Exhibit 10.1




 

 

DRILLING AND OPERATING AGREEMENT

This Agreement is entered into by and between PDC
2003-B Limited Partnership, hereinafter designated and referred to as the
"Partnership", and Petroleum Development Corporation, hereinafter
referred to and designated as "PDC".

Whereas, the parties to this agreement desire to
enter into an agreement to explore and develop certain Prospects for the production
of oil and gas as hereinafter provided,

It is agreed as
follows:

ARTICLE I

DEFINITIONS

As used in this
agreement, the following words and terms shall be defined as follows:

A.              The term "oil and
gas" shall mean oil, gas, casinghead gas, gas condensate, and all other
liquid or gaseous hydrocarbons and other marketable substances produced
therewith, unless an intent to limit the inclusiveness of this term is
specifically stated.

B.              The term "Prospect"
shall mean a spacing unit established according to state regulatory guidelines
and industry practice on which the
Partnership proposes to drill a well. Generally spacing units for Appalachian
gas wells cover approximately 25-40 acres, and spacing units for
Michigan Basin gas wells cover approximately 80-100 acres.

C.              "Royalty" shall mean
a payment from gross revenues made to the owner of the oil and gas mineral
rights of a Prospect.

D.             "Overriding royalty"
shall mean a payment from gross revenues to a party other than the owner of oil
and gas mineral rights of a Prospect.

E.             "Proportionate Working Interest" shall mean an interest
in a well or Prospect of less than 100% which bears that same percentage of costs of development and production as it
receives in production revenues after deducting for royalty and
overriding royalties.

F.             "Non-operators" shall mean all parties holding a
proportionate working interest in a Prospect, including the Additional General
Partners and the Limited Partners, but excluding PDC if it is also serving as
Operator.

ARTICLE II

 

EXHIBITS

 

The following
exhibits are incorporated in and made a part of this agreement:

A.            Exhibit "A", Prospects.

1.              Identification of each Prospect to be drilled.

2.              Target formation.

3.              The
Partnership fractional interest therein.

B.              Exhibit
"B", Insurance.

C.              Exhibit
"C", Additional Prospects.

1.              Identification of
additional Prospects added or substituted after the original date of this
agreement,
and if substituted, identification of the Prospect which is replaced.

 

 

 

 

 


	


 






 

 


 

 

2.                Target formation.

3.                The Partnership fractional interest therein.

4.                Approval
by the Partnership and PDC.

 

ARTICLE III 



OPERATOR

A.          Designation and Responsibilities of Operator:

PDC shall be the Operator of the Prospects, and
shall conduct and direct and have full control of all operations on the
Prospects as permitted and required by, and within the limits of this
agreement. It shall conduct all such operations in a good workmanlike manner, but it shall have no liability as Operator to
the Partnership for losses sustained or liabilities incurred, except such as may result from negligence or
misconduct. The Managing General Partner may subcontract with another operator or operators to perform some of all of the
duties of the operator, on Terms and conditions substantially the same as those discussed herein. The Managing General
Partner will supervise operations by other non-affiliated drilling contractors
and subcontractors.

B.           Resignation or Removal of Operator and Selection of Successor:

1. Resignation or Removal of Operator: PDC may
resign as Operator at any time by giving written notice thereof to the
Partnership. If PDC terminates its legal existence, no longer owns an interest
in the Prospects, has filed a petition
under the Federal bankruptcy laws or any state insolvency law or a receiver,
fiscal agent, or similar officer has been appointed by a court for the business or property of PDC, or is
otherwise no longer capable of serving as Operator, PDC shall be deemed to have resigned without any action by the
Partnership, except the selection of a successor. PDC may be removed by the affirmative vote of Non-Operators owning a
majority working interest in each Prospect after excluding the voting interest
of Operator. Such resignation or removal shall not become effective
until 7:00 o'clock A.M., Eastern time, on the first day of calendar month following the expiration of ninety
(90) days after the giving of notice of resignation of PDC or action by the Non-Operators
to remove PDC as Operator, unless a successor Operator has been selected and
assumes the duties of PDC at an earlier
date. PDC, after effective date of resignation or removal, shall be bound by
the terms hereof as a Non-Operator. A change
of a corporate name or structure of PDC or transfer of PDC's interest to any
single subsidiary, parent or successor corporation shall not be the
basis for removal of PDC as Operator.

