Document:

Exhibit 10.2

 

	

    	
ORION Exploration Partners, LLC                                                                                                           www.orionexploration.com
    
	
 
    	
 
    	
 
    	
 
    	
FINAL
    
	
 
    	
 
    	
 
    	
 
    

 

PARTICIPATION AND AMI AGREEMENT

 

COWBOY PROSPECT

 

This Participation and AMI Agreement (the “Agreement”) is by and between Orion Exploration Partners, LLC, an Oklahoma limited liability company (“ORION”), and Evolution Petroleum OK, Inc., a Texas corporation (“EPC”). EPC and ORION and/or their respective permitted assignees (each individually a “PARTY” and collectively the “PARTIES”) desire to set forth the terms and conditions of their agreement concerning each PARTY’s participation in ORION’s Cowboy Prospect encompassing the lands described in Exhibit “A”  attached hereto, all of said lands being located in Kay County, Oklahoma (the “Project”).

 

A.                                         Contemporaneously with the execution of this Agreement, ORION and EPC have consummated a purchase and sale transaction under a Lease Acquisition Agreement dated April 17, 2012 (“Purchase Agreement”), pursuant to which EPC has acquired an undivided interest in the oil, gas and/or mineral leases, interests acquired under forced pooling orders or farmin agreements and other related interests owned by ORION and described on Exhibit “B” attached hereto (the “Initial Interests”) equal to EPC’s Proportionate Share (as defined below) of ORION’ s interest in and to the Initial Interests:

 

B.                                         Each of the Initial Interests is located within the Project.

 

C.                                         Subject to the other terms of this Agreement, each PARTY has agreed to participate with an undivided interest in the Project as set forth opposite its name in the table set forth below (each such PARTY’s interest set forth in such table is herein referred to as such PARTY’s “Proportionate Share”):

 

	
PARTY
    	
 
    	
Proportionate Share
    	
 
    
	
 
    	
 
    	
 
    	
 
    
	
EPC
    	
 
    	
45
    	
%
    
	
ORION
    	
 
    	
55
    	
%
    
	
 
    	
Total: 
    	
100
    	
%
    

 

D.                                         It is the PARTIES’ intent that ORION will acquire additional Drilling Rights (as defined below) within the Project and that each PARTY will, or will have the opportunity to, acquire its Proportionate Share of any new Drilling Rights acquired in accordance with the terms and conditions of this Agreement and to participate in the exploration and development of the Project.

 

E.                                          Capitalized terms not defined above or in the body of this Agreement shall have the meanings given to them in Section XIX(a) below.

 

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NOW, THEREFORE, for and in consideration of the sum of Ten and No/100 Dollars ($10.00) in hand paid, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and for the mutual promises, covenants, terms, conditions and provisions contained in this Agreement, the PARTIES hereby agree as follows:

 

I.                                        QUARTERLY MEETINGS

 

Once every three (3) months during the term of this Agreement, the PARTIES shall meet at a mutually agreed time in ORION’s offices to conduct a review of the activities under this Agreement and ORION’s plans and budgets for activities under this Agreement for the following twelve (12) months, including proposed leasing activities, technical updates, and drilling, workover and other well operation schedules. As a forty-five percent (45%) owner of the Initial Interests and a development co-tenant in the Project (subject to provisions of this Agreement), ORION agrees that EPC shall have meaningful input at such meetings respecting ORION’s proposed budgets, leasing activities and drilling schedules. To facilitate EPC’s ability to make substantive contributions at quarterly meetings, ORION shall, in advance of such meetings, deliver in writing to EPC a meeting agenda that sets forth (a) specific opportunities within the lands covered by the Project (all lands within the Project, the “AMI”) in which ORION will recommend the immediate acquisition of Drilling Rights for future exploration and development (with the anticipated Acquisition Costs incident to acquiring such Drilling Rights, if available), (b) drilling plans (whether producing wells or saltwater disposal wells) for the ensuing twelve (12) months including, to the extent determined by ORION, proposed well locations, planned lateral lengths and anticipated Well Costs (as defined herein), and (c) technical topics and/or budget issues to be discussed at the upcoming meeting.

 

II.                                        LEASE ACQUISITION

 

(a)                                 ORION Acquired Leases.

 

(i)                                     From the date hereof until September 30, 2012 (“Acquisition Period”), ORION shall conduct, direct and control the acquisition of Drilling Rights in the AMI on behalf of EPC and itself. During the Acquisition Period, ORION shall, subject to the partial reimbursement obligations of EPC set forth below, be responsible for payment of all third-party costs associated with the acquisition of Drilling Rights within the AMI, such as, but not limited to, mineral takeoffs, oil and gas lease ownership reports and legal expenses directly and reasonably incurred in acquiring the Drilling Rights (but specifically excluding acquisition, drilling or division order title opinions), oil and gas lease bonuses, delay rentals, all third-party expenses and/or fees associated with farming-in Drilling Rights, purchasing mineral interests and/or royalties, broker’s fees, prepaid rentals and/or any other third party expense incurred and paid by ORION in acquiring the Drilling Rights (hereinafter referred to as “Acquisition Costs”). For the avoidance of doubt, Acquisition Costs shall include no overhead, general and administrative or other internal expenses of ORION associated with the acquisition of Drilling Rights; ORION acknowledging that its use of company employees or other resources are being fully compensated for by EPC through its payment of the AMI Management Fee.

 

(ii)                                  During the Acquisition Period, ORION shall acquire Drilling Rights in the AMI on behalf of EPC and itself; provided, however, ORION shall not expend on

 

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behalf of EPC and itself more than $100,000 per month for the combined interests of ORION and EPC (“Monthly Cap”) for Drilling Rights within the AMI without the prior written approval of EPC. If such expenditure threshold is exceeded and EPC does not give its prior written approval, such Drilling Rights acquired by ORION that are attributable to Acquisition Costs in excess of the Monthly Cap (“Excess Drilling Rights”) shall be treated as AMI Interests subject to Section II(b) below. At the end of each calendar month, ORION shall deliver written notice to EPC notifying it of (A) the Drilling Rights acquired within the AMI in the previous month, including the material terms and conditions of each Drilling Right, and (B) the Governmental Section within which each Drilling Right is located, in addition to the information required pursuant to Section II(c) below. EPC shall be obligated to pay for its Proportionate Share of such Drilling Rights (including any Drilling Rights acquired before the date hereof but not included in the Initial Interests) on an actual cost basis (i.e. actual Acquisition Costs) plus a one percent (1%) AMI Management Fee (the “AMI Management Fee”); provided, however, that the AMI Management Fee shall not be applicable or due from EPC for any Drilling Rights comprised of interests acquired by or on behalf of ORION through forced pooling proceedings brought before the Oklahoma Corporation Commission (“OCC”).

 

(iii)                               ORION will send a joint interest billing (“JIB”) to EPC for its share of Acquisition Costs (determined in accordance with the above) incurred for Drilling Rights acquired the previous month within the AMI, plus the AMI Management Fee, on or before the 10th day of each month. The JIB shall itemize Acquisition Costs on a Governmental Section-by-Governmental Section basis. EPC shall pay all JIBs within twenty (20) days from receipt thereof or the last day of the month, whichever is later. If EPC fails to pay a JIB when due, and such failure to pay is not remedied within ten (10) days following receipt by EPC of ORION’s written notice of such failure to pay, EPC shall be in breach of this Agreement and, in addition to all other remedies available to ORION, at law or equity, EPC shall have no (A) right, title or interest in and to the applicable Drilling Rights subject to such non-payment and (B) rights to participate in the drilling of any wells proposed by ORION within the Governmental Section(s) subject to such non-payment for so long as such invoiced amounts remain outstanding. Notwithstanding the foregoing, EPC shall have no obligation to pay any items disputed in good faith set forth on a JIB until such dispute has been resolved in accordance with this Agreement or the applicable Operating Agreement; the intent being that, pending resolution of any amount disputed in good faith, EPC shall not be penalized under this Section II(a)(iii) in connection with such disputed amounts; provided, however, that, pending resolution of any such dispute, EPC shall pay (X) all undisputed amounts when due under this Section II(a)(iii), and (Y) in connection with any wells or operations in which EPC elects to participate under this Agreement or the applicable Operating Agreement, EPC shall pay when due its Proportionate Share (proportionately reduced, if applicable, to its working interest in the applicable Drilling Unit) of any Drilling and Completion Costs, Fracing Costs, or other Well Costs in accordance with the terms and conditions of this Agreement and the applicable Operating Agreement.

 

(iv)                              ORION shall assign to EPC its Proportionate Share of the Drilling Rights acquired pursuant to this Section II(a). In assigning Drilling Rights to EPC, ORION shall use a form of Partial Assignment of Oil and Gas Leases (“Assignment”) substantially identical to the Partial Assignment of Oil and Gas Leases attached hereto as Exhibit “C”. ORION will execute and deliver to EPC each Assignment of Drilling Rights within five (5) days of receipt of payment by EPC of its Proportionate Share of Acquisition Costs for such Drilling Rights plus the

 

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AMI Management Fee; provided, however, upon termination of this Agreement, ORION shall, within five (5) Business Days of termination, prepare and deliver an Assignment to EPC of any previously unassigned Drilling Rights owed to EPC. Notwithstanding anything in this Section II(a)(iv) to the contrary, ORION may withhold Assignments of Drilling Rights for so long as EPC has not paid any outstanding invoices for any such Drilling Rights submitted by ORION, as provided herein. Once an Assignment from ORION to EPC is required to be made hereunder, regardless of when actually executed or delivered, the interest to be assigned shall be deemed earned as of the effective date of the conveyance into ORION of such interest, and ORION shall then be obligated to execute and deliver the Assignment as provided herein, and ORION shall protect and defend the title to each earned interest until the Assignment thereof is executed and delivered to EPC.

 

(b)                            Other Drilling Right Acquisitions; AMI Interests.

 

(i)                                     Nothing herein shall prohibit any PARTY from acquiring any Drilling Rights or any interest in salt water disposal facilities; provided that if, during the AMI Term (A) EPC should acquire any Drilling Rights or any interests in any salt water disposal facilities within the AMI, or (B) ORION should acquire any Drilling Rights or any interests in any salt water disposal facilities within the AMI after the Acquisition Period, or any Excess Drilling Rights during the Acquisition Period (in each case, an “Acquiring Party” and each such acquired interest, an “AMI Interest”), the other PARTY shall have a first and prior right to acquire its respective Proportionate Share of such AMI Interest on the terms and provisions provided in this Section II(b).

 

(ii)                                  In the event an Acquiring Party acquires or proposes to acquire an AMI Interest, the Acquiring Party shall promptly give written notice thereof (an “Acquisition Notice”) to the other PARTY (the “Notified Party”) and the Notified Party shall have thirty (30) days after receipt of the Acquisition Notice within which to elect to participate as to its Proportionate Share of such AMI Interest (and failure to respond in writing within said time shall be deemed an election not to so acquire). If a Notified Party elects or is deemed to have elected not to participate as to its Proportionate Share in such AMI Interest, the non-participating Notified Party shall have no right, title or interest in or claim to such AMI Interest. In the event a Notified Party elects to participate in the AMI Interest, then such AMI Interest shall become subject to this Agreement; otherwise (i.e. if a Notified Party fails to timely elect, or affirmatively elects not, to participate), the acquired AMI Interest shall be owned by the Acquiring Party and shall not be subject to the terms and provisions of this Agreement.

 

(iii)                               If a Notified Party timely elects to acquire its share of any AMI Interest, then such Notified Party (a “Participating Party”) shall be deemed to have incurred an irrevocable (A) obligation and agreement to pay its Proportionate Share of the actual cost and expenses which are or become due and payable to acquire or earn the AMI Interests (“AMI Interest Costs”), and (B) assumption of its share of all other obligations under any purchase and sale agreements, farmouts or other agreements applicable to such jointly acquired AMI Interests. In the event a Participating Party shall fail to timely pay any amounts due under clauses (A) or (B) above (i.e., in the manner prescribed in Section II(a)(iii) above including, for the avoidance of doubt, the ten-day cure period provided for in Section II(a)(iii)), the Acquiring Party may elect by written notice to such defaulting party given at any time after such failure to pay and prior to

 

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receipt of payment to treat such defaulting party as a non-participating Notified Party under clause (ii) of this Section II(b), in which event such deemed non-participating Notified Party shall have no right, title or interest in and to the applicable AMI Interest that may be acquired or earned.

 

(iv)                              In the case of a farmout, notwithstanding Section II(b)(iii)(A) above, no Participating Party shall be required to join in and pay for the completion of any well once casing point has been reached (if there is a casing point election under the applicable farmout or operating agreement) or to join in and pay for the drilling of any well if under the farmout the drilling of such well is optional rather than obligatory. If a farmout is acquired under which the drilling of any well is optional and any Participating Party elects not to join in the drilling of such well, then all Drilling Rights that may be earned (including rights to drill subsequent wells and earn additional Drilling Rights) by the drilling of such well shall be relinquished and all such rights shall be owned by the PARTY participating in the drilling of such well. A PARTY which has participated in the drilling of a well under a farmout but which elects not to participate in a completion attempt shall not be entitled to participate and acquire any interest in Drilling Rights earned by the drilling of such well if the farmout requires a completion attempt or a producing well to earn the Drilling Rights subject to the farmout, but the Drilling Rights earned shall be owned solely by the PARTY completing the earning well.

 

(v)                                 In assigning any AMI Interest to a Participating Party, the Acquiring Party shall use the form of the Assignment. The provisions of this Section II(bj shall apply only to AMI Interests acquired by (A) EPC after the date of this Agreement and during the AMI Term, and (B) ORION after the end of the Acquisition Period and during the AMI Term or, to the extent such AMI Interests are Excess Drilling Rights, at any time after the date of this Agreement and during the AMI Term.

 

(c)                             Information to be Provided. In the event a PARTY is required to offer the other PARTY the right to participate in the acquisition of any Drilling Rights or AMI Interests pursuant to this Section II, the PARTY offering such rights shall include in the offer notice to the other PARTY copies of all relevant agreements, including any proposed purchase and sale agreement or, if no such agreement exists, a term sheet showing the relevant acquisition terms including a schedule of any leases to be acquired or earned, the Acquisition Costs, AMI Interest Costs or, if a farmout, an AFE for the estimated actual costs of performing the operations necessary to earn the interest under the farmout, copies of all title information pertaining to the Drilling Rights or AMI Interests to be acquired that is available to the offering PARTY (including the net acres available, applicable primary terms and applicable lessor’s royalties), a copy of any Phase I environmental site assessment obtained and, if the acquisition is a saltwater disposal well, the capacity and condition of the well (including, if in such offering PARTY’s actual possession or reasonably accessible to the offering PARTY free of cost, evidence that such well has passed, or is able to pass, mechanical integrity tests). In addition to the foregoing, the offering PARTY shall deliver to the other PARTY copies of such additional agreements, data, schedules, and other information in the offering PARTY’s possession as the other PARTY may reasonably request in order to evaluate whether to participate in the acquisition of the Drilling Rights or AMI Interests. In the case of a saltwater disposal facility, if the Acquiring Party has not conducted or obtained a Phase I environmental site assessment, a Notified Party shall have the right to conduct its own Phase I environmental site assessment with respect to the

 

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facility to be acquired in which event the Notified Party shall have sixty (60) days after receipt of the Acquisition Notice to elect to acquire its Proportionate Share in the saltwater disposal facilities.

 

(d)                            Affiliate Acquisitions. The provisions of this Section II shall apply to Drilling Rights and AMI Interests acquired not only by the PARTIES, but also to Drilling Rights and AMI Interests so acquired by any Affiliate of a PARTY or a representative or agent of either of them. Each PARTY covenants and agrees with the other PARTY that it will cause each of its Affiliates, representatives and agents to comply with the provisions of this Section II in the same manner and with the same effect as if such Affiliate, representative or agent was a PARTY. Further, each PARTY agrees to indemnify and hold harmless the other PARTY from any and all losses and damages for failure to fully comply with the foregoing covenant and agreement respecting such PARTY’s Affiliates, representatives or agents.

 

III.                                        TITLE REPRESENTATIONS AND VERIFICATION OF DRILLING RIGHTS

 

The representations of title made by any PARTY herein, as well as all Assignments required herein to be made, or caused to be made, by a PARTY, are made without warranty of title except by, through or under the PARTY (which for the avoidance of doubt, will include any parties acquiring Drilling Rights or AMI Interests on behalf of a PARTY), but not otherwise. Except for the special warranty of title set forth in the Assignment, no PARTY makes any other warranty of title regarding Drilling Rights or AMI Interests acquired hereunder.

 

IV.                                         COMMITMENT WELLS

 

(a)                            Designation of Commitment Wells. As used herein, the “Commitment  Wells” shall be (i) the first three (3) wells drilled under this Agreement, plus (ii) subject to Section IV(b) below, a single, substitute well (“Substitute Well”), if any, for the first well which fails to meet the “Qualifying Criteria” as defined below for a saltwater disposal well or horizontal producing well. The PARTIES contemplate that the first three (3) Commitment Wells shall be as follows, each of which being more particularly described on Exhibits “E-1”, “E-2” and “E-3”, inclusive of the applicable AFEs:

 

 

 

	
 
    	
 
    	
 
    	
 
    	
Well Name; Surface
    	
 
    	
 
    
	
Well
    	
 
    	
 
    	
 
    	
Location; Objective
    	
 
    	
 
    
	
No.
    	
 
    	
Well Type
    	
 
    	
Formation
    	
 
    	
Qualifying Criteria
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
1
    	
 
    	
Saltwater disposal
    	
 
    	
Hercyk SWD #1-31, located
    	
 
    	
Must be drilled and completed   to the Arbuckle
    
	
 
    	
 
    	
well
    	
 
    	
150’ fnl, 150’ fwl,   Section
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
31-27N-2E, Kay County,
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
Oklahoma; Objective   Formation:
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
Arbuckle
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
2
    	
 
    	
Horizontal, producing
    	
 
    	
Sneath #1-24H with a
    	
 
    	
Well must be drilled to at   least a 1,500’ horizontal
    
	
 
    	
 
    	
 
    	
 
    	
surface location 175’ fsl,
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
900’ fel,   Section 24-27N-1E;
    	
 
    

 

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with a proposed bottom   hole
    	
 
    	
displacement in the Mississippian   Formation (in accordance with the applicable AFE)
    
	
 
    	
 
    	
 
    	
 
    	
location 150’ fnl, 1,900’   fel, 
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
Section 24-27N-1E,   Kay 
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
County, Oklahoma; 
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
Objective Formation:
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
Mississippian Formation
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
3
    	
 
    	
Horizontal, producing
    	
 
    	
Hendrickson Trust #1-1H, 
    	
 
    	
Well must be drilled to at   least a 1,500’ horizontal displacement in the Mississippian Formation (in   accordance with the applicable AFE)
    
	
 
    	
 
    	
 
    	
 
    	
with a surface location   150’ 
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
fnl, 660’ fel,   Section 1-26N-
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
1E; with a proposed bottom
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
hole location 150’ fsl,   660’
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
fel,   Section 1-26N-1E, Kay 
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
County, Oklahoma;
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
Objective Formation:
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
Mississippian Formation
    	
 
    	
 
    

 

The PARTIES agree that the Hercyk SWD #1-31 well will be the first well drilled under this Agreement. For the avoidance of doubt, EPC is committing under this Section IV to participate in a maximum of one (1) Substitute Well.

 

(b)                            Commitment to Participate. Each PARTY hereby irrevocably commits toparticipate and prepay for its Proportionate Share (proportionately reduced, if applicable, to its working interest in a Drilling Unit) of the cost to drill and complete (or plug and abandon) the Commitment Wells together with a one percent (1%) Management Fee, all as more fully set forth below. The anticipated spud date for the first of the Commitment Wells is May 15, 2012, with the third of the Commitment Wells to be spud no later than September 1, 2012; provided, however, ORION shall, subject to any delay due to Force Majeure, use commercially reasonable efforts to spud the third Commitment Well no later than August 1, 2012. Each Commitment Well shall be drilled and completed (or plugged and abandoned) in accordance with the terms and conditions of this Agreement, and, to the extent not inconsistent with this Agreement, the Operating Agreement. EPC shall have no right to go non-consent in or, prior to ORION’s drilling and, if applicable, completion of the applicable Commitment Well, to propose an alternative operation to any Commitment Well. If, during the drilling of a Commitment Well, the same is abandoned prior to such Commitment Well meeting the Qualifying Criteria for such well due to (A) mechanical difficulties, down hole obstructions, the encountering of granite or other practically impenetrable rock or substances, or (B) the encountering of conditions in the hole which render further operations impractical, or (C) any other reason not within ORION’s control, the following shall apply:

 

(i)                                     If such abandoned well was the first Commitment Well that failed to meet the Qualifying Criteria, such abandoned well shall not count as one of EPC’s obligatory Commitment Wells under this Agreement, the number of Commitment Wells required under this Agreement shall not be reduced by the attempted drilling of such abandoned well and EPC shall be obligated to participate in a Substitute Well for such abandoned well (which Substitute Well shall count as one of EPC’s obligatory Commitment Wells).

 

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(ii)                                  To the extent EPC funds its Proportionate Share (proportionately reduced, if applicable, to its working interest in a Drilling Unit) and Carry Share of Well Costs, whether for a completed Commitment Well, a failed (i.e., plugged and abandoned) Commitment Well, an abandoned well under this Section IV(b) or a Substitute Well proposed by ORION pursuant to this Section IV, such well shall be treated as a Carry Well and such expenditures shall apply, dollar for dollar, against the Carry Cap; in each case, for purposes of Section V below.

 

(c)                             Payment of Well Costs for Commitment Wells. ORION shall require prepayment of Drilling and Completion Costs and Fracing Costs for each of the Commitment Wells to be drilled pursuant to this Agreement, payable by EPC as follows:

 

(i)                                     On the date hereof, ORION will deliver an invoice to EPC for estimated Drilling and Completion Costs applicable to the first Commitment Well (Hercyk SWD #1-31) (based upon the AFE attached hereto as a part of Exhibit “E-1”) and EPC shall pay its Proportionate Share and Carry Share of such Drilling and Completion Costs contemporaneously with the execution of this Agreement;

 

(ii)                                  With respect to the second Commitment Well (Sneath #1-24H), (A) EPC shall pay on the date hereof its Proportionate Share (proportionately reduced, if applicable, to its working interest in the applicable Drilling Unit) and Carry Share of ten percent (10%) of the Drilling and Completion Costs (based upon the applicable AFE attached hereto as a part of Exhibit “E-2”) for such second Commitment Well, and (B) ORION shall deliver to EPC an invoice for the portion of the Drilling and Completion Costs (based upon the applicable AFE) not paid under clause (A) above no earlier than twenty (20) Business Days prior to the date the drilling rig is scheduled to be moved onto the well location for the second Commitment Well and EPC shall pay its Proportionate Share (proportionately reduced, if applicable, to its working interest in the applicable Drilling Unit) and Carry Share of such Drilling and Completion Costs within ten (10) Business Days of EPC’s receipt from ORION of such invoice;

 

(iii)                               With respect to the third Commitment Well (Hendrickson Trust #1-1H), (A) EPC shall pay on the date hereof its Proportionate Share (proportionately reduced, if applicable, to its working interest in the applicable Drilling Unit) and Carry Share of fifteen percent (15%) of the Drilling and Completion Costs (based upon the applicable AFE attached hereto as a part of Exhibit “E-3”) for such third Commitment Well, and (B) ORION shall deliver to EPC an invoice for the portion of the Drilling and Completion Costs (based upon the applicable AFE) not paid under clause (A) above no earlier than twenty (20) Business Days prior to the date the drilling rig is scheduled to be moved onto the well location for the third Commitment Well and EPC shall pay its Proportionate Share (proportionately reduced, if applicable, to its working interest in the applicable Drilling Unit) and Carry Share of such Drilling and Completion Costs within ten (10) Business Days of EPC’s receipt from ORION of such invoice;

 

(iv)                              Should the Substitute Well prove necessary, ORION will deliver to EPC an AFE for such Substitute Well, whereupon (A) EPC shall pay within fifteen (15) days of its receipt of such AFE its Proportionate Share (proportionately reduced, if applicable, to its working interest in the applicable Drilling Unit) and Carry Share of ten percent (10%) of the

 

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Drilling and Completion Costs for such Substitute Well (based upon such AFE), and (B) ORION shall thereafter deliver to EPC an invoice for the portion of the Drilling and Completion Costs (based upon such AFE) not paid under clause (A) no earlier than twenty (20) Business Days prior to the date the drilling rig is scheduled to be moved onto the well location for the Substitute Well and EPC shall pay its Proportionate Share (proportionately reduced, if applicable, to its working interest in the applicable Drilling Unit) and Carry Share of the balance of such Drilling and Completion Costs within ten (10) Business Days of EPC’s receipt from ORION of such invoice;

 

(v)           ORION shall separately invoice EPC for Fracing Costs applicable to each Commitment Well other than the Hercyk SWD #1-31. ORION’s invoice shall be tendered to EPC no earlier than thirty (30) days prior to the date fracing operations are’scheduled to commence and EPC shall then have ten (10) days after receipt of invoice within which to pay its Proportionate Share (proportionately reduced, if applicable, to its working interest in the applicable Drilling Unit) and Carry Share of the invoiced Fracing Costs; and

 

(vi)          Notwithstanding anything contained in this Section IV(c) to the contrary, EPC’s obligation to pay its Carry Share of invoiced Drilling and Completion Costs, Fracing Costs and/or other Well Costs is expressly subject to the Carry Cap and EPC’s rights under Section V(b) below; the intent being that EPC shall fund only its Proportionate Share (and not its Carry Share), proportionately reduced, if applicable, to its working interest in the applicable Drilling Unit, of Drilling and Completion Costs, Fracing Costs and/or other Well Costs to the extent invoiced amounts exceed the Carry Cap or EPC exercises its right to satisfy its carry obligations under this Agreement by paying ORION the balance of the Carry Cap pursuant to Section V(b).

 

(d)                   Failure to Pay. If EPC fails to pay any invoice from ORION pursuant to Section IV(c) for the prepayment of costs with respect to a Commitment Well by the date such prepayment is due, and such failure to pay is not cured within ten (10) Business Days of EPC’s receipt of a written notice from ORION of such failure to pay, then EPC shall be considered in breach of its obligations under this Agreement. In such event, at ORION’ s option, in lieu of all other remedies available to ORION, (i) EPC shall have no rights in the applicable Commitment Well, (ii) all rights of EPC in this Agreement and in the Project shall terminate, and (iii) except as hereinafter provided in this Section IV(d), all of EPC’s right, title and interest in the Initial Interests shall automatically be relinquished and re-vested in ORION and EPC shall reassign to ORION all of its right, title and interest in the Initial Interests under this Agreement, free of all lease burdens, overriding royalties, payments out of production or any other encumbrances created by, through or under EPC but not otherwise; provided, however, that EPC shall retain all right, title and interest in (A) any Commitment Well drilled for which EPC has timely and fully paid all properly submitted invoices, and (B) the associated acreage assigned to EPC in the applicable Governmental Section for any such timely and fully paid for Commitment Well.

 

V. CARRY WELLS

 

(a)                   Carried Interest. EPC agrees that the Commitment Wells and next ensuing Subsequent Wells that are either saltwater disposal wells or wells targeting the Mississippian Formation (as set forth in the applicable AFE) proposed and drilled under this Agreement while

 

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any balance remains under the Carry Cap (each a “Carry Well”), shall be subject to an absolute obligation of EPC (subject, however, to Section XIII) to pay, on behalf of ORION, in addition to EPC’s Proportionate Share due hereunder (if applicable), the lesser of (“Carry Share”) (i) an undivided 1/8 of the 8/8ths working interest, or (ii) such amount, if any, that would not reduce ORION’s proportionate working interest or cost share to less than ten percent (10%) of 8/8ths, of all Well Costs incurred in connection with each Carry Well until the aggregate of all Well Costs incurred by EPC and attributable to the Carry Share has equaled $2,216,565.00 (“Carry Cap”). For the avoidance of doubt, as an example of the application of the foregoing: (i) if the PARTIES own a combined 100% of the working interests in a Drilling Unit, for each Carry Well EPC shall pay (subject to the Carry Cap) 57.5% of all Well Costs and ORION shall pay (subject to the Carry Cap) 42.5% of all Wells Costs, but each PARTY shall receive its Proportionate Share of the revenues attributable to each such Carry Well; (ii) if the PARTIES own a combined 60% of the working interests in a Drilling Unit, for each Carry Well EPC shall pay (subject to the Carry Cap) 39.5% of all Well Costs and ORION shall pay (subject to the Carry Cap) 20.5% of all Well Costs, but each PARTY shall receive its Proportionate Share (proportionately reduced, if applicable, to its working interest in the Drilling Unit) of the revenues attributable to each such Carry Well, and (iii) if the PARTIES own a combined 30% of the working interests in a Drilling Unit, for each Carry Well EPC shall pay (subject to the Carry Cap) 20% of all Well Costs and ORION shall pay (subject to the Carry Cap) 10% of all Well Costs, but each PARTY shall receive its Proportionate Share (proportionately reduced, if applicable, to its working interest in the Drilling Unit) of the revenues attributable to each such Carry Well.

 

(b)                   Carry Well Limitations. ORION may not propose more than one (1) Carry Well targeting the Mississippian Formation per Governmental Section prior to April 1, 2013 without EPC’s consent so long as any balance remains under the Carry Cap.

 

(c)                   Election by EPC to Prepay Carry. At any time prior to the election required to be made under Section XIII, EPC has the sole right to elect to tender to ORION the remaining balance owed on the Carry Cap in lieu of treating any ensuing well(s) as a Carry Well(s). In such event, upon receipt by ORION of EPC’s payment of the remaining balance of the Carry Cap, all ensuing wells shall be Subsequent Wells subject to the provisions of Section VI below and shall not be Carry Wells.

 

(d)                   Successor Obligations. EPC’s obligations with respect to each Carry Well shall be a covenant running with the land and shall burden and bind all permitted assignees of EPC under this Agreement and the properties subject hereto.

 

VI. SUBSEQUENT WELLS

 

(a)                   Well Proposals. After all of the Commitment Wells are drilled, completed and, if applicable, producing, or abandoned without being completed, ORION will continue to propose additional wells within the AMI (each a “Subsequent Well”) (i) with no more than one producer and one salt water disposal well to be proposed at any one time, and (ii) during the term of this Agreement, with no more than a total of fourteen (14) wells (which shall include the Commitment Wells and other salt water disposal wells, as applicable) proposed within a twelve (12) month period; provided that the limitations of clauses (i) and (ii) above may be waived by the written consent of the PARTIES. Should ORION fail to propose Subsequent Wells at a pace

 

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no fewer than three (3) wells per six (6) month period (beginning on the date hereof), EPC may propose Subsequent Wells thereafter and shall further have the right to operate each such Subsequent Well proposed by it pursuant to this sentence if ORION elects not to participate in and operate such Subsequent Well. Notwithstanding anything in this Agreement to the contrary, if ORION is unable, in whole or in part, to meet the obligations under this Agreement for the spudding (as applicable) and/or drilling of the Commitment Wells or any Subsequent Well due to Force Majeure, the obligations shall be suspended during, but no longer than, the continuance of the Force Majeure event. ORION shall remedy such Force Majeure event with all reasonable dispatch. All proposals for Subsequent Wells shall be in accordance with the terms of the applicable Operating Agreement under Section X below; provided, however, that regardless of whether a Subsequent Well is proposed by ORION or EPC, each PARTY shall have thirty (30) days from receipt of the proposal within which to make its election whether or not it will participate in the drilling of the Subsequent Well, with failure to respond being deemed an election to not participate. During the term of this Agreement, ORION shall not have more than one drilling rig operating within the AMI, unless consented to in writing by EPC; provided, however, notwithstanding the foregoing, ORION may have a second drilling rig operating within the AMI for no more than forty-five (45) days each calendar year.

 

(b)           Participation Elections in Carry Wells.

 

(i)            Notwithstanding the provisions of the applicable Operating Agreement entered into or governing pursuant to Section X below, if a PARTY should elect not to participate in an initial Subsequent Well drilled in a Drilling Unit that is also a Carry Well, such Drilling Unit to be identified by Operator in its AFE for such Carry Well to be drilled in any Drilling Unit, such PARTY shall forfeit all of its interest in the Drilling Unit; provided that such Carry Well is commenced no later than ninety (90) days after expiration of the thirty (30) day notice period. If the Carry Well is not commenced within such ninety (90) day period and if any PARTY still desires to drill the Carry Well, written notice proposing the Carry Well must be resubmitted to the PARTIES in accordance herewith as if no prior proposal had been made. Any PARTY electing not to participate in a Carry Well in a Drilling Unit shall assign to the PARTY who elected to participate all of such non-participating PARTY’s interest in the designated Drilling Unit, free of all lease burdens, overriding royalties, payments out of production or any other encumbrances created by, through or under the non-participating PARTY but not otherwise, within thirty (30) days following the date the Carry Well is completed or plugged and abandoned, subject to the provisions of the preceding two sentences.

 

(ii)           If a PARTY elects to participate in the drilling of an initial Subsequent Well drilled in a Drilling Unit that is also a Carry Well, then that PARTY shall have the elections provided for in the governing Operating Agreement on all further Subsequent Wells within that Drilling Unit.

 

(c)           Participation Elections in Subsequent Wells other than Carry Wells.

 

(i)            Notwithstanding the provisions of the applicable Operating Agreement entered into or governing pursuant to Section X below, if a PARTY should elect not to participate in a Subsequent Well that is the initial Subsequent Well (but not a Carry Well) drilled in a Drilling Unit (a “Post-Carry Well”), such Drilling Unit to be identified by Operator

 

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in its AFE for the Post-Carry Well to be drilled in any Drilling Unit, such PARTY shall farmout and assign to the participating PARTY, and the participating PARTY shall have the right to receive, all of such non-participating PARTY’ s interest in the objective formation within the designated Drilling Unit and all rights in, to and within the wellbore (and any hydrocarbons produced therefrom) as to the objective formation and any other formation from the surface of the earth to the top of the objective formation; provided, however, that such farmout of a nonparticipating PARTY’s interest in the designated Drilling Unit shall be (A) on the terms of the election provided for in the applicable OCC pooling order for a leased party in the applicable Drilling Unit, or (B) if no OCC pooling order applies to the applicable Drilling Unit, the nonparticipating PARTY shall be entitled to retain an undivided five percent (5%) overriding royalty interest, proportionately reduced, in the Drilling Unit insofar, and only insofar, as to the lands and formations farmed out under this Section VI(c); and, in either case, an appropriate assignment, free of all lease burdens, overriding royalties, payments out of production or any other encumbrances (except for any overriding royalty interest owed the non-participating PARTY under this Section VI(c)) created by, through or under the non-participating PARTY but not otherwise, shall be executed and delivered by the non-participating PARTY to the participating PARTY.

 

(ii)           If a PARTY elects to participate in the drilling of a Post-Carry Well in a Drilling Unit, then that PARTY shall have the elections provided for in the governing Operating Agreement on all further Subsequent Wells within that Drilling Unit.

 

(d)           Farmout Relinquishments. Notwithstanding any provisions of the Operating Agreement to the contrary, in no event shall a PARTY which becomes a non-consenting party as to the drilling of any well which under a farmout is required to be drilled in order to earn a leasehold assignment under such farmout be entitled to participate in or acquire any leases earned if such leasehold assignment would not have been earned if such well were not drilled.

 

(e)           Third-Party Proposals. If a third party proposes the drilling of a well on property within the AMI in which both ORION and EPC own a leasehold interest pursuant to this Agreement, or on property pooled or unitized therewith, and the PARTIES are bound by an operating agreement or other agreement to make an election to participate in the drilling of such well or the proposal is governed by a forced pooling order of the OCC, ORION (or a successor operator) shall immediately give EPC written notice of such proposal or pooling order, together with a copy of the well proposal or pooling order. Each PARTY shall give the other PARTY written notice of whether it will participate in the third-party proposal at least ten (10) days prior to the date elections are due under the applicable OCC pooling order, operating agreement or other agreement under which the third party proposal is made.

 

(i)            If both PARTIES elect to participate, then notice to that effect shall be given by each PARTY to the third party.

 

(ii)           If both PARTIES elect not to participate, then notice to that effect shall be given by each PARTY to the third party, and each such PARTY shall then be governed by the penalty or non-consent provisions of the applicable pooling order, operating agreement or

 

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other agreement under which the third party proposal was made and not by the penalty provisions of this Agreement or the Operating Agreement.

 

(iii) If either PARTY elects not to participate and the other PARTY elects to participate, then, subject to and in accordance with Sections VI(b) and VI(c) above, such non-participating PARTY shall farmout and/or assign, as applicable, to the participating PARTY, and the participating PARTY shall have the right (A) to receive, the interests of the non-participating PARTY in the proposed operation and any other rights or interests, if any, of the non-participating PARTY in the applicable Drilling Unit for a Carry Well pursuant to Section VI(b) or in the objective formation and wellbore of a Post-Carry Well pursuant to Section VI(c), as applicable, and (B) to participate in the proposed operation with the interest of the nonparticipating PARTY, by electing to do so within five (5) days, inclusive of Saturdays, Sundays and legal holidays, after receipt of the election of the PARTY electing not to participate; provided, however, that such farmout and/or assignment of such non-participating PARTY’s interest in (X) a Drilling Unit pursuant to Section VI(b) or the objective formation and wellbore pursuant to Section VI(c) shall be on the terms and conditions set forth in Sections VI(b) and VI(c) above, as applicable, and (Y) the wellbore (and all hydrocarbons produced therefrom) of a well subject to the operation proposed by such third party that is not governed by either Section VI(b) or Section VI(c) shall be on the terms of the election provided for in the applicable OCC pooling order for a leased party in the applicable Drilling Unit, and an appropriate assignment, free of all lease burdens, overriding royalties, payments out of production or any other encumbrances (other than overriding royalty interests, if any, to which the non-participating PARTY is entitled under the applicable OCC order) created by, through or under the nonparticipating PARTY but not otherwise, shall be promptly executed and delivered by the nonparticipating PARTY to the participating PARTY so as to effectuate participation by the participating PARTY with the interest of the non-participating PARTY. Additionally, the nonparticipating PARTY agrees to execute such other documents and instruments reasonably necessary to effectuate participation by the participating PARTY with the interest of the nonparticipating PARTY. If the participating PARTY elects not to receive the interest of the nonparticipating PARTY pursuant to this Section VI(e), the non-participating PARTY shall tender to the third party its notice of non-participation and the non-participating PARTY shall be subject to and governed by the penalty or non-consent provisions of the applicable OCC pooling order, operating agreement or other agreement under which the third party well proposal was made (and not the penalty provisions of this Agreement or the Operating Agreement).

 

AFEs as Estimates. AFEs prepared by either PARTY and submitted to the other PARTY, with respect to any well operation proposed under this Agreement or the applicable Operating Agreement, are good faith estimates only of the costs to be incurred with respect to the particular well operation and the cost categories identified on the AFE. An AFE shall not serve to limit a PARTY’ s obligation to pay its proportionate share of Well Costs with respect to any well operation in which such PARTY has elected to participate or in which EPC is obligated to participate.

 

VII. PREPAYMENT OF WELL COSTS FOR SUBSEQUENT WELLS

 

(a)           Prepayment Terms. ORION shall require prepayment of estimated costs for any Subsequent Well drilled pursuant to this Agreement as follows:

 

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(i)               With respect to any Subsequent Well proposal pursuant to Section VI of this Agreement or the applicable Operating Agreement, (A) upon and contemporaneously with EPC’s election to participate in the drilling of such well, EPC shall pay (I) its Proportionate Share (proportionately reduced, if applicable, to its working interest in the applicable Drilling Unit), and (II) if applicable, its Carry Share, of ten percent (10%) of the Drilling and Completion Costs (based upon the applicable AFE) for such well, and (B) ORION shall deliver to EPC an invoice for the portion of the Drilling and Completion Costs (based upon the applicable AFE) not paid under clause (A) above no earlier than twenty (20) Business Days prior to the date the drilling rig is scheduled to be moved onto the well location for such well and EPC shall pay its Proportionate Share (proportionately reduced, if applicable, to its working interest in the applicable Drilling Unit) and, if applicable, its Carry Share of such Drilling and Completion Costs within ten (10) Business Days of EPC’s receipt from ORION of such invoice.

 

(ii)              ORION shall submit to EPC, for each Subsequent Well, a separate invoice for Fracing Costs (based upon the applicable AFE and proportionately reduced, if applicable, to EPC’s working interest in the applicable Drilling Unit), such invoice to be tendered to EPC no earlier than thirty (30) days prior to the date fracing operations are to commence with respect to the applicable Subsequent Well. Upon receipt of such invoice, EPC shall have ten (10) days following receipt of such invoice to pay ORION the invoiced amount.

 

(iii)             Notwithstanding anything contained in this Agreement or the applicable Operating Agreement to the contrary, the PARTIES agree that ORION shall, at no time during the term of this Agreement, have outstanding pursuant to the prepayments required under Sections VII(a)(i) and VII(a)(ii) more than (I) two (2) invoices that are not yet due and payable for Drilling and Completion Costs in connection with all active AFEs, and (II) three (3) invoices that are not yet due and payable for Fracing Costs in connection with all active AFEs.

 

(b)           Failure to Pay. If EPC fails to pay any invoice from ORION pursuant to Section VII(a) for the prepayment of costs with respect to a Carry Well by the date such prepayment is due, and such failure to pay is not cured within ten (10) Business Days of EPC’s receipt of a written notice from ORION of such failure to pay, then EPC shall be treated as if it elected not to participate in such Carry Well and will be subject to the non-participation penalties prescribed in Section VI(b) above. If EPC fails to pay any invoice from ORION pursuant to Section VII(a) for the prepayment of costs with respect to a Subsequent Well that is not a Carry Well by the date such prepayment is due, and such failure to pay is not cured within ten (10) Business Days of EPC’s receipt of a written notice from ORION of such failure to pay, EPC’s failure to pay shall be deemed as an election not to participate in such Subsequent Well and EPC shall be subject to the non-participation penalties prescribed in Section VI(c) above. For the avoidance of doubt, at no time shall EPC forfeit any interest in any well drilled under this Agreement, and the associated acreage in the applicable Government Section for such well, for which EPC has timely and fully paid all properly submitted invoices.

 

VIII. THIRD PARTY OPERATED WELLS

 

EPC and ORION shall designate ORION as operator for each Drilling Unit (“Operator”) and EPC agrees to support ORION as Operator should ORION be challenged for operations by a third party in any Drilling Unit; provided, however, that, in each case, ORION and/or its

 

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Affiliates owns a working interest in the applicable well drilled or to be drilled in such Drilling Unit for which ORION would be the Operator. EPC’s support for ORION as Operator, if challenged for operations by a third party, may be suspended during the period in which EPC has taken action, and followed procedures, to remove ORION as Operator in accordance with the applicable Operating Agreement. If ORION and/or one of its Affiliates does not own a working interest in a well drilled or to be drilled in a Drilling Unit, then (if requested by EPC) ORION will support EPC as Operator of such well or, if EPC does not wish to serve as Operator, the Operator of such well shall be determined in accordance with the applicable Operating Agreement.

