Document:

exv10w1

 

Exhibit 10.1

Execution Version

DEEPWATER

PRODUCTION HANDLING

AND

OPERATING SERVICES AGREEMENT

FOR

GARDEN BANKS BLOCKS 738, 782, 785, 826 and 827

PRODUCTION HANDLING

AT THE GARDEN BANKS BLOCK 783 MAGNOLIA TLP

BY AND BETWEEN

CONOCOPHILLIPS COMPANY AND

DEVON ENERGY PRODUCTION COMPANY, L.P.

AND

CALLON PETROLEUM OPERATING COMPANY

EFFECTIVE April 18, 2007

CONFIDENTIAL TREATMENT HAS BEEN REQUESTED BY CALLON PETROLEUM COMPANY FOR CERTAIN
PORTIONS OF THIS DOCUMENT. CONFIDENTIAL PORTIONS HAVE BEEN FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION. OMITTED PORTIONS ARE INDICATED IN THIS
AGREEMENT WITH “*****”.

 

 

Execution Version

TABLE OF CONTENTS

	 	 	 	 	 	 	 
	ARTICLE I — CONTRACT APPLICATION 
	 	 	2	 
	 
	 	 	 	 	 	 
	1.1

	 	Application in General
	 	 	2	 
	1.2

	 	Application of Magnolia TLP Operating Agreement
	 	 	2	 
	 
	 	 	 	 	 	 
	ARTICLE II — DEFINITIONS AND EXHIBITS
	 	 	3	 
	 
	 	 	 	 	 	 
	2.1 

	 	Preface
	 	 	3	 
	2.2 

	 	Definitions
	 	 	3	 
	2.3 

	 	Exhibits
	 	10

	ARTICLE III — INFRASTRUCTURE AND FACILITIES
	 	 	10	 
	 
	 	 	 	 	 	 
	3.1 

	 	Satellite Production System
	 	10

	3.1.1

	 	Design and Installation of Satellite Production System
	 	 	10	 
	3.1.2

	 	Costs of Satellite Production System
	 	 	11	 
	3.1.3

	 	Scheduling Producer’s Work
	 	 	12	 
	3.1.4

	 	Magnolia TLP Criteria
	 	 	12	 
	3.1.5

	 	Riser and Umbilical Handover
	 	 	13	 
	3.1.6

	 	Magnolia TLP Access & Boarding for Producer’s Work
	 	 	13	 
	3.1.7

	 	Conduct of Producer’s Work
	 	 	14	 
	3.2 

	 	Receiving Facility
	 	15

	3.3

	 	Capacity Upgrades
	 	16

	3.4

	 	Magnolia Owners’ Tie-In Option
	 	16

	3.4.1

	 	Costs of Tie-in Option
	 	 	17	 
	3.4.2

	 	Operation, Maintenance and Abandonment of Tie-in
	 	 	17	 
	 
	 	 	 	 	 	 
	ARTICLE IV — SERVICES
	 	 	18	 
	 
	 	 	 	 	 	 
	4.1 

	 	General
	 	18

	4.1.1

	 	Production Handling Services
	 	 	18	 
	4.1.2

	 	Satellite Production System Operations
	 	 	19	 
	4.2 

	 	Well Unloading
	 	19

	4.3 

	 	Producer’s Responsibilities
	 	19

	4.4 

	 	Right of Use of Deck Space
	 	19

	4.5 

	 	Energy Sources
	 	20

	4.6 

	 	Communication Equipment
	 	20

	4.7 

	 	Emergency Response
	 	20

	 
	 	 	 	 	 	 
	ARTICLE V — FEES & EXPENSES/ACCOUNTING PROCEDURES
	 	 	21	 
	 
	 	 	 	 	 	 
	5.1 

	 	Operating and Maintenance
	 	21

	5.1.1

	 	Monthly Charges
	 	 	21	 
	5.1.2

	 	Annual Review
	 	 	22	 
	5.2 

	 	Fuel/Vent/Flare Gas
	 	22

	5.3 

	 	Infrastructure Access Fees
	 	23

	5.3.1

	 	IAF for Firm Capacity, Interruptible Capacity and FA Capacity
	 	 	23	 
	5.3.2

	 	Minimum Monthly Fee
	 	 	23	 
	5.4 

	 	Future Governmental Regulations Costs
	 	24

	5.5 

	 	Producer’s Sole Expenses
	 	25

	5.6 

	 	Magnolia Owners’ Sole Expenses
	 	25

	5.7 

	 	Deferred Production Compensation
	 	25

	5.7.1

	 	Compensation for Magnolia Owners for Initial Tie-In
	 	 	25	 

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Execution Version

	 	 	 	 	 	 	 
	5.7.2

	 	Compensation for Producer
	 	 	25	 
	5.7.3

	 	Compensation Methodology
	 	 	26	 
	5.7.4

	 	Duration of Shutdown
	 	 	27	 
	5.7.5

	 	Compensation for Magnolia Owners after Initial Tie-In
	 	 	28	 
	5.8 

	 	Royalties and Taxes
	 	28

	5.9 

	 	Quality Bank Payments
	 	28

	 
	 	 	 	 	 	 
	ARTICLE VI — CAPACITY
	 	 	28	 
	 
	 	 	 	 	 	 
	6.1 

	 	Magnolia TLP Base Capacity
	 	28

	6.2 

	 	Production Processing and Handling Capacity
	 	29

	6.2.1

	 	Firm Capacity
	 	 	29	 
	6.2.2

	 	Interruptible Capacity
	 	 	31	 
	6.2.3

	 	Flow Assurance Capacity
	 	 	31	 
	6.3 

	 	Production Prioritization
	 	32

	6.3.1

	 	Processing Facility Constraints
	 	 	32	 
	6.3.2

	 	Gas Export Pipeline Constraints
	 	 	33	 
	6.3.3

	 	Oil Export Pipeline Constraints
	 	 	33	 
	6.4 

	 	Production Compatibility
	 	34

	6.4.1

	 	Conforming Fluids
	 	 	34	 
	6.4.2

	 	Non-Conforming Satellite Production
	 	 	34	 
	6.4.3

	 	Market Value
	 	 	35	 
	 
	 	 	 	 	 	 
	ARTICLE VII – METERING AND ALLOCATION, PERMITS, AND QUALITY BANK
	 	 	36	 
	 
	 	 	 	 	 	 
	7.1

	 	General Application
	 	36

	7.2 

	 	Permits
	 	36

	7.2.1

	 	Surface Commingling Permit
	 	 	36	 
	7.2.2

	 	Other Permits
	 	 	36	 
	7.2.3

	 	Permit Denials
	 	 	37	 
	7.3 

	 	Quality Bank
	 	37

	 
	 	 	 	 	 	 
	ARTICLE VIII — GATHERING AND TRANSPORTATION
	 	 	37	 
	 
	 	 	 	 	 	 
	8.1 

	 	Product Disposition
	 	37

	8.2 

	 	Product Transportation
	 	38

	8.3 

	 	Pipeline Penalties
	 	38

	8.4 

	 	Gas Imbalances
	 	39

	 
	 	 	 	 	 	 
	ARTICLE IX — SUSPENSION OF OPERATIONS AND FORCE MAJEURE
	 	 	39	 
	 
	 	 	 	 	 	 
	9.1 

	 	Notice
	 	39

	9.2 

	 	Suspension of Obligation
	 	39

	9.3 

	 	Resolution
	 	39

	9.4 

	 	Suspension of Operations
	 	39

	9.5 

	 	Magnolia TLP Operator’s Right to ShutDown Operations on Magnolia TLP
	 	40

	 
	 	 	 	 	 	 
	ARTICLE X — TERM, DEFAULT, TERMINATION, AND CONTINUATION OF SERVICES
	 	 	41	 
	 
	 	 	 	 	 	 
	10.1 

	 	Term of Agreement
	 	41

	10.2 

	 	Default
	 	41

	10.3 

	 	Termination by Magnolia Owners
	 	42

	10.4 

	 	Termination by Producer
	 	43

	10.5 

	 	Responsibilities and Obligations at Termination
	 	43

	 
	 	 	 	 	 	 
	ARTICLE XI — LIABILITIES AND INDEMNIFICATION
	 	 	45	 

ii

 

Execution Version

	 	 	 	 	 	 	 
	11.1

	 	Liability and Indemnity
	 	45

	11.1.1

	 	Definition of Claims
	 	 	45	 
	11.1.2

	 	Application of Indemnities
	 	 	45	 
	11.1.3

	 	Producer’s Indemnity
	 	 	46	 
	11.1.4

	 	Magnolia Owners’ Indemnity
	 	 	48	 
	11.1.5

	 	Environmental Indemnity
	 	 	49	 
	11.1.6

	 	Notices and Defense of Indemnified Claims
	 	 	51	 
	11.1.7

	 	Non-Conforming Production
	 	 	51	 
	11.1.8

	 	No Limitations
	 	 	51	 
	11.1.9

	 	Allocation of Liability Among the Magnolia Owners
	 	 	51	 
	11.2 

	 	Indemnification With Respect to Warranty of Title
	 	52

	11.2.1

	 	Satellite Production
	 	 	52	 
	11.2.2

	 	Non-Satellite Production
	 	 	52	 
	11.3 

	 	Waiver of Consequential Damages
	 	52

	11.4 

	 	Individual Obligations
	 	52

	 
	 	 	 	 	 	 
	ARTICLE XII — INSURANCE AND BONDS
	 	 	53	 
	 
	 	 	 	 	 	 
	12.1 

	 	Insurance
	 	53

	12.2 

	 	Bonds
	 	54

	 
	 	 	 	 	 	 
	ARTICLE XIII — SUCCESSORS AND ASSIGNS
	 	 	54	 
	 
	 	 	 	 	 	 
	13.1 

	 	Successors and Assigns
	 	54

	13.2 

	 	Assignment
	 	54

	13.2.1

	 	Assignment by Producer
	 	 	54	 
	13.2.2

	 	Assignment by Magnolia Owners
	 	 	56	 
	 
	 	 	 	 	 	 
	ARTICLE XIV – NOTICES

 	 	 	56	 
	14.1 

	 	Giving and Responding to Notices
	 	56

	14.2 

	 	Content of Notice
	 	58

	 
	 	 	 	 	 	 
	ARTICLE XV — ADMINISTRATIVE AND MISCELLANEOUS
	 	 	59	 
	 
	 	 	 	 	 	 
	15.1 

	 	Billing Procedures
	 	59

	15.2 

	 	Disclaimer of Warranties by Magnolia Owners
	 	59

	15.3 

	 	Disclaimer of Warranties by Producer
	 	60

	15.4

	 	Representations and Warranties
	 	61

	15.5 

	 	Warranty of Title
	 	62

	15.6 

	 	Standard of Performance
	 	62

	15.7 

	 	Producer’s Employees, Consultants, and Contractors
	 	62

	15.8 

	 	Magnolia TLP Operator’s Employees, Consultants, and Contractors
	 	63

	15.9 

	 	Further Assurances
	 	63

	15.10 

	 	Non-Compliance Citations
	 	63

	15.11 

	 	Dispute Resolution
	 	63

	15.12 

	 	Waivers `
	 	64

	15.13 

	 	Remedies
	 	64

	15.14 

	 	No Third Party Beneficiaries
	 	64

	15.15 

	 	Confidentiality Provisions
	 	64

	15.16

	 	Commitment of Oil and Gas Reserves
	 	65

	15.17 

	 	Compliance With Laws and Regulations
	 	66

	15.17.1

	 	Applicable Law
	 	 	66	 
	15.17.2

	 	Severance of Invalid Provisions
	 	 	66	 
	15.17.3

	 	Fair and Equal Employment
	 	 	67	 
	15.18 

	 	Construction and Interpretation of this Agreement
	 	67

iii

 

