Document:

ex10x9.htm

Exhibit 10.9

 

A.A.P.L. FORM 610 - 1989

MODEL FORM OPERATING AGREEMENT

 

OPERATING AGREEMENT 

DATED

 

	 	                                              ,    	  ,      2013       ,	 
	 	 	         year	 

 

 

	OPERATOR	   PETROSHARE CORP. 
	 	 
	CONTRACT AREA	  Township 6 North, Range 90 West, 6th P.M
	
 

   Section 25: All 

	
 

 

	 
	
 

 

	 
	 	 

 

 

	COUNTY OR PARISH OF 	MOFFAT	  , STATE OF 	COLORADO

 

	 	
COPYRIGHT 1989 – ALL RIGHTS RESERVED 

AMERICAN ASSOCIATION OF PETROLEUM 

LANDMEN, 4100 FOSSIL CREEK BLVD. FORT 

WORTH, TEXAS, 76137, APPROVED FORM.

A.A.P.L. NO. 610 – 1989

 

  

  

  

A.A.P.I. FORM 610 - MODEL FORM OPERATING AREEMENT - 1989

 

TABLE OF CONTENTS

	Article	 	 	Page
	 I.	 	DEFINITIONS 	 1
	 II.	 	EXHIBITS	 1
	 III.	 	INTERESTS OF PARTIES 	 2
	 	 	A.  OIL AND GAS INTERESTS:	 2
	 	 	B.  INTERESTS OF PARTIES IN COSTS AND PRODUCTION 	 2
	 	 	C.  SUBSEQUENTLY CREATED INTERESTS: 	 2
	 IV.	 	TITLES 	 2
	 	 	A.  TITLE EXAMINATION 	 2
	 	 	B.  LOSS OR FAILURE OF TITLE 	 3
	 	 	1.  Failure of Title 	 3
	 	 	2.  Loss by Non-Payment or Erroneous Payment of Amount Due	 3
	 	 	3.  Other Losses 	 3
	 	 	4.  Curing Title 	 3
	 V.	 	OPERATOR 	 4
	 	 	A.  DESIGNATION AND RESPONSIBILITIES OF OPERATOR	 4
	 	 	B.  RESIGNATION OR REMOVAL OF OPERATOR AND SELECTION OF SUCCESSOR	 4
	 	 	1.  Resignation or Removal of Operator	 4
	 	 	2.  Selection of Successor Operator 	 4
	 	 	3.  Effect of Bankruptcy	 4
	 	 	C.  EMPLOYEES AND CONTRACTORS 	 4
	 	 	D.  RIGHTS AND DUTIES OF OPERATOR: 	 4
	 	 	1.  Competitive Rates and Use of Affiliates	 4
	 	 	2.  Discharge of Joint Account Obligations	 4
	 	 	3.  Protection from Liens 	 4
	 	 	4.  Custody of Funds 	 5
	 	 	5.  Access to Contract Area and Records 	 5
	 	 	6.  Filing and Furnishing Governmental Reports 	 5
	 	 	7.  Drilling and Testing Operations	 5
	 	 	8.  Cost Estimates 	 5
	 	 	9.  Insurance	 5
	 VI.	 	DRILLING AND DEVELOPMENT 	 5
	 	 	A.  INITIAL WELL	 5
	 	 	B.  SUBSEQUENT OPERATIONS: 	 5
	 	 	1.  Proposed Operations 	 5
	 	 	2.  Operations by Less Than All Parties 	 6
	 	 	3.  Stand-By Costs	 7
	 	 	4.  Deepening 	 8
	 	 	5.  Sidetracking 	 8
	 	 	6.  Order of Preference of Operations	 8
	 	 	7.  Conformity to Spacing Pattern 	 9
	 	 	8.  Paying Wells 	 9
	 	 	C.  COMPLETION OF WELLS; REWORKING AND PLUGGING BACK 	 9
	 	 	1.  Completion 	 9
	 	 	2.  Rework, Recomplete or Plug Back	 9
	 	 	D.  OTHER OPERATIONS	 9
	 	 	E.  ABANDONMENT OF WELLS 	 9
	 	 	1.  Abandonment of Dry Holes	 9
	 	 	2.  Abandonment of Wells That Have Produced	 10
	 	 	3.  Abandonment of Non-Consent Operations	 10
	 	 	F.  TERMINATION OF OPERATIONS	 10
	 	 	G.  TAKING PRODUCTION IN KIND	 10
	 	 	(Option 1) Gas Balancing Agreement 	 10
	 	 	(Option 2) No Gas Balancing Agreement	 11
	 VII.	 	EXPENDITURES AND LIABILITY OF PARTIES	 11
	 	 	A.  LIABILITY OF PARTIES	 11
	 	 	B.  LIENS AND SECURITY INTERESTS 	 12
	 	 	C.  ADVANCES	 12
	 	 	D.  DEFAULTS AND REMEDIES 	 12
	 	 	1.  Suspension of Rights 	 13
	 	 	2.  Suit for Damages	 13
	 	 	3.  Deemed Non-Consent 	 13
	 	 	4.  Advance Payment 	 13
	 	 	5.  Costs and Attorneys’ Fees 	 13
	 	 	E.  RENTALS, SHUT-IN WELL PAYMENTS AND MINIMUM ROYALTIES 	 13
	 	 	F.  TAXES 	 13
	 VIII.	 	ACQUISITION, MAINTENANCE OR TRANSFER OF INTEREST 	 14
	 	 	A.  SURRENDER OF LEASES	 14
	 	 	B.  RENEWAL OR EXTENSION OF LEASES	 14
	 	 	C.  ACREAGE OR CASH CONTRIBUTIONS 	 14

                                                       

i

  

  

  

A.A.P.I. FORM 610 - MODEL FORM OPERATING AREEMENT - 1989

	 	 	 	 
	 	 	D.  ASSIGNMENT; MAINTENANCE OF UNIFORM INTEREST: 	15
	 	 	E.  WAIVER OF RIGHTS TO PARTITION 	15
	 	 	F.  PREFERENTIAL RIGHT TO PURCHASE 	15
	IX.	 	INTERNAL REVENUE COEDE ELECTION	15
	X.	 	CLAIMS AND LAWSUITS	15
	XI.	 	FORCE MAJEURE 	16
	XII.	 	NOTICES	16
	XIII.	 	TERM OF AGREEMENT 	16
	XIV.	 	COMPLIANCE WITH LAWS AND REGULATIONS	16
	 	 	A.  LAWS, REGULATIONS AND ORDERS	16
	 	 	B.  GOVERNING LAW 	16
	 	 	C.  REGULATORY AGENCIES: 	16
	XV.	 	MISCELLANEOUS 	17
	 	 	A.  EXECUTION 	17
	 	 	B.  SUCCESSORS AND ASSIGNS 	17
	 	 	C.  COUNTERPARTS	17
	 	 	D.  SEVERABILITY 	17
	XVI.	 	OTHER PROVISIONS 	17
	 	 	 	 
	 	 	 	 

 

 

 

ii

 

 

  

  

  

A.A.P.I. FORM 610 - MODEL FORM OPERATING AREEMENT - 1989

 

	
1

	
OPERATING AGREEMENT

	
2

	
THIS AGREEMENT, entered into by and between               PetroShare Corp.           ,

	
3

	
hereinafter designated and referred to as  "Operator,"  and  the  signatory  party  or  parties   other  than  Operator,  sometimes

	
4

	
hereinafter referred to individually as "Non-Operator," and collectively as "Non-Operators."

	
5

	
WITNESSETH:

	
6

	
WHEREAS, the parties to this  agreement  are  owners  of  Oil  and  Gas  Leases  and/or  Oil  and  Gas  Interests  in  the  land

	

7

	
identified  in  Exhibit  "A,"  and  the  parties  hereto  have  reached  an  agreement  to  explore  and  develop  these  Leases  and/or  Oil

	

8

	
and Gas Interests for the production of Oil and Gas to the extent and as hereinafter provided,

	
9

	
NOW, THEREFORE, it is agreed as follows:

	
10

	
ARTICLE I.

	
11

	
DEFINITIONS

	
12

	
As used in this agreement, the following words and terms shall have the meanings here ascribed to them:

	
13

	
A.   The term "AFE" shall mean an Authority for Expenditure prepared by a party to this agreement for the purpose of

	
14

	
estimating the costs to be incurred in conducting an operation hereunder.

	
15

	
B.   The term "Completion" or "Complete" shall mean a single operation intended to complete a well as a producer of Oil

	
16

	
and  Gas  in  one  or  more  Zones,  including,  but  not  limited  to,  the  setting  of  production  casing,  perforating,  well  stimulation

	
17

	
and production testing conducted in such operation.

	
18

	
C.   The term "Contract Area" shall mean all of the lands, Oil and Gas Leases and/or Oil and Gas Interests intended to be

	
19

	
developed  and  operated  for  Oil  and  Gas  purposes  under  this  agreement.  Such  lands,  Oil  and  Gas  Leases  and  Oil  and  Gas

	
20

	
Interests are described in Exhibit "A."

	
21

	
D.   The term "Deepen" shall mean a single operation whereby a well is drilled to an objective Zone below the deepest

	
22

	
Zone  in  which  the  well  was  previously  drilled,  or  below  the  Deepest  Zone  proposed  in  the  associated  AFE,  whichever  is  the

	
23

	
lesser.

	
24

	
E.   The terms "Drilling Party" and "Consenting Party" shall mean a party who agrees to join in and pay its share of the

	
25

	
cost of any operation conducted under the provisions of this agreement.

	
26

	
F.   The term "Drilling Unit" shall mean the area fixed for the drilling of one well by order or rule of any state or federal

	
27

	
body  having  authority.   If  a  Drilling  Unit  is  not fixed by any such  rule  or  order,  a  Drilling  Unit  shall  be  the  drilling  unit  as

	
28

	
established by the pattern of drilling in the Contract Area unless fixed by express agreement of the Drilling Parties.

	
29

	
G.   The term "Drillsite" shall mean the Oil and Gas Lease or Oil and Gas Interest on which a proposed well is to be

	
30

	
located.

	
31

	
H.  The term "Initial Well" shall mean the well required to be drilled by the parties hereto as provided in Article VI.A.

	
32

	
I.    The  term  "Non-Consent  Well"  shall  mean  a  well  in  which  less  than  all  parties  have  conducted  an  operation  as

	
33

	
provided in Article VI.B.2.

	
34

	
J.    The  terms  "Non-Drilling  Party"  and  "Non-Consenting  Party"  shall  mean  a  party  who  elects  not  to  participate  in  a

	
35

	
proposed operation.

	
36

	
K.    The  term  "Oil  and  Gas"  shall  mean  oil,  gas,  casinghead  gas,  gas  condensate,  and/or  all  other  liquid  or  gaseous

	
37

	
hydrocarbons and  other  marketable  substances  produced  therewith,  unless  an  intent  to  limit  the  inclusiveness  of  this  term  is

	
38

	
specifically stated.

	
39

	
L.   The term "Oil and Gas Interests" or "Interests" shall mean unleased fee and mineral interests in Oil and Gas in tracts

	
40

	
of land lying within the Contract Area which are owned by parties to this agreement.

	
41

	
M.    The  terms  "Oil  and  Gas  Lease,"  "Lease"  and  "Leasehold"  shall  mean  the  oil  and  gas  leases  or  interests  therein

	
42

	
covering tracts of land lying within the Contract Area which are owned by the parties to this agreement.

	
43

	
N.    The  term  "Plug  Back"  shall  mean  a  single  operation  whereby  a  deeper  Zone  is  abandoned  in  order  to  attempt  a

	
44

	
Completion in a shallower Zone.

	
45

	
O.   The term "Recompletion" or "Recomplete" shall mean an operation whereby a Completion in one Zone is abandoned

	
46

	
in order to attempt a Completion in a different Zone within the existing wellbore.

	
47

	
P.    The  term  "Rework"  shall  mean  an  operation  conducted  in  the  wellbore  of  a  well  after  it  is  Completed  to  secure,

	
48

	
restore, or improve production  in  a  Zone  which  is  currently  open  to  production  in  the  wellbore.    Such  operations  include,  but

	
49

	
are not limited  to,  well  stimulation  operations  but  exclude  any  routine  repair  or  maintenance  work  or  drilling,  Sidetracking,

	
50

	
Deepening, Completing, Recompleting, or Plugging Back of a well.

	
51

	
Q.   The  term  "Sidetrack"  shall  mean  the  directional  control  and  intentional  deviation  of  a  well  from  vertical  so  as  to

	
52

	
change  the  bottom  hole  location  unless  done  to  straighten  the  hole  or  drill  around  junk  in  the  hole  to  overcome  other

	
53

	
mechanical difficulties.

	
54

	
R.   The term "Zone" shall mean a stratum of earth containing or thought to contain a common accumulation of Oil and

	
55

	
Gas separately producible from any other common accumulation of Oil and Gas.

	
56

	
Unless the context otherwise clearly indicates, words used in the singular include the plural, the word "person" includes

	
57

	
natural and artificial persons, the plural includes the singular, and any gender includes the masculine, feminine, and neuter.

	
58

	
ARTICLE II.

	
59

	
EXHIBITS

	
60

	
The following exhibits, as indicated below and attached hereto, are incorporated in and made a part hereof:

	
61 

	
    X     A. Exhibit "A," shall include the following information:

	
62

	
(1) Description of lands subject to this agreement,

	
63

	
(2) Restrictions, if any, as to depths, formations, or substances,

	
64

	
(3) Parties to agreement with addresses and telephone numbers for notice purposes,

	
65

	
(4) Percentages or fractional interests of parties to this agreement,

	
66

	
(5) Oil and Gas Leases and/or Oil and Gas Interests subject to this agreement,

	
67

	
(6) Burdens on production.

	
68 

	
             B.  Exhibit "B," Form of Lease.

	
69 

	
    X     C.   Exhibit "C," Accounting Procedure.

	
70 

	
    X      D.  Exhibit "D," Insurance.

	
71 

	
             E.   Exhibit "E," Gas Balancing Agreement.

	
72 

	
             F.   Exhibit "F," Non-Discrimination and Certification of Non-Segregated Facilities.

	
73 

	
             G.  Exhibit "G," Tax Partnership.

	
74 

	
    X      H.  Other:     Memorandum of Operating Agreement and Financing Statement

 

  

-1 -

  

A.A.P.I. FORM 610 - MODEL FORM OPERATING AREEMENT - 1989

 

	
1

	
If  any  provision  of  any  exhibit,  except  Exhibits  "E,"  "F"  and  "G,"  is  inconsistent  with  any  provision  contained  in

	
2

	
the body of this agreement, the provisions in the body of this agreement shall prevail.

	
3

	
ARTICLE III.

	
4

	
INTERESTS OF PARTIES

	
5

	
A. Oil and Gas Interests:

	
6

	
If  any  party  owns  an  Oil  and  Gas  Interest  in  the  Contract  Area,  that  Interest  shall  be  treated  for  all  purposes  of  this

	
7

	
agreement  and  during  the  term  hereof  as  if  it  were  covered  by  the  form  of  Oil  and  Gas  Lease  attached  hereto  as  Exhibit  "B,"

	
8

	
and the owner thereof shall be deemed to own both royalty interest in such lease and the interest of the lessee thereunder.

	
9

	
B. Interests of Parties in Costs and Production:

	
10

	
Unless  changed  by other provisions,  all costs  and  liabilities  incurred  in  operations under this  agreement  shall  be borne

	
11

	
and  paid,  and  all  equipment  and  materials  acquired  in  operations  on  the  Contract  Area  shall  be  owned,  by  the  parties  as  their

	
12

	
interests  are  set  forth  in  Exhibit  "A."    In  the  same  manner,  the  parties  shall  also  own  all  production  of  Oil  and  Gas  from  the

	
13

	
Contract Area subject, however, to the payment of royalties and other burdens on production as described hereafter.

	
14

	

Regardless of which party has contributed any Oil and Gas Lease or Oil and Gas Interest on which royalty or other

	
15

	

burdens may be payable and except as otherwise expressly provided in this agreement, each party  Operator / shall pay or deliver, or

	
16

	

cause to be paid or delivered, all burdens on its share of the production from the Contract Area for the account of al parties.   /up to, but not in excess of,

	
17

	
______   and shall indemnify, defend and hold the other parties free from any liability therefor.

	
18

	

Except as otherwise expressly provided in this agreement, if any party has contributed hereto any Lease or Interest which is

	
19 

	

burdened with any royalty, overriding royalty, production payment or other burden on production in excess of the amounts

	

20 

	
stipulated above, such party so burdened shall assume and alone bear all such excess obligations and shall indemnify, defend

	

21 

	

and hold the other parties hereto harmless from any and all claims attributable to such excess burden. However, so long as

	

22 

	

theDrilling Unit for the productive Zone(s) is identical with the Contract Area, each party shall pay or deliver, or cause to

	

23

	
be paid or delivered, all burdens on production from the Contract Area due under the terms of the Oil and Gas Lease(s)

	

24

	
which such party has contributed to this agreement, and shall indemnify, defend and hold the other parties free from any

	

25

	
liability therefor.Operator shall have no liability with respect to the payment of burdens except to the extent of its gross negligence.

	

26

	
No party shall ever be responsible, on a price basis higher than the price received by such party, to any other party's

	

27

	
lessor or royalty owner, and if such other party's lessor or royalty owner should demand and receive settlement on a higher

	

28

	
price basis, the party contributing the affected Lease shall bear the additional royalty burden attributable to such higher price.

	
29

	
Nothing contained  in  this Article III.B. shall be deemed an assignment or cross-assignment of interests covered hereby,

	
30

	
and  in  the  event  two  or  more  parties  contribute  to  this  agreement  jointly  owned  Leases,  the  parties'  undivided  interests  in

	
31

	
said Leaseholds shall be deemed separate leasehold interests for the purposes of this agreement.

	
32

	
C.  Subsequently Created Interests:

	
33

	
If any party has contributed hereto a Lease or Interest that is burdened with an assignment of production given as security

	
34

	
for   the   payment   of   money,   or   if,   after   the  date   of   this   agreement,   any   party   creates   an   overriding   royalty,   production

	
35

	
payment,  net  profits  interest,  assignment  of  production  or  other  burden  payable  out  of  production  attributable  to  its  working

	
36

	
interest  hereunder,  such  burden  shall  be  deemed  a  "Subsequently  Created  Interest."Further,  if  any  party  has  contributed

	
37

	
hereto  a  Lease  or  Interest  burdened  with  an  overriding  royalty,  production  payment,  net  profits  interests,  or  other  burden

	
38

	
payable  out  of  production  created  prior  to  the  date  of  this  agreement,  and  such  burden  is  not  shown  on  Exhibit  "A,"  such

	
39

	
burden  also  shall  be  deemed  a  Subsequently  Created  Interest  to  the  extent  such  burden  causes  the  burdens  on  such  party's

	
40

	
Lease or Interest to exceed the amount stipulated in Article III.B. above.

	
41

	
The  party  whose  interest  is  burdened  with  the  Subsequently  Created  Interest  (the  "Burdened  Party")  shall  assume  and

	
42

	
alone  bear,  pay  and  discharge  the  Subsequently  Created  Interest  and  shall  indemnify,  defend  and  hold  harmless  the  other

	
43

	
parties  from  and  against  any  liability  therefor.    Further,  if  the  Burdened  Party  fails  to  pay,  when  due,  its  share  of  expenses

	
44

	
chargeable  hereunder,  all  provisions  of  Article  VII.B.  shall  be  enforceable  against  the  Subsequently  Created  Interest  in  the

	
45

	
same  manner  as  they  are  enforceable  against  the  working  interest  of  the  Burdened  Party.    If  the  Burdened  Party  is  required

	
46

	
under  this  agreement  to  assign  or  relinquish  to  any  other  party,  or  parties,  all  or  a  portion  of  its  working  interest  and/or  the

	
47

	
production  attributable  thereto,  said  other  party,  or  parties,  shall  receive  said  assignment  and/or  production  free  and  clear  of

	
48

	
said  Subsequently  Created  Interest,  and  the  Burdened  Party  shall  indemnify,  defend  and  hold  harmless  said  other  party,  or

	
49

	
parties, from any and all claims and demands for payment asserted by owners of the Subsequently Created Interest.

