WHITING PETROLEUM CORPORATION

 

PRODUCTION PARTICIPATION PLAN

 

(As Amended and Restated Effective April 23, 2004)

 

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WHITING PETROLEUM CORPORATION

 

PRODUCTION PARTICIPATION PLAN

 

(As Amended and Restated Effective April 23, 2004)

 

PREAMBLE

 

WHITING PETROLEUM CORPORATION, a Delaware corporation (collectively with Whiting
Oil and Gas Corporation, its wholly-owned subsidiary and a Delaware corporation,
the “Company”), hereby establishes the following production participation plan
(the “Plan”). The Plan is intended to provide greater incentives to the
Company’s employees to increase the profitability of the Company and to enable
the Company to attract, motivate and retain valuable employees upon whom, in
large measure, the continued profitability of the Company depends.

 

ARTICLE I

 

Definitions

 

The following words and phrases shall have the meaning set forth below unless
the context clearly indicates otherwise:

 

1.1 “Committee” means the Compensation Committee of the Board of Directors of
Whiting Petroleum Corporation.

 

1.2 “Company” means Whiting Petroleum Corporation and Whiting Oil and Gas
Corporation, collectively, and any successor thereto.

 

1.3 “Compensation” means the total salary paid or accrued to a Participant by
the Company or a wholly owned subsidiary of the Company during a Plan Year,
excluding bonuses, reimbursed expenses and other extraordinary items.

 

1.4 “Effective Date” means January 1, 1981.

 

1.5 “Employee” means each common-law salaried employee of the Company or a
subsidiary of the Company who performs services for the Company or a subsidiary
on a full-time basis, as determined by the Company.

 

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1.6 “Participant” means an Employee, or former Employee, who is eligible to
receive distributions in accordance with the terms of the Plan.

 

1.7 “Plan Year” means the twelve-month period on which the records of the Plan
are kept, which shall be the same as the fiscal year of the Company.

 

1.8 Pronouns: Gender and Number. Unless the context clearly indicates otherwise,
words in any gender shall include the other genders and the singular shall
include the plural and vice versa.

 

ARTICLE II

 

Participation in the Plan

 

2.1 Participation.

 

Each Employee of the Company shall become a Participant in the Plan on his date
of employment by the Company.

 

2.2 Enrollment – Procedure.

 

Each Participant shall fill out and sign an enrollment form supplied by the
Committee and return it to the Committee. The enrollment form shall state, among
other information, the Participant’s post office address and date of birth and a
designation of the names and post office addresses of his beneficiaries.

 

2.3 Absences.

 

A leave of absence approved in writing by the Company shall not constitute a
termination of employment for purposes of computing years of service with the
Company for determining vesting under section 4.4.

 

ARTICLE III

 

Company Contributions

 

3.1 Allocation of Income Attributable to Pools Formed Prior to January 1, 1995.
For periods prior to January 1, 1995, the Company allocated on its books, for
Plan purposes, certain deemed overriding royalty interests with respect to
certain specified oil and gas properties. Interests in wells allocated to the
Plan which were either spudded or purchased during each Plan Year prior to
January 1, 1995 form separate accounting pools (the “Pre-1995 Pools”). The
calculation of income allocable to the Plan and the Participants in the Plan
with

 

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respect to the Pre-1995 Pools, and the distributions to Participants of such
income, shall continue to be made in accordance with the provisions of the Plan
as in effect prior to the effective date of this Amendment.

 

