EX-4.2



 





EXHIBIT 4.2




OVERRIDING ROYALTY CONVEYANCE




Dated February 27, 1989




Between




BP EXPLORATION (ALASKA) INC.

(“Grantor”)




and




THE STANDARD OIL COMPANY

(“Grantee”)




RECORD THIS INSTRUMENT IN THE BARROW RECORDING DISTRICT.



BP EXPLORATION (ALASKA) INC. (a) was formerly known as (1) STANDARD ALASKA
PRODUCTION COMPANY, (2) SOHIO ALASKA PETROLEUM COMPANY, (3) SOHIO NATURAL
RESOURCES COMPANY, and (4) SOHIO PETROLEUM COMPANY and (b) is successor-in-
interest by merger to (1) BP ALASKA EXPLORATION INC. and (2) BP OIL CORPORATION
(which was formerly known as BP EXPLORATION U.S.A. INC.); please index all eight
of these names in the Grantor Index. THE STANDARD OIL COMPANY is known in Alaska
as SOCO INC.; please index both of these names in the Grantee Index.



THE LANDS AFFECTED BY THIS INSTRUMENT ARE DESCRIBED IN EXHIBIT A ATTACHED HERETO.



ADDRESSES OF THE PARTIES TO THIS INSTRUMENT ARE SET FORTH IN SECTION 10.4 OF THIS INSTRUMENT.




	 	 	 
	RETURN THIS INSTRUMENT TO:

	 	GUESS & RUDD
	 

	 	510 L Street, Suite 700
	 

	 	Anchorage, Alaska 99501
	 

	 	Attention: Joseph J. Perkins, Jr.






 









 





OVERRIDING ROYALTY CONVEYANCE




     THIS INSTRUMENT OF CONVEYANCE, dated the 27th day of February, 1989,
between BP Exploration (Alaska) Inc., a Delaware corporation (Grantor), and The
Standard Oil Company, an Ohio corporation known as SOCO Inc. (Grantee).



WITNESSETH:




     WHEREAS, Grantor desires to grant to Grantee an overriding royalty interest
(as hereinafter more fully defined, called the “Royalty Interest”) from and out
of the Subject Interests and to transfer and convey the Royalty Interest unto
Grantee as of the Effective Date herein provided, to the end and effect that the
Royalty Interest shall burden and apply to the Subject Interests as of such
Effective Date; and



     WHEREAS, Grantee desires to accept such Royalty Interest;



     NOW, THEREFORE, in consideration of the premises and the mutual promises
and agreements herein contained, the parties agree as follows:



ARTICLE ONE




DEFINITIONS AND REFERENCES




     Average Per Barrel Royalty for any calendar quarter shall be the average of
the Per Barrel Royalty for each of the days in such calendar quarter and in the
three preceding calendar quarters. With respect to the first three calendar
quarters after the Effective Date, the Average Per Barrel Royalty shall be
calculated for any preceding quarter as if the Royalty interest had been
conveyed to Grantee prior to the beginning of the earliest preceding calendar
quarter necessary to obtain an average of the present calendar quarter and the
three preceding calendar quarters, using Chargeable Costs equal to $4.50 per
Barrel and a Cost Adjustment Factor of 1.0 for calendar quarters prior to the
Effective Date.



     Barrel shall mean 42 United States gallons corrected to 60 degrees
Fahrenheit temperature in accordance with ASTM-IP Petroleum Measurements Tables,
American Edition, ASTM Designation D-1250, and with deductions for full basic
sediment and water content as determined by recognized API standards.



     BP shall mean The British Petroleum Company, p.l.c., an English company
whose principal office is at Britannic House, Moor Lane, London EC2Y 9BU
England.



     Business Day shall mean any day that is not a Saturday, Sunday, a holiday
determined by the New York Stock Exchange as “affecting ‘ex’ dates” or any other
day on which banking institutions in New York, New York, or in any other city
where the principal corporate trust office of the Trustee may be located, are
closed as authorized or required by law.



     Chargeable Costs shall have the meaning stated in Section 4.4.



     Consumer Price Index shall have the meaning stated in Section 4.5.



 









 





     Conveyance shall mean this overriding royalty conveyance.



     Cost Adjustment Factor shall have the meaning stated in Section 4.5.



     Current Reserves shall mean the Proved Reserves as of December 31, 1987,
which is 2,035.6 million Stock Tank Barrels.



     Effective Date shall mean 12:01 o’clock A.M. Alaska Time Zone on February
28, 1989. The calendar quarter in which the Effective Date occurs shall be
deemed the first calendar quarter.



     Equivalent Financial Standing shall mean a Person having a rating assigned
to outstanding unsecured, unsupported long term debt from Moody’s Investors
Service of at least A3 or from Standard & Poor’s Corporation of at least A- or
an equivalent rating from at least one nationally-recognized statistical rating
agency, after giving effect to the sale or transfer to such Person of all or
substantially all of the Subject Interests and the assumption by such Person of
all of Grantor’s obligations under this Conveyance.



     Gas Cap Area Participation shall have the meaning stated in the Prudhoe Bay
Unit Operating Agreement.



     Gas Cap Participating Area shall have the meaning stated in the Prudhoe Bay
Unit Agreement.



     Grantee shall mean The Standard Oil Company, an Ohio corporation, while it
owns all or any part of or interest in the Royalty Interest and any other Person
or Persons who acquire legal title to all or any part of or interest in the
Royalty Interest. The Standard Oil Company is known in Alaska as SOCO INC.



     Grantor shall mean BP Exploration (Alaska) Inc., a Delaware corporation
while it owns all or any part of or interest in the Subject Interests and any
other Person or Persons who acquire all or any part of or interest in the
Subject Interests. BP Exploration (Alaska) Inc. (a) was formerly known as (i)
Standard Alaska Production Company, (ii) Sohio Alaska Petroleum Company, (iii)
Sohio Natural Resources Company and (iv) Sohio Petroleum Company and (b) is
successor-in-interest by merger to (i) BP Alaska Exploration Inc. and (ii) BP
Oil Corporation (which was formerly known as BP Exploration U.S.A. Inc.).



     Independent Accountants shall mean such firm of independent certified
public accountants as may be designated by Grantee and approved by Grantor in
the exercise of its reasonable business judgment, except that Grantee may not
designate the firm of independent certified public accountants then utilized by
Grantor.



     Independent Petroleum Engineers shall mean Miller and Lents, Ltd. or such
other firm of independent petroleum engineers as may be designated by Grantee
and approved by Grantor in the exercise of its reasonable business judgment.



     Interest Rate shall mean a varying rate per annum equal to the interest
rate publicly announced in New York City by The Bank of New York from time to
time as its prime commercial lending rate.



     Lands shall mean the lands described in Exhibit A.



     Lease shall mean and include an oil and gas lease described in Exhibit A
issued by the State of Alaska and any new oil and gas leases which may be
acquired by or for the benefit of Grantor on any Lands within one year after the
expiration of the applicable oil



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and gas lease or leases described in Exhibit A covering such Lands or any
subsequent lease covering such Lands and in each case shall include, but not by
way of limitation, the entire leasehold estate, working interest and operating
rights and all and any other interests of Grantor, together with all rights,
privileges and appurtenances related thereto and all and any extensions or
renewals thereof.




     Lessor’s Royalty shall mean the royalty reserved to the State of Alaska as
lessor pursuant to each Lease.



     Lower Lower Net Profits Royalty Interest shall mean that portion of the Net
Profits Royalty Interest conveyed to The Standard Oil Company by that certain
Instrument of Conveyance and Assignment by and between BP Alaska Inc. and The
Standard Oil Company dated June 18, 1987, and subsequently conveyed to BP
Exploration (Alaska) Inc. by that certain Lower Lower NPRI Conveyance between
The Standard Oil Company and BP Exploration (Alaska) Inc. dated February 27,
1989, and merged into the leasehold estates of BP Exploration (Alaska) Inc. in
the leases described therein.



     Minimum Per Barrel Royalty shall be $8.92 per Barrel, as more fully
described in Section 4.7.



     Minimum Royalty Period shall mean the period ending September 30, 1991.



     Net Profits Royalty Interest shall mean the overriding royalty interest
described in Section 2.1 of that certain instrument titled Conveyances Between
BP Alaska Inc. and BP Oil Corporation, dated August 1, 1969, as amended, which
overriding royalty interest comprises the Upper Net Profits Royalty Interest
owned by BP Alaska Inc. on the Effective Date, the Upper Lower Net Profits
Royalty Interest owned by The Standard Oil Company on the Effective Date, and
the Lower Lower Net Profits Royalty Interest merged into certain leasehold
estates of BP Exploration (Alaska) Inc.



     Oil shall mean (i) for so long as the Prudhoe Bay Unit Agreement and the
Prudhoe Bay Unit Operating Agreement are in effect, crude oil and condensate
that are produced from the Prudhoe Bay (Permo-Triassic) Reservoir and saved and
allocated to the Subject Interests as Separator Liquid Production (as defined in
the Prudhoe Bay Unit Operating Agreement) from the Oil Rim Participating Area
and the Gas Cap Participating Area of the Prudhoe Bay Unit and taken in kind or
otherwise disposed of by Grantor in accordance with the Prudhoe Bay Unit
Agreement and the Prudhoe Bay Unit Operating Agreement, and (ii) at all times
after the expiration or termination of the Prudhoe Bay Unit Agreement or the
Prudhoe Bay Unit Operating Agreement, crude oil and condensate that are produced
from the Prudhoe Bay (Permo-Triassic) Reservoir and saved and allocated to or
otherwise attributable to the Subject Interests. All other gaseous and liquid
hydrocarbons and other marketable substances produced in association with such
crude oil and condensate that are recoverable from such formations or from other
reservoirs in the Prudhoe Bay Unit and allocated to or otherwise attributable to
the Subject Interests, including natural gas liquids, shall be excluded.



