 2A, Section II. The cost and expense of services from outside sources in connection with
matters of taxation, traffic, accounting or matters before or involving governmental agencies shall be considered
as included in the Overhead rates provided for in the above selected Paragraph of this Section III unless such
cost and expense are agreed to by the Parties as a direct charge to the Joint Account.
li. The salaries, wages and Personal Expenses of Technical Employees and/or the cost of professionai consultant
services and contract services of technical personnel directly employed on the Joint Property shall ( ) shall
not ( ) be covered by the Overhead rates. _
A. Overhead - Fixed Rate Basis
(1) Operator shall charge the Joint Account at the following rates per well per month:
Drilling Well Rate $ 3, 000.00
Producing Well Rate $ 250.00
(2) Application of Overhead - Fixed Rate Basis shall be as follows:
(a) Drilling Well Rate
[1] Charges for onshore drilling wells shall begin on the date the well is spudded and terminate on
the date the drilling or completion rig is released, whichever is later, except that no charge shall
be made during suspension of drilling operations for fifteen (15) or more consecutive days.
[2] Charges for offshore drilling wells shall begin on the date when drilling or completion equipment
arrives on location and terminate on the date the drilling or completion equipment moves off loca-
tibn or rig is released, whichever occurs first, except that no charge shall be made during suspen-
sion of drilling operations for fifteen (15) or more consecutive days
[3] Charges for wells undergoing any type of workover or recompletion for a period of five (5) con-
secutive days or more shall be made at the drilling well rate. Such charges shall be applied for
the period from date workover operations, with rig, commence through date of rig release, except
that no charge shall be made during suspension of operations for fifteen (15) or more consecutive
days.
(b) Producing Well Rates
[1] An active well either produced or injected into for any portion of the month shall be considered
as a one -well charge for the entire month.
[2] Each active completion in a multi -completed well in which production is not commingled down
hole shall be considered as a one -well charge providing each completion is considered a separate
well by the governing regulatory authority.
[3] An inactive gas well shut in because of overproduction or failure of purchaser to take the produc-
tion shall be considered as a one -well charge providing the gas well is directly connected to a per-
manent sales outlet.
[4] A one -well charge may be made for the month in which plugging and abandonment operations
are completed on any well.
[5] All other inactive wells (including but not limited to inactive wells covered by unit allowable,
lease allowable, transferred allowable, etc.) shall not qualify for an overhead charge.
(3) The well rates shall be adjusted as of the first day of April each year following the effective date of the
agreement to which this Accounting Procedure is attached. The adjustment shall be computed by multi-
plying the rate currently in use by the percentage increase or decrease in the average weekly earnings of
Crude Petroleum and Gas Production Workers for the last calendar year compared to the calendar year
preceding as shown by the index of average weekly earnings of Crude Petroleum and Gas Fields Produc-
tion Workers as published by the United States Department of Labor, Bureau of Labor Statistics, or the
equivalent Canadian index as published by Statistics Canada, as applicable. The adjusted rates shall be
the rates currently in use, plus or minus the computed adjustment.
_3— EEI
COL
The terms of this paragraph
interests of Non -Operator be
ad valorem, production► seve
other taxes, no charges shal
Non -Operator for same.
notwithstanding, should the
exempted from the payment of
rance, excise► gathering or
1 be made to the account of
ld
r*
(1) Operator shall charge the Joint Account at the following rates:
(a) Development
Percent ( %) of the cost of Development of the Joint P rty exclusive of costs
provided under Paragraph 9 of Section II and all salvage credits.
(b) Operating
Percent ( %) of the cost of Operating oint Property exclusive of costs provided
under Paragraphs 1 and 9 of Section II, all salvage its, the value of injected substances purchased
for secondary recovery and all taxes and asses which are levied, assessed and paid upon the min-
eral interest in and to the Joint Proper
(2) Application of Overhead - Pereenta asis shall be as follows:
For the purpose of determinin rges on a percentage basis under Paragraph 1B of this Section III, de-
velopment shall include sts in connection with drilling, redrilling, deepening or any remedial opera-
tions on any or all w involving the use of drilling crew and equipment; also, preliminary expenditures
necessary in p �ation for drilling and expenditures incurred in abandoning when the well is not com-
pleted ass_
s oducer, and original cost of construction or installation of fixed assets, the expansion of fixed
ass d any other project clearly discernible as a fixed asset, except Major Construction as defined in
2. Overhead - Major Construction
To compensate Operator for overhead costs incurred in the construction and installation of fixed assets, the ex-
pansion of fixed assets, and any other project clearly discernible as a fixed asset required for the development and
operation of the Joint Property, Operator shall either negotiate a rate prior to the beginning of construction, or shall
charge the Joint Account for Overhead based on the following rates for any Major Construction project in excess
of $ 100 , 000.00:
A. 4 % of total costs if such costs are more than $ 100, 000. 00 but less than $2Kn, QQ0 _ nn; plus
B. 2 % of total costs in excess of $ 250, 000.00 but less than $1,000,000; plus
C. 1 % of total costs in excess of $1,000,000.
Total cost shall mean the gross cost of any one project. For the purpose of this paragraph, the component parts
of a single project shall not be treated separately and the cost of drilling and workover wells shall be excluded.
3. Amendment of Rates
The Overhead rates provided for in this Section III may be amended from time to time only by mutual agreement
between the Parties hereto if, in practice, the rates are found to be insufficient or excessive.
IV. PRICING OF JOINT ACCOUNT MATERIAL PURCHASES, TRANSFERS AND DISPOSITIONS
Operator is responsible for Joint Account Material and shall make proper and timely charges and credits for all ma-
terial movements affecting the Joint Property. Operator shall provide all Material for use on the Joint Property; how-
ever, at Operator's option, such Material may be supplied by the Non -Operator. Operator shall make timely disposition
of idle and/or surplus Material, such disposal being made either through sale to Operator or Non -Operator, division in
kind, or sale to outsiders. Operator may purchase, but shall be under no obligation to purchase, interest of Non -Opera-
tors in surplus condition A or B Material. The disposal of surplus Controllable Material not purchased by the Opera-
tor shall be agreed to by the Parties.
1. Purchases
Material purchased shall be charged at the price paid by Operator after deduction of all discounts received. In case
of Material found to be defective or returned to vendor for any other reason, credit shall be passed to the Joint
Account when adjustment has been received by the Operator.
2. Transfers and Dispositions
Material furnished to the Joint Property and Material transferred from the Joint Property or disposed of by the
Operator, unless otherwise agreed to by the Parties, shall be priced on the following bases exclusive of cash dis-
counts:
A. New Material (Condition A)
(1) Tubular goods, except line pipe, shall be priced at the current new price in effect on date of movement on a
maximum carload or barge load weight basis, regardless of quantity transferred, equalized to the lowest
published price f.o.b. railway receiving point or recognized barge terminal nearest the Joint Property
where such Material is normally available.
(2) Line Pipe
(a) Movement of less than 30,000 pounds shall be priced at the current new price, in effect at date of
movement, as listed by a reliable supply store nearest the Joint Property where such Material is nor-
mally available.
(b) Movement of 30,000 pounds or more shall be priced under provisions of tubular goods pricing in Para-
graph 2A (1) of this Section IV.
(3) Other Material shall be priced at the current new price, in effect at date of movement, as listed by a reliable
supply store or f.o.b. railway receiving point nearest the Joint Property where such Material is normally
available.
B. Good Used Material (Condition B)
Material in sound and serviceable condition and suitable for reuse without reconditioning:
(1) Material moved to the Joint Property
(a) At seventy-five percent (75%) of current new price, as determined by Paragraph 2A of this Section IV.
(2) Material moved from the Joint Property
(a) At seventy-five percent (75%) of current new price, as determined by Paragraph 2A of this Section IV,
if Material was originally charged to the Joint Account as new Material, or
_4+ EEI
COL
(b) at sixty-five percent (65%) of current new price, as determined by Paragraph 2A of this Section
IV, if Material was originally charged to the Joint Account as good used Material at seventy-five per-
cent (75 %) of current new price.
The cost of reconditioning, if any, shall be absorbed by the transferring property.
