Exhibit 10.1

 

PURCHASE AND SALE AGREEMENT

 

This PURCHASE and SALE AGREEMENT ( the “Agreement”) is made this 27th day of
May, 2015, by and between Reef Oil & Gas Income and Development Fund III, L.P.,
a Texas limited partnership (“Seller”) and Red Sea 2012, Inc., a Texas
corporation (“Buyer”) The Buyer and Seller may be collectively referred to
herein as the “Parties” and individually as a “Party.”

 

RECITALS

 

A.                                    WHEREAS, Seller owns certain oil and gas
properties described herein and desires to sell certain interests in such
properties; and

 

B.                                    WHEREAS, Buyer desires to purchase certain
interests in such properties.

 

C.                                    WHEREAS, Buyer desires to purchase and
Seller desires to sell additional interests in such properties over the life of
this Agreement;

 

NOW, THEREFORE, in consideration of their mutual promises contained herein, the
benefits to be derived by each party hereunder and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
Buyer and Seller agree to the purchase and sale of the oil and gas properties
described below, in accordance with the following terms and conditions:

 

AGREEMENT

 

1.                                      Purchase and Sale.

 

(a)                                 Property Being Sold.  Subject to the terms
and conditions of this Agreement, Seller agrees to sell and convey and Buyer
agrees to purchase and accept the Subject Property for the Purchase Price as
defined hereinafter.  The term “Subject Property” or, where the context so
requires, “Subject Properties,” shall mean:

 

(i)                                     The percentages set forth under the
heading “Conveyed Interest” in Exhibit “A” attached hereto of the right, title
and interest in and to the oil, gas and mineral leases, described in
Exhibit “A”, (the “Leases”) whether the interests in such property are fee
interest, net revenue interests, royalty interests, leasehold interests,
licenses, concessions, working interests, farmout rights, or other mineral
rights of any nature (such percentages being hereinafter the “Leasehold
Interest”);

 

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(ii)                                  The percentages set forth under the
heading “Conveyed Interest” in Exhibit “B” attached hereto of the right, title
and interest in and to the oil and/or gas wells (whether producing, non —
producing or shut — in), the water source wells, and any other types of wells,
including injection and disposal wells, located on the land covered by the Dean,
Dean B and Dean K Units, all of such wells being hereinafter referred to as (the
“Wells”) and such percentage interest in such Wells being hereinafter referred
to as the “Well Interest”.  The Dean, Dean B and Dean K Units, as such Units are
described in Exhibit A to the JOA attached hereto as Exhibit E, including the
Leases, the Wells, the Contracts and the Equipment being hereinafter referred to
as the “Units”;

 

(iii)                               The percentages set forth under the heading
“Conveyed Interest” in the contracts and agreements listed in Exhibit “C”
attached hereto (collectively, the “Contracts”) with such percentage interest
being referred to as the “Assigned Contracts”.  In the event there are other
agreements or contracts necessary or desirable with respect to the operations
being conducted on the Units, at its option, Buyer shall be entitled to the
benefits of such contracts or agreements;

 

(iv)                              The percentages set forth under the heading of
“Conveyed Interest” in Exhibit “D” attached hereto of the right, title and
interest in and to all equipment, machinery, fixtures and other real, personal
and mixed property owned by Seller and situated on the Units, now or as of the
Closing Date, or otherwise appurtenant to or currently used or held for use in
connection with the ownership or operation of the Units, including, without
limitation, well equipment, casing, rods, tanks, boilers, buildings, tubing,
pumps, motors, fixtures, machinery, inventory, separators, dehydrators,
compressors, treaters, power lines, field processing facilities, flowlines,
gathering lines, transmission lines and all other pipelines, or inventory in
storage, including but not limited to the items listed on Exhibit “D” (the
“Equipment”), with such percentages being referred to as the “Assigned
Equipment”;

 

(v)                                 Originals, if in Seller’s possession, or
copies of all of the files, records, information and data pertaining in any
material way to the Units in Seller’s possession and/or to which Seller has a
right (“Records”), including, without limitation, title records, abstracts,
title opinions, title certificates, production records, severance tax records,
geological and geophysical data, reservoir and well information, engineering
data, proprietary data, accounting data and all other information relating in
any way to the ownership or operation of the Units but exclusive of (A) any such
records, data or information where the transfer of same is prohibited by third
party agreements or applicable law, as to which Seller is unable to secure a
waiver or (B) the work product of Seller’s legal counsel, excluding title
opinions;

 

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(vi)                              To the extent assignable, all governmental
permits, licenses, and authorizations, as well as any applications for the same,
related to the Leases, and/or Wells or the use thereof (“Permits”).

 

(vii)                           To the extent assignable, all trade credits and
account receivables under the JOA, including but not limited to penalties or
non-consent interests.

 

The portion of the Subject Property described in Sections 1(a)(i), (ii),
(iii) and (iv)  above may hereinafter be referred to as the “Conveyed Interest
and represented by Seller to equal a 76.037418% interest in the Leases, Wells,
Contracts, and Equipment in the Dean and Dean B Units and a 79.313924% interest
in the Leases, Wells, Contracts and Equipment in the Dean K Unit.”

 

(b)                                 Property Reserved.  The term “Subject
Property” or, as the context requires, “Subject Properties,” shall not include
any of the following:

 

(i)                                     all claims and causes of action of
Seller (a) arising from acts, omissions or events, or damage to or destruction
of property occurring prior to the Effective Date or (b) arising under or with
respect to any of the Contracts that are attributable to periods of time prior
to the Effective Date (including claims for adjustments or refunds);

 

(ii)                                  all rights and interests of Seller
(a) under any policy or agreement of insurance or indemnity, (b) under any bond,
or (c) to any insurance or condemnation proceeds or awards arising, in each
case, from acts, omissions or events or damage to or destruction of property,
occurring prior to the Effective Date;

 

(iii)                               all hydrocarbons produced and sold from the
Subject Property with respect to all periods prior to the Effective Date,
together with all proceeds from or of such hydrocarbons;

 

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(iv)                              all claims of Seller for refunds of or loss
carry forwards with respect to (A) production or any other taxes attributable to
any period prior to the Effective Date or (B) income or franchise taxes;

 

(v)                                 all amounts due or payable to Seller as
adjustments to insurance premiums related to the Subject Property with respect
to any period prior to the Effective Date;

 

(vi)                          all of Seller’s proprietary computer software,
patents, trade secrets, copyrights, names, trademarks, logos and other
intellectual property;

 

(vii)                           all instruments of Seller that may be protected
by an attorney — client privilege, excluding title opinions; and

 

2.                                  Purchase Price.  Buyer agrees to pay to
Seller for the Subject Property the sum of Seven Hundred Thousand Dollars
($700,000.00), subject to adjustment in accordance with Section 8 of this
Agreement (the “Purchase Price”).  At Closing (as defined below) when the
conditions set forth in Sections 7 and 8(b) below have been satisfied, the
Purchase Price shall be paid by Buyer to Seller, by wire transfer of immediately
available funds to the accounts designated by the Parties on the Closing Date
(hereinafter defined) in accordance with the provisions of Section 8 (c) below.

 

3.                                      Deposit.  Within five (5) business days
from execution of this agreement, Buyer agrees to pay Seller the sum of Seventy
Thousand Dollars ($70,000.00) as a 10% non-refundable deposit for the Subject
Property.  If Closing occurs, then before mentioned deposit shall be deducted
from Purchase Price.  If Closing does NOT occur, then Seller shall retain
deposit and such payment shall constitute liquidated damages and the sole remedy
of Seller under this Agreement.

 

4.                                      Effective Date and Closing Date.

 

(a)                                 Closing Date.                     Subject to
the terms and conditions herein, the transactions contemplated by this Agreement
(“Closing”) shall take place on or before June 12, 2015 (the “Closing Date”). 
The conveyance of the Subject Property shall take place on this date.

 

(b)                                 Effective Date. The Effective Date for the
purpose of distributing the revenue from the Subject Property only shall be
December 1, 2014 at 7:00 a.m. local time at the place where the Subject Property
is located.  Seller and Buyer agree that Buyer shall be entitled to 100% of the
revenue (less the costs of operating) from the Subject Property after the
Effective Date.

 

(c)                                  Ownership Prior to the Closing Date. Seller
shall be entitled to all of the rights of ownership attributable to the Subject
Properties prior to the Closing Date and (ii) Seller shall bear and be
responsible for the obligations of ownership attributable to the operation of
the Subject Properties prior to the Closing Date.

 

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(d)                                 Ownership Subsequent to the Closing Date.
Buyer shall be entitled to all of the rights of ownership attributable to the
Subject Properties subsequent to the Closing Date.  Buyer shall also bear and be
responsible for the obligations of ownership attributable to the operation of
the Subject Properties subsequent to the Closing Date.

 

5.                                      Representations and Warranties of
Seller.  Seller represents and warrants to Buyer as of the date hereof and as of
the Closing Date, as follows:

 

(a)                                 Authority.  Seller is a limited partnership
duly organized and validly existing under the laws of the State of Texas and is
qualified or licensed to conduct business in each of the jurisdictions in which
it owns the Leases or acts as the operator of the Units.  Seller has full legal
power, right and authority to carry on its business as such is now being
conducted, to own and to transfer Seller’s interest in the Units and the Permits
to enter into and to perform its obligations under the terms of this Agreement,
and to carry out the transactions contemplated by this Agreement.

 

(b)                                 Valid Agreement.  The execution and delivery
by Seller of this Agreement and the consummation of the transactions
contemplated by this Agreement will not: (i) violate, nor be in conflict with,
any provision of Seller’s certificate of formation or certificate of limited
partnership, limited partnership agreement or other governing
documents;(ii) violate or be in conflict with any material agreement or
instrument to which Seller or the Units are bound; (iii) violate or be in
conflict with any governmental license, permit, law, statute, rule, decree,
regulation, judgment, order, ruling or decree applicable to Seller or the Units;
or (iv) create any default (with due notice or lapse of time or both) or any
lien or encumbrance or give rise to any right of termination, cancellation or
acceleration under any of the terms, conditions or provisions of any note, bond,
mortgage, indenture, license or agreement to which Seller or Units are bound.

 

(c)                                  Authorization. The execution, delivery and
performance of this Agreement and the transactions contemplated hereby are duly
and validly authorized by the requisite limited partnership action on the part
of Seller.  This Agreement has been duly executed and delivered by Seller (and
all documents required hereunder to be executed and delivered by Seller have
been duly executed and delivered by Seller) and this Agreement and those
documents required hereunder will constitute the valid and binding obligations
of Seller, enforceable in accordance with their terms except as such
enforceability may be limited by applicable bankruptcy or other similar laws
affecting the rights and remedies of creditors generally as well as to general
principles of equity (regardless of whether such enforceability is considered in
a proceeding in equity or at law).

 

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(d)                             Brokers.  Seller has incurred no obligation or
liability, contingent or otherwise for a brokers’ or finders’ fee with respect
to this transaction for which Buyer shall have any obligation or liability.

 

(e)                                  Bankruptcy.  There are no bankruptcy,
reorganization, or similar arrangement proceedings pending, being contemplated
by or, to Seller’s knowledge, threatened against it.

 

(f)                                   Suits and Claims. No suit, action, claim,
or other proceeding is now pending or, to Seller’s best knowledge, threatened
before any court or governmental agency against Seller or the Units. To Seller’s
knowledge, no notice in writing from any governmental authority or any other
person has been received by Seller claiming any violation of or noncompliance
with any law with respect to the Units.

 

(g)                                  Agreements.  To Seller’s best knowledge,
all of the Contracts, Leases and Permits are in full force and effect and Seller
is not in breach of, and with the lapse of time or the giving of notice, or
both, will not be in breach of, any of its obligations thereunder except to the
extent such a breach would not have a material adverse effect on the value of
the Units.  To Seller’s best knowledge, no other party is in breach of, or with
the giving of notice, or both, would be in breach of any of its obligations
thereunder.  All of the Contracts pertaining to the Units and the Permits are
listed on Exhibit “C”.

 

(h)                                 Taxes.  All due and payable ad valorem,
property, production, severance and similar taxes and assessments based on or
measured by the ownership of property or the production of hydrocarbons or the
receipt of proceeds therefrom on the Units, for any periods prior to the Closing
Date, have been properly paid except for ad valorem taxes due to Cochran County
for the year 2015.

 

(i)                                     Liens.  The Subject Property will be
conveyed free and clear of all liens, mortgages, pledges and encumbrances, and
there will be no liens, mortgages, pledges or encumbrances encumbering the Units
or Permits.

 

(j)                                    Governmental Authorizations.  Seller has
obtained and is maintaining all federal, state and local governmental licenses,
permits, franchises, orders, exemptions, variances, waivers, authorizations,
certificates, consents, rights, privileges and applications therefore that are
presently necessary or required for the ownership and operation of the Units as
currently owned and operated (including, but not limited to, those required
under Environmental Laws).

 

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(k)                             Compliance with Laws.  To Seller’s best
knowledge, the Units and the Seller’s use thereof are in compliance with the
provisions and requirements of all laws, rules, regulations, ordinances, orders,
decisions and decrees of all governmental authorities having jurisdiction with
respect to Seller or the Units or the ownership and operation thereof except for
such noncompliance which would not have a material adverse effect on the
ownership, operation or value of the Units.

 

(l)                                     No Third Party Options.  No third party
holds any preferential right, option, agreement, or commitment to purchase any
interest in the Units.  No third party consents shall be required to consummate
the transaction, in whole or in part contemplated herein.

 

(m)                             Equipment.  To Seller’s best knowledge, the
Equipment used in conjunction with Units currently operated by Seller has been
maintained in operable repair, working order and operating condition consistent
with standard industry practices.

 

(n)                                 Records.  Seller has made available to Buyer
all of Seller’s records, which consist of existing Lease, Well and title files,
production records, Permits, Contracts, division orders and other information,
to the extent not subject to confidentiality agreements, in Seller’s possession,
custody or control relating to the Units.  To Seller’s best knowledge, Seller’s
records and all statements made by Seller to Buyer are in all material respects
accurate.

 

(o)                                 Independent Evaluation.  Seller is an
experienced and knowledgeable operator/investor in the oil and gas business. 
Seller has been advised by and has relied solely on its own expertise and legal,
tax, reservoir engineering, environmental and other professional counsel
concerning this transaction, the Units and value thereof.

 

(p)                                 Environmental Matters.  To Seller’s best
knowledge, Seller is not in material violation of any environmental laws
applicable to the Units, or any material limitations, restrictions, conditions,
standards, obligations or timetables contained in any environmental laws.  No
notice or action alleging such violation is pending or, to Seller’s best
knowledge, threatened against the Units.  To the best of Seller’s knowledge, no
Environmental Defect (as defined below) exists in, on or under the Units as of
the Closing Date.  “Environmental Defect” means a condition, in or under the
Units (including without limitation, air, land, soil, surface and sub-surface
strata, surface water, ground water or sediments) that causes any portion of the
Units to be in material violation of an environmental law or a condition that
can be reasonably expected to give rise to costs or liability under applicable
Environmental Laws, except for that certain October 9, 2007 initial report issue
by the Texas Railroad Commission and referred to in that certain Phase I
Environmental Site Assessment, dated December 12, 2007, prepared by Covington
and Associates, Environmental Engineers and Consultants.

 

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(q)                                 Approvals.                                 
Seller has identified and obtained all permissions, approvals and consents
required to consummate the transactions contemplated in this Agreement.

 

(r)                                    Expenses and Charges. Seller has paid, or
will pay, all bills, debts, expenses or charges relating to the Units as of the
Closing in the normal course of its business operations.  Royalties and all
other lease burdens have been properly and timely paid in accordance with the
Leases or other applicable Contracts.

 

6.                                      Representations and Warranties of
Buyer.  Buyer represents and warrants to Seller as of the date hereof and as of
the Closing Date, as follows:

 

(a)                                 Authority.  Red Sea 2012, Inc., is a
corporation duly organized and validly existing under the laws of the State of
Texas and is qualified to conduct business in the State of Texas.  Buyer has
full legal power, right and authority to carry on its business as such is now
being conducted, to enter into and perform this Agreement and to undertake the
transactions contemplated hereby.

 

(b)                                 Valid Agreement.  The execution and delivery
of this Agreement and the consummation of the transactions contemplated by this
Agreement will not violate, nor be in conflict with: (i) any provision of
Buyer’s governing documents; (ii) any material agreement or instrument to which
Buyer is a party or by which Buyer is bound; or (iii) any judgment, order,
ruling or decree applicable to Buyer as a party in interest or any law, rule or
regulation applicable to Buyer.

 

(c)                                  Authorization.  The execution, delivery and
performance of this Agreement and the transactions contemplated hereby are duly
and validly authorized by all requisite limited partnership action on the part
of Buyer. This Agreement constitutes the legal, valid and binding obligation of
Buyer enforceable in accordance with its terms, except as such enforceability
may be limited by applicable bankruptcy or other similar laws affecting the
rights and remedies of creditors generally as well as to general principles of
equity (regardless of whether such enforceability is considered in a proceeding
in equity or at law).

 

(d)                                 Independent Evaluation.  Buyer is an
experienced and knowledgeable investor in the oil and gas business.  Buyer has
been advised by and has relied solely on its own expertise and legal, tax,
reservoir engineering, environmental and other professional counsel concerning
this transaction, the Units and value thereof.

 

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(e)                                  Brokers.  Buyer has incurred no obligation
or liability, contingent or otherwise for brokers’ or finders’ fees with respect
to this transaction for which Seller shall have any obligation or liability.

 

(f)                                   Bankruptcy.  There are no bankruptcy,
reorganization or arrangement proceedings pending, being contemplated by or to
the best knowledge of Buyer threatened against it.

 

(g)                                  Qualification as Operator.  Buyer
represents and warrants Trinity Bay Oil & Gas, Inc. is qualified with the State
of Texas to operate oil and gas properties.

 

7.                                      Conditions to Closing.

 

(a)                                 Seller’s Conditions   The obligations of
Seller at Closing under this Agreement are subject to the fulfillment, prior to
or at Closing, of each of the following conditions, any one or more of which may
be waived, in whole or in part, by Seller:

 

(i)                                     that all representations and warranties
of Buyer contained in this Agreement shall be true and correct in all material
respects at Closing;

 

(ii)                                  that Buyer shall have performed and
satisfied in all material respects all covenants and agreements required by this
Agreement to be performed or satisfied by Buyer at Closing; and

 

(iii)                               at the Closing Date, no suit, action or
other proceeding shall be pending or threatened in which it is sought to
restrain or prohibit the performance of or to obtain damages or other relief in
connection with this Agreement or the transactions contemplated hereby.

 

(iv)                              Buyer shall have executed, acknowledged and
delivered, as appropriate, to Seller all closing documents and funds described
in Section 8(b).

 

(b)                                 Buyer’s Conditions   The obligations of
Buyer at Closing under this Agreement are subject to the fulfillment, prior to
or at Closing, of each of the following conditions, any one or more of which may
be waived, in whole or in part, by Buyer:

 

(i)                                                 All representations and
warranties of Seller contained in this Agreement and in any agreements or
documents delivered in connection herewith shall be true and correct in all
material respects as of Closing.

 

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(ii)                                              Seller shall have performed
and satisfied in all material respects all covenants and agreements required by
this Agreement to be performed or satisfied by Seller at Closing.

 

(iii)                                           At the Closing Date, no suit,
action or other proceeding shall be pending or threatened in which it is sought
to restrain or prohibit the performance of or to obtain damages or other relief
in connection with this Agreement or the transactions contemplated hereby.

 

(iv)                                          Seller shall have taken all
necessary actions to remove or discharge any liens, security interests, and
encumbrances covering the Units.

 

(v)                                             All necessary permissions,
approvals and consents required from the owners of the leasehold interests owned
or leased by Seller shall be obtained and delivered to Buyer by or at Closing.

 

(vi)                                          Seller shall have executed,
acknowledged and delivered, as appropriate, to Buyer all closing documents
described in Section 8(a).

 

8.                                      Closing.  This Agreement may be executed
by either party and transmitted to the other party by facsimile transmission or
electronic mail, and the facsimile/e-mail transmission shall be deemed to be an
original.  The transmitting party will also send an originally signed Agreement
to the other party via overnight delivery service, such as Fed Ex or UPS.  At
the Closing, the following shall occur:

 

(a)                                 Seller shall execute, acknowledge and
deliver the following to Buyer:

 

(i)                                     an Assignment, Conveyance and Bill of
Sale in a mutually satisfactory and recordable form which is attached hereto as
Exhibit “F” (the “Assignment”);

 

(ii)                                  properly executed Railroad Commission
Form P — 4’s assigning all operations on the units to Trinity Bay Oil &
Gas, Inc.,

 

(iii)                               letters-in-lieu of transfer orders, and
other instruments as are necessary to cause all purchasers of production from
the Units to pay all proceeds from such production to Trinity Bay Oil &
Gas, Inc., as operator,

 

(iv)                              the joint operating agreement in form attached
hereto as Exhibit “E”,

 

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(v) possession of the Subject Properties, Equipment, Contracts, Leases, Records,
Wells and Permits; and

 

(vi) execute, acknowledge and deliver any other agreements provided for herein
or necessary to effectuate the transactions contemplated hereby as may be
reasonably requested by Buyer.

 

(b)                                 Buyer shall deliver the Purchase Price, as
adjusted pursuant to this Agreement (including adjustments set forth in Sections
3, 8, 9 and 10), to Seller by wire transfer to TEXAS CAPITAL BANK, N.A. to an
account designated by Seller.

 

(c)                                  The Parties shall execute and deliver any
other necessary side letter agreements to fulfill the purpose of this Agreement.

 

9.                                      Post-Closing Covenants.

 

(a)                                 Final Settlement Statement.  Not more than
thirty (30) days after the Closing, Seller shall prepare and deliver to Buyer,
in accordance with this Agreement, a Final Settlement Statement setting forth
each adjustment or payment which was not finally determined as of the Closing,
which shall include the following:

 

(i)                                     The estimated amount to be received by
Buyer, including any applicable bonuses, for Seller’s interest in the quantity
of saleable oil in storage on December 1, 2014, net of all applicable taxes and
net of any charges attributable to such oil that are deducted under the
Contracts by the purchaser before remitting payment, which estimated amount
shall be corrected to the actual amount received in the Final Settlement
Statement (defined below);

 

(ii)                                  The amount of all operating and capital
expenditures that are attributable to the Leases, Wells, Contracts or Equipment
for the period from December 1, 2014 to the Closing Date;

 

(iii)                               The amount received by Seller for the sale
or other disposition of produced natural gas and crude oil, net of all taxes for
which Seller was not reimbursed, for the period from December 1, 2014 to the
Closing Date;

 

(iv)                              The amount of proceeds (other than accounts
receivable) received by Seller for disposition, after December 1, 2014, of any
substances produced from the Subject Property; and

 

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(v)                                 Any ad valorem, property, production,
severance and similar taxes and assessments on the Units for the calendar year
2015 shall be paid by the Buyer. In the event Seller receives such ad valorem
tax statement, Seller shall forward such statement to Buyer.  It is the intent
of this provision that Buyer shall continue to bear its proportionate part of ad
valorem taxes after the Closing Date.

 

(vi)                              any other amount mutually agreed upon by
Seller and Buyer.

 

As soon as practicable after receipt of the Final Settlement Statement, Buyer
shall deliver to Seller a written report containing any changes which Buyer
proposes be made to the Final Settlement Statement.  The parties shall undertake
with diligence to agree with respect to the amounts due pursuant to such
post-Closing adjustments no later than thirty (30) days after the Closing.  The
date upon which such agreement is reached or upon which the Final Purchase Price
is established shall be called the “Final Settlement Date”.  In the event that
(1) the Final Purchase Price is more than the amount paid to Seller at Closing,
Buyer shall pay to Seller in immediately available funds the amount of such
difference, or (2) the Final Purchase Price is less than the amount paid to
Seller at Closing, Seller shall pay to Buyer in immediately available funds the
amount of such difference.  Payment by Buyer or Seller shall be made within ten
(10) business days of the Final Settlement Date.

 

(b)                                 Additional Payments Received.  Payment to be
made by wire transfer pursuant to 8(b).  After the Final Settlement Date, Seller
covenants and agrees that it will hold and promptly transfer and deliver to
Buyer, from time to time as and when received by it, any cash, checks with
appropriate endorsements (using its reasonable efforts not to convert such
checks into cash), or other property that it may receive which belongs to Buyer,
and will account to Buyer for all such receipts.

 

(c)                                  Assumption of Obligations.  From and after
the Closing Date, Buyer assumes, will be bound by, and agrees to perform all
express and implied covenants and obligations of Seller relating to the Subject
Property, whether arising under (i) the Leases, prior assignments of the Leases,
the Contracts, the Permits or any other known contractually-binding arrangements
to which the Subject Property (or any component thereof) may be subject and
which will be binding on Buyer and/or the Subject Property (or any component
thereof) after the Closing or (ii) any applicable laws, ordinances, rules and
regulations of any governmental or quasi-governmental authority having
jurisdiction over the Subject Property.  Buyer also assumes Buyer’s
proportionate part of the expenses and costs of plugging and abandoning the
Wells and restoration of operation sites, all in accordance with the applicable
laws, regulations and contractual provisions.  Buyer shall assume the risk of
any change in the condition of the Subject Property after the Closing Date.

 

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(d)                                 The Buyer understands and agrees that the
Subject Property is subject to all existing Contracts relating to the Subject
Property.  Buyer shall assume and be responsible for its proportionate share of
all such obligations as of the Closing Date.

 

(e)                                  Buyer and Seller agree to execute and
deliver from time to time such further instruments and do such other acts as may
be reasonably necessary to effectuate the purposes of this Agreement.

 

(f)                                   Seller agrees to execute any documents
which it has the authority to execute, whether before or after the Closing, to
aid Buyer in clearing or perfecting title and ownership to the Subject Property,
to aid Trinity Bay Oil & Gas, Inc. in assuming duties as operator of Units, and
to facilitate the receipt of the proceeds of the sale of the production
therefrom and attributable thereto.  Buyer shall make any request for execution
of such documents in writing and shall provide Seller with a copy of the
document.

 

(g)                                  Seller agrees to maintain the Seller’s
Working Interest in a reasonable and prudent manner, in full compliance with
applicable law and orders of any governmental authority, to pay when due all
costs and expenses coming due and payable (other than Carried Expenditures) in
connection with Seller’s Working Interest and to perform (or cooperate with
Conveyed performance of) all of the covenants and conditions contained in the
Leases and Contracts and all related agreements.

 

10.                               Costs and Revenues After Effective Date. 
Seller shall be responsible for the payment of all costs, liabilities and
expenses incurred in the ownership and operation of the Units prior to the
Closing Date and not yet paid or satisfied.   Buyer shall be responsible, as
operator, for payment (at Closing or thereafter if not reflected on the
Preliminary Closing Settlement Statement) of all costs, liabilities and expenses
incurred in the ownership and operation of the Units after the Closing Date,
such costs to be charged to the various working interest owners as appropriate. 
Such costs and expenses shall include any necessary and reasonable expenses
incurred by Seller in the operation, protection or maintenance of the Units. 
All hydrocarbons produced from the Units prior to the Effective Date, all oil
stock balances held in the tanks as of the Effective Date, and all proceeds from
the sale thereof shall be the property of Seller.  All hydrocarbons from the
Subject Property produced after the Effective Date shall for accounting purposes
be credited to the Buyer.  Seller shall remit production proceeds, if any,
received by Seller from sale of hydrocarbons belonging to Buyer, less expenses
which Buyer is responsible for paying pursuant to this section, to Buyer
immediately upon receipt.  To the extent possible, adjustments shall be made to
the Purchase Price to account for such costs and revenues in the Preliminary
Settlement Closing Statement or if not liquidated by such date, they shall be
addressed in the Final Settlement Statement.

 

13

--------------------------------------------------------------------------------

 

11.                               Miscellaneous.

 

(a)                                 Names.  As soon as reasonably practical
after the Closing Date, but in no event later than the earlier of 1.) 30 days
after the Closing Date or 2.) the date imposed by the Texas Railroad Commission,
Buyer shall remove the name of Seller, and all variations thereof, from the
physical location of the Wells and Equipment.

 

(b)                                 Expenses.  All fees, costs and expenses
incurred by Buyer or Seller in negotiating this Agreement shall be paid by the
party incurring the same, including without limitation, legal and accounting
fees, costs and expenses.

 

(c)                                  Entire Agreement.  This Agreement, the
documents to be executed hereunder, and the exhibits attached hereto constitute
the entire agreement between the Parties pertaining to the subject matter hereof
and supersede all prior agreements, understandings, negotiations and
discussions, whether oral or written, of the Parties pertaining to the subject
matter hereof.  No supplement, amendment, alteration, modification or waiver of
this Agreement shall be binding unless executed in writing by the Parties and
specifically referencing this Agreement.