     Oil Rim Area Participation shall have the meaning stated in the Prudhoe Bay
Unit Operating Agreement.



     Oil Rim Participating Area shall have the meaning stated in the Prudhoe Bay
Unit Agreement.



     Per Barrel Royalty shall have the meaning stated in Section 4.2.



     Person shall mean any individual, corporation, partnership, trust, estate
or other entity, organization or association.



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     Production Taxes shall mean the sum of any severance taxes, excise taxes
(including windfall profit tax), sales taxes, value added taxes or other similar
or direct taxes imposed upon the reserves or production, delivery or sale of
Royalty Production, as specified and calculated in Section 4.6.



     Proved Reserves shall mean Grantor’s estimate (to the extent that such
estimate has been determined to be reasonable by the Independent Petroleum
Engineers pursuant to Section 4.8 (d), unless Grantee has waived in writing its
right pursuant to Section 4.8 (d) to cause the Independent Petroleum Engineers
to determine whether Grantor’s estimate of Proved Reserves is reasonable) of the
quantities of crude oil and condensate that (i) geological and engineering data
demonstrate with reasonable certainty to be recoverable in future years under
existing economic and operating conditions (i.e. prices and costs as of the date
the estimate is made; prices shall include consideration of changes in existing
prices provided only by contractual arrangements, but not price escalations
based on future conditions) from the Prudhoe Bay (Permo-Triassic) Reservoir in
the Prudhoe Bay Unit and (ii) will be allocated to the Subject Interests as
Separator Liquid Production (as defined in the Prudhoe Bay Unit Operating
Agreement) from the Oil Rim Participating Area and the Gas Cap Participating
Area of the Prudhoe Bay Unit pursuant to the terms and provisions of the Prudhoe
Bay Unit Agreement and the Prudhoe Bay Unit Operating Agreement. In estimating
the Proved Reserves, Grantor will be guided by the following principles:



     (i) Reservoirs are considered proved if economic productibility is
supported by either actual production or conclusive formation test. The area of
a reservoir considered proved includes (a) that portion delineated by drilling
and defined by gas-oil and/or oil-water contacts, if any, and (b) the
immediately adjoining portions not yet drilled, but which can be reasonably
judged as economically productive on the basis of available geological and
engineering data. In the absence of information on fluid contacts, the lowest
known structural occurrence of hydrocarbons controls the lower proved limit of
the reservoir.



     (ii) Reserves which can be produced economically through application of
improved recovery techniques (such as fluid injection) are included in the
“proved” classification when successful testing by a pilot project, or the
operation of an installed program in the reservoir, provides support for the
engineering analysis on which the project or program was based.



     (iii) Estimates of proved reserves do not include the following:




     (a) oil that may become available from known reservoirs but is
classified separately as “indicated additional reserves”;




     (b) crude oil and condensate the recovery of which is subject to
reasonable doubt because of uncertainty as to geology, reservoir
characteristics, or economic factors;




     (c) crude oil and condensate that may occur in undrilled prospects;




     (d) crude oil and condensate that may be recovered from oil shales,
coal, gilsonite and other such sources.



     Prudent Standard shall have the meaning stated in Section 7.1.



     Prudhoe Bay (Permo-Triassic) Reservoir shall have the meaning stated in the
Prudhoe Bay Unit Agreement.



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     Prudhoe Bay Unit is the oil and gas unit situated on the North Slope of
Alaska in which the Subject Interests have been heretofore unitized for the
production of oil and gas.



     Prudhoe Bay Unit Agreement shall mean the agreement dated April 1, 1977, as
amended, among the State of Alaska and the Prudhoe Bay Unit Working Interest
Owners (as defined in said agreement) establishing the Prudhoe Bay Unit.



     Prudhoe Bay Unit Operating Agreement shall mean the agreement dated April
1, 1977, as amended, among the Prudhoe Bay Unit Working Interest Owners (as
defined in said agreement) governing Prudhoe Bay Unit operations.



     Quarterly Record Date shall mean the fifteenth day of each January, April,
July and October; provided, however, that if such day is not a Business Day then
the Quarterly Record Date shall be the next Business Day after such day and
provided further that if Grantor is notified by Grantee that it has determined
that a different date is required to comply with applicable law or the rules and
regulations of any stock exchange on which the units of beneficial interest of
the Trust are listed, it means such different date. The first Quarterly Record
Date shall be April 17, 1989.



     Redetermination Settlement Agreement shall mean that certain agreement
titled Redetermination Settlement Agreement among ARCO Alaska, Inc., Exxon
Corporation, Sohio Alaska Petroleum Company and BP Alaska Exploration Inc.,
dated June 30, 1982.



     Royalty Interest shall mean the overriding royalty interest described in
Section 2.1.



     Royalty Production for each day in a calendar quarter shall be 16.4246% of
the lesser of (1) the first 90,000 Barrels of Grantor’s actual average daily
production of Oil for such quarter and (2) Grantor’s actual average daily
production of Oil for such quarter. Grantor’s actual average daily production of
Oil for any calendar quarter shall be the total production of Oil for such
quarter, net of Lessor’s Royalty, divided by the number of days in such quarter.



     Royalty Statement means the statement prepared by Grantor for delivery to
Grantee pursuant to Section 4.8 (f).



     Stock Tank Barrel means a Barrel of stabilized Oil at a temperature of 60
degrees Fahrenheit and pressure of 14.7 psia.



     Subject Interests shall mean each kind and character of right, title, claim
or interest owned by Grantor in the Leases insofar as the Leases affect the
Lands, as such Subject Interests are now affected by the Prudhoe Bay Unit
Agreement, the Prudhoe Bay Unit Operating Agreement, the Redetermination
Settlement Agreement and the Net Profits Royalty Interest (excluding the Lower
Lower Net Profits Royalty Interest), and as such Subject Interests are now or
may later be affected by applicable law, judicial decree, arbitration,
redetermination or actions of governmental agencies having jurisdiction in the
matter.



     Trust shall mean the BP Prudhoe Bay Royalty Trust, a business trust under
the Delaware Trust Act administered under the terms of the BP Prudhoe Bay
Royalty Trust Agreement among The Standard Oil Company, BP Exploration (Alaska)
Inc., The Bank of New York, Trustee, and F. James Hutchinson, Co-Trustee, dated
February 28, 1989.



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     Trustee shall mean, at the time of determination, the Trustee of the Trust
other than the Co-Trustee thereunder or any ancillary trustee.



     Upper Lower Net Profits Royalty Interest shall mean that portion of the Net
Profits Royalty Interest conveyed to The Standard Oil Company by that certain
Instrument of Conveyance and Assignment by and between BP Alaska Inc. and The
Standard Oil Company dated June 18, 1987, but not subsequently conveyed to BP
Exploration (Alaska) Inc. by that certain Lower Lower NPRI Conveyance between
The Standard Oil Company and BP Exploration (Alaska) Inc. dated February 27,
1989.



     Upper Net Profits Royalty Interest shall mean that portion of the Net
Profits Royalty Interest not conveyed to The Standard Oil Company by that
certain Instrument of Conveyance and Assignment by and between BP Alaska Inc.
and The Standard Oil Company dated June 18, 1987.



     WTI Price shall have the meaning stated in Section 4.3.



     All references to Articles, Sections or other subdivisions refer to the
corresponding Articles, Sections and other subdivisions of this Conveyance, and
the words this Conveyance, herein, hereof, hereby, hereunder and words of
similar import refer to this Conveyance as a whole and not to any particular
Article, Section or other subdivision hereof.



ARTICLE TWO




OVERRIDING ROYALTY CONVEYANCE




     Section 2.1 Conveyance. Grantor, for and in consideration of the sum of Ten
Dollars ($10.00) and other good and valuable consideration to it paid by
Grantee, the receipt and sufficiency of which are hereby acknowledged, has
bargained, sold, granted, conveyed, transferred, assigned, set over and
delivered, and by these presents does hereby bargain, sell, grant, convey,
transfer, assign, set over and deliver unto Grantee an overriding royalty
interest (the Royalty Interest) consisting of the right to receive a Per Barrel
Royalty for each Barrel of Royalty Production, if, as and when there is Royalty
Production, as more fully provided herein. Grantee shall have no right to take
Oil in kind.

     TO HAVE AND TO HOLD the Royalty Interest unto Grantee, its successors and
assigns, for the term set forth in Section 10.2; subject, however, to the terms
and provisions of this Conveyance.