C. Other Used Material (Condition C and D)
(1) ' Condition C
Material which is not in sound and serviceable condition and not suitable for its original function until
after reconditioning shall be priced at fifty percent (50%) of current new price as determined by Para-
graph 2A of this Section IV. The cost of reconditioning shall be charged to the receiving property, pro-
vided Condition C value plus cost of reconditioning does not exceed Condition B value.
(2) Condition D
All other Material, including junk, shall be priced at a value commensurate with its use or at prevailing
prices. Material no longer suitable for its original purpose but usable for some other purpose, shall be
priced on a basis comparable with that of items normally used for such other purpose. Operator may dis-
pose of Condition D Material under procedures normally utilized by the Operator without prior approval
of Non -Operators.
D. Obsolete Material
Material which is serviceable and usable for its original function but condition and/or value of such Material
is not equivalent to that which would justify a price as provided above may be specially priced as agreed to by
the Parties. Such price should result in the Joint Account being charged with the value of the service ren-
dered by such Material.
E. Pricing Conditions-
(1) Loading and unloading costs may be charged to the Joint Account at the rate of fifteen cents (15 ¢) per
hundred weight on all tubular goods movements, in lieu of loading and unloading costs sustained, when
actual hauling cost of such tubular goods are equalized under provisions of Paragraph 5 of Section II.
(2) Material involving erection costs shall be charged at applicable percentage of the current knocked -down
price of new Material.
3. Premium Prices
Whenever Material is not readily obtainable at published or listed prices because of national emergencies, strikes
or other unusual causes over which the Operator has no control, the Operator may charge the Joint Account for the
required Material at the Operator's actual cost incurred in providing such Material, in making it suitable for use,
and in moving it to the Joint Property; provided notice in writing is furnished to Non -Operators of the proposed
charge prior to billing Non -Operators for such Material. Each Non -Operator shall have the right, by so electing and
notifying Operator within ten days after receiving notice from Operator, to furnish in kind all or part of his share
of such Material suitable for use and acceptable to Operator.
4. Warranty of Material Furnished by Operator
Operator does not warrant the Material furnished. In case of defective Material, credit shall not be passed to the
Joint Account until adjustment has been received by Operator from the manufacturers or their agents.
V. INVENTORIES
The Operator shall maintain detailed records of Controllable Material.
1. Periodic Inventories, Notice and Representation
At reasonable intervals, Inventories shall be taken by Operator of the Joint Account Controllable Material.
Written notice of intention to take inventory shall be given by Operator at least thirty (30) days before any inven-
tory is to begin so that Non -Operators may be represented when any inventory is taken. Failure of Non -Operators
to be represented at an inventory shall bind Non -Operators to accept the inventory taken by Operator.
2. Reconciliation and Adjustment of Inventories
Reconciliation of a physical inventory with the Joint Account shall be made, and a list of overages and shortages
shall be furnished to the Non -Operators within six months following the taking of the inventory. Inventory ad-
justments shall be made by Operator with the Joint Account for overages and shortages, but Operator shall be
held accountable only for shortages due to lack of reasonable diligence.
3. Special Inventories
Special Inventories may be taken whenever there is any sale or change of interest in the Joint Property. It shall
be the duty of the party selling to notify all other Parties as quickly as possible after the transfer of interest takes
place. In such cases, both the seller and the purchaser shall be governed by such inventory.
4. Expense of Conducting Periodic Inventories
The expense of conducting periodic Inventories shall not be charged to the Joint Account unless agreed to by the
Parties.
EEI
—5—
COLX44n::_
EXHIBIT "D"
ATTACHED TO AND MADE A PART OF THAT CERTAIN OPERATING
AGREEMENT DATED MAY 1, 1988 BETWEEN ESTACADO ENERGY, INC.,
AS OPERATOR, AND CITY OF LUBBOCK, AS NON -OPERATOR
INSURANCE
The OPERATOR shall carry the following minimum insurance to cover the
risks of accident and/or damages to persons and/or property which may occur
in the course of operations conducted under this agreement. A proportionate
part of the premiums on such insurance, determined on some equitable -basis
consistent with OPERATOR'S accounting practice, shall be charged to the Joint
Account:
1. a) Workers' Compensation - in accordance with the laws of the
state or states where such operations contemplated by this
agreement are conducted.
b) -Employer's Liability - $100,000 each accident
2. Comprehensive General Liability -
Bodily Injury - $300,000 each occurrence
annual - $300,000 aggregate (where applicable)
Property Damage - $100,000 each occurrence
$100,000 aggregate (where applicable)
This insurance shall provide coverage for the Joint
Account created by this agreement, broad form blanket
contractual liability, personal injury, inclusion of
various working interests as additional insured; blanket
waiver of subrogation as required by written contract;
independent contractors; products/completed operations;
underground resources and equipment; saline hazard;
explosion, collapse and underground; and blowout and
cratering.
3. Automobile Liability -
Bodily Injury - $250,000 each person
$500,000 each occurrence
Property Damage - $100,000 each occurrence
4. Umbrella Liability - with a minimum of not less than
$1,000,000 each occurrence and $1,000,000 in the aggregate
(where applicable).
a
A.A.P.L. FORM 610 - MODEL FORM OPERATING AGREEMENT - 1982
ARTICLE VIII
continued
1 said Drilling Parties shared the cost of drilling the well. Such acreage shall become a separate Contract Area and, to the extent possible, be
2 governed by provisions identical to this agreement. Each party shall promptly notify all other parties of any acreage or cash contributions
3 it may obtain in support of any well or any other operation on the Contract Area. The above provisions shall also be applicable to op-
4 tional rights to earn acreage outside the Contract Area which are in support of a well drilled inside the Contract Area.
5
6 If any party contracts for any consideration relating to disposition of such party's share of substances produced hereunder, such
7 consideration shall not be deemed a contribution as contemplated in this Article VIII.C.
8
9 D. Maintenance of Uniform Interest:
10
11 For the purpose of maintaining uniformity of ownership in the oil and gas leasehold interests covered by this agreement, no
12 party shall sell, encumber, transfer or make other disposition of its interest in the leases embraced within the Contract Area and in welts,
13 equipment and production unless such disposition coven either:
14
15 1, the entire interest of the party in all leases and equipment and production; or
16
17 2. an equal undivided interest in all leases and equipment and production in the Contract Area.
18
19 Every such sale. encumbrance, transfer or other disposition made by any party shall be made expressly subject to this agreement
20 and shall be made without prejudice to the right of the other parties.
21
22 If, at any time the interest of any party is divided among and owned by four or more co -owners, Operator, at its discretion, may
23 require such co -owners to appoint a single trustee or agent with full authority to receive notices, approve expenditures, receive billings for
24 and approve and pay such parry's share of the joint expenses, and to deal generally with, and with power to bind, the co -owners of such
25 party's interest within the scope of the operations embraced in this agreement; however, all such co -owners shall have the right to enter
26 into and execute all contracts or agreements for the disposition of their respective shares of the oil and gas produced from the Contract
27 Area and they shall have the right to receive, separately, payment of the sale proceeds thereof.
28
29 E. Waiver of Rights to Partition:
30
31 If permitted by the laws of the state or states in which the property covered hereby is located, each party hereto owning an
32 undivided interest in the Contract Area waives any and all rights it may have to partition and have set aside to it in severalty its undivided
33 interest therein.
34
35 F. Preferential Right to Purchase:
36
37 Should any party desire to sell all or any part of its interests under this agreement, or its rights and interests in the Contract
38 Area, it shall promptly give written notice to the other parties, with full information concerning its proposed sale, which shall include the
39 name and address of the prospective purchaser (who must be ready, willing and able to purchase), the purchase price, and all other terms
40 of the offer. The other parties shall then have an optional prior right, for a period of ten (10) days after receipt of the notice, to purchase
41 on the same terms and conditions the interest which the other party proposes to sell; and, if this optional right is exercised, the purchas-
42 ing parties shall share the purchased interest in the proportions that the interest of each bears to the total interest of all purchasing par-
43 des.
44 ,
45 k.
46 Any mortgage given by any party shall be subject to the terms of this
47 agreement. ARTICLE IX.
