Document:

Exhibit 4.5

 

[Form of 1.125% Notes due 2022]

 

THIS NOTE, IS A GLOBAL SECURITY WITHIN THE MEANING OF SECTION 2.05 OF THE INDENTURE HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF THE DEPOSITARY NAMED BELOW OR A NOMINEE OF THE DEPOSITARY. THIS NOTE IS NOT EXCHANGEABLE FOR NOTES REGISTERED IN THE NAME OF A PERSON OTHER THAN THE DEPOSITARY OR ITS NOMINEE EXCEPT IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE INDENTURE, AND NO TRANSFER OF THIS NOTE (OTHER THAN A TRANSFER OF THIS NOTE AS A WHOLE BY THE DEPOSITARY TO A NOMINEE OF THE DEPOSITARY OR BY A NOMINEE OF THE DEPOSITARY TO THE DEPOSITARY OR ANOTHER NOMINEE OF THE DEPOSITARY) MAY BE REGISTERED EXCEPT IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE INDENTURE.

 

UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF CLEARSTREAM BANKING, SOCIÉTÉ ANONYME OR EUROCLEAR BANK S.A./N.V. (THE “DEPOSITARY”), TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF BT GLOBENET NOMINEES LIMITED OR IN SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITARY (AND ANY PAYMENT IS MADE TO BT GLOBENET NOMINEES LIMITED OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITARY), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, BT GLOBENET NOMINEES LIMITED, HAS AN INTEREST HEREIN.

 

THE COCA-COLA COMPANY

 

1.125% Notes due 2022

 

	
No.
    	
 
    	
€
    

 

CUSIP No. 191216BJ8

ISIN No. XS1112678559

Common Code: 111267855

 

THE COCA-COLA COMPANY, a Delaware corporation (hereinafter called the “Company,” which term includes any successor corporation under the Indenture hereinafter referred to), for value received, hereby promises to pay to BT GLOBENET NOMINEES LIMITED (as nominee of the Depositary), or its registered assigns, the principal sum of                                           Euros (€                           ) on September 22, 2022 and to pay interest thereon from September 22, 2014, or from the most recent Interest Payment Date to which interest has been paid or duly provided for, annually on September 22 in each year, commencing September 22, 2015 at the rate of 1.125% per annum until the principal hereof is paid or made available for payment. Interest on the Securities shall be computed on the basis of the actual number of days in the period for which interest is being calculated and the actual number of days from and

 

 

including the last date on which interest was paid on the Securities (or from September 22, 2014, if no interest has been paid on the Securities) to but excluding the next scheduled Interest Payment Date.  This payment convention is referred to as ACTUAL/ACTUAL (ICMA) as defined in the rulebook of the International Capital Market Association.  The interest so payable, and punctually paid or duly provided for, on any Interest Payment Date will, as provided in such Indenture, be paid to the Person in whose name this Security (or one or more Predecessor Securities) is registered at the close of business on the Regular Record Date for such interest, which shall be the Business Day immediately preceding such Interest Payment Date. Any such interest which is payable but is not so punctually paid or duly provided for will forthwith cease to be payable to the Holder on such Regular Record Date and may either be paid to the Person in whose name this Security (or one or more Predecessor Securities) is registered at the close of business on a Special Record Date for the payment of such Defaulted Interest to be fixed by the Trustee, notice whereof shall be given to Holders of Securities of this Series not less than 10 days prior to such Special Record Date, or be paid at any time in any other lawful manner not inconsistent with the requirements of any securities exchange on which the Securities of this Series may be listed, and upon such notice as may be required by such exchange, all as more fully provided in said Indenture.

 

As set forth herein, the Company will pay additional interest on this Security in certain circumstances.

 

If either a date for payment of principal or interest on this Security or the Maturity of this Security falls on a day that is not a Business Day, the related payment of principal or interest will be made on the next succeeding Business Day as if made on the date the payment was due. No interest will accrue on any amounts payable for the period from and after the date for payment of principal of or interest on this Security or the Maturity of this Security provided such payment is made on such next succeeding Business Day. For this purpose, “Business Day” means any day that is not a Saturday or Sunday and that is not a day on which banking institutions are authorized or obligated by law or executive order to close in the City of New York or London and on which the Trans-European Automated Real-time Gross Settlement Express Transfer system (the TARGET2 system), or any successor thereto, operates.

 

Payment of the principal of and interest on this Security will be made at the office or agency of the Company maintained for that purpose in a location agreed upon beween the Company and the Paying Agent; provided, however, that at the option of the Company payment of interest, other than interest at Maturity, or upon redemption, may be made by check drawn upon the Paying Agent and mailed-on or prior to an Interest Payment Date to the address of the Person entitled thereto as such address shall appear in the Securities Register; provided, further, that (1) the Depositary, as Holder of the Securities, or (2) a Holder of more than €5,000,000 in aggregate principal amount of a Series of Securities in definitive form is entitled to require the Paying Agent to make payments of interest, other than interest due at Maturity or upon redemption, by wire transfer of immediately available funds into an account maintained by the Holder in the United States, by sending appropriate wire transfer instructions as long as the Paying Agent receives the instructions not less than ten days prior to the applicable Interest Payment Date. The principal and interest payable on any of the Securities at Maturity, or upon redemption, will be paid by wire transfer of immediately available funds against presentation of

 

 

a Security at the office of the Transfer Agent and Registrar.

 

All payments on this Security will be payable in Euro. If the Euro is unavailable due to the imposition of exchange controls or other circumstances beyond the Company’s control or if the Euro is no longer being used by the then Member States of the European Monetary Union that have adopted the Euro as their currency or for the settlement of transactions by public institutions of or within the international banking community, then all payments in respect of this Security will be made in Dollars until the Euro is again available to the Company or so used. In such circumstance, the amount payable on any date in Euro will be converted into Dollars at the rate mandated by the U.S. Federal Reserve Board as of the close of business on the second Business Day prior to the relevant payment date, or in the event the U.S. Federal Reserve Board has not mandated a rate of conversion, on the basis of the most recent Euro/U.S. Dollar exchange rate available on or prior to the second Business Day prior to the relevant payment date, as reported by Bloomberg. Any payment in respect of this Security so made in Dollars will not constitute an Event of Default under this Security or the Indenture. Neither the Trustee nor the Paying Agent shall have any responsibility for any calculation or conversion in connection with the foregoing.

 

Reference is hereby made to the further provisions of this Security set forth on the reverse hereof, which further provisions shall for all purposes have the same effect as if set forth at this place.

 

Unless the certificate of authentication hereon has been executed by the Trustee referred to on the reverse hereof, directly or through an authenticating agent, by the manual signature of an authorized signatory, this Security shall not be entitled to any benefit under the Indenture or be valid or obligatory for any purpose.

 

 

IN WITNESS WHEREOF, the Company has caused this instrument to be duly executed under its corporate seal.

 

	
Dated:
    	
 
    
	
 
    	
THE COCA-COLA COMPANY
    
	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    
	
 
    	
By:
    	
 
    
	
 
    	
 
    	
Name: 
    	
Larry M. Mark
    
	
 
    	
 
    	
Title:
    	
Vice President and Controller
    
					

 

 

	
Attest:
    	
 
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
 
    
	
Name: 
    	
Gloria K. Bowden
    	
 
    
	
Title:
    	
Secretary
    	
 
    
				

 

(Trustee’s Certificate of Authentication)

 

This is one of the Securities of the Series provided for in the within-mentioned Indenture.

 

	
 
    	
Deutsche Bank Trust Company Americas, as Trustee
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
By:
    	
 
    
	
 
    	
 
    	
Authorized Signatory
    
	
 
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
By:
    	
 
    
	
 
    	
 
    	
Authorized Signatory
    

 

 

[Reverse]

 

This Note (as defined herein) is one of a duly authorized issue of debentures, notes or other evidences of indebtedness of the Company (herein called the “Securities”), issued and to be issued in one or more Series under an Indenture, dated as of April 26, 1988, as amended and supplemented by that First Supplemental Indenture, dated as of February 24, 1992, and by that Second Supplemental Indenture, dated as of November 1, 2007 (as so amended and supplemented, herein called the “Indenture”), between the Company and Bankers Trust Company (now known as Deutsche Bank Trust Company Americas), as Trustee (herein called the “Trustee”, which term includes any successor trustee under the Indenture), to which Indenture and all indentures supplemental thereto reference is hereby made for a statement of the respective rights, limitations of rights, duties and immunities thereunder of the Company, the Trustee and the Holders of the Securities and of the terms upon which the Securities are, and are to be, authenticated and delivered.  The Securities may be issued in one or more Series, which different Series may be issued in various aggregate principal amounts, may mature at different times, may bear interest (if any) at different rates, may be denominated and bear interest, if any, in Dollars or in a Foreign Currency, may be subject to different redemption provisions (if any), may be subject to different sinking, purchase or analogous funds (if any), may be subject to different covenants and Events of Default and may otherwise vary as in the Indenture provided. This Security is one of a Series of Securities of the Company designated as set forth on the face hereof (herein called the “Notes”), limited in aggregate principal amount to €800,000,000.

 

No sinking fund is provided for the Notes.

 

In the event of a deposit or withdrawal of an interest in this Note, including an exchange, redemption or transfer of this Note in part only, the Trustee or its designee, as custodian of the Depositary, shall make an adjustment on its records to reflect such deposit or withdrawal in accordance with the rules and procedures of Euroclear and Clearstream applicable to, and as in effect at the time of, such transaction.

 

If an Event of Default with respect to the Notes shall occur and be continuing, the principal of, and accrued interest on, the Notes may be declared due and payable in the manner and with the effect provided in the Indenture. Upon payment (i) of the amount of principal so declared due and payable and (ii) of interest on any overdue principal and overdue interest (in each case to the extent that the payment of such interest shall be legally enforceable), all of the Company’s obligations in respect of the payment of such principal of and interest, if any, on the Notes shall terminate. The Holders shall have such other rights and remedies after the occurrence and during the continuance of an Event of Default as set forth in the Indenture.

 

The Indenture permits, with certain exceptions as therein provided, the amendment thereof and the modification of the rights and obligations of the Company and the rights of the Holders of the Notes of each Series under the Indenture at any time by the Company and the Trustee with the consent of the Holders of not less than a majority in aggregate principal amount of the Notes at the time outstanding of each Series to be affected by such amendment or modification. The Indenture also contains provisions permitting the Holders of specified percentages in aggregate principal amount of the Notes of each Series at the time outstanding, on

 

 

behalf of the Holders of all Notes of such Series, to waive compliance by the Company with certain provisions of the Indenture and certain past defaults under the Indenture and their consequences. Any such consent or waiver by the Holder of this Note shall be conclusive and binding upon such Holder and upon all future Holders of this Note and of any Note issued upon the registration of transfer hereof or in exchange herefor or in lieu hereof, whether or not notation of such consent or waiver is made upon this Note. The Indenture contains provisions setting forth certain conditions to the institution of proceedings by Holders of Notes with respect to the Indenture or for any remedy under the Indenture. Section 12.01(a) of the Indenture also contains provisions applicable to the Notes relating to the Company’s ability to discharge its obligations with respect to the Notes and under the Indenture with respect to the Notes, upon the deposit of money, German government securities or other government obligations, in an amount sufficient to pay and discharge the principal of and interest on the Notes to the Maturity of the Note, in certain specified circumstances. The defeasance provisions described in Section 12.01(b) of the Indenture will not be applicable to the Notes.  The lien and sale and lease back provisions described in Sections 5.03 and 5.04 of the Indenture will not be applicable to the Notes.

 

Subject to the next preceding sentence hereof, no reference herein to the Indenture and no provision of this Note or of the Indenture shall alter or impair the obligation of the Company, which is absolute and unconditional, to pay the principal of and interest on this Note at the times, place and rate, and in the coin or currency, herein prescribed.

 

This Note is exchangeable for definitive Notes only if (1) the Depositary notifies the Company that it is unwilling or unable to continue as Depositary for this Note and the Company does not appoint a successor Depositary within 90 days after receiving that notice or becoming aware that the Depositary is no longer registered or (2) the Company executes and delivers to the Trustee a Company Order that this Note shall be so exchangeable.  In such case, this Note shall be exchangeable into definitive Notes issuable only in denominations of €100,000 and integral multiples of €1,000 in excess thereof.  No definitive Notes shall be issuable in denominations of less than €100,000.  If this Note is exchanged pursuant to the preceding sentences, it shall be exchangeable for definitive Notes at the office of the Transfer Agent and Registrar, currently located at Deutsche Bank Luxembourg S.A., 2 Boulevard Konrad-Adenauer, L-1115 Luxembourg; email: Lux.Registrar@db.com, fax: +352 47.31.36, Attn: Debt and Agency Services, registered in the name or names that the Depositary gives to the Trustee, bearing interest at the same rate, having the same date of issuance, redemption provisions, Stated Maturity and other terms in registered form and of differing denominations aggregating a like amount.

 

As provided in the Indenture and subject to certain limitations therein set forth, the transfer of this Note is registrable in the Securities Register, upon surrender of this Note for registration of transfer at the office or agency of the Transfer Agent and Registrar, currently located at Deutsche Bank Luxembourg S.A., 2 Boulevard Konrad-Adenauer, L-1115 Luxembourg; email:  Lux.Registrar@db.com, fax: +352 47.31.36, Attn: Debt and Agency Services, or at any other office or agency of the Company where the principal of and interest on this Note are payable, duly endorsed, or accompanied by a written instrument of transfer in form satisfactory to the Company and the Transfer Agent and Registrar, duly executed, by the Holder

 

 

hereof or his attorney duly authorized in writing, and thereupon one or more new Notes, of authorized denominations and for the same aggregate principal amount, will be issued to the designated transferee or transferees.

 

The Notes are issuable only in registered form without coupons and only in minimum denominations of €100,000 and any integral multiple of €1,000 in excess thereof.  As provided in the Indenture and subject to certain limitations therein set forth, this Note is exchangeable for a like aggregate principal amount of Notes of different authorized denominations, as requested by the Holder surrendering the same.

 

No service charge shall be made for any such registration of transfer or exchange, but the Company may require payment of a sum sufficient to cover any tax or other governmental charge payable in connection therewith.

 

The Company may redeem the Notes at its option and at any time, either as a whole or in part. If the Company elects to redeem the Notes, the Company will pay a Redemption Price equal to the greater of:

 

100% of the principal amount of the Notes to be redeemed, plus accrued and unpaid interest; and the sum of the present values of the Remaining Scheduled Payments, plus accrued and unpaid interest.

 

In determining the present value of the Remaining Scheduled Payments, the Company will discount such payments to the Redemption Date on an annual basis (ACTUAL/ACTUAL (ICMA)) at the applicable Comparable Government Bond Rate, plus 10 basis points. A partial redemption of the Notes may be effected by such method as the Paying Agent shall deem fair and appropriate in accordance with Clearstream/Euroclear’s procedures and may provide for the selection for redemption of portions (equal to the minimum authorized denomination for the Notes or any integral multiple of €1,000 in excess thereof) of the principal amount of Notes of a denomination larger than the minimum authorized denomination for the Notes.

 

The term “Comparable Government Bond Rate” means the yield to maturity, expressed as a percentage (rounded to three decimal places, with 0.0005 being rounded upwards), on the third Business Day prior to the Redemption Date, of the Comparable Government Bond (as defined below) on the basis of the middle market price of the Comparable Government Bond prevailing at 11:00 a.m. (London time) on such Business Day as determined by an independent investment bank selected by the Company.

 

The term “Comparable Government Bond” means, with respect to any Redemption Date, in relation to any Comparable Government Bond Rate calculation, at the discretion of an independent investment bank selected by the Company, the 1.500% German Bundesobligationen due September 4, 2022, or if such independent investment bank in its discretion determines that such bond is not in issue, such other German Bundesobligationen as such independent investment bank may, with the advice of three brokers of, and/or market makers in, German government bonds selected by the Company, determine to be appropriate for determining the

 

 

Comparable Government Bond Rate.

 

The term “Remaining Scheduled Payments” means, with respect to any Note, the remaining scheduled payments of the principal thereof to be redeemed and interest thereon that would be due after the related Redemption Date but for such redemption; provided, however, that, if such Redemption Date is not an Interest Payment Date with respect to such Note, the amount of the next scheduled interest payment thereon will be reduced by the amount of interest accrued thereon to such Redemption Date.

 

Notice of any redemption will be mailed at least 30 days but not more than 60 days before the Redemption Date to each holder of Notes to be redeemed.

 

Unless the Company defaults in payment of the Redemption Price, on and after the Redemption Date interest will cease to accrue on the Notes or portions thereof called for redemption.  Neither the Trustee nor the Paying Agent shall be responsible for calculation of the Redemption Price.

 

The Company will, subject to the exceptions and limitations set forth below, pay as additional interest on the Notes such additional amounts as are necessary in order that the net payment by the Company of the principal of and interest on the Notes to a Holder who is not a United States Person (as defined below), after withholding or deduction for any present or future tax, assessment or other governmental charge imposed by the United States or a taxing authority in the United States, will not be less than the amount provided in the Notes to be then due and payable; provided, however, that the foregoing obligation to pay additional amounts shall not apply:

 

(1)   to any tax, assessment or other governmental charge that is imposed by reason of the Holder (or the beneficial owner for whose benefit such Holder holds such Note), or a fiduciary, settlor, beneficiary, member or shareholder of the Holder if the Holder is an estate, trust, partnership or corporation, or a Person holding a power over an estate or trust administered by a fiduciary holder, being considered as: 

 

(a)  being or having been engaged in a trade or business in the United States or having or having had a permanent establishment in the United States; 

 

(b) having a current or former connection with the United States (other than a connection arising solely as a result of the ownership of the Notes or the receipt of any payment or the enforcement of any rights thereunder), including being or having been a citizen or resident of the United States; 

 

(c) being or having been a personal holding company, a passive foreign investment company or a controlled foreign corporation for United States income tax purposes or a corporation that has accumulated earnings to avoid United States federal income tax; 

 

(d) being or having been a “10-percent shareholder” of the Company as defined in section 871(h)(3) of the Code, or any successor provision; or

 

 

(e)  being a bank receiving payments on an extension of credit made pursuant to a loan agreement entered into in the ordinary course of its trade or business;

 

(2)   to any Holder that is not the sole beneficial owner of the Notes, or a portion of the Notes, or that is a fiduciary, partnership or limited liability company, but only to the extent that a beneficial owner with respect to the Holder, a beneficiary or settlor with respect to the fiduciary, or a beneficial owner or member of the partnership or limited liability company would not have been entitled to the payment of an additional amount had the beneficiary, settlor, beneficial owner or member received directly its beneficial or distributive share of the payment; and

 

(3)         to any tax, assessment or other governmental charge that would not have been imposed but for the failure of the Holder or any other Person to comply with certification, identification or information reporting requirements concerning the nationality, residence, identity or connection with the United States of the holder or beneficial owner of the Notes, if compliance is required by statute, by regulation of the United States or any taxing authority therein or by an applicable income tax treaty to which the United States is a party as a precondition to exemption from such tax, assessment or other governmental charge. 

 

This Note is subject in all cases to any tax, fiscal or other law or regulation or administrative or judicial interpretation applicable to this Note. Except as specifically provided above, no payment will be required for any tax, assessment or other governmental charge imposed by any government or a political subdivision or taxing authority of or in any government or political subdivision.

 

If the Company is required to pay any additional amounts as described above with respect to the Notes, the Company will notify the Trustee and the Paying Agent pursuant to an Officer’s Certificate that specifies the additional amounts payable and when the additional amounts are payable.  If the Trustee and the Paying Agent do not receive such an Officer’s Certificate from the Company, the Trustee and the Paying Agent may rely on the absence of such an Officer’s Certificate in assuming that no such additional amounts are payable.

 

The term “United States” means the United States of America, the states of the United States, and the District of Columbia, and the term “United States Person” means any individual who is a citizen or resident of the United States for United States federal income tax purposes, a corporation, partnership or other entity created or organized in or under the laws of the United States, any state of the United States or the District of Columbia, or any estate or trust the income of which is subject to United States federal income taxation regardless of its source.

 

To the extent permitted by law, the Company will maintain a paying agent that will not require withholding or deduction of tax pursuant to European Council Directive 2003/48/EC on the taxation of savings income or any law implementing or complying with, or introduced in order to conform to, such European Council Directive.

 

If, as a result of any change in, or amendment to, the laws (or any regulations or rulings

 

 

promulgated under the laws) of the United States (or any taxing authority in the United States), or any change in, or amendment to, an official position regarding the application or interpretation of such laws, regulations or rulings, which change or amendment is announced or becomes effective on or after September 22, 2014, the Company becomes or, based upon a written opinion of independent counsel selected by the Company, will become obligated to pay additional amounts as described above with respect to the Notes, then the Company may at any time at the Company’s option redeem, in whole, but not in part, the Notes on not less than 30 nor more than 60 days’ prior notice to the Holders, at a redemption price equal to 100% of their principal amount plus accrued and unpaid interest on the Notes to the Redemption Date.

 

The Company, the Trustee and any agent of the Company or the Trustee may treat the Person in whose name this Note is registered as the owner hereof for all purposes, whether or not this Note is overdue, and neither the Company, the Trustee nor any such agent shall be affected by notice to the contrary.

 

All terms used in this Note which are defined in the Indenture shall have the meanings assigned to them in the Indenture. The Notes are governed by the laws of the State of New York.

 

 

ABBREVIATIONS

 

The following abbreviations, when used in the inscription of the face of this Note, shall be construed as though they were written out in full according to applicable laws or regulations:

 

	
TEN COM
    	
-
    	
as tenants in common
    
	
TEN ENT
    	
-
    	
as tenants by entireties (Cust)
    
	
JT TEN
    	
-
    	
As joint tenants with right of survivorship and not as tenants in   common
    
	
 
    	
 
    	
 
    
	
UNIF GIFT MIN ACT
    	
-
    	
                       Custodian                    
    
	
 
    	
 
    	
 
    	
(Minor)
    	
 
    
	
 
    	
 
    	
Under Uniform Gifts to Minors Act                  
    
	
 
    	
 
    	
 
    	
(State)
    	
 
    
							

 

Additional abbreviations may also be used though not in the above list.