 

(d)                                 Waiver.  No waiver of any provision of this
Agreement shall be deemed or shall constitute a waiver of any other provision
(whether or not similar).  Further, no waiver shall constitute a continuing
waiver unless otherwise expressly provided in writing.

 

(e)                                  Publicity.  Neither Seller nor Buyer will
issue any public announcement or press release concerning this transaction
without the written consent of the other Party, except as required by law and in
such case with prior written agreement between the Parties on the wording of the
announcement or press release; provided, however, nothing herein shall limit or
prevent Seller and/or Buyer or their affiliates from disclosing this transaction
and information about the Units to partners and prospective partners in Buyer or
its affiliates or in any securities filings made by Buyer or its affiliates.

 

(f)                                   Construction.  The Parties acknowledge
that they have participated jointly in the negotiation and drafting of this
Agreement and as such the Parties agree that if an ambiguity or question of
intent or interpretation arises hereunder, this Agreement shall not be
considered or construed more strictly against one Party than another on the
grounds of authorship.

 

14

--------------------------------------------------------------------------------

 

(g)                                  Third Party Beneficiaries.  Nothing in this
Agreement shall provide any benefit to any Third Party or entitle any Third
Party to any claim, cause of action, remedy or right of any kind, it being the
intention of the Parties that this Agreement shall otherwise not be construed as
a Third Party beneficiary contract.

 

(h)                                 Assignment.  Seller may not assign its
rights hereunder without the written consent of Buyer, which consent may not be
unreasonably withheld.  It shall not be unreasonable for Buyer to withhold
consent if it determines, in good faith, that adequate protections do not exist
to guarantee the proper and timely performance of all of the obligations
hereunder.  Upon request, Buyer shall be provided with such information
sufficient to permit evaluation of the financial responsibility of any proposed
assignee.

 

(i)                                     Governing Law.  This Agreement, other
documents delivered pursuant hereto, all disputes and the legal relations
between the Parties shall be governed and construed in accordance with the laws
of the State of Texas, without giving effect to principles of conflicts of laws
that would result in the application of the laws of another jurisdiction.  The
Parties agree to venue in Dallas County, Texas for all disagreements,
differences or claims made by the Buyer and/or the Seller.

 

(j)                                    Notices.  All communications required or
permitted under this Agreement shall be in writing and may be sent by
facsimile.  Such communication shall be deemed made when actually received, or
if mailed by registered or certified mail, postage prepaid, addressed as set
forth below, shall be deemed made three days after such mailing.  Faxes will be
deemed to be received when reflected in the fax confirmation sheet.  Either
party may, by written notice to the other, change the address for mailing such
notices.

 

Notices to Seller:                                                      Reef
Oil & Gas Income and Development Fund III, L.P.

 

1901 N. Central Expressway, Ste. 300

Richardson, Texas 75080

Phone:  (972) 437-6792

Fax: (972) 994-0369

Attn: W. Shane Jones, Sr. Landman

Email:  sjones@reefogc.com

 

Notices to Buyer:                                                  Red Sea
2012, Inc.

5219 City Bank Parkway, Ste. 210

Lubbock, Texas 79407

Phone:  (806) 368-3758

Fax:  (806) 368-6089

 

15

--------------------------------------------------------------------------------

 

Attn: Chuck Sammons

Email:  inlubbock1@yahoo.com

 

(k)                                 Severability.                        If any
term or other provision of this Agreement is invalid, illegal or incapable of
being enforced by any rule of law or public policy, all other conditions and
provisions of this Agreement shall nevertheless remain in full force and effect
and the Parties shall negotiate in good faith to modify this Agreement so as to
affect their original intent as closely as possible in an acceptable manner to
the end that the transactions contemplated hereby are fulfilled to the extent
possible.

 

(l)                                     Time of the Essence.  Time shall be of
the essence with respect to all time periods and notice periods set forth in
this Agreement.

 

(m)                             Counterpart Execution.  This Agreement may be
executed in any number of counterparts, and each counterpart hereof shall be
effective as to each Party that executes the same whether or not all of such
parties execute the same counterpart.  If counterparts of this Agreement are
executed, the signature pages from various counterparts may be combined into one
composite instrument for all purposes.  All counterparts together shall
constitute only one Agreement, but each counterpart shall be considered an
original.

 

(n)                                 Application of Law other than Texas Law.  To
the extent a court or arbitrator is compelled to apply the substantive laws of a
state other than Texas, any references in this Agreement to Texas law shall be
replaced with the equivalent provision in such other state’s law.

 

(o)                                 Binding Effect.  This Agreement shall be
binding upon and shall inure to the benefit of the parties hereto, and their
successors and assigns.

 

(p)                                 Incorporation of Exhibits.  All exhibits and
schedules referred to herein are attached hereto and are made a part hereof by
this reference.

 

(q)                                 Survival.  Except for the special warranty
of title which is incorporated in the Assignment, all other indemnities,
representations, warranties, covenants (including, without limitation, Sections
5, 6 and 9) and provisions of this Agreement shall survive the Closing for a
period of one year after the Closing Date at which time all such indemnities,
representations, warranties and other provisions hereof shall expire, except
with respect to any claims which have been asserted in a written notice
delivered to the party against whom such claim is made within said one year time
period.

 

16

--------------------------------------------------------------------------------

 

(r)                                    Headings.  The headings of the articles
and sections of this Agreement are for guidance and convenience of reference
only and shall not limit or otherwise affect any of the terms and provisions of
this Agreement.

 

(s)                                   Amendment and Waiver.  This Agreement may
be altered, amended or waived only by a written agreement executed by the Party
to be charged.  No waiver of any provision of this Agreement shall be construed
as a continuing waiver of the provision.

 

[THE REMAINDER OF THIS PAGE IS

INTENTIONALLY LEFT BLANK.]

 

17

--------------------------------------------------------------------------------

 

IN WITNESS WHEREOF, the parties have caused this Agreement to be executed below
by their duly authorized representatives as of the first date above written.

 

 

SELLER:

 

 

 

 

 

REEF OIL & GAS INCOME AND DEVELOPMENT FUND III, L.P.

 

 

 

 

By:

Reef Oil & Gas Partners, L.P.,

 

 

its General Partner,

 

 

 

 

 

by Reef Oil & Gas Partners GP, LLC, its general partner

 

 

 

 

 

/s/ Michael J. Mauceli

 

 

Michael J. Mauceli, Manager

 

 

 

 

 

BUYER:

 

 

 

Red Sea 2012, Inc.

 

 

 

 

/s/ Chuck Sammons

 

 

Chuck Sammons, President

 

--------------------------------------------------------------------------------

 

LIST OF EXHIBITS

 

Exhibit

 

Description

 

 

 

A.

 

Leases

 

 

 

B.

 

Wells

 

 

 

C.

 

List of Contracts

 

 

 

D.

 

Equipment Interests

 

 

 

E.

 

Joint Operating Agreement

 

 

 

F.

 

Assignment, Conveyance and Bill of Sale

 

--------------------------------------------------------------------------------

 

EXHIBIT “A”

 

Leases

 

1.                                      Oil and Gas Lease dated May 31, 1937,
recorded in Vol. 1, page 625 of the Oil and Gas Lease Records of Cochran County,
Texas, from Carrie Slaughter Dean, aslessor, to P.N. Wiggins, as lessee;

 

2.                                      Oil and Gas Lease dated April 5, 1937,
recorded in Vol. 1 Page 435 of the Oil and Gas Lease Records of Cochran County,
Texas, from Carrie Slaughter Dean, as lessor, to P.N. Wiggins, as lessee;

 

3.                                      Oil and Gas Lease dated January 3, 1939,
recorded in Vol. 2, Page 350 of the Oil and Gas Lease Records of Cochran County,
Texas, from Carrie Slaughter Dean, as lessor, to Honolulu Oil Corporation, as
lessee; and

 

4.                                      Oil and Gas Lease dated November 15,
1951, from Carrie Slaughter Dean to E.      Constantin, Jr., recorded in Vol.
10, Page 571 of the Oil and Gas Lease Records of Cochran County, Texas.

 

Conveyed Interest

 

Lease

 

Working Interest

 

Net Revenue Interest

 

Leases insofar as they cover the Dean Unit

 

76.037418

%

59.987060

%

Leases insofar as they cover the Dean “B” Unit

 

76.037418

%

59.987060

%

Lease No. 4 (Dean K Unit).

 

79.313924

%

53.735183

%

 

Plus all rights, title and interest from the surface down to 100’ feet below the
base of the San Andres formation.

 

--------------------------------------------------------------------------------

 

EXHIBIT “B”

 

Wells

 

Conveyed Interest

 

Lease

 

Working Interest

 

Net Revenue Interest

 

Leases insofar as they cover the Dean Unit

 

76.037418

%

59.987060

%

Leases insofar as they cover the Dean “B” Unit

 

76.037418

%

59.987060

%

Lease No. 4 (Dean K Unit).

 

79.313924

%

53.735183

%

 

Plus all rights, title and interest from the surface down to 100’ feet below the
base of the San Andres formation.

 

--------------------------------------------------------------------------------

 

Exhibit “C”

 

List of Contracts

 

Contract

 

 

 

Date

 

 

File No.

 

Type

 

Executed

 

Other Party

032647-C

 

Electric Service Agreement

 

03/18/1966

 

Southwestern Public Service Co.

69081

 

Cooperative Waterflood Agreement

 

08/02/1966

 

Sun Oil Co.

69108

 

Cooperative Waterflood Agreement

 

08/03/1966

 

Tidewater

73903

 

Salt Water Disposal Agreement

 

12/01/1969

 

Amoco Production Co.

91036

 

Cooperative Waterflood Agreement

 

11/06/1974

 

Great Western Drilling Co.

94821

 

Casinghead Gas Contract

 

01/01/1978

 

Amoco Production Co.

1000261

 

Injection Well & Water Sales Agreement

 

04/29/1980

 

Amoco Production Co.

032647-D

 

Electric Service Agreement

 

03/18/1966

 

Southwestern Public Service Co.

84041

 

Cooperative Waterflood Agreement

 

04/01/1973

 

Burk Royalty Company

73265

 

Cooperative Waterflood Agreement

 

01/13/1969

 

Pennzoil (Gulf Oil Co.)

100262

 

Cooperative Waterflood Agreement

 

04/24/1980

 

Crown Central Petroleum Corp.

 

1.)                                  Contracts a.) 032647-C, b.) 69081, c.)
69108, d.) 73903, e.) 91036, f.) 94821 and g.) 1000261 pertain to the Dean B
Unit.

 

2.)                                  Contracts a.) 1000261, b.) 032647-D, c.)
84041, d.) 73265 and e.) 100262 pertain to the Dean Unit.

 

ConveyedInterest

 

Lease

 

Working Interest

 

Net Revenue Interest

 

Leases insofar as they cover the Dean Unit

 

76.037418

%

59.987060

%

Leases insofar as they cover the Dean “B” Unit

 

76.037418

%

59.987060

%

Lease No. 4 (Dean K Unit).

 

79.313924

%

53.735183

%

 

Plus all rights, title and interest from the surface down to 100’ feet below the
base of the San Andres formation.

 

--------------------------------------------------------------------------------

 

EXHIBIT “D”

 

Equipment

 

SLAUGHTER-DEAN PROJECT, Cochran County, Texas

 

Dean “B” Unit

 

Dean “B” Unit Production Battery:

 

·                  1 — 21’x 32’ — 2,000 Bbl Oil Production Gun Barrel Tank (in
service)

·                  1 — 21’x 24’ — 1,500 Bbl Oil Production Gun Barrel Tank (in
service)

·                  1 — 5,000 Bbl Overflow Open-Top Tank with Net Covering (in
service)

·                  2 — 500 Bbl Steel Oil Production Tanks (in service)

·                  1 — Oil LACT Unit — Tokheim 2” Model 2000

·                  1- Vapor Recovery Unit (in service)

·                  1 — 6x10 Scrubber Vessel (in service)

·                  1 — 12x20 — 385 Bbl Vent Tank (in service)

·                  1 — 8x24 Free Water Knockout (in service)

·                  1 — 8’x10’ Metal Safety & Alarm Building (in service)

·                  2 — 4x10 Sivalls In-Line Heaters (Ser. No.’s IH4820, IH4821)
(out of service)

·                  3 — 8x20 3-Phase Production Heater Treater Separators (Ser.
No.’s 82201, 82409, 8844) (out of service)

 

Dean “B” Unit Water Injection Station:

 

·                  2 — Ajax Vertical Quintiplex Saltwater Injection Waterflood
Pumps with 250-Hp Motors (in service)

·                  2 — 80 gallon Manchester Air Compressors (Ser. No.’s 315155,
315215) (in service)

·                  1 — 25’x72’ Metal Water Injection Station Building with All
Pump Controls & Manifolds (in service)

 

Dean “B” Unit Production Battery & Water Injections Station have cell phone
driven automatic alarm system designed to send alerts for Low Water Tank Levels,
High Water Tank Levels, High Oil Tank Levels, High Water Injections Station
Pressures and Low Water Injection Station Pressures.

 

Dean Unit

 

Dean Unit Production Battery:

 

·                  1 — 4x31 3-Phase Production Heater Treater Separator (in
service)

·                  1 — 4x31 3-Phase Production Heater Treater Separator (out of
service)

·                  2 — 500 Bbl Steel Oil Production Tanks (in service)

·                  1 — 500 Bbl Steel Saltwater Tanks — Internally Coated (in
service)

·                  1 — 12x20 — 385 Bbl Vent tank (in service)

·                  1 — 5,000 Bbl Overflow Open-Top tank with net Covering (in
service)

 

--------------------------------------------------------------------------------

 

EXHIBIT “D”, continued

 

·                  1 — A.O. Smith 1.5 LACT Unit (out of service)

·                  1 — Vapor recovery Unit (in service)

·                  1 — 1,500 Bbl Oil Production Gun Barrel Tank (out of service)

 

Dean Unit Water Injection Station:

 

·                  2 — Ajax Vertical Triplex Saltwater Injection Waterfoold
Pumps with 250-Hp Motors (in service)

·                  2 — 30 gallon Air Compressor (Ser. No. 870757) (in service)

·                  1 — 20’x50’ Metal Water Injection Station Building (in
service)

·                  1 — 8’x10’ Metal Building with All Pump Controls & Manifolds
(in service)

 

Dean “K” Unit

 

Dean “K” Unit Production Battery:

 

·                  1 — 3x10 3-Phase Horizontal Production Separator (in service)

·                  2 — 210 Bbl Steel Oil Production Tanks (in service)

 

Slaughter-Dean Project Pumping Units—Dean & Dean “B” Units, Cochran County Texas

 

Dean Unit

 

·                  Dean #1 — Lufkin 114D

·                  Dean #3 — American D114

·                  Dean #7 — American D114

·                  Dean #9 — Lufkin 114D

·                  Dean #11 — Lufkin 320D

·                  Dean #14 — Bethlehem 114D

·                  Dean #16 — National1228D

·                  Dean #18 — Lufkin 160D

·                  Dean #20 — American D320

·                  Dean #22 — Continental Emsco D80

·                  Dean #27 — Bethlehem 228D

 

Dean “B” Unit

 

·                  #B-1 — National 320

·                  #B-3 — Bethlehem 320

·                  #B-5 — National 320

·                  #B-7 — National 228

·                  #B-9 — American 320

·                  #B-11 — American 320

·                  #B-13 — American 640

 

--------------------------------------------------------------------------------

 

EXHIBIT “D”, continued

 

·                  #B-14 — American 320

·                  #B-16 — Bethlehem 320

·                  #B-19 — Lufkin 114

·                  #B-22 — Bethlehem 320

·                  #B-25 — Bethlehem 228

·                  #B-27 — T&A’d

·                  #B-28 — Bethlehem 80

·                  #B-30 — American 640

·                  #B-31 — National 320

·                  #B-33 — Parkersburg 228

·                  #B-37 — National 320

·                  #B-39 — Bethlehem 114

·                  #B-41 — Continental Emsco 114

·                  #B-44 — Lufkin 114

·                  #B-46 — Bethlehem 114

·                  #B-47 — Continental Emsco 228

·                  #B-49 — American 320

·                  #B-53 — American 320

·                  #B-55 — Lufkin 114

·                  #B-57 — Cabot 228

·                  #B-59 — Continental Emsco 80

·                  #B-61 Cabot 80

·                  #B-63 — Lufkin 160

·                  #B-70 — Cabot 228

·                  #B-72 — Continental Emsco 320

·                  #B-74 — Bethlehem 114

·                  #B-76 — Continental Emsco 320

·                  #B-78 — Continental Emsco 80

·                  #B-82 — Lufkin Mark II 228

·                  #B-84 — Lufkin 228

·                  #B-88 — Continental Emsco 80

·                  #B-92 — Bethlehem 114

·                  #B-99 — Continental Emsco 114

·                  #B-102 — T&A’d

·                  #B-104 — Bethlehem 114

·                  #B-106 — American 160

·                  #B-110 — National 320

·                  #B-119 — Bethlehem 114

·                  #B-123 — Continental Emsco 80

·                  #B-129 — Lufkin 114

·                  #B-130 — Continental Emsco 80

·                  #B-132 — American 114

 

--------------------------------------------------------------------------------

 

EXHIBIT “D”, continued

 

·                  #B-133 — American 80

·                  #B-135 — Lufkin 160

·                  #B-137 — Bethlehem 80

·                  #B-139 — T&A’d

·                  #B-141 — American 114

·                  #B-143 — Lufkin Mark II 114

·                  #B-147 — National 320

·                  #B-149 — Continental Emsco 160

·                  #B-151 — Bethlehem 114

·                  #B-153 — Lufkin 114

·                  #B-154 — American 114

·                  #B-157 — National 320

·                  #B-158 — National 320

·                  #B-159 — National 320

·                  #B-160 — National 320

·                  #B-161 Weatherford 320E

·                  #B-162 Weatherford 320E

·                  #B-163 Weatherford 320E

·                  #B-164 Weatherford 320E

·                  #B-165 Weatherford 320E

·                  #B-166 Weatherford 320E

·                  #B-167 Weatherford 320E

·                  #B-168 Weatherford 320E

·                  #B-170 Weatherford 320E

·                  #B-171 Weatherford 320E

·                  #B-172 Weatherford 320E

·                  #B-173 Weatherford 320E

·                  #B-174 Weatherford 320E

·                  #B-175 Weatherford 320E

·                  #B-176 Weatherford 320E

·                  #B-177 Weatherford 320E

·                  #B-178 Weatherford 320E

·                  #B-179 Weatherford 320E

·                  #B-180 Weatherford 320E

·                  #B-181 Weatherford 320E

·                  #B-182 Weatherford 320E

·                  #B-183 Weatherford 320E

·                  #B-184 Weatherford 320E

·                  #B-185 Weatherford 320E

·                  #B-186 Lufkin 320

·                  #B-187 Weatherford 320E

 

--------------------------------------------------------------------------------

 

·                  #B-188 American 320

·                  #B-189 Weatherford 320E

·                  #B-192 Weatherford 320E

 

Dean “K” Unit

 

·                  Dean #K-6 — Lufkin 114D

 

Conveyed Interest

 

Lease

 

Working Interest

 

Net Revenue Interest

 

Leases insofar as they cover the Dean Unit

 

76.037418

%

59.987060

%

Leases insofar as they cover the Dean “B” Unit

 

76.037418

%

59.987060

%

Lease No. 4 (Dean K Unit).

 

79.313924

%

53.735183

%

 

Plus all rights, title and interest from the surface down to 100’ feet below the
base of the San Andres formation.

 

--------------------------------------------------------------------------------

 

EXHIBIT “E”

 

Joint Operating Agreement

 

--------------------------------------------------------------------------------

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Exhibit “H” Attached to and made part of that certain Purchase and Sale
Agreement dated January 7, 2008, by and between Reef Oil & Gas Income &
Development Fund III, LP. and Sierra-Dean Production Company, L.P. A.A.P.L. FORM
610 - 1989 MODEL FORM OPERATING AGREEMENT OPERATING AGREEMENT DATED January7 ,
2008 , year OPERATOR Reef Exploration, LP CONTRACT AREA Dean Unit, Dean “B” Unit
and Dean “K” Lease, as more fully Described in Exhibit “A” hereto. ,'. COUNTY
Cochran , STATE OF Texas COPYRIGHT 1989 — ALL RIGHTS RESERVED AMERICAN
ASSOCIATION OF PETROLEUM LANDMEN, 4100 FOSSIL CREEK BLVD. FORT WORTH, TEXAS,
T6137, APPROVED FORM. A.A.P.L Nc1.)s1o—19s9

 

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A.A.P.L. FOR.M 610 - MODEL FORM OPERATING AGREEMENT — 1989 VI. VII. VIII. , c.
EMPLOYEES AND CONTRACTORS: _AC'j QUISITION, MAINTENANCE OR TRANSFER OF INTEREST
TABLE OF CONTENTS I Bile DEFINITIONS EXHIBITS INTERESTS OF PARTIES ~ C.
SUBSEQUENTLY CREATED INTEREST TITLES A. TITLE EXAMINATION: B. ~ I‘ T: ‘I €'T“el
H '3 Y 1. m o . 1: n . m .n . , , W nu u-us 3. Other-Losses. /1 F‘. ‘ ’T"o1 I 5
OPERATOR A. DESIGNATION AND RESPONSIBILITIES OF OPERATOR B. RESIGNATION OR
REMOVAL OF OPERATOR AND SELECTIO 1. Resignation or Removal of Operator 2.
Selection of Successor Operator 3. Effect ofBankruptcy ~ D. RIGHTS AND DUTIES OF
OPERATOR . Competitive Rates and Use of Affiliate . Discharge of Joint Account
Obligations . Protection fi'O)'fl Liens . . Custody ofFunds Access to Contract
Area and Records . Filing and Furnishing Governmental Report Drilling and
Testing Operations . Cost Estimates . Insurance DRILLING AND DEVELOPMENT A.
INITIAL WELL: B. SUBSEQUENT OPERATIONS: 1. Proposed Operations . Operations by
Less Than All Parties. \aoo_\)a\f.;:->bJt\)»—- 2 3 4. 5. 4 -1 a O C. C
I\/IPLETBION OF 1. Completion 1_ 1: " l’D 6 ‘D1 . ‘OTHER OPERATIONS:. D
xnx/‘mm/n:\r'r*n1:*\‘r 1_ AL A -1‘ A1. A WU A $1‘: I U’ I . r\rrn'r1 .u D A A O
-CRVI’ nf‘ A” ‘QINEW 9‘ F_ T_gPn/irm Twnxv rm mag? A 'rWr\Mc-. G. TAKING
PRODUCTION IN KIND: (Option 1) Gas Balancing Agreement. (Option 2) No Gas
Balancing Agreemen EXPENDITURES AND LIABILITY OF P A. LIABILITY OF PARTIES: B.
LIENS AND SECURITY INTEREST C. ADVANCES: D. DEFAULTS AND REMEDIES" 1. Suspension
of Rights 2. Suit for Damages. 3. Deemed Non-Consen 4. Advance Payment. 5. Costs
and Attorneys E. RENTALS, SHUT-IN WELL PAYMENTS AND MINIMUM ROYALTIE F. TAXES:
’.—.r“‘u. " ~~ ~ A. SURRENDER OF LEASES: B. RENEWAL OR EXTENSION OF LEASES C.
ACREAGE OR CASH CONTRIBUTIONS: -u _._.H.___a___,-_, lg
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A.A.P.L. FORM 610 — MODEL FORM OPERATING AGREEMENT - 1989 Eggfixfi TABLE OF
CONTENTS D. ASSIGNMENT; MAINTENANCE OF UNIFORM INTEREST‘ E. WAIVER OF RIGHTS T0
PARTITION: . c_ DD1:I:I:‘D1:'H'r“I AY nmu-r ~r~n mmnu A on INTERNAL REVENUE CODE
ELECTION CLAIMS AND LAWSUIT FORCE MAJ EURE NOTICES TERM OF AGREEMENT COMPLIANCE
WITH LAWS AND REGULATIONS A. LAWS, REGULATIONS AND ORDER B. GOVERNING LAW: C.
REGULATORY AGENCIES. MISCELLANEOUS A. EXECUTION: . B. SUCCESSORS AND ASSIGN C.
COUNTERPARTS: D. SEVERABILITY OTHER PROVISION ~~~ ~ L-;—-:4 »—-;—-:_- L
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’Ir$G’EG'5'_"1'Erooeero.ur4:.mle-— Z t.r_. ore N :3 N» «km buwumm Otcoaxloim 4 l
42 43 44 45 46 47 48 Lltkhvillxkll-5 a>mt.r._oro 55 56 o~a~a~o~a\LIILnUr
J>mt\)_.o\oau\I 65 66 67 \Io~o« drd:'o~oco 74 A.A.P.L. FORM 610 » MODEL FORM
OPERATING AGREEMENT - 1989 ‘OPERATING AGREEMENT THIS AGREEMENF, entered into by
and between Reef Elrnltuzation LP hereinafler designated and referred to as
"Operator," and the signatory party or parties other than Operator, sometimes
lrereinafler referred to individually as "Non-Operator," and collectively as
"Non-Operators." WITNESSETH: WHEREAS, the parties to this agreement are owners
of Oil and Gas Leases andlor Oil and Gas Interests in the land identified in
Exlribit "A," and the parties hereto have reached an agreement to explore and
develop these Leases and/or Oil and Gas hiterests for the production of Oil and
Gas to the extent and as hereinafier provided, NOW, THEREFORE, it is agreed as
follows: 4, ARTICLE I. J‘ DEFINITIONS ll As used in this agreement,/the
following words and tenns shall have the meaning here dscrihed to them: A. The
term "AFB" shall mean an Authority for Expenditure prepared by a party‘. to this
agreement for the purpose of estimating the costs to be incurred in conducting
an operation hereunder. B. The term “Completlort" or "Complete" shall mean a
single operation intended to complete a well as a producer of Oil and Gas ill
one or more Zones, including but not limited to, the setting of production
casing, perforating, well stimulation and production testing conducted in such
operation. C. The term "Contract Area" shall mean all of the lands, Oil and Gas
Leases and/or Oil and Gas interests intended to be developed and operated for
oil and Gas purposes under this agreement. such lands, oil and Gas Leases and
Oil and Gas Interests are described in Exhibit "A." D. The term "Deepen" shall
mean tr single operation whereby a well is drilled to an objective Zone below
the deepest Zone in which the well was previously drilled, or below the Deepest
Zone proposed in the associated Al-‘E, whichever is the lesser. E. The terms
"Drilling Party" and "Consenting Party" shall mean a party who agrees to join in
and pay its share of the cast of any operation conducted under the provisions of
this agreement. F. The term "Drilling Unit" shall mean the area fixed for the
drilling of one well by order or rule of any state or 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 established by the pattern of clrilling in
the Corrtr1actAtea unless fixed by express agreement of the Drilling Parties. G.
The term "Drillsite" shall mean the Oil and Gas Lease or Oil and Gas interest on
which a proposed well is to be located. H. The term "Initial Well" shall mean
the well required to_be drilled by the parties hereto as provided in Article
Vl.A. L The term "Non-Consent Well" shall mean a well in which less than all
parties have conducted an operation as provided in Article Vl.B.2. ‘ J. The
terms "Non—Drilling Party" and "Non—Consenting Party" shall mean a party who
elects not to participate in a proposed operation. K. The term "Oil and Gas"
shrill lnean oil, gas, nasillglread gas, gas condensate, and/or all other liquid
or gaseous hydrocarbons and other marketable substances produced therewith,
unless an intent to lilnit the inclusiveness of this term is specifically
stated. ‘ L. Tire tenn "Oil and Gals interests" or "interests" shall mean
unleased fee and mineral interests in Oil and Gas in tracts of land lying within
the Contract Area which are owned by parties to this agreement. ,3 M. The terms
"Oil and Gas Lease," "Lease" and "Leasehold" shall mean the oil and gas leases
or interests therein covering tracts of land lying withirl the Contract Area
which are owned by the parties to this agreeln.:cIrt. N. The term‘ "Plug Back"
shall mean a single operation whereby a deeper zono is abandoned in order to
attempt 2 Completion in a shallower Zone. » 0, The term "Recpmpletion" or
"Recolnplete" shall mean an operation whereby a Completion in one Zone is
abandoned in older to attempt a Completion in a different Zone within the
existing wellbore. P. The term "Rework" shall mean an operation conducted in the
wellbore of a well afler it is Completed to secure, restore, or improve
production in a Zone which is currently open to production in the wellbore. Such
operntiorrs include, but are not litnited to, well stimulation operations but
exclude any r-outirro roprrir or maintenance work or drilling, sidstrackirrg,
Deepening, corrrplotirrg, Recompleting, or Plugging Back ofa well. Q. The lenn
"sidetiack" shall mean the directional control and intentional deviation of a
well frorrr vertical so as to change the bottom hole location unless done to
straighten the hole or drill around junk in the hole to overcolne other
mechanical difiicul ties. * R. Tire term "Zone" shall mean at stratum of earth
containing or thought to contain a common accurrlulation of Oil and Gas
separately producible from any other common acculnulzrtion of Oil and Gas.
Unless the context otherwise clearly indicates, words used in the singular
include the plural, the word "person" includes natural and artificial persons,
the plural includes the singular, and airy gender includes the masculine,
feminine, and neuter. ARTICLE ll. EXHIBITS The following exhibits, as indicated
below and attached hereto, are illcorporated in and made a part hereof: X _ A.
Exhibit "A," shall include the following infonrmtion: (1) Description of lands
subject to this agreement, (2) Restrictions, if any, as to depths, fonnations,
or substarrces, (3) Parties to agreement with addresses and telephone numbers
for notice purposes, (4) Percentages or fractional interests of panics to this
agreement, (5) oil and Gas Leases andlor oil and Gas Interests subject to this
agreement, ~ ~ (6) Burdens on production. la. Exhibit "B," Fonn ofLesse. x c.
Exhibit "C," Accounting Procedure. x D. Exhibit "D," Insurance. E. Exhibit Gas
Balancing Agreement. x F. Exhibit F,"Non-Discrimination and
CertificationofNon-Segregated Facilities. x G. E>tlIibitTax Partnerslrip. x H.
Other: Jrrodel Form Recorjline Sunnlement