48 INTERNAL REVENUE CODE ELECTION
49
50 This agreement is not intended to create, and shall not be construed to create, a relationship of partnership or an association
51 for profit between or among the parties hereto. Notwithstanding any provision herein that the rights and liabilities hereunder are several
52 and not joint or collective, or that this agreement and operations hereunder shall not constitute a partnership, if, for federal income tax
53 purposes, this agreement and the operations hereunder are regarded as a partnership, each party hereby affected elects to be excluded
S4 from the application of all of the provisions of Subchapter "K", Chapter 1, Subtitle "A", of the internal Revenue Code of 1954, as per-
55 miffed and authorized by Section 761 of the Code and the regulations promulgated thereunder. Operator is authorized and directed to ex-
56 ecute on behalf of each party hereby affected such evidence of this election as may be required by the Secretary of the Treasury of the
57 United States or the Federal Internal Revenue Service, including specifically, but not by way of limitation, all of the returns, statements,
58 and the data required by Federal Regulations 1.761. Should there be any requirement that each party hereby affected give further
S9 evidence of this election, each such party shall execute such documents and furnish such other evidence as may be required by the
fi0 Federal Internal Revenue Service or as may be necessary to evidence this election. No such party shall give any notices or take any other
61 action inconsistent with the election made hereby. if any present or future income tax laws of the state or states in which the Contract
62 Area is located or any future income tax laws of the United States contain provisions similar to those in Subchapter "K", Chapter 1.
63 Subtitle "A", of the Internal Revenue Code of 1954, under which an election similar to that provided by Section 761 of the Codeis per-
64 mitted, each party hereby affected shall make such election as may be permitted or required by such laws. In making the foregoing elec-
65 tion, each such party states that the income derived by such party from operations hereunder can be adequately determined without the
66 computation of partnership taxable income. ---
67
68- i
69 s
70
EEI�`'�
COL
A.A.P.L. FORM 610 - MODEL FORM OPERATING AGREEMENT - 1982
ARTICLE. X.
CLAIMS AND LAWSUITS
4 Operator may settle any single uninsured third party damage claim or suit arising from operations hereunder if the expenditure
5 doesnotexce�d Two Thousand Five Hundred and No/100 Dollars
6 ($ 21500.00 ) and if the payment is in complete settlement of such claim or suit. If the amount required for settlement ex-
7 eeeds the above amount, the parties hereto shall assume and take over the further handling of the claim or suit, unless such authority is
8 delegated to Operator. All costs and expenses of handling, settling, or otherwise discharging such claim or suit shall be at the joint ex-
9 pense of the parties participating in the operation from which the claim or suit arises. If a claim is made against any party or if any party is
10 sued on account of any matter arising from operations hereunder over which such individual has no control because of the rights given
11 Operator by this agreement, such party shall immediately notify all other parties, and the claim or suit shall be treated as any other claim
12 or suit involving operations hereunder.
13
14 ARTICLE XI.
15 FORCE MAJEURE
16
17 If any party is rendered unable, wholly or in part, by force majeure to carry out its obligations under this agreement, other than
18 the obligation to make money payments, that party shall give to all other parties prompt written notice of the force majeure with
19 reasonably full particulars concerning it; thereupon, the obligations of the party giving the notice, so far as they are affected by the force
20 majeure, shall be suspended during, but no longer than, the continuance of the force majeure. The affected party shall use all reasonable
21 diligence to remove the force majeure situation as quickly as practicable.
22
23 The requirement that any force majeure shall be remedied with all reasonable dispatch shall not require the settlement of strikes,
24 lockouts, or other labor difficulty by the party involved, contrary to its wishes; how all such difficulties shall be handled shall be entirely
25 within the discretion of the party concerned.
26
27 The term "force majeure as here employed, shall mean an act of God, strike, lockout, or other industrial disturbance, act of
28 the public enemy, war, blockade, public riot, lightning, fire, storm, flood, explosion, governmental action, governmental delay, restraint
29 or inaction, unavailability of equipment, and any other cause, whether of the kind specifically enumerated above or otherwise, which is
30 not reasonably within the control of the party claiming suspension.
31
32 ARTICLE XII.
33 NOTICES
34
35 AU notices authorized or required between the parties and required by any of the provisions of this agreement, unless otherwise
36 specifically provided, shall be given in writing by mail or telegram, postage or charges prepaid, or by telex or telecopier and addressed to
37 the parties to whom the notice is given at the addresses listed on Exhibit "A". The originating notice given under any provision hereof
38 shall be deemed given only when received by the party to whom such notice is directed, and the time for such party to give any notice in
39 response thereto shall run from the date the originating notice is received. The second or any responsive notice shall be deemed given
40 when deposited in the mail or with the telegraph company, with postage or charges prepaid, or sent by telex or telecopier. Each party
41 shall have the right to change its address at any time, and from time to time, by giving written notice thereof to all other parties.
42
43 ARTICLE X1II.
44 TERM OF AGREEMENT
45
46 This agreement shall remain in full force and effect as to the oil and gas leases andlor oil and gas interests subject hereto for the
47 period of time selected below; provided, however, no party hereto shall ever be construed as having any right, title or interest in or to any
48 lease or oil and gas interest contributed by any other party beyond the term of this agreement.
49
50 Option No. 1: So long as any of the oil and gas leases subject to this agreement remain or are continued in force as to any part
51 of the Contract Area, whether by production, extension, renewal or otherwise.
52
53
54
55
56
57
58
59
60
61
62
63
64
65
66
67
68
69
70
agreement, results in production of oil and/or gas in paying quantities, this agreement shall continue in force so Ion • c well or
wells produce, or are capable of production, and for an additional period of days from ,wyeo all production; provided,
however, if, prior to the expiration of such additional period, one or more of the o are engaged in drilling, reworking, deepen-
ing, plugging back, testing or attempting to complete a well or under, this agreement shall continue in force until such opera-
tions have been completed and if production r rom, this agreement shall continue in force as provided herein. In the event the
well described in Article VI subsequent well drilled hereunder, results in a dry hole, and no other well is producing, or capable
of produc or gas from the Contract Area, this agreement shall terminate unless drilling, d� -peeing, plugging back or rework -
It is agreed, however, that the termination of this agreement shall not relieve any party hereto from any liability which has
accrued or attached prior to the date of such termination.
13• E E I
C C
A.A.P.L. FORM 610 - MODEL FORM OPERATING AGREEMENT - 1982
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
36
37
38
39
40
41
42
43
44
45
46
47
48
49
50
51
52
53
54
55
56
57
58
59
60
61
62
63
64
65
66
67
68
69
70
ARTICLE XIV.
COMPLIANCE WITH LAWS AND REGULATIONS
A. Laws, Regulations and Orden:
This agreement shall be subject to the conservation laws of the state in which the Contract Area is located, to the valid rules,
regulations, and orders of any duly constituted regulatory body of said state; and to all other applicable federal, state, and local laws, or-
dinances, rules, regulations, and orders.
B. Governing Law:
This agreement and all matters pertaining hereto, including, but not limited to, matters of performance, non-performance, breach,
remedies, procedures, rights, duties and interpretation or construction, shall be governed and determined by the law of the state in which
the Contract Area is located. If the Contract Area is in two or more states, the law of the state of Texas
shall govern.
C. Regulatory Agencies:
Nothing herein contained shall grant, or be construed to grant, Operator the right or authority to waive or release any rights,
privileges, or obligations which Non -Operators may have under federal or state laws or under rules, regulations or orders promulgated
under such laws in reference to oil, gas and mineral operations, including the location, operation, or production of wells, on tracts offset-
ting or adjacertt to the Contract Area.
With respect to operations hereunder, Non Operators agree to release Operator from any and all losses, damages, injuries, claims
and causes of action arising out of, incident to or resulting directly or indirectly from Operator's interpretation or application of rules,.
rulings, regulations or orders of the Department of Energy or predecessor or successor agencies to the extent such interpretation or ap-
plication was made in good faith. Each Non -Operator further agrees to reimburse Operator for any amounts applicable to such Non -
Operator's share of production that Operator may be required to refund, rebate or pay as a result of such an incorrect interpretation or-.
application, together with interest and penalties thereon owing by Operator as a result of such incorrect interpretation or application.