3.2 Allocation of Income to the Plan for the 1995 Plan Year and Subsequent Plan
Years. Effective as of January 1, 1995, the Company shall allocate to the Plan a
specified percentage of the net income with respect to the oil and gas wells
allocated to the Plan which were either spudded or purchased during each Plan
Year, beginning with the calendar 1995 Plan Year. The Company shall determine in
its discretion, each Plan Year, the wells that shall be allocated to the Plan
and the wells that are allocated to the Plan during each Plan Year shall form a
separate accounting pool (the “Post-1994 Pools”). The Pre-1995 Pools and the
Post-1994 Pools are hereinafter sometimes referred to, in the aggregate, as the
“Pools”. The amount of income that shall be allocated to the Plan each Plan Year
with respect to each Pool formed in 1995 and later Plan Years shall be based
upon the net income each Plan Year attributable to the oil and gas properties
allocated to each such Pool. The amount of income allocable to the Plan each
Plan Year from each Post-1994 Pool shall be based upon the net income
attributable to each such Pool’s oil and gas properties, multiplied by a
percentage derived from a sliding scale schedule based upon the Company’s
overall earnings, before interest expense and income taxes, for each such Plan
Year. The Company shall establish a schedule with respect to each Plan Year
beginning with the 1995 Plan Year pursuant to which the percentage of net
property level income that shall be allocated to the Plan from all Post-1994
Pools with respect to each such Plan Year shall be determined. The applicable
percentages for 1995 are attached hereto as Exhibit A. For each Plan Year
subsequent to 1995, the Company shall prepare and approve, as a new Exhibit A, a
new schedule establishing the levels of contribution to the Plan based upon the
Company’s earnings before interest expense and taxes for such Plan Year. The
applicable percentage of property-level net income for each Plan Year
attributable to each Post-1994 Pool shall be distributed annually in accordance
with Article IV.

 

3.3 Sale of Interest. If the Company sells or transfers its interest in a well
(including the spacing unit on which such well is located) that is being used to
determine the amount of Plan income pursuant to Section 3.1 or 3.2, that portion
of the net profit from such sale, but before income taxes, representing in the
case of Pre-1995 Pools, the production interest allocated to the Plan, and in
the case of Post-1994 Pools, the Production Plan Percentage as set

 

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forth on Exhibit A for the Plan Year during which such sale is closed, shall be
distributable to the Participants eligible to share in income distributions from
the Pool in question in the same manner as current income from production with
respect to that Pool for the Plan Year during which such sale occurs.

 

ARTICLE IV

 

Allocation and Distribution of Net Income

 

4.1 Allocation of Current Pool Net Income. As of the last day of each Plan Year,
beginning with the Plan Year ending December 31, 1981, the Committee shall
allocate the accrued net income allocable to the Pool created for that Year
among the Participants employed by the Company on the last day of that Plan Year
in the following manner:

 

(a) Thirty-three and one-third percent (33-1/3%) of the net income of each
Year’s current Pool shall be allocated among the Participants in the proportion
which the Compensation of each Participant for such Year bears to the total
Compensation of all Participants for such Plan Year.

 

(b) Up to sixty-six and two-thirds percent (66-2/3%) of the net income of each
Year’s current Pool shall be available for allocation among any Participants who
receive points pursuant to this section 4.1(b). Up to 666 points may be awarded
annually based upon each Participant’s contributions to the Company with respect
to that Plan Year. However, there is no requirement that any points be awarded
with respect to any given Plan Year. Points will be awarded only to Participants
who have put forth extraordinary effort on behalf of the Company in cases where
the Company has materially benefited from such effort. The Committee shall
determine the points to be awarded to all eligible Participants. The
determination of the Committee as to whether to award any points during a given
Plan Year, and as to the points awarded to each eligible Participant, shall be
solely within the discretion of the Committee, and all decisions of the
Committee shall be final and binding on all Participants and beneficiaries. All
decisions with respect to the award of points shall remain confidential.

 

The portion of such sixty-six and two-thirds percent of the Pool’s net income to
be allocated to each Participant receiving points shall be equal to the
percentage that the Participant’s points are of the 666 possible points for that
Plan Year. If fewer than 666 points are awarded during any Plan Year, the
unallocated portion of the sixty-six and two-thirds percent

 

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of the net income for that Plan Year shall be allocated and paid to Participants
in the same proportion as the amounts paid under section 4.1(a).