 

[g133791la07i005.gif]

A.A.P.L. F OIUVI 610 - MODEL FORM OPERATING AGREEMENT - 1989 If any provision of
any exhibit, except Exhibits ‘—'E,"—"F" and " is inconsistent with any provision
contained in the body of this agreement, the provisions in the body of tllis
agreement shall prevail. ARTICLE III. INTERESTS OF PARTIES ~ A. Oil and Gas
Interests: If any party owns an Oil alrd Gals Interest in the Contract Area,
that Intgreéte 3,211 purposes of this agreement and during the term lrereof as
if it were covered by the form of oil and as ‘Lcrsc/ and the owner thereof shall
be deemed to own both royalty interest in such lease and the interest of the
lessee thereunder. B. Interests of Parties irI.Costs and Production: Unless
changed by other provisiolls, all costs and liabilities incurred in operations
under this agreement shall be home and paid, and all equipment and materials
acquired in operatiolrs on the Contract Area shall be owned, by the parties as
their interests are set forth in Exhibit "A." In the salrle manner, the parties
shall also owlr all production of Oil and Gas fi'oln the Contract Area subject,
however, to the payment of royalties and other burdens on production as
described hereafier. Regardless of which party has contributed any Oil and Gas
Lease or Oil and Gas Interest on which royalty or other burdens may be payable
and except as otherwise expressly provided in this agreement, each party shall
pay or deliver, or cause to be paid or delivered, all burdens on its share of
the production from the Contract Area up to, but not in excess of, all ‘on! y
oygncd burdens of record and shall indemnify, defend and hold the other parties
flee fi‘OI|| any liability therefor. Except as otherwise expressly provided in
this agreement, if any patty has contributed hereto any Lease or Interest which
is burdened with any royalty, overriding royalty, production payment or other
burdeli on production in excess of the amounts stipulated above, such party so
buI'dened shall assume and alone bar all such excess obligations and shall
indemnify, defend and hold the other parties hereto harmless from any and all
claims attributable to such excess burden. However, so long as the Drilling Unit
for the productive Zorre(s) is identical with tile Contract Area, esch parry
shall pay or deliver, or cause to be paid or delivered, all burdens on
production from the Contract Area due under thefitenrrs of the Oil and Gas
I.ease(s) which such party has contributed to this agreement, and shall
indemnify, defend and hold the other parties free from any liability therefor. .
No party shall ever be responsible, on a pncc basis higher than the price
received by such party, to ally other party's lessor or royalty owner, and it‘
such other party's lessor or royalty owner should demand and receive settlement
on a higher price basis, the pony colrtributing the affected Lease shall bear
the additional royalty burden attributable to such higher price. Nothing
contained in this Article lll.B. shall be deemed an assignment or
clossassigrunent of interests covered hereby, and in the evellt two or more
parties contribute to this agreement jointly owned Leases, the parties’
undivided interests in said Leaseholds shall be deemed separate leasehold
interests for the purposa of this agreement. C. Subsequently Created Interests:
lf ally party has cnnnibuted hereto a Lease or Interest that is burdened with an
assignment of production given as security for the payment of motley, or if,
afier the date of this agreement, any party creates an overriding royalty,
production payment, net profits interest, assignment or production or other
burden payable out of production attributable to its working interest hereunder,
such burden shall be deemed a "Subsequently Created Intemt." Further, if any
party has contributed hereto a Lease or Interest burdened with an overriding
royalty, production payment, net profits interess, or other burden payable out
of production created prior to the date of this agreement, and such burden is
not shown on Exhibit ' ," such burden also shall be deemed a Subsequently
created interest to the extent such burden causes the burdens on such party's
Lease or Interest to exceed the amount stipulated in Article lll.B. above. '
'l'he party whose interest is burdened with the Subsequently Created Interest
(the "Burdened Party") shall assume and alone bear, pay and discharge the
Subsequently Created Interest and shall indemnify, defend and hold harmless the
other parties from and against any liability therefor. Funlrcr, if the Burdened
Patty fails to pay, when due, its share of expenses chargeable hereunder, all
provisions of Article VlI.E. shall be enforceable against the Subsequently
Created Interest in the same lrlanrler as they nre enforceable against the
working interest of the Burdened Party. If the Burdened Party is required under
this agleetrtelrt to assign or relinquish to sny ollier party, or parties, all
or s 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 inden-niify, defend and hold harmless said other party, or parties, from
any and all claims and demands for payment asserted by owners of the
Subsequently Created Interest. ARTICLE IV. TITLES A. Title Exanrmatlon: ‘A "
Title examination shall he lnade on the Drillsite of any proposed well prior to
colr’ti,L-lencernetlt of drilling opemtions—a-lid; ~c - -cr r.r rr -. e 3 ~
n-rrs,.n n r -r .;,_r.rrr. .r .r s ‘1 :4 ~ .rn-n- nu tn sat V 5 r - 1""" 'l1re
opinion will iablude the ownership of the working interest, milrenals, royalty,
overriding royalty and production payments under the applicable Leases. Each
party contributing Leases and/or Oil and Gas Interests-to be included in the
Drlllsite or Drilling Unit, if appropriate, shall fumish trl Operator all
abstracts (including fedeml lease status reports), title opinions, title papers
and curative material in its possession flee of clrarge. All such inronnslion
not in the possession of or made available to operator by the partis, but
necessary for the examination of the title, shall be obtained by Operator.
Operator shall cause title to be examined by attonreys on its staff or by
outside attorneys. Copies of all title opinions shall be funrished to each
Drilling Party, Costs irrcuned by Operator in procuring abstracts, fees paid
outside attorneys for title examination (including preliminary, supplemental,
shut-in royalty opinions and division order liilc opinions) and other direct
charges as provided in Exhibit "C" shall be home by the Drillirrg Paltiu in the
proportion that the interest of each Drilling Party bears to the total interest
of all Drilling Parties as such interests appear in Exhibit "A." Operator shall
make no charge for services rendered by its staff attorneys or other personnel
in the performance of the above functions. Each psny shall be mpoilsible for
securing curative matter and pooling anrendlnents or agreements required in
connection with Leases or oil and Gas Operator shall be responsible for the
preparation and recording of pooling designations or declarations and
communitization agreements as well as the conduct of hearings before
govemrnentnl agencies for the securing of spacing or pooling orders or any other
orders necessary or sppruprisic to the conduct of operations hereunder. This’
shall not prevent any party from appearing on its own behalf at such hearings.
Costs incurred by Operator, including fees paid to outside attomeys, which are
associated with hearings before govennnental agencies, and which costs are
necessary and proper for the activities contemplated under this agreement, shall
be direct charges to the joint account and shall not be covered by the
administrative overhead charges as provided in Exhibit "C." .2.

 

[g133791la07i006.gif]

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32 33 34 35 36 37 38 39 40 4] 42 43 44 45 46 47 48 49 50 SI 52 53 54 S5 S6 57 58
59 60 6! 62 63 64 65 66 67 68 69 70 7] 72 73 74 A.A.P.L. FORM 610 ~ MODEL FORM
OPERATING AGREEMENT — 1989 opeL~LtoL- shall make no charge for services rendered
by its staff ahomeys or other peLsoLmel in the peifotmance of tlle above
functions No Well shall be drilled all the Conilaet Area ulltil afler (1) the
title to the Drillsite or Drilling Unit, if appropriate, has been examined as
above provided, and (2) the title has been appmved by the examining attomey or
title has been accepted by ill] of the Drilling Parties in such well. ~ ~ ~ ~ ‘l
5. C’. l"|"'I-(‘L hi I ‘I A!‘ In t (VI A r eL_l_I go)’ ski‘) fro‘: \.‘I. l L -
c« L I L L ,L«.L L L-L.« .L 3‘ LL L L L L s L-L,L- -c I'|.I .L~L L L LLLL ‘blnn
L’ A eLL » L-LL L eL Ell L L LL \ .--L. - L L’ - L - LL ‘II’! L~L LL L L ‘1 s L
L ‘I J 0 L.-,.L Lmua LLc»L» . ,L .L» L LL LLL .: » e . LL ~- 'I J_(‘ -~L e L 5 L
L 5 laeases-a-Lad-l-ntetLests;—and; I "Fl-L L .L»L.,L LLLL .-L- L l'\‘I A L L. L
e .,LL .L. -L cal ‘IA’ -c F L -5 LL L-LL .--L L ._.L_.LLLL L L .- I ,L~.LLL L La
.r FF L F L L . L ~ - L-L -. L - L La .- -A L L AV E r J" '14 r e I ‘V J! 2 I
III. Liars‘ H‘ I'l'n ‘A .44 LI. ul -4 I l- 1. ' I‘ I 4' 1 ecl . . L F P L—=-- L
L'1‘l LLLL L » L». .c - .,L ~L:. LL LL c.L L F D‘ L .L LLLL .~~L,LL.L ». . rLL ~
L-L Lei-L-LLLLLLLLL -L L L--- La L» c.L . ».L. -.,LrLL.L-.L:»L L . LLLLL L .e.L
L L L _ L T L .- cc ~al.LJL ‘|A_€I -LLLL L; L .L 1'd.E .4. LJ\ ei L LL e«LL_
ll‘! « c.L L. L - .L- LL - LL-LL.L L L«L« L« IF 5 -r A » « AIL L-LL -LL c.~L. L
4 L L L L - ,L- .- -.L L LL »L.LL L L P L L L L L.-LL (“IAIN ».L F ,L .»L.L.LL
L». vl . ,L L L LL L ‘I -LL L. L all .L AL - ~ ‘I L LL L- L L LL c L LL L L . L
I LLLL -L H ) ‘!“F A_5‘ » L L» e ‘I .L I’! - F F A 4L\ L ‘A L L« F LL LL.-L L»L
L ~- »LL,L L n_5I ,L- -.L A L LLLLL L» e vi 1‘ I’ L LL L ‘E; .Lc L AI LLLL L LL
.L - L . c J LL-L«L-L ~ ~ ~ ~ ~ ~ ~ LLL »la4pl¢,6‘a.-oIr"IE £'y"r'5‘l."¢All .L
-5?) L's. 3. Q6heI’—l.DS§§Z All losses of Leases or Illterests committed to this
agieemeiit, shall be joint losses and shall be home by all palties in popoition
to their interests shown on Btllihit ' ' This shall include but not be limited
to the loss of any Lease or hLteL-est llirough failure to develop or because
express or implied covenants have not been perforlrled (other than pcrfonnallce
which requires only tlle payment of money), and the loss of any Lease by
expiration at the end of its primary term if it is not rcnevred or extended.
There shall be no Leoojustiheiit of iLLteLests in the LeLLLaiLLiLLg poitioh
ofthe cohtmct Area on account ofany joint loss. ' ‘ in - -r~'.L.l LL c L:-L
err-.L .L l-L ulnl I c -.L L .- L. mu-L L H7 L_. ‘A L L. . - . » - 1 - L _) Ll
JV IL L. L L V I L L .-LL ‘AB A El I An a ‘A .-.L.LL .L<L LLLLsL .L L mu-L L. -
LL » rL -. .LL_.L .1. .--LL \ It’ 5 ,.L L LLLL. ac .LL L L -L .L l"l4l~ LL ,L.L
l'A<‘l\|llD r L L F ~

 

[g133791la07i007.gif]

lo._ rsrl».rrsrr-are gnaw A.A.P.L. FORM 610 - MODEL FORM OPERATING AGREEMENT -
1989 ARTICLE V. OPERATOR A. Designation and Responsibilities of Operator: 4*
|3eefExplarat'gn,L.E 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. In its
pcrfonnance of services hereunder for the Non-Operators, Openrior sllall be an
independent contractor not subject to the control or direction of the
Nomopelators except as to the type or operation to be undertaken in accordance
willi the election procedures contained in this agreement. Operator shall not be
deemed, or hold itself out as, the agent of the Non-Operators with authority to
bind tllein to any obligation or liability assumed or rred by Operator as to any
third party. Operator sllall conduct its activities under this agreement as a
reasonable prudent rppelator, in a good and workmanlike lnallncr, with due
diligence and dispatch, in accordance with good oilfield practice, and
inlycolnpliarice witll applicable law and regulation, but in no event shall it
have any liability as Operator to the other parties for _osses sustained or
liabilities incurred ~ except such as may result from gross negligence or
willful misconduct. i, B. Resignation or Removal of Operator and Selection of
Successor: Resi an n r em v I f emt r: Operator may resign at any time by giving
written notice thereof to Noll-Operators. If Operator terminates in legal
existence, 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 only for good cause by the
affinnative vote of Non-Operators owning a majority interest based on ownership
as shown on Exhibit "A" remaining tiller‘ excluding the voting interest of
Operator; such vote shall not be deemed effective until a written notice has
been delivered to the Operator‘ by a Non—Opemtor' detailing the alleged default
and Operator has failed to cure the default. within thirty (30) days from its
receipt of the notice or, if the default concerns an operation tllen being
conducted, within forty-eight (48) hours of its receipt of the notice. For
purposes hereof, "good cause" shall mean nor—only gross negligence or willful
rniscoriduct /'l~ » ' er - ' ' r ' = - ' W, ' Subject to Anicle VIl.D.l., such
resignation (lr 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
alter the giving of notice of resiglration by Operator ,v.rc ~ or action by the
Non—Opemtors to remove operator-, unless a successor Operator has been selected
and assumes the dutiu of Operator at all earlier date. Operator, afler effective
date’ of resignation or removal, shall be bound by the (anus hereof as a
Non-Operator. subsidiary, parent or successor‘ corporation shall not be the
basis for removal of operator. 2. ' o t‘: "t' - lfOt' - “ n'- t Reef oilac
ucirmc ovc oiiine ° nit‘ ii °'l‘§'.°a'ii§i3gé’r‘irl§’ihr‘%iiliii'v?li'?lr iire
o’t’li5i- ‘i~lo‘r'i'3$°'i?5’{r§§?‘{i§i$id%d,'li§vi‘§ié2'iii‘tlré event snrd Fund
shall can 2 to own an nterest in the onrruot Area, the successor Operator sh: he
s acted by the party or parties A cllange of a corporate name or structure of
operator or transfer of Operators interest to any single ~ owlrilrgasi le maj ri
‘ntere t. _ successor d'pEntur sinlly he sciccrsu by / -L p . ~*- A p l H L l A
= l -. .-u nn .r» r. nF.~ r.u_-r-r 4 IIIL. V 3.14! ': r r*rr r. .r *.r u. I
.'BA£‘'I A it’! nr LIIL IoALl\. Ac .- . cl F») F as. .r. a r.-V r K:I'l'gIIAn
~l§A. Iglibl .- ‘4 In retneved—er—resi-gneér Tile former Operator shall promptly
deliver to the successor Operator all records and data relating to the
operations conducted by the former Operator to the extent such records and data
are girot already in the possession of the successor operator. Any cost of
obtaining or copying‘ the fonner opcmtoes records nut data shall be charged to
the joint account. , ,i 3. Eflect of Bankruptcy: If Operator becomes insolvelrt,
bankrupt or is placed in receivership, it shall be deemed to have resigned
without any action by Non-Operators, except the selection of a successor. If
a'petition for relief under the federal bankruptcy laws is filed by or against
Operator, and the removal of Operator‘ is prevented by the federal bankruptcy
court, all Non-Operators and Operator shall comprise an interim operating
committee to serve until Operator has elected to reject or assume this agreement
pursuant to the Bankruptcy Code, and an election to reject this agreement by
opemtor as 2 debtor in possession, or by a trustee in barlkmptcy, shall be
deemed it resignation as Operator without any action by Non-operators, except
the selection of a successor-. During the period of time the operating committee
controls operations, all actions shall require the approval or two (2) or more
parties owning a majority interest based on ownership as shown on Exhibit "A."
in the event there are only two (2) parties to this agreement, during the period
of time the operating committee controls cperzltiorrs, a third party acceptable
to Operator, Non-Operator and the federal bankruptcy court shall be selected as
a member of the operating committee, and all actions shall require the approval
of two (2) members of the operating committee without regard for their interfit
in the Contract Area based on Exhibit " t c. Employees and Contractors: ~~ The
rlurrrber of employees or contractors 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 or
cclrhrrctors shall be the employees or contractors of Operator: D. Rights and
Duties of Operator: 1. Competitive Rates and Use of Affiliates: All wells
drilled on the Colltract Area shall be drilled on a competitive contract basis
at the usual rates prcvoillng in the area. If it so desires, opcnrror rrlay
employ its own tools and equipment in the drilling of wells, but its charges
therefor sllall not exceed the prevailing rates in the area and the rate of such
char-gas shall be agreed upon by the parties in writing before drilling
operations are crnnrnenced, and such work shall be perfonrned by opcistor under
the same rcnns alrd conditions as are customary and usual in the area in
contracts of independent conimcrors who are doing work of a silnilar nature. All
work perfonued or materials supplied by affiliates or related parties of
Operator shall be perfonned or supplied at competitive rates, pursuant to
written agreement, and in accordance with customs and standards prevailing in
the industry. 2- Except as herein otherwise specifically provided, Operator
shall promptly pay and discharge expenses incurred in the development and
operation of the Contract Area 'p‘ursunit to this agreement and sllall charge
each of the parties hereto with their respective proponiornrc slrarcs upon the
cxplnisc basis provided in Exhibit "c." operarcr shall keep an accurate record
of the joint account lrereurlder, sllowing expenses incurred and charges and
credits made and received. v « l 3. Protection fryrn 1‘; is: Operator shall pay,
or cause to be paid, as and when tlrcyibccome due and payable, all accounts or
contractors and suppliers and wages and salaries for services rendered or
performed, and for materials supplied on, to or in .4.

 

[g133791la07i008.gif]

Is: 1»; la la 3-»;|:§:5~aoo\Io~m&\.-4N <:-E53433 N u N 4> Z5 wwwwumu:
xaooxnmvnzxw 40 42 43 44 45 46 47 48 49 mu: mu. a«.;l‘G._o 55 57 58 59
~I~I\I\)~|a\o\a\a\aso\o\<7\ma» J:-uaI\).ao~Duax|a\s.ruJ>L-IN-—-c A.A.P.L. FORM
610 - MODEL FORM OPERATING AGREEMENT - 1989 respect of the Calumet Am or any
operations for the joint account thereof, and shall keep the Contract Area flu
ftcun

 

[g133791la07i009.gif]

uuxlatllt->h:ts)— tu ls) Iu IQI~||~)l~)l\)|\J tst>—4-—-—-._.
~Om\tmUtAw|~J—o\aco\to\ Wm -—o L» to tut.» r-.t.r in L1- D-I as tour (inst u re
«> o 4» AN as not -5 or A a\ A xi us on t. \o Lit o vi or lu Ut ct LII5 u- U: vi
at or \t or pro O\U| Oso mararoror utrs-.tN._ moans count or so 4o \- «Isl orto
2.’ A.A.P.L. FORM 610 - MODEL FOR.M OPERATING AGREEMENT - 1989 liens and
encumbrances resulting therefrom except for those resulting from a bona fide
dispute as to services rendered or maten‘als supplied. 4. Qstgdy of Fulrd§:
Operator shall hold for the account of the Nun-Operators any funds of the
Non-Operators Advanced or paid to the Operator, either for the conduct of
operations lrereunder or as a result fipf the sale of production fiom the
Contract Area, and such funds shall remain tlle funds of the Nun-Opelutols on
whose accopnt they are advanced or paid until used for their intended purpose or
otherwise delivered to tire Non-Opemtots or applied toward the payment of debts
as provided in Anicle v1l.l3. Nothing in this paragraph shall be construed to
establish a fiquoiory l'elaticmsl'rip between Operator and Non—operntcrs for any
purpose other than to account for Nou—Opetat0r funds as lret-cijtt specifically
provided. Nothing in this paragraph shall require the maintenance by Operator or
separate accounts for thc3,ruttds of Non-Operators unless the parties otherwise
specifically agree. 5. Accgfi to Contract Area gtd Records’ Operator shall,
except as otherwise provided herein, permit each Non-Operator or its duly
authorized representative, at the Non»Opelator's sole "risk and cost, full alrd
free access at all reasonable times to all operations of every kind and
character being conducted for the joint account on the Contract Area alrd to the
records of operations conducted thereon or production therefroln, including
operators books and records relating thereto. such access rights shall not be
exercised in a manner interfering with Operators conduct of an operation
hereunder and shall not obligate Opemtor to funrish any geologic or geophysical
data of an interpretive nature unless the cost of preparation of such
irlterpretive data was charged to the joint account. Operator will fumish to
etch Non-Operator upon request copies of any and all reports and inronnttliott
obtained by Openttar in connection with production and related items, including,
without limitation, meter and chart reports, production purchrtser statements,
run tickets and monthly gauge reports, but excluding ' purchase contracts and
pricing infonnaliorr to the extent not applicable to the production of the
Non-Operator seeking the inronnoticn. Ally audit of operators records relating
to amounts expended and the appropriateness of such expenditures shall be
conducted in accordance with the audit protocol specified in Exhibit "C." 6.
Filing and Furnislting goyenrnctrtsl Reports: operutor will file, and upon
written request pt-otnptly funrislr copies to each requesting Non-operator not
in default of its payment obligations, all opet-rttictrnl notices, reports or
applications required to be filed by local, State, Federal or Indian agencies or
authorities having jurisdiction over operations lrereunder. Each Non-Operator
Sllllll provide to Operator on 3 timely basis all information necessary to
Operator to make such filings. 7. Dj ring and T_e§_l'ng Operations: The
following provisions shall apply to each well drilled hereunder, including but
not limited to the Initial Well: (st) Operator will promptly advise
Non-Operators of the date on which the well is spuclded, or the date on which
drilling operations are commenced. (b) Operator will send to Non-Operators such
reports, test results and notices regarding the progress of openttitrus on the
well as the Non-Operators shall reasonably request, including, but nctlhnited
to, daily drilling reports, completion reports, and well logs. (c) Operator
shall adequately test all Zones erroourrtel'ed whiclt may reasonably be expected
to be capable of producing oil and Gas in paying quantities as a result of
examination or the electric log or any other logs or cores or tests conducted
hereunder. , l 8. Upon request of any Consenting Party, Operator shall fumish
estimates of eunent and cumulative costs incurred for tlre_joirtt account at
reasonable intervals during the conduct of any operation pursuant to this
agreetnettt. Operator shall not be held liable for errors in such estimates so
long as the rstilrlates nre made in good faith. 9. lnsirccz At all times while
operations are conducted hereunder, Operator shall comply with the workers
tzotrtpensatiott low of the state where the operations are being conducted;
provided, however, that Operatlor may be a selfinsurer for liability under said
compensation laws in which event the only charge that shall be made to the joint
account shall be as provided in Exhibit "C." Operator shall also carry or
provide insurance for the benefit of the joint account of the penis as outlined
in Exhibit "D" attached hereto and rnarle 2 part hereoft Operator shall require
all contractors engaged in work on or for the Contract Area to contply with the
workers compensation law of the state where tltc operations are being conducted
and to maintain such other insurance as Operator may require. In the event
automobile liability irisunnrce is specified in said Exhibit "D," or
subsequently receives the approval of the parties, no direct charge shall be
tirade by Operator for premiums paid for such insurance for Opemtor‘s automotive
equlpmcnlt ~ ARTICLEVI. DRILLING AND DEVELOPMENT nk€tI A: rrn nun rt 1 . u is
Al“! c. - t.rn~ on It our n~.- ._s s s _\ -.-r 1411' no I'o'r\)III Al F ~_,.- .r
.- ul 11.14‘ 4 r,I's_ 1, . Avo‘I._lH_1 V -F. Fit‘ yo AA<'l\7IVl:‘ or - AIl'IVl .
5: J B. Subsequent Operations: _ The rrghtto propose operations shalllke
restricted as SB‘£fflrilI inAA_rticl5 Xxl B.|‘ler'eo_[., : r 1_ Pmng§Ed
gym;-°,,§._,r 1;! ,r I it ll’ '0‘ L IA .r - o .t. c-,r . _ ’ I-,hF,D PI DIED!
art. It Is FL! 4- .r-- - I'h u .cu t » r- 'I.l'»‘>. ‘I . ,rr.-.- . F 5 VJ §‘i F
J H t4 )4 J A cut. t o ,r~ . ,r-tip I-Q'Aol IN I) t. .nt hi I ttt.tt- e r t- 4
ts , r Er rt-= s s c Fol FF Ay‘ I _- II .- I"'Lall“ - xx)‘;-

 

[g133791la07i010.gif]

r A.A.P,L. FORM 610 - MODEL FORM OPERATING AGREEMENT - 1989 are 5‘ .r.
nu.’/.«~r. cry Il‘Q'»1el’$ |"ty'6:r'J§J’§6I r L V4‘ -a_I I ~' ,, , -«|A,,«I_ k,’
«' 4“ t‘ W‘ t "‘ p " The paltiestc whom sucha notice is delivered shall have
thirty (30) days afier receipt of the notice within which to notify the party
proposing to do tlle work whether they elect to participate in the cost of the
proposed operation. If a drilling rig is on location, notice of a proposal to
Rework, Sidetlack, Recolnplete, Plug Back or Deepen may be given by telephone
and the response period shall be limited to fortyeight (48) hours, exclusive of
Saturday, Sunday and legal holidays. Failure of a party to whom such notice is
delivered to reply witllin the period above fixed shall constitute an election
by that party not to participate in the cost of the proposed opemtinn. - »- n
I1. ,3. .- arr Jar: 1 F .9 s . .1 .,,E If all parties to whom such notice is
delivered elect to participate in such a pro'_llosed operation, tlte parties
shall be ‘en r~ at.lls.AI' .r n .- rx r p,J‘c_ contractually cotrlnrilted to
participate therein provided such operations are colnlltenced within the time
period hereafter set forth, and Operator shall, no later than ninety (90) days
afier expiration of the notice‘. period of thirty (30) days (ol' as promptly as
practicable liner the expinrtion of the forty~eight (45) hour period when a
drilling rig is on location, as the case may be), actually commence the proposed
operation and thetelrfier complete it with due diligence at the risk and expense
of the parties participating therein; provided, however, said colrrtnerlcement
date may be extended upon written notice of same by Operator to the other
parties, in the sole opinion of Operator, such additional time is reasonably
necessary to obtain pennits froln governmental authorities, surface rights
(including l1'ghts-ofway) or appropriate drilling equipment, or to complete
title examination or curative matter required for title approval or ~
,,,ccp,a,m_ It i r F - r u ,r ~.r< _oI« - F -4 .r ~ r .- O ) - r - ~rr~ -. :. ~
-~ L.-rvr 4-: r . rrrA'. . A4 “ ".7 r«_ ‘ 1 r 1 F J 4 . . k L ,r . r .r . v‘ r
~.r. -: » r« 1 r» r« s r IIAI. ,r 'rl I¢A'A . .r A'II : nr r.-r r n r- r r«" a r
r r-« cu r .r r c .r .r .r n ‘A . ““’ ‘ “. " .« * r -— r« 2: r: , ~ ~ v « «r r s
r\ A r k r L\ n E n a F B r 2. Operations by Less Than Al Parties: (a)
Determination gf Pagicipatigrl. If any party to whom such notice is delivered as
provided in Article Vl.B,l. or Vl.C.l. (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, no later that) ninety (90) days
afier the expiration of the notice period of thirty (30) days (or as promptly as
practicable after the expiration of tire 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. Opentor 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 Opemtor is a Non-Collsetrting Party, the
Consenting Parties shall either: (i) request Opaator to per-fonn the work
required by such proposed operation for the account of the Consenting Parties,
or (ii) designate one of the Consenting Patties as Operator to perform such
work. The rights and duties grained to and imposed upon the Operator under this
agreement al'e gmnted to and imposed upon the party designated as Operator for
an operation in which the original Operator is a Non-Consenting Party.
Corlselttiug Parties, when conducting operations on the Contract Ar-ea pursuant
to this Article Vl.B.2., shall comply with all terms and conditions of this
agreement. ‘ I If less than all parties approve any proposed operation, the
proposing party, imlmediately aner the expiration of the applicable notice
period, shall advise all Parties of the total interest of the parties‘,
approving such operation and its recornrrrendation as to whether the consenting
Parties should proceed with the operation ap proposed. Each Consenting Party,
within folty»eight (48) hours (exclusive of Saturday, Sunday, and legal
holidays) afier delivery of such notice, shall advise the proposing party of its
dire to (i) limit participation to such party's interest as shown on Exhibit "A"
or (ii) cany only its propnnionate part (determined by dividing such party’:
interest in the Contract Area by the interests of all Consenting Parties in the
Contract Area) of Non-Consenting Parties‘ ‘nter-ass, or (i" carry its
proportionate part (determined as provided in (ii)) of ~ Nori~Consentirlg
Pzn1ies' interests together with all or a portion of its proportionate part of
any Non-Consenting Parties‘ interests that any consenting Parry did not elect to
take. Airy interest of Non-Consenting Parties that is not carried by a
Collsenting Party shall be deelned to he can-ied hy the party proposing the
operation if such party does not withdraw its proposal. Failure to advise the
proposing party Within the time required shall be deemed an election under (i).
in the event rr drilling rig is on location, notice may be given by telephone,
and tlte time permitted for such a response shall not exceed a total of
forty-eight (rs) hours (exclusive of Saturday, Sunday and legal holidays). 'l'he
proposing party, at its election, may withdraw such proposal if there is less
than 100% participation and shall notify all parties of such decision within ten
(10) days, or within twenty-four (24) hours if a drilling rig is on location,
following expiration or the applicable response period, If l00% subscription to,
the proposed operation is obtained,’the proposing party shall promptly notify
the Consenting Parties of their proportionate interests in the operation and the
party serving as Operator shall commence such operation within the period
provided in Article Vl.B. l ., subject to the same extension right as provided
therein. (la) Relin ui h ti n Tire entire cost and risk of corrdrtcting such
operations shall be home by the Consenting Parties in the proportions they have
elected to bear same under the terms of the preceding paragraph. encumbrances of
every kind created by or- arising front the operations of tlte Cnnsenling
Parties, lf such an operation results ill a dry hole, then subject to Articles
VI.B.6. and Vl.E.3., the Colrsentirtg Patties shall plug and abandon the Well
and restore the surface location at their sole cost, risk and expense; provided,
however, that those Non-Consenting Parties that participated in the drilling,
Deepening or Sidetracking of the well shall remain liable for, and shall pay,
their proportionate I terest fo Consenting Parties shall keep the leasehold
estates involved in such operations free and clear of all liens and shares of
the cost of plugging and abandoning the well and restoring the surface location
insofar only as those costs were not increased by tlte subsequent operations of
the Consenting Parties. If any well drilled, Reworked, Sidetmcked, Dcepened,
Recolnpleted or Plugged Back under tlreprovisions of this Article resuls in a
well capable of producing Oil and/or Gas in paying quantities, the consenting
Parties shall Complete and equip the well to produce it their sole cost and
risk, and tlte well shall then be turned over to Operator (it the Operator did
not conduct the operation); and shall be operated by it at the expense and for
the account of the Consenting Parties. Upon connncncctnellt of optiiations for
the drilling, Reworking, Sidetmckitig, Recornplcting, Deepening or Plugging Back
of any such well by consenting Parties in accordance witlt the provisiorrs of
this Article, each Non-consenting Party shall be deemed to have relinquidhed to
Consenting Parties, and the Consenting Parties shall own and be entitled to
receive, irt,plo ottion to their respective interests, all of such Norr- . , , l
3 1 [A _ Consenting Party's interest in the H A ' !'§l‘3rl'° "'7 "" 5“ "T
uctlort— ‘ " "*' "' ‘ ‘ by s. .5.