	
50

	
ARTICLE IV.

	
51

	
TITLES

	
52

	
A.  Title Examination:

	
53

	
Title examination shall be made on the Drillsite of any proposed well prior to commencement of drilling operations and,

	
54

	
if  a  majority  in  interest  of  the  Drilling  Parties  so  request  or  Operator  so  elects,  title  examination  shall  be  made  on  the  entire

	
55

	
Drilling  Unit,  or  maximum  anticipated  Drilling  Unit,  of  the  well.   The  opinion  will  include  the  ownership  of  the  working

	
56

	
interest,  minerals,  royalty,  overriding  royalty  and  production  payments  under  the  applicable  Leases.Each  party  contributing

	
57

	
Leases  and/or  Oil  and  Gas  Interests  to  be  included  in  the  Drillsite  or  Drilling  Unit,  if  appropriate,  shall  furnish  to  Operator

	
58

	
all  abstracts  (including  federal  lease  status  reports),  title  opinions,  title  papers  and  curative  material  in  its  possession  free  of

	
59

	
charge.   All  such  information  not  in  the  possession  of  or  made  available  to  Operator  by  the  parties,  but  necessary  for  the

	
60

	
examination  of  the  title,  shall  be  obtained  by  Operator.    Operator  shall  cause  title  to  be  examined  by  attorneys  on  its  staff  or

	
61

	
by  outside  attorneys.   Copies  of  all  title  opinions  shall  be  furnished  to  each  Drilling  Party. Costs  incurred  by  Operator  in

	
62

	
procuring   abstracts,   fees   paid   outside   attorneys or title examination  (including preliminary, supplemental, shut-in royalty

	
63

	
opinions and division order title opinions),  ( fees paid to outside landmen or brokers) / and other direct charges as provided in Exhibit "C" shall be borne by the Drilling

	
64 

	
Parties  in  the  proportion  that  the  interest  of  each  Drilling  Party  bears  to  the  total  interest  of  all  Drilling  Parties  as  such

	
65

	
interests  appear  in  Exhibit  "A."    Operator  shall  make  no  charge  for  services  rendered  by  its  staff  attorneys  or  other  personnel

	
66

	
in the performance of the above functions.

	
67 

	

Each party  Operator /shall be responsible for securing curative matter and pooling amendments or agreements required in

	
68

	
connection with any title opinion obtained as set forth above./ Leases or Oil and Gas Interests contributed by such party. Operator shall be responsible for the preparation

	
69

	
and  recording  of  pooling  designations  or  declarations  and  communitization  agreements  as  well  as  the  conduct  of  hearings

	
70

	
before  governmental  agencies  for  the  securing  of  spacing  or  pooling  orders  or  any  other  orders  necessary  or  appropriate  to

	
71

	
the  conduct  of  operations  hereunder.   This  shall  not  prevent  any  party  from  appearing  on  its  own  behalf  at  such  hearings.

	
72

	
Costs  incurred  by  Operator,  including  fees  paid  to  outside  attorneys,  which  are  associated  with  hearings  before  governmental

	
73

	
agencies,  and   which   costs  are   necessary  and  proper   for   the  activities   contemplated   under  this  agreement,   shall   be  direct

	
74

	
charges to the joint account and shall not be covered by the administrative overhead charges as provided in Exhibit "C."

 

  

-2 -

  

A.A.P.I. FORM 610 - MODEL FORM OPERATING AREEMENT - 1989

 

	
1  

	
Operator  shall  make  no  charge  for  services  rendered  by  its  staff  attorneys  or  other  personnel  in  the  performance  of  the  above

	
2  

	
functions.

	
3

	

No well shall be drilled on the Contract Area until after (1) the title to the Drillsite or Drilling Unit, if appropriate, has

	
4  

	
been  examined  as  above  provided,  and  (2)  the  title  has  been  approved  by  the  examining  attorney  or  title  has  been  accepted  by

	
5  

	
Operator. a/ ll of the Drilling Parties in such well.

	
6 

	
B. Loss or Failure of Title:

	
7

	

1. Failure of Title: Should any Oil and Gas Interest or Oil and Gas Lease be lost through failure of title, which results in a

	
8  

	
reduction  of  interest  from  that  shown  on  Exhibit  "A,"  the  party  credited  with  contributing  the  affected  Lease  or  Interest

	
9  

	
(including,  if  applicable,  a  successor  in  interest  to  such  party)  shall  have  ninety  (90)  days  from  final  determination  of  title

	
10  

	
failure  to  acquire  a  new  lease  or  other  instrument  curing  the  entirety  of  the  title  failure,  which  acquisition  will  not  be  subject

	
11  

	
to  Article  VIII.B.,  and  failing  to  do  so,  this  agreement,  nevertheless,  shall  continue  in  force  as  to  all  remaining  Oil  and  Gas

	
12  

	
Leases and Interests; and,

	
13  

	
                 (a) The party credited with contributing the Oil and Gas Lease or Interest affected by the title failure (including, if

	
14  

	
applicable,  a  successor  in  interest  to  such  party)  shall  bear  alone  the  entire  loss  and  it  shall  not  be  entitled  to  recover  from

	
15  

	
Operator  or  the  other  parties  any  development  or  operating  costs  which  it  may  have  previously  paid  or  incurred,  but  there

	
16  

	
shall be no additional liability on its part to the other parties hereto by reason of such title failure;

	
17  

	
                 (b)  There  shall  be  no  retroactive  adjustment  of  expenses  incurred  or  revenues  received  from  the  operation  of  the

	
18  

	
Lease  or  Interest  which  has  failed,  but  the  interests  of  the  parties  contained  on  Exhibit  "A"  shall  be  revised  on  an  acreage

	
19  

	
basis,  as  of  the  time  it  is  determined  finally  that  title  failure  has  occurred,  so  that  the  interest  of  the  party  whose  Lease  or

	
20  

	
Interest is affected by the title failure will thereafter be reduced in the Contract Area by the amount of the Lease or Interest failed;

	
21  

	
                 (c) If the proportionate interest of the other parties hereto in any producing well previously drilled on the Contract

	
22  

	
Area  is  increased  by  reason  of  the  title  failure,  the  party  who  bore  the  costs  incurred  in  connection  with  such  well  attributable

	
23  

	
to  the  Lease  or  Interest  which  has  failed  shall  receive  the  proceeds  attributable  to  the  increase  in  such  interest  (less  costs  and

	
24  

	
burdens  attributable  thereto)  until  it  has  been reimbursed  for  unrecovered  costs  paid  by  it  in  connection  with  such  well

	
25  

	
attributable to such failed Lease or Interest;

	
26  

	
                 (d) Should any person not a party to this agreement, who is determined to be the owner of any Lease or Interest

	
27  

	
which  has  failed,  pay  in  any  manner  any  part  of  the  cost  of  operation,  development,  or  equipment,  such  amount  shall  be  paid

	
28  

	
to the party or parties who bore the costs which are so refunded;

	
29  

	
                 (e) Any liability to account to a person not a party to this agreement for prior production of Oil and Gas which arises

	
30  

	
by  reason  of  title  failure  shall  be  borne  severally  by  each  party  (including  a  predecessor  to  a  current  party)  who  received

	
31  

	
production  for  which  such  accounting  is  required  based  on  the  amount  of  such  production  received,  and  each  such  party  shall

	
32  

	
severally indemnify, defend and hold harmless all other parties hereto for any such liability to account;

	
33  

	
                 (f) No charge shall be made to the joint account for legal expenses, fees or salaries in connection with the defense of

	
34  

	
the  Lease  or  Interest  claimed  to  have  failed,  but  if  the  party  contributing  such  Lease  or  Interest  hereto  elects  to  defend  its  title

	
35  

	
it shall bear all expenses in connection therewith; and

	
36  

	
                 (g)  If  any party is  given credit  on Exhibit "A" to a  Lease or  Interest  which  is  limited solely to  ownership  of an

	
37  

	
interest  in  the  wellbore  of  any  well  or  wells  and  the  production  therefrom,  such  party's  absence  of  interest  in  the  remainder

	
38  

	
of  the  Contract  Area  shall  be  considered  a  Failure  of  Title  as  to  such  remaining  Contract  Area  unless  that  absence  of  interest

	
39  

	
is reflected on Exhibit "A."

	
40  

	
           2.   Loss by Non-Payment or Erroneous Payment of Amount Due: If, through mistake or oversight, any rental, shut-in well

	
41  

	
payment,  minimum  royalty  or  royalty  payment,  or  other  payment  necessary  to  maintain  all  or  a  portion  of  an  Oil  and  Gas

	
42  

	
Lease  or  interest  is  not  paid  or  is  erroneously  paid,  and  as  a  result  a  Lease  or  Interest  terminates,  there  shall  be  no  monetary

	
43  

	
liability  against  the  party  who  failed  to  make  such  payment.  Unless  the  party  who  failed  to  make  the  required  payment

	
44  

	
secures  a  new  Lease  or  Interest  covering  the  same  interest  within  ninety  (90)  days  from  the  discovery  of  the  failure  to  make

	
45  

	
proper  payment,  which  acquisition  will  not  be  subject  to  Article  VIII.B.,  the  interests  of  the  parties  reflected  on  Exhibit  "A"

	
46  

	
shall  be  revised  on  an  acreage  basis,  effective  as  of  the  date  of  termination  of  the  Lease  or  Interest  involved,  and  the  party

	
47  

	
who  failed  to  make  proper  payment  will  no  longer  be  credited  with  an  interest  in  the  Contract  Area  on  account  of  ownership

	
48  

	
of  the  Lease  or  Interest  which  has  terminated.  If  the  party  who  failed  to  make  the  required  payment  shall  not  have  been  fully

	
49

	
reimbursed,  at  the  time  of  the  loss,  from  the  proceeds  of  the  sale  of  Oil  and  Gas  attributable  to  the  lost  Lease  or  Interest,

	
50  

	
calculated  on  an  acreage  basis,  for  the  development  and  operating  costs  previously  paid  on  account  of  such  Lease  or  Interest,

	
51  

	
it  shall  be  reimbursed  for  unrecovered  actual  costs  previously  paid  by  it  (but  not  for  its  share  of  the  cost  of  any  dry  hole

	
52  

	
previously drilled or wells previously abandoned) from so much of the following as is necessary to effect reimbursement:

	
53  

	
                 (a) Proceeds of Oil and Gas produced prior to termination of the Lease or Interest, less operating expenses and lease

	
54  

	
burdens  chargeable  hereunder  to  the  person  who  failed  to  make  payment,  previously  accrued  to  the  credit  of  the  lost  Lease  or

	
55  

	
Interest, on an acreage basis, up to the amount of unrecovered costs;

	
56  

	
                 (b) Proceeds of Oil and Gas, less operating expenses and lease burdens chargeable hereunder to the person who failed

	
57  

	
to  make  payment,  up  to  the  amount  of  unrecovered  costs  attributable  to  that  portion  of  Oil  and  Gas  thereafter  produced  and

	
58  

	
marketed  (excluding  production  from  any  wells  thereafter  drilled)  which,  in  the  absence  of  such  Lease  or  Interest  termination,

	
59  

	
would  be  attributable  to  the  lost  Lease  or  Interest  on  an  acreage  basis  and  which  as  a  result  of  such  Lease  or  Interest

	
60  

	
termination  is  credited  to  other  parties,  the  proceeds  of  said  portion  of  the  Oil  and  Gas  to  be  contributed  by  the  other  parties

	
61  

	
in proportion to their respective interests reflected on Exhibit "A"; and,

	
62  

	
                 (c) Any monies, up to the amount of unrecovered costs, that may be paid by any party who is, or becomes, the owner

	
63  

	
of the Lease or Interest lost, for the privilege of participating in the Contract Area or becoming a party to this agreement.

 

	
64 

	
3. Other  Losses:  All losses of Leases or Interests committed to this agreement, other than those set forth in Articles

	
65  

	
IV.B.1.  and  IV.B.2.  above,  shall  be  joint  losses  and  shall  be  borne  by  all  parties  in  proportion  to  their  interests  shown  on

	
66  

	
Exhibit  "A."    This  shall  include  but  not  be  limited  to  the  loss  of  any  Lease  or  Interest  through  failure  to  develop  or  because

	
67  

	
express  or  implied  covenants  have  not  been  performed  (other  than  performance  which  requires  only  the  payment  of  money),

	
68  

	
and  the  loss  of  any  Lease  by  expiration  at  the  end  of  its  primary  term  if  it  is  not  renewed  or  extended.    There  shall  be  no

	
69  

	
readjustment of interests in the remaining portion of the Contract Area on account of any joint loss.

	
70 

	

4. Curing Title: In the event of a Failure of Title / as set forth under Article IV.B.1. or a loss of title under Article IV.B.2. above, any

	
71  

	
Lease  or  Interest  acquired  by  any  party  hereto  (other  than  the  party  whose  interest  has  failed  or  was  lost)  during  the  ninety

	
72  

	
(90)  day  period  / following discovery of such failure provided  by  Article  IV.B.1.  and  Article  IV.B.2.  above  covering  all  or  a  portion  of  the  interest  that  has  failed

	
73  

	
or  was  lost  shall  be  offered  at  cost  to  the  party  whose  interest  has  failed  or  was  lost,  and  the  provisions  of  Article  VIII.B.

	
74  

	
shall not apply to such acquisition.

 

  

-3 -

  

A.A.P.I. FORM 610 - MODEL FORM OPERATING AREEMENT - 1989

 

 

 

	
1

	
ARTICLE V.

	
2

	
OPERATOR

	

3

	
A. Designation and Responsibilities of Operator:

	
4

	
  PetroShare Corp.  shall  be  the  Operator  of  the  Contract  Area,  and  shall  conduct

	
5

	
and  direct  and  have full control  of  all  operations  on  the Contract Area  as permitted and  required  by,  and  within  the  limits  of

	
6

	
this agreement.  In its performance of services hereunder for the Non-Operators, Operator  shall  be  an  independent  contractor

	
7

	
not  subject  to  the  control  or  direction  of  the  Non-Operators  except  as  to  the  type  of  operation  to  be  undertaken  in  accordance

	
8

	
with the election procedures contained in this agreement. Operator shall not be deemed, or hold itself out as, the agent of the

	
9

	
Non-Operators with authority to bind them to any obligation or liability assumed or incurred by Operator as to any third

	
10

	
party. Operator shall conduct its activities under this agreement as a reasonable prudent operator, in a good and workmanlike

	
11

	
manner, with due diligence and dispatch, in accordance with good oilfield practice, and in compliance with applicable law and

	
12

	
regulation, but in no event shall it have any liability as Operator to the other parties for losses sustained or liabilities incurred

	
13

	
except such as may result from gross negligence or willful misconduct.

	
14

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

	
15

	
1. Resignation or Removal of Operator: Operator may resign at any time by giving written notice thereof to Non-Operators.

	
16

	
If Operator terminates its legal existence, no longer owns an interest hereunder in the Contract Area, or is no longer capable of

	
17

	
serving as Operator, Operator shall be deemed to have resigned without any action by Non-Operators, except the selection of a

	
18

	
successor. Operator may be removed only for good cause by the affirmative vote of Non-Operators owning a majority interest

	
19

	
based on ownership as shown on Exhibit "A" remaining after excluding the voting interest of Operator; such vote shall not be

	
20

	
deemed effective until a written notice has been delivered to the Operator by a Non-Operator detailing the alleged default and

	
21

	
Operator has failed to cure the default within thirty (30) days from its receipt of the notice or, if the default concerns an

	
22

	
operation then being conducted, within forty-eight (48) hours of its receipt of the notice.   For purposes hereof, "good cause" shall

	
23

	
mean not only gross negligence or willful misconduct but also the material breach of or inability to meet the standards of

	
24

	
operation contained in Article V.A. or material failure or inability to perform its obligations under this agreement.

	
25

	
Subject to Article VII.D.1., such resignation or removal shall not become effective until 7:00 o'clock A.M. on the first

	
26

	
day of the calendar month following the expiration of ninety (90) days after the giving of notice of resignation by Operator

	
27

	
or action by the Non-Operators to remove Operator, unless a successor Operator has been selected and assumes the duties of

	
28

	
Operator at an earlier date. Operator, after effective date of resignation or removal, shall be bound by the terms hereof as a

	
29

	
Non-Operator. A change of a corporate name or structure of Operator or transfer of Operator's interest to any single

	
30

	
subsidiary, parent or successor corporation shall not be the basis for removal of Operator.

	
31

	
2.   Selection of Successor Operator: Upon the resignation or removal of Operator under any provision of this agreement, a

	
32

	
successor Operator shall be selected by the parties. The successor Operator shall be selected from the parties owning an

	
33

	
interest in the Contract Area at the time such successor Operator is selected. The successor Operator shall be selected by the

	
34

	
affirmative vote of two (2) or more parties owning a majority interest based on ownership as shown on Exhibit "A";

	
35

	
provided, however, if an Operator which has been removed or is deemed to have resigned fails to vote or votes only to

	
36

	
succeed itself, the successor Operator shall be selected by the affirmative vote of the party or parties owning a majority

	
37

	
interest based on ownership as shown on Exhibit "A" remaining after excluding the voting interest of the Operator that was

	
38

	
removed or resigned. The former Operator shall promptly deliver to the successor Operator all records and data relating to

	
39

	
the operations conducted by the former Operator to the extent such records and data are not already in the possession of the

	
40

	
successor operator. Any cost of obtaining or copying the former Operator's records and data shall be charged to the joint

	
41

	
account.

	
42

	
3.   Effect of Bankruptcy: If Operator becomes insolvent, bankrupt or is placed in receivership, it shall be deemed to have

	
43

	
resigned without any action by Non-Operators, except the selection of a successor. If a petition for relief under the federal

	
44

	
bankruptcy laws is filed by or against Operator, and the removal of Operator is prevented by the federal bankruptcy court, all

	
45

	
Non-Operators and Operator shall comprise an interim operating committee to serve until Operator has elected to reject or

	
46

	
assume this agreement pursuant to the Bankruptcy Code, and an election to reject this agreement by Operator as a debtor in

	
47

	
possession, or by a trustee in bankruptcy, shall be deemed a resignation as Operator without any action by Non-Operators,

	
48

	
except the selection of a successor. During the period of time the operating committee controls operations, all actions shall

	
49

	
require the approval of two (2) or more parties owning a majority interest based on ownership as shown on Exhibit "A." In

	
50

	
the event there are only two (2) parties to this agreement, during the period of time the operating committee controls

	
51

	
operations, a third party acceptable to Operator, Non-Operator and the federal bankruptcy court shall be selected as a

	
52

	
member of the operating committee, and all actions shall require the approval of two (2) members of the operating

	
53

	
committee without regard for their interest in the Contract Area based on Exhibit "A."

	
54

	
C.  Employees and Contractors:

	
55

	
The number of employees or contractors used by Operator in conducting operations hereunder, their selection, and the

	
56

	
hours of labor and the compensation for services performed shall be determined by Operator, and all such employees or

	
57

	
contractors shall be the employees or contractors of Operator.