 

 

FORM OF ASSIGNMENT

 

For value received                      hereby sell(s), assign(s) and transfer(s) unto                        (Please insert social security or other identifying number of assignee) the within Note, and hereby irrevocably constitutes and appoints                        as attorney to transfer the said Note on the books of the Company, with full power of substitution in the premises.

 

	
Dated:
    	
 
    
	
 
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
 
    
	
 
    	
Signature(s)
    
	
 
    	
 
    
	
 
    	
Signature(s) must be guaranteed by an Eligible Guarantor   Institution with membership in an approved signature guarantee program   pursuant to Rule 17Ad-15 under the Securities Exchange Act of 1934.Exhibit
10.3

 

EXHIBIT D TO MANAGEMENT SERVICES AGREEMENT

FORM OF 

JOINT OPERATING AGREEMENT

 

    	 

    	 

    

 

EXHIBIT D

OPERATING AGREEMENT

 

    	 

    	 

    

 

Exhibit
“–D”
- Form of Joint Operating Agreement 

Attached
hereto and made a part hereof that certain Participation Agreement, by and between 

[Operator] and [Company]

 

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

 

MODEL FORM OPERATING AGREEMENT 

 

OPERATING AGREEMENT

 

DATED

 

_________________ , _____________,

                                     year

 

	OPERATOR  	 

 

	CONTRACT AREA   	 

 

 

 

 

 

 

 

 

 

COUNTY OR PARISH OF _____________________________ ,
STATE OF _______________________________ 

 

	 	
        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

 

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

 

    	i

    	 

    

 

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

 

    	ii

    	 

    

  

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

 

OPERATING AGREEMENT

 

THIS AGREEMENT, entered into by and between
__________________________________________, hereinafter designated and referred to as "Operator," and the signatory party
or parties other than Operator, sometimes hereinafter referred to individually as "Non-Operator," and collectively as
"Non-Operators."

 

WITNESSETH:

 

WHEREAS, the parties to this agreement are
owners of Oil and Gas Leases and/or Oil and Gas Interests in the land identified in Exhibit "A," and the parties hereto
have reached an agreement to explore and develop these Leases and/or Oil and Gas Interests for the production of Oil and Gas to
the extent and as hereinafter provided,

 

NOW, THEREFORE, it is agreed as follows:

 

ARTICLE I.

DEFINITIONS  See Article XVI, Additional Definitions

 

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

 

A. The term "AFE" shall mean
an Authority for Expenditure prepared by a party to this agreement for the purpose of estimating the costs to be incurred in conducting
an operation hereunder see Article XVI.A(a).

 

B. The term "Completion" or "Complete"
shall mean a single operation intended to complete a well as a producer of Oil and Gas in one or more Zones, including, but not
limited to, the setting of production casing, perforating, well stimulation and production testing conducted in such operation.

 

C. The term "Contract Area" shall
mean all of the lands, Oil and Gas Leases and/or Oil and Gas Interests intended to be developed and operated for Oil and Gas purposes
under this agreement. Such lands, Oil and Gas Leases and Oil and Gas Interests are described in Exhibit "A."

 

D. The term "Deepen" shall mean
a single operation whereby a well is drilled to an objective Zone below the deepest Zone in which the well was previously drilled,
or below the Deepest Zone proposed in the associated AFE, whichever is the lesser.

 

E. The terms "Drilling Party"
and "Consenting Party" shall mean a party who agrees to join in and pay its share of the cost of any operation conducted
under the provisions of this agreement.

 

F. The term "Drilling Unit" shall
mean the area fixed for the drilling of one well by order or rule of any state or federal body having authority. If a Drilling
Unit is not fixed by any such rule or order, a Drilling Unit shall be the drilling unit as established by the pattern of drilling
in the Contract Area unless fixed by express agreement of the Drilling Parties.

 

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

 

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

 

I. The term "Non-Consent Well"
shall mean a well in which less than all parties have conducted an operation as provided in Article VI.B.2.

 

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

 

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 specifically stated.

 

L. The term "Oil and Gas Interests"
or "Interests" shall mean unleased fee and mineral interests in Oil and Gas in tracts of land lying within the Contract
Area which are owned by parties to this agreement.

 

M. The terms "Oil and Gas Lease,"
"Lease" and "Leasehold" shall mean the oil and gas leases or interests therein covering tracts of land lying
within the Contract Area which are owned by the parties to this agreement.

 

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

 

O. The term "Recompletion" or
"Recomplete" shall mean an operation whereby a Completion in one Zone is abandoned in order to attempt a Completion in
a different Zone within the existing wellbore.

 

P. The term "Rework" shall mean
an operation conducted in the wellbore of a well after it is Completed to secure, restore, or improve production in a Zone which
is currently open to production in the wellbore. Such operations include, but are not limited to, well stimulation operations but
exclude any routine repair or maintenance work or drilling, Sidetracking, Deepening, Completing, Recompleting, or Plugging Back
of a well.

 

Q. The term "Sidetrack" shall
mean the directional control and intentional deviation of a well from vertical so as to change the bottom hole location unless
done to straighten the hole or drill around junk in the hole to overcome other mechanical difficulties.

 

R. The term "Zone" shall mean
a stratum of earth containing or thought to contain a common accumulation of Oil and Gas separately producible from any other common
accumulation of Oil and Gas.

 

Unless the context otherwise clearly indicates,
words used in the singular include the plural, the word "person" includes natural and artificial persons, the plural
includes the singular, and any gender includes the masculine, feminine, and neuter.

 

ARTICLE II.

EXHIBITS

 

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

 

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

 

(1) Description of lands subject to this agreement,

 

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

 

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

 

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

 

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

 

(6) Burdens on
production.

 

	X 	B. 	Exhibit "B," Form of Lease.

 

	X 	C.	Exhibit
"C," Accounting Procedure.

 

	X	D.	Exhibit "D," Insurance.

 

	X	E.	Exhibit "E," Gas Balancing Agreement.

 

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

 

	X	G.	Exhibit "G," Tax
Partnership Produced Hydrocarbon Owner Marketing Notification Form and Agreement.

 

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

 

    	- 1 -

    	 

    

 

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

 

ARTICLE III.

INTERESTS OF PARTIES

 

A. Oil and Gas Interests:

 

If any party owns an
Oil and Gas Interest in the Contract Area, that Interest shall be treated for all purposes of this agreement and during the term
hereof as if it were covered by the form of Oil and Gas Lease attached hereto as Exhibit "B," and the owner thereof shall
be deemed to own both royalty interest in such lease and the interest of the lessee thereunder.

 

B. Interests of Parties in Costs and
Production:

 

Unless changed by other
provisions, all costs and liabilities incurred in operations under this agreement shall be borne and paid, and all equipment and
materials acquired in operations on the Contract Area shall be owned, by the parties as their interests are set forth in Exhibit
"A." In the same manner, the parties shall also own all production of Oil and Gas from the Contract Area subject, however,
to the payment of royalties and other burdens on production as described hereafter.

 

Regardless of which
party has contributed any Oil and Gas Lease or Oil and Gas Interest on which royalty or other burdens may be payable and except
as otherwise expressly provided in this agreement, 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 up to, but not in excess of,             
and shall indemnify, defend and hold the other parties free from any liability therefor. Except
as otherwise expressly provided in this agreement, if any party has contributed hereto any Lease or Interest which is burdened
with any royalty, overriding royalty, production payment or other burden on production in excess of the amounts stipulated above,
such party so burdened shall assume and alone bear all such excess obligations and shall indemnify, defend and hold the other parties
hereto harmless from any and all claims attributable to such excess burden. However, so long as the Drilling Unit for the productive
Zone(s) is identical with the Contract Area, each party shall pay or deliver, or cause to be paid or delivered, all burdens on
production from the Contract Area due under the terms of the Oil and Gas Lease(s) which such party has contributed to this agreement,
and shall indemnify, defend and hold the other parties free from any liability therefor. 

 

No party shall ever
be responsible, on a price basis higher than the price received by such party, to any other party's lessor or royalty owner, and
if such other party's lessor or royalty owner should demand and receive settlement on a higher price basis, the party contributing
the affected Lease shall bear the additional royalty burden attributable to such higher price.

 

Nothing contained in
this Article III.B. shall be deemed an assignment or cross-assignment of interests covered hereby, and in the event two or more
parties contribute to this agreement jointly owned Leases, the parties' undivided interests in said Leaseholds shall be deemed
separate leasehold interests for the purposes of this agreement.

 

C. Subsequently Created Interests:

 

If any party has contributed
hereto a Lease or Interest that is burdened with an assignment of production given as security for the payment of money, or if,
after the date of this agreement, any party creates an overriding royalty, production 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 hereto a Lease or Interest burdened with an
overriding royalty, production payment, net profits interests, or other burden payable out of production created prior to the date
of this agreement, and such burden is not shown on Exhibit "A," such burden also shall be deemed a Subsequently Created
Interest to the extent such burden causes the burdens on such party's Lease 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 alone bear, pay and discharge
the Subsequently Created Interest and shall indemnify, defend and hold harmless the other parties from and against any liability
therefor. Further, if the Burdened Party fails to pay, when due, its share of expenses chargeable hereunder, all provisions of
Article VII.B. shall be enforceable against the Subsequently Created Interest in the same manner as they are enforceable against
the working interest of the Burdened Party. If the Burdened Party is required under this agreement to assign or relinquish to any
other party, or parties, all or a portion of its working interest and/or the production attributable thereto, said other party,
or parties, shall receive said assignment and/or production free and clear of said Subsequently Created Interest, and the Burdened
Party shall indemnify, defend and hold harmless said other party, or parties, from any and all claims and demands for payment asserted
by owners of the Subsequently Created Interest.

 

ARTICLE IV.

TITLES

 

A. Title Examination:

 

Title examination shall
be made on the Drillsite of any proposed well prior to commencement of drilling operations and, if a majority in interest of the
Drilling Parties so request or Operator so elects, title examination shall be made on the entire Drilling Unit, or maximum anticipated
Drilling Unit, of the well. The opinion will include the ownership of the working interest, minerals,
royalty, overriding royalty and production payments under the applicable Leases. Each party contributing Leases
and/or Oil and Gas Interests to be included in the Drillsite or Drilling Unit, if appropriate, shall furnish to Operator all abstracts
(including federal lease status reports), title opinions, title papers and curative material in its possession free of charge.
All such information not in the possession of or made available to Operator by the parties, but necessary for the examination of
the title, shall be obtained by Operator. Operator shall cause title to be examined by title examiners
attorneys on its staff or by outside title
examiners attorneys. Copies of all title opinions shall be furnished
to each Drilling Party. Costs incurred by Operator in procuring abstracts, fees paid title examiners
or brokers outside attorneys for title examination (including
ownership reports preliminary, supplemental, shut-in royalty 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.

 

Each party shall be
responsible for securing curative matter and pooling amendments or agreements required in connection with Leases or Oil and Gas
Interests contributed by such party. Operator shall be responsible for the preparation and recording of pooling designations or
declarations and communitization agreements as well as the conduct of hearings before governmental agencies for the securing of
spacing or pooling orders or any other orders necessary or appropriate to the conduct of operations hereunder. This shall not prevent
any party from appearing on its own behalf at such hearings. Costs incurred by Operator, including fees paid to outside attorneys,
which are associated with hearings before governmental 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."

 

    	- 2 -

    	 

    

 

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 functions.

 

No well shall be drilled
on the Contract Area until after (1) the title to the Drillsite or Drilling Unit, if appropriate, has been examined as above provided,
and (2) the title has been approved by the examining attorney or title has been
accepted by the Operator all of the Drilling Parties in
such well.

 

B. Loss or Failure of Title:

 

1.
Failure of Title: Should any Oil and Gas Interest or Oil and Gas Lease be lost through failure of title, which results in a reduction
of interest from that shown on Exhibit "A," the party credited with contributing the affected Lease or Interest (including,
if applicable, a successor in interest to such party) shall have ninety (90) days from final determination of title failure to
acquire a new lease or other instrument curing the entirety of the title failure, which acquisition will not be subject to Article
VIII.B., and failing to do so, this agreement, nevertheless, shall continue in force as to all remaining Oil and Gas Leases and
Interests; and,

 

(a)
The party credited with contributing the Oil and Gas Lease or Interest affected by the title failure (including, if applicable,
a successor in interest to such party) shall bear alone the entire loss and it shall not be entitled to recover from Operator or
the other parties any development or operating costs which it may have previously paid or incurred, but there shall be no additional
liability on its part to the other parties hereto by reason of such title failure;

 

(b)
There shall be no retroactive adjustment of expenses incurred or revenues received from the operation of the Lease or Interest
which has failed, but the interests of the parties contained on Exhibit "A" shall be revised on an acreage basis, as
of the time it is determined finally that title failure has occurred, so that the interest of the party whose Lease or Interest
is affected by the title failure will thereafter be reduced in the Contract Area by the amount of the Lease or Interest failed;

 

(c)
If the proportionate interest of the other parties hereto in any producing well previously drilled on the Contract Area is increased
by reason of the title failure, the party who bore the costs incurred in connection with such well attributable to the Lease or
Interest which has failed shall receive the proceeds attributable to the increase in such interest (less costs and burdens attributable
thereto) until it has been reimbursed for unrecovered costs paid by it in connection with such well attributable to such failed
Lease or Interest;

 

(d)
Should any person not a party to this agreement, who is determined to be the owner of any Lease or Interest which has failed, pay
in any manner any part of the cost of operation, development, or equipment, such amount shall be paid to the party or parties who
bore the costs which are so refunded;

 

(e)
Any liability to account to a person not a party to this agreement for prior production of Oil and Gas which arises by reason of
title failure shall be borne severally by each party (including a predecessor to a current party) who received production for which
such accounting is required based on the amount of such production received, and each such party shall severally indemnify, defend
and hold harmless all other parties hereto for any such liability to account;

 

(f)
No charge shall be made to the joint account for legal expenses, fees or salaries in connection with the defense of the Lease or
Interest claimed to have failed, but if the party contributing such Lease or Interest hereto elects to defend its title it shall
bear all expenses in connection therewith; and

 

(g)
If any party is given credit on Exhibit "A" to a Lease or Interest which is limited solely to ownership of an interest
in the wellbore of any well or wells and the production therefrom, such party's absence of interest in the remainder of the Contract
Area shall be considered a Failure of Title as to such remaining Contract Area unless that absence of interest is reflected on
Exhibit "A."

 

2.
Loss by Non-Payment or Erroneous Payment of Amount Due: If, through mistake or oversight, any rental, shut-in well payment, minimum
royalty or royalty payment, or other payment necessary to maintain all or a portion of an Oil and Gas Lease or interest is not
paid or is erroneously paid, and as a result a Lease or Interest terminates, there shall be no monetary liability against the
party who failed to make such payment. Unless the party who failed to make the required payment secures a new Lease or Interest
covering the same interest within ninety (90) days from the discovery of the failure to make proper payment, which acquisition
will not be subject to Article VIII.B., the interests of the parties reflected on Exhibit "A" shall be revised on an
acreage basis, effective as of the date of termination of the Lease or Interest involved, and the party who failed to make proper
payment will no longer be credited with an interest in the Contract Area on account of ownership of the Lease or Interest which
has terminated. If the party who failed to make the required payment shall not have been fully reimbursed, at the time of the
loss, from the proceeds of the sale of Oil and Gas attributable to the lost Lease or Interest, calculated on an acreage basis,
for the development and operating costs previously paid on account of such Lease or Interest, it shall be reimbursed for unrecovered
actual costs previously paid by it (but not for its share of the cost of any dry hole previously drilled or wells previously abandoned)
from so much of the following as is necessary to effect reimbursement:

 

(a)
Proceeds of Oil and Gas produced prior to termination of the Lease or Interest, less operating expenses and lease burdens chargeable
hereunder to the person who failed to make payment, previously accrued to the credit of the lost Lease or Interest, on an acreage
basis, up to the amount of unrecovered costs;

 

(b)
Proceeds of Oil and Gas, less operating expenses and lease burdens chargeable hereunder to the person who failed to make payment,
up to the amount of unrecovered costs attributable to that portion of Oil and Gas thereafter produced and marketed (excluding production
from any wells thereafter drilled) which, in the absence of such Lease or Interest termination, would be attributable to the lost
Lease or Interest on an acreage basis and which as a result of such Lease or Interest termination is credited to other parties,
the proceeds of said portion of the Oil and Gas to be contributed by the other parties in proportion to their respective interests
reflected on Exhibit "A"; and,

 

(c)
Any monies, up to the amount of unrecovered costs, that may be paid by any party who is, or becomes, the owner of the Lease or
Interest lost, for the privilege of participating in the Contract Area or becoming a party to this agreement.

 

3. Other Losses:
All losses of Leases or Interests committed to this agreement, other than those set forth in
Articles IV.B.1. and IV.B.2. above, shall be joint losses and shall be borne by all parties in proportion to their
interests shown on Exhibit "A." This shall include but not be limited to the loss of any Lease or Interest through failure
to develop or because express or implied covenants have not been performed (other than performance which requires only the payment
of money), 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 readjustment of interests in the remaining portion of the Contract Area on account of any joint loss.

 

4.
Curing Title: In the event of a Failure of Title under Article IV.B.1. or a loss of title under Article IV.B.2. above, any Lease
or Interest acquired by any party hereto (other than the party whose interest has failed or was lost) during the ninety (90) day
period provided by Article IV.B.1. and Article IV.B.2. above covering all or a portion of the interest that has failed or was
lost shall be offered at cost to the party whose interest has failed or was lost, and the provisions of Article VIII.B. shall
not apply to such acquisition.

 

    	- 3 -

    	 

    

 

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

 

ARTICLE V.

OPERATOR

 

A. Designation and Responsibilities
of Operator: 

 

                                                           
 shall be the Operator of the Contract Area, and shall conduct and direct and have full control of all operations on the Contract
Area as permitted and required by, and within the limits of this agreement. In its performance of services hereunder for the Non-Operators,
Operator shall be an independent contractor not subject to the control or direction of the Non-Operators except as to the type
of operation to be undertaken in accordance with the election procedures contained in this agreement. Operator shall not be deemed,
or hold itself out as, the agent of the Non-Operators with authority to bind them to any obligation or liability assumed or incurred
by Operator as to any third party. Operator shall conduct its activities 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 the other parties for losses sustained
or liabilities incurred whether resulting from a breach of this agreement or otherwise
except such as may result from gross negligence or willful misconduct. Nothing in this agreement shall
be construed to establish a fiduciary relationship between Operator and Non-Operator for
any purpose.

 

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

 

1. Resignation
or Removal of Operator: Operator may resign at any time by giving written notice thereof to Non-Operators. If Operator terminates
its legal existence, no longer owns an interest hereunder in the Contract Area, or is no longer capable of serving as Operator,
Operator shall be deemed to have resigned without any action by Non-Operators, except the selection of a successor. Operator may
be removed only for good cause by the affirmative vote of Non-Operators owning a majority interest based on ownership as shown
on Exhibit "A" remaining after excluding the voting interest of Operator; such vote shall not be deemed effective until
a written notice has been delivered to the Operator by a Non-Operator detailing the alleged default and Operator has failed to
cure the default within thirty (30) days from its receipt of the notice or, if the default concerns an operation then being conducted,
within forty-eight (48) hours of its receipt of the notice. For purposes hereof, "good cause" shall mean not only gross
negligence or willful misconduct but also the material breach of or inability to meet the standards of operation contained in
Article V.A. or material failure or inability to perform its obligations under this agreement.

 

Subject to Article
VII.D.1., such resignation or removal shall not become effective until 7:00 o'clock A.M. on the first day of the calendar month
following the expiration of ninety (90) days after the giving of notice of resignation by Operator or action by the Non-Operators
to remove Operator, unless a successor Operator has been selected and assumes the duties of Operator at an earlier date. Operator,
after effective date of resignation or removal, shall be bound by the terms hereof as a Non-Operator. A change of a corporate name
or structure of Operator or transfer of Operator's interest to any affiliate single
subsidiary, parent or successor corporation shall not be the basis for removal of Operator.

 

2. Selection of
Successor Operator: Upon the resignation or removal of Operator under any provision of this agreement, a successor Operator
shall be selected by the parties. The successor Operator shall be selected from the parties owning an interest in the Contract
Area at the time such successor Operator is selected. The successor Operator shall be selected by the affirmative vote of the
party (ies) two (2) or more parties owning a majority interest based
on ownership as shown on Exhibit "A"; provided, however, if an Operator which has been removed or is deemed to have resigned
fails to vote or votes only to succeed itself, the successor Operator shall be selected by the affirmative vote of the party or
parties owning a majority interest based on ownership as shown on Exhibit "A" remaining after excluding the voting interest
of the Operator that was removed or resigned. The former Operator shall promptly deliver to the successor Operator all records
and data relating to the operations conducted by the former Operator to the extent such records and data are not already in the
possession of the successor operator. Any cost of obtaining or copying the former Operator's records and data shall be charged
to the joint account.

 

3. Effect of Bankruptcy:
If Operator becomes insolvent, bankrupt or is placed in receivership, it shall be deemed to have resigned without any action by
Non-Operators, except the selection of a successor. If a petition for relief under the federal bankruptcy laws is filed by or against
Operator, and the removal of Operator is prevented by the federal bankruptcy court, all Non-Operators and Operator shall comprise
an interim operating committee to serve until Operator has elected to reject or assume this agreement pursuant to the Bankruptcy
Code, and an election to reject this agreement by Operator as a debtor in possession, or by a trustee in bankruptcy, shall be deemed
a resignation as Operator without any action by Non-Operators, except the selection of a successor. During the period of time the
operating committee controls operations, all actions shall require the approval of two (2) or more parties owning a majority interest
based on ownership as shown on Exhibit "A." In the event there are only two (2) parties to this agreement, during the
period of time the operating committee controls operations, a third party acceptable to Operator, Non-Operator and the federal
bankruptcy court shall be selected as a member of the operating committee, and all actions shall require the approval of two (2)
members of the operating committee without regard for their interest in the Contract Area based on Exhibit "A."