Execution Version

	 	 	 	 	 	 	 
	15.18.1

	 	Heading for Convenience
	 	 	67	 
	15.18.2

	 	Gender
	 	 	68	 
	15.18.3

	 	Number
	 	 	68	 
	15.18.4

	 	Independent Representation
	 	 	68	 
	15.19 

	 	Integrated and Entire Agreement
	 	 68

	15.20 

	 	Amendment and Modification
	 	 68

	15.21 

	 	Survivability
	 	 69

	15.22 

	 	Existing Agreements
	 	 69

	 
	 	 	 	 	 	 
	ARTICLE XVI – EXECUTION
	 	 	69	 
	 
	 	 	 	 	 	 
	16.1 

	 	Effect
	 	 69

	16.2 

	 	Counterparts
	 	 70

	 

	 	EXHIBIT “A”
	 	 	72	 
	 

	 	EXHIBIT “B”
	 	 	73	 
	 

	 	EXHIBIT “C”
	 	 	77	 
	 

	 	EXHIBIT “C-1”
	 	 	83	 
	 

	 	EXHIBIT “D”
	 	 	100	 
	 

	 	EXHIBIT “E”
	 	 	102	 
	 

	 	EXHIBIT “F”
	 	 	105	 
	 

	 	EXHIBIT “G”
	 	 	114	 
	 

	 	EXHIBIT “G-1”
	 	 	123	 
	 

	 	EXHIBIT “G-2”
	 	 	124	 
	 

	 	EXHIBIT “H”
	 	 	125	 
	 

	 	EXHIBIT “I”
	 	 	127	 
	 

	 	EXHIBIT “J”
	 	 	131	 
	 

	 	EXHIBIT “K”
	 	 	134	 
	 

	 	EXHIBIT “L”
	 	 	141	 
	 

	 	EXHIBIT “M”
	 	 	142	 
	 

	 	EXHIBIT “N”
	 	 	143	 

iv

 

Execution Version

DEFINITIONS

	 	 	 	 	 
	Term	 	Page No.
	 	 	 
	 
	Abandonment Notice

	 	 	46	 
	Abandonment Work

	 	 	46	 
	Affiliate

	 	 	3	 
	Agreement

	 	 	1	 
	Barrel

	 	 	4	 
	Bbl

	 	 	4	 
	BLPD

	 	 	4	 
	British Thermal Unit

	 	 	4	 
	Btu

	 	 	4	 
	Callon

	 	 	1	 
	Capacity Upgrade

	 	 	18	 
	Claims

	 	 	47	 
	Code

	 	 	29	 
	Confidential Information

	 	 	4	 
	COP

	 	 	1	 
	Day

	 	 	4	 
	Default

	 	 	43	 
	Delivery Point

	 	 	4	 
	Devon

	 	 	1	 
	DGPC

	 	 	28	 
	Dollar

	 	 	4	 
	DOPC

	 	 	27	 
	Downstream Gas Pipeline

	 	 	34	 
	Downstream Oil Pipeline

	 	 	35	 
	Effective Date

	 	 	1	 
	EI Index

	 	 	25	 
	Entry Point

	 	 	5	 
	Execution Date

	 	 	5	 
	FA Capacity

	 	 	5	 
	Firm Capacity

	 	 	31	 
	Flow Assurance Capacity

	 	 	5	 
	Force Majeure

	 	 	5	 
	Gas

	 	 	6	 
	Gas Constrained Parties

	 	 	35	 
	Gas Constrained Party

	 	 	35	 
	Gas Export Pipeline

	 	 	6	 
	Gas Unconstrained Parties

	 	 	35	 
	HPU

	 	 	12	 
	IAF

	 	 	25	 
	Infrastructure Access Fee

	 	 	25	 
	Interruptible Capacity

	 	 	33	 
	Laws

	 	 	6	 
	LEB

	 	 	7	 
	Magnolia Leases

	 	 	1	 

v

 

Execution Version

	 	 	 	 	 
	Term	 	Page No.
	 	 	 
	 
	Magnolia Owners

	 	 	1	 
	Magnolia TLP

	 	 	7	 
	Magnolia TLP Base Capacity

	 	 	7	 
	Magnolia TLP Capacity

	 	 	7	 
	Magnolia TLP Gas Production

	 	 	7	 
	Magnolia TLP Oil Production

	 	 	7	 
	Magnolia TLP Operating Agreement

	 	 	7	 
	Magnolia TLP Operator

	 	 	1	 
	Magnolia TLP Production

	 	 	7	 
	Magnolia TLP Shared Expenses

	 	 	23	 
	Magnolia TLP Ullage

	 	 	7	 
	MBO/d

	 	 	7	 
	MBtu

	 	 	7	 
	MBW/d

	 	 	8	 
	MCS

	 	 	12	 
	MMBtu

	 	 	8	 
	MMS

	 	 	8	 
	MMSCF

	 	 	8	 
	MMSCF/d

	 	 	8	 
	Mortgaged Property

	 	 	57	 
	MSCF

	 	 	8	 
	MSCF/d

	 	 	8	 
	Non-Conforming Production

	 	 	36	 
	Non-Performing Party

	 	 	43	 
	Non-Satellite Production

	 	 	8	 
	NORM

	 	 	49	 
	Notice Period

	 	 	44	 
	OEB

	 	 	8	 
	OFO’s

	 	 	40	 
	Oil

	 	 	8	 
	Oil Constrained Parties

	 	 	35	 
	Oil Constrained Party

	 	 	35	 
	Oil Export Pipeline

	 	 	8	 
	Oil Unconstrained Parties

	 	 	35	 
	Parties

	 	 	1	 
	Party

	 	 	1	 
	Permanent Cessation of Production

	 	 	9	 
	Person

	 	 	9	 
	Prevailing Gas Price

	 	 	9	 
	Prevailing Oil Price

	 	 	9	 
	Producer

	 	 	1	 
	Producer’s Work

	 	 	13	 
	Production Handling Services

	 	 	9	 
	Prorated Firm Capacity

	 	 	34	 
	PSOPEX

	 	 	23	 
	Receiving Facilities

	 	 	16	 
	Satellite First Production

	 	 	9	 
	Satellite Gas Production

	 	 	9	 

vi

 

Execution Version

	 	 	 	 	 
	Term	 	Page No.
	 	 	 
	 
	Satellite Leases

	 	 	1	 
	Satellite Oil Production

	 	 	9	 
	Satellite Operating Problem

	 	 	36	 
	Satellite Operations Procedures Guide

	 	 	10	 
	Satellite Operator

	 	 	1	 
	Satellite Production

	 	 	10	 
	Satellite Production System

	 	 	12	 
	Satellite Production System Operations

	 	 	10	 
	SCF

	 	 	10	 
	Services

	 	 	10	 
	Standard Cubic Foot

	 	 	10	 
	Third Parties

	 	 	10	 
	Third Party

	 	 	10	 
	Third Party Production

	 	 	11	 
	Third Party Production System

	 	 	11	 
	Transfer of Interest

	 	 	57	 
	UTB

	 	 	12	 

vii

 

Execution Version

PREAMBLE

     This Production Handling and Operating Services Agreement (“Agreement”) effective as of
April 18, 2007, (“Effective Date”) is entered into by and between ConocoPhillips Company (“COP”)
and Devon Energy Production Company, L.P. (“Devon”), hereinafter collectively referred to as the
“Magnolia Owners”, in their capacity as co-owners of the “Magnolia TLP” (as defined hereinbelow),
and Callon Petroleum Operating Company (“Callon”), hereinafter referred to as the “Producer”, in
its capacity as owner of the “Satellite Leases” (as defined hereinbelow) and “Satellite
Production System” (as defined hereinbelow). Each signatory hereto is sometimes referred to
singularly as a “Party” or collectively as the “Parties”.

     WHEREAS, the Producer is the owner of the oil and gas leases bearing Serial Numbers OCS-G
22336, OCS-G 20797, OCS-G 21403, OCS-G 20798 and OCS-G 20799, covering Blocks 738, 782, 785, 826
and 827 respectively, in Garden Banks, Offshore Louisiana, sometimes referred to as the
“Satellite Leases”; and

     WHEREAS, the Producer is the owner of the Satellite Production System; and

     WHEREAS, the Satellite Leases and Satellite Production System are operated by Callon, who,
in that capacity, is hereinafter also referred to as the “Satellite Operator”; and

     WHEREAS, the Magnolia Owners are the owners of various oil and gas leases, including OCS-G
11573 and OCS-G 11574, covering Blocks 783 and 784 respectively, in Garden Banks, Offshore
Louisiana, sometimes referred to as the “Magnolia Leases”; and

     WHEREAS, the Magnolia Owners are the owners of the Magnolia TLP, which is located on Block
783 , Garden Banks, Offshore Louisiana; and

     WHEREAS, the Magnolia Leases and Magnolia TLP are operated by COP, who, in that capacity, is
hereinafter referred to as the “Magnolia TLP Operator”; and

     WHEREAS, the Producer desires to attach the Satellite Production System to the Magnolia TLP,
place control and monitoring equipment associated with the Satellite
Production System on the Magnolia TLP, and have the Magnolia TLP Operator perform certain
operations for the Satellite Production System from the Magnolia TLP; and

     WHEREAS, the Producer desires to deliver “Satellite Production” (as defined hereinbelow) to
the Magnolia TLP at the “Entry Point” (as defined hereinbelow) via the Satellite Production
System; and

Page 1

 

Execution Version

     WHEREAS, the Producer desires to have the Magnolia TLP process, handle and redeliver the
Satellite Production into offtake pipelines owned and operated by others; and

     WHEREAS, the Producer, as set forth hereinbelow, requests the Magnolia Owners to: (A) grant
the right to (i) attach the Satellite Production System to the Magnolia TLP, and (ii) place
control and monitoring equipment on the Magnolia TLP and; (B) (i) perform the hereinafter
described operation functions for the Satellite Production System, and (ii) receive, process,
handle and redeliver Satellite Production; and

     WHEREAS, the Magnolia Owners and Magnolia TLP Operator are willing to accommodate these
desires and requests under the terms and conditions set forth below.

     NOW, THEREFORE, in consideration of the premises, the mutual covenants and agreements
contained herein, and other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the Parties agree as follows:

ARTICLE I — CONTRACT APPLICATION

	1.1	 	Application in General
	 
	 	 	This Agreement applies to the receipt, processing, handling and redelivery of Satellite
Production delivered to the Entry Point via the Satellite Production System that is
processed and handled on the Magnolia TLP between the Entry Point and the “Delivery Point”
(as defined hereinbelow), and (ii) certain operations of the Satellite Production System
from the Magnolia TLP by the Magnolia Owners through the Magnolia TLP Operator in accordance
with the Satellite Operations Procedures Guide. Conversely, this Agreement does not apply
to the processing and handling of “Third Party Production” (as defined hereinbelow) on the
Magnolia TLP or to the operation of a “Third Party Production System” (as defined
hereinbelow) connected to the Satellite Production System and/or the Magnolia TLP.
	 
	 	 	The permission to enter on and use the Magnolia TLP as herein provided shall constitute a
license to the Producer, and shall not convey or create any interest, leasehold or
otherwise, in or title to the Magnolia TLP or the Magnolia Leases.

	1.2	 	Application of Magnolia TLP Operating Agreement
	 
	 	 	The provisions of the “Magnolia TLP Operating Agreement” (as defined hereinbelow) will
govern the rights, duties and obligations between the Magnolia Owners and the Magnolia TLP
Operator associated with the Magnolia TLP and the Magnolia Leases. It is not the intention
of the Parties for this Agreement to amend or otherwise modify the provisions of the
Magnolia TLP Operating Agreement.

