Exhibit 10.7

 

DEVELOPMENT AGREEMENT

 

This Development Agreement (this “Development Agreement”) by and among SandRidge
Energy, Inc., a Delaware corporation, with offices at 123 Robert S. Kerr Avenue,
Oklahoma City, OK 73102-6406 (“SandRidge Parent”), SandRidge Exploration and
Production, LLC, a Delaware limited liability company and wholly owned
subsidiary of SandRidge Parent with offices at 123 Robert S. Kerr Avenue,
Oklahoma City, OK 73102-6406 (“Assignor” and, together with SandRidge Parent,
“SandRidge”) and SandRidge Permian Trust, a statutory trust formed under the
laws of the State of Delaware (the “Trust”), is delivered to be effective as of
12:01 a.m., Central Time, April 1, 2011 (the “Effective Time”). All capitalized
terms not otherwise defined herein shall have the meanings ascribed to such
terms in Article I below.

 

WHEREAS, Assignor and the Trust have entered into that certain Perpetual
Overriding Royalty Interest Conveyance (Development) to be effective as of the
Effective Time (the “Perpetual Development Conveyance”);

 

WHEREAS, Assignor and Mistmada Oil Company, Inc., an Oklahoma corporation and
wholly owned subsidiary of SandRidge Parent (“SandRidge Sub”), have entered into
that certain Term Overriding Royalty Interest Conveyance (Development) to be
effective as of the Effective Time (the “Term Development Conveyance,” and
together with the Perpetual Development Conveyance, collectively the
“Conveyances”), which Term Development Conveyance has been assigned as of the
Effective Time by SandRidge Sub to the Trust; and

 

WHEREAS, in connection with the Conveyances, SandRidge has agreed to undertake
certain obligations with respect to the drilling and completion of Development
Wells.

 

NOW, THEREFORE, in consideration of the premises and the covenants hereinafter
contained and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, and intended to be legally bound
hereby, it is agreed as follows:

 

ARTICLE I

DEFINITIONS

 

This Article I defines certain capitalized words, terms and phrases used in this
Development Agreement. Certain other capitalized words, terms and phrases used
in this Development Agreement are defined elsewhere in this Development
Agreement.

 

“Additional Interest” is defined in Section 3.01.

 

“Additional Lease” is defined in Section 3.01.

 

“Adjusted Development Well Amount” means:

 

(a) for each vertical Development Well SandRidge drills or causes to be drilled,
an amount equal to the NRI Factor for such well;

 

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

 

(b) for each of the first ten horizontal Development Wells that SandRidge drills
or causes to be drilled, an amount equal to the NRI Factor for such well
multiplied by the Cost Factor for such well; and

 

(c) for each horizontal Development Well that SandRidge drills or causes to be
drilled following the completion of the first ten horizontal Development Wells
that SandRidge drills or causes to be drilled, an amount equal to the NRI Factor
for such well multiplied by the CapEx Ratio.

 

The Adjusted Development Well Amount shall be rounded to the nearest ten
thousandth (i.e., four decimal places to the right of the decimal point).

 

“Affiliate” means, for any specified Person, another Person that controls, is
controlled by, or is under common control with, the specified Person. “Control,”
in the preceding sentence, refers to the possession by one Person, directly or
indirectly, of the right or power to direct or cause the direction of the
management and policies of another Person, whether through the ownership of
voting securities, by contract or otherwise.

 

“AMI” means that area described in Exhibit A to this Development Agreement.

 

“Assignee Minerals” means, collectively, the “Assignee Minerals” as defined
under each of the Conveyances.

 

“Assignor” is defined in the introductory paragraph to this Development
Agreement.

 

“Assignor’s Net Revenue Interest” means the interest, stated as a decimal
fraction, in Subject Minerals production from a Development Well attributable to
Subject Interests in that Development Well, net of Production Burdens.

 

“Assignor’s Net Share of Minerals” means the share of Subject Minerals from each
Development Well that is attributable to Assignor’s Net Revenue Interest in that
Development Well determined prior to giving effect to the Conveyances.

 

“CapEx Ratio” means the fraction obtained by dividing (1) the average Drilling
Cost per well for the first ten horizontal Development Wells that SandRidge
drills or causes to be drilled by (2) the average Drilling Cost per well for the
most recent 20 vertical Development Wells (based on each well’s spud date) that
SandRidge drilled or caused to be drilled as of the spud date of the first
horizontal Development Well that SandRidge drills or causes to be drilled. The
CapEx Ratio shall be rounded to the nearest ten thousandth (i.e., four decimal
places to the right of the decimal point).

 

“Closing Time” means 12:01 a.m., Central Time, on August 16, 2011.