2. Selection of Successor Operator:
Upon the resignation or removal of PDC, a successor Operator shall be selected by the parties. The successor
Operator shall be selected by the affirmative vote of parties owning a majority
working interest in each Prospect;
provided, however, if an Operator which has been removed fails to vote or votes
only to succeed itself, the successor
Operator shall be selected by the affirmative vote of parties owning a majority
interest after excluding the voting interest of the Operator that was
removed.

C.              Employees:

The number of employees used by PDC in conducting
operations hereunder, their selection, and the hours of labor and the
compensation for services
performed shall be determined by PDC.

 

ARTICLE IV

DRILLING PROSPECTS

A.            Prospects:

Exhibit "A" lists Prospects initially
to be acquired by the Partnership, and its proportionate working interest in each Prospect. Most wells to be drilled by the
Partnerships will be offsets to producing wefts. Therefore, it is unlikely that
a well drilled on a Prospect will
prove up any additional acreage outside the Prospect. If a Partnership well
does prove up additional acreage, PDC will assign the Partnership a
proportionate interest in such spacing units.

 

 

 


	


 



 

B.             Cost:

The Partnership shall
reimburse PDC for its proportionate share of the lesser of:

 

	 	1.	The fair market value of the Prospect, or

 
	 	2.	
		The "Cost" of acquisition of the
		Prospect including: (a) the price paid by PDC for such
property; (b) title examination, abstracting, brokers commissions, filing fees,
recording costs, transfer taxes, and other charges incurred in connection
with the acquisition of the property; (c) bonuses, rentals and ad valorem taxes paid by PDC with respect to the
Prospect to the date of its transfer to the Partnership, interest on funds used to acquire or maintain
such property, and such portion of PDC's expenses for geological,
drafting, accounting, legal and other like services allocated to the Prospect
in accordance with generally accepted
accounting principles, not including for expenses incurred in the prior drilling
of wells, and provided such expenses shall have been incurred not more than 36
months prior to the purchase by the program.



C.             Substitution:

As drilling progresses other, more desirable
Prospects may become may become less desirable as a result of additional information not available as of the date
of this agreement. For any undrilled Prospect, the Partnership may request that PDC substitute another Prospect, in which
case the entire acquisition cost paid for the Prospect or a substitute thereof
will be applied against the cost of the substituted Prospect, and
against other costs of this contract if and to the extent the cost of the
substitute Prospect is less than the cost of the original Prospect it replaces.
An amendment to this agreement in the form of Exhibit "C" shall be
used for the addition or substitution of a Prospect.

D.            Title Examination and Opinion:

Title examination shall be made by outside
attorneys on the drillsite of any proposed well prior to commencement of drilling operations. The opinion
will include ownership of the working interest, mineral, royalty, overriding royalty,
and production payments under the applicable leases. A copy of the
opinion will be furnished to the Partnership.

PDC shall take such steps as are necessary in its best judgment to
render title to the leases assigned to the Partnership acceptable for the
purposes of the Partnership. No operation shall be commenced on leases acquired
by the Partnership unless the Partnership
Manager is satisfied that necessary title requirements have been satisfied by
PDC and that the undertaking of such operation would be in the interest
of the Partnership. PDC shall be free, however, to use their own best judgment in waiving title requirements and shall
not be liable to the Partnership, or Participants for any mistakes of judgment;
nor shall PDC be deemed to be making
any warranties or representations, express or implied, as to the validity or merchantability
of the title to any lease assigned to the Partnership or the extent of the
interest covered thereby.

 

 

 


	


 



 

 


 

 

 

ARTICLE VI

 

INTEREST IN COSTS
AND PRODUCTION

A.           Royalties and Overriding
Royalties:

 

                 The Partnership interest in production from
drilling Prospects will be subject to the payment to non-affiliated parties of royalties and overriding royalties,
provided the weighted average for all Partnership Prospects drilled shall not
exceed 20% of gross revenues. No such royalty or overriding royalty will
be paid to PDC or its affiliates.

B.            Proportionate Working Interest:

                 The Partnership may acquire 100% of the working
interest in a Prospect or a proportionate interest of less than 100%. In
the event the Partnership acquires a proportionate interest, the respective
obligations and benefits acquired by the Partnership
will be proportionately the same as the working interest acquired. PDC and its
affiliates may not retain any overrides
or other burdens on the interest conveyed to the Partnership. The Partnership
will pay a proportionate share of the total
of lease, development, and operating costs, and will be entitled to receive a
proportionate share of production subject only to royalties and
overriding royalties discussed in Article V, A.