Page 2

 

ARTICLE II — DEFINITIONS AND EXHIBITS

Execution Version

	2.1	 	Preface
	 
	 	 	As used in this Agreement, the terms “Agreement”, “Effective Date”, “Magnolia Leases”,
“Magnolia TLP Operator”, “Magnolia Owners”, “Parties”, “Party”, “Producer”, “Satellite
Leases”, and “Satellite Operator” have the meanings set forth hereinabove. Other
capitalized terms used throughout this Agreement and not listed in Article 2.2 (Definitions)
have the meanings ascribed to them elsewhere in this Agreement.
	 
	2.2	 	Definitions
	 
	 	 	The following capitalized terms have the meanings ascribed to them.

	 	2.2.1	 	“Abandonment Notice” has the meaning ascribed to it in Article 10.5.3.
	 
	 	2.2.2	 	“Abandonment Work” has the meaning ascribed to it in Article 10.5.1(a).
	 
	 	2.2.3	 	“Affiliate” means any corporation, limited liability company or partnership
(including a limited partnership) or other entity owned or controlled by a Party to
this Agreement. The term “Affiliate of a Party” includes any parent corporation,
partnership or other entity that directly or indirectly owns or controls fifty percent
(50%) or more of the outstanding stock (or other interests) having the right to vote
for directors of a Party to this Agreement, and also includes any other corporation,
partnership or other entity in which the parent corporation directly or indirectly owns
or controls fifty percent (50%) or more of the voting stock (or other interests) in the
other corporation.

	 	•	 	Ownership or control by a Party is deemed to exist if a Party to this
Agreement directly or indirectly owns or controls fifty percent (50%) or
more of the outstanding stock of the corporation having the right to vote
for directors of the corporation or fifty percent (50%) or more of the
interests in the partnership, general partner of a limited partnership, or
other entity.
	 
	 	•	 	The stock (or interests in a partnership or other entity) owned or
controlled by a Party includes all stock (or other interests) directly or
indirectly owned or controlled by any other corporation, partnership or
other entity owned or controlled by a Party to this Agreement.

	 	2.2.4	 	“Barrel” or “Bbl” means forty-two (42) United States standard gallons at
standard conditions of fourteen and seventy three hundredths pounds per square inch
absolute (14.73 psiA) at sixty degrees Fahrenheit (60°F).
	 
	 	2.2.5	 	“BLPD” means one (1) Barrel of liquid per day determined by treating as each
one (1) Barrel of Oil or one (1) Barrel of water as a Barrel of liquid, or a
combination thereof.
	 
	 	2.2.6	 	“BOE” means one (1) equivalent Barrel determined by treating as one (1) BOE
each: one (1) Barrel of Oil or five and eight tenths (5.8) MSCF of Gas.
	 
	 	2.2.7	 	“British Thermal Unit” or “Btu” means the quantity of heat required to raise
the temperature of one (1) pound in weight of pure water one degree Fahrenheit (1°F)
from fifty-eight and five-

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	 	 	 	tenths degrees (58.5°) Fahrenheit to fifty-nine and five-tenths degrees (59.5°) Fahrenheit
at a constant pressure of fourteen and seventy-three hundredths pounds per square inch
absolute (14.73 psiA) and determined on a gross, dry basis.
	 
	 	2.2.8	 	“Claims” has the meaning ascribed to it in Article 11.1.1 (Definition of
Claims)
	 
	 	2.2.9	 	“Confidential Information” means (i) the terms and conditions of this
Agreement, (ii) the production profiles provided pursuant to this Agreement, (iii) the
metering and allocation reports and data (including, without limitation, data
associated with production quality), (iv) the well test data, and (v) any other data
and information provided by any of the Parties pursuant to the terms of this Agreement.
	 
	 	2.2.10	 	“Day” means a period of twenty-four (24) consecutive hours, beginning at 12:00 a.m.
central time.
	 
	 	2.2.11	 	“Default” has the meaning ascribed to it in Article 10.2 (Default).
	 
	 	2.2.12	 	“Delivery Point” means:

	 	(a)	 	for Gas, the point shall be at the inlet of the Gas Export
Pipeline meter facility on the Magnolia TLP.
	 
	 	(b)	 	for Oil, the point shall be at the beginning of the
interconnecting pipeline deemed to be the upstream flange face of the flexjoint
on the fourteen inch (14”) oil pipeline which is owned on the Effective Date by
Shell Pipeline Company LP.

	 	2.2.13	 	“Dollar” and “$” means the lawful currency of the United States of America.
	 
	 	2.2.14	 	“Entry Point” means (i) for each of the hydrocarbon flowlines, the flange face on the
“tie-in spool” at the lowest elevation (deepest water depth) but at a higher elevation
than the flexjoint or approved equivalent and (ii) for the umbilicals, the top of the
hang off flange on the pull tube at the top of the northwest column.
	 
	 	2.2.15	 	“Execution Date” means the date on which the last Party signatory to this Agreement
executes this Agreement.
	 
	 	2.2.16	 	“Firm Capacity” has the meaning ascribed to it in Article 6.2.1 (Firm Capacity).
	 
	 	2.2.17	 	“Flow Assurance Capacity” or “FA Capacity” means the minimal amount of production
handling capacity through the Magnolia TLP that is available for Satellite Production,
on a flowline-by-flowline basis, as a contingency measure for the minimum flow
necessary to prevent serious problems (including, but not limited to, waxing, the
formation of hydrates, and slugging) with the wells and flowlines and for lease
maintenance purposes in the event “Interruptible Capacity” (as defined hereinbelow) and
Firm Capacity are not available, unless it is not possible to provide such Flow
Assurance Capacity due to Magnolia TLP operating problems, “downstream” facilities’ or
equipment problems, or Force Majeure. For purposes of this Article 2.2.17,
“downstream” is after the Delivery

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	 	 	 	Point in the direction of flow. FA Capacity shall be 1********************* unless
otherwise agreed by the Parties in writing.

	 	2.2.18	 	“Force Majeure” means the following events, but only if such events are not
reasonably within the control of the Party claiming suspension, and only if such events
materially affect a Party’s ability to perform its obligations hereunder:

	 	(a)	 	flood, lightning, storm, hurricane, earthquake, adverse weather
conditions, high sea states, loop currents, or other acts of God;
	 
	 	(b)	 	a fire, explosion, loss of well control, oil spill, or other
environmental catastrophe;
	 
	 	(c)	 	war, terrorist actions, actions of the public enemy, blockade,
insurrection, civil disturbance, labor dispute, strike, lockout, or other
industrial disturbance, compliance with any Laws, governmental action or delay
including the inability to secure permits or permit approvals as needed;
	 
	 	(d)	 	inability to secure or unavailability of materials or equipment; or
	 
	 	(e)	 	any other causes, whether of the kind specifically enumerated
above or otherwise.

	 	2.2.19	 	“Gas” or “gas” means any mixture of gaseous hydrocarbons, consisting of methane and
heavier liquefiable hydrocarbons and inert and noncombustible gases which are extracted
from the subsurface of the earth, including any condensate recovered from the Gas
Export Pipeline and re-injected in a downstream pipeline.
	 
	 	2.2.20	 	“Gas Export Pipeline” means the gas export pipeline, owned on the Effective Date by
Enbridge Offshore Facilities, LLC, which extends from the Gas Delivery Point on the
Magnolia TLP to the Garden Banks Block 128 “A” Platform.
	 
	 	2.2.21	 	“Gas Constrained Party (and Parties)” and “Oil Constrained Party (and Parties)” have
the meanings ascribed to them in Article 6.3.2 (Gas Export Pipeline Constraints) and
Article 6.3.3 (Oil Export Pipeline Constraints).
	 
	 	2.2.22	 	“Gas Unconstrained Parties” and “Oil Unconstrained Parties” have the meanings
ascribed to it in Articles 6.3.2 (Gas Export Pipeline Constraints) and 6.3.3 (Oil
Export Pipeline Constraints).

 

			
	1	 	CONFIDENTIAL TREATMENT HAS BEEN REQUESTED BY CALLON PETROLEUM COMPANY FOR
CERTAIN PORTIONS OF THIS DOCUMENT. CONFIDENTIAL PORTIONS HAVE BEEN FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION. OMITTED PORTIONS ARE INDICATED IN THIS
AGREEMENT WITH “*****”.

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	 	2.2.23	 	“Infrastructure Access Fee” or “IAF” has the meaning ascribed to it in Article 5.3
(Infrastructure Access Fees).
	 
	 	2.2.24	 	“Interruptible Capacity” has the meaning ascribed to it in Article 6.2.2
(Interruptible Capacity).
	 
	 	2.2.25	 	“Laws” means any laws, rules and regulations of the United States of America or any
duly constituted instrumentality thereof and all other governmental bodies, agencies
and other authorities having jurisdiction over or affecting the provisions contained in
or the transactions contemplated by this Agreement or the Parties or their operations,
whether such Laws now exist or are hereafter amended, enacted, promulgated or issued.
	 
	 	2.2.26	 	“LEB” means one (1) liquid equivalent Barrel determined by treating as one (1) LEB
each: one (1) Barrel of Oil, one (1) Barrel of water, or five and eight tenths (5.8)
MSCF of Gas.
	 
	 	2.2.27	 	“Magnolia TLP” means the tension leg platform (including the mooring system, the
production risers not included in the Satellite Production System, and wells), together
with all equipment and facilities between the Entry Point and the Delivery Point
(including the Receiving Facilities to be installed), located on Block 783, Garden
Banks, Offshore Louisiana, but excluding the Satellite Production System components
owned by the Producer or Third Parties and located on the Magnolia TLP.
	 
	 	2.2.28	 	“Magnolia TLP Base Capacity” has the meaning ascribed to it in Exhibit “A” (Magnolia
TLP Base Capacity) and Article 6.1(Magnolia TLP Base Capacity).
	 
	 	2.2.29	 	“Magnolia TLP Capacity” means the actual production handling capacity at a given time
for each of Oil, Gas, and water of the Magnolia TLP, as reasonably determined by the
Magnolia TLP Operator.
	 
	 	2.2.30	 	“Magnolia TLP Gas Production” means Gas attributable to Magnolia TLP Production.
	 
	 	2.2.31	 	“Magnolia TLP Oil Production” means Oil attributable to Magnolia TLP Production.
	 
	 	2.2.32	 	“Magnolia TLP Operating Agreement” means that certain Operating Agreement dated
effective January 1, 2000, by and between the Magnolia Owners.
	 
	 	2.2.33	 	“Magnolia TLP Production” means Oil, Gas, water, and associated substances produced
from the Magnolia Leases and processed and handled on the Magnolia TLP.

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	 	2.2.34	 	“Magnolia TLP Ullage” means (for each of Oil, Gas, and water) for a calendar month
the quantity of Magnolia TLP Capacity for each of Oil, Gas, and water, as may be
amended from time to time, which is in excess of the quantity of Magnolia TLP Capacity
required for handling Magnolia TLP Production, Satellite Production (up to Firm
Capacity) and other Third Party Production for which the Magnolia Owners have granted
firm production handling capacity on the Magnolia TLP.
	 
	 	2.2.35	 	“MBO/d” means one thousand (1,000) Barrels of Oil per Day.
	 
	 	2.2.36	 	“MBtu” means one thousand (1,000) Btu’s.
	 
	 	2.2.37	 	“MBW/d” means one thousand (1,000) Barrels of water per Day.
	 
	 	2.2.38	 	“MMBtu” means one million (1,000,000) Btu’s.
	 
	 	2.2.39	 	“MMS” means the United States Department of the Interior, Minerals Management
Service, or any successor thereof.
	 
	 	2.2.40	 	“MMSCF” means one million (1,000,000) “Standard Cubic Feet” (as defined hereinbelow).
	 
	 	2.2.41	 	“MMSCF/d” means one million (1,000,000) Standard Cubic Feet per Day.
	 
	 	2.2.42	 	“Mortgaged Property” has the meaning ascribed to it in Article 13.2.1(b).
	 