 

“Conveyances” is defined in the recitals to this Development Agreement.

 

“Cost Factor” means, with respect to a horizontal Development Well, the fraction
obtained by dividing (1) the Drilling Cost for such well by (2) the average
Drilling Cost per well for the most recent 20 vertical Development Wells (based
on each well’s spud date) that SandRidge drilled or caused to be drilled as of
the spud date of the first horizontal Development Well that SandRidge drills or
causes to be drilled. For example, if SandRidge drills or causes to

 

2

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

 

be drilled a horizontal Development Well and such well has a Drilling Cost of
$2.0 million, and the average Drilling Cost per well for the most recent 20
vertical Development Wells (based on each well’s spud date) that SandRidge
drilled or caused to be drilled as of the date the first horizontal Development
Well is spud is $0.5 million, then such horizontal Development Well shall have a
Cost Factor of 4.0 (i.e., $2.0 million / $0.5 million). The Cost Factor for a
horizontal Development Well shall be rounded to the nearest ten thousandth
(i.e., four decimal places to the right of the decimal point).

 

“Development Agreement” is defined in the introductory paragraph to this
Development Agreement.

 

“Development Well” means any Mineral well located on the Subject Lands that is
spud after March 31, 2011 and drilled to, and perforated for completion in, the
Target Formation, on or prior to the Drilling Obligation Completion Date,
excluding up to five horizontal wells that SandRidge drills or causes to be
drilled in accordance with Section 2.06(a) hereof and that SandRidge notifies
the Trust in writing do not constitute Development Wells hereunder, but
otherwise including horizontal wells drilled to, and perforated for completion
in, the Target Formation; provided, any well that was both spud and temporarily
abandoned by SandRidge before March 31, 2011 shall not be a Development Well,
even if SandRidge re-enters such well for the purpose of working over or
recompleting such well or otherwise.

 

“Drilling Cost” means any cost or expense paid or incurred for the drilling,
testing, and completion of a Development Well to a point that such well is
either (x) equipped to commence production of Minerals, or (y) plugged and
abandoned; provided, however, Drilling Costs shall not include liabilities,
losses, claims and damages (including any fines and penalties) associated with
such activities, and related costs of investigation, litigation, arbitration,
administrative proceedings, judgment, award and settlement (including court and
arbitration costs and reasonable attorneys’ fees), to the extent attributable to
actual or claimed personal injury, illness or death, property damage,
environmental damage or contamination, other torts, breach of contract,
violation of law (or private rights of action under any law), casualty or
condemnation, including costs associated with any blowout or other well control
failure.

 

“Drilling Obligation Completion Date” means the date that the Total Drilling
Target is reached; provided that the “Drilling Obligation Completion Date” shall
not be deemed to have been achieved unless SandRidge Parent shall have delivered
to Trustee, within a reasonable time thereafter, (a) a certificate substantially
in the form of Exhibit B to this Development Agreement, executed by its Chief
Executive Officer, President or any Vice President, certifying that the Total
Drilling Target was achieved as of such date and identifying each Development
Well and (b) such other documentation as Trustee may reasonably request to
establish satisfaction of SandRidge’s drilling obligation hereunder.

 

“Effective Time” is defined in the introductory paragraph to this Development
Agreement.

 

“Exchange Acreage” is defined in Section 3.02.

 

“Excluded Assets” means those Mineral wells that are described in Exhibit B to
each of the Conveyances.

 

3

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

 

“Farmout Agreements” means any farmout agreement, participation agreement,
exploration agreement, development agreement or any similar agreement.

 

“Gas” means natural gas and all other gaseous hydrocarbons or minerals,
including helium, but specifically excluding any Gas Liquids.

 

“Gas Liquids” means those natural gas liquids and other similar liquid
hydrocarbons, including ethane, propane, butane and natural gasoline, and
mixtures thereof, that are removed from a gas stream by the liquids extraction
process of any field facility or gas processing plant and delivered by the
facility or plant as natural gas liquids.

 

“Initial Horizontal Wells” is defined in Section 2.05.

 

“Mineral(s)” means Oil, Gas and Gas Liquids.

 

“Mortgage” is defined in Section 2.06(b).

 

“NRI Factor” means, with respect to each Development Well, the fraction obtained
by dividing Assignor’s Net Revenue Interest for such well by 69.3%. For example,
if Assignor’s Net Revenue Interest in a Development Well is 86.6%, the
computation would be 86.6% / 69.3% = 1.2496. Therefore, such Development Well
would have a NRI Factor of 1.2496. The NRI Factor for each Development Well
shall be rounded to the nearest ten thousandth (i.e., four decimal places to the
right of the decimal point).

