exv10w4



 





Exhibit 10.4




RIATA ENERGY, INC.

WELL PARTICIPATION PROGRAM




     1. Purpose This Well Participation Program (the “Program”) has been adopted by the Board of Directors
of Riata Energy, Inc. (the “Company”) and is intended to foster and promote the development and
execution of the Company’s business by: (a) retaining and motivating the principal executive
officers of the Company, Tom L. Ward and Malone Mitchell 3rd (the “Executives”); (b)
aligning the financial rewards and risks of the Executives with the Company more effectively than
overriding royalty, carried interest or other performance incentive programs maintained by many of
the Company’s peers; and (c) imposing on the Executives the same risk incurred by the Company in
its core operations.



     2. Effective Date. The Program will be effective on June 8, 2006 (the “Effective Date”). The Board
of Directors will have the right to terminate the Program after December 31, 2016 by providing
written notice of termination to the Executives at least one year before the effective date of such
termination.



     3. Administration. The Program will be administered and interpreted by the Board of Directors of the
Company or a Compensation Committee thereof (the “Committee”). The Committee will have the power
to: (1) employ attorneys, consultants, accountants and other advisors as deemed necessary or
appropriate by the Committee; (2) to establish, adopt, or revise such rules and regulations and to
make all such determinations relating to the Program as the Committee may deem necessary or
advisable for the administration of the Program; and (3) take any and all action the Committee
deems necessary or advisable for the proper operation or administration of the Program. The
Committee’s interpretations of this Program or any instruments executed in connection with the
Program and all decisions and determinations by the Committee with respect thereto will be final,
binding and conclusive on all parties.



     4. Well Participation. Each Executive will be permitted to acquire and agrees to acquire an interest
in the governmental, spacing or production unit for each Program Well (as hereafter defined)
spudded during a Participation Period (as hereafter defined) equal to the Minimum Participation (as
hereafter defined). The term “Program Well” means any new well in which any of the Company Entities
(as hereafter defined) participates as a working interest owner but expressly excludes: (a) any
well in which the Company Entities own an interest and has not elected to participate as a working
interest owner with respect to such interest; (b) any well which constitutes a re-entry of an
existing producing well; (c) any well drilled in a multi-unit secondary or tertiary recovery unit
in which the Executives do not already have a working interest by virtue of participation in a well
or well(s) that have been combined into the unit; (d) any other wells which the Company reasonably
determines the Executives should not participate in given the objectives of the Program; and (e)
any other well subject to a preferential right to purchase or other contractual restriction that
would limit the Company’s ability to transfer an interest to the Executives. The Company will
provide a semi-annual report regarding the Program to the Committee.



     5. Participation Election. On or before the date which is thirty (30) days before the first (1st) day
of each Participation Period, each Executive will provide written notice to the Committee of such
Executive’s election to participate in Program Wells during the succeeding



     




			
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Participation Period and the percentage working interest which the Executive proposes to
participate with during such Participation Period (the “Acquisition Percentage”). Notwithstanding
anything herein to the contrary, the Acquisition Percentage for any Participation Period may not
exceed three percent (3.0%) on an eight-eighths (8/8) basis for Tom L. Ward and two percent (2.0%)
on an eight-eighths (8/8) basis for Malone Mitchell 3rd. If prior to the date specified herein, an
Executive fails to provide notice of such Executive’s election to participate or the Acquisition
Percentage for such Participation Period, the amount of the Acquisition Percentage for such
Participation Period will be deemed to be equal to the Acquisition Percentage for the immediately
preceding Participation Period. The initial Participation Period will run from the Effective Date
until December 31, 2006.




     6. Amount of Participation. On an election to participate and the designation of the Acquisition
Percentage for a Participation Period in accordance with this Program, the Executive will be deemed
to have elected to participate in each Program Well spudded during the applicable Participation
Period with a working interest equal to the greater of the following determined on a well-by-well
basis (the “Minimum Participation”): (a) the Acquisition Percentage for such Program Well (as
adjusted for any well under paragraph 6.2 of this Program); or (b) the prior interest owned by the
Executive in the drilling unit for such Program Well.




     6.1 Interest Assigned. If the foregoing clause (a) is applicable to a Program Well, the Company
will assign or allocate to the Executive a unit working interest in the Program Well
sufficient to cause such Executive’s combined interest in such Program Well to equal the
Acquisition Percentage (including in such computation any prior interests owned by the
Executive). If the foregoing clause (b) is applicable because the Executive’s prior interest
in the well exceeds the Acquisition Percentage, the Company will not assign or allocate any
interest in the Program Well. The interest to be assigned or allocated under this paragraph
to cause the Executive’s participation in a Program Well to be equal to the Acquisition
Percentage will be derived proportionately from all the interests owned by the Company
Entities in the Program Well (including non-consenting interests, back-in interests, leased
royalty interests, overriding royalty interests or other similar interests) so that the
total interest in the Program Well assigned or allocated to the Executive is substantially
similar to the interests retained by the Company Entities. The Executive’s prior interests
in a Program Well for purposes of this paragraph expressly includes any interests owned by
the Executive or the Executive’s Affiliates in the unit for such Program Well.