 

IX.            MANAGEMENT FEE

 

As more fully set forth in Section II above, ORION will charge EPC an AMI Management Fee on unaffiliated third party Acquisition Costs incurred by ORION for Drilling Rights acquired under Section II, but subject to the limitations of Section II(a)(ii). In addition, ORION will charge a Management Fee of one percent (1%) (“Drilling Management Fee”) on EPC’s Proportionate Share of all Well Costs incurred by ORION in connection with each Commitment Well and each Subsequent Well in which EPC participates under this Agreement. These charges will be invoiced in the monthly JIB as to all such Acquisition Costs pursuant to Section II(a) and on the pre-bill as to all Well Costs for each Commitment Well and Subsequent Well drilled pursuant to this Agreement; provided that, the Drilling Management Fee shall be charged only on Well Costs up to the amount evidenced by ORION’s initial AFE for any Commitment Well or Subsequent Well and ORION will not charge the Drilling Management Fee on any cost overruns (i.e. costs in excess of original estimates for or costs in excess of original AFEs for the Commitment Wells and each Subsequent Well). Neither the AMI Management Fee nor the Drilling Management Fee is assignable and ORION shall not charge the Drilling Management Fee on any wells in which it is not the Operator.

 

X.              OPERATING AGREEMENT

 

(a)           Operating Agreements. All operations for the drilling, completing and equipping of the Commitment Wells, Carry Wells and other Subsequent Wells drilled, or proposed to be drilled, within the AMI shall be governed by the operating agreement substantially identical to the operating agreement attached hereto as Exhibit “D” (“Operating Agreement”). A separate Operating Agreement shall be prepared and executed for the Drilling Unit attributable to each Commitment Well and, following a proposal for an initial Subsequent Well, the Drilling Unit for such initial Subsequent Well, and in each such case shall supersede the terms and conditions of the Operating Agreement attached hereto as Exhibit “D”. In the event of a conflict between this Agreement and the governing Operating Agreement, the terms and provisions of this Agreement shall control. Upon the end of the term of this Agreement, the Operating Agreement attached hereto as Exhibit “D” shall remain in full force and effect as to all joint interests owned by the PARTIES within the AMI not subject to an Operating Agreement for a specific Drilling Unit and the provisions of this Section X shall survive the end of the term of this Agreement; provided, however, that, with respect to each initial well proposed to be drilled in a newly designated Drilling Unit after the term of this Agreement, the Operating Agreement attached hereto as Exhibit “D” shall, for all purposes, automatically be treated as severally and separately applicable to each such Drilling Unit.

 

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(b)           Standard of Care. ORION shall conduct its activities, as Operator under this Agreement, as a reasonable, prudent operator, in a good and workmanlike manner, with due diligence and dispatch, in accordance with good oilfield practice, and in compliance with applicable law and regulation, but in no event shall it have any liability as Operator to EPC for losses sustained or liabilities incurred except such as may result from gross negligence or willful misconduct.

 

(c)           Insurance. ORION, for the benefit of the PARTIES, will carry or provide insurance for all operations conducted or to be conducted by it hereunder in the amounts set forth in the Operating Agreement attached hereto as Exhibit “D”. The cost and expense of such insurance shall be invoiced by ORION to the joint account of all working interest owners within the Drilling Unit, in accordance with their respective working interest shares.

 

(d)           Resignation. Should ORION resign or transfer its duties as Operator under any Operating Agreement prior to the drilling and completion, or plugging and abandonment (if applicable) of the Commitment Wells, all unaccrued portions of the Carry Cap as of the date of ORION’s resignation shall automatically expire and EPC shall have no further obligation to bear the Carry Share of any Well Costs thereafter accruing under this Agreement.

 

XI.            SEISMIC ELECTIONS

 

ORION may, from time to time, propose the acquisition of Seismic Data within the AMI, whether by conducting its own seismic shoot, the acquisition of existing Seismic Data or otherwise (each a “Seismic Acquisition”). Each proposal shall include reasonably necessary details regarding a proposed Seismic Acquisition and an invoice for the associated Seismic Cost. EPC shall have thirty (30) days from receipt of a proposal within which to make its election whether or not it will participate in the proposed Seismic Acquisition, with failure to respond being deemed an election to not participate. Upon and contemporaneously with EPC’s election to participate in a Seismic Acquisition, EPC shall pay its Proportionate Share of all Seismic Costs (proportionately reduced, however, to the extent, if at all, any such Seismic Costs are to be borne by third parties sharing in the Seismic Acquisition who are not parties to this Agreement) and shall thereupon have immediate rights in and to such Seismic Data; provided, however, if a Carry Well is thereafter drilled within a Drilling Unit to which such Seismic Data is applicable, EPC shall also pay its Carry Share (to the extent a balance remains on the Carry Cap) of such Seismic Costs, as set forth in the applicable AFE for such Carry Well and in accordance with the timing set forth in Section VII. If EPC elects or is deemed to have elected not to participate in a Seismic Acquisition, then EPC shall have no rights or access to such Seismic Data; provided, however, that, should ORION propose a well under this Agreement that is based, in part, upon any Seismic Data in which EPC elected, or was deemed to have elected, not to participate, then ORION shall provide EPC such Seismic Data that is pertinent to such proposed well and ORION shall charge EPC its proportionate share of such Seismic Data.

 

XII.           DISPOSAL WELLS AND FACILITIES

 

(a)           Initial SWD Well. The PARTIES shall be the owners, in proportion to each’s Proportionate Share, of the Hercyk SWD #1-31 disposal well (“Initial SWD Well”). ORION, as operator of the Initial SWD Well, shall charge each party disposing of saltwater in

 

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the Initial SWD Well, including the PARTIES, a fee of $0.50 per barrel of saltwater disposed (as such fee may be re-determined from time to time by the operator hereunder, in its sole discretion, consistent with then current market rates in Kay County, Oklahoma, the “SWD Fee”). Each PARTY shall receive its Proportionate Share of all fees (including the SWD Fee), charges and other benefits from the Initial SWD Well as the owner of an undivided interest therein. Further, each PARTY shall pay its Proportionate Share of all operating, maintenance and capital costs for the Initial SWD Well. The SWD Fee charged to each party disposing of saltwater in the Initial SWD Well will, if applicable, be based upon each disposing party’s working interest share in a producing well from which such saltwater was generated multiplied by the number of barrels of saltwater from such producing well disposed of in the Initial SWD Well multiplied by the SWD Fee.

 

(b)           Subsequent SWD Wells. Subsequent to the drilling of the Initial SWD Well, ORION may propose the drilling of additional saltwater disposal wells and related saltwater disposal infrastructure as may, from time to time, be required (whether on lands within or outside the AMI) to dispose of saltwater from wells producing oil, gas or other hydrocarbons from within the AMI (“Additional SWD Facilities”). For any such proposal, ORION shall submit to EPC a written notice for the proposed drilling of such saltwater disposal well (“SWD Well Proposal Notice”) containing (i) the legal description of the surface location for the proposed disposal well, (ii) the proposed disposal formation, (iii) the proposed disposal capacity for the new disposal well, and (iv) an AFE showing the completed cost for the drilling of the proposed disposal well and the related disposal infrastructure required to connect wells to the new disposal well. For the avoidance of doubt, the PARTIES intend that EPC shall have the right to participate in any such Additional SWD Facilities proposed by ORION during the term of this Agreement. EPC shall have thirty (30) days, inclusive of Saturdays, Sundays and legal holidays, from receipt of such SWD Well Proposal Notice within which to elect whether to participate in such proposed Additional SWD Facilities in accordance with the SWD Well Proposal Notice, and failure to respond within said period shall be deemed an election not to participate. If EPC elects to participate in the Additional SWD Facilities, EPC shall pay its Proportionate Share (reduced proportionately to the aggregate working interest of the PARTIES in such Additional SWD Facilities) and, if applicable, its Carry Share of all costs incurred in connection with the drilling and completion of such Additional SWD Facilities. By such participation, EPC shall be the owner of an undivided interest in such Additional SWD Facilities equal to its Proportionate Share, reduced proportionately to the aggregate working interest of the PARTIES in such Additional SWD Facilities, and shall be (i) entitled to its Proportionate Share (reduced proportionately to the aggregate working interest of the PARTIES in such Additional SWD Facilities) of all fees (including SWD Fees), charges and other benefits from such Additional SWD Facilities and (ii) responsible for its Proportionate Share (reduced proportionately to the aggregate working interest of the PARTIES in such Additional SWD Facilities) of all operating, maintenance and capital costs for such Additional SWD Facilities. If EPC elects or is deemed to have elected not to participate in any such Additional SWD Facilities proposed by ORION hereunder, EPC shall have no right, title or interest in such Additional SWD Facilities and shall not be entitled to the fees (including SWD Fees), charges and other benefits received by the owners thereof for access to and use of such Additional SWD Facilities. EPC may, notwithstanding its non-participation in any such Additional SWD Facilities drilled under the terms of this Agreement, utilize such Additional SWD Facilities drilled hereunder in exchange for payment of $0.50 per barrel of saltwater disposed, capacity permitting; the intent

 

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being that ORION may not refuse EPC the right to utilize any such Additional SWD Facilities solely by reason of EPC’s non-participation in such Additional SWD Facilities.

 

(c)           Disposal Fee. ORION, as operator of each Additional SWD Facilities proposed hereunder, shall charge each party disposing of saltwater in each such Additional SWD Facilities well drilled hereunder, including the PARTIES (but subject to the $0.50 per barrel saltwater disposal fee applicable to EPC pursuant to Section XII(b) above), the SWD Fee. The SWD Fee charged to each party disposing of saltwater in any Additional SWD Facilities shall be, if applicable, based upon each disposing party’s working interest share in a producing well from which such saltwater was generated multiplied by the number of barrels of saltwater from such producing well disposed of in such Additional SWD Facilities multiplied by the SWD Fee. ORION, as operator, shall proportionately distribute the fees and charges received for access to and use of each such Additional SWD Facilities to the parties participating in such Additional SWD Facilities.

 

(d)           No Implication of Outside Ownership. Nothing in this Section XII shall imply any obligation on the PARTIES to allow other producers to participate in the ownership of the Initial SWD Well or any Additional SWD Facilities, it being contemplated that the Initial SWD Well and Additional SWD Facilities will be owned solely by the PARTIES (subject to Section XII(b)); provided, however, the PARTIES may permit other producers owning interests in producing oil, gas or other hydrocarbon wells located within the AMI to participate in the ownership of the Initial SWD Well and/or Additional SWD Facilities to the extent required by law to do so or to the extent the PARTIES believe it will be beneficial to the PARTIES to permit such ownership.

 

XIII. ELECTION TO CONTINUE PROJECT

 

(a)           EPC Election. Not later than three (3) Business Days after April 17, 2013, ORION shall give EPC written notice as to the balance, if any, remaining under the Carry Cap. Upon receipt of such written notice from ORION, EPC shall have ten (10) Business Days within which to elect, by giving written notice to ORION, either (i) to pay ORION the remaining balance under the Carry Cap (such amount, the “Continuation Payment”), or (ii) to opt out of, forfeit and reassign an undivided interest in and to a portion of the Initial Interests equal to (A) the remaining balance under the Carry Cap divided by $1,000, divided by (B) the aggregate net acres comprising the Initial Interests (excluding, however, the aggregate net acres subtracted from the net acres comprising the Initial Interests pursuant to clauses (X) and (Y) in the next proviso below); provided, however, notwithstanding anything in this Agreement to the contrary, this Section XIII shall have no effect on any Drilling Rights or other interests in this Agreement or the AMI that EPC has already earned or forfeited under the other provisions of this Agreement, the intent of the PARTIES being that (X) all rights, interests and acreage previously assigned to EPC within the applicable Drilling Units for each Commitment Well and Carry Well for which EPC has timely paid all properly submitted invoices shall remain in EPC and shall not be subject to forfeiture under this Section XIII(a), and (Y) all previously forfeited rights, interests and acreage under this Agreement, if any, shall remain forfeited no matter what EPC elects under this Section XIII(a). For the avoidance of doubt, as an example of the application of Section XIII(a)(ii) above, if on April 17, 2013, $526,500 remains under the Carry Cap, the aggregate net acres comprising the Initial Interests assigned to EPC under the Purchase Agreement was 5,265,

 

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but, after deducting rights, interests and acreage pursuant to clauses (X) and (Y) above, EPC’s net acres under this Agreement are only 3,265, and EPC elects the option under Section XIII(a)(ii) above, EPC shall forfeit and reassign to ORION an undivided 16.1% interest in and to the leases, properties, rights and interests comprising such 3,265 net acres. Further, for the avoidance of doubt, at no time or for any reason shall EPC forfeit any interest in any wells in which it has participated and has timely and fully paid all properly submitted invoices. Failure of EPC to provide written notice of its election on the applicable date shall be deemed an election to forfeit and reassign an undivided interest in and to the Initial Interests pursuant to Section XIII(a)(ii) above. Should EPC elect to make the Continuation Payment, such payment shall be made contemporaneously with such election.

 

(b)           Effect of Opting Out. In the event EPC makes an election pursuant to Section XIII(a)(ii) to opt-out of an undivided interest in the Initial Interests, (i) EPC’s rights and interests in such portion of the Initial Interests shall automatically be relinquished to and re-vested in ORION; (ii) EPC shall have no obligation to pay the Continuation Payment provided for in Section XIII(a); (iii) EPC shall have no further rights or interests in and to such undivided interest in the Initial Interests relinquished to and re-vested in ORION; (iv) EPC shall execute and deliver, within thirty (30) days of such election, a recordable re-assignment of such relinquished Initial Interests to ORION, free of all lease burdens, overriding royalties, payments out of production or any other encumbrances created by, through or under EPC but not otherwise; and (v) this Agreement shall terminate for all purposes as to the portion of the Initial Interests forfeited pursuant to Section XIII(a)(ii) but shall continue in full force and effect as to the remainder of the AMI as set forth in Section XVIII(k). In the event EPC makes an election pursuant to Section XIII(a)(i) above, this Agreement shall continue in full force and effect for the remainder of its term without any modification.

 

(c)           Joint Negotiation. The PARTIES hereby acknowledge and agree that the election options provided for under Section XIII(a) have been negotiated for by the PARTIES and EPC acknowledges and agrees that neither of such election options under Section XIII(a) constitutes a penalty.

 

XIV. DELAY RENTAL AND SHUT-IN ROYALTY PAYMENTS

 

All of the Initial Interests as well as all other oil and gas leases and other Drilling Rights within the AMI and covered by this Agreement shall be administered and maintained by ORION. ORION shall pay all delay rentals, shut-in royalty, extension bonuses and all other similar amounts which may be required under the terms of such co-owned leases and Drilling Rights in order to maintain same in effect and shall submit evidence of each such payment to EPC upon request. EPC shall be obligated to reimburse ORION for its share of all such rental, shut-in royalty, extension bonuses and other similar payments based on their respective ownership in same. ORION shall not be liable to the co-owners of the oil and gas leases and Drilling Rights, however, if through mistake or oversight (but not gross negligence or willful misconduct), any rental or royalty or other similar payment is not paid or is erroneously paid.

 

19

 

XV. PROPRIETARY INFORMATION

 

(a)                                 Confidentiality Obligation. Except for disclosures to (1) employees, officers and directors of a PARTY, (2) employees, officers and directors of a PARTY’s Affiliates, (3) any professional consultant or agent retained by a PARTY for the purpose of evaluating the Proprietary Information, (4) any financial institutions or other lenders for financing purposes, (5) investors, potential investors or shareholders if a PARTY is a publicly traded company and applicable securities laws require such disclosure or such disclosure is made in connection with an investor or potential investor conference customary in the oil and gas industry, (6) representatives of a PARTY who need to know information for purposes of performing this Agreement, (7) accountants, (8) legal counsel and other advisors, or (9) in connection with any proposed merger, acquisition or divestiture transaction involving a PARTY, no Proprietary Information shall be distributed or disclosed to any third party without first obtaining a written undertaking of confidentiality from such third party. Proprietary Information shall be maintained confidential during the term of this Agreement and for a period of two (2) years thereafter.

 

(b)                                 Designation of Proprietary Information. It shall be the duty of a PARTY to identify as Proprietary Information, in writing, any of its information which is disclosed to the other PARTY and which is intended to be governed by the provisions of this Section XV. The identification shall be made at the time of disclosure or within reasonable proximity of disclosure.

 

(c)                                  Disclosure of Proprietary Information. In the event that any PARTY or its representatives are requested or required by oral questions, interrogatories, requests for information or documents in legal proceedings, subpoena, civil investigative demand or other similar process, to disclose any Proprietary Information, such PARTY shall provide the other PARTY that may claim the Proprietary Information with prompt written notice of any such request or requirement so that the PARTY that claims the Proprietary Information may seek a protective order or other appropriate remedy. If a PARTY or its representatives are nonetheless legally compelled to disclose Proprietary Information, such PARTY or its representatives shall disclose only that portion of the Proprietary Information which it is legally required to disclose, provided that such PARTY will exercise its best reasonable efforts to preserve the confidentiality of the Proprietary Information, including, without limitation, by cooperating with the PARTY that claims the Proprietary Information to obtain an appropriate protective order or other reliable assurance that confidential treatment will be accorded the Proprietary Information.

 

XVI. INDEMNITY

 

(a)                                 Each PARTY shall defend, indemnify and hold the other PARTY harmless from and against any and all claims, demands, costs, judgments and liabilities for damages or losses arising from such PARTY’s failure to comply with its express obligations under this Agreement.

 

(b)                                 Notwithstanding anything to the contrary in this Agreement, in no event shall either PARTY be liable to the other under this Agreement for any consequential, exemplary, punitive, remote or speculative damages, including damages for loss of profit

 

20

 

(collectively, “Special Damages”); movided, however, that if any PARTY is held liable to any third party for any such Special Damages and the other PARTY is obligated hereunder to indemnify such PARTY so held liable for the matter that gave rise to such Special Damages, the indemnitor PARTY shall be liable for and obligated to reimburse such indemnified PARTY for the full amount of such Special Damages.

 

XVII.                     NOTICES AND ADDRESSES OF THE PARTIES

 

All written notices required to be made pursuant to this Agreement shall be deemed sufficient if faxed via local and long distance telephone lines (with answer-back confirmation of receipt) or five (5) business days after, mailed by United States mail, postage or charges pre-paid and addressed to the very PARTY to whom the notice is given at the addresses shown below. Any required verbal notices or communications may be made to PARTIES at the respective telephone numbers shown below:

 

ORION:

 

Orion Exploration Partners, LLC

4870 South Lewis, Ste 240

Tulsa, OK 74105

Attn: Steve Miller

Phone: (918) 492-0254, Ext. 103

Fax: (918) 492-0263, Fax

Email: steve@orionexploration.com

 

EPC:

 

Evolution Petroleum OK, Inc.

2500 CityWest Blvd., Suite 1300

Houston, Texas 77042

Attn: Robert S. Herlin

Phone: (713) 935-0122

Fax: (713) 935-0199

Email: bherlin@evolutionpetroleum.com

 

XVIII.                MISCELLANEOUS

 

(a)                                 No change, modification or alteration of this Agreement shall be valid unless approved in writing by the PARTIES. All communications required by this Agreement shall be in writing using the addresses shown above.

 

(b)                                 This Agreement has been negotiated by the PARTIES and represents their voluntary agreement. No presumption of interpretation shall be imposed against the PARTY or PARTIES who constructed this document.

 

(c)                                  If any claim or controversy arises out of, or relates to, this Agreement, the PARTIES shall make a good faith attempt to resolve the matter through their senior management

 

21

 

representatives, and said personnel of each PARTY shall meet in person and make a good faith attempt to resolve or settle the matter. EACH PARTY HERETO HEREBY IRREVOCABLY WAIVES ANY AND ALL RIGHTS IT MAY HAVE TO DEMAND ANY WAY RELATED TO THIS AGREEMENT OR THE RELATIONSHIPS OF THE PARTIES HERETO BE TRIED BY JURY. THIS WAIVER EXTENDS TO ANY AND ALL RIGHTS TO DEMAND A TRIAL BY JURY ARISING FROM ANY SOURCE INCLUDING, BUT NOT LIMITED TO, THE CONSTITUTION OF THE UNITED STATES OR ANY STATE THEREIN, COMMON LAW OR ANY APPLICABLE STATUTE OR REGULATIONS. EACH PARTY HERETO ACKNOWLEDGES THAT IT IS KNOWINGLY AND VOLUNTARILY WAIVING ITS RIGHT TO DEMAND TRIAL BY JURY.

 

(d)                                 Each PARTY hereby elects to be excluded from the application of all of the provisions of Subchapter “K”, Chapter 1, Subtitle “A” of the Internal Revenue Code of 1986 (“Code”), as permitted and authorized by Section 761 of the Code and the Regulations promulgated thereunder. ORION (or any successor operator) is authorized and directed to execute on behalf of each PARTY such evidence of this election as may be required by the Secretary of the Treasury of the United States or the Federal Internal Revenue Service, including specifically, but not by way of limitation, all of the returns, statements and the data required by Treasury Regulation §1.761-2. Each PARTY agrees to execute and furnish such other evidence as may be necessary to evidence this election.

 

(e)                                  The PARTIES affirm, attest, and agree that the rights and liabilities of the PARTIES shall always be individual and several, not joint or collective, and that each PARTY shall be acting independently of the other. No fiduciary relationship, constructive trust, partnership, species of partnership, joint venture or mining partnership is intended or meant by this Agreement, and no act by any PARTY shall operate to create such relationship for any purpose whatsoever.

 

If any part of this Agreement is held to be unenforceable, the remaining provisions of this Agreement will remain in full force and effect, and the part of this Agreement held unenforceable shall be modified so that it is as similar in terms as the unenforceable part while still being unenforceable.

 

(g)                                  This Agreement and the Exhibits hereto constitutes the entire understanding of the PARTIES with respect to the subject matter hereof. It replaces all prior written and oral communications, understandings or agreements with respect to the subject matter hereof. No waiver will be effective unless given in writing and signed on behalf of the PARTY making such waiver.

 

(h)                                 This Agreement may not be assigned in whole or in part by a PARTY (a “Transfer”) prior to the drilling and completion (or plugging and abandonment) of all of the Commitment Wells; provided, however, this Agreement may be assigned by a PARTY to any mortgagee or secured party of the assigning PARTY or to any purchaser at a judicial or non-judicial foreclosure or by conveyance in lieu of foreclosure, pursuant to any mortgage or security agreement granting a lien or security interest. Thereafter, this Agreement may not be Transferred by a PARTY without the express written consent of the other PARTY, such consent not to be unreasonably withheld; provided, however, this Agreement may be assigned by a

 

22

 

PARTY to any mortgagee or secured party of the assigning PARTY or to any purchaser at a judicial or non-judicial foreclosure or by conveyance in lieu of foreclosure, pursuant to any mortgage or security agreement granting a lien or security interest. No PARTY shall assign or otherwise transfer its interest in this Agreement unless the assignee or transferee assumes all of the obligations hereunder of the PARTY making such assignment or transfer that are applicable to the interests assigned. If any Transfer relates to all of the lands comprising the AMI but an undivided interest in less than all of a PARTY’s interest in such lands covered by this Agreement, then the rights of the transferor and the transferee to acquire an interest within the AMI from another PARTY herein shall be allocated between them in accordance with the relative interest transferred and the relative interest retained by a PARTY hereto, and each of the transferor and transferee may separately exercise the elections provided herein as to their respective undivided interests. If any Transfer of a PARTY’s interest in the properties covered by this Agreement relates to less than all of the lands comprising the AMI, then the transferee’s rights to acquire interests within the AMI shall be limited to the lands in which the transferee has acquired its interests, and if the transferee has acquired only an undivided interest in less than all of the transferor’s interest, then the proportionate allocation provisions of the preceding sentence shall apply to the lands to which the Transfer relates. The transferor shall retain rights to acquire interests within the AMI as to lands not involved in the Transfer or in which the transferor retained an undivided interest. In the event of a Transfer of all or part of a PARTY’s interest in all the lands subject to the AMI or as to any portion of the AMI, the transferee shall have the same obligations as those of its transferor to offer to each other PARTY hereto any interests within the AMI subsequently acquired by such transferee.

 

(i)                                     In the event of a conflict between this Agreement and the Operating Agreement attached hereto as Exhibit “D”, the provisions of this Agreement shall prevail.

 

(j)                                    Time shall be of the essence of this Agreement in all of its parts. This Agreement shall be binding on the PARTIES, their heirs, executors, administrators, personal representatives, trustees, successors and permitted assigns.

 

(k)                                 This Agreement shall remain in force and effect for a period of time ending on June 1, 2013. Notwithstanding the foregoing, the provisions of (i) Section II(b) shall survive the termination of this Agreement until the end of the AMI Term, insofar, and only insofar, as to each Governmental Section in which EPC and ORION jointly own Initial Interests, Drilling Rights and/or AMI Interests acquired under this Agreement; (ii) Section X shall survive the termination of this Agreement as provided in Section X, (iii) Section XIII shall survive the termination of this Agreement indefinitely; (iv) Section XV shall survive the termination of this Agreement as provided in Section XV; (v) Sections XVI through XVIII(g) and Sections XVIII(i) through XIX shall survive the termination of this Agreement indefinitely; and (vi) Section XVIII(h) shall survive until the end of the AMI Term.

 

(1)                                 This Agreement may be executed in multiple counterparts, and the counterpart signature page for each PARTY may be transmitted to the other PARTY by facsimile or electronic transmission, each of which shall be considered to be the original signature of such PARTY.

 

23

 

XIX. ADDITIONAL DEFINITIONS; INTERPRETATION

 

(a)                                 Definitions.

 

“AFE” or “AFEs” refers to one or more Authorizations for Expenditure applicable to a producing well or saltwater disposal well proposed by a PARTY hereunder, each of which AFE shall specifically include subtotals for (i) Drilling and Completion Costs and (ii) Fracing Costs.

 

“Affiliate” shall mean, with respect to any person (which shall include any individual, partnership, company, joint venture, corporation, limited liability company, trust, trustee, receiver, or other entity or any unincorporated association or organization), any person directly or indirectly Controlling, Controlled by or under common Control with such person; provided, however, for purposes of this Agreement neither SW Capital Partners Inc. nor any person Controlled by SW Capital Partners Inc. shall be considered an “Affiliate” of ORION.

 

“AMI Term” shall mean (i) for all lands within the AMI, the term of this Agreement, plus (ii) for the Initial Interests and all Drilling Rights and/or AMI Interests jointly acquired by the PARTIES during the term of this Agreement, until June 1, 2014 (“AMI Extension”); provided, however, that, during the AMI Extension, the geographic area applicable to the rights and obligations of the PARTIES shall be limited, for purposes of Section II above, to each Governmental Section in which the jointly owned Initial Interests, Drilling Rights and/or AMI Interests are located and the AMI shall terminate at the end of the term of this Agreement as to all other lands not included within such Governmental Sections.

 

“Business Day” shall mean any calendar day on which banks located in Tulsa, Oklahoma, are open to conduct business.

 

“commence”, “commenced”, and “commencement” shall, when referring to well operations, mean a drilling rig that is capable of achieving the proposed target depth for each such well operation is on location or, in the case of fracing operations, frac trucks capable of performing the proposed frac job are on location.

 

“Control”, “Controlling”, “Controlled by”, and “under common Control with” shall mean the possession directly or indirectly of the authority to direct or cause the direction of the management, policies or operational activities of a person, whether through ownership of voting securities or other right to vote, by contract or otherwise.

 

“Drilling and Completion Costs” shall mean all anticipated capital costs to be incurred, Through the Tanks, in the drilling, deepening, sidetracking, plugging back, testing, completing, recompleting and equipping of a Commitment Well, Carry Well and/or any other Subsequent Well, as such costs appear on the applicable AFE.

 

“Drilling Rights” shall mean any oil and gas leases, overriding royalty interests, mineral interests, farmins, farmouts, option farmins, working interests, back-in working interests, carried interests, reversionary leasehold interests, force pooled interests and/or any other contractual, economic or statutory right in and to oil, gas and/or other hydrocarbons.

 

24

 

“Drilling Unit” shall mean a drilling and spacing unit as established by the Oklahoma Corporation Commission, often (but not always) being a Governmental Section.

 

“Force Majeure” shall mean an act of God, strike, lockout, or other industrial disturbance, act of a public enemy, war, blockade, public riot, lightening, fire, storm, flood or other act of nature, explosion, governmental action, governmental delay, restraint or inaction, unavailability of equipment through no fault of the PARTY claiming Force Majeure, and any other cause, whether of the kind described above or otherwise, which is not reasonably within the control of the PARTY claiming Force Majeure.

 

“Fracing Costs” shall mean all projected costs to be incurred in hydraulic fracture stimulation, i.e. “fracing,” conducted in the wellbore of any Commitment Well, Carry Well and/or any other Subsequent Well (inclusive of all anticipated fracing stages), as the same appear on the applicable AFE.

 

“Governmental Section” shall mean a “section” as such term is used in connection with the land surveys conducted by the U. S. Governmental Land Office in the State of Oklahoma, often (but not always) being a mile block of land containing approximately 640 acres.

 

“Mississippian Formation” shall mean the Mississippi Chat and/or Mississippi Lime formations underlying any existing or proposed Drilling Unit.

 

“Proprietary Information” shall mean any and all information, data, trade secrets, know-how, inventions, technology, computer programs, works of authorship, methods, processes, intellectual property, techniques, marketing strategies, development plans, forecasts and ideas, which are made available to a PARTY or discovered or learned by a PARTY from the other PARTY during the course of and pursuant to this Agreement. Proprietary Information shall include the materials and objects which embody the Proprietary Information or from which the Proprietary Information can be directly or indirectly read, transferred or utilized but shall not include information that: (i) is or becomes generally available to the public; (ii) was, at the time, approved for release by written authorization of the PARTY that claims the Proprietary Information; (iii) was, at the time, disclosed without notification of the confidential and proprietary nature of the information, (iv) was, at the time of disclosure to a PARTY, already in such PARTY’s possession, (v) is required to be disclosed pursuant to a legal proceeding or other rule of law; or (vi) is required to be disclosed by any applicable federal or state securities law or regulations.

 

“Seismic Costs” shall mean all expenses incurred in the gathering and acquisition of the Seismic Data, seismographic processing and/or reprocessing, data review and interpretation, data duplication, access agreements to authorize seismic activity and damage payments.

 

“Seismic Data” shall mean all data generated by exploration or testing for oil, gas or other minerals by seismograph or other geophysical and geological methods, together with all seismic and other geophysical data files, interpretations and support data.

 

“term of this Agreement” shall mean from and after the date hereof until June 1, 2013.

 

25

 

“Through the Tanks” shall mean all operations necessary to drill and complete an oil, gas or other hydrocarbon well and install related equipment reasonably necessary for the well to be capable of producing and delivering oil to tanks (in the case of oil) or gas to the custody gas meter (in the case of gas), as applicable, including tanks and the installation of surface equipment located on-lease upstream of the tanks and upstream of the custody gas meter considered to be on-lease equipment such as heater-treaters, separation, flow lines, lead lines and the like, and including on-lease amine treaters and on-lease dehydration and compression, if any.

 

“Well Costs” shall mean all costs chargeable under the applicable accounting procedure attached to and made a part of the Operating Agreement incurred (a) Through the Tanks in drilling, deepening, sidetracking, plugging back, testing, completing, recompleting and equipping an oil, gas or other hydrocarbon well, or for the plugging and abandonment of the same in the event a well is completed as a dry hole (whether or not a completion attempt is made), or (b) through completion in drilling, completing and equipping a saltwater disposal well. “Well Costs” specifically include Drilling and Completion Costs, Fracing Costs and (i) all costs incurred in connection with operations in preparation for drilling; (ii) all costs incurred for the settlement of claims for surface damage incurred in connection with the drilling, completion of a well Through the Tanks or the plugging and abandonment of a well; (iii) costs of restoring the well site in accordance with applicable governmental and/or lease requirements following completion of drilling and completion operations; and (iv) title examination expense and title curative costs incurred in connection with drilling of a well. In no event shall “Well Costs” include any costs incurred in marketing or making the oil and gas marketable or incident to marketing oil and gas (excepting only those on-lease activities and costs included in the definition of “Through the Tanks”).

 

(b)                                 Interpretation. All references in this Agreement to articles, sections, subsections and other subdivisions refer to corresponding articles, sections, subsections and other subdivisions of this Agreement unless expressly provided otherwise. Titles appearing at the beginning of any of such subdivisions are for convenience only and shall not constitute part of such subdivisions and shall be disregarded in construing the language contained in such subdivisions. The words “this Agreement,” “this instrument,” “herein,” “hereof,” “hereby,” “hereunder” and words of similar import refer to this Agreement as a whole and not to any particular subdivision unless expressly so limited. Words in the singular form shall be construed to include the plural and vice versa, unless the context otherwise requires. Pronouns in masculine, feminine and neuter genders shall be construed to include any other gender. All defined terms shall include any syntactical variants of such defined term. Examples shall not be construed to limit, expressly or by implication, the matter they illustrate. Unless the context otherwise requires or unless otherwise provided herein, the terms defined in this Agreement which refer to a particular agreement, instrument or document also refer to and include all renewals, extensions, modifications, amendments or restatements of such agreement, instrument or document, provided that nothing contained in this subsection shall be construed to authorize such renewal, extension, modification, amendment or restatement. The word “or” is not intended to be exclusive and the word “includes” and its derivatives means “includes, but is not limited to” and corresponding derivative expressions.

 

[Remainder of page intentionally left blank. Signature pages follow.]

 

26

 

	

    	
ORION   Exploration Partners, LLC
    	
 
    	
www.orionexploration.com
    

 

IN WITNESS WHEREOF, the PARTIES have executed this Participation and AMI Agreement this 17th day of April, 2012.

 

 

ORION EXPLORATION PARTNERS, LLC

 

 

	
BY:
    	

    	
 
    
	
 
    	
Steve Miller, President
    	
 
    

 

 

EVOLUTION PETROLEUM OK, INC.

 

 

	
BY:
    	

    	
 
    
	
 
    	
Vice   President/Opera ions
    	
 
    

 

Signature Page to Participation and AMI Agreement

 

 

	
C3
    	
ORION   Exploration Partners, LLC
    	
www.orionexploration.com
    

 

EXHIBIT “A”

 

Attached To that certain Participation and AMI Agreement, by and between Orion Exploration Partners, LLC and Evolution Petroleum OK, Inc. dated April 17, 2012

 

AREA OF MUTUAL INTEREST

 

See attached.

 

 

 

 

	

    	
ORION   Exploration Partners, LLC
    	
www.orionexploration.com
    

 

EXHIBIT “B”

 

Attached To that certain Participation and AMI Agreement, by and between Orion Exploration Partners, LLC and Evolution Petroleum OK, Inc. dated April 17, 2012

 

INITIAL INTERESTS

 

See attached.

 

	
  

  	
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  74.54775 AI Al IA ..i. tri 10.00000 152.3200 o AI ,..1 N 0 ...1 No o N ,1 N 0
  ...1 o o A.1 m N 0 1-1 o o AI oi N IA 1-1 152.3200 320.0000 152.3200 o o N m
  N 0 1.4 152.3200 o N ,•"! N Ln 9-1 o o Ch CA In NOR'? § 0 . o o o 0 . o
  o o 0 . 8 0 ...1 0000 8 VI ROOOO ?. .Mn . 8 0 CO o 8 0 CO 40.0000 La 0 OEP
  OEP OEP OEP OEP OEP OEP U. OEP OEP OEP OEP OEP OEP OEP OEP a. La 0 La 0 OEP OEP
  OEP ane e ynn dealing in her sole and separate property Sheila Beth, dealing
  in her sole and separate property a[even nay rtaLner, ueanng - in his sole
  and separate property UI Ott Vaugh:in, ueanng his sole and separate property
  MLA oncen won, ueaung In her sole and separate property uamet nay Livingston,
  dealing In his sole and separate property hana, (waling In ner sole &
  separate property micnael uaviu oryant, dealing in his sole and separate
  property Paul Hylton, Attorney In fact for Teresa Ann Herson _ Lnanayne hae
  mcLarn, dealing in her sole and separate property uavm rtscner, clearing in
  his sole and separate property Stephen J. & Tanya L. Anna Hercyk and
  Steven 0. X John S. and Neta Hercyk Jeffrey and Jennifer >, E E 'Ernest E.
  and Karen E a. w 'Marilyn and Terry Shawn & Sarah LE .!... .§ Temple
  Fischer g. to = Wolf 5 a "' :1 ,..3...-.. tii a ....' E. a 5 ... = E . X
  Fischer .w a, .54 III 0 = = Smith (Hercyk) Hercyk Morgan .10 .9 n =
  'Breedlove IMiddlebusher IMIddlebusher a., Ol x O" U0 a., 2 U0 a.. 2
  L0./ T 0 LI a. 2 U0 a... 2 L0I a. 2 U0 a, 2 U0 T 3 U a, 2 U0 0 a. 2 U0 a.. a.
  2222 U0U0U a, a. 0U0 a., 0 U a, 0 U 222000 a, U0U a.. .0.0.0 0L0I a, a, U

  

 

	
  

  	
  9 0 9 0 9 0 9 0
  9 0 9 0 Y 0 Y 0 Y 0 Y 0 9 0 9 0 9 0 9 0 9 0 9 0 9 0 It7' 9 0, g ?il.. 9 0, 9
  0, g 3, Q 3, Q 0, g 01 0, 3, g 3, N 'JQQ 3, 0, O, g, NN In Cl N N sr• In ,d.
  en el. en 'CI en .4. VI sl. en "II en en en en en In en to en in en Ul
  en In In cel , 0 t.T.: .. 0 ell . 0 4 •- 0 4 4-4 0 4 01 0 u.] 01 0 LI 04 0 co
  4-1 0 in 04 0 4 01 0 4 01 4 v--4 4.1 04 000.00 4 4-4 43 01 4 01 Z N N Z CO N
  Z co N Z CO N Z N N N ZZZZZ 000N N 0 N N N ZZZZZ OOOOO N N N ZZ OC NN ...„.
  Is.1 VI ..... Z commencing at the SE corner of said Sect. 27, thence west
  along the south line a distance 6(716.65' to a FOB, thence west for a
  distance of 604.00', thence north for a distance of 305.00', thence east for
  a distance of 604.00', thence south for a distance of 305.00' to a POB and
  the NE/4 E/2 NE/4 NW/4 less a tract In the NE corner of the NW/4 descibed:
  W/2 NE/4 SW/4 W/2 SE/4 and SE/4 SE/4 W/2 SE/4 and SE/4 SE/4 W/2 SE/4 and SE/4
  SE/4 sr ....„ C.1 ..... En ./. ..... nl ..... In S/Z SW/4 NE/4 NE/4 E/2 NE/4
  W 110 acs In NW/4 SE/4 NE/4 ID N ..... CO sr H .-1 MI IC/ CI, ..... 01 In
  1.11 0 n• 0 ---... DI on en .-. 0 0, 04 444., 0 st• en . 0 00 40 --..... CO
  n1 e.n ..... 1, n1 In CO ,r-o 0 1. 0, CO CI, 0, 01 1---- h h In n1 n1 C4 Cvl
  C., 01 si• 'O. 'I' III VI VI 14 Ill 1-4 10 0. 04 4-4 44.... ,... ---...
  --.... --... N ng CO n1 sl• en 01 CM 0, 04. N ..I. to 01 nl N CO N sl. to 4-1
  0, i ,13 01 N 444. CO N N ,0 In C41 01 en en en .-- 04 ,--1 03 N CO IC 01 en
  4-1 441-4 01 0 04 ..... rn .-• N. Os 411. 4-4 0 --.... 6 .-1 -...,,0 v-I -st
  04 0 04 --.... en .-. ,113 .40 1. 0 N ...... en ...... 03 -4. . 0 N ....., DI
  ..... N 4414 SP 447 v411 441 1-1 1-I 04 01 04 0000 NNENNN ....... ......
  ...„. .-.., ...... •-• In 0 0 Cl - VI Cn ...... n.,, ...... --, ..... N ,0 0,
  0, 0, 44. 4-4 0 N ...... 0 ..... 0, 441t4 •I 0 04 ....... 0 ..... CI, ,11 v-1
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  ....... ,... 1-1 N N .N. 1., Id. 01 0 N ...... .-I ..... N 01 0 IN ..... en .
  ...., 00 10/19/2011 01 0 04 -.... en ..-e ...„ se e- 0 C,1 ....... rn N
  --.... 440 01 0 N ...., en 04 --.... ,.., 01 .-4 01 1-4 04 0 0 0 0 0 II,1 N N
  N nl ...... .., ..., .., ..., ,..e en 0 o a 01 1-4 01 01 01 ---... --....
  --.... ---.. -..... N 40 0, 0, C0 01 0 N ..., o 01 --, ON 01 0 N , o en --,
  0, 1-4 0 nl ,, a en .. 01 .-- 7/28/2011 7/12/2011 7/21/2011 14-1 0 nl .....,
  ,-1 N --.... h 00 o o Ca In ...i , en 00 0 o ‘aiCe 1-1 0 0 0 0 h r.. ..; , en
  0 ° 0 en .1' .4 en en 8 0 o ° ,0 V:1 4-1 2 0 o 0 ,-.1 N M 0 o O0 C. q 0 43 01
  160.000001 , . 0 0 , , 01 0 0 e , , In 1-1 en 0 00 o 0 0 N 0 0 0 o to Vi In
  .-e 80.00000 160.00000 39.95667 39.95667 39.95667 531.43000 'Ca ,I) 1.0 0 0 N
  --.0 ,0 10 0 en N T, n17 e 0 qi N 20.00000 40.00000 110.00000 20.00000 o o o
  o z . 0 0 0 0. 0 ‘417 4-4 0 o N N In .--, N 0 0 0 0 0 CO 0 0 40 in In In N 0
  0 0 0 0 0 0 0 0 0 0 0 N N N 00000000 0 9 6 6 6 CO ‘o , 1-4 T., 1-1 4. 44 04 0
  0 0 q o COCO 0 0 0 0 O 0 0 0 0 6 C0001-1,1. 0 0 0 0 0 0 0 0 0 0 0 0 °v 6 ci
  10 0 0 0 0 o 04 4.1 o O. 43 o a O ....... 00 c N E F. a. Cu o Tumer/Range/OEP
  Turner/Range/OEP Turner/Range/OEP Gulf/Range/OEP Gulf/Range/OEP
  Gulf/Range/OEP Gulf/Range/OEP Gulf/Range/OEP a. ra 0 ..... Ic "E u OEP
  OEP OEP OEP Carolyn S. Whitescarver Revocable Trust dated Feb. Z8,1990) Louis
  Elaine Fulton, Successor Trustee under the Revocable Trust Agreement of April
  8, 1985 ,Thomas D. Catlin, etux W.S. Cline Family Trust, dtd 1/25/1984 and by
  2nd amendment dtd 1/1/1987 C/O Charles Eisenhauer vv. vuoy Claybaker,
  Trustees of the Max J. & Dorothy N. Claybaker utny m.onntn &Lyntma
  Smith Tlemann Family, LLC Lore Honick Heath Gregory C. Honick Lesa Ann Honick
  Lore Honick Heath Gregory Clifford Honick Lesa Ann Honick Joshua Steven and
  Sandra John and Carol Gary and Gayle Whitescarver IT. 1 ro 41 N r. 3 . .. rn
  >, F.7) Smith Tlemann Heath Honick Honick Heath Honick Honick Barney
  Erkenbeck Schulz Doyal 2 g U 2 8 t" .,:, . - 2 2 c (..3 8 .2 .2 B.2 2 ggg
  g g U U U I./ U 2 .2‘2 2 ggg t..] Li U 2 2 2 g ggg t.-1 U t-) U 

  

 

	
  