 

“Oil” means crude oil, condensate and other liquid hydrocarbons recovered by
field equipment or facilities, excluding Gas Liquids.

 

“Party,” when capitalized, refers to SandRidge Parent, Assignor or the Trust.
“Parties,” when capitalized, refers to SandRidge Parent, Assignor and the Trust.

 

“Perpetual Development Conveyance” is defined in the recitals to this
Development Agreement.

 

“Person” means any natural person, corporation, partnership, trust, estate or
other entity, organization or association.

 

“Production Burdens” means, with respect to any Subject Lands, Subject Interests
or Subject Minerals, all royalty interests, overriding royalty interests,
production payments, net profits interests and other similar interests that
constitute a burden on, are measured by or are payable out of the production of
Minerals or the proceeds realized from the sale or other disposition thereof.

 

“Reasonably Prudent Operator Standard” means the standard of conduct of a
reasonably prudent oil and gas operator in the AMI under the same or similar
circumstances, acting with respect to its own property and disregarding the
existence of the Royalty Interests as a burden on such property.

 

“Royalty Interests” means, collectively, the royalty interests created under
each of the Conveyances.

 

“SandRidge” is defined in the introductory paragraph to this Development
Agreement.

 

4

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

 

“SandRidge Parent” is defined in the introductory paragraph to this Development
Agreement.

 

“SandRidge Sub” is defined in the recitals to this Development Agreement.

 

“Subject Interests” means Assignor’s undivided interests in the Subject Lands as
described on Exhibit A to the Conveyances, whether as lessee under leases, as an
owner of the Subject Minerals (or the right to extract such Minerals) or
otherwise, by virtue of which undivided interests Assignor has the right to
conduct exploration, drilling, development and Mineral production operations on
the Subject Lands, or to cause such operations to be conducted, or to
participate in such operations by paying and bearing all or any part of the
costs, risks and liabilities of such operations, to drill, test, complete,
equip, operate and produce wells to exploit the Minerals. The “Subject
Interests” (a) may be owned by Assignor pursuant to leases, deeds, operating,
pooling or unitization agreements, orders or any other instruments, agreements
or documents, recorded or unrecorded, (b) include any and all extensions or
renewals of leases covering the Subject Lands (or any portion thereof) obtained
by Assignor, or any Affiliate thereof, within six (6) months after the
expiration or termination of any such lease, and (c) are subject to the
Permitted Encumbrances (as defined in each of the Conveyances). For the
avoidance of doubt, the “Subject Interests” do not include: (i) Assignor’s
interests in the Excluded Assets; (ii) Assignor’s rights to substances other
than Minerals; (iii) Assignor’s rights to Minerals (other than Assignee
Minerals) under contracts for the purchase, sale, transportation, storage,
processing or other handling or disposition of Minerals; (iv) Assignor’s
interests in, or rights to Minerals (other than Assignee Minerals) held in
pipelines, gathering systems, storage facilities, processing facilities or other
equipment or facilities; or (v) any additional or enlarged interests in the
Development Wells, Subject Lands or Subject Minerals acquired by Assignor after
the Closing Time, except (1) to the extent any such additional or enlarged
interest becomes a part of the Subject Interests by amendment to the Conveyances
pursuant to Section 3.01 or Section 3.02, (2) as may result from the operation
of the terms of the instruments creating the Subject Interests, or (3) as may be
reflected in extensions and renewals covered by the preceding sentence.

 

“Subject Lands” means the lands subject to or covered by the oil and gas leases
described in Exhibit A to each of the Conveyances, insofar and only insofar as
they cover the Target Formation, subject to the exceptions, exclusions and
reservations set forth on each such Exhibit A.

 

“Subject Minerals” means all Minerals in and under, and that may be produced,
saved and sold from a Development Well, from and after the Effective Time,
insofar and only insofar as such Minerals are produced from the Target
Formation, subject to the following exclusions: Minerals that are (a) lost in
the production, gathering or marketing of Minerals; (b) used (i) in conformity
with ordinary and prudent operations on the Subject Lands, including drilling
and production operations with respect to a Development Well or (ii) in
connection with operations (whether on or off the Subject Lands) for processing
or compressing the Subject Minerals; (c) taken by a Third Person to recover
costs, or some multiple of costs, paid or incurred by that Third Person under
any operating agreement, unit agreement or other agreement in connection with
nonconsent operations conducted (or participated in) by that Third Person; and
(d) retained by a Third Person for gathering, transportation, processing or
marketing services related to the

 

5

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

 

Subject Minerals in lieu of or in addition to cash payment for such services, to
the extent such agreement is permitted under the Conveyances.