     6.2 Minimum Company Participation. If the interests to be assigned or allocated to the
Executives under this Program in a specific Program Well causes the aggregate working
interest of the Company Entities (determined after consideration of any carried or
reversionary interests) on the spud date for such Program Well to be less than twelve and
one-half percent (12.5%) on an eight-eighths (8/8ths) basis, then the Acquisition Percentage
for that Program Well will be equal to zero and neither Executive will be entitled to
participate in such Program Well, except with respect to prior interests in such Program
Well owned by the Executive or the Executive Affiliates.




     




			
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     7. Conditions of Participation. Each Executive’s participation in the Program is independent of the
other Executive’s participation in the Program. An Executive’s Acquisition Percentage cannot be
changed during any Participation Period without the prior approval of the Committee. Any
participation by the Executive under this Program is conditioned on the Executive’s participation
in each Program Well spudded during such Participation Period in an amount equal to the Minimum
Participation. Each Executive hereby: (a) agrees to execute and deliver any documents reasonably
requested by the Company in connection with the Program, including, but not limited to a joint
operating agreement in the Company’s customary form and providing for general and administrative
well overhead fees customarily charged by the Company; (b) appoints the Company as such Executive’s
agent and attorney-in-fact to execute and deliver such documents if such Executive fails or refuses
to execute such documents; (c) agrees to pay all joint interest billings immediately on receipt of
the Company’s invoice issued by the Company in the ordinary conduct of its business; and (d) agrees
to prepay to the Company amounts attributable to the Executive’s interest in a Program Well
operated by a third party to the extent that a Company Entity is required to prepay any costs in
connection with such Program Well.



     8. Well Charges. The amount to be paid by each Executive for the acreage to be assigned in connection
with the participation in the Program Wells during a Participation Period will be computed as of
the first day of such Participation Period and will be equal to the following amount computed on a
per acre basis: (a) all direct third party costs and relevant allocable costs of exploration wells,
if any, paid by the Company Entities and capitalized in the appropriate accounting pool in
accordance with the Corporation’s accounting procedures (including capitalized interest, leasehold
payments, acquisition costs, landman charges and seismic charges); divided by (b) the acreage in
the applicable pool. The acreage charge amount will be recomputed as of the first day of each
Participation Period by the Company and submitted to the Committee for approval. All other costs
for Program Wells will be billed in accordance with the Company’s accounting procedures applicable
to third party participants pursuant to any applicable joint operating agreement or exploration
agreement relating to a particular Program Well. Notwithstanding anything herein to the contrary,
in each case the Executive’s participation in a Program Well will be on no better terms than the
terms agreed to by unaffiliated third party participants in connection with the participation in
such Program Well or similar wells operated by the Company Entities.




     9. Definitions. For purposes of this Agreement, the term:




     (1) “Participation Period” means the period commencing on the first (1st) day
of each January (except for the initial Participation Period which will commence on
the Effective Date) and ending on the earlier of (i) December 31 of such year; and
(ii) the termination of the Executive’s employment with the Company for any reason;




     (2) “Company Entities” means the Company, any affiliate or successor to the
Company, any entity which controls, subsequently owns or is under common control
with the Company and any subsidiary corporation, partnership, limited liability
company or other entity owned by, controlled by or under common control with any of
the foregoing (whether direct or indirect); and




     




			
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     (3) “Executive Affiliate” means TLW Investments, Inc., an Oklahoma corporation,
with respect to Tom L. Ward and Duet 8, L.P. with respect to Malone Mitchell 3rd,
and any entity owned solely by such Executive and such Executive’s immediate family
members designated as a Executive Affiliate in writing and approved by the
Committee.



     10. General. The following additional terms apply:




     10.1 Amendment or Termination of Program. The Board may suspend or terminate this Program at any
time after December 31, 2016 and after providing a minimum of one (1) year’s prior written
notice to the Executives of the Board’s intentions.




     10.2 Nonassignability. The right to participate in the Program can only be assigned by a
Executive to a Executive Affiliate designated as such in accordance with this Program. This
Program does not limit the sale, mortgage, gift or assignment by a Executive of an interest
in a Program Well once the interest has been assigned of record by the Company Entities.




     10.3 Right to Continued Employment. Participation in this Program will not give any Executive
any right to remain in the employ of or continue serving as a director of the Company or any
Company Entity.




     10.4 Reliance on Reports. Each member of the Committee and each member of the Board may rely and
act in good faith on any report made by the independent public accountants of any Company
Entity and on any other information furnished in connection with the Program by any person
or persons other than the Executives. In no event will any person who is or will have been a
member of the Committee or of the Board be liable for any determination made or other action
taken or any omission to act in reliance upon any such report or information or for any
action taken or failure to act if such person acted in good faith.




     10.5 Titles. The titles and headings of the paragraphs in this Program are for convenience of
reference only, and in the event of any conflict, the text of this document, rather than
such titles or headings, will control.




     10.6 Governing Law. This Program will be governed by and construed in accordance with the laws
of the state of Texas, except as superseded by applicable federal law.



     




			
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