	 	2.2.43	 	“MSCF” means one thousand (1,000) Standard Cubic Feet.
	 
	 	2.2.44	 	“MSCF/d” means one thousand (1,000) Standard Cubic Feet per Day.
	 
	 	2.2.45	 	“Non-Conforming Production” has the meaning ascribed to it in Article 6.4.2
(Non-Conforming Production).
	 
	 	2.2.46	 	“Non-Performing Party” has the meaning ascribed to it in Article 10.2.1.
	 
	 	2.2.47	 	“Non-Satellite Production” means Oil, Gas, water, and all associated substances
produced from sources other than the Satellite Leases and processed and handled on the
Magnolia TLP.
	 
	 	2.2.48	 	“Notice Period” has the meaning ascribed to it in Article 10.2.1.
	 
	 	2.2.49	 	“Oil” or “oil” means any mixture of hydrocarbons, regardless of gravity, originally
and naturally occurring as liquids and includes all condensate, distillate, and other
liquid hydrocarbons recovered by use of conventional separators on the Magnolia TLP.

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	 	2.2.50	 	“Oil Export Pipeline” means the oil export pipeline, owned on the Effective Date by
Shell Pipeline Company LP, which extends from the Oil Delivery Point on the Magnolia
TLP to the Garden Banks Block 128 “A” Platform.
	 
	 	2.2.51	 	“Permanent Cessation of Production” means the event which occurs when production has
not been restored from the last producing well on the Satellite Leases in accordance
with 30 CFR Part 250 of the federal regulations concerning suspensions of production or
other operations or such other regulations promulgated by the relevant governing
authority.
	 
	 	2.2.52	 	“Person” means any individual or entity, including, without limitation, any
corporation, limited liability company, joint venture, joint stock company, general or
limited partnership, trust, agency, association, organization, governmental authority,
or other entity.
	 
	 	2.2.53	 	“Prevailing Gas Price” means first of the month Inside FERC Gas Market Report
publication for one hundred percent (100%) of ANR Southern Louisiana (“ANR SLA”) price
index, for the applicable production month, reduced by the sum of (i) the Magnolia TLP
to the Garden Banks Block 128 “A” Platform transportation fee, and (ii) the Garden
Banks Gas Pipeline FERC IT-1 Commodity Tariff, or such other published monthly index
price as unanimously agreed by the Parties.
	 
	 	2.2.54	 	“Prevailing Oil Price” means the average of the high price and the low price on a day
for Eugene Island as reported in the Platts Oilgram, or such other published index
price as unanimously agreed by the Parties.
	 
	 	2.2.55	 	“Producer’s Work” has the meaning ascribed to it in Article 3.1.3 (Scheduling
Producer’s Work).
	 
	 	2.2.56	 	“Production Handling Services” means those services as set forth in Exhibit “B”
(Magnolia TLP Services) attached to this Agreement.
	 
	 	2.2.57	 	“Prorated Firm Capacity” has the meaning ascribed to it in Article 6.3.1(a).
	 
	 	2.2.58	 	“Receiving Facilities” has the meaning ascribed to it in Article 3.2 (Receiving
Facilities).
	 
	 	2.2.59	 	“Satellite First Production” means the date of the initial introduction of Satellite
Production at the Entry Point.
	 
	 	2.2.60	 	“Satellite Gas Production” means Gas attributable to Satellite Production.
	 
	 	2.2.61	 	“Satellite Oil Production” means Oil attributable to Satellite Production.
	 
	 	2.2.62	 	“Satellite Operating Problem” has the meaning ascribed to it in Article 6.4.2
(Non-Conforming Satellite Production).

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	 	2.2.63	 	“Satellite Operations Procedures Guide” means those certain operations procedures to
be performed from the Magnolia TLP by the Magnolia TLP Operator for the Satellite
Production System as described in Exhibit “B” (Magnolia TLP Services), to be developed
jointly by the Magnolia TLP Operator and the Satellite Operator, as may be amended from
time to time by the Magnolia TLP Operator and the Satellite Operator.
	 
	 	2.2.64	 	“Satellite Production” means Oil, Gas, water, and associated substances produced from
the Satellite Leases limited to the stratigraphic equivalent of those depths from the
surface of the earth down to 150 feet below the 5800 millisecond sand, the base of
which is at a measured depth of 20,290’ on the Sperry Sun EWR/DGR (Electromagnetic Wave
Resistivity/Dual Gamma Ray) log for the Vastar OCS-G-20797 #2 ST 1 well, and which is
entirely owned by Producer and which is produced from Satellite Leases and wells
entirely owned by Producer.
	 
	 	2.2.65	 	“Satellite Production System” has the meaning ascribed to it in Article 3.1.1 (Design
and Installation of Satellite Production System).
	 
	 	2.2.66	 	“Satellite Production System Operations” means certain operations of the Satellite
Production System from the Magnolia TLP by the Magnolia Owners through the Magnolia TLP
Operator in accordance with the Satellite Operations Procedures Guide as set forth in
Exhibit “B” (Magnolia TLP Services) to this Agreement.
	 
	 	2.2.67	 	“Services” means the Production Handling Services and the Satellite Production System
Operations, as defined in Articles 2.2.58 and 2.2.68, respectively.
	 
	 	2.2.68	 	“Standard Cubic Foot” or “SCF” means that quantity of Gas that occupies one (1) cubic
foot of space when held at a base temperature of sixty degrees (60°) Fahrenheit and a
pressure of fourteen and seventy-three hundredths (14.73) pounds per square inch
absolute (psiA), or other standards as may be required by the MMS.
	 
	 	2.2.69	 	“Third Party” or “Third Parties” means any Person other than the Magnolia Owners, the
Producer, and any Party hereto. A Third Party also includes any proposed transferee of
the Producer not meeting the requirements for transfers under Article 13.2.1.
	 
	 	2.2.70	 	“Third Party Production” means Oil, Gas, water, and all associated substances
produced from sources other than the Magnolia Leases or the Satellite Leases, and
processed and handled on the Magnolia TLP or owned by Third Parties.
	 
	 	2.2.71	 	“Third Party Production System” means an offshore structure (i.e., where multiple
wells or a single well could be
utilized), subsea wells or a template and the components thereof (including
flowlines and control systems) which are attached to the seafloor for use in
obtaining Third Party Production from a well(s) not drilled in the Magnolia Leases
or the Satellite Leases and being a system having similar components to that of the
Satellite Production System and owned

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	 	 	 	by any Person other than the Magnolia Owners, the Producer, and/or any Party
hereto.
	 
	 	2.2.72	 	“Transfer of Interest” has the meaning ascribed to it in Article 13.2.1 (Assignment
by Producer).

	2.3	 	Exhibits

	 	 	All references in this Agreement to “Exhibits”, without further qualification means the
Exhibits listed below and attached to this Agreement. Each Exhibit listed below is made a
part of this Agreement, and is deemed incorporated into the body of this Agreement by
reference, as completely as if the full text of each Exhibit were contained within the text
of this Agreement.

	 	 	 	Exhibit “A”: Magnolia TLP Base Capacity
	 
	 	 	 	Exhibit “B”: Magnolia TLP Services
	 
	 	 	 	Exhibit “C”: Accounting Procedures
	 
	 	 	 	Exhibit “C-1”: Garden Banks 783 Unit Accounting Procedures
	 
	 	 	 	Exhibit “D”: Magnolia TLP Facilities Schematic (two drawings)
	 
	 	 	 	Exhibit “E”: Operating & Maintenance Expenses Matrix
	 
	 	 	 	Exhibit “F”: Metering and Allocation
	 
	 	 	 	Exhibit “G”: Gas Balancing Procedures
	 
	 	 	 	Exhibit “G-1”: General Flow Diagram
	 
	 	 	 	Exhibit “G-2”: Cashout Reconciliation
	 
	 	 	 	Exhibit “H”: Satellite Production Fluid Limits/Operating Parameters
	 
	 	 	 	Exhibit “I”: Project Team Responsibility Matrix
	 
	 	 	 	Exhibit “J”: Insurance Provisions
	 
	 	 	 	Exhibit “K”: Memorandum of Production Handling Agreement
	 
	 	 	 	Exhibit “L”: Certification of Non-Segregated Facilities
	 
	 	 	 	Exhibit “M”: Well Unloading Procedures
	 
	 	 	 	Exhibit “N”: Platform Boarding Agreement

	 	 	If the provisions of any of the Exhibits listed above conflict with any provisions of the
body of this Agreement, the body of this Agreement will prevail. In the event of a conflict
between Exhibit “C-1” (Garden Banks 783 Unit Accounting Procedures) and Exhibit “E”
(Operating & Maintenance Expenses Matrix), the provisions of Exhibit “C-1” (Garden Banks 783
Unit Accounting Procedures) will prevail.

ARTICLE III — INFRASTRUCTURE AND FACILITIES

	3.1	 	Satellite Production System

	 	3.1.1	 	Design and Installation of Satellite Production System. The Producer at its
sole cost, risk and expense will own, design, procure, fabricate, transport, and
install as stipulated in (a) below, or cause to be installed by the Magnolia TLP
Operator as stipulated in (b) below, the following components and any modifications
thereto (the “Satellite Production System”):

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	 	(a)	 	All facilities and equipment upstream of the Entry Point
including, but not limited to, the wells, well jumpers, subsea wellheads, choke
tie-in bases, subsea manifolds, umbilicals and terminations, flowlines, two
flowline risers, and wellhead master and wing valves associated with producing
and gathering Satellite Production. For purposes of this Article III
(Infrastructure and Facilities), “upstream” is between the Entry Point and the
Satellite Leases; and
	 
	 	(b)	 	The Hydraulic Power Unit (“HPU”), the Umbilical Termination Box
(“UTB”), and the Master Control Station (“MCS”) and any facilities and
equipment necessary to connect same to the components identified in 3.1.1 (a)
above with the existing equipment and facilities on the Magnolia TLP. All of
such facilities and equipment listed in this Article 3.1.1 (b) will be
installed on the Magnolia TLP at the location(s) depicted on Exhibit “D”
(Magnolia TLP Facilities Schematic). Such facilities and equipment will be
designed and fabricated by the Satellite Operator, but will be installed and
interconnected with other facilities on the Magnolia TLP, as well as
commissioned, by the Magnolia TLP Operator.
	 
	 	(c)	 	The weight of the risers shall not exceed 275 kips each in live
load, and the umbilical shall not exceed 100 kips operating weight.

	 	3.1.2	 	Costs of Satellite Production System. The Magnolia TLP Operator shall supply
the Producer with a cost estimate describing in reasonable detail the scope of work to
be conducted with respect to the installation, hookup, interconnection, startup, and
commissioning of those Satellite Production System components described in Article
3.1.1(b) above which are to be installed on the Magnolia TLP and the costs associated
therewith (including Magnolia TLP Operator’s overhead provided for in Exhibit “C”
(Accounting Procedures) and shall obtain the prior written authorization of the
Producer to conduct such scope of work; provided, however, nothing herein shall alter
or diminish the liability and indemnity obligations of the Parties herein. If it
appears the actual cost associated with the scope of work will exceed the cost estimate
by more than ten percent (10%), the Magnolia TLP Operator will notify the Satellite
Operator. The Producer will reimburse the Magnolia TLP Operator for those costs
incurred in accordance with the terms of this Article 3.1.2 (Costs of Satellite
Production System). The
Magnolia TLP Operator will deliver to the Satellite Operator an invoice, on behalf
of the Producer, for actual costs (including Magnolia TLP Operator’s overhead)
incurred by the Magnolia TLP Operator in or for the installation, hookup,
interconnection, startup, and/or commissioning of those Satellite Production System
components described in Article 3.1.1(b) above which are installed on the Magnolia
TLP. The Satellite Operator will submit payment to Magnolia TLP Operator for such
costs invoiced by Magnolia TLP Operator. The determination and reimbursement by
Satellite Operator of such costs incurred by the Magnolia TLP Operator shall be in
accordance with Exhibit “C” (Accounting Procedures) to this Agreement.