 

4.2 Allocation of Prior Pool Net Income.

 

The accrued net income for each Plan Year allocable to each separate Pool formed
under the Plan during prior Plan Years shall be allocated only among those
Participants who originally shared in the allocation of the net income of such
Pool pursuant to section 4.1 (or their beneficiaries) and who are either
employed by the Company as of the last day of the latest Plan Year or are vested
in accordance with section 4.4. The accrued net income attributable to each
prior Pool shall be allocated among those persons eligible to share in such
income based upon their original sharing ratios in such Pool (the “Original
Sharing Ratios”); provided, however, that, in the case of Pre-2004 Pools (as
defined in section 4.4(b) below), the Original Sharing Ratios shall be increased
proportionately to account for the forfeiture of interests because of (a) the
termination of employment of Participants prior to becoming fully vested in
accordance with section 4.4, or (b) those matters specified in section 4.5;
provided further, that, in the case of Post-2003 Pools (as defined in section
4.4(c) below), Original Sharing Ratios shall remain the same at all times and
not be impacted by the forfeiture of any interests.

 

4.3 Distribution of Net Income.

 

As soon as practicable after the end of each Plan Year, beginning with the Plan
Year ending December 31, 1981, the Company shall distribute to each Participant
(or his beneficiary) in one lump sum his allocable share of the net income of
the Plan for the preceding Plan Year, less any required withholding of income
taxes or other amounts applicable to payments made to Employees of the Company.

 

4.4 Vesting.

 

(a) General. If a Participant with less than one full year of employment with
the Company terminates his employment with the Company for any reason, he shall
cease to be a Participant in this Plan and all rights of such Employee under
this Plan shall terminate.

 

(b) Vesting For Plan Years Prior to 2004. A Participant who is credited with one
or more full years of employment with the Company at the date of his termination
of employment shall continue to participate in Pools relating to Plan Years
prior to 2004 (the “Pre-2004 Pools”) on a vested basis in accordance with the
following schedule:

 

Full Years of Employment

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   Vested Percentage of Future Income

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1

   20%

2

   40%

3

   60%

4

   80%

5

   100%

 

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A vested Participant shall continue to share in the distribution of accrued net
income from all Pre-2004 Pools in which he originally shared in the same manner
as Participants who are employed by the Company, based upon his vested
percentage at the date of his termination of employment and his percentage of
the net income of each such Pre-2004 Pool as of the end of the Plan Year
immediately preceding or coincident with the date of his termination of
employment. For purposes of this section (b), employment prior to January 1,
1981 shall be disregarded and only full Plan Years of employment after January
1, 1981 shall be credited to Participants.

 

(c) Vesting for Plan Year 2004 and Subsequent Plan Years. For any Participant
who is credited with one or more full years of employment with the Company at
the date of his termination of employment with the Company, such Participant’s
right to continue to participate in each Pool relating to the Plan Year 2004 and
subsequent Plan Years (the “Post-2003 Pools”) in which he originally shared
shall vest in accordance with the following schedule:

 

Full Years Elapsed Since

Beginning of Plan Year

Relating to Pool

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Cumulative Vested

Percentage

of Participation

in Pool

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fewer than 1

   0%

1

   20%

2

   40%

3

   60%

4

   80%

5 or more

   100%

 

A Participant shall continue to share in the distribution of accrued net income
from each Post-2003 Pool in which he originally shared in the same manner as
Participants who are employed by the Company, based upon his cumulative vested
percentage of his participation in such Post-2003 Pool at the date of his
termination of employment and his percentage of the net income of each such
Post-2003 Pool as of the end of the Plan Year immediately preceding or
coincident

 

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with the date of his termination of employment. Notwithstanding any other
provision of this Plan to the contrary, upon a Participant’s reaching age 65
while still employed by the Company, such Participant’s right to continue to
participate in each Post-2003 Pool in which he originally shared shall become
fully vested.

 

(d) If a Participant dies or becomes disabled (as determined by the Committee)
prior to becoming fully vested in accordance with (b) or (c) above, as
applicable, such Participant (or his beneficiary) shall nevertheless be fully
vested for purposes of future distributions from the Plan and shall be entitled
to receive future distributions of Plan income in accordance with (b) or (c)
above, as applicable.

 

4.5 Forfeiture-Termination for Cause.

 

(a) If a Participant’s employment with the Company is terminated for cause, as
determined by the Company, the Participant, regardless of his or her vested
percentage, shall not be entitled to any further distributions or payments from
the Plan.