  	
  X 0 9 0 X 0 9 0
  9 0 9 0 X 0 X 0 9 0 X 0 X 0 X 0 X 0 X 0 9 0 X 0 X 0 9 0 9 0 9 0 9 0 X 0 T Q
  rs Q rs a T aaa T rs T a T a T aa rs >t iv I aaaaaa >. it s it ., aaaa
  i.. ›, iv aa 1 . en * en . in .., en .-. en ....I .-I .-4 0, N N N N N N N N
  N N N N N NI en N en N In N en N si. N I* N W n- 0 La N 0 03 N a fa N 0 La N
  0 4.1 N 0 La N 0 W N 0 La N 0 La N 0 La N 0 La N 0 03 N 0 Ca N 0 La N 0 La N
  0 111 N 0 113 N 0 La N 0 la N 0 Ls3 N 0 03 N 0 Z co N Z 0 N Z co N Z 0 N Z 0
  N Z 0 N Z co N Z 0 N Z 0 N z 0 N Z 0 N Z co N Z co N Z 0 N Z CO N Z CO N Z CO
  N Z CO N Z CO N Z CO N Z CO N Z CO N W/2 NE/4 & East 50 acres NW/4 ......
  sn a Z . z SW/4 a w Lot 1 & NE/4NW/4 Lot 1 & NE/4NW/4 Tract in NE/4
  Tract In NE/4 6.54 ac tract hi SE/4 . Les N 60 acs of E/2SE/4 & W/2SE/4
  4.11 ac tract In SE/4 2.75 ac tract in SE/4 W/2NW/4 N/1 Block 9,211 of inks
  1U&11, Browns Subdivision of SW/4 Tract in NE/4 All ot Block 8, Brown
  Subdivision of the SW/4 Tract in NW corner of SW/4- see OGL for tract
  description NE/4 S 60 acs of NW/4 less 7.0 ac tract 0 . ..... o W in .... N N
  N ..... sr, 01 sr] ...I o 01 N ...... cn la in e-I . .1. N ..... d. '0 in . N
  IA N ..... CO * in I. N N N ..... a sr m v. si. sn PI N -.... Ce, lr) In . N
  Ce• e. -.... 0 V) . . N en N ...... Os IA In v. In 0, .-.1 ..... a ,0 sn . CO
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  sl. 0 ...... Mr in in . in ..I. N ...... * se. In v. en .0. N ...... sr so In
  . 0 0 N -.... 0 . In v. r. In CO ...... ,0 an In . In . 0 NI ..... ,0 N .....
  . ..I. . 0 N -.... rl N ..... WI In v. 0 N -... In N -.... N in . 0 N -., IA
  N ...... N U, . 0 N ..... IA N ...... N In . o N ...... Ill N -, N 12/20/2014
  In 0 ru ..... sO .-I ...... N 10/7/2014 10/7/2014 12/14/2014, 12/28/2014
  12/27/2014 12/12/2014 12/28/2014 Irl ...I 0 N -, ..0 ..... N 12/22/2014
  12/8/2014 III . 0 N ..... 0 N ..... ,-I WI . 0 N ..... so N -.._ .-1 IA . 0 N
  ..... . ..I ..... . .0. . 0 N ..... N N ..... .-1 . O N VD ...... NN 0 N ....
  Pr ..... 0 N ..... sn N ...... 2/25/2012 o N ..... sr) N ...... 0 N .... ses
  N •.... 12/20/2011 0 N ..... . ..1 0 N ,... h ..... 0 N n.,, N .....
  12/14/2011 12/28/2011 . N ,... 1, N ..... . N ,... N •- n.,, 12/28/2011 N N
  ..... str ..... NI 112/22/2011 . N .... CO ..... Ns I1/20/2012 Ns , ..... kr,
  NI ..... ,-. r..1 N .... r. ....1 ..... .-I . N ,... N N ....., ,..1
  400.000001 160.000001 640.000001 0 0 N N sn ,A 1-I 0 C N . In Ili 393.40000
  45.42000 130.00000 400.000001 o o 0 0 0. c) .0 ,-.1 0 0 0 0 0 • 0 ... r4 0 0
  0 0 0 ci ..0 ..4 160.00000 0 0 0 0 0 0 sO 1-1 0 0 o 0 0 ci sO -I 640.000001
  6.23000 0 0 Ln ..I. I'l 0 0 tn r. In . i.I 3.56700 1 2.000001 0 0 r- C ul ui
  0 0 0 'r an ,.ei I 160.000001 0 0 0 0 C' o 1. •-i 4.11000 2.75000 0 0 0 0 °
  ci CO 0 0 0 0 •ap • ,', IT en 0 0 0 0 q 20.32000, 3.60000 crs 12.50000 I
  45.42000 0 0 0 0 o 1-4 53.00000 O O O O 0 0 0 6 .0 0 0 . o . 0 0 q o •15 0000
  o 0 . ci ,Ir 0 0 q 2 0 0 ‘13 n sr I, 74.7600 0 0 0 o 6 Or 2.00001 0 0 sr in
  vj 0 0 0 q to srg 0 0 0 q o V 4.1106 0 0 In ,-: N 80.0000 74.7600 0 0 N 0 NI
  3.6000 0 0 0 In tsi .... [ 160.0000 0 0 0 O. en In a 1.1 0 Turner/Range/OEP I
  OEP a ta 0 a La 0 a la 0 OEP OEP OEP a Ls3 0 OEP OEP a Ca 0 a La 0 OEP OEP a
  ea 0 a tsl 0 OEP OEP a 03 0 OEP Everrett & Ellen (son, Lee, Is their
  'spokesperson') Marjorie S. Smith Liv. Tr. I Commissioners of the Land Office
  I. Commissioners of the Land Office Commissioners ol the Land Office 72': h'
  17 I E w e a - L/ 0 Barbara Sue & Rich—ard Kirch O'Neil, Co-Trs IL Ronald
  & FloLinda HWJT Janet L. Buchanan Jay and Jill Copelin, HW Lary R. &
  Elizabeth A., 11/W Craig S. Crosswhite, Tr. Dean L. Gillham, LE Lester C.
  Burke Lionel K. & Sharon U. Glger, HW Virgil M. & Nila L Brandon, HW
  Edward h. & Beverly S. Focke,HWIT Newkirk Farmers-Ranchers Livestock
  Reagan L. & Margaret M. Hutchason,HW Allen W. & jenny M. Balchaus,
  HWJT Monty Kahle & Nancy Kahle, Trs A. Lloyd Gelmers etuc, HWJT 21 0 C.)
  Smith Trust 0 -3 LI 0 -3 KJ CLO CLO U'Neill Mineral Family trust ...) az E 7.
  F. Buchanan C V O. 0 LI Maupin C a): ,. i Gillham g 7 CO .... C. a g V e 011
  a) .Y ,s' Newkirk Farmers Hutchason Bakhaus 'Kahle Rev. Trust 2 ,,, E 7, 0 T
  2 8 T 0 g LI T g L.3 T g LS T g V T 8 T 88 T T 2 0 C.) T 2 C.,0 T 2 T 2 T 2
  888888 T 2 T 2 T 2 2 rs rs 8388 rs T T 88 2 T

  

 

	
  

  	
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  X 0 X 0 X 0 X 0 X 0 X 0 X 0 6 0 X 0 6 0 X 0 X 0 X 0 X 0 X 0 X 0 X 0 a, a,
  QQ0QQ a, a, a, a, a, QA'aQQ a, a, a, a, gQ a, a, Q >, a a, a a, Q T? w ,
  a, OOQQ a, >, ... 01 0 01 .0 N 0 N 0 N 14 N L/I 01 an 01 en N en N N 01 N
  01 N 01 CO N CO 01 CO N CO N 0 N CO 01 0 01 10 N N 0 N 0 4.110030.1(0 0 N 0 0
  0 0.10.110 0 N 0 0 DOW 0 W 0 N 4.1 0 CU N 0 W N 0 U) N 0 U) N 0 Ca N 0 N 0 N
  0 1111.0010.1 N 0 N 0 Z CO N Z CO N Z CO N Z CO N Z CO N Z Z COCOCOCOCO
  01N0INN Z Z Z Z CO N Z CO N Z CO N Z CO N Z CO N Z CO N Z CO N CO N CO N ZZZZ
  CO N CO N s. a = g us = 4- °- ..... -c 3 g z .4,' c t' E r• 31.0 ac tr m NW/4
  See UGL for description N 1141' of W 43 11/33rd rods of NW/4 N 1141' ot W 43
  11/23rd rods at NW/4 to g :t1 .4 0 ,-, ,...---. * z 3 15 ;... 51 Z 0 ...... z
  'a -.., SW/4, less a tract .4. -...... Z ..1. -... z B .11/.. :7 S ,T, 7:. .
  c., . z 4 y , ae 4 V 0 2 I.1 E ... S/2SW/4 less a 10.0 ac tract N/2SW/4 Tract
  in N/2NE/4SE/4 NW/4 "i• ...... 3 0 Tract in 5/2SE/4 C 40 roas of N/Lsb/4
  and a /./ ac tract In the S/2SE/4- see OGL for tract description described as
  beginning NE corner of section 29-28N-02E, thence S 542', W 790', thence N
  2deg W a distance of 542', thence E 818' to POB .1. ..., ic 0 ‘,. -.... N ''
  6 0 01 ..... 0 W In ... el CO 0, ...... 0. 0 en 1-1 6 0 .4. ...... 0 N en ,-,
  6 01 10 ....... ..- 01 en ... o 01 0 ....... 0 07 en .-. 0 0 .-1 ...... 0 0
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  .4. VC IA ,I N .4. N ...... V W In •1 N en N ....... CO 0. LI1 r.I N 0 01
  ....... CO 0 IA ,I en IA CO ....... ,.0 VI IA N . . CO N en ...... 1.... 01
  IA 0 CO en ...... .4. 0 IA ,I 0 0 N ....... 0 10 en 1-1 Vs 02 en ...... 0. 0
  In ,I ..-. 01 . ....... 0 ,C7 en 1,-I In NH 10 0, .--e ....... 0 0. en ,I al.
  14. W W ...... 0 0 10 0 N 10 .4. ..... CO tn 10 ,I .4. SI. v-I 0 0.1 ..... V.
  ,I -, .-.1 IA 1-1 0 N ...... 0/ N ...... en 2/7/20131 RI 1-I 0 N ....... t...
  ..... 01 en 1-1 0 N ....... 1.... ...... 01 8/20/20141 en v-I 0 01 ....... 0.
  N ....... . IA •-1 0 07 ....... I-I IN ....... ese In r-I 0 N ....... ,-. 01
  ....... en 1.4 ti 0 01 ...... r-I N ...... IN 10/7/20141 .I. .1-1 0 01
  ........ 1...... ....... 0 . N .4. rc 0 1.4 ..... 0. 1-. ....... N v•I ...I
  .4. .... 0 01 ....... 10 ........ tfl en 1-.1 0 01 ...... 0 ....... CO
  12/19/2014 .... 2/27/2015 N ,I 0 N ....... N N - ..... N •-1 0 0.1 ...... 01
  01 ..... CO .-I ,I 0 01 ....... SO ....... CO ,-1 v-I 0 01 ...... 0 ..... CO
  0. e-I 0 N ....... .4. ....... N ... 01 v-I 0 N ...... 0 ...... en
  ,"................. .. 1-1 0 IN ....... 1".. N ,-t ,I 0 N n.,, 0-
  r4 . n-I 0 r,i ....... I, 01 I-I 0 N ....... 0 N ....... co 11 0 01 n.,, 0. N
  ....... . .NNN 1..1 0 N ....... ri ....... Ne 1- N •-1 0 N ...... N N .......
  en N ,I 0 N ....,, e-I N ....... N I-4 1-1 0 N ....... N. ...., 0 .-. ,-. r•I
  0 01 ....... I, ....... 0 ,-1 1.4 0 N ....... .4. .. ...... N 1-1 I-. v.I 0 N
  ....... o, ........ cn 0 •-1 0 N ....... .1. ....... CO 1..1 0 c`.7 ....... 0
  ...1 ...... N .-1 1-1 0 N ...... 0. NI ....... N v-/ 0 N ...... 0. N ......
  .M 1-1 0 01 ...... 01 01 ...... 0 ,I 0 0/ ....... CO ..., O. 1-I 11 0 01
  ....... V, ..., CO 0 0 03 N C'lel• coN 477.54000 163.00000 0 0 0 1-1 CO 6 Nin
  0 0 0 01 0 O .-. 32.00000 0 N 1-1 01 . 0000 Cs N ,I q . 0 N •-1 0, . co ca ,
  6 4 CO N 159.220001 152.52000 11.42800 0 Cr N I, en 6 .4. 1-1 0 0 0 0 co 6 0
  e o .4. en • n r, 0 70.00000 0 o 0 0 q o co 13.00000 163.00000 160.00000 0 o
  0 0 q o so rl o o 0 - . 6 24.70000 350.81000 70.00000 0 o o 0 0 q 0 CO 0 o o
  0 0 q 0 0 o o 0 0 q 0 ,0 .I 0 00 0. CO 6 32.0000 0 0 en .1. d N 20.43801 0 CO
  m .1. 6 N 0 0 N N cr 6 ,-. 0 0 N N 6 •- 0 0 0 o d 6 1.1 160.0000 0 0 C. q to
  70.0000 0 0 0 o d co ,-. 13.0000 0 0 0 q 0 6 .1 0 0 0 q o 6 11 0 0 0 o 6 ...
  27.7000 0 o d N 0000 0 o d co 0 o 6 ,r• 0 o 6 6 . re 0 al 0 Barton/VS/OEP
  Barton/VS/OEP Barton/VS/OEP OEP OEP OEP OEP to 0 u.3 0 OEP OEP
  United/Terr/OEP United/Terr/OEP OEP w 0 Cif 0 U) 0 te 0 U) 0 Richard K. &
  Debra J. Falkenberg, HW Newkirk Roundup Club Carolyn Hay & uonert Ray, HW
  Edgar G. Coleman The Coleman Family Trust dated 6/21/99 o U 0 ect e ..e - P,
  DEMCO Oil & Gps Co. co t 23 0 Z ZPS. 5 •1 E E Lo c i liyier L. and Tanner
  L Morton, JTROS r..3 i . .12 C OS x 6 ,R o 01 Lawrence K. & Patricia F.
  Schrleber, Trs Janet L. Buchanan earl I. nuirman, cleating in 5 his sole and
  separate property Daniel S. & Helen M- H/W, J/T Kenneth H. &
  Katherine L, H/W, J/T, with ROS Konen C & nett/ I. Mittasch Living Trust
  dtd 7/17/09 Marvin 0. and Roxanne Johns, HWJT Donaid & Cheryle 'Leonard
  and Lucille 1Tonya T. .3 Falkenberg Roundup Club Ray Coleman Coleman Trust t.
  • ;. t - to - ULDILU Uu ce uas Co. I 1.: Morton Jenkins Schieber Trust
  Buchanan g g q= x -0 . a -c 2 rp. Mittasch Liv.Tr. 2 - •E . 4 ..x c 0 • = '4
  o °1 .x a u X >, >, >, a., a.. 22222 g g g g u 8 L u U ... 2 g u a,
  2 g u a, 2 g ) a, a.. 22 g g E- U >, 2 e3 >, 2 8 a. o Jo 0 a, 2 C g
  >, 2 g U a, I g C./ a, 2 g U >, . U 0000 >, . .... UUU a, . ar, ..

  

 

	
  

  	
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  0 x 0 0 Q 0 Q Y 0 0 0 . 0 a 0 0 . N 0 en 0 in . en ..- en to en WI en of en 0
  en en en IN en 0 en 01 N 0 0.1 N .1 Cd N 0 Cul NI 0 Ca N 0 01 N o MI N a 01 N
  o 1/3 NI o Ca N o 01 N3 o IA N o Z o N z co N z co N z co N z co N Z co N Z
  co N z co N Z Ca N Z co N Z co N Z co N •O• 0...... 0 Lots 1 & 2, and the
  E/2 NW/4 (aka NW/4) as to all depths lying below 1,300' below the surface
  (Insofar and only insofar as to all zones lying below the top of the
  Mississippian to the center of the earth) Lot 4 & SE/4 SW/4 (insofar and
  only insofar as to all zones lying below the top of the Mississippian) Sh/4
  less two metes andlmunds tracts only insofar as to all zones lying below the
  top of the Mississippian formation) SE/4 N/2 NW/4, less tracts SW/4 Tract in
  NW corner of NW/4- see OGL for tract description NE/4 less 4 tracts (see OGL
  for tract description) and the N/2 SE/4 78.54 ac tract in S/25E/4 - see OGL
  for tract descriptions NW/4 less two tracts - see OGL for tract descriptions
  0 CO r... -... o ul SO 0 CO ..... •11. .... tr: CO 0 CO ..... •c1. ,1 in 0 0
  NI ........ Ln tr, CO 0 CO -.... .a. . m 0 N N -, o •,1. In 1-1 CO CO .....
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  0 A. en , 0 IN .... N N, N n- en •- 0 N \ N .... IN .1. 1.1 0 N \ C0 ..... 0
  1. -a. .--1 0 N \ 0 IN ....„ 0 en ,4 0 N \ 0, N N., Cl 0 •-1 0 N \ 0, N ....,
  CO N •-I 0 N \ CI, N ...„. NI in I. 0 N \ 0, N ........ 0.1 .-1 0 N ...., o
  v.-. ......, CO 0 •-1 0 N ...., N %-i ........ N r•I 0 .-1 0 N ......„ N ...
  N. N el 0 l•- 0 N -...... •O• N.. CO 0 1-1 0 N ....., N Ng N.., N 1-1 n- ,-1
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  ‘o ,, 0 0 o , en ,.,.; — en N 0 0 0 o ° ri r-, o 0 0 o o ci CO , 8 0 a o CO 8
  S ol co N 0, . 0 ‘r In ad n 134.980001 0 a 0 co <I. a:5 Ze;' O0 0 0 0 0 CO
  ...., ad .4. . 0 .a. CO r..: .0 , 153.0000 0 , I,, ri r. 0 0 0 0 ci . ,- 0 0
  8 - ,i, 0 0 0 a ci . ..., 3.001 0 0 CO a• 0 n Ca 0 ... e:2 OEP
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  t t. 0 a, E 0 ICg 0Ia3 OEP OEP U.I 0 OEP 0 c..1 .1.1 .14 a, To f; re -,3 1 c
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  Ronald & Leslie, H/W, J/T, with ROS " ma .an• "es ey . Wood
  Living Trust Lewis L ° Trust Home National Bank Trust Dept I..7. Gary Gene
  Schieber ri -0 E e_ 2 M .1 $.: 6.1 U1 .0 b -1 U u`-,' Shirley A. Luis, Lonnie
  Luis and Donna Wardrop, JT 1r, ... -3 Ca t• ta cd tu Z 0 s "al _. , k.,
  s — cu -5, i 3 s ei 3 Terry Trust 4, "4.1 . -1, LI Luis 4, "ia; L.,
  T .0 g ,.., >, 2 3 a >, 2 g t-7 o., 2 3 (..1 . , 2 3 0 I-3 o., 2 g t-/
  .., 0 .0 g C.1 0 3 0 (.1 2 3 E.10 .., 2 g C.) 1.' 8 >, i a

  

 

 

 

EXHIBIT “C”

 

Attached To that certain Participation and AMI Agreement, by and between Orion Exploration Partners, LLC and Evolution Petroleum OK, Inc. dated April 17, 2012

 

PARTIAL ASSIGNMENT OF OIL AND GAS LEASES
 WITH SPECIAL WARRANTY

 

KNOW ALL MEN BY THESE PRESENTS:

 

For and in consideration of Ten and no/100 Dollars ($10.00) and other valuable consideration, the receipt and sufficiency of which are hereby acknowledged, [Orion Exploration Partners, LLC, an Oklahoma limited liability company, whose address is 4870 South Lewis, suite 240, Tulsa, Oklahoma 74105] [Evolution Petroleum OK, Inc., a Texas corporation, whose address is 2500 CityWest Blvd., Suite 1300, Houston, Texas 77042], hereinafter referred to as “Assignor”, does hereby bargain, sell, convey, assign and deliver unto Evolution Petroleum OK, Inc., a Texas corporation, whose address is 2500 CityWest Blvd., Suite 1300, Houston, Texas 77042] [Orion Exploration Partners, LLC, an Oklahoma limited liability company, whose address is 4870 South Lewis, suite 240, Tulsa, Oklahoma 74105] (hereinafter referred to as “Assignee”), an undivided [forty-five percent (45%)] [fifty-five percent (55%)] of Assignor’s right, title and interest in, to and under the following (collectively, the “Subject Interests”):

 

(a)                                 All oil and gas leases described on Exhibit “A” attached hereto (the “Leases”) and made a part hereof, together with a like interest in Assignor’s rights and interests under any forced pooling orders set forth on Exhibit “A” or otherwise relating to any of the lands encompassed by the Leases or communitized, pooled or unitized therewith, and a like interest in Assignor’s rights that arise by operation of law or otherwise (the “Oil and Gas Properties”); and

 

(b)                                 (i) All surface leases, servitudes, easements, right-of-way agreements, licenses or other agreements owned by Assignor that relate to the use and occupancy of the surface of lands comprising, in whole or in part, a portion of the Oil and Gas Properties, (ii) all pooling agreements, farmout agreements, operating agreements and other agreements to which Assignor is a party or successor-in-interest relating to the development and operation of the Oil and Gas Properties, (iii) all agreements by which any of the Oil and Gas Properties were acquired, to the extent still executory, and (iv) all agreements that impose any material obligations and liabilities pertaining to the Oil and Gas Properties, and any and all amendments, ratifications or extensions of the foregoing (collectively, the “Related Contracts”), together with a like interest in all rights of audit held by Assignor with respect to the records of any third party and rights to receive refunds of any nature thereunder to the extent relating to periods from and after the date of this Assignment; and

 

(c)                                  To the extent assignable, all franchises, licenses, permits, approvals, consents, certificates and other authorizations and other rights granted by governmental entities that are related to the Oil and Gas Properties or the ownership or operation of any thereof (“Permits”); provided, however, that Assignee’s right with respect to Permits acquired pursuant to this Assignment shall be limited to the receipt by Assignee of its proportionate share of the benefit of

 

 

the rights and privileges of Assignor with respect to such Permits as an owner of the Oil and Gas Properties; in each case, only to the extent relating to such Oil and Gas Properties; and

 

(d) All title information, engineering reports and other technical data, lease and land files, surveys, regulatory filings, magnetic tapes, interpretations, seismic data and licenses and other analyses, books, records and files that relate to the Oil and Gas Properties or other property interests described herein, owned or in the possession of Assignor (“Data”); provided, however, that Assignee’s right with respect to Data acquired pursuant to this subparagraph (d) shall be limited, in each case, to the extent the disclosure of such Data is not restricted by the terms of confidentiality, license or similar agreements binding on Assignor.

 

1.

 

Nothing contained herein shall be construed as any agreement or obligation on the part of Assignee, its respective successors and assigns, to maintain any Subject Interest in force and effect by the payment of rentals, the drilling of wells, the production of minerals, or otherwise.

 

2.

 

Assignor hereby binds itself, its successors and assigns, to warrant and forever defend all and singular title to the Subject Interests unto Assignee and its successors and assigns, against every person whomsoever lawfully claiming or to claim the same, or any part thereof, by, through, or under Assignor (which for the avoidance of doubt includes, without limitation, any person that acquired the Subject Interests on behalf of Assignor (“Assignor’s Acquirer”)), but not otherwise. Assignor covenants that the Subject Interests are free and clear of any outstanding mortgage, deed of trust, lien or encumbrance created by, through or under Assignor or Assignor’s Acquirer, but not otherwise.

 

3.

 

Assignor grants and transfers to Assignee, its successors and assigns, to the extent so transferable, the benefit of, and the right to enforce, the covenants and warranties, if any, which Assignor is entitled to enforce with respect to Assignor’s predecessors-in-title to the Subject Interests. The terms and provisions hereof shall extend to and be binding upon Assignor and Assignee and their respective successors and assigns.

 

4.

 

In the event this assignment covers lands in two counties, this instrument may be executed in duplicate originals, with one to be recorded in each county, but with no enlargement or diminishment or duplication of the effect and purpose hereof, or of the percentage interest herein conveyed, to be construed by the preparation and execution of duplicate originals for the convenience of recording in said two counties.

 

5.

 

This instrument is made pursuant to the terms and provisions of that certain Participation and AMI Agreement dated April 17, 2012 (“Participation Agreement”) by and between Assignor

 

 

and Assignee and this instrument and the rights and properties assigned hereunder are made subject to the Participation Agreement.

 

IN WITNESS WHEREOF, this instrument is dated the      day of            , 2             but effective for all purposes as of the date of each instrument creating each Subject Interest.

 

 

	
 
    	
 
    	
ASSIGNOR:
    	
 
    
	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
 
    
	
 
    	
By:
    	
 
    
	
 
    	
 
    	
Name:
    
	
 
    	
 
    	
Title:
    
	
 
    	
 
    
	
 
    	
 
    
	
STATE OF
    	
)
    
	
 
    	
) ss.
    
	
COUNTY OF
    	
)
    
						

 

On this         day of                      , 20 , before me, the undersigned Notary Public in and for said County and State, personally appeared                                      , to me known to be the identical person who executed the foregoing instrument and acknowledged to me that he executed the same as                              of                           on behalf of said                            for the uses and purposes therein set forth.

 

Witness my hand and official seal the day and year last above written.

 

	
My Commission Expires:
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
Notary   Public
    

 

 

	
 
    	
 
    	
ASSIGNEE:
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
 
    
	
 
    	
By:
    	
 
    
	
 
    	
 
    	
Name:
    
	
 
    	
 
    	
Title:
    
	
 
    	
 
    	
 
    
	
 
    	
 
    
	
 
    	
 
    
	
STATE OF
    	
)
    
	
 
    	
) ss.
    
	
COUNTY OF
    	
)
    
					

 

On this             day of                     , 20 , before me, the undersigned Notary Public in and for said County and State, personally appeared                                                , to me known to be the identical person who executed the foregoing instrument and acknowledged to me that he executed the same as                                            of                                        on behalf of said                                                                 for the uses and purposes therein set forth.

 

Witness my hand and official seal the day and year last above written. 

 

	
My Commission Expires:
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
Notary   Public
    
	
 
    	
 
    	
 
    

 

 

	

    	
ORION Exploration Partners, LLC
    	
www.orionexploration.com
    

 

EXHIBIT “D”

 

Attached To that certain Participation and AMI Agreement, by and between Orion Exploration Partners, LLC and Evolution Petroleum OK, Inc. dated April 17, 2012

 

1989 JOINT OPERATING AGREEMENT

 

See attached.

 

 

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

 

MODEL FORM OPERATING AGREEMENT

 

OPERATING AGREEMENT

 

DATED

 

         , 201   

 

OPERATOR

 

CONTRACT AREA  See Exhibit “A” attached hereto and made a part hereof

 

 

 

	
COUNTY OR PARISH OF
    	
, STATE OF
    

 

	
 
    	
Kay
    	
Oklahoma
    

 

 

	
 
    	
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.L. FORM
  610 - MODEL FORM OPERATING AGREEMENT - 1989 TABLE OF CONTENTS Ar d Bits Put L
  DEFINITIONS 1 H. EXHIBITS 1 HI 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 1 2. Loss by Non-Payment or
  Erroneous Payment of Amount Due 3 3. Other Losses 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 I. 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 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 I. 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

  

 

	
  

  	
  A.A.P.L. FORM
  610 - MODEL FORM OPERATING AGREEMENT - 1989 TABLE OF CONTENTS D. ASSIGNMENT;
  MAINTENANCE OF UNIFORM INTEREST: 15 E. WAIVER OF RIGHTS TO PARTITION: 15 15
  IX. INTERNAL REVENUE CODE ELECTION 15 X. CLAIMS AND LAWSUITS 15 XI. FORCE
  MAJEURE 16 XII NOTICES 16 XIIL 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

  

 

	
  

  	
  A.A.P.L. FORM
  610 - MODEL FORM OPERATING AGREEMENT - 1989 1 OPERATING AGREEMENT 2 THIS
  AGREEMENT, entered into by and between 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 (see Article XVI for additional
  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, fracing, 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" wheq use in cooluoction wilhoraevertical well shi
  rerncan a single operatiogewhereby a well is drilled to an ODjeCUVe 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 26 cost of any
  operation conducted under the provisions of this agreement F. The term
  "Drill' it" shal m drill ands act unit as tabf ted by t e Oklahoma
  27 Commission. 28 body-having-authority,-If a Drilling Unit is 29 30 31
  located. 32 33 H. The term "Initial Well" shall mean the well
  required to be drilled by the parties hereto as provided in Article VIA. 34
  I. The term "Non-Consent Well" shall mean a well in which less than
  all parties have conducted an operation as 35 provided in Article VI.B.2. 36
  J. The terms "Non-Drilling Party" and "Non-Consenting
  Party" shall mean a party who elects not to participate in a 37 proposed
  operation. 38 K. The term "Oil and Gas" shall mean oil, gas,
  casinghead gas, gas condensate, and/or all other liquid or gaseous
  hydrocarbons and other marketable substances produced therewith, unless an
  intent to limit the inclusiveness of this term is 39 specifically stated. 40
  L. The term "Oil and Gas Interests" or "Interests" shall
  mean unleased fee and mineral interests in Oil and Gas in tracts 41 of land
  lying within the Contract Area which are owned by parties to this agreement.
  42 M. The terms "Oil and Gas Lease," "Lease" and
  "Leasehold" shall mean the oil and 43 gas leases or interests
  therein covering tracts of land lying within the Contract Area which are
  owned by the parties to this agreement. 44 45 is N. The
  teand"PnInue%Back" when used in conjunction withn.atietertical well
  shall mean a single operatitotrghpTreby a deeper Zane 45 Completion in a
  shallower Zone. 47 0. The term "Recompletion" or
  "Recompiete" shall mean an operation whereby a Completion in one
  Zone is abandoned 48 in order to attempt a Completion in a different Zone
  within the existing wellbore. 49 P. The term "Rework" shall mean an
  operation conducted in the wellbore of a well after it is Completed to
  secure, 50 restore, or improve production in a Zone which is currently open
  to production in the wellbore. Such operations include, but 51 are not
  limited to, well stimulation operations but exclude any routine repair or
  maintenance work or drilling, Sidetracking, 52 Deepening, Completing,
  Recompleting, or Plugging Back of a well. 53 weitbnre Q. The term
  "Sidetrack" shaft mean the directional control and intentional deviation
  of a well from the originally intended vermin so as to 54 change the bottom
  hole location unless done to straighten the hole or drill around junk in the
  hole to overcome other 55 mechanical difficulties. 56 R. The term
  "Zone" shall mean a stratum of earth containing or thought to
  contain a common accumulation of Oil and 57 58 Gas separately producible from
  any other common accumulation of Oil and Gas. 59 include See Article XVI.A.
  for additional definitions. Unless the context otherwise clearly indicitpegaqrds
  used in the sningular me piurfil, crudes 60 natural and artificial persons,
  the plural includes the singular, and any gender includes the masculine,
  feminine, and neuter, 61 ARTICLE H. 62 EXHIBITS 63 The following exhibits, as
  indicated below and attached hereto, are incorporated in and made a part
  hereof 64 X A. Exhibit "A," shall include the following
  information: 65 (1) Description of lands subject to this agreement, 66 (2)
  Restrictions, if any, as to depths, formations, or substances, 67 (3) Pasties
  to agreement with addresses and telephone numbers for notice purposes, 68 (4)
  Percentages or fractional interests of parties to this agreement, 69 

  

 

	
  

  	
   A.A.P.L. FORM 610 - MODEL FORM OPERATING
  AGREEMENT - 1989 70 71 72 X C. Exhibit "C," Accounting Procedure.
  73 X D. Exhibit "D," Insurance. 74 X E. Exhibit "E," Gas
  Balancing Agreement. 

  

 

	
  

  	
  A.A.P.L. FORM
  610 - MODEL FORM OPERATING AGREEMENT - 1989 I F. Exhibit "F,"
  Non-Discrimination and Certification of Non-Segregated Facilities. 2. "
  :6--Eathtlart—G-J-Tarr-Panatenship, 3 X H. Other: Memorandum of Operation
  Anreement 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27
  28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 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 

  

 

	
  

  	
  A.A.P.L. FORM
  610 - MODEL FORM OPERATING AGREEMENT - 1989 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 IR. 4
  INTERESTS OF PARTIES 5 6 7 8 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
  er—Oil—aed—Gas—Interes4 on which royalty or other 15 burdens may be payable
  and except as otherwise expressly provided in this agreement, each party
  shall pay or deliver, or 16 cause to be paid or delivered, all burdens on its
  share of the production from the Contract Area up to, but not in excess of
  all leasehold 17 burdens except Subsequently Created Interests 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 the
  Drilling 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 semis of the Oil
  and Gas IPsse(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. 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 111.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 now or hereafter becomes burdened with an
  assignment of 34 production given as security 35 for the payment of money, or
  after the date of this agreement, any party creates an overriding royalty,
  production 36 payment, net profits interest, assignment of production or
  other burden payable out of production attributable to its working 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 38 , production payment, net
  profits interests, or other burden 39 payable out of production created prior
  to the date of this agreement, and such burden is not shown on Exhibit
  `A," such 40 burden also shall be deemed a Subsequently Created Interest
  to the extent such burden causes the burdens on such party's 41 Lt,isr or
  Interest to exceed the amount stipulated in Article III.B. above. 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 Patty.
  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 50 parties, from any and all
  claims and demands for payment asserted by owners of the Subsequently Created
  Interest ARTICLE IV. 51 TITLES 52 A. Title Examination: 53 Prior to
  commencement of drilling operations &NIT 54 ale examination shall be made
  on the entire 55 56 wo Driillgt Unit for the nroposed well . The opinion will
  include the ownership of the 57 interest, minerals, royalty, overriding
  royalty and production payments under the applicable Leases. Each party
  contributing 58 Leases andier—Gril—astd—Gas—loterests to be included in the
  DFillsile—ef Drilling Unit,--4—appseffieter shall furnish to Operator 59 all
  abstracts (including federal lease status reports), title opinions, title
  papers and curative material in its possession free of 60 charge. A11 such
  information not in the possession of or made available to Operator by the
  parties, but necessary for the 61 examination of the title, shall be obtained
  by Operator. Operator shall cause title to be examined by attorneys on its
  staff or 62 by outside attorneys. Copies of all title opinions shall be
  furnished to each Drilling Party. Costs incurred by Operator in 63
  pfgraryabstracts, securing curative materials feespaid outside attorneys and
  leasifushrers for title examination (inttit#

  

 

	
  

  	
  A.A.P.L. FORM
  610 - MODEL FORM OPERATING AGREEMENT - 1989 64 65 66 67 68 69 70 71 72 73 74
  opinions and division order title opinions) and other direct charges as
  provided in Exhibit "C" shall be borne by the Drilling Parties in
  the proportion that the interest of each Drilling Party bears to the total
  interest of all Drilling Parties as such interests appear in Exhibit
  "A." Operator shall make no charge for services rendered by its
  staff attorneys or other personnel in the performance of the above functions.
  woonomooroh—passy Operator shall) beresponsible for, at theagertegt
  fonosoeLsof the Mint account, e na securina curative matter and pooling
  required Operator shall be responsible for all r la ant and recording of
  pooling designations or declarations and communitization agreements as well
  as the conduct of hearings 

  

 

	
  

  	
  2 3 4 5 6 7 8 9
  10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35
  36 37 38 39 40 41 42 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 1 Costsover incurred by Operator, including
  fees paid to outside attorneys and lease brokers which are associated with
  hearings before gnmental agencies, and which costs are necessary and proper
  for the activities contemplated under this agreement, shall be direct charges
  to the joint account and shall not be covered by the administrative overhead
  charges as provided in Exhibit "C." 

  

 

	
  

  	
   A.A.P.L. FORM 610 - MODEL FORM OPERATING
  AGREEMENT - 1989

  

 

	
  

  	
  A.A.P.L. FORM
  610 - MODEL FORM OPERATING AGREEMENT - 1989 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 Daillsite-ef Drilling Unit
  ate,, has 4 been examined as above provided, and (2) the title has been
  approved by 5 all of the Drilling Parties in such well. 6 B. Loss or Failure
  of Title: 7 1. F e of le: Should an5 Oil and Gas Interest or Oil and Gas
  Lease be lost through failure of title, which results in a 8 red 9 (ifieludinif-ap
  10 11 12 Leases-aftd-Interestsond; 13 (a) The party credited with
  corafilaming-the-Gil-and-Gas-Leas 14 all bear alone the 15 16 17 18 19 20 21
  22 23 24 25 26 27 28 te-th 29 30 31 32 33 34 35 36 37 38 39
  is-Fefleeted-on-rtfahibit-EA:= 40 2. Loss by Non-Payment or Erroneous Payment
  of Amount Due: It, 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 and 1V.B.2. above,
  shall be joint losses and shall be home 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 71
  ileri-or-was-kart)--duaing-tInt-ninety 72 (610)-da:t-period-provi 73 74
  shall-net-apply-te-sueli-aequisitien.

  

 

	
  

  	
  A.A.P.L. FORM
  610 - MODEL FORM OPERATING AGREEMENT - 1989 1 ARTICLE V. 2 OPERATOR 3 A.
  Designation and Responsibilities of Operator: 4 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 See Article X41.T 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 VILD.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 Overator Upon the
  resignation or removal of Operator under any provision of this agreement, a
  32 sum-ssor 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 the 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 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

  

 

	
  

  	
  A.A.P.L. FORM
  610 - MODEL FORM OPERATING AGREEMENT - 1989 74 respect of the Contract Area
  or any operations for the joint account thereof, and shall keep the Contract
  Area free from

  

 

	
  

  	
  A.A.P.L. FORM
  610 - MODEL FORM OPERATING AGREEMENT - 1989 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 am-sc 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 .jQrovisions shillacrly to
  each well drilled, Refraccd, Reworked, Sidetracked, Deepened, Recomnieted or
  Plugged hereunder, Incluthn but not 28 limited to the Initial Well: 29 (a)
  Operator will promptly advise Non-Operators in advance of the date on which
  the well is to be spudded, or the date on 30 which drilling operations are
  commenced. (b) Operator will send to Non-Operators such reports, test results
  and notices regarding the progress of operations on the well as the
  Non-Operators shall reasonably request, including, but not limited to, daily
  drilling reports, completion reports, and well logs. (c) Operator shall
  adequately test all Zones encountered which may reasonably be expected to be
  capable of producing Oil and Gas in paying quantities as a result of
  examination of the electric log or any other logs or cores or tests conducted
  hereunder. 8. Cost Estimates' Upon request of any Consenting Party, Operator
  shall furnish estimates of current and cumulative costs incurred for the
  joint account at reasonable intervals during the conduct of any operation
  pursuant to this agreement. Operator shall not be held liable for errors in
  such estimates so long as the estimates are made in good faith. 9. Insurance'
  At all times while operations are conducted hereunder, Operator shall comply
  with the workers compensation law of the state where the operations are being
  conducted; provided, however, that Operator may be a self-insurer for
  liability under said compensation laws in which event the only charge that
  shall be made to the joint account shall be as provided in Exhibit
  "C." Operator shall also carry or provide insurance for the benefit
  of the joint account of the parties as outlined in Exhibit "D"
  attached hereto and made a part hereof. Operator shall require all
  contractors engaged in work on or for the Contract Area to comply with the
  workers compensation law of the state where the operations are being
  conducted and to maintain such other insurance as Operator may require. In
  the event automobile liability insurance is specified in said Exhibit
  "D," or subsequently receives the approval of the parties, no
  direct charge shall be made by Operator for premiums paid for such insurance
  for Operator's automotive erflq • a i 1 R-r,k•• tit r t of an rtv. Operator
  shall provide the requesting party with a signed certificate of insurance
  ARTICLE VL DRILLING AND DEVELOPMENT A. Initial Well: On or before the day of
  „ Operator shall commence operations for the drilling of the initial Well at
  the following location: 64 65 (Insert proposed estimated depth and objective
  zone. followed by "whichever is the lesser") 66 67 68 

  

 

	
  

  	
  A.A.P.L. FORM
  610 - MODEL FORM OPERATING AGREEMENT - 1989 69 The drilling of the Initial
  Well and the participation therein by all parties is obligatory, subject to
  Article VIC]. as to participation 70 in Completion operations and Article
  VLF. as to termination of operations and Article XI as to occurrence of force
  majeure. 71 B. Subsequent Operations: 72 1. Proposed Operations: If any party
  hereto should desire to drill any well on the Contract Area other than the
  Initial Well, or 73 if any party should desire to Rework, Sidetrack, Deepen,
  Refrac. Recomplete or Plug Back a dry hole or a well no longer capable of 74
  producing in paying quantities in which such party has not otherwise
  relinquished its interest in the proposed objective Zone under 

  

 

	
  

  	
  A.A.P.L. FORM
  610 - MODEL FORM OPERATING AGREEMENT - 1989 1 this agreement, the party
  desiring to drill, Rework, Sidetrack, Deepen, Refrac, Recomplete or Plug Back
  such a well shall give written 2 notice of the proposed operation to the
  parties who have not otherwise relinquished their interest in such objective
  Zone 3 4 5 6 7 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29
  30 31 32 33 34 35 36 37 38 39 40 41 42 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 

  

 

	
  

  	
   A.A.P.L. FORM 610 - MODEL FORM OPERATING
  AGREEMENT - 1989 74 - 64 -

  

 

 

	
  

  	
  A.A.P.L. FORM
  610 - MODEL FORM OPERATING AGREEMENT - 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,
  Refrac, 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 VLB.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 net 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) how 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 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 XT) 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 V1.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 VISA. or 28
  VLC.1. (Option No. 2) elects not to participate in the proposed operation,
  then, in order to he 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.B2.,
  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 VLB. I., 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 VLB.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 Retraced,
  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,
  Retracing. 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 

  

 

	
  

  	
   A.A.P.L. FORM 610 - MODEL FORM OPERATING
  AGREEMENT - 1989 74 Consenting Party's interest in the well and share of
  production therefrom or, in the case of a Reworking, Refracina, Sidetracking,
  

  

 

	
  

