Exhibit 10.36

 

SECOND AMENDMENT TO AGREEMENT

 

This is the Second Amendment to Agreement dated April 23, 1993, as amended by
letter agreement dated September 3, 1997 (herein the “Agreement”) between
Prospectors Gas, Ltd. (“PGL”), Clayton Williams Energy, Inc. (“CWE”), and Robert
C. Lyon (“Lyon”).

 

RECITALS

 

WHEREAS, PGL, CWE and Lyon entered into the Agreement regarding the terms of a
net profits agreement;

 

WHEREAS, as anticipated by the Agreement, the assets of PGL were acquired by CWE
and PGL was dissolved in June of 1993;

 

WHEREAS due to changes in law relating to relationships between publicly traded
companies and employees, CWE and Lyon desire to amend the Agreement;

 

NOW, THEREFORE, in consideration of these premises and for other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties agree as follows:

 

1.  Definitions.  The following terms shall be defined as follows:

 

a.                                       CWE shall mean Clayton Williams Energy,
Inc., each of its subsidiaries and any partnership, limited partnership or other
entity in which CWE owns a controlling interest.

 

b.                                      Lyon shall mean Robert C. Lyon and any
partnership, limited partnership or other entity in which Lyon owns a
controlling interest.

 

c.                                       Gas Gathering Asset shall mean any
project undertaken for the gathering, compression, treating, processing,
transporting or other handling and related marketing of natural gas, natural gas
liquids and carbon dioxide.

 

d.                                      Material Interest shall mean any
interest in excess of twenty-five percent (25%) of the total volume of products
transported and/or processed for the most recent three (3) months of production
available prior to the Exercise Date.

 

e.                                       Exercise Date shall mean within ten
(10) days of the date on which CWE signs a contract for the construction or
purchase of a Gas Gathering Asset.

 

2.  Article I, Net Profits Interest in PGL.  The provisions of Article I of the
Agreement are hereby deleted and Lyon hereby acknowledges his right to any net
profits interest in PGL terminated effective on the CWE Acquisition Date as
defined in the Agreement.

 

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3.  Article II, Acquisition Rights with Respect to PGL Old Assets.  The
provisions of Article II of the Agreement are herby deleted effective on the CWE
Acquisition Date as defined in the Agreement.

 

4.  Article III, Net Profits Interest in CWE.  The provisions of Article III of
the Agreement are hereby terminated and deleted effective on the Effective Date
as defined herein.

 

5.  Article IV, Acquisition Rights with Respect to PGL New Assets.  The
provisions of Article IV of the Agreement are hereby deleted and Lyon
acknowledges his acquisition rights with respect to PGL new assets terminated
effective on the CWE Acquisition Date as defined in the Agreement.

 

6.  Article V, Acquisition Rights with Respect to CWE.  The provisions of
Article V of the Agreement are hereby deleted and the following is substituted
in lieu thereof:

 

Article V

 

ACQUISITION RIGHTS WITH RESPECT TO CWE

 

5.01  Acquisition Right with Respect to CWE Gas Gathering Assets.  Lyon shall
have no right to acquire an equity interest in any Gas Gathering Asset
constructed or purchased after the Effective Date by CWE if CWE holds a Material
Interest in the product being gathered, treated, compressed, processed,
transported, or otherwise handled by the Gas Gathering Asset.   If CWE does
construct or purchase a Gas Gathering Asset and does not hold a Material
Interest in the product being gathered, treated, compressed, processed,
transported or otherwise handled by the Gas Gathering Asset, Lyon shall have the
right to acquire up to a ten percent (10%) equity interest out of the interest
to be owned by CWE in said Gas Gathering Asset by giving written notice to CWE
prior to the Exercise Date.  Thereafter, CWE and Lyon shall hold their interests
in the Gas Gathering Asset by a joint venture, the sharing ratios in which Lyon
shall own the Lyon percent and CWE the remainder.  The Joint Operating Agreement
for the joint venture shall have terms and conditions as shall be mutually
satisfactory to CWE and Lyon, but shall in any event provide that principal
joint venture decisions be made by a vote of the venturers in accordance with
their sharing ratios and cash in excess of ordinary working capital requirements
of the joint venture (as determined in the reasonable judgment of CWE) shall be
distributed monthly.  Should Lyon not timely exercise the rights granted herein
as to a particular Gas Gathering Asset, Lyon’s right to participate in that
particular Gas Gathering Asset shall terminate.

 

5.02 Limitations with Respect to Acquisition Right of Acquired Gas Gathering
Assets.

 

(a)           Lyon shall not have the acquisition right described in paragraph
5.01 above when a Gas Gathering Asset is acquired in a transaction involving
assets in addition to the Gas Gathering Asset, if the fair value of

 

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the other assets (in the sole discretion of CWE) exceeds the fair value of the
Gas Gathering Assets being acquired.

 

(b)           If a Gas Gathering Asset is acquired in a transaction involving
assets in addition to the Gas Gathering Assets and the fair value of the Gas
Gathering Assets being acquired exceeds the value of the other assets, if Lyon
exercised the acquisition right, such exercise must be inclusive of the entire
acquisition, not just the Gas Gathering Asset portion of said acquisition.

 

5.03.  Termination of Acquisition Right.  The acquisition right described in
Paragraph 5.01shall terminate on the date of Lyon’s cessation of employment with
CWE.

 

6.  Article VII.  Compensation.  In consideration of the execution of this
Second Amendment to Agreement, CWE agrees to increase Lyon’s annual compensation
from $60,000 per annum to $100,000 per annum beginning April 1, 2004.  Lyon’s
right to compensation under the terms hereof shall terminate on the date of
Lyon’s cessation of employment with CWE.

 

7.  Exclusion of Mississippi Net Profits Interest.  CWE and Lyon acknowledge the
terms of the Agreement, as amended herein, do not effect the rights of Lyon to
certain net profits derived from Newman Treating Plant situated in Hinds County,
Mississippi pursuant to the terms of a separate agreement.

 

8.   Mutual Releases

 

(a)           Lyon hereby acknowledges that CWE has performed all of its
obligations pursuant to the Agreement as of the date hereof and hereby releases
CWE from and against any claims which could be made by Lyon against CWE under
the terms of the Agreement.

 

(b)           CWE hereby acknowledges that Lyon has performed all of its
obligations pursuant to the Agreement as of the date hereof and hereby releases
Lyon from and against any claims which could be made by CWE against Lyon under
the terms of the Agreement.

 

9.  Effective Date.  The Effective Date of this Second Amendment to Agreement
shall be the 1st day of April, 2004.

 

CWE

Lyon

 

 

 

Clayton Williams Energy, Inc.

 

 

 

 

 

 

 

By:

   /s/ L. Paul Latham

 

/s/ Robert C. Lyon

 

Name:

L. Paul Latham

Robert C. Lyon

Title:

Executive Vice President

 

 

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