 

“Target Formation” means, (i) with respect to PSL Block A36 and University Lands
Block 14, the interval between the top of Permian-aged Grayburg or its
stratigraphic equivalent at a depth of 4,106’ and the Permian-aged Lower San
Andres or its stratigraphic equivalent at a depth of 5,026’ in the Shafter Lake
10#1 located in Section 10, Block A36 (API No. 42-003-38729-0000), (ii) with
respect to PSL Block A46 and University Lands Block 13, the interval between the
top of Permian-aged Grayburg or its stratigraphic equivalent at a depth of
4,264’ and the Permian-aged Lower San Andres or its stratigraphic equivalent at
a depth of 5,009’ in the University 13-46#1 located in Section 13, Block A46
(API No. 42-003-32417-0000), and (iii) with respect to PSL Block A41 and PSL
Block A47, the interval between the top of Permian-aged Grayburg or its
stratigraphic equivalent at a depth of 4,180’ and the Permian-aged Lower San
Andres or its stratigraphic equivalent at a depth of 5,028’ in the Munger Nix #5
located in Section 1, Block A41 (API No. 42-003-32531-0000).

 

“Term Development Conveyance” is defined in the recitals to this Development
Agreement.

 

“Third Person” means a Person other than SandRidge or Trustee.

 

“Total Drilling Target” means that number of Development Wells where the
cumulative sum of all the Adjusted Development Well Amounts for such Development
Wells drilled or caused to be drilled by SandRidge equals 888.

 

“Trust” is defined in the introductory paragraph to this Development Agreement.

 

“Trust Agreement” means the Amended and Restated Trust Agreement of the Trust,
dated as of August 16, 2011 (as may be amended from time to time), among
SandRidge Parent, the Trustee and The Corporation Trust Company, as Delaware
trustee.

 

“Trustee” means The Bank of New York Mellon Trust Company, N.A., a national
banking association organized under the laws of the United States of America
with its principal place of business in New York, New York, as trustee, acting
not in its individual capacity but solely as trustee of the Trust.

 

ARTICLE II

DEVELOPMENT OF THE SUBJECT LANDS

 

Section 2.01 Drilling Program.

 

(a) Obligation to Drill. SandRidge shall, subject to the terms of Section
2.01(b) and the rest of this Article II, drill or cause to be drilled such
number of Development Wells that is necessary to achieve the Total Drilling
Target on or prior to March 31, 2015.

 

(b) Extension of Obligation to Drill. If SandRidge has not reached the Total
Drilling Target by March 31, 2015, SandRidge shall, subject to the terms of this
Article II, drill or cause to be drilled such number of Development Wells that
is necessary to achieve the Total Drilling Target on or prior to March 31, 2016.

 

6

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

 

(c) Drilling Standard. SandRidge shall drill or caused to be drilled, at
SandRidge’s sole cost and expense, each of the Development Wells in a diligent
manner in accordance with the Reasonably Prudent Operator Standard.

 

Section 2.02 Obligation to Complete and Equip. SandRidge shall, at SandRidge’s
sole cost and expense, (a) attempt to complete in the Target Formation each
Development Well that reasonably appears to SandRidge, acting in accordance with
the Reasonably Prudent Operator Standard, to be capable of producing Minerals in
quantities sufficient to pay completion, equipping and operating costs, (b)
equip for production each Development Well that is successfully completed and,
when it is equipped and connected to a gathering line, pipeline or other storage
or marketing facility, commence production, and (c) plug and abandon all
Development Wells that are unsuccessful to the extent required by applicable
law.

 

Section 2.03 Costs and Expenses of Development Wells. All costs and expenses
associated with or paid or incurred in connection with the spudding, drilling,
testing, completing and equipping for production, operating and/or plugging and
abandoning of the Development Wells shall be borne solely by SandRidge, but
SandRidge may use any Subject Minerals in such operations without any duty to
account to Trustee or the Trust.

 

Section 2.04 Title Due Diligence. Prior to commencing the drilling of any
Development Well, SandRidge shall perform such title due diligence and such
title curative work as would be performed by an oil and gas operator drilling a
well and acting in accordance with the Reasonably Prudent Operator Standard.

 

Section 2.05 Horizontal Wells. SandRidge may not drill horizontal wells to
satisfy any portion of its drilling obligation under Section 2.01 unless and
until five horizontal wells (the “Initial Horizontal Wells”) have been, after
the Closing Time, drilled and completed in the Target Formation in the greater
Fuhrman-Mascho field area (whether by, or at the direction of, SandRidge or any
other operator, and regardless of whether SandRidge has any interest therein) so
that they are capable of commencing production of Minerals. None of any such
Initial Horizontal Wells that are drilled or caused to be drilled by SandRidge
shall count as Development Wells hereunder. After the Initial Horizontal Wells
are drilled and completed, SandRidge may, at its option and in its sole
discretion, drill or cause to be drilled horizontal wells that shall be
considered Development Wells; provided that such wells satisfy the other
requirements of a Development Well.  SandRidge shall notify the Trustee of any
well, prior to spudding such well, that it elects to drill or cause to be
drilled in the Target Formation in the greater Furman-Mascho field area that
constitutes an Initial Horizontal Well; provided that such notification shall
not be effective if such well is incapable of commencing production of Minerals.