  	
  A.A.P.L. FORM
  610 - MODEL FORM OPERATING AGREEMENT - 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) 200 % 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) 300 % 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 VM.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 theogce propolual the-a vertical
  well tote depth described io the nroposime a horizontal well for reasons
  granite practiewly impenennie 20 21 substance or other condition in the hole
  rendering further operations impracticable, Operator shall give notice
  thereof to each Non-Consenting Party who submitted or voted for an
  alternative proposal under Article VI.13.6. to drill the well to a 22 23
  filt=etra iZonewtgi theirdeepedieobjecntizezoneaeredjtoirerf vertical aw!gat
  leasittehgen thLtigtal depth proposed fAna.lt 24 Consenting Party shall have
  the option to participate in the initial proposed Completion of the well by
  paying its share of the 25 cost of drilling the well to its actual depth,
  calculated in the manner provided in Article VI.B.4. (a). If any such Non- 26
  Consenting Party does not elect to participate in the first Completion
  proposed for such well, the relinquishment provisions 27 of this Article
  VI.B.2. (b) shall apply to such party's interest. 28 (c) Reworking..
  Refracine. Recompleting or Plueeine Back, An election not to participate in
  the drilling, Sidetracking or 29 Deepening of a well shall be deemed an
  election not to participate in any Reworking or Plugging Back operation
  proposed in 30 such a well, or portion thereof to which the initial
  non-consent election applied that is conducted at any time prior to full 31
  recovery by the Consenting Parties of the Non-Consenting Party's recoupment
  amount Similarly, an election not to 32 participate in the Completing or
  Recompleting of a well shall be deemed an election not to participate in any
  Refracine Or Reworking 33 operation proposed in such a well, or portion
  thereof to which the initial non-consent election applied that is conducted
  at 34 any time prior to full recovery by the Consenting Parties of the
  Non-Consenting Party's recoupment amount Any such 35 Refracine Reworking,
  Recompleting or Plugging Back operation conducted during the recoupment
  period shall be deemed part of the 36 cost of operation of said well and
  there shall be added to the sums to be recouped by the Consenting Parties 300
  % of 37 that portion of the costs of the Reworking, Recompleting or Plugging
  Back operation which would have been chargeable to 38 such Non-Consenting
  Party had it participated therein. If such a Refracine. Reworking,
  Recompleting or Plugging Back operation is 39 proposed during such recoupment
  period, the provisions of this Article VI.B. shall be applicable as between
  said Consenting 40 Parties in said well. 41 (d) Recouoment Matters During the
  period of time Consenting Parties are entitled to receive Non-Consenting
  Party's 42 share of production, or the proceeds therefrom, Consenting Parties
  shall be responsible for the payment of all ad valorem, 43 production,
  severance, excise, gathering and other taxes, and all royalty, overriding
  royalty and other burdens applicable to 44 Non-Consenting Party's share of
  production not excepted by Article 11I.C. 45 In the case of any Refracine,
  Reworking, Sidetracking, Plugging Back, Recompleting or Deepening operation,
  the Consenting 46 Parties shall be permitted to use, free of cost, all
  casing, tubing and other equipment in the well, but the ownership of all 47
  such equipment shall remain unchanged; and upon abandonment of a well after
  such Refracine Reworking, Sidetracking, Plugging Back, 48 Recompleting or
  Deepening, the Consenting Parties shall account for all such equipment to the
  owners thereof, with each 49 party receiving its proportionate part in kind
  or in value, less cost of salvage. 50 Within ninety (90) days after the
  completion of any operation under this Article, the party conducting the
  operations 51 for the Consenting Parties shall furnish each Non-Consenting
  Party with an inventory of the equipment in and connected to 52 the well, and
  an itemized statement of the cost of drilling, Sidetracking, Refracine.
  Deepening, Plugging Back, testing, Completing, 53 Recompleting, and equipping
  the well for production; or, at its option, the operating party, in lieu of
  an itemized statement 54 of such costs of operation, may submit a detailed
  statement of monthly billings. Each month thereafter, during the time the 55
  Consenting Parties are being reimbursed as provided above, the party
  conducting the operations for the Consenting Parties 56 shall furnish the
  Non-Consenting Parties with an itemized statement of all costs and
  liabilities incurred in the operation of 57 the well, together with a
  statement of the quantity of Oil and Gas produced from it and the amount of
  proceeds realized from 58 the sale of the well's working interest production
  during the preceding month. In determining the quantity of Oil and Gas 59
  produced during any month, Consenting Parties shall use industry accepted
  methods such as but not limited to metering or 60 periodic well tests. Any
  amount realized from the sale or other disposition of equipment newly
  acquired in connection with 61 any such operation which would have been owned
  by a Non-Consenting Party had it participated therein shall be credited 62
  against the total unretumed costs of the work done and of the equipment
  purchased in determining when the interest of such 63 Non-Consenting Party
  shall revert to it as above provided; and if there is a credit balance, it
  shall be paid to such Non- 64 Consenting Party. 65 If and when the Consenting
  Parties recover from a Non-Consenting Party's relinquished interest the
  amounts provided 66 for above, the relinquished interests of such
  Non-Consenting Party shall automatically revert to it as of 7:00 am. on the
  day 67 following the day on which such recoupment occurs, and, from and after
  such reversion, such Non-Consenting Party shall 68 own the same interest in
  such well, the material and equipment in or pertaining thereto, and the
  production therefrom as 69 such Non-Consenting Party would have been entitled
  to had it participated in the drilling, Sidetracking, Reworking, 70
  Deepening, Retracing, Recompleting or Plugging Back of said well. Thereafter,
  such Non-Consenting Party shall be charged with and 71 shall pay its
  proportionate part of the further costs of the operation of said well in
  accordance with the terms of this 72 agreement and Exhibit "C"
  attached hereto. 73 3. Stand-By Costs: When a well which has been drilled or
  Deepened has reached its authorized depth and all tests have 74 been
  completed and the results thereof furnished to the parties, or when
  operations on the well have been otherwise - 8 -

  

 

	
  

  	
  A.A.P.L. FORM
  610 - MODEL FORM OPERATING AGREEMENT - 1989 terminated pursuant to Article
  VI.F., stand-by costs incurred pending response to a party's notice proposing
  a B.sita&g .Reworking, 

  

 

	
  

  	
  A.A.P.L. FORM
  610 - MODEL FORM OPERATING AGREEMENT - 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 VLB2. (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.I. 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. Dr,pealam If less than all
  parties elect to participate in a drilling Sidetracking, or Deepening
  operation proposed 17 pursuant to Article VLB.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.I., to all parties (including
  Non- 24 Consenting Parties). Thereupon, Articles VISA. 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.13.1. 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 VLF. 51 5. 5idetracking- 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, includine Article XVI, if any Ply
  clothes 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 66 an operation on a well where no
  drilling rig is on location, or twenty-four (24) hours, exclusive of
  Saturday, Sunday and legal 67 holidays, from delivery of the initial
  proposal, if a drilling rig is on location for the well on which such
  operation is to be 68 conducted, to deliver to all parties entitled to
  participate in the proposed operation such party's alternative proposal, such
  69 alternate proposal to contain the same information required to be included
  in the initial proposal. Each party receiving such 70 proposals shall elect
  by delivery of notice to Operator within five (5) days after expiration of
  the proposal period, or within 71 twenty-four (24) hours (exclusive of
  Saturday, Sunday and legal holidays) if a drilling rig is on location for the
  well that is the 72 subject of the proposals, to participate in one of the
  competing proposals. Any party not electing within the time required 73 shall
  be deemed not to have voted. The proposal receiving the vote of parties
  owning the largest aggregate percentage 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.L. FORM
  610 - MODEL FORM OPERATING AGREEMENT - 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 electionnot
  to participate in the prevailing proposal. 7 7. Conformity to Soaring 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 Refracine. 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 VLB.2. of this agreement. Consent to the drilling,
  16 Deepening or Sidetracking shall include: (NOTE: Option No. 1 below shall
  be deemed selected for all horizontal wells, and Potion 17 No. 2 below shall
  be deemed selected for all other wells) 18 I1i1 Option No, 1: All necessary
  expenditures for the drilling, Deepening or Sidetracking, testing, Completing
  and 19 equipping of the well, including necessary tankage and/or surface
  facilities. 20 1E1 °odor; No, 2. All necessary expenditures for the drilling,
  Deepening or Sidetracking and testing of the well. When 21 such well has
  reached its authorized depth, and all logs, cores and other tests have been
  completed, and the results 22 thereof furnished to the parties, Operator
  shall give immediate notice to the Non-Operators having the right to 23
  participate in a Completion attempt whether or not Operator recommends
  attempting to Complete the well, 24 together with Operator's AFE for
  Completion costs if not previously provided. The parties receiving such
  notice 25 shall have forty-eight (48) hours (exclusive of Saturday, Sunday
  and legal holidays) in which to elect by delivery of 26 notice to Operator to
  participate in a recommended Completion attempt or to make a Completion
  proposal with an 27 accompanying AFE. Operator shall deliver any such
  Completion proposal, or any Completion proposal conflicting 28 with
  Operator's proposal, to the other parties entitled to participate in such
  Completion in accordance with the 29 procedures specified in Article VI.B.6.
  Election to participate in a Completion attempt shall include consent to all
  30 necessary expenditures for the Completing and equipping of such well,
  including necessary tankage and/or surface 31 facilities but excluding any
  stimulation operation not contained on the Completion AFE. Failure of any
  party 32 receiving such notice to reply within the period above fixed shall
  constitute an election by that party noi to 33 participate in the cost of the
  Completion attempt; provided, that Article VI.B.6. shall control in the case
  of 34 conflicting Completion proposals. If one or more, but less than all of
  the parties, elect to attempt a Completion, the 35 provision of Article
  VI.B.2. hereof (the phrase "Reworking, Sidetracking, Deepening,
  Recompleting or Plugging 36 Back" as contained in Article VI.B.2. shall
  be deemed to include "Completing") shall apply to the operations 37
  thereafter conducted by less than all parties; provided, however, that
  Article VI.B.2. shall apply separately to each 38 separate Completion or
  Recompletion attempt undertaken hereunder, and an election to become a
  Non-Consenting 39 Party as to one Completion or Recompletion attempt shall
  not prevent a party from becoming a Consenting Party 40 in subsequent
  Completion or Recompletion attempts regardless whether the Consenting Parties
  as to earlier 41 Completions or Recompletion have recouped their costs
  pursuant to Article VI.B.2.; provided further, that any 42 recoupment of
  costs by a Consenting Party shall be made solely from the production
  attributable to the Zone in 43 which the Completion attempt is made. Election
  by a previous Non-Consenting party to participate in a subsequent 44
  Completion or Recompletion attempt shall require such party to pay its
  proportionate share of the cost of salvable 45 materials and equipment
  installed in the well pursuant to the previous Completion or Recompletion
  attempt, 46 insofar and only insofar as such materials and equipment benefit
  the Zone in which such party participates in a 47 Completion attempt 48
  Rerm2c.etjtcfrac, Rework. Recomolete or Plug Back: No well shall be Retraced.
  Recompleted or Plugged Back exwagrecil, 49 50 Recompleted, or Plugged Back
  pursuant to the provisions of Article VI.B2. of this agreement. Consent to
  the Retracing, Reworking, 51 Recompleting or Plugging Back of a well shall
  include all necessary expenditures in conducting such operations and 52
  Completing and equipping of said well, including necessary tankage and/or
  surface facilities. 53 D. Other Operations: 54 Operator shall not undertake
  any single project reasonably estimated to require an expenditure in excess
  of Fifty Thousand Dollars (S 50,000.00 .) except in connection with the 55
  drilling, Sidetracking; Reworking, Retracing, Deepening, Completing,
  Recompleting or Plugging Back of a well that has been previously 56 57
  authorized by or pursuant to this agreement; provided, however, that, in case
  of explosion, fire, flood or other sudden emergency, whether of the same or
  different nature, Operator may take such steps and incur such expenses as in
  its opinion 58 are required to deal with the emergency to safeguard life and
  property but Operator, as promptly as possible, shall report the 59 60
  emergency to the other parties. 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 be
  governed by separate agreement between the parties) reasonably estimated to
  require an expenditure in excess of the 64 65 amount first set forth above in
  this Article VLD. (except in connection with an operation required to be
  proposed under 66 Articles VI.B.1. or VI.C.I. Option No. 2, which shall be
  governed exclusively be those Articles). Operator shall deliver such 67
  proposal to all panics entitled to participate therein. If within thirty (30)
  days thereof Operator secures the written consent 68 of any party or parties
  owning at least 65 % 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. E.
  Abandonment of Wells: 72 1. Abandonment of Dry Holes: Except for any well
  drilled or Deepened pursuant to Article VLB.2., any well which has 73 been
  drilled or Deepened under the terms of this agreement and is proposed to be
  completed as a dry hole shall not be 

  

 

	
  

  	
  A.A.P.L. FORM
  610 - MODEL FORM OPERATING AGREEMENT - 1989 74 -10 -

  

 

	
  

  	
  A.A.P.L. FORM
  610 - MODEL FORM OPERATING AGREEMENT - 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 VLB.; 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 I1 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 ..;:.miampleted as atirducer shall no plugged and abandon
  without theawnsent of all gig:: who particglgt in the cost t5 18 19 such
  abandonment, the well shall be plugged and abandoned in accordance with
  applicable regulations and at the cost, risk 20 and expense of all the
  parties hereto. Failure of a party to reply within sixty (60) days of
  delivery of notice of proposed 21 abandonment shall be deemed an election to
  consent to the proposal. It within sixty (60) days after delivery of notice
  of the 23 24 applicable notice period and shall indemnify Operator (if
  Operator is an abandoning party) and the other abandoning parties 25 against
  liability for any further operations on the well conducted by such parties.
  Failure of such party or parties to provide 26 proof reasonably satisfactory
  to Operator of their financial capability to conduct such operations or to
  take over the well 27 within the required period or thereafter to conduct
  operations on such well shall entitle operator to retain or take possession
  28 of such well and plug and abandon the well. 29 Parties taking over a well
  as provided herein shall tender to each of the other parties its proportionate
  share of the value of 30 the well's salvable material and equipment,
  determined in accordance with the provisions of Exhibit "C," less
  the estimated cost 31 of salvaging and the estimated cost of plugging and
  abandoning and restoring the surface; provided, however, that in the event 32
  the estimated plugging and abandoning and surface restoration costs and the
  estimated cost of salvaging are higher than the 33 value of the well's
  salvable material and equipment, each of the abandoning parties shall tender to
  the parties continuing 34 operations their proportionate shares of the
  estimated excess cost Each abandoning party shall assign to the
  non-abandoning 35 parties, without warranty, express or implied, as to title
  or as to quantity, or fitness for use of the equipment and material, all 36
  of its interest in the wellbore of the well and related equipment, together
  with its interest in the Leasehold insofar and only 37 insofar as such
  Leasehold covers the right to obtain production from that wellbore in the Zone
  then open to production. If the 38 interest of the abandoning party is or
  includes and Oil and Gas Interest, such party shall execute and deliver to
  the non- 39 abandoning party or parties an oil and gas lease, limited to the
  wellbore and the Zone then open to production, for a term of 40 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 41 attached as Exhibit "B."
  The assignments or leases so limited shall encompass the Drilling Unit upon
  which the well is located. 42 The payments by, and the assignments or leases
  to, the assignees shall be in a ratio based upon the relationship of their 43
  respective percentage of participation in the Contract Area to the aggregate
  of the percentages of participation in the Contract 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 47 request, Operator
  shall continue to operate the assigned well for the account of the non-abandoning
  parties at the rates and 48 charges contemplated by this agreement, plus any
  additional cost and charges which may arise as the result of the separate 49
  ownership of the assigned well. Upon proposed abandonment of the producing
  Zone assigned or leased, the assignor or lessor 50 shall then have the option
  to repurchase its prior interest in the well (using the same valuation
  formula) and participate in 51 further operations therein subject to the
  provisions hereof 52 3. Abandonment of Non-Consent Operations' The provisions
  of Article VLE.1. or V1.E.2. above shall be applicable as 53 between
  Consenting Parties in the event of the proposed abandonment of any well
  excepted from said Articles; provided, 54 however, no well shall be
  permanently plugged and abandoned unless and until all parties having the
  right to conduct further 55 operations therein have been notified of the
  proposed abandonment and afforded the opportunity to elect to take over the
  well 56 in accordance with the provisions of this Article VLE.; and provided
  further, that Non-Consenting Parties who own an interest 57 in a portion of
  the well shall pay their proportionate shares of abandonment and surface
  restoration cost for such well as 58 provided in Article VI.B.2.(b). 59 F.
  Termination of Operations: Upon the commencement of an operation for the
  drilling, Retracing. Reworking, Sidetracking, Plugging Back, Deepening, 60
  testing, 61 Completion or plugging of a well, including but not limited to
  the Initial Well, such operation shall not be terminated without 62 consent
  of parties bearing 75 % of the costs of such operation; provided, however,
  that in the event granite or other 63 practically impenetrable substance or
  condition in the hole is encountered which renders further operations impractical,
  64 Operator may discontinue operations and give notice of such condition in
  the manner provided in Article VI.B.1, and the 65 provisions of Article V1.B.
  or VLE. shall thereafter apply to such operation, as appropriate. 66 G.
  Taking Production In Kind: 67 Option No. I: Gas Balancing Agreement Attached
  68 Each party shall have the right to take in kind or separately dispose of
  its proportionate share of all Oil and Gas produced from the 69 Contract
  Area, exclusive of production which may be used in development and producing
  operations and in preparing and 70 treating Oil and Gas for marketing
  purposes and production unavoidably lost. Any extra expenditure incurred in
  the taking 71 72 in kind or separate disposition by any party of its
  proportionate share of the production shall be home by such party. Any 73
  party taking its share of production in kind shall be required to pay for
  only its proportionate share of such part of 

  

 

	
  

  	
  A.A.P.L. FORM
  610 - MODEL FORM OPERATING AGREEMENT - 1989 74 Operator's surface facilities
  which it uses. - 12 -

  

 

	
  

  	
  A.A.P.L. FORM
  610 - MODEL FORM OPERATING AGREEMENT - 1989 1 Each party shall execute such
  division orders and contracts as may be necessary for the sale of its
  interest in 2 production from the Contract Area, and except as provided in
  Article shall be entitled to receive payment 3 directly from the purchaser
  thereoffor its share of all production. 4 If any party fails to make the
  arrangements necessary to take in kind or separately dispose of its
  proportionate 5 share of the Oil produced from the Contract Area, Operator
  shall have the right, subject to the revocation at will by 6 the party owning
  it, but not the obligation, to purchase such Oil or sell it to others at any
  time and from time to 7 time, for the account of the non-taking party. Any
  such purchase or sale by Operator may be terminated by 8 Operator upon at
  least ten (10) days written notice to the owner of said production and shall
  be subject always to 9 the right of the owner of the production upon at least
  ten (10) days written notice to Operator to exercise at any 10 time its right
  to take in kind, or separately dispose of its share of all Oil not previously
  delivered to a purchaser. 11 Any purchase or sale by Operator of any other
  party's share of Oil shall be only for such reasonable periods of time 12 as
  are consistent with the minimum needs of the industry under the particular
  circumstances, but in no event for a 13 period in excess of one (1) year. 14
  Any such sale by Operator shall be in a manner commercially reasonable under
  the circumstances but Operator 15 shall have no duty to share any existing
  market or to obtain a price equal to that received under any existing 16
  market. The sale or delivery by Operator of a non-taking party's share of Oil
  under the terms of any existing 17 contract of Operator shall not give the
  non-taking party any interest in or make the non-taking party a party to said
  18 contract. No purchase shall be made by Operator without first giving the
  non-taking party at least ten (10) days 19 written notice of such intended
  purchase and the price to be paid or the pricing basis to be used. 20 All
  parties shall give timely written notice to Operator of their Gas marketing
  arrangements for the following 21 month, excluding price, and shall notify
  Operator immediately in the event of a change in such arrangements. 22
  Operator shall maintain records of all marketing arrangements, and of volumes
  actually sold or transported, which 23 records shall be made available to
  Non-Operators upon reasonable request 24 In the event one or more parties'
  separate disposition of its share of the Gas causes split-stream deliveries
  to separate 25 pipelines and/or deliveries which on a day-to-day basis for
  any reason are not exactly equal to a party's respective proportion- 26 ate
  share of total Gas sales to be allocated to it, the balancing or accounting
  between the parties shall be in accordance with 27 any Gas balancing
  agreement between the parties hereto, whether such an agreement is attached as
  Exhibit "E" or is a 28 separate agreement. Operator shall give
  notice to all parties of the first sales of Gas from any well under this
  agreement. 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50
  51 year 52 All parties shall give timely written notice to Operator of their
  Gas marketing arrangements for the following

  

 

	
  

  	
  A.A.P.L. FORM 610 - MODEL FORM OPERATING AGREEMENT - 1989 53 54 55 56
  57 58 59 60 61 62 63 64 ARTICLE vn. 65 EXPENDITURES AND LIABILITY OF PARTIES
  66 A. Liability of Parties: 67 The liability of the parties shall be several,
  not joint or collective. Each party shall be responsible only for its
  obligations, 68 and shall be liable only for its proportionate share of the
  costs of developing and operating the Contract Area Accordingly, the 69 liens
  granted among the parties in Article VILB. are given to secure only the debts
  of each severally, and no party shall have 70 any liability to third parties
  hereunder to satisfy the default of any other party in the payment of any expense
  or obligation 71 hereunder. It is not the intention of the parties to create,
  nor shall this agreement be construed as creating, a mining or other 72
  partnership, joint venture, agency relationship or association, or to render
  the parties liable as partners, co-venturers, or 73 principals. In their
  relations with each other under this agreement, the parties shall not be
  considered fiduciaries or to have 74 established a confidential relationship
  but rather shall be free to act on an arm's-length basis in accordance with
  their own 

  

 

	
  

  	
  A.A.P.L. FORM
  610 - MODEL FORM OPERATING AGREEMENT - 1989 1 respective self-interest,
  subject, however, to the obligation of the parties to act in good faith in
  their dealings with each other 2 with respect to activities hereunder. 3 4 5
  6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32
  33 34 35 36 37 38 39 40 41 42 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 

  

 

 

	
  

  	
  A.A.P.L. FORM
  610 - MODEL FORM OPERATING AGREEMENT - 1989 1 2 3 4 5 6 7 8 9 10 11 12 13 14
  15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40
  41 42 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 B. Liens and Security Interests: Each party grants to
  the other parties hereto a lien upon any interest it now owns or hereafter
  acquires in Oil and Gas security Lease$ atici-Oil-and-Gas-hatesests in the
  Contract Area which are subject to this JQA, and a security interest and/or
  purchase money interest any interest it now owns or hereafter acquires in the
  personal property and fixtures on or used or obtained for use in connection
  therewith, to secure performance of all of its obligations under this
  agreement including but not limited to payment of expense, interest and fees,
  the proper disbursement of all monies paid hereunder, the assignment or
  relinquishment of interest in Oil and Gas Leases as required hereunder, and
  the proper performance of operations hereunder. Such lien and security
  interest granted by each party hereto shall include such party's leasehold
  interests, working interests, operating rights, and royalty and overriding
  royalty interests in the Contract Area now owned or. to the extent subject tQ
  this JOA. hereafter acquired and in lands pooled Or urutized therewith Or
  otherwise becoming subject to this agreement, the Oil and Gas when extracted
  therefrom and equipment situated thereon or used or obtained for use in
  connection therewith (including, without limitation, all wells, tools, and
  tubular goods), and accounts (including, without limitation, accounts arising
  from gas imbalances or from the sale of Oil and/or Gas at the wellhead),
  contract rights, inventory and general intangibles relating thereto or
  arising therefrom, and all proceeds and products of the foregoing. To perfect
  the lien and security agreement provided herein, each party hereto shall
  execute and acknowledge the recording supplement in the form attachegcltiggio
  ns Exhibit "H" and/or any financing statement prepared and
  submitted by any party herettisunirg co Junction or at any following
  execution hereof and Operator is authorized to file this agreement or the
  recording supplement executed herewith as a lien or mortgage in the
  applicable real estate records and as a financing statement with the proper
  officer under the Uniform Commercial Code in the state in which the Contract
  Area is situated and such other states as Operator shall deem appropriate to
  perfect the security interest granted hereunder. Any party may file this
  agreement, the recording supplement executed herewith, or such other
  documents as it deems necessary as a lien or mortgage in the applicable real
  estate records and/or a financing statement with the proper officer under the
  Uniform Commercial Code. Each party represents and warrants to the other
  parties hereto that the lien and security interest granted by such party to
  the other parties shall be a first and prior lien, and each party hereby agrees
  to maintain the priority of said lien and security interest against all
  persons acquiring an interest in Oil and Gas Leases ead-isderests covered by
  this agreement by, through or under such party. All parties acquiring an
  interest in Oil and Gas Leases atid-Oil-and-Gas-Isdesests-covered by this
  agreement, whether by assignment, merger, mortgage, operation of law, or
  otherwise, shall be deemed to have taken subject to the lien and security
  interest granted by this Article VII.B. as to all obligations attributable to
  such interest hereunder whether or not such obligations arise before or after
  such interest is acquired. To the extent that parties have a security
  interest under the Uniform Commercial Code of the state in which the Contract
  Area is situated, they shall be entitled to exercise the rights and remedies
  of a secured party under the Code. The bringing of a suit and the obtaining
  of judgment by a party for the secured indebtedness shall not be deemed an
  election of remedies or otherwise affect the lien rights or security interest
  as security for the payment thereof In addition, upon default by any party in
  the payment of its share of expenses, interests or fees, or upon the improper
  use of funds by the Operator, the other parties shall have the right, without
  prejudice to other rights or remedies, to collect from the purchaser the
  proceeds from the sale of such defaulting party's share of Oil and Gas until
  the amount owed by such party, plus interest as provided in "Exhibit
  C," has been received, and shall have the right to offset the amount
  owed against the proceeds from the sale of such defaulting party's share of
  Oil and Gas. All purchasers of production may rely on a notification of
  default from the non-defaulting party or parties stating the amount due as a
  result of the default, and all parties waive any recourse available against
  purchasers for releasing production proceeds as provided in this paragraph.
  If any party fails to pay its share of cost within one hundred twenty (120)
  days after rendition of a statement therefor by Operator, the non-defaulting
  parties, including Operator, shall upon request by Operator, pay the unpaid
  amount in the proportion that the interest of each such party bears to the
  interest of all such parties. The amount paid by each party so paying its
  share of the unpaid amount shall be secured by the liens and security rights
  described in Article MB., and each paying party may independently pursue any
  remedy available hereunder or otherwise. If any party does not perform all of
  its obligations hereunder, and the failure to perform subjects such party to
  foreclosure or execution proceedings pursuant to the provisions of this
  agreement, to the extent allowed by governing law, the defaulting party
  waives any available right of redemption from and after the date of judgment,
  any required valuation or appraisement of the mortgaged or secured property
  prior to sale, any available right to stay execution or to require a
  marshaling of assets and any required bond in the event a receiver is
  appointed. In addition, to the extent permitted by applicable law, each party
  hereby grants to the other parties a power of sale as to any property that is
  subject to the lien and security rights granted hereunder, such power to be
  exercised in the manner provided by applicable law or otherwise in a
  commercially reasonable manner and upon reasonable notice. Each party agrees
  that the other parties shall be entitled to utilize the provisions of Oil and
  Gas lien law or other lien law of any state in which the Contract Area is
  situated to enforce the obligations of each party hereunder. Without limiting
  the generality of the foregoing, to the extent permitted by applicable law,
  Non-Operators agree that Operator may invoke or utilize the mechanics' or materialmen's
  lien law of the state in which the Contract Area is situated in order to
  secure the payment to Operator of any sum due hereunder for services
  performed or materials supplied by Operator. C. Advances: Operator, at its
  election, shall have the right from time to time to demand and receive from
  one or more of the other parties payment in advance of their respective
  shares of the estimated amount of the expense to be incurred in operations
  hereunder during the next succeeding month, which right may be exercised only
  by submission to each such party of an itemized statement of such estimated
  expense, together with an invoice for its share thereof Each such statement
  and invoice for the payment in advance of estimated expense shall be
  submitted on or before the 20th day of the next preceding month. Each party
  shall pay to Operator its proportionate share of such estimate within fifteen
  (15) days after such estimate and invoice is received. If any party fails to
  pay its share of said estimate within said time, the amount due shall bear
  interest as provided in Exhibit "C" until paid. Proper adjustment
  shall be made monthly between advances and actual expense to the end that
  each party shall bear and pay its proportionate share of actual expenses
  incurred, and no more. D. Defaults and Remedies: If any party fails to
  discharge any financial obligation under this agreement, including without
  limitation the failure to make any advance under the preceding Article VILC.
  or any other provision of this agreement, within the period required for - 12
  -

  

 

	
  

  	
  A.A.P.L. FORM
  610 - MODEL FORM OPERATING AGREEMENT - 1989 1 such payment hereunder, then in
  addition to the remedies provided in Article VII.B. or elsewhere in this
  agreement, the 2 remedies specified below shall be applicable. For purposes
  of this Article VII.D., all notices and elections shall be delivered 3 4 5 6
  7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33
  34 35 36 37 38 39 40 41 42 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 -12 -

  

 

	
  

  	
  A.A.P.L. FORM
  610 - MODEL FORM OPERATING AGREEMENT - 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 propose an operation or elect to 15 participate in an
  operation proposed under Article VI.B. of this agreement, the right to
  participate in an operation being 16 17 conducted under this agreement even
  if the party has previously elected to participate in such operation, and the
  right to receive proceeds of production from any well subject to this
  agreement 18 3. Deemed Non-Consent' The non-defaulting party may deliver a
  written Notice of Non-Consent Election to the defaulting party at any time
  after the expiration of the thirty-day cure period following delivery of the
  Notice of Default, in which event if the billing is for the drilling a new
  well or the Plugging Back, Sidetracking, Refraeing, Reworking or Deepening of
  a well which is to be or has been plugged as a dry hole, or for the
  Completion or Recompletion of any well, the defaulting party will be
  conclusively deemed to have elected not to participate in the operation and
  to be a Non-Consenting Party with respect thereto under Article VI.B. or
  VIC., as the case may be, to the extent of the costs unpaid by such party,
  notwithstanding any election to participate theretofore made. If election is
  made to proceed under this provision, then the non-defaulting parties may not
  elect to sue for the unpaid amount pursuant to Article VII.D.2. Until the
  delivery of such Notice of Non-Consent Election to the defaulting party, such
  party shall have the right to cure its default by paying its unpaid share of
  costs plus interest at the rate set forth in Exhibit "C," provided,
  however, such payment shall not prejudice the rights of the non-defmilting
  parties to pursue remedies for damages incurred by the non-defaulting parties
  as a result of the default Any interest relinquished pursuant to this Article
  VII.D.3. shall be offered to the non-defaulting parties in proportion to
  their interests, and the non-defaulting parties electing to participate in
  the ownership of such interest shall be required to contribute their shares
  of the defaulted amount upon their election to participate therein. 4.
  Advance Payment: if a default is not cured within thirty (30) days of the
  delivery of a Notice of Default, Operator, or Non-Operators if Operator is
  the defaulting party, may thereafter require advance payment from the
  defaulting party of such defaulting party's anticipated share of any item of
  expense for which Operator, or Non-Operators, as the case may be, would be
  entitled to reimbursement under any provision of this agreement, whether or
  not such expense was the subject of the previous default Such right includes,
  but is not limited to, the right to require advance payment for the estimated
  costs of drilling a well or Completion of a well as to which an election to
  participate in drilling or Completion has been made. If the defaulting party
  fails to pay the required advance payment, the non-defaulting parties may
  pursue any of the remedies provided in the Article VILD. or any other default
  remedy provided elsewhere in this agreement Any excess of funds advanced
  remaining when the operation is completed and all costs have been paid shall
  be promptly returned to the advancing party. 5. Costs and Attorneys' Fees' In
  the event any party is required to bring legal proceedings to enforce any
  financial obligation of a party hereunder, the prevailing party in such
  action shall be entitled to recover all court costs, costs of collection, and
  a reasonable attorney's fee, which the lien provided for herein shall also
  secure. E. Rentals, Shut-in Well Payments and Minimum Royalties: Rentals,
  shut-in well payments and minimum royalties which may be required under the
  terms of any lease shall be paid by the 
  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. 21 22 23 24 25 26 27
  28 29 30 31 32 33 34 35 36 37 38 39 40 - 13 -

  

 

	
  

  	
  41 42 43 44 45
  46 47 48 49 50 51 52 Onerator and charged to the joint account. Any party may
  request, and shall be 53 an ed to receive, proper 54 evidence of all such
  payments. In the event of failure to make proper payment of any rental,
  shut-in well payment or 55 minimum royalty through mistake or oversight where
  such payment is required to continue the lease in force, any loss which 56
  results from such non-payment shall be borne in accordance with the
  provisions of Article IV.B.2. 57 Operator shall notify Non-Operators of the
  anticipated completion of a shut-in well, or the shutting in or return to 58
  production of a producing well, at least five (5) days (excluding Saturday,
  Sunday, and legal holidays) prior to taking such 59 action, or at the
  earliest opportunity permitted by circumstances, but assumes no liability for
  failure to do so. In the event of 60 failure by Operator to so notify
  Non-Operators, the loss of any lease contributed hereto by Non-Operators for
  failure to make 61 timely payments of any shut-in well payment shall be borne
  jointly by the parties hereto under the provisions of Article 62 IV.B.3. 63
  F. Taxes: 64 Beginning with the first calendar year after the effective date
  hereof, Operator shall render for ad valorem taxation all 65 property subject
  to this agreement which by law should be rendered for such taxes, and it
  shall pay all such taxes assessed 66 thereon before they become delinquent.
  Prior to the rendition' date, each Non-Operator shall furnish Operator
  information as 67 to burdens (to include, but not be limited to, royalties,
  overriding royalties and production payments) on Leases and Oil and 68 Gas
  Interests contributed by such Non-Operator. if the assessed valuation of any
  Lease is reduced by reason of its being 69 subject to outstanding excess
  royalties, overriding royalties or production payments, the reduction in ad
  valorem taxes 70 resulting therefrom shall inure to the benefit of the owner
  or owners of such Lease, and Operator shall adjust the charge to 71 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 72 upon separate valuations of
  each party's working interest, then notwithstanding anything to the contrary
  herein, charges to 73 the joint account shall be made and paid by the parties
  hereto in accordance with the tax value generated by each party's 74 working
  interest Operator shall bill the other parties for their proportionate shares
  of all tax payments in the manner

  

 

	
  

  	
  1 provided in
  Exhibit "C." 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22
  23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 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

  

 

	
  

  	
  A.A.P.L. FORM
  610 - MODEL FORM OPERATING AGREEMENT - 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 tatter'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 4I 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 I ruse. 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 warren of title c e.t
  b throw and rider the millafttffamaimARCBMIIIMBLiKONEfitill.Eflataaii=nuik.rttan-lituumnintuasiWIff
  a as an 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 by the
  parties who elect to participate therein, in a ratio based upon the
  relationship of their respective percentage of participation in the Contract
  Area to the aggregate of the percentages of participation in the Contract
  Area of all parties participating in the purchase of such renewal or
  replacement Lease. The acquisition of a renewal or replacement Lease by any
  or all of the parties hereto shall not cause a readjustment of the interests
  of the parties stated in Exhibit "A," but any renewal or
  replacement Lease in which less than all parties elect to participate shall
  not be subject to this agreement but shall be deemed subject to a separate
  Operating Agreement in the form of this agreement. If the interests of the
  parties in the Contract Area vary according to depth, then their right to
  participate proportionately in renewal or replacement Leases and their right
  to receive an assignment of interest shall also reflect such depth variances.
  The provisions of this Article shall apply to renewal or replacement Leases
  whether they are for the entire interest covered by the expiring Lease or
  cover only a portion of its area or an interest therein. Any renewal or
  replacement Lease taken before the expiration of its predecessor Lease, or
  taken or contracted for or becoming effective within six (6) months after the
  expiration of the 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
  the renewal or replacement Lease becomes effective; but any Lease taken or
  contracted for more than six (6) months after the expiration of an existing
  Lease shall not be deemed a renewal or replacement Lease and shall not be
  subject to the provisions of this agreement The provisions in this Article
  shall also be applicable to extensions of Oil and Gas Leases. C. Acreage or
  Cash Contributions: While this agreement is in force, if any party contracts
  for a contribution of cash towards the drilling of a well or any other
  operation on the Contract Area, such contribution shall be paid to the party
  who conducted the drilling or other operation and shall 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 the contribution is made shall
  promptly tender an assignment of the acreage, without warranty of title, to
  the Drilling Parties in the proportions said Drilling Parties shared the cost
  of drilling the well. Such acreage shall become a separate Contract Area and,
  to the extent possible, be governed by provisions identical to this agreement.
  Each party shall promptly notify all other parties of any acreage or cash
  contributions it may obtain in support of any well or any other operation on
  the Contract Area The above - 14- 

  

 

	
  

  	
  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 

  

 

	
  

  	
  1 provisions
  shall also be applicable to optional rights to earn acreage outside the
  Contract Area which are in support of well drilled 2 inside Contract Area. 3
  4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31
  32 33 34 35 36 37 38 39 40 41 42 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 - 14 -

  

 

	
  

  	
  A.A.P.L. FORM
  610 - MODEL FORM OPERATING AGREEMENT - 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 3 D. Assignment Maintenance of Uniform
  Interest: 4 5 Interents 6 dispositien-isf-its-interest-in-the-Gil-a
  7equipment-end-predueliewuniess-suell-dispeskiea-eavers-eithen 8 .
  .trre-m-and-pfetitietien, Of 9 10 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 It; 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. 32 F.
  Prefereatial-Right-te-Rufelinset 33 13—(Outionali-Gheelt-if-epplieahle4 34 35
  36 37 38 39 40 41 42 43 44 45 sompawf in-which-Stlah-parq,ewns-a-Faajefity-of
  the-steak. 46 ARTICLE IX. 47 INTERNAL REVENUE CODE ELECTION 48 It 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. 74- 15 - 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.

  

 

	
  

  	
  A.A.P.L. FORM 610
  - MODEL FORM OPERATING AGREEMENT - 1989 1 ARTICLE XL 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 form
  majeure. The term "force majeure," as here employed, shall mean an
  act of God, stale, 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
  XIL 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
  ofggsimile electronic transmittaagier email), postage or charges 9riespeld,
  and addressed to such partbz at 21 22 Exhibit "A." All telephone or
  oral notices permitted by this agreement shall be confirmed immediately
  thereafter by written notice. The originating notice given under any
  provision hereof shall be deemed delivered only when received by the party to
  23 24 whom such notice is directed, and the time for such party to deliver
  any notice in response thereto shall run from the date the originating notice
  is received. "Receipt" for purposes of this agreement with respect
  to written notice delivered hereunder 25 26 shall be actual delivery of the
  notice to the address of the party to be notified specified in accordance
  with this agreement, or to the telecopy, email address, facsimile or telex
  machine of such party. The second or any responsive notice shall be deemed
  delivered 27 when 28 deposited in the United States mail or at the office of
  the courier or telegraph service, or upon transmittal by telex, email,
  telecopy 29 or facsimile, or when personally delivered to the party to be
  notified, provided, that when response is required within 24 or 30 48 hours,
  such response shall be given orally or by telephone, telex, telecopy or other
  facsimile within such period. Each party 31 shall have the right to change
  its address at any time, and from time to time, by giving written notice
  thereof to all other 32 parties. If a party is not available to receive
  notice orally or by telephone when a party attempts to deliver a notice
  required 33 to be delivered within 24 or 48 hours, the notice may be
  delivered in writing by any other method specified herein and shall 34 be
  deemed deliveredd. in the snipe mariner prqvicled tt.ve
  foropiurctspoonlivneogtice Oral antic will not ne red a valid notice aril -s
  written conlirmation is r carved within o rs eintratiWiparignau 35 wt
  nrCar:iv:s aesinu e or e cc time ran mt a 111l11 r m. ARTICLE XIIL TERM OF
  AGREEMENT This agreement shall remain in full force and effect as to the Oil
  and Gas Leases and/or Oil and Gas Interests subject hereto for the period of
  time selected below; provided, however, no party hereto shall ever be
  construed as having any right, title or interest in or to any Lease or Oil
  and Gas Interest contributed by any other party beyond the term of this
  agreement. El °micro No, 2* In the event the well described in Article VIA.,
  or any subsequent well drilled under any provision of this agreement, results
  in the Completion of a well as a well capable of production of Oil and/or Gas
  in paying quantities, this agreement shall continue in force so long as any
  such well is capable of production, and for an additional period of 180 days
  thereafter, provided, however, it prior to the expiration of such additional
  period, one or more of the parties hereto are engaged in drilling, Reworking,
  Deepening, Sidetracking, Plugging Back, testing or attempting to Complete or
  Re-complete a well or wells hereunder, this agreement shall continue in force
  until such operations have been completed and if production results
  therefrom, this agreement shall continue in force as provided herein. In the
  event the well described in Article VI.A., or any subsequent well drilled
  hereunder, results in a dry hole, and no other well is capable of producing
  Oil and/or Gas from the Contract Area, this agreement shall terminate unless
  drilling, Deepening, Sidetracking, Completing, Re- completing, Plugging Back
  or Reworking operations are commenced within 180 days from the date of
  abandonment of said well. "Abandonment" for such purposes shall
  mean either (i) a decision by all parties not to conduct any further
  operations on the well or (ii) the elapse of 180 days from the conduct of any
  operations on the well, whichever first occurs. The termination of this
  agreement shall not relieve any party hereto from any expense, liability or
  other obligation or any remedy therefor which has accrued or attached prior
  to the date of such termination. Upon termination of this agreement and the
  satisfaction of all obligations hereunder, in the event a memorandum of this
  Operating Agreement has been filed of record, Operator is authorized to file
  of record in all necessary recording offices a notice of termination, and
  each party hereto agrees to execute such a notice of termination as to
  Operator's interest, upon request of Operator, if Operator has satisfied all
  its financial obligations. ARTICLE XIV. COMPLIANCE WITH LAWS AND REGULATIONS
  A. Laws, Regulations and Orders: This agreement shall be subject to the
  applicable laws of the state in which the Contract Area is located, to the
  valid rules, regulations, and orders of any duly constituted regulatory body
  of said state; and to all other applicable federal, state, and local laws,
  ordinances, rules, regulations and orders. B. Governing Law: This agreement
  and all matters pertaining hereto. including but not limited to matters of
  performance. non¬performance, breach, remedies, procedures, rights, duties,
  and interpretation or construction, shall be governed and determined by the
  law of the state In which the Contract Area is located. the law of the state
  of shall govern. C. Regulatory Agencies:

  

 

	
  

  	
  A.A.P.L. FORM
  610 - MODEL FORM OPERATING AGREEMENT - 1989 36 37 38 39 40 41 42 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 74-18a

  

 

	
  

  	
  Nothing herein
  contained shall grant, or be construed to grant, Operator the right or
  authority to waive or release any rights, privileges, or obligations which
  Non-Operators may have under federal or state laws or under rules,
  regulations or 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24
  25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 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 74-16a

  

 

	
  

  	
  A.A.P.L. FORM
  610 - MODEL FORM OPERATING AGREEMENT - 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 ot, 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 VIA 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 2.2 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 prorgaric 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. Reverabllity: 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 41 ARTICLE XVL 42 OTHER PROVISIONS 43 ARTICLE XVI 74-17a-

  

 

	
  

  	
  A.A.P.L. FORM
  610 - MODEL FORM OPERATING AGREEMENT - 1989 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 OTHER PROVISIONS
  This Article XVI is part of the Joint Operating Agreement dated 201_ between
  Orion Exploration Partners, LLC ("Orion") and Evolution Petroleum
  OK, Inc. ("EPC") (the "JOA"). In the event of a conflict
  between the terms of this Article XVI and the JOA, the terms of this Article
  XVI shall control. In the event of a conflict between the typewritten portion
  and printed portions of the JOA, the typewritten portions shall prevail. This
  JOA is subject further to all the terms and conditions of that certain
  Participation and AMI Agreement dated April 17, 2012 (the "Participation
  Agreement"), by and between Orion and EPC, to which reference is made
  for all purposes. In the event of a conflict between the terms and conditions
  of this JOA, including this Article XVI, and the Participation Agreement, the
  terms and conditions of the Participation Agreement shall control. A.
  DEFINITIONS CONTINUED 1. The term "Deepen" when used in conjunction
  with a multi-lateral or horizontal well shall mean an operation whereby a
  lateral is drilled to a distance greater than the distance set out in the
  well proposal pursuant to which the well was drilled. 2. The term
  "equipment", as used in Article VI.B.2.(b)(ii) and this Article
  XVI, means down-hole equipment, wellhead and surface equipment beyond the
  wellhead connections including, but not limited to, treaters, compressors,
  separators, flowlines, tanks, motor pump units (both surface and down-hole),
  electrification and other lease equipment necessary for the proper operation
  of the well. 74-18a

  

 

	
  