Non -Operators authorize Operator to prepare and submit such documents as may be required to be submitted to the purchaser
of any crude oil sold hereunder or to any other person or entity pursuant to the requirements of the "Crude Oil Windfall Profit Tax Act
of 1980", as same may be amended from time to time ("Act"), and any valid regulations or rules which may be issued by the Treasury
Department from time to time pursuant to said Act. Each party hereto agrees to furnish any and all certifications or other information
which is required to be furnished by said Act in a timely manner and in sufficient detail to permit compliance with said Act.
See Page 14A
ARTICLE XV.
OTHER PROVISIONS
-14-
il/.la
EEI
COLAA
A. REMOVAL OF OPERATOR
In the event the City of Lubbock ("City") shall elect to
remove Estacado Energy, Inc. ("Estacado"), as Operator of
the Contract Area pursuant to the provisions of Article V.B.
hereof, then City agrees to purchase from Estacado, and
Estacado agrees to sell to City, all of Estacado's interest
in and to the Contract Area for a sum equal to the present
value of such interest discounted at the prime rate of
interest then announced by the First National Bank at
Lubbock, Texas, but not to exceed twelve percent (12.0%).
Present value of the Contract Area shall be determined by a
mutually agreeable petroleum engineer or engineering firm
("engineer"). In the event the parties are unable to agree
upon such engineer, each shall select an engineer and the
two so selected shall proceed to determine present value;
and if the two engineers selected are unable to agree upon
such present value, said engineers shall select a third
engineer whose determination of present value shall be
averaged with determinations of the other two engineers and
the average of the three shall be conclusive evidence as to
present value and shall be final and binding upon the
parties.
B. NONDISCRIMATION
In connection with the performance of work under this
Agreement, the Operator agrees to comply with all of the
provisions of Section 202(1) to (7), inclusive, of Executive
Order 11246 as amended, (3 C.F.R. 339), which are hereby
incorporated by reference in this Agreement.
C. DOE REPRESENTATION
This Agreement shall not be construed to provide that any
party is obligated to represent any other party hereto
before the Department of Energy or its successor agency.
D. INVOICING
Notwithstanding the provisions of this Agreement and the
attached Accounting Procedure, all invoices are payable
within fifteen (15) days of the receipt by Non -Operator. If
payment is not made within such period, the amount of the
invoice shall bear interest at the rate provided in the
Accounting Procedure attached hereto as Exhibit "C".
Upon request by Non -Operator, Operator will furnish promptly
to Non -Operator legible copies of original invoices backing
up Operator joint interest billings to Non -Operators with
operators option to charge the requesting Non -Operator cost
associated with making copies.
E. OBLIGATIONS OF CITY
Notwithstanding anything to the contrary in this agreement,
the obligations of the City of Lubbock to perform any
covenants contained herein is subject to such performance
not being contrary to laws applicable to municipal
corporations.
14A E E I
COL
LJ
0
A.A.P.L. VO RN-1 010 - MODLL 1-01?j%l OPERATING AGREE"XIENT • 1982
1
3
4
5
G
7
S
9
10
11
12
13
14
15
16
17
is
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
36
37
38
39
40
41
42
43
44
45
46
47
48
49
50
51
52
53
54
55
56
57
58
59
60
61
62
63
G4
65
GG
67
68
69
70
AEZTI XE1 XVI.
MISCELLANEOUS
This agreement shall Ise binding u3xm and %hall inure to the heriehL of the parties hereto and to their respective heirs, devices,
legal reprcuntativ", succesws and assigns.
This instrument may be executed in any number of counterparts, each of which shall be considered an original ft,r all purposes.
IN WITNESS WI IERF0 F, this agreement shall he effective as of day of May . 19 88 .
OPERATOR
ESTACADO ENERGY, INC.
By
Presiderit
N0N•0PFRAT0R5
ATTEST: CITY OF LUBBOCK
By
City Secretary Mayor
APPROVED AS TO CONTENT:
By
sst. CiCy Manager
APPROVED AS TO FORM:
l`
y• �t �•�Jtt1��.r l �v�I1v
Attorney
DAKKAR PROPERTIES
•15-
EXHIBIT "A"
ATTACHED TO AND MADE A PART OF THAT CERTAIN OPERATING AGREEMENT
DATED MAY 1, 1988, BETWEEN ESTACADO ENERGY, INC., AS OPERATOR,
AND CITY OF LUBBOCK, AS NON -OPERATOR
PART I. CONTRACT AREA
The Contract Area shall consist of the following described
lands:
Tract No. 1 (Malone No. 1)
All of the Southeast Quarter (SE/4) of Section 35,
Block 23, H&GN Ry. Co. Survey, Wheeler County, Texas.
Tract No. 2 (Anderson No. 1)
All of the Northeast Quarter (NE/4) of Section 56,
Block 23, H&GPI Ry. Co. Survey, Wheeler County, Texas.
Tract No. 3 (0. B. Harvey No. 1)
All of the Northwest Quarter (NW/4) of Section 56,
Block 23, H&GN Ry. Co. Survey, Wheeler County, Texas.
Tract No. 4 (Harvey No. 1)
All of the West Half of the West Half (W/2 of W/2) of
Section 49, Block 23, H&GN Ry. Co. Survey, Wheeler
County, Texas.
Tract No. 5 (Harvey No. 2)
All of the East Half of the West Half (E/2 of W/2) of
Section 49, Block 23, H&GN Ry. Co. Survey, Wheeler
County, Texas.
Tract No. 6 (Grogan No. 1)
All of the Southeast Quarter (SE/4) of Section 57,
Block 23, H&GN Ry. Co. Survey, Wheeler County, Texas.
Tract No. 7 (Wallace No. 1)
All of the East Half of the East Half (E/2 of E/2) of
Section 48, Block 23, H&GN Ry. Co. Survey, Wheeler
County, Texas.
Tract No. 8 (Wallace No. 2)
All of the West Half of the East Half (W/2 of E/2) of
Section 48, Block 23, H&GN Ry. Co. Survey, Wheeler
County, Texas.
Tract No. 9 (Wallace No. A-1)
All of the Northeast Quarter (NE/4) of Section 31,
Block 23, H&GN Ry. Co. Survey, Wheeler County, Texas.
Tract No. 10 (Columbian Fuel Corporation No. 1)
All of the Northeast Quarter of. the Southwest Quarter
(NE/4 of SW/4) of Section 73, Block 23, H&GN Ry. Co.
Survey, Wheeler County, Texas.
Tract No. 11 (Miro Pakan "A")
All of the Southeast Quarter of the Northeast Quarter
(SE/4 of NE/4) of Section 73, Block 23, H&GN Ry. Co.
Survey, Wheeler County, Texas.
Tract No. 12 (Miro Pakan)
All of the Northwest Quarter (NV.7/4) of Section 73,
Block 23, H&GN Rv. Co. Survey, Wheeler County, Texas.
Tract No. 13 (Rippy-Speed No. 1)
All of the Northeast Quarter (NE/4) of Section 45,
Block 23, H&GN Ry. Co. Survey, Wheeler County, Texas.
Tract No. 14 (Wallace No. 2--A)
All of the Southeast Quarter (SE/4) of Section 31,
Block 23, H&GN Ry. Co. Survey, Wheeler County, Texas.
Tract No. 15 (Wallace No. 1-A)
All of the Northwest Quarter (NW/4) of Section 31,
Block 23, H&GN Ry. Co. Survey, Wheeler County, Texas.
Tract No. 16 (Wallace)
All of the Southwest Quarter (SW/4) of Section 48,
Block 23, Ii&GN Ry. Co. Survey, Wheeler County, Texas.
Tract No. 17 (McDowell)
All of the Southeast Quarter (SE/4) of Section 25,
Block 23, H&GN Ry. Co. Survey, Collingsworth County,
Texas.
Tract No. 18
All that certain tract or parcel of land, being a part
of Section 47, Block 23, H&GN Ry. Co. Survey, Wheeler
County, Texas; BEGINNING 2,310 feet west of the
Northeast corner of Section 47, and at a point in the
North line of said Section; THENCE South 2,640 feet;
THENCE West 990 feet; THENCE North 2,640 feet; THENCE
East 990 feet to the place of BEGINNING; and contain-
ing 60 acres more or less.