 

[g133791la07i011.gif]

A.A.P.L. FORM 610 - MODEL FORM OPERATING AGREEMENT - 1989 p ~ hp’ _rs r
nr56'5nI, . yr.» V -r n__r_ nyr \I."r‘ n t‘ atr rs r .-.r Val‘ r-ac L _ .-
r‘1.rrM EEDJAU-I r Such relinquishment shall be effective until the proceeds of
the sale of such share, calculated at the well, or market value thereof if such
share is not sold (aflcr deducting applicable ad valorem, production, severance,
and excise taxes, royalty, oveniding royalty and other interests not excepted by
Article lll.C. payable out of or measured by the production with respect to such
interest until it reverts), sllall equal the total of the following: (i) 390 %
of each such Non-Consenting Party's share of the cost of any newly acquired
surface equipment beyond the wellhead connections (including but not limited to
stock tanks, separators, treaters, pumping equipment and piping), plus 100% of
each such Non»Consenting Party's share of the cost of operation of the well
commencing with first production and continuing until each such Non-Conscnting
Party's relinquished interest shall revert to it under other provisions of this
Article, it being ngreed that each Non-Consenting Party's share of such costs
and equipment will be that interest which would have been chargeable to such
Non-Consenting Party had it participated in the well from the beginning of the
operations; and (ii) 600 % of (a) that portion of the costs and sxpenscs of
drilling, Reworking, Sidetracking, Dccpcning, Plugging Back, testilrg,
Completing, and Reeornpleting, nfier deducting any cash contributions received
undcr'Articlc vlll.c., and of (b) that portion of the cost of newly acquired
equipment in the well (to and including the wellhead connections), which would
have been chargeable to such Non-Consenting Party ifit had participated therein.
Notwitllstanding anything to the contrary in this Article vl.a., if the well
does not reach the deepest objective Zone ' described in the notice proposing
the well for reasons other than the errcounterirrg of granite or practically
irnpsncnablc, substance or other condition in the hole rendering further
operations impracticable, Operator shall give notice thereof to each
Non-Consentirlg Party who submitted or voted for an alternative proposal under
Article Vl.B.6. to drill the well in a shallower Zone tlrrrn the deepat
objective zcrre pr'oposed in the notice under which the visit was drilled, and
each such Non- Consenting Party sllall have the option to participate in the
initial proposed Completion ofiithe well by paying its share of the cost of
drilling the well to its actual depth, calculated in the rnanrrer provided in
Artiisle Vl.B.4. (a). If any such Non- Consenting Party does not elect to
participate in tlle first completion proposed for sutzlriflvell, the
r-elinquislnr-lent provisions orthis Anicle Vl.B.2. (b) shall apply to such
party's interest. 1-. (c) Rewo'k'ng Rggpnplgting gr Ejngging Back An election
not to participite in the drilling, Sidelnrckirrg or Deepening or a well sllall
be deemed an election not to participate in any Reworkirrg or Plugging Back
operation proposed in such a well, or portion thereof, to which the initial
non-consent election applied that is conducted at any time prior to firll
recovery by the consenting Parties of the Non-consenting Party's recouprnent
amount. similarly, an election not to participate in the Completing or"
Recompleling of a well shall be deemed an election not to participate in any
Reworking operation proposed in such a well, or portion thereof, to which the
initial non-consent election applied that is conducted at any tilne prior to
full recovery by the Consenting Parties of the NonvCorrsel'lting l>arty's
recclupmenl‘. rnncunt. Airy such Reworking, Rccompletirlg or Plugging Back
operation conducted during the reeouprnerrt period shall be deemed part of the
cost of operation of said well and there Sllflll be added to the sums to be
recouped by the Consenting Parties QQQ “c of that portion of the costs of the
Reworking, Recompleting or ‘Plugging Back operation which would have been
elm-geable to such Non-Consenting Party had it participated therein. if such a
Reworking, Rocompleting or Plugging Back operation is proposed during such
rccouprnent period, the provisions of this Article VI.B. shall be applicable as
between said Conserrting Parties in said well. . (rl) Recguprnent Mgjgelg During
the period of time Corrsentirrg Parties are entitled to receive Non-Corrsenting
Party‘: share of production, or the proceeds therefronr, Consenting Parties
shall be responsible for the payment of all ad valorem, producricn, severance,
excise, gathering and other taxes, and all rowlty, overriding royalty and other
burdens applicable to Non—Conselrling Party's share of production not excepted
by Ar1icle lll.c. in the case of any Reworking, Sidetracking, Plugging raaclt,
Recorrrpletirrg or Deepening operation, the Corrscrrting Parties shall be
permitted to use, free of cost, an casing, tubing and other equiplnerrt ill the
well, but the ownership of all such equipment shall remain unchanged; and upon
abandonment of a well afier such Rewurklng, Sidetracldrrg, Plugging Back,
Recornpleting or Deepening, the Consenting Parties shall account for all such
equipment to the owners thereof, with each party receiving its proportionate
part in kind or in value, less cost of salvage. Within ninety (90) days alter
the completion of any operation under this Article, the party conducting the
operations for the Consenting Parties shall funrish each Non-consenting Party
with an inventory of the equipment in and connected to the well, and an itemized
statement of the cost of drilling, sidcrracltirrg, Deepening, plugging Back,
testing. Completing, Recompleting, and equipping the well for production; or, at
its ‘option, the operating party, in lieu of an itemized statancnt of such costs
of operation, rrmy submit a detailed statement of monthly billings Each rilanth
thereafier, during the time the Consenting Prrnies are being rsirnhrrrscd as
provided above, the party conducting the operations for the ccnserrtirrg Parties
slnrll furnislr the Non-Conselltirrg Parties with an itemized statement of all
cuss and liabilities incurred in the operation of the well, together with it
statement of the quantity of Oil and Gas produced from it and the amount of
proceeds realized from the sale of the well's working interest production dunrrg
the preceding month. In dctcrrnirrirrg the quantity of Oil and Gas produced
during any month, Consenting Parties shall use industry accepted methods such as
but not limited to metering or periodic well tests. any such operation which
would have been owned by a Nan-Consenting Party had it participated therein
shall be credited Any amount realized from the sale or other disposition of
equipment newly acquired in connection with against the total unreturned costs
of the work done and of the equipment purchased in determining when the interest
of such Non-Consenting Party shall revert to it as above provided; and if there
is B credit balance, it shall be paid to such Non~ Consenting Party. V If and
when the Cotrscrrting Parties recover {ruin a Non-Consulting Party's
relinquished intel'est the rnrnounta provided for above, the relinquished
interests of such Non-Consenling Party shall automatically revert to it as of
7:00 min. on the day following the day on which such rccouplnent occurs, and,
from and after such reversion, such Non-Corrsenting Party shall own the same
interest in such well, the rrlntcriol and equipment in or pertaining thereto,
and the production tlrerefiorn as such Non-Corrsentirrg Party would have been
entitled to had it participated in the drilling, sidetraclting, Reworlting,
Deepening, Recolnpleling or Plugging Back of said well. Tllerenfler, such
NO]!-C0llSC'|'lllllg Pany shall be charged with and shall pay its pmpoflionnte
part of the further costs of the operation of said well in accordance with the
terms of this agreement and Exhibit "C" attached hereto, 3. Stand-By Q9315: 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,
or when operations on the well have been otherwise tcnninarcd pursuant to
Article Vl.F., starrd—by costs incurred pending response to a party's notice
proposing a Rewor-king, .7.

 

[g133791la07i012.gif]

ArA,P.L. FOR_M 610 - MODEL FORM OPERATING AGREEMENT - 1989 Sidctracking,
Deepening, Recornpleting, Plugging Book or Completing operation in such 2 well
(including the period required under Article Vl.B.6. to resolve eornpeting
proposals) shall be charged and home as part of the drilling or Deepening
operation just completed. Stand—by costs subsequent to all parties resporlding,
or expiration of the response time pennitied, whichever first occurs, and prior
to agr'eerrre.nt as to tlle participating interests of all Consenting Parties
pursuant to the terlns of the second grarnrnatical pardgrlph of Article Vl.B.2.
(a), shall be charged to and home as part of the proposed operation, but if the
proposal is subsequently withdrawn because or insurficient participation, suolfr
stand-by costs shall be allocated between the Collseuting Parties in the
proportion each Consenting Party's interest as slioviln on Exhibit "A" bears to
the total interest as shown on Exhibit "A" of all Conserrtirrg Parties. l ’ In
the event that notice for o Sidctracking operation is given while the drilling
rig is be utilized is on location, airy party may request and receive up to five
(5) addiliorral days afier expiration of the forty-eight hour response period
specified in Article Vl,B . within which to respond by paying for all starrd-by
costs and other costs incurred during such extended response period; operator
may require such party to pay the estirnated stand-by time in advance as a
condition to extending the response period. allocated between the parties raking
additional time to respond on a day»to~day basis in the proportion each
electillg party's interest as slrowll on Exhibit "A" bears to the total interest
as shown on Exhibit A" of all the electing parties. 4. Deepening: If less tlralr
all parties elect to participate in a drilling, Sidetrackilrg, or Deepening
operation proposed If more than one party elects to take suclt additional time
to respond to the notice, standby costs shall be pursuant to Article Vl.B.l.,
the interest relinquished by the Non-Conscnting Parties to the Consenting
Parties under Article Vl.E.2. shall relate only and be limited to the lesser of
(i) the total depth actually drilled or (ii) the objective depth or Zone of
which the parties were given notice under Article Vl.B.l. ("Initial Objective").
Such well shall not be Dccpened beyond the Initial Objective without first
complying with this Article to afford the NonvConscuting Parties the opportunity
to participate in the Deepening operation. 1 lit the event any consenting Party
desires to drill or Deepen a Non-Consent Well to a depth below the Initial
Objective, such party shall give notice thereof, conrplyirlg with the
requiren1ent.s of Article VI.B,l,, to all parties‘ (including Norr- Consenting
Parties). Thereuporr, Articles Vl.B.l. and 2. shall apply and all parties
receiving such notice shall have the right to participate or not participate in
the Deepening or such well pursuant to said Articles v1.3.1. and 2, If a
Deepening operation is approved pursuant to such provisions, and if any
Non-Consentirrg Party elects to participate in the Deepening operation, such
Nonconsenting party shall pay or make reirrrbursernerrr (as the case may be) of
the following costs and expenses. (a) If the proposal to Deepen is made prior to
the Completion of such well as a well capable of producing in paying quantities,
such Nolr»Corrselrting Party shall pay (or reimburse Corrsenting Parties for, as
the case may be) that share of costs and expenses irrcunecl in connection with
the drilling of said well from the surface to the initial Objective which Nun-
Conselrting Party would have paid had such Non-consenting Parry agreed to
participate therein, plus the Non-consenting Party's share of the cost of
Deepening and of participating in any further operations on the well in
accordance with the other provisions of this Agreement; provided, however, all
costs for testing and Completion or anmrptcd Completion of the well incurred by
Consenting Parties prior to the point of actual operations to Deepen beyond jrhe
Initial Objective shall be for the sole account of consenting Parties. (b) If
the proposal is made for a Non-Consent Well that has been previously Conipleted
as a well capable of producing in paying quantities, but is no longer capable of
producing in paying quantities, such lNon-Consentirrg Party shall pay (or
reirnhur-se Consenting Parties for, as the case may be) its proporrionate share
of ant costs of drilling, Completing, and equipping said well from the surface
to the Initial Objective, calculated in the manner provided in paragraph (a)
above, less those costs recouped by the Consentirrg Parties from the sale of
production from the well. The Non~Corrselrting Party shall also pay its
proporliolrate share of all costs of re-entering said well. The Non-Cclrrsenting
Parties’ proportionate part (based on the percentage of such well Non~Consenting
Party would have owned had it previously participated in such NOl|»C0l‘iSe||t
Well) of the costs of salvable rnatcrials and equipment remaining in the hole
and salvzrhle surface equipment used in connection with such well shall be
dclcnnincd in accordance with Exhibit "C." if the Corlsenting Parties [rave
recouped the cost of drilling, Completirrg, and equipping the well at the time
such Deepening operation is conducted, then a Norr- Cousenting Party may
participate in the Deepening oi-' the well with no payment for costs irrcun-ed
prior to re-entering the well for Deepening \ The foregoing shall not imply a
right of any Consenting Party to propose any Deepening for a Non-Consent Well
prior to the drilling of such well to its initial objective witlrcnt the consent
of the other consenting Patties as provided in Article Vl.F. 5. Any party having
the right to participate in a proposed Sidetracking operation that does not own
an interest in the affected wellhole at the time of the notice shall, upon
electing to participate, tender to the wellbore owners its proportionate share
(equal to its interest in thc Sidetracking operation) of the value of that
portion of the existing wellbore to be utilized as follows: _ (a) if the
proposal is for Sidetrucking 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 wllich the Sidetmcking operation is initiated. (b) if the proposal
is for Sidetr-scking a well which has previously produced, reimbursement shall
be on the basis of such party's proportionate share of drilling and equipping
costs incuned in the initial drilling of the well down to the depth at
wlriclr-tlre Sidetrackirrg operation is conducted, calculated in the manner
described in Article VI.B.4(b) above. Such palty‘s proportiorrntc share of the
cost of the well‘s salvable materials and equipment down to the depth at which
the Sidetracking operation is initiated shall be determined in accordance with
the provisions of Exhibit"~ ~~ /nor rn.t en .- c .r. -e n -a.,r« . '4‘ a « .- r-
F Jr . J)’ .v .r A : . r . . r. . VM y r n u y‘, It i. r. .r ,r r rvr, r 4. rrrr
ea \ - . F1 rials or 1 tr r F r, r e arr u_.r re . n r A'\| -- r. er! mnr r .r V
5 r 1 1 ‘' Ir 1 "5' rra c A] cu . ~ . « H J r try _ E r r r. I r. .4 r. ara. Ar
. it falls o. a r r r r - r» rr F ye . r. r. . » F}, r r u r.lA r r:r.V I 5 .r.
I L.IIl r. at e . . n . ,r l\/I A - r - >- rvv 1 rm: F in v \I 1 r rt’ r« ‘b
warm t. c I'M! v ~ . N) ‘_ 1 I “Cir/‘J'Ctll AI rrlA it an’ b it I it rlr.r ti
r,~. an r. . r . . ~.~ « J rr 9 t« e " arr‘ Jr 1 ' e ' ' ~1 "‘ rrlr. .r .r r.
.,r an r .r. c r . . er r 5 as r» is er r - . . .4 5 air. V rr r F By’, 1 : ’r ~

 

[g133791la07i013.gif]

A.A.P.L. FORM 610 — MODEL FORM OPERATING AGREEMENT - 1989 ~ ~ , -“carp? Illlkl
‘any iiiar r I I;_r ii_« .».ii._ F 1 .i r A’ R r« c I F-4 i eat» giii I Anna) 3
AIIIVA ea_ii._ E I . l':Lr»:'IIl¢I c._r. "II; >3: /2/1! e »a 4 I . s ‘F!’ I .- .
i LIA!‘ 1t-‘no’ hp» ._~_.- I F 5 nI_1‘l . .i aria Ilr . I F r I\l!‘D"rI,l‘I c,
(.1 AI 5 l.F‘A'tn_L.-1 a 1>'—.~y“y'¢l.E -pug, 7 7. confonniiy to spacing Pattem.
Notwithstanding the provisions of this Article Vi.B.Z., it is agreed that no
wells shall be 2 proposed to be drilled to or Completed in oi- produced from a
Zone from which a well located elsewhere on the Contract 9 Area is producing,
unless such well confonns to the then-existing well spacing pattern for such
zoiie". ‘ ,0 _c- \'lYlI‘\lr4e’III a In I'e‘hPvfl_;§|7IE5'5:‘tIFrI"D rl‘, 11 gal
I‘Dy6' A-bl‘ 5 . "OI V 1 tin VLI ry‘,i s~yJ-5“ -- ’P 12 ~c nit-‘II./'¢IoI
pI'_l‘IA’ .«.c ii» a lrr 13 c. CompletionniWel|s;Rewurkirrg and Plugging Back: '
14 r. Cgrrrpletign: without the consent of all parties, no well shrill he
drilled, Deepened or sidetracked, except any well 15' drilled, Deepened or
sidetracked pursuant to the provisions of Article Vl.E.2. of this agreeineiit.
Consent to the drilling, 16 Deepening or Sidetracking shall include: 17 lzl
gigipp no 1- All necessary expenditures for the drilling, Deepening or
Sidetracking, testing, Completing and 18 equipping of the well, including
necessary tarrkage and/or surface facilities. l9 El Option |\_l_Q 2‘ All
necessary expenditures for the drilling, Deepening or Sidetracking and testing
of the well, When 20 such well has reached its authorized depth, and all logs,
cores and other tests have been completed, and the results 21 thereof fumislred
to tire parties, Operator shall give irrrlnediate notice to the Non-Operators
having the light to 22 participate in a Completion attempt whether or not
Operator recorninends attempting to Complete the well, 23 together with
Operator's AFE for Completion costs if not previously provided. The parties
receiving such notice 24 shall have forty-eiglrt (48) hours (exclusive of
Saturday, Sunday and legal holidays) in which to elect by delivery of V 25
notice to Operator to participate in a reeomrnended Completion attempt or to
make a Con-lpletiorr proposal wltli an 25 accompanyirrg AFE, Operator sriall
deliver any such Completion proposal, or any Completion proposal tzonfiiotirrg
27 with Operatofls proposal, to the other parties entitled to participate in
such Completion in accordance with the 28 procedures specified in Article
VI,B.6. Election to participate in 2: Completion attempt shall include consent
to all 29 necessary expenditures for the Completing rind equipping of such well,
including necessary tankage and/or surface 30 facilities but excluding any
stimulation operation not contained on the Completion AFE. Failure of any party
31 receiving such notice to reply within the period above fixed shall
corrstitute an election by that party not to 32 participate in the cost of the
Completion attempt; provided, that Article Vl.B.6. shall control in the case of
33 conflicting Completion proposals. If one or more, but less than all of the
parties, elect to attempt a Cornpletion, the 34 provision of Article vl.la.2.
hereof (the phrase "Reworkirrg, Sidetraokilrg, Deepening, Recornpleting or
Plugging 35 Back" as oorrtzrined in Article vr.ra.2. shall be deemed to include
"Completing") shall apply to the operations 36 tlrereafler conducted by less
than all partiu; provided, however, that Article VI.E.2. shall apply separately
to each 37 separate Completion or Recolnpletion attempt uirdenaken hereunder,
and air election to become a Non-Consentirrg 38 Party as to one Corrrpletiorr or
Kecornpletion attempt shall not prevent a party__ from becoming a Consentirrg
Party 39 in subsequent Completion or Reccrnpletiorr attempts regardless whether
tilts,‘ Consentirrg Parties as to earlier‘ 40 Completions oi- Recornpletion have
recouped their costs pursuant to Article .;_ji/13.2.; provided tiiither, that
any 41 recouprnent of costs by a Consentirrg Party shall be made solely from the
prpduction attributable to the Zone in 42 which the Completion attempt is made.
Election by 2 previous Non-Consenting: party to participate in a subsequent 43
completion or Recornpletion attempt shall require such party to pay its
proportioriate share of the cost or salvahle 44 rnaterials and equipment
installed in the well pursuant to the previous Completion or Recompletion
attempt, 45 insofar and only insofar as such materials and equipment henetit the
zone in which such party participates in a 46 Completion attempt. 47 *_r_|> .ID
i or DI-VJ IIIIILD IA‘n Era: Dlearlfll F. III). I), 43 g5.” ylea 4) D155 .i pi i
V .i. F c It |.gYlVD_'3_ : si 5 in i D i E 49 D fl 5 Dléébhl c ._iii.ii in ii
lawn a 5 i y .1 50 Fig.5 “'nl‘s¢' a II’,IA’5 Janis .i r l"I" D. Other
Operations: Operator shall not undertake any single project reasonably estimated
to require an expenditure in excess of Five-hundred Tlrortsarrd Dollars ($ 500
000.00 ) except in connection with the drilling, Sidetracldrrg, Reworking,
Deepening, Completing, Recompleting or Plugging Back of a well that has been
previously authorized by or pursuant to this agreement; provided, however, that,
in case of explosion, fire, flood or other sudden ernergelrey, whether of the
same or different nature, Operator may take such steps and incur such expenses
as in its opinion are required to deal with the emergency to safeguard life and
property but Operator, as promptly as possible, shall report the erner-geircy to
the other parties. if Operator prepares an Al-‘E for its own use, Operator shall
fumish airy Non-Operator so requesting an information copy thereof for any
single project costing in excess of Ft ~~ ~ ~ ~ ~~ ~~ ~ urrdred Tlrnusunrl
Dollars ~ ~ (ggopopppo )4 ins I c !‘_i'I A'L‘r - IILHI i -Er. F _, I .i .ii. .c
» .ii.~ c .4‘G'l ms « . -n .,a - r -i-.- i no Jr a an i r .i IlA‘IIAI ,i i I . c
r ri e .c I . s. . . B i F i Err yr II a ii_ in L I LI .a_g A’: c. e ., -arpbrlu
i. ‘l' 'I\ll'\ .- - ‘I .~ «n.c a .i »~ r r rrrm new \llf‘I nv ‘M ci inc . IAI ,
, _ E .i i ill. i i ii_ fly ii i 'l—ls I rt‘ .i c an a d an . el r 1 r n .i rr
r-.i tar .- .-na. u» . i ,. 5 l E r E : Ian 1 s I ' ollll. L 41». or o :1‘ I l J
ruL L.r «A r rd ‘ FE’ 5 I (‘Al i ti .i ‘("14 rail i . . L ’ V1‘ to . rr rt‘
-rm-was i ; tn Lrr I: 6 H4114 n A ‘ 41 ND’! II III e 1’ r r —, r i A c Le! . a
a. c n ii in c e .-.— F J

 

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~ A.A.P.L. FORM 610 - MODEL FORM OPERATING AGREEMENT - 1989 I ~ ~ ~ ~ ~ ~ ~ ~ 51
1 11. 1 . 11.1 1: 11 1-1 F «- 1 1.1- 1 111:1 111 1 1» 11 51 1 - u- .1 11?» 11.1
.1 I 11 11~1;r 11, 53 1. 11 1 11 1 1 1 ,1 1 1 1 1 1 .-1 11 1 1 11 1 1- 1 1» ea
1- 54 1 .1 -1 1 11111 1.1 . 111.111 1 .1 11 1« 1» 1» 1-1» 55 - ,1 -.1 1 )1 1 1
11- 1.1- 1 1 1_1:_; ,1 <1 1 1 1 .1 1 .1 1 -1 M; 55- r- 11 111.11m1-ry- 1. 11,1
,1 1.1 11 57 ss . ' '91»:-991111411111 59 11V 1 1 F .- 1- .1 1 -11- 5 11 1 5 -,1
. -1-M111 gas y -5, £11.“; 50 1: '11. “$51 11,<11 1 .1-.111~111111’ 1 V 1- 111
.1 -1 51 . 1 1- 11 1.1 1 1 1 1 -1.11 1 » 1 -1 . .1 1» 1. __ 1« 1 1 1 =
52_,111_Y-y1.1 L .1.11- ,L11,1 11.’. ~F-1, 53 11.’ 1 I 1- .- W 1 1 5- 1- 1 1 11-
-41 . H -1 1 - 111 111.111‘ 1 1 51 1-11111: .111: 1.11.1 1 1. 1 «. 1» - - 1 «
1-1»: 1— 1 1-1» 1: 65 66 :9 — or or . . . . . . 67 = ' ,. «, 11111 - '- ' 4 - ,
', dnspose ‘ ’ 1-, v L 4‘ all 011 111d Gas produced £1-11111 me 53 Contract
A11.-1, exclusive of pmduclion 1-1111111 may be used 111 development 111d
producing dpemaons and 111 prepming and 69 treating Oil and Gas for marketing
pmposcs and pmduction unavoidably -,0 -11 ,1 -- 1 1- « . 1.1.1 ,1 - 1111.1. 1 1
1» 11 1 1- 1-v rw-v1« 11 1 1 1 71 yJ11«b~. 1 1?1« 111.111. -1”.-. -V”. 1 1 1
1j71 72 73 c1.4J111 .11-« 1 .1 .1 )1111-« - 74 1.; 1 .1 .1 , F V -11-
1-1111_12'_1111 -11. - Pl 1 ~ ~

 

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1.1 lulululololo man-hm ulu «.51 30 3! 32 33 34 35 36 37 33 39 40 41 42 43 44 45
46 47 48 49 50 Si 5?. 53 54 55 56 57 53 59 60 61 62 63 64 65 66 67 68 69 70 H 72
73 74 A.A.P.L. FORM 610 - MODEL FORM OPERATING AGREEMENT - 1989 ~ ~ ~ ~ 1; F.»
1--11 1. .1. , 44' 1 :1n~1V1,1:1 .1,“ 1111 L, 1 {.13 '__11 1.1. 1.15 ’ F1 1111 1
.- ,1-.1 . c1 115.‘ )4 A, 1 V 1. -, 11?‘. V 1 I_b 111,1: 1. 1 . .1 « .1
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1.1 ,1 .1 - 1 1 my 1111 .1’. 1 I 5 1 1. I _l 11 .1. ,1 ,1 J .5 11 1-1 1 ,11
11.11).‘ . .- .16 -1 tn! ,1 1. e I 1.5 :n . 1 .5 .1 .1-SP5 1-. 11 Mgr, Va’. 11 .
. .1 y 1. 1 1.) V 1 1 1-,. .1 .1 Y 1 . ‘111 ,1 r 1. 1 ,1.1P .1._l .1 E; .1. ,1
11 '11- 1115~ - Any . : 1. 1 5 5 I I H! 1, 1,1hr- ,1 111 5 1-1! 1 ,1.u17_; .1 .
.- 1, _ 1 5 F . 111 . .1 c 11 1.5 5 ._ ,1L1 11', 1,1 . F ,1, 1.1 ,1 1111 ‘A
~11.1. 1.1 n F .1 M‘ 1 .1 . ./.1 V 1»r-- 5-, 1 1.1 ._1- .11 - . F W1 .11 111.1
11 4,14,; 1 I .1J_11. Fr- F I F .1 e 1 1 1111.11 5.111 E 51 .1 W. 1.11. ,1 .1.
Any such sale by Opemtor shall be in a manner uommemially reasonable under tl1e
circumstances, but Operator shall have no duty to share any existing market or
t1-ansportation anangement or to obtain a price or transponation ~ l . . . . 1
fee equal to that received under any existing lnalket or transportation
amangelnellt. n 1.; .1.- .11 c ,1.- ,1 .1. 1 tn 1.11 . 1- 5 1- 1 1- 1 5 .- - 1 .
1.~ - . . . 11 ,. -,1 1 11 1 5 :1-1 5 5 1- 1 1 5 1- 1 1- .1 - 1- ,1 r ,1 1 .- 1
11 1. 1 ~1 .~ « .1 11.1 1 5 5 5 1» 1 1 .1. .~ 1 . ,1 ,1 V 1. 1 ,1 . 1 R -.1 .1
F- 1 E 1 1 . 1. 1_ opamm, 51,311 gm notice to all parties ofthe filst sale
otGl1s from any well under this Agreemelit, 11 - 1 11 1 - 1 11. .1 . 1 .1 1. 11
.1 - c 1 1.11 ~ 1- 5 1 1- 5 5 5 .1 1.1- « ,1111 -.-. 1.1 ,1-.1- 1 1 1- 1 - 1 1 5
1- 1 1 1- 1 5 \ 5 - Opemtor sllall maintain records of all ln:lrl<etillg
.-1111111gen1enls, and of volumes 11111111111. sold 111- transported, which
records shall be made available to Non-Operators 11111111 reasonable request.
ARTICLE vll. EXPENDITURES AND LIABILITY OF PARTIES A. Liability oiParties: The
liability of the parties shall be several, not joint or collective. Each party
shall be‘ responsible only for its obligations, and shall be liable only for its
ploportionnte share of tile costs of developing and ope1111i11g‘1l1e Contact
Area. Accordingly, the liens gmnted among the parties in Alticle Vll.B. are
given to secure only the debts of eaxsh sevenally, and no palty shall have any
liability to thilfi parties hereunder to satisfy the default of any other party
in the ‘payment of nuy expense or obligation llerellllder. It is not the
intention of the panics to create, nor sllall this agleement be culifetmed as
creating, a mining or other pamlelsllip, joint ventule, agency lelalionsliip or
associatioli, 111 to render the parties liable as paltnels, co-venturers, or
principals. in their relations with each other under this 11g1ee111e11t, the
patties shall not be considered iiduciaries or to have establislled a
confidential relationship but lather shall be free to act on an ann's-length
basis in accordance with their own lespective selfiinterest, subject, however,
to the obligation of the parties to act in good faith in their dealings with
each other with respect to 11e‘t1vitieshe1-eu11der. .11.