  	
  A.A.P.L. FORM
  610 - MODEL FORM OPERATING AGREEMENT - 1989 
  2 3. The term "frac" means any hydraulic fracture
  stimulation operation conducted 3 in the wellbore of a well in order to
  improve or optimize production in a Zone. 4 5 4. The term "horizontal
  well" means a well containing a single lateral in which 6 the wellbore
  deviates from the approximate vertical orientation to approximate horizontal
  7 orientation in order to drill within and test a specific geologic interval,
  utilizing deviation 8 equipment, services and technology. This shall include
  similar operations conducted in the 9 re-entry of an existing wellbore. 10 12
  11 5. The term "initial objective" as used in conjunction with
  horizontal drilling, 13 shall mean the proposed targeted total depth of the
  horizontal well. 14 15 6. The term "lateral" means that portion of
  a well that deviates from the 16 approximate vertical orientation to
  approximate horizontal orientation and all wellbore 17 beyond such deviation
  to total depth. 18 19 7. The term "multi-lateral well" means a well
  which contains more than one 20 lateral and in which the wellbores deviate
  from the approximate vertical orientation to 21 approximate horizontal
  orientation in order to drill within and test one or more specific 22 23
  geologic intervals, utilizing deviation equipment, services and technology.
  This shall include 24 similar operations conducted in the re-entry of an
  existing wellbore 25 26 8. The term "Plug-Back" when used in
  conjunction with a horizontal or multi- 27 lateral well means an operation to
  test or Complete the well at a stratigraphically shallower 28 geological
  horizon in which the operation has been or is being Completed and which is
  not 29 within an existing lateral. 30 31 9. The term "Refrac" or
  "Re-frac" means any hydraulic fracture stimulation 32 33 operation
  conducted in the wellbore of a well in order to improve or optimize
  production in a 34 Zone which is currently open to production in the
  wellbore, but does not include a frac 35 operation conducted pursuant to the
  well proposal under which the well was drilled. 36 37 10. The term
  "total depth" when used in conjunction with a multi-lateral or 38
  horizontal well means the distance from the surface of the ground to the
  terminus of the 39 wellbore. Each lateral taken together with the common
  vertical wellbore shall be considered 40 41 a single wellbore and shall have
  a corresponding total depth. Where the proposed 42 operation(s) is the
  drilling of, or operations on, a well containing a lateral component, the 43
  term "depth" wherever used in the JOA shall be deemed to read
  "total depth" insofar as it 44 applies to such well. 45 46 11. The
  term "vertical well" means any well drilled, Completed or
  Recompleted 47 other than a horizontal well. 48 49 12. "Well Pad"
  means a drill-ready surface location from which one or more wells 50 51 are
  drilled and any related surface equipment, appurtenances and facilities
  related to and 52 solely servicing such location. 53 54 B. COSTS ASSOCIATED
  WITH USE OF CONSULTANTS 55 56 Operator may charge to the joint account the
  reasonable third party costs of 57 consultants, including attorneys,
  necessary to secure regulatory permits and approvals for 58 drilling wells,
  collecting and discharging water and any other matters related to the
  project. 59 60 C. OPERATOR AFFILIATES 61 62 63 Notwithstanding the provisions
  of Article V herein to the contrary, a party to this 64 agreement that has
  been designated as the Operator under this JOA ("Party") may employ
  a 65 subsidiary or affiliate to serve as Operator so long as the Party owns
  an interest in the 66 Contract Area and is otherwise in compliance with the
  provisions of this JOA. However, at 67 such time as the Party sells its
  interest or no longer owns an interest in the Contract Area, the 68 69
  Party's subsidiary or affiliate that is serving as Operator shall be deemed
  to have resigned just 70 as if the Party had been serving as Operator.
  Furthermore, the Operator's failure to observe 71 or comply with the
  provisions of this JOA may be applied and enforced against the Party just 72
  as if the Party was serving as the Operator. Therefore, the provisions of
  this JOA may be 73 enforced interchangeably between the Operator and the
  Party just as if they are one entity. 74 - 171)-

  

 

	
  

  	
  A.A.P.L. FORM
  610 - MODEL FORM OPERATING AGREEMENT - 1989 2 D. OPERATIONS NECESSARY TO
  MAINTAIN A LEASE(S) IN FORCE 3 Notwithstanding the provisions of this JOA and
  particularly Article VI, if any 4 5 proposed operations are necessary to
  maintain a lease covered by this JOA in force, or an 6 agreement to earn a
  lease(s) which would otherwise expire unless such operations are 7 conducted,
  then in addition to being penalized under Article VI.B.2. (a) and (b), each
  Non- 8 Consenting Party shall assign to Consenting Parties all of such
  Non-Consenting Party's right, 9 title and interest in and to the lease(s) or
  portion thereof or such agreement which would be io lost or not earned if
  such operations were not conducted. Such assignment shall be promptly 11 12
  due upon commencement of said proposed operations by Consenting Parties and
  if the 13 assignment is in favor of more than one party the assigned interest
  shall be shared by the 14 Consenting Parties unless otherwise agreed to in
  writing. Thereafter, such acreage covered 15 by said assignment shall not be
  subject to the terms of this JOA, but shall be deemed to be 16 subject to an
  agreement identical this JOA changed only in Exhibit "A" to indicate
  the 17 Consenting Parties and their ownership percentages. For purposes of
  defining operations 18 19 necessary to maintain a lease or agreement to earn
  a lease(s) in force which would otherwise 20 expire, such operations will be
  deemed necessary if proposed within three (3) months of the 21 date the lease
  or agreement would otherwise expire. 22 23 E. PRIORITY OF OPERATIONS 24 25 1.
  Vertical Wells. When a well which has been authorized under the terms of 26
  this agreement as a vertical well shall have been drilled to the initial
  objective, and all tests 27 have been completed and the results thereof
  furnished to the participating parties, and such 28 parties cannot
  unanimously agree upon the sequence and timing of further operations 29 30
  regarding the well, the operations proposed to be conducted shall be governed
  by the 31 following sequence of priority: 32 33 a. Conduct additional
  testing, coring or logging; 34 35 b. Attempt Completion of the well without
  Plugging Back in ascending 36 order from deepest to shallowest depths; 37 38
  39 c. Sidetrack the well in the order of least deviation from the original 40
  bottom hole location to the greatest deviation; 41 42 d. Deepen the well
  below the Objective zone in descending order from 43 shallowest to deepest
  depths; 44 45 e. Attempt to Plug Back and Complete the well in ascending
  order from 46 deepest to shallowest depths; 47 48 f. Plug and abandon the
  well pursuant to Article VI.E. 49 50 51 2. Horizontal Wells. When a well
  which has been authorized under the terms of 52 this agreement as a
  horizontal well shall have been drilled to the initial objective, and all
  tests 53 have been completed and the results thereof furnished to the
  participating parties, and such 54 parties cannot unanimously agree upon the
  sequence and timing of further operations 55 regarding the well, the
  operations proposed to be conducted shall be governed by the 56 following
  sequence of priority: 57 58 59 a. Conduct additional testing, coring or
  logging; 60 61 b. Attempt Completion of the well at the initial objective in
  the manner set 62 forth in the AFE (i.e., in accordance with the casing
  stimulation and 63 other completion programs set forth in the AFE); 64 65 c.
  Attempt Completion of the well at the initial objective in a manner 66 67
  different than as set forth in the AFE; 68 69 d. Lengthen the horizontal or
  lateral borehole (which shall require consent 70 of all the participating
  parties); 71 72 73 74 - 17c-

  

 

	
  

  	
  A.A.P.L. FORM
  610 - MODEL FORM OPERATING AGREEMENT - 1989 e. Plug back and attempt to
  Complete the well at a depth shallower than the 2 initial objective, with
  priority given to objectives in ascending order up 3 4 the hole; 5 6 f. Plug
  and abandon the well pursuant to Article VI.E. 7 8 3. Loss, Injury or Death.
  If at the time the parties are considering a proposed to operation, the well
  is in such condition that, in the Operator's judgment, a reasonably prudent
  it operator would not conduct such operation for fear of mechanical
  difficulties, placing the 12 hole, property, equipment or personnel in danger
  of loss, injury or death, or fear of loss of 13 hole or the well for any
  reason without being able to attempt a Completion at the Objective 14 zone,
  then such operation shall not be given the priority set forth above. 15 16 F.
  SIDETRACKING 17 198 Notwithstanding the provisions of Article VI.B.5,
  "Sidetracking", such paragraph 20 shall not be applicable to
  operations in the lateral portion of a horizontal well or multi-lateral 21
  well. Drilling operations which are intended to recover penetration of the
  target interval 22 which are conducted in a horizontal or multi-lateral well
  shall be considered as included in 23 the original proposed drilling
  operations. 24 G. PARTIES TO OPERATIONS 25 26 27 Notwithstanding anything to
  the contrary in Article VI.B.2, the share of production 28 from a well which
  Non-Consenting Parties shall be deemed to have relinquished to 29 Consenting
  Parties in any Reworking, Re-fracing, Deepening, Plugging Back or Completing
  30 of a well shall be the Non-Consenting Parties' share of production,
  insofar and only insofar as 31 to production from the wellbore of such well,
  only from the interval or intervals of the 32 formation or formations from
  which production is obtained or increased as a result of the 33 34 operations
  in which the Non-Consenting Parties did not participate. In the event a 35
  subsequent operation is proposed for such well by one or more Consenting
  Parties prior to 36 recovery of all costs and penalties recoverable from the
  relinquished interest of 37 Non-Consenting Party in said interval or
  formation, Non-Consenting Party shall be entitled 38 to participate therein
  to the extent of its interest prior to relinquishment. 39 40 Only a party
  that participated in the Non-Consent well shall have the right to propose 41
  a Deepening or Sidetracking operation for such well, but all parties,
  including parties which 42 did not participate in such well (other than an
  Initial Well), shall be entitled to receive notices 43 and shall have the
  right to participate pursuant to Article VI.B in such Sidetracking or 44
  Deepening operations. However, those parties that did not participate in the
  Non-Consent 45 46 well shall reimburse the Consenting Parties in accordance
  with Article VI.B.4. in the event of 47 a Deepening operation and in
  accordance Article VI.B.5 in the event of a Sidetracking 48 operation.  50 H. REGULATIONS 51 52 Any state or
  Federal regulation, penalties and/or assessments which may be lawfully 53
  applied to Operator as the result of any action by said Operator in
  Operator's conduct of the 54 operations hereunder, shall be shared by the
  Operator and the Non-Operators in proportion to 55 their interests as set
  forth in Exhibit "A" hereof provided there is no fraud, intentional
  56 misrepresentation or other act of gross negligence or willful misconduct
  by the Operator. I. LAND SERVICES 59 60 61 Operator, as part of its services
  hereunder and without additional charge, will provide 62 all resources
  necessary to manage and develop the lands, leases, wells and related
  facilities of 63 the Parties within the Contract Area (sometimes referred to
  as the "Properties"), including but 64 not limited to: operation of
  Properties, and technical oversight of any non-operated 65 properties,
  maintenance of leases, together with title and land files. 67 J. ADDITIONAL
  FACILITIES 68 69 All proposals for Well Operations may include the costs of
  additional equipment and 70 other common facilities needed to serve the
  well(s) covered by such proposal, whether or not 71 located on lands within
  the Contract Area (the "Associated Facilities"); provided, however,
  72 that "Associated Facilities" shall not include any saltwater
  disposal wells or facilities 73 74 necessary for the delivery of produced
  water from producing wells to a disposal facility/well. - 17d -

  

 

	
  

  	
  A.A.P.L. FORM
  610 - MODEL FORM OPERATING AGREEMENT - 1989 A party who elects to participate
  in the proposed Well Operations shall be deemed to have 2 elected to
  participate in the Associated Facilities. Saltwater disposal wells and
  related 3 4 facilities shall be governed by the terms and conditions of the
  Participation Agreement 5 Upon the termination of the Participation
  Agreement, saltwater disposal wells and related 6 facilities (whether or not
  located on lands within the Contract Area) serving the wells 7 producing Oil
  and Gas from the Contract Area may be proposed by a party hereto as a 8
  subsequent operation under Article VI.B. 1 of the JOA. In such case, the
  parties hereto shall 9 have an election to participate or not participate in
  such saltwater disposal well and related o facilities in accordance with the
  terms of Article VI.B.1 . Notwithstanding the provisions of 11 12 Article
  VI.B.2 herein to the contrary, if a party elects not to participate in a
  proposed 13 saltwater disposal well and related facilities, such party shall
  (a) have no ownership rights in 14 or obligations with respect to such
  saltwater disposal well and related facilities, including any 15 vested
  future ownership rights or interests in such well and facilities, (b) not be
  responsible 16 for any of the costs and expenses of such saltwater disposal
  well and related facilities, and (c) 17 retain the right to access and use
  such saltwater disposal well and related facilities for the 18 19 disposal of
  such party's proportionate share of produced water from wells drilled under
  the 20 JOA, on a contractual basis, subject to the payment of a reasonable
  fee to the operator of 21 such saltwater disposal well and related facilities
  for such access and use. 22 K. RECORDS AND ACCESS 23 24 25 The Operator shall
  maintain and shall permit each Non-Operator to access and copy 26 during
  normal business hours and at Non-Operator's cost and expense drilling and 27
  development reports and data customary in the oil and gas industry and
  related to operations 28 within the Contract Area under this JOA, including,
  without limitation, copies of regular 29 planned drilling and completion
  schedules; copies of drilling prognoses including planned 30 casing designs
  and setting depths, mud programs, and logging, coring, and petrophysical 31
  32 evaluation plans; copies of completion prognoses and plans including
  planned perforations 33 and stimulation prognoses; copies of survey plats for
  drilling locations and proration units 34 and copies of documents received
  from all regulatory bodies or other governmental agencies 35 having
  jurisdiction of the properties in the Contract Area. In addition, Operator
  shall provide 36 to all Consenting Parties in each well drilled on the Contract
  Area and other facility 37 installation activities daily reports setting
  forth daily drilling, completion, facility activity and 38 estimated cost and
  expenses of operations as often as generated, detailed mud logs, mud 39 40
  logging reports, drilling break, and show reports, as often as generated;
  well logs, including 41 any pressure or fluid (and gas) sample reports and
  micro-seismic reports; and daily 42 production reports, including oil, gas
  and water production along with any measured pressure 43 information.
  Operator shall also secure and store any conventional or sidewall core
  samples 44 recovered and shall grant Non-Operators access to such samples at
  all reasonable times upon 45 request therefor by any Non-Operator. The
  Operator shall keep Non-Operators fully 46 47 informed with respect to all
  wells within the Contract Area including planned wells, wells 48 being
  drilled, tested, completed or plugged, and shall provide all Non-Operators
  with all 49 drilling reports and all well information for wells drilled
  hereunder promptly after Operator's 50 receipt of such information. Each
  Non-Operator shall have rights to access the Contract Area 51 and operations
  at its own risk and expense to inspect and observe all operating activities.
  52 53 L. CONFLICTS WITH LAW 54 55 In the event this JOA or any other
  provision hereof is, or the operations contemplated 56 hereby are, found to
  be inconsistent with or contrary to any law rule, regulation or order, the 57
  latter shall be deemed to control and this JOA shall be regarded as modified
  accordingly, and 58 as so modified, to continue in full force and effect. 59
  60 M. ASSIGNMENTS 61 62 Notwithstanding any provision of this JOA to the
  contrary, where, under the terms of 63 this JOA, a party hereto is required to
  assign to one or more of the other parties its interest in 64 one or more
  leases or portion or part thereof, such assignment shall be made free and
  clear of 65 66 all overriding royalties, production payments, net profits
  interests, mortgages, liens or other 67 burdens placed thereon by the
  assigning party or resulting from its ownership and operation 68 of such
  lease or interest except such burdens with which the lease or interest was
  burdened 69 when made subject to this JOA, but otherwise without warranty of
  title, either express or 70 implied, except against those parties claiming
  by, through or under the assignor but not 71 otherwise, and assignee shall
  have the right of subrogation as to any warranties to which it 72 may be
  entitled. 73 74 - 17e -

  

 

	
  

  	
  2A.A.P.L. FORM
  610 - MODEL FORM OPERATING AGREEMENT - 1989 I N. DISBURSEMENTS 4 3 If
  Non-Operator elects to not take in kind its share of Oil and Gas produced
  from the 5 Contract Area, Operator shall market Non-Operator's share of Oil
  and Gas produced on the 6 same terms and conditions as Operator markets its
  share of Oil and Gas produced, subject, 7 however, to Non-Operator's right to
  again take in-kind and market its share of Oil and Gas 8 produced as provided
  in Article V.I.G. At any time when Non-Operator's share of 9 production is
  being marketed by Operator on behalf of Non-Operator, Non-Operator may io
  require that it receive its pro rata share of the proceeds of sale of.
  roduction directly from the 12 purchaser thereof. In such event Operator
  shall in good faith exert its best efforts to facilitate 13 Non-Operator's
  right to receive its pro rata share of the proceeds of sale of production 14
  directly from the purchaser thereof. 15 16 0. TAXES 17 18 Operator shall pay
  or cause to be paid all taxes, either State or Federal, owing or 19 which may
  be payable on production from the Contract Area, whether in the form of a 20
  severance or production tax; provided, however, if at any time any party is
  taking its share of 21 22 production in-kind or is being paid for its share
  of production directly from the purchaser, 23 such party shall pay or cause
  to be paid said taxes as to such production. 24 P. METERING OF PRODUCTION 25
  26 If a diversity of the working interest ownership in production from a
  lease subject to this 27 28 JOA occurs as a result of operations by less than
  all parties pursuant to the provisions of this 29 JOA, it is agreed that the
  oil, gas or other hydrocarbons produced from the well or wells 30 Completed
  by the Consenting Party or Parties shall be separately measured by standard
  31 metering equipment to be properly tested periodically for accuracy, and
  that the setting of a 32 separate tank battery will not be required unless
  the purchaser of the production or a 33 governmental regulatory body having
  jurisdiction will not approve metering for separately 34 35 measuring the
  production. In the event of a transfer, sale, encumbrance or other
  disposition of 36 interest within the Contract Area by a party hereto which
  creates the necessity of separate 37 measurement of production, the party
  creating the necessity for such separate measurement 38 shall alone bear the
  cost of purchase, installation and operation of such facilities. 39 40 Q.
  BANKRUPTCY 41 42 If, following the granting of relief under the Bankruptcy
  Code to any party hereto as 43 debtor hereunder, this JOA should be held to
  be an executory contract within the meaning of 44 11 U.S.C. Section 365, then
  the Operator, or (if the Operator is the debtor in bankruptcy) any 45 other
  party, shall be entitled to a determination by debtor or any trustee or
  debtor within 46 thirty (30) days from the date an order for relief is
  entered under the Bankruptcy Code as to 47 48 the rejection or assumption of
  this JOA. In the event of an assumption, Operator or said 49 other party
  shall be entitled to adequate assurances as to future performance of debtor's
  so obligation hereunder and the protection of the interest of all other
  parties. 51 52 R. RIGHTS SUSPENDED 53 54 55 56 57 58 59 60 61 62 63 64 If a
  lien conferred in Article Vll.B. has been enforced, for so long as the
  affected party remains in default it shall have no further access to the
  Contract Area or information obtained in connection with operations hereunder
  and shall not be entitled to vote on any matter hereunder. As to any proposed
  operation in which it otherwise would have the right to participate, such
  party shall have the right to be a Consenting Party therein only if it pays
  the amount it is in default before the operation is commenced; otherwise, it
  automatically shall be deemed a Non-Consenting Party to that operation. The
  foregoing shall not apply to amounts being disputed in good faith and as to
  which the Non-Operator has delivered the Operator written notice. 65 S.
  MUTUALITY 66 67 The parties hereto acknowledge and declare that this JOA is
  the result of extensive 68 negotiations between themselves. Accordingly in
  the event of any ambiguity in this JOA, 69 there shall be no presumption that
  this instrument was prepared solely by either party hereto. 70 71 T.
  ADDITIONAL LANGUAGE TO ARTICLE V - OPERATOR 72 73 THE PRECEDING SENTENCE
  SHALL BE DEEMED CLEAR AND 74 CONSPICUOUS AND SATISFY THE EXPRESS NEGLIGENCE
  RULE. THE PARTIES - 17f

  

 

	
  

  	
  A.A.P.L. FORM
  610 - MODEL FORM OPERATING AGREEMENT - 1989 2 SHALL HAVE NO LIABILITY TO ONE
  ANOTHER FOR CONSEQUENTIAL OR 3 PUNITIVE DAMAGES ARISING FROM CLAIMS RELATED
  TO THIS JOA. 4 U. NON-CONSENT OPERATIONS 5 6 Notwithstanding an election by
  Consenting Parties in accordance with Article 7 VI.B.2(a) to designate one of
  the Consenting Parties to perform work as to which not all the 8 9 parties
  have elected to participate, upon the completion of such work, the Operator
  shall 10 assume operations over the resulting well or other property and
  perform such work in 11 accordance with this JOA. 12 13 14 V. MULTIPLE WELL
  PROPOSALS 15 16 No party to this Agreement shall propose the drilling of more
  than one well at a time, 17 nor shall any party to this Agreement propose the
  drilling of a well during the time that 18 another well is being drilled
  except: (1) by mutual consent of all parties hereto, or (2) if one 19 or more
  of said proposed wells are obligations necessary for the maintenance of any
  20 leasehold interest on acreage covered by this Agreement. 21 22 23 W. SUBSTITUTE
  WELL PROVISION 24 25 In the event any well (other than a Commitment Well, as
  defined in the Participation 26 Agreement) drilled hereunder is lost for any
  reason prior to being drilling to the proposed 27 total depth for such, or
  Operator has encountered during drilling mechanical conditions 28 which
  would, in Operator's opinion, make further drilling in any test well
  hereunder 29 30 impracticable or inadvisable, Operator may abandon said test
  well and thereafter may 31 commence operations for a substitute well for any
  such well (which has been lost or 32 abandoned) within ninety (90) days after
  abandonment, to the same proposed total depth, 33 drilled in the same quarter
  section (unless a different location is agreeable to both parties), 34 and
  drilled subject to the same terms and conditions as the well so lost or
  abandoned. Such 35 substitute well shall thereafter be considered as the
  originally proposed test well under this 36 Agreement. 37 38 39 X. WAIVER OF
  JURY TRIAL 40 41 THE PARTIES HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVE, 42
  TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT THAT 43 THEY MAY
  HAVE TO TRIAL BY JURY OF ANY CLAIM OR CAUSE OF ACTION, OR 44 IN ANY
  PROCEEDING, DIRECTLY OR INDIRECTLY BASED UPON OR ARISING 45 OUT OF THIS JOA
  (WHETHER BASED ON CONTRACT, TORT, OR ANY OTHER 46 47 THEORY). EACH PARTY (1)
  CERTIFIES THAT NO REPRESENTATIVE, AGENT, OR 48 ATTORNEY OF ANY OTHER PARTY
  HAS REPRESENTED, EXPRESSLY OR 49 OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT,
  IN THE EVENT OF 50 LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (2)
  51 ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HAVE BEEN INDUCED TO 52 ENTER
  INTO THIS JOA BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS 53 AND
  CERTIFICATIONS IN THIS ARTICLE XVI.X. 54 55 56 Y. INTERPRETATION OF ARTICLE
  VI.D. 57 58 Notwithstanding anything in this JOA to the contrary, for
  purposes of Article VI.D, 59 when calculating the percentage of parties that
  have given their written consent under Article 60 VI.D, such calculation
  shall include the interests and elections of all parties owning an 61
  interest in Oil and Gas or Oil and Gas Leases in the Contract Area,
  regardless of whether or 62 63 not such parties are signatories to this JOA.
  64 65 66 67 68 69 70 71 72 73 74  -17g

  

 

 

 

	
  

  	
  A.A.P.L. FORM
  610 - MODEL FORM OPERATING AGREEMENT - 1989 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 warrant, 4 Operating
  Agreement, as published in computerized form by Forms On A Disk, Inc. No
  changes, alterations, or 5 Articles have been made to the form. OPERATOR By
  Type or print name Title Date Tax ID or S.S. No. NON-OPERATORS By ATTEST OR
  WITNESS: 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29
  30 31 32 33 34 35 36 37 - 18 -

  

 

	
  

  	
  Type or print
  name Title Date Tax ID or S.S. No. By Type or print name Title Date Tax ID or
  S.S. No. By Type or print name Title Date Tax ID or S.S. No.

  

 

	
  

  	
  A.A.P.L. FORM
  610 - MODEL FORM OPERATING AGREEMENT - 1989 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 ) ss. 8 County of 9 This instrument was acknowledged before me on
  10 by 11 12 (Seal, if any) 13 Title (and Rank) 14 My commission expires: 15
  16 Acknowledgment in representative capacity: 17 State of 18 ) ss. 19 County
  of 20 This instrument was acknowledged before me on 21 by as 22 23 (Seal, if
  any) 24 of Title (and Rank) 25 My commission expires: 26 27 28 29 30 31 32 33
  34 35 36 37 - 19 -

  

 

	
  

  	
  EXHIBIT
  "A" Attached to and made a part of that certain Operating Agreement
  dated effective the day of 201, by and between , Operator, and ,
  Non-Operator. L DESCRIPTION OF LANDS SUBJECT TO THIS AGREEMENT (insert
  description of spacing unit) IL RESTRICTIONS, IF ANY, AS TO DEPTHS,
  FORMATIONS OR SUBSTANCES There are no restrictions. M. PERCENTAGES OF PARTIES
  TO THIS AGREEMENT WI OWNER WI % Orion Exploration Partners, LLC 55% Evolution
  Petroleum OK, Inc. 45% 100.00000% subject, however, to revisions in
  accordance with this Agreement and any Participation Agreement. IV. ADRESSES
  OF THE PARTIES FOR NOTICE PURPOSES Orion Exploration Partners, LLC 4870 S.
  Lewis Ave., Ste. 240 Tulsa, OK 74105 (918) 492-0254 Phone (918) 492-0263 Fax
  Evolution Petroleum OK, Inc. 2500 City West Blvd., Suite 1300 Houston, Texas
  77042 (713) 935-0122 Phone (713) 935-0199 Fax Prepared by (_/ /_)

  

 

	
  

  	
  COPAS 2005
  Accounting Procedure Recommended by COPAS 
  copas EXHIBIT "C- " ACCOUNTING PROCEDURE  I I Attached to and made part of  that Operating Aereement dated .20 • by and
  between  2 3 4 5 6 7 8  INT OPERATIONS  9 10 11 12 13 14 15 16 17 18 19 20 21 22 23
  24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49
  50 51 52 53 54 55 56 57 58 59 60 61 62 63 64 65 F THE PARTIES FAIL TO SELECT
  EITHER ONE OF COMPETING "ALTERNATIVE" PROVISIONS, OR SELECT ALL THE
  COMPETING "ALTERNATIVE" PROVISIONS, ALTERNATIVE 1 IN EACH SUCH
  INSTANCE SHALL BE DEEMED TO HAVE BEEN ADOPTED BY TILE PARTIES AS A RESULT OF
  ANY SUCH OMISSION OR DUPLICATE NOTATION. IN THE EVENT THAT ANY
  "OPTIONAL" PROVISION OF THIS ACCOUNTING PROCEDURE IS NOT ADOPTED BY
  THE PARTIES TO THE AGREEMENT BY A TYPED, PRINTED OR HANDWRITTEN INDICATION,
  SUCH PROVISION SHALL NOT FORM A PART OF THIS ACCOUNTING PROCEDURE, AND NO
  INFERENCE SHALL BE MADE CONCERNING THE INTENT OF THE PARTIES IN SUCH EVENT.
  1. DEFINITIONS All terms used in this Accounting Procedure shall have the
  following meaning, unless otherwise expressly defined in the Agreement
  "Affiliate" means for a person, another person that controls, is
  controlled by, or is under common control with that person. In this
  definition, (a) control means the ownership by one person, directly or
  indirectly, of more than fifty percent (50%) of the voting securities of a
  corporation or, for other persons, the equivalent ownership interest (such as
  partnership interests), and (b) "person" means an individual,
  corporation, partnership, trust, estate, unincorporated organization,
  association, or other legal entity. "Agreement" means the operating
  agreement, farmout agreement, or other contract between the Parties to which
  this Accounting Procedure is attached. "Controllable Material"
  means Material that, at the time of acquisition or disposition by the Joint
  Account, as applicable, is so classified in the Material Classification
  Manual most recently recommended by the Council of Petroleum Accountants
  Societies (COPAS). "Equalized Freight" means the procedure of
  charging transportation cost to the Joint Account based upon the distance
  from the nearest Railway Receiving Point to the property. "Excluded
  Amount" means a specified excluded trucking amount most recently
  recommended by COPAS. "Field Office" means a structure, or portion
  of a structure, whether a temporary or permanent installation, the primary
  function of which is to directly serve daily operation and maintenance
  activities of the Joint Property and which serves as a staging area for
  directly chargeable field personnel. "First Level Supervision"
  means those employees whose primary function in Joint Operations is the
  direct oversight of the Operator's field employees and/or contract labor
  directly employed On-site in a field operating capacity. First Level
  Supervision functions may include, but are not limited to: Responsibility for
  field employees and contract labor engaged in activities that can include
  field operations, maintenance, construction, well remedial work, equipment
  movement and drilling Responsibility for day-to-day direct oversight of rig
  operations Responsibility for day-to-day direct oversight of construction
  operations Coordination of job priorities and approval of work procedures
  Responsibility for optimal resource utilization (equipment, Materials,
  personnel) Responsibility for meeting production and field operating expense
  targets Representation of the Parties in local matters involving community,
  vendors, regulatory agents and landowners, as an incidental part of the
  supervisor's operating responsibilities Responsibility for all emergency
  responses with field staff Responsibility for implementing safety and
  environmental practices Responsibility for field adherence to company policy
  Responsibility for employment decisions and performance appraisals for field
  personnel Oversight of sub-groups for field functions such as electrical,
  safety, environmental, telecommunications, which may have group  65 66COPYRIGHT 0 2005 by Council of
  Petroleum Accountants Societies, Inc. (COPAS) 21 or team leaders. "Joint
  Account" means the account showing the charges paid and credits received
  in the conduct of the Joint Operations that are to be shared by the Parties,
  but does not include proceeds attributable to hydrocarbons and by-products
  produced under the Agreement. "Joint Operations" means all
  operations necessary or proper for the exploration, appraisal, development,
  production, protection, maintenance, repair, abandonment, and restoration of
  the Joint Property.

  

 

	
  

  	
  COPAS 2005
  Accounting Procedure Recommended by COPAS, Inc. copas 1 "Joint
  Property" means the real and personal property subject to the Agreement
  2 3 "Laws" means any laws, rules, regulations, decrees, and orders
  of the United Stales of America or any state thereof and all other 4
  governmental bodies, agencies, and other authorities having jurisdiction over
  or affecting the provisions contained in or the transactions 5 contemplated
  by the Agreement or the Parties and their operations, whether such laws now
  exist or are hereafter amended, enacted, 6 promulgated or issued. 7 8
  "Material" means personal property, equipment, supplies, or
  consumables acquired or held for use by the Joint Property. 9 10 "Non-Operators"
  means the Parties to the Agreement other than the Operator. 11 12
  "Offshore Facilities" means platforms, surface and subsea
  development and production systems, and other support systems such as oil and
  13 gas handling facilities, living quarters, offices, shops, cranes,
  electrical supply equipment and systems, fuel and water storage and piping,
  14 heliport, marine docking installations, communication facilities,
  navigation aids, and other similar facilities necessary in the conduct of 15
  offshore operations, all of which are located offshore. 16 17
  "Off-site" means any location that is not considered On-site as
  defined in this Accounting Procedure. 18 19 "On-site" means on the
  Joint Property when in direct conduct of Joint Operations. The term
  "On-site" shall also include that portion of 20 Offshore
  Facilities, Shore Base Facilities, fabrication yards, and staging areas from
  which Joint Operations are conducted, or other 21 facilities that directly
  control equipment on the Joint Property, regardless of whether such
  facilities are owned by the Joint Account. 22 23 "Operator" means
  the Party designated pursuant to the Agreement to conduct the Joint
  Operations. 24 25 "Parties" means legal entities signatory to the
  Agreement or their successors and assigns. Parties shall be referred to
  individually as 26 27 28 "Participating Interest" means the
  percentage of the costs and risks of conducting an operation under the
  Agreement that a Party agrees, 29 or is otherwise obligated, to pay and bear.
  30 31 "Participating Party" means a Party that approves a proposed
  operation or otherwise agrees, or becomes liable, to pay and bear a share of
  32 the costs and risks of conducting an operation under the Agreement 33 34
  "Personal Expenses" means reimbursed costs for travel and temporary
  living expenses. 35 36 "Railway Receiving Point" means the railhead
  nearest the Joint Property for which freight rates are published, even though
  an actual 37 railhead may not exist. 38 39 "Shore Base Facilities"
  means onshore support facilities that during Joint Operations provide such
  services to the Joint Property as a 40 receiving and transshipment point for
  Materials; debarkation point for drilling and production personnel and
  services; communication, 41 scheduling and dispatching center, and other
  associated functions serving the Joint Property. 42 43 "Supply
  Store" means a recognized source or common stock point for a given
  Material item. 44 45 "Technical Services" means services providing
  specific engineering, geoscience, or other professional skills, such as those
  performed by 46 engineers, geologists, geophysicists, and technicians,
  required to handle specific operating conditions and problems for the benefit
  of Joint 47 Operations; provided, however, Technical Services shall not
  include those functions specifically identified as overhead under the second
  48 paragraph of the introduction of Section III (Overhead). Technical
  Services may be provided by the Operator, Operator's Affiliate, Non- 49
  Operator, Non-Operator Affiliates, and/or third parties. 50 51 2. STATEMENTS
  AND BILLINGS 52 53 The Operator shall bill Non-Operators on or before the
  last day of the month for their proportionate share of the Joint Account for
  the 54 preceding month. Such bills shall be accompanied by statements that
  identify the AFE (authority for expenditure), lease or facility, and all 55
  charges and credits summarized by appropriate categories of investment and
  expense. Controllable Material shall be separately identified 56 and fully
  described in detail, or at the Operator's option, Controllable Material may
  be summarized by major Material classifications. 57 Intangible drilling
  costs, audit adjustments, and unusual charges and credits shall be separately
  and clearly identified. 58 59 The Operator may make available to
  Non-Operators any statements and bills required under Section 1.2 and/or
  Section I.3.A (Advances 60 and Payments by the Parties) via email, electronic
  data interchange, intemet websites or other equivalent electronic media in
  lieu of paper 61 copies. The Operator shall provide the Non-Operators
  instructions and any necessary information to access and receive the
  statements and 62 bills within the timeframes specified herein. A statement
  or billing shall be deemed as delivered twenty-four (24) hours (exclusive of
  63 weekends and holidays) after the Operator notifies the Non-Operator that
  the statement or billing is available on the website and/or sent via 64 email
  or electronic data interchange transmission. Each Non-Operator individually
  shall elect to receive statements and billings 65 electronically, if
  available from the Operator, or request paper copies. Such election may be
  changed upon thirty (30) days prior written 66 notice to the Operator. 65
  66COPYRIGHT 0 2005 by Council of Petroleum Accountants Societies, Inc.
  (COPAS) 2

  

 

	
  

  	
  COPAS 2005
  Accounting Procedure Recommended by COPAS, Inc. copas 1 3. ADVANCES AND
  PAYMENTS BY THE PARTIES 2 3 A. Unless otherwise provided for in the
  Agreement, the Operator may require the Non-Operators to advance their share
  of the estimated 4 cash outlay for the succeeding month's operations within
  fifteen (15) days after receipt of the advance request or by the first day of
  5 the month for which the advance is required, whichever is later. The
  Operator shall adjust each monthly billing to reflect advances 6 received
  from the Non-Operators for such month. If a refund is due, the Operator shall
  apply the amount to be refunded to the 7 subsequent month's billing or
  advance, unless the Non-Operator sends the Operator a written request for a
  cash refund. The Operator 8 shall remit the refund to the Non-Operator within
  fifteen (15) days of receipt of such written request. 9 10 B. Except as
  provided below, each Party shall pay its proportionate share of all bills in
  full within fifteen (15) days of receipt date. If 11 payment is not made
  within such time, the unpaid balance shall bear interest compounded monthly
  at the prime rate published by the 12 Wall Street Journal on the first day of
  each month the payment is delinquent, plus three percent (3%), per annum, or
  the maximum 13 contract rate permitted by the applicable usury Laws governing
  the Joint Property, whichever is the lesser, plus attorney's fees, court 14
  costs, and other costs in connection with the collection of unpaid amounts.
  If the Wall Street Journal ceases to be published or 15 discontinues
  publishing a prime rate, the unpaid balance shall bear interest compounded
  monthly at the prime rate published by the 16 Federal Reserve plus three
  percent (3%), per annum. Interest shall begin accruing on the first day of
  the month in which the payment 17 was due. Payment shall not be reduced or
  delayed as a result of inquiries or anticipated credits unless the Operator
  has agreed. 18 Notwithstanding the foregoing, the Non-Operator may reduce
  payment, provided it furnishes documentation and explanation to the 19
  Operator at the time payment is made, to the extent such reduction is ,sasod
  by: 20 21 (1) being billed at an incorrect working interest or Participating
  Interest that is higher than such Non-Operator's actual working 22 interest
  or Participating Interest, as applicable; or 23 (2) being billed for a
  project or AFE requiring approval of the Parties under the Agreement that the
  Non-Operator has not approved 24 or is not otherwise obligated to pay under
  the Agreement or 25 (3) being billed for a property in which the Non-Operator
  no longer owns a working interest, provided the Non-Operator has 26 furnished
  the Operator a copy of the recorded assignment or letter in-lieu. Notwithstanding
  the foregoing, the Non-Operator 27 shall remain responsible for paying bills
  attributable to the interest it sold or transferred for any bills rendered
  during the thirty 28 (30) day period following the Operator's receipt of such
  written notice; or 29 (4) charges outside the adjustment period, as provided
  in Section 1.4 (Adjustments). 30 31 4. ADJUSTMENTS 32 33 A. Payment of any
  such bills shall not prejudice the right of any Party to protest or question
  the correctness thereof; however, all bills 34 I and statements,
  inaluding-payeaf-stasesnestar rendered during any calendar year shall
  conclusively be presumed to be true and correct, 35 with respect only to
  expenditures, after twenty-four (24) months following the end of any such
  calendar year, unless within said 36 period a Party takes specific detailed
  written exception thereto making a claim for adjustment. The Operator shall
  provide a response 37 to all written exceptions, whether or not contained in
  an audit report, within the time periods prescribed in Section 1.5
  (Expenditure 38 Audits). 39 40 B. All adjustments initiated by the Operator,
  except those described in items (1) through (4) of this Section 1.4.B, are
  limited to the 41 twenty-four (24) month period following the end of the calendar
  year in which the original charge appeared or should have appeared 42 1 on
  the Operator's Joint Account statement ef-payeet-statement—Adjustments that
  may be made beyond the twenty-four (24) month 43 period are limited to
  adjustments resulting from the following: 44 45 (1) a physical inventory of
  Controllable Material as provided for in Section V (Inventories of
  Controllable Material), or 46 (2) an offsetting entry (whether in whole or in
  part) that is the direct result of a specific joint interest audit exception
  granted by the 47 Operator relating to another property, or 48 (3) a
  government/regulatory audit, or 49 (4) a working interest ownership or
  Participating Interest adjustment. 50 51 5. EXPENDITURE AUDITS 52 53 A. A
  Non-Operator, upon written notice to the Operator and all other
  Non-Operators, shall have the right to audit the Operator's 54 accounts and
  records relating to the Joint Account within the twenty-four (24) month
  period following the end of such calendar year in 55 which such bill was rendered;
  however, conducting an audit shall not extend the time for the taking of
  written exception to and the 56 adjustment of accounts as provided for in
  Section 1.4 (Adjustments). Any Party that is subject to payout accounting
  under the 57 Agreement shall have the right to audit the accounts and records
  of the Party responsible for preparing the payout statements, or of 58 the
  Party furnishing information to the Party responsible for preparing payout
  statements. Audits of payout accounts may include the 59 volumes of
  hydrocarbons produced and saved and proceeds received for such hydrocarbons
  as they pertain to payout accounting 60 I led under the Agreement. Audits of
  a payout account shall- may be conductal 65 66COPYRIGHT 0 2005 by Council of
  Petroleum Accountants Societies, Inc. (COPAS) 3

  

 

	
  

  	
  61 62 63 64 65
  66 twenty-four (24) month period following the end of the calendar year in
  which the payout statement was rendered. Where there are two or more
  Non-Operators, the Non-Operators shall make every reasonable effort to
  conduct a joint audit in a manner that will result in a minimum of
  inconvenience to the Operator. The Operator shall bear no portion of the
  Non-Operators' audit cost incurred under this paragraph unless agreed to by
  the Operator. The audits shall not be conducted more than once each year
  without prior approval of the Operator, except upon the resignation or
  removal of the Operator, and shall be made at the expense of 65 66COPYRIGHT 0
  2005 by Council of Petroleum Accountants Societies, Inc. (COPAS) 4

  

 

	
  

  	
  COPAS 2005
  Accounting Procedure Recommended by COPAS, Inc. c op a s 1 those
  Non-Operators approving such audit. 2 3 The Non-Operator leading the audit
  (hereinafter "lead audit company") shall issue the audit report
  within ninety (90) days after 4 completion of the audit testing and analysis;
  however, the ninety (90) day time period shall not extend the twenty-four
  (24) month 5 requirement for taking specific detailed written exception as
  required in Section 1.4.A (Adjustments) above. All claims shall be 6
  supported with sufficient documentation. 7 8 A timely filed written exception
  or audit report containing written exceptions (hereinafter "written
  exceptions") shall, with respect to 9 the claims made therein, preclude
  the Operator from asserting a statute of limitations defense against such
  claims, and the Operator to hereby waives its right to assert any statute of
  limitations defense against such claims for so long as any Non-Operator
  continues to comply with the deadlines for resolving exceptions provided in
  this Accounting Procedure. If the Non-Operators fail to comply with 12 the
  additional deadlines in Section I.5.13 or I.5.C, the Operator's waiver of its
  rights to assert a statute of limitations defense against 13 the claims
  brought by the Non-Operators shall lapse, and such claims shall then be
  subject to the applicable statute of limitations, 14 provided that such
  waiver shall not lapse in the event that the Operator has failed to comply
  with the deadlines in Section L5.B or 15 I.5.C, 16 17 B. The Operator shall
  provide a written response to all exceptions in an audit report within one
  hundred eighty (180) days after Operator 18 receives such report. Denied
  exceptions should be accompanied by a substantive response. If the Operator
  fails to provide substantive 19 response to an exception within this one
  hundred eighty (180) day period, the Operator will owc interest on that
  exception or portion 20 thereof if ultimately granted, from the date it
  received the audit report. Interest shall be calculated using the rate set
  forth in Section 21 I.3.B (Advances and Payments by the Parties). 22 23 C.
  The lead audit company shall reply to the Operator's response to an audit
  report within ninety (90) days of receipt, and the Operator 24 shall reply to
  the lead audit company's follow-up response within ninety (90) days of
  receipt; provided, however, each Non-Operator 25 shall have the right to
  represent itself if it disagrees with the lead audit company's position or
  believes the lead audit company is not 26 adequately fulfilling its duties.
  Unless otherwise provided for in Section I.5.E, if the Operator fails to
  provide substantive response 27 to an exception within this ninety (90) day
  period, the Operator will owe interest on that exception or portion thereof
  if ultimately 28 granted, from the date it received the audit report Interest
  shall be calculated using the rate set forth in Section 1.3.B (Advances and
  29 Payments by the Parties). 30 31 D. If any Party fails to meet the
  deadlines in Sections I.5.B or I.S.0 or if any audit issues are outstanding
  fifteen (15) months after 32 Operator receives the audit report, the Operator
  or any Non-Operator participating in the audit has the right to call a
  resolution 33 meeting, as net forth in this Section I.5.D or it may invoke
  the dispute resolution procedures included in the Agreement, if applicable.
  34 The meeting will require one month's written notice to the Operator and
  all Non-Operators participating in the audit. The meeting 35 shall be held at
  the Operator's office or mutually agreed location, and shall be attended by
  representatives of the Parties with 36 authority to resolve such outstanding
  issues. Any Party who fails to attend the resolution meeting shall be bound
  by any resolution 37 reached at the meeting. The lead audit company will make
  good faith efforts to coordinate the response and positions of the 38
  Non-Operator participants throughout the resolution process; however, each
  Non-Operator shall have the right to represent itself. 39 Attendees will make
  good faith efforts to resolve outstanding issues, and each Party will be
  required to present substantive information 40 supporting its position. A
  resolution meeting may be held as often as agreed to by the Parties. Issues
  unresolved at one meeting may 41 be discussed at subsequent meetings until
  each such issue is resolved. 42 43 If the Agreement contains no dispute
  resolution procedures and the audit issues cannot be resolved by negotiation,
  the dispute shall 44 be submitted to mediation. In such event, promptly
  following one Party's written request for mediation, the Parties to the
  dispute 45 shall choose a mutually acceptable mediator and share the costs of
  mediation services equally. The Parties shall each have present 46 at the
  mediation at least one individual who has the authority to settle the
  dispute. The Parties shall make reasonable efforts to 47 ensure that the
  mediation commences within sixty (60) days of the date of the mediation
  request Notwithstanding the above, any 48 Party may file a lawsuit or
  complaint (I) if the Parties are unable after reasonable efforts, to commence
  mediation within sixty (60) 49 days of the date of the mediation request, (2)
  for statute of limitations reasons, or (3) to seek a preliminary injunction
  or other 50 provisional judicial relief, if in its sole judgment an
  injunction or other provisional relief is necessary to avoid irreparable
  damage or 51 to preserve the stasis quo. Despite such action, the Parties
  shall continue to try to resolve the dispute by mediation. 65 66COPYRIGHT 0
  2005 by Council of Petroleum Accountants Societies, Inc. (COPAS) 5