 

Section 2.06 Wells.

 

(a) Prior to the Drilling Obligation Completion Date, SandRidge shall not, and
shall cause its Affiliates not to, drill and/or complete any well to the Target
Formation in the AMI, other than (1) Development Wells in furtherance of its
drilling obligation in Section 2.01 above, (2) up to five horizontal wells that
SandRidge notifies the Trustee in writing (prior to spudding each such well) do
not constitute Development Wells hereunder, any or all of which may be

 

7

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

 

Initial Horizontal Wells and (3) wells that were both spud and temporarily
abandoned by SandRidge before March 31, 2011.

 

(b) Assignor hereby covenants and agrees to enter into a Deed of Trust (the
“Mortgage”) by which Assignor will grant to the Trust a mortgage lien in and to
any of the undeveloped portions of the Subject Interests (including, by
amendment to the Mortgage, any Additional Lease, Additional Interest or Exchange
Acreage that becomes part of the Subject Interests) located in the AMI in order
to secure the performance of SandRidge’s drilling obligation under Section 2.01
above.

 

(c) If SandRidge fails to achieve the Total Drilling Target by March 31, 2016,
SandRidge shall be in default of its obligations under this Development
Agreement and the Trust shall be entitled to pursue, in its sole discretion, any
and all remedies available pursuant to Article III of the Mortgage.

 

(d) Notwithstanding the preceding, the maximum amount recoverable upon a failure
by SandRidge to satisfy its obligations under Section 2.01 shall be
$294,300,000, and such amount shall automatically be reduced by an amount that
is equal to the product of $331,419 multiplied by the cumulative total of all
Adjusted Development Well Amounts for all Development Wells drilled or caused to
be drilled by SandRidge under this Development Agreement. In addition, upon
Assignor’s request and at Assignor’s expense, the lien and security interest
evidenced by the Mortgage shall be released as to each Development Well as the
same is completed (including completion as a dry hole) in accordance with this
Development Agreement.

 

ARTICLE III

AMI AREA

 

Section 3.01 Additional Leases and Additional Interests. In the event that,
after the Closing Time and prior to the Drilling Obligation Completion Date,
Assignor (a) acquires additional leases covering lands lying within the AMI
(each, an “Additional Lease”) or (b) acquires through forced pooling or
otherwise by operation of law or pursuant to any applicable contract any rights
or interests that increase Assignor’s Net Revenue Interest in any Development
Well, whether before or after the drilling of such well (each such increase in
Assignor’s Net Revenue Interest, an “Additional Interest”), at Assignor’s option
and subject to Section 3.03, Assignor and the Trust shall execute, acknowledge
and deliver (i) an instrument that amends the Conveyances so that each such
Additional Lease or Additional Interest will be subject to the Royalty Interest
and be part of the Subject Interests and Subject Lands, and (ii) an instrument
that amends the Mortgage so that each such Additional Lease will be subject to
the Mortgage.

 

Section 3.02 Exchange of Subject Lands. At Assignor’s option and subject to
Section 3.03, at any time prior to the Drilling Obligation Completion Date,
Assignor may cause the Trust to execute, acknowledge and deliver to Assignor a
recordable instrument (reasonably acceptable to Assignor) that releases from the
Royalty Interest undeveloped portions of the Subject Interests in connection
with Assignor’s exchange of such Subject Interests for other undeveloped acreage
within the AMI (the “Exchange Acreage”). Concurrently with such release,
Assignor and the Trust shall execute, acknowledge and deliver (a) an instrument
that amends the

 

8

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

 

Conveyances so that such Exchange Acreage will be subject to the Royalty
Interest and be part of the Subject Interests and Subject Lands, and (b) an
instrument that amends the Mortgage so that such Exchange Acreage will be
subject to the Mortgage. In no event shall Assignor extend any well into any
Exchange Acreage unless and until the Conveyances are amended to include such
Exchange Acreage as part of the Subject Interests.