Depth or Formation Restrictions:
NONE, except as limited under the terms of the Oil,
Gas and Mineral Lease described below.
PART II. OIL, GAS AND MINERAL LEASE SUBJECT TO THIS AGREEMENT
Tract No. 1 (Malone No. 1)
Oil and gas lease dated November 3, 1951, from S. B.
Malone, et al, Lessors, to R. Earl and Dwight L.
2
Stubblefield, Lessees, recorded in Volume 14;. at Page 340
of the Deed Records of Wheeler County, Texas.
Tract No. 2 (Anderson No. 1)
Oil and gas lease dated December 2, 1922, from Mrs. Della
Anderson, as administratrix of the community estate of
herself and deceased husband, W. N. Anderson, Lessor, to
Mid -Kansas oil and Gas Company, Lessee, recorded in Volume
50 at Page 171 of the Deed Records of Wheeler County,
Texas.
Tract No. 3 (0. B. Harvey No. 1)
Oil and gas lease dated December 20, 1933, from 0. B.
Harvey and wife, Minnie 0. Harvey, Lessors, to B. Johnston
and Sidney Johnston, Lessees, recorded in Volume 82 at Page
119 of the Deed Records of Wheeler County, Texas.
Tract No. 4 (Harvey No. 1)
Oil and gas lease dated October 13, 1941, from E. M.
Martin, individually and as independent executor under the
will of Sarah E. Martin, Deceased; Viola Patterson, and
husband, Marvin Patterson; Charles E. Martin; Mary A.
Knight, a widow; J. G. W. Martin; J. L. Martin; T. M.
Martin; Lucy L. Darling, a widow; D. R. Martin; A. L. L.
Martin; Wm. H. Martin; W. Martin; John William Johnson;
Elizabeth Kathryn McGlumphy, a widow; and P. H. Martin,
Lessors, to E. K. Caperton, Lessee, recorded in Volume 103
at Page 80 of the Deed Records of Wheeler County, Texas.
Tract No. 5 (Harvey No. 2)
Oil and gas lease dated October 13, 1941, from E. M.
Martin, individually and as independent executor under the
will of Sarah E. Martin, Deceased; Viola Patterson, and
husband, Marvin Patterson; Charles E. Martin; Mary A.
Knight, a widow; J. G. W. Martin; J. L. Martin; T. M.
Martin; Lucy L. Darling, a widow; D. R. martin; A. L. L.
Martin; Wm. H. Martin; W. Martin; John William Johnson;
Elizabeth Kathryn McGlumphy, a widow; and P. H. Martin;
Lessors, to E. K. Caperton, Lessee, recorded in Volume 103
at Page 80 of the Deed Records of Wheeler County, Texas.
Tract No. 6 (Grogan No. 1)
Oil and gas lease dated November 26, 1948, from John W.
Grogan and wife, Mary C. Grogan, Lessors, to Russell S.
Grogan, Lessee, recorded in Volume 125 at Page 257 of the
Deed Records of Wheeler County, Texas.
Tract No. 7 (Wallace No. 1)
Oil and gas lease dated May 10, 1944, from Ed R. Wallace,
et ux, Lessors, to Smith Brothers Refinery Company, Lessee,
recorded in Volume 107 at Page 592 of the Deed Records of
Wheeler County, Texas.
Tract No. 8 (Wallace No. 2)
Oil and gas lease dated May 10, 1944 from Ed R. Wallace, et
ux, Lessors, to Smith Brothers Refinery Company, Lessee,
recorded in Volume 107 at Page 592 of the Deed Records of
Wheeler County, Texas.
91
Tract No. 9 (Wallace No. A-1)
Oil and gas lease dated May 10, 1944, from Ed R. Wallace,
et ux, Lessors, to Smith Brothers Refinery Company, Lessee,
recorded in Volume 108 at Page 46 of the Deed Records of
Wheeler County, Texas.
Tract No. 10 (Columbian Fuel Corporation No. 1)
Oil and gas lease dated April 15, 1957, from Columbian Fuel
Corporation, Lessor, to R. Earl Stubblefield and Dwight L.
Stubblefield, Lessees, recorded in Volume 157 at Page 451
of the Deed Records of Wheeler County, Texas.
Tract No. 11 (Miro Pakan "A")
Oil and gas lease dated May 9, 1959, from Miro Paul Pakan
and wife, Irene K. Pakan, Lessors, to R. Earl Stubblefield
and Dwight L. Stubblefield, Lessees, recorded in Volume 169
at Page 257 of the Deed Records of Wheeler County, Texas.
Tract No. 12 (Miro Pakan)
Oil and gas lease dated May 9, 1959 from Miro Paul Pakan
and wife, Irene K. Pakan, Lessors, to R. Earl Stubblefield
and Dwight L. Stubblefield, Lessees, recorded in Volume 169
at Page 256 of the Deed Records of Wheeler County, Texas.
Tract No. 13 (Rippy-Speed No. 1)
Oil and gas lease dated April 1, 1952, from C. G. Speed and
wife, Mary E. Speed, Lessors, to Allen J. Bryan, Lessee,
recorded in Volume 132 at Page 216 of the Deed Records of
Wheeler County, Texas.
Tract No. 14 (Wallace No. 2-A)
Oil and gas lease dated May 10, 1944, from Ed R. Wallace,
et ux, Lessors, to Smith Brothers Refinery Company, Lessee,
recorded in Volume 108 at Page 46 of the Deed Records of
Wheeler County, Texas.
Tract No. 15 (Wallace No. 1-A)
Oil and gas lease dated May 10, 1944, from Ed R. Wallace,
et ux, Lessors, to Smith Brothers Refinery Company, Lessee,
recorded in Volume 108 at Page 46 of the Deed Records of
Wheeler County, Texas.
Oil and gas lease dated June 11, 1945, from B. F. Kersh,
Trustee, Lessor.,to Smith Brothers Refinery Company, Lessee,
recorded in Volume 111 at Page 153, in the Deed Records of
Wheeler County, Texas.
Tract No. 16 (Wallace)
Oil and gas lease dated May 10, 1944, from Ed R. Wallace,
et ux, Lessors, to Smith Brothers Refinery Company, Lessee,
recorded in Volume 107 at Page 592 of the Deed Records of
Wheeler County, Texas.
Tract No. 17 (McDowell)
Oil and gas lease dated June 20, 1962, from Dee McDowell
and wife, Rae McDowell; Hattie Mae Sims and husband, W. S.
Sims; and Lucy McDowell Green; Lessors, to Earl
4
Stubblefield & Sons, a partnership composed of R. Earl
Stubblefield, Robert E. Stubblefield, Jr. and Jerry A.
Stubblefield, Lessees, recorded in Volume 149 at Page 197
of the Deed Records of Collingsworth County, Texas.
Tract No. 18
None.
PART III: PARTIES, INTEREST AND ADDRESSES FOR NOTICE PURPOSES:
Names and Addresses Interest
Estacado Energy, Inc. 50.0%
1603 Broadway
Lubbock, TX 79401
City of Lubbock
P. 0. Box 2000
Lubbock, TX 79457
50.0%
5
EXHIBIT "B"
INTENTIONALLY OMITTED
r
ff
r
/(QyiCJV 601• 8TUL9AQOK 7A101
COPAS — 1974
Recommended by the
Council of Polroloum
Accountants Societies
EXHIBIT " C "
Attached to and made a part of _ P p e r a t rtg_Ag r e e m e rit—bet-egn-
EstacadoEnergy,_Inc_j_�as Oge A_torL and City__Q,_
Lubbock,i,_as Non-ODerator,�_coverng,�l�,�Q ��.X'.�.b1L
Properties situated in Wheeler Amd__r._cZl�],,i,{ig Wgrth
Counties, Texas. (Dakkar Properties)
ACCOUNTING PROCEDURE
JOINT OPERATIONS
L GENERAL PROVISIONS
1. Definitions
"Joint Property" shall mean the real and personal property subject to the agreement to which this Accounting
Procedure is attached.
"Joint Operations" shall mean all operations necessary or proper for the development, operation, protection and
maintenance of the Joint Property.
"Joint Account" shall mean the account showing the charges paid and credits received in the conduct of the Joint
Operations and which are to be shared by the Parties.
"Operator" shall mean the party designated to conduct the Joint Operations.