C.            Joint Venture Activities:

                 PDC may retain an interest or convey interests in
undrilled Prospects to other Joint Venturers, retaining for its own
account a profit or promotional interest on the interest conveyed. PDC shall
require any party acquiring such an interest to acquire a proportionate working interest and to assume and bear alone
all obligation associated with such an interest, and to bear alone and hold the Partnership and other Joint
Venturers harmless from all costs, claims, and burdens associated with the
interest acquired. At the discretion
of the Managing General Partner, the Partnership may enter into joint ventures
which allow a functional allocation of tangible, intangible and lease costs,
where each joint venturer is responsible for its overhead costs, provided the Partnerships interest in the revenues
and income of such a joint venture is proportional to its contribution to the total
cost of such venture.

D.            Adjustments:

                 Payment
of any bill shall not prejudice the right of Partnership to protest or question
the correctness thereof: provided, however,
all bills and statements rendered to Partnership by PDC during any calendar
year shall conclusively be presumed
to be true and correct after a twenty-four (24) month period unless the
Partnership takes written exception thereto and makes claim on PDC for adjustment. No adjustment favorable to PDC shall
be made unless it is made within the same prescribed period. The provisions of this paragraph shall not prevent
adjustments resulting from a physical inventory of controllable
material.

E.             Audits:

                 The Partnership, upon notice in writing to PDC and
all other Non-Operators, shall have the right to audit PDC's accounts and records relating to the
Partnership wells for any calendar year within the twenty-four (24) month
period following the end of such
calendar year; provided, however the making of an audit shall not extend the
time for the tilting of written
exception to and the adjustments of account Where there are two or more
Non-Operators, the Non-Operators shall make
every reasonable effort to conduct a joint audit in a manner which will result
in a minimum of inconvenience to PDC. PDC shall bear no portion of the
Non-Operators audit cost incurred under this paragraph unless agreed to by PDC.
The audits shall not be conducted more than once each year without prior
approval of PDC, except upon the resignation or removal of PDC as operator, and
shall be made at the expense of those Non-Operators requesting such audit.

                 PDC shall reply in
writing to an audit report within 75 days after receipt of such report.

 

 

 


	


 






 

ARTICLE V

INTEREST IN COSTS AND PRODUCTION 

A.            Royalties and Overriding Royalties:

The Partnership interest in production from
drilling Prospects will be subject to the payment to non-affiliated parties of royalties and overriding royalties
which may range from 12.5% to 22.00% of gross revenues, provided the weighted average
for all Partnership Prospects drilled shall not exceed 20% gross revenues. No
such royalty or overriding royalty will be paid to PDC or its affiliates.

B.             Proportionate Working
Interest:

The Partnership may acquire 100% of the working
interest in a Prospect or a proportionate interest of less than 100%. In
the event the Partnership acquires a proportionate interest, the respective
obligations and benefits acquired by the Partnership
will be proportionately the same as the working interest acquired. PDC and its
affiliates may not retain any overrides
or other burdens on the interest conveyed to the Partnership. The Partnership
will pay a proportionate share of the total of lease, development, and
operating costs, and will be entitled to receive a proportionate share of
production subject only to royalties and overriding royalties discussed in
Article V, A.

C.             Joint Venture Activities:

PDC may retain an interest or convey interests in
unthilled Prospects to other Joint Venturers, retaining for its own account a profit or promotional interest on
the interest conveyed. PDC shall require any party acquiring such an interest
to acquire a proportionate working interest and to assume and bear alone all
obligation associated with such an interest, and to bear alone and hold the Partnership and other Joint
Venturers harmless from all costs, claims, and burdens associated with the
interest acquired. At the discretion
of the Managing General Partner, the Partnership may enter into joint ventures
which allow a functional allocation
of tangible, intangible and lease costs, where each joint venturer is
responsible for its overhead costs, provided
the Partnerships interest in the revenues and income of such a joint venture is
proportional to its contribution to the total cost of such venture.

D.            Adjustments:

Payment
of any bill shall not prejudice the right of Partnership to protest or question
the correctness thereof: provided, however, all bills and statements rendered
to Partnership by PDC during any calendar year shall conclusively be presumed to be true and correct after a
twenty-four (24) month period unless the Partnership takes written exception
thereto and makes claim on PDC for
adjustment. No adjustment favorable to PDC shall be made unless it is made
within the same prescribed period. The provisions of this paragraph shall not
prevent adjustments resulting from a physical inventory of controllable
material.