 

Section 3.03 Limitations. In no event may (i) any Additional Lease or Additional
Interest be made subject to the Royalty Interest pursuant to Section 3.01 or
(ii) any exchange involving Exchange Acreage be effected pursuant to Section
3.02, unless Assignor certifies to the Trust that:

 

(a) the aggregate acreage attributable to all Additional Leases, Additional
Interests and Exchange Acreage will not exceed 5% of the Subject Interests as
such exist as of the Closing Time;

 

(b) in the case of an Additional Lease only, the reserve profile of such
Additional Lease is consistent with reserve profiles of other portions of the
Subject Interests;

 

(c) in the case of Exchange Acreage only, the reasonably projected quantity of
proved undeveloped reserves attributable to the Exchange Acreage does not
significantly differ from the reasonably projected quantity of proved
undeveloped reserves attributable to the portion of the Subject Interests to be
given in exchange therefor; and

 

(d) the addition of any Additional Leases, Additional interests, or Exchange
Acreage, as applicable, to the Conveyances will not cause any adverse federal
income tax consequence to any unitholder of the Trust.

 

The Trustee is hereby authorized and directed to rely on any such certification
from Assignor, and shall have no authority or responsibility to exercise any
discretion in connection with any transaction authorized by this Article III.

 

ARTICLE IV

OTHER PROVISIONS

 

Section 4.01 Successors and Assigns. Subject to the limitation and restrictions
on the assignment or delegation by the Parties of their rights and interests
under this Development Agreement, all of the covenants and agreements of
SandRidge Parent, Assignor and the Trust contained herein shall be deemed to be
covenants running with the land and shall be binding upon the successors and
assigns of SandRidge Parent’s and Assignor’s interests in the Subject Interests
or this Development Agreement and SandRidge Sub’s and the Trust’s interest in
the Royalty Interests and shall inure to the benefit of SandRidge Sub and the
Trust and their respective successors and permitted assigns. The foregoing
notwithstanding, nothing herein is intended to modify or shall have the effect
of modifying the restrictions on assignment set forth in the Conveyances
regarding assignments, transfer or pooling of SandRidge Parent’s and Assignor’s
interests in the Subject Interests; and the preceding sentence shall not be
deemed to permit any assignment or other transfer of the interest of SandRidge
Parent or Assignor in any of the Subject Interests that is not specifically
permitted by the provisions of the Conveyances. Nothing contained in this
Development Agreement or in the Conveyances shall in any way limit or restrict
the right of the Trust, or the Trust’s respective successors and assigns, to
sell, convey,

 

9

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

 

assign or mortgage the Royalty Interests in whole or in part. If the Trust, or
the Trust’s successors and assigns, at any time shall execute a mortgage, pledge
or deed of trust covering all or any part of the Royalty Interests as security
for any obligation, the mortgagee, the pledgee or the trustee therein named or
the holder of the obligation secured thereby shall be entitled, to the extent
such mortgage, pledge or deed of trust so provides and upon the occurrence or
existence of the event or condition therein stated, if so conditioned, to
exercise all of the rights, remedies, powers and privileges herein conferred
upon the Trust, and to give or withhold all consents herein required or
permitted to be obtained from the Trust.

 

Section 4.02 Governing Law. THIS DEVELOPMENT AGREEMENT SHALL BE CONSTRUED UNDER
AND GOVERNED BY THE LAWS OF THE STATE OF TEXAS WITHOUT GIVING EFFECT TO ANY
CHOICE OR CONFLICT OF LAW PRINCIPLES THAT WOULD CAUSE THE APPLICATION OF THE
LAWS OF ANOTHER JURISDICTION.

 

Section 4.03 Construction of Development Agreement. In construing this
Development Agreement, the following principles shall be followed:

 

(a) no consideration shall be given to the captions of the articles, sections,
subsections or clauses, which are inserted for convenience in locating the
provisions of this Development Agreement and not as an aid in its construction;

 

(b) no consideration shall be given to the fact or presumption that one Party
had a greater or lesser hand in drafting this Development Agreement;

 

(c) the word “includes” and its syntactical variants mean “includes, but is not
limited to” and corresponding syntactical variant expressions;

 

(d) a defined term has its defined meaning throughout this Development
Agreement, regardless of whether it appears before or after the place in this
Development Agreement where it is defined;

 

(e) unless the context clearly indicates to the contrary, references to any
Party shall be construed to include all permitted successors and assigns of such
Party and references to Trustee shall be construed to include all successor and
substitute trustees under the Trust Agreement;

 

(f) the plural shall be deemed to include the singular, and vice versa; and

 

(g) each exhibit, attachment and schedule to this Development Agreement is a
part of this Development Agreement, but if there is any conflict or
inconsistency between the main body of this Development Agreement and any
exhibit, attachment or schedule, the provisions of the main body of this
Development Agreement shall prevail.