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	 	3.1.3	 	Scheduling Producer’s Work
	 
	 	 	 	The timing of all operations involving the tie-in and connection of the Satellite
Production System to the Magnolia TLP will be performed at the Magnolia TLP
Operator’s sole discretion to minimize interference with Magnolia TLP operations and
for safety coordination. The Magnolia TLP Operator and the Satellite Operator will
use reasonable efforts to tie-in the Satellite Production System and the Receiving
Facilities in a manner and on a schedule which minimizes Magnolia TLP downtime. The
Satellite Operator will give the Magnolia TLP Operator at least fifteen (15) Days
prior written notice of the anticipated mobilization for the tie-in and connection
of the Satellite Production System, and for any other installation, maintenance,
repair, replacement, removal or abandonment related to the Satellite Production
System or the Receiving Facilities requiring access to the Magnolia TLP by the
Satellite Operator or its contractors (“Producer’s Work”). The Satellite Operator
and the Magnolia TLP Operator shall mutually agree on the schedule for the tie-in
and connection of the Satellite Production System to the Magnolia TLP and other of
Producer’s Work. The Magnolia TLP Operator shall notify the Satellite Operator in a
timely manner of any required changes in the timing of Producer’s Work which may
impact the overall schedule of the tie-in and connection of the Satellite Production
System. Once construction and/or installation of the Satellite Production System
and/or the Receiving Facilities is commenced, the Satellite Operator shall provide
the Magnolia TLP Operator with installation updates and its latest projected
Magnolia TLP tie-in schedule on a frequency of at least once every thirty (30) Days.
The Magnolia TLP Operator reserves the right to schedule Producer’s Work in
accordance with its Magnolia TLP activities so as to minimize the circumstances
whereby Producer’s Work would require Magnolia TLP Operator to shut-in or curtail
any of the Magnolia TLP Production. In order to accommodate Producer’s Work the
Magnolia TLP Operator shall not be required to shut in any wells on the Magnolia
Leases for more than forty-eight (48) consecutive hours without prior agreement of
the Magnolia Owners. If such well(s) is shut-in for a period of time exceeding
forty-eight (48) consecutive hours, the Magnolia TLP Operator may, at its election,
cause such well(s) to flow for at least eight (8) hours prior to any subsequent
shut-in under this provision. The Magnolia TLP Operator shall provide advance
notice of any planned Magnolia TLP shutdowns, along with
reasonable notice of any unplanned Magnolia TLP shutdowns, to the Satellite
Operator.

	 	3.1.4	 	Magnolia TLP Criteria
	 
	 	 	 	The Magnolia TLP Operator will promptly provide the Satellite Operator with all
design specifications and criteria that the Satellite Operator may reasonably
require or request in connection with the design, procurement, fabrication,
transportation, installation, hook-up, interconnection, startup and/or commissioning
of the Satellite Production System.

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	 	3.1.5	 	Riser and Umbilical Handover

	 	 	 	The Satellite Operator will conduct or cause to be conducted the operations required
to tie-in the Satellite Production System to the Magnolia TLP. Subject to Article
5.7.1 (Initial Tie-In) and the issuance of Builder’s Risk Insurance as provided for
in Exhibit “J” (Insurance Provisions) and the execution of Exhibit “N” (Platform
Boarding Agreement) by Satellite Operator’s contractors boarding the Magnolia TLP,
the Satellite Operator will mobilize on the Magnolia TLP and receive the riser and
umbilical loads in a coordinated handover. Exhibit “I” (Project Team Responsibility
Matrix) provides the responsibilities of the respective Parties in this handover,
but shall not alter or amend any cost or risk bearing provisions of this Agreement.

	 	3.1.6	 	Magnolia TLP Access & Boarding for Producer’s Work

	 	(a)	 	After the initial written notice of anticipated mobilization
provided in Article 3.1.3 (Scheduling Producer’s Work), the Satellite Operator
will give the Magnolia TLP Operator at least forty-eight (48) hours prior
written notice of actual commencement of Producer’s Work, and obtain prior
permission for, any intent to board the Magnolia TLP to conduct operations as
contemplated herein except as may be otherwise provided for below under Section
3.1.6(c). This notice must include a detailed description of the operation(s)
to be conducted, a summary of anticipated work procedures, a summary of the
tools and equipment that are anticipated to be used when performing the
operation(s), the anticipated work schedule, as well as a brief description of
the number of Satellite Operator employees, or its contractors’ or
subcontractors’ employees or agents requesting boarding permission and the
length of stay. Furthermore, this notice must conform to the Magnolia TLP
Operator’s standard requirements for a “work permit”, as provided in Exhibit
“N” (Platform Boarding Agreement), amended from time to time (to include direct
indemnities from Producer’s contractors). Upon receipt of such prior notice,
and if the Magnolia TLP Operator determines, in its sole discretion, that there
will be minimal conflict or interference with its own
operations, the Magnolia TLP Operator will provide the Satellite Operator,
at the Producer’s sole cost and expense, rights of ingress and egress to
certain space on the Magnolia TLP for activities in connection with the
rights and obligations granted to the Producer under this Agreement. The
Satellite Operator’s right of ingress and egress herein provided includes
the right for it and its contractors, agents and representatives, upon prior
notification to Magnolia TLP Operator as herein provided, to land
helicopters on the Magnolia TLP, to moor vessels to the Magnolia TLP mooring
facilities, and to inspect the Magnolia TLP and its facilities, and the
Satellite Production Facilities, all at the sole cost, risk, expense, and
liability of the Producer and subject always to the above scheduling
requirements. Such ingress and egress, and all activities conducted
hereunder will be subject to the strict observance of all of the Magnolia
TLP Operator’s safety policies and procedures applicable to the Magnolia
TLP. Magnolia TLP Operator shall have the right to have a representative
present to witness such Producer’s Work and activities. In addition,

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	 	 	 	neither the Satellite Operator, nor its contractor or subcontractor employees or
agents, have the right to observe any drilling, workover or other operations
conducted by the Magnolia TLP Operator or any Third Parties on the Magnolia TLP.
	 
	 	(b)	 	The Magnolia Owners’ obligation to accommodate the Producer, as
set forth herein, does not include any license, easement or right-of-way
necessary for the installation of any subsea pipeline, which will be the sole
responsibility of the Producer.
	 
	 	(c)	 	All other rights of ingress and egress by Satellite Operator
and its representatives on the Magnolia TLP including during times of an
emergency shall be done substantially in accordance with the terms and
conditions set forth in Exhibit “N” (Platform Boarding Agreement); provided,
however, Satellite Operator and Producer and its and their officers, directors
and actual employees shall not be required to execute Exhibit “N” (Platform
Boarding Agreement) in order to board the Magnolia TLP, but all of Satellite
Operator’s and Producer’s agents, representatives, contract employees, and
contractors shall be required to execute Exhibit “N” (Platform Boarding
Agreement) substantially in its form (but subject to negotiation of such terms
and conditions as Magnolia TLP Operator may deem appropriate) in order to board
the Magnolia TLP. Whether or not Exhibit “N” is executed by any Third Party,
or the form of Exhibit “N” (Platform Boarding Agreement) actually executed by
any Third Party, the duties, liabilities, indemnification obligations and
benefits provided in Article XI (Liabilities and Indemnification) shall not be
affected, altered, increased or diminished, nor shall the rights, duties and
obligation as between the Magnolia Owners under the Magnolia TLP Operating
Agreement be affected, altered, increased or diminished.

	3.1.7	 	Conduct of Producer’s Work

	 	(a)	 	If Magnolia TLP Operator should at any time in its reasonable
opinion determine that any Producer’s Work or other work and activities are not
being performed in accordance herewith, are being performed in an unduly
dangerous or unworkmanlike manner, or are not in accordance with Magnolia TLP
Operator’s safety practices, procedures, and requirements, Magnolia TLP
Operator will so inform the Producer and the Producer will cease such
Producer’s Work, or other work or activities and will resume the same only when
an agreement between the Satellite Operator and Magnolia TLP Operator is
reached as to the manner and method in which such work should be performed.
Magnolia TLP Operator will not arbitrarily, or without sufficient cause, delay
the Producer’s Work under this provision.
	 
	 	(b)	 	The Satellite Operator and Producer agrees at all times to
conduct its activities and operations hereunder in accordance with all Laws of
the Occupational Safety and Health Administration, U.S. Coast Guard, Corps

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	 	 	 	of
Engineers, MMS, Federal Communications Commission, and Environmental
Protection Agency, as well as all other governmental agencies having
jurisdiction over such activities. The Producer shall bear the expense of
all necessary permits.

	3.2	 	Receiving Facility

	 	 	The Magnolia TLP Operator, at the sole cost, risk and expense of the Producer, is
responsible for the design, procurement, fabrication, transportation, installation, hook-up,
interconnection, start-up and commissioning of the facilities and equipment that are to be
installed on the Magnolia TLP for the purpose of receiving Satellite Production at the
Magnolia TLP and integrating said Satellite Production into the existing production handling
systems (“Receiving Facilities”). The weight of the Receiving Facilities shall not exceed
250 kips operating weight and 350 kips weight during construction. The Magnolia TLP
Operator shall supply the Satellite Operator with a cost estimate describing in reasonable
detail the scope of work to be conducted with respect to the design, procurement,
fabrication, transportation, installation, hook-up, interconnection, start-up and
commissioning of the Receiving Facilities and the costs associated therewith (including
Magnolia TLP Operator’s overhead provided for in Exhibit “C” (Accounting Procedures) and
shall obtain the prior written authorization of the Producer to conduct such scope of work;
provided, however, nothing herein shall alter or diminish the liability and indemnity
obligations of the Parties herein. If it appears the actual cost associated with the scope
of work will exceed the cost estimate by more than ten percent (10%), the Magnolia TLP
Operator will notify the Satellite Operator. The Producer will reimburse the Magnolia TLP
Operator for those costs incurred in accordance with the terms of this Article 3.2
(Receiving Facility). The Magnolia TLP Operator will deliver an invoice to the Satellite
Operator, on behalf of the Producer, for actual costs (including Magnolia TLP Operator’s
overhead) incurred by the Magnolia TLP Operator in or for the design, procurement,
fabrication, transportation, installation, hook-up, interconnection, start-up and
commissioning of the Receiving Facilities. The Satellite Operator will submit payment to
Magnolia TLP Operator for such costs invoiced by Magnolia TLP Operator. The determination
and reimbursement by Satellite Operator of such costs incurred by the Magnolia TLP Operator
shall be in accordance with Exhibit “C” (Accounting Procedures) to this Agreement.

	 	3.2.1	 	The Receiving Facilities include, but are not limited to:

	 	(a)	 	inlet heat exchanger;
	 
	 	(b)	 	boarding valves;
	 
	 	(c)	 	flowline pig launchers/receivers;
	 
	 	(d)	 	chemical storage and injection pump skid (subsea chemical
pumps);
	 
	 	(e)	 	hot oiling/pigging pump and associated equipment, if added;
	 
	 	(f)	 	chemical injection pumps for the Receiving Facilities
(production chemical pumps), if needed; and
	 
	 	(g)	 	Oil, Gas and water metering and fluid sampling equipment.

	 	3.2.2	 	The Producer’s reimbursement obligation for the design, fabrication, and
procurement of the Receiving Facilities will not apply for any equipment or

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	 	 	 	facilities that are designed, fabricated or procured by the Satellite Operator or Producer and
delivered to the Magnolia TLP Operator at a mutually agreed location for installation,
hookup, and/or commissioning on the Magnolia TLP. Reimbursement of costs incurred by
the Magnolia TLP Operator will be in accordance with Exhibit “C” (Accounting
Procedures) to this Agreement.
	 