	
58

	
D.  Rights and Duties of Operator:

	
59

	
1.  Competitive  Rates and Use of Affiliates: All wells drilled on the Contract Area shall be drilled on a competitive

	
60

	
contract basis at the usual rates prevailing in the area. If it so desires, Operator may employ its own tools and equipment in

	
61

	
the drilling of wells, but its charges therefor shall not exceed the prevailing rates in the area and the rate of such charges

	
62

	
shall be agreed upon by the parties in writing before drilling operations are commenced, and such work shall be performed by

	
63

	
Operator under the same terms and conditions as are customary and usual in the area in contracts of independent contractors

	
64

	
who are doing work of a similar nature. All work performed or materials supplied by affiliates or related parties of Operator

	
65

	
shall be performed or supplied at competitive rates, pursuant to written agreement, and in accordance with customs and

	
66

	
standards prevailing in the industry.

	
67

	
2. Discharge of Joint Account Obligations: Except as herein otherwise specifically provided, Operator shall promptly pay

	
68

	
and discharge expenses incurred in the development and operation of the Contract Area pursuant to this agreement and shall

	
69

	
charge each of the parties hereto with their respective proportionate shares upon the expense basis provided in Exhibit "C."

	
70

	
Operator shall keep an accurate record of the joint account hereunder, showing expenses incurred and charges and credits

	
71

	
made and received.

	
72

	
3. Protection from Liens: Operator shall pay, or cause to be paid, as and when they become due and payable, all accounts

	
73

	
of contractors and suppliers and wages and salaries for services rendered or performed, and for materials supplied on, to or in

	
74

	
respect of the Contract Area or any operations for the joint account thereof, and shall keep the Contract Area free from

 

 

  

-4 -

  

A.A.P.I. FORM 610 - MODEL FORM OPERATING AREEMENT - 1989

 

	
1

	
liens and encumbrances resulting therefrom except for those resulting from a bona fide dispute as to services rendered or

	
2

	
materials supplied.

	
3

	
4. Custody of Funds: Operator shall hold for the account of the Non-Operators any funds of the Non-Operators advanced

	
4

	
or paid to the Operator, either for the conduct of operations hereunder or as a result of the sale of production from the

	
5

	
Contract Area, and such funds shall remain the funds of the Non-Operators on whose account they are advanced or paid until

	
6

	
used  for their intended purpose or otherwise delivered  to the Non-Operators or applied toward the payment of debts as

	
7

	
provided in Article VII.B.  Nothing in this paragraph shall be construed to establish a fiduciary relationship between Operator

	
8

	
and Non-Operators for any purpose other than to account for Non-Operator funds as herein specifically provided.  Nothing in

	
9

	
this paragraph shall require the maintenance by Operator of separate accounts for the funds of Non-Operators unless the

	
10

	
parties otherwise specifically agree.

	
11

	
5. Access to Contract Area and Records: Operator shall, except as otherwise provided herein, permit each Non-Operator

	
12

	
or its duly authorized representative, at the Non-Operator's sole risk and cost, full and free access at all reasonable times to

	
13

	
all operations of every kind and character being conducted for the joint account on the Contract Area and to the records of

	
14

	
operations conducted thereon or production therefrom, including Operator's books and records relating thereto.  Such access

	
15

	
rights shall not be exercised in a manner interfering with Operator's conduct of an operation hereunder and shall not obligate

	
16

	
Operator  to  furnish  any  geologic  or  geophysical  data  of  an  interpretive  nature  unless  the  cost  of  preparation  of  such

	
17

	
interpretive data was charged to the joint account.  Operator will furnish to each Non-Operator upon request copies of any

	
18

	
and  all reports and  information obtained by Operator in connection  with production  and  related  items,  including,  without

	
19

	
limitation,  meter and chart  reports,  production purchaser statements,  run  tickets and  monthly gauge  reports,  but  excluding

	
20

	
purchase contracts and pricing information to the extent not applicable to the production of the Non-Operator seeking the

	
21

	
information.Any audit of Operator's records relating to amounts expended and the appropriateness of such expenditures

	
22

	
shall be conducted in accordance with the audit protocol specified in Exhibit "C."

	
23

	
6. Filing and Furnishing Governmental Reports: Operator will file, and upon written request promptly furnish copies to

	
24

	
each  requesting  Non-Operator  not  in  default  of  its  payment  obligations,  all  operational  notices,  reports  or  applications

	
25

	
required to be filed by local, State, Federal or Indian agencies or authorities having jurisdiction over operations hereunder.

	
26

	
Each Non-Operator shall provide to Operator on a timely basis all information necessary to Operator to make such filings.

	
27

	
7. Drilling and Testing Operations: The following provisions shall apply to each well drilled hereunder, including but not

	
28

	
limited to the Initial Well:

	
29

	
(a) Operator will promptly advise Non-Operators of the date on which the well is spudded, or the date on which

	
30

	
drilling operations are commenced.

	
31

	
(b) Operator will send to Non-Operators such reports, test results and notices regarding the progress of operations on the well

	
32

	
as the Non-Operators shall reasonably request, including, but not limited to, daily drilling reports, completion reports, and well logs.

	
33

	
(c) Operator shall adequately test all Zones encountered which may reasonably be expected to be capable of producing

	
34

	
Oil and Gas in paying quantities as a result of examination of the electric log or any other logs or cores or tests conducted

	
35

	
hereunder.

	
36

	
8. Cost Estimates: Upon request of any Consenting Party, Operator shall furnish estimates of current and cumulative costs

	
37

	
incurred  for  the  joint  account  at  reasonable  intervals  during  the  conduct  of  any  operation  pursuant  to  this  agreement.

	
38

	
Operator shall not be held liable for errors in such estimates so long as the estimates are made in good faith.

	
39

	
9.  Insurance:  At  all  times  while  operations  are  conducted  hereunder,  Operator  shall  comply  with  the  workers

	
40

	
compensation law of the state where the operations are being conducted; provided, however, that Operator may be a self-

	
41

	
insurer for liability under said compensation laws in which event the only charge that shall be made to the joint account shall

	
42

	
be as provided in Exhibit "C."  Operator shall also carry or provide insurance for the benefit of the joint account of the parties

	
43

	
as outlined in Exhibit "D" attached hereto and made a part hereof.  Operator shall require all contractors engaged in work on

	
44

	
or for the Contract Area to comply with the workers compensation law of the state where the operations are being conducted

	
45

	
and to maintain such other insurance as Operator may require.

	
46

	
In the event automobile liability insurance is specified in said Exhibit "D," or subsequently receives the approval of the

	
47

	
parties,  no  direct  charge  shall  be  made  by  Operator  for  premiums  paid  for  such  insurance  for  Operator's  automotive

	
48

	
equipment.

	
49

	
ARTICLE VI.

	
50

	
DRILLING AND DEVELOPMENT

	
51

	
A.  Initial Well:

	
52

	
On or before the______ day of   ______________  ,  ____ , Operator shall commence the drilling of the Initial

	
53

	
Well at  the following location: a location on the Contract Area of Operator’s choosing

	
54

	
  

	
55

	
  

	
56

	
  

	
57

	
  

	
58

	
  

	
59

	
  

	
60 

	
and shall thereafter continue the drilling of the well with due diligence to a depth sufficient to test the Niobrara formation or to a true vertical depth of 7,855 feet, whichever is the lesser depth.

	
61

	
  

	
62

	
  

	
63

	
  

	
64

	
  

	
65

	
  

	
66

	
  

	
67

	
The drilling of the Initial Well and the participation therein by all parties is obligatory, subject to Article VI.C.1. as to participation

	
68

	
in Completion operations and Article VI.F. as to termination of operations and Article XI as to occurrence of force majeure.

	
69

	
B.Subsequent Operations:

	
70

	
1. Proposed Operations: If any party hereto should desire to drill any well on the Contract Area other than the Initial Well, or

	
71 

	
if  any party should  desire to  /  complete the Initial Well as a horizontal well or to Rework,  Sidetrack,  Deepen,  Recomplete or Plug Back  a  dry hole  or  a  well  no  longer  capable of

	
72

	
producing in paying quantities in which such party has not otherwise relinquished its interest in the proposed objective Zone under

	
73

	
this agreement, the party desiring to drill, Rework, Sidetrack, Deepen, Recomplete or Plug Back such a well shall give written

	
74

	
notice  of  the  proposed  operation  to  the  parties  who  have  not  otherwise  relinquished  their  interest  in  such  objective  Zone

 

 

  

-5 -

  

A.A.P.I. FORM 610 - MODEL FORM OPERATING AREEMENT - 1989

 

 

	
1

	
under this agreement and to all other parties in the case of a proposal for Sidetracking or Deepening, specifying the work to be

	
2

	
performed, the location, proposed depth, objective Zone and the estimated cost of the operation.  The parties to whom such a

	
3

	
notice is delivered shall have thirty (30) days after receipt of the notice within which to notify the party proposing to do the work

	
4

	
whether they elect to participate in the cost of the proposed operation.  If a drilling rig is on location, notice of a proposal to

	
5

	
Rework, Sidetrack, Recomplete, Plug Back or Deepen may be given by telephone and the response period shall be limited to forty-

	
6

	
eight (48) hours, exclusive of Saturday, Sunday and legal holidays.  Failure of a party to whom such notice is delivered to reply

	
7

	
within the period above fixed shall constitute an election by that party not to participate in the cost of the proposed operation.

	
8

	
Any proposal by a party to conduct an operation conflicting with the operation initially proposed shall be delivered to all parties

	
9

	
within the time and in the manner provided in Article VI.B.6.

	
10

	
If all parties to whom such notice is delivered elect to participate in such a proposed operation, the parties shall be

	
11

	
contractually committed to participate therein provided such operations are commenced within the time period hereafter set

	
12

	
forth, and Operator shall, no later than ninety (90) days after expiration of the notice period of thirty (30) days (or as

	
13

	
promptly as practicable after the expiration of the forty-eight (48) hour period when a drilling rig is on location, as the case

	
14

	
may be), actually commence the proposed operation and thereafter complete it with due diligence at the risk and expense of

	
15

	
the parties participating therein; provided, however, said commencement date may be extended upon written notice of same

	
16

	
by Operator to the other parties, for a period of up to thirty (30) additional days if, in the sole opinion of Operator, such

	
17

	
additional time is reasonably necessary to obtain permits from governmental authorities, surface rights (including rights-of-

	
18

	
way) or appropriate drilling equipment,  or to complete title examination  or curative matter required  for title approval or

	
19

	
acceptance.  If the actual operation has not been commenced within the time provided (including any extension thereof as

	
20

	
specifically permitted herein or in the force majeure provisions of Article XI) and if any party hereto still desires to conduct

	
21

	
said operation, written notice proposing same must be resubmitted to the other parties in accordance herewith as if no prior

	
22

	
proposal had been made.  Those parties that did not participate in the drilling of a well for which a proposal to Deepen or

	
23

	
Sidetrack is made hereunder shall, if such parties desire to participate in the proposed Deepening or Sidetracking operation,

	
24

	
reimburse the Drilling Parties in accordance with Article VI.B.4. in the event of a Deepening operation and in accordance

	
25

	
with Article VI.B.5. in the event of a Sidetracking operation.

	
26

	
2. Operations by Less Than All Parties:

	
27

	
(a) Determination of Participation.  If any party to whom such notice is delivered as provided in Article VI.B.1. or

	
28

	
VI.C.1. (Option No. 2) elects not to participate in the proposed operation, then, in order to be entitled to the benefits of this

	
29

	
Article, the party or parties giving the notice and such other parties as shall elect to participate in the operation shall, no

	
30

	
later than ninety (90) days after the expiration of the notice period of thirty (30) days (or as promptly as practicable after the

	
31

	
expiration of the forty-eight (48) hour period when a drilling rig is on location, as the case may be) actually commence the

	
32

	
proposed operation and complete it with due diligence. Operator shall perform all work for the account of the Consenting

	
33

	
Parties; provided, however, if no drilling rig or other equipment is on location, and if Operator is a Non-Consenting Party,

	
34

	
the Consenting Parties shall either: (i) request Operator to perform the work required by such proposed operation for the

	
35

	
account of the Consenting Parties, or (ii) designate one of the Consenting Parties as Operator to perform such work. The

	
36

	
rights and duties granted to and imposed upon the Operator under this agreement are granted to and imposed upon the party

	
37

	
designated as Operator for an operation in which the original Operator is a Non-Consenting Party.  Consenting Parties, when

	
38

	
conducting operations on the Contract Area pursuant to this Article VI.B.2., shall comply with all terms and conditions of this

	
39

	
agreement.

	
40

	
If less than all parties approve any proposed operation, the proposing party, immediately after the expiration of the

	
41

	
applicable  notice  period,  shall  advise  all  Parties  of  the  total  interest  of  the  parties  approving  such  operation  and  its

	
42

	
recommendation as to whether the Consenting Parties should proceed with the operation as proposed.  Each Consenting Party,

	
43

	
within forty-eight (48) hours (exclusive of Saturday, Sunday, and legal holidays) after delivery of such notice, shall advise the

	
44

	
proposing party of its desire to (i) limit participation to such party's interest as shown on Exhibit "A" or (ii) carry only its

	
45

	
proportionate part (determined by dividing such party's interest in the Contract Area by the interests of all Consenting Parties in

	
46

	
the Contract Area) of Non-Consenting Parties' interests, or (iii) carry its proportionate part (determined as provided in (ii)) of

	
47

	
Non-Consenting  Parties'  interests  together  with  all  or  a  portion  of  its  proportionate  part  of  any  Non-Consenting  Parties'

	
48

	
interests that any Consenting Party did not elect to take.   Any interest of Non-Consenting Parties that is not carried by a

	
49

	
Consenting Party shall be deemed to be carried by the party proposing the operation if such party does not withdraw its

	
50

	
proposal.  Failure to advise the proposing party within the time required shall be deemed an election under (i). In the event a

	
51

	
drilling rig is on location, notice may be given by telephone, and the time permitted for such a response shall not exceed a

	
52

	
total of forty-eight (48) hours (exclusive of Saturday, Sunday and legal holidays).  The proposing party, at its election, may

	
53

	
withdraw such proposal if there is less than 100% participation and shall notify all parties of such decision within ten (10)

	
54

	
days, or within twenty-four (24) hours if a drilling rig is on location, following expiration of the applicable response period.

	
55

	
If 100% subscription to the proposed operation is obtained, the proposing party shall promptly notify the Consenting Parties

	
56

	
of their proportionate interests in the operation and the party serving as Operator shall commence such operation within the

	
57

	
period provided in Article VI.B.1., subject to the same extension right as provided therein.

	
58

	
(b) Relinquishment of Interest for Non-Participation. The entire cost and risk of conducting such operations shall be

	
59

	
borne  by  the  Consenting  Parties  in  the  proportions  they  have  elected  to  bear  same  under  the  terms  of  the  preceding

	
60

	
paragraph.  Consenting Parties shall keep the leasehold estates involved in such operations free and clear of all liens and

	
61

	
encumbrances of every kind created by or arising from the operations of the Consenting Parties.  If such an operation results

	
62

	
in a dry hole, then subject to Articles VI.B.6. and VI.E.3., the Consenting Parties shall plug and abandon the well and restore

	
63

	
the  surface  location  at  their  sole  cost,  risk  and  expense;  provided,  however,  that  those  Non-Consenting  Parties  that

	
64

	
participated in the drilling, Deepening or Sidetracking of the well shall remain liable for, and shall pay, their proportionate

	
65

	
shares of the cost of plugging and abandoning the well and restoring the surface location insofar only as those costs were not

	
66

	
increased by the subsequent operations of the Consenting Parties.   If any well drilled, Reworked, Sidetracked, Deepened,

	
67

	
Recompleted or Plugged Back under the provisions of this Article results in a well capable of producing Oil and/or Gas in

	
68

	
paying quantities, the Consenting Parties shall Complete and equip the well to produce at their sole cost and risk, and the

	
69

	
well shall then be turned over to Operator (if the Operator did not conduct the operation) and shall be operated by it at the

	
70

	
expense and for the account  of the Consenting Parties.   Upon commencement  of operations for the drilling, Reworking,

	
71

	
Sidetracking, Recompleting, Deepening or Plugging Back of any such well by Consenting Parties in accordance with the

	
72

	
provisions of this Article, each Non-Consenting Party shall be deemed to have relinquished to Consenting Parties, and the

	
73

	
Consenting  Parties  shall  own  and  be  entitled  to  receive,  in  proportion  to  their  respective  interests,  all  of  such  Non-

	
74

	
Consenting Party's interest  in  the well and  share of production  therefrom  or,  in  the case of  a  Reworking,  Sidetracking,

 

 

  

-6 -

  

A.A.P.I. FORM 610 - MODEL FORM OPERATING AREEMENT - 1989

 

	
1

	
Deepening, Recompleting or Plugging Back, or a Completion pursuant to Article VI.C.1.  Option No. 2, all of such Non-

	
2

	
Consenting Party's interest in the production obtained from the operation in which the Non-Consenting Party did not elect

	
3

	
to participate.  Such relinquishment shall be effective until the proceeds of the sale of such share, calculated at the well, or

	
4

	
market value thereof if such share is not sold (after deducting applicable ad valorem, production, severance, and excise taxes,

	
5

	
royalty, overriding royalty and other interests not excepted by Article III.C. payable out of or measured by the production

	
6

	
from such well accruing with respect to such interest until it reverts), shall equal the total of the following:

	
7

	
(i)   100% of each such Non-Consenting Party's share of the cost of any newly acquired surface equipment

	
8

	
beyond  the  wellhead  connections  (including  but  not  limited  to  stock  tanks,  separators,  treaters,  pumping  equipment  and

	
9

	
piping), plus 100% of each such Non-Consenting Party's share of the cost of operation of the well commencing with first

	
10

	
production  and  continuing  until  each  such  Non-Consenting  Party's  relinquished  interest  shall  revert  to  it  under  other

	
11

	
provisions of this Article, it being agreed that each Non-Consenting Party's share of such costs and equipment will be that

	
12

	
interest which would have been chargeable to such Non-Consenting Party had it participated in the well from the beginning

	
13

	
of the operations; and

	
14

	
(ii)  400%  of (a) that portion of  the costs and expenses of drilling, Reworking, Sidetracking, Deepening,

	
15

	
Plugging Back, testing, Completing, and Recompleting, after deducting any cash contributions received under Article VIII.C.,

	
16

	
and of (b) that portion of the cost of newly acquired equipment in the well (to and including the wellhead connections),

	
17

	
which would have been chargeable to such Non-Consenting Party if it had participated therein.

	
18

	
Notwithstanding anything to the contrary in this Article VI.B., if the well does not reach the deepest objective Zone

	
19

	
described  in  the notice proposing the well  for reasons other than  the encountering of granite or practically impenetrable

	
20

	
substance or other condition in the hole rendering further operations impracticable, Operator shall give notice thereof to each

	
21

	
Non-Consenting  Party  who  submitted  or  voted  for  an  alternative  proposal  under  Article  VI.B.6.  to  drill  the  well  to  a

	
22

	
shallower Zone than the deepest objective Zone proposed in the notice under which the well was drilled, and each such Non-

	
23

	
Consenting Party shall have the option to participate in the initial proposed Completion of the well by paying its share of the

	
24

	
cost of drilling the well to its actual depth, calculated in the manner provided in Article VI.B.4. (a).  If any such Non-

	
25

	
Consenting Party does not elect to participate in the first Completion proposed for such well, the relinquishment provisions

	
26

	
of this Article VI.B.2. (b) shall apply to such party's interest.