 

Section 4.04 No Waiver. Failure of any Party to require performance of any
provision of this Development Agreement shall not affect any Party’s right to
require full performance thereof at any time thereafter, and the waiver by any
Party of a breach of any provision hereof shall not constitute a waiver of a
similar breach in the future or of any other breach or nullify the effectiveness
of such provision.

 

10

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

 

Section 4.05 Relationship of Parties. This Development Agreement does not create
a partnership, mining partnership, joint venture or relationship of trust or
agency between the Parties.

 

Section 4.06 Further Assurances. Each Party shall execute, acknowledge and
deliver to the other Parties all additional instruments and other documents
reasonably required to evidence or effect any transaction contemplated by this
Development Agreement.

 

Section 4.07 The 12:01 A.M. Convention. Except as otherwise provided in this
Development Agreement, each calendar day, month, quarter, and year shall be
deemed to begin at 12:01 a.m. Central Time on the stated day or on the first day
of the stated month, quarter, or year, and to end at 12:00 a.m. Central Time on
the next day or on first day of the next month, quarter or year, respectively.

 

Section 4.08 Counterpart Execution. This Development Agreement may be executed
in any number of counterparts with the same effect as if all the Parties had
signed the same document. All counterparts shall be construed together and shall
constitute one and the same instrument.

 

Section 4.09 Notices. Any and all notices or demands permitted or required to be
given under this Development Agreement shall be in writing and shall be validly
given or made if (a) personally delivered, (b) delivered and confirmed by
facsimile or like instantaneous transmission service, or by Federal Express or
other overnight courier delivery service, which shall be effective as of
confirmation of receipt by the courier at the address for notice hereinafter
stated or (c) deposited in the United States mail, first class, postage prepaid,
certified or registered, return receipt requested, addressed as follows:

 

If to the Trust, to:

 

SandRidge Permian Trust

c/o The Bank of New York Mellon Trust Company, N.A.

Institutional Trust Services

919 Congress Avenue, Suite 500

Austin, Texas 78701

Attention: Michael J. Ulrich

Facsimile No.: (512) 479-2253

 

With a copy to:

 

Bracewell & Giuliani LLP

111 Congress Avenue

Suite 2300

Austin, Texas 78701

Attention: Thomas W. Adkins

Facsimile No.: (512) 479-3940

 

If to SandRidge, to:

 

123 Robert S. Kerr Avenue

Oklahoma City, OK 73102-6406

 

11

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

 

Attention: Philip T. Warman

Facsimile No.: (405) 429-5983

 

With a copy to:

 

Covington & Burling LLP

1201 Pennsylvania Avenue, N.W.

Washington, D.C. 20004

Attention: David H. Engvall

Facsimile No. (202) 778 5307

 

Section 4.10 Limitation of Liability. It is expressly understood and agreed by
the Parties that (a) this Development Agreement is executed and delivered by
Trustee not individually or personally, but solely as Trustee in the exercise of
the powers and authority conferred and vested in it and (b) under no
circumstances shall Trustee be liable for the breach or failure of any
obligation, representation, warranty or covenant made or undertaken by the Trust
under this Development Agreement. It is further expressly understood and agreed
by the Parties that neither the Trust nor Trustee, in its capacity as Trustee or
individually, shall have any authority over, or responsibility or liability for,
the drilling of the Development Wells or any of the other business or commercial
activities contemplated by this Development Agreement, all of which are hereby
agreed to be the sole responsibility of SandRidge, and SandRidge hereby agrees
to and hereby does indemnify and agree to hold harmless each of the Trust and
Trustee, in its capacity as Trustee and individually, from and against any and
all damages, liabilities, expenses, fines, judgments, amounts paid in
settlement, reasonable attorneys fees and costs of investigation, and other
expenses reasonably incurred by any of them in connection with or as a result of
any of the business or commercial activities contemplated by this Development
Agreement or any other matter arising out of this Development Agreement or any
such matter. SandRidge further agrees to advance any such attorneys’ fees, costs
of investigation and other expenses described above as they are incurred.

 

Section 4.11 Severability. If any provision of this Development Agreement or the
application thereof to any Party or circumstance shall be held invalid or
unenforceable to any extent, the remainder of this Development Agreement and the
application of such provision to the other Parties or circumstances shall not be
affected thereby and shall be enforced to the greatest extent permitted by law.

 

Section 4.12 Termination. This Development Agreement shall terminate and be
deemed null and void as of and following the Drilling Obligation Completion
Date.

 

Section 4.13 Joint and Several Liability. The Parties acknowledge and agree that
the obligations of SandRidge contained in this Development Agreement are the
joint and several obligations of SandRidge Parent and Assignor.

 

[Remainder of page intentionally left blank.]