  

 

	
  

  	
  52 53 I E. XB
  (Optional Provision — Forfeiture Penalties) 54 If the Non-Operators fail to
  meet the deadline in Section 1.5.C, any unresolved exceptions that were not
  addressed by the Non- 55 Operators within one (I) year following receipt of
  the last substantive response of the Operator shall be deemed to have been 56
  withdrawn by the Non-Operators, If the Operator fails to meet the deadlines
  in Section 1.5.B or 15.C, any unresolved exceptions that 57 were not
  addressed by the Operator within one (1) year following receipt of the audit
  report or receipt of the last substantive response 58 of the Non-Operators,
  whichever is later, shall be deemed to have been granted by the Operator and
  adjusonents shall be made, 59 without interest to the Joint Account. 60 61 6.
  APPROVAL BY PARTIES 62 63 A GENERAL MATTERS 64 65 Where an approval or other
  agreement of the Parties or Non-Operators is expressly required under other Sections
  of this Accounting 66 Procedure and if the Agreement to which this Accounting
  Procedure is attached contains no contrary provisions in regard thereto, the
  65 66COPYRIGHT 0 2005 by Council of Petroleum Accountants Societies, Inc.
  (COPAS) 6

  

 

	
  

  	
  COPAS 2005
  Accounting Procedure Recommended by COPAS, Inc. c op a s Operator shall
  notify all Non-Operators of the Operator's proposal and the agreement or
  approval of a majority in interest of the 2 Non-Operators shall be
  controlling on all Non-Operators. 3 4 This Section L6.A applies to specific
  situations of limited duration where a Party proposes to change the
  accounting for charges from 5 that prescribed in this Accounting Procedure.
  This provision does not apply to amendments to this Accounting Procedure,
  which are 6 covered by Section L6.B. 7 8 B. AMENDMENTS 9 10 If the Agreement
  to which this Accounting Procedure is attached contains no contrary
  provisions in regard thereto, this Accounting 11 I Procedure can be amended
  by an affirmative vote of two ( 2) or more non-affiliated Parties, one of
  which is the Operator, 12 I having a combined working,interest of at Istsai
  seventy-five -which approval be At g(" on r'arties, %) 13 14 provided,
  however, approval of at least one (1) Non-Operator shall be required. 15 C.
  AFFILIATES 16 17 For the purpose of administering the voting procedures of
  Sections I.6.A and 1.6.B, if Parties to this Agreement are Affiliates of each
  18 19 other, then such Affiliates shall be combined and treated as a single
  Party having the combined working interest or Participating Interest of such
  Affiliates. 20 21 For the purposes of administering the voting procedures in
  Section 1.6.A, if a Non-Operator is an Affiliate of the Operator, votes 22
  under Section L6.A shall require the majority in interest of the
  Non-Operator(s) after excluding the interest of the Operator's 23 Affiliate.
  24 25 26 H. DIRECT CHARGES 27 28 The Operator shall charge the Joint Account
  with the following items: 29 30 1. RENTALS AND ROYALTIES 31 Lease rentals and
  royalties paid by the Operator, on behalf of all Parties, for the Joint
  Operations. 32 33 2. LABOR 34 35 A. Salaries and wages, including incentive
  compensation programs as set forth in COPAS MFI-37 ("Chargeability of
  Incentive 36 37 Compensation Programs"), for. 38 39 (1) Operator's field
  employees directly employed On-site in the conduct of Joint Operations, 40
  (2) Operator's employees directly employed on Shore Base Facilities, Offshore
  Facilities, or other facilities serving the Joint 41 Property if such costs
  are not charged under Section 11.6 (Equipment and Facilities Furnished by
  Operator) or are not a 42 43 function covered under Section III (Overhead),
  44 (3) Operator's employees providing First Level Supervision, 45 46 47 (4)
  Operator's employees providing On-site Technical Services for the Joint
  Property if such charges are excluded from the overhead rates in Section III
  (Overhead), 48 49 50 (5) Operator's employees providing Off-site Technical
  Services for the Joint Property if such charges are excluded from the 51
  overhead rates in Section III (Overhead). 52 Charges for the Operator's
  employees identified in Section II.2.A may be made based on the employee's
  actual salaries and wages, 53 or in lieu thereot a day rate representing the
  Operator's average salaries and wages of the employee's specific job
  category. 54 55 Charges for personnel chargeable under this Section II.2.A
  who are foreign nationals shall not exceed comparable compensation paid 56 to
  an equivalent U.S. employee pursuant to this Section 0.2, unless otherwise
  approved by the Parties pursuant to Section 57 I.6.A (General Matters). 58 59
  B. Operator's cost of holiday, vacation, sickness, and disability benefits,
  and other customary allowances paid to employees whose 60 salaries and wages
  are chargeable to the Joint Account under Section 11.2.A, excluding severance
  payments or other termination 61 allowances. Such costs under this Section
  II.2.B may be charged on a "when and as-paid basis" or by
  "percentage assessment" on the 62 amount of salaries and wages
  chargeable to the Joint Account under Section 11.2.k If percentage assessment
  is used, the rate shall 63 be based on the Operator's cost experience. 64 66
  C. Expenditures or contributions made pursuant to assessments imposed by
  governmental authority that are applicable to costs chargeable to the Joint
  Account under Sections 11.2.A and B. 65 66COPYRIGHT 0 2005 by Council of
  Petroleum Accountants Societies, Inc. (COPAS) 7

  

 

	
  

  	
  COPAS 2005
  Accounting Procedure Recommended by COPAS, Inc. Copas 1 D. Personal Expenses
  of personnel whose salaries and wages are chargeable to the Joint Account
  under Section II.2.A when the 2 expenses are incurred in connection with
  directly chargeable activities. 3 4 E. Reasonable relocation costs incurred
  in transferring to the Joint Property personnel whose salaries and wages are
  chargeable to the 5 Joint Account under Section 112.A. Notwithstanding the
  foregoing, relocation costs that result from reorganization or merger of a 6
  Party, or that are for the primary benefit of the Operator, shall not be
  chargeable to the Joint Account. Extraordinary relocation 7 costs, such as
  those incurred as a result of transfers from remote locations, such as Alaska
  or overseas, shall not be charged to the 8 Joint Account unless approved by
  the Parties pursuant to Section I.6A (General Matters). 9 10 F. Training
  costs as specified in COPAS MFI-35 ("Charging of Training Costs to the
  Joint Account") for personnel whose salaries and 11 wages are chargeable
  under Section MIA_ This training charge shall include the wages, salaries,
  training course cost, and Personal 12 Expenses incurred during the training
  session. The training cost shall be charged or allocated to the property or
  properties directly 13 benefiting from the training. The cost of the training
  course shall not exceed prevailing commercial rates, where such rates are 14
  available. 15 16 G. Operator's current cost of established plans for employee
  benefits, as described in COPAS MFI-27 ("Employee Benefits Chargeable 17
  to Joint Operations and Subject to Percentage Limitation"), applicable
  to the Operator's labor costs chargeable to the Joint Account 18 under
  Sections I12.A and B based on the Operator's actual cost not to exceed the
  employee benefits limitation percentage most 19 recently recommended by
  COPAS. 20 21 H. Award payments to employees, in accordance with COPAS MFI-49
  ("Awards to Employees and Contractors") for personnel whose 22
  salaries and wages are chargeable under Section 112.A. 23 24 3. MATERIAL 25
  26 Material purchased or furnished by the Operator for use on the Joint
  Property in the conduct of Joint Operations as provided under Section 27 IV
  (Material Purchases, Transfers, and Dispositions), Only such Material shall
  be purchased for or transferred to the Joint Property as 28 may be required
  for immediate use or is reasonably practical and consistent with efficient
  and economical operations. The accumulation 29 of surplus stocks shall be
  avoided. 30 31 4. TRANSPORTATION 32 33 k Transportation of the Operator's,
  Operator's Affiliate's, or contractor's personnel necessary for Joint
  Operations. 34 35 B. Transportation of Material between the Joint Property
  and another property, or from the Operator's warehouse or other storage point
  36 to the Joint Property, shall be charged to the receiving property using
  one of the methods listed below. Transportation of Material 37 from the Joint
  Property to the Operator's warehouse or other storage point shall be paid for
  by the Joint Property using one of the 38 methods listed below: 39 40 (I) If
  the actual trucking charge is less than or equal to the Excluded Amount the
  Operator may charge actual trucking cost or a 41 theoretical charge from the
  Railway Receiving Point to the Joint Property. The basis for the theoretical
  charge is the per 42 hundred weight charge plus fuel surcharges from the
  Railway Receiving Point to the Joint Property . The Operator shall 43
  consistently apply the selected alternative. 44 45 (2) If the actual trucking
  charge is greater than the Excluded Amount, the Operator shall charge
  Equalized Freight. Accessorial 46 charges such as loading and unloading
  costs, split pick-up costs, detention, call out charges, and permit fees
  shall be charged 47 directly to the Joint Property and shall not be included
  when calculating the Equalized Freight. 48 49 5. SERVICES 50 51 The cost of
  contract services, equipment, and utilities used in the conduct of Joint
  Operations, except for contract services, equipment, and 52 utilities covered
  by Section HI (Overhead), or Section 11.7 (Affiliates), or excluded under
  Section 11.9 (Legal Expense). Awards paid to 53 contractors shall be
  chargeable pursuant to COPAS MFI-49 ("Awards to Employees and
  Contractors"). 54 55 The costs of third party Technical Services are
  chargeable to the extent excluded from the overhead rates under Section 111
  (Overhead). 56 57 6. EQUIPMENT AND FACILITIES FURNISHED BY OPERATOR 58 59
  Mfg; rrilicattgl) aargegagcrIxfgagizrnent and facilities furnished by the
  Operator (La,, being equipment and facilities m excess 60 61 62 63 production
  facilities, Shore Base Facilities, Offshore Facilities, and Field Offices, at
  rates commensurate with the costs of ownership 64 and operation. The cost of
  Field Offices shall be chargeable to the extent the Field Offices provide direct
  service to personnel who 65 66COPYRIGHT 0 2005 by Council of Petroleum
  Accountants Societies, Inc. (COPAS) 8

  

 

	
  

  	
  65 are
  chargeable pursuant to Section 11.2.A (Labor). Such rates may include labor,
  maintenance, repairs, other operating expense, 66 insurance, taxes,
  depreciation using straight line depreciation method, and interest on gross
  investment less accumulated depreciation not to exceed  eight 
  percent ( S  %) per annum;
  provided, however, depreciation shall not be charged when the 65 66COPYRIGHT 0
  2005 by Council of Petroleum Accountants Societies, Inc. (COPAS) 9

  

 

	
  

  	
  COPAS 2005
  Accounting Procedure Recommended by COPAS, Inc. copas equipment and
  facilities investment have been fully depreciated. The rate may include an
  element of the estimated cost for abandonment, reclamation, and dismantlement
  Such rates shall not exceed the average commercial rates currently prevailing
  in the immediate area of the Joint Property. B. In lieu of charges in Section
  11.6.A above, the Operator may elect to use average commercial rates
  prevailing in the immediate area of the Joint Property, less twenty percent
  (20%). If equipment and facilities are charged under this Section 11.6.B, the
  Operator shall adequately document and support commercial rates and shall
  periodically review and update the rate and the supporting documentation. For
  automotive equipment, the Operator may elect to use rates published by the
  Petroleum Motor Transport Association (PMTA) or such other organization
  recognized by COPAS as the official source of rates. C. Saltwater disposal
  facilities, wells and related disposal Infrastructure may not be charged by
  Operator under this Section 6, but shall be chargeable to consenting parties
  under Article XVI.K of the Operating Agreement. 7. AFFILIATES A. Charges for
  an Affiliate's goods and/or services used in operations requiring an AFE or
  other authorization from the Non-Operators may be made without the approval
  of the Patties provided (i) the Affiliate is identified and the Affiliate
  goods and services are specifically detailed in the approved AFE or other
  authorization, and (ii) the total costs for such Affiliate's goods and
  services billed to such individual project do not exceed S 0.00 If the total
  costs for an Affiliate's goods and services charged to such individual
  project are not specifically detailed in the approved AFE or authorization or
  exceed such amount, charges for such Affiliate shall require approval of the
  Parties, pursuant to Section I.6.A (General Matters). B. For an Affiliate's
  goods and/or services used in operations not requiring an AFE or other
  authorization from the Non-Operators, charges for such Affiliate's goods and
  services shall require approval of the Parties, pursuant to Section I.6.A
  (General Matters), if the charges exceed $ 0.00 in a given calendar year. C.
  The cost of the Affiliate's goods or services shall not exceed average
  commercial rates prevailing in the area of the Joint Property, unless the
  Operator obtains the Non-Operators' approval of such rates. The Operator shall
  adequately document and support commercial rates and shall periodically
  review and update the rate and the supporting documentation; provided,
  however, documentation of commercial rates shall not be required if the
  Operator obtains Non-Operator approval of its Affiliate's rates or charges
  prior to billing Non-Operators for such Affiliate's goods and services.
  Notwithstanding the foregoing, direct charges for Affiliate-owned
  communication facilities or systems shall be made pursuant to Section 11.12
  (Communications). If the Parties fail to designate an amount in Sections
  II.7.A or 11.7.B, in each instance the amount deemed adopted by the Parties
  as a result of such omission shall be the amount established as the
  Operator's expenditure limitation in the Agreement If the Agreement does not
  contain an Operator's expenditure limitation, the amount deemed adopted by
  the Parties as a result of such omission shall be zero dollars ($ 0.00). 8.
  DAMAGES AND LOSSES TO JOINT PROPERTY All costs or expenses necessary for the
  repair or replacement of Joint Property resulting from damages or losses
  incurred, except to the extent such damages or losses result from a Party's
  or Parties' gross negligence or willful misconduct, in which case such Party
  or Parties shall be solely liable. The Operator shall famish the Non-Operator
  written notice of damages or losses incurred as soon as practicable after a
  report has been received by the Operator. 9. LEGAL EXPENSE Recording fees and
  costs of handling, settling, or otherwise discharging litigation, claims, and
  liens incurred in or resulting from operations under the Agreement, or
  necessary to protect or recover the Joint Property, to the extent permitted
  under the Agreement. Costs of the Operator's or Affiliate's legal staff or
  outside attorneys, including fees and expenses, are not chargeable unless
  approved by the Parties pursuant to Section I.6.A (General Matters) or
  otherwise provided for in the Agreement. Notwithstanding the foregoing
  paragraph, costs for procuring abstracts, fees paid to outside attorneys for
  title examinations (including preliminary, supplemental, shut-in royalty
  opinions, division order title opinions), and curative work shall be
  chargeable to the extent permitted as a direct charge in the Agreement 10.
  TAXES AND PERMITS All taxes and permitting fees of every kind and nature,
  assessed or levied upon or in connection with the Joint Property, or the
  production therefrom, and which have been paid by the Operator for the
  benefit of the Parties, including penalties and interest, except to the
  extent the penalties and interest result from the Operator's gross negligence
  or willful misconduct If ad valorem taxes paid by the Operator are based in
  whole or in part upon separate valuations of each Party's working interest, then
  notwithstanding any contrary provisions, the charges to the Parties will be
  made in accordance with the tax value generated by each Party's working
  interest 65 66COPYRIGHT 0 2005 by Council of Petroleum Accountants Societies,
  Inc. (COPAS) 10

  

 

	
  

  	
  COPAS 2005
  Accounting Procedure Recommended by COPAS, Inc. c op a s Costs of tax
  consultants or advisors, the Operator's employees, or Operator's Affiliate
  employees in matters regarding ad valorem or other tax matters, are not
  permitted as direct charges unless approved by the Parties pursuant to
  Section I.6.A (General Matters). Charges to the Joint Account resulting from
  sales/use tax audits, including extrapolated amounts and penalties and
  interest, are permitted, provided the Non-Operator shall be allowed to review
  the invoices and other underlying source documents which served as the basis
  for tax charges and to determine that the correct amount of taxes were
  charged to the Joint Account If the Non-Operator is not permitted to review
  such documentation, the sales/use tax amount shall not be directly charged
  unless the Operator can conclusively document the amount owed by the Joint
  Account 11. INSURANCE Net premiums paid for insurance required to be carried
  for Joint Operations for the protection of the Parties. f€ Joint Operations
  may not be are conducted at locations where the Operator acts as self-insurer
  in regard to its worker's compensation and employer's liability insurance.
  12. COMMUNICATIONS Costs of acquiring, leasing, installing, operating, repairing,
  and maintaining communication facilities or systems, including satellite,
  radio and microwave facilities, between the Joint Property and the Operator's
  office(s) directly responsible for field operations in accordance with the
  provisions of COPAS MFI-44 ("Field Computer and Communication
  Systems"). If the communications facilities or systems serving the Joint
  Property are Operator-owned, charges to the Joint Account shall be made as
  provided in Section 11.6 (Equipment and Facilities Furnished by Operator). If
  the communication facilities or systems serving the Joint Property are owned
  by the Operator's Affiliate, charges to the Joint Account shall not exceed
  average commercial rates prevailing in the area of the Joint Property. The
  Operator shall adequately document and support commercial rates and shall
  periodically review and update the rate and the supporting documentation. 13.
  ECOLOGICAL, ENVIRONMENTAL, AND SAFETY Costs incurred for Technical Services
  and drafting to comply with ecological, environmental and safety Laws or
  standards recommended by Occupational Safety and Health Administration (OSHA)
  or other regulatory authorities. All other labor and functions incurred for
  ecological, environmental and safety matters, including management,
  administration, and permitting, shall be covered by Sections 11.2 (Labor),
  II.5 (Services), or Section III (Overhead), as applicable. Costs to provide
  or have available pollution containment and removal equipment plus actual
  costs of control and cleanup and resulting responsibilities of oil and other
  spills as well as discharges from permitted outfalls as required by
  applicable Laws, or other pollution containment and removal equipment deemed
  appropriate by the Operator for prudent operations, are directly chargeable. 14.
  ABANDONMENT AND RECLAMATION Costs incurred for abandonment and reclamation of
  the Joint Property, including costs required by lease agreements or by Laws.
  15. OTHER EXPENDITURES Any other expenditure not covered or dealt with in the
  foregoing provisions of this Section 11 (Direct Charges), or in Section III
  (Overhead) and which is of direct benefit to the Joint Property and is
  incurred by the Operator in the necessary and proper conduct of the Joint
  Operations. Charges made under this Section 11.15 shall require approval of
  the Parties, pursuant to Section I.6.A (General Matters). III. OVERHEAD As
  compensation for costs not specifically identified as chargeable to the Joint
  Account pursuant to Section 11 (Direct Charges), the Operator shall charge
  the Joint Account in accordance with this Section IIL Functions included in
  the overhead rates regardless of whether performed by the Operator,
  Operator's Affiliates or third parties and regardless of location, shall
  include, but not be limited to, costs and expenses of warehousing, other than
  for warehouses that are jointly owned under this Agreement design and
  drafting (except when allowed as a direct charge under Sections II.13,
  M.1.A(ii), and 111.2, Option B) inventory costs not chargeable under Section
  V (Inventories of Controllable Material) 
  procurement administration accounting and auditing gas dispatching and
  gas chart integration 65 66COPYRIGHT 0 2005 by Council of Petroleum
  Accountants Societies, Inc. (COPAS) 11

  

 

	
  

  	
   COPAS 2005 Accounting Procedure Recommended
  by COPAS, Inc. Copas • human resources 2 • management 3 • supervision not
  directly charged under Section 112 (Labor) 4 • legal services not directly
  chargeable under Section 1L9 (Legal Expense) 5 • taxation, other than those
  costs identified as directly chargeable under Section 11.10 (Taxes and
  Permits) 6 • preparation and monitoring of permits and certifications;
  preparing regulatory reports; appearances before or meetings with 7
  governmental agencies or other authorities having jurisdiction over the Joint
  Property, other than On-site inspections; reviewing, 8 interpreting, or
  submitting comments on or lobbying with respect to Laws or proposed Laws. 9
  10 Overhead charges shall include the salaries or wages plus applicable
  payroll burdens, benefits, and Personal Expenses of personnel performing 11
  overhead functions, as well as office and other related expenses of overhead
  functions. 12 13 1. OVERHEAD—DRILLING AND PRODUCING OPERATIONS 14 15 As
  compensation for costs incurred but not chargeable under Section 11 (Direct
  Charges) and not covered by other provisions of this 16 Section III, the
  Operator shall charge on either 17 18 I Difla (Alternative 1) Fixed Rate
  Basis, Section 1111.B. 19 0 (Alternative 2) Percentage Basis, Section
  111.I.C. 20 21 A. TECHNICAL SERVICES 22 23 (i) Except as otherwise provided
  in Section 1113 (Ecological Environmental, and Safety) and Section 111.2
  (Overhead – Major 24 Construction and Catastrophe), or by approval of the
  Parties pursuant to Section I.6.A (General Matters), the salaries, wages, 25
  related payroll burdens and benefits, and Personal Expenses for On-site
  Technical Services, including third party Technical 26 Services: 27 28 I
  (Alternative 1— Direct) shall be charged direct to the Joint Account 29 30 0
  (Alternative 2 — Overhead) shall be covered by the overhead rates. 31 32 (ii)
  Except as otherwise provided in Section 11.13 (Ecological, Environmental, and
  Safety) and Section 111.2 (Overhead Major 33 Construction and Catastrophe),
  or by approval of the Parties pursuant to Section 1.6.A (General Matters),
  the salaries, wages, 34 related payroll burdens and benefits, and Personal
  Expenses for Off-site Technical Services, including third party Technical 35
  Services: 36 37 I BEEF --(Alternative 1 — All Overhead) shall be covered by
  the overhead rates. 38 39 0 (Alternative 2 — All Direct) shall be charged
  direct to the Joint Account 40 41 0 (Alternative 3 – Drilling Direct) shall
  be charged direct to the Joint Account, only to the extent such Technical
  Services 42 are directly attributable to drilling, redrilling, deepening, or
  sidetracking operations, through completion, temporary 43 abandonment, or
  abandonment if a dry hole. Off-site Technical Services for all other
  operations, including workover, 44 recompletion, abandonment of producing
  wells, and the construction or expansion of fixed assets not covered by
  Section 45 111.2 (Overhead - Major Construction and Catastrophe) shall be
  covered by the overhead rates. 46 47 Notwithstanding anything to the contrary
  in this Section m, Technical Services provided by Operator's Affiliates are
  subject to limitations 48 set forth in Section 11.7 (Affiliates). Charges for
  Technical personnel performing non-technical work shall not be governed by
  this Section 49 MIA, but instead governed by other provisions of this
  Accounting Procedure relating to the type of work being performed. 50 51 B.
  OVERHEAD—FIXED RATE BASIS 52 53 (1) The Operator shall charge the Joint
  Account at the following rates per well per month: 54 55 I Drilling Well Rate
  per month $ 8500.00 (prorated for less than a full month) 56 57 I Producing
  Well Rate per month $ 850.00 58 59 (2) Application of Overhead—Drilling Well
  Rate shall be as follows: 60 61 (a) Charges for onshore drilling wells shall
  begin on the spud date and terminate on the date the drilling and/or
  completion 62 equipment used on the well is released, whichever occurs later.
  Charges for offshore and inland waters drilling wells shall 63 begin on the
  date the drilling or completion equipment arrives on location and terminate
  on the date the drilling or completion 64 equipment moves off location, or is
  released, whichever occurs first. No charge shall be made during suspension
  of drilling 65 and/or completion operations for fifteen (15) or more
  consecutive calendar days. 65 66COPYRIGHT 0 2005 by Council of Petroleum
  Accountants Societies, Inc. (COPAS) 12

  

 

	
  

  	
  COPAS 2005
  Accounting Procedure Recommended by COPAS, Inc. c op a s (b) Charges for any
  well undergoing any type of workover, recompletion, and/or abandonment for a
  period of five (5) or more 2 consecutive work-days shall be made at the
  Drilling Well Rate. Such charges shall be applied for the period from date 3
  operations, with rig or other units used in operations, commence through date
  of rig or other unit release, except that no charges 4 shall be made during
  suspension of operations for fifteen (15) or more consecutive calendar days.
  5 6 (3) Application of Overhead—Producing Well Rate shall be as follows: 7
  (a) An active well that is produced, injected into for recovery or disposal,
  or used to obtain water supply to support operations for 9 any portion of the
  month shall be considered as a one-well charge for the entire month. 10 It
  (b) Each active completion in a multi-completed well shall be considered as a
  one-well charge provided each completion is 12 considered a separate well by
  the governing regulatory authority. 13 14 (c) A one-well charge shall be made
  for the month in which plugging and abandonment operations are completed on
  any well, 15 unless the Drilling Well Rate applies, as provided in Sections
  HI.1.B.(2)(a) or (b). This one-well charge shall be made whether 16 or not
  the well has produced. 17 18 (d) An active gas well shut in because of
  overproduction or failure of a purchaser, processor, or transporter to take
  production shall 19 be considered as a one-well charge provided the gas well
  is directly connected to a permanent sales outlet_ 20 21 (e) Any well not
  meeting the criteria set forth in Sections 111.1.B.(3) (a), (b), (c), or (d)
  shall not qualify for a producing overhead 22 charge. 23 24 (4) The well
  rates shall be adjusted on the first day of April each year following the
  effective date of the Agreement; provided, 25 however, if this Accounting
  Procedure is attached to or otherwise governing the payout accounting under a
  farrnout agreement, the 26 rates shall be adjusted on the first day of April
  each year following the effective date of such farmout agreement. The
  adjustment 27 shall be computed by applying the adjustment factor most recently
  published by COPAS. The adjusted rates shall be the initial or 28 amended
  rates agreed to by the Parties increased or decreased by the adjustment
  factor described herein, for each year from the 29 effective date of such
  rates, in accordance with COPAS MFI-47 ("Adjustment of Overhead
  Rates"). 30 31 I C-•-93.LERI4EAD—PERC-RML-4.Crre-BASIS 32 33 34 35 36 37
  38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 58 2.
  OVERHEAD—MAJOR CONSTRUCTION AND CATASTROPHE 59 60 To compensate the Operator
  for overhead costs incurred in connection with a Major Construction project
  or Catastrophe, the Operator 61 shall either negotiate a rate prior to the
  beginning of the project, or shall charge the Joint Account for overhead
  based on the following 62 rates for any Major Construction project in excess
  of the Operator's expenditure limit under the Agreement, or for any
  Catastrophe 63 regardless of the amount. If the Agreement to which this
  Accounting Procedure is attached does not contain an expenditure limit, Major
  64 Construction Overhead shall be assessed for any single Major Construction
  project costing in excess of $100,000 gross. 65 66COPYRIGHT 0 2005 by Council
  of Petroleum Accountants Societies, Inc. (COPAS) 13

  

 

	
  

  	
  COPAS 2005
  Accounting Procedure Recommended by COPAS, Inc. 1 Major Construction shall
  mean the construction and installation of fixed assets, the expansion of
  fixed assets, and any other project clearly 2 discernible as a fixed asset
  required for the development and operation of the Joint Property, or in the
  dismantlement, abandonment, 3 removal, and restoration of platforms,
  production equipment, and other operating facilities. 4 5 Catastrophe is
  defined as a sudden calamitous event bringing damage, loss, or destruction to
  property or the environment, such as an oil 6 spill, blowout, explosion,
  fire, storm, hurricane, or other disaster. The overhead rate shall be applied
  to those costs necessary to restore the Joint Property to the equivalent
  condition that existed prior tothe event 8 9 A. If the Operator absorbs the
  engineering, design and drafting costs related to the project: 10 11 I (I) 5
  % of total costs if such costs are less than $100,000; plus 12 13 I (2) 3 %
  of total costs in excess of $100,000 but less than $1,000,000; plus 14 15 I
  (3) 2 %of total costs in excess of $1,000,000. 16 17 B. If the Operator
  charges engineering, design and drafting costs related to the project
  directly to the Joint Account: 18 19 I (1) 3 % of total costs if such costs
  are less than $100,000; plus 20 21 I (2) 2 % of total costs in excess of
  $100,000 but less than $1,000,000; plus 22 23 I (3) 1 % of total costs in
  excess of $1,000,000. 24 25 Total cost shall mean the gross cost of any one
  project For the purpose of this paragraph, the component parts of a single Major
  Fii°c?Ccscti°nJI;2ject gie-1;gubc?,Irr`ea,' sees ately, 1,11,,leitgest
  oradnrp,lingmtesrvratzespoptirtritsdi,;.vgorkoai wellpstlirifga ter Aiinisrt
  2 27 units and downhole artificial lift equipment shall be excluded. For
  Catastrophes, the rates shall be applied to all costs associated with each 28
  single occurrence or event, 29 30 On each project, the Operator shall advise
  the Non-Operator(s) in advance which of the above options shall apply. 31 32
  For the purposes of calculating Catastrophe Overhead, the cost of drilling
  relief wells, substitute wells, or conducting other well operations 33
  directly resulting from the catastrophic event shall be included.
  Expenditures to which these rates apply shall not be reduced by salvage or 34
  insurance recoveries. Expenditures that qualify for Major Construction or
  Catastrophe Overhead shall not qualify for overhead under any 35 other
  overhead provisions. 65 66COPYRIGHT 0 2005 by Council of Petroleum
  Accountants Societies, Inc. (COPAS)

  

 

	
  

  	
  36 37 38 In the
  event of any conflict between the provisions of this Section 111.2 and the
  provisions of Sections II.2 (Labor), 11.5 (Services), or 117 39 (Affiliates),
  the provisions of this Section 111.2 shall govern. 40 3. AMENDMENT OF
  OVERHEAD RATES 41 42 The overhead rates provided for in this Section III may
  be amended from time to time if, in practice, the rates are found to be
  insufficient 43 or excessive, in accordance with the provisions of Section
  L6.B (Amendments). 44 45 46 IV. MATERIAL PURCHASES, TRANSFERS, AND DISPOSITIONS
  47 48 49 The Operator is responsible for Joint Account Material and shall
  make proper and timely charges and credits for direct purchases, transfers,
  and dispositions. The Operator shall provide all Material for use in the
  conduct of Joint Operations; however, Material may be supplied by the Non- 50
  Operators, at the Operator's option. Material furnished by any Party shall be
  furnished without any express or implied warranties as to quality, 51 fitness
  for use, or any other matter. 52 53 I. DIRECT PURCHASES 54 55 Direct
  purchases shall be charged to the Joint Account at the price paid by the
  Operator after deduction of all discounts received. The 56 Operator shall
  make good faith efforts to take discounts offered by suppliers, but shall not
  be liable for failure to take discounts except to 57 the extent such failure
  was the result of the Operator's gross negligence or willful misconduct A
  direct purchase shall be deemed to occur 58 when an agreement is made between
  an Operator and a third party for the acquisition of Material for a specific
  well site or location. 59 Material provided by the Operator under
  "vendor stocking programs," where the initial use is for a Joint
  Property and title of the Material 60 does not pass from the manufacturer,
  distributor, or agent until usage, is considered a direct purchase. If
  Material is found to be defective 61 or is returned to the manufacturer,
  distributor, or agent for any other reason, credit shall be passed to the
  Joint Account within sixty (60) 62 days after the Operator has received
  adjustment from the manufacturer, distributor, or agent 63 64 65 66COPYRIGHT
  0 2005 by Council of Petroleum Accountants Societies, Inc. (COPAS) 15

  

 

	
  

  	
  COPAS 2005
  Accounting Procedure Recommended by COPAS, Inc. c op a s 1 2. TRANSFERS 2 3 A
  transfer is determined to occur when the Operator (i) furnishes Material from
  a storage facility or from another operated property, (ii) has 4 assumed
  liability for the storage costs and changes in value, and (iii) has
  previously secured and held title to the transferred MateriaL 5 Similarly,
  the removal of Material from the Joint Property to a storage facility or to
  another operated property is also considered a transfer; 6 provided, however,
  Material that is moved from the Joint Property to a storage location for
  safe-keeping pending disposition may remain 7 charged to the Joint Account
  and is not considered a transfer. Material shall be disposed of in accordance
  with Section IV.3 (Disposition of 8 Surplus) and the Agreement to which this
  Accounting Procedure is attached. 9 10 A. PRICING II 12 The value of Material
  transferred to/from the Joint Property should generally reflect the market
  value on the date of physical transfer. 13 Regardless of the pricing method
  used, the Operator shall make available to the Non-Operators sufficient
  documentation to verify the 14 Material valuation. When higher than
  specification grade or size tubulars are used in the conduct of Joint
  Operations, the Operator 15 shall charge the Joint Account at the equivalent
  price for well design specification tubulars, unless such higher
  specification grade or 16 sized tubulars are approved by the Parties pursuant
  to Section L6.A (General Matters). Transfers of new Material will be priced
  17 using one of the following pricing methods; provided, however, the
  Operator shall use consistent pricing methods, and not alternate 18 between
  methods for the purpose of choosing the method most favorable to the Operator
  for a specific transfer. 19 20 (1) Using published prices in effect on date
  of movement as adjusted by the appropriate COPAS Historical Price Multiplier
  (RPM) 21 or prices provided by the COPAS Computerized Equipment Pricing
  System (CEPS). 22 23 (a) For oil country tubulars and line pip; the published
  price shall be based upon eastern mill carload base prices (Houston, 24
  Texas, for special end) adjusted as of date of movement, plus transportation
  cost as defined in Section IV.2.B (Freight). 25 26 (b) For other Material,
  the published price shall be the published list price in effect at date of
  movement, as listed by a Supply 27 Store nearest the Joint Property where
  like Material is normally available, or point of manufacture plus
  transportation 28 costs as defined in Section IV.2.B (Freight). 29 30 (2)
  Based on a price quotation from a vendor that reflects a current realistic
  acquisition cost 31 32 (3) Based on the amount paid by the Operator for like
  Material in the vicinity of the Joint Property within the previous twelve
  (12) 33 months from the date of physical transfer. 34 35 (4) As agreed to by
  the Participating Parties for Material being transferred to the Joint
  Property, and by the Parties owning the 36 Material for Material being
  transferred from the Joint Property. 37 38 B. FREIGHT 39 40 Transportation
  costs shall be added to the Material transfer price using the method
  prescribed by the COPAS Computerized 41 Equipment Pricing System (CEPS). If
  not using CEPS, transportation costs shall be calculated as follows: 42 43
  (1) Transportation costs for oil country tubulars and line pipe shall be
  calculated using the distance from eastern mill to the 44 Railway Receiving
  Point based on the carload weight basis as recommended by the COPAS MFI-38
  ("Material Pricing 45 Manual") and other COPAS Mins in effect at
  the time of the transfer. 46 47 (2) Transportation costs for special mill
  items shall be calculated from that mills shipping point to the Railway
  Receiving Point 48 For transportation costs from other than eastern mills,
  the 30,000-pound interstate truck rate shall be used. Transportation costs 49
  for macaroni tubing shall be calculated based on the interstate truck rate
  per weight of tubing transferred to the Railway 50 Receiving Point 51 52 (3)
  Transportation costs for special end tubular goods shall be calculated using
  the interstate truck rate from Houston, Texas, to the 53 Railway Receiving
  Point 54 55 (4) Transportation costs for Material other than that described
  in Sections IV.2.B.(I) through (3), shall be calculated from the 56 Supply
  Store or point of manufacture, whichever is appropriate, to the Railway
  Receiving Point 57 58 Regardless of whether using CEPS or manually
  calculating transportation costs, transportation costs from the Railway
  Receiving Point 59 to the Joint Property are in addition to the foregoing,
  and may be charged to the Joint Account based on actual costs incurred. All
  60 transportation costs are subject to Equalized Freight as provided in
  Section 11.4 (Transportation) of this Accounting Procedure. 61 62 C. TAXES 63
  64 Sales and use taxes shall be added to the Material transfer price using
  either the method contained in the COPAS Computerized 65 Equipment Pricing
  System (CEPS) or the applicable tax rate in effect for the Joint Property at
  the time and place of transfer. In either 66 case, the Joint Account shall be
  charged or credited at the rate that would have governed had the Material
  been a direct purchase. 65 66COPYRIGHT 0 2005 by Council of Petroleum
  Accountants Societies, Inc. (COPAS) 16

  

 

	
  

  	
   

  COPAS 2005
  Accounting Procedure Recommended by COPAS, Inc. copas D. CONDMON 2 3 (1)
  Condition "A" — New and unused Material in sound and serviceable
  condition shall be charged at one hundred percent (100%) 4 of the price as
  determined in Sections IV.2.A (Pricing), IV.2.B (Freight), and IV.2.0 (Taxes).
  Material transferred from the 5 Joint Property that was not placed in service
  shall be credited as charged without gain or loss; provided, however, any
  unused 6 Material that was charged to the Joint Account through a direct
  purchase will be credited to the Joint Account at the original 7 cost paid
  less restocking fees charged by the vendor. New and unused Material
  transferred from the Joint Property may be 8 credited at a price other than
  the price originally charged to the Joint Account provided such price is approved
  by the Parties 9 owning such Material, pursuant to Section L6A (General
  Matters). All refurbishing costs required or necessary to return the 10
  Material to original condition or to correct handling, transportation, or
  other damages will be borne by the divesting property. 11 The Joint Account
  is responsible for Material preparation, handling, and transportation costs
  for new and unused Material t2 charged to the Joint Property either through a
  direct purchase or transfer. Any preparation costs incurred, including any
  internal 13 or external coating and wrapping, will be credited on new
  Material provided these services were not repeated for such Material 14 for
  the receiving property. 15 t6 (2) Condition "B" — Used Material in
  sound and serviceable condition and suitable for reuse without reconditioning
  shall be priced 17 by multiplying the price determined in Sections IV.2.A
  (Pricing), IV.2.B (Freight), and IV.2.0 (Taxes) by seventy-five percent 18
  (75%). 19 20 Except as provided in Section IV.2.D(3), all reconditioning
  costs required to return the Material to Condition "B" or to
  correct 21 handling, transportation or other damages will be borne by the
  divesting property. 22 23 If the Material was originally charged to the Joint
  Account as used Material and placed in service for the Joint Property, the 24
  Material will be credited at the price determined in Sections IV.2.A
  (Pricing), IV.2.B (Freight), and IV.2.0 (Taxes) multiplied 25 by sixty-five
  percent (65%). 26 27 Unless otherwise agreed to by the Parties that paid for
  such Material, used Material transferred from the Joint Property that was 28
  not placed in service on the property shall be credited as charged without
  gain or loss. 29 30 (3) Condition "C" — Material that is not in
  sound and serviceable condition and not suitable for its original function
  until after 31 reconditioning shall be priced by multiplying the price
  determined in Sections IV.2.A (Pricing), IV.2.B (Freight), and IV.2.0 32
  (Taxes) by fifty percent (50%). 33 34 The cost of reconditioning may be
  charged to the receiving property to the extent Condition "C"
  value, plus cost of 35 reconditioning, does not exceed Condition
  "B" value. 36 37 (4) Condition "D" — Material that (i) is
  no longer suitable for its original purpose but useable for some other
  purpose, (ii) is 38 obsolete, or (iii) does not meet original specifications
  but still has value and can be used in other applications as a substitute for
  39 items with different specifications, is considered Condition "D"
  Material. Casing, tubing, or drill pipe used as line pipe shall be 40 priced
  as Grade A and B seamless line pipe of comparable size and weight Used
  casing, tubing, or drill pipe utilized as line 41 pipe shall be priced at
  used line pipe prices. Casing, tubing, or drill pipe used as higher pressure
  service lines than standard line 42 pipe, e.g., power oil lines, shall be
  priced under normal pricing procedures for casing, tubing, or drill pipe.
  Upset tubular goods 43 shall be priced on a non-upset basis. For other items,
  the price used should result in the Joint Account being charged or credited
  44 with the value of the service rendered or use of the Material, or as
  agreed to by the Parties pursuant to Section 1.6.A (General 45 Matters). 46
  47 (5) Condition "E"— Junk shall be priced at prevailing scrap
  value prices. 48 49 E. OTHER PRICING PROVISIONS 50 51 (I) Preparation Costs
  52 65 66COPYRIGHT 0 2005 by Council of Petroleum Accountants Societies, Inc.
  (COPAS) 17

  

 

	
  

  	
  53 Subject to
  Section H (Direct Charges) and Section III (Overhead) of this Accounting
  Procedure, costs incurred by the Operator 54 in making Material serviceable
  including inspection, third party surveillance services, and other similar
  services will be charged 55 to the Joint Account at prices which reflect the Operator's
  actual costs of the services. Documentation must be provided to the 56
  Non-Operators upon request to support the cost of service. New coating and/or
  wrapping shall be considered a component of 57 the Materials and priced in
  accordance with Sections IV.I (Direct Purchases) or IV.2.A (Pricing), as
  applicable. No charges or 58 credits shall be made for used coating or
  wrapping, Charges and credits for inspections shall be made in accordance
  with 59 COPAS MFI-38 ("Material Pricing Manual"). 60 61 (2) Loading
  and Unloading Costs 62 63 Loading and unloading costs related to the movement
  of the Material to the Joint Property shall be charged in accordance with 64
  the methods specified in COPAS MFI-38 ("Material Pricing Manual").
  65 66COPYRIGHT 0 2005 by Council of Petroleum Accountants Societies, Inc.
  (COPAS) 18

  

 

	
  

