Exhibit 10.3

 

DRILLING CONTRACT FOR

MULTIPLE RIGS

 

This Contractis entered into on this 21st day of April, 2006, by LARCLAY, L.P. a
Texas limited partnership, whose address is 701 South Taylor, Suite 426,
Amarillo Texas, 79101 (together with its successors and permitted assigns,
“Contractor”) and Clayton Williams Energy, Inc., whose address is Six Desta
Drive, Suite 3000, Midland Texas, 79705 (together with its successors and
permitted assigns, “Operator” and together with Contractor, “Parties”).

 

WHEREAS, Contractor has contracted for the construction and delivery of twelve
new drilling rigs to be delivered to Houston, Texas, as identified on
Exhibit “A” (individually a “Rig” or collectively “Rigs”);

 

WHEREAS, Operator has agreed to enter into a long term contract for the use of
the Rigs;

 

WHEREAS, Lariat Services, Inc. (‘Lariat”) has agreed to operate the Rigs on
behalf of Contractor; and

 

WHEREAS, the Parties desire to set forth the terms and conditions under which
the Rigs will be operated;

 

NOW, THEREFORE, for and in consideration of the mutual premises herein set for
the Parties agree as follows:

 

1.               Commencement Date and Term. At such time as a Rig has been
appropriately equipped and ready for use (the “Commencement Date”), the terms of
this Contract and the attachments hereto shall govern the operation of such Rig
for a period of three years from the Commencement Date, unless sooner terminated
pursuant to the terms hereof. As a Rig becomes available for service, Operator
shall provide to Contractor a proposed schedule of wells to be drilled and the
location thereof, and shall use its best efforts to notify Contactor of changes
thereto.

 

2.               Form of Drilling Contract. There shall be deemed a separate
drilling contract for each Rig, as set forth on Exhibit “B” (a “Drilling
Contract”) but subject to the general provisions of this Contract. This Contract
shall govern in the event of a conflict between the provisions of a Drilling
Contract and the terms of this Contract and with respect to matters not covered
in a Drilling Contract.

 

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3.               Daywork Rates. The rates to be charged by Contractor to
Operator for the use of each Rig shall be the then-current market rates being
charged for similarly sized, and similarly equipped, rigs in the same geographic
area, and in all events each Rig shall be contracted to Operator upon terms that
are no less favorable to Operator or Contractor than those that would have been
obtained in a comparable transaction with an unrelated third party. These rates
will be determined at the time the Rig is appropriately equipped, ready for use
and movement to a drilling location when assembled at a yard, or upon
mobilization when the Rig is outfitted on a location. Mobilization,
demobilization and moving rates shall include the actual expenses incurred in
moving the Rig. At such times that a Rig is not employed on an Operator location
or under a contract to a third party (“Idle Rig”), the rate charged therefor
(“Idle Rig Rate”) shall be as follows: $8,100 per day for a 1000HP Rig, $8,600 
per day for a 1350HP Rig and $10,300 per day for a 2000HP Rig; provided that
during times in which the Idle Rig Rate is in effect and Contractor, in
consultation with Operator, elects not to release the crew, but rather retain
the crew on payroll, the Operator shall be responsible for the actual cost of
the crew in addition to the Idle Rig Rate. The Idle Rig Rate shall be used as
the Force Majeure Rate and rate during times of Rig repair commencing 36 hours
from the event giving rise to the Force Majeure or the shut down of the Rig for
repair.

 

4.               Third Party Contracts. From time to time during the term
hereof, one or more Rigs may be contracted  by Contractor to third parties as
follows:

 

a.               At Operator’s request during such time that Operator does not
have a location ready for an available Rig. Such contract shall not exceed a
term of three (3) months or provide for the drilling of more than three
(3) wells without the consent of Operator.

 

b.              At Operator’s direction in the event that Operator has elected
to make a Rig available to a third party for use in a prospect in which operator
shall earn an interest.

 

c.               A contract for a Rig with third party shall be made on a
separate IADC Daywork Drilling Contract form which shall provide for terms and
rates that are at the time of the contract representative of market in the
geographic area of operation for such Rig for a similarly sized, and similarly
equipped rig  This Contract shall be subordinated to the third party contract
for the term thereof; provided, however,  if the revenues generated and
collected from the third party contract are less than the amount that Operator
would otherwise have been required to pay Contractor for such Rig under
paragraph 3 of this Contract had the Rig been an Idle Rig with crew, Operator
shall pay Contractor the amount of such deficit. Except as to any leasehold
interest earned by Operator in connection with contracting a Rig to a third
party, Operator shall

 

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not be entitled to any portion of the drilling rates or other consideration
provided in the third party contract.

 

d.              During any period in which Operator does not utilize a Rig in
its drilling program, which shall include third party prospects in which
Operator will earn an interest by making a Rig available, Contractor shall offer
such Rig to Lariat or its affiliates for use during such period in preference to
other third parties. Lariat and each of its affiliates who contract for a Rig
pursuant to this paragraph 4 shall be deemed to be a third party for all
purposes herein.

 

5.               Deployment of Rigs. Operator and Contractor shall consult in
the area of operation for each Rig, but Operator shall have final authority for
the location to which a Rig is to be deployed and operated.

 

6.               Indemnities and Allocation of Risk. Each party agrees to carry
insurance to support the indemnities assumed under the terms of the Drilling
Contract. The insurance shall be of the types and amounts set forth on
Exhibit “C.”

 

7.               Early Termination. This Contract shall expire on December 31,
2009. Each Party hereto shall have the right to terminate this Contract only if
the other Party (a) is dissolved or liquidated, (b) begins an Insolvency
Proceeding, or (c) an Insolvency Proceeding is begun against such other Party
and not dismissed or stayed within 30 days. For the purposes of this Agreement, 
an “Insolvency Proceeding” is a proceeding by or against any Party under the
United States Bankruptcy Code, or any other bankruptcy or insolvency law,
including assignments for the benefit of creditors, compositions, extensions
generally with its creditors, or proceedings seeking reorganization,
arrangement, or other relief.

 

8.               Choice of Law. This Contract and all attachments hereto are to
be governed in accordance with the laws of the State of Texas, without regard to
any conflict of law provisions.

 

9.               Counterparts. This Contract may be executed in multiple
counterparts, and counterparts thus executed shall be treated as the same
instrument.

 

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IN WITNESS WHEREOF, the parties have caused this Contract to be executed
effective as of the 21st day of April, 2006.

 

 

LARCLAY, L.P., by

 

LARCLAY GP, LLC

 

its General Partner

 

 

 

/s/  Michael W. Burnett

 

 

Michael W. Burnett, Manager

 

 

 

 

 

CLAYTON WILLIAMS ENERGY, INC.

 

 

 

/s/ T. Mark Tisdale

 

 

T. Mark Tisdale, Vice President

 

and General Counsel

 

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EXHIBIT “A”

To Drilling Contract For Multiple Rigs

Dated April     2006

Schedule of Rigs

 

 

 

 

 

Estimated

Rig No.

 

Size (HP)

 

Commencement Date

 

 

 

 

 

21

 

1350

 

5/1/2006

23

 

1350

 

6/1/2006

25

 

1350

 

7/1/2006

27

 

1350

 

8/1/2006

29

 

2000

 

10/1/2006

31

 

1350

 

9/1/2006

32

 

1000

 

10/1/2006

33

 

2000

 

11/1/2006

34

 

1000

 

10/1/2006

35

 

1000

 

11/1/2006

36

 

1000

 

11/1/2006

37

 

1000

 

12/1/2006

 

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