 

C. Employees and Contractors:

 

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

 

D. Rights and Duties of Operator:

 

1. Competitive
Rates and Use of Affiliates: All wells drilled on the Contract Area shall be drilled on a competitive contract basis at the
usual rates prevailing in the area. If it so desires, Operator may employ its own tools and equipment in the drilling of wells,
but its charges therefor shall not exceed the prevailing rates in the area and the rate of such
charges shall be agreed upon by the parties in writing before drilling operations are commenced,
and such work shall be performed by Operator under the same terms and conditions as are customary and usual in the area in contracts
of independent contractors who are doing work of a similar nature. All work performed or materials supplied by affiliates or related
parties of Operator shall be performed or supplied at competitive rates, pursuant to written agreement, and in accordance with
customs and standards prevailing in the industry.

 

2. Discharge of
Joint Account Obligations: Except as herein otherwise specifically provided, Operator shall promptly pay and discharge expenses
incurred in the development and operation of the Contract Area pursuant to this agreement and shall charge each of the parties
hereto with their respective proportionate shares upon the expense basis provided in Exhibit "C." Operator shall keep
an accurate record of the joint account hereunder, showing expenses incurred and charges and credits made and received.

 

3. Protection from
Liens: Operator shall pay, or cause to be paid, as and when they become due and payable, all accounts of contractors and suppliers
and wages and salaries for services rendered or performed, and for materials supplied on, to or in respect of the Contract Area
or any operations for the joint account thereof, and shall keep the Contract Area free from liens and encumbrances resulting therefrom
except for those resulting from a bona fide dispute as to services rendered or materials supplied.

 

    	- 4 -

    	 

    

 

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

 

4. Custody of Funds:
Operator shall hold for the account of the Non-Operators any funds of the Non-Operators advanced or paid to the Operator, either
for the conduct of operations hereunder or as a result of the sale of production from the Contract Area, and such funds shall remain
the funds of the Non-Operators on whose account they are advanced or paid until used for their intended purpose or otherwise delivered
to the Non-Operators or applied toward the payment of debts as provided in Article VII.B. Nothing in this paragraph shall be construed
to establish a fiduciary relationship between Operator and Non-Operators for any purpose other than to account for Non-Operator
funds as herein specifically provided. Nothing in this paragraph shall require the maintenance by Operator of separate accounts
for the funds of Non-Operators unless the parties otherwise specifically agree.

 

5. Access to Contract
Area and Records: Operator shall, except as otherwise provided herein, permit each Non-Operator or its duly authorized representative,
at the Non-Operator's sole risk and cost, full and free access at all reasonable times to all operations of every kind and character
being conducted for the joint account on the Contract Area and to the records of operations conducted thereon or production therefrom,
including Operator's books and records relating thereto. Such access rights shall not be exercised in a manner interfering with
Operator's conduct of an operation hereunder and shall not obligate Operator to furnish any geologic or geophysical data of an
interpretive nature unless the cost of preparation of such interpretive data was charged to the joint account. Operator will furnish
to each Non-Operator upon request copies of any and all reports and information obtained by Operator in connection with production
and related items, including, without limitation, meter and chart reports, production purchaser statements, run tickets and monthly
gauge reports, but excluding purchase contracts and pricing information to the extent not applicable to the production of the
Non-Operator seeking the information. Any audit of Operator's records relating to amounts expended and the appropriateness of
such expenditures shall be conducted in accordance with the audit protocol specified in Exhibit "C."
Provided, however, Operator shall not be obligated to furnish any information, data or document that is proprietary or subject
to an obligation of confidentiality owed to a third party prohibiting such disclosure.

 

6. Filing and Furnishing
Governmental Reports: Operator will file, and upon written request promptly furnish copies to each requesting Non-Operator
not in default of its payment obligations, all operational notices, reports or applications required to be filed by local, State,
Federal or Indian agencies or authorities having jurisdiction over operations hereunder. Each Non-Operator shall provide to Operator
on a timely basis all information necessary to Operator to make such filings.

 

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

 

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

 

ARTICLE VI.

DRILLING AND DEVELOPMENT

A. Initial Well:

On or before the ______ day of ___________________,
_____, Operator shall commence the drilling of the Initial Well at the following location:

 

and shall thereafter continue the drilling of the well with
due diligence to

 

Operator
shall have the right to cease drilling a Horizontal or Multi-lateral Well at any time, for any reason, and such Horizontal or
Multi-lateral Well shall be deemed to have reached its objective depth so long as Operator has drilled such Horizontal or Mult-lateral
Well to the objective formations(s) and has drilled horizontally in the objective formations(s).

 

The drilling of the Initial Well and the participation therein
by all parties is obligatory, subject to Article VI.C.1. as to participation in Completion operations and Article VI.F. as to termination
of operations and Article XI as to occurrence of force majeure.

 

    	- 5 -

    	 

    

  

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

  

B. Subsequent Operations: 

 

1. Proposed Operations:
If any party hereto should desire to drill any well on the Contract Area other than the Initial Well, or if any party should desire
to Rework, Sidetrack, Deepen, Recomplete or Plug Back a dry hole or a well no longer capable of producing in paying quantities
in which such party has not otherwise relinquished its interest in the proposed objective Zone under this agreement, the party
desiring to drill, Rework, Sidetrack, Deepen, Recomplete or Plug Back such a well shall give written notice of the proposed operation
to the parties who have not otherwise relinquished their interest in such objective Zone under this agreement and to all other
parties in the case of a proposal for Sidetracking or Deepening, specifying the work to be performed, the location, proposed depth,
objective Zone and the estimated cost of the operation. The parties to whom such a notice is delivered shall have thirty (30) days
after receipt of the notice within which to notify the party proposing to do the work whether they elect to participate in the
cost of the proposed operation. If a drilling rig is on location, notice of a proposal to Rework, Sidetrack, Recomplete, Plug Back
or Deepen may be given by telephone or fax with a copy by electronic mail with, in each case, confirmation
of a successful submission and the response period shall be limited to forty- eight (48) hours, exclusive of Saturday,
Sunday and legal holidays. Failure of a party to whom such notice is delivered to reply within the period above fixed shall constitute
an election by that party not to participate in the cost of the proposed operation. Any proposal by a party to conduct an operation
conflicting with the operation initially proposed shall be delivered to all parties within the time and in the manner provided
in Article VI.B.6.

 

If all parties to whom
such notice is delivered elect to participate in such a proposed operation, the parties shall be contractually committed to participate
therein provided such operations are commenced within the time period hereafter set forth, and Operator shall, no later than 
one hundred twenty (120) ninety (90) days after expiration of the
notice period of thirty (30) days (or as promptly as practicable after the expiration of the forty-eight (48) hour period when
a drilling rig is on location, as the case may be), actually commence the proposed operation and thereafter complete it with due
diligence at the risk and expense of the parties participating therein; provided, however, said commencement date may be extended
upon written notice of same by Operator to the other parties, for a period of up to thirty (30) additional days if, in the sole
opinion of Operator, such additional time is reasonably necessary to obtain permits from governmental authorities, surface rights
(including rights-of- way) or appropriate drilling equipment, or to complete title examination or curative matter required for
title approval or acceptance. If the actual operation has not been commenced within the time provided (including any extension
thereof as specifically permitted herein or in the force majeure provisions of Article XI) and if any party hereto still desires
to conduct said operation, written notice proposing same must be resubmitted to the other parties in accordance herewith as if
no prior proposal had been made. Those parties that did not participate in the drilling of a well for which a proposal to Deepen
or Sidetrack is made hereunder shall, if such parties desire to participate in the proposed Deepening or Sidetracking operation,
reimburse the Drilling Parties in accordance with Article VI.B.4. in the event of a Deepening operation and in accordance with
Article VI.B.5. in the event of a Sidetracking operation.

 

2. Operations by
Less Than All Parties:

 

(a)
Determination of Participation. If any party to whom such notice is delivered as provided in Article VI.B.1. or VI.C.1.
(Option No. 2) elects not to participate in the proposed operation, then, in order to be entitled to the benefits of this Article,
the party or parties giving the notice and such other parties as shall elect to participate in the operation shall, no later than
ninety (90) days after the expiration of the notice period of thirty (30) days (or as promptly as practicable after the expiration
of the forty-eight (48) hour period when a drilling rig is on location, as the case may be) actually commence the proposed operation
and complete it with due diligence. * Operator shall perform all work for the account of
the Consenting Parties; provided, however, if no drilling rig or other equipment is on location, and if Operator is a Non-Consenting
Party, the Consenting Parties shall either: (i) request Operator to perform the work required by such proposed operation for the
account of the Consenting Parties, or (ii) designate one of the Consenting Parties as Operator to perform such work. The rights
and duties granted to and imposed upon the Operator under this agreement are granted to and imposed upon the party designated as
Operator for an operation in which the original Operator is a Non-Consenting Party. Consenting Parties, when conducting operations
on the Contract Area pursuant to this Article VI.B.2., shall comply with all terms and conditions of this agreement. 
*Nothing contained herein shall prohibit Operator from actually commencing the proposed operation before the expiration of the
notice period nor shall the timing of such commencement affect in any way the validity of a party’s
election or deemed election. 

 

If less than all parties approve any proposed
operation, the proposing party, immediately after the expiration of the applicable notice period, shall advise all Parties of the
total interest of the parties approving such operation and its recommendation as to whether the Consenting Parties should proceed
with the operation as proposed. Each Consenting Party, within forty-eight (48) hours (exclusive of Saturday, Sunday, and legal
holidays) after delivery of such notice, shall advise the proposing party of its desire to (i) limit participation to such party's
interest as shown on Exhibit "A" or (ii) carry only its proportionate part (determined by dividing such party's interest
in the Contract Area by the interests of all Consenting Parties in the Contract Area) of Non-Consenting Parties' interests, or
(iii) carry its proportionate part (determined as provided in (ii)) of Non-Consenting Parties' interests together with all or a
portion of its proportionate part of any Non-Consenting Parties' interests that any Consenting Party did not elect to take. Any
interest of Non-Consenting Parties that is not carried by a Consenting Party shall be deemed to be carried by the party proposing
the operation if such party does not withdraw its proposal. Failure to advise the proposing party within the time required shall
be deemed an election under (i). In the event a drilling rig is on location, notice may be given by telephone, and the time permitted
for such a response shall not exceed a total of forty-eight (48) hours (exclusive of Saturday, Sunday and legal holidays). The
proposing party, at its election, may withdraw such proposal if there is less than 100% participation and shall notify all parties
of such decision within ten (10) days, or within twenty-four (24) hours if a drilling rig is on location, following expiration
of the applicable response period. If 100% subscription to the proposed operation is obtained, the proposing party shall promptly
notify the Consenting Parties of their proportionate interests in the operation and the party serving as Operator shall commence
such operation within the period provided in Article VI.B.1., subject to the same extension right as provided therein.

 

(b) Relinquishment of Interest for Non-Participation.
The entire cost and risk of conducting such operations shall be borne by the Consenting Parties in the proportions they have
elected to bear same under the terms of the preceding paragraph. Consenting Parties shall keep the leasehold estates involved
in such operations free and clear of all liens and encumbrances of every kind created by or arising from the operations of the
Consenting Parties. If such an operation results in a dry hole, then subject to Articles VI.B.6. and VI.E.3., the Consenting Parties
shall plug and abandon the well and restore the surface location at their sole cost, risk and expense; provided, however, that
those Non-Consenting Parties that participated in the drilling, Deepening or Sidetracking of the well shall remain liable for,
and shall pay, their proportionate shares of the cost of plugging and abandoning the well and restoring the surface location insofar
only as those costs were not increased by the subsequent operations of the Consenting Parties. If any well drilled, Reworked,
Sidetracked, Deepened, Recompleted or Plugged Back under the provisions of this Article results in a well capable of producing
Oil and/or Gas in paying quantities, the Consenting Parties shall Complete and equip the well to produce at their sole cost and
risk, and the well shall then be turned over to Operator (if the Operator did not conduct the operation) and shall be operated
by it at the expense and for the account of the Consenting Parties. Upon commencement of operations for the drilling, Reworking,
Sidetracking, Recompleting, Deepening or Plugging Back of any such well by Consenting Parties in accordance with the provisions
of this Article, each Non-Consenting Party shall be deemed to have relinquished to Consenting Parties, and the Consenting Parties
shall own and be entitled to receive, in proportion to their respective interests, all of such Non- Consenting Party's interest
in the well and share of production therefrom or, in the case of a Reworking, Sidetracking, Deepening, Recompleting or Plugging
Back, or a Completion pursuant to Article VI.C.1. Option No. 2, all of such Non- Consenting Party's interest in the production
obtained from the operation in which the Non-Consenting Party did not elect to participate. Such relinquishment shall be effective
until the proceeds of the sale of such share, calculated at the well, or market value thereof if such share is not sold (after
deducting applicable ad valorem, production, severance, and excise taxes, royalty, overriding royalty and other interests not
excepted by Article III.C. payable out of or measured by the production from such well accruing with respect to such interest
until it reverts), shall equal the total of the following:

 

    	- 6 -

    	 

    

 

 

 

 

 

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

 

(i)        500       
 % of each such Non-Consenting Party's share of the cost of any newly acquired
surface equipment beyond the wellhead connections (including but not limited to stock tanks, separators, treaters, pumping equipment
and piping), plus 500%  100%
of each such Non-Consenting Party's share of the cost of operation of the well commencing with first production and continuing
until each such Non-Consenting Party's relinquished interest shall revert to it under other provisions of this Article, it being
agreed that each Non-Consenting Party's share of such costs and equipment will be that interest which would have been chargeable
to such Non-Consenting Party had it participated in the well from the beginning of the operations; and

 

(ii)        500       
 % of (a) that portion of the costs and expenses of drilling, Reworking, Sidetracking, Deepening, Plugging Back, testing, Completing,
and Recompleting, after deducting any cash contributions received under Article VIII.C., and of (b) that portion of the cost of
newly acquired equipment in the well (to and including the wellhead connections),
which would have been chargeable to such Non-Consenting Party if it had participated therein.

 

Notwithstanding anything
to the contrary in this Article VI.B., if the well does not reach the deepest objective Zone described in the notice proposing
the well for reasons other than the encountering of granite or practically impenetrable 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.B.6. to drill the well to a shallower Zone than the deepest objective Zone proposed
in the notice under which the well was drilled, and each such Non- Consenting Party shall have the option to participate in the
initial proposed Completion of the well by paying its share of the cost of drilling the well to its actual depth, calculated in
the manner provided in Article VI.B.4. (a). If any such Non- Consenting Party does not elect to participate in the first Completion
proposed for such well, the relinquishment provisions of this Article VI.B.2. (b) shall apply to such party's interest.

 

(c) Reworking, Recompleting
or Plugging Back. An election not to participate in the drilling, Sidetracking or Deepening of a well shall be deemed an election
not to participate in any Reworking or Plugging Back operation proposed in such a well, or portion thereof, to which the initial
non-consent election applied that is conducted at any time prior to full recovery by the Consenting Parties of the Non-Consenting
Party's recoupment amount. Similarly, an election not to participate in the Completing or Recompleting of a well shall be deemed
an election not to participate in any Reworking operation proposed in such a well, or portion thereof, to which the initial non-consent
election applied that is conducted at any time prior to full recovery by the Consenting Parties of the Non-Consenting Party's recoupment
amount. Any such Reworking, Recompleting or Plugging Back operation conducted during the recoupment period shall be deemed part
of the cost of operation of said well and there shall be added to the sums to be recouped by the Consenting Parties          400         %
of that portion of the costs of the Reworking, Recompleting or Plugging Back operation which would have been chargeable to such
Non-Consenting Party had it participated therein. If such a Reworking, Recompleting or Plugging Back operation is proposed during
such recoupment period, the provisions of this Article VI.B. shall be applicable as between said Consenting Parties in said well.

 

(d) Recoupment Matters.
During the period of time Consenting Parties are entitled to receive Non-Consenting Party's share of production, or the proceeds
therefrom, Consenting Parties shall be responsible for the payment of all ad valorem, production, severance, excise, gathering
and other taxes, and all royalty, overriding royalty and other burdens applicable to Non-Consenting Party's share of production
not excepted by Article III.C.

 

In the case of any
Reworking, Sidetracking, Plugging Back, Recompleting or Deepening operation, the Consenting Parties shall be permitted to use,
free of cost, all casing, tubing and other equipment in the well, but the ownership of all such equipment shall remain unchanged;
and upon abandonment of a well after such Reworking, Sidetracking, Plugging Back, Recompleting or Deepening, the Consenting Parties
shall account for all such equipment to the owners thereof, with each party receiving its proportionate part in kind or in value,
less cost of salvage.

 

Within ninety (90) days after the completion of any operation under this Article, the party conducting the
operations for the Consenting Parties shall furnish each Non-Consenting Party with an inventory of the equipment in and connected
to the well, and an itemized statement of the cost of drilling, Sidetracking, Deepening, Plugging Back, testing, Completing, Recompleting,
and equipping the well for production; or, at its option, the operating party, in lieu of an itemized statement of such costs of
operation, may submit a detailed statement of monthly billings. Each month thereafter, during the time the Consenting Parties are
being reimbursed as provided above, the party conducting the operations for the Consenting Parties shall furnish the Non-Consenting
Parties with an itemized statement of all costs and liabilities incurred in the operation of the well, together with a statement
of the quantity of Oil and Gas produced from it and the amount of proceeds realized from the sale of the well's working interest
production during the preceding month. In determining the quantity of Oil and Gas produced during any month, Consenting Parties
shall use industry accepted methods such as but not limited to metering or periodic well tests. Any amount realized from the sale
or other disposition of equipment newly acquired in connection with any such operation which would have been owned by a Non-Consenting
Party had it participated therein shall be credited against the total unreturned costs of the work done and of the equipment purchased
in determining when the interest of such Non-Consenting Party shall revert to it as above provided; and if there is a credit balance,
it shall be paid to such Non-Consenting Party.

 

If and when the Consenting
Parties recover from a Non-Consenting Party's relinquished interest the amounts provided for above, the relinquished interests
of such Non-Consenting Party shall automatically revert to it as of 7:00 a.m. on the day following the day on which such recoupment
occurs, and, from and after such reversion, such Non-Consenting Party shall own the same interest in such well, the material and
equipment in or pertaining thereto, and the production therefrom as such Non-Consenting Party would have been entitled to had it
participated in the drilling, Sidetracking, Reworking, Deepening, Recompleting or Plugging Back of said well. Thereafter, such
Non-Consenting Party shall be charged with and shall pay its proportionate part of the further costs of the operation of said well
in accordance with the terms of this agreement and Exhibit "C" attached hereto.

 

    	- 7 -

    	 

    

  

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

 

3. Stand-By Costs:
When a well which has been drilled or Deepened has reached its authorized depth and all tests have been completed and the results
thereof furnished to the parties, or when operations on the well have been otherwise terminated pursuant to Article VI.F., stand-by
costs incurred pending response to a party's notice proposing a Reworking, Sidetracking, Deepening, Recompleting, Plugging Back
or Completing operation in such a well (including the period required under Article VI.B.6. to resolve competing proposals) shall
be charged and borne as part of the drilling or Deepening operation just completed. Stand-by costs subsequent to all parties responding,
or expiration of the response time permitted, whichever first occurs, and prior to agreement as to the participating interests
of all Consenting Parties pursuant to the terms of the second grammatical paragraph of Article VI.B.2. (a), shall be charged to
and borne as part of the proposed operation, but if the proposal is subsequently withdrawn because of insufficient participation,
such stand-by costs shall be allocated between the Consenting Parties in the proportion each Consenting Party's interest as shown
on Exhibit "A" bears to the total interest as shown on Exhibit "A" of all Consenting Parties.

 

In the event that notice
for a Sidetracking operation is given while the drilling rig to be utilized is on location, any party may request and receive up
to five (5) additional days after expiration of the forty-eight hour response period specified in Article VI.B.1. within which
to respond by paying for all stand-by costs and other costs incurred during such extended response period; Operator may require
such party to pay the estimated stand-by time in advance as a condition to extending the response period. If more than one party
elects to take such additional time to respond to the notice, standby costs shall be allocated between the parties taking additional
time to respond on a day-to-day basis in the proportion each electing party's interest as shown on Exhibit "A" bears
to the total interest as shown on Exhibit "A" of all the electing parties.

 

4. Deepening:
If less than all parties elect to participate in a drilling, Sidetracking, or Deepening operation proposed pursuant to Article
VI.B.1., the interest relinquished by the Non-Consenting Parties to the Consenting Parties under Article 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 of which the parties
were given notice under Article VI.B.1. ("Initial Objective"). Such well shall not be Deepened beyond the Initial Objective
without first complying with this Article to afford the Non-Consenting Parties the opportunity to participate in the Deepening
operation.

 

In the event any Consenting
Party desires to drill or Deepen a Non-Consent Well to a depth below the Initial Objective, such party shall give notice thereof,
complying with the requirements of Article VI.B.1., to all parties (including Non-Consenting Parties). Thereupon, Articles VI.B.1.
and 2. shall apply and all parties receiving such notice shall have the right to participate or not participate in the Deepening
of such well pursuant to said Articles VI.B.1. and 2. If a Deepening operation is approved pursuant to such provisions, and if
any Non-Consenting Party elects to participate in the Deepening operation, such Non-Consenting party shall pay or make reimbursement
(as the case may be) of the following costs and expenses.

 

(a) If the proposal
to Deepen is made prior to the Completion of such well as a well capable of producing in paying quantities, such Non-Consenting
Party shall pay (or reimburse Consenting Parties for, as the case may be) that share of costs and expenses incurred in connection
with the drilling of said well from the surface to the Initial Objective which Non-Consenting Party would have paid had such Non-Consenting
Party agreed to participate therein, plus the Non-Consenting Party's share of the cost of Deepening and of participating in any
further operations on the well in accordance with the other provisions of this Agreement; provided, however, all costs for testing
and Completion or attempted Completion of the well incurred by Consenting Parties prior to the point of actual operations to Deepen
beyond the Initial Objective shall be for the sole account of Consenting Parties.