	 	3.2.3	 	No costs will be charged to the Magnolia TLP Operating Agreement joint account
or otherwise incurred by the Magnolia Owners in connection with the Satellite
Production System, other than those costs incurred by the Magnolia TLP Operator in
connection with the Receiving Facilities and as provided in Section 3.4.1 (Costs of
Tie-in Option).
	 
	 	3.2.4	 	The Magnolia Owners will own the Receiving Facilities (including any
modifications thereto), whether such facilities are procured and/or funded by the
Magnolia TLP Operator, the Magnolia Owners, or the Producer.
	 
	 	3.2.5	 	For reference purposes, an equipment layout and process flow schematic
depicting the Magnolia TLP facilities and the interface between the Satellite
Production System, the Receiving Facilities and the Magnolia TLP facilities is included
as Exhibit “D” (Magnolia TLP Facilities Schematic).
	 
	 	3.2.6	 	Except as expressly provided herein, (i) Producer and Magnolia Owners shall
each be responsible for all capital expenditures with respect to their own properties,
and, as between them, there shall be no recovery of such capital expenditures from the
other; and (ii) there shall be no duty hereunder to perform work or expend funds for
the benefit of the other.

	3.3	 	Capacity Upgrades

	 	 	Producer has the right to make a written proposal to the Magnolia Owners to request
additional Firm Capacity by wholly or partially funding one or more expansions of Magnolia
TLP Oil, Gas, and/or water production handling capacity (“Capacity Upgrade”). The proposal
by Producer shall include the scope of the work to be performed and an estimate of the
costs. The Magnolia Owners shall review the proposal and reply within sixty (60) days of
receipt. Notwithstanding the foregoing, the Magnolia Owners are not obligated to perform or
allow the Capacity Upgrade.

	3.4	 	Magnolia Owners’ Tie-In Option

	 	 	The Magnolia Owners may utilize the Satellite Production System for a single tie-in to be
located on Garden Banks Block 783 for production from subsea wells drilled on the Magnolia
Leases. The Producer grants the right to tie-in and will provide services from the tie-in
point to the Entry Point for such subsea wells. Satellite Operator will provide notice to
Magnolia Owners no sooner than December 31, 2007, and then Magnolia Owners may elect within
thirty (30) days of such notice whether to pay for the costs of the tie-in as per Section 3.4.1
(if tie-in occurs or not), provided that the right to tie in, is subject to: (i) the introduction of
such production into the Satellite Production System and any modifications to the Satellite Production System necessary to accommodate
such

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Execution Version

	 	 	production does not adversely affect the Producer’s Satellite Production; and (ii) any
changes in the Oil and Gas measurement and allocation procedures to accommodate measurement
and allocation of such production does not adversely affect the measurement and allocation
of Satellite Production and are consistent with the principles and standards contained in
Exhibit “F” (Metering and Allocation). Upon Magnolia Owners’ election to pay said costs,
Producer will design, procure, fabricate, transport and install at a mutually agreeable
location to all Parties the required tie-in equipment at the expense of Magnolia Owners, and
thereafter will hook-up, interconnect, commission, start-up and operate the same, all as
provided in Sections 3.4.1 and 3.4.2.

	 	3.4.1	 	Costs of Tie-in Option. The Magnolia Owners shall be solely responsible for,
and bear the costs of the design, procurement, fabrication, transportation,
installation, hook-up, interconnection, commissioning and start-up of such single
tie-in as follows:

	 	(a)	 	One in-line sled to establish the tie-in point of the
southernmost flowline, located within Block 783, Garden Banks, Offshore
Louisiana, for the handling of subsea Magnolia TLP Production, which will be
designed, procured, fabricated, transported, installed, hooked-up,
interconnected, commissioned and started-up by the Producer; however, the
Magnolia Owners will reimburse the Satellite Operator for all such costs within
thirty (30) days after receipt of invoice from Satellite Operator; and
	 
	 	(b)	 	One tie-in point (in-line subsea umbilical termination
assembly) in the umbilical, located within Block 783, Garden Banks, Offshore
Louisiana, for the handling of subsea Magnolia TLP Production, which will be
designed, procured, fabricated, transported, installed, hooked-up,
interconnected, commissioned and started-up by the Satellite Operator; however,
the Magnolia Owners will reimburse the Satellite Operator for all such costs
within thirty (30) days after receipt of invoice from Satellite Operator.
	 
	 	(c)	 	The foregoing installation costs will be reasonably prorated on
the basis of the costs of all the sleds and umbilicals installed at the same
time.
	 
	 	(d)	 	The determination and reimbursement by Magnolia Owners of any
reimbursable costs incurred by Satellite Operator and Producer hereunder shall
be in accordance with Exhibit “C” (Accounting Procedures).
	 
	 	(e)	 	If the foregoing costs are invoiced 100% to the Magnolia TLP
Operator and paid 100% by Magnolia TLP Operator, the same may be charged to the
Magnolia TLP Operating Agreement joint account.

	 	3.4.2	 	Operation, Maintenance and Abandonment of Tie-in. The tie-in and services
from the tie-in point to the Entry Point for such subsea wells will be made
available by Producer and operated by Satellite Operator for the benefit of

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Execution Version

	 	 	 	Magnolia Owners for the following gathering fee: ************2. This gathering fee shall
apply from the first of the month in which commissioning of the tie-in occurs until
the end of the month that such portion of the Satellite Production System ceases to
be utilized by Magnolia Owners. This gathering fee includes all operation,
maintenance, upgrades, capital investment and abandonment of such portion of the
Satellite Production System, all of which shall be paid by (and be at the sole cost,
risk and expense of) Producer without any reimbursement by Magnolia Owners, and no
charges shall be made to Magnolia Owners on account of their use of that portion of
the Satellite Production System other than the foregoing gathering fee.

ARTICLE IV — SERVICES

	4.1	 	General

	 	 	Pursuant to the terms of this Agreement, the Magnolia Owners agree to provide, via the
Magnolia TLP Operator, certain Services with respect to the Satellite Production System and
the Satellite Production delivered to the Magnolia TLP. The Magnolia Owners, the Magnolia
TLP Operator, and anyone employed by them, will not be deemed for any purpose to be the
employees, agents, servants, or representatives of the Producer or the Satellite Operator in
the performance of any Services or part thereof in any manner dealt with hereunder. Except
as otherwise provided herein, the Producer and the Satellite Operator will not have
direction or control of the Magnolia Owners or the Magnolia TLP Operator, its or their
employees and agents, or its or their contractors, in the Magnolia Owners’ or the Magnolia
TLP Operator’s performance under this Agreement. It is not the intent or purpose of this
Agreement to change, nor should it be construed as changing, the rights and duties of the
Producer or the Satellite Operator to conduct operations associated with the Satellite
Leases or the Satellite Production System.

	 	4.1.1	 	Production Handling Services
	 
	 	 	 	The Magnolia Owners will provide via the Magnolia TLP Operator the Production
Handling Services for Satellite Production in accordance with Exhibit “B” (Magnolia
TLP Services). With respect to the Production Handling Services, the Magnolia
Owners will handle and be responsible for production under this Agreement after such
production passes through the Entry Point and until production enters the Delivery
Point(s). In providing the Production Handling Services, the Magnolia TLP Operator
shall never be required under this Agreement to conduct an operation that it believes would be unsafe or would endanger persons,
property or the environment.

 

			
	2	 	CONFIDENTIAL TREATMENT HAS BEEN REQUESTED BY CALLON
PETROLEUM COMPANY FOR CERTAIN PORTIONS OF THIS DOCUMENT.
CONFIDENTIAL PORTIONS HAVE BEEN FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION. OMITTED PORTIONS ARE
INDICATED IN THIS AGREEMENT WITH “*****”.

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Execution Version

	 	4.1.2	 	Satellite Production System Operations
	 
	 	 	 	The Magnolia Owners will provide via the Magnolia TLP Operator the operations
described on Exhibit “B” (Magnolia TLP Services) for the Satellite Production System
in accordance with the Satellite Operations Procedures Guide, which are the limit of
the Satellite Production System Operations provided hereunder. Such operations will
be performed only to the extent that such functions can be performed from or on the
Magnolia TLP by the Magnolia TLP Operator’s regular operating personnel with the
standard equipment and/or tools typically available on the Magnolia TLP in
accordance with the Magnolia TLP Operator’s day-to-day operating procedures and
guidelines. The Magnolia Owners and the Magnolia TLP Operator shall not be liable
to the Producer for losses sustained or liabilities incurred in conducting the
specified operations for the Satellite Production System, except as may result from
their gross negligence or willful misconduct. In operating the Satellite Production
System, the Magnolia TLP Operator shall never be required under this Agreement to
conduct an operation that it believes would be unsafe or would endanger persons,
property or the environment.

	4.2	 	Well Unloading

	 	 	The Producer shall be entitled to the unloading of completion fluids (e.g. chemicals,
fracture fluids, acids, and/or water, etc.) from Satellite Lease wells in accordance with
Exhibit “M” (Well Unloading Procedures).

	4.3	 	Producer’s Responsibilities

	 	 	The Producer will retain responsibility for all Satellite Production System operations that
are not included in the Services to be provided under this Agreement or not performed from
or on the Magnolia TLP including, but not limited to, downhole well operations.

	4.4	 	Right of Use of Deck Space

	 	 	The Magnolia Owners hereby grant the Producer a limited right to use only so much of the
surface and space for two Satellite Production System risers and one instrument umbilical
pull tube on the Magnolia TLP as is essential, in the Magnolia TLP Operator’s sole
discretion, for the placement, operation, maintenance and removal of the Satellite
Production System components. The Satellite Production System components will be placed on
the Magnolia TLP at a location acceptable to the Magnolia TLP Operator. Two flexjoint
baskets and an umbilical pull tube (and the associated weight and buoyancy) are specifically
allocated to the Producer. The Magnolia Owners will provide deck space, and associated
weight and buoyancy (although there is no specific allocation of space) for components of
the Satellite Production System to be located on the Magnolia TLP, the Receiving Facilities
and other associated equipment. The size, weight and location of such equipment will be
approved by the Magnolia TLP Operator. All use
of the surface space shall be subject to platform weight and buoyancy limitations to be
provided by the Magnolia TLP Operator.

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Execution Version

	4.5	 	Energy Sources

	 	 	The Magnolia Owners will provide energy sources (electricity and air) for the Satellite
Production System components located on the Magnolia TLP, as may be available from time to
time. Such electricity to be provided from the Magnolia Owners’ existing electrical power
source (i.e. generator) and such air supply to be provided from the Magnolia Owners’
existing air supply source (i.e. compressor).

	4.6	 	Communication Equipment

	 	 	The Magnolia Owners will provide access to the existing communication infrastructure (i.e.
telephones) on the Magnolia TLP, subject to the Magnolia TLP Operator’s guidelines, for use
by the Satellite Operator associated with conducting its operations on the Magnolia TLP
contemplated herein. The Producer will provide, at its sole cost and expense and subject to
any mutually acceptable agreement(s) that may be required, any necessary communication
upgrades and required extra bandwidth for data transmission, as well as other forms of
communication (e.g. microwave transmissions).

4.7 Emergency Response

	 	4.7.1	 	In the event of an imminent or actual emergency, including, but not limited
to, a hydrocarbon leak, explosion, fire, storm or any other situation which threatens
life, the environment, or property, the Magnolia TLP Operator, with no admission or
presumption of liability, may promptly take such action as is deemed appropriate by the
Magnolia TLP Operator under the circumstances to remedy or alleviate such emergency.
Such action includes, but is not limited to, discontinuing the Services, shutting-in
the Satellite Leases’ subsea wells and the Satellite Production System, and initiating
emergency response operations. The Magnolia TLP Operator will promptly notify the
Satellite Operator of such emergency by telephone, followed by written notification of
the emergency and remedial actions taken.
	 