"Non -Operators" shall mean the parties to this agreement other than the Operator.
"Parties" shall mean Operator and Non -Operators.
"First Level Supervisors" shall mean those employees whose primary function in Joint Operations is the direct
supervision of other employees and/or contract labor directly employed on the Joint Property in a field operat-
ing capacity.
"Technical Employees" shall mean those employees having special and specific engineering, geological or other
professional skills, and whose primary function in Joint Operations is the handling of specific operating condi-
tions and problems for the benefit of the Joint Property.
"Personal Expenses" shall mean travel and other reasonable reimbursable expenses of Operator's employees.
"Material" shall mean personal property, equipment or supplies acquired or held for use on the Joint Property.
"Controllable Material" shall mean Material which at the time is so classified in the Material Classification Manual
as most recently recommended by the Council of Petroleum Accountants Societies of North America.
2. Statement and Billings
Operator shall bill Non -Operators on or before the last day of each month for their proportionate share of the
Joint Account for the preceding month. Such bills will be accompanied by statements which identify the author-
ity for expenditure, lease or facility, and all charges and credits, summarized by appropriate classifications of in-
vestment and expense except that items of Controllable Material and unusual charges and credits shall be sep-
arately identified and fully described in detail.
3. Advances and Payments by Non -Operators
Unless otherwise provided for in the agreement, the Operator may require the Non -Operators to advance their
share of estimated cash outlay for the succeeding month's operation. Operator shall adjust each monthly billing
to reflect advances received from the Non -Operators.
Each Non -Operator shall pay its proportion of all bills within fifteen (15) days after receipt. If payment is not
made within such time, the unpaid balance shall bear interest monthly at the rate of twelve percent (129o') per
annum or the maximum contract rate permitted by the applicable usury laws in the state in which the Joint
Property is located, whichever is the lesser, plus attorney's fees, court costs, and other costs in connection with
the collection of unpaid amounts.
4. Adjustments
.Payment of any such bills shall not prejudice the right of any Non -Operator to protest or question the correct-
ness thereof; provided, however, all bills and statements rendered to Non -Operators by Operator during any
calendar year shall conclusively be presumed to be true and correct after twenty-four (24) months following
the end of any such calendar year, unless within the said twenty-four (24) month period a Non -Operator takes
written exception thereto and makes claim on Operator for adjustment. No adjustment favorable to Operator shall
be made unless it is made within the same prescribed period. The provisions of this paragraph shall not prevent
adjustments resulting from a physical inventory of Controllable Material as provided for in Section V.
5. Audits
A. Non -Operator, upon notice in writing to Operator and all other Non -Operators, shall have the right to audit Ope-
rator's accounts and records relating to the Joint Account for any calendar year within the twenty-four (24) month
period following the end of such calendar year; provided, however, the making of an audit shall not extend the
time for the taking of written exception to and the adjustments of accounts as provided for in Paragraph 4 of this
Section I. Where there are two or more Non -Operators, the Non -Operators shall make every reasonable effort to
conduct joint or simultaneous audits in a manner which will result in a minimum of inconvenience to the Opera-
tor. Operator shall bear no portion of the Non -Operators' audit cost incurred under this paragraph unless agreed
to by the Operator.
6. Approval by Non -Operators
Where an approval or other agreement of the Parties or Non -Operators is expressly required under other sec-
tions of this Accounting Procedure and if the agreement to which this Accounting Procedure is attached contains
no contrary provisions in regard thereto, Operator shall notify all Non -Operators of the Operator's proposal, and
the agreement or approval of a majority in interest of the Non -Operators shall be controlling on a Non -Opera-
tors.
EEI
—1—
COL
II. DIRECT CHARGES
Operator shall charge the Joint Account with the following items:
1. Rentals and Royalties
Lease rentals and royalties paid by Operator for the Joint Operations.
2. Labor
A. (1) Salaries and wages of Operator's field employees directly employed on the Joint Property in the conduct
of Joint Operations.
(2) Salaries of First Level Supervisors in the field.
(3) Salaries and wages of Technical Employees directly employed on the Joint Property if such charges are
excluded from the Overhead rates.
B. Operator's cost of holiday, vacation, sickness and disability benefits and other customary allowances paid to
employees whose salaries and wages are chargeable to the Joint Account under Paragraph 2A of this Section
II. Such costs under this Paragraph 2B may be charged on a "when and as paid basis" or by "percentage as-
sessment" on the amount of salaries and wages chargeable to the Joint Account under Paragraph 2A of this
Section II. If percentage assessment is used, the rate shall be based on the Operator's cost experience.
C. Expenditures or contributions made pursuant to assessments imposed by governmental authority which are
applicable to Operator's costs chargeable to the Joint Account under Paragraphs 2A and 2B of this Sec-
tion II.
D. Personal Expenses of those employees whose salaries and wages are chargeable to the Joint Account under
Paragraph 2A of this Section II.
3. Employee Benefits
Operator's current costs of established plans for employees' group life insurance, hospitalization, pension, re-
tirement, stock purchase, thrift, bonus, and other benefit plans of a like nature, applicable to Operator's labor
cost chargeable to the Joint Account under Paragraphs 2A and 2B of this Section II shall be Operator's actual
cost not to exceed twenty per cent (20%).
4. Material
Material purchased or furnished by Operator for use on the Joint Property as provided under Section IV. Only
such Material shall be purchased for or transferred to the Joint Property as may be required for immediate use
and is reasonably practical and consistent with efficient and economical operations. The accumulation of sur-
plus stocks shall be avoided.
5. Transportation
Transportation of employees and Material necessary for the Joint Operations but subject to the following limita-
tions:
A. If Material is moved to the Joint Property from the Operator's warehouse or other properties, no charge shall
be made to the Joint Account for a distance greater than the distance from the nearest reliable supply store,
recognized barge terminal, or railway receiving point where like material is normally available, unless agreed
to by the Parties.
B. If surplus Material is moved to Operator's warehouse or other storage point, no charge shall be made to the
Joint Account for a distance greater than the distance to the nearest reliable supply store, recognized barge
terminal, or railway receiving point unless agreed to by the Parties. No charge shall be made to the Joint Ac-
count for moving Material to other properties belonging to Operator, unless agreed to by the Parties.
C. In the application of Subparagraphs A and B above, there shall be no equalization of actual gross trucking cost
of $200 or less excluding accessorial charges.
6. Services
The cost of contract services, equipment and utilities provided by outside sources, except services excluded by
Paragraph 9 of Section II and Paragraph 1. ii of Section III. The cost of professional consultant services and con-
tract services of technical personnel directly engaged on the Joint Property if such charges are excluded from the
Overhead rates. The cost of professional consultant services or contract services of technical personnel not di-
rectly engaged on the Joint Property shall not be charged to the Joint Account unless previously agreed to by
the Parties.
7. Equipment and Facilities Furnished by Operator
A. Operator shall charge the Joint Account for use of Operator owned equipment and facilities at rates com-
mensurate with costs of ownership and operation. Such rates shall include costs of maintenance, repairs, other
operating expense, insurance, taxes, depreciation, and interest on investment not to exceed eight per cent (Belo)
per annum. Such rates shall not exceed average commercial rates currently prevailing in the immediate area
of the Joint Property.
B.. In lieu of charges in Paragraph 7A above, Operator may elect to use average commercial rates prevailing in
the immediate area of the Joint Property less 207o. For automotive equipment, Operator may elect to use rates
published by the Petroleum Motor Transport Association.
B. Damages and Losses to Joint Property
All costs or expenses necessary for the repair or replacement of Joint Property made necessary because of dam-
ages or losses incurred by fire, flood, storm, theft, accident, or other cause, except those resulting from Operator's
gross negligence or willful misconduct. Operator shall furnish Non -Operator written notice of damages or losses
incurred as soon as practicable after a report thereof has been received by Operator.
9. Legal Expense
Expense of handling, investigating and settling litigation or claims, discharging of liens, payment of judgments
and amounts paid for settlement of claims incurred in or resulting from operations under the agreement or
necessary to protect or recover the Joint Property, except that no charge for services of Operator's legal staff
or fees or expense of outside attorneys shall be made unless previously agreed to by the Parties. All of er legal
expense is considered to be covered by the overhead provisions of Section III unless otherwise a r o by the
Parties, except as provided in Section I, Paragraph 3.