ARTICLE THREE




PAYMENT




     Section 3.1 Payment. The aggregate payments from Grantor to Grantee under
the Royalty Interest for any calendar quarter will equal, except for the first
calendar quarter as set forth in Section 4.1, the sum of the product for each
day of such calendar quarter of (1) the Royalty Production and (2) the Per
Barrel Royalty; provided, that the total payment under the Royalty Interest for
any calendar quarter (including any quarter during the Minimum Royalty Period)
shall not be (1) less than zero or (2) more than the aggregate value of the
total production of Oil for such calendar quarter, net of Lessor’s Royalty and
less the value of any applicable payments made to the owners of the Net Profits
Royalty Interest (excluding the Lower Lower Net Profits Royalty Interest).



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     Grantor hereby agrees to pay to Grantee on the Quarterly Record Date
following the end of each calendar quarter all payments that are then due to
Grantee under the Royalty Interest in respect of such calendar quarter
(including, without limitation, all payments, if any, that are due pursuant to
the Minimum Per Barrel Royalty provisions of Section 4.7). Grantor will make all
payments due to Grantee by wire transfer (or such other manner as Grantor and
Grantee may agree) to an account designated by Grantee in finally collected same
day funds.



     Section 3.2 Overpayment. If at any time Grantor inadvertently pays Grantee
more than the amount due, Grantee shall not be obligated to return any such
overpayment, but the amount or amounts otherwise payable to Grantee for any
subsequent period or periods shall be reduced by such overpayment, plus an
amount equal to the product of (i) the amount of such overpayment, (ii) the
Interest Rate, and (iii) a fraction, the numerator of which is the number of
days from the date of the overpayment to the date of the payment subject to
reduction as a result of such overpayment, and the denominator of which is 360
days.



     Section 3.3 Underpayment. If at any time Grantor inadvertently pays Grantee
less than the amount due, Grantor shall pay to Grantee, in accordance with the
provisions of the next succeeding sentence, the amount of such underpayment,
together with interest thereon in an amount equal to the product of (i) the
amount of such underpayment, (ii) the Interest Rate, and (iii) a fraction, the
numerator of which is the number of days from the date of the underpayment to
the date of the payment subject to increase as a result of such underpayment,
and the denominator of which is 360 days. Grantor will make all payments due to
Grantee pursuant to this Section 3.3 on the Quarterly Record Date next following
the calendar quarter in which the underpayment in question is discovered by wire
transfer (or such other manner as Grantor and Grantee may agree) to an account
designated by Grantee in finally collected same day funds. Should Grantor
knowingly fail to pay to Grantee when due the entire amount owing pursuant to
Section 3.1. Grantor shall pay to Grantee interest as provided in this Section
3.3 and, in addition to and not in lieu of such interest, all damages to which
Grantee shall be entitled as a result of such knowing failure to pay.



ARTICLE FOUR




COMPUTATION OF ROYALTY




     Section 4.1 Calculation of Royalty Amount. The Royalty Interest entitles
Grantee to receive, for the first calendar quarter ending March 31, 1989, the
sum of the product for each day in such quarter from the Effective Date to the
end of such quarter of, and for each calendar quarter thereafter the sum of the
product for each day in such quarter of, (1) the Royalty Production and (2) the
Per Barrel Royalty, subject to the Minimum Per Barrel Royalty provisions of
Section 4.7; provided, that the payment under the Royalty Interest for any
calendar quarter (including any quarter during the Minimum Royalty Period) shall
not be (1) less than zero or (2) more than the aggregate value of the total
production of Oil for such calendar quarter, net of Lessor’s Royalty and less
the value of any applicable payments made to the owners of the Net Profits
Royalty Interest (excluding the Lower Lower Net Profits Royalty Interest).



     Section 4.2 Per Barrel Royalty. The Per Barrel Royalty in effect for any
day shall equal the WTI Price for such day less the sum of (1) the product of
the Chargeable Costs and the Cost Adjustment Factor and (2) Production Taxes.



     Section 4.3 WTI Price. WTI Price for any trading day shall mean (1) the
latest price (expressed in dollars per Barrel) for West Texas intermediate crude
oil of



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standard quality having a specific gravity of 40 degrees API for delivery
at Cushing, Oklahoma (West Texas Crude), quoted for such trading day by the Dow
Jones International Petroleum Report (which is published in The Wall Street
Journal) or if the Dow Jones International Petroleum Report does not publish
such quotes, then such price as quoted by Reuters, or if Reuters does not
publish such quotes, then such price as quoted in Platt’s Oilgram Price Report,
or (2) if for any reason such publications do not publish such price, then the
WTI Price will mean, until (1) shall again be applicable, the simple average of
the daily mean prices expressed in dollars per Barrel) quoted for West Texas
Crude by one major oil company, one petroleum broker and one petroleum trading
company, in each case unaffiliated with Grantor. Such major oil company,
petroleum broker and petroleum trading company shall have substantial United
States operations and will be designated by Grantor from time to time in an
officer’s certificate delivered to Grantee. In the event that prices for West
Texas Crude shall not be quoted so as to permit the calculation of WTI Price,
West Texas Crude, for the purpose of calculating the WTI Price first for (1) and
then (2) above, shall mean such other light sweet domestic crude oil of standard
quality as shall be designated by Grantor in an officer’s certificate delivered
to Grantee and approved by Grantee in the exercise of its reasonable business
judgment with appropriate allowance for transportation costs to the Gulf Coast
(or other appropriate location) to equilibrate such price to the WTI Price as
contemplated hereunder. The WTI Price for any day which is not a trading day
shall be the WTI Price for the next preceding day which is a trading day.




     Section 4.4 Chargeable Costs. The Chargeable Costs per Barrel of Royalty
Production shall be the amount set forth in the following table opposite the
calendar year stated:



	 	 	 	 	 	 	 
	For the	 	Chargeable
	Year Ending	 	Costs Per
	December 31	 	Barrel
	 	1989	 	 	 	4.50	 
	 	1990	 	 	 	4.50	 
	 	1991	 	 	 	4.50	 
	 	1992	 	 	 	6.00	 
	 	1993	 	 	 	6.75	 
	 	1994	 	 	 	8.00	 
	 	1995	 	 	 	8.25	 
	 	1996	 	 	 	8.50	 
	 	1997	 	 	 	8.85	 
	 	1998	 	 	 	9.30	 
	 	1999	 	 	 	9.80	 
	 	2000	 	 	 	10.00	 
	 	2001	 	 	 	10.75	 
	 	2002	 	 	 	11.25	 
	 	2003	 	 	 	11.75	 
	 	2004	 	 	 	12.00	 
	 	2005	 	 	 	12.25	 
	 	2006	 	 	 	12.50	 
	 	2007	 	 	 	12.75	 
	 	2008	 	 	 	13.00	 
	 	2009	 	 	 	13.25	 
	 	2010	 	 	 	14.50	 
	 	2011	 	 	 	16.60	 
	 	2012	 	 	 	16.70	 
	 	2013	 	 	 	16.80	 
	 	2014	 	 	 	16.90	 






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	For the	 	Chargeable	 
	Year Ending	 	Costs Per	 
	December 31	 	Barrel	 
	 	2015	 	 	 	17.00	 
	 	2016	 	 	 	17.10	 
	 	2017	 	 	 	17.20	 
	 	2018	 	 	 	20.00	 
	 	2019	 	 	 	23.75	 
	 	2020	 	 	 	26.50	 
	 	thereafter	 	 	increasing by $2.75 each year






     Chargeable Costs shall be subject to a maximum reduction of $1.20 per year
in years subsequent to 1995 in the following circumstances, irrespective of
whether the number of Proved Reserves added during any applicable period is a
positive number, a negative number, or zero:



     (a) If, by December 31, 1995, 100,000,000 or more Stock Tank Barrels (STB)
of Proved Reserves have not been added to Current Reserves (before taking into
account any production therefrom) then for each year 1996 through 2000,
inclusive, Chargeable Costs as set forth in the table above shall be reduced, as
of January 1 in each such year, by an amount equal to the lesser of (A) $1.20 or
(B) the product of $1.20 and a fraction, the numerator of which shall be the
difference between 100,000,000 STB of Proved Reserves and the actual number of
STB of Proved Reserves so added to Current Reserves from January 1, 1988 through
December 31, 1995, and the denominator of which shall be 100,000,000 STB of
Proved Reserves.



     (b) If, between January 1, 1996 and December 31, 2000, an additional
200,000,000 STB of Proved Reserves (that is, 200,000,000 STB of Proved Reserves
in addition to the 100,000,000 STB of Proved Reserves that are referred to in
Section 4.4 (a)) have not been added to Current Reserves (before taking into
account any production therefrom) then for each year from 2001 through 2005,
inclusive, Chargeable Costs as set forth in the table above shall be reduced, as
of January 1 in each such year, by an amount equal to the lesser of (A) $1.20 or
(B) the product of $1.20 and a fraction, the numerator of which shall be the
difference between (1) 200,000,000 STB of Proved Reserves and (2) the sum of (i)
the actual number of STB of Proved Reserves so added to Current Reserves from
January 1, 1996 through December 31, 2000 plus (ii) the excess, if any, of the
number of STB of Proved Reserves so added to Current Reserves from January 1,
1988 through December 31, 1995 over 100,000,000 STB of Proved Reserves (provided
that the sum of (i) and (ii) shall not exceed 200,000,000 STB of Proved
Reserves), and the denominator of which shall be 200,000,000 STB of Proved
Reserves.