 

(b) If a vested terminated Participant is later determined by the Company to
have engaged in any activity which would be grounds for termination for cause
while employed by the Company, such Participant shall, upon such determination,
forfeit all rights to any further payments from the Plan.

 

4.6 Purchase of Interests by Company.

 

The Company may, at its sole option, purchase the entire vested interest under
the Plan of any terminated or deceased Participant. The Company shall notify the
terminated Participant, or the beneficiary of a deceased Participant, within 120
days after the end of any Plan Year, of its election to purchase such person’s
interest under the Plan. Payment for any interest so purchased shall be made by
the Company, by its check, within 60 days after the expiration of said notice
period. The purchase price of any interest so purchased shall be based on the
fair market value of the Participant’s (or beneficiary’s) interest under the
Plan as of the end of the immediately preceding Plan Year. The determination of
fair market value shall be made by the Company, using the valuation reports,
discount rates and other factors then being used by the Company for the purchase
of oil and gas interests from third parties.

 

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ARTICLE V

 

Allocation of Administrative Responsibilities

 

5.1 The Company.

 

The Company shall be responsible for: (a) keeping accurate books and accounts
with respect to all income which it receives attributable to interests which
have been allocated to the Plan; (b) keeping accurate books and records with
respect to its Employees and their Compensation and furnishing such data to the
Committee; and (c) making payments to Plan Participants and their beneficiaries
in accordance with the provisions of the Plan.

 

5.2 The Committee.

 

The Committee shall administer the Plan and shall have all powers necessary for
that purpose, including, but not by way of limitation, power to interpret the
Plan, to determine the eligibility, status and rights of all persons under the
Plan and in general to decide any dispute. The Committee shall direct all
distributions in accordance with the provisions of the Plan and shall maintain
all Plan records except records required to be kept by the Company.

 

5.3 Indemnification of Committee Members.

 

The Company shall indemnify each member of the Committee against any and all
claims, loss, damages, expense and liability arising from any action or failure
to act with respect to the Plan, except when the same is judicially determined
to be due to the gross negligence or willful misconduct of such person.

 

ARTICLE VI

 

Termination and Amendment

 

6.1 Termination of Plan and Discontinuance of Contributions.

 

The Company presently intends to continue the Plan indefinitely, but the
continuance of the Plan is not assumed as a contractual obligation and the
Company may terminate the Plan at any time by delivering written notice of
termination to the Committee and each Participant and beneficiary then entitled
to receive distributions from the Plan. Upon the termination of the Plan, or
upon the sale or exchange of all or substantially all of the Company’s assets,
the merger of the Company or the liquidation of the Company (but only if the
management of the purchaser, exchangor or other successor organization is
substantially different from the management of the Company prior to such sale,
exchange, merger or

 

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liquidation), the interests of all participants in the Plan shall become fully
vested, notwithstanding any other provision hereof.

 

6.2 Procedure Upon Termination.

 

Upon voluntary termination of the Plan by the Company, the Committee shall
either (a) distribute to each Participant or beneficiary then participating in
the Plan, in one lump sum or in five equal installments with interest at the
minimum rate required in order to avoid the imputation of interest under Section
483 of the Internal Revenue Code, or any successor provision, an amount equal to
the then present worth of each such person’s interests in the Plan, computed in
accordance with section 4.6, or (b) continue to make distributions in accordance
with the provisions of the Plan from all Pools existing at the time of
termination, all as the Committee in its sole discretion may determine. If the
Plan terminates automatically because of one of the events specified in section
6.1, the interest of each person, valued in accordance with section 4.6, shall
be distributed in one lump sum. Upon termination of the Plan, the interest of
each Participant or beneficiary in each Pool under the Plan shall be 100% vested
and shall be the percentage interest of each such person in that Pool as of the
end of the last Plan Year prior to termination of the Plan, adjusted to account
for any forfeitures between the end of the prior Plan year and the time of
termination of the Plan.

 

6.3 Amendment by Company.

 

The Company may at any time amend the Plan in any respect by action of its Board
of Directors, but no amendment shall be made which would have the effect of
materially and adversely affecting the interest of any person under the Plan
with respect to then existing Pools.