 

[g133791la07i016.gif]

‘owed against the proceeds from the sale of such defaulting party‘: share of Oil
and Gas. A.A.P.L. FORM 610 ~ MODEL FORM OPERATING AGREEMENT - _l989 B. Liens and
Security Interests: Each party grants to the other parties hereto a lien upon
any interest it now owns or rrerearter acquires in oil and Gas Leases and Oil
and Gas interests in the Contract Area, and a security interest and/or purchase
money security interest in any interest it now owns or her-eafier acquires in
the personal property and fixtures on or used or obtained for use in comrectiorr
therewith, to secure perfonnance of all of its obligations under this agreement
including but not limited to payment of expense, interesr and fees, tire proper
disbursement or all rrrontes paid rrererrrrder, the assignrnent or
relinquishmerrt of interest in Oil and Gas Leases as required rrererrrrder, and
the proper- performance of operations rrer-eunder, suerr rien and security
interest granted by each party hereto shall include such party‘s leasehold
interests, working interests, operating rights, and r'oyalty and oven-idirrg
royalty interests in the Contract Area now owned or lrereafler acquired and in
"lands pooled or unitized therewith or otherwise becoming subject to this
agreement, the Oil and Gas when extracted tlrerefrorrr and equipment situated
thereon or used or obtained for use in conrrectiorr therewith (including,
without lirnilatiori, all wells, tools, and tubular goods), and accounts
(including, without limitation, accounts arising from gas irnbalances or from
the sale of Oil and/or Gas at the wellhad), contract r-iglrts, inventory and
general intangibles relating thereto or arising therefrom, arid all proceeds and
products of the foregoing. ‘ To perfect the lien and security agreement provided
herein, each party hereto shall execute and acknowledge the recording supplement
and/or any financing statement prepared and submitted by any party hereto in
conjunction herewith or at any time following execution hereof, and Operator is
authorized to file this agreement or‘ the recording supplcrnent executed
herewith as a lien or mortgage in the applicable real estate records and as a
financing statement with the proper officer under the Uniform Commercial Code in
the state in which Lire Contract Area is situated and such other states as
Operator shall deem appropriate to perfect the security interest granted
hereunder. Any party may file this agreement, the recording supplement executed
herewith, or such other documents as it deems necessary as a lien or mortgage in
the applicable real estate records and/or a financing stulernent with the proper
officer under the Uniform Commercial Code. Each party represents and war-mrrts
to the other parties hereto that the lien and security interest granted by such
party to the other parties shall be a fir-st and prior lien, and each party
hereby agrees to rnaintairr the priority of said lien and security interest
against all persons acquiring an interest in Oil and Gas Leases and hrterests
covered by'this agreement by, tluough or under such party. All ponies acquiring
an interest in Oil and Gas Leases and Oil and Gas interests cover-ed by this
agreement, wrretrrer by assignrnerrt, merger, mortgage, operation of law, or-
otherwise, shall be deerrred to have taken subject to the lien and security
interest granted by this Article Vll.B. as to all obligations attributable to
such interest hereunder whether or not such obligations arise before or atter
such interest is acquired. To the extent that parties have a security interest
under the Uniform Corrnnemial Code of the state in which the corrrnrct Area is
situated, they shall be entitled to exercise the rights and remedies of tr
secured party under the Code. The bringing of a suit and the obtaining of
judgment by a party for the secured indebtedness shall not be deemed an erection
of remedies or otherwise affect the rierr rights or security interest as
security for the payment thereof. in addition, upon default by any party in the
payment of its share of expenses, inter-ess or fees, or upon the improper use of
funds by llre Operator, the other parties shall have the right, without
prejudice to other rights or remedies, to collect train the purchaser the
proceeds from the sale of such defaulting party's share or Oil and Gas until the
an-rount owed by such party, plus interest as provided in "Exhibit C," has been
received, and shall liave the right to offset the arnourrt All purchasers of
production may rely on a notificatiorr of default frorrr the nor'rdeFaulting
party or parties stating :the amount due as a result of the default, and all
parties waive any recourse available against purchasers for releasing
fivmduction proceeds as provided in this paragraph. tr cx », - » . 4. Jr J r V I
.~ r r .r . ram, r s 5 A .u A541!‘ v ta I\ r it . r . .r e . .~ , 5 r» . 1 .r .
r . . c r r. . c r. n Y D‘ l | J “ J P 1 _,-=-. u. on F‘: ra .ALJrI A rrro, .r r
- .4: -.r a .r a 'r|.r r . . - r! are I J F It’ f I A ' 4 If any party does not
perfor-rrr all of its obligations hereunder, and the failure to perform subjecs
such pany to foreclosure or execution proceedings pursuant to the provisions of
this agreerrrerrt, to tire extent allowed by governing rnw, the deraurting party
waives any available right of redemption frorn and alter the date of judgment,
any required valuation or appraisement of the mortgaged or secured propeny prior
to sale, any available right to stay execution or to require a marshaling of
assets and any required bond in the event a receiver is appointed. In addition,
to the extent permitted by applicable law, each party hereby grants to the other
parties a power of sale as to my property that is subject to the lien and
security rights granted hereunder, such power to be exercised in the rnonrrer
provided by applicable law of otherwise in a commercially reasonable manner and
upon reasonable notice. Each party agrees that the other parties shall be
entitled to utilize the provisions of Oil and Gas lien law or other lien law of
any state in which the Contmct Area is situated to enforce the obligations of
each party hereunder. Without limiting the generality of the foregoing, to the
extent permitted by applicable law, Non-Operators agree that Operator may invoke
or utilize the mechanics‘ or rnaterialmerr's lien law of the state in which the
Contract Area is situated in order to secure the payment to Operator of any
hereunder for services performed or C. Advances: Opemtor, at its election, shall
have the right from time to time to demand and receive from one or more of the
otherparties payment in advance of their respective shares of the estimated
amount of the expense to be incurred in operations hereunder during the next
succeeding month, which light may be exercised only by submission to each such
party of an itemized statetrrent of such estimated expense, together with an
invoice for its share thereof. Each such statement and invoice for the payment
in advance of estimated expense shall be submitted on or‘ before the 20th day of
the next preceding month. Each party shall pay to Operator its proportionate
share of such estimate within fifiecrr (15) days afler such estimate and invoice
is -received. If any party filils to pay its share of said estimate within said
time, the amount due shall bear‘ interest as provided in Exhibit "C" until paid.
Proper adjustment shall be made monthly between advances and actual expense to
the end that each party shall bear and pay its proportionate share of actual
expenses incurred, and no more. 1). Defaults and Remedies: it If any party fails
to discharge any firroncittl obligation under this agreement, including without
limitation the Failure to make any advance under the preceding Article Vll.C, or
any other provision of this agriefilrnent, within the period required for such
payment lrereander, then in addition to the remedies provided in Article Vll.B.
or elsewhere in this agreement, the remedies specified below shall be
applicable. sum due materials supplied by Operator. For purposes of this Article
Vll.D., all noiices and elections shall be delivered .12.

 

[g133791la07i017.gif]

A.A.P.L. FORM 610 - MODEL FORM OPERATING AGREEMENT - 1989 only by Operator,
except tirat Operator shall deliver airy such notice and election requested by a
norr—defaulting Non-Operator, alrd wlrelr Operator is the party in default, the
applicable notices and electionscan he delivered by any Non-Operator. Election
of any one or more of the following remedies shall not preclude the subsequent
use of any other remedy specified below or otherwise available to a
non-defaulting party. l. suspension of Rights: Any party may deliver to the
party in default a Notice of Default, which shall specify the default, specify
the action to be taken to cure the default, and specify that failure to take
such action will result in the exercise of one or more of the remedies provided
in this Article. If the default is not cured within thirty (30) days of the
delivery of such Notice of Default, all of the rights of the defaulting party
granted by this agreement may upon notice be suspended until the default is
cured, without prejudice to the right of the non-defaulting party or parties to
continue to enforce the obligations of the defaulting party previously accrued
or tlrereafier accruing under this agreement. if Operator is the party in
default, the Non-Operators shall have in addition the right, by vote of
Non-Operators owning a majority in intomt in the Contract Area after‘ excluding
the voting interest of Operator; to appoint a new Operator effective
inrtnediately. The rights of a defaulting party that may be suspended hereunder
at the election of the non-defaulting parties shall include, without limitation,
the right to receive information as to any operation conducted hereunder during
the period of such default, the right to elect to participate in an operation
proposed under Article vl.B. of this agreement, the right to participate in an
operation being conducted urlder this agr-cement even if the party has
previously elected to participate in such operation, and the right to receive
proceeds ofpmduction from rrrry well subject to this agreement. 2. § it for
Darnagg‘ Non-defaulting parties or Operator for the benefit of non-defaulting
parties may sue (at joint account expense) to collect the amounts in default,
plus irrter-est accruing on the amounts recovered from the date of default until
the date of collection at the rate specified in Exhibit "C" attached hereto.
Nothing herein shall prevent any party from suing alry defaulting party to
collect consequential damages accruing to such party as is result of the
default. 3. Deemed Nolr-Consent: The non-defaulting party may deliver a written
Notice‘ of .Non-consent Election to the defirulting party at any time afier the
expiration of the thirty-day cure period following tlt-livery of the Notice of
Default, in which event it‘ the billing is for the drilling a new well or the
Plugging Back, Sidetlackirrg, Rewarking or Deepening of a well which is to be or
has been plugged as a dry hole, or for the Completion or Recoinpletion of any
well, the defaulting party will be corrclusively deemed to have elected not to
participate in the operation arrdfto be a Non-Consenting Party with respect
thereto under Article Vl.B. or VI.C., as the case may be, to the extent of the
costs unpaid by such party, notwithstanding any election to participate
theretofore made If election is made to proceed under this provision, then the
norrdefuultirlg parties may not elect to sue for the unpaid amount pursuant to
Article VlI.D.Z. Ulrtil the delivery of such Notice of Non-Consent Election to
the defaulting party, such party shall have the right to cure its default by
paying its unpaid allure of costs plus interest at the rate set forllr in
Exhibit “C," provided, however, such payment shall nut'pre_iudice the rights of
the non-defaulting parties to pursue remedies for damages incurred by the
irondefaulting parties as a result of the default. Any interest relinquished
pursuant to this Article VlI.D.3. shall be offered to the non-defaulting parties
in proportion to their interests, and the non-derrrulting parties electing to
participate in the ownership of such interest shall be required to contribute
their shares of the defaulted amount upon their election to participate therein.
4. Advance Pauyeut: Ir a default is not cured willrin thirty (30) .days of the
delivery of a Notice of Default, operator, or Non-Operators if Operator is the
defaulting party, may require the defaulting party of such defaulting party's
anticipated share of any item of expense for which Operator, or Non-operators,
as the case may be, would be entitled to’ reirrrbur'ser1rent under any provision
of this agreement, whether or not such expense was the subject of the previous
default. ’ drilling a well or Completion of a well as to which an election to
participate in drilling or Completion Iras been made. if the defaulting party
fails to pay the required advance payment, the non-defaulting parties may pursue
any of the remedies provided thereafier advance payment from Such right
includes, but is not limited to, the right to require advance payment for the
estimated cross of in the Article Vll.D. or any other default remedy provided
elsewhere in this agreement. Any excess of funds advanced rerr-raining when the
operation is completed and all costs have been paid shall be promptly returned
to the advancing party. 5. Costs and Attorneys’ Pegs: hr the event any party is
required to bring legal proceedings to enforce any financial obligation of a
party hereunder, the prevailing party ilr such action shall be entitled to
recover all court costs, costs of collection, and a reasonable attorney's fee,
which the lien provided for herein shall also secure. E. Rentals, Shut-in Well
Payments and Minimum Royalties: Rentals, slrut-in well payments and milrirnurn
royalties which may be required under the temrs of any lease shall be paid by
the party or,par1ies who subjected such lease to this agreelrre-rrt at its or
their expense. In the event two or more parties own and have contributed
interests in the some lease to this agreement, such parties mpy designate one of
such parties to make said payments for and on behalf or all such patties. Any
party may request, anti? shall be entitled to receive, proper evidence of all
such payments. in the event of failure to rrtake proper payment of S.-.ry
rental, slrutirr well payment orrnittirrlurn royalty through mistake or
over-sight where such payment is required to continue the lease in force, any
loss which results from such non-payment shall be borne in accordance with the
provisions of Article IV.B.2, i Operator shall notify Non-Operators of the
anticipated completion of a shut-in well, or the shutting in or retunr to
production of n producing well, at least five ts) dnys (excluding Saturday,
Sunday, and legal holidays) prior to taking such action, or at the earliest
opportunity permitted by circumstances, but assumes no liability for failure to
do so. In the event of failure by Operator to so notify Non»Opemtors, the loss
of any lease contributed hereto by Non-Operators for failure to make timely
payments of arty shut-in well payment shall be bonre jointly by the parties
hereto under the provisions of Article lV.B.3. F, Taxes: . ‘ Eegimring with the
first calendar year afier the effective date hereof, Operator‘ shall render for
ad valorem taxation all property subject to this agreement which by law should
be relrdered for such taxes, and it shall pay all such taxes assased thereon
before they become delinquent. Prior to the rendition date, each Non-Operator
shall fumisl'r Operator infunnation as to burdens (to include, but not be
limited to, royalties, oven-ldirrg royalties and produrztion payments) on Leases
and Oil and Gas Irrter-ests contributed by such Non-Operator. If the assessed
valuation of any Lease is reduced by reason of its being subject to outstanding
‘excess royalties, oven-i rrg royalties or production payments, the reduction in
ad valorelrr taxes resulting therefrom shall inure to the benefit of the owner
or owners of such Lease, and Operator shall adjust the charge to such owner or
owners so as to reflect the benefit of such reduction. If the ad valoreln taxes
are based in whole or in part upon separate valuations of each party's working
interest, then nctwitlrslandirrg anything to the contrary lrerein, charges to
the joirlt account shall be made and paid by the parties hereto in accordance
with the tax value generated by each party‘: working interest. Operator shall
bill the other parties for their proportionate shares of all tax payments in the
rr-lanrrer provided in Exhibit "C." l ' _13.

 

[g133791la07i018.gif]

Lut~>&7ruI~ll~)I~II~)I~)l\lru-—-—>- <:\oua~rmLIr»s-mm-—-¢\iao=< 3| l 32 33 34 35
35 37 33 39 40 41 42 43 44 as 46 47‘ 48 49 50 SI 52 53 54 55 55 57 so 59 so él
62 as ; 54' as so. 67 l 68 59 ‘ 70 l 7l r -izl 73 ‘ 74 A.A,P.L. FORM 610 — MODEL
FORM OPERATNG AGREEMENT - 1989 if Operator considers any tax assessment
irnproper, operator may, at its discretion, protest within the time and manner
prescribed by law, and prosecute the protest to a final tletenrrinalion, unless
all parties agree to abandon the protest prior to final determination. During
the pendency of administrative or judicial proceedings, Operator lrray elect to
pay, under protest, all such taxes and any interest and penalty. When any such
protested assessment shall have been finally determined, Operator shall pay tlte
tax for the joint account, together with airy interest and penalty accrued, and
the total cost shall their be assessed against the parties, and be paid by
tlreln, as provided itl Exhibit "C." Each party shall pay or cause to be paid
all production, severance, excise, gathering and other taxes imposed upon or
with respect to the production or handling of sucll prrrty's share of Oil and
Gas produced under the tenns of this agreement. ARTICLE VIII. 1' ACQUISITION,
MAINTENANCE OR TRANSFER OF INTEREST A. Surrender of Leases: The Leases covered
by this agreement, insofar as they embrace acreage in the Contract Area, shall
not be sunendcrcd in whole or in part unless all parties consent thereto.
However, should any party desire to surrender its interest in any Lease or in
any portion thereof, such party shall give written notice of the proposed
sun-cndcr to all parties, and the parties to wlrcm such notice is delivered
shall have thirty (30) days after delivery of the notice Within which to notifil
the party proposing the surrender whether they elect to consent thereto. Failure
of a party to wholn such notice is delivered to reply within said 30-day period
shall constitute a consent to the surrender of the Leases described in the
notice. if all parties do not agree or consent thereto, the party dsiring to
surrender shall assign, without express or implied warranty of title, all of its
interest in such Lease, or portion thereof, and any well, material and equipment
which may be located tlrereon and any rights in production thereafier secured,
to the parties not consenting to such surrender. If the interest of the
assigning party is or includes an Oil and Gas Interest, the assigning party
shall execute and deliver to the party or parties not consenting to such
surrcrlde-r an oil and gas lease covering such Oil and Gas
IgYC‘I'$glLIe‘OaI’selfdg:l;:IlI:[b(é'fj X(lIiIb%E‘§!|&-gl1dVS0V long
tlrercafler' as Oil and/or Gas is produced from the land covered thereby, such
lease to be on the onrr—) Upon such assignment or lease, the assigning party
shall be relieved from all obligations thereafier accruing, but not theletofore
accrued, with respect to the interest assigned or leased and the operation of
any well attributable thereto, and the assigning party shall have no further
interest iii the assigned or lused premises and its equipment and production
other than the royalties retained in any lease made under the tenns of this
Article. The party assignee or lmsee shttll pay to the party assignor or lessor
the reasonable salvage value of the latters interest in any well‘s salvable
materials and equipment attributable to the assigned or leased acreage. The
value of all solvable materials and equipment shall be determined it: accordance
with the provisions of Exhibit "C," less the estimated cost of salvaging and the
estimated cost of plugging and abandoning and restoring the surface. lf such
value is less than such costs, than the party assignor or lessor shall pay to
the party assignee or lessee the amount of such deficit. If the assignment or
lease is in favor of more thall one party, the interest shall be shared by such
parties in the proportions that the interest of each bears to the total interest
or all such patties. if the interest of the parties to whom die assignment is to
be made varies according to depth, then the interest assigned shall sinrilarly
reflect such variances. . Any assignment, lease or surrender made under this
provision shall not reduce or changcihc assignors, lessol's or surrendering
party‘s interest as it was irrrrnediately before the assigrnnent, lease or
surrender in the balancelhf the Contract Area; and the acreage assigned, leased
or sunendcred, and subsequent operations thereon, shall not thereafier be
subject to the terms and provisions of this agreelrlent but shall be dcelried
subject to an Operating Agreement in the form of this ag|'ee|\\el'rL _r - a.
Renewal or Extension of Leases: , If any party secures a renewal or
replacelnertt of an Oil and Gas Lease or Interest subject io this agreement,
then all other parties shall be notified pronrpily upon such acquisition or, in
the case of a replacement base taken before expiration of an existing Lease,
promptly upon expiration of the existing Lease. The parties notified shall have
the right for at period of thirty (30) days following delivery of such notice in
which to elect to participate in the ownership of the renewal or replacement
Lease, insofir as such Lease atrccts lands within the Contract Area, by paying
to the party who acquired it their pmportiortate shares of the acquis on cost
allocated to that part of such Lease within the Contract Area, which shall be
ill proportion to the interest held at that tilne by the parties in the Contract
Area. Each party who participates in the purchase of a renewal or replacement
[case shall be given an assignment of its proportionate interest therein by the
acquiring party. If some, but less than all, of the parties elect to participate
in the purchase of a renewal or replacement Lease, it shall he owned by the
parties who elect to participate tlrerein, 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 parties participating in the pumlissc of such renewal or replacement
Lease. The acqu' ' ‘on or a renewal or replacement Lease by any or all of the
parties hereto shall not cause a readjustment of the interests of the parties
stated in Exhibit "A," but any renewal or replacement Lease in which less than
all parties elect to participate shall not be subject to this agreement but
shall be deelned subject to it separate Operating Agreement in the fonrl or this
agreement. ~ it‘ the interests of the parties in the Contract Area vglry
according to depth, then their right to participate proportionately in renewal
or replacement Leases and their right to receive an assignment ofintetest shall
also reflect such depth variances. Tire provisions of this Article shall apply
to renewal or replacement Leases whether they are for the entire interest
covered by the expiring Lease or cover only a portion of its area or- an
interest therein. Any renewal or replacement Lease taken before the expiration
of its predecessor Lease, or taken or contractetl for or becorning effective
within six (6) months afier the expiration of the existing Lease, shall be
subject to this provision so long as this agreement is in effect at the time of
such acquisition or at the time the renewal or replacement Lease becomes
effective; but any Lease taken or contracted for more than six (6) months afier
the expiration of an existing Lease shall not be deemed a renewal or replacement
Lease and shall not be subject to the provisions of this agreement. The
provisions in this Article shall also be applicable to extensions of Oil and Gas
Leases. Ii C. Acreage or Cash contrilnrtioi A ' i While this agreement is in
force, if any party contmcts for it contlribution of cash tovmriis the drilling
of a well or any other operation on the Contract Area, such colrtribuiion shall
be paid to llle party who conducted .‘.-. drilling or other operation and shall
be applied by it against the cost of such drilling or other operation. If the
contribution be in tile fnm-i of acreage, the party to wholn the corttribution
is made shall promptly tender an assignment of tile acreage, without warranty of
title, to the Drilling Parties in the proponions said Drilling Fania shared the
cost of drilling the well. Such acreage shall become a separate Contract Area
and, to the extent possible, be governed by provisions identical to this
agreement. Each party shall promptly notify all other parties of ally acreage or
cash contributiolrs it lruiy obtain in support of any well or any other
operation on the Contract Area. The above provisions shall also be applicable to
optional rights to earn acreage outside the Contract Area which are in support
of well drilled inside Contract Area. .14.

 

[g133791la07i019.gif]

A.A.P.L. FORM 610 - MODEL FORM OPERATING AGREEMENT - 1989 4 if any party
contracts for any consideration relating to disposition of such party's share of
substances produced hereunder, such consideration shall not be deemed a
contribution as contemplated in this Article VlII.C. n. Assignment;
lvlnilrtennnce or Uniform Interest: For the purpose of maintaining unifonnity of
ownership in the Contract Area in the Oil and Gas Leasm, Oil and Gas interests,
wells, equipment and production covered by this agreement no party shall sell,
encurnher, transfer or make other disposition of its interest in the Oil and Gas
Leases and Oil and Gas interests embraced within the Contract Area or in wells,
equipment and production unless such disposition covers either". 1. the entire
interest of the party in all Oil and Gas Leases, Oil and GIS Interests, wells,
equipment and production; or 2. an equal undivided percent of the party‘:
present interest in all Oil and Gas Lileass, Oil and Gas interests, wells,
equipment and production in the Contnrct Area. Every sale, errcumbrarrce,
transfer or other disposition rrrade by any party shall be nrado expressly
subject to this agreement and shall be made without prejudice to the right of
the other parties, and any transferee of _an ownership interest in any Oil and
Gas Lease or interest shall be deemed a party to this agreement as to the
interest conveyedifrorn and alter the effective date of the transfer of
o\vnE.tship; provided, however, that the other parties shall not be retiuired to
recoynzc any such sale, encurrrbrance, transfer or other disposition for any
purpose hereunder until thirty (30) days afler they have received a copy of the
instrument of transfer or other satisfactory evidence thereof in writing from
the transfeior or transferee. No assignment or other disposition of interest by
a party shall relieve such party of obligations previously incurred by such
party hereunder with respect to the interrst transferred, including without
limitation the obligation of a party to pay all costs attributable to an
openrtion conducted hereunder in which such party has agreed to participate
prior to making such assignrnent, and the lien and security interest granted by
Article Vll.B. shall continue to burden the interest transferred to secure
payment of any such obligations. If, at any time the interest of any party is
divided among and owned by four or rrrore co-owners, Operator, at its
discretion, may require such co-owners to appoint a single trustee or agent with
full authority to receive notion, apptove expenditures, receive billings for and
approve and pay such party's share of the joint expenses, and to deal genenrlly
with, and with power to bind, the oo»owncrs of such party's interest within the
scope or the operations enrbnaced in this agreement; however, all such coowners
shall have the light to enter into and execute all contracts or agreernerrs for
the disposition of their respective sham of the oil and Gas produced from the
Contract Area and they shall have the right to receive, separately. payment of
the sale proceeds thereof. E. Waiver of Rights to Partition: If permitted by the
laws of the state or states in which the property covered hereby is located,
each party hereto owning an undivided interest in the Contract Area waives any
and all rights it may have to partition and have set aside to it in severzlty
its undivided interest therein. guru 4.4”.» he or Aol . . L4 s__.n JFJ V e , e
.e ,. .e r AA . LI . V FIE V . s VV V . lack rs. ti. e . ck Am I . . V V Jr . V
. . , .s . :4: .-r.s s . F»! 4': 'rl . rue . V. FF}: V e .34‘ In: at . 4. 4. .
ee . V V . e . . u s A . . s. . . ril . . /I 1.4 V VV . . V e . I .4.‘
l-s.I.I_i-.1s- «I. I A o st 4 depot o A 5‘ ‘X K». e ti. I r o I ll V .V V VV , .
. e s. . . . . V .V . V s II’ J o s-he . s s 4‘ r 5W5» y I 5»-5 r . .- c . e .
.-. t . r km .- IL e . A V 5\-: 5 , , .7 , e L c. r - as t_ L r V , , I V H) r F
I’): , ARTICLE IX. INTERNAL REVENUE CODE ELECTION if, for federal income tax
purposes, this agreement and the operations hereunder are regarded as a
partnership, and if the parties have not otherwise agreed to form a tax
pnrtnersllip pursuant to Exhibit "G" or other agreement between thorn, each
party thereby affected elects to he mtcluded from the application of all of the
provisions of Subchaptet "K," Chapter 1, Subtitle "A," of the Internal Revenue
Code of 1986, as amended ("Code"), as permitted and authorized by Section 761 of
the Code and the regulations promulgated thereunder. Operator is authorized and
directed to execute on behalf of each party hereby atfected such evidence of
this election as may be required by the Secretary of the Treasury of the United
Stats or the Federal lntenral Revenue Service, includirrg specifically, but not
by way of limitation, all of the returns, statements, and the data required by
Treasury Regulation §L76l. Should there be any requirernent that each party
hereby affected give further evidence of this election, each such party shall
execute such documents and fumish such other evidence as may be required by the
Federal Internal Revenue Service or as may be necessary to evidence this
election. No such party shall give any notices or take any other action
inconsistent with the election made hereby. If any present or fixture incorrre
tax laws of the state or states in which the Contract Area is located or any
future income tax laws of the United States contain provisions similar to those
in Subcliapter "K," Chapter I, Subtitle "A," of the Code, under which an
election similar to that provided by Section 761 of the Code is permitted, each
party hereby affected shlzii make such election as may be permitted or required
by such laws. In rnaking the foregoing election, each such party states that the
income derived by such party frorrr operations lrereunder can be adequately
detennined without the corrnpuurtiou of partner-slrip tzrxahle income. ARTICLE
X. CLAIMS AND LAWSUITS Operator may settle airy single uninsured third party
damage claim or suit arising from operations hereunder if the expenditure does
not exceed Two-llundred Thousand Dollars (S 200 000.00 ) and if the payment is
in complete settlement of such claim or suit. If the amount required for
settlernent exceeds the above amount, the parties hereto shall assume and take
over the further handling of the claim or suit, unless such authority is
delegated to Operator. All colsls and expenses of handling settling, or
otherwise discharging such claim or suit shall be a the joint expense of the
parties particip"ting in the operation from which the claim or suit arises. if a
claim is made against any party or if any party is sued on accourrrof airy
rnarter arising from operations hereunder over which such individual has no
control because of the rights given Operatori by this agreement, such party
shall innnedirrtely notify all other parties, and the claim or suit shall he
treated as any other claim or suit involving operations hereunder. .15.