 

(b) If the proposal
is made for a Non-Consent Well that has been previously Completed as a well capable of producing in paying quantities, but is no
longer capable of producing in paying quantities, such Non-Consenting Party shall pay (or reimburse Consenting Parties for, as
the case may be) its proportionate share of all costs of drilling, Completing, and equipping said well from the surface to the
Initial Objective, calculated in the manner provided in paragraph (a) above, less those costs recouped by the Consenting Parties
from the sale of production from the well. The Non-Consenting Party shall also pay its proportionate share of all costs of re-entering
said well. The Non-Consenting Parties' proportionate part (based on the percentage of such well Non-Consenting Party would have
owned had it previously participated in such Non-Consent Well) of the costs of salvable materials and equipment remaining in the
hole and salvable surface equipment used in connection with such well shall be determined in accordance with Exhibit "C."
If the Consenting Parties have recouped the cost of drilling, Completing, and equipping the well at the time such Deepening operation
is conducted, then a Non- Consenting Party may participate in the Deepening of the well with no payment for costs incurred prior
to re-entering the well for Deepening

 

The foregoing shall
not imply a right of any Consenting Party to propose any Deepening for a Non-Consent Well prior to the drilling of such well to
its Initial Objective without the consent of the other Consenting Parties as provided in Article VI.F.

 

5. Sidetracking:
Any party having the right to participate in a proposed Sidetracking operation that does not own an interest in the affected wellbore
at the time of the notice shall, upon electing to participate, tender to the wellbore owners its proportionate share (equal to
its interest in the Sidetracking operation) of the value of that portion of the existing wellbore to be utilized as follows:

 

(a) If the proposal
is for Sidetracking an existing dry hole, reimbursement shall be on the basis of the actual costs incurred in the initial drilling
of the well down to the depth at which the Sidetracking operation is initiated.

 

(b) If the proposal
is for Sidetracking a well which has previously produced, reimbursement shall be on the basis of such party's proportionate share
of drilling and equipping costs incurred in the initial drilling of the well down to the depth at which the Sidetracking operation
is conducted, calculated in the manner described in Article VI.B.4(b) above. Such party's proportionate share of the cost of the
well's salvable materials and equipment down to the depth at which the Sidetracking operation is initiated shall be determined
in accordance with the provisions of Exhibit "C."

 

6.
Order of Preference of Operations. Except as otherwise specifically provided in this agreement, if any party desires to
propose the conduct of an operation that conflicts with a proposal that has been made by a party under this Article VI, such 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 an
operation on a well where no drilling rig is on location, or twenty-four (24) hours, exclusive of Saturday, Sunday and legal holidays,
from delivery of the initial proposal, if a drilling rig is on location for the well on which such operation is to be conducted,
to deliver to all parties entitled to participate in the proposed operation such party's alternative proposal, such alternate
proposal to contain the same information required to be included in the initial proposal. Each party receiving such proposals
shall elect by delivery of notice to Operator within five (5) days after expiration of the proposal period, or within twenty-four
(24) hours (exclusive of Saturday, Sunday and legal holidays) if a drilling rig is on location for the well that is the subject
of the proposals, to participate in one of the competing proposals. Any party not electing within the time required 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 initial Operator’s
proposal shall prevail. Operator shall deliver notice of such result to all parties entitled to participate in the
operation within five (5) days after expiration of the election period (or within twenty-four (24) hours, exclusive of Saturday,
Sunday 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 is on location) from receipt of such notice to elect by delivery of notice to Operator to participate in such operation
or to relinquish interest in the affected well pursuant to the provisions of Article VI.B.2.; failure by a party to deliver notice
within such period shall be deemed an election not to participate in the prevailing proposal. 

 

    	- 8 -

    	 

    

  

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

 

7.
Conformity to Spacing Pattern. Notwithstanding the provisions of this Article VI.B.2., it is agreed that no wells shall be proposed
to be drilled to or Completed in or produced from a Zone from which a well located elsewhere on the Contract Area is producing,
unless such well conforms to the then-existing well spacing pattern for such Zone. 

 

8. Paying Wells.
No party shall conduct any Reworking, Deepening, Plugging Back, Completion, Recompletion, or Sidetracking operation under this
agreement with respect to any well then capable of producing in paying quantities except with the consent of all
the parties  owning
a majority interest that have not relinquished
interests in the well at the time of such operation.

 

C. Completion of Wells; Reworking and
Plugging Back: Notwithstanding anything herein to the contrary, Option 1 shall apply To
any Horizontal or Multi-lateral Well and Option 2 shall apply to any Vertical Well.

 

1. Completion:
Without the consent of all parties, no well shall be drilled, Deepened or Sidetracked, except any well drilled, Deepened or Sidetracked
pursuant to the provisions of Article VI.B.2. of this agreement. Consent to the drilling, Deepening or Sidetracking shall include:

 

		þ	Option
No. 1: All necessary expenditures for the drilling, Deepening or Sidetracking, testing, Completing and equipping of
the well a Horizonal or Multi-lateral Well, including necessary
tankage and/or surface facilities.

 

		þ	Option
                                         No. 2: All necessary expenditures for the drilling, Deepening or Sidetracking and
                                         testing of the well 
                                         the Vertical Well. When such well has reached its authorized depth, and
                                         all logs, cores and other tests have been completed, and the results thereof furnished
                                         to the parties, Operator shall give immediate notice to the Non-Operators having the
                                         right to participate in a Completion attempt whether or not Operator recommends attempting
                                         to Complete the well, together with Operator's AFE for Completion costs if not previously
                                         provided. The parties receiving such notice shall have forty-eight (48) hours (exclusive
                                         of Saturday, Sunday and legal holidays) in which to elect by delivery of notice to Operator
                                         to participate in a recommended Completion attempt or to make a Completion proposal with
                                         an accompanying AFE. Operator shall deliver any such Completion proposal, or any Completion
                                         proposal conflicting with Operator's proposal, to the other parties entitled to participate
                                         in such Completion in accordance with the procedures specified in Article VI.B.6. Election
                                         to participate in a Completion attempt shall include consent to all necessary expenditures
                                         for the Completing and equipping of such well, including necessary tankage and/or surface
                                         facilities but excluding any stimulation operation not contained on the Completion AFE.
                                         Failure of any party receiving such notice to reply within the period above fixed shall
                                         constitute an election by that party not to participate in the cost of the Completion
                                         attempt; provided, that Article VI.B.6. shall control in the case of conflicting Completion
                                         proposals. If one or more, but less than all of the parties, elect to attempt a Completion,
                                         the provision of Article VI.B.2. hereof (the phrase "Reworking, Sidetracking, Deepening,
                                         Recompleting or Plugging Back" as contained in Article VI.B.2. shall be deemed to
                                         include "Completing") shall apply to the operations thereafter conducted by
                                         less than all parties; provided, however, that Article VI.B.2. shall apply separately
                                         to each separate Completion or Recompletion attempt undertaken hereunder, and an election
                                         to become a Non-Consenting Party as to one Completion or Recompletion attempt shall not
                                         prevent a party from becoming a Consenting Party in subsequent Completion or Recompletion
                                         attempts regardless whether the Consenting Parties as to earlier Completions or Recompletion
                                         have recouped their costs pursuant to Article VI.B.2.; provided further, that any recoupment
                                         of costs by a Consenting Party shall be made solely from the production attributable
                                         to the Zone in which the Completion attempt is made. Election by a previous Non-Consenting
                                         party to participate in a subsequent Completion or Recompletion attempt shall require
                                         such party to pay its proportionate share of the cost of salvable materials and equipment
                                         installed in the well pursuant to the previous Completion or Recompletion attempt, insofar
                                         and only insofar as such materials and equipment benefit the Zone in which such party
                                         participates in a Completion attempt.

 

2. Rework, Recomplete or Plug Back:
No well shall be Reworked, Recompleted or Plugged Back except a well Reworked, Recompleted, or Plugged Back pursuant to the provisions
of Article VI.B.2. of this agreement. Consent to the Reworking, Recompleting or Plugging Back of a well shall include all necessary
expenditures in conducting such operations and Completing and equipping of said well, including necessary tankage and/or surface
facilities.

 

D. Other Operations: 

 

Operator shall not
undertake any single project reasonably estimated to require an expenditure in excess of One-Hundred
Thousand              Dollars ($ 100,000      )
except in connection with the drilling, Sidetracking, Reworking, Deepening, Completing, Recompleting or Plugging Back of a well
that has been previously 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 are required to deal with the emergency to safeguard life and property but Operator, as promptly as possible, shall
report the emergency to the other parties. If Operator prepares an AFE for its own use, Operator shall furnish any Non-Operator
so requesting an information copy thereof for any single project costing in excess of One-Hundred
Thousand          Dollars ($ 100,000       ). Any party who has not relinquished its interest in a well shall have the right to propose that Operator perform repair
work or undertake the installation of artificial lift equipment or ancillary production facilities such as salt water disposal
wells or to conduct additional work with respect to a well drilled hereunder or other similar project (but 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 amount first set forth above in this Article
VI.D. (except in connection with an operation required to be proposed under Articles VI.B.1. or VI.C.1. Option No. 2, which shall
be governed exclusively be those Articles). Operator shall deliver such proposal to all parties entitled to participate therein.
If within thirty (30) days thereof Operator secures the written consent of any party or parties
owning at least                 %
of the interests of the parties entitled to participate in such operation, each party having the right to participate in such
project shall be bound by the terms of such proposal and shall be obligated to pay its proportionate share of the costs of the
proposed project as if it had consented to such project pursuant to the terms of the proposal.
The rights and obligations of the parties with respect to any proposal made pursuant hereto shall be governed by Article VI.B.2.

 

    	- 9 -

    	 

    

  

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

 

E. Abandonment of Wells: 

 

1. Abandonment of
Dry Holes: Except for any well drilled or Deepened pursuant to Article VI.B.2., any well which has been drilled or Deepened
under the terms of this agreement and is proposed to be completed as a dry hole shall not be plugged and abandoned without the
consent of all parties. Should Operator, after diligent effort, be unable to contact any party, or should any party fail to reply
within forty-eight (48) hours (exclusive of Saturday, Sunday and legal holidays) after delivery of notice of the proposal to plug
and abandon such well, such party shall be deemed to have consented to the proposed abandonment. All such wells shall be plugged
and abandoned in accordance with applicable regulations and at the cost, risk and expense of the parties who participated in the
cost of drilling or Deepening such well. Any party who objects to plugging and abandoning such well by notice delivered to Operator
within forty-eight (48) hours (exclusive of Saturday, Sunday and legal holidays) after delivery of notice of the proposed plugging
shall take over the well as of the end of such forty-eight (48) hour notice period and conduct further operations in search of
Oil and/or Gas subject to the provisions of Article VI.B.; failure of such party to provide proof reasonably satisfactory to Operator
of its financial capability to conduct such operations or to take over the well within such period or thereafter to conduct operations
on such well or plug and abandon such well shall entitle Operator to retain or take possession of the well and plug and abandon
the well. The party taking over the well shall indemnify Operator (if Operator is an abandoning party) and the other abandoning
parties against liability for any further operations conducted on such well except for the costs of plugging and abandoning the
well and restoring the surface, for which the abandoning parties shall remain proportionately liable.

 

2. Abandonment of
Wells That Have Produced: Except for any well in which a Non-Consent operation has been conducted hereunder for which the Consenting
Parties have not been fully reimbursed as herein provided, any well which has been completed as a producer shall not be plugged
and abandoned without the consent of all parties. If all parties consent to such abandonment, the well shall be plugged and abandoned
in accordance with applicable regulations and at the cost, risk and expense of all the parties hereto. Failure of a party to reply
within sixty (60) days of delivery of notice of proposed abandonment shall be deemed an election to consent to the proposal. If,
within sixty (60) days after delivery of notice of the proposed abandonment of any well, all parties do not agree to the abandonment
of such well, those wishing to continue its operation from the Zone then open to production shall be obligated to take over the
well as of the expiration of the applicable notice period and shall indemnify Operator (if Operator is an abandoning party) and
the other abandoning parties against liability for any further operations on the well conducted by such parties. Failure of such
party or parties to provide proof reasonably satisfactory to Operator of their financial capability to conduct such operations
or to take over the well within the required period or thereafter to conduct operations on such well shall entitle operator to
retain or take possession of such well and plug and abandon the well.

 

Parties
taking over a well as provided herein shall tender to each of the other parties its proportionate share of the value of the well's
salvable material and equipment, determined in accordance with the provisions of Exhibit "C," less the estimated cost
of salvaging and the estimated cost of plugging and abandoning and restoring the surface; provided, however, that in the event
the estimated plugging and abandoning and surface restoration costs and the estimated cost of salvaging are higher than the value
of the well's salvable material and equipment, each of the abandoning parties shall tender to the parties continuing operations
their proportionate shares of the estimated excess cost. Each abandoning party shall assign to the non-abandoning parties, without
warranty, express or implied, as to title or as to quantity, or fitness for use of the equipment and material, all of its interest
in the wellbore of the well and related equipment, together with its interest in the Leasehold insofar and only insofar as such
Leasehold covers the right to obtain production from that wellbore in the Zone then open to production. If the interest of the
abandoning party is or includes and Oil and Gas Interest, such party shall execute and deliver to the non-abandoning party or
parties an oil and gas lease, limited to the wellbore and the Zone then open to production, for a term of 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 attached as Exhibit "B."
The assignments or leases so limited shall encompass the Drilling Unit upon which the well is located. The payments by, and the
assignments or leases to, the assignees shall be 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 assignees. There shall be
no readjustment of interests in the remaining portions of the Contract Area. In the event there is
more than one (1) well in the “drilling
unit” upon which the well being abandoned is located, such
assignment or leases shall be limited to the wellbore of the well being abandoned.

 

Thereafter, abandoning
parties shall have no further responsibility, liability, or interest in the operation of or production from the well in the Zone
then open other than the royalties retained in any lease made under the terms of this Article. Upon request, Operator shall continue
to operate the assigned well for the account of the non-abandoning parties at the rates and charges contemplated by this agreement,
plus any additional cost and charges which may arise as the result of the separate ownership of the assigned well. Upon proposed
abandonment of the producing Zone assigned or leased, the assignor or lessor shall then have the option to repurchase its prior
interest in the well (using the same valuation formula) and participate in further operations therein subject to the provisions
hereof.

 

3. Abandonment of
Non-Consent Operations: The provisions of Article VI.E.1. or VI.E.2. above shall be applicable as between Consenting Parties
in the event of the proposed abandonment of any well excepted from said Articles; provided, however, no well shall be permanently
plugged and abandoned unless and until all parties having the right to conduct further operations therein have been notified of
the proposed abandonment and afforded the opportunity to elect to take over the well in accordance with the provisions of this
Article VI.E.; and provided further, that Non-Consenting Parties who own an interest in a portion of the well shall pay their proportionate
shares of abandonment and surface restoration cost for such well as provided in Article VI.B.2.(b).

 

F. Termination of Operations: 

 

Upon the commencement
of an operation for the drilling, Reworking, Sidetracking, Plugging Back, Deepening, testing, Completion or plugging of a well,
including but not limited to the Initial Well, such operation shall not be terminated without consent of parties bearing           50       
% of the costs of such operation; provided, however, that in the event granite or other practically impenetrable substance
or condition in the hole is encountered which renders further operations impractical, Operator may discontinue operations and
give notice of such condition in the manner provided in Article VI.B.1, and the provisions of Article VI.B. or VI.E. shall thereafter
apply to such operation, as appropriate.

 

G. Taking Production in Kind: 

 

		þ	Option
No. 1: Gas Balancing Agreement Attached

 

Each party
shall take in kind or separately dispose of its proportionate share of all Oil and Gas produced from the Contract Area, exclusive
of production which may be used in development and producing operations and in preparing and treating Oil and Gas for marketing
purposes and production unavoidably lost. Any extra expenditure incurred in the taking in kind or separate disposition by any party
of its proportionate share of the production shall be borne by such party. Any party taking its share of production in kind shall
be required to pay for only its proportionate share of such part of Operator's surface facilities which it uses.

 

Each party
shall execute such division orders and contracts as may be necessary for the sale of its interest in production from the Contract
Area, and, except as provided in Article VII.B., shall be entitled to receive payment directly from the purchaser thereof for its
share of all production.

 

    	- 10 -

    	 

    

 

 

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

 

If any party fails to
make the arrangements necessary to take in kind or separately dispose of its proportionate share of the Oil produced from the Contract
Area, Operator shall have the right, subject to the revocation at will by the party owning it, but not the obligation, to purchase
such Oil or sell it to others at any time and from time to time, for the account of the non-taking party. Any such purchase or
sale by Operator may be terminated by Operator upon at least ten (10) days written notice to the owner of said production and shall
be subject always to the right of the owner of the production upon at least ten (10) days written notice to Operator to exercise
at any time its right to take in kind, or separately dispose of, its share of all Oil not previously delivered to a purchaser.
Any purchase or sale by Operator of any other party's share of Oil shall be only for such reasonable periods of time as are consistent
with the minimum needs of the industry under the particular circumstances, but in no event for a period in excess of one (1) year.

 

Any such sale by Operator
shall be in a manner commercially reasonable under the circumstances but Operator shall have no duty to share any existing market
or to obtain a price equal to that received under any existing market. The sale or delivery by Operator of a non-taking party's
share of Oil under the terms of any existing contract of Operator shall not give the non-taking party any interest in or make the
non-taking party a party to said contract. No purchase shall be made by Operator without first giving the non-taking party at least
ten (10) days written notice of such intended purchase and the price to be paid or the pricing basis to be used.

 

All parties shall give
timely written notice to Operator of their Gas marketing arrangements for the following month, excluding price, and shall notify
Operator immediately in the event of a change in such arrangements. Operator shall maintain records of all marketing arrangements,
and of volumes actually sold or transported, which records shall be made available to Non-Operators upon reasonable request.

 

In the event one or
more parties' separate disposition of its share of the Gas causes split-stream deliveries to separate pipelines and/or deliveries
which on a day-to-day basis for any reason are not exactly equal to a party's respective proportion- ate share of total Gas sales
to be allocated to it, the balancing or accounting between the parties shall be in accordance with any Gas balancing agreement
between the parties hereto, whether such an agreement is attached as Exhibit "E" or is a separate agreement. Operator
shall give notice to all parties of the first sales of Gas from any well under this agreement.

 

		 ̈	Option
No. 2: No Gas Balancing Agreement:

 

Each
party shall take in kind or separately dispose of its proportionate share of all Oil and Gas produced from the Contract Area, exclusive
of production which may be used in development and producing operations and in preparing and treating Oil and Gas for marketing
purposes and production unavoidably lost. Any extra expenditures incurred in the taking in kind or separate disposition by any
party of its proportionate share of the production shall be borne by such party. Any party taking its share of production in kind
shall be required to pay for only its proportionate share of such part of Operator's surface facilities which it uses.

 

Each
party shall execute such division orders and contracts as may be necessary for the sale of its interest in production from the
Contract Area, and, except as provided in Article VII.B., shall be entitled to receive payment directly from the purchaser thereof
for its share of all production. 

 

If
any party fails to make the arrangements necessary to take in kind or separately dispose of its proportionate share of the Oil
and/or Gas produced from the Contract Area, Operator shall have the right, subject to the revocation at will by the party owning
it, but not the obligation, to purchase such Oil and/or Gas or sell it to others at any time and from time to time, for the account
of the non-taking party. Any such purchase or sale by Operator may be terminated by Operator upon at least ten (10) days written
notice to the owner of said production and shall be subject always to the right of the owner of the production upon at least ten
(10) days written notice to Operator to exercise its right to take in kind, or separately dispose of, its share of all Oil and/or
Gas not previously delivered to a purchaser; provided, however, that the effective date of any such revocation may be deferred
at Operator's election for a period not to exceed ninety (90) days if Operator has committed such production to a purchase contract
having a term extending beyond such ten (10) -day period. Any purchase or sale by Operator of any other party's share of Oil and/or
Gas shall be only for such reasonable periods of time as are consistent with the minimum needs of the industry under the particular
circumstances, but in no event for a period in excess of one (1) year. 

 

Any
such sale by Operator shall be in a manner commercially reasonable under the circumstances, but Operator shall have no duty to
share any existing market or transportation arrangement or to obtain a price or transportation fee equal to that received under
any existing market or transportation arrangement. The sale or delivery by Operator of a non-taking party's share of production
under the terms of any existing contract of Operator shall not give the non-taking party any interest in or make the non-taking
party a party to said contract. No purchase of Oil and Gas and no sale of Gas shall be made by Operator without first giving the
non-taking party ten days written notice of such intended purchase or sale and the price to be paid or the pricing basis to be
used. Operator shall give notice to all parties of the first sale of Gas from any well under this Agreement. 

 

All
parties shall give timely written notice to Operator of their Gas marketing arrangements for the following month, excluding price,
and shall notify Operator immediately in the event of a change in such arrangements. Operator shall maintain records of all marketing
arrangements, and of volumes actually sold or transported, which records shall be made available to Non-Operators upon reasonable
request. 

 

ARTICLE VII. 

EXPENDITURES AND LIABILITY OF PARTIES

 

A. Liability of Parties: 

 

The liability of the parties shall be several,
not joint or collective. Each party shall be responsible only for its obligations, and shall be liable only for its proportionate
share of the costs of developing and operating the Contract Area. Accordingly, the liens granted among the parties in Article VII.B.
are given to secure only the debts of each severally, and no party shall have any liability to third parties hereunder to satisfy
the default of any other party in the payment of any expense or obligation hereunder. It is not the intention of the parties to
create, nor shall this agreement be construed as creating, a mining or other partnership, joint venture, agency relationship or
association, or to render the parties liable as partners, co-venturers, or principals. In their relations with each other under
this agreement, the parties shall not be considered fiduciaries or to have established a confidential relationship but rather shall
be free to act on an arm's-length basis in accordance with their own respective self-interest, subject, however, to the obligation
of the parties to act in good faith in their dealings with each other with respect to activities hereunder.

 

    	- 11 -

    	 

    

  

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

 

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 Leases and Oil and Gas Interests in the Contract
Area, 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 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 hereafter acquired
and in lands pooled or unitized 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 and/or any financing statement prepared
and submitted by any party hereto in conjunction herewith or at any time 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 and Interests covered by this agreement by, through or under such party. All parties acquiring an
interest in Oil and Gas Leases and Oil and Gas Interests 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 VII.B., 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 VII.C.
or any other provision of this agreement, within the period required for such payment hereunder, then in addition to the remedies
provided in Article VII.B. or elsewhere in this agreement, the remedies specified below shall be applicable. For purposes of this
Article VII.D., all notices and elections shall be delivered only by Operator, except that Operator shall deliver any such notice
and election requested by a non-defaulting Non-Operator, and when Operator is the party in default, the applicable notices and
elections can be delivered by any Non-Operator. Election of any one or more of the following remedies shall not preclude the subsequent
use of any other remedy specified below or otherwise available to a non-defaulting party.