E.             Audits:

The Partnership, upon notice in writing to PDC and
all other Non-Operators, shall have the right to audit PDC's accounts
and records relating to the Partnership wells for any calendar year within the
twenty-four (24) month period following the end of such calendar year;
provided, however the making of an audit shall not extend the time for the
taking of written exception to and the
adjustments of account. Where there are two or more Non-Operators, the
Non-Operators shall make every reasonable effort to conduct a joint audit in a
manner which will result in a minimum of inconvenience to PDC. PDC shall
bear no portion of the Non-Operators audit cost incurred under this paragraph
unless agreed to by PDC. The audits shall
not be conducted more than once each year without prior approval of PDC, except
upon the resignation or removal of PDC as operator, and shall be made at
the expense of those Non-Operators requesting such audit.

PDC shall reply
in writing to an audit report within 75 days after receipt of such report.

 

 

 


	


 






 

 

ARTICLE VI

DRILLING AND DEVELOPMENT

A.            Agreement To Drill and Complete:

PDC shall commence drilling of a well or wells on
each Prospect within 180 days of the date of the initial formation of the Partnerships, but in no case
later than March 30, 2004 and shall continue drilling thereafter with due
diligence to the Target formation unless a condition which renders further
drilling impractical is encountered at a lesser depth, or unless the
Partnership agrees to complete or abandon the well at a lesser depth.

PDC shall make reasonable tests of all
formations encountered during drilling which give indication of containing economic quantities of oil and/or gas.
If such tests indicate the presence of economic quantities of oil and/or gas, PDC shall complete the well and install such
surface and well equipment, gathering pipelines, heaters, separators, etc., as
are necessary and normal in the area in which the Prospect is located.
If it is determined that the well is not likely to produce oil and/or gas in
commercial quantities PDC shall plug and abandon the well in accordance with
applicable regulations.

B.             Cost of Drilling and Completion:

The Partnership shall bear its proportionate share
of the cost of drilling and completing or drilling and abandoning each
Partnership well, where the Managing General Partner serves as operator as
follows:

1.             The Cost of the Prospect, as defined; and

2.             For intangible well Costs:

a.             For each well completed and placed in production, an amount equal
to the depth of the well in feet at its
deepest penetration as recorded by the drilling contractor multiplied by the "intangible
drilling and completion cost" in the following table, plus the actual extra
completion costs for work required by state
law in the event an intermediate or third string of surface casing is
run; plus the actual cost for directional drilling services, if required, or

b.             For each well in which the Partnership elects not to complete, an
amount equal to the "intangible dry hole
cost" in the following table, plus actual additional cost for work required by state law in the event an intermediate
or third string of surface casing is run, plus the actual costs for
directional drilling services, if required; and

3.             The tangible Costs of drilling and
completing the Partnership wells and of gathering pipelines necessary to connect the well to the nearest appropriate sales point or
delivery point.

To the extent that a Partnership acquires less than
100% of a Prospect, its Drilling and Completion Costs of that Prospect
will proportionately decrease.

 

Footage Based Rate

 

	Location	     	Target 

		Formation	     	Approximate
Well Depth	     	Intangible Drilling
		

		and Completion 
Cost*	     	Intangible Dry
		

		Hole
 Cost*
	 	 	 	 	 	 	 	 	 
	Northern West Virginia and Pennsylvania	 	Upper Devonian and Mississippian	 	2,000' - 5, 000'	 	$60 per foot for first 2,200 feet plus $16 per foot
		for each additional foot below 2,200 feet	 	$33
per foot for the first 2,200 feet
plus $9 per foot for each additional foot below 2, 200 feet


 

 

 


	


 



	Location	     	Target 

		Formation	     	Approximate
Well Depth	     	Intangible Drilling
		

		and Completion 
Cost*	     	Intangible Dry
		

		Hole 
Cost*
	 	 	 	 	 	 	 	 	 
	Michigan	 	Antrim Shale	 	800-1,200'	 	$138 per foot for the first 1,000 feet plus $22 per
		foot for each additional foot below 1,000 feet	 	$60 per foot for the first 1,000 feet
		plus $12 for each additional foot below 1,000
	 	 	 	 	 	 	 	 	 
	Wattenberg Field	 	Cretaceous
		Codell	 	6.500-7,800'	 	$60 per foot	 	$20 per foot
	 	 	 	 	 	 	 	 	 
	Wattenberg Field	 	Cretaceous J Sandstone	 	7,000-8,000'	 	$72 per foot	 	$23 per foot
	 	 	 	 	 	 	 	 	 