 

ARTICLE VII

 

Miscellaneous

 

7.1 Right to Dismiss Employees.

 

The Company may terminate the employment of any Employee as freely and with the
same effect as if this Plan were not in existence.

 

7.2 Withholding of Taxes, Etc.

 

The Company shall withhold from all payments to Participants and beneficiaries
hereunder, and pay to the appropriate governmental authority, all amounts of

 

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income taxes and other amounts which are required by applicable law and
regulation to be withheld from wage payments to Employees of the Company.

 

7.3 Source of Benefits.

 

All benefits payable under the Plan shall be paid solely from the general assets
of the Company and no allocation of royalty interest or income on the books of
the Company shall be deemed to create a separate fund or any ownership interest
on the part of the Plan in any properties being used to measure Plan income or
in any production from such properties.

 

7.4 Ownership of Properties.

 

Nothing contained in this Plan shall in any way restrict the right of the
Company to sell, transfer, mortgage, encumber or otherwise deal with the
properties giving rise to the revenues used to measure Plan income.

 

7.5 Beneficiaries.

 

Each Participant shall file with the Committee a designation of the
beneficiaries and contingent beneficiaries to whom income attributable to his
interest under the Plan shall be paid in the event of his death. Such
designation may be changed by the Participant at any time and without the
consent of any previously designated beneficiary. In the absence of an effective
beneficiary designation as to any portion of a Participant’s interest under the
Plan, income attributable to such interest shall be paid to the Participant’s
personal representative, but if the Committee believes that none has been
appointed within six months after the Participant’s death, the Committee may
direct that such income shall not be paid until a personal representative has
been appointed or may direct that such income shall be paid to the Participant’s
surviving spouse, or if there is none, to his surviving children and issue of
deceased children by right of representation, or if there be none, to his
surviving parents.

 

7.6 Non-transferability of Benefits.

 

No Participant or beneficiary shall have any right to assign, alienate,
transfer, hypothecate, encumber or anticipate his interest in any benefits under
this Plan, nor shall such benefits be subject to any legal process to levy upon
or attach the same for payment of any claim against any such Participant or
beneficiary.

 

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7.7 Payments Due Minors or Incapacitated Persons.

 

If any person entitled to a payment under the Plan is a minor, or if the
Committee determines that any such person is incapacitated by reason of physical
or mental disability, whether or not legally adjudicated as such, the Committee
shall have the power to cause the payments becoming due to such person to be
made to his personal representative or to another for his benefit, without
responsibility of the Committee to see to the application of such payments. The
Committee shall have no responsibility to investigate the physical or mental
condition of a Participant and any determination of disability made by the
Committee shall be binding on the Participant and all other persons. Payments
made pursuant to such power shall operate as a complete discharge of the Plan,
the Company and the Committee.

 

7.8 Disposition of Unclaimed Payments.

 

Each Participant must file with the Committee from time to time in writing his
post office address and the post office address of each of his beneficiaries and
each change of post office address. Any communication, statement or notice
addressed to a Participant or beneficiary at his last post office address filed
with the Committee, or if no address is filed with the Committee, then at his
last post office address as shown on the Company’s records, will be binding in
the Participant and his beneficiaries for all purposes of the Plan. Neither the
Committee nor the Company shall be required to search for or locate a
Participant or beneficiary. If the Committee notifies a Participant or
beneficiary that he is entitled to a distribution and also notifies him of the
provisions of this section, and the Participant or beneficiary fails to make his
address known to the Committee within three calendar years after the
notification, the interest in each Pool under the Plan of the Participant or
beneficiary will be forfeited as of the end of the Plan Year following the
expiration of such three-year period and re-allocated among the Participants in
each Plan Pool at that time.

 

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7.9 Governing Law.

 

The construction and interpretation of this Plan shall be governed by the laws
of the State of Colorado.

 

DATE: April 23, 2004

 

ATTEST:

     

WHITING PETROLEUM CORPORATION

   

/s/ Patricia J. Miller

     

By:

 

/s/ James J. Volker

   

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Vice President of Human Resources

and Corporate Secretary

         

Chairman, President and Chief Executive Officer

 

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