EEI�_
—2— COL
10. Taxes *(see reverse side of this page for additional provision)
All taxes of every kind and nature assessed or levied upon or in connection with the Joint Property, the opera-
tion thereof, or the production therefrom, and which taxes have been paid by the Operator for the benefit of the
Parties.
11. Insurance
Net premiums paid for insurance required to be carried for the Joint Operations for the protection of the Par-
ties. In the event Joint Operations are conducted in a state in which Operator may act as self -insurer for Work-
men's Compensation and/or Employers Liability under the respective state's laws, Operator may, at its election,
include the risk under its self-insurance program and in that event, Operator shall include a charge at Operator's
cost not to exceed manual rates.
12. Other Expenditures
Any other expenditure not covered or dealt with in the foregoing provisions of this Section II, or in Section III,
and which is incurred by the Operator in the necessary and proper conduct of the Joint Operations.
III. OVERHEAD
1. Overhead - Drilling and Producing Operations
I. As compensation for administrative, supervision, office services and warehousing costs, Operator shall charge
drilling and producing operations on either:
( X) Fixed Rate Basis, Paragraph 1A, or
Unless otherwise agreed to by the Parties, such charge shall be in lieu of costs and expenses of all offices
and salaries or wages plus applicable burdens and expenses of all personnel, except those directly chargeable
under Paragraph 2A, Section II. The cost and expense of services from outside sources in connection with
matters of taxation, traffic, accounting or matters before or involving governmental agencies shall be considered
as included in the Overhead rates provided for in the above selected Paragraph of this Section III unless such
cost and expense are agreed to by the Parties as a direct charge to the Joint Account.
li. The salaries, wages and Personal Expenses of Technical Employees and/or the cost of professionai consultant
services and contract services of technical personnel directly employed on the Joint Property shall ( ) shall
not ( ) be covered by the Overhead rates. _
A. Overhead - Fixed Rate Basis
(1) Operator shall charge the Joint Account at the following rates per well per month:
Drilling Well Rate $ 3, 000.00
Producing Well Rate $ 250.00
(2) Application of Overhead - Fixed Rate Basis shall be as follows:
(a) Drilling Well Rate
[1] Charges for onshore drilling wells shall begin on the date the well is spudded and terminate on
the date the drilling or completion rig is released, whichever is later, except that no charge shall
be made during suspension of drilling operations for fifteen (15) or more consecutive days.
[2] Charges for offshore drilling wells shall begin on the date when drilling or completion equipment
arrives on location and terminate on the date the drilling or completion equipment moves off loca-
tibn or rig is released, whichever occurs first, except that no charge shall be made during suspen-
sion of drilling operations for fifteen (15) or more consecutive days
[3] Charges for wells undergoing any type of workover or recompletion for a period of five (5) con-
secutive days or more shall be made at the drilling well rate. Such charges shall be applied for
the period from date workover operations, with rig, commence through date of rig release, except
that no charge shall be made during suspension of operations for fifteen (15) or more consecutive
days.
(b) Producing Well Rates
[1] An active well either produced or injected into for any portion of the month shall be considered
as a one -well charge for the entire month.
[2] Each active completion in a multi -completed well in which production is not commingled down
hole shall be considered as a one -well charge providing each completion is considered a separate
well by the governing regulatory authority.
[3] An inactive gas well shut in because of overproduction or failure of purchaser to take the produc-
tion shall be considered as a one -well charge providing the gas well is directly connected to a per-
manent sales outlet.
[4] A one -well charge may be made for the month in which plugging and abandonment operations
are completed on any well.
[5] All other inactive wells (including but not limited to inactive wells covered by unit allowable,
lease allowable, transferred allowable, etc.) shall not qualify for an overhead charge.
(3) The well rates shall be adjusted as of the first day of April each year following the effective date of the
agreement to which this Accounting Procedure is attached. The adjustment shall be computed by multi-
plying the rate currently in use by the percentage increase or decrease in the average weekly earnings of
Crude Petroleum and Gas Production Workers for the last calendar year compared to the calendar year
preceding as shown by the index of average weekly earnings of Crude Petroleum and Gas Fields Produc-
tion Workers as published by the United States Department of Labor, Bureau of Labor Statistics, or the
equivalent Canadian index as published by Statistics Canada, as applicable. The adjusted rates shall be
the rates currently in use, plus or minus the computed adjustment.
_3— EEI
COL
The terms of this paragraph
interests of Non -Operator be
ad valorem, production► seve
other taxes, no charges shal
Non -Operator for same.
notwithstanding, should the
exempted from the payment of
rance, excise► gathering or
1 be made to the account of
ld
r*
(1) Operator shall charge the Joint Account at the following rates:
(a) Development
Percent ( %) of the cost of Development of the Joint P rty exclusive of costs
provided under Paragraph 9 of Section II and all salvage credits.
(b) Operating
Percent ( %) of the cost of Operating oint Property exclusive of costs provided
under Paragraphs 1 and 9 of Section II, all salvage its, the value of injected substances purchased
for secondary recovery and all taxes and asses which are levied, assessed and paid upon the min-
eral interest in and to the Joint Proper
(2) Application of Overhead - Pereenta asis shall be as follows:
For the purpose of determinin rges on a percentage basis under Paragraph 1B of this Section III, de-
velopment shall include sts in connection with drilling, redrilling, deepening or any remedial opera-
tions on any or all w involving the use of drilling crew and equipment; also, preliminary expenditures
necessary in p �ation for drilling and expenditures incurred in abandoning when the well is not com-
pleted ass_
s oducer, and original cost of construction or installation of fixed assets, the expansion of fixed
ass d any other project clearly discernible as a fixed asset, except Major Construction as defined in
2. Overhead - Major Construction
To compensate Operator for overhead costs incurred in the construction and installation of fixed assets, the ex-
pansion of fixed assets, and any other project clearly discernible as a fixed asset required for the development and
operation of the Joint Property, Operator shall either negotiate a rate prior to the beginning of construction, or shall
charge the Joint Account for Overhead based on the following rates for any Major Construction project in excess
of $ 100 , 000.00:
A. 4 % of total costs if such costs are more than $ 100, 000. 00 but less than $2Kn, QQ0 _ nn; plus
B. 2 % of total costs in excess of $ 250, 000.00 but less than $1,000,000; plus
C. 1 % of total costs in excess of $1,000,000.
Total cost shall mean the gross cost of any one project. For the purpose of this paragraph, the component parts
of a single project shall not be treated separately and the cost of drilling and workover wells shall be excluded.
3. Amendment of Rates
The Overhead rates provided for in this Section III may be amended from time to time only by mutual agreement
between the Parties hereto if, in practice, the rates are found to be insufficient or excessive.
IV. PRICING OF JOINT ACCOUNT MATERIAL PURCHASES, TRANSFERS AND DISPOSITIONS
Operator is responsible for Joint Account Material and shall make proper and timely charges and credits for all ma-
terial movements affecting the Joint Property. Operator shall provide all Material for use on the Joint Property; how-
ever, at Operator's option, such Material may be supplied by the Non -Operator. Operator shall make timely disposition
of idle and/or surplus Material, such disposal being made either through sale to Operator or Non -Operator, division in
kind, or sale to outsiders. Operator may purchase, but shall be under no obligation to purchase, interest of Non -Opera-
tors in surplus condition A or B Material. The disposal of surplus Controllable Material not purchased by the Opera-
tor shall be agreed to by the Parties.
1. Purchases
Material purchased shall be charged at the price paid by Operator after deduction of all discounts received. In case
of Material found to be defective or returned to vendor for any other reason, credit shall be passed to the Joint
Account when adjustment has been received by the Operator.
2. Transfers and Dispositions
Material furnished to the Joint Property and Material transferred from the Joint Property or disposed of by the
Operator, unless otherwise agreed to by the Parties, shall be priced on the following bases exclusive of cash dis-
counts:
A. New Material (Condition A)
(1) Tubular goods, except line pipe, shall be priced at the current new price in effect on date of movement on a
maximum carload or barge load weight basis, regardless of quantity transferred, equalized to the lowest
published price f.o.b. railway receiving point or recognized barge terminal nearest the Joint Property
where such Material is normally available.