	Piceance Basin	 	Cretaceous	 	7,000-10,000'	 	$150 per foot	 	$85 per foot
	 	 	 	 	 	 	 	 	 
	North Dakota	 	Mesaverde
		Mississippian
		Through
		Ordovician
		CarbonatesUinta	 	8,000-15,000'	 	$150 per foot	 	$100 per foot
	 	 	 	 	 	 	 	 	 
	Utah	 	Green River
		Wsatch
		Mesaverde
		Ferron	 	5.000-14,000'	 	$150 per foot	 	$85 per foot
	 	 	 	 	 	 	 	 	 
	Wyoming	 	Mesaverde
		Lewis
		Almond	 	7,000-14,000'	 	$150 per foot	 	$85 per foot





* The depth used for
determination well charges will be the deepest penetration by the drilling bit.

In the event the foregoing rates exceed competitive rates available from other
non-affiliated persons in the area engaged in the business of rendering or
providing comparable services or equipment, the foregoing rates will adjust to
an amount equal to that competitive rate. 

It
is anticipated that the Partnerships, PDC, and other third party joint
venturers will share the cost of the Michigan
Antrim projects. The Partnerships will be allocated the well cost with the
additional project costs for multiple flow lines, saltwater injection well, equipment for the central production
facility and Leases allocated to the other joint venture partners through the use of tax partnership. In
return for contribution of the well costs to an Antrim project, the
Partnerships will acquire 55% Working
Interest in the project. Remaining Working Interests will be allocated to the
parties bearing the project costs for
multiple flowlines, leases, salt water injection well, and equipment for the
central production facility. Michigan Antrim project Leases are unitized for the purpose of payment of royalties,
distribution of working interest revenue and allocation of project production expenses. Project working
interest revenue and project production expenses are allocated to working
interest owners based on the number
of net wells drilled, completed and placed into production, expressed as a
percentage of the total number of wells in a project. To the extent that
a Partnership drills and pays for less than the total number of wells in a
project, its overal Working Interest in the
project will be proportionally reduced. Each Partnership will be responsible
only for its obligtions and will be
liable only for its proportionate share of the costs of developing and
operating the Prospects; and, in the event of the default of another
party, the Managing General Partner has agreed to indemnify the Partnership and
its Partners for the obligations of such
party. If any party fails or is unable to pay its share of expense within 60
days after rendition of a statement
therefor by the Managing General Partner, the Managing General Partner will pay
the unpaid amount in the proportion that the interest of each such party
bears to the interest of all such parties.

 

 

 

 


	


 






 

 

In the event the foregoing rates exceed
competitive rates available from other persons in the area engaged in the
business of rendering comparable services or equipment, the foregoing rates
will be adjusted to an amount equal to that competitive rate, but not less than
the cost of providing such services or equipment.

C.            Completion By Less Than All Parties:

In
the event not all Participants in a well wish to participate in a completion
attempt, the parties desiring to do so may
pay all costs of the completion attempt including the cost of necessary well
equipment and a gathering pipeline, and such parties shall receive all income and pay all operating costs from the
well until they have received an amount equal to 300% of the completion and connection costs, after which
time the non-consenting parties shall have the right to receive their original interest
in further revenues and expenses.

D.            Prepayment:

The
Partnership agrees to pay PDC the Prospect cost for each planned well prior to
the spud date. The Partnership shall pay
drilling and completion costs of the Operator as incurred. Notwithstanding the
foregoing, PDC may require full
prepayment by December 31, 2003 with respect to partnership designated
"PDC 2003-D Limited Partnership" in order to assure the Partnership of the rates quoted in Article VI, 13,
to arrange for the drilling equipment for the wells through subcontractors
and to provide PDC with working capital for the drilling of the wells.

E.             Refunds:

In no event shall PDC be obligated to refund any
moneys paid to it by the Partnership under this Agreement. In the event
any amounts paid under Article VI, D exceed costs due under Article VI, B, such
excess shall be credited to the Partnership and shall be expended for
additional drilling.

ARTICLE VII

PRODUCTION AND SUBSEQUENT OPERATIONS

A.            Commencement of Production:

For purposes of this
agreement, production will commence:

1.   In the case of gas wells when gas is
first delivered from the well through a pipeline or other delivery system to a
purchaser;

2.   In the case of oil wells when the well has produced 100 barrels;
or

3.   In the case of combination wells when either of criteria have
been satisfied.

A well will be
deemed to be "in production" in any month thereafter in which oil or
gas are produced in commercial quantities.