	 	4.7.2	 	Subject to Article XI (Liabilities and Indemnification), all emergency
response costs incurred by the Magnolia TLP Operator which are attributable to the
Satellite Production System will be reimbursed to the Magnolia TLP Operator by the
Producer.
	 
	 	4.7.3	 	The Satellite Operator is responsible for making any reports required by
governmental agencies for emergencies attributable to the Satellite Production System.
The Magnolia TLP Operator is responsible for making any reports required by
governmental agencies for emergencies attributable to the Magnolia TLP. The Parties
will cooperate to the extent necessary in preparing such reports. All Parties will use
reasonable efforts to provide the other Parties with a copy of any reports filed with
governmental agencies in connection with emergency response operations.

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Execution Version

ARTICLE V — FEES & EXPENSES/ACCOUNTING PROCEDURES 

	5.1	 	Operating and Maintenance Expenses.

	 	 	 	5.1.1    Monthly Charges.
	 
	 	 	 	The Producer is responsible for and will reimburse the Magnolia Owners on a monthly basis
for the Producer’s pro-rata share of certain Magnolia TLP operating and maintenance
expenses which are identified as “Magnolia TLP Shared Expenses” in this Agreement on Exhibit
“E” (Operating & Maintenance Expenses Matrix).
	 
	 	 	 	The Producer’s pro-rata share of expenses (“PSOPEX”) will be determined for each calendar
month as follows: 3

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	 	 	 	For purposes of determining
Sprod and
STHprod, the quantity of Oil produced means the sum
of: (i) the quantity of Oil delivered to the Delivery Point, and (ii) the quantity of fluids
used for pigging and/or hot oiling. The quantity of Gas produced means the quantity of Gas
delivered to the Delivery Point. The quantity of water and associated substances produced
means the quantity of water and associated substances attributed to Satellite Production and Non- Satellite Production, respectively, pursuant to Exhibit “F”
(Metering and Allocation).

 

			
	3	 	CONFIDENTIAL TREATMENT HAS BEEN REQUESTED BY CALLON
PETROLEUM COMPANY FOR CERTAIN PORTIONS OF THIS DOCUMENT.
CONFIDENTIAL PORTIONS HAVE BEEN FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION. OMITTED PORTIONS ARE
INDICATED IN THIS AGREEMENT WITH “*****”.

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Execution Version

	 	5.1.1.1	 	If temporary mechanical or operational problems (with a duration not to
exceed six [6] months) associated with Satellite Production cause a twenty-five
percent (25%) or greater reduction in SPROD in a calendar month, as compared to
the arithmetic average of Sprod during the three (3) calendar months
immediately preceding the occurrence of such problems, then Sprod used for
purposes of determining the
PSopex for such calendar month is equal to the
arithmetic average of Sprod during such three (3) calendar months. If Sprod is
adjusted in accordance with this Article 5.1.1.1, then
STHprod shall be
adjusted to take into account the revised Sprod.
	 
	 	5.1.1.2	 	If temporary mechanical or operational problems (with a duration not to
exceed six [6] months) associated with Non-Satellite Production cause a
twenty-five percent (25%) or greater reduction in the STHPROD in a calendar
month, as compared to the arithmetic average of the STHPROD during the three
(3) calendar months immediately preceding the occurrence of such problems, then
the STHPROD used for purposes of determining the PSOPEX for such calendar month
is equal to the arithmetic average of the STHPROD during such three (3)
calendar months.

	 	5.1.2	 	Annual Review
	 
	 	 	 	The Producer or the Magnolia TLP Operator may perform an annual review of the average value
of HOPEX recorded for the prior calendar year, the average value of SPROD and the
average value of STHprod
for the prior calendar year, and the average value of
PSopex for
the prior calendar year.

	5.2	 	Fuel/Vent/Flare Gas

	 	 	Magnolia TLP fuel gas consumption will be allocated on a monthly basis to the Magnolia
Owners for Non-Satellite Production handling and to the Producer for Satellite Production
handling in accordance with this Article 5.2 (Fuel Gas). The value of such gas is not to be
included in the HOPEX in Article 5.1 (Operating and Maintenance Expenses).

	 	5.2.1	 	Fuel gas consumed by certain production handling equipment and facilities
located on the Magnolia TLP will be allocated to Satellite Leases in accordance with
Exhibit “F” (Metering and Allocation).
	 
	 	5.2.2	 	Flare/vent/shrink gas will be handled and allocated in accordance with Exhibit
“F” (Metering and Allocation).
	 
	 	5.2.3	 	The Producer is obligated to and will furnish its monthly-allocated share of
fuel gas for Satellite Production handling in kind. Each calendar month, the Magnolia
TLP Operator will allocate and deduct from the Producer’s share of Gas production
its allocated share of fuel/flare/vent/shrink gas.

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Execution Version

	5.3	 	Infrastructure Access Fees

	 	 	In consideration for: (i) access to the Magnolia TLP, (ii) utilization of Magnolia TLP
facilities, including, but not limited to, risers, porches and umbilical boarding
facilities, (iii) utilization of deck and riser space for the Satellite Production System
components on the Magnolia TLP, (iv) utilization of deck space for the Receiving Facilities,
and (v) for the Services provided by the Magnolia Owners, the Producer will pay the Magnolia
Owners in accordance with Exhibit “C” (Accounting Procedures), on a monthly basis an
Infrastructure Access Fee (“IAF” or “Infrastructure Access Fee”) for Satellite Production
handled during the applicable month as follows:

	 	5.3.1	 	IAF for Firm Capacity, Interruptible Capacity and FA Capacity

Infrastructure Access Fee (IAF) for Oil, Gas and Water4

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	 	5.3.2	 	Minimum Monthly Fee

	 	(a)	 	Effective as of the first day of the month following Satellite
First Production, if the collective sum of Infrastructure Access Fees for Firm

 

			
	4	 	CONFIDENTIAL TREATMENT HAS BEEN REQUESTED BY CALLON
PETROLEUM COMPANY FOR CERTAIN PORTIONS OF THIS DOCUMENT.
CONFIDENTIAL PORTIONS HAVE BEEN FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION. OMITTED PORTIONS ARE
INDICATED IN THIS AGREEMENT WITH “*****”.

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Execution Version

	 	 	 	Capacity for each product (Oil, Gas, and water) set forth in Article 5.3.1 (IAF
for Firm Capacity Interruptible Capacity and FA Capacity), based upon
throughput, is less than 5******************************** in any calendar
month, the Producer will be charged a single fee of 5***
******************************** for the Services for such calendar month, in
lieu of the monthly Infrastructure Access Fees for Firm Capacity for each
product (Oil, Gas, and water) set forth in Article 5.3.1 (IAF for Firm Capacity
Interruptible Capacity and FA Capacity).
	 
	 	(b)	 	The Producer’s obligation to pay the Magnolia Owners the
minimum monthly fee set forth in Article 5.3.2(a) will be suspended in the
event the Magnolia TLP is incapable of processing and handling any Satellite
Production for a period greater than three (3) consecutive days in a calendar
month as a result of: (i) problems occurring at the Magnolia TLP; (ii)
conditions of the Magnolia TLP outlined in Articles 9.4 (Suspension of
Operations) and 9.5 (Magnolia TLP Operator’s Right for Shut Down Operations on
Magnolia TLP) [other than Articles 9.5.1(d), 9.5.1(e)], unless such problems
are caused by Satellite Production and/or operations related to the Satellite
Production System; or (iii) Force Majeure.
	 
	 	(c)	 	Payment of the minimum monthly fee set forth in Article
5.3.2(a) will not mitigate, eliminate or be in lieu of any obligation to
deliver Satellite Production to the Magnolia TLP pursuant to this Agreement.

	5.4	 	Future Governmental Regulations Costs

	 	5.4.1	 	The Parties agree that the IAF for produced water attributable to the
Satellite Leases as set forth in Article 5.3.1 may be increased to reflect future
increased costs associated with modifications due to changes in Laws affecting
discharge requirements of treated produced water into the Gulf of Mexico, which are
verifiable and attributable to Satellite Production. Such modifications may include
but are not limited to monitoring, testing, or treating (includes adding chemicals) the
produced water. The Magnolia TLP Operator will provide justification and rationale for
any cost increase for the Producer’s review. The Parties will mutually agree upon an
appropriate methodology which would allow the Magnolia Owners to recover a proportionate share of such costs from the
Producer.
	 
	 	5.4.2	 	In addition to Article 5.4.1, the Parties recognize that the Laws could change
during the term of the Agreement and such change could result in unforeseen

 

			
	5	 	CONFIDENTIAL TREATMENT HAS BEEN REQUESTED BY CALLON
PETROLEUM COMPANY FOR CERTAIN PORTIONS OF THIS DOCUMENT.
CONFIDENTIAL PORTIONS HAVE BEEN FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION. OMITTED PORTIONS ARE
INDICATED IN THIS AGREEMENT WITH “*****”.

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Execution Version

	 	 	 	costs to the Magnolia Owners in order to maintain compliance therewith. Accordingly, the
Parties do hereby agree that in the event the Magnolia Owners incur additional costs
due to changes in Laws which directly relate to the provision of Firm Capacity or
Services provided for the Satellite Leases, then the Parties will mutually agree upon
an appropriate methodology which would allow the Magnolia Owners to recover a
proportionate share of such costs from the Producer.

	5.5	 	Producer’s Sole Expenses

	 	 	The Producer is solely responsible for the cost of those operations identified as Producer’s
Sole Expenses in Exhibit “E” (Operating & Maintenance Expenses Matrix) to this Agreement.

	5.6	 	Magnolia Owners’ Sole Expenses

	 	 	The Magnolia Owners are responsible for (i) the cost of those operations identified as
Magnolia Owners’ Sole Expenses in Exhibit “E” (Operating & Maintenance Expenses Matrix) to
this Agreement, (ii) the Magnolia TLP Shared Expenses included as Exhibit “E” (Operating &
Maintenance Expenses Matrix) to this Agreement which are not allocated to the Producer
pursuant to Article 5.1 (Operations and Maintenance Expenses), and (iii) all sole expenses
related to Non-Satellite Production.

	5.7	 	Deferred Production Compensation

	 	5.7.1	 	Compensation for Magnolia Owners for Initial Tie-In.

	 	 	 	The Producer will compensate the Magnolia Owners for any Magnolia TLP Production
which is deferred 6***************************************************** that is solely attributable to the
initial fabrication, construction, installation, hookup, tie-in, and/or
commissioning of the Satellite Production System and the Receiving Facilities to
handle Satellite Production. Such compensation will be determined using the
methodology described in Article 5.7.3 (Compensation Methodology) and shall be the
sole remedy for such downtime and deferred production.

	 	5.7.2	 	Compensation for Producer

 

			
	6	 	CONFIDENTIAL TREATMENT HAS BEEN REQUESTED BY CALLON
PETROLEUM COMPANY FOR CERTAIN PORTIONS OF THIS DOCUMENT.
CONFIDENTIAL PORTIONS HAVE BEEN FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION. OMITTED PORTIONS ARE
INDICATED IN THIS AGREEMENT WITH “*****”.

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Execution Version

	 	 	 	The Producer will be compensated by the Magnolia Owners for any Satellite Production
which is deferred in 7**************************** due to Magnolia TLP downtime that
is solely attributable to the initial fabrication, construction, installation,
hookup, tie-in, and/or commissioning of the tie-in as provided in Article 3.4
(Magnolia Owner’s Tie-in Option). Such compensation will be determined using the
methodology consistent with that described in Article 5.7.3 (Compensation
Methodology) and shall be the sole remedy for such downtime and deferred production.