	
27

	
(c)  Reworking,  Recompleting  or  Plugging  Back.  An  election  not  to  participate  in  the  drilling,  Sidetracking  or

	
28

	
Deepening of a well shall be deemed an election not to participate in any Reworking or Plugging Back operation proposed in

	
29

	
such a well, or portion thereof, to which the initial non-consent election applied that is conducted at any time prior to full

	
30

	
recovery  by  the  Consenting  Parties  of  the  Non-Consenting  Party's  recoupment  amount.  Similarly,  an  election  not  to

	
31

	
participate in the Completing or Recompleting of a well shall be deemed an election not to participate in any Reworking

	
32

	
operation proposed in such a well, or portion thereof, to which the initial non-consent election applied that is conducted at

	
33

	
any time prior to full recovery by the Consenting Parties of the Non-Consenting Party's recoupment amount. Any such

	
34

	
Reworking, Recompleting or Plugging Back operation conducted during the recoupment period shall be deemed part of the

	
35

	
cost of operation of said well and there shall be added to the sums to be recouped by the Consenting Parties400% of

	
36

	
that portion of the costs of the Reworking, Recompleting or Plugging Back operation which would have been chargeable to

	
37

	
such Non-Consenting Party had it participated therein.  If such a Reworking, Recompleting or Plugging Back operation is

	
38

	
proposed during such recoupment period, the provisions of this Article VI.B. shall be applicable as between said Consenting

	
39

	
Parties in said well.

	
40

	
(d) Recoupment Matters. During the period of time Consenting Parties are entitled to receive Non-Consenting Party's

	
41

	
share of production, or the proceeds therefrom, Consenting Parties shall be responsible for the payment of all ad valorem,

	
42

	
production, severance, excise, gathering and other taxes, and all royalty, overriding royalty and other burdens applicable to

	
43

	
Non-Consenting Party's share of production not excepted by Article III.C.

	
44

	
In the case of any Reworking, Sidetracking, Plugging Back, Recompleting or Deepening operation, the Consenting

	
45

	
Parties shall be permitted to use, free of cost, all casing, tubing and other equipment in the well, but the ownership of all

	
46

	
such equipment shall remain unchanged; and upon abandonment of a well after such Reworking, Sidetracking, Plugging Back,

	
46

	
Recompleting or Deepening, the Consenting Parties shall account for all such equipment to the owners thereof, with each

	
48

	
party receiving its proportionate part in kind or in value, less cost of salvage.

	
49

	
Within ninety (90) days after the completion of any operation under this Article, the party conducting the operations

	
50

	
for the Consenting Parties shall furnish each Non-Consenting Party with an inventory of the equipment in and connected to

	
51

	
the well, and  an  itemized  statement of the cost of drilling, Sidetracking, Deepening, Plugging Back, testing, Completing,

	
52

	
Recompleting, and equipping the well for production; or, at its option, the operating party, in lieu of an itemized statement

	
53

	
of such costs of operation, may submit a detailed statement of monthly billings.  Each month thereafter, during the time the

	
54

	
Consenting Parties are being reimbursed as provided above, the party conducting the operations for the Consenting Parties

	
55

	
shall furnish the Non-Consenting Parties with an itemized statement of all costs and liabilities incurred in the operation of

	
56

	
the well, together with a statement of the quantity of Oil and Gas produced from it and the amount of proceeds realized from

	
57

	
the sale of the well's working interest production during the preceding month.  In determining the quantity of Oil and Gas

	
58

	
produced during any month, Consenting Parties shall use industry accepted methods such as but not limited to metering or

	
59

	
periodic well tests.  Any amount realized from the sale or other disposition of equipment newly acquired in connection with

	
60

	
any such operation which would have been owned by a Non-Consenting Party had it participated therein shall be credited

	
61

	
against the total unreturned costs of the work done and of the equipment purchased in determining when the interest of such

	
62

	
Non-Consenting Party shall revert to it as above provided; and if there is a credit balance, it shall be paid to such Non-

	
63

	
Consenting Party.

	
64

	
If and when the Consenting Parties recover from a Non-Consenting Party's relinquished interest the amounts provided

	
65

	
for above, the relinquished interests of such Non-Consenting Party shall automatically revert to it as of 7:00 a.m. on the day

	
66

	
following the day on which such recoupment occurs, and, from and after such reversion, such Non-Consenting Party shall

	
67

	
own the same interest in such well, the material and equipment in or pertaining thereto, and the production therefrom as

	
68

	
such  Non-Consenting  Party  would  have  been  entitled  to  had  it  participated  in  the  drilling,  Sidetracking,  Reworking,

	
69

	
Deepening, Recompleting or Plugging Back of said well. Thereafter, such Non-Consenting Party shall be charged with and

	
70

	
shall pay its proportionate part of the further costs of the operation of said well in accordance with the terms of this

	
71

	
agreement and Exhibit "C" attached hereto.

	
72

	
3. Stand-By Costs: When a well which has been drilled or Deepened has reached its authorized depth and all tests have

	
73

	
been  completed  and  the  results  thereof  furnished  to  the  parties,  or  when  operations  on  the  well  have  been  otherwise

	
74

	
terminated pursuant to Article VI.F., stand-by costs incurred pending response to a party's notice proposing a Reworking,

 

 

  

-7 -

  

A.A.P.I. FORM 610 - MODEL FORM OPERATING AREEMENT - 1989

 

	
1

	
Sidetracking, Deepening, Recompleting, Plugging Back or Completing operation in such a well (including the period required

	
2

	
under Article VI.B.6. to resolve competing proposals) shall be charged and borne as part of the drilling or Deepening

	
3

	
operation just completed. Stand-by costs subsequent to all parties responding, or expiration of the response time permitted,

	
4

	
whichever first occurs, and prior to agreement as to the participating interests of all Consenting Parties pursuant to the terms

	
5

	
of the second grammatical paragraph of Article VI.B.2. (a), shall be charged to and borne as part of the proposed operation,

	
6

	
but if the proposal is subsequently withdrawn because of insufficient participation, such stand-by costs shall be allocated

	
7

	
between the Consenting Parties in the proportion each Consenting Party's interest as shown on Exhibit "A" bears to the total

	
8

	
interest as shown on Exhibit "A" of all Consenting Parties.

	
9

	
In the event that notice for a Sidetracking operation is given while the drilling rig to be utilized is on location, any party

	
10

	
may request and receive up to five (5) additional days after expiration of the forty-eight hour response period specified in

	
11

	
Article VI.B.1. within which to respond by paying for all stand-by costs and other costs incurred during such extended

	
12

	
response period; Operator may require such party to pay the estimated stand-by time in advance as a condition to extending

	
13

	
the response period. If more than one party elects to take such additional time to respond to the notice, standby costs shall be

	
14

	
allocated between the parties taking additional time to respond on a day-to-day basis in the proportion each electing party's

	
15

	
interest as shown on Exhibit "A" bears to the total interest as shown on Exhibit "A" of all the electing parties.

	
16

	
4. Deepening: If less than all parties elect to participate in a drilling, Sidetracking, or Deepening operation proposed

	
17

	
pursuant to Article VI.B.1., the interest relinquished by the Non-Consenting Parties to the Consenting Parties under Article

	
18

	
VI.B.2. shall relate only and be limited to the lesser of (i) the total depth actually drilled or (ii) the objective depth or Zone

	
19

	
of which the parties were given notice under Article VI.B.1. ("Initial Objective"). Such well shall not be Deepened beyond the

	
20

	
Initial Objective without first complying with this Article to afford the Non-Consenting Parties the opportunity to participate

	
21

	
in the Deepening operation.

	
22

	
In the event any Consenting Party desires to drill or Deepen a Non-Consent Well to a depth below the Initial Objective,

	
23

	
such party shall give notice thereof, complying with the requirements of Article VI.B.1., to all parties (including Non-

	
24

	
Consenting Parties). Thereupon, Articles VI.B.1. and 2. shall apply and all parties receiving such notice shall have the right to

	
25

	
participate or not participate in the Deepening of such well pursuant to said Articles VI.B.1. and 2. If a Deepening operation

	
26

	
is approved pursuant to such provisions, and if any Non-Consenting Party elects to participate in the Deepening operation,

	
27

	
such Non-Consenting party shall pay or make reimbursement (as the case may be) of the following costs and expenses.

	
28

	
(a) If the proposal to Deepen is made prior to the Completion of such well as a well capable of producing in paying

	
29

	
quantities, such Non-Consenting Party shall pay (or reimburse Consenting Parties for, as the case may be) that share of costs

	
30

	
and expenses incurred in connection with the drilling of said well from the surface to the Initial Objective which Non-

	
31

	
Consenting Party would have paid had such Non-Consenting Party agreed to participate therein, plus the Non-Consenting

	
32

	
Party's share of the cost of Deepening and of participating in any further operations on the well in accordance with the other

	
33

	
provisions of this Agreement; provided, however, all costs for testing and Completion or attempted Completion of the well

	
34

	
incurred by Consenting Parties prior to the point of actual operations to Deepen beyond the Initial Objective shall be for the

	
35

	
sole account of Consenting Parties.

	
36

	
(b) If the proposal is made for a Non-Consent Well that has been previously Completed as a well capable of producing

	
37

	
in paying quantities, but is no longer capable of producing in paying quantities, such Non-Consenting Party shall pay (or

	
38

	
reimburse Consenting Parties for, as the case may be) its proportionate share of all costs of drilling, Completing, and

	
39

	
equipping said well from the surface to the Initial Objective, calculated in the manner provided in paragraph (a) above, less

	
40

	
those costs recouped by the Consenting Parties from the sale of production from the well. The Non-Consenting Party shall

	
41

	
also pay its proportionate share of all costs of re-entering said well. The Non-Consenting Parties' proportionate part (based

	
42

	
on the percentage of such well Non-Consenting Party would have owned had it previously participated in such Non-Consent

	
43

	
Well) of the costs of salvable materials and equipment remaining in the hole and salvable surface equipment used in

	
44

	
connection with such well shall be determined in accordance with Exhibit "C." If the Consenting Parties have recouped the

	
45

	
cost of drilling, Completing, and equipping the well at the time such Deepening operation is conducted, then a Non-

	
46

	
Consenting Party may participate in the Deepening of the well with no payment for costs incurred prior to re-entering the

	
47

	
well for Deepening

	
48

	
The foregoing shall not imply a right of any Consenting Party to propose any Deepening for a Non-Consent Well prior

	
49

	
to the drilling of such well to its Initial Objective without the consent of the other Consenting Parties as provided in Article

	
50

	
VI.F.

	
51

	
5. Sidetracking: Any party having the right to participate in a proposed Sidetracking operation that does not own an

	
52

	
interest in the affected wellbore at the time of the notice shall, upon electing to participate, tender to the wellbore owners its

	
53

	
proportionate share (equal to its interest in the Sidetracking operation) of the value of that portion of the existing wellbore

	
54

	
to be utilized as follows:

	
55

	
(a) If the proposal is for Sidetracking an existing dry hole, reimbursement shall be on the basis of the actual costs

	
56

	
incurred in the initial drilling of the well down to the depth at which the Sidetracking operation is initiated.

	
57

	
(b) If the proposal is for Sidetracking a well which has previously produced, reimbursement shall be on the basis of

	
58

	
such party's proportionate share of drilling and equipping costs incurred in the initial drilling of the well down to the depth

	
59

	
at which the Sidetracking operation is conducted, calculated in the manner described in Article VI.B.4(b) above. Such party's

	
60

	
proportionate share of the cost of the well's salvable materials and equipment down to the depth at which the Sidetracking

	
61

	
operation is initiated shall be determined in accordance with the provisions of Exhibit "C."

	
62

	
6. Order of Preference of Operations. Except as otherwise specifically provided in this agreement, if any party desires to

	
63

	
propose the conduct of an operation that conflicts with a proposal that has been made by a party under this Article VI, such

	
64

	
party shall have fifteen (15) days from delivery of the initial proposal, in the case of a proposal to drill a well or to perform

	
65

	
an operation on a well where no drilling rig is on location, or twenty-four (24) hours, exclusive of Saturday, Sunday and legal

	
66

	
holidays, from delivery of the initial proposal, if a drilling rig is on location for the well on which such operation is to be

	
67

	
conducted, to deliver to all parties entitled to participate in the proposed operation such party's alternative proposal, such

	
68

	
alternate proposal to contain the same information required to be included in the initial proposal. Each party receiving such

	
69

	
proposals shall elect by delivery of notice to Operator within five (5) days after expiration of the proposal period, or within

	
70

	
twenty-four (24) hours (exclusive of Saturday, Sunday and legal holidays) if a drilling rig is on location for the well that is the

	
71

	
subject of the proposals, to participate in one of the competing proposals. Any party not electing within the time required

	
72

	
shall be deemed not to have voted. The proposal receiving the vote of parties owning the largest aggregate percentage

	
73

	
interest of the parties voting shall have priority over all other competing proposals; in the case of a tie vote, the 

	
74

	 

 

  

-8 -

  

A.A.P.I. FORM 610 - MODEL FORM OPERATING AREEMENT - 1989

 

	
1

	
initial proposal shall prevail. Operator shall deliver notice of such result to all parties entitled to participate in the operation

	
2

	
within five (5) days after expiration of the election period (or within twenty-four (24) hours, exclusive of Saturday, Sunday

	
3

	
and legal holidays, if a drilling rig is on location).  Each party shall then have two (2) days (or twenty-four (24) hours if a rig

	
4

	
is on location) from receipt of such notice to elect by delivery of notice to Operator to participate in such operation or to

	
5

	
relinquish interest in the affected well pursuant to the provisions of Article VI.B.2.; failure by a party to deliver notice within

	
6

	
such period shall be deemed an election not to participate in the prevailing proposal.

	
7

	
7. Conformity to Spacing Pattern. Notwithstanding the provisions of this Article VI.B.2., it is agreed that no wells shall be

	
8

	
proposed to be drilled to or Completed in or produced from a Zone from which a well located elsewhere on the Contract

	
9

	
Area is producing, unless such well conforms to the then-existing well spacing pattern for such Zone.

	
10

	
8. Paying Wells. No party shall conduct any Reworking, Deepening, Plugging Back, Completion, Recompletion, or

	
11

	
Sidetracking operation under this agreement with respect to any well then capable of producing in paying quantities except

	
12

	
with the consent of all parties that have not relinquished interests in the well at the time of such operation.

	
13

	
C. Completion of Wells; Reworking and Plugging Back:

	
14

	
1. Completion: Without the consent of all parties, no well shall be drilled, Deepened or Sidetracked, except any well

	
15

	
drilled, Deepened or Sidetracked pursuant to the provisions of Article VI.B.2. of this agreement.  Consent to the drilling,

	
16

	
Deepening or Sidetracking shall include:

	
17

	
o    Option  No.  1:  All  necessary  expenditures  for  the  drilling,  Deepening  or  Sidetracking,  testing,  Completing  and

	
18

	
equipping of the well, including necessary tankage and/or surface facilities.

	
19

	
þ    Option No. 2: All necessary expenditures for the drilling, Deepening or Sidetracking and testing of the well. When

	
20

	
such well has reached its authorized depth, and all logs, cores and other tests have been completed, and the results

	
21

	
thereof furnished to the parties, Operator shall give immediate notice to the Non-Operators having the right to

	
22

	
participate  in  a  Completion  attempt  whether  or  not  Operator  recommends  attempting  to  Complete  the  well,

	
23

	
together with Operator's AFE for Completion costs if not previously provided.  The parties receiving such notice

	
24

	
shall have forty-eight (48) hours (exclusive of Saturday, Sunday and legal holidays) in which to elect by delivery of

	
25

	
notice to Operator to participate in a recommended Completion attempt or to make a Completion proposal with an

	
26

	
accompanying AFE.  Operator shall deliver any such Completion proposal, or any Completion proposal conflicting

	
27

	
with Operator's proposal, to the other parties entitled to participate in such Completion in accordance with the

	
28

	
procedures specified in Article VI.B.6.  Election to participate in a Completion attempt shall include consent to all

	
29

	
necessary expenditures for the Completing and equipping of such well, including necessary tankage and/or surface

	
30

	
facilities but excluding any stimulation  operation  not  contained  on the Completion  AFE. Failure  of any party

	
31

	
receiving  such  notice to  reply  within  the period  above  fixed  shall  constitute  an  election  by that party not to

	
32

	
participate  in  the  cost  of  the  Completion  attempt;  provided,  that  Article  VI.B.6.  shall  control  in  the  case  of

	
33

	
conflicting Completion proposals.  If one or more, but less than all of the parties, elect to attempt a Completion, the

	
34

	
provision  of  Article  VI.B.2.  hereof  (the  phrase  "Reworking,  Sidetracking,  Deepening,  Recompleting  or  Plugging

	
35

	
Back"  as contained  in  Article  VI.B.2.  shall  be  deemed  to  include  "Completing")  shall  apply to  the  operations

	
36

	
thereafter conducted by less than all parties; provided, however, that Article VI.B.2. shall apply separately to each

	
37

	
separate Completion or Recompletion attempt undertaken hereunder, and an election to become a Non-Consenting

	
38

	
Party as to one Completion or Recompletion attempt shall not prevent a party from becoming a Consenting Party

	
39

	
in  subsequent  Completion  or  Recompletion  attempts  regardless  whether  the  Consenting  Parties  as  to  earlier

	
40

	
Completions  or  Recompletion  have  recouped  their  costs  pursuant  to  Article  VI.B.2.;  provided  further,  that  any

	
41

	
recoupment of costs by a Consenting Party shall be made solely from the production attributable to the Zone in

	
42

	
which the Completion attempt is made.  Election by a previous Non-Consenting party to participate in a subsequent

	
43

	
Completion or Recompletion attempt shall require such party to pay its proportionate share of the cost of salvable

	
44

	
materials  and  equipment  installed  in  the  well  pursuant  to  the  previous  Completion  or  Recompletion  attempt,

	
45

	
insofar and only insofar as such materials and equipment benefit the Zone in which such party participates in a

	
46

	
Completion attempt.

	
47

	
2. Rework, Recomplete or Plug Back: No well shall be Reworked, Recompleted or Plugged Back except a well Reworked,

	
48

	
Recompleted, or Plugged Back pursuant to the provisions of Article VI.B.2. of this agreement. Consent to the Reworking,

	
49

	
Recompleting  or  Plugging  Back  of  a  well  shall  include  all  necessary  expenditures  in  conducting  such  operations  and

	
50

	
Completing and equipping of said well, including necessary tankage and/or surface facilities.

	
51

	
D. Other Operations:

	
52

	
Operator shall not undertake any single project reasonably estimated to require an expenditure in excess of

	
53

	
  Twenty-five thousandDollars ($ 25,000.00) except in connection with the

	
54

	
drilling, Sidetracking, Reworking, Deepening, Completing, Recompleting or Plugging Back of a well that has been previously

	
55

	
authorized  by or  pursuant  to  this  agreement;  provided,  however,  that,  in  case  of  explosion,  fire,  flood  or  other  sudden

	
56

	
emergency, whether of the same or different nature, Operator may take such steps and incur such expenses as in its opinion

	
57

	
are required to deal with the emergency to safeguard life and property but Operator, as promptly as possible, shall report the

	
58

	
emergency to the other parties. If Operator prepares an AFE for its own use, Operator shall furnish any Non-Operator so

	
59

	
requesting an information copy thereof for any single project costing in excess of   Twenty-five thousand Dollars

	
60

	
($ 25,000.00 ). Any party who has not relinquished its interest in a well shall have the right to propose that

	
61

	
Operator perform repair work or undertake the installation of artificial lift equipment or ancillary production facilities such as

	
62

	
salt water disposal wells or to conduct additional work with respect to a well drilled hereunder or other similar project (but

	
63

	
not including the installation of gathering lines or other transportation or marketing facilities, the installation of which shall

	
64

	
be governed  by separate agreement between  the parties) reasonably estimated to require an  expenditure in  excess of the

	
65

	
amount first set forth above in this Article VI.D. (except in connection with an operation required to be proposed under

	
66

	
Articles VI.B.1. or VI.C.1. Option No. 2, which shall be governed exclusively be those Articles).  Operator shall deliver such

	
67

	
proposal to all parties entitled to participate therein. If within thirty (30) days thereof Operator secures the written consent

	
68

	
of any party or parties owning at least 75% of the interests of the parties entitled to participate in such operation,

	
69

	
each party having the right to participate in such project shall be bound by the terms of such proposal and shall be obligated

	
70

	
to pay its proportionate share of the costs of the proposed project as if it had consented to such project pursuant to the terms

	
71

	
of the proposal.