     (c) The tests set forth in (i) and (ii) below shall be utilized to
calculate the reduction, if any, in Chargeable Costs for the year 2006 and each
year thereafter. If the calculations under both such tests produce a reduction
in Chargeable Costs, the greater of such reductions shall apply. If the
calculation under one of such tests produces a reduction in Chargeable Costs but
the calculation under the other test does not, the calculation that produces the
reduction shall apply. In applying the tests below, it is the intention of
Grantor and Grantee that test (i) allow as a credit toward the 400,000,000 STB
of Proved Reserves that must be added to Current Reserves during the period set
forth in such test an amount equal to the excess, if any, of the number of STB
of Proved Reserves added to Current Reserves prior to December 31, 2000 over
300,000,000 STB of Proved Reserves, while test (ii) sets a level of only
100,000,000 STB of Proved Reserves that must be added to Current Reserves during
the period set forth in such test, but does not allow a credit for additions of
STB of Proved Reserves accrued prior to December 31, 2000.



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     (i) If, between January 1, 2001 and December 31, 2005, an additional
400,000,000 STB of Proved Reserves (that is, 400,000,000 STB of Proved
Reserves in addition to the 100,000,000 STB of Proved Reserves that are
referred to in Section 4.4(a) and the 200,000,000 STB of Proved Reserves
that are referred to in Section 4.4(b)) have not been added to Current
Reserves (before taking into account any production therefrom), then for
the year 2006 and each year thereafter Chargeable Costs as set forth in the
table above shall be reduced, as of January 1 of each such year, by an
amount equal to the lesser of (A) $1.20 or (B) the product of $1.20 and a
fraction, the numerator of which shall be the difference between (1)
400,000,000 STB of Proved Reserves and (2) the sum of (i) the actual number
of STB of Proved Reserves so added to Current Reserves from January 1, 2001
through December 31, 2010 plus (ii) the excess, if any, of the number of
STB of Proved Reserves so added to Current Reserves from January 1, 1988
through December 31, 2000 over 300,000,000 STB of Proved Reserves (provided
that the sum of (i) and (ii) shall not exceed 400,000,000 STB of Proved
Reserves) and the denominator of which shall be 400,000,000 STB of Proved
Reserves.




     (ii) If between January 1, 2001 and December 31, 2005, an additional
100,000,000 STB of Proved Reserves (that is, 100,000,000 STB of Proved
Reserves in addition to any and all STB of Proved Reserves that are added
to Current Reserves prior to January 1, 2001) have not been added to
Current Reserves (before taking into account any production therefrom),
then for the year 2006 and each year thereafter Chargeable Costs as set
forth in the table above shall be reduced, as of January 1 of each such
year, by an amount equal to the lesser of (A) $1.20 or (B) the product of
$1.20 and a fraction, the numerator of which shall be the difference
between 100,000,000 STB of Proved Reserves and the number of STB of Proved
Reserves added to Current Reserves from January 1, 2001 through December
31, 2005 and the denominator of which shall be 100,000,000 STB of Proved
Reserves.



     Grantor shall report to Grantee the amount of Proved Reserves added in any
year, taking into account the reductions, if any, to Proved Reserves resulting
from modifications of Grantor’s estimates which were made of Proved Reserves for
prior years, it being agreed that only the net amount of Proved Reserves (that
is, additions net of reductions resulting from modifications of previous
estimates of Proved Reserves) shall be utilized in determining whether the
requisite number of STB of Proved Reserves have been added pursuant to the
provisions of this Section 4.4.



     Section 4.5 Cost Adjustment Factor. The Cost Adjustment Factor shall mean
the ratio of (1) the Consumer Price Index published for the most recently past
February, May, August or November, as the case may be, to (2) the Consumer Price
Index published most recently prior to the Effective Date, provided, however,
that (a) if for any calendar quarter the average WTI Price was $18.00 or less,
then in such event the Cost Adjustment Factor for such quarter shall be the Cost
Adjustment Factor for the immediately preceding quarter, and (b) the Cost
Adjustment Factor for any calendar quarter in which the average WTI Price
exceeds $18.00, after a calendar quarter during which the average WTI Price is
equal to or less than $18.00, and for each following calendar quarter in which
the average WTI Price is greater than $18.00, shall be the product of (x) the
Cost Adjustment Factor for the most recently past calendar quarter in which the
average WTI Price is equal to or less than $18.00 and (y) a fraction, the
numerator of which shall be the Consumer Price Index published for the most
recently past February, May, August or November, as the case may be, and the
denominator of which shall be the Consumer Price Index published for the most
recently past February, May, August or November during a quarter in which the
average WTI Price was equal to or less than $18.00. The Consumer Price Index
shall mean the U.S. Consumer Price Index, all items and all urban consumers,
U.S. city average, 1982-84 equals 100, as first published, without seasonal
adjustment, by the Bureau of Labor Statistics,



10









 




Department at Labor, without regard to subsequent revisions or corrections by
such Bureau.




     Section 4.6 Production Taxes. Production Taxes in existence on the
Effective Date or subsequently imposed shall be computed at defined statutory
rates. In the case of taxes based upon wellhead or field value, WTI Price less
the product of $4.50 times the Cost Adjustment Factor shall be deemed to be the
wellhead or field value. At the Effective Date the Production Taxes payable with
respect to the Royalty Production are the Alaska Oil and Gas Properties
Production Tax (“Alaska Production Tax”) and the Alaska Oil and Gas Conservation
Tax (“Alaska Conservation Tax”). For the purposes of the Royalty Interest, the
Alaska Production Tax shall be computed without regard to the “economic limit
factor” as the greater of the “percentage of value amount” (based on the
statutory rate and the wellhead value as defined above) and the “cents per
barrel amount” as such terms are used with respect to such tax. Grantor hereby
agrees to pay to the appropriate taxing authorities when due all Production
Taxes in respect of the Royalty Interest, except those Production Taxes which
Grantor is contesting in good faith and which Grantor is not required to then
pay by law. As of the Effective Date, the statutory rate for the purpose of
calculating the “percentage of value amount” is 15% with respect to the Alaska
Production Tax and four mills per Barrel of Oil production with respect to the
Alaska Conservation Tax.



     Section 4.7 Minimum Royalty. If, with respect to any calendar quarter
during the Minimum Royalty Period, the Average Per Barrel Royalty is less than
$8.92 per Barrel, Grantor will make an additional payment to Grantee at the time
specified in Section 3.1 equal to the sum of the product for each day of such
calendar quarter of (1) the difference between the Minimum Per Barrel Royalty
and the Average Per Barrel Royalty and (2) the Royalty Production; provided,
that the total payments under the Royalty Interest for any calendar quarter
(including any payments under this Section 4.7) shall not exceed the aggregate
value of the total production of Oil for such calendar quarter, net of Lessor’s
Royalty and less the value of any applicable payments made to the owners of the
Net Profits Royalty Interest (excluding the Lower Lower Net Profits Royalty
Interest).



     Section 4.8 Information and Reports. Grantor shall:



     (a) provide Grantee with such information concerning the Royalty Interest
as Grantee may need and to which Grantor has access to permit Grantee (i) to
comply with any reporting or disclosure obligations of Grantee pursuant to
applicable law and the requirements of any stock exchange in which the
securities of Grantee are listed, (ii) to prepare Alaska, federal and other
income tax returns and (iii) to prepare reports required to be forwarded by
Grantee to its security holders;



     (b) provide Grantee and the Independent Accountants (the expenses of such
Independent Accountants to be borne by Grantee) with access, at the office of
Grantor during reasonable business hours, to inspect Grantor’s books and
records, which books and records shall be true and correct in all material
respects and sufficient to enable the Independent Accountants to verify the
correctness of the amounts paid and payable to Grantee as the owner of the
Royalty Interest and to discuss with representatives of Grantor the affairs,
finances and accounts of Grantor relating to the Leases and the Subject
Interests; provided that Grantee and the Independent Accountants shall keep the
information therein confidential except for information which Grantee is
required by law to disclose;



     (c) furnish to Grantee on or before February 28 of each year a report
containing all information of a nature, of a standard and in a form consistent
with the requirements of the Securities and Exchange Commission respecting the
inclusion of



11









 




reserve and reserve valuation information in filings under the Securities Act of
1933 and the Securities Exchange Act of 1934 and with applicable accounting
rules. Such report shall set forth, among other things, Grantor’s estimates of
future net cash flows from Proved Reserves attributable to the Royalty Interest,
the discounted present value thereof, the assumptions utilized in arriving at
the estimates contained therein, and the estimate of the quantities of Proved
Reserves (including reductions of Proved Reserves as a result of modification of
Grantor’s estimates of Proved Reserves from prior years) added to Current
Reserves during the preceding year. Current Reserves shall not be reduced by
production of Oil since December 31, 1987;




     (d) unless such right is waived in writing by Grantee, provide to the
Independent Petroleum Engineers (the expenses of such Independent Petroleum
Engineers to be borne by Grantee) all access and information which the
Independent Petroleum Engineers deem necessary to determine whether the methods
and procedures employed by Grantor to accumulate and evaluate the necessary
information and to estimate and document the Proved Reserves and annual
production rate forecasts and to prepare the report referred to in Section 4.8
(c) are effective and in accordance with generally accepted geological and
engineering practices in the petroleum industry and whether Grantor’s estimate
of the quantities of Proved Reserves set forth in such report are, in the
aggregate, reasonable, and if not, to determine and specify that portion of
Grantor’s estimate of Proved Reserves that, in the opinion of the Independent
Petroleum Engineers, is reasonable, it being agreed that in the event of a
material disagreement with respect to the correct quantities of Proved Reserves,
the opinion of the Independent Petroleum Engineers shall govern for all purposes
of this Conveyance; in carrying out their investigation the Independent
Petroleum Engineers may review, among other things they deem relevant, (i)
Grantor’s procedures for estimating and documenting Proved Reserves, (ii)
Grantor’s estimates of in-place reservoir volumes, (iii) Grantor’s estimates of
recovery factors and production profiles for the various areas, pay zones,
projects and recovery processes that are included in Grantor’s estimate of
Proved Reserves, (iv) Grantor’s production strategy and procedures for
implementing that strategy, (v) the sufficiency of data available for making
estimates of Proved Reserves and production profiles, and (vi) pertinent
provisions of the Prudhoe Bay Unit Agreement and the Prudhoe Bay Unit Operating
Agreement; provided, that the Independent Petroleum Engineers shall keep the
information so provided confidential except for information which is required by
law to be disclosed;



     (e) provide Grantee on a date no later than twelve calendar days prior to
each Quarterly Record Date (unless otherwise agreed by Grantee) information as
to the amount to be paid to Grantee on the next Quarterly Record Date.