(2) Line Pipe
(a) Movement of less than 30,000 pounds shall be priced at the current new price, in effect at date of
movement, as listed by a reliable supply store nearest the Joint Property where such Material is nor-
mally available.
(b) Movement of 30,000 pounds or more shall be priced under provisions of tubular goods pricing in Para-
graph 2A (1) of this Section IV.
(3) Other Material shall be priced at the current new price, in effect at date of movement, as listed by a reliable
supply store or f.o.b. railway receiving point nearest the Joint Property where such Material is normally
available.
B. Good Used Material (Condition B)
Material in sound and serviceable condition and suitable for reuse without reconditioning:
(1) Material moved to the Joint Property
(a) At seventy-five percent (75%) of current new price, as determined by Paragraph 2A of this Section IV.
(2) Material moved from the Joint Property
(a) At seventy-five percent (75%) of current new price, as determined by Paragraph 2A of this Section IV,
if Material was originally charged to the Joint Account as new Material, or
_4+ EEI
COL
(b) at sixty-five percent (65%) of current new price, as determined by Paragraph 2A of this Section
IV, if Material was originally charged to the Joint Account as good used Material at seventy-five per-
cent (75 %) of current new price.
The cost of reconditioning, if any, shall be absorbed by the transferring property.
C. Other Used Material (Condition C and D)
(1) ' Condition C
Material which is not in sound and serviceable condition and not suitable for its original function until
after reconditioning shall be priced at fifty percent (50%) of current new price as determined by Para-
graph 2A of this Section IV. The cost of reconditioning shall be charged to the receiving property, pro-
vided Condition C value plus cost of reconditioning does not exceed Condition B value.
(2) Condition D
All other Material, including junk, shall be priced at a value commensurate with its use or at prevailing
prices. Material no longer suitable for its original purpose but usable for some other purpose, shall be
priced on a basis comparable with that of items normally used for such other purpose. Operator may dis-
pose of Condition D Material under procedures normally utilized by the Operator without prior approval
of Non -Operators.
D. Obsolete Material
Material which is serviceable and usable for its original function but condition and/or value of such Material
is not equivalent to that which would justify a price as provided above may be specially priced as agreed to by
the Parties. Such price should result in the Joint Account being charged with the value of the service ren-
dered by such Material.
E. Pricing Conditions-
(1) Loading and unloading costs may be charged to the Joint Account at the rate of fifteen cents (15 ¢) per
hundred weight on all tubular goods movements, in lieu of loading and unloading costs sustained, when
actual hauling cost of such tubular goods are equalized under provisions of Paragraph 5 of Section II.
(2) Material involving erection costs shall be charged at applicable percentage of the current knocked -down
price of new Material.
3. Premium Prices
Whenever Material is not readily obtainable at published or listed prices because of national emergencies, strikes
or other unusual causes over which the Operator has no control, the Operator may charge the Joint Account for the
required Material at the Operator's actual cost incurred in providing such Material, in making it suitable for use,
and in moving it to the Joint Property; provided notice in writing is furnished to Non -Operators of the proposed
charge prior to billing Non -Operators for such Material. Each Non -Operator shall have the right, by so electing and
notifying Operator within ten days after receiving notice from Operator, to furnish in kind all or part of his share
of such Material suitable for use and acceptable to Operator.
4. Warranty of Material Furnished by Operator
Operator does not warrant the Material furnished. In case of defective Material, credit shall not be passed to the
Joint Account until adjustment has been received by Operator from the manufacturers or their agents.
V. INVENTORIES
The Operator shall maintain detailed records of Controllable Material.
1. Periodic Inventories, Notice and Representation
At reasonable intervals, Inventories shall be taken by Operator of the Joint Account Controllable Material.
Written notice of intention to take inventory shall be given by Operator at least thirty (30) days before any inven-
tory is to begin so that Non -Operators may be represented when any inventory is taken. Failure of Non -Operators
to be represented at an inventory shall bind Non -Operators to accept the inventory taken by Operator.
2. Reconciliation and Adjustment of Inventories
Reconciliation of a physical inventory with the Joint Account shall be made, and a list of overages and shortages
shall be furnished to the Non -Operators within six months following the taking of the inventory. Inventory ad-
justments shall be made by Operator with the Joint Account for overages and shortages, but Operator shall be
held accountable only for shortages due to lack of reasonable diligence.
3. Special Inventories
Special Inventories may be taken whenever there is any sale or change of interest in the Joint Property. It shall
be the duty of the party selling to notify all other Parties as quickly as possible after the transfer of interest takes
place. In such cases, both the seller and the purchaser shall be governed by such inventory.
4. Expense of Conducting Periodic Inventories
The expense of conducting periodic Inventories shall not be charged to the Joint Account unless agreed to by the
Parties.
EEI
—5—
COLX44n::_
EXHIBIT "D"
ATTACHED TO AND MADE A PART OF THAT CERTAIN OPERATING
AGREEMENT DATED MAY 1, 1988 BETWEEN ESTACADO ENERGY, INC.,
AS OPERATOR, AND CITY OF LUBBOCK, AS NON -OPERATOR
INSURANCE
The OPERATOR shall carry the following minimum insurance to cover the
risks of accident and/or damages to persons and/or property which may occur
in the course of operations conducted under this agreement. A proportionate
part of the premiums on such insurance, determined on some equitable -basis
consistent with OPERATOR'S accounting practice, shall be charged to the Joint
Account:
1. a) Workers' Compensation - in accordance with the laws of the
state or states where such operations contemplated by this
agreement are conducted.
b) -Employer's Liability - $100,000 each accident
2. Comprehensive General Liability -
Bodily Injury - $300,000 each occurrence
annual - $300,000 aggregate (where applicable)
Property Damage - $100,000 each occurrence
$100,000 aggregate (where applicable)
This insurance shall provide coverage for the Joint
Account created by this agreement, broad form blanket
contractual liability, personal injury, inclusion of
various working interests as additional insured; blanket
waiver of subrogation as required by written contract;
independent contractors; products/completed operations;
underground resources and equipment; saline hazard;
explosion, collapse and underground; and blowout and
cratering.
3. Automobile Liability -
Bodily Injury - $250,000 each person
$500,000 each occurrence
Property Damage - $100,000 each occurrence
4. Umbrella Liability - with a minimum of not less than
$1,000,000 each occurrence and $1,000,000 in the aggregate
(where applicable).
4-29-88 drs.
1-- Fit-'VL! i.•I- - I ! 01 - -1 1 1 t:, 1 -C-)j I
r'i3CDDL1f-il
THE SANFORD AGENCY G UNITED STATES
P.O. BOX 64790 �:. A Tt- Ivu-
LUBBOCK, TEXAS 79464 --1--
X
ESTACADO ENERGY, INC.
1603 BROADWAY
LUBBOCK, TEXAS 79401
L
I.AULA :1 PEGIAL BROAD
r_. 1-IA E"I Ll TV
Y'l
-i% u 1 11]-!- FICHUDULLUI VEHICI 7
11 "1111 lly
a 0
X
-Lt: C IT
IlA ".;I t L P, F 4 IT0.1
Offa Ft llt^Jlj UMMILLI.A F011M -13" (-)ATF- J=OH
EM.PLOYLFUS" IJAMLI rY
F-ECIAL
COVERAGE BOUND PER MIKE WRINKLE.
THE SANFORD AGEN
=f — =r fl
If—X—P[FAA
1 2 f) i A!.l
)-as --I I'M 1— 5-6-88 —
1—. T( I-XTLI-l" CLIVLAIAGE' V4 TOM- A[tC)VF'
r- f-Ffl L-110,Mwic. "kjL;f--Y NO.'
1.01. ,`--VE I fiNCLUDIPJG; L.C>CATIUN)
LEASE OPERATOR
500—
i ilk, k lJ")
I— --Al I �Pi N f'I
500-
�,.A T LL) AlAC, v.'T Tz
HER
F
!ITAT111r.11Y X
100 MAc.it AC.C.MLNT)
500 (I)IIA A,.:;E POLICY L11,11T) r.
1 0 0 lAC;itLr.l;'L0yEE?