EX-10.13



 





Exhibit 10.13




FORM OF

ASSIGNMENT OF DRILLING RIGHTS




     This ASSIGNMENT OF DRILLING RIGHTS is entered into as of ___, 200___by and between
NGAS Partners ___Drilling Program, a Kentucky general partnership (the
“Program”), and Daugherty Petroleum, Inc., a Kentucky corporation (“DPI”).



RECITALS




     A. DPI has organized NGAS Partners ___, Ltd., a Kentucky limited partnership (the
“Partnership”), to invest, through the Program, in a portfolio of natural gas development
wells (“Project Wells”) to be drilled by DPI on drilling sites located in the southern
portion of the Appalachian basin (the “Project Areas”).



     B. The Partnership is being capitalized through a private placement of a minimum of ___ units
of general and limited partner interests (“Units”) at a subscription price of $  per
Unit for $___and a maximum of ___ Units for $___(the “Private Placement”), on
the terms described in a Private Placement Memorandum of the Partnership dated ___ 200___(the
“PPM”).



     C. The Program is being capitalized under the terms of a partnership agreement of even date
herewith between DPI and the Partnership (the “Program Agreement”), providing for the
Partnership’s contribution of subscription proceeds from each incremental closing of Units in the
Private Placement (each, a “Closing”), and for DPI’s proportionate contribution of $___
for each Unit issued at that Closing, representing ___% of total Program capital for Project Wells.



     D. The Program has engaged DPI to drill and operate the Project Wells under the terms of a
joint drilling and operating agreement of even date herewith (the “Project JOA”), providing
for DPI to use its best efforts to drill all of the Project Wells to total depth by the end of
___ 200___and to install production lines and associated compression and dehydration equipment for
connecting completed Project Wells to its existing gathering systems as expeditiously as possible,
based on projected drilling and completion costs (the “AFEs”) to be specified by DPI for
each Project Well under the terms of the Project JOA.



     E. The Project JOA provides for the Program’s participation in the Project Wells on a
“cost-plus” 30% basis, entitling DPI to payments from the Program in an amount equal to 130% of the
AFEs attributable to the Programs working interests in the Project Wells (the “Program
Position”), which will be subject to proportionate reduction for Project Wells in Leatherwood
upon exercise of third-party participation rights under the farmout covering DPI’s interests in
that Project Area (the “Participating Interests”).



     F. The parties desire to enter into this Assignment of Drilling and Operating Rights (the
“Agreement”) to provide for DPI’s assignment to the Program of drilling and operating
rights on the drilling sites designated and to be designated herein, depending on the number of
Units sold in the Private Placement (the “Prospects”).



     Accordingly, in consideration of their mutual promises and intending to be legally bound, the
parties hereby agree as follows:



AGREEMENT




     1. Construction and Definitions. Unless otherwise expressly provided herein, all references
to Recitals, Sections and Schedules refer to recitals, sections and schedules of this Agreement.
As used in this Agreement, the following terms have the respective meanings set forth below:



     “AFE” stands for “authorization for expenditure” and means the projected costs for
drilling and completing a Project Well and furnishing all labor, well equipment and production
facilities necessary to produce the well to sales through DPI’s field-wide gathering systems.



 









 





     “Agreement” means this Assignment of Drilling Rights, as amended and or supplemented
from time to time.



     “Closing” has the meaning set forth in Recital C.



     “DPI” means Daugherty Petroleum, Inc., a Kentucky corporation, and its successors and
assigns.



     “DPI Position” means the working interest of DPI in Project Wells drilled in the
Project Areas, as established under the Program Agreement and as adjusted for Participating
Interests, for AFE variances under the True-Up Account to be maintained hereunder and for the
reversionary interest of DPI in each Project Area after Payout under the terms of the Program
Agreement.



     “Participating Interests” has the meaning set forth in Recital E.



     “Partnership Position” means the working interest of the Partnership in Project Wells
drilled in the Project Areas, as established under the Program Agreement and as adjusted for
Participating Interests, for AFE variances under the True-Up Account to be maintained hereunder and
for the reversionary interest of DPI in each Project Area after Payout under the terms of the
Program Agreement.



     “Partnership” means a NGAS Partners ___, Ltd., a Kentucky limited partnership, and
its successors and assigns.



     “Payout” means the point when each holder of Units has received cumulative
distributions from the Partnership aggregating 110% of the Unit subscription price or $  per
Unit.



     “Private Placement,” “PPM” and “Units” have the respective meanings
set forth in Recital B.



     “Program” means a NGAS Partners ___Drilling Program, a Kentucky general
partnership, and its successors and assigns.



     “Program Agreement” has the meaning set forth in Recital C.



     “Program Position” has the meaning set forth in Recital E.



     “Project Areas” and “Project Wells” have the respective meanings set forth in
Recital A.



     “Project JOA” has the meaning set forth in Recital D.



     “Prospects” has the meanings set forth in Recital F.



     “True-Up Account” has the meaning set forth in Section 2.



     The term “working interest” means an interest in an oil and gas leasehold or well
entitling the holder to receive a specified percentage of the sale proceeds from oil or gas
produced from the leasehold or well and obligating the holder to bear a specified percentage of the
costs of development, operation and production, including the operating costs and expenses
attributable to the underlying royalty and overriding royalty interests.



     1. Assignment of Drilling Rights.



          (a) Initial Assignment. DPI hereby assigns and conveys to the Program, on the terms
and conditions of this Agreement, all of its right, title and interest in and to the Program
Position in the specific Prospects identified in Schedule A, representing the right to
participate as a working interest owner of the Project Wells drilled thereon, at the working
interest percentages attributable to the Program Position in the specified Prospects, and the
Program hereby assumes the obligations of DPI as a working interest owner of the Program Position
in those Project Wells under the Project JOA.