     (f) provide to Grantee, and to Grantee’s designee, a Royalty Statement
within five working days after the end of each calendar quarter which shall
consist of a computation, supported by data required to perform the computations
hereunder, of the amount to be paid to Grantee at the next Quarterly Record
Date;



     (g) provide Grantee with such other information as Grantee may reasonably
request from time to time and to which Grantor has access.



     All costs and expenses incurred by Grantor in providing reports and
information under this Conveyance shall be borne by Grantor.



     Section 4.9 Indemnification. Grantor hereby agrees to indemnify and save
harmless Grantee from and against any expense (including, without limitation,
the expense of suit and attorneys’ fees), claim, damage, loss or liability
incurred by Grantee as a result of or arising out of the information provided to
Grantee by Grantor pursuant to



12









 




Section 4.8 being untimely provided or incorrect or untrue or misleading in any
material respect.




ARTICLE FIVE




NON-LIABILITY OF GRANTEE




     Section 5.1 Non-Expense Bearing Interest; Non-Liability of Grantee;
Indemnification. It is the express intent of Grantor and Grantee that the
Royalty Interest shall constitute (and this Conveyance shall conclusively be
construed for all purposes as creating) a non-expense bearing interest for all
purposes. Grantor and Grantee acknowledge that, pursuant to the terms of the
Prudhoe Bay Unit Operating Agreement, if Grantor fails to pay any costs or
expenses chargeable to Grantor under the Prudhoe Bay Unit Operating Agreement
and the production of Oil is insufficient to pay such costs and expenses, then
the Royalty Interest is chargeable with a pro rata portion of such cost and
expenses and is subject to the enforcement against it of liens granted to the
unit operators of the Prudhoe Bay Unit. However, as more fully set forth in
Section 7.2, Grantor has agreed to pay timely all costs and expenses chargeable
to it pursuant to the Prudhoe Bay Unit Operating Agreement and to insure that no
such costs and expenses will be chargeable against the Royalty Interest. Grantor
and Grantee acknowledge that in no event shall Grantee ever be liable or
responsible in any way for any expense, claim, damage, loss, obligation or
liability incurred by Grantor or Grantee or others attributable to the Subject
Interests or to Oil produced therefrom (including, without limitation, those
incurred in connection with or attributable to the developing, exploring,
drilling, equipping, testing, operating, reworking, maintaining, plugging or
abandoning of any well or the storing, handling, treating or marketing of the
production therefrom), and Grantor hereby agrees to indemnify and save harmless
Grantee from and against any such expense (including, without limitation, the
expense of suit and attorneys’ fees), claim, damage, loss, obligation and
liability, irrespective of whether same arises pursuant to the provisions of the
Prudhoe Bay Unit Operating Agreement or otherwise.



ARTICLE SIX




UNITIZATION




     Section 6.1 Prudhoe Bay Unit. The Subject Interests have been heretofore
unitized for the production of oil and gas in the Prudhoe Bay Unit. The Subject
Interests are and shall be subject to the terms and provisions of the Prudhoe
Bay Unit Agreement and the Prudhoe Bay Unit Operating Agreement, the Leases, and
any other type of contract, conveyance, or Instrument, recorded or unrecorded,
relating to the Subject Interests or Grantor’s interest therein in effect at the
Effective Date.



     Section 6.2 Right to Amend. Grantor shall have the right and power to
alter, change, amend or terminate the Prudhoe Bay Unit Agreement, the Prudhoe
Bay Unit Operating Agreement, the Leases, and any other type of contract,
conveyance, or instrument, recorded or unrecorded, as heretofore or hereafter
entered into, as to all or any part of the Subject Interests, upon such terms
and provisions as Grantor shall in its sole discretion determine, but, if
Grantor exercises such right and power in breach of the Prudent Standard, it
will, and hereby agrees to, indemnify and save harmless Grantee from and against
any and all expense (including, without limitation, the expense of suit and
attorneys’ fees), claim, damage, loss, obligation and liability incurred by
Grantee as a result of or arising out of Grantor’s exercise of the aforesaid
right and power in breach of the Prudent Standard. If and whenever, through the
exercise of such right and power,



13









 




or pursuant to any law hereafter enacted or any rule, regulation or order of any
governmental body or official hereafter promulgated, any of the Subject
Interests are altered, changed, amended or terminated in any manner, the Royalty
Interest insofar as it affects such Subject Interests shall also be altered,
changed, amended or terminated, and in any such event such Royalty Interest,
insofar as it is affects such Subject Interests, shall apply to and affect only
the Royalty Production which is allocated to such Subject Interests, but no such
alteration, change, amendment or termination shall affect the definition of
Royalty Production as set forth in Article One or the method of making payments
under the Royalty Interest as set forth in Article Three or the method of
computing the payments under the Royalty Interest as set forth in Article Four.
Grantee hereby agrees that it will never challenge the right and power of the
Grantor to so alter, change, amend or terminate the Prudhoe Bay Unit Agreement,
the Prudhoe Bay Unit Operating Agreement, the Leases and any other type of
contract conveyance or instrument, recorded or unrecorded, as heretofore or
hereafter entered into, as to all or any part of the Subject Interests, upon
such terms and provisions as Grantor shall in its sole discretion determine, but
nothing in this Section 6.2 shall be construed to release Grantor from its
indemnity obligation to Grantee as set forth in the first sentence of this
Section 6.2 and in other provisions of this Conveyance or to deny Grantee any of
the benefits to which it is entitled under this Conveyance or at law or in
equity.




ARTICLE SEVEN




OPERATION OF SUBJECT INTERESTS




     Section 7.1 Prudent Operator Standard. Grantor agrees, to the extent it has
the legal right to do so under the Prudhoe Bay Unit Agreement, the Prudhoe Bay
Unit Operating Agreement, the Leases and applicable law affecting or pertaining
to the Subject Interests, that it will conduct and carry on the development,
exploration, production, maintenance and operation of the Subject Interests with
reasonable and prudent business judgment, in accordance with the provisions of
this Article Seven and good oil and gas field practices, as a reasonable and
prudent operator, and without regard to the existence of the Royalty Interest or
any other royalty, overriding royalty, or other interest created subsequent to
the Effective Date (the “Prudent Standard”). However, nothing contained in this
Section 7.1 shall be deemed to prevent or restrict Grantor from electing not to
participate in any operation which is to be conducted under the terms of either
the Prudhoe Bay Unit Agreement or the Prudhoe Bay Unit Operating Agreement if
such election is made by Grantor in accordance with the Prudent Standard.
Grantor shall not be obligated to continue to produce Oil from the Subject
Interests in the Prudhoe Bay Unit or to maintain such production at any
particular level so long as Grantor acts in accordance with Prudent Standard.
Notwithstanding anything elsewhere herein to the contrary, Grantor shall never
be liable to Grantee for the manner in which Grantor performs its duties
hereunder as long as Grantor has acted in accordance with the Prudent Standard.
Grantee shall have no right to operate or direct operations of the Subject
Interests.



     Section 7.2 Assurances. (1) Grantor agrees, to the extent it has the legal
right to do so under the terms of the Prudhoe Bay Unit Agreement, the Prudhoe
Bay Unit Operating Agreement, the Leases and applicable law affecting or
pertaining to the Subject Interests, that it will perform all material
obligations to be performed by it (including without limitations making timely
payment of all costs and expenses chargeable to it pursuant to any applicable
agreement to insure that the Royalty Interest is not charged with any portion of
any such costs or expenses and that no lien or security interest is enforced
against the Royalty Interest by virtue of any matter arising by through or under
Grantor) under all material contracts and agreements applicable to the Subject
Interests and the production and transportation to market of Oil (including,
without



14









 




limitation, the Prudhoe Bay Unit Agreement and the Prudhoe Bay Unit Operating
Agreement) and will use its best efforts (by taking such action as is available
to it by contract, at law, or in equity) to enforce the performance under such
contracts and agreements of the other parties thereto.