 

    	- 12 -

    	 

    

 

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

 

1. Suspension of Rights: Any party
may deliver to the party in default a Notice of Default, which shall specify the default, 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 or more of the remedies provided in
this Article. If the default is not cured within thirty (30) days of the delivery of such Notice of Default, all of the rights
of the defaulting party granted by this agreement may upon notice be suspended until the default is cured, without prejudice to
the right of the non-defaulting party or parties to continue to enforce the obligations of the defaulting party previously accrued
or thereafter accruing under this agreement. If Operator is the party in default, the Non-Operators shall have in addition the
right, by vote of Non-Operators owning a majority in interest in the Contract Area after excluding the voting interest of Operator,
to appoint a new Operator effective immediately. The rights of a defaulting party that may be suspended hereunder at the election
of the non-defaulting parties shall include, without limitation, the right to receive information as to any operation conducted
hereunder during the period of such default, the right to elect to participate in an operation proposed under Article VI.B. of
this agreement, the right to participate in an operation being 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.

 

2. Suit for Damages: Non-defaulting
parties or Operator for the benefit of non-defaulting parties may sue (at joint account expense) to collect the amounts in default,
plus interest accruing on the amounts recovered from the date of default until the date of collection at the rate specified in
Exhibit "C" attached hereto. Nothing herein shall prevent any party from suing any defaulting party to collect consequential
damages accruing to such party as a result of the default.

 

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, 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 VI.C., 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-defaulting 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 VII.D. 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 party or parties who subjected such lease to
this agreement at its or their expense. In the event two or more parties own and have contributed interests in the same lease to
this agreement, such parties may designate one of such parties to make said payments for and on behalf of all such parties. Any
party may request, and shall be entitled to receive, proper evidence of all such payments. In the event of failure to make proper
payment of any rental, shut-in well payment or minimum royalty through mistake or oversight where such payment is required to continue
the lease in force, any loss which results from such non-payment shall be borne in accordance with the provisions of Article IV.B.2.

 

Operator shall notify Non-Operators of
the anticipated completion of a shut-in well, or the shutting in or return to production of a producing well, at least five (5)
days (excluding Saturday, Sunday, and legal holidays) prior to taking such action, or at the earliest opportunity permitted by
circumstances, but assumes no liability for failure to do so. In the event of failure by Operator to so notify Non-Operators, the
loss of any lease contributed hereto by Non-Operators for failure to make timely payments of any shut-in well payment shall be
borne jointly by the parties hereto under the provisions of Article IV.B.3.

 

F. Taxes: 

 

Beginning with the first calendar year
after the effective date hereof, Operator shall render for ad valorem taxation all property subject to this agreement which by
law should be rendered for such taxes, and it shall pay all such taxes assessed thereon before they become delinquent. Prior to
the rendition date, each Non-Operator shall furnish Operator information as to burdens (to include, but not be limited to, royalties,
overriding royalties and production payments) on Leases and Oil and Gas Interests contributed by such Non-Operator. If the assessed
valuation of any Lease is reduced by reason of its being subject to outstanding excess royalties, overriding royalties or production
payments, the reduction in ad valorem taxes resulting therefrom shall inure to the benefit of the owner or owners of such Lease,
and Operator shall adjust the charge to 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 upon separate valuations of each party's working interest, then notwithstanding anything to
the contrary herein, charges to the joint account shall be made and paid by the parties hereto in accordance with the tax value
generated by each party's working interest. Operator shall bill the other parties for their proportionate shares of all tax payments
in the manner provided in Exhibit "C."

 

    	- 13 -

    	 

    

 

 

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

 

If Operator considers
any tax assessment improper, Operator may, at its discretion, protest within the time and manner prescribed by law, and prosecute
the protest to a final determination, unless all parties agree to abandon the protest prior to final determination. During the
pendency of administrative or judicial proceedings, Operator may elect to pay, under protest, all such taxes and any interest and
penalty. When any such protested assessment shall have been finally determined, Operator shall pay the tax for the joint account,
together with any interest and penalty accrued, and the total cost shall then be assessed against the parties, and be paid by them,
as provided in Exhibit "C."

 

Each party shall pay or cause to be paid
all production, severance, excise, gathering and other taxes imposed upon or with respect to the production or handling of such
party's share of Oil and Gas produced under the terms of this agreement.

 

ARTICLE VIII.

ACQUISITION, MAINTENANCE OR TRANSFER
OF INTEREST

 

A. Surrender of Leases: 

 

The Leases covered
by this agreement, insofar as they embrace acreage in the Contract Area, shall not be surrendered in whole or in part unless all
parties consent thereto.

 

However, should any party desire to surrender
its interest in any Lease or in any portion thereof, such party shall give written notice of the proposed surrender to all parties,
and the parties to whom such notice is delivered shall have thirty (30) days after delivery of the notice within which to notify
the party proposing the surrender whether they elect to consent thereto. Failure of a party to whom such notice is delivered to
reply within said 30-day period shall constitute a consent to the surrender of the Leases described in the notice. If all parties
do not agree or consent thereto, the party desiring to surrender shall assign, without express or implied warranty of title, all
of its interest in such Lease, or portion thereof, and any well, material and equipment which may be located thereon and any rights
in production thereafter secured, to the parties not consenting to such surrender. If the interest of the assigning party is or
includes an Oil and Gas Interest, the assigning party shall execute and deliver to the party or parties not 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 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." Upon such
assignment or lease, the assigning party shall be relieved from all obligations thereafter accruing, but not theretofore accrued,
with respect to the interest assigned or leased and the operation of any well attributable thereto, and the assigning party shall
have no further interest in the assigned or leased premises and its equipment and production other than the royalties retained
in any lease made under the terms of this Article. The party assignee or lessee shall pay to the party assignor or lessor the reasonable
salvage value of the latter's interest in any well's salvable materials and equipment attributable to the assigned or leased acreage.
The value of all salvable materials and equipment shall be determined in accordance with the provisions of Exhibit "C,"
less the estimated cost of salvaging and the estimated cost of plugging and abandoning and restoring the surface. If such value
is less than such costs, then the party assignor or lessor shall pay to the party assignee or lessee the amount of such deficit.
If the assignment or lease is in favor of more than one party, the interest shall be shared by such parties in the proportions
that the 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 varies according to depth, then the interest assigned shall similarly reflect such variances.

 

Any assignment, lease or surrender made
under this provision shall not reduce or change the assignor's, lessor's or surrendering party's interest as it was immediately
before the assignment, lease or surrender in the balance of the Contract Area; and the acreage assigned, leased or surrendered,
and subsequent operations thereon, shall not thereafter be subject to the terms and provisions of this agreement but shall be deemed
subject to an Operating Agreement in the form of this agreement.

 

B. Renewal or Extension of Leases: 

 

If any party secures a renewal or replacement
of an Oil and Gas Lease or Interest subject to this agreement, then all other parties shall be notified promptly upon such acquisition
or, in the case of a replacement Lease taken before expiration of an existing Lease, promptly upon expiration of the existing Lease.
The parties notified shall have the right for a period of thirty (30) days following delivery of such notice in which to elect
to participate in the ownership of the renewal or replacement Lease, insofar as such Lease affects lands within the Contract Area,
by paying to the party who acquired it their proportionate shares of the acquisition cost 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 parties in the Contract Area. Each
party who participates in the purchase of a renewal or replacement Lease shall be given an assignment of its proportionate interest
therein by the acquiring party.

 

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 provisions shall also be applicable to optional rights to earn acreage outside the Contract Area which are in support
of well drilled inside Contract Area. 

 

    	- 14 -

    	 

    

  

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

 

If
any party contracts for any consideration relating to disposition of such party's share of substances produced hereunder, such
consideration shall not be deemed a contribution as contemplated in this Article VIII.C. 

 

D. Assignment;
Maintenance of Uniform Interest: 

 

For
the purpose of maintaining uniformity of ownership in the Contract Area in the Oil and Gas Leases, Oil and Gas Interests, wells,
equipment and production covered by this agreement no party shall sell, encumber, transfer or make other disposition of its interest
in the Oil and Gas Leases and Oil and Gas Interests embraced within the Contract Area or in wells, equipment and production unless
such disposition covers either: 

 

1.         the entire interest
of the party in all Oil and Gas Leases, Oil and Gas Interests, wells, equipment and production; or 

 

2.         an
equal undivided percent of the party's present interest in all Oil and Gas Leases, Oil and Gas Interests, wells, equipment and
production in the Contract Area. 

 

Every sale, encumbrance, transfer or other
disposition made by any party shall be made expressly subject to this agreement and shall be made without prejudice to the right
of the other parties, and any transferee of an ownership interest in any Oil and Gas Lease or Interest shall be deemed a party
to this agreement as to the interest conveyed 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 hereunder with respect to the interest transferred, including without limitation
the obligation of a party to pay all costs attributable to an operation conducted hereunder in which such party has agreed to participate
prior to making such assignment, and the lien and security interest granted by Article VII.B. shall continue to burden the interest
transferred to secure payment of any such obligations.

 

If, at any time the interest of any party
is divided among and owned by four or more co-owners, Operator, at its discretion, may require such co-owners to appoint a single
trustee or agent with full authority to receive notices, approve expenditures, receive billings for and approve and pay such party's
share of the joint expenses, and to deal generally with, and with power to bind, the co-owners of such party's interest within
the scope of the operations embraced in this agreement; however, all such co- owners shall have the right to enter into and execute
all contracts or agreements for the disposition of their respective shares of the Oil and Gas produced from the Contract Area and
they shall have the right to receive, separately, payment of the sale proceeds thereof.

 

E. Waiver of Rights to Partition: 

 

If permitted by the
laws of the state or states in which the property covered hereby is located, each party hereto owning an 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 undivided interest
therein.

 

F. Preferential
Right to Purchase: 

☐
    (Optional; Check if applicable.) 

 

Should
any party desire to sell all or any part of its interests under this agreement, or its rights and interests in the Contract Area,
it shall promptly give written notice to the other parties, with full information concerning its proposed disposition, which shall
include the name and address of the prospective transferee (who must be ready, willing and able to purchase), the purchase price,
a legal description sufficient to identify the property, and all other terms of the offer. The other parties shall then have an
optional prior right, for a period of ten (10) days after the notice is delivered, to purchase for the stated consideration on
the same terms and conditions the interest which the other party proposes to sell; and, if this optional right is exercised, the
purchasing parties shall share the purchased interest in the proportions that the interest of each bears to the total interest
of all purchasing parties. However, there shall be no preferential right to purchase in those cases where any party wishes to mortgage
its interests, or to transfer title to its interests to its mortgagee in lieu of or pursuant to foreclosure of a mortgage of its
interests, or to dispose of its interests by merger, reorganization, consolidation, or by sale of all or substantially all of its
Oil and Gas assets to any party, or by transfer of its interests to a subsidiary or parent company or to a subsidiary of a parent
company, or to any company in which such party owns a majority of the stock. 

 

ARTICLE IX.

INTERNAL REVENUE CODE ELECTION

 

If, for federal income tax purposes, this
agreement and the operations hereunder are regarded as a partnership, and if the parties have not otherwise agreed to form a tax
partnership pursuant to Exhibit "G" or other agreement between them, each party thereby affected elects to be excluded
from the application of all of the provisions of Subchapter "K," Chapter 1, Subtitle "A," of the Internal Revenue
Code of 1986, as amended ("Code"), as permitted and authorized by Section 761 of the Code and the regulations promulgated
thereunder. Operator is authorized and directed to execute on behalf of each party hereby affected 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. Should
there be any requirement that each party hereby affected give further evidence of this election, each such party shall execute
such documents and furnish such other evidence as may be required by the Federal Internal Revenue Service or as may be necessary
to evidence this election. No such party shall give any notices or take any other action inconsistent with the election made hereby.
If any present or future income tax laws of the state or states in which the Contract Area is located or any future income tax
laws of the United States contain provisions similar to those in Subchapter "K," Chapter 1, Subtitle "A," of
the Code, under which an election similar to that provided by Section 761 of the Code is permitted, each party hereby affected
shall make such election as may be permitted or required by such laws. In making the foregoing election, each such party states
that the income derived by such party from operations hereunder can be adequately determined without the computation of partnership
taxable income.

 

ARTICLE X. 

CLAIMS AND LAWSUITS

 

Operator may settle
any single uninsured third party damage claim or suit arising from operations hereunder if the expenditure does not exceed One-Hundred
Thousand  Dollars ($ 100,000          
) and if the payment is in complete settlement of such claim or suit. If the amount required for settlement exceeds the above
amount, the parties hereto shall assume and take over the further handling of the claim or suit, unless such authority is delegated
to Operator. All costs and expenses of handling settling, or otherwise discharging such claim or suit shall be a the joint expense
of the parties participating in the operation from which the claim or suit arises. If a claim is made against any party or if any
party is sued on account of any matter arising from operations hereunder over which such individual has no control because of the
rights given Operator by this agreement, such party shall immediately notify all other parties, and the claim or suit shall be
treated as any other claim or suit involving operations hereunder.

 

    	- 15 -

    	 

    

  

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

 

ARTICLE XI.

FORCE MAJEURE

 

If any party is rendered
unable, wholly or in part, by force majeure to carry out its obligations under this agreement, other than the obligation to indemnify
or make money payments or furnish security, that party shall give to all other parties prompt written notice of the force majeure
with reasonably full particulars concerning it; thereupon, the obligations of the party giving the notice, so far as they are affected
by the force majeure, shall be suspended during, but no longer than, the continuance of the force majeure. The term "force
majeure," as here employed, shall mean an act of God, strike, lockout, or other industrial disturbance, act of the 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, and any other cause, whether of the kind specifically enumerated above
or otherwise, which is not reasonably within the control of the party claiming suspension.

 

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

 

ARTICLE XII.

NOTICES

 

All notices authorized
or required between the parties by any of the provisions of this agreement, unless otherwise specifically provided, shall be in
writing and delivered in person or by United States mail, courier service, telegram, telex, telecopier or any other form of facsimile, postage or charges prepaid,  with confirmation
of successful transmission
and addressed to such parties at the addresses listed on 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 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 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, facsimile or telex machine of such party.
The second or any responsive notice shall be deemed delivered when deposited in the United States mail or at the office of the
courier or telegraph service, or upon transmittal by telex, telecopy or facsimile, or when personally delivered to the party to
be notified, provided, that when response is required within 24 or 48 hours, such response shall be given orally or by telephone,
telex, telecopy or other facsimile within such period. Each party shall have the right to change its address at any time, and from
time to time, by giving written notice thereof to all other parties. If a party is not available to receive notice orally or by
telephone when a party attempts to deliver a notice required to be delivered within 24 or 48 hours, the notice may be delivered
in writing by any other method specified herein and shall be deemed delivered in the same manner provided above for any responsive
notice.

 

ARTICLE XIII. 

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.

 

		 ̈	Option
                                         No. 1: So long as any of the Oil and Gas Leases subject to this agreement remain or are
                                         continued in force as to any part of the Contract Area, whether by production, extension,
                                         renewal or otherwise.

 

		þ

	Option No. 2: In the event the well described in Article VI.A., 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      ninety (90)       
     days thereafter; provided, however, if, 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         ninety
     (90)        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.
If the Contract Area is in two or more states, the law of the state of     Oklahoma       
shall govern.

 

C. Regulatory Agencies: 

 

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 orders promulgated under such laws in reference to oil, gas
and mineral operations, including the location, operation, or production of wells, on tracts offsetting or adjacent to the Contract
Area.

 

    	- 16 -

    	 

    

 

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

 

With respect to the operations hereunder,
Non-Operators agree to release Operator from any and all losses, damages, injuries, claims and causes of action arising out of,
incident to or resulting directly or indirectly from Operator's interpretation or application of rules, rulings, regulations or
orders of the Department of Energy or Federal Energy Regulatory Commission or predecessor or successor agencies to the extent such
interpretation or application was made in good faith and does not constitute gross negligence. Each Non-Operator further agrees
to reimburse Operator for such Non-Operator's share of production or any refund, fine, levy or other governmental sanction that
Operator may be required to pay as a result of such an incorrect interpretation or application, together with interest and penalties
thereon owing by Operator as a result of such incorrect interpretation or application.

 

ARTICLE XV.

MISCELLANEOUS 

 

		A.	Execution:

 

This agreement shall
be binding upon each Non-Operator when this agreement or a counterpart thereof has been executed by such 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.
Operator may, however, by written notice to all Non-Operators who have become bound by this agreement as aforesaid, given at any
time prior to the actual spud date of the Initial Well but in no event later than five days prior to the date specified in Article
VI.A. for commencement of the Initial Well, terminate this agreement if Operator in its sole discretion determines that there is
insufficient participation to justify commencement of drilling operations. In the event of such a termination by Operator, all
further obligations of the parties hereunder shall cease as of such termination. In the event any Non-Operator has advanced or
prepaid any share of drilling or other costs hereunder, all sums so advanced shall be returned to such Non-Operator without interest.
In the event Operator proceeds with drilling operations for the Initial Well without the execution hereof by all persons listed
on Exhibit "A" as having a current working interest in such well, Operator shall indemnify Non-Operators with respect
to all costs incurred for the Initial Well which would have been charged to such person under this agreement if such person had
executed the same and Operator shall receive all revenues which would have been received by such person under this agreement if
such person had executed the same.

 

		B.	Successors and Assigns:

 

This 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, and the terms hereof shall be deemed to run with the Leases or Interests included within the Contract Area.

 

		C.	Counterparts:

 

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

 

		D.	Severability:

 

For the purposes of
assuming or rejecting this agreement as an executory contract pursuant to federal bankruptcy laws, this agreement shall not be
severable, but rather must be assumed or rejected in its entirety, and the failure of any party to this agreement to comply with
all of its financial obligations provided herein shall be a material default.

 

ARTICLE XVI. 

OTHER PROVISIONS

 

		A.	Additional Definitions:

		a.	An “AFE”
for a Horizontal or Multi-lateral Well shall clearly stipulate that the well being proposed is a Horizontal or Multi-lateral Well
and shall include all Completion operations for the proposed Horizontal or Multi-lateral Well.

		b.	When used in connection with a Multi-lateral or Horizontal Well, the term “Deepen”
shall mean an operation whereby a Lateral is drilled to a horizontal distance greater than the distance set out in the well proposal
approved by the Consenting Parties, or to a horizontal distance greater than the horizontal distance to which the Lateral was previously
drilled. 

		c.	The term “Drillsite”
when used in connection with a Horizontal or Multi-lateral Well shall mean the surface location and all tracts the lateral is proposed
to penetrate or penetrates. 

		d.	The term “Horizontal Well”
means a well with means
a well with a horizontal displacement of the wellbore drilled at an angle of at least eighty degrees within the productive formation.

		e.	The term “Lateral”
shall mean that portion of a wellbore that deviates from the approximate vertical orientation to approximate horizontal orientation
and all wellbore beyond such deviation to the Total Measured Depth. 

		f.	The term “Multi-lateral Well”
shall mean a well which contains more than one Lateral which is drilled, Completed or Recompleted in a manner in which the horizontal
displacement of the wellbore drilled at an angle of at least eighty degrees within the productive formation. 

		g.	The term “Plug-back”
when used in connection with a Horizontal or a Multi-lateral Well shall mean an operation to test or Complete the well at a stratigraphically
shallower Zone in which an operation has been or is being Completed and which is not within an existing Lateral. 

		h.	When used in connection with a Horizontal or Multi-lateral Well, the term “Sidetrack”
shall mean the directional control and intentional deviation of a well outside the existing Lateral(s) so as to change the Zone
or the radial direction of a Lateral as originally proposed, unless done to straighten the hole or drill around junk in the hole
or to overcome other mechanical difficulties. 

		i.	The term “Total Measured Depth”,
when used in connection with a Horizontal or Multi-lateral Well, shall mean the distance from the surface of the ground to the
terminus of the wellbore, as measured along the wellbore. Each Lateral taken together with the common vertical wellbore shall be
considered a single wellbore and shall have a corresponding Total Measured Depth. Notwithstanding the foregoing, in the case of
a Multi-lateral Well, if the production from each Lateral is to be commingled in the common vertical wellbore then all the Laterals
and the vertical wellbore shall be considered collectively as one wellbore. When the proposed operation(s) is the drilling of,
or operation on, a Horizontal or Multi-lateral Well, the terms “depth”
or “total depth”
wherever used in the Agreement shall be deemed to read “Total
Measured Depth” insofar as it applies to such well. 

		j.	The term “Vertical Well”
shall mean a well drilled, Completed or Recompleted other than a Horizontal or Multi-lateral Well. 

 

		B.	Precedence of Article: 

 

In the event of a conflict
between the provisions of this Article XVI and any other provisions of this agreement, the provisions of this Article XVI shall
control and prevail, subject to Article XVI.BA
above. 

 

		C.	Priority of Operations, Horizontal Wells: 

 

If at any time there is more than one
operation proposed in connection with any horizontal well subject to this agreement, then unless all participating parties agree
on the sequence of such operations, such proposals shall be undertaken in the following order of priority: 

 

		1.	Completion of drilling operations on all proposed Laterals; 

		2.	Extension or Deepening of any Lateral; 

		3.	Kick out and drill an additional Lateral in the same formation; 

		4.	Attempt a Completion in a Lateral, including testing and logging; 

		5.	Plug back the well to another formation in ascending order; 

		6.	Plug and abandon a well. 

 

It is provided, however, that if at
any time said participating parties are considering the above elections, the hole is in such a condition that, in the opinion of
the party(ies) owning a majority in cost-bearing, possessory interest as set forth on Exhibit “A”
hereto, a reasonably prudent operator would not conduct the operations contemplated by the particular election involved for fear
of placing the hole in jeopardy or of losing same prior to completing the well in the objective depth or objective zone, such election
shall not be given the priority hereinabove set forth. In such event, the operation which, in the opinion of the party(ies) owning
a majority in cost-bearing, possessory interest as set forth on Exhibit “A”
hereto, is less likely to jeopardize the well, will be conducted. It is further understood that if some, but not all parties, elect
to participate in the additional logging, coring, or testing, they may do so, and the party or parties not participating in such
operations shall not be entitled to the logs, cores or the results of the tests but shall suffer no further penalty. 