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          (b) Incremental Assignments. At any incremental Closing after the date hereof, DPI
shall contemporaneously assign and convey to the Program, on the terms and conditions of this
Agreement, of all its right, title and interest in and to the Program Position in the Prospects to
be identified by supplement to Schedule A, representing the right to participate as a
working interest owner of the Project Wells drilled thereon, at the working interest percentages
attributable to the Program Position in the specified Prospects, and the Program hereby assumes the
obligations of DPI as a working interest owner of the Program Position in those Project Wells under
the Project JOA.




          (c) Prospect Selection. By its acceptance of the assignments hereunder, the Program
acknowledges that DPI will have broad discretion on the selection of the Prospect locations within
the Project Areas and the timing of their selection, based on a variety of criteria that may
include potential spacing requirements on available Prospects, timely approval of permits by state
agencies, updated review of the latest geological and geophysical data from its recent drilling
initiatives in or near the Project Areas and any drilling commitments under oil and gas leases or
farmouts covering the Project Areas.




          (d) Participating Interests. By its acceptance of the assignments hereunder, the
Program acknowledges that the owners of any Participating Interests will be entitled to all the
right, title and interest attributable thereto under the leases and farmouts for certain Project
Areas, subject to their proportionate share of all drilling and completion costs and operating
expenses attributable thereto.




          (e) Royalty Interests. By its acceptance of the assignments hereunder, the Program
acknowledges that the Prospects are subject to the terms and conditions of the Project JOA and the
oil and gas leases or farmouts covering the Project Areas, including all mineral, royalty and
overriding royalty interests provided therein.




     2. True-Up Account. DPI will maintain an account hereunder (the “True-Up Account”),
reflecting a credit for the Partnership’s proportionate share of any AFEs for Project Wells in
excess of their actual drilling and completion costs and a debit for its share of any drilling and
completion costs for Project Wells in excess of their AFEs. Any net credit balance in the True-Up
Account for all Project Wells will be applied to proportionately increase the Partnership Position
in the last Project Wells, with a corresponding decrease in the DPI Position in those Project
Wells. Any net deficit balance in the True-Up Account for all Project Wells will be borne by DPI
and applied to proportionately increase the DPI Position in the last Project Wells, with a
proportionate decrease in the Partnership Position in those Project Wells. Adjustments under the
True-Up Account in any Project Area will be applied on a field-wide basis to 30% of the Project
Wells last drilled on the underlying Prospects. Any variation between anticipated and actual
Participating Interests shall also be reflected in proportionate adjustments to the Partnership
Position and the DPI Position in those Project Wells.



     3. Miscellaneous Provisions.



          (a) Notices. Any notice given under this Agreement shall be made in writing and shall
be deemed to have been duly given or made if delivered personally, mailed with postage prepaid by
registered or certified mail or sent by courier or facsimile to a party at its address set forth or
provided below. Any notice so sent shall be deemed to have been given or delivered (a) at the time
that it is personally delivered, (b) within two business days after the date deposited in the
United States mail or one business day after deposit with an overnight courier if sent by mail or
courier or (c) when receipt is acknowledged, if sent by facsimile. A party may change its address
by giving notice in writing, stating its new address, to the other party.




     If to DPI:


Daugherty Petroleum, Inc.

120 Prosperous Place — Suite 201

Lexington, Kentucky 40509

Attention: William G. Barr III, CEO

Fax: (859) 263-4228




     If to the Program:


NGAS Partners ______ Drilling Program




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c/o Daugherty Petroleum, Inc.

120 Prosperous Place — Suite 201

Lexington, Kentucky 40509

Attention: William S. Daugherty, Chairman

Fax:: (859) 263-4228




          (b) Governing Law. This Agreement shall be construed in accordance with and governed
in all respects by the laws of the Commonwealth of Kentucky.




          (c) Successors in Interest. Each and all of the covenants, agreements, terms and
provisions of this Agreement shall be binding on and inure to the benefit of the parties hereto
and, to the extent permitted by this Agreement, their respective successors and assigns.




          (d) Integration. This Agreement, including the Schedule hereto, constitutes the
entire agreement between the parties pertaining to the subject matter hereof and supersedes all
prior and contemporaneous agreements and understandings of the parties in connection herewith.




          (e) Amendments. Any amendment or supplement to this Agreement shall be in writing and
shall be signed by or on behalf of each of the parties.




          (f) Headings. The headings in this Agreement are inserted for descriptive purposes
only and shall not control or alter the meaning of any provision hereof.




     IN WITNESS WHEREOF, the parties hereto have executed and delivered this Agreement as of the
day and year first above written.



	 	 	 	 	 	 	 
	 	 	NGAS Partners ______ Drilling Program
	 
	 	 	 	 	 	 
	 	 	By:	 	Daugherty Petroleum, Inc.,
	 	 	 	 	Program Manager
	 
	 	 	 	 	 	 
	 

	 	 	 	By:	 	 
	 

	 	 	 	 	 	 
	 

	 	 	 	 	 	William S. Daugherty,

Chairman of the Board
	 
	 	 	 	 	 	 
	 	 	Daugherty Petroleum, Inc.
	 
	 	 	 	 	 	 
	 

	 	By	 	 	 	 
	 	 	 	 	 
	 	 	 	 	William G. Barr III,

	 	 	 	 	Chief Executive Officer






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