  	
  COPAS 2005
  Accounting Procedure Recommended by COPAS, Inc. copas 3. DISPOSITION OF
  SURPLUS 2 3 Surplus Material is that Material, whether new or used, that is
  no longer required for Joint Operations. The Operator may purchase, but 4
  shall be under no obligation to purchase, the interest of the Non-Operators
  in surplus Material. 5 6 Dispositions for the purpose of this procedure are
  considered to be the relinquishment of title of the Material from the Joint
  Property to 7 either a third party, a Non-Operator, or to the Operator. To
  avoid the accumulation of surplus Material, the Operator should make good 8
  faith efforts to dispose of surplus within twelve (12) months through
  buy/sale agreements, trade, sale to a third party, division in kind, or 9
  other dispositions as agreed to by the Parties. 10 ll Disposal of surplus
  Materials shall be made in accordance with the terms of the Agreement to
  which this Accounting Procedure is t2 attached. If the Agreement contains no
  provisions governing disposal of surplus Material, the following terms shall
  apply. 13 14 The Operator may, through a sale to an unrelated third party or
  entity, dispose of surplus Material having a gross sale value that 15 is less
  than or equal to the Operator's expenditure limit as set forth in the
  Agreement to which this Accounting Procedure is 16 attached without the prior
  approval of the Parties owning such Material. 17 18 • If the gross sale value
  exceeds the Agreement expenditure limit, the disposal must be agreed to by
  the Parties owning such 19 Material. 20 21 Operator may purchase surplus
  Condition "A" or "B" Material without approval of the
  Parties owning such Material, based on 22 the pricing methods set forth in
  Section IV.2 (Transfers). 23 24 Operator may purchase Condition "C"
  Material without prior approval of the Parties owning such Material if the
  value of the 25 Materials, based on the pricing methods set forth in Section
  IV.2 (Transfers), is less than or equal to the Operator's expenditure 26
  limitation set forth in the Agreement. The Operator shall provide
  documentation supporting the classification of the Material as 27 Condition
  C. 28 29 • Operator may dispose of Condition "D" or "E"
  Material under procedures normally utilized by Operator without prior
  approval 30 of the Parties owning such Material. 31 32 4. SPECIAL PRICING
  PROVISIONS 33 34 A. PREMIUM PRICING 35 36 Whenever Material is available only
  at inflated prices due to national emergencies, strikes, government imposed
  foreign trade 37 restrictions, or other unusual causes over which the
  Operator has no control, for direct purchase the Operator may charge the
  Joint 38 Account for the required Material at the Operator's actual cost
  incurred in providing such Material, making it suitable for use, and 39
  moving it to the Joint Property. Material transferred or disposed of during
  premium pricing situations, shall be valued in accordance 40 with Section
  IV.2 (Transfers) or Section IV.3 (Disposition of Surplus), as applicable. 41
  42 B. SHOP-MADE ITEMS 43 44 Items fabricated by the Operator's employees, or
  by contract laborers under the direction of the Operator, shall be priced
  using the 45 value of the Material used to construct the item plus the cost
  of labor to fabricate the item. If the Material is from the Operator's 46
  scrap or junk account, the Material shall be priced at either twenty-five
  percent (25%) of the current price as determined in Section 47 IV.2.A
  (Pricing) or scrap value, whichever is higher. In no event shall the amount
  charged exceed the value of the item 48 commensurate with its use. 49 50 C.
  MILL REJECTS 51 52 Mill rejects purchased as "limited service"
  casing or tubing shall be priced at eighty percent (80%) of K-55/J-55 price
  as determined in 53 Section IV.2 (Transfers). Line pipe converted to casing
  or tubing with casing or tubing couplings attached shall be priced as K-55/J-
  54 55 casing or tubing at the nearest size and weight 55 56 57 V. INVENTORIES
  OF CONTROLLABLE MATERIAL 58 59 60 The Operator shall maintain records of
  Controllable Material charged to the Joint Account, with sufficient detail to
  perform physical inventories. 61 62 Adjustments to the Joint Account by the
  Operator resulting from a physical inventory of Controllable Material shall
  be made within twelve (12) 63 months following the taking of the inventory or
  receipt of Non-Operator inventory report. Charges and credits for overages or
  shortages will be 64 valued for the Joint Account in accordance with Section
  IV.2 (Transfers) and shall be based on the Condition "B" prices in
  effect on the dale of 65 physical inventory unless the inventorying Parties
  can provide sufficient evidence another Material condition applies. 65
  66COPYRIGHT 0 2005 by Council of Petroleum Accountants Societies, Inc.
  (COPAS) 19

  

 

	
  

  	
  COPAS 2005
  Accounting Procedure Recommended by COPAS, Inc. copas 1. DIRECTED INVENTORIES
  2 3 Physical inventories shall be performed by the Operator upon written
  request of a majority in working interests of the Non-Operators 4 (hereinafter,
  "directed inventory"); provided, however, the Operator shall not be
  required to perform directed inventories more frequently 5 than once every
  five (5) years. Directed inventories shall be commenced within one hundred
  eighty (ISO) days after the Operator receives 6 written notice that a
  majority in interest of the Non-Operators has requested the inventory. All
  Parties shall be governed by the results of 7 any directed inventory. 8 9
  Expenses of directed inventories will be borne by the Joint Accounk provided,
  however, costs associated with any post-report follow-up to work in settling
  the inventory will be absorbed by the Party incurring such costs. The
  Operator is expected to exercise judgment in keeping expenses within
  reasonable limits. Any anticipated disproportionate or extraordinary costs
  should be discussed and agreed upon prior to 12 commencement of the
  inventory. Expenses of directed inventories may include the following: 13 14
  A. A per diem rate for each inventory person, representative of actual
  salaries, wages, and payroll burdens and benefits of the personnel 15
  performing the inventory or a rate agreed to by the Parties pursuant to
  Section I.6.A (General Matters). The per diem rate shall also 16 be applied
  to a reasonable number of days for pre-inventory work and report preparation.
  17 18 B. Actual transportation costs and Personal Expenses for the inventory
  team. 19 20 C. Reasonable charges for report preparation and distribution to
  the Non-Operators. 21 22 2. NON-DIRECTED INVENTORIES 23 24 A. OPERATOR
  INVENTORIES 25 26 Physical inventories that ate not requested by the
  Non-Operators may be performed by the Operator, at the Operator's discretion.
  The 27 expenses of conducting such Operator-initiated inventories shall not
  be charged to the Joint Account 28 29 B. NON-OPERATOR INVENTORIES 30 31
  Subject to the terms of the Agreement to which this Accounting Procedure is
  attached, the Non-Operators may conduct a physical 32 inventory at reasonable
  times at their sole cost and risk after giving the Operator at least ninety
  (90) days prior written notice. The 33 Non-Operator inventory report shall be
  furnished to the Operator in writing within ninety (90) days of completing
  the inventory 34 fieldwork. 35 36 C. SPECIAL INVENTORIES 37 38 The expense of
  conducting inventories other than those described in Sections V.1 (Directed
  Inventories), V.2.A (Operator 39 Inventories), or V.2.B (Non-Operator
  Inventories), shall be charged to the Party requesting such inventory
  provided, however, 40 inventories required due to a change of Operator shall
  be charged to the Joint Account in the same manner as described in Section 41
  V.1 (Directed Inventories). 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57
  58 59 60 61 65 66COPYRIGHT 0 2005 by Council of Petroleum Accountants
  Societies, Inc. (COPAS) 20

  

 

	
  

  	
  EXIIIBIT
  "D" Attached to and made a part of that certain Operating Agreement
  dated effective the day of , 201_, by and between , Operator, and ,
  Non-Operator.   62 63 64 65 66COPYRIGHT
  0 2005 by Council of Petroleum Accountants Societies, Inc. (COPAS) 21

  

 

 

 

INSURANCE

 

The Operator shall carry, for the benefit of the joint account the following insurance, to wit:

 

A.                     Statutory Worker’s Compensation Insurance to cover full liability under the Worker’s Compensation laws of the state in which the Contract Area is located.

 

B.                     Employer’s Liability Insurance with limits of not less than $1,000,000 for accidental injury or death of one or more employees as a result of one accident.

 

C.                     Comprehensive or Commercial General Liability Insurance, including underground resources, pollution liability, operations of subcontractors, contractual liability, explosion, collapse and underground property damage, with a combined single limit of liability for bodily injury and property damage of not less than $1,000,000.

 

D.                     Automobile Liability Insurance covering all owned, non-owned and hired vehicles with a combined single limit of liability for both bodily injury and property damage in an amount not less than $1,000,000.

 

E.                      Umbrella Liability insurance over Sections B., C. and D. with a limit of liability of not less than $5,000,000 per occurrence.

 

F.                       Operator’s Extra Expense or Energy, Exploration and Development Insurance, with a limit per occurrence per 100% working interest, of at least three (3) times dry hole AFE. Non-Operators electing not to participate in control of well insurance must provide a certificate of insurance in the above-mentioned amount and written evidence of their intent to opt-out at least five (5) days prior to spud date. Failure to reject coverage in writing within five (5) days prior to spud date will be deemed an election to participate in Operator’s coverage through the joint account.

 

No other insurance shall be carried at the expense of the joint account except by the mutual consent of all parties hereto.

 

Each Party shall be responsible for maintaining its own insurance in excess of the amounts of coverages specified provided above and, unless provided otherwise above, each Party shall be responsible for insuring its own interest in the Contract Area with respect to physical damage to property, theft or loss of income.

 

The premiums, taxes, fees, commissions, deductibles, retentions and co-insurance amounts for insurance paid by Operator on securing the above insurance coverages shall be charged to the joint account, and all losses not covered by such insurance shall be charged to the joint account. Operator is not a warrantor of the financial responsibility of the insurer with whom such insurance is carried and Operator shall not be liable to any Non-Operator for any loss suffered on account of the insufficiency of the amount of insurance finally obtained.

 

Each insurance policy obtained by Operator with respect to operations conducted hereunder, except Worker’s Compensation, shall name the Non-Operators as additional insured.

 

Operator shall require its contractors and subcontractors to comply with applicable Workers’ Compensation lasts, rules and regulations and carry such insurance as Operator may deem necessary.

 

Upon written request, Operator shall cause a certificate of the insurance obtained hereunder for the joint account to be delivered to Non-Operators. Such certificate shall describe the coverage obtained hereunder for the joint account to be delivered to Non-Operators, certify that all

 

 

EXIIIBIT “D”

 

Attached to and made a part of that certain Operating Agreement dated effective the           day of             , 201  , by and between                    , Operator, and                    , Non-Operator.                                                                       required coverages are in full force and effect, and shall provide at least 30 days prior 

 

 

written notice to Non-Operators in the event of cancellation.

 

 

GAS BALANCING AGREEMENT

 

The Parties to the Operating Agreement to which this Agreement is attached own the working interest in the gas rights underlying the Contract Area covered by such Agreement in accordance with the percentages of participation as set forth in Exhibit “A” to the Operating Agreement. Under the terms of the Operating Agreement, each Party thereto has the right, subject to existing contracts, to take its share of gas produced from the Contract Area and market same. However, recognizing that one or more of the Parties may be unable to take its share of the gas from time to time, and to permit each Party to take and dispose of its share of gas production from the Contract Area with as much flexibility as possible, the Parties agree to the balancing arrangement herein set forth. In the event there is more than one well on the Contract Area, then the terms hereof shall apply individually to each such well in the Contract Area i.e., on a well-by-well basis. In the event any well subject herein is completed in multiple Zones, then each Zone shall be treated as a separate well. All balancing hereunder shall be on the basis of Gas taken from the Contract Area measured in MMBtus.

 

1.                                 Effective Date and Term

 

In the event any Party hereto is not at any time taking or marketing its full share of gas or has contracted to sell its share of gas produced from the Contract Area to a purchaser, which does not, at any time while this Agreement is in effect, take the full share of gas attributable to the interest of such Party, the terms of this Agreement shall automatically become effective on the date of initial deliveries of gas from the Contract Area and shall continue in full force and effect as long as the Operating Agreement to which it is attached remains in effect.

 

2.                                 Rights of the Parties

 

The Parties actually taking or marketing gas produced from the Contract Area shall always have the option to produce, take and deliver each month all gas which may be legally and efficiently produced by the wells in the Contract Area. All Parties hereto shall, however, share in and own the liquid hydrocarbons recovered from such gas by lease equipment in accordance with their respective interests under and subject to the Operating Agreement to which this Agreement is attached regardless of how gas production is being allocated. All Gas taken by a Party in accordance with the provisions of this Agreement, regardless of whether such Party is underproduced or overproduced, shall be regarded as Gas taken for its own account with title thereto being in such taking Party.

 

3.                                 Accounting for Gas Sales

 

On a cumulative basis, (a) each Underproduced Party (a Party who has taken or delivered a lesser volume of gas than the quantity to which such Party is entitled) shall be credited with a volume of gas equal to its full share of the gas produced from the Contract Area, less its share of gas used in Unit operations, vented or lost, and less that portion which such Underproduced Party took or delivered to its purchaser; and (b) each overproduced Party (a Party who has taken or delivered a greater volume of gas than the quantity to which such Party is entitled) shall be debited with a volume of gas equal to the excess which it has actually taken or marketed over its full share of the gas produced from the Contract Area after deduction of its share of gas used in Unit operations, vented or lost. Each Party taking gas shall furnish or cause to be furnished to the Operator of the Contract Area, a monthly statement of gas taken.

 

1

 

4.                            Operator Statements

 

The Operator will maintain a current account of the gas balance between the Parties hereto and will furnish all Parties monthly statements, mailed quarterly, showing the total quantity of gas produced, the total quantity of liquid hydrocarbons, if applicable, and the monthly and cumulative over-and-under account of each Party.

 

5.                            Current Volumetric Balancing

 

Upon fifteen (15) days prior written notice to Operator, any Underproduced Party may in the month following notice begin taking or delivering to a purchaser its full share of the gas produced. To allow for the recovery of quantities of Underproduced gas and to balance the gas account of the Parties in accordance with their respective interests and subject to Paragraph 6 herein, the Underproduced Parties shall also be entitled to take, in addition to their full share of the gas produced, a quantity of gas (the “make-up gas”) of up to fifty percent (50%) of the Overproduced Parties’ full share of gas produced and taken plus any portion of all gas produced and saved which is attributable to any Party not taking its full share of available production. To the extent practicable, such Gas shall be made available initially to each Underproduced Party in the proportion that its percentage interest in the Contract Area bears to the total percentage interests of all Underproduced Parties desiring to take such Gas. Should the Underproduced Parties not take all of the available make-up gas, the portion of the make-up gas not taken shall be allocated to the legal and proportionate share of Overproduced Parties wishing to take more gas than otherwise available to them in proportion to the ratio of their undivided interests.

 

6.                            Winter Make-up

 

It is specifically agreed that no Underproduced Party will be allowed to take make-up gas during the months of November, December, January, or February (the “Winter Period” ); provided, however, that an Underproduced Party will be allowed to take make-up gas during the Winter Period if the Underproduced Party has taken at least one hundred percent (100%) of the make-up gas to which it was entitled during the four (4) consecutive months immediately prior to the Winter Period.

 

7.                            Operating Costs

 

Nothing in this Agreement shall change or affect any Party’s obligation to pay its proportionate share of all costs and liabilities incurred in operations on or in connection with the Contract Area, as its share thereof is set forth in the Operating Agreement, irrespective of whether any Party is at any time selling and using Gas or whether such sales or use are in proportion to its percentage interest in the Contract Area.

 

8.                            Annual Cash Balancing

 

Beginning on the first day of the first month following the one (1) year anniversary of the first day of production, and on the annual anniversary of said day thereafter, the Overproduced and Underproduced Parties shall balance their accounts. Balancing shall be by cash settlement as provided in the following Paragraph 9. This provision shall apply so long as there is production from the Contract Area.

9.                            Final Cash Balancing

 

Should production of gas from said Zone or well be permanently discontinued during a year before the gas accounts are balanced, the Operator shall make a final determination of the volume of the first accrued overproduction and underproduction, if any, as of the date of such permanent discontinuance, and the identity of the Party or Parties who are overproduced or underproduced. A cash settlement will then be made between the Underproduced and Overproduced Parties. Within sixty (60) days after receipt of the final gas settlement statement, each Overproduced Party will send its cash settlement, accompanied by appropriate accounting detail, to the Operator. The Operator will distribute the monies so received, along with any settlement owed by the Operator as an Overproduced Party, to each Underproduced Party to

 

2

 

whom settlement is due within ninety (90) days after issuance of the final gas settlement statement.

 

The amount of the cash settlement will be based on the proceeds received by the Overproduced Party under an arm’s length agreement for the Gas taken from time to time by the Overproduced Party in excess of the Overproduced Party’s full share of current production, less any makeup gas taken by the Underproduced Party from the Contract Area.

 

The values used for calculating the cash settlement under this provision will include all proceeds received for the sale of the Gas by the Overproduced Party calculated at the Balancing Area, after deducting any production or severance taxes paid and any royalty actually paid by the Overproduced Party to an Underproduced Party’s royalty owner(s), to the extent said payments amounted to a discharge of said Underproduced Party’s royalty obligation, as well as any reasonable marketing, compression, treating, gathering or transportation costs incurred directly in connection with the sale of the overproduction.

 

10.                     Deliverability Tests

 

Nothing herein shall be construed to deny any Party the right, from time to time, to produce and take or deliver to its purchaser an entire well stream, if necessary, for a deliverability test not to exceed seventy-two (72) hours duration required under such Party’s gas sales contract.

 

11.                     Nominations

 

Each Party shall, on a monthly basis, give Operator sufficient time and data either to nominate such Party’s respective share of gas to the transporting pipeline(s) or, if Operator is not nominating such Party’s gas, to inform Operator of the manner in which to dispatch such Party’s gas. Operator will use its best efforts to cause said deliveries to be made to the designated gas purchasers. It is expressly agreed that Operator shall not be responsible for any fees and/or penalties associated with imbalances charged by any pipeline to any Non-Operator(s), unless the Operator is proven in the dispatching of such Party’s gas to be grossly negligent or to have engaged in willful misconduct.

 

12.                Payment of Royalties; Indemnity for Royalty Settlements

 

Unless otherwise provided in the Operating Agreement (or otherwise required in lease agreements), each Party shall pay or cause to be paid all royalty due with respect to royalty owners to whom it is accountable as if such Party were taking its full share of current production, and only its full share of current production. Each Party agrees to indemnify and hold each and every other Party harmless from any and all claims for royalty payments asserted by royalty owners to whom each indemnifying Party is accountable. The term “royalty owner” shall include owners of standard royalties, excess royalties, overriding royalties, production payments and similar interests.

 

However, in the event any governmental authority requires that royalty payments be made on any other basis than that provided for in this Paragraph 12, each Party agrees to make such royalty payments accordingly, commencing on the effective date required by such governmental authority, and the method provided for herein shall be thereby superseded.

 

13.                Taxes

 

Each Party producing and taking or delivering gas to its purchaser shall pay, or cause to be paid, all production and/or excise taxes due on such gas.

 

14.                Assignment and Rights Upon Assignment

 

Notwithstanding anything in this Agreement or in the Operating Agreement to the contrary, if any Party assigns (including any sale, exchange or other transfer) any of its working interest in the Contract Area when such Party is an Underproduced or Overproduced Party, the

 

3

 

assignment or other act of transfer shall, insofar as the Parties hereto are concerned, include all interest of the assigning or transferring Party in the gas, all rights to receive or obligations to provide or take make-up gas and all rights to receive or obligations to make any monetary payment which may ultimately be due hereunder, as applicable. Operator and each of the other Parties hereto shall thereafter treat the assignment accordingly, and the assigning or transferring Party shall look solely to its assignee or other transferee for any interest in the Gas or monetary payment that such Party may have or to which it may be entitled, and shall cause its assignee or other transferee to assume its obligations hereunder.

 

This Agreement shall bind the Parties in accordance with the provisions hereof, and nothing herein shall be construed or interpreted as creating any rights in any person or entity not a signatory hereto, or as being a stipulation in favor of any such person or entity.

 

4

 

EXHIBIT “H”

 

Attached to and made a part of that certain Operating Agreement dated effective the        day of            201  , by and between                     , Operator, and                                                 , Non-Operator.

 

MEMORANDUM OF OPERATING AGREEMENT

AND

FINANCING STATEMENT

 

STATE OF OKLAHOMA §

KNOW ALL MEN BY THESE PRESENTS:

COUNTY OF KAY

 

THIS MEMORANDUM OF OPERATING AGREEMENT AND FINANCING STATEMENT (“Agreement”) is made and entered into by and between                                                    (hereinafter referred to as “Operator”), and the Signatory Party(s) other than Operator shown hereinbelow (hereinafter collectively referred to as “Non-Operators”).

 

WHEREAS, the parties to this Agreement are owners of certain Oil and Gas Leases and/or Oil and Gas Interests covering the lands described on Exhibit “A” which is attached hereto and made a part hereof (said Lands, Leases or Interests are hereinafter referred to as the “Contract Area”), and in any instance in which the Leases or Interests of a party are not of record, the record owner and the party hereto that owns the interest or rights therein are reflected on said Exhibit “A”; AND,

 

WHEREAS, the parties hereto have executed an Operating Agreement dated effective the          day of                     201, by and                            between                                                                  , as Operator, and                         , as Non-Operator, (hereinafter referred to as the “Operating Agreement”), covering the Contract Area for the purpose of exploring and developing such lands, Leases and Interests for oil and gas; AND,

 

WHEREAS, the parties hereto have executed this Agreement for the purpose of imparting notice to all persons of the rights and obligations of the parties under the Operating Agreement and for the further purposes of perfecting those rights capable of perfection.

 

NOW, THEREFORE, in consideration of the mutual rights, covenants and obligations of the parties hereto, it is hereby agreed between the parties as follows:

 

1.                            This Agreement is supplemental to the Operating Agreement, which, for all purposes reference is hereby made and the terms and provisions contained therein are incorporated herewith in their entirety, and all terms used herein shall have the same meaning ascribed to them in said Operating Agreement.

 

2.                            The parties hereby agree that

 

A.                           The Oil and Gas Leases of the parties comprising the Contract Area shall be subject to and burdened with the terms and provisions of this Agreement and the Operating Agreement, and the parties do hereby commit such Leases to the performance thereof.

 

B.                           The exploration and development of the Contract Area for oil and gas shall be governed by the terms and provisions of the Operating Agreement, as supplemented by this Agreement.

 

C.                           All costs and liabilities incurred in operations under this Agreement and the Operating Agreement shall be borne and paid, and all equipment and materials acquired in operations on the Contract Area shall be owned, by the parties hereto, as provided in the Operating Agreement.

 

D.                           Regardless of the record title ownership to the Oil and Gas Leases identified on Exhibit “A”, all production of oil and gas from the Contract Area shall be owned by the parties as provided in the Operating Agreement; provided nothing contained in this Agreement shall be deemed an assignment or cross-assignment of interests covered hereby.

 

E.                            Each party shall pay or deliver, or cause to be paid or delivered, all burdens on its share of

 

 

the production from the Contract Area as provided in the Operating Agreement.

 

F.                             Any overriding royalty, production payment, net profits interest or other burden payable out of production hereafter created, assignments of production given as security for the payment of money and those overriding royalties, production payments and other burdens payable out of production heretofore created and defined as Subsequently Created Interests in the Operating Agreement shall be (i) borne solely by the party whose interest is burdened therewith, (ii) subject to suspension if a party is required to assign or relinquish to another party an interest which is subject to such burden, and (iii) subject to the lien and security interest hereinafter provided if the party subject to such burden fails to pay its share of expenses chargeable hereunder and under the Operating Agreement, all upon the terms and provisions and in the times and manner provided by the Operating Agreement.

 

G.                           The Oil and Gas Leases which are subject hereto may not be assigned or transferred except in accordance with those terms, provisions and restrictions in the Operating Agreement regulating such transfers. This Agreement and the Operating Agreement shall be binding upon and shall inure to the benefit of the parties hereto, and their respective heirs, devisees, legal representatives, and assigns.

 

H.                          The parties shall have the right to acquire an interest in any renewal, extension or replacement leases, leases proposed to be surrendered, wells proposed to be abandoned, and interests to be relinquished as a result of non-participation in subsequent operations, all in accordance with the terms and provisions of the Operating Agreement.

 

I.                               The rights and obligations of the parties and the adjustment of interests among them in the event of a failure or loss of title, each party’s right to propose operations, obligations with respect to participation in operations on the Contract Area and the consequences of a failure to participate in operations, the rights and obligations of the parties regarding the marketing of production, and the rights and remedies of the parties for failure to comply with financial obligations shall be as provided in the Operating Agreement.

 

J.                               Each party’s interest under this Agreement and under the Operating Agreement shall be subject to relinquishment for its failure to participate in subsequent operations and each party’s share of production and costs shall be reallocated on the basis of such relinquishment, all upon the terms and provisions provided in the Operating Agreement.

 

K.                          All other matters with respect to exploration and development of the Contract Area and the ownership and transfer of the Oil and Gas Leases therein shall be governed by the terms and provisions of the Operating Agreement

 

3.                            The parties hereby grant reciprocal liens and security interests to each other as follows:

 

A.                      Each party grants to the other parties hereto a lien upon any interest it now owns or hereafter acquires in Oil and Gas Leases in the Contract Area which are subject to the Operating Agreement, and a security interest and/or purchase money security interest in any interest it now owns or hereafter acquires in the personal property and fixtures on or used or obtained for use in connection therewith, to secure performance of all of its obligations under this Agreement and the Operating Agreement including but not limited to payment of expenses, interest and fees, the proper disbursement of all monies paid under this Agreement and the Operating Agreement, the assignment or relinquishment of interest in Oil and Gas Leases as required under this Agreement and the Operating Agreement, and the proper performance of operations under this Agreement and the Operating Agreement. Such lien and security interest granted by each party hereto shall include such party’s leasehold interests, working interests, operating rights, and royalty and overriding royalty interests in the Contract Area now owned or, to the extent subject to the Operating Agreement, hereafter acquired and in lands pooled or unitized therewith or otherwise becoming subject to this Agreement and the Operating Agreement, the oil and gas when extracted therefrom and equipment situated thereon or used or obtained for use in connection therewith (including, without limitation, all wells, tools, and tubular goods), and accounts (including, without limitation, accounts arising from gas imbalances or from the sale of oil and/or gas at the wellhead), contract rights, inventory and general intangibles relating thereto or arising therefrom, and all proceeds and products of the foregoing.

 

B.                      Each party represents and warrants to the other parties hereto that the lien and security interest granted by such party to the other parties shall be a first and prior lien, and each party hereby agrees to maintain the priority of said lien and security interest against all persons acquiring an interest in the Oil and Gas Leases covered by this Agreement and the Operating Agreement by, through or under such party. All parties acquiring an interest in any Oil and Gas Leases covered by this Agreement and the Operating Agreement, whether

 

 

by assignment, merger, mortgage, operation of law, or otherwise, shall be deemed to have been taken subject to the lien and security interest granted by the Operating Agreement and this instrument as to all obligations attributable to such interest under this Agreement and the Operating Agreement whether or not such obligations arise before or after such interest is acquired.

 

C.                           To the extent that the parties have a security interest under the Uniform Commercial Code of the state in which the Contract Area is situated, they shall be entitled to exercise the rights and remedies of a secured party under the Code. The bringing of a suit and the obtaining of judgment by a party for the secured indebtedness shall not be deemed an election of remedies or otherwise affect the lien rights or security interest as security for the payment thereof. In addition, upon default by any party in the payment of its share of expenses, interest or fees, or upon the improper use of funds by the Operator, the other parties shall have the right, without prejudice to other rights or remedies, to collect from the purchaser the proceeds from the sale of such defaulting party’s share of oil and gas until the amount owed by such party, plus interest, has been received, and shall have the right to offset the amount owed against the proceeds from the sale of such defaulting party’s share of oil and gas. All purchasers of production may rely on a notification of default from the non-defaulting party or parties stating the amount due as a result of the default, and all parties waive any recourse available against purchasers for releasing production proceeds as provided in this paragraph.

 

D.                           If any party fails to pay its share of expenses within one hundred twenty (120) days after rendition of a statement therefore by Operator, the non-defaulting parties, including Operator, shall, upon request by Operator, pay the unpaid amount in the proportion that the interest of each such party bears to the interest of all such parties. The amount paid by each party so paying its share of the unpaid amount shall be secured by the liens and security rights described in this paragraph 3 and in Article VILE of the Operating Agreement, and each paying party may independently pursue any remedy available under the Operating Agreement or otherwise.

 

E.                            If any party does not perform all of its obligations under this Agreement or the Operating Agreement, and the failure to perform subjects such party to foreclosure or execution proceedings pursuant to the provisions of this Agreement or the Operating Agreement, to the extent allowed by governing law, the defaulting party waives any available right of redemption from and after the date of judgment, any required valuation or appraisement of the mortgaged or secured property prior to sale, any available right to stay execution or to require a marshalling of assets and any required bond in the event a receiver is appointed. In addition, to the extent permitted by applicable law, each party hereby grants to the other parties a power of sale as to any property that is subject to the lien and security rights granted hereunder or under the Operating Agreement, such power to be exercised in the manner provided by applicable law or otherwise in a commercially reasonable manner and upon reasonable notice.

 

F.                             The lien and security interest granted by this paragraph 3 supplements identical rights granted under the Operating Agreement.

 

G.                          To the extent permitted by applicable law, Non-Operators agree that Operator may invoke or utilize the mechanics’ or materialmen’s lien law of the state in which the Contract Area is situated in order to secure the payment to Operator of any sum due under this Agreement and the Operating Agreement for services performed or materials supplied by Operator.

 

H.                          The above described security will be financed at the wellhead of the well or wells located on the Contract Area and this Memorandum of Operating Agreement and Financing Statement may be filed in the land records in the County in which the Contract Area is located, and as a financing statement in all recording offices required under the Uniform Commercial Code or other applicable state statutes to perfect the above described security interest, and any party hereto may file a continuation statement as necessary under the Uniform Commercial Code, or other state laws.

 

This Agreement shall be effective as of the date of the Operating Agreement as above recited. Upon termination of this Agreement and the Operating Agreement and the satisfaction of all obligations thereunder, Operator is authorized to file of record in all necessary recording offices a notice of termination, and upon the request of Operator, each party hereto agrees to execute such a notice of termination as to Operator’s interest, if Operator has complied with all of its financial obligations.

 

5.                            This Agreement and the Operating Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective heirs, devisees, legal representatives, successors and assigns. Every sale, encumbrance, transfer or other disposition made by any party of any interest in the Oil and Gas Leases subject hereto shall be made expressly subject to this Agreement and the Operating

 

 

Agreement and without prejudice to the rights of the other parties. The assignee of an ownership interest in any Oil and Gas Lease shall be deemed a party to this Agreement and the Operating Agreement as to the interest assigned from and after the effective date of the transfer of ownership; provided, however, that the other parties shall not be required to recognize any such sale, encumbrance, transfer or other disposition for any purpose hereunder until thirty (30) days after they have received a copy of the instrument of transfer or other satisfactory evidence thereof in writing from the transferor or transferee. No assignment or other disposition of interest by a party shall relieve such party of obligations previously incurred by such party under this Agreement or the Operating Agreement with respect to the interest transferred, including without limitation the obligation of a party to pay all costs attributable to an operation conducted under this Agreement and the Operating Agreement in which such party has agreed to participate prior to making such assignment, and the lien and security interest granted by Article VILB of the Operating Agreement and hereby shall continue to burden the interest transferred to secure payment of any such obligations.

 

6                               In the event of a conflict between the terms and provisions of this Agreement and the terms and provisions of the Operating Agreement, then, as between the parties, the terms and provisions of the Operating Agreement shall control.

 

7.                            This Agreement shall be binding upon each Non-Operator and Operator notwithstanding that this Agreement is not then or thereafter executed by all of the parties to which it is tendered or which are listed on Exhibit “A” as owning an interest in the Contract Area or which own, in fact, an interest in the Contract Area. In the event that any provision herein is illegal or unenforceable, the remaining provisions shall not be affected, and shall be enforced as if the illegal or unenforceable provision did not appear herein.

 

IN WITNESS WHEREOF, this Agreement shall be effective as of the            day of                    201.

 

 

	
 
    	
OPERATOR:
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
By:
    	
 
    
	
 
    	
Name:
    	
 
    
	
 
    	
Title:
    	
 
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
NON-OPERATORS:
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
By:
    	
 
    
	
 
    	
Name:
    	
 
    
	
 
    	
Title:
    	
 
    
				

 

 

ACKNOWLEDGMENTS

 

STATE OF              

 

COUNTY OF              

 

On this            day of                            , 201  , before me, the undersigned, a Notary Public in and for said County and State, personally appeared                                      , to me known to be the identical person who executed the within and foregoing instrument, as                             of                                         , and acknowledged to me that he executed the same as his free and voluntary act and deed and as the free and voluntary act and deed of said limited liability company, for the uses and purposes therein set forth.

 

GIVEN UNDER MY HAND AND SEAL OF OFFICE THE DAY AND YEAR LAST ABOVE WRITTEN.

 

	
My Commission Expires:
    	
 
    
	
 
    	
Notary   Public in and for
    
	
 
    	
County, State of
    

 

 

STATE OF              

 

COUNTY OF              

 

On this            day of                            , 201, before me, the undersigned, a Notary Public in and for said County and State, personally appeared                                      , to me known to be the identical person who executed the within and foregoing instrument, as                              of                                         and acknowledged to me that he executed the same as his free and voluntary act and deed and as the free and voluntary act and deed of said corporation, for the uses and purposes therein set forth.

 

GIVEN UNDER MY HAND AND SEAL OF OFFICE THE DAY AND YEAR LAST ABOVE WRITTEN.

 

	
My Commission Expires:
    	
 
    
	
 
    	
Notary   Public in and for
    
	
 
    	
County, State of
    

 

 

EXHIBIT “A”

 

Attached to and made a part of that certain Memorandum of Operating Agreement and Financing Statement effective the         day of                          , 201  , by and between Orion Exploration Partners, LLC, Operator, and the Signatory Parties thereto, Non-Operators.

 

I.                         DESCRIPTION OF LANDS SUBJECT TO THIS AGREEMENT

 

All of the AMI lands in         County, Oklahoma, , and the oil and gas leases and force pooling order listed below, including any extensions, renewals or replacements thereof.

 

IL DEPTH RESTRICTIONS 

 

None.

 

Ill WORKING INTEREST OWNERSHIP / SIGNATORY PARTIES

 

	
WI Owner
    	
 
    	
W I %
    	
 
    
	
 
    	
 
    	
 
    	
 
    
	
Operator Name 
    	
 
    	
 
    	
 
    
	
Address
    	
 
    	
 
    	
 
    
	
City and State
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    
	
(Participant) 
    	
 
    	
 
    	
 
    
	
Address 
    	
 
    	
 
    	
 
    
	
City/State
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
100.00000
    	
%
    

 

IV. OIL AND GAS LEASES AND FORCE POOLED INTERESTS SUBJECT TO THIS AGREEMENT

 

1.     Lessor:

Lessee:

Lease Date: 

Recordation: 

Description:

 

2.     Lessor:

Lessee:

Lease Date: 

Recordation: 

Description:

 

3.     Force Pooling Order No.

 

 

Prepared by                                  (  / /li

 

 

	

    	
ORION Exploration Partners, LLC 
    	
www.orionexploration.com
    
	
 
    	
 
    	
 
    
					

 

EXHIBIT “E-1”

 

Attached To that certain Participation and AMI Agreement, by and between Orion Exploration Partners, LLC and Evolution Petroleum OK, Inc. dated April 17, 2012

 

See attached.

 

 

EXHIBIT E-1 to the Participation and AMI Agreement

 

Orion Exploration, LLC.

 

7129 South Riverside Drive, Tulsa, Ok. 74136-5053

‘ESTIMATE OF COSTS AND AUTHORIZATION FOR EXPENDITURE

 

	
WELL NAME    Hercyk SWD 1-31
    	
DATE    3/2/2012
    
	
FIELD/AREA    Cowboy
    	
DISTRICT
    
	
COUNTY/STATE    Kay/Oklahoma
    	
AFE NUMBER
    
	
OPERATOR    Orion
    	
COMPANY W. I.
    
	
T.D./OBJECTIVE    5800’/Arbuckle-Granite
    	
BILLING CODE
    
	
LEASE COMPANY NO.
    	
COST CENTER
    
	
LEASE SERIAL NO.
    	
REQ. START DATE
    
	
LEGAL DESCRIPTION    Sec.31-T27N-R2E
    	
REQ. COMPLETION DATE
    
	
DESCRIPTION OF WORK    Drill   and Complete a large capacity SWD for Cowboy Prospect
    

 

INTANGIBLE COSTS

 

	
ACCOUNT
    	
 
    	
DRY HOLE
    	
 
    	
PRODUCER
    	
 
    
	
710-00 DRILLING (IDC)
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
710-02 Land and Legal
    	
 
    	
2,500
    	
 
    	
2,500
    	
 
    
	
710-11 Surveying and Permits
    	
 
    	
2,000
    	
 
    	
2,000
    	
 
    
	
710-12 Damages, Right-Of-Way, Cleanup
    	
 
    	
7,500
    	
 
    	
7,500
    	
 
    
	
710-14 Drilling Supervision
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
710-16 Location Cost, Road, Dirt Work
    	
 
    	
35,000
    	
 
    	
35,000
    	
 
    
	
710-04 Drilling and Engineering Consultant
    	
 
    	
15,000
    	
 
    	
15,000
    	
 
    
	
710-21 Conductor Hole and Services
    	
 
    	
8,000
    	
 
    	
8,000
    	
 
    
	
710-15 Water and Water Hauling
    	
 
    	
5,000
    	
 
    	
5,000
    	
 
    
	
Drilling Contract
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
Turnkey Contract
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
710-23 
    	
Move, Rig Up & Down
    	
 
    	
25,000
    	
 
    	
25,000
    	
 
    
	
710-24 
    	
Footage 
    	
ft c 
    	
 
    	
S/ft
    	
 
    	
0.-
    	
 
    	
0
    	
 
    
	
710-25 
    	
Day Work 
    	
days @ 
    	
 
    	
S/day
    	
 
    	
150,000
    	
 
    	
150,000
    	
 
    
	
710-25 
    	
Day Work 
    	
days @ 
    	
 
    	
S/day
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
710-26 Fuel
    	
 
    	
40,000
    	
 
    	
40,000
    	
 
    
	
710-30 Drilling Mud and Additives
    	
 
    	
15,000
    	
 
    	
15,000
    	
 
    
	
710-34 Bits and Reamers
    	
 
    	
30,000
    	
 
    	
30,000
    	
 
    
	
710-35 Rental Drill String
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
710-36 Surface Equipment Rentals
    	
 
    	
22,000
    	
 
    	
22,000
    	
 
    
	
710-33 Cement & Cementing - Casing (Surface/Intermediate)
    	
 
    	
15,000
    	
 
    	
15,000
    	
 
    
	
730-08 Cement & Cementing - Casing (Production)
    	
 
    	
 
    	
 
    	
25,000
    	
 
    
	
710-27 Drill Stern Tests
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
710-28 Coring and Core Analysis
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
710-29 Mud Logging Services
    	
 
    	
14,000
    	
 
    	
14,000
    	
 
    
	
710-31 Open Hole Logs
    	
 
    	
35,000
    	
 
    	
35,000
    	
 
    
	
710-32 Directional Services and Equipment
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
710-07 Geological Consultant
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
710-17 Freight and Trucking
    	
 
    	
8,000
    	
 
    	
8,000
    	
 
    
	
710-18 Contract Labor
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
710-19 Casing Liner Setting Tools & Service
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
710-22 Power Tongs and Casing Crews
    	
 
    	
10,000
    	
 
    	
18,000
    	
 
    
	
710-37 Supplies and Misc. Drilling
    	
 
    	
8,000
    	
 
    	
8,000
    	
 
    
	
710-38 Fishing
    	
 
    	
1,000
    	
 
    	
1,000
    	
 
    
	
710-13 Plugging Charges
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
710-05 Drilling Overhead
    	
 
    	
9,000
    	
 
    	
9,000
    	
 
    
	
710-10 Mud Disposal and pit reclaimation
    	
 
    	
20,000
    	
 
    	
20,000
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
COMPLETION (ICC)
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
730-01 General
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
730-11 Wireline Services
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
730-19 Completion Rig 
    	
days c 
    	
S/day
    	
 
    	
 
    	
 
    	
18,000
    	
 
    
	
730-25 Completion Tool Rentals
    	
 
    	
 
    	
 
    	
10,000
    	
 
    
	
730-28 Cased Hole Logs
    	
 
    	
 
    	
 
    	
5,000
    	
 
    
	
730-14 Formation Stimulation
    	
 
    	
 
    	
 
    	
40,000
    	
 
    
	
730-20 Completion Supervision - Co.
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
730-06 Completion Consultant
    	
 
    	
 
    	
 
    	
10,000
    	
 
    
	
730-26 Well Test Contractor
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
730-10 Perforating
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
730-16 Water and Water Hauling
    	
 
    	
 
    	
 
    	
5,000
    	
 
    
	
730-05 Trucking
    	
 
    	
 
    	
 
    	
5,000
    	
 
    
	
730-03 Supplies
    	
 
    	
 
    	
 
    	
3,000
    	
 
    
	
730-24 Pipeline Tap
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
730-22 Completion/Roustabout Service
    	
 
    	
 
    	
 
    	
15,000
    	
 
    
	
730:02   Roads & location
    	
 
    	
 
    	
 
    	
10,000
    	
 
    
	
730-15 Surface Equipment Rentals
    	
 
    	
 
    	
 
    	
6,000
    	
 
    
	
730-21 Completion Overhead
    	
 
    	
 
    	
 
    	
3,000
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
TOTAL INTANGIBLES
    	
 
    	
$
    	
477,000
    	
 
    	
$
    	
640,000
    	
 
    
													

 

 

TANGIBLE MATERIAL COSTS

 

	
ACCT. CODE
    	
 
    	
DRY HOLE
    	
 
    	
PRODUCER
    	
 
    
	
.840.xxx EQUIPMENT
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
DRILLING
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Casing
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
710-20 
    	
Conductor
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
710-20 
    	
Surface
    	
 
    	
10,000
    	
 
    	
10,000
    	
 
    
	
710-20 
    	
Intermediate
    	
 
    	
150,000
    	
 
    	
150,000
    	
 
    
	
130-15 
    	
Production / Liner
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
COMPLETION
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
130-20 Tubing
    	
 
    	
 
    	
 
    	
100,000
    	
 
    
	
130-05 Casing Heads,TubIng Heads, Xmas tree
    	
 
    	
5,000
    	
 
    	
25,000
    	
 
    
	
130-06 Miscellaneous Wellhead Equipment
    	
 
    	
 
    	
 
    	
2,000
    	
 
    
	
130-02 Bridge Plugs and Packers
    	
 
    	
 
    	
 
    	
10,000
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
PRODUCTION
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
130-25 Rod String
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
72300 Subsurface Pumps
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
130-65 Pumping Unit
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
130-70 Prime Mover
    	
 
    	
 
    	
 
    	
115,000
    	
 
    
	
130-35 Valves, Fittings and Pipe
    	
 
    	
 
    	
 
    	
35,000
    	
 
    
	
130-30 Gas Production Unit
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
72555 Dehydrator
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
130-45 Stock Tanks and Stairs
    	
 
    	
 
    	
 
    	
35,000
    	
 
    
	
130-50 Separators/FWKO
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
72565 Heater-Treater/3 phase separator
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
130-85 Miscellaneous Lease Equipment /Electrical Service
    	
 
    	
 
    	
 
    	
40,000
    	
 
    
	
130-22 Pipelines
    	
 
    	
 
    	
 
    	
5,000
    	
 
    
	
130-40 Lateral Lines
    	
 
    	
 
    	
 
    	
5,000
    	
 
    
	
130-60 Meter Run & Flow Meter
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
130-73 Compressor
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
730-23 Installation - Labor
    	
 
    	
 
    	
 
    	
35,000
    	
 
    
	
730-09 Right-of-Way and Archaeology
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
730-17 Survey
    	
 
    	
 
    	
 
    	
1,000
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
TOTAL TANGIBLES
    	
 
    	
$
    	
165,000
    	
 
    	
$
    	
568,000
    	
 
    
	
TOTAL CONTIGENCIES
    	
 
    	
$
    	
15,000
    	
 
    	
$
    	
20,000
    	
 
    
	
GRAND TOTAL WELL COST
    	
 
    	
$
    	
657,000
    	
 
    	
$
    	
1,228,000
    	
 
    
	
COMPANY NET SHARE OF COSTS
    	
 
    	
$
    	
0
    	
 
    	
$
    	
0
    	
 
    

 

Note:              Costs shown are estimates only and approval shall be extended to actual costs

incurred in conducting the work authorized whether the cost is more or less.