 

		D.	Priority of Operations, Vertical Wells: 

 

Where a vertical well has been authorized
under the terms of this agreement by all parties (or by one or more, but less than all parties under Article VI.B.2.) and the parties
participating in the well cannot agree upon the sequence and timing of further operations regarding such well, the following elections
shall control in the order enumerated below: 

 

    	- 17 -

    	 

    

  

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

 

		1.	Prior to reaching the objective depth or Zone: 

 

		a.	Drilling a well to its objective depth or objective Zone shall have first priority over all other operations and proposals.

		b.	In the event that impenetrable conditions or mechanical difficulties prevent reaching the objective depth or Zone, a proposal
to Sidetrack in an effort to reach the objective
depth or Zone shall have priority over a proposal to attempt a Completion in a Zone already reached.

 

		2.	After the objective depth or Zone has been reached: 

		a.	An election to do additional logging, coring or testing; 

		b.	An election to attempt to Complete the well at either the objective depth or objective Zone; 

		c.	An election to Deepen said well; 

		d.	An election to Plug Back and attempt to Complete said well; 

		e.	An election to Sidetrack the well; 

		f.	An election to Rework said well by generally accepted stimulation techniques whether or not said well had previously produced
in commercial quantities or is capable of commercial production, subject to the provisions of Article XVI hereof; 

		g.	An election to temporarily abandon the well; 

		h.	An election to plug and abandon the well. 

 

It is provided,
however, that if at any time said participating parties are considering the above elections, the hole is in such a condition that,
in the opinion of the party(ies) owning a majority in cost-bearing, possessory interest as set forth on Exhibit “A”
hereto, a reasonably prudent operator would not conduct the operations contemplated by the particular election involved for fear
of placing the hole in jeopardy or of losing same prior to completing the well in the objective depth or objective Zone, such election
shall not be given the priority hereinabove set forth. In such event, the operation which, in the opinion of the party(ies) owning
a majority in cost-bearing, possessory interest as set forth on Exhibit “A”
hereto, is less likely to jeopardize the well, will be conducted. It is further understood that if some, but not all parties, elect
to participate in the additional logging, coring, or testing, they may do so, and the party or parties not participating in such
operations shall not be entitled to the logs, cores or the results of the tests but shall suffer no further penalty. 

 

		E.	CONFIDENTIALITY: Any data or information with respect to the Contract Area, including, but not limited to,
electric logs, downhole surveys, core analyses and tests obtained by a party of the parties to this Agreement (“Confidential
Information”) shall be held confidential and the parties
shall take all appropriate measures to prevent the publication, dissemination or disclosure of any Confidential Information, and
reports or copies thereof, to any third party whomsoever until the termination of the Agreement (thereafter any party may sell
or trade the Confidential Information for its own benefit without any obligation to any other party hereto); provided, however,
that nothing herein shall prevent any party from disclosing any Confidential Information: (a) to any institutional entity which
lends or proposes to lend funds to a party hereto; (b) upon the order of any court or administrative or regulatory agency; (c)
which is in, or may hereafter enter, the public domain without breach of this Agreement; (d) which has been obtained from any person
or entity that is not a party hereto or an affiliate of any party hereto as long as such party is not prohibited from disclosing
such information; (e) in connection with the exercise of any right or remedy hereunder; (f) to any independent geological, geophysical
or reservoir consultants working under contract to any party hereto, as long as such consultants agree to be bound by the confidentiality
provisions hereof; or (g) for evaluation purposes to bona fid prospective purchasers or prospective owners or equity interests
in a party to this Agreement or to prospective farmees under farmout agreements or participants in the Contract Area, as long as
such parties agree to be bound by the confidentiality provisions hereof. 

 

		F.	Marketing:

 

Non-Operator’s
natural gas, natural gas liquids, crude oil and condensate production shall be marketed in accordance with Exhibit G 

 

		G.	Conflict: 

 

In the event of
a conflict between the provisions of this Agreement and any provision of the Master Services Agreement between American Energy
Capital Partners, LP and AECP Operating Company, LLC and AECP Management, LLC dated [ ], 2014, then said Master Services Agreement
shall control; provided, however, that the foregoing shall not be construed to include the payment provisions specified in this
Agreement which shall not be construed to be in conflict with any payment provision(s) in such Master Services Agreement. 

 

    	- 18 -

    	 

    

 

 

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

 

IN WITNESS WHEREOF, this agreement shall
be effective as of the __________ day of____________________, ______.

 

John-Mark Beaver___________, who has prepared and circulated this form for execution, represents and warrants that the form was printed from and,
with the exception(s) listed below, is identical to the AAPL Form 610-1989 Model Form Operating Agreement, as published in computerized
form by Forms On-A-Disk, Inc. No changes, alterations, or modifications, other than those made by strikethrough and/or insertion
and that are clearly recognizable as changes in Articles _________________________________________________________, have been made
to the form.

 

	ATTEST OR WITNESS:	 	 	OPERATOR
	 	 	 	 
	 	 	 	 
	 	 	By	 
	 	 	 	 
	 	 	 	Type or print name

 

	 	 	 	Title	 
	 	 	 	 	 
	 	 	 	Date	 

 

	 	 	 	Tax ID or S.S. No.	 

 

NON-OPERATORS

 

	 	 	 	 
	 	 	 	 
	 	 	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.	 

 

	 	 	 	 
	 	 	 	 
	 	 	By	 
	 	 	 	 
	 	 	 	Type or print name

 

	 	 	 	Title	 
	 	 	 	 	 
	 	 	 	Date	 

 

	 	 	 	Tax ID or S.S. No.	 

 

    	- 19 -

    	 

    

 

 

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

 

ACKNOWLEDGMENTS 

 

Note: The following forms of acknowledgment
are the short forms approved by the Uniform Law on Notarial Acts.

 

The validity and effect of these forms in any state will depend
upon the statutes of that state.

 

Individual acknowledgment:

 

	State of ______________	)
	 	 
	 	) ss.
	 	 
	County of ____________	)

 

This instrument was acknowledged before me on

 

	 	by	 

 

	(Seal, if any)	 	 	 
	 	 	 	 
	 	 	Title (and Rank)	 

 

	 	 	My commission expires:	 

 

Acknowledgment in representative capacity:

 

	State of ______________	)
	 	 
	 	) ss.
	 	 
	County of ____________	)

 

This instrument was acknowledged before
me on

 

	 	by	 	as

 

	 	of	 	.

 

	(Seal, if any)	 	 	 
	 	 	 	 
	 	 	Title (and Rank)	 

 

	 	 	My commission expires:	 

 

    	- 20 -

    	 

    

  

EXHIBIT A

 

To be negotiated and mutually agreed by the parties upon execution
of the agreement of which this is an exhibit.

 

    	 

    	 

    

  

EXHIBIT A

 

Attached to and made a part
of that certain Operating Agreement dated _________ by ______________, as Operator and [Company], as Non-Operators (“Operating
Agreement”).

 

		1.	Description of the Lands subject to this agreement:

 

		2.	Restrictions, if any, as to depths, formations, or substances:

 

		3.	Parties to agreement with addresses and telephone numbers for notice purposes

 

[Operator]

Attn: [Contact]

[Address]

[City, State Zip]

[Contact Email]

Telephone: [Phone Number]

Fax: [Fax Number]

 

[Company]

Attn: [Contact]

[Address]

[City, State Zip]

[Contact Email]

Telephone: [Phone Number]

Fax: [Fax Number]

 

		4.	Percentages or fractional interests of parties to this agreement:

 

[Operator]: WI%

[Company]: WI%

 

		5.	Oil and Gas Leases and/or Oil and Gas Interests subject to this agreement:

 

Lease 1:

 

Lessor:

Lessee:

Lease Date:

Book/Page:

Legal Description:

 

Lease 2:

 

Lessor:

Lessee:

Lease Date:

Book/Page:

Legal Description:

 

End of Exhibit “A”

 

    	 

    	 

    

  

EXHIBIT B 

FORM OF LEASE

 

To be negotiated and mutually agreed by the parties upon execution
of the agreement of which this is an exhibit.

 

    	 

    	 

    

 

 

EXHIBIT C

ACCOUNTING PROCEDURE

 

To be negotiated and mutually agreed by the parties upon execution
of the agreement of which this is an exhibit.

 

    	 

    	 

    

  

		
        COPAS 2005 Accounting Procedure

        Recommended by COPAS

 

Exhibit “C”

ACCOUNTING
PROCEDURE

JOINT OPERATIONS

 

Attached to and made part of that certain Operating Agreement
dated, by and between _____________, as Operator and [Company] as Non-Operator.          

	 

 

I. GENERAL PROVISIONS

 

IF 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 THE 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 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.

 

COPYRIGHT © 2005 by Council of Petroleum Accountants Societies, Inc. (COPAS)

 

    	1

    	 

    

 

	 	
        COPAS 2005 Accounting Procedure

        Recommended by COPAS, Inc.

 

“Joint Property” means the real
and personal property subject to the Agreement.

 

“Laws” means
any laws, rules, regulations, decrees, and orders of United the States of America or any state thereof and all other governmental
bodies, agencies, and other authorities having jurisdiction over or affecting the provisions contained in or the transactions contemplated
by the Agreement or the Parties and their operations, whether such laws now exist or are hereafter amended, enacted, promulgated
or issued.

 

“Material”
means personal property, equipment, supplies, or consumables acquired or held for use by the Joint Property.

 

“Non-Operators”
means the Parties to the Agreement other than the Operator.

 

“Offshore Facilities”
means platforms, surface and subsea development and production systems, and other support systems such as oil and gas handling
facilities, living quarters, offices, shops, cranes, electrical supply equipment and systems, fuel and water storage and piping,
heliport, marine docking installations, communication facilities, navigation aids, and other similar facilities necessary in the
conduct of offshore operations, all of which are located offshore.

 

“Off-site”
means any location that is not considered On-site as defined in this Accounting Procedure.

 

“On-site”
means on the Joint Property when in direct conduct of Joint Operations. The term “On-site”
shall also include that portion of Offshore Facilities, Shore Base Facilities, fabrication yards, and staging areas from which
Joint Operations are conducted, or other facilities that directly control equipment on the Joint Property, regardless of whether
such facilities are owned by the Joint Account.

 

“Operator”
means the Party designated pursuant to the Agreement to conduct the Joint Operations.

 

“Parties”
means legal entities signatory to the Agreement or their successors and assigns. Parties shall be referred to individually as “Party.”

 

“Participating Interest”
means the percentage of the costs and risks of conducting an operation under the Agreement that a Party agrees, or is otherwise
obligated, to pay and bear.

 

“Participating Party”
means a Party that approves a proposed operation or otherwise agrees, or becomes liable, to pay and bear a share of the costs and
risks of conducting an operation under the Agreement.

 

“Personal Expenses”
means reimbursed costs for travel and temporary living expenses.

 

“Railway Receiving
Point” means the railhead nearest the Joint Property for which freight rates are published, even though an actual railhead
may not exist.

 

“Shore Base Facilities”
means onshore support facilities that during Joint Operations provide such services to the Joint Property as a receiving and transshipment
point for Materials; debarkation point for drilling and production personnel and services; communication, scheduling and dispatching
center; and other associated functions serving the Joint Property.

 

“Supply Store”
means a recognized source or common stock point for a given Material item.

 

“Technical
Services” means services providing specific engineering, geoscience, or other professional skills, such as
those performed by engineers, geologists, geophysicists, and technicians, required to handle specific operating conditions
and problems for the benefit of Joint Operations; provided, however, Technical Services shall not include those
functions specifically identified as overhead under the second paragraph of the introduction of Section III ( Overhead).
Technical Services may be provided by the Operator, Operator’s
Affiliate, Non- Operator, Non-Operator Affiliates, and/or third parties.

 

		2.	STATEMENTS AND BILLINGS

 

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 the
preceding month. Such bills shall be accompanied by statements that the identify the well, lease or facility, charges and credits
summarized by appropriate categories of investment and expense. Controllable Material shall be separately identified and
fully described in detail, or at the Operator’s option,
Controllable Material may be summarized by major Material classifications. Intangible drilling costs, audit adjustments, and
unusual charges and credits shall be separately and clearly identified.

 

The Operator may make
available to Non-Operators any statements and bills required under Section I.2 and/or Section I.3.A (Advances and Payments
by the Parties) via email, electronic data interchange, internet websites or other equivalent electronic media in lieu of
paper copies. The Operator shall provide the Non-Operators instructions and any necessary information to access and receive
the statements and bills within the timeframes specified herein. A statement or billing shall be deemed as delivered
twenty-four (24) hours (exclusive of weekends and holidays) after the Operator notifies the Non-Operator that the statement
or billing is available on the website and/or sent via email or electronic data interchange transmission. Each Non-Operator
individually shall elect to receive statements and billings electronically, if available from the Operator, or request paper
copies. Such election may be changed upon thirty (30) days prior written notice to the Operator.

 

COPYRIGHT © 2005 by Council of Petroleum Accountants Societies, Inc. (COPAS)

 

    	2

    	 

    

 

 

		
        COPAS 2005 Accounting Procedure

        Recommended by COPAS, Inc.

  

		3.	ADVANCES AND PAYMENTS BY THE PARTIES 

 

		A.	Unless otherwise provided for in the Agreement,
the Operator may require the Non-Operators to advance their share of the estimated cash outlay for the succeeding month’s
operations within fifteen (15) days after receipt of the advance request or by the first day of the month for which the advance
is required, whichever is later. The Operator shall adjust each monthly billing to reflect advances received from the Non-Operators
for such month. If a refund is due, the Operator shall apply the amount to be refunded to the subsequent month’s
billing or advance, unless the Non-Operator sends the Operator a written request for a cash refund. The Operator shall remit the
refund to the Non-Operator within fifteen (15) days of receipt of such written request. 

 

		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 payment is not made within such time,
the unpaid balance shall bear interest compounded monthly at the prime rate published by the Wall Street Journal on the
first day of each month the payment is delinquent, plus three percent (3%), per annum, or the maximum contract rate permitted by
the applicable usury Laws governing the Joint Property, whichever is the lesser, plus attorney’s
fees, court costs, and other costs in connection with the collection of unpaid amounts. If the Wall Street Journal ceases
to be published or discontinues publishing a prime rate, the unpaid balance shall bear interest compounded monthly at the prime
rate published by the Federal Reserve plus three percent (3%), per annum. Interest shall begin accruing on the first day of the
month in which the payment was due. Payment shall not be reduced or delayed as a result inquiries of or anticipated credits unless
the Operator has agreed. Notwithstanding the foregoing, the Non-Operator may reduce payment, provided it furnishes documentation
and explanation to the Operator at the time payment is made, to the extent such reduction is caused by:

 

		(1)	being billed at an incorrect working interest
or Participating Interest that is higher than such Non-Operator’s
actual working interest or Participating Interest, as applicable; or

		(2)	being billed for a project or AFE requiring approval of the Parties under the Agreement that the
Non-Operator has not approved or is not otherwise obligated to pay under the Agreement; or

		(3)	being billed for a property in which the
Non-Operator no longer owns a working interest, provided the Non-Operator has furnished the Operator a copy of the recorded assignment
or letter in-lieu. Notwithstanding the foregoing, the Non-Operator le shall remain responsible for paying bills attributable to
the interest it sold or transferred for any bills rendered during the thirty (30) day period following the Operator’s
receipt of such written notice; or

		(4)	charges outside the adjustment period, as provided in Section I.4 (Adjustments).

 

		4.	ADJUSTMENTS

 

		A.	Payment of any such bills shall not prejudice the right of any Party to protestor question the
correctness thereof; however, all bills and statements, including payout statements, rendered during any calendar year shall conclusively
be presumed to be true and correct, with respect only to expenditures, after twenty-four (24) months following the end of any such
calendar year, unless within said period a Party takes specific detailed written exception thereto making a claim for adjustment.
The Operator shall provide a response to all written exceptions, whether or not contained in an audit report, within the time periods
prescribed in Section I.5 ( Expenditure Audits).

 

		B.	All adjustments initiated by the Operator,
except those described in items (1) through (4) of this Section I.4.B, are limited to the twenty-four (24) month period following
the end of the calendar year in which the original charge appeared or should have appeared on the Operator’s
Joint Account statement or payout statement. Adjustments that may be made beyond the twenty-four (24) month period are limited
to adjustments resulting from the following:

 

		(1)	a physical inventory of Controllable Material as provided for in Section V (Inventories of Controllable
Material), or

		(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 Operator relating to another property, or

		(3)	a government/regulatory audit, or

		(4)	a working interest ownership or Participating Interest adjustment.

 

		5.	EXPENDITURE AUDITS

 

		A.	A Non-Operator, upon written notice to
the Operator and all other Non-Operators, shall have the right to audit the Operator’s
accounts and records relating to the Joint Account/* within the twenty-four (24) month which
such bill was rendered; however, conducting an audit shall not extend the time for the taking of written exception to and the adjustment
of accounts as provided for in Section I.4 (Adjustments). Any Party that is subject to payout accounting under the Agreement
shall have the right to audit the accounts and records of the Party responsible for preparing the payout statements, or of the
Party furnishing information to the Party responsible for preparing payout statements. Audits of payout accounts may include the
volumes of hydrocarbons produced and saved and proceeds received for such hydrocarbons as they pertain to payout accounting required
under the Agreement. Unless otherwise provided in the Agreement, audits of a payout account shall be conducted within the twenty-four
(24) month period 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 those Non-Operators approving such audit.

 

*and the accounts and records of any
Affiliate of Operator with respect to labor or consultants charged by such Affiliate and billed by such Affiliate and billed
by Operator directly to the Joint Account to the extent necessary to verify that the amounts charged by such Affiliate are
within a reasonable range of market rates

 

COPYRIGHT ©  2005 by Council of Petroleum Accountants
Societies, Inc. (COPAS)

 

    	3

    	 

    

  

		
        COPAS 2005 Accounting Procedure

        Recommended by COPAS, Inc.

  

The
Non-Operator leading the audit (hereinafter “lead audit
company”) shall issue the audit report within ninety (90)
days after completion of the audit testing and analysis; however, the ninety (90) day time period shall not extend the twenty-four
(24) month requirement for taking specific detailed written exception as required in Section I.4. A (Adjustments) above.
All claims shall be supported with sufficient documentation. 

 

A
timely filed written exception or audit report containing written exceptions (hereinafter “written
exceptions”) shall, with respect to the claims made therein,
preclude the Operator from asserting a statute of limitations defense against such claims, and the Operator 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 the additional deadlines
in Section I.5.B or I.5.C, the Operator’s waiver of its rights
to assert a statute of limitations defense against the claims brought by the Non-Operators shall lapse, and such claims shall then
be subject to the applicable statute of limitations, provided that such waiver shall not lapse in the event that the Operator has
failed to comply with the deadlines in Section I.5.B or I.5.C. 

 

		B.	The Operator shall provide a written response to all exceptions in an audit report within one hundred
eighty (180) days after Operator receives such report. Denied exceptions should be accompanied by a substantive response. If the
Operator fails to provide substantive response to an exception within this one hundred eighty (180) day period, the Operator will
owe interest on that exception or portion thereof, if ultimately granted, from the date it received the audit report. Interest
shall be calculated using the rate set forth in Section I.3.B (Advances and Payments by the Parties).

 

		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 shall reply to the lead audit company’s
follow-up response within ninety (90) days of receipt; provided, however, each Non-Operator 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 adequately fulfilling its duties. Unless otherwise provided for in Section I.5.E, if the
Operator fails to provide substantive response to an exception within this ninety (90)day period, the Operator will owe interest
on that exception or portion thereof, if ultimately granted, from the date it received the audit report. Interest shall be calculated
using the rate set forth in Section I.3.B ( Advances and Payments by the Parties). 

 

		D.	If any Party fails to meet the deadlines
in Sections I.5.B or I.5.C or if any audit issues are outstanding fifteen (15) months after Operator receives the audit report,
the Operator or any Non-Operator participating in the audit has the right to call a resolution meeting, as set forth in this Section
I.5.D or it may invoke the dispute resolution procedures included in the Agreement, if applicable. The meeting will require one
month’s written notice to the Operator and all Non-Operators
participating in the audit. The meeting shall be held at the Operator’s
office or mutually agreed location, and shall be attended by representatives of the Parties with authority to resolve such outstanding
issues. Any Party who fails to attend the resolution meeting shall be bound by any resolution reached at the meeting. The lead
audit company will make good faith efforts to coordinate the response and positions of the Non-Operator participants throughout
the resolution process; however, each Non-Operator shall have the right to represent itself. Attendees will make good faith efforts
to resolve outstanding issues, and each Party will be required to present substantive information supporting its position. A resolution
meeting may be held as often as agreed to by the Parties. Issues unresolved at one meeting may be discussed at subsequent meetings
until each such issue is resolved. 

 

If
the Agreement contains no dispute resolution procedures and the audit issues cannot be resolved by negotiation, the dispute
shall be submitted to mediation. In such event, promptly following one Party’s
written request for mediation, the Parties to the dispute shall choose a mutually acceptable mediator and share the costs of
mediation services equally. The Parties shall each have present at the mediation at least one individual how has the
authority to settle the dispute. The Parties shall make reasonable efforts to ensure that the mediation commences within
sixty (60) days of the date of the mediation request. Notwithstanding the above, any Party may file a lawsuit or complaint
(1) if the Parties are unable after reasonable efforts, to commence mediation within sixty (60) days of the date of the
mediation request, (2) for statute limitations of reasons, or (3) to seek a preliminary injunction or other provisional
judicial relief, if in its sole judgment an injunction or other provisional relief is necessary to avoid irreparable damage
or to preserve the status quo. Despite such action, the Parties shall continue to try to resolve the dispute by mediation. 