 

[g133791la07i020.gif]

39 A.A.P.L. FORM 610 - MODEL FORM OPERATING AGREEMENT - 1989 ARTICLEXI. FORCE
MAJEURE If any party is rendered unable, wholly or in part, by force majeure to
carry out its obligations under this agreement, other than the obligation to
indetnttify or make money payments or furnish secttrity, that patty shall give
to all otlter parties prompt written notice of the force majeure with reasonably
full particulars concemittg it; thereupon, tlte obligations of the party giving
the notice, so far as they are affected by the force majeure, shall be suspended
during, but no longer than, the continuance of the force majeure. Tlte terttt
"force majulre," as here employed, shall mean an act of God, strike, lockout, or
other industrial distulbztnce, act of the public enemy, war, blockade, public
riot, lightening, fire, stomt, flood or other act of nature, explosion,
govemmental action, govemtttental delay, restraint or inaction, unavailability
of equipment, and any other cause, whether of the kind specifically enumerated
above or otherwise, which is not reasonably within the control of the patty
claiming suspension. The affected party shall use all reasonable diligeltce to
remove the force majeure situation as quickly as practicable. The requirement
that any force majeure shall be remedied with all reasonable dispatch shall not
require the settlement of strikes, lockouts, or other labor difficulty by the
party involved, contrary to its wishes; how all such difliculties shall be
handled shall be entirely within the discretion oi’ the party cottoemed. _
ARTICLEXII. NOTICES All notices nutliorized or required between the parties by
any of tlte provisions of this agreement, unless otherwise specifically
provided, shall be in writing and delivered ilt person or by United States mail,
courier‘ service, telegram, telex, telecopier or any other font-t of facsimile,
postage or charges prepaid, and addressed to such patties at the addresses
listed clrt Exhibit "A.“ All telephone or oral notices penrlitted by this
agreernelrt shall be confinned immediately tlrereafler by written notice. 'l"lre
originating notice given under any provision hereof shall be deemed
deliveredironly when received by the party to whom sucll notice is directed, and
tlte time for such patty to deliver any notice in resplinse thereto shall run
from the date the originatiltg notice is received. "Receipt" for purposes of
this agreement with respect ‘to written notice delivered hereunder shall be
actual delivery of the notice to the address of the party to be notified
specified iii accordance with this agreement, or to the telecopy, facsimile or
telex machine of such party. The second or any responsive notice shall be deemed
delivered when deposited in the Ultited States mail or at the office of the
courier or telegraph service, or upon transmittal by telex, telecopy or
facsimile, or when personally delivered to the party to be notified, provided,
that when response is required within 24 or al; hours, such response shall be
given orally or by telephone, telex, telecopy or other ficsimile within such
period. Each party shall have the right to change its address at eny time, and
front time to time, by giving written notice tltereof to all other parties. If a
party is not available to receive notice orally or by telephone wlten a party
atternpts to deliver a rtotice required to be delivered within 24 or 43 hours,
the notice may he delivered in writing by any other method specified ltereingand
shall be deemed delivered ill the satne manner provided above for any responsive
notice. ~ ARTICLE XIII. TERM OF AGREEMENT This agreement shall remain irt hill
force and effect as to the Oil and Gas Leases and/or Oil and Gas Interests
subject hereto for the period of titne selected below; provided, however, no
party hereto shall ever be construed as having any right, title orinterest in or
to any Lease or Oil and Gas Interest contributed by any other party beyond
thetenn ofttiis agreement. El So long as any of the Oil and Gas Leases subject
to this agreement remain or are continued in force as to any part of the
Contract Area, whether by productiolt, extension, renewal or otherwise. El In
the event the well described in Article VI.A., or any subsequent well drilled
under any provision of tltis agreement, results in the Conrpletion of s well as
a well capable of production of Oil and/or Gas in psying quantities, this
agreement shall continue itt force so long as any such well is capable of
production, and for an additional period of days tltereafier, provided, however,
if, prior to the expiration of additional period, one or more of the parties
hereto are engaged irt drilling, Reworking, Deepening, Sidetlacking, Plugging
Back, testing or attempting to Complete or Re-complete a well or wells
hereunder, tllis agreement shall continue in force until such operations have
been completed and if production l’¢St.IllS therefrom, this agreernent In the
event the well descrihacl in Article VI.A., or any subsequent well drilled
hereunder, results in a dry hole, and no other well is capable of producing Oil
and/or Gas ficlrrt the Contract Area, this agreement shall unless drilling,
Deepening, sidermeking, Completing, Ree completing, Plugging Back or Reworking
operations are commenced within days from the date of abandonment of said well.
"Abandonment" for such purposes shall rneati tller (i) a den n by all parties
not to conduct arty further operations on tlte well or (ii) tlte elapse of léo
days from the conduct of any operations on tltewell, whiclteverfilst occurs. ‘
V‘ The termination of this agi-eerneut shall not relieve atty party hereto from
arty expense! liability or otlter obligation or arty rernedy therefor which has
accrued or attached prior to the date of suclt tenniltatioll. ~ suclt shall
continue in force as provided herein. terminate ~ ~ Upon tenninl-rtion of tltis
agreernettt and the satisfaction of all obligations hereunder, in the event a
memorandum of this Operating Agreement ltas been filed of record, Operator is
authorized to file of record in all necessary recording offices a notice of
tennination, and each party hereto agrees to execute such a notice of
tennination as to Operator‘: interest, upon request of Operator, if Operator has
satisfied all its financial obligations. ARTICLEXIV. COMPLIANCE WITH LAWS AND
REGULATIONS A. La\vs,Regtllations nlld Orders: . This agreement shall be subject
to the applicable laws of the state itt which the Contract Area is located, to
the valid rules, regulations, and orders of arty duly constituted regulatory
body of said state; and to all other applicable fedeml, state, and local laws,
ordinances, rules, regulations and orders. B. Governing Law: ~ This agreement
and all matters pertaining hereto, including but not limited to matters of
performance, nortperformance, breach, remedies, procedures, rights, duties, and
interpretation or construction, shall be governed and determined by the law of
the state itt wlriclt the Contract Area is located. the law oftlte state of c.
Regulatory Agencies: It the Contract Area is in two or more states, Texas shall
govern. Nothing herein contained shall grant, or be construed to grant,
Operator‘ the rigllt 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 .15.

 

[g133791la07i021.gif]

A.A.P.L. FORM 610 - MODEL FORM OPERATING AGREEMENT — 1989 orders promulgated
under suclr laws in reference to oil, gas and mineral operations, including the
location, operation, or production of wells, on tracts offsettirrg or adjacent
to the contract Area. With respect to the 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
fron-r 0pen‘ator‘s interpretation or application of rules, rulings, regulations
or orders of the Departrnent of Energy or Fe:I‘erul Energy Regulatory
conrrnission or predecessor or successor agencies to the extent such
ilrterpretation or application was? made in good faith and does not constitute
gross negligence. Each Non-Operator further agrees to reimburse Operrttor,for
such Non-Operator’: share of production or any refimd, fine, levy or other
govenrnrental sanction that operator may be ‘required to pay as a result of such
an incorrect inter-pr-etation or application, together with interest and
pertalties thereon owing by Opemtor as a result of such incon'ect interpretation
or application. ARTICLE XV. MISCELLANEOUS A. Execution: This agreement sllall be
binding upon each Non-operator when this agreernettt or a counterpart thereof
has been executed by such Non—6penrror and operator rrorwitlrstantling that this
agreement is not then or- thereafter executed by all of the parties to which it
is tendered or which are listed on Exhibit "A" as owning an interest in the
Contract Area or which own, in factjan interest in the Contract Area. Operator
may, however, by written notice to all Non-Operators who have become bound by
this agreement as aforesaid, given at any time prior to the actual spud date of
the Initial well but in no event later than five days prior to the date
specified in Article VI.A. for corntrrerrcemerrt of the Initial Well, tenrrinate
this agreement if Operator in its sole discretion determines that there is
insufficient participation to justify cornmencelnerrt of drilling operations. In
the event of such a tel-rrrination by Operator, all further obligations of the
parties hereunder shall cease as of such tennrnariorr. In the event any
Non-operator has advanced or prepaid any slrare of drilling or other costs
her-et.rrrtler, all sums so advanced shall be returned to such Non—0perator
without interest. In the event Operator proceeds with drilling operations for
the Initial Well without the execution hereof by all persons listed on Exhibit
"A" as having a l‘.|.lITBIl( working interest in such well, Operator shall
indemnify Nan-Operators with respect to all costs incurred for the i Initial
Well which would have been charged to such person under this agreement if such
person had mtecuted the same rrnd operator shall receive all revenues whiclt
would have been received by such person under this agr-eerncnt if such person
had executed the san-re. B. Successors and Assigns: 'llris ugreen-rent shall be
binding upon and shall inure to the benefit of the parties hereto and their
respective heirs, devisees, legal represerrtativas, successors and assigns, and
the terms lreaeof shall be deemed to run with the Leases or Interests included
within the Contract Area. c. Counterparts: _ This instn.rrnent may be executed
in any number of counterparts, each of which shall he considered an original for
all purposes. ' l D. Severnbility: For} the purposes of assuming or rejecting
this agreement as an executory corrtract ‘ursuant to federal bankruptcy laws,
this agreement shall not be sever-able, but rather must be assumed or rejected
in its entirety, and the failure of any party to this agreement to comply with
all of its financial obligations ‘provided herein shall be a material default.
ARTICLE XVI. OTHER PROVISIONS See attached A—M .17.

 

[g133791la07i022.gif]

ARTICLE XVI OTHER PROVISIONS A. Unit Operations and Confirmations of Unit
Agreements Prior leasehold owners in the Contract Area executed those certain
Unit Agreements covering the Dean and Dean B Units, each dated April 1, 1967,
filed of record in Cochrar.f,County, Texas, under File Nos. 15765 and l2632,
respectively, herein referred to as the “Unit Agreements.” This Operating
Agreement is entered into to govern and control all operations to be conducted
under and pursuant to the terms of the Unit Agreements and the Lease subject
thereto and the Dean K Lease. The Unit Agreements are hereby ratified and
confirmed and by reference made a part of this Operating Agreement, this
Operating Agreement shall govern. B. Proposal of Operations and Operations
Authority Operations on the Contract Area, including, but not limited to, all
operations referenced in Article VI, and waterflood operations conducted
pursuant to the Unit Agreements, may be proposed only by the Operator or Reef
Oil & Gas Income and Development Fund III, L.P., and not by any other party
Operator shall have the final authority to make all decisions respecting
operations to be conducted on the Contract Area. Operator agrees to keep
Non-Operators informed on a timely basis of operations being conducted. In
addition, Operator agrees to meet with Non-Operators at Operator’s officc once
each calendar quarter, or as requested, not to exceed once per month, for the
purpose of consulting widr and advising Non- Operators concerning operations
being conducted and/or planned for the Contract Area. C. Rentals All rental(s),
shut-in well payments and minimum royalties which may be required under the
terms of any lease may be administered and paid by Operator and charged to the
Joint Account except where otherwise expressly provided to the contrary in this
agreement. Operator is under no obligation to do so whatever. Any party may
request and shall be entitled to receive proper evidence of all such payments.
Operator shall notify each Non—Operat_or (but is under no obligation to do so)
of its recommendation concerning the payment of delay rentals or shut-in
royalties.» under any leases as they may fall due either in writing, by mail or
facsimile at least thirty (30) day in advance of the day when such payment is
due. ‘3 D. Payment of Invoices The parties to this Agreement agree to pay
Operator within thirty (30) days after receipt of any non-contested invoice. If
any party or parties to this Agreement do not pay an invoice within thirty (30)
days upon receipt thereof, the Operator can serve notice by certified mail or by
facsimile that an invoice or invoices are in arrears and that the Operator
demands payment of all amount overdue. If any party or parties do not pay all
amounts outstanding and due under such non-contested invoice within fifteen (15)
days of its receipt of the above-referenced notice by Operator, the Operator
shall in addition to any other rights and remedies at law or under the Agreement
have the following rerriedies: 1. Operator may sue the non-paying party or
parties for the amount of the invoice and for the interest due thereon set forth
in Exhibit “C” hereto, and the non-paying party or parties shall be totally
liable and shall pay all , attorney’s fees and court costs relating thereto;
and/or 2. Operator may among other remedies available to it, “net check” any
non-paying party or parties interest in production from the entire Contract
Area, until such delinquent invoice is paid in full. E. Insurance With the
exception of minimum limits set by State and Federal regulations Non-Operator(s)
may elect not be covered by any of Operator’s insurance coverage provided for
the joint account by providing Operator with written notice and Certificate of
Insurance of like kind and quality as required by the State of Texas, outlining
that the Operator is granted a waiver of subrogation and is carried as an
additional insured. L ,3 17a

 

[g133791la07i023.gif]

F. Additional Definitions 1. The term “rework” shall mean an operation
undertaken after a well is completed to secure, restore, or improve production
in a common source of supply currently open to production. 2. The term “common
source of supply” if not otherwise defined by applicable rules, regulations,
order, or laws shall mean an underground zone of general structure, containing a
common accumulation of oil or gas, or both, which is completely separated from
any of zones in the structure. 3. The terms “plug back” shall mean a single
operation whereby a deeper common source of supply is abandoned in order that a
completion can be attempted in a shallower common source of supply. G. Article
XVI Controls Notwithstanding anything to the contrary in this Operating
Agreement wherever the provision(s) of Article XVI are in conflict with any
other provisions contained within the [Operating Agreement itself, the
provisions of Article XVI shall prevail. ‘ H. Venue 3. 2. Notwithstanding
anything to the contrary in this Operating Agreement of attached Participation
Agreement venue for any dispute arising herein between Operator and/or
Non-Operator shall be in Dallas County, the State of Texas. 1. Environmental
Notwithstanding anything to the contrary in the Operating Agreement of the
Participation Agreement, Operator cannot be held liable as to the Environmental
Protection Agency Proposed or Actual Ruling as contained within, but not limited
to 40 C.F.R., Part 112 [SWH-FRL-3671-41] R.l.N. 2050- A.C.62, Oil Pollution
Prevention; Non-transportation, related onshore and offshore facilities.
Operator will use reasonable efforts as determined by Operator to maintain the
subject property/oil and gas leases, free of debris or environmental waste
created by ordinary operations. Operator will not be held liable, directly or
indirectly, for damage to the surface or environment created by third-party
contractors, their agents, servants, invitees, or employees, in the perfonnance
of their services for Operator, under any occasion or circumstance. J. Advance
Paygrents Notwithstanding the provisions of Article V1I.C., if Operator desires,
Operator may advance bill each Non~Operator who elects to participate in the
drilling or completion attempt of any well contemplated under this Agreement.
This does not apply to monthly Lease Operating Expenses (“LOB’s) or associated
Joint Interest Billing (“JIB”). Should Operator elect to advance bill each
Non-Operator, it will include one hundred percent (100%) of Non«Operator’s
proportionate share of the estimated costs for the entire operation (except in
the event of a proposed well, dry hole cost onl ‘=) Said advance billing will be
accompanied by a prognosis (drilling or completion) outlining the work to‘-.be
undertaken. Non~ Operators who have elected to participate in any such drilling
or completion operations shall remit to Operator within fifteen (15) days after
the receipt of said bill and associated prognosis, one hundred percent (100%) of
the amount so invoiced. If not received by Operator within the prescribed time,
Operator may, without prejudice to other existing remedies, at its option,
consider such non-payment to constitute an election not to participate under
Article VI,B.2 of this Agreement in the same manner, , to the same extent and
with the same force that failure to reply within the prescribed period
constitutes an election not to participate, except as to proposal to drill a new
well or a required well or required operations shall be administered in
accordance with Section C hereof. ~ K. Bankruptcy If following the granting of
relief under the Banlcruptcy Code to any party hereto as debtor thereunder, the
Agreement should be held to be an executory contract within the meaning of l 1
U.S.C. ‘365, then the Operator, of (if the Operator is the debtor in bankruptcy)
any other party, shall be entitled to determination by debtor or any trustee for
debtor within thirty (30) days from the/date an order for relief is entered
under the Bankruptcy Code to rejection or assumption of this Operation
Agreement. 17b

 

[g133791la07i024.gif]

In the event of an assumption, Operator or said other party shall be entitled to
adequate assurances as to future performance of debtor’s obligation hereunder
and the protection of the interest of all other parties. L. Counterparts ' This
instrument may be executed in any number of counterparts, each of which shall be
considered an original for all purposes and all of which shall constitute but
one and the same instrument. Failure to execute this Agreement by and party for
whom a signatory space is provided shall not render the Agreement ineffective as
to any party hereto that has executed the Agreement. Furthermore, if
counterparts of this Agreement are executed, the signature of the parties, as
affixed thereto, may be combined by Operator in, and treated and given effect
for all purposes as, a single instrument. This Agreement also may be ratified by
separate instmment referring hereto, each of which shall have the effect of the
original Agreement and of adopting by reference all of the provisions herein
contained. M. No Additional Burdens If any party hereto hereafter should create
any overriding royalty, production payment or other burden against its working
interest production and, if any other Party or Parties should conduct Non-
Consent operations pursuant to any provision of this Agreement, and, as a
result, become entitled to receive the working interest production belonging to
the Non—Participating Party, the Party or Parties entitled to receive the
working interest production of the Non—Participating Party shall receive such
production free and clear of burdens‘ against such production which may have
been created subsequent to this Agreement and Non-Participating Party creating
such subsequent burden shall hold the Participating Party or Parties harmless
with respect to the receipt of such working interest production. —END OF OTHER
PROVISIONS- 17c

 

[g133791la07i025.gif]

23 24 25 26 27 31 31 34 35 36 37 A.A.P.L. FORM 610 - MODEL FORM OPERATING
AGREEMENT - 1989 IN WITNESS WHEREOF, this agreement shall beeffective as ofthe
7th clay of January , Z008 . ‘LL? »rlA‘ln.-l1lh«F ; r}? (-n/‘ . .1 i.c rwar. .1,
'£L6\< Era/{.3I‘a.«lLI _~-,: u v. .1. Mme mmonmzn: "5, *' ,, D ‘, ,, ‘*" h *‘ '
,. *-= ‘ ‘ '- '= " " “' ‘, ' . No changes, alterations, or modifications, other
than those made by strikethrough and/or insertion and that are elearly
recognizable as changes in ' ‘ have been made to the form. It OPERATOR ATTEST OR
WITNESS: 27/ By /3% ~~~ ' J. eli Typeor ri Date ([119: ' Tax IDorS.S.No. 73 - 3
(;°<ee9 Title Malia in ember NON—0l’ERATORS Reef Oil & Gas Income & Development
Fund III L.P. By Reef Oil & Gas Partners, L.P., general partner By Reef Oil &
Gas Partners, GP, LLC, general partner /~ By Type or pri Title Manager Member
Date [ Tax ID or S.S.No. 070$ [ LO Sierra-Dean Production Com an LP By SP
Opegtions partner By ‘ I H. Patrick Seale Type or print name /L I 52%a Title
President Date Q1 ‘ TaxIDorS.S.No. ,£0— [5//2&4 ~ .13.

 

[g133791la07i026.gif]

34 35 36 37 A.A.PoL. FORM 610 - MODEL FORM OPERATING AGREEMENT - 1989 By Davric
Corporation Jerrv E. Polis Type or print name Title President Date Tax ID or
S.S. No.

 

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to AvA4P>L> FORM 610 - MODEL FORM OPERATING AGREEMENT - 1989 ACKNOWLEDGMENTS
Note: The following forms of acknowledgment are the short forms approved by the
Uniform Law on Notaiial Acts. The validity and effect of these fonns in any
state will depend upon the statutes of that state. Individual acknowledgment:
State of_:____ ) ) ss. County of ) This instrument was acknowledged before me on
(Seal, if any) Acknowledgment in representative capacity: State of Texas ) ) ss.
County of Dallas ) This instrument was acknowledged before me on Januar 7 2008
Mana in Member (Seal, ifany) ELAINE PALMER My Commission Expires June 6, 2008 by
Michael J. Mauceli of Reef Exploration, GP, LLC Title (and Rank) My commission
expires: . l t t l t i l > » i l %/ lfldflmordll as Title (and Rank) M12 fit: ;1
My commission expires: l .

 

[g133791la07i028.gif]

N 33 34 37 A,A.P.L. FORM 610 - MODEL FORM OPERATING AGREEMENT - 1989
ACKNOWLEDGMENTS Note: The following forms of acknowledgment are the short fonns
approved by the Unifomn Law on Notarial Acts. The validity and effect of these
forms in any state will depend upon the statutes of that state. Individual
acknowledgment: State of ) l ) ss. County of ) This instrument was acknowledged
before me on _ (Seal, if any) Title (and Rank) My commission expires:
Acknowledgment in representative capacity: State of Texas ) ) ss. County of
Dallas" ) This instrument was acknowledged before me on by Michael J. Mauceli ‘
as Janna 7 2008 Manager of Reef Oil & Gas Partners GP LLC /((3/011‘)/21; W/2
//WOJIU Title (and Rank) -c-o (Seal, if any) ELAINE PALMER My Commission Expires
My commission expiresi June 6. 2008 . .19.

 

[g133791la07i029.gif]

to A.A.P.L. FORM 610 — MODEL FORM OPER.AT]NG AGREEMENT - 1989 ACKNOWLEDGMENTS
Note: Theifollowing forms of acknowledgment are the short fonns approved by the
Uniform Law on Notarial Acts. The validity and effect of these fonns in any
state will depend upon the statutes of that state. Individual acknowledgment: >
State of ) )ss. County of ) ‘ This instrument was acknowledged befoie me on
(Seal, ifany) \ Title (and Rank) My commission expires: Acknowledgment in
representative capacity: State of Texas ) ) ss. County of Dallas ) This
instrument was acknowledged before me on Januar 7 2008 by H. Patrick Seale as
President of SPI Qnerations LLC X//tun/up S301//7720):) . Title (and Rank) . git
32 >[ My commission expires: (E) ‘Q (Seal, if any) ELAINE PALMER My Commission
Explres June 6. 2005 lib

 

[g133791la07i030.gif]

EXHIBIT “A” Attached to and made a part of that certain Operating Agreement by
and between Reef Exploration, L.P., as Operator, and, Reef Income & Development
Fund III, et al as Non-Operators dated January 7, 2008. Description of lands
subject to this agreement: Labors 1, 12 and 13, League 89, Lipscomb County
School Land and Labors 1, 2, 12 and 13, League 90, Libscomb County School Land,
Cochran County, Texas. Dean “B” Unit: Tract 3 - E/2 S/2 W/2 _W/2 W/2 of League
91 Tract 4 - E12 W/2 W/2 of League 91 Tract 5 - E/2 W/2 ofLeague 91; Labors
3,4,5,6,8,9,l6,l8, S/2 ofLabor 15 and the West 1,543.79 acres, less the west 480
acres thereof of League 90 and the Northwest 35.4 acres of the west 441.75 acres
of the east 3/. of League 89 Tract 6 - West 480 acres of League 90 Tract 7 -
Labor 7, League 90 Tract 8 - Labor 10, League 90 Tract 9 - N/2 and SE/4 of Labor
17, League 90 Tract 10 - N/2 ofLabor 15, League 90 / Tract 11 - NW/35.4 acres of
Labor 5, League 89 Tract 12 - SW/4 of Labor 17, League 90 All located in
Lipscomb County School Land, Cochran County, Texas. Dean “K” Unit: W/2 N/2 W/2
W/2 of League 91, Lipscomb County School Land, containing 276.94 acres, more or
less. 1 Restrictions, if any; as to depths, formations, or substances: ~ Dean
“B” Unit: Tract 3: Surface to 5,200 feet only; Tract : Surface to 5,700 feet
only; Tract 7: Surface to 5,500 feet only; and as may be further limited by the
terms of the Oil and Gas Leases or Assignments of same. Parties to Agreement:
with address and telephone numbers for notice purposes: Operato r Reef
Exploration, L.P. 1901 North Central Expressway, Suite 300 Richardson, TX 75080
Attn: H. Walt Dunagin Telephone: 972-437-6792 Facsimile: 972-994-0369
wa1t@,reefcxplorntion.com Non-Operators Reef Income & Development Fund III 1901
North Central Expressway, Suite 300 -1 Richardson, TX 75080 ‘_ Attn: H. Walt
Dunagin - Telephone: 972-437-6792 Facsimile: 972-994-0369
walt@reefexploration.com

 

[g133791la07i031.gif]

Seirra-Dean Production Company LP 415 West Wall Street Suite 625 Midland, TX
79701 Attn: H. Patrick Seale Telephone: 432-683-5959 Facsimile: 432-683-8588
Daviic Corporation 980 American Pacific Drive Suite 111 Henderson, NV 89014
Attn: Jerry E. Polis Telephone: Facsimile: 4. Percentages of fractional
interests of parties to this agreement : Dean Unit & Dean “B" Unit 1/I_ Reef
Income & Development Fund HI, L.P. 41.000000% Sierra-Dean Production Company LP
41.000000% Davric Corporation 18.000000“/o TOTALS 100.000000% Dean “K” M Reef
Income & Developrhent Fund IH, L.P. 50.000000% Sierra-Dean Production Company LP
50.000000% TOTALS ‘ 100.000000% 5. The Leases: 1. Oil and Gas Lease dated May
31, 1937, recorded inVo1. 1, page 625 of the Oil and Gas Lease Records of
Cochran County, Texas, from Carrie Slaughter Dean, as lessor, to P.N. Wiggins,
as lessee; 2. Oil and Gas Lease dated April 5, 1937, recorded in Vol. 1, page
435 of the Oil and Gas Lease Records of Cochran County, Texas, from Carrie
Slaughter Dean, as lessor, to P.N, Wiggins, as lessee; 3. Oil and Gas Lease
dated January 3, 1939, recorded in Vol. 2, page 350 of the Oil and Gas Lease
Records of Cochran County, Texas, from Carrie Slaughter Dean, as lessor, to
Honolulu Oil Corporation, as lessee; and 4. Oil and Gas Lease dated November 15,
1951, from Carrie Slaughter Dean to E. Constantin, Jr. recorded in Vol. 10, page
571 of the Oil and Gas Lease Records of Cochran County, Texas.