B.            Production Operations:

PDC shall provide all necessary labor, vehicles,
supervision, management, accounting, and overhead services for normal
production operations, and lease accounting, and shall be entitled to deduct
from Partnership revenues a monthly operating
charge of $225 per well and a monthly accounting and management charge of $75
per well. Nonroutine operations will be billed to the Partnership at
their proportionate cost. Any nonroutine operation with an estimated cost
exceeding $2,000 will be authorized for
expenditure CAFE" or "AFE'd") and submitted to the Non-Operators
for approval. Approval of a majority of the working interest owners will be
required to authorize such operations. If the Partnership authorized such operations
PDC shall have the right to deduct payment for the cost from Partnership
revenues.

 

 

 

 

 

 


	


 






 

 


 

 

C.             Abandonment of Wells That Have Produced:

Any
well which has been completed as a producer shall not be plugged and abandoned
without the consent of all Non-operators. If all parties consent to such
abandonment, the well shall be plugged and abandoned in accordance with applicable regulations and at the cost, risk of
expense of all owners. If, within (30) days after receipt of the notice of the proposed abandonment of any well, all parties do
not agree to the abandonment of such well, those wishing to continue its operations from the interval(s) of the
formation(s) then open to production shall tender to each of the other parties
its proportionate shale of the value of the wells salvageable material
and equipment, less the estimated cost of salvaging and assign the non-abandoning parties, without warranty,
express or implied, as to title or as to quantity, or fitness for use of the
equipment and material, all of its interest in the well and related
equipment, together with its interest in leasehold estate as to, but only as
to, the interval or intervals of the formation or formations then open to
production.

D.             Marketing of Production:

The Partnership shall have the right to take in
kind and separately dispose of its share of all oil and gas produced
from the Prospects, excluding its proportionate share of production required
for lease operations and production unavoidably
lost. Initially the Partnership designates PDC as its agent to market such
production and authorizes PDC to enter into
and bind the Partnership in such agreements as it deems in the best interest of
the Partnership for the sale of such oil and/or gas. The Partnership may
rescind the designation of PDC as its agent with regard to all subsequent
marketing agreements by written notice at
any time, but agrees to be bound by such agreements as may then be in effect
during their terms. The Partnership shall bear its proportionate share
of all marketing costs, if any. In the event PDC provides marketing services,
its charge shall be no greater than those
charges made by unaffiliated marketers. If pipelines which have been built by
PDC are used in the delivery of
natural gas to market, PDC may charge a gathering fee not to exceed that which
would be charged by a nonaffiliated third party for a similar service.

E.             Escalation in the Event of Rising
Costs:

The production and accounting charges provided in
Article VII, B, may be adjusted annually beginning January 1, 2002, to
an amount equal to the rates from Article VII, B, multiplied by the ratio of
the then current average weekly earnings of
Crude Petroleum and Gas Production workers to the average weekly earnings of
Crude Petroleum and Gas Production workers for 1991, as published by the
United States Department of Labor, Bureau of Labor Statistics, provided that
the charge may not exceed the rate which would be charged by other comparable
operators in the area of operations.

ARTICLE VIII

LIABILITY OF PARTIES

A.            Liability of Parties:

If Partnership participates in a well with third
parties the liability of the parties shall be several, not joint or collective. The Partnership shall be responsible
only for its obligations, and shall be liable only for its proportionate share
of the costs of developing and operating the Prospects. It is not the
intention of the parties to create, nor shall this agreement be construed as
creating, a mining or other partnership or association, or to render the
parties liable as partners.

B.             Liens and Payment Defaults:

The Partnership grants to PDC a lien upon its oil and gas rights in the
Contract Area, and a security interest in its
share of oil and/or gas when extracted and its interest in all equipment, to
secure payment of its share of expense, together with interest thereon.
To the extent that PDC has a security interest under the Uniform Commercial
code of the state, PDC shall be entitled to exercise the rights and remedies of
a secured party under the Code. The bringing of a suit and the obtaining of
judgment by PDC for the secured indebtedness shall not be deemed an election of
remedies or otherwise affect the lien rights or security interest as security for the payment thereof. In addition, upon
default by the Partnership in the payment of its share of expense, PDC shall have the right, without
prejudice to other rights or remedies, to collect from the purchaser the
proceeds from the sale of the
Partnership's share of oil and/or gas until the amount owed by the Partnership,
plus interest, has been paid. Each purchaser
shall be entitled to rely upon PDC's written statement concerning the amount of
any default. PDC grants a like lien and security interest to the
Partnership to secure payment o f PDC's proportionate share of expenses.