	
72

	
E. Abandonment of Wells:

	
73

	
1.  Abandonment of Dry Holes: Except for any well drilled or Deepened pursuant to Article VI.B.2., any well which has

	
74

	
been drilled or Deepened under the terms of this agreement and is proposed to be completed as a dry hole shall not be

 

  

-9 -

A.A.P.I. FORM 610 - MODEL FORM OPERATING AREEMENT - 1989

	
1

	
plugged and abandoned without the consent of all parties. Should Operator, after diligent effort, be unable to contact any

	
2 

	
party, or should any party fail to reply within forty-eight (48) hours (exclusive of Saturday, Sunday and legal holidays) after

	
3

	
delivery of notice of the proposal to plug and abandon such well, such party shall be deemed to have consented to the

	
4

	
proposed abandonment.  All such wells shall be plugged and abandoned in accordance with applicable regulations and at the

	
5

	
cost, risk and expense of the parties who participated in the cost of drilling or Deepening such well.  Any party who objects to

	
6

	
plugging and abandoning such  well by notice delivered  to Operator within  forty-eight  (48) hours (exclusive of Saturday,

	
7

	
Sunday and legal holidays) after delivery of notice of the proposed plugging shall take over the well as of the end of such

	
8

	
forty-eight (48) hour notice period and conduct further operations in search of Oil and/or Gas subject to the provisions of

	
9

	
Article VI.B.; failure of such party to provide proof reasonably satisfactory to Operator of its financial capability to conduct

	
10

	
such operations or to take over the well within such period or thereafter to conduct operations on such well or plug and

	
11

	
abandon such well shall entitle Operator to retain or take possession of the well and plug and abandon the well.  The party

	
12

	
taking over the well shall indemnify Operator (if Operator is an abandoning party) and the other abandoning parties against

	
13

	
liability for any further operations conducted on such well except for the costs of plugging and abandoning the well and

	
14

	
restoring the surface, for which the abandoning parties shall remain proportionately liable.

	
15

	
2.  Abandonment  of  Wells  That  Have  Produced:  Except  for  any  well  in  which  a  Non-Consent  operation  has  been

	
16

	
conducted hereunder for which the Consenting Parties have not been fully reimbursed as herein provided, any well which has

	
17

	
been completed as a producer shall not be plugged and abandoned without the consent of all parties.  If all parties consent to

	
18

	
such abandonment, the well shall be plugged and abandoned in accordance with applicable regulations and at the cost, risk

	
19

	
and expense of all the parties hereto.  Failure of a party to reply within sixty (60) days of delivery of notice of proposed

	
20

	
abandonment shall be deemed an election to consent to the proposal.  If, within sixty (60) days after delivery of notice of the

	
21

	
proposed abandonment of any well, all parties do not agree to the abandonment of such well, those wishing to continue its

	
22

	
operation  from the Zone then  open  to production  shall be obligated  to take over the well as  of the expiration  of the

	
23

	
applicable notice period and shall indemnify Operator (if Operator is an abandoning party) and the other abandoning parties

	
24

	
against liability for any further operations on the well conducted by such parties.  Failure of such party or parties to provide

	
25

	
proof reasonably satisfactory to Operator of their financial capability to conduct such operations or to take over the well

	
26

	
within the required period or thereafter to conduct operations on such well shall entitle operator to retain or take possession

	
27

	
of such well and plug and abandon the well.

	
28

	
Parties taking over a well as provided herein shall tender to each of the other parties its proportionate share of the value of

	
29

	
the well's salvable material and equipment, determined in accordance with the provisions of Exhibit "C," less the estimated cost

	
30

	
of salvaging and the estimated cost of plugging and abandoning and restoring the surface; provided, however, that in the event

	
31

	
the estimated plugging and abandoning and surface restoration costs and the estimated cost of salvaging are higher than the

	
32

	
value of the well's salvable material and equipment, each of the abandoning parties shall tender to the parties continuing

	
33

	
operations their proportionate shares of the estimated excess cost.  Each abandoning party shall assign to the non-abandoning

	
34

	
parties, without warranty, express or implied, as to title or as to quantity, or fitness for use of the equipment and material, all

	
35

	
of its interest in the wellbore of the well and related equipment, together with its interest in the Leasehold insofar and only

	
36

	
insofar as such Leasehold covers the right to obtain production from that wellbore in the Zone then open to production.  If the

	
37

	
interest of the abandoning party is or includes and Oil and Gas Interest, such party shall execute and deliver to the non-

	
38

	
abandoning party or parties an oil and gas lease, limited to the wellbore and the Zone then open to production, for a term of

	
39

	
one (1) year and so long thereafter as Oil and/or Gas is produced from the Zone covered thereby, such lease to be on the form

	
40

	
attached as Exhibit "B."  The assignments or leases so limited shall encompass the Drilling Unit upon which the well is located.

	
41

	
The payments by, and the assignments or leases to, the assignees shall be in a ratio based upon the relationship of their

	
42

	
respective percentage of participation in the Contract Area to the aggregate of the percentages of participation in the Contract

	
43

	
Area of all assignees. There shall be no readjustment of interests in the remaining portions of the Contract Area.

	
44

	
Thereafter, abandoning parties shall have no further responsibility, liability, or interest in the operation of or production

	
45

	
from the well in the Zone then open other than the royalties retained in any lease made under the terms of this Article.  Upon

	
46

	
request, Operator shall continue to operate the assigned well for the account of the non-abandoning parties at the rates and

	
47

	
charges contemplated by this agreement, plus any additional cost and charges which may arise as the result of the separate

	
48

	
ownership of the assigned well.  Upon proposed abandonment of the producing Zone assigned or leased, the assignor or lessor

	
49

	
shall then have the option to repurchase its prior interest in the well (using the same valuation formula) and participate in

	
50

	
further operations therein subject to the provisions hereof.

	
51

	
3. Abandonment of Non-Consent Operations: The provisions of Article VI.E.1. or VI.E.2. above shall be applicable as

	
52

	
between Consenting Parties in the event of the proposed abandonment of any well excepted from said Articles; provided,

	
53

	
however, no well shall be permanently plugged and abandoned unless and until all parties having the right to conduct further

	
54

	
operations therein have been notified of the proposed abandonment and afforded the opportunity to elect to take over the well

	
55

	
in accordance with the provisions of this Article VI.E.; and provided further, that Non-Consenting Parties who own an interest

	
56

	
in a portion of the well shall pay their proportionate shares of abandonment and surface restoration cost for such well as

	
57

	
provided in Article VI.B.2.(b).

	
58

	
F. Termination of Operations:

	
59

	
Upon the commencement of an operation for the drilling, Reworking, Sidetracking, Plugging Back, Deepening, testing,

	
60

	
Completion or plugging of a well, including but not limited to the Initial Well, such operation shall not be terminated without

	
61

	
consent of parties bearing 75% of the costs of such operation; provided, however, that in the event granite or other

	
62

	
practically  impenetrable  substance  or  condition  in  the  hole  is  encountered  which  renders  further  operations  impractical,

	
63

	
Operator may discontinue operations and give notice of such condition in the manner provided in Article VI.B.1, and the

	
64

	
provisions of Article VI.B. or VI.E. shall thereafter apply to such operation, as appropriate.

	
65

	
G. Taking Production in Kind:

	
66

	
o   Option No. 1: Gas Balancing Agreement Attached

	
67

	
Each  party  shall  take  in  kind  or  separately  dispose  of  its  proportionate  share  of  all  Oil  and  Gas  produced  from  the

	
68

	
Contract Area, exclusive of production which may be used in development and producing operations and in preparing and

	
69

	
treating Oil and Gas for marketing purposes and production unavoidably lost.   Any extra expenditure incurred in the taking

	
70

	
in kind or separate disposition by any party of its proportionate share of the production shall be borne by such party.   Any

	
71

	
party  taking  its  share  of  production  in  kind  shall  be  required  to  pay  for  only  its  proportionate  share  of  such  part  of

	
72

	
Operator's surface facilities which it uses.

	
73 

	
Each  party  shall  execute  such  division  orders  and  contracts  as  may  be  necessary  for  the  sale  of  its  interest  in

	
74

	
production  from  the  Contract  Area,  and,  except  as  provided  in  Article  VII.B.,  shall  be  entitled  to  receive  payment

 

  

-10 -

  

A.A.P.I. FORM 610 - MODEL FORM OPERATING AREEMENT - 1989

 

 

	
1

	
directly from the purchaser thereof for its share of all production.

	
2

	
If any party fails to make the arrangements necessary to take in kind or separately dispose of its proportionate

	
3

	
share of the Oil produced from the Contract Area, Operator shall have the right, subject to the revocation at will by

	
4

	
the party owning it, but not the obligation, to purchase such Oil or sell it to others at any time and from time to

	
5

	
time,  for  the  account  of  the  non-taking  party.  Any  such  purchase or  sale  by Operator  may  be  terminated  by

	
6

	
Operator upon at least ten (10) days written notice to the owner of said production and shall be subject always to

	
7

	
the right of the owner of the production upon at least ten (10) days written notice to Operator to exercise at any

	
8

	
time its right to take in kind, or separately dispose of, its share of all Oil not previously delivered to a purchaser.

	
9

	
Any purchase or sale by Operator of any other party's share of Oil shall be only for such reasonable periods of time

	
10

	
as are consistent with the minimum needs of the industry under the particular circumstances, but in no event for a

	
11

	
period in excess of one (1) year.

	
12

	
Any such sale by Operator shall be in a manner commercially reasonable under the circumstances but Operator

	
13

	
shall have no duty to share any existing market or to obtain a price equal to that received under any existing

	
14

	
market.   The sale or delivery by Operator of a non-taking party's share of Oil under the terms of any existing

	
15

	
contract of Operator shall not give the non-taking party any interest in or make the non-taking party a party to said

	
16

	
contract.   No purchase shall be made by Operator without first giving the non-taking party at least ten (10) days

	
17

	
written notice of such intended purchase and the price to be paid or the pricing basis to be used.

	
18

	
All  parties shall give timely  written  notice to Operator of their  Gas marketing arrangements for the following

	
19

	
month,  excluding  price,  and  shall  notify  Operator  immediately  in  the  event  of  a  change  in  such  arrangements.

	
20

	
Operator shall maintain records of all marketing arrangements, and of volumes actually sold or transported, which

	
21

	
records shall be made available to Non-Operators upon reasonable request.

	
22

	
In the event one or more parties' separate disposition of its share of the Gas causes split-stream deliveries to separate

	
23

	
pipelines and/or deliveries which on a day-to-day basis for any reason are not exactly equal to a party's respective proportion-

	
24

	
ate share of total Gas sales to be allocated to it, the balancing or accounting between the parties shall be in accordance with

	
25

	
any Gas balancing agreement between the parties hereto, whether such an agreement is attached as Exhibit "E" or is a

	
26

	
separate agreement.  Operator shall give notice to all parties of the first sales of Gas from any well under this agreement.

	
27

	
þ Option No. 2: No Gas Balancing Agreement:

	
28

	
Each partyshall /  may take in kind or separately dispose of its proportionate share of all Oil and Gas produced from

	
29

	
the  Contract  Area,  exclusive of  production  which  may be  used  in  development  and  producing  operations  and  in

	
30

	
preparing and treating Oil and Gas for marketing purposes and production unavoidably lost.Any extra expenditures

	
31

	
incurred in the taking in kind or separate disposition by any party of its proportionate share of the production shall

	
32

	
be borne by such party.  Any party taking its share of production in kind shall be required to pay for only its

	
33

	
proportionate share of such part of Operator's surface facilities which it uses.

	
34

	
Each party shall execute such division orders and contracts as may be necessary for the sale of its interest in

	
35

	
production from the Contract Area, and, except as provided in Article VII.B., shall be entitled to receive payment

	
36

	
directly from the purchaser thereof for its share of all production.

	
37

	
If any party fails to make the arrangements necessary to take in kind or separately dispose of its proportionate

	
38

	
share  of  the  Oil  and/or  Gas  produced  from  the  Contract  Area,  Operator shall  have  the  right,  subject  to  the

	
39

	
revocation at will by the party owning it, but not the obligation, to purchase such Oil and/or Gas or such Oil and/or Gas sell / it to others

	
40

	
at any time and from time to time, for the account of the non-taking party.  Any such purchase or sale by Operator

	
41

	
may be terminated by Operator upon at least ten (10) days written notice to the owner of said production and shall

	
42

	
be subject always to the right of the owner of the production upon at least ten (10) days written notice to Operator

	
43

	
to exercise its right to take in kind, or separately dispose of, its share of all Oil and/or Gas not previously delivered

	
44

	
to  a purchaser;  provided, however,  that the effective date of  any  such  revocation  may be deferred  at  Operator's

	
45

	
election  for  a  period  not  to  exceed  ninety  (90)  days  if  Operator  has  committed  such  production  to  a  purchase

	
46

	
contract having a term extending beyond such ten (10) -day period. Any purchase or sale by Operator of any other

	
47

	
party's  share  of  Oil  and/or  Gas  shall  be  only  for  such  reasonable  periods  of  time  as  are  consistent  with  the

	
48

	
minimum needs of the industry under the particular circumstances, but in no event for a period in excess of one (1)

	
49

	
year.

	
50

	
Any such sale by Operator shall be in a manner commercially reasonable under the circumstances, but Operator

	
51

	
shall have no duty to share any existing market or transportation arrangement or to obtain a price or transportation

	
52

	
fee  equal  to  that  received  under  any  existing  market  or  transportation  arrangement.The  sale  or  delivery  by

	
53

	
Operator of a non-taking party's share of production under the terms of any existing contract of Operator shall not

	
54

	
give the non-taking party any interest in or make the non-taking party a party to said contract.  No purchase of Oil

	
55

	
and Gas and no sale of Gas shall be made by Operator without first giving the non-taking party ten days written

	
56

	
notice of such intended purchase or sale and the price to be paid or the pricing basis to be used. Operator shall give

	
57

	
notice to all parties of the first sale of Gas from any well under this Agreement.

	
58

	
All  parties shall give timely  written  notice to Operator of their  Gas marketing arrangements for the following

	
59

	
month,  excluding  price,  and  shall  notify  Operator  immediately  in  the  event  of  a  change  in  such  arrangements.

	
60

	
Operator shall maintain records of all marketing arrangements, and of volumes actually sold or transported, which

	
61

	
records shall be made available to Non-Operators upon reasonable request.

	
62

	
ARTICLE VII.

	
63

	
EXPENDITURES AND LIABILITY OF PARTIES

	
64

	
A. Liability of Parties:

	
65

	
The liability of the parties shall be several, not joint or collective. Each party shall be responsible only for its obligations,

	
66

	
and shall be liable only for its proportionate share of the costs of developing and operating the Contract Area.  Accordingly, the

	
67

	
liens granted among the parties in Article VII.B. are given to secure only the debts of each severally, and no party shall have

	
68

	
any liability to third parties hereunder to satisfy the default of any other party in the payment of any expense or obligation

	
69

	
hereunder.  It is not the intention of the parties to create, nor shall this agreement be construed as creating, a mining or other

	
70

	
partnership,  joint  venture,  agency  relationship  or  association,  or  to  render  the  parties  liable  as  partners,  co-venturers,  or

	
71

	
principals.  In their relations with each other under this agreement, the parties shall not be considered fiduciaries or to have

	
72

	
established a confidential relationship but rather shall be free to act on an arm's-length basis in accordance with their own

	
73

	
respective self-interest, subject, however, to the obligation of the parties to act in good faith in their dealings with each other

	
74

	
with respect to activities hereunder.

  

-11 -

  

A.A.P.I. FORM 610 - MODEL FORM OPERATING AREEMENT - 1989

 

	
1

	
B. Liens and Security Interests:

	
2

	
Each party grants to the other parties hereto a lien upon any interest it now owns or hereafter acquires in Oil and Gas

	
3

	
Leases and Oil and Gas Interests in the Contract Area, and a security interest and/or purchase money security interest in any

	
4

	
interest it now owns or hereafter acquires in the personal property and fixtures on or used or obtained for use in connection

	
5

	
therewith, to secure performance of all of its obligations under this agreement including but not limited to payment of expense,

	
6

	
interest and fees, the proper disbursement of all monies paid hereunder, the assignment or relinquishment of interest in Oil

	
7

	
and Gas Leases as required hereunder, and the proper performance of operations hereunder.  Such lien and security interest

	
8

	
granted by each party hereto shall include such party's leasehold interests, working interests, operating rights, and royalty and

	
9

	
overriding royalty interests in the Contract Area now owned or hereafter acquired and in lands pooled or unitized therewith or

	
10

	
otherwise becoming subject to this agreement, the Oil and Gas when extracted therefrom and equipment situated thereon or

	
11

	
used or obtained for use in connection therewith (including, without limitation, all wells, tools, and tubular goods), and accounts

	
12

	
(including, without limitation, accounts arising from gas imbalances or from the sale of Oil and/or Gas at the wellhead),

	
13

	
contract rights, inventory and general intangibles relating thereto or arising therefrom, and all proceeds and products of the

	
14

	
foregoing.

	
15

	
To perfect the lien and security agreement provided herein, each party hereto shall execute and acknowledge the recording

	
16

	
supplement and/or any financing statement prepared and submitted by any party hereto in conjunction herewith or at any time

	
17

	
following execution hereof, and Operator is authorized to file this agreement or the recording supplement executed herewith as

	
18

	
a lien or mortgage in the applicable real estate records and as a financing statement with the proper officer under the Uniform

	
19

	
Commercial Code in the state in which the Contract Area is situated and such other states as Operator shall deem appropriate

	
20

	
to perfect the security interest granted hereunder.  Any party may file this agreement, the recording supplement executed

	
21

	
herewith, or such other documents as it deems necessary as a lien or mortgage in the applicable real estate records and/or a

	
22

	
financing statement with the proper officer under the Uniform Commercial Code.

	
23

	
Each party represents and warrants to the other parties hereto that the lien and security interest granted by such party to

	
24

	
the other parties shall be a first and prior lien, and each party hereby agrees to maintain the priority of said lien and security

	
25

	
interest against all persons acquiring an interest in Oil and Gas Leases and Interests covered by this agreement by, through or

	
26

	
under such party.  All parties acquiring an interest in Oil and Gas Leases and Oil and Gas Interests covered by this agreement,

	
27

	
whether  by  assignment,  merger,  mortgage,  operation  of  law,  or  otherwise,  shall  be  deemed  to  have  taken  subject

	
28

	
to the lien and security interest granted by this Article VII.B. as to all obligations attributable to such interest hereunder

	
29

	
whether or not such obligations arise before or after such interest is acquired.

	
30

	
To  the  extent  that  parties  have  a  security  interest  under  the  Uniform  Commercial  Code  of  the  state  in  which  the

	
31

	
Contract Area is situated, they shall be entitled to exercise the rights and remedies of a secured party under the Code.