 

12

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

 

IN WITNESS WHEREOF, each Party has caused this Development Agreement to be
executed in its name and behalf and delivered on the date or dates stated in the
acknowledgment certificates appended to this Development Agreement, to be
effective as of the Effective Time.

 

 

SandRidge Energy, Inc.

 

 

 

By:

/s/ James D. Bennett

 

 

Name:

James D. Bennett

 

 

Title:

Executive Vice President and Chief Financial Officer

 

 

 

 

 

 

 

SandRidge Exploration and Production, LLC

 

 

 

 

By:

/s/ James D. Bennett

 

 

Name:

James D. Bennett

 

 

Title:

Executive Vice President and Chief Financial Officer

 

Signature Page to Development Agreement

 

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

 

 

SandRidge Permian Trust

 

 

 

 

By: The Bank of New York Mellon Trust Company, N.A., as Trustee

 

 

 

 

 By:

/s/ Michael J. Ulrich

 

 

Name:

Michael J. Ulrich

 

 

Title:

Vice President

 

Signature Page to Development Agreement

 

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

 

STATE OF OKLAHOMA

§

 

§

COUNTY OF OKLAHOMA

§

 

This instrument was acknowledged before me on August 8, 2011, by James D.
Bennett, Executive Vice President and Chief Financial Officer of SandRidge
Energy Inc., a Delaware corporation, on behalf of said corporation.

 

 

 

 

/s/ Janis L. Roberts

 

 

NOTARY PUBLIC,

 

 

State of Oklahoma

 

 

Janis L. Roberts

 

 

(printed name)

My commission expires:

 

 

May 22, 2012

 

 

SEAL or STAMP

 

 

 

Acknowledgment Page to Development Agreement

 

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

 

STATE OF OKLAHOMA

§

 

§

COUNTY OF OKLAHOMA

§

 

This instrument was acknowledged before me on August 11, 2011, by James D.
Bennett, Executive Vice President and Chief Financial Officer of SandRidge
Exploration and Production, LLC, a Delaware limited liability company, on behalf
of said limited liability company.

 

 

 

 

/s/ Janis L. Roberts

 

 

NOTARY PUBLIC,

 

 

State of Oklahoma

 

 

Janis L. Roberts

 

 

(printed name)

My commission expires:

 

 

May 22, 2012

 

 

SEAL or STAMP

 

 

 

Acknowledgment Page to Development Agreement

 

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

 

STATE OF TEXAS

§

 

§

COUNTY OF TRAVIS

§

 

This instrument was acknowledged before me on August 11, 2011, by Michael J.
Ulrich, Vice President of The Bank of New York Mellon Trust Company, N.A., a
national banking association organized under the laws of the United States of
America, as Trustee of SandRidge Permian Trust, a Delaware statutory trust, on
behalf of said national banking association and said trust.

 

 

 

 

/s/ Sarah Newell

 

 

NOTARY PUBLIC,

 

 

State of Texas

 

 

Sarah Newell

 

 

(printed name)

My commission expires:

 

 

02-16-2014

 

 

SEAL or STAMP

 

 

 

Acknowledgment Page to Development Agreement

 

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

 

Exhibit A

 

(Description of AMI)

 

[See attached.]

 

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

 

Exhibit B

 

[Letterhead of SandRidge Energy, Inc.]

 

[Date]

 

Reference is made to that certain Development Agreement (the “Development
Agreement”), by and between SandRidge Energy, Inc. (“SandRidge”), SandRidge
Exploration and Production, LLC and SandRidge Permian Trust, a Delaware
statutory trust, delivered to be effective as of April 1, 2011. Capitalized
terms used but not defined herein have the meaning given them in the Development
Agreement.

 

SandRidge hereby certifies to the Trust that SandRidge achieved the Total
Drilling Target on [insert date] and, therefore, such date shall be, for all
purposes, established as the Drilling Obligation Completion Date.

 

The Development Wells drilled to achieve the Total Drilling Target are listed in
the attachment to this letter.

 

Please sign and return an executed copy of this letter to certify that you
require no additional documentation to establish SandRidge’s satisfaction of its
drilling obligation under the Development Agreement and that [insert date] shall
be, for all purposes, established as the Drilling Obligation Completion Date.

 

 

 

SandRidge Energy, Inc.

 

 

 

 

 

 

By:

 

 

 

 

Name:

 

 

 

Title:

 

 

 

 

Acknowledged and agreed:

 

 

 

 

 

 

 

 

 

 

 

 SandRidge Permian Trust

 

 

 

 

 

 

 

 By:

The Bank of New York Mellon Trust Company, N.A., as Trustee

 

 

 

 

 

 

 

 

 

By:

 

 

 

 

 

Name:

 

 

 

 

Title:

 

 

 

 

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