 

 

 

 

 


	


 





 



 

 

 

If any party fails or is unable to pay its share
of expense within sixty (60) days after rendition of a statement therefor
by PDC, PDC shall pay the unpaid amount in the proportion that the interest of
each such party bears to the interest of all such parties.

C.            Payments and Accounting:

Except as herein otherwise specifically provided,
PDC shall promptly pay and discharge expenses incurred in the development and
operation of the Contract Area pursuant to this agreement. PDC shall keep an
accurate record of the account hereunder, showing expenses incurred and
charges and credits made and received.

Regardless of which party has contributed the lease(s) and/or oil and
gas interest(s) hereto on which royalty is due
and payable, PDC shall pay or deliver or cause to be paid or delivered the
royalty and overriding royalty payments due under the terms associated
with the acquisition of each Prospect, and shall deduct such payments from the
revenue of the Partnership.

D.            Taxes:

Unless Partnership elects to take production in
kind, PDC shall pay or cause to be paid alI production, severance,
excise, gathering and other taxes imposed upon or with respect to the
production or handling of such party's share of oil and/or gas produced under the terms of this agreement, and shall be
entitled to reimbursement for such taxes from partnership revenue.

E.             Insurance:

At
all times while operations are conducted hereunder, PDC shall comply with the
workmen's compensation laws of the state of West Virginia. PDC shall also carry
or provide insurance as outlined in Exhibit "13", attached to and
made a part hereof. PDC shall require all contractors engaged in work on or for
the Contract Area to comply with the workmen's compensation law of the state
where the operations are being conducted and to maintain such other insurance
as PDC may require.

No additional charge will be made for such insurance during drilling and
completion operations. When wells have been placed in production PDC may bill
for the cost of providing such insurance, allocated among wells and operations
in accordance with generally accepted accounting principles.

ARTICLE IX

INTERNAL REVENUE CODE ELECTION

This
agreement is not intended to create, and shall not be construed to create, a
relationship of partnership or an association
for profit between or among the parties hereto. Notwithstanding any provision
herein that the rights and liabilities hereunder
are several and not joint or collective, or that this agreement and operations
hereunder shall not constitute a partnership,
if, for federal income tax purposes, this agreement and the operations hereunder
are regarded as a partnership, each party hereby affected elects to be
excluded from the application of all of the provisions of Subchapter
"K", Chapter 1, Subtitle "A",
of the Internal Revenue Code of 1986, as amended (the"Code") as
permitted and authorized by Code Section 761 and the regulations promulgated thereunder. PDC is
authorized and directed to execute on behalf of the Partnership such evidence
of this election as may be required
by the Secretary of the Treasury of the United States or the Federal Internal
Revenue Service, including specifically, but not by way of limitation,
all of the returns, statements, and the data required by Regulations 1.761. Should there be any requirement that each party
hereby affected to give further evidence of this election, each such party
shall execute such documents and furnish such other evidence as may be
required by the Federal Internal Revenue Service or as may be necessary to evidence this election. No such
party shall give any notices or take any other action inconsistent with the election made hereby. If any present or future
income tax laws of the state or states in which the Contract Area is located or
any future income tax laws of the United States contain provisions similar to
those in Subchapter "K", Chapter 1, Subtitle "A", of the Code, under which an election similar to that
provided by Section 761 of the Code is permitted, each party hereby affected
shall make such election as may be permitted or required by such laws.
In making the foregoing election, each such party states that the
income derived by such party from operations hereunder can be adequately
determined without the computation of partnership taxable income.

 

 

 


	


 



 

ARTICLE X

CLAIMS AND LAWSUITS

PDC may settle any single uninsured third party damage
claim or suit arising from operations hereunder if the expenditure does not
exceed One Thousand Dollars ($1,000.00) and if the payment is in complete
settlement of such claim or suit. If the amount required for settlement exceeds
the above amount, the Partnership shall assume and take over the further
handling of its interest in the claim suit, unless such authority is delegated
to PDC. All costs and expenses of handling, settling, or otherwise
discharging such claim or suit shall be at the joint expenses of the parties
participating in the operation from which the
claim or suit arises. If a claim is made against any party or if any party is
sued on account of any matter arising from operations hereunder over which such individual has no control because of
the rights given Operator by this agreement, such party shall immediately notify all other parties,
and the claim or suit shall be treated as any other claim or suit involving operations
hereunder all claims and suits involving title to any interest subject to this
Agreement shall be treated as a claim or suitnainst
all parties participating in the Prospect so affected.