	
32

	
The bringing of a suit and the obtaining of judgment by a party for the secured indebtedness shall not be deemed an

	
33

	
election  of  remedies  or  otherwise  affect  the  lien  rights  or  security  interest  as  security  for  the  payment  thereof.In

	
34

	
addition, upon default by any party in the payment of its share of expenses, interests or fees, or upon the improper use

	
35

	
of funds by the Operator, the other parties shall have the right, without prejudice to other rights or remedies, to collect

	
36

	
from the purchaser the proceeds from the sale of such defaulting party's share of Oil and Gas until the amount owed by

	
37

	
such  party,  plus interest  as provided  in  "Exhibit  C," has been  received,  and  shall  have  the  right  to  offset  the amount

	
38

	
owed against the proceeds from the sale of such defaulting party's share of Oil and Gas.  All purchasers of production

	
39

	
may rely on a notification of default from the non-defaulting party or parties stating the amount due as a result of the

	
40

	
default,  and  all  parties  waive  any  recourse  available  against  purchasers  for  releasing  production  proceeds  as  provided  in

	
41

	
this paragraph.

	
42

	
If any party fails to pay its share of cost within one hundred twenty (120) days after rendition of a statement therefor by

	
43

	
Operator,  the  non-defaulting  parties,  including  Operator,  shall  upon  request  by  Operator,  pay  the  unpaid  amount  in  the

	
44

	
proportion that the interest of each such party bears to the interest of all such parties.  The amount paid by each party so

	
45

	
paying its share of the unpaid amount shall be secured by the liens and security rights described in Article VII.B., and each

	
46

	
paying party may independently pursue any remedy available hereunder or otherwise.

	
47

	
If any party does not perform all of its obligations hereunder, and the failure to perform subjects such party to foreclosure

	
48

	
or execution proceedings pursuant to the provisions of this agreement, to the extent allowed by governing law, the defaulting

	
49

	
party waives any available right of redemption from and after the date of judgment, any required valuation or appraisement

	
50

	
of the mortgaged or secured property prior to sale, any available right to stay execution or to require a marshaling of assets

	
51

	
and any required bond in the event a receiver is appointed.  In addition, to the extent permitted by applicable law, each party

	
52

	
hereby grants to the other parties a power of sale as to any property that is subject to the lien and security rights granted

	
53

	
hereunder, such power to be exercised in the manner provided by applicable law or otherwise in a commercially reasonable

	
54

	
manner and upon reasonable notice.

	
55

	
Each party agrees that the other parties shall be entitled to utilize the provisions of Oil and Gas lien law or other lien

	
56

	
law of any state in which the Contract Area is situated to enforce the obligations of each party hereunder.  Without limiting

	
57

	
the generality of the foregoing, to the extent permitted by applicable law, Non-Operators agree that Operator may invoke or

	
58

	
utilize the mechanics' or materialmen's lien law of the state in which the Contract Area is situated in order to secure the

	
59

	
payment  to  Operator  of  any  sum  due  hereunder  for  services  performed  or  materials  supplied  by  Operator.

	
60

	
C. Advances:

	
61

	
Operator, at its election, shall have the right from time to time to demand and receive from one or more of the other

	
62

	
parties payment in advance of their respective shares of the estimated amount of the expense to be incurred in operations

	
63

	
hereunder during the next succeeding month, which right may be exercised only by submission to each such party of an

	
64

	
itemized statement of such estimated expense, together with an invoice for its share thereof.  Each such statement and invoice

	
65

	
for the payment in advance of estimated expense shall be submitted on or before the 20th day of the next preceding month.

	
66

	
Each party shall pay to Operator its proportionate share of such estimate within fifteen (15) days after such estimate and

	
67

	
invoice is received.  If any party fails to pay its share of said estimate within said time, the amount due shall bear interest as

	
68

	
provided in Exhibit "C" until paid.  Proper adjustment shall be made monthly between advances and actual expense to the end

	
69

	
that each party shall bear and pay its proportionate share of actual expenses incurred, and no more.

	
70

	
D. Defaults and Remedies:

	
71

	
If any party fails to discharge any financial obligation under this agreement, including without limitation the failure to

	
72

	
make any advance under the preceding Article VII.C. or any other provision of this agreement, within the period required for

	
73

	
such payment hereunder, then in addition to the remedies provided in Article VII.B. or elsewhere in this agreement, the

	
74

	
remedies specified below shall be applicable.  For purposes of this Article VII.D., all notices and elections shall be delivered

 

 

  

-12 -

  

A.A.P.I. FORM 610 - MODEL FORM OPERATING AREEMENT - 1989

 

	
1

	
only by Operator, except that Operator shall deliver any such notice and election requested by a non-defaulting Non-Operator,

	
2

	
and  when  Operator  is  the party  in  default,  the applicable notices  and  elections  can  be delivered  by any Non-Operator.

	
3

	
Election of any one or more of the following remedies shall not preclude the subsequent use of any other remedy specified

	
4

	
below or otherwise available to a non-defaulting party.

	
5

	
1. Suspension of Rights: Any party may deliver to the party in default a Notice of Default, which shall specify the default,

	
6

	
specify the action to be taken to cure the default, and specify that failure to take such action will result in the exercise of one

	
7

	
or more of the remedies provided in this Article.  If the default is not cured within thirty (30) days of the delivery of such

	
8

	
Notice of Default, all of the rights of the defaulting party granted by this agreement may upon notice be suspended until the

	
9

	
default is cured, without prejudice to the right of the non-defaulting party or parties to continue to enforce the obligations of

	
10

	
the defaulting party previously accrued or thereafter accruing under this agreement. If Operator is the party in default, the

	
11

	
Non-Operators shall have in addition the right, by vote of Non-Operators owning a majority in interest in the Contract Area

	
12

	
after excluding the voting interest of Operator, to appoint a new Operator effective immediately.  The rights of a defaulting

	
13

	
party that may be suspended hereunder at the election of the non-defaulting parties shall include, without limitation, the right

	
14

	
to receive information  as to any operation  conducted  hereunder during the period  of such  default, the right to elect to

	
15

	
participate in an operation proposed under Article VI.B. of this agreement, the right to participate in an operation being

	
16

	
conducted under this agreement even if the party has previously elected to participate in such operation, and the right to

	
17

	
receive proceeds of production from any well subject to this agreement.

	
18

	
2.  Suit  for  Damages:  Non-defaulting  parties  or  Operator  for  the  benefit  of  non-defaulting  parties  may  sue  (at  joint

	
19

	
account expense) to collect the amounts in default, plus interest accruing on the amounts recovered from the date of default

	
20

	
until the date of collection at the rate specified in Exhibit "C" attached hereto.  Nothing herein shall prevent any party from

	
21

	
suing any defaulting party to collect consequential damages accruing to such party as a result of the default.

	
22

	
3.  Deemed  Non-Consent:  The  non-defaulting  party  may  deliver  a  written  Notice  of  Non-Consent  Election  to  the

	
23

	
defaulting party at any time after the expiration of the thirty-day cure period following delivery of the Notice of Default, in

	
24

	
which event if the billing is for the drilling a new well or the Plugging Back, Sidetracking, Reworking or Deepening of a

	
25

	
well which is to be or has been plugged as a dry hole, or for the Completion or Recompletion of any well, the defaulting

	
26

	
party will be conclusively deemed to have elected not to participate in the operation and to be a Non-Consenting Party with

	
27

	
respect  thereto  under  Article  VI.B.  or  VI.C.,  as  the  case  may  be,  to  the  extent  of  the  costs  unpaid  by  such  party,

	
28

	
notwithstanding any election to participate theretofore made. If election is made to proceed under this provision, then the

	
29

	
non-defaulting parties may not elect to sue for the unpaid amount pursuant to Article VII.D.2.

	
30

	
Until the delivery of such Notice of Non-Consent Election to the defaulting party, such party shall have the right to cure

	
31

	
its default by paying its unpaid share of costs plus interest at the rate set forth in Exhibit "C," provided, however, such

	
32

	
payment shall not prejudice the rights of the non-defaulting parties to pursue remedies for damages incurred by the non-

	
33

	
defaulting parties as a result of the default.  Any interest relinquished pursuant to this Article VII.D.3. shall be offered to the

	
34

	
non-defaulting parties in proportion to their interests, and the non-defaulting parties electing to participate in the ownership

	
35

	
of such interest shall be required to contribute their shares of the defaulted amount upon their election to participate therein.

	
36

	
4. Advance Payment: If a default is not cured within thirty (30) days of the delivery of a Notice of Default, Operator, or

	
37

	
Non-Operators  if  Operator  is  the  defaulting  party,  may  thereafter  require  advance  payment  from  the  defaulting

	
38

	
party of such defaulting party's anticipated share of any item of expense for which Operator, or Non-Operators, as the case may

	
39

	
be, would be entitled to reimbursement under any provision of this agreement, whether or not such expense was the subject of

	
40

	
the previous default.  Such right includes, but is not limited to, the right to require advance payment for the estimated costs of

	
41

	
drilling a well or Completion of a well as to which an election to participate in drilling or Completion has been made.  If the

	
42

	
defaulting party fails to pay the required advance payment, the non-defaulting parties may pursue any of the remedies provided

	
43

	
in the Article VII.D. or any other default remedy provided elsewhere in this agreement.  Any excess of funds advanced remaining

	
44

	
when the operation is completed and all costs have been paid shall be promptly returned to the advancing party.

	
45

	
5. Costs and Attorneys' Fees: In the event any party is required to bring legal proceedings to enforce any financial

	
46

	
obligation of a party hereunder, the prevailing party in such action shall be entitled to recover all court costs, costs of

	
47

	
collection, and a reasonable attorney's fee, which the lien provided for herein shall also secure.

	
48

	
E. Rentals, Shut-in Well Payments and Minimum Royalties:

	
49

	
Rentals, shut-in well payments and minimum royalties which may be required under the terms of any lease shall be paid

	
50

	
by the party or parties who subjected such lease to this agreement at its or their expense.  In the event two or more parties

	
51

	
own and have contributed interests in the same lease to this agreement, such parties may designate one of such parties to

	
52

	
make said payments for and on behalf of all such parties.  Any party may request, and shall be entitled to receive, proper

	
53

	
evidence of all such payments.  In the event of failure to make proper payment of any rental, shut-in well payment or

	
54

	
minimum royalty through mistake or oversight where such payment is required to continue the lease in force, any loss which

	
55

	
results from such non-payment shall be borne in accordance with the provisions of Article IV.B.2.

	
56

	
Operator  shall  notify Non-Operators  of  the  anticipated  completion  of  a  shut-in  well,  or  the  shutting  in  or  return  to

	
57

	
production of a producing well, at least five (5) days (excluding Saturday, Sunday, and legal holidays) prior to taking such

	
58

	
action, or at the earliest opportunity permitted by circumstances, but assumes no liability for failure to do so.  In the event of

	
59

	
failure by Operator to so notify Non-Operators, the loss of any lease contributed hereto by Non-Operators for failure to make

	
60

	
timely payments of any shut-in well payment shall be borne jointly by the parties hereto under the provisions of Article 61

	
61 

	
IV.B.3.

	
62

	
F. Taxes:

	
63

	
Beginning with the first calendar year after the effective date hereof, Operator shall render for ad valorem taxation all

	
64

	
property subject to this agreement which by law should be rendered for such taxes, and it shall pay all such taxes assessed

	
65

	
thereon before they become delinquent.  Prior to the rendition date, each Non-Operator shall furnish Operator information as

	
66

	
to burdens (to include, but not be limited to, royalties, overriding royalties and production payments) on Leases and Oil and

	
67

	
Gas Interests contributed by such Non-Operator. If the assessed valuation of any Lease is reduced by reason of its being

	
68

	
subject  to  outstanding  excess  royalties,  overriding  royalties  or  production  payments,  the  reduction  in  ad  valorem  taxes

	
69

	
resulting therefrom shall inure to the benefit of the owner or owners of such Lease, and Operator shall adjust the charge to

	
70

	
such owner or owners so as to reflect the benefit of such reduction.  If the ad valorem taxes are based in whole or in part

	
71

	
upon separate valuations of each party's working interest, then notwithstanding anything to the contrary herein, charges to

	
72

	
the joint account shall be made and paid by the parties hereto in accordance with the tax value generated by each party's

	
73

	
working interest. Operator shall bill the other parties for their proportionate shares of all tax payments in  the manner

	
74

	
provided in Exhibit "C."

 

 

  

-13 -

  

A.A.P.I. FORM 610 - MODEL FORM OPERATING AREEMENT - 1989

 

	
1

	
If Operator considers any tax assessment improper, Operator may, at its discretion, protest within the time and manner

	
2

	
prescribed by law, and prosecute the protest to a final determination, unless all parties agree to abandon the protest prior to final

	
3

	
determination.  During the pendency of administrative or judicial proceedings, Operator may elect to pay, under protest, all such taxes

	
4

	
and any interest and penalty.  When any such protested assessment shall have been finally determined, Operator shall pay the tax for

	
5

	
the joint account, together with any interest and penalty accrued, and the total cost shall then be assessed against the parties, and be

	
6

	
paid by them, as provided in Exhibit "C."

	
7

	
Each party shall pay or cause to be paid all production, severance, excise, gathering and other taxes imposed upon or with respect

	
8

	
to the production or handling of such party's share of Oil and Gas produced under the terms of this agreement.

	
9

	
ARTICLE VIII.

	
10

	
ACQUISITION, MAINTENANCE OR TRANSFER OF INTEREST

	
11

	
A. Surrender of Leases:

	
12

	
The Leases covered by this agreement, insofar as they embrace acreage in the Contract Area, shall not be surrendered in whole

	
13

	
or in part unless all parties consent thereto.

	
14

	
However, should any party desire to surrender its interest in any Lease or in any portion thereof, such party shall give written

	
15

	
notice of the proposed surrender to all parties, and the parties to whom such notice is delivered shall have thirty (30) days after

	
16

	
delivery of the notice within which to notify the party proposing the surrender whether they elect to consent thereto.  Failure of a

	
17

	
party to whom such notice is delivered to reply within said 30-day period shall constitute a consent to the surrender of the Leases

	
18

	
described in the notice.  If all parties do not agree or consent thereto, the party desiring to surrender shall assign, without express or

	
19

	
implied warranty of title, all of its interest in such Lease, or portion thereof, and any well, material and equipment which may be

	
20

	
located thereon and any rights in production thereafter secured, to the parties not consenting to such surrender.  If the interest of the

	
21

	
assigning party is or includes an Oil and Gas Interest, the assigning party shall execute and deliver to the party or parties not

	
22

	
consenting to such surrender an oil and gas lease covering such Oil and Gas Interest for a term of one (1) year and so long

	
23

	
thereafter as Oil and/or Gas is produced from the land covered thereby, such lease to be on the form attached hereto as Exhibit "B."

	
24

	
Upon such assignment or lease, the assigning party shall be relieved from all obligations thereafter accruing, but not theretofore

	
25

	
accrued, with respect to the interest assigned or leased and the operation of any well attributable thereto, and the assigning party

	
26

	
shall have no further interest in the assigned or leased premises and its equipment and production other than the royalties retained

	
27

	
in any lease made under the terms of this Article.  The party assignee or lessee shall pay to the party assignor or lessor the

	
28

	
reasonable salvage value of the latter's interest in any well's salvable materials and equipment attributable to the assigned or leased

	
29

	
acreage.  The value of all salvable materials and equipment shall be determined in accordance with the provisions of Exhibit "C," less

	
30

	
the estimated cost of salvaging and the estimated cost of plugging and abandoning and restoring the surface.  If such value is less

	
31

	
than such costs, then the party assignor or lessor shall pay to the party assignee or lessee the amount of such deficit.  If the

	
32

	
assignment or lease is in favor of more than one party, the interest shall be shared by such parties in the proportions that the

	
33

	
interest of each bears to the total interest of all such parties.  If the interest of the parties to whom the assignment is to be made

	
34

	
varies according to depth, then the interest assigned shall similarly reflect such variances.

	
35

	
Any assignment, lease or surrender made under this provision shall not reduce or change the assignor's, lessor's or surrendering

	
36

	
party's interest as it was immediately before the assignment, lease or surrender in the balance of the Contract Area; and the acreage

	
37

	
assigned, leased or surrendered, and subsequent operations thereon, shall not thereafter be subject to the terms and provisions of this

	
38

	
agreement but shall be deemed subject to an Operating Agreement in the form of this agreement.

	
39

	
B. Renewal or Extension of Leases:

	
40

	
If any party secures a renewal or replacement of an Oil and Gas Lease or Interest subject to this agreement, then all other parties

	
41

	
shall be notified promptly upon such acquisition or, in the case of a replacement Lease taken before expiration of an existing Lease,

	
42

	
promptly upon expiration of the existing Lease.  The parties notified shall have the right for a period of thirty (30) days following

	
43

	
delivery of such notice in which to elect to participate in the ownership of the renewal or replacement Lease, insofar as such Lease

	
44

	
affects lands within the Contract Area, by paying to the party who acquired it their proportionate shares of the acquisition cost

	
45

	
allocated to that part of such Lease within the Contract Area, which shall be in proportion to the interest held at that time by the

	
46

	
parties in the Contract Area.  Each party who participates in the purchase of a renewal or replacement Lease shall be given an

	
47

	
assignment of its proportionate interest therein by the acquiring party.

	
48

	
If some, but less than all, of the parties elect to participate in the purchase of a renewal or replacement Lease, it shall be owned

	
49

	
by the parties who elect to participate therein, in a ratio based upon the relationship of their respective percentage of participation in

	
50

	
the Contract Area to the aggregate of the percentages of participation in the Contract Area of all parties participating in the

	
51

	
purchase of such renewal or replacement Lease.  The acquisition of a renewal or replacement Lease by any or all of the parties hereto

	
52

	
shall not cause a readjustment of the interests of the parties stated in Exhibit "A," but any renewal or replacement Lease in which

	
53

	
less than all parties elect to participate shall not be subject to this agreement but shall be deemed subject to a separate Operating

	
54

	
Agreement in the form of this agreement.

	
55

	
If the interests of the parties in the Contract Area vary according to depth, then their right to participate proportionately in

	
56

	
renewal or replacement Leases and their right to receive an assignment of interest shall also reflect such depth variances.

	
57

	
The provisions of this Article shall apply to renewal or replacement Leases whether they are for the entire interest covered by

	
58

	
the expiring Lease or cover only a portion of its area or an interest therein.  Any renewal or replacement Lease taken before the

	
59

	
expiration of its predecessor Lease, or taken or contracted for or becoming effective within six (6) months after the expiration of the

	
60

	
existing Lease, shall be subject to this provision so long as this agreement is in effect at the time of such acquisition or at the time

	
61

	
the renewal or replacement Lease becomes effective; but any Lease taken or contracted for more than six (6) months after the

	
62

	
expiration of an existing Lease shall not be deemed a renewal or replacement Lease and shall not be subject to the provisions of this

	
63

	
agreement.

	
64

	
The provisions in this Article shall also be applicable to extensions of Oil and Gas Leases.

	
65

	
C. Acreage or Cash Contributions:

	
66

	
While this agreement is in force, if any party contracts for a contribution of cash towards the drilling of a well or any other

	
67

	
operation on the Contract Area, such contribution shall be paid to the party who conducted the drilling or other operation and shall

	
68

	
be applied by it against the cost of such drilling or other operation.  If the contribution be in the form of acreage, the party to whom

	
69

	
the contribution is made shall promptly tender an assignment of the acreage, without warranty of title, to the Drilling Parties in the

	
70

	
proportions said Drilling Parties shared the cost of drilling the well. Such acreage shall become a separate Contract Area and, to  the

	
71

	
extent possible, be governed by provisions identical to this agreement.  Each party shall promptly notify all other parties of any

	
72

	
acreage or cash contributions it may obtain in support of any well or any other operation on the Contract Area.  The above

	
73

	
provisions shall also be applicable to optional rights to earn acreage outside the Contract Area which are in support of well drilled

	
74

	
inside Contract Area.