 

E.þ
(Optional Provision – Forfeiture Penalties) 

If the Non-Operators fail
to meet the deadline in Section I.5.C, any unresolved exceptions that were not addressed by the Non-Operators within one (1) year
following receipt of the last substantive response of the Operator shall be deemed to have been withdrawn by the Non-Operators.
If the Operator fails to meet the deadlines in Section I.5.B or I.5.C, any unresolved exceptions that were not addressed by the
Operator within one (1) year following receipt of the audit report or receipt of the last substantive response of the Non-Operators,
whichever is later, shall be deemed to have been granted by the Operator and adjustments shall be made, without interest, to the
Joint Account. 

 

		6.	APPROVAL BY PARTIES

 

		A.	GENERAL MATTERS

 

Where an approval or other
agreement of the Parties or Non-Operators is expressly required under other Sections of this Accounting Procedure and if the
Agreement to which this Accounting Procedure is attached contains no contrary provisions in regard thereto, the Operator
shall notify all Non-Operators of the Operator’s
proposal and the agreement or approval of a majority in interest of the Non-Operators shall be controlling on all
Non-Operators. 

 

COPYRIGHT © 2005 by Council of Petroleum Accountants Societies,
Inc. (COPAS)

 

    	4

    	 

    

 

		
        COPAS 2005 Accounting Procedure

        Recommended by COPAS, Inc.

  

This Section I.6.A applies to
specific situations of limited duration where a Party proposes to change the accounting for charges from that prescribed in this
Accounting Procedure. This provision does not apply to amendments to this Accounting Procedure, which are covered by Section I.6.B.

 

		B.	AMENDMENTS

 

If the Agreement to which this
Accounting Procedure is attached contains no contrary provisions in regard thereto, this Accounting Procedure can be amended by
an affirmative vote of         two        (    
2     ) or more Parties, one of which is the Operator, having a combined working interest of at least
       fifty        percent (   50   
%), which approval shall be binding on all Parties, provided, however, approval of at
least one (1) Non-Operator  that is not an Affiliate of Operator shall be required.

 

		C.	AFFILIATES

 

For the purpose of administering
the voting procedures of Sections I.6.A and I.6.B, if Parties to this Agreement are Affiliates of each other, then such Affiliates
shall be combined and treated as a single Party having the combined working interest or Participating Interest of such Affiliates.

 

For
the purposes of administering the voting procedures in Section I.6.A, if a Non-Operator is an Affiliate of the Operator, votes
under Section I.6.A shall require the majority in interest of Non-Operator(s) after excluding the interest of the Operator’s
Affiliate. 

 

II. DIRECT CHARGES

 

The Operator shall charge the Joint Account with the following
items:

 

		1.	RENTALS AND ROYALTIES

 

Lease rentals and royalties paid by the Operator,
on behalf of all Parties, for the Joint Operations.

 

		2.	LABOR

 

		A.	Salaries and wages, including incentive
compensation programs as set forth in COPAS MFI-37 (“Chargeability
of Incentive Compensation Programs”), for:

 

		(1)	Operator’s
field employees and/or consultants directly employed On-site in the conduct of Joint Operations,

 

		(2)	Operator’s
                                                                                                                                employees directly employed on Shore Base Facilities, Offshore Facilities, or other facilities serving the Joint Property if
                                                                                                                                such costs are not charged under Section II.6 (Equipment and Facilities Furnished by Operator) or are not a function
                                                                                                                                covered under Section III (Overhead),

 

		(3)	Operator’s
employees providing First Level Supervision, 

 

		(4)	Operator’s
employees and/or consultants providing On-site Technical Services for the Joint Property if such charges are excluded from the overhead rates in
Section III (Overhead),

 

		(5)	Operator’s
employees and/or consultants providing Off-site Technical Services for the Joint Property if such charges are excluded from the overhead
rates in Section III (Overhead). 

 

Charges
for the Operator’s employees identified in Section II.2.A
may be made based on the employee and/or consultants actual salaries and wages, or in lieu thereof, a day rate representing the
Operator’s average salaries and wages of the employee and/or consultants specific
job category. 

 

Charges for personnel chargeable
under this Section II.2.A who are foreign nationals shall not exceed comparable compensation paid to an equivalent U.S. employee
pursuant to this Section II.2, unless otherwise approved by the Parties pursuant to Section I.6.A (General Matters).

 

		B.	Operator’s
                                                                                                                                cost of holiday, vacation, sickness, and disability benefits, and other customary allowances paid to employees and/or
                                                                                                                                consultants whose salaries and wages are chargeable to the Joint Account under Section II.2.A, excluding severance payments
                                                                                                                                or other termination 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 amount of salaries and wages
                                                                                                                                chargeable to the Joint Account under Section II.2.A. If percentage assessment is used, the rate shall be based on the
                                                                                                                                Operator’s cost experience. 

 

		C.	Expenditures or contributions made pursuant to assessments imposed by governmental authority that
are applicable to costs chargeable to the Joint Account under Sections II.2.A and B.

 

COPYRIGHT © 2005 by Council of Petroleum Accountants Societies,
Inc. (COPAS)

 

    	5

    	 

    

 

		
        COPAS 2005 Accounting Procedure

        Recommended by COPAS, Inc.

  

		D.	Personal Expenses of personnel whose salaries and wages are chargeable to the Joint Account under
Section II.2.A  when the expenses are incurred in connection with directly chargeable activities.

 

		E.	Reasonable relocation costs incurred in transferring to the Joint Property personnel whose
                                                                salaries and wages are chargeable to the Joint Account under Section II.2.A. Notwithstanding the foregoing, relocation costs
                                                                that result from reorganization or merger of a Party, or that are for the primary benefit of the Operator, shall not be
                                                                chargeable to the Joint Account. Extraordinary relocation costs, such as those incurred as a result of transfers from remote
                                                                locations, such as Alaska or overseas, shall not be charged to the Joint Account unless approved by the Parties pursuant to
                                                                Section I.6.A (General Matters).

 

		F.	Training costs as specified in COPAS MFI-35
(“Charging of Training Costs to the Joint Account”)
for personnel whose salaries and wages are chargeable under Section II.2.A. This training charge shall include the wages, salaries,
training course cost, and Personal Expenses incurred during the training session. The training cost shall be charged or allocated
to the property or properties directly benefiting from the training. The cost of the training course shall not exceed prevailing
commercial rates, where such rates are  available. 

 

		G.	Operator’s
current cost of established plans for employee benefits, as described in COPAS MFI-27 (“Employee
Benefits Chargeable to Joint Operations and Subject to Percentage Limitation”),
applicable to the Operator’s labor costs chargeable to the
Joint Account under Sections II.2.A and B based on the Operator’s
actual cost not to exceed the employee benefits limitation percentage most recently recommended by COPAS. 

 

		H.	Award payments to employees, in accordance with COPAS MFI-49 (“Awards
to Employees and Contractors”) for personnel whose salaries
and wages are chargeable under Section II.2.A. 

 

		3.	MATERIAL

 

Material purchased
or furnished by the Operator for use on the Joint Property in the conduct of Joint Operations as provided under Section
IV (Material Purchases, Transfers, and Dispositions). Only such Material shall be purchased for or transferred to the
Joint Property as may be required for immediate use or is reasonably practical and consistent with efficient and
economical operations.

 

		4.	TRANSPORTATION

 

		A.	Transportation of the Operator’s,
Operator’s Affiliate’s,
or contractor’s personnel necessary for Joint Operations.

 

		B.	Transportation of Material between the
Joint Property and another property, or from the Operator’s
warehouse or other storage point to the Joint Property, shall be charged to the receiving property using one of the methods listed
below. Transportation of Material 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 methods listed below:

 

		(1)	If the actual trucking charge
is less than or equal to the Excluded Amount the Operator may charge actual trucking cost or a theoretical charge from the Railway
Receiving Point to the Joint Property. The basis for the theoretical charge is the per hundred weight charge plus fuel surcharges
from the Railway Receiving Point to the Joint Property.  The Operator shall consistently apply the selected alternative.

 

		(2)	If the actual trucking charge is greater than the Excluded Amount, the Operator shall charge Equalized
Freight. Accessorial charges such as loading and unloading costs, split pick-up costs, detention, call out charges, and permit
fees shall be charged directly to the Joint Property and shall not be included when calculating the Equalized Freight.

 

		5.	SERVICES

 

The
cost of contract services, equipment, and utilities used in the conduct of Joint Operations, except for contract services,
equipment, and utilities covered by Section III (Overhead), or Section II.7 (Affiliates), or excluded under
Section II.9 (Legal  Expense). Awards paid to contractors shall be chargeable pursuant to COPAS MFI-49
(“Awards to Employees and
Contractors”). 

 

The costs of third party Technical
Services are chargeable to the extent excluded from the overhead rates under Section III (Overhead).

 

		6.	EQUIPMENT AND FACILITIES FURNISHED BY OPERATOR

 

In the absence of a separately
negotiated agreement, equipment and facilities furnished by the Operator will be charged as follows:

 

		A.	The Operator
                                         shall charge the Joint Account for use of Operator-owned equipment and facilities, including
                                         but not limited to production facilities, Shore Base Facilities, Offshore Facilities,
                                         and Field Offices, at rates commensurate with the costs of ownership and operation. The
                                         cost of Field Offices shall be chargeable to the extent the Field Offices provide direct
                                         service to personnel who are chargeable pursuant to Section II.2.A (Labor). Such
                                         rates may include labor, maintenance, repairs, other operating expense, insurance, taxes,
                                         depreciation using straight line depreciation method, and interest on gross investment
                                         less accumulated depreciation not to exceed          ten
                                                  percent (     10    
                                         %) per annum; provided, however, depreciation shall not be charged when the 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.

 

COPYRIGHT ©  2005 by Council of Petroleum Accountants
Societies, Inc. (COPAS)

 

    	6

    	 

    

 

		
        COPAS 2005 Accounting Procedure

        Recommended by COPAS, Inc.

   

		B.	In lieu of charges in Section II.6.A above, the Operator may elect to use average commercial
                                                                rates prevailing in the immediate area. If equipment and facilities are charged under this Section II.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.

 

		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 Parties. 

 

		C.	The
                                         cost of the Affiliate’s
                                         goods or services shall not exceed average commercial rates prevailing in the area
                                         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 II.12 (Communications).
                                         

 

		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 furnish 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, regulatory work, 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.

 

Notwithstanding
the foregoing paragraph, costs for procuring abstracts, fees paid to outside attorneysfor 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. 

 

COPYRIGHT © 2005 by Council of Petroleum Accountants
Societies, Inc. (COPAS)

 

    	7

    	 

    

 

 

		COPAS 2005 Accounting Procedure

Recommended by COPAS, Inc. 

 

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. If Joint Operations are conducted at locations where
the Operator acts as self-insurer in regard to its worker’s compensation and employer’s liability insurance obligation,
the Operator shall charge the Joint Account manual rates for the risk assumed in its self-insurance program as regulated by the
jurisdiction governing the Joint Property. In the case of offshore operations in federal waters, the manual rates of the adjacent
state shall be used for personnel performing work On-site, and such rates shall be adjusted for offshore operations by the U.S.
Longshoreman and Harbor Workers (USL&H) or Jones Act surcharge, as appropriate.

 

		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 II.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. The operator shall adequately document and support commercial
rates and shall periodically review and update the rate and the 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 II.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

 

The costs
of Operator’s Field Offices not covered in Section III, or any other expenditure not covered or dealt with in the foregoing
provisions of this Section II (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.

 

III. OVERHEAD

 

As compensation for costs not specifically
identified as chargeable to the Joint Account pursuant to Section II (Direct Charges), the Operator shall charge the Joint
Account in accordance with this Section III.

 

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, III.1.A(ii), and III.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

 

COPYRIGHT © 2005 by Council of
Petroleum Accountants Societies, Inc. (COPAS)

 

    	8

    	 

    

 

		COPAS 2005 Accounting Procedure

Recommended by COPAS, Inc. 

 

		·	human
resources

		·	management

		·	supervision not directly charged under
Section II.2 (Labor)

		·	legal services not directly chargeable
under Section II.9 (Legal Expense)

		·	taxation, other than those costs identified
as directly chargeable under Section II.10 (Taxes and Permits)

		·	preparation and monitoring of permits
and certifications; preparing regulatory reports; appearances before or meetings with governmental agencies or other authorities
having jurisdiction over the Joint Property, other than On-site inspections; reviewing, interpreting, or submitting comments on
or lobbying with respect to Laws or proposed Laws. 

 

Overhead charges shall include the salaries
or wages plus applicable payroll burdens, benefits, and Personal Expenses of personnel performing overhead functions, as well as
office and other related expenses of overhead functions.

 

		1.	OVERHEAD—DRILLING AND PRODUCING OPERATIONS

 

As compensation for costs incurred
but not chargeable under Section II (Direct Charges) and not covered by other provisions of this Section III, the
Operator shall charge on either:

 

		þ	(Alternative 1) Fixed Rate Basis,
Section III.1.B. 

 

A.   TECHNICAL SERVICES

 

		(i)	Except as otherwise provided in Section II.13 (Ecological Environmental, and Safety) and
Section III.2 (Overhead – Major Construction and Catastrophe), or by approval of the Parties pursuant to Section I.6.A
(General Matters), the salaries, wages, related payroll burdens and benefits, and Personal Expenses for On-site Technical
Services, including third party Technical Services:

 

		þ	(Alternative
                                         1 – Direct) shall be charged direct to the Joint Account. 

 

		(ii)	Except as otherwise provided in Section II.13 (Ecological, Environmental, and Safety) and
Section III.2 (Overhead – Major Construction and Catastrophe), or by approval of the Parties pursuant to Section
I.6.A (General Matters), the salaries, wages, related payroll burdens and benefits, and Personal Expenses for Off-site
Technical Services, including third party Technical Services:

 

		þ	(Alternative
                                         2 – All Direct) shall be charged direct to the Joint Account.
                                         

 

Notwithstanding anything to
the contrary in this Section III, Technical Services provided by Operator’s Affiliates are subject to limitations set forth
in Section II.7 (Affiliates). Charges for Technical personnel performing non-technical work shall not be governed by this
Section III.1.A, but instead governed by other provisions of this Accounting Procedure relating to the type of work being performed.

 

		B.	OVERHEAD—FIXED RATE BASIS

 

		(1)	The Operator shall charge the Joint Account at the following rates per well per month:

 

Drilling
Well and Completing well Rate per month $15,000                           
(prorated for less than a full month)

 

Producing Well Rate per month
$     1,500;

 

		(2)	Application of Overhead—Drilling Well Rate shall be as
follows:

  

		(a)	Charges for onshore drilling wells shall begin on the date location work begins and terminate
                                                                on the date the drilling and/or completion equipment used on the well is released, whichever occurs later. Charges for
                                                                offshore and inland waters drilling wells shall begin on the date the drilling or completion equipment arrives on location
                                                                and terminate on the date the drilling or completion equipment moves off location, or is released, whichever occurs first. No
                                                                charge shall be made during suspension of drilling and/or completion operations for fifteen (15) or more consecutive calendar
                                                                days.

 

COPYRIGHT © 2005 by Council of
Petroleum Accountants Societies, Inc. (COPAS)

 

    	9

    	 

    

 

		COPAS 2005 Accounting Procedure

Recommended by COPAS, Inc. 

 

		(b)	Charges for any well undergoing any type of workover, recompletion, and/or abandonment for a period
of five (5) or more consecutive work–days shall be made at the Drilling Well Rate. Such charges shall be applied for the period
from date operations, with rig or other units used in operations, commence through date of rig or other unit release, except that
no charges shall be made during suspension of operations for fifteen (15) or more consecutive calendar days.

 

		(3)	Application of Overhead—Producing Well Rate shall be
as follows:

 

		(a)	An active well that is produced, injected into for recovery or disposal, or used to obtain water
supply to support operations for any portion of the month shall be considered as a one-well charge for the entire month.

 

		(b)	Each active completion in a multi-completed well shall be considered as a one-well charge
                                                                provided each completion is considered a separate well by the governing regulatory authority.

 

		(c)	A one-well charge shall be made for the month in which plugging and abandonment operations are
completed on any well, unless the Drilling Well Rate applies, as provided in Sections III.1.B.(2)(a) or (b). This one-well charge
shall be made whether or not the well has produced.

 

		(d)	An active gas well shut in because of overproduction or failure of a purchaser, processor, or transporter
to take production shall be considered as a one-well charge provided the gas well is directly connected to a permanent sales outlet.

 

		(e)	Any well not meeting the criteria set forth in Sections III.1.B.(3) (a), (b), (c), or (d) shall
not qualify for a producing overhead charge.

 

		(4)	The well rates shall be adjusted on the first day of April each year following the effective date
of the Agreement; provided, however, if this Accounting Procedure is attached to or otherwise governing the payout accounting under
a farmout agreement, the rates shall be adjusted on the first day of April each year following the effective date of such farmout
agreement. The adjustment shall be computed by applying the adjustment factor most recently published by COPAS. The adjusted rates
shall be the initial or amended rates agreed to by the Parties increased or decreased by the adjustment factor described herein,
for each year from the effective date of such rates, in accordance with COPAS MFI-47 (“Adjustment of Overhead Rates”).

 

		2.	OVERHEAD—MAJOR CONSTRUCTION AND CATASTROPHE

 

To compensate the Operator for
overhead costs incurred in connection with a Major Construction project or Catastrophe, the Operator shall either negotiate a rate
prior to the beginning of the project, or shall charge the Joint Account for overhead based on the following rates for any Major
Construction project in excess of the Operator’s expenditure limit under the Agreement, or for any Catastrophe regardless
of the amount. If the Agreement to which this Accounting Procedure is attached does not contain an expenditure limit, Major Construction
Overhead shall be assessed for any single Major Construction project costing in excess of $100,000 gross.

 

COPYRIGHT © 2005 by Council of
Petroleum Accountants Societies, Inc. (COPAS)

 

    	10

    	 

    

  

		COPAS 2005 Accounting Procedure

Recommended by COPAS, Inc. 

 

Major Construction shall mean
the construction and installation of fixed assets, the expansion of fixed assets, and any other project clearly discernible as
a fixed asset required for the development and operation of the Joint Property, or in the dismantlement, abandonment, removal,
and restoration of platforms, production equipment, and other operating facilities.

 

Catastrophe is defined as a
sudden calamitous event bringing damage, loss, or destruction to property or the environment, such as an oil 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 to the event.

 

		A.	If the Operator absorbs the engineering, design and drafting
costs related to the project:

 

		(1)	       5       % of total costs if such costs are less than $100,000; plus

 

		(2)	       3       % of total costs in excess of $100,000 but less than $1,000,000; plus

 

		(3)	       2       % of total costs in excess of $1,000,000.

 

		B.	If the Operator charges engineering, design and drafting
costs related to the project directly to the Joint Account:

 

		(1)	       5       % of total costs if such costs are less than $100,000; plus

 

		(2)	       3       % of total costs in excess of $100,000 but less than $1,000,000; plus

 

		(3)	       2       % of total costs in excess of $1,000,000.

 

Total cost shall mean the gross
cost of any one project. For the purpose of this paragraph, the component parts of a single Major Construction project shall
not be treated separately, and the cost of drilling and workover wells and purchasing and installing pumping units and downhole
artificial lift equipment shall be excluded. For Catastrophes, the rates shall be applied to all costs associated with each single
occurrence or event.

 

On each project, the Operator
shall advise the Non-Operator(s) in advance which of the above options shall apply.

 

For the purposes of calculating
Catastrophe Overhead, the cost of drilling relief wells, substitute wells, or conducting other well operations directly resulting
from the catastrophic event shall be included. Expenditures to which these rates apply shall not be reduced by salvage or insurance
recoveries. Expenditures that qualify for Major Construction or Catastrophe Overhead shall not qualify for overhead under any other
overhead provisions.

 

In the event of any conflict
between the provisions of this Section III.2 and the provisions of Sections II.2 (Labor), II.5 (Services), or II.7
(Affiliates), the provisions of this Section III.2 shall govern.

 

		3.	AMENDMENT OF OVERHEAD RATES

 

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 or excessive,
in accordance with the provisions of Section I.6.B (Amendments).

 

IV. MATERIAL PURCHASES,
TRANSFERS, AND DISPOSITIONS 

 

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-Operators, at the
Operator’s option. Material furnished by any Party shall be furnished without any express or implied warranties as to quality,
fitness for use, or any other matter.

 

		1.	DIRECT PURCHASES

 

Direct purchases shall be charged
to the Joint Account at the price paid by the Operator after deduction of all discounts received. The Operator shall make good
faith efforts to take discounts offered by suppliers, but shall not be liable for failure to take discounts except to the extent
such failure was the result of the Operator’s gross negligence or willful misconduct. A direct purchase shall be deemed to
occur when an agreement is made between an Operator and a third party for the acquisition of Material for a specific well site
or location. Material provided by the Operator under “vendor stocking programs,” where the initial use is for a Joint
Property and title of the Material does not pass from the manufacturer, distributor, or agent until usage, is considered a direct
purchase. If Material is found to be defective or is returned to the manufacturer, distributor, or agent for any other reason,
credit shall be passed to the Joint Account within sixty (60) days after the Operator has received adjustment from the manufacturer,
distributor, or agent.

 

COPYRIGHT © 2005 by Council of
Petroleum Accountants Societies, Inc. (COPAS)

 

    	11

    	 

    

 

		COPAS 2005 Accounting Procedure

Recommended by COPAS, Inc. 

  

		2.	TRANSFERS

 

A transfer is determined to
occur when the Operator (i) furnishes Material from a storage facility or from another operated property, (ii) has assumed liability
for the storage costs and changes in value, and (iii) has previously secured and held title to the transferred Material. Similarly,
the removal of Material from the Joint Property to a storage facility or to another operated property is also considered a transfer;
provided, however, Material that is moved from the Joint Property to a storage location for safe-keeping pending disposition may
remain charged to the Joint Account and is not considered a transfer. Material shall be disposed of in accordance with Section
IV.3 (Disposition of Surplus) and the Agreement to which this Accounting Procedure is attached.