     (ii) The provisions set forth in this Conveyance that require Grantor to
perform certain duties or take certain actions (but subject to the express and
implied limitations in this Conveyance) that can only be performed or taken by
the operator of the Prudhoe Bay Unit, acting under the direction and supervision
of the working interest owners of the Prudhoe Bay Unit, or the operators of
facilities or pipelines separate from the Prudhoe Bay Unit, shall be construed
to require Grantor to use its best efforts (by taking such action as is
available to it by contract (including, without limitation, exercising its right
to vote and to initiate proposals), at law or in equity) to cause the operator
to perform the duty or to take the action in question. Without limitation of the
generality of the foregoing, if the operator elects, pursuant to the applicable
operating agreement, to become a nonconsenting party with respect to such duty
or action, and if Grantor may cause such duty or action to be performed or taken
by becoming a consenting party under the applicable operating agreement, then
Grantor shall so elect to become a consenting party unless a reasonable and
prudent operator, acting in accordance with good oil and gas field practices and
without regard to the existence of the Royalty Interest or any other royalty,
overriding royalty or other interest created subsequent to the Effective Date,
would refuse to undertake the performance of the duty or the taking of the
action in question.



     Section 7.3 Abandonment of Properties. Nothing herein contained shall
obligate Grantor to continue to operate any well or maintain in force or attempt
to maintain in force any of the Subject Interests when, in Grantor’s opinion,
formed in accordance with the Prudent Standard, such well or Subject Interest
ceases to produce or is not capable of producing oil or gas in paying
quantities. The expiration of a Subject Interest in accordance with the terms
and conditions applicable thereto shall not be considered to be a voluntary
surrender or abandonment thereof.



     Section 7.4 Non-Operating Interest In Minerals. It is the express intent of
Grantor and Grantee that the Royalty Interest shall constitute (and this
Conveyance shall conclusively be construed for all purposes as creating) a
non-operating interest in minerals for all purposes. Without limitation of the
generality of the immediately preceding sentence, Grantor and Grantee
acknowledge that Grantee has no right or power to participate in the selection
of a drilling contractor, to propose the drilling of a well, to determine the
timing or sequence of drilling operations, to commence or shut down production,
to take over operations or to share in any operating decision whatsoever
(including, without limitation, the alteration, change, amendment or termination
of the Prudhoe Bay Unit Agreement, the Prudhoe Bay Unit Operating Agreement, the
Leases or any other type of contract, conveyance, or instrument, recorded or
unrecorded, as heretofore or hereafter entered into, as to all or any part of
the Subject Interests hereunder). Grantor and Grantee hereby expressly negate
any intent to create (and this Conveyance shall never be construed as creating)
a mining or other partnership or joint venture.



ARTICLE EIGHT




GOVERNMENT REGULATION




     Section 8.1 Government Regulations. All obligations of Grantor hereunder
shall be subject to all applicable laws, regulations and rules of the State of
Alaska and the United States of America and all other governmental agencies or
authorities having



15









 




jurisdiction in the matter (except those being contested in good faith). Grantor
shall be entitled to use its reasonable discretion in making filings, for itself
and on behalf of Grantee, with any governmental body, agency, board or
commission having jurisdiction, affecting the Subject Interests or the Royalty
Interest, provided that any such filings shall be limited to notice required in
connection with the grant or transfer of the Royalty Interest.




     Section 8.2 Government Approval. This Conveyance shall not be effective
until approved by the Commissioner of the Department of Natural Resources, State
of Alaska, or his designee.



ARTICLE NINE




ASSIGNMENTS




     Section 9.1 Assignment by Grantor. Grantor shall have the right to assign,
sell, transfer, convey, mortgage or pledge the Subject Interests, or any part
thereof, provided that same is expressly made subject to the Royalty Interest
and the terms and provisions of this Conveyance and that a certified copy of the
recorded instrument accomplishing same is promptly furnished to Grantee by
Grantor. From and after the effective date of any such assignment, sale,
transfer or Conveyance by Grantor, the grantee thereunder shall succeed to all
the requirements upon and responsibilities of Grantor hereunder as to the
interests so acquired by such grantee, and, from and after said effective date,
Grantor shall be relieved of such requirements and responsibilities, excepting
only for those accrued or due for performance prior to such effective date and
except as otherwise provided in Section 9.2. The kind of notice provided herein
shall be exclusive, and no other kind, whether actual or constructive, shall be
binding on Grantee.



     Section 9.2 Effect of Assignment by Grantor. Notwithstanding any provision
of this Conveyance to the contrary, no assignment, sale, transfer, conveyance,
mortgage or pledge of the Subject Interests, or any part thereof, shall
adversely affect any of Grantee’s rights hereunder, including, without
limitation, the amount, computation or method of payment of the Royalty
Interest, it being the intent of Grantor and Grantee that for the purpose of
determining the Royalty Interest payable to Grantee no disposition will be
deemed to have been effected during the term of this Conveyance. Should Grantor
dispose of its interest in the Subject Interests as to some of the Subject
Interests, or as to some part thereof, then, effective as of the date of such
disposition, BP Exploration (Alaska) Inc. shall automatically be designated by
all owners of the Subject Interests as their agent, throughout the term of this
Conveyance, (i) to make all designations that Grantor is entitled to make
pursuant to Section 4.3, (ii) to obtain all information and take such other
steps as may be necessary to permit the Independent Petroleum Engineers and the
Independent Accountants and Grantor to perform their respective obligations and
duties under this Conveyance (including, without limitation, the calculations to
be made pursuant to Article Three and Article Four) and (iii) to make all
payments and to deliver and receive all communications on behalf of Grantor, it
being agreed that during such time, if any, that the Subject Interests are owned
by more than one Person, Grantee shall never be obligated without its consent to
receive payments from or to deliver or receive communications under this
Conveyance from or to any Grantor other than BP Exploration (Alaska) Inc.;
provided, however, that BP Exploration (Alaska) Inc. shall be released from its
obligations under this Conveyance upon the sale or transfer by it of all or
substantially all of the Subject Interests, if the transferee is of Equivalent
Financial Standing and unconditionally agrees to assume and be bound by all of
BP Exploration (Alaska) Inc.’s obligations under this Conveyance in a writing in
form and substance reasonably satisfactory to Grantee.



16









 





     Section 9.3 Assignment by Grantee. Grantee has the right to assign the
Royalty Interest in whole or in part. No such assignment will affect the method
of computing the Royalty Interest, and if more than one Person becomes entitled
to participate in the Royalty Interest, Grantor may withhold from such other
Person payments to which such Person would otherwise be entitled hereunder and
the furnishing of any data or information which Grantor is required by the terms
hereof to furnish Grantee until Grantor is furnished a recordable instrument
executed by or binding upon all Persons interested in the Royalty Interest
designating one Person who is to receive such payments, data and information.



     Section 9.4 Change In Ownership. No change of ownership or right to receive
payment of the Royalty Interest, or of any part thereof, however accomplished,
shall be binding upon Grantor until notice thereof shall have been furnished by
the Person claiming the benefit thereof, and then only with respect to payments
thereafter made. Notice of sale or assignment shall consist of a certified copy
of the recorded instrument accomplishing the same; notice of change of ownership
or right to receive payment accomplished in any other manner (for example by
reason of incapacity, death or dissolution) shall consist of certified copies of
such documents and complete proceedings as are legally binding and conclusive of
the rights of all parties. Until such notice shall have been furnished to
Grantor as above provided, the payment or tender of all sums payable on the
Royalty Interest may be made in the manner provided herein precisely as if no
such change in interest or ownership or right to receive payment had occurred.
The kind of notice herein provided shall be exclusive, and no other kind,
whether actual or constructive, shall be binding on Grantor.



     Section 9.5 Rights of Mortgagee or Trustee. If Grantee shall at any time
execute a mortgage or deed of trust covering all or part of the Royalty
Interest, subject to the notice provisions of Section 9.4, the mortgagee(s) or
trustee(s) therein named or the holder of any obligation secured thereby shall
be entitled, to the extent such mortgage or deed of trust so provides, to
exercise all the rights, remedies, powers and privileges conferred upon Grantee
by the terms of this Conveyance, but the provisions of this Section 9.5 shall in
no way be deemed or construed to impose upon Grantor any obligation or liability
undertaken by Grantee under such mortgage or deed of trust or under the
obligation secured thereby.



ARTICLE TEN




MISCELLANEOUS




     Section 10.1 Proportionate Reduction. In the event of failure or deficiency
in title of the State of Alaska to any of the Lands which affects any of the
Subject Interests, or any modification of the Subject Interests as provided in
Article Six, the portion of the Royalty Production from such affected or
modified Subject Interests out of which the Royalty Interest attributable to
such Subject Interests shall be payable shall be reduced in the same proportion
that such Subject Interests are reduced, but such failure or deficiency in title
shall not affect the definition of Royalty Production as set forth in Article
One or the method of paying the Royalty Interest as set forth in Article Three
or the method of computing the payments to be made under the Royalty Interest as
act forth in Article Four.



     Section 10.2 Term. Subject to the limitations stated herein, this
Conveyance shall remain in force so long as any of the Subject Interests are in
effect, provided, however, that all warranties and indemnities set forth in this
Conveyance shall survive for the maximum period permitted by law.