 

 

  

-14 -

  

A.A.P.I. FORM 610 - MODEL FORM OPERATING AREEMENT - 1989

 

	
1

	
If any party contracts for any consideration relating to disposition of such party's share of substances produced hereunder,

	
2

	
such consideration shall not be deemed a contribution as contemplated in this Article VIII.C.

	
3

	
D. Assignment; Maintenance of Uniform Interest:

	
4

	
For the purpose of maintaining uniformity of ownership in the Contract Area in the Oil and Gas Leases, Oil and Gas

	
5

	
Interests, wells, equipment and production covered by this agreement no party shall sell, encumber, transfer or make other

	
6

	
disposition of its interest in the Oil and Gas Leases and Oil and Gas Interests embraced within the Contract Area or in wells,

	
7

	
equipment and production unless such disposition covers either:

	
8

	
1. the entire interest of the party in all Oil and Gas Leases, Oil and Gas Interests, wells, equipment and production; or

	
9

	
2. an equal undivided percent of the party's present interest in all Oil and Gas Leases, Oil and Gas Interests, wells,

	
10

	
equipment and production in the Contract Area.

	
11

	
Every sale, encumbrance, transfer or other disposition made by any party shall be made expressly subject to this agreement

	
12

	
and shall be made without prejudice to the right of the other parties, and any transferee of an ownership interest in any Oil and

	
13

	
Gas Lease or Interest shall be deemed a party to this agreement as to the interest conveyed from and after the effective date of

	
14

	
the  transfer  of  ownership;  provided,  however,  that  the  other  parties  shall  not  be  required  to  recognize  any  such  sale,

	
15

	
encumbrance, transfer or other disposition for any purpose hereunder until thirty (30) days after they have received a copy of the

	
16

	
instrument of transfer or other satisfactory evidence thereof in writing from the transferor or transferee.  No assignment or other

	
17

	
disposition of interest by a party shall relieve such party of obligations previously incurred by such party hereunder with respect

	
18

	
to the interest transferred, including without limitation the obligation of a party to pay all costs attributable to an operation

	
19

	
conducted hereunder in which such party has agreed to participate prior to making such assignment, and the lien and security

	
20

	
interest granted by Article VII.B. shall continue to burden the interest transferred to secure payment of any such obligations.

	
21

	
If, at any time the interest of any party is divided among and owned by four or more co-owners, Operator, at its discretion,

	
22

	
may require such co-owners to appoint a single trustee or agent with full authority to receive notices, approve expenditures,

	
23

	
receive billings for and approve and pay such party's share of the joint expenses, and to deal generally with, and with power to

	
24

	
bind, the co-owners of such party's interest within the scope of the operations embraced in this agreement; however, all such co-

	
25

	
owners shall have the right to enter into and execute all contracts or agreements for the disposition of their respective shares of

	
26

	
the Oil and Gas produced from the Contract Area and they shall have the right to receive, separately, payment of the sale

	
27

	
proceeds thereof.

	
28

	
E. Waiver of Rights to Partition:

	
29

	
If permitted by the laws of the state or states in which the property covered hereby is located, each party hereto owning an

	
30

	
undivided interest in the Contract Area waives any and all rights it may have to partition and have set aside to it in severalty its

	
31

	
undivided interest therein.

	
23

	
F. Preferential Right to Purchase:

	
33

	
o (Optional; Check if applicable.)

	
34

	
Should any party desire to sell all or any part of its interests under this agreement, or its rights and interests in the Contract

	
35

	
Area, it shall promptly give written notice to the other parties, with full information concerning its proposed disposition, which

	
36

	
shall include the name and address of the prospective transferee (who must be ready, willing and able to purchase), the purchase

	
37

	
price, a legal description sufficient to identify the property, and all other terms of the offer.  The other parties shall then have an

	
38

	
optional prior right, for a period of ten (10) days after the notice is delivered, to purchase for the stated consideration on the

	
38

	
same terms and conditions the interest which the other party proposes to sell; and, if this optional right is exercised, the

	
40

	
purchasing parties shall share the purchased interest in the proportions that the interest of each bears to the total interest of all

	
41

	
purchasing parties.  However, there shall be no preferential right to purchase in those cases where any party wishes to mortgage

	
42

	
its interests, or to transfer title to its interests to its mortgagee in lieu of or pursuant to foreclosure of a mortgage of its interests,

	
43

	
or to dispose of its interests by merger, reorganization, consolidation, or by sale of all or substantially all of its Oil and Gas assets

	
44

	
to any party, or by transfer of its interests to a subsidiary or parent company or to a subsidiary of a parent company, or to any

	
45

	
company in which such party owns a majority of the stock.

	
46

	
ARTICLE IX.

	
47

	
INTERNAL REVENUE CODE ELECTION

	
48

	
If, for federal income tax purposes, this agreement and the operations hereunder are regarded as a partnership, and if the

	
49

	
parties have not otherwise agreed to form a tax partnership pursuant to Exhibit "G" or other agreement between them, each

	
50

	
party thereby affected elects to be excluded from the application of all of the provisions of Subchapter "K," Chapter 1, Subtitle

	
51

	
"A," of the Internal Revenue Code of 1986, as amended ("Code"), as permitted and authorized by Section 761 of the Code and

	
52

	
the regulations promulgated thereunder.  Operator is authorized and directed to execute on behalf of each party hereby affected

	
53

	
such evidence of this election as may be required by the Secretary of the Treasury of the United States or the Federal Internal

	
54

	
Revenue Service, including specifically, but not by way of limitation, all of the returns, statements, and the data required by

	
55

	
Treasury Regulation §1.761.   Should there be any requirement that each party hereby affected give further evidence of this

	
56

	
election, each such party shall execute such documents and furnish such other evidence as may be required by the Federal Internal

	
57

	
Revenue Service or as may be necessary to evidence this election.  No such party shall give any notices or take any other action

	
58

	
inconsistent with the election made hereby.  If any present or future income tax laws of the state or states in which the Contract

	
59

	
Area is located or any future income tax laws of the United States contain provisions similar to those in Subchapter "K," Chapter

	
60

	
1, Subtitle "A," of the Code, under which an election similar to that provided by Section 761 of the Code is permitted, each party

	
61

	
hereby affected shall make such election as may be permitted or required by such laws.  In making the foregoing election, each

	
62

	
such party states that the income derived by such party from operations hereunder can be adequately determined without the

	
63

	
computation of partnership taxable income.

	
64

	
ARTICLE X.

	
65

	
CLAIMS AND LAWSUITS

	
66

	
Operator may settle any single uninsured third party damage claim or suit arising from operations hereunder if the expenditure

	
67

	
does not exceed Fifty thousand Dollars ($ 50,000.00) and if the payment is in complete settlement

	
68

	
of such claim or suit.  If the amount required for settlement exceeds the above amount, the parties hereto shall assume and take over

	
69

	
the further handling of the claim or suit, unless such authority is delegated to Operator.  All costs and expenses of handling settling,

	
70

	
or otherwise discharging such claim or suit shall be a the joint expense of the parties participating in the operation from which the

	
71

	
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

	
72

	
hereunder over which such individual has no control because of the rights given Operator by this agreement, such party shall

	
73

	
immediately notify all other parties, and the claim or suit shall be treated as any other claim or suit involving operations hereunder. 74

	
74

	 

 

  

-15 -

  

A.A.P.I. FORM 610 - MODEL FORM OPERATING AREEMENT - 1989

 

 

	
1

	
ARTICLE XI.

	
2

	
FORCE MAJEURE

	
3

	
If any party is rendered unable, wholly or in part, by force majeure to carry out its obligations under this agreement, other

	
4

	
than the obligation to indemnify or make money payments or furnish security, that party shall give to all other parties

	
5

	
prompt written notice of the force majeure with reasonably full particulars concerning it; thereupon, the obligations of the

	
6

	
party giving the notice, so far as they are affected by the force majeure, shall be suspended during, but no longer than, the

	
7

	
continuance of the force majeure.  The term "force majeure," as here employed, shall mean an act of God, strike, lockout, or

	
8

	
other industrial disturbance, act of the public enemy, war, blockade, public riot, lightening, fire, storm, flood or other act of

	
9

	
nature, explosion, governmental action, governmental delay, restraint or inaction, unavailability of equipment, and any other

	
10

	
cause, whether of the kind specifically enumerated above or otherwise, which is not reasonably within the control of the party

	
11

	
claiming suspension.

	
12

	
The affected party shall use all reasonable diligence to remove the force majeure situation as quickly as practicable. The

	
13

	
requirement that any force majeure shall be remedied with all reasonable dispatch shall not require the settlement of strikes,

	
14

	
lockouts, or other labor difficulty by the party involved, contrary to its wishes; how all such difficulties shall be handled shall

	
15

	
be entirely within the discretion of the party concerned.

	
16

	
ARTICLE XII.

	
17

	
NOTICES

	
18

	
All  notices  authorized  or  required  between  the  parties  by any of  the  provisions  of  this  agreement,  unless  otherwise

	
19

	
specifically provided, shall be in writing and delivered in person or by United States mail, courier service, telegram, telex,

	
20

	
telecopier or any other form of facsimile, postage or charges prepaid, and addressed to such parties at the addresses listed on

	
21

	
Exhibit "A."  All telephone or oral notices permitted by this agreement shall be confirmed immediately thereafter by written

	
22

	
notice.  The originating notice given under any provision hereof shall be deemed delivered only when received by the party to

	
23

	
whom such notice is directed, and the time for such party to deliver any notice in response thereto shall run from the date

	
24

	
the originating notice is received.  "Receipt" for purposes of this agreement with respect to written notice delivered hereunder

	
25

	
shall be actual delivery of the notice to the address of the party to be notified specified in accordance with this agreement, or

	
26

	
to the telecopy, facsimile or telex machine of such party.  The second or any responsive notice shall be deemed delivered when

	
27

	
deposited in the United States mail or at the office of the courier or telegraph service, or upon transmittal by telex, telecopy

	
28

	
or facsimile, or when personally delivered to the party to be notified, provided, that when response is required within 24 or

	
29 

	
48 hours, such response shall be given orally or by telephone, telex, telecopy or other facsimile within such period. Each party

	
30

	
shall have the right to change its address at any time, and from time to time, by giving written notice thereof to all other

	
31

	
parties.  If a party is not available to receive notice orally or by telephone when a party attempts to deliver a notice required

	
32

	
to be delivered within 24 or 48 hours, the notice may be delivered in writing by any other method specified herein and shall

	
33

	
be deemed delivered in the same manner provided above for any responsive notice.

	
34

	
ARTICLE XIII.

	
35

	
TERM OF AGREEMENT

	
36

	
This agreement shall remain in full force and effect as to the Oil and Gas Leases and/or Oil and Gas Interests subject

	
37

	
hereto for the period of time selected below; provided, however, no party hereto shall ever be construed as having any right, title

	
38

	
or interest in or to any Lease or Oil and Gas Interest contributed by any other party beyond the term of this agreement.

	
39

	
o Option No. 1: So long as any of the Oil and Gas Leases subject to this agreement remain or are continued in

	
40

	
force as to any part of the Contract Area, whether by production, extension, renewal or otherwise.

	
41

	
þ Option No. 2: In the event the well described in Article VI.A., or any subsequent well drilled under any provision

	
42

	
of this agreement, results in the Completion of a well as a well capable of production of Oil and/or Gas in paying

	
43

	
quantities, this agreement shall continue in force so long as any such well is capable of production, and for an

	
44

	
additional  period  of     90     days  thereafter;  provided,  however,  if,  prior  to  the  expiration  of  such

	
45

	
additional period, one or more of the parties hereto are engaged in drilling, Reworking, Deepening, Sidetracking,

	
46

	
Plugging Back, testing or attempting to Complete or Re-complete a well or wells hereunder, this agreement shall

	
47

	
continue  in  force  until  such  operations  have  been  completed  and  if  production  results  therefrom,  this  agreement

	
48

	
shall continue in force as provided herein.  In the event the well described in Article VI.A., or any subsequent well

	
49

	
drilled  hereunder,  results  in  a  dry  hole,  and  no  other  well  is  capable  of  producing  Oil  and/or  Gas  from  the

	
50

	
Contract  Area,  this  agreement  shall  terminate  unless  drilling,  Deepening,  Sidetracking,  Completing,  Re-

	
51

	
completing, Plugging Back or Reworking operations are commenced within   180    days from the

	
52

	
date of abandonment of said well.  "Abandonment" for such purposes shall mean either (i) a decision by all parties

	
53

	
not  to  conduct  any  further  operations  on  the  well  or  (ii)  the  elapse  of  180  days  from  the  conduct  of  any

	
54

	
operations on the well, whichever first occurs.

	
55

	
The termination of this agreement shall not relieve any party hereto from any expense, liability or other obligation or any

	
56

	
remedy therefor which has accrued or attached prior to the date of such termination.

	
57

	
Upon termination of this agreement and the satisfaction of all obligations hereunder, in the event a memorandum of this

	
58

	
Operating Agreement has been filed of record, Operator is authorized to file of record in all necessary recording offices a

	
59

	
notice of termination, and each party hereto agrees to execute such a notice of termination as to Operator's interest, upon

	
60

	
request of Operator, if Operator has satisfied all its financial obligations.

	
61

	
ARTICLE XIV.

	
62

	
COMPLIANCE WITH LAWS AND REGULATIONS

	
63

	
A. Laws, Regulations and Orders:

	
64

	
This agreement shall be subject to the applicable laws of the state in which the Contract Area is located, to the valid rules,

	
65

	
regulations,  and  orders  of  any  duly  constituted  regulatory  body  of  said  state;  and  to  all  other  applicable  federal,  state,

	
66

	
and local laws, ordinances, rules, regulations and orders.

	
67

	
B. Governing Law:

	
68

	
This  agreement  and  all  matters  pertaining  hereto,  including  but  not  limited  to  matters  of  performance,  non-

	
69

	
performance,  breach,  remedies, procedures,  rights,  duties, and interpretation or  construction,  shall  be  governed and

	
70

	
determined by the law of the state in which the Contract Area is located.  If the Contract Area is in two or more states,

	
71

	
the law of the state of   Colorado shall govern.

	
72

	
C. Regulatory Agencies:

	
73

	
Nothing herein contained shall grant, or be construed to grant, Operator the right or authority to waive or release any

	
74

	
rights, privileges, or obligations which Non-Operators may have under federal or state laws or under rules, regulations or

 

 

  

-16 -

  

A.A.P.I. FORM 610 - MODEL FORM OPERATING AREEMENT - 1989

 

 

	
1

	
orders promulgated under such laws in reference to oil, gas and mineral operations, including the location, operation, or

	
2

	
production of wells, on tracts offsetting or adjacent to the Contract Area.

	
3

	
With respect to the operations hereunder, Non-Operators agree to release Operator from any and all losses, damages,

	
4

	
injuries, claims and causes of action arising out of, incident to or resulting directly or indirectly from Operator's interpretation

	
5

	
or application of rules, rulings, regulations or orders of the Department of Energy or Federal Energy Regulatory Commission

	
6

	
or predecessor or successor agencies to the extent such interpretation or application was made in good faith and does not

	
7

	
constitute  gross  negligence.   Each  Non-Operator  further  agrees  to  reimburse  Operator  for  such  Non-Operator's  share  of

	
8

	
production or any refund, fine, levy or other governmental sanction that Operator may be required to pay as a result of such

	
9

	
an incorrect interpretation or application, together with interest and penalties thereon owing by Operator as a result of such

	
10 

	
incorrect interpretation or application.

	
11

	
ARTICLE XV.

	
12

	
MISCELLANEOUS

	
13

	
A. Execution:

	
14

	
This  agreement  shall  be  binding  upon  each  Non-Operator  when  this  agreement  or  a  counterpart  thereof  has  been

	
15

	
executed by such Non-Operator and Operator notwithstanding that this agreement is not then or thereafter executed by all of

	
16

	
the parties to which it is tendered or which are listed on Exhibit "A" as owning an interest in the Contract Area or which

	
17

	
own, in fact, an interest in the Contract Area.   Operator may, however, by written notice to all Non-Operators who have

	
18

	
become bound by this agreement as aforesaid, given at any time prior to the actual spud date of the Initial Well but in no

	
19

	
event later than five days prior to the date specified in Article VI.A. for commencement of the Initial Well, terminate this

	
20

	
agreement  if Operator in its sole discretion  determines that there is insufficient participation to justify commencement of

	
21

	
drilling operations.  In the event of such a termination by Operator, all further obligations of the parties hereunder shall cease

	
22

	
as  of  such  termination.  In  the  event  any  Non-Operator  has  advanced  or  prepaid  any  share  of  drilling  or  other  costs

	
23

	
hereunder, all sums so advanced shall be returned to such Non-Operator without interest.In the event Operator proceeds

	
24

	
with drilling operations for the Initial Well without the execution hereof by all persons listed on Exhibit "A" as having a

	
25

	
current  working  interest  in  such  well,  Operator  shall  indemnify Non-Operators  with  respect  to all costs  incurred  for  the

	
26

	
Initial Well which would have been charged to such person under this agreement if such person had executed the same and

	
27

	
Operator shall receive all revenues which would have been received by such person under this agreement if such person had

	
28

	
executed the same.

	
29

	
B. Successors and Assigns:

	
30

	
This agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective heirs,

	
31

	
devisees, legal representatives, successors and  assigns, and  the terms hereof shall be deemed  to  run  with the Leases  or

	
32

	
Interests included within the Contract Area.

	
33

	
C. Counterparts:

	
34

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

	
35

	
purposes.

	
36

	
D. Severability:

	
37

	
For the purposes of assuming or rejecting this agreement as an executory contract pursuant to federal bankruptcy laws,

	
38

	
this agreement shall not be severable, but rather must be assumed or rejected in its entirety, and the failure of any party to

	
39

	
this agreement to comply with all of its financial obligations provided herein shall be a material default.

	
40

	
ARTICLE XVI.

	
41

	
OTHER PROVISIONS

42

	
43

	
SEE ATTACHED PAGE 17

43

44

45

46

47

48

49

50

51

52

53

54

55

56

57

58

59

60

61

62

63

64

65

66

67

68

69

70

71

72

73

74

 

  

-17 -

  

A.A.P.I. FORM 610 - MODEL FORM OPERATING AREEMENT - 1989

 

	
1

	
IN WITNESS WHEREOF, this agreement shall be effective as of the ____________________day of__________ ,

	
2 

	
_____________________.

	
3

	
_____________________, who has prepared and circulated this form for execution, represents and warrants that the form was printed from and, with the exception(s) listed below, is identical to the AAPL Form 610-1989 Model Form

	
4

	
Operating Agreement, as published in computerized form by Forms On-A-Disk, Inc. No changes, alterations, or modifications, other than those made by strikethrough and/or insertion and that are clearly recognizable as changes

 in Articles

	
5

	
 , have been made to the form.

	6	ATTEST OR WITNESS: 	 	 	OPERATOR
	
7

 

	 	 	 	
 

PETROSHARE CORP.

	
 

8

	 	 	By:	 
	
 

9 

	 	 	 	 
	
 

10

 

	 	 	 	Type or print name
	
11

	 	 	 	Title	 
	
 

12

	 	 	 	Date	 
	
 

13

	 	 	 	Tax ID or S.S. No.	 
	
 

14

	 	 	 	 
	 	 	 	 	 

 

	15	NON-OPERATORS
	
16

	 	 	 	
  

 

	17	 	 	 	ROYALE INVESTMENTS, LLC
	
  

 

 

	 	 	By:	 
	
  

18

	
 

 

	 	 	 
	
  

19

	 	 	 	Type or print name
	
20

 

	 	 	 	Title	 
	
21

 

	 	 	 	Date	 
	
22

 

	 	 	 	Tax ID or S.S. No.	 
	