 

		A.	PRICING

 

The value of Material transferred
to/from the Joint Property should generally reflect the market value on the date of physical transfer. Regardless of the pricing
method used, the Operator shall make available to the Non-Operators sufficient documentation to verify the Material valuation.
When higher than specification grade or size tubulars are used in the conduct of Joint Operations, the Operator shall charge the
Joint Account at the equivalent price for well design specification tubulars, unless such higher specification grade or sized tubulars
are approved by the Parties pursuant to Section I.6.A (General Matters). Transfers of new Material will be priced using
one of the following pricing methods; provided, however, the Operator shall use consistent pricing methods, and not alternate between
methods for the purpose of choosing the method most favorable to the Operator for a specific transfer:

 

		(1)	Using published prices in effect on date of movement as adjusted by the appropriate COPAS Historical
Price Multiplier (HPM) or prices provided by the COPAS Computerized Equipment Pricing System (CEPS).

 

		(a)	For oil country tubulars and line pipe, the published price shall be based upon eastern mill carload
base prices (Houston, Texas, for special end) adjusted as of date of movement, plus transportation cost as defined in Section IV.2.B
(Freight).

 

		(b)	For other Material, the published price shall be the published list price in effect at date of
movement, as listed by a Supply Store nearest the Joint Property where like Material is normally available, or point of manufacture
plus transportation costs as defined in Section IV.2.B (Freight).

 

		(2)	Based on a price quotation from a vendor that reflects a current realistic acquisition cost.

 

		(3)	Based on the amount paid by the Operator for like Material in the vicinity of the Joint Property
within the previous twelve (12) months from the date of physical transfer.

 

		(4)	As agreed to by the Participating Parties for Material being transferred to the Joint Property,
and by the Parties owning the Material for Material being transferred from the Joint Property.

 

		B.	FREIGHT

 

Transportation costs shall be
added to the Material transfer price using the method prescribed by the COPAS Computerized Equipment Pricing System (CEPS). If
not using CEPS, transportation costs shall be calculated as follows:

 

		(1)	Transportation costs for oil country tubulars and line pipe shall be calculated using the distance
from eastern mill to the Railway Receiving Point based on the carload weight basis as recommended by the COPAS MFI-38 (“Material
Pricing Manual”) and other COPAS MFIs in effect at the time of the transfer.

 

		(2)	Transportation costs for special mill items shall be calculated from that mill’s shipping
point to the Railway Receiving Point. For transportation costs from other than eastern mills, the 30,000-pound interstate truck
rate shall be used. Transportation costs for macaroni tubing shall be calculated based on the interstate truck rate per weight
of tubing transferred to the Railway Receiving Point.

 

		(3)	Transportation costs for special end tubular goods shall be calculated using the interstate truck
rate from Houston, Texas, to the Railway Receiving Point.

 

		(4)	Transportation costs for Material other than that described in Sections IV.2.B.(1) through (3),
shall be calculated from the Supply Store or point of manufacture, whichever is appropriate, to the Railway Receiving Point

 

Regardless of whether using CEPS
or manually calculating transportation costs, transportation costs from the Railway Receiving Point to the Joint Property are in
addition to the foregoing, and may be charged to the Joint Account based on actual costs incurred. All transportation costs are
subject to Equalized Freight as provided in Section II.4 (Transportation) of this Accounting Procedure.

 

		C.	TAXES

 

Sales and use taxes shall be
added to the Material transfer price using either the method contained in the COPAS Computerized Equipment Pricing System (CEPS)
or the applicable tax rate in effect for the Joint Property at the time and place of transfer. In either case, the Joint Account
shall be charged or credited at the rate that would have governed had the Material been a direct purchase.

 

COPYRIGHT © 2005 by Council of
Petroleum Accountants Societies, Inc. (COPAS)

 

    	12

    	 

    

 

 

 

		
        COPAS 2005 Accounting Procedure

        Recommended by COPAS, Inc.

 

		D.	CONDITION

 

		(1)	Condition “A”
                                                                                                                                – New and unused Material in sound and serviceable condition shall be charged at one hundred percent (100%) of the
                                                                                                                                price as
                                                                                                                                determined in Sections IV.2.A (Pricing), IV.2.B (Freight), and IV.2.C (Taxes). Material transferred
                                                                                                                                from the Joint Property that was not placed in service shall be credited as charged without gain or loss; provided, however,
                                                                                                                                any unused Material that was charged to the Joint Account through a direct purchase will be credited to the Joint
                                                                                                                                Account at the original cost paid less restocking fees charged by the vendor. New and unused Material transferred from the
                                                                                                                                Joint Property may be credited at a price other than the price originally charged to the Joint Account provided such price
                                                                                                                                is
                                                                                                                                approved by the Parties owning such Material, pursuant to Section I.6.A (General Matters). All refurbishing costs
                                                                                                                                required or necessary to return the Material to original condition or to correct handling, transportation, or other damages
                                                                                                                                will be borne by the divesting property. The Joint Account is responsible for Material preparation, handling, and
                                                                                                                                transportation costs for new and unused Material charged to the Joint Property either through a direct purchase or transfer.
                                                                                                                                Any preparation costs incurred, including any internal or external coating and wrapping, will be credited on new Material
                                                                                                                                provided these services were not repeated for such Material for the receiving property. 

 

		(2)	Condition
                                         “B”
                                         – Used Material in sound and serviceable
                                         condition and suitable for reuse without reconditioning shall be priced by multiplying
                                         the price determined in Sections IV.2.A (Pricing), IV.2.B (Freight), and
                                         IV.2.C (Taxes) by seventy-five percent (75%). 

 

Except
as provided in Section IV.2.D(3), all reconditioning costs required to return the Material to Condition “B”
or to correct handling, transportation or other damages will be borne by the divesting property. 

 

If the Material was originally
charged to the Joint Account as used Material and placed in service for the Joint Property, the Material will be credited at the
price determined in Sections IV.2.A (Pricing), IV.2.B (Freight), and IV.2.C (Taxes) multiplied by
sixty-five percent (65%).

 

Unless otherwise agreed to
by the Parties that paid for such Material, used Material transferred from the Joint Property that was not placed in service
on the property shall be credited as charged without gain or loss.

 

		(3)	Condition “C”
                                                                                                                                – Material that is not in sound and serviceable condition and not suitable for its original function until after
                                                                                                                                reconditioning
                                                                                                                                shall be priced by multiplying the price determined in Sections IV.2.A (Pricing), IV.2.B (Freight), and IV.2.C
                                                                                                                                (Taxes) by fifty percent (50%). 

 

The
cost of reconditioning may be charged to the receiving property to the extent Condition “C”
value, plus reconditioning, does not exceed Condition “B”
value. 

 

		(4)	Condition
                                         “D”
                                         – Material that (i) is no longer
                                         suitable for its original purpose but useable for some other purpose, (ii) is obsolete,
                                         or (iii) does not meet original specifications but still has value and can be used in
                                         other applications as a substitute for items with different specifications, is considered
                                         Condition “D”
                                         Material. Casing, tubing, or
                                         drill pipe used as line pipe shall be priced as Grade A and B seamless line pipe of comparable
                                         size and weight. Used casing, tubing, or drill pipe utilized as line pipe shall be priced
                                         at used line pipe prices. Casing, tubing, or drill pipe used as higher pressure service
                                         lines than standard line pipe, e.g., power oil lines, shall be priced under normal pricing
                                         procedures for casing, tubing, or drill pipe. Upset tubular goods shall be priced on
                                         a non-upset basis. For other items, the price used should result in the Joint Account
                                         being charged or credited 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 Matters). 

 

		(5)	Condition “E”
– Junk shall be priced at prevailing scrap value prices. 

 

		E.	OTHER PRICING PROVISIONS

 

		(1)	Preparation Costs

 

Subject
to Section II (Direct Charges) and Section III (Overhead) of this Accounting Procedure, costs incurred by the
Operator in making Material serviceable including inspection, third party surveillance services, and other similar services
will be charged to the Joint Account at prices which reflect the Operator’s
actual costs of the services. Documentation must be provided to the Non-Operators upon request to support the cost of
service. New coating and/or wrapping shall be considered a component of the Materials and priced in accordance with Sections
IV.1 (Direct Purchases) or IV.2.A (Pricing), as applicable. No charges or credits shall be made for used
coating or wrapping. Charges and credits for inspections shall be made in accordance with COPAS MFI-38 (“Material
Pricing Manual”). 

 

		(2)	Loading and Unloading Costs

 

Loading
and unloading costs related to the movement of the Material to the Joint Property shall be charged in accordance with the
methods specified in COPAS MFI-38 (“Material Pricing
Manual”). 

 

COPYRIGHT © 2005 by Council of Petroleum
Accountants Societies, Inc. (COPAS)

 

    	13

    	 

    

  

		
        COPAS 2005 Accounting Procedure

        Recommended by COPAS, Inc.

 

		3.	DISPOSITION OF SURPLUS

 

Surplus Material is that
Material, whether new or used, that is no longer required for Joint Operations. The Operator may purchase, but shall be under
no obligation to purchase, the interest of the Non-Operators in surplus Material.

 

Dispositions for
the purpose of this procedure are considered to be the relinquishment of title of the Material from the Joint Property to
either a third party, a Non-Operator, or to the Operator. To avoid the accumulation of surplus Material, the Operator should
make good faith efforts to dispose of surplus within twelve (12) months through buy/sale agreements, trade, sale to a third
party, division in kind, or other dispositions as agreed to by the Parties.

 

Disposal of surplus
Materials shall be made in accordance with the terms of the Agreement to which this Accounting Procedure is attached. If the
Agreement contains no provisions governing disposal of surplus Material, the following terms shall apply:

 

		·	The
                                         Operator may, through a sale to an unrelated third party or entity, dispose of surplus
                                         Material having a gross sale value that is less than or equal to the Operator’s
                                         expenditure limit as set forth in the Agreement to which this Accounting Procedure is
                                         attached without the prior approval of the Parties owning such Material. 

 

		·	If the gross sale value exceeds the
                                                                                                                 Agreement expenditure limit, the disposal must be agreed to by the Parties owning such Material.

 

		·	Operator may purchase surplus Condition
“A”
or “B”
Material without approval of the Parties owning such Material, based on the pricing methods set forth in Section IV.2 (Transfers).

 

		·	Operator may purchase Condition “C”
                                                                                                                 Material without prior approval of the Parties owning such Material if the value of the Materials, based on the pricing
                                                                                                                 methods set forth in Section IV.2 (Transfers), is less than or equal to the Operator’s
                                                                                                                 expenditure limitation set forth in the Agreement. The Operator shall provide documentation supporting the classification of
                                                                                                                 the Material as Condition C. 

 

		·	Operator may dispose of Condition “D”
or “E”
Material under procedures normally utilized by Operator without prior approval of the Parties owning such Material. 

 

		4.	SPECIAL PRICING PROVISIONS

 

		A.	PREMIUM PRICING

 

Whenever
Material is available only at inflated prices due to national emergencies, strikes, government imposed foreign trade
restrictions, or other unusual causes over which the Operator has no control, for direct purchase the Operator may charge the
Joint  Account for the required Material at the Operator’s
actual cost incurred in providing such Material, making it suitable for use, and moving it to the Joint Property. Material
transferred or disposed of during premium pricing situations shall be valued in accordance with Section IV.2
(Transfers) or Section IV.3 (Disposition of Surplus), as applicable. 

 

		B.	SHOP-MADE ITEMS

 

Items
fabricated by the Operator’s employees, or by contract
laborers under the direction of the Operator, shall be priced using the 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
scrap or junk account, the Material shall be priced at either twenty-five percent (25%) of the current price as determined in
Section IV.2.A (Pricing) or scrap value, whichever is higher. In no event shall the amount charged ceedex
the value of the item commensurate with its use. 

 

		C.	MILL REJECTS

 

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 Section IV.2 (Transfers). Line pipe converted to casing or tubing
with casing or tubing couplings attached shall be priced as K-55/J-55 casing or tubing at the nearest size and weight. 

 

V. INVENTORIES
OF CONTROLLABLE MATERIAL

 

The Operator shall maintain records of
Controllable Material charged to the Joint Account, with sufficient detail to perform physical inventories.

 

Adjustments
to the Joint Account by the Operator resulting from a physical inventory of Controllable Material shall be made within twelve
(12) months following the taking of the inventory or receipt of Non-Operator inventory report. Charges and credits for
overages or shortages will be 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 date of physical inventory unless the inventorying Parties can provide sufficient evidence another
Material condition applies. 

 

COPYRIGHT © 2005 by Council of Petroleum
Accountants Societies, Inc. (COPAS)

 

    	14

    	 

    

  

		
        COPAS 2005 Accounting Procedure

        Recommended by COPAS, Inc.

 

		1.	DIRECTED INVENTORIES

 

Physical
inventories shall be performed by the Operator upon written request of a majority in working interests of the Non-Operators
(hereinafter, “directed inventory”);
provided, however, the Operator shall not be required to perform directed inventories more frequently than once every five
(5) years. Directed inventories shall be commenced within one hundred eighty (180) days after the Operator receives written
notice that a majority in interest of the Non-Operators has requested the inventory. All Parties shall be governed by the
results of any directed inventory. 

 

Expenses of directed
inventories will be borne by the Joint Account; provided, however, costs associated with any post-report follow-up 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 commencement of the inventory. Expenses of directed inventories may include the following:

 

		A.	A per diem rate for each inventory person, representative of actual salaries, wages, and
                                                                                  payroll burdens and benefits of the personnel 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 be applied to a reasonable number of days for pre-inventory
                                                                                  work and report preparation.

 

		B.	Actual transportation costs and Personal Expenses for the inventory team.

 

		C.	Reasonable charges for report preparation and distribution to the Non-Operators.

 

		2.	NON-DIRECTED INVENTORIES

 

		A.	OPERATOR INVENTORIES

 

Physical
inventories that are not requested by the Non-Operators may be performed by the Operator, at the Operator’s
discretion. The expenses of conducting such Operator-initiated inventories shall not be charged to the Joint Account. 

 

		B.	NON-OPERATOR INVENTORIES

 

Subject to the terms of the
Agreement to which this Accounting Procedure is attached, the Non-Operators may conduct a physical inventory at reasonable
times at their sole cost and risk after giving the Operator at least ninety (90) days prior written notice. The Non-Operator
inventory report shall be furnished to the Operator in writing within ninety (90) days of completing the inventory
field work.

 

		C.	SPECIAL INVENTORIES

 

The expense of conducting inventories
other than those described in Sections V.1 (Directed Inventories), V.2.A (Operator Inventories), or V.2.B
(Non-OperatorInventories), shall be charged to the Party requesting such inventory; provided, however, inventories
required due to a change of Operator shall be charged to the Joint Account in the same manner as described in Section V.1 (Directed
Inventories).

 

COPYRIGHT ©  2005 by Council of
Petroleum Accountants Societies, Inc. (COPAS)

 

    	15

    	 

    

  

EXHIBIT D

INSURANCE

 

To be negotiated and mutually agreed by
the parties upon execution of the agreement of which this is an exhibit.

 

    	 

    	 

    

  

EXHIBIT E

GAS BALANCING AGREEMENT

 

To be negotiated and mutually agreed by
the parties upon execution of the agreement of which this is an exhibit.

 

    	 

    	 

    

 

 

EXHIBIT F

NON-DISCRIMINATION AND CERTIFICATION OF NON-SEGREGATED
FACILITIES

 

To be negotiated and mutually agreed by
the parties upon execution of the agreement of which this is an exhibit.

 

    	 

    	 

    

  

EXHIBIT G 

PRODUCED HYDROCARBON OWNER

MARKETING NOTIFICATION FORM
AND AGREEMENT 

 

To be negotiated and mutually agreed by
the parties upon execution of the agreement of which this is an exhibit.

 

    	 

    	 

    

  

Exhibit
“G”

 

Attached
to and made a part of that certain Operating Agreement dated _________ by _______________________ Operator and [Company], as Non-Operators
(“Operating Agreement”).

 

PRODUCED HYDROCARBON OWNER

MARKETING NOTIFICATION FORM
AND AGREEMENT

 

This Produced
Hydrocarbon Owner Marketing Notification Form and Agreement ("Agreement") is entered into by and between ________________________("Operator")
which maintains its principal offices at 301 NW 63rd Street, Suite 600, Oklahoma City, OK 73116 and _________________________________,
an individual or a/an _____________________________ [corporation/partnership (general or limited)/Limited liability company] ("Owner"),
who resides at or which maintains an office address of _____________________, and is dated and effective the date of ____________,
20__.

 

This
Agreement concerns and relates to and is regarding Owner's natural gas, natural gas liquids, crude oil and condensate (“hydrocarbons”)
production from the property ("Well") as listed on the attached Exhibit "A". 

 

This Agreement terminates and supersedes
any prior agreements for the marketing of hydrocarbons from the Well listed on the attached Exhibit "A" between parties
hereto and their predecessors in interest effective as of the date of first sales.

 

WHEREAS,
Owner desires and requests that Operator market and/or sell Owner's full share of hydrocarbons produced from the Well and Operator
is willing to market and/or sell Owner's share of hydrocarbons produced from the Well, subject and pursuant to the terms contained
in this Agreement.

 

NOW, THEREFORE, in consideration of the
premises and covenants contained herein, Owner agrees to tender and deliver Operator and Operator agrees to receive, accept and
market and/or sell all of Owner's share of hydrocarbons produced from the Well for Owner, according to the following terms and
conditions, to-wit:

 

		1.	Owner hereby tenders and delivers to Operator all of Owner's hydrocarbons produced from the Well
and authorizes Operator to market and/or sell such hydrocarbons for and as representative of Owner.

 

		2.	Nothing herein shall be deemed, construed, or implied to create a fiduciary relationship between
Operator and Owner. Further, Operator shall have no liability to Owner for any losses sustained or liabilities incurred with respect
to marketing of Owner's gas in the absence of bad faith, gross negligence or willful misconduct.

 

		3.	All sales of hydrocarbons made by Operator, on your behalf, shall be made without your further
approval. Operator may choose to sell to LDC's, industrial users, pipeline companies, end users, affiliated gas marketing companies,
unaffiliated gas marketing companies and other purchasers. Operator shall not make any sales of your share of the gas in any given
month for a price less than the price received by Operator during the same given month. Operator shall be entitled to charge fees
to Owner for the services provided hereunder as approved by that certain Management Services Agreement dated [____].

 

		4.	Owner hereby agrees to protect, defend, indemnify and hold Operator harmless from and against any
and all claims, costs, charges, actions, causes of actions, losses, judgments and/or liabilities which Operator may suffer as a
result of, in connection with, or related to Owner's execution of this Agreement; the sale of any Owner's hydrocarbons from the
Well by Operator; Owner's failure or refusal to pay and/or distribute to any third party proceeds received from Operator in connection
with the sale of Owner's hydrocarbons; Owner's breach of any warranty or representation made under this Agreement; or Owner's failure
to pay any assessment, tax or other liability in connection with Owner's hydrocarbons, except to the extent any of the foregoing
is caused by the bad faith, gross negligence or willful misconduct of Operator.

 

		5.	Either Operator or Owner may terminate this Agreement at any time and such termination shall become
effective the first day of the month following the expiration of thirty (30) days following the receipt of said termination notice.
Any notice to be sent under this Agreement shall be in writing and shall be sent via U.S. Mail, Certified Return Receipt Requested.
This Agreement shall remain in force and effect until terminated as provided herein or the Well is plugged and abandoned.

 

    	 

    	 

    

  

		6.	Owner hereby acknowledges and agrees that no representation or warranty is or has been made by
Operator covering or relating to the price to be paid for Owner's hydrocarbons produced from the Well.

 

		7.	Owner shall be solely responsible for notifying Operator of any changes in the ownership of and/or
rights to Owner's share of the hydrocarbons produced from the Well or proceeds derived from the sale thereof. Operator shall not
be bound by any changes in the ownership or rights, until so notified as provided herein.

 

		8.	In the event it is determined by the court of competent jurisdiction that any provisions contained
in the Agreement is violative of any law or regulation, such provision shall be deemed stricken without affecting the enforceability
of the remainder.

 

		9.	Operator and Owner hereby represent and warrant to the other that each has obtained all approvals
and authorities necessary for such party to enter into this Agreement and be bound by its terms, and the execution of the Agreement
by said party does not breach or violate any contract, agreement, order or prohibition to which Operator or Owner is a party or
bond. This Agreement shall be binding upon and inure to the benefit of the heirs, successors and assigns of Operator and Owner.

 

		10.	This Agreement shall be governed by and construed in
accordance with the laws of the State of Oklahoma excluding any conflict of law provisions that would require application of the
laws of any other jurisdiction. The parties agree to the exclusive jurisdiction of the state and federal courts sitting in Oklahoma
County, Oklahoma, for any actions or disputes arising out of or relating to this Agreement.

 

		11.	NEITHER PARTY TO THIS AGREEMENT IS LIABLE TO THE OTHER
PARTY FOR ANY PUNITIVE OR EXEMPLARY DAMAGES IN CONNECTION WITH THIS AGREEMENT BASED ON ANY LEGAL THEORY, INCLUDING WITHOUT LIMITATION,
BREACH OF CONTRACT, SPECIAL RELATIONSHIP, BREACH OF ANY DUTY OF GOOD FAITH AND FAIR DEALING, TORT, NEGLIGENCE, STRICT LIABILITY
OR OTHERWISE.

 

	OPERATOR	 	OWNER
	 	 	 
	By:	 	 	By:	 
	 	 	 	 	 
	Name:	 	 	Name:	 
	 	 	 	 	 
	Title:	 	 	Title:	 
	 	 	 	 	 
	Date:	 	 	Date:	 

 

    	2

    	 

    

  

Exhibit
“G”

 

Attached
to and made a part of that certain Operating Agreement dated _________ by _______________________ Operator and [Company], as Non-Operators
(“Operating Agreement”).

 

EXHIBIT “A’

 

This
Exhibit “A”
is for all purposes attached to and made a part of that certain Produced Hydrocarbon Owner Marketing Notification Form and Agreement
covering the well below mentioned. 

 

	Well Name	 	Legal Description
	 	 	 
	 	 	 

 

    	 

    	 

    

  

EXHIBIT H 

MEMORANDUM OF OPERATING AGREEMENT 

AND 

FINANCING STATEMENT

 

To be negotiated and mutually agreed by
the parties upon execution of the agreement of which this is an exhibit.

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00235-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00235-of-00352.parquet"}]]