ARTICLE XI

FORCE MAJEURE

If either party
is rendered unable, wholly or in part, by force majeure to carry out its
obligations under this agreement, other than the obligation to make money
payments, that party shall give to the other party prompt written notice of the
force majeure with reasonably full
particulars concerning its; thereupon, the obligations of the party giving the
notice, so far as they are affected by the force majeure, shall be
suspended during, but no longer than, the continuance of the force majeure. The
affected party shall use all reasonable diligence to remove the force majeure
situation as quickly as practicable.

The requirement that any force majeure shall be
remedied with all reasonable dispatch shall not require the settlement of strikes, lockouts, or other labor difficulty by
the party involved, contrary to its wishes; how all such difficulties shall be handled
shall be entirely within the discretion of the party concerned.

The term "force majeure",
as here employed, shall mean act of God, strike, lockout, or other industrial
disturbance act of the public enemy,
war, blockade, public riot, lightning, fire, storm, flood, explosion,
governmental action, governmental delay,
restraint or inaction, unavailability of equipment or market for oil and/or
gas, and any other cause, whether of the kind specifically enumerated
above or otherwise, which is not reasonably within the control of the party
claiming suspension.

ARTICLE XI/

NOTICES

All notices required
by this agreement shall be given in writing addressed to the parties as
follows:

1.             For the Partnership:

Petroleum
Development Corporation, Managing General Partner PDC 2003- Limited Partnership
P.O. Box 26 Bridgeport, WV 26330

2.             For PDC:

Petroleum
Development Corporation 

P.O. Box 26

Bridgeport, WV 26330

 

 

Each party shall have
the right to change its address at any time, by giving written notice to all
other parties.

 

 

 


	


 



 

ARTICLE XIII

TERM OF AGREEMENT

In the event a well drilled under any provision of
this agreement, results in production of oil and/or gas in paying quantities,
this agreement shall continue in force so long as any such well or wells
produce, or are capable of production, and for an additional period of 180 days from cessation of all production;
provided, however, if, prior to the expiration of such additional period, one or more of the parties
hereto are engaged in drilling, reworking, deepening, plugging back, testing or
attempting to complete a well or wells
hereunder, this agreement shall continue in force until such operations have
been completed and if production results therefrom, this agreement shall
continue in force as provided herein.

It is agreed, however, that the termination of
this agreement shall not relieve any party hereto from any liability which has
accrued or attached prior to the date of such termination,

ARTICLE XIV

COMPLIANCE WITH LAWS AND REGULATIONS

A.            Laws, Regulations and Order:

This agreement shall be subject to the
conservation laws of the state in which the Prospects are located, to the valid
rules, regulations, and orders of any duly constituted regulatory body of said
state; and to all other applicable federal, state, and local laws, ordinances,
rules, regulations, and orders.

B.             Governing Law:

This agreement and all matters pertaining hereto,
including, but not limited to, matters of performance, non-performance, breach,
remedies, procedures, rights, duties and interpretation or construction, shall
be governed and determined by the law of the state in which the Prospect
is located.

C.            Regulatory Agencies:

Nothing herein contained shall grant, or be
construed to grant, PDC the right or authority to waive or release any rights, privileges, or obligations which
Partnership may have federal or state laws or under rules, regulations or
orders promulgated under such laws
in reference to oil, gas and mineral operations, including the location,
operation, or production of wells, on tracts offsetting or adjacent to
the Contract Area.

With
respect to operations hereunder, the Partnership agrees to release PDC from any
and all losses, damages, injuries, claims
and causes of action arising out of, incident to or resulting directly or
indirectly from Operator's interpretation or application of rules, rulings, regulations, or orders of the Department
of Energy or predecessor or successor agencies to the extent such interpretation or application was made
in good faith. The Partnership further agrees to reimburse PDC for any amounts applicable to Partnerships share of
production that PDC may be required to refund, rebate or pay as a result of
such an incorrect interpretation or application.

 

 

 

 


	


 






 

 


 

 

ARTICLE XV

MISCELLANEOUS

This agreement shall be binding upon and shall inure
to the benefit of the parties hereto and to their respective heirs,
devisees, legal representative, successors and assigns.

This instrument may
be executed in any number of counterparts, each of which shall be considered an
original for all purposes.

IN WITNESS WHEREOF, this
agreement shall be effective as of 3rd day of September, 2003