  

23

	 	 	 	 
	 	 	 	 	 

 

	24	 	 	 	RANCHER ENERGY CORP.
	25	 	 	 	 
	
  

  

	 	 	By:	 
	
  

 

26

	
  

	 	 	Jon Nicolaysen
	
  

 

27

	 	 	 	Type or print name
	
28

	 	 	 	Title	
 

President & CEO

	
29

	
 

 

	 	 	Date	 
	
30

	
 

 

	 	 	Tax ID or S.S. No.	 
	
  

31

	 	 	 	 
	 	 	 	 	 

	32	 	 	 	U.S. Energy Development Co.
	 	 	 	 	 
	
  

  

	 	 	By:	 
	
  

 

33

	
  

	 	 	Douglas K. Walch
	
  

  

34

	 	 	 	Type or print name
	
35

	 	 	 	Title	
  

President

	
36

	
 

 

	 	 	Date	 
	
37

	
 

 

	 	 	Tax ID or S.S. No.	 
	 	 	 	 	 

 

 

  

-18 -

  

A.A.P.I. FORM 610 - MODEL FORM OPERATING AREEMENT - 1989

 

	
1

	
ACKNOWLEDGMENTS

	
2

	
Note: The following forms of acknowledgment are the short forms approved by the Uniform Law on Notarial Acts.

	
3

	
The validity and effect of these forms in any state will depend upon the statutes of that state.

	
4

	
  

	
5

	
Individual acknowledgment:

	
6

	
State of _______________ )

	
7

	

State of _______________ ) ss.

	
8

	
County of _____________)

	
9

	
This instrument was acknowledged before me on

	
10 

	
_________________________ by _______________________________

	
11

	 

	
12

	
 _________ (Seal, if any) ____________________________________ _______________________________________

	
13

	
 _________ (Seal, if any) ____________________________________Title (and Rank) ___________________________

	
14

	

_________ (Seal, if any) ____________________________________My commission expires: ___________________________

	
15

	
  

	
16

	
Acknowledgment in representative capacity:

	
17

	
State of _______________ )

	
18

	

State of _______________ ) ss.

	
19

	
County of _____________)

	
20

	
This instrument was acknowledged before me on

	
21 

	
_________________________ by _______________________________ as

	
22

	
___________________ of ______________________________________

	
23

	
_________ (Seal, if any) ____________________________________ _______________________________________

	
24

	
_________ (Seal, if any) ____________________________________Title (and Rank) ___________________________

	
25

	

_________ (Seal, if any) ____________________________________My commission expires: ___________________________

	
26

	
  

27

28

29

30

31

32

33

34

35

36

37

 

  

-19 -ex10x10.htm

Exhibit 10.10

 

 

PARTICIPATION AGREEMENT

 

This Participation Agreement (hereinafter "Agreement") is made and entered into effective August   1     ,  2013, by and between PetroShare Corp., hereinafter referred to as "PetroShare", and Royale Investments, LLC, a Florida registered Limited Liability Co. ("Participant"). 

 

RECITALS:

 

A. PetroShare has acquired certain oil and gas leases described on Exhibit "A", attached hereto ("Existing Leases").

 

B. Participant wishes to participate with PetroShare in the drilling, and development of the Leases pursuant to the provisions of this Agreement.

 

Now therefore, the parties hereto, for the mutual promises contained herein and other good and valuable consideration, the sufficiency of which is hereby acknowledged, do hereby contract and agree as follows:

 

I. DEFINITIONS

 

	
1. 

	
Effective Date: The Effective Date is August 1, 2013.

 

	
2. 

	
Existing Leases: The oil and gas leases on Exhibit "A", attached hereto.

 

	
3. 

	
Obligation Wells: The wells will be drilled from a common well pad and will be the Kowach #3-25 well, located in NESW Section 25, T6N R90W, a vertical well bore and the Voloshin #3-25 well, located in NESW Section 25, T6N R90W; directional well bore to test the Niobrara formation.

 

	
4. 

	
Operator: PetroShare Corp.

 

	
5. 

	
Operating Agreement:A joint operating agreement substantially in the form attached hereto as Exhibit "B".

 

	
6. 

	
Participant Interest: A Working Interest in the Leases and Obligation Wells of ten percent (10.0%).

 

	
6. 

	
Working Interest: The cost bearing interest created by oil and gas leases. Working Interest may also refer to the share of ownership attributable to an unleased mineral interest.

 

 

  

  

  

2 | Page - PetroShare PA - Buck Peak

II.  PROSPECT FEE

 

A.     Payment of Prospect Fee.  Participant shall pay an aggregate prospect fee to PetroShare upon the execution of this Agreement equal to the sum of Seventy Five Thousand Dollars ($75,000)  ("Prospect  Fee").

III.  DRILLING AND DEVELOPMENT.

 

A.      Obligation Wells. Participant agrees to pay for its Participant Interest share of the drilling, completion and equipping, or the plugging and abandonment, of the Obligation Wells. PetroShare shall use its commercially reasonable efforts to commence the drilling of the first Obligation Well by October  15. 2013.

 

B.       Interests Earned.    Upon Participant paying the Prospect Fee, together with its share of the costs for the drilling, completion and equipping, or the plugging and abandonment of an Obligation Well, Participant shall be assigned an undivided interest in and to the Leases equal to Participant's Interest of PetroShare's interest in the Existing Leases as to the unit for such Obligation Well, and as to all depths from the surface to the deepest depth drilled in the Obligation Well. All assignments will be subject to all royalties, overriding royalties, production payments, net profits interests and similar burdens existing as of the date hereof.

 

C.      Subsequent Drilling and Development Operations. After drilling and completion of the Obligation Wells, all subsequent wells ("Subsequent Wells") and subsequent operations with respect to the Obligation Wells shall be proposed in accordance with the Operating Agreement and the provisions of this Agreement with Participant being responsible for its Participant Interest, subject to any elections to not participate in the Operating Agreement.

IV.  OPERATIONS WITHIN PROJECT AREA

 

A.     Operating Agreement. All operations within the Project Area shall be conducted pursuant to the joint operating agreement attached hereto as Exhibit "B" ("Operating Agreement"), reference to which is hereby made for all purposes, except as expressly modified by the terms hereof. PetroShare Corp., shall be designated as Operator subject to the resignation and removal provisions of the Operating Agreement. In the event of a conflict between this Agreement and the Operating Agreement, this Agreement shall control.

 

B.     Cash Advances.   Notwithstanding   anything  in  the  Operating  Agreement  to  the contrary, PetroShare shall have the right to require cash advances from Participant with respect to the proposed drilling and completion of one or more Obligation Wells. Such request shall be in the form of one or more Authorities for Expenditure ("AFEs") and payment shall be due within 20 days following receipt of the AFEs.

 

  

  

  

3 | Page - PetroShare PA - Buck Peak

 

V.  PROPORTIONATE REDUCTION

 

A.      Proportionate Reduction Clause:  Ifan oil and gas lease or other Mineral Interest covers less than the entire mineral fee estate, or if a party's interest in the applicable lease or Mineral Interest is less than a 100% ownership interest, any interest conveyed or reserved pursuant to this Agreement is intended to be proportionately reduced to accord to (i) the proportion of mineral interest covered by the relevant oil and gas lease or other Mineral Interest, and (ii) the proportion of ownership held by the conveying party, in the case of a conveyance, or the burdened party, in the case of a reservation of interest.

VI. CONFIDENTIALITY

 

A.      Confidentiality.  The parties acknowledge that the information that is the subject matter of this Agreement (including but not limited to all well information acquired by operations conducted under the Operating Agreement) is sensitive and confidential proprietary information belonging to the parties. Each party, for itself and its Affiliates, agrees not to release or disclose or otherwise make the information available to or to furnish any of said information to any third party without (i) obtaining the  agreement of the third party to maintain such information confidential and to not use such information other than in connection with investing in or participating with or purchasing interests from the disclosing party, or (ii) first obtaining the express written consent of the other party. Any such release or disclosure if approved shall be conditioned upon the third party expressly agreeing to all terms herein and becoming a party to and subject to this Confidentiality Agreement. Nothing contained above shall restrict or impair any party's right to use or disclose any of the information which is: (1) at the time of disclosure available to the public through no act or omission of that party; (2) can be shown was lawfully in that party's possession prior to the time of this Confidentiality Agreement; or (3) is independently made available to that party by a third party who is independently entitled to disclose such information and that party shows that the right of such third party to disclosure existed prior to the date of this Agreement.

 

B.      Public Disclosure.  Subject to the exceptions set forth below, and unless otherwise agreed upon by the parties, prior to substantial leasing completion in the AMI as contemplated by this Agreement, the parties intend to keep material information concerning the entering into of this Agreement and the location of the Project Area confidential to the extent any disclosure thereof could impair the leasing activities of the parties. Notwithstanding such intent, either party may make any public disclosure to the extent that, upon advice of such party's counsel, such disclosure is advisable to comply with United States or state securities laws, rules or regulations. Any proposed press release or other disclosure, shall be provided  to the other party in advance on a confidential basis for its information and comment.

 

  

  

  

4 | Page - PetroShare PA - Buck Peak

VII. TAX 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 except as provided herein. Each party hereby affected elects to be excluded from the application of all the provisions of Subchapter "K", Chapter 1, Subtitle "A", of the Internal Revenue Code of 1986 and all amendments thereto.

 

VIII. PAYMENT OF DELAY RENTALS AND LEASE EXTENSIONS

 

Operator shall be responsible for making any payment of delay rentals, shut in royalties and minimum royalty payments on the Leases. Participant shall bear and pay its share of such payments. Participant shall be billed and shall pay for said costs in the manner set forth for the billing and paying of direct costs in the COPAS accounting procedures attached to the form of Operating Agreement. Operator shall not be liable to Participant for any loss resulting from a good faith effort to properly do so.

IX.  NO JOINT LIABILITY

 

The rights, duties, obligations and liabilities of the parties hereto shall be several and not joint or collective. Each party hereto shall be responsible only for its obligations as herein set out and shall be liable only for its share of the cost and expense as herein provided; it being the express purpose and intention of the parties that their interest in this Agreement and the rights and property acquired in connection herewith shall be held by them as tenants in common. Except for the tax election which the parties may have made, it is not the purpose or intention of this Agreement to create any mining partnership, commercial partnership or other partnership.

 

X.  ASSIGNMENTS OF LEASES

 

Any assignment of any interest pursuant to this Agreement by and between the parties hereto shall be made with a special warranty of title by through and under the assignor, but not otherwise and on the form attached hereto as Exhibit "C" which shall be for recording in the official records of the county in which the Lease lies. Where applicable, separate assignments of operating rights shall likewise be made on such State and Federal forms as required by rule or regulation. Any assignment hereafter executed shall specifically refer to, and be made subject to, the terms and conditions hereof.

 

XI.  FORCE MAJEURE

 

Should any party be prevented or hindered from complying with any obligation created hereunder, other than the obligation to pay money, by reason of fire, flood, storm, act of God, governmental authority, governmental action or inaction, failure or delay in obtaining any necessary permits, labor disputes, war, the inability to secure qualified labor, geoscience data, title abstracts, curative title work, lease brokers, entry onto the land, drilling equipment and drilling rig(s) at prevailing market rates, drilling tools, materials or transportation, or any other cause not enumerated herein but which is beyond the normal control of the party whose performance is affected, then the performance of any such obligation shall be suspended during the period of such prevention or hindrance, provided the affected party promptly notifies the other party of such force majeure circumstances and exercises all reasonable diligence to remove the cause of force majeure.

 

  

  

  

5 | Page - PetroShare PA - Buck Peak

 

XII.  EXHIBITS

 

The following exhibits are attached to this Agreement: 

 

Exhibit "A"- Leases

Exhibit "B" - Form of Joint Operating Agreement

Exhibit "C" - Form of Assignment

If the terms of any of these Exhibits conflict with the terms of this Agreement, this Agreement shall control.

 

XIII.  MISCELLANEOUS 

 

A.     Assignment:  Participant may assign its interest under this Agreement provided that Participant remains liable for or guarantees the performance of its assignee and provided Participant gives PetroShare appropriate documentation evidencing such assignment..  

 

B.      Governing Law:  This Agreement and other instruments executed in accordance with it, except for assignments of lands, or the execution hereof shall be governed by and interpreted according to the laws of the State of Colorado. Forum and venue shall be exclusively in Denver, Colorado. As to assignments of lands, they shall be governed by the laws of the State wherein they lie.

 

C.  Entire Agreement:  This Agreement, the documents to be executed hereunder, and the Exhibits attached hereto constitute the entire agreement between the parties, supersedes all prior agreements, understandings, negotiations and discussions, whether oral or written, of the parties, and there are no warranties, representations or other agreements between the parties except as specifically set forth herein. No supplement, amendment, alteration, modification, waiver or termination of the Agreement shall be binding unless executed in writing by the parties hereto.

 

D.     Waiver:  No waiver of any of the provisions of the Agreement shall be deemed or shall constitute a waiver of any other provisions hereof (whether or not similar), nor shall such waiver constitute a continuing waiver unless otherwise expressly provided.

 

E.     Captions; Definition of "Including":  The captions in this Agreement are for convenience only and shall not be considered a part of or affect the construction or interpretation of any provision of this Agreement. The term "including" or "includes", as used herein, shall mean "including, without limitation," and "includes, without limitation".

  

  

  

6 | Page - PetroShare PA - Buck Peak

 

F.  Binding:  This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective permitted successors, assigns and legal representatives.

 

G.  Notices:  Any notice hereunder shall be given in writing by mail, courier, personally, E­ mail or by facsimile and shall be effective when delivered to the party intended to be notified. The contact information for each party is as follows:

 

If to PetroShare:

 

PetroShare Corp.

7200 So. Alton Way, Ste B220 Centennial, CO 80112

Attn: Frederick J. Witsell

(303) 500-1168 Office 

(303) 770-6885 fax 

(303) 881-2157 cell

fwitsel l@petrosharecorp.com

 

If to Participant:

 

Royale Investments, LLC 

211 Harbour Drive

Naples, FL 34103 Attn: Bill Reid

_________________ Office

_________________ Cell

billreid@goldresourcecorp.com

 

Any party may change their foregoing contact information by notice to the other party.

 

H.    Expenses:  Except as otherwise provided herein, each party shall be solely responsible for all expenses incurred by it in connection with this transaction (including fees and expenses of its own counsel and accountants).

 

I.     Execution:  This Agreement may be executed in multiple original counterparts, all of which shall together constitute a single agreement and each of which, when executed, shall be binding for all purposes thereof on the executed party, its successors and assigns.

 

J.    Severability:  If any term or other provision of this Agreement is invalid, illegal or incapable of being enforced by any rule of law, all other conditions and provisions of this Agreement shall nevertheless remain in full force and effect so long as the economic or legal substance of the transactions contemplated hereby is not affected in any materially adverse manner to either party.

 

  

  

  

7 | Page - PetroShare PA - Buck Peak

 

 

K.  Arbitration: Any dispute arising under this Agreement ("Arbitrable Dispute") shall be referred to and resolved by binding arbitration in Denver, Colorado, to be administered by and in accordance with the Commercial Arbitration Rules of the American Arbitration Association. Arbitration shall be initiated within the applicable time limits set forth in this Agreement and not thereafter or if no time limit is given, within the time period allowed by the applicable statute of limitations, by one party ("Claimant") giving written notice to the other party ("Respondent") and to the Denver Regional Office of the American Arbitration Association ("AAA"), that the Claimant elects to refer the Arbitrable Dispute to arbitration. All arbitrators must be neutral parties who have never been officers, directors or employees of the parties or any of their Affiliates, must have not less than ten (I0) years experience in the oil and gas industry, and must have a formal financial/accounting, engineering or legal education. The hearing shall be commenced within thirty (30) days after the selection of the arbitrator. The parties and the arbitrators shall proceed diligently and in good faith in order that the arbitral award shall be made as promptly as possible. The interpretation, construction and effect of this Agreement shall be governed by the Laws of Colorado, and to the maximum extent allowed by law, in all arbitration proceedings the Laws of Colorado shall be applied, without regard to any conflicts of laws principles. All statutes of limitation and of repose that would otherwise be applicable shall apply to any arbitration proceeding. The tribunal shall not have the authority to grant or award indirect or consequential damages, punitive damages or exemplary damages.

 

L.  Further Assurances: During the time in which this Agreement is in effect, the parties shall, at any time and from time to time, and without further consideration, execute and deliver or use reasonable efforts to cause to be executed and delivered such other instruments of conveyance and contract, and to take such other actions as either party may reasonably may request effect the intent of this Agreement.

 

M.  Not to be Construed Against Drafter: The parties acknowledge that they have had an adequate opportunity to review each and every provision contained in this Agreement, that they have participated equally in the drafting hereof and that they have had adequate time to submit same to legal counsel for review and comment. Based on said review and consultation, the parties agree with each and every term contained in this Agreement. Based on the foregoing, the parties agree that the rule of construction that a contract be construed against the drafter, if any, shall not be applied in the interpretation and construction of this Agreement.

 

N.      Laws and Regulations: Any reference to any federal, state, local, or foreign statute or law will be deemed also to refer to all rules and regulations promulgated thereunder, unless the context otherwise requires.

 

O.      Third-Party Beneficiaries: This Agreement is not intended to confer any rights or remedies upon any Person other than the parties and their respective successors and permitted assigns.

 

 

  

  

  

8  | Page - PetroShare PA - Buck Peak

 

P. Investment Representations: Participant understands (1) that the interests evidenced by this Agreement have not been registered under the Securities Act of 1933, the Colorado Securities Act or any other state securities laws (the "Securities Acts") because PetroShare is issuing these interests in reliance upon the exemptions from the registrations requirements of the Securities Acts providing for issuance of Securities not involving a public offering, (2) that PetroShare has relied upon the fact that the interests are to be held by each for investment, and (3) that exemption from registrations under the Securities Acts would not be available if the interests were acquired by Participant with a view to distribution.

 

Accordingly, Participant hereby confirms to PetroShare that it is acquiring the interests for its own account, for investment and not with a view to the resale or distribution thereof. Participant agrees not to transfer, sell or offer for sale any or any portion of the interests unless there is an effective registration or other qualification relating thereto under the Securities Act of 1933 and under any applicable state securities laws or unless the holder of interests delivers to the PetroShare an opinion of counsel, satisfactory to the PetroShare, that such registration or other qualification under such Act and applicable state securities laws is not required in connection with such transfer, offer or sale. Participant understands that the PetroShare is under no obligation to register the interests or to assist them in complying with any exemption from registration under the Acts if either should at a later date, wish to dispose of the interest. Furthermore, Participant realizes that the interests are unlikely to qualify for disposition under Rule 144 of the Securities and Exchange Commission unless they are not an "affiliate" of PetroShare and the interest has been beneficially owned and fully pa id for by either for at least three years.

 

Prior to acquiring the interests, Participant has made an investigation of the PetroShare and its business and has had made available to it all information with respect thereto which it needed to make an informed decision to acquire the interest. Participant considers itself to be an entity possessing experience and sophistication as an investor which are adequate for the evaluation of the merits and risks of its investment in the interest.

 

 

 

IN WITNESS WHEREOF, this Agreement is executed effective as of the date hereinabove provided.

 

	
Parties:

 

PETROSHARE CORP 

 

	 	 	
 

 

ROYALE INVESTMENTS, LLC

	 
	
/s/ F. J. Witsell

	 	 	
/s/ William Reid

	 
	
Name:  Fredrick J. Witsell

	 	 	
Name:  William Reid

	 
	
Title: President

	 	 	
Title:  Manager

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00235-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00235-of-00352.parquet"}]]