 

	
PREPARED BY
    	
 
    	
DATE
    
	
 
    	
 
    	
 
    
	
OPERATIONS MANAGER
    	
 
    	
DATE
    
	
 
    	
 
    	
 
    
	
DIVISION LANDMAN
    	
 
    	
DATE
    
	
 
    	
 
    	
 
    
	
GENERAL MANAGER
    	
 
    	
DATE
    

 

WORKING INTEREST APPROVAL I

 

	
COMPANY
    	
 
    	
WORKING INTEREST
    	
 
    	
APPROVED BY
    	
 
    	
DATE
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
TOTAL
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    

 

	
 
    	
elect to participate
    	
do not elect to   participate
    

 

 

	

    	
ORION   Exploration Partners, LLC
    	
www.orionexploration.com
    

 

EXHIBIT “E-2”

 

Attached To that certain Participation and AMI Agreement, by and between Orion Exploration Partners, LLC and Evolution Petroleum OK, Inc. dated April 17, 2012

 

See attached.

 

 

EXHIBIT E-2 to the Participation and AMI Agreement

 

7129 South Riverside Drive, Tulsa, Ok 74136-5053

 

ESTIMATE OF COSTS AND AUTHORIZATION FOR EXPENDITURE

 

	
WELL NAME    Sneath 1-24H
    	
DATE    3/2/2012
    
	
FIELD/AREA    Cowboy
    	
DISTRICT
    	
 
    
	
COUNTY/STATE    Kay/Oklahoma
    	
AFE NUMBER
    	
 
    
	
OPERATOR    OEP.LLC
    	
COMPANY W. I.
    	
 
    
	
T.D./OBJECTIVE    3750’TVD/Mississippi
    	
BILLING CODE
    	
 
    
	
LEASE COMPANY NO.
    	
COST CENTER
    	
 
    
	
LEASE SERIAL NO.
    	
REQ. START DATE
    	
 
    
	
LEGAL DESCRIPTION    Sec.24-T27N-R1E
    	
REQ. COMPLETION DATE
    	
 
    
	
DESCRIPTION OF WORK    Drill and complete a   horizontal Mississippi producer
    	
 
    

 

INTANGIBLE COSTS

 

	
ACCOUNT
    	
 
    	
DRY HOLE
    	
 
    	
PRODUCER
    	
 
    
	
710-00 DRILLING (IDC)
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
710-02 Land and Legal
    	
 
    	
10,000
    	
 
    	
10,000
    	
 
    
	
710-11 Surveying and Permits
    	
 
    	
1,000
    	
 
    	
1,000
    	
 
    
	
710-12 Damages, Right-Of-Way, Cleanup
    	
 
    	
20,000
    	
 
    	
20,000
    	
 
    
	
710-14 Drilling Supervision
    	
 
    	
1,000
    	
 
    	
2,000
    	
 
    
	
710-16 Location Cost, Road, Dirt Work
    	
 
    	
40,000
    	
 
    	
40,000
    	
 
    
	
710-04 Drilling and Engineering Consultant
    	
 
    	
30,000
    	
 
    	
30,000
    	
 
    
	
710-21 Conductor Hole and Services
    	
 
    	
10,000
    	
 
    	
10,000
    	
 
    
	
710-15 Water and Water Hauling
    	
 
    	
6,000
    	
 
    	
6,000
    	
 
    
	
Drilling Contract
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
Turnkey Contract
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
710-23 
    	
Move, Rig Up &   Down
    	
 
    	
35,000
    	
 
    	
35,000
    	
 
    
	
710-24
    	
Footage
    	
ft @
    	
$/ft
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
710-25
    	
Day Work
    	
days @
    	
$/day
    	
 
    	
300,000
    	
 
    	
300,000
    	
 
    
	
710-25
    	
Day Work
    	
days @
    	
$/day
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
710-26 Fuel
    	
 
    	
75,000
    	
 
    	
75,000
    	
 
    
	
710-30 Drilling Mud and Additives
    	
 
    	
45,000
    	
 
    	
45,000
    	
 
    
	
710-34 Bits and Reamers
    	
 
    	
50,000
    	
 
    	
50,000
    	
 
    
	
710-35 Rental Drill String
    	
 
    	
35,000
    	
 
    	
35,000
    	
 
    
	
710-36 Surface Equipment Rentals
    	
 
    	
40,000
    	
 
    	
40,000
    	
 
    
	
710-33 Cement & Cementing - Casing (Surface/Intermediate)
    	
 
    	
20,000
    	
 
    	
20,000
    	
 
    
	
730-08 Cement & Cementing - Casing (Production)
    	
 
    	
 
    	
 
    	
20,000
    	
 
    
	
710-27 Drill Stem Tests
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
710-28 Coring and Core Analysis
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
710-29 Mud Logging Services
    	
 
    	
17,000
    	
 
    	
17,000
    	
 
    
	
710-31 Open Hole Logs
    	
 
    	
50,000
    	
 
    	
50,000
    	
 
    
	
710-32 Directional Services and Equipment
    	
 
    	
225,000
    	
 
    	
225,000
    	
 
    
	
710-07 Geological Consultant
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
710-17 Freight and Trucking
    	
 
    	
10,000
    	
 
    	
10,000
    	
 
    
	
710-18 Contract Labor
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
710-19 Casing Liner Setting Tools & Service
    	
 
    	
 
    	
 
    	
10,000
    	
 
    
	
710-22 Power Tongs and Casing Crews
    	
 
    	
8,000
    	
 
    	
18,000
    	
 
    
	
710-37 Supplies and Misc. Drilling
    	
 
    	
15,000
    	
 
    	
15,000
    	
 
    
	
710-38 Fishing
    	
 
    	
1,000
    	
 
    	
1,000
    	
 
    
	
710-13 Plugging Charges
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
710-05 Drilling Overhead
    	
 
    	
5,000
    	
 
    	
5,000
    	
 
    
	
710-10 Mud Disposal and pit reclaimation
    	
 
    	
35,000
    	
 
    	
35,000
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
COMPLETION (ICC)
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
730-01 General
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
730-11 Wireline Services
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
730-19 Completion Rig
    	
days @
    	
$/day
    	
 
    	
 
    	
 
    	
32,000
    	
 
    
	
730-25 Completion Tool Rentals
    	
 
    	
 
    	
 
    	
15,000
    	
 
    
	
730-28 Cased Hole Logs
    	
 
    	
 
    	
 
    	
5,000
    	
 
    
	
730-14 Formation Stimulation
    	
 
    	
 
    	
 
    	
610,000
    	
 
    
	
730-20 Completion Supervision - Co.
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
730-06 Completion Consultant
    	
 
    	
 
    	
 
    	
10,000
    	
 
    
	
730-26 Well Test Contractor
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
730-10 Perforating
    	
 
    	
 
    	
 
    	
70,000
    	
 
    
	
730-16 Water and Water Hauling
    	
 
    	
 
    	
 
    	
80,000
    	
 
    
	
730-05 Trucking
    	
 
    	
 
    	
 
    	
5,000
    	
 
    
	
730-03 Supplies
    	
 
    	
 
    	
 
    	
5,000
    	
 
    
	
730-24 Pipeline Tap
    	
 
    	
 
    	
 
    	
20,000
    	
 
    
	
730-22 Completion/Roustabout Service
    	
 
    	
 
    	
 
    	
20,000
    	
 
    
	
730-02 Roads & location
    	
 
    	
 
    	
 
    	
8,000
    	
 
    
	
730-15 Surface Equipment Rentals
    	
 
    	
 
    	
 
    	
50,000
    	
 
    
	
730-21 Completion Overhead
    	
 
    	
 
    	
 
    	
3,000
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
TOTAL INTANGIBLES
    	
 
    	
$
    	
1,084,000
    	
 
    	
$
    	
2,058,000
    	
 
    
												

 

 

TANGIBLE MATERIAL COSTS

 

	
ACCT. CODE
    	
 
    	
DRY HOLE
    	
 
    	
PRODUCER
    	
 
    
	
.840.m EQUIPMENT
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
DRILLING
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Casing
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
710-20
    	
Conductor
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
710-20
    	
Surface
    	
500’ of 9 5/8”
    	
 
    	
12,000
    	
 
    	
12,000
    	
 
    
	
710-20
    	
Intermedlati 5000’ of 7”
    	
 
    	
110,000
    	
 
    	
110,000
    	
 
    
	
130-15
    	
Production / Liner
    	
4200’ of 4 112”
    	
 
    	
 
    	
 
    	
40,000
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
COMPLETION
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
130-20 Tubing
    	
 
    	
 
    	
 
    	
28,000
    	
 
    
	
130.05 Casing Heads,Tubing Heads, Xmas tree
    	
 
    	
5,000
    	
 
    	
16,000
    	
 
    
	
130-06 Miscellaneous Wellhead Equipment
    	
 
    	
 
    	
 
    	
2,000
    	
 
    
	
130-02 Bridge Plugs and Packers
    	
 
    	
 
    	
 
    	
35,000
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
PRODUCTION
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
130-25 Rod String
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
72300 Subsurface Pumps
    	
 
    	
 
    	
 
    	
160,000
    	
 
    
	
130-65 Pumping Unit
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
130-70 Prime Mover
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
130-35 Valves, Fittings and Pipe
    	
 
    	
 
    	
 
    	
35,000
    	
 
    
	
130-30 Gas Production Unit
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
72555 Dehydrator
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
130-45 Stock Tanks and Stairs
    	
 
    	
 
    	
 
    	
35,000
    	
 
    
	
130-50 Separators/FWKO
    	
 
    	
 
    	
 
    	
25,000
    	
 
    
	
72565      Heater-Treater/3 phase   seperator
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
130.85 Miscellaneous Lease Equipment /Electrical Service
    	
 
    	
 
    	
 
    	
35,000
    	
 
    
	
130-22 Pipelines
    	
 
    	
 
    	
 
    	
115,000
    	
 
    
	
130-40 Lateral Lines
    	
 
    	
 
    	
 
    	
15,000
    	
 
    
	
130-60 Meter Run & Flow Meter
    	
 
    	
 
    	
 
    	
4,000
    	
 
    
	
130-73 Compressor
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
730-23 Installation - Labor
    	
 
    	
 
    	
 
    	
25,000
    	
 
    
	
730-09 Right-of-Way and Archaeology
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
730-17 Survey
    	
 
    	
 
    	
 
    	
1,000
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
TOTAL TANGIBLES
    	
 
    	
$
    	
127,000
    	
 
    	
$
    	
693,000
    	
 
    
	
TOTAL CONTIGENCIES
    	
 
    	
$
    	
40,000
    	
 
    	
$
    	
50,000
    	
 
    
	
GRAND TOTAL WELL COST
    	
 
    	
$
    	
1,251,000
    	
 
    	
$
    	
2,801,000
    	
 
    
	
COMPANY NET SHARE OF COSTS
    	
 
    	
$
    	
0
    	
 
    	
$
    	
0
    	
 
    
											

 

Note:              Costs shown are estimates only and approval shall be extended to actual costs incurred in conducting the work authorized whether the cost is more or less.

 

	
PREPARED BY
    	
DATE
    
	
 
    	
 
    
	
OPERATIONS MANAGER
    	
DATE
    
	
 
    	
 
    
	
DIVISION LANDMAN
    	
DATE
    
	
 
    	
 
    
	
GENERAL MANAGER
    	
DATE
    

 

WORKING INTEREST APPROVAL

 

	
COMPANY
    	
 
    	
WORKING INTEREST
    	
 
    	
APPROVED BY
    	
 
    	
DATE
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
TOTAL
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    

 

	
elect   to participate
    	
do not elect to   participate
    

 

 

EXHIBIT “E-3”

 

Attached To that certain Participation and AM’ Agreement, by and between Orion Exploration Partners, LLC and Evolution Petroleum OK, Inc. dated April 17, 2012

 

See attached.

 

 

EXHIBIT E-3 to the Participation and AMI Agreement

 

Orion Exploration, LLC.

 

7129 South Riverside Drive, Tulsa, Ok. 74136-5053

 

ESTIMATE OF COSTS AND AUTHORIZATION FOR EXPENDITURE

 

	
WELL NAME    Hendrickson Trust 1-1 H
    	
DATE    3/2/2012
    
	
FIELD/AREA    Cowboy
    	
DISTRICT
    
	
COUNTY/STATE    Kay/Oklahoma
    	
AFE NUMBER
    
	
OPERATOR    OEP.LLC
    	
COMPANY W. I.
    
	
T.D./OBJECTIVE    3750’TVD/Mississippi
    	
BILLING CODE
    
	
LEASE COMPANY NO.
    	
COST CENTER
    
	
LEASE SERIAL NO.
    	
REQ. START DATE
    
	
LEGAL DESCRIPTION    Sec. 1-T26N-R1E
    	
REQ. COMPLETION DATE    producer   (Including seismic for the section)
    
	
DESCRIPTION OF WORK    Drill and complete a   horizontal Mississippi
    

 

INTANGIBLE COSTS

 

	
ACCOUNT
    	
 
    	
DRY HOLE
    	
 
    	
PRODUCER
    	
 
    
	
710-00 DRILLING (IDC)
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
710-02 Land and Legal
    	
 
    	
10,000
    	
 
    	
10,000
    	
 
    
	
710-11 Surveying and Permits, including seismic
    	
 
    	
70,000
    	
 
    	
70,000
    	
 
    
	
710-12 Damages, Right-Of-Way, Cleanup
    	
 
    	
20,000
    	
 
    	
20,000
    	
 
    
	
710-14 Drilling Supervision
    	
 
    	
1,000
    	
 
    	
2,000
    	
 
    
	
710-16 Location Cost, Road, Dirt Work
    	
 
    	
40,000
    	
 
    	
40,000
    	
 
    
	
710-04 Drilling and Engineering Consultant
    	
 
    	
30,000
    	
 
    	
30,000
    	
 
    
	
710-21 Conductor Hole and Services
    	
 
    	
10,000
    	
 
    	
10,000
    	
 
    
	
710-15 Water and Water Hauling
    	
 
    	
6,000
    	
 
    	
6,000
    	
 
    
	
Drilling Contract
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
Turnkey Contract
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
710-23
    	
Move, Rig Up & Down
    	
 
    	
35,000
    	
 
    	
35,000
    	
 
    
	
710-24
    	
Footage
    	
ft @
    	
$/ft
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
710-25
    	
Day Work
    	
days (§)
    	
$/day
    	
 
    	
300,000
    	
 
    	
300,000
    	
 
    
	
710-25
    	
Day Work
    	
days ig)
    	
$/day
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
710-26 Fuel
    	
 
    	
75,000
    	
 
    	
75,000
    	
 
    
	
710-30 Drilling Mud and Additives
    	
 
    	
45,000
    	
 
    	
45,000
    	
 
    
	
710-34 Bits and Reamers
    	
 
    	
50,000
    	
 
    	
50,000
    	
 
    
	
710-35 Rental Drill String
    	
 
    	
35,000
    	
 
    	
35,000
    	
 
    
	
710-36 Surface Equipment Rentals
    	
 
    	
40,000
    	
 
    	
40,000
    	
 
    
	
710-33 Cement & Cementing - Casing (Surface/Intermediate)
    	
 
    	
20,000
    	
 
    	
20,000
    	
 
    
	
730-08 Cement & Cementing - Casing (Production)
    	
 
    	
 
    	
 
    	
20,000
    	
 
    
	
710-27 Drill Stem Tests
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
710-28 Coring and Core Analysis
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
710-29 Mud Logging Services
    	
 
    	
17,000
    	
 
    	
17,000
    	
 
    
	
710-31 Open Hole Logs
    	
 
    	
50,000
    	
 
    	
50,000
    	
 
    
	
710-32 Directional Services and Equipment
    	
 
    	
225,000
    	
 
    	
225,000
    	
 
    
	
710-07 Geological Consultant
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
710-17 Freight and Trucking
    	
 
    	
10,000
    	
 
    	
10,000
    	
 
    
	
710-18 Contract Labor
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
710-19 Casing Liner Setting Tools & Service
    	
 
    	
 
    	
 
    	
10,000
    	
 
    
	
710-22 Power Tongs and Casing Crews
    	
 
    	
8,000
    	
 
    	
18,000
    	
 
    
	
710-37 Supplies and Misc. Drilling
    	
 
    	
15,000
    	
 
    	
15,000
    	
 
    
	
710-38 Fishing
    	
 
    	
1,000
    	
 
    	
1,000
    	
 
    
	
710-13 Plugging Charges
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
710-05 Drilling Overhead
    	
 
    	
5,000
    	
 
    	
5,000
    	
 
    
	
710-10 Mud Disposal and   pit reclaimation
    	
 
    	
35,000
    	
 
    	
35,000
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
COMPLETION (ICC)
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
730-01 General
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
730-11 Wireline Services
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
730-19 Completion Rig
    	
days @
    	
$/day
    	
 
    	
 
    	
 
    	
32,000
    	
 
    
	
730-25 Completion Tool Rentals
    	
 
    	
 
    	
 
    	
15,000
    	
 
    
	
730-28 Cased Hole Logs
    	
 
    	
 
    	
 
    	
5,000
    	
 
    
	
730-14 Formation Stimulation
    	
 
    	
 
    	
 
    	
610,000
    	
 
    
	
730-20 Completion Supervision - Co.
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
730-06 Completion Consultant
    	
 
    	
 
    	
 
    	
10,000
    	
 
    
	
730-26 Well Test Contractor
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
730-10 Perforating
    	
 
    	
 
    	
 
    	
70,000
    	
 
    
	
730-16 Water and Water Hauling
    	
 
    	
 
    	
 
    	
80,000
    	
 
    
	
730-05 Trucking
    	
 
    	
 
    	
 
    	
5,000
    	
 
    
	
730-03 Supplies
    	
 
    	
 
    	
 
    	
5,000
    	
 
    
	
730-24 Pipeline Tap
    	
 
    	
 
    	
 
    	
20,000
    	
 
    
	
730-22 Completion/Roustabout Service
    	
 
    	
 
    	
 
    	
20,000
    	
 
    
	
730-02 Roads & location
    	
 
    	
 
    	
 
    	
8,000
    	
 
    
	
730-15 Surface Equipment Rentals
    	
 
    	
 
    	
 
    	
50,000
    	
 
    
	
730-21 Completion Overhead
    	
 
    	
 
    	
 
    	
3,000
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
TOTAL INTANGIBLES
    	
 
    	
$
    	
1,153,000
    	
 
    	
$
    	
2,127,000
    	
 
    
													

 

 

I TANGIBLE MATERIAL COSTS

 

	
ACCT. CODE
    	
 
    	
DRY HOLE
    	
 
    	
PRODUCER
    	
 
    
	
.840.xxx EQUIPMENT
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
DRILLING
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Casing
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
710-20
    	
Conductor
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
710-20
    	
Surface
    	
500’ of 9 5/8”
    	
 
    	
12,000
    	
 
    	
12,000
    	
 
    
	
710-20
    	
Intermediate 5000’ of 7”
    	
 
    	
110,000
    	
 
    	
110,000
    	
 
    
	
130-15
    	
Production / Liner
    	
4200’ of 4 1/2”
    	
 
    	
 
    	
 
    	
40,000
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
COMPLETION
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
130-20 Tubing
    	
 
    	
 
    	
 
    	
28,000
    	
 
    
	
130-05 Casing Heads,Tubing Heads, Xmas tree
    	
 
    	
5,000
    	
 
    	
16,000
    	
 
    
	
130-06 Miscellaneous Wellhead Equipment
    	
 
    	
 
    	
 
    	
2,000
    	
 
    
	
130-02 Bridge Plugs and Packers
    	
 
    	
 
    	
 
    	
35,000
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
PRODUCTION
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
130-25 Rod String
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
72300 Subsurface Pumps
    	
 
    	
 
    	
 
    	
180,000
    	
 
    
	
130-65 Pumping Unit
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
130-70 Prime Mover
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
130-35 Valves, Fittings and Pipe
    	
 
    	
 
    	
 
    	
35,000
    	
 
    
	
130-30 Gas Production Unit
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
72555 Dehydrator
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
130-45 Stock Tanks and Stairs
    	
 
    	
 
    	
 
    	
35,000
    	
 
    
	
130-50 Separators/FWKO
    	
 
    	
 
    	
 
    	
25,000
    	
 
    
	
72565 Heater-Treater/3 phase seperator
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
130-85 Miscellaneous Lease Equipment /Electrical Service
    	
 
    	
 
    	
 
    	
35,000
    	
 
    
	
130-22 Pipelines
    	
 
    	
 
    	
 
    	
115,000
    	
 
    
	
130-40 Lateral Lines
    	
 
    	
 
    	
 
    	
15,000
    	
 
    
	
130-60 Meter Run & Flow Meter
    	
 
    	
 
    	
 
    	
4,000
    	
 
    
	
130-73 Compressor
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
730-23 Installation - Labor
    	
 
    	
 
    	
 
    	
25,000
    	
 
    
	
730-09 Right-of-Way and Archaeology
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
730-17 Survey
    	
 
    	
 
    	
 
    	
1,000
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
TOTAL TANGIBLES
    	
 
    	
$
    	
127,000
    	
 
    	
$
    	
693,000
    	
 
    
	
TOTAL CONTIGENCIES
    	
 
    	
$
    	
40,000
    	
 
    	
$
    	
50,000
    	
 
    
	
GRAND TOTAL WELL COST
    	
 
    	
$
    	
1,320,000
    	
 
    	
$
    	
2,870,000
    	
 
    
	
COMPANY NET SHARE OF COSTS
    	
 
    	
$
    	
0
    	
 
    	
$
    	
0
    	
 
    
											

 

Note:              Costs shown are estimates only and approval shall be extended to actual costs incurred in conducting the work authorized whether the cost is more or less.

 

	
PREPARED BY
    	
DATE
    
	
 
    	
 
    
	
OPERATIONS MANAGER
    	
DATE
    
	
 
    	
 
    
	
DIVISION LANDMAN
    	
DATE
    
	
 
    	
 
    
	
GENERAL MANAGER
    	
DATE
    

 

‘WORKING INTEREST APPROVAL

 

	
COMPANY
    	
 
    	
WORKING INTEREST
    	
 
    	
APPROVED BY
    	
 
    	
DATE
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
TOTAL
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    

 

	
elect to participate
    	
do not elect to participateExhibit 10.1

 

CHEROKEE INC. 2006 INCENTIVE AWARD PLAN

 

NOTICE OF RESTRICTED STOCK AWARD

 

Grantee’s Name and Address:

 

 

You (the “Grantee”) have been granted shares of Common Stock of the Company (the “Award”), subject to the terms and conditions of this Notice of Restricted Stock Award (the “Notice”), the Cherokee Inc. 2006 Incentive Award Plan (the “Plan”), as amended from time to time, and the Restricted Stock Award Agreement (the “Agreement”) attached hereto, as follows.  Unless otherwise defined herein, the terms defined in the Plan shall have the same defined meanings in this Notice.

 

	
Award   Number
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
Date   of Award
    	
 
    	
June     ,   2012
    
	
 
    	
 
    	
 
    
	
Vesting   Commencement Date
    	
 
    	
June 18,   2012
    
	
 
    	
 
    	
 
    
	
Total   Number of Shares
    	
 
    	
 
    
	
of   Common Stock Awarded
    	
 
    	
 
    
	
(the   “Shares”)
    	
 
    	
1,500
    

 

Vesting Schedule:

 

Subject to the Grantee continuing to serve as a Director and other limitations set forth in this Notice, the Plan and the Agreement, the Shares will “vest” in accordance with the following schedule:

 

100% of the Shares shall vest on [Grantee’s retirement from the Board following] the third (3rd) anniversary of the Vesting Commencement Date.

 

In the event of a Change in Control, the death of the Grantee, or, if the Grantee is a Director, the failure of the Grantee to be re-elected to the Board upon standing for such re-election, one hundred percent (100%) of the total number of Shares awarded will accelerate and vest immediately prior to such event.

 

Notwithstanding the foregoing, in the event of the Grantee’s change in status from Director to any other status of Employee or Consultant, and subject to the approval of the Company’s Compensation Committee, the Shares shall continue to vest in accordance with the Vesting Schedule set forth above.

 

For purposes of this Notice and the Agreement, the term “vest” shall mean, with respect to any Shares, that such Shares are no longer subject to forfeiture to the Company.  Shares that have not vested are deemed “Restricted Shares.”  If the Grantee would become vested in a fraction of a Restricted Share, such Restricted Share shall not vest until the Grantee becomes vested in the entire Share.

 

1

 

Except as set forth above, vesting shall cease upon a Termination of Directorship, Termination of Employment or Termination of Consultancy for any reason, excluding death or, if the Grantee is a Director, failure to be re-elected to the Board upon standing for such re-election.  In the event the Grantee’s service is terminated for any other reason, any Restricted Shares held by the Grantee immediately following such termination of service shall be deemed reconveyed to the Company and the Company shall thereafter be the legal and beneficial owner of the Restricted Shares and shall have all rights and interest in or related thereto without further action by the Grantee.  Unless otherwise determined by the Administrator, the foregoing forfeiture provisions set forth in this Notice as to Restricted Shares shall apply to the new capital stock or other property (including cash paid other than as a regular cash dividend) received in exchange for the Shares in consummation of any transaction described in Section 12.3(a) of the Plan and such stock or property shall be deemed Additional Securities (as defined in the Agreement) for purposes of the Agreement, but only to the extent the Shares are at the time covered by such forfeiture provisions.

 

IN WITNESS WHEREOF, the Company and the Grantee have executed this Notice and agree that the Award is to be governed by the terms and conditions of this Notice, the Plan and the Agreement.

 

	
 
    	
Cherokee   Inc.,
    
	
 
    	
a   Delaware corporation
    
	
 
    	
 
    
	
 
    	
By:
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
Name:
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
Title:
    	
 
    

 

THE GRANTEE ACKNOWLEDGES AND AGREES THAT THE SHARES SHALL VEST, IF AT ALL, ONLY DURING THE PERIOD OF THE GRANTEE’S SERVICE (NOT THROUGH THE ACT OF BEING ELECTED, APPOINTED, ENGAGED OR HIRED, BEING GRANTED THIS AWARD OR ACQUIRING SHARES HEREUNDER).  THE GRANTEE FURTHER ACKNOWLEDGES AND AGREES THAT NOTHING IN THIS NOTICE, THE AGREEMENT NOR THE PLAN SHALL CONFER UPON THE GRANTEE ANY RIGHT WITH RESPECT TO CONTINUATION OF THE GRANTEE’S SERVICE, NOR SHALL IT INTERFERE IN ANY WAY WITH THE GRANTEE’S RIGHT OR THE COMPANY’S RIGHT TO TERMINATE THE GRANTEE’S SERVICE AT ANY TIME, WITH OR WITHOUT CAUSE, AND WITH OR WITHOUT NOTICE.  THE GRANTEE ACKNOWLEDGES THAT UNLESS THE GRANTEE HAS A WRITTEN EMPLOYMENT OR SERVICE AGREEMENT WITH THE COMPANY TO THE CONTRARY, THE GRANTEE’S STATUS IS AT WILL.

 

The Grantee acknowledges receipt of a copy of the Plan and the Agreement and represents that he or she is familiar with the terms and provisions thereof, and hereby accepts the Award subject to all of the terms and provisions hereof and thereof.

 

2

 

The Grantee has reviewed this Notice, the Agreement and the Plan in their entirety, has had an opportunity to obtain the advice of counsel prior to executing this Notice and fully understands all provisions of this Notice, the Agreement and the Plan.  The Grantee hereby agrees that all questions of interpretation and administration relating to this Notice, the Plan and the Agreement shall be resolved by the Administrator in accordance with Section 11 of the Agreement.  The Grantee further agrees to the venue selection in accordance with Section 12 of the Agreement.  The Grantee further agrees to notify the Company upon any change in the residence address indicated in this Notice.

 

	
Dated:
    	
 
    	
 
    	
Signed:
    	
 
    

 

3

 

Award Number:                            

 

CHEROKEE INC. 2006 INCENTIVE AWARD PLAN

 

RESTRICTED STOCK AWARD AGREEMENT

 

1.             Issuance of Shares.  Cherokee Inc., a Delaware corporation (the “Company”), hereby issues to the Grantee (the “Grantee”) named in the Notice of Restricted Stock Award (the “Notice”), the Total Number of Shares of Common Stock Awarded set forth in the Notice (the “Shares”), subject to the Notice, this Restricted Stock Award Agreement (the “Agreement”) and the terms and provisions of the Company’s 2006 Incentive Award Plan (the “Plan”), as amended from time to time, which are incorporated herein by reference.  Unless otherwise defined herein, the terms defined in the Plan shall have the same defined meanings in this Agreement.  All Shares issued hereunder will be deemed issued to the Grantee as fully paid and nonassessable shares, and the Grantee will have the right to vote the Shares at meetings of the Company’s stockholders.  The Company shall pay any applicable stock transfer taxes imposed upon the issuance of the Shares to the Grantee hereunder.

 

2.             Transfer Restrictions.  The Shares issued to the Grantee hereunder may not be sold, transferred by gift, pledged, hypothecated, or otherwise transferred or disposed of by the Grantee prior to the date when the Shares become vested pursuant to the Vesting Schedule set forth in the Notice.  Any attempt to transfer Restricted Shares in violation of this Section 2 will be null and void and will be disregarded.

 

3.             Escrow of Stock.  For purposes of facilitating the enforcement of the provisions of this Agreement, the Grantee agrees, immediately upon receipt of the certificate(s) for the Restricted Shares, to deliver such certificate(s), together with an Assignment Separate from Certificate in the form attached hereto as Exhibit A, executed in blank by the Grantee with respect to each such stock certificate, to the Secretary of the Company, or his or her designee, to hold in escrow for so long as such Restricted Shares have not vested pursuant to the Vesting Schedule set forth in the Notice, with the authority to take all such actions and to effectuate all such transfers and/or releases as may be necessary or appropriate to accomplish the objectives of this Agreement in accordance with the terms hereof.  The Grantee hereby acknowledges that the appointment of the Secretary of the Company (or his or her designee) as the escrow holder hereunder with the stated authorities is a material inducement to the Company to make this Agreement and that such appointment is coupled with an interest and is accordingly irrevocable.  The Grantee agrees that the Restricted Shares may be held electronically in a book entry system maintained by the Company’s transfer agent or other third party and that all the terms and conditions of this Section 3 applicable to certificated Restricted Shares will apply with the same force and effect to such electronic method for holding the Restricted Shares.  The Grantee agrees that such escrow holder shall not be liable to any party hereto (or to any other party) for any actions or omissions unless such escrow holder is grossly negligent relative thereto.  The escrow holder may rely upon any letter, notice or other document executed by any signature purported to be genuine and may resign at any time.  Upon the vesting of Restricted Shares, the escrow holder will, without further order or instruction, transmit to the Grantee the certificate evidencing such Shares; provided, however, that no transmittal of certificates evidencing the Shares will occur unless and until the Grantee has satisfied all Tax Withholding Obligations (as defined in Section 5(c) below).

 

1

 

4.             Additional Securities and Distributions.

 

(a)           Any securities or cash received (other than a regular cash dividend) as the result of ownership of the Restricted Shares (the “Additional Securities”), including, but not by way of limitation, warrants, options and securities received as a stock dividend or stock split, or as a result of a recapitalization or reorganization or other similar change in the Company’s capital structure, shall be retained in escrow in the same manner and subject to the same conditions and restrictions as the Restricted Shares with respect to which they were issued, including, without limitation, the Vesting Schedule set forth in the Notice.  The Grantee shall be entitled to direct the Company to exercise any warrant or option received as Additional Securities upon supplying the funds necessary to do so, in which event the securities so purchased shall constitute Additional Securities, but the Grantee may not direct the Company to sell any such warrant or option.  If Additional Securities consist of a convertible security, the Grantee may exercise any conversion right, and any securities so acquired shall constitute Additional Securities.  In the event of any change in certificates evidencing the Shares or the Additional Securities by reason of any recapitalization, reorganization or other transaction that results in the creation of Additional Securities, the escrow holder is authorized to deliver to the issuer the certificates evidencing the Shares or the Additional Securities in exchange for the certificates of the replacement securities.

 

(b)           The Company shall disburse to the Grantee all regular cash dividends with respect to the Shares and Additional Securities (whether vested or not), less any applicable withholding obligations.

 

5.             Taxes.

 

(a)           Tax Liability. The Grantee is ultimately liable and responsible for all taxes owed by the Grantee in connection with the Award, regardless of any action the Company or any Subsidiary takes with respect to any tax withholding obligations that arise in connection with the Award.  Neither the Company nor any Subsidiary makes any representation or undertaking regarding the treatment of any tax withholding in connection with the grant or vesting of the Award or the subsequent sale of Shares subject to the Award.  The Company and its Subsidiaries do not commit and are under no obligation to structure the Award to reduce or eliminate the Grantee’s tax liability.

 

(b)           Payment of Withholding Taxes. Prior to any event in connection with the Award (e.g., vesting) that the Company determines may result in any tax withholding obligation, whether United States federal, state, local or non-U.S., including any employment tax obligation (the “Tax Withholding Obligation”), the Grantee must arrange for the satisfaction of the minimum amount of such Tax Withholding Obligation in a manner acceptable to the Company.

 

(i)            By Share Withholding.  The Grantee authorizes the Company to, upon the exercise of its sole discretion, withhold from those Shares issuable to the Grantee the whole number of Shares sufficient to satisfy the minimum applicable Tax Withholding Obligation.

 

2

 

The Grantee acknowledges that the withheld Shares may not be sufficient to satisfy the Grantee’s minimum Tax Withholding Obligation.  Accordingly, the Grantee agrees to pay to the Company or any Subsidiary as soon as practicable, including through additional payroll withholding, any amount of the Tax Withholding Obligation that is not satisfied by the withholding of Shares described above.

 

(ii)           By Sale of Shares.  Unless the Grantee determines to satisfy the Tax Withholding Obligation by some other means in accordance with clause (iii) below, the Grantee’s acceptance of this Award constitutes the Grantee’s instruction and authorization to the Company and any brokerage firm determined acceptable to the Company for such purpose to sell on the Grantee’s behalf a whole number of Shares from those Shares issuable to the Grantee as the Company determines to be appropriate to generate cash proceeds sufficient to satisfy the minimum applicable Tax Withholding Obligation.  Such Shares will be sold on the day such Tax Withholding Obligation arises (e.g., a vesting date) or as soon thereafter as practicable.  The Grantee will be responsible for all broker’s fees and other costs of sale, and the Grantee agrees to indemnify and hold the Company harmless from any losses, costs, damages, or expenses relating to any such sale.  To the extent the proceeds of such sale exceed the Grantee’s minimum Tax Withholding Obligation, the Company agrees to pay such excess in cash to the Grantee.  The Grantee acknowledges that the Company or its designee is under no obligation to arrange for such sale at any particular price, and that the proceeds of any such sale may not be sufficient to satisfy the Grantee’s minimum Tax Withholding Obligation.  Accordingly, the Grantee agrees to pay to the Company or any Subsidiary as soon as practicable, including through additional payroll withholding, any amount of the Tax Withholding Obligation that is not satisfied by the sale of Shares described above.

 

(iii)          By Check, Wire Transfer or Other Means. At any time not less than five (5) business days (or such fewer number of business days as determined by the Administrator) before any Tax Withholding Obligation arises (e.g., a vesting date), the Grantee may elect to satisfy the Grantee’s Tax Withholding Obligation by delivering to the Company an amount that the Company determines is sufficient to satisfy the Tax Withholding Obligation by (x) wire transfer to such account as the Company may direct, (y) delivery of a certified check payable to the Company, or (z) such other means as specified from time to time by the Administrator.

 

Notwithstanding the foregoing, the Company also may satisfy any Tax Withholding Obligation by offsetting any amounts (including, but not limited to, salary, bonus and severance payments) due to the Grantee by the Company.

 

6.             Stop-Transfer Notices.  In order to ensure compliance with the restrictions on transfer set forth in this Agreement, the Notice or the Plan, the Company may issue appropriate “stop transfer” instructions to its transfer agent, if any, and, if the Company transfers its own securities, it may make appropriate notations to the same effect in its own records.  The Company may issue a “stop transfer” instruction if the Grantee fails to satisfy any Tax Withholding Obligations.

 

7.             Refusal to Transfer.  The Company shall not be required (i) to transfer on its books any Shares that have been sold or otherwise transferred in violation of any of the provisions of this Agreement or (ii) to treat as owner of such Shares or to accord the right to vote or pay dividends to any purchaser or other transferee to whom such Shares shall have been so transferred.

 

3

 

8.             Restrictive Legends.  The Grantee understands and agrees that the Company shall cause the legends set forth below or legends substantially equivalent thereto, to be placed upon any certificate(s) evidencing ownership of the Shares together with any other legends that may be required by the Company or by state or federal securities laws:

 

THE SHARES REPRESENTED BY THIS CERTIFICATE ARE RESTRICTED BY THE TERMS OF THAT CERTAIN RESTRICTED STOCK AWARD AGREEMENT BETWEEN THE COMPANY AND THE NAMED STOCKHOLDER.  THE SHARES REPRESENTED BY THIS CERTIFICATE MAY BE TRANSFERRED ONLY IN ACCORDANCE WITH SUCH AGREEMENT, A COPY OF WHICH IS ON FILE WITH THE SECRETARY OF THE COMPANY.

 

9.             Entire Agreement: Governing Law.  The Notice, the Plan and this Agreement constitute the entire agreement of the parties with respect to the subject matter hereof and supersede in their entirety all prior undertakings and agreements of the Company and the Grantee with respect to the subject matter hereof, and may not be modified adversely to the Grantee’s interest except by means of a writing signed by the Company and the Grantee.  These agreements are to be construed in accordance with and governed by the internal laws of the State of California without giving effect to any choice of law rule that would cause the application of the laws of any jurisdiction other than the internal laws of the State of California to the rights and duties of the parties.  Should any provision of the Notice or this Agreement be determined to be illegal or unenforceable, the other provisions shall nevertheless remain effective and shall remain enforceable.

 

10.           Construction.  The captions used in the Notice and this Agreement are inserted for convenience and shall not be deemed a part of the Award for construction or interpretation.  Except when otherwise indicated by the context, the singular shall include the plural and the plural shall include the singular.  Use of the term “or” is not intended to be exclusive, unless the context clearly requires otherwise.

 

11.           Administration and Interpretation.  Any question or dispute regarding the administration or interpretation of the Notice, the Plan or this Agreement shall be submitted by the Grantee or by the Company to the Administrator.  The resolution of such question or dispute by the Administrator shall be final and binding on all persons.

 

12.           Venue.  The parties agree that any suit, action, or proceeding arising out of or relating to the Notice, the Plan or this Agreement shall be brought in the United States District Court for the Central District of California (or should such court lack jurisdiction to hear such action, suit or proceeding, in a California state court in the County of Los Angeles) and that the parties shall submit to the jurisdiction of such court.  The parties irrevocably waive, to the fullest extent permitted by law, any objection the party may have to the laying of venue for any such suit, action or proceeding brought in such court.

 

4

 

If any one or more provisions of this Section 12 shall for any reason be held invalid or unenforceable, it is the specific intent of the parties that such provisions shall be modified to the minimum extent necessary to make it or its application valid and enforceable.

 

13.           Data Privacy.  The Grantee hereby explicitly and unambiguously consents to the collection, use and transfer, in electronic or other form, of the Grantee’s personal data as described in this Agreement by and among, as applicable, the Grantee’s employer, the Company, and any Subsidiary for the exclusive purpose of implementing, administering and managing the Grantee’s participation in the Plan.  The Grantee understands that the Company or any Subsidiary may hold certain personal information about the Grantee, including, but not limited to, the Grantee’s name, home address and telephone number, date of birth, social security/insurance number or other identification number, salary, nationality, job title, any shares of Common Stock or directorships held in the Company, details of all awards or any other entitlement to shares awarded, canceled, vested, unvested or outstanding in the Grantee’s favor, for the purpose of implementing, administering and managing the Plan (“Data”).  The Grantee understands that Data may be transferred to any third parties assisting in the implementation, administration and management of the Plan, that these recipients may be located in the Grantee’s country, or elsewhere, and that the recipient’s country may have different data privacy laws and protections than the Grantee’s country.  The Grantee understands that the Grantee may request a list with the names and addresses of any potential recipients of the Data by contacting the Grantee’s local human resources representative.  The Grantee authorizes the recipients to receive, possess, use, retain and transfer the Data, in electronic or other form, for the purposes of implementing, administering and managing the Grantee’s participation in the Plan, including any requisite transfer of such Data as may be required to a broker, escrow agent or other third party with whom the Shares received upon vesting of the Award may be deposited.  The Grantee understands that Data will be held pursuant to this Section 13 only as long as is necessary to implement, administer and manage the Grantee’s participation in the Plan.  The Grantee understands that the Grantee may, at any time, view Data, request additional information about the storage and processing of Data, require any necessary amendments to Data or refuse or withdraw the consents herein, in any case without cost, by contacting in writing the Grantee’s local human resources representative.  The Grantee understands that refusal or withdrawal of consent may affect the Grantee’s ability to participate in the Plan.  For more information on the consequences of the Grantee’s refusal to consent or withdrawal of consent, the Grantee understands that the Grantee may contact the Grantee’s local human resources representative.

 

14.           Notices.  Any notice required or permitted hereunder shall be given in writing and shall be deemed effectively given upon personal delivery, upon deposit for delivery by an internationally recognized express mail courier service or upon deposit in the United States mail by certified mail (if the parties are within the United States), with postage and fees prepaid, addressed to the other party at its address as shown in these instruments, or to such other address as such party may designate in writing from time to time to the other party.

 

15.           Language.  If the Grantee has received the Agreement or any other document related to the Plan translated into a language other than English and if the meaning of the translated version is different than the English version, the English version will control.

 

5

 

16.           Electronic Delivery.  The Company may, in its sole discretion, decide to deliver any documents related to current or future participation in the Plan by electronic means.  The Grantee hereby consents to receive such documents by electronic delivery and agrees to participate in the Plan through an on-line or electronic system established and maintained by the Company or a third party designated by the Company.

 

17.           Imposition of Other Requirements.  The Company reserves the right to impose other requirements on the Grantee’s participation in the Plan, on the Award and on any Shares acquired under the Plan, to the extent the Company determines it is necessary or advisable in order to comply with local law or facilitate the administration of the Plan, and to require the Grantee to sign any additional agreements or undertakings that may be necessary to accomplish the foregoing.

 

END OF AGREEMENT

 

6

 

EXHIBIT A

 

STOCK ASSIGNMENT SEPARATE FROM CERTIFICATE

 

FOR VALUE RECEIVED,                               hereby sells, assigns and transfers unto                                               ,                    (            ) shares of the Common Stock of Cherokee Inc., a Delaware corporation (the “Company”), standing in his name on the books of, the Company represented by Certificate No.                    herewith, and does hereby irrevocably constitute and appoint the Secretary of the Company attorney to transfer the said stock in the books of the Company with full power of substitution.

 

 

	
DATED:
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    

 

[Please sign this document but do not date it.  The date and information of the transferee will be completed if and when the shares are assigned.]

 

1

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