 

[g133791la07i032.gif]

" COPAS 1ea¢1 ONSHORE Revlsed April 23. 2on4 1 Recommended by the council of
Petroleum Accountants Soclelies EXHIBIT , “ C ” Attached to and made a part of
that certain Operating Agreement dated Janualjfl 2008 by and between Reef
Exploration LP. is Operator and Reef lncume & Development Fund III et al as
Non-Operators. :;*O0o\lo«|ItbvIl~l— nrl.r_____._ .4O\om~lO\Ul.l:l;:IxI IJ to can
awaxataxoioaot o.o.o.o.io.o.u.uiu.ocsleno
5l$a~I(hutAutl~)—-g\aoc~IasLIt.u:\.uI~J-—0~natl\:a\Ul$ ACCOUNTING PROCEDURE
JOINT OPERATIONS I. GENERAL PROVISIONS \ Definitions "Joint Property" shall mean
the real and personal property subject to the agreement to which this Accounting
Procedure is allached. “Joint operations" shall mean all operations necessary or
proper for the development, operation, protection and maintenance of the Joint
Properly. "Joint Account" shall mean the account showing the charges paid and
credits received in the conduct of the Joint operations and which are to he
shared by the Parties. |.\ "Operator" shall tnean the party designated to
conduct the Joint operations. - "Non-Operalols" shall mean the Parties to this
agreement other than the operator. "Pnrtics" shall mean operator and
Nomoperators. ' "Firsl Level supervisors" shall mean those employees whose
primary funclion in Joint operations is the direct supervision or other
employees and/or conlracl lahor directly employed on the Joint Property in a
tield operating 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 conditions and pi-ohlems for the henefit or the lointrropeny,
"Personal Expenses" shall mean travel and other reasonable reinioursahle
expenses otoperators 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 recolntnended by the
Council orvetroleurn Accountants societies. statement and Billings Operator
shall bill Non-Operators on or before the lasl day of each month for their
proportionate share of the Joint Account for the preceding month.‘ such bills
will he accompanied by statements which identify the authority for expenditure,
lease or facility, and all charges and credits sutnlnarizod hy appropriate
classifications or investment and expense except that items of controllahle
Material and unusual charges ind credits shall be separately identified and
fully described in detail. Advances and Payments by Non-operators A. 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 opelolion within fifteen ([5) days after receipt ofthe billing or by the
first day of the lnonlh tor which the advance is required, whichever is later.
operator shall adjust each monthly billing to retlect advances received from the
Non-operators. B. Each Nan-Operator shall pay its prctporlion ofnll bills within
fifteen (l 5) days aficr receipt. If payment is not made within such time, the
unpaid balance shall hear interest monthly at the prime rate in etrect at .L1>.
Morgan_ on the first day oflhe month in which delinquency occurs plus 10% or the
maximum contract rate permitted hy the applicable usury laws in the state in
which the Joint Property is located, whichever is the lesser, plus allomey‘s
fees, court costs, ‘and other costs in connection with the collection ofunpaid
nlnuunls. Adjustments Payment of any such bills shall not prejudice the right of
any Non—0peraIor Io protest or question the correctness 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 afier
twentyefour (14) months following the end of any such calendar year, unless
within the said twenty-four(Z-1-) lnonth period a Non-Operator takes written
exception llierclo and makes claim on Operator for adjustment. No udjuslinent
favorable to Operator shall he made unless it is made within lhc seine
prescribed period. The provisions of this paragraph shall not prevent
odjuslmenls resulting from a physical inventory of Conlrclllable Materiel as
provided for in Section V, COPYRIGHT © 1985, 2004 by the Council of Petroleum
Accountants Societies, Inc. .1.

 

[g133791la07i033.gif]

l~t to N _. ta m to st to En lulu xlm wlollq com L» uN or vi tn 4» or cw. h: as
ht xl wm w lo c.o A as to 5 L» t at \n B at o sl L rn as so u. o u. ‘-4. to _.
u. or % u. u. on or to st or on e. on ma -9 at to as or as ts 3 as as charm
\oou\l «I o COFAS 1954-l ONSHORE Revised April 23, 2004 Recommended by the
Council at Petroleum Accountants Societies Audits ' ‘v A. A Non»Operator, upon
notice in writing to Operator and all other Nan-Operators, shall have the right
to audit Opel-ator‘s accounts and records relating to the Joint Account for any
calendar ysnr within the twenty-four Q4) month period rollowing the end of such
calendar year; provided, however, the lrlaking of an audit shall not extend the
time {oi 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»Dperetors, the Non—Operntors shall make every reasonable effort to conduct a
joint audit in H lnnnnnr which will result in a minimum of inconvenience to the
Operator. Operator shall bear no portion of the Non-Operators‘ audit cost
incurred under this paragraph unless agreed to by the Operator. The audits shall
not be conducted more than once each year without prior approval of operator,
except upon the resignation or removal or the operator, snd shall be made at the
expense of those Non-Operators approving such audit. B. The Operator shall reply
in writing to an audit report within l80 duys nfier receipt ofsuch report.
Approval By Non-Operators where an approval or other agreement of the Parties or
Nomopertttors is expressly required under other sections of this Accounting
Procedure and if the agreement to which this Accounting Procedure is attached
contains no contrary plovi "on: in regard thereto, Operator shall notify all
Nonoperutors of the Operators proposal, and the agreement or approval of a
majority in interest of the Nnn~0perators shall be controlling on all
Non-Operators. - ll. DIRECT CHARGES Operator shall charge the Joint Account with
the following items: Ecological and Environmental costs incurred for the benefit
of the Joint Property as a result of governmental or regulatory requirements to
satisfy environmental considerations applicable to the Joint operations. Such
costs may include surveys of an ecological or archaeological nsture and
pollution control procedures as required by applicable llws and regulations.
Rentzls and Royalties . Lease rentals and rowlties paid by Operator for the
Joint Operations. Labor . . fl" . l . . . A. (1) salaries and wages oropcrators
field employees directly employed oo-/ the Joint Property in the conduct orloint
operations. (2) solnries of First level supervisors in the field. f (3) snlurlcs
and wages of Technical Employees directly employed ee—/“the Joint Property it
such charges are excluded from the overhead rates. ‘ f (4) Salaries and wage: of
Technical Employees either temporarily or permanently assigned to and directly
employed lnjrthe operation for the Joint Property i (such charges are excluded
from the overhead rates. B. Operator's cost of holiday, vztcntion, siclrncss and
disability benefits and other customary allowances psid to employees whose
salaries and wages are chargeable to the Joint Account under Paragraph 3A of
this section ll. such costs under this Paragraph 313 may be charged on a "when
and as paid has‘~ " or by "peroentage assessment" on the amount of salaries and
wages chargeable to the Joint Account under Paragraph 3A of this Section ll. if
percentage assessment is used, the rate shall be based on the Operators cost
experience. c. Expenditures or contributions made pursuant to assessments
imposed by govet-ntnentsl authority which are spplicable to Operator's costs
chargeable to the Joint Account under Paragraphs 3A and 3B or this section II.
D. Personal Expenses or those employees whose salaries and wages are chargeable
to the Joint "Account under Paragraphs 31>. of this Section 11. Employee
Benefits operators cunent costs or estublished plans for employees‘ group life
insurance, hospitalintitm, pension, rstirctnent, stock purchase, thrllt, bonus,
and other bcnertt plans ora like ncture, applicable to operators labor cost
chargealiltr to the Joint Account under Paragraphs an and so of this section It
shall he Operatofs actual cost not to exceed the percent most lecently
recommended by the council or Petroleum Accountants Societies. ~ COPYRIGHT ©
1985, 2004 by the Council of Petroleum Accountants Societies, Inc. .2. COPAS

 

[g133791la07i034.gif]

vi I~)I~llJI~t 60\I0\ unit.-to to--oto LII ul Ine bl Vt ha ox \.u \l or ee Lu \a
.t.5 i is A Le: a as as Va or e ~l e% as to U:o to U: N 53 coPAs 19:14.1 ONSHORE
Revised April 23. 2004 Recommended by the council of Petroleum Accountants
Societies Material Material purchased or Fumished by Operator for use on the
Joint Property as prnvided under Section IV. Only such Material shall be
purchased for or transfened to the Joint Propetty as may be required for
immediate use and is reasonably practical and consistent with efficienl and
econolnicnl nperations. The accumulation of surplus stocks shall he nvctided.
Transportation Transportation ofemployees and Material necessary for the Joint
operations but subject to the rollcriing limitations: A. If Material is moved to
the Joint Property from the operators warehouse or other properties, no charge
shall he made to the Joint Account for a distance greater than the distance rrom
the nearest reliable supply store where like material is normally available
orrailway receiving point nearest the Joint Property unless agreed to hy the
Parties. 13. it surplus Material is moved to operators warehouse or other
storage point, no charge shall be made to the Joint Account tor a distance
greater than the distance to the nearest reliable supply store where like
material is nonnally available, or railway receiving point nearest the Joint
Property unless agreed to by the Parties. No charge shall be made to the Joint
Account for moving Material to other properties belonging to operator, unless
agreed to by the Parties. c. in the application of suhparagraphs A and B above,
the option to equalize or charge actual trucking cost is available when the
actual charge is $400 or less excluding acmsorial charges. The $400 will be
adjusted to the amount most recently rccoininended by the Council of Petroleum
Accountants Societies. Services ~ The cost oteontract services, equipment and at
es provided hy outside sources, except services excluded hy Paragraph to of
section it and Paragraph i. ii. and iii, of Section Ill. The cost of
professional consultant services and contract services cf technical personnel
directly engaged on the Joint Property if such charges are excluded from the
overhead rates. The cost ofpra{essionxl\consulLrmt services or contract services
of technical personnel not directly engaged on the Joint Property shall not be
charged to the Joint Account unless previously agreed to by the Parties. . l '
Eqltipmentattd racilities Furnished By operator A. Operator shall charge the
Joint Account for use of Operator owned equipment and facilities at rates
cclnlnertsurate with cost: of ownership and operation. Such tales shall include
costs of maintenance, repairs, other operating expense, insurance, taxes,
depreciation, and interest on gross investment less accumulated depreciation not
to exceed eight percent 8 %) per annum. such rates shall not exceed average
commercial rates currently prevailing in the imlrlediate area or the Joint
Properly. -‘t B. in lieu of charges in Paragraph SA above, operator may elect to
use average connnerciattates prevailing in the immediate area or the Joint
Properly less ztw For automotive equipment, operator may elect to use iates
published by the Petroleum Motor Transport Association. 3 Damages and Losses to
Joint Property All costs or expenses necessary tor the repair or replacement
ofJoint Property made necessary because of damages or losses incurred by fire,
itood, stomt, tliett, accident, or other cause, except those resulting horn
Operator's gross negligence or wiiliul misconduct. operator shall furnish
Non—operator written notice of damages or losses incurred as soon as practicable
after a repon thereof has seen received by operator. Legal Expense Expense of
handling, investigating and settling litigation or claims, discharging of liens,
payment of judgments and amounts paid ror settlement of claims incuned in or
resulting from operations under the agreetnent or necessary to protect or
recover the Joint pmpmy, SP1.) L5: « cy ly‘_l_€B e W e ~.i I t.ni. a .55
F'I)hALlLD“1ILl5I - -aai. -lL,I. l.1y"l"IH r a .- -I IJLt-r ~,_,__? __P v.ra~
-sins 5;.-tr Taxes All taxes or evely kind and nature assessed nr levied upon or
in connection with the Joint Property, the operation thereof, or the production
therefrom, and which taxes have been paid by the Operator for the benefit of the
Parties. if the ad valaretn taxes are based in whole or in part upon separate
valuations of each party‘: working interest, then notwithstanding anything to
the contrary herein, charges to the Joint Account shall he made and paid by the
Parties hereto in accordance with the tax value generated by each party's
working interest. ~ COPYRIGHT © 1985, 2004 by the Council of Petroleum
Accountdnts Societies, Inc. .3.

 

[g133791la07i035.gif]

14. I5. ll COFAS 1954->1 ONSHORE Revised April 23, 2004 Recommended by the
Council of Petroleum Accountants Societies Insurance Net pretntutns paid for
insurance required to be carried for the Joint operations for the protection of
the parties. in the event loint operations are conducted in a state in which
operator may act as sclcinsurer for workers compensation and/or Employers
Liability under the respective state's laws, operator may. at its election,
include the risk under its selr. insurance program and in that event, operator
shall include a charge at Operator's cost not to exceed manual rates.
Abandonment and Reclamation costs incurred tor abandonment ofthe loint Prclpeny,
including costs required by govet-ntnental or other regulatory authority.
Communications cost of acquiring, leasing, installing, operating repairing and
msintaining conntnunication systems, including radio and microwave . racilitics
directly serving the Joint Property. in the event cotntnunication
facilities/systems serving the Joint Proper-ry are operator owned. charges to
the Joint Account shall be made as provided in Paragraph 3 of this section it.
other Expenditures Any other expenditure not covered or dealt with in the
foregoing provisions of this Section II. car in Section III and which is of
direct benefit to the Joint Property and is incurred by the Operator in the
necessary and proper conduct of: . Joint operations. “I. OVERHEAD Overhead -
Drilling and Producing Operations i. As compensation for administrative,
supervision, office services and warehousing costs, Operator shall charge
drilling and I producing operations on either: ( x ) Fixed Rate Basis, Paragraph
1A, or ( ) rercentoge Basis, Paragraph IE Unless otherwise agreed to by the
Parties, such charge shall he in lieu of costs and expenses of all otfices and
salaries or wages plus applicable burdens and expenses of all personnel, except
those directly chargeutale under Paragraph 32 section ll. The cost and expense
of services from outside sources in connection with matters of taxation, trarnc,
accounting or tnatters oerore or involving govemtnental agencies shall be
considered as included in the overhead rates provided for in the above selected
Parsgmph of this section lll unless such cost and expense are agreed to by the
Parties as a direct charge to the Joint Account. ii. The salaries, wages and
Personal Expenses of Technical Ernployees and/ur the cost of professional
consultant services and contract services of technical personnel directly
employed on the Joint Property: ( ) shall be covered by the overhead rates, or (
X ) shall not be covered by the overhead rates. iii. The salaries, wages and
Personal Expenses of Technical Employees andlor costs or proressional consultant
services and contract services or technical personnel either temporarily or
pennanently assigned to and directly employed in the operation of [h J _ [F 0 H
/"except those covered by Direct charges e otn r p ry: ( )shall be covered by
the overhead rates, or ( X )shall not be covered by the overhead rates. A.
Overhead - Fixed Rate Basis ~ (l) operator shall charge the Joint Account at the
following rates per well per month: Drilling Well Rate 3 5 00.00 (Pmrdted for
less than a full month) Producing well Rate$ 2504111 (1) Application of overhead
. Fixed Rate Basis shall lie as follows: (is) or-illing well Rule (l) charges
for drilling wells shall laegin on the date the well is spudded and terminate on
the date the drilling rig, completion rig, or other units used in completion at
the well is released, whichever is later, except that no COPYRIGHT © 1985, 2004
by the Council of Petroleum Accountants Societies, Inc. ~

 

[g133791la07i036.gif]

|~lI~)l~Jl~)I 1>wIu—- (3) COPAS 1984-1 ONSHORE Revised April 23, 2004
Recerrtmended by the Council 67 Petroleum Accaumanls Societies charge shall be
made during suspension of drilling or completion operations for mean (ls) or
more consecutive calendar days. Charges for wells undergoing any type of
worltover or recomplelion fur a ' riod of five (5) consecutive work days ~ or
lnore shall be made at the drilling well rate Such charges shall be applied for
the period frrlm date workover operations, wilh rig or other units used in
workover, commence through date of rig or other unit release, except that no
charge shall be made during suspension ctj opemlions for fifleen (15) or more
consecutive calendar days. (1)) Producing Well Raies (1) (3) (4) (5) An active
well eilher produced or injected inlo for any portion of the month shall be
considered as a one-well charge for the entire month. Each activc completion in
a rnulri—calnpleied well in which production is not comrningled down hole shalt
be considered as a anewell charge providing each completion is considered a
separate well by the governing regulatory authority. Art inactive gas well shut
in because or cverprodllclion or failure of purchaser to take the production
shall ‘be considered as a one-well charge providing the gas well is directly
connected to a permanent sales outlet. A one—well cl-large shall be made tor the
month in which plugging and ahandonrnent operations are completed on any well.
This one-well charge shall be made whether or not the well has produced except
when drilling well raleapplies. -All other inactive wella (including but not
limited to inactive wells covered by unit allowahle, lease allcwahlc, transtenod
allowable, etc.) shall not qualify for an overhead chnrgc. (3) The well rates
shall be adjusled as of lhe firs! day cf April each year fialluwing the
effective dale of the agreelnenl to which this Accounting Procedure is attached
by the percent increase or decrease published by COFAS.
a.—t;aerhead—l>creerttage-Basis ~ T) . r h,,,,. wt ,e.,vW a.-, c . r or r. .» .
.- . a Jar a A: J r . a -a c . a e I: L ' ta " L. L‘ A n Lil: ’‘\I '' lllrl I
LII rat . 5 art’ . a la n 'X~.A'II' .,.-n ,. a. . . 5! .- e r 5 a can a or can u
a . u. . .a 5 5 r s r 5 e v. .e ) . 4. . on u r - a L n \ wvlv t«t- e. mi: “L “"
5 t« u a . 55‘ .n Err! u . Ir a a c r , . v - IA‘ or (A t_h.{’ - Mt.-r-n aacu
-n. r. PW1v=I—VI r v n r 5r- - overhead - Major construction To compensate
operator for overhead costs incurred in Hue construction and installation
otnlted assets, the expansion ornxcd assets, and any other project clearly
discernible as a fixed asset required for the development nnd operation of the
Joint Properly, Operator shlll either negotiate a rate prior to the beginning of
construction, or slmll charge the 1oirllAcomtnt ror overhead based on the
following rates ror any Major construction project in excess or: too 0941 : A. %
of firs! $l 00,000 or Intel cosl ifless, plus [\ B. ___j_ % of coals in excess
of $100,000 but less than $1,000,000, plus C. 2 % ofeosls in excess
ofSl,0lJ0,000. COPYRIGHT © 1985, 2004 by the Council of Petroleum Accountants
Societies, Inc. .5.

 

[g133791la07i037.gif]

COPAS 1984-1 ONSHORE Revised April 23, 2004 Recommended by the Councll ot
Petroleum Accountants Societies l Total cost shall mean the gross cost of any
one project. For the purpose or this paragraph, the component parts on single
project shall 2 not he treated separately and the Dust ofdrilling and wnrkover
wells and artificial lifl equipment shall be excluded. 3 4 3. catastrophe
overhead 5 6 To compensate operator for overhead costs incurred in the event of
expendituru resulting froln a single occurrence clue to oil spill, 7 blowout,
explosion. fire, stonn, hunicane, or other catastrophes as agreed to by the
Parties, which are necessary to restore the Joint 8 Property to the equivalent
condition that existed prior to the event causing the expenditures“ Operator
shall either negotiate a rate 9 prior to charging the Joint Account or shall
charge the Joint Account for overhead hused on the rollowing rates: 10 l l A. s
% ortotal costs through $100,000; plus [1 l3 E. 3 % oftothl costs in excess
orsl00,000 but less than $1,000,000; plus N l5 C. % oftotul costs in excess cf$l
,000,D00. I6 _ l7 Expenditures subject to the overheads above will not he
reduced by insunnne recoveries, and no other overhead provisions of this I8
section ltt shall apply. 19 20 4. Amendment of Rates ll 22 The overhead rates
provided for in this section lll may he amended from time to time only hy mutual
agreement between the Parties hereto 23 . if, in practice, the rates are found
to be insufficient or excessive. Z4 25 26 IV. PRICING OF JOINT ACCOUNT MATERIAL
PURCHASES, TRANSFERS AND DLSPOSITIONS Z7 28 Operator is responsihle for Joint
Account Material and shall make proper and timely charges and credits ror all
Material movements arresting the 29 Jelnt Property. operator shall provide all
Material (or use on the Joint Property; however, at operators option, such
Material may he supplied 30 by the Non.operator. operator shall make timely
disposition or idle and/or surplus Material, such disposal hsing made either
through sale to 31 operator or Ncn—Operator, division in kind, or sale to
outsiders. operator may purchase, hut shall he under no ohligation to purchase.
interest 32 or Non-operators in surplus condition A or B Material. The disposal
of surplus Controllable Material not purchased by the operator shall he agreed
33 to by the Parties. 34 35 1. purchases ‘~ 35 g ' 37 Material purchased shall
he charged at the price paid by operator afler deduction or all discounts
received. in case of Material found as to be defective or retumed to vendor ror
any other reasons, credit shall be passed to the Joint Account when adjustment
has heen received 39 by the Operator. ' 40 ' ‘ r 41 1. Transfer: and
Dispositions 42 43 Material fumished to the Joint Property and Material
transferred from the Joint Property or disposed of by the Operator, unless 44
othenvise agreed to by the Parties, shall be priced on the following basis
exclusive of cash discounts: - _ 45 I 45 A. N M ‘ l(C l‘l' ' A) I 47 ew atom on
man - 710, A ‘/4! flflefl ’ 43 (1) ITubularGoodsOtherthanLinePipe a/¢/9.e/cu/
2%‘/{S , -r. ~ ~ ~ ~ ~ ~ ~ 49 / so (a) . . . t: - . In . . r., . . price a as ‘
- lished arload éo;-4'-’ St , base . ' es effective as of date of rnovenrent
plus trrratrcn cnxt using the 50,000 pound carload tght basis 52 . the milwa
eiving point nearest the lot roperty for which published rail rates for tuh .
goods exist. it the 53 30,0 ound rail r- ' not ortere e 70,000 pound or 90,000
pound rail rat y he used. Freight charges 54 It: to. r r--_. .n,rr .; ' - 55 so
i For grades w’ - re special - - ernitl only, prices shall he -. puted at the
mill hare of that mill plus transportation 57 cost fi'om that mill to the
railway rec ' ; point near e Joint Property as provided above in Paragraph
Z.A.(l)(u). SB / For transportation cost from points other than =— m mills, the
30,000 pound Oil Field Haulers Association interstate 59 truck rate shall he
used. 60 6| (c) Special end finish tubular go shall he priced at the lowest
"shed outref-stock price, i.o.h. Houston, Texas, 61 plus transponation cost, ‘ g
Oil Field I-Iaulers Association interstate 30, t I ound truck rate, to the
railway receiving 53 ropetly 64 65 (d) ‘ ing (size less than 2 3/3 inch OD)
shall he priced at the lowest published ot.lt—af»s - prices f.o.h. the 66 ‘r
plus transportation costs, using the Oil Field Haulers Association interstate
tnlck rate pe 67 hin , erar way receiving point nearest the Jotn roperr . 58 '\
69 70 COPYRIGHT © 1985, 2004 by the Council of Petroleum Accuutttantsksocieties,
Inc. .5.

 

[g133791la07i038.gif]

~~ ~ " cons 1934-1 ONSHORE Revised April 23, 2004 Recommended by the council of
Petrnleurrl Accountants Societies (2) l.inet=ip= é41///x—/fizmea/ fl
/M’/lé‘7’/72/‘ti at/as 0. Line pipe rnovernents (except size 24 inch OD and
larger with walls ‘A inch and over) 2 , po - rev-isisne-aPr|Ibuar goods pnorng
tn Paragraph A.(l)(n) as t ed ahove. ' it charges shall be clslc d from Lorain,
ohio. (17) Line Pipe nrovetnents (except ' 24 inch on and larger ' walls % inch
and over) less than 30,000 pounds shall be priced at Eastern mill publish
effective as of date of shiplnent, plus the percent most ns recently
reconnnenrled hy COPAS, plus tra ation co rs—hased freight rates as set iarth
under provisions of tubular goods pricing in Paragmph A0) a provided above.
plated horn Lorain, ohio. (c) Line pipe 24 inch on over and =4 inch wall and
larger shall he priced f.o.b. the point ottnanuracture a ant new published pr‘
plus transportation cost to the railway receiving point nearest the Joint
Property. m (G) ~ ~ ~~ ~ ~ ~ ~ ~ ~ ~ ~ ipe, including rahricated line pipe,
drive pipe and conduit not listed on published price lists shall he -' d at qu '
-erg t to the railway receiving point nearest the Joint Property or at pnces
agreed to hy the Parties. kn (3) other Material shall he priced at the
curreit'i'/rneav-price, in etrect at date of tnovernent, a listed hy at rellahle
supply store nearest the Joint l>ropony, or point of manufacture, plus
transportation costs, it applicable, to the railway receiving point nearest the
Joint Properly. i ll . _ "-, market _ _ (4) unused new Material, except tubular
goods, moved from the Joint Property shall he rnoed at the current /nettepnce,
tn eitect on date of movement, as listed hy a reliahle supply store nearest the
loint Property, or point of manufacture, plus transportation costs, if
applicable, to the railway receiving point nearest the Joint -Properly. unused
new tuhulars will he priced as provided above in l>aragraph 2.A.(l) and (2). ‘
B. Good Used Material (Condition la) Material in sound and serviceahle condition
and suitable for reuse without reconditioning: (1) Material moved to the Joint
Property 2' , At seventy-five percent (75%) of current new price, as determined
hy Paragraph A. (2) Material used on and rnoved from the Joint Properly (I) At
seventy-five percent (75%) of current new price, as determined hy Paragraph A,
it‘ Material was originally charged to the Joint Account as new Material or (b)
At sixty-five percent (55%) or current new price, H detertnined hy raragrrph A,
ifMaIerial was originally charged to the Joint Account as used Material (3)
Material not used on and moved from the Joint i3'roperty At scventy—t'lve
percent (75%) nfcurrent new price as detennined by Paragraph A. The cost
otreconditioning, itany, shall hehhsorhed hy the transferring property. C. Other
Used Material (1) condition C - if Material which is not in sound and
serviceable condition and not suitable for its original function until afler
reconditioning shall he priced at fifiy percent (50%) or current new price as
detennined hy Paragraph A. The cost of reconditioning shall be charged to the
receiving property, provided Condition C value plus cost of reconditioning does
not exceed Condition 13 value. (2) Condition D lviaterisl, excluding junk, no
longer suitable for its original purpose, hut usahle tor some other purpose
shall he priced on a basis commensurate with its use. Operator may dispose of
Condition D Material under procedures nunnally used by operator without prior
approval ofNon-Operators. (n) cosing. tubing, or drill pipe used as line pipe
shall be priced as Grade A and B sctunless line pipe orcotnpsraole size and
weight Used casing, tubing or drill pipe utilized as line pipe shall he priced
at used line pipe prices. (h) ' casing, tuhirrg or drill pipe used as higher
px=ssur: service lines than standard line pipe, e.g. power oil lines, shall he
priced under nonnal pricing procedures for casing, tuhing, or drill pipe. upset
tubular goods shall he priced on a non upset oasis. COPYRIGHT © 1985, 2004 by
the Council of Petroleum Accountants Societies, Inc. .7.

 

[g133791la07i039.gif]

\uLuI~IlJI»INl~lI~lNl~ll~) -—c\ooa~lotvt.kl.ll«)-— wN M!W orb u or \»J as r.- \r
\.--I en u to Ao c A to 4:» or e or 3 as O\ or «I c on ~~ ~ COPA5 1984-1 ONSHORE
Revised April 23. 2004 Recommended by the Council of Petroleum Accountants
Societies ‘coPls~ (3) condition E Junk shall be priced at prevailing prices.
operator may dispose of condition 2 Material under procedures nonnally utilized
by operator without prior approval otNon.operntors. .‘ Obsolete Material
Material which is serviceable and usable for its original function but condition
Zand/or value of such Material is not aquivlrlent 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 orthe
service rendered by such Material. PricingConditions {4 Loading or unloading
costs may be charged to the Joint Account at the rate of twenty-five cent on all
tubular goods movements, in lieu of actual loading or unloadin s The above ra I
be adjusted as or the tirst day of April arfi/up percenta increase or deer to
adjust ov he rates in section Ill, Paragraph l.A.(3). Each year, the e
calculated shall be until the that day of April next year. Such rate shall be
published ea r by the Council of Petroleum Accolu-llants Societies per hundred
stained at the stacking point. ar following ianuary l, was by the same ~ ~~ ~ ~~
(1) rig erection costs shall be charged at applicable peroentage of the current
knockad—cldwn price 3. Premium Prices Whenever Material is not readily
obtainable in published or listed prices because or national emergmcies, 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 Operators actual cost
incurred in providing such Mater-irrl, in making it suitable car use, and in
proving it to the Joint rroperty; provided notice in writing is furnished to
Nari-Operators of the proposed charge prior to billing Non-Operators for such
Material. Each Nan-Operator shall have the right, by so electing and notifying
operator within ten days afier receiving notice from operator, to furnish in
kind all or part of his share orsuch Material suitable for use and acceptable to
operator. 4. warranty or Material Furnished By operator operator does not
warrant the Material runrislred. in case of defective Material, credit shnll not
he passed to the Joint Account until adjustment has been received by operator
from the rnnnurncturers or their agents. V. INVENTDRIES The Operator shall
maintain detailed records cfControllable Material. '1. Periodic Inventories,
Nollce and Representation A! 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 inventory is to begin so that Non-Operators may be represented when any
inventory is taken. Failure of Non-Operators to he represented at an inventory
shall bind Non-Operators to accept the inventory taken by Operator. 2. Recnncili
~ on and Adlustnrenr or inventories Adjustments to the Joint Account resulting
from the reconciliation or a physical inventory shall be rnade within six months
following the taking of the inventory. Inventory adjustments shall be made by
Operator to the Joint Account for over-ages and shortages, but, Operator shall
he held accountable only for shortages due to lack of reasonable diligence. 3.
special inventories Special inventories may be taken whenever there is any sale,
change of interest, or change of Operator in the Joint Prtiperty. It shall he
the duty or lhe party selling to notify all other Parties as quickly as possible
alter the tl'ansfel' or interest takes place. in such cases, both the seller and
the purchaser shall be governed by such inventory. In cases involving a change
or operator, all Parties shall be govenred by such inventory. 4. Expense of
conducting Inventories , A. The expense or conducting periodic inventories shall
not be charged to the Joint Account urrliss agreed to by the Parties. The
expense of conducting special inventories shall he charged to the Parties
requesting such inventories, except inventories required due to change
ofoperator shall be charged to the Joint Account. COPYRIGHT © 1985, 2004 by the
Council of Petroleum Accountants Societies, Inc. .3.