17









 





     Section 10.3 Further Assurances. Should any additional instrument of
assignment or conveyance be required to describe more specifically any interests
subject hereto or to vest in any Person to whom Grantee assigns the Royalty
Interest in whole or in part the benefit of all covenants, representations,
warranties and indemnities made by Grantor to or for the benefit of Grantee
pursuant to this Conveyance, Grantor agrees to execute and deliver the same.
Also, if any other or additional instruments are required in connection with the
transfer of interests in the Leases to comply with applicable law, regulations,
the Prudhoe Bay Unit Agreement, the Prudhoe Bay Unit Operating Agreement or any
other applicable agreements, Grantor will execute and deliver the same.



     Section 10.4 Notices. Any notice, request, demand, report, statement or
other instrument which may be required or permitted to be given to any party
hereto or other Person succeeding to any interest of a party hereto shall be
deemed sufficiently given if in writing and delivered to such party or Person or
to an officer of such party or Person or deposited in the United States mail in
a sealed envelope, first class mail, with postage prepaid, addressed to such
party or Person at its or his address stated in this Conveyance, or at such
other address as the party or Person to be addressed shall have designated by
written notice to each such party or Person. Each party’s proper address shall
be deemed to be that set forth herein below until such party gives to the other
party, in the manner above prescribed, notice of a new address, after which such
new address shall be deemed the proper address until changed in like manner.
Notice shall be deemed given when actually received by the party or Person to
which such notice was intended.



	 	 	 	 	 
	 

	 	Grantor:
	 	BP Exploration (Alaska) Inc.
	 

	 	 	 	     P.O. Box 196612
	 

	 	 	 	     900 East Benson Boulevard
	 

	 	 	 	     Anchorage, Alaska 99519-6612
	 
	 	 	 	 
	 

	 	Grantee:
	 	The Standard Oil Company
	 

	 	 	 	     200 Public Square
	 

	 	 	 	     Cleveland, Ohio 44114-2375






     Section 10.5 Covenants and Warranties with Respect to Participating
Interest and Net Profits Royalty Interest. Grantor hereby covenants and warrants
that its Oil Rim Area Participation as of the Effective Date is 50.6848339% and
its Gas Cap Area Participation as of the Effective Date is 13.8398950%, that as
of the Effective Date its Oil Rim Area Participation and its Gas Cap Area
Participation is subject only to the Net Profits Royalty Interest (exclusive of
the Lower Lower Net Profits Royalty Interest) and that such interests are
subject to change or adjustment only as provided herein or as may be provided
under the terms of the Prudhoe Bay Unit Operating Agreement and the Prudhoe Bay
Unit Agreement, including, without limitation, any adjustments which might
result from the final redetermination of hydrocarbon pore volume as provided in
Article 37 of the Prudhoe Bay Unit Operating Agreement. Grantor further
covenants that if the existence of the Net Profits Royalty Interest or the
making of any payments under the Net Profits Royalty Interest results in a
decrease in any payment to Grantee under the Royalty Interest, Grantor shall and
hereby agrees to pay Grantee, in addition to and independent of payments
required to be made to Grantee under the Royalty Interest, the amount of any
such decrease, together with interest thereon in an amount equal to the product
of (i) the amount of such decrease, (ii) the Interest Rate, and (iii) a
fraction, the numerator of which is the number of days from the date of such
decrease until the date of payment to Grantee of the amount owing pursuant to
this Section 10.5 and the denominator of which is 360 days, together with such
other damages (but not including interest) to which Grantee may be entitled
under this Conveyance, or at law or in equity, it being the



18









 




express intent of Grantor and Grantee that Grantee is not to be prejudiced in
any way by the existence of or the making of any payments under the Net Profits
Royalty Interest.




     Section 10.6 Other Covenants. Grantor hereby covenants and warrants that it
is a corporation duly organized, validly existing, and in good standing under
the laws of the State of Delaware, is qualified to transact business and is in
good standing in the State of Alaska and is qualified with the Alaska Department
of Natural Resources to hold interests in state oil and gas leases; that it has
the legal right and authority to bargain, grant, sell, convey, transfer, assign,
set over and deliver the Royalty Interest to Grantee and that it has the legal
right and authority to execute, deliver and perform this Conveyance; that the
execution, delivery and performance of this Conveyance by it (i) does not
require the consent of any other Person except as set forth in Section 8.2; (ii)
does not require any action by or filing with any governmental body, agency, or
official that has not been accomplished, other than the filings which are
required under the terms of the Leases and the terms of applicable statutes of
the State of Alaska and the administrative regulations of the Alaska Department
of Natural Resources, which filings will be promptly made upon execution of this
Conveyance; and, (iii) will not violate or conflict with any law, statute,
regulation, agreement, judgment, injunction, order, decree or other instrument
to which Grantor is subject or is party or by which Grantor or the Leases or the
Subject Interests are bound and that this Conveyance is a valid and binding
agreement of Grantor, enforceable against Grantor in accordance with its terms.
Grantor hereby binds itself and its successors and assigns to forever defend the
title to the Royalty Interest unto Grantee and its successors and assigns
against every Person claiming the same or any part thereof by, through or under
Grantor, but not otherwise. This Conveyance is made with full substitution and
subrogation of Grantee in and to all covenants, representations and warranties
by others heretofore given or made in respect of the Leases or the Subject
Interests.



     Section 10.7 Binding Effect. This Conveyance and all of the rights and
obligations hereunder (including, without limitation, those arising out of the
covenants, representations, warranties and indemnities made by Grantor to or for
benefit of Grantee pursuant to this Conveyance) shall bind and inure to the
benefit of the successors and assigns of Grantor and Grantee.



     Section 10.8 Headings for Convenience. The headings used in this Conveyance
are inserted for convenience only and shall be disregarded in construing this
Conveyance.



     Section 10.9 Counterparts. This Conveyance may be executed in several
original counterparts. Each such counterpart shall for all purposes be deemed an
original, and all such counterparts shall constitute but one and the same
Conveyance.



     Section 10.10 Interest Affecting Real Property. The Royalty Interest
created and transferred by this Conveyance is an interest affecting real
property within the meaning of AS 40.17.110(b)(59). The parties intend that the
covenants contained in this Conveyance run with and burden the Lands and the
Subject Interests to the maximum extent possible under applicable law.



     Section 10.11 Waiver; Estoppel. The failure of Grantor or Grantee to insist
upon strict performance of any provision of this Conveyance shall not constitute
a waiver of or estoppel against asserting the right to require such performance
in the future, nor shall a waiver or estoppel in any one instance constitute a
waiver or estoppel with respect to a later breach of a similar nature or
otherwise.



     Section 10.12 Right to Information. The Standard Oil Company shall remain
entitled throughout the term of this Conveyance to receive from Grantor a copy
of



19









 




all information that is furnished to Grantee by Grantor, irrespective of the
assignment by The Standard Oil Company of the Royalty Interest in whole to any
other Person.




     Section 10.13 Indemnification. Grantor hereby agrees to indemnify and save
harmless Grantee from and against any expense (including, without limitation,
the expense of suit and attorneys’ fees), claim, damage, loss or liability
incurred by Grantee as a result of or arising out of the breach by Grantor of
any of its representations, warranties or covenants set forth in this
Conveyance.



     Section 10.14 Independent Payments. All payments to which Grantee is
entitled by reason of the indemnities set forth in this Conveyance by Grantor to
Grantee or by reason of any breach by Grantor of its representations, warranties
or covenants shall be in addition to and independent of all payments required to
be made to Grantee under the Royalty Interest.



     Section 10.15 Governing Law. The validity, effect and construction of this
Conveyance shall be governed by the laws of the State of Alaska.



     Section 10.16 Amendment. This Conveyance may not be amended, altered or
modified except pursuant to a written Instrument executed by Grantor and
Grantee.



20









 





     IN WITNESS WHEREOF, the parties hereto have caused this Conveyance to be
duly executed as of the day and year first written.



	 	 	 	 	 	 	 	 	 
	 	 	 	 	GRANTOR:	 	 
	[SEAL]
	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	Attest:	 	 	 	BP Exploration (Alaska) Inc.	 	 
	 
	 	 	 	 	 	 	 	 
	/s/ John A. Reeder
 

Assistant Secretary

	 	 	 	By
	 	/s/ G.N. Nelson
 

G.N. Nelson, President
	 	 
	 
	 	 	 	 	 	 	 	 
	 	 	 	 	GRANTEE:	 	 
	[SEAL]
	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	Attest:	 	 	 	The Standard Oil Company	 	 
	 
	 	 	 	 	 	 	 	 
	/s/ J.M. Cesarik
 


	 	 	 	By
	 	/s/ James H. Ross
 

	 	 






ACKNOWLEDGMENT




	 	 	 
	STATE OF ALASKA

	 	 )
	 

	 	 )   ss
	THIRD JUDICIAL DISTRICT

	 	 )






     Before me, a notary public, in and for the State of Alaska, personally
appeared G.N. Nelson, known to me to be the person who, as President of BP
Exploration (Alaska) Inc., the corporation which executed the foregoing
instrument, signed the same, and acknowledged to me that he did so sign said
instrument in the name and upon behalf of said corporation as such officer; that
the same is his free act and deed as such officer, and the free and corporate
act and deed of said corporation; that he was duly authorized thereunto by its
board of directors; and that the seal affixed to said instrument is the
corporation seal of said corporation. In testimony whereof, I have hereunto
subscribed my name, and affixed my official seal, at Anchorage, Alaska, this
20th day of February, 1989.