 

[g133791la07i040.gif]

EXHIBIT “D” Attached and made part of that certain Operating Agreement dated
January 7, 2008 by and between Reef Exploration, L.P. as “Operator” and Reef
Income & Development Fund III, et al, as “Non—Operators”. INSURANCE ,_ The
Operator shall maintain for the benefit of all parties, hereto, insurance of the
types and in the maximum amounts as follows. Such insurance may carry reasonable
deductibles. Premiums for such insurance shall be charged to the Joint Account.
All such insurance shall be carried by an acceptable insurer or insurers; shall
be maintained in full force and effect during the terms of this agreement; and
shall not be cancelled, altered or amended without 30 days prior notice. If so
reqinred, the Operator agrees to have its insurance carrier furnish certificates
of insurance evidencing such insurance coverages. The Non»Operators agree that
the limits and coverage carried by the Operator are adequate and shall indemnify
the Operator if any claim exceeds such limit or is not covered by such policy to
the extent of its working interest hereunder, except to the extent such claim is
the result of Operator’s gross negligence or willful misconduct. All losses not
covered by insurance shall be borne by the parties hereto as their working
interests appear at the time of loss. ' The Operator and Non—Operators do agree
to mutually waive Subrogation in favor of each other on all insurance carried by
each party and/or to obtain such waiver from the insurance carrier if so
required by the insurance contract. If such a waiver is not obtained, the party
failing to do so shall indemnify the other party for any claim by an insurance
carrier arising out of Subrogation. a) Workers’ Compensation insurance in full
compliance with all applicable state and federal laws and regulations. ;, b)
Employer’s Liability insurance in the limits of $1,000,000 per accident covering
injury or death to any employee who may be outside the scope of the Workers’
Compensation statue of the state in which the work is performed. (The Non-
Operators shall be named as additional insureds only if permitted by the
insurer.) c) Commercial General Liability insurance with combined single limits
per occurrence of $1,000,000 and $2,000,000 in the general aggregate. Umbrella
Liability with combined single limits per occurrence (and general aggregate if
applicable) of$5,000,000. , ' d) Automobile Liability insurance covering owned
automobiles with combined single limits for Bodily Injury and Property Damage of
$1,000,000. e) Operator’s Control of Well including Extra Expense insurance
covering the costs of controlling a Blowout, the expenses involved in redrilling
or restoring theiwell, certain other related costs and Seepage and Pollution
Liability. (These are descriptive tenns only and exact coverage can be fotuid
only in the policy.) The limits for this insurance vary according to depth and
location of well but shall not be less than $10,000,000. The Non—0perators not
wishing to be covered under this policy must notify Operator prior to spud date
and provide evidence of satisfactory insurance on a certificate furnished by the
Operator; and by such refusal of coverage each Non-Operator agrees to be
responsible for his proportionate share of loss and indemnify the Operator for
any such loss that would have been covered under Operator’s coverage; regardless
of the negligence of the indemnified party, either sole, joint, concurrent,
anything in this agreement to the contrary notwithstanding. _a

 

[g133791la07i041.gif]

EXHIBIT "F" Attached to and made a part of that certain Joint Operating
Agreement between Reef Exploration, L.P., as Operator, and, Reef Income &
Development Fund III, et 211, as Non—Operators, dated January 7, 2008 \ \
NON—DISCRHVI[NATION AND CERTIFICATION OF NON—SEGREGATED FACILITIES Operator
shall comply where applicable with the following clauses contained in 41 CFR:
60-1 .4(a) (Equal Employment Opportunity); 1-l2.803—l0 (Certification of
non-segregated facilities); 60-250 (Employment opportunity for Veterans); 60-741
(Employment opportunity for handicapped individuals); 1-1.710 (Subcontracting
with small business concerns); 1-1.805 (Subcontracting with labor surplus area
concerns); 1 -1 .13 10 (Subcontracting with minority business enterprises); and
1-1 .23 02-2 (Environmental protection). These clauses are incorporated herein
by reference if and to the extent applicable to this contract by law, executive
order, or regulation. Operator represents that he is in compliance with the
reporting requirements of 41 CFR 60-1.7 and the Affinnative Action Program
requirements of 41 CFR 60—1.40 and 60-2.

 

[g133791la07i042.gif]

~ AAPL— FORM 6l0RS -1989 MODEL FORIVI RECORDWG SUPPLEMENT T0 OPERATING AGREEMENT
AND FINANCING STATEMENT '1‘HlS AGREEMENT, entered into by and between Reef
Exploration, LP ,1-lereinafter referred to its "Operator," and the signatory
‘party or parties other than operator, hereinafter referred to individually as
“Non-Operator,” and collectively as "Non-Operators." WHEREAS, the parties to
this agreement aieowners of Oil and Gas lxascs and/or Oil and Gas Interests in
the land identified in Exhibit “A" (said land, Leases and Interests being
hereirlafier called the “Contract Area"), and in any instance in which the
Leases or Interests of a party are not of record, the record owner and the party
hereto that owns the interest or nglits therein are reflected on Exhibit fA";
WHEREAS, the parties hereto have executed an operating Agreement dated ronuarv 7
zoos (herein the “Operating Agreemmt"), cnvenng the contract Area for the
purpose of exploring and developing such lands, Leases and Interests for oil and
Gas; and WHEREAS, the parties hereto have executed this agreement for the
purpose of imparting notice to all persons of the lights and obligations of the
parties under the operating Agreement and for the further purpose ofperfecting
those rights capable ofpet-reciinn. NOW, THEREFORE, in consideration of the
mutual rights and obligations of the parties hereto, it is agreed as follows: l.
'l'h.is agreement supplements the Operating Ageement, which Agreement in its
entirety is incorporated herein by reference, and all terms used herein shall
have the meaning ascribed to than in the Operating Agreement. 2. The parties do
hereby agree that: A. The Oil and Gas Leases and/or Oil and Gas Interests of the
parties comprising the Contract Area shall be subject to and burdened with the
terms and provisions of this agreement and the Operating Agreement, and the
parties do hereby commit such terms and Interests to the perfan-nance thereof.
B. The exploration and development of the Contract Arm for Oil and Gas shall be
governed by the terms and provisions of the Opcnfing Agreement, as supplema-lted
by this agreement. :2. All costs and liabilities incurred in operations under
this ayeement and the operating Agreement shall he home and paid, and all
equipment and materials acquired in operations on the Cunt:rnctArea shall be
owned, by the parties hereto, as provided in the operating Agreement. . D.
Regardless of the record title ownership to the Oil and Gas Leases and/or Oil
and Gas interests identified on Exhibit “A," all production. of Oil and Gas from
the contract Area shall he owned by the parties as provided in the operating
Agreement; provided nothing contained in this agreement shall be deemed an
assignment or cmss-assignmmt ofinte-rests covered hereby. E Each party shall pay
or deliver, or cause to he‘ paid or delivered, all burdens on its share of the
production from the Contact Area as provided in the Operating Agreement. F. An
overriding royalty, production payment, net profits interest or other burden
payable out of production herrafier created, assignments of production given as
socunty for the payment of money and those overriding royalties, production
payments and other burdens pnyable out of production heretofore created and
defined as Subsequently created Interests in the operating Agreemmt shall be (i)
home solely hy the party whose interest is burdened therewith, (ii) subject to
suspension ifa party is required to assign or relinquish to another party an
interest which is subject to such burden, and (iii) subject to the lien and
security interest hereinafler provided ifthe party subject to such burden fails
to pay its share or expenses chargeable hereunder and under the operating
Ageement, all upon the terms and provisions and in the times and manner provided
by the Operating Agreement. (3. The Oil and Gas Leases andlor Oil and Gas
Interests which are subject hereto may not be assigned or transferred except in
accordance with those terms, provisions and restrictions in the Opemting
Agreement regulating such transfers. 1‘his agreerrlent ond the operating
Agreement shall be binding upon and shall inure to the benefit of the parties
hereto, and their respective heirs, devisees, legal representatives, and
assigns, and the terms hereof slndl be deemed to pin with the leases or
interests included within the lease Contract Area. H. The parties shall have the
right to acquire an interest in renewal, extension and replacernmt leases, lmses
proposed to be surrendered, wells proposed to be abandoned, and interests to he
relinquished as a result of namparticipation in subsequent operations, on in
accordance with the terms and provisions of the opernting Agreement

 

 

 

EXHIBIT “F”

 

Assignment and Bill of Sale

 

--------------------------------------------------------------------------------

 

ASSIGNMENT AND BILL OF SALE

 

STATE OF TEXAS

§

 

§

COUNTY OF COCHRAN

§

 

THIS ASSIGNMENT AND BILL OF SALE (this “Assignment”), dated effective as of
December 1, 2014, at 7:00 a.m., C.S.T. (the “Effective Date”) is Reef Oil & Gas
Income and Development Fund III, L.P., a Texas limited company, whose address is
1901 N. Central Expressway, Suite 300, Richardson, TX  75080-3609 (herein
referred to as “Assignor”) to Red Sea 2012, Inc., a Texas corporation,
(“Assignee”) whose address is 5219 City Bank Parkway, Suite 210, Lubbock, Texas 
79407.

 

For $10.00 and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged by Assignor, Assignor hereby
transfers, grants, bargains, sells, conveys, and assigns to Assignee, the
following rights, titles, interests and properties (all of which are
collectively herein called the “Property”):

 

(i)            All of Assignor’s right, title and interest in and to the lands
described in Exhibit “A” attached hereto and incorporated herein by reference,
including, without limitation, all mineral interest, royalty interest,
overriding royalty interest, oil, gas or mineral leases and leasehold interest,
net revenue interest, any unit that arises from or is associated with the
leasehold interest, easements rights-of-way and non-producing leasehold and
mineral interests as to any and all depths (collectively “Leases”), and

 

(ii)           All of Assignor’s right, title and interest in and to the oil,
gas and condensate wells (whether producing, not producing or abandoned), and
water source, water injection or disposal wells located on the Leases or lands
unitized or pooled with the Leases, including, without limitations, the Wells
described in Exhibit “A” (the”Wells”); and

 

(iii)          All of Assignor’s right, title and interest in and to all joint
operating agreements, pooling and unitization agreements and statutorily,
judicially or administratively created drilling, spacing and/or production
units, production and product sales agreements, gas processing agreements,
construction and operating agreements for gas processing plants and other
facilities, transportation agreements, pipeline connection agreements, salt
water disposal agreements, commingling agreements, farmout and farmin
agreements, permits and all other similar agreements and instruments or from any
declaration or order of any governmental authority, whether recorded or
unrecorded, to the extent, but only to the extent, that such agreements or
instruments relate to the Leases or the Wells (collectively the “Contracts”);
and

 

(iv)          All of Assignor’s right, title and interest in and to all tangible
property consisting of equipment, components, pipelines, wells, platforms,
machinery, fixtures, production facilities, measurement facilities, processing
plants, tanks, saltwater disposal wells, dehydrators, separators, compressors,
storage facilities, and other tangible property located on and used in
connection with the Leases or leases unitized or pooled with the Leases,
including property described in Exhibit “A” (collectively the “Equipment”); and

 

(v)           Copies of all engineering, technical and accounting data, records,
land files and information related to the Leases, Well, Equipment and Related
Contracts, including, without limitation, well logs, cores, and related data
owned by Assignor or to which Assignor has rights or interests, except to the
extent that Assignor is contractually prohibited from transferring same; and

 

(vi)          All oil, gas, distillate, condensate, casinghead gas, or other
liquid or vaporous hydrocarbons or minerals produced from or attributable to the
Leases, Well or Related Contracts.

 

(vii)         Without limiting and in addition to the foregoing, all of
Assignor’s rights, titles and interests in and to the Leases, the lands
described in the Leases and the lands described or referred to in Exhibit “A”
and in and to oil and gas leases, working interests, overriding royalty
interests, mineral interests, royalty interests and all other interests and
property of every kind and character, the Contracts, the Wells, the Equipment
and the other property thereon or used or obtained for use in connection
therewith even though such rights, titles and interests be incorrectly or
insufficiently described or referred to in, or a description thereof by omission
from Exhibit “A’ attached hereto and made a part hereof.

 

TO HAVE AND TO HOLD the Property unto Assignee and its successors and assigns
forever.

 

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1.                                      No Encumbrances.  This Assignment is
made without warranty of title, express, statutory or implied, except that
Assignor represents, warrants and agrees to and with Assignee that the Property
is free and clear of all liens, encumbrances, burdens, claims and defect of
title of any kind arising by, through or under Assignor, but not otherwise.

 

2.                                      No Warranties.  EXCEPT AS SET FORTH IN
THIS ASSIGNMENT, THIS ASSIGNMENT IS MADE WITHOUT WARRANTY OF ANY KIND, EITHER
EXPRESS OR IMPLIED, ASSIGNOR EXPRESSLY DISCLAIMS AND NEGATES ANY WARRANTY AS TO
THE CONDITION OF ANY PERSONAL PROPERTY, EQUIPMENT, FIXTURES AND ITEMS OF MOVABLE
PROPERTY COMPRISING ANY PART OF THE PROPERTY, INCLUDING (a) ANY IMPLIED OR
EXPRESS WARRANTY OF MECHANTABILITY, (b) ANY IMPLIED OR EXPRESS WARRANTY OF
FITNESS FOR A PARTICULAR PURPOSE, (c) ANY IMPLIED OR EXPRESS WARRANTY OF
CONFORMITY TO MODELS OR SAMPLES OR MATERIALS, (d) ANY RIGHTS OF ASSIGNEE UNDER
APPLICABLE STATUTES TO CLAIM DIMINUTION OF CONSIDERATION, AND (e) ANY CLAIM BY
ASSIGNEE FOR DAMAGES BECAUSE OF DEFECTS, WHETHER KNOWN OR UNKNOWN, IT BEING
EXPRESSLY UNDERSTOOD BY ASSIGNEE THAT SAID PERSONAL PROPERTY, WELLS, FIXTURES,
EQUIPMENT, AND ITEMS ARE BEING CONVEYED TO ASSIGNEE “AS IS”, “WHERE IS”, WITH
ALL FAULTS, AND IN ITS PRESENT CONDITION AND STATE OF REPAIR.

 

3.                                      Taxes.  All ad valorem taxes, real
property taxes, personal property taxes and all severance taxes or other taxes
measured by hydrocarbon production from or attributable to the Property are
Assignor’s obligations for periods before the Effective Date and Assignee’s
obligation for periods after the Effective Date.

 

4.                                      No Representations.  Assignor and
Assignee are experienced and knowledgeable in the evaluation, acquisition, and
operations in the oil and gas business.  Each has been advised by and has relied
solely on its own expertise and legal, tax, reservoir engineering and other
professional counsel concerning this transaction, the Property and the value
thereof, based on the merits and risks of purchasing and selling (as the case
may be) the Property and has formed its own opinion based solely upon their
respective knowledge and experience and not upon any representations,
interpretations or warranties of each to the other.

 

5.                                      Well Plugging Obligation.  From and
after the Effective Date, Assignee assumes full responsibility and liability for
the following obligations related to the Property (the “Plugging and Abandonment
Obligations”):  (i) plugging, re-plugging and abandoning all wells on the
Property (except wells previously permanently plugged and abandoned by
Assignor); (ii) removing and disposing of all structures and equipment
comprising part of the Property; (iii) the necessary and proper capping and
burying of all associated flow lines comprising part of the Property; and (iv)
restoring the leasehold premises of the Property; both surface and subsurface,
to the condition they were in before commencement of oil and gas operations, as
may be required by applicable laws, regulation or contract.

 

6.                                      Further Assurances. Assignor and
Assignee will do, execute, acknowledge and deliver all further acts, conveyances
and instruments as may be reasonably necessary or appropriate to carry out the
intent of this Assignment and to more fully and accurately assign and convey the
Property to Assignee.

 

7.                                      Successors and Assigns.  The provisions
of this Assignment shall be covenants running with the land, and this Assignment
shall extend to, be binding upon, and inure to the benefit of Assignor and
Assignee, and their respective successors and assigns.

 

8.                                      Governing Law.  This Assignment is
governed by and must be construed according to the laws of the State of Texas,
excluding any conflicts of law, rule or principle that might apply the law of
another jurisdiction.

 

--------------------------------------------------------------------------------

 

9.              Severability.  If any provision of this Assignment is found by a
court of competent jurisdiction to be invalid or unenforceable, that provision
will be deemed modified to the extent necessary to make it valid and enforceable
and if it cannot be so modified, it shall be deemed deleted and the remainder of
the Assignment shall continue and remain in full force and effect.

 

10.       Subrogation.  This Assignment is made with subrogation of Assignee as
to any representations or warranties heretofore made by others relative to the
Property.

 

11.       Recordation.  Unless provided otherwise, all recording references in
the various Exhibits “A” are to the Conveyance Records of Cochran County, Texas.

 

12.       Counterparts.  This Assignment may be executed in any number of
counterparts, and each counterpart hereof shall be deemed to be an original
instrument, but all such counterparts shall constitute but one assignment.

 

13.       Entire Agreement.  This Assignment and its exhibits constitutes the
entire agreement by and between Assignor and Assignee with respect to the
Properties, and this Agreement supersedes any prior representations or
understandings, whether written or oral, by and between Assignor and Assignee,
or their agents, employees or representatives.

 

This Assignment is executed upon the date shown in the acknowledgments below,
but effective for all purposes as of the Effective Date.

 

 

 

ASSIGNOR:

 

 

 

Reef Oil & Gas Income and Development Fund III, L.P.

 

 

 

By: Reef Oil & Gas Partners, L.P., its general partner

 

By: Reef Oil & Gas Partners, GP, LLC, its general partner

 

 

 

 

 

 

By:

 

 

 

Michael J. Mauceli, Managing Member

 

 

 

 

 

ASSIGNEE:

 

 

 

Red Sea 2012, Inc.

 

 

 

 

By:

 

 

 

Chuck Sammons, President

 

--------------------------------------------------------------------------------

 

ACKNOWLEDGEMENTS

 

STATE OF TEXAS

§

COUNTY OF DALLAS

§

 

On this the              day of                                     , 2015,
before me appeared MICHAEL J. MAUCELI, to me personally known, who, being by me
duly sworn, did say that he is the MANAGING MEMBER of REEF OIL & GAS PARTNERS,
GP, L.L.C., a Texas limited liability company, and that the foregoing instrument
was signed on behalf of said company by authority of the Members, and said
appearer acknowledged said instrument to be the free act and deed of said
limited liability company.

 

 

 

 

 

Notary Public, State of Texas

 

 

 

 

 

Notary’s Printed or Typed Name

 

 

 

My Commission Expires:

 

 

 

Notary ID No.

 

STATE OF TEXAS

§

COUNTY OF LUBBOCK

§

 

On this the              day of                                     , 2015,
before me appeared                                       , to me personally
known, who, being by me duly sworn, did say that he is the
                                                                 of RED SEA
2012, INC. , a Texas limited corporation and that the foregoing instrument was
signed on behalf of said corporation by authority of its Members, and said
appearer acknowledged said instrument to be the free act and deed of said
corporation.

 

 

 

 

 

Notary Public, State of Texas

 

 

 

 

 

Notary’s Printed or Typed Name

 

 

 

My Commission Expires:

 

 

 

Notary ID No.

 

--------------------------------------------------------------------------------

 

EXHIBIT “A”

ATTACHED TO AND MADE A PART OF THAT CERTAIN

ASSIGNMENT AND BILL OF SALE EFFECTIVE DECEMBER 1, 2014

BETWEEN REEF OIL & GAS INCOME AND DEVELOPMENT FUND III, L.P.”ASSIGNOR” AND

RED SEA 2012, INC. “ASSIGNEE”

 

Wells:

 

Buyer’s Interest

 

Lease

 

Working Interest

 

Net Revenue Interest

 

Leases insofar as they cover the Dean Unit

 

76.037418

%

59.987060

%

Leases insofar as they cover the Dean “B” Unit

 

76.037418

%

59.987060

%

Lease No. 4 (Dean K Unit).

 

79.313924

%

53.735183

%

 

Leases:

 

1.                                      Oil and Gas Lease dated May 31, 1937,
recorded in Vol. 1, page 625 of the Oil and Gas Lease Records of Cochran County,
Texas, from Carrie Slaughter Dean, as lessor, to P.N. Wiggins, as lessee;

 

2.                                      Oil and Gas Lease dated April 5, 1937,
recorded in Vol. 1 Page 435 of the Oil and Gas Lease Records of Cochran County,
Texas, from Carrie Slaughter Dean, as lessor, to P.N. Wiggins, as lessee;

 

3.                                      Oil and Gas Lease dated January 3, 1939,
recorded in Vol. 2, Page 350 of the Oil and Gas Lease Records of Cochran County,
Texas, from Carrie Slaughter Dean, as lessor, to Honolulu Oil Corporation, as
lessee; and

 

4.                                      Oil and Gas Lease dated November 15,
1951, from Carrie Slaughter Dean to E. Constantin, Jr., recorded in Vol. 10,
Page 571 of the Oil and Gas Lease Records of Cochran County, Texas.

 

Equipment

 

SLAUGHTER-DEAN PROJECT, Cochran County, Texas

 

Dean “B” Unit

 

Dean “B” Unit Production Battery:

 

·                  1 — 21’x 32’ — 2,000 Bbl Oil Production Gun Barrel Tank (in
service)

·                  1 — 21’x 24’ — 1,500 Bbl Oil Production Gun Barrel Tank (in
service)

·                  1 — 5,000 Bbl Overflow Open-Top Tank with Net Covering (in
service)

·                  2 — 500 Bbl Steel Oil Production Tanks (in service)

·                  1 — Oil LACT Unit — Tokheim 2” Model 2000

·                  1- Vapor Recovery Unit (in service)

·                  1 — 6x10 Scrubber Vessel (in service)

·                  1 — 12x20 — 385 Bbl Vent Tank (in service)

·                  1 — 8x24 Free Water Knockout (in service)

·                  1 — 8’x10’ Metal Safety & Alarm Building (in service)

·                  2 — 4x10 Sivalls In-Line Heaters (Ser. No.’s IH4820, IH4821)
(out of service)

·                  3 — 8x20 3-Phase Production Heater Treater Separators (Ser.
No.’s 82201, 82409, 8844) (out of service)

 

Dean “B” Unit Water Injection Station:

 

·                  2 — Ajax Vertical Quintiplex Saltwater Injection Waterflood
Pumps with 250-Hp Motors (in service)

·                  2 — 80 gallon Manchester Air Compressors (Ser. No.’s 315155,
315215) (in service)

·                  1 — 25’x72’ Metal Water Injection Station Building with All
Pump Controls & Manifolds (in service)

 

--------------------------------------------------------------------------------

 

Dean “B” Unit Production Battery & Water Injections Station have cell phone
driven automatic alarm system designed to send alerts for Low Water Tank Levels,
High Water Tank Levels, High Oil Tank Levels, High Water Injections Station
Pressures and Low Water Injection Station Pressures.

 

Dean Unit

 

Dean Unit Production Battery:

 

·                  1 — 4x31 3-Phase Production Heater Treater Separator (in
service)

·                  1 — 4x31 3-Phase Production Heater Treater Separator (out of
service)

·                  2 — 500 Bbl Steel Oil Production Tanks (in service)

·                  1 — 500 Bbl Steel Saltwater Tanks — Internally Coated (in
service)

·                  1 — 12x20 — 385 Bbl Vent tank (in service)

·                  1 — 5,000 Bbl Overflow Open-Top tank with net Covering (in
service)

·                  1 — A.O. Smith 1.5 LACT Unit (out of service)

·                  1 — Vapor recovery Unit (in service)

·                  1 — 1,500 Bbl Oil Production Gun Barrel Tank (out of service)

 

Dean Unit Water Injection Station:

 

·                  2 — Ajax Vertical Triplex Saltwater Injection Waterfoold
Pumps with 250-Hp Motors (in service)

·                  2 — 30 gallon Air Compressor (Ser. No. 870757) (in service)

·                  1 — 20’x50’ Metal Water Injection Station Building (in
service)

·                  1 — 8’x10’ Metal Building with All Pump Controls & Manifolds
(in service)

 

Dean “K” Unit

 

Dean “K” Unit Production Battery:

 

·                  1 — 3x10 3-Phase Horizontal Production Separator (in service)

·                  2 — 210 Bbl Steel Oil Production Tanks (in service)

 

Slaughter-Dean Project Pumping Units—Dean & Dean “B” Units, Cochran County Texas

 

Dean Unit

 

·                  Dean #1 — Lufkin 114D

·                  Dean #3 — American D114

·                  Dean #7 — American D114

·                  Dean #9 — Lufkin 114D

·                  Dean #11 — Lufkin 320D

·                  Dean #14 — Bethlehem 114D

·                  Dean #16 — National1228D

·                  Dean #18 — Lufkin 160D

·                  Dean #20 — American D320

·                  Dean #22 — Continental Emsco D80

·                  Dean #27 — Bethlehem 228D

 

Dean “B” Unit

 

·                  #B-1 — National 320

·                  #B-3 — Bethlehem 320

·                  #B-5 — National 320

·                  #B-7 — National 228

·                  #B-9 — American 320

·                  #B-11 — American 320

·                  #B-13 — American 640

·                  #B-14 — American 320

·                  #B-16 — Bethlehem 320

·                  #B-19 — Lufkin 114

·                  #B-22 — Bethlehem 320

·                  #B-25 — Bethlehem 228

·                  #B-27 — T&A’d

·                  #B-28 — Bethlehem 80

·                  #B-30 — American 640

·                  #B-31 — National 320

·                  #B-33 — Parkersburg 228

 

--------------------------------------------------------------------------------

 

·                  #B-37 — National 320

·                  #B-39 — Bethlehem 114

·                  #B-41 — Continental Emsco 114

·                  #B-44 — Lufkin 114

·                  #B-46 — Bethlehem 114

·                  #B-47 — Continental Emsco 228

·                  #B-49 — American 320

·                  #B-53 — American 320

·                  #B-55 — Lufkin 114

·                  #B-57 — Cabot 228

·                  #B-59 — Continental Emsco 80

·                  #B-61 Cabot 80

·                  #B-63 — Lufkin 160

·                  #B-70 — Cabot 228

·                  #B-72 — Continental Emsco 320

·                  #B-74 — Bethlehem 114

·                  #B-76 — Continental Emsco 320

·                  #B-78 — Continental Emsco 80

·                  #B-82 — Lufkin Mark II 228

·                  #B-84 — Lufkin 228

·                  #B-88 — Continental Emsco 80

·                  #B-92 — Bethlehem 114

·                  #B-99 — Continental Emsco 114

·                  #B-102 — T&A’d

·                  #B-104 — Bethlehem 114

·                  #B-106 — American 160

·                  #B-110 — National 320

·                  #B-119 — Bethlehem 114

·                  #B-123 — Continental Emsco 80

·                  #B-129 — Lufkin 114

·                  #B-130 — Continental Emsco 80

·                  #B-132 — American 114

·                  #B-133 — American 80

·                  #B-135 — Lufkin 160

·                  #B-137 — Bethlehem 80

·                  #B-139 — T&A’d

·                  #B-141 — American 114

·                  #B-143 — Lufkin Mark II 114

·                  #B-147 — National 320

·                  #B-149 — Continental Emsco 160

·                  #B-151 — Bethlehem 114

·                  #B-153 — Lufkin 114

·                  #B-154 — American 114

·                  #B-157 — National 320

·                  #B-158 — National 320

·                  #B-159 — National 320

·                  #B-160 — National 320

 

Dean “K” Unit

 

·                  Dean #K-6 — Lufkin 114D

 

END OF EXHIBIT “A”

 

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