	 	 	 	 	 
	[SEAL]

	 	/s/ Keri L. Hopkins
 

Notary Public in and for Alaska
	 	 
	 
	 	 	 	 
	 

	 	My Commission Expires: 1-14-93	 	 






	 	 	 
	STATE OF OHIO

	 	 )
	 

	 	 )   ss
	COUNTY OF CUYAHOGA

	 	 )






     Before me, a notary public, in and for said county, personally appeared
James H. Ross and J.M. Cesarik, known to me to be the persons who, as Chairman
and Chief Executive Officer and Corporate Secretary, respectively, of The
Standard Oil Company, the corporation which executed the foregoing instrument,
signed the same, and acknowledged to me that they did so sign said instrument in
the name and upon behalf of said corporation as such officers, respectively;
that the same is their free act and deed as such officers, respectively, and the
free and corporate act and deed of said corporation; that they were duly
authorized thereunto by its board of directors; and that the seal affixed to
said instrument is the corporation seal of said corporation. In testimony
whereof, I have hereunto subscribed my name, and affixed my official seal, at
Cleveland, Ohio this 15th day of February, 1989.



	 	 	 	 	 
	[SEAL]

	 	/s/ JoAnn Motuza
 

Notary Public in and for Ohio
	 	 
	 
	 	 	 	 
	 

	 	My Commission Expires:	 	 






JoANN MOTUZA

Notary Public, State of Ohio

Recorded in Cuyahoga County

My Comm. Expires 9-14-92




21









 








EXHIBIT A




OVERRIDING ROYALTY CONVEYANCE




STATE OF ALASKA




	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	Grantor’s	 	Recorded
	PBU	 	Lease	 	Lands	 	Working	 	Book/
	Tract	 	Serial No.	 	Description	 	Interest	 	Page*
	16	 	ADL-25637	 	Secs. 13,24
	 	 	50	%	 	42/609
	 	 	 	 	T12N-R10E, UM
	 	 	 	 	 	 
	 	 	 	 	 
	 	 	 	 	 	 
	47	 	ADL-28260	 	Secs. 1,2,11,12
	 	 	100	%**	 	52/40
	 	 	 	 	T11N-R13E, UM
	 	 	 	 	 	 
	 	 	 	 	 
	 	 	 	 	 	 
	25	 	ADL-28277	 	Secs. 26,35,36
	 	 	100	%**	 	52/44
	 	 	 	 	T12N-R13E, UM
	 	 	 	 	 	 
	 	 	 	 	 
	 	 	 	 	 	 
	24	 	ADL-28278	 	Secs. 27,28,33,34
	 	 	100	%**	 	52/50
	 	 	 	 	T12N-R13E, UM
	 	 	 	 	 	 
	 	 	 	 	 
	 	 	 	 	 	 
	23	 	ADL-28279	 	Secs. 29,30,31,32
	 	 	100	%**	 	52/56
	 	 	 	 	T12N-R13E, UM
	 	 	 	 	 	 
	 	 	 	 	 
	 	 	 	 	 	 
	44	 	ADL-28280	 	Secs. 1,2,11,12
	 	 	100	%**	 	52/62
	 	 	 	 	T11N-R13E, UM
	 	 	 	 	 	 
	 	 	 	 	 
	 	 	 	 	 	 
	45	 	ADL-28281	 	Secs. 3,4,9,10
	 	 	100	%**	 	52/68
	 	 	 	 	T11N-R13E, UM
	 	 	 	 	 	 
	 	 	 	 	 
	 	 	 	 	 	 
	46	 	ADL-28282	 	Secs. 5,6,7,8
	 	 	100	%**	 	52/74
	 	 	 	 	T11N-R13E, UM
	 	 	 	 	 	 
	 	 	 	 	 
	 	 	 	 	 	 
	57	 	ADL-28283	 	Secs. 17,18,19,20
	 	 	100	%**	 	52/80
	 	 	 	 	T11N-R13E, UM
	 	 	 	 	 	 
	 	 	 	 	 
	 	 	 	 	 	 
	58	 	ADL-28284	 	Secs. 15,16,21,22
	 	 	100	%**	 	52/86
	 	 	 	 	T11N-R13E, UM
	 	 	 	 	 	 
	 	 	 	 	 
	 	 	 	 	 	 
	59	 	ADL-28285	 	Secs. 13,14,23,24
	 	 	100	%**	 	52/92
	 	 	 	 	T11N-R13E, UM
	 	 	 	 	 	 
	 	 	 	 	 
	 	 	 	 	 	 
	76	 	ADL-28286	 	Secs. 25,26,35,36
	 	 	100	%**	 	52/98
	 	 	 	 	T11N-R13E, UM
	 	 	 	 	 	29/178
	 	 	 	 	 
	 	 	 	 	 	 
	77	 	ADL-28287	 	Secs. 27,28,33,34
	 	 	100	%**	 	47/235
	 	 	 	 	T11N-R13E, UM
	 	 	 	 	 	 
	 	 	 	 	 
	 	 	 	 	 	 
	60	 	ADL-28305	 	Secs. 17,18,19,20
	 	 	100	%**	 	47/223
	 	 	 	 	T11N-R14E, UM
	 	 	 	 	 	 
	 	 	 	 	 
	 	 	 	 	 	 
	74	 	ADL-28309	 	Secs. 27,28,33,34
	 	 	100	%**	 	42/336
	 	 	 	 	T11N-R14E, UM
	 	 	 	 	 	 







 









 





	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	Grantor’s	 	Recorded
	PBU	 	Lease	 	Lands	 	Working	 	Book/
	Tract	 	Serial No.	 	Description	 	Interest	 	Page*
	75	 	ADL-28310	 	Secs. 29,30,31,32
	 	 	100	%**	 	47/241
	 	 	 	 	T11N-R14E, UM
	 	 	 	 	 	 
	 	 	 	 	 
	 	 	 	 	 	 
	90	 	ADL-28311	 	Secs. 1,2,11,12
	 	 	100	%**	 	47/229
	 	 	 	 	T10N-R14E, UM
	 	 	 	 	 	 
	 	 	 	 	 
	 	 	 	 	 	 
	89	 	ADL-28312	 	Secs. 3,4,9,10
	 	 	100	%**	 	52/104
	 	 	 	 	T10N-R14E, UM
	 	 	 	 	 	 
	 	 	 	 	 
	 	 	 	 	 	 
	101	 	ADL-28315	 	Secs. 13,14,23,24
	 	 	100	%**	 	52/110
	 	 	 	 	T10N-R14E, UM
	 	 	 	 	 	 
	 	 	 	 	 
	 	 	 	 	 	 
	38	 	ADL-28320	 	Secs. 1,2,11,12
	 	 	100	%**	 	47/199
	 	 	 	 	T11N-R15E, UM
	 	 	 	 	 	 
	 	 	 	 	 
	 	 	 	 	 	 
	100	 	ADL-28330	 	Secs. 17,18,19,20
	 	 	100	%**	 	52/116
	 	 	 	 	T10N-R15E, UM
	 	 	 	 	 	 
	 	 	 	 	 
	 	 	 	 	 	 
	99	 	ADL-28331	 	Secs. 15,16,21,22
	 	 	100	%**	 	52/122
	 	 	 	 	T10N-R15E, UM
	 	 	 	 	 	 
	 	 	 	 	 
	 	 	 	 	 	 
	110	 	ADL-28333	 	Secs. 25,26,35,36
	 	 	100	%**	 	42/341
	 	 	 	 	T10N-R15E, UM
	 	 	 	 	 	 
	 	 	 	 	 
	 	 	 	 	 	 
	108	 	ADL-28335	 	Secs. 29,30,31,32
	 	 	100	%**	 	52/128
	 	 	 	 	T10N-R15E, UM
	 	 	 	 	 	 
	 	 	 	 	 
	 	 	 	 	 	 
	66	 	ADL-28339	 	Secs. 17,18,19
	 	 	100	%**	 	47/193
	 	 	 	 	T11N-R16E, UM
	 	 	 	 	 	 
	 	 	 	 	 
	 	 	 	 	 	 
	69	 	ADL-28343	 	Secs. 30,31,32
	 	 	100	%**	 	42/356
	 	 	 	 	T11N-R16E, UM
	 	 	 	 	 	 
	 	 	 	 	 
	 	 	 	 	 	 
	111	 	ADL-28349	 	Secs. 29,30,31
	 	 	100	%**	 	42/370
	 	 	 	 	T10N-R16E, UM
	 	 	 	 	 	 
	 	 	 	 	 
	 	 	 	 	 	 
	31	 	ADL-34630	 	Secs. 25,26,35,36
	 	 	100	%**	 	47/205
	 	 	 	 	T12N-R15E, UM
	 	 	 	 	 	 









 




			
	*	 	All book and page references are to the lease records of the Noatak-Kobuk
Recording District, except: (i) Lease ADL 25637 is recorded in the Miscellaneous
Records of the Fairbanks Recording District; and (iii)[sic] Lease ADL 28286 is
recorded both in the Lease Records of the Noatak-Kobuk Recording District (Book
52/page 98) and the Lease Records of the Fairbanks Recording District (Book
29/page 178).
	 
	**	 	The interest of BP Exploration (Alaska) Inc. in these leases is subject
to the Net Profits Royalty Interest (excluding the Lower Lower Net Profits
Royalty Interest).