	 	5.7.3	 	Compensation Methodology

	 	(a)	 	Compensation paid by the Producer to the Magnolia Owners for
deferred Magnolia TLP Oil Production (“DOPC”) pursuant to Articles 5.7.1
(Compensation for Magnolia Owners for Initial Tie-In) and 5.7.5 (Compensation
for Magnolia Owners after Initial Tie-In) is equal to:
	 
	 	 	 	DOPC = AOPR * SDD * (POP * 0.22)

	 	 	 	 	 	 	 
	 

	 	Where:	 	 	 	 
	 

	 	AOPR
	 	=
	 	the average daily volume of Magnolia TLP Oil
Production delivered to the Delivery Point during the first fourteen
(14) Days of the twenty-one (21) Days immediately preceding initiation
of the Magnolia TLP Oil Production shutdown (expressed in gross Barrels
per Day, i.e., without any reduction for royalty), adjusted for
downtime;
	 
	 	 	 	 	 	 
	 

	 	SDD
	 	=
	 	the duration of the Magnolia TLP Oil
Production shutdown which is solely attributable to Satellite Leases’
related activities (expressed in Days to the nearest one- ninety-sixth
(1/96) of a day), and
	 
	 	 	 	 	 	 
	 

	 	POP
	 	=
	 	the average Prevailing Oil Price during the
duration of the Magnolia TLP Oil Production shutdown solely
attributable to Satellite Leases’ related activities (expressed in
Dollars per Barrel).

	 	(b)	 	Compensation paid by the Producer to the Magnolia Owners for
deferred Magnolia TLP Gas Production (“DGPC”) pursuant to
Articles 5.7.1 (Compensation for Magnolia Owners for Initial Tie-In) and
5.7.5 (Compensation for Magnolia Owners after Initial Tie-In) is equal to:

 

			
	7	 	CONFIDENTIAL TREATMENT HAS BEEN REQUESTED BY CALLON
PETROLEUM COMPANY FOR CERTAIN PORTIONS OF THIS DOCUMENT.
CONFIDENTIAL PORTIONS HAVE BEEN FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION. OMITTED PORTIONS ARE
INDICATED IN THIS AGREEMENT WITH “*****”.

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	 	 	 	DGPC = AGPR * HV * SDD * (PGP * 0.22)

	 	 	 	 	 	 	 
	 

	 	Where:	 	 	 	 
	 

	 	AGPR
	 	=
	 	the average daily volume of Magnolia TLP Gas
Production delivered to the Delivery Point during the first fourteen
(14) Days of the twenty-one (21) Days immediately preceding initiation
of the Magnolia TLP Gas Production shutdown (expressed in gross MSCF
per Day, i.e., without any reduction for royalty), adjusted for
downtime;
	 
	 	 	 	 	 	 
	 

	 	HV
	 	=
	 	the average daily Btu content of the Magnolia
TLP Gas Production during the first fourteen (14) Days of the
twenty-one (21) Days immediately preceding initiation of the Magnolia
TLP Gas Production shutdown (expressed in MMBtu per MSCF),
	 
	 	 	 	 	 	 
	 

	 	SDD
	 	=
	 	the duration of the Magnolia TLP Gas
Production shutdown which is solely attributable to Satellite Leases’
related activities (expressed in Days, to the nearest one- ninety-sixth
(1/96) of a Day), and
	 
	 	 	 	 	 	 
	 

	 	PGP
	 	=
	 	the average Prevailing Gas Price during the
duration of the Magnolia TLP Gas Production shutdown solely
attributable to Satellite Leases’ related activities (expressed in
Dollars per MMBtu).

	5.7.4	 	Duration of Shutdown

	 	(a)	 	At least thirty (30) Days prior to a scheduled shutdown of the
Magnolia TLP which is associated with non-Satellite Leases’ related activities,
the Magnolia TLP Operator will provide the Satellite Operator:

	 	(i)	 	a detailed work schedule which lists the work
activities planned during such shutdown, the estimated duration of each
work activity, and the sequence and relationship of each work activity
to other work activities; and
	 
	 	(ii)	 	an estimate of the duration of such shutdown
which is solely attributable to non-Satellite Leases’ related work
activities.

	 	(b)	 	Within thirty (30) Days immediately following completion of a
shutdown of the Magnolia TLP which is associated with Non-Satellite Production
and/or non-Satellite Leases’ related work activities, the Magnolia TLP Operator
will provide the Satellite Operator with updated information
furnished pursuant to Article 5.7.4(a) reflecting actual execution of the
work activities.

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	 	5.7.5	 	Compensation for Magnolia Owners after Initial Tie-In
	 
	 	 	 	The Magnolia TLP Owners will be compensated by the Producer for any Magnolia TLP
Production which is deferred due to Magnolia TLP downtime that is solely
attributable to handling of Satellite Production at the Magnolia TLP subsequent to
the initial fabrication, construction, installation, hookup, tie-in, and/or
commissioning of facilities for the Satellite Production System. Such compensation
will be determined using the methodology described in Article 5.7.3 (Compensation
Methodology) and shall be the sole remedy for such downtime and deferred production.

	5.8	 	Royalties and Taxes

	 	5.8.1	 	The Producer and each of the Magnolia Owners will be solely responsible for
payment of the royalties and taxes attributable to its share of production.
	 
	 	5.8.2	 	This Agreement and the operations hereunder are not intended to create, and
will not be construed to create a joint venture, association or partnership with
respect to the Parties. If, for United States federal income tax purposes, this
Agreement is regarded as a partnership, each Party elects to be excluded from the
application of all or any part of the provisions of Subchapter “K”, Chapter 1, Subtitle
“A” of the United States Internal Revenue Code of 1986, as amended (the “Code”), to the
extent permitted and authorized by Article 761(a) of the Code and the regulations
promulgated thereunder, or similar provisions of applicable state Laws.

	5.9	 	Quality Bank Payments

	 	 	With respect to any monetary adjustments due the Magnolia Owners or the Producer pursuant to
Article 7.3 (Quality Bank) of this Agreement, each of the Magnolia Owners or Producer, as
applicable, will be responsible for any payments invoiced by the Magnolia TLP Operator.
Article 7.3 (Quality Bank) of this Agreement will be interpreted to apply to the Producer or
each of the Magnolia Owners, individually with respect to invoices and payments pursuant to
Article 7.3 (Quality Bank).

ARTICLE VI — CAPACITY

	6.1	 	Magnolia TLP Base Capacity

	 	 	The Magnolia TLP Base Capacity for Oil, Gas, and water handling is set forth on Exhibit “A”
(Magnolia TLP Base Capacity). The Parties stipulate this is only an estimate, that the
Magnolia TLP Base Capacity is not represented or warranted by the Magnolia Owners, and that
the stated handling capacities for these substances has not been experienced or tested in
the field. It is understood and agreed that the Magnolia TLP Base Capacity will fluctuate
based on the inlet flow rates, conditions and compatibility,
	 
	 	 	and the operating pressure of the export lines. Exhibit “A” (Magnolia TLP Base Capacity)
reflects the current estimate of the Magnolia TLP Base Capacity at the current pipeline
operating pressure and at the maximum pipeline operating pressure during all times of normal
and routine operations. Subject to Article 6.2 (Production Processing

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	 	 	and Handling Capacity), Article IX (Suspension of Operations and Force Majeure) and Article 10.3
(Termination by Magnolia Owners), the Magnolia Owners commit to operate and maintain the
Magnolia TLP consistent with prevailing industry operational and safety practices and
standards for similar facilities and all applicable Laws, and to use all reasonable efforts
to restore the Magnolia TLP to normal and routine operations in a timely manner when
possible. Except as expressly provided in the foregoing sentence, the Magnolia Owners shall
not be required to upgrade or maintain any facilities or equipment. The Magnolia Owners
will not be obligated to maintain the Magnolia Leases in force and effect, or continue
production at the Magnolia TLP for any reason.

	6.2	 	Production Processing and Handling Capacity

	 	 	The Magnolia Owners will provide the Producer the following types of capacity for production
processing and handling on the Magnolia TLP for Satellite Production in accordance with, and
subject to, the terms and conditions contained in this Article VI (Capacity). However, upon
partial or entire loss of or damage to the Magnolia TLP (or any component of the Magnolia
TLP) resulting from any incident, the Magnolia Owners will have no obligation to repair or
replace the Magnolia TLP or any component thereof for purposes of resuming the processing
and handling of Satellite Production (or the operation of the Satellite Production System or
the placement of Satellite Production System components thereon). Notwithstanding the
foregoing, nothing contained in this Agreement limits or restricts the Magnolia Owners from
entering into other agreements for the utilization of the Magnolia TLP and/or its related
equipment and facilities.

	 	6.2.1	 	Firm Capacity

	 	 	For the purposes of this Agreement, “Firm Capacity” means that portion of the Magnolia TLP
Capacity representing:8

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	8	 	CONFIDENTIAL TREATMENT HAS BEEN REQUESTED BY CALLON
PETROLEUM COMPANY FOR CERTAIN PORTIONS OF THIS DOCUMENT.
CONFIDENTIAL PORTIONS HAVE BEEN FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION. OMITTED PORTIONS ARE
INDICATED IN THIS AGREEMENT WITH “*****”.

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	 	(f)	 	Any Party may request, but is not guaranteed, a change in the
Firm Capacity, as described above, with supporting data.

	 	 	 	The Magnolia Owners agree to process and handle Satellite Production at volume rates
not to exceed the Firm Capacity and the Producer will be entitled to utilize Firm
Capacity for Satellite Production; provided, however, utilization of Firm Capacity
for Satellite Production will only be subject to priority, curtailment and/or
proration in accordance with Articles 6.3 (Production Prioritization) and 6.4.2
(Non-Conforming Satellite Production) and Magnolia TLP Operator’s rights and
discretion as provided in Articles 4.1.1, 4.1.2, 6.4.2, 9.4 and 9.5. Firm
Capacity, as provided above, will be determined individually for each product (Oil,
Gas, and water) on a daily throughput basis.

	 	(i)	 	The amount of Firm Capacity for any single product (i.e. Oil,
Gas, or water) will not be exceeded in order to allow the Producer to fully
utilize the Firm Capacity for another product.
	 
	 	(ii)	 	In the event the Producer does not utilize its entire share of
Firm Capacity during a calendar month, the Magnolia Owners have the right to
utilize, as they deem necessary and free of cost, any unused Firm Capacity for
such calendar month on an interruptible basis.

	 	6.2.2	 	Interruptible Capacity

	 	 	 	The Magnolia Owners agree to process and handle Satellite Production at volume rates
in excess of Firm Capacity to the extent that Magnolia TLP Ullage exists
(“Interruptible Capacity”); provided, however, utilization of Magnolia TLP Ullage
for Satellite Production handling will not result in any curtailment of Magnolia TLP
Production or Third Party Production being processed and handled on the Magnolia TLP
on a firm basis. Priority access to Magnolia TLP Ullage will be given in the
following order: (i) Satellite Production; and (ii) Third Party Production.

	 	6.2.3	 	Flow Assurance Capacity

	 	 	 	The Magnolia Owners agree to process and handle Satellite Production at volume rates
not to exceed FA Capacity and, the Producer will be entitled to utilize FA
Capacity for Satellite Production, unless it is not possible to provide such FA
Capacity due to Magnolia TLP operating problems and/or operating problems related to
downstream facilities and equipment.

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	 	(a)	 	The amount of FA Capacity for a given product (Oil, Gas or
water) will be determined by the fluid type in a given flowline. If the
flowline is defined as an oil flowline (the flowline’s primary product is oil),
the FA Capacity for liquids (oil and water) will be that which is stated in
Section 2.2.17 (Flow Assurance Capacity) and the FA Capacity for gas will not
be pre-determined, but will be the amount of associated gas that the oil
flowline is capable of flowing at the stated FA Capacity for liquids. If the
flowline is defined as a gas flowline (the flowline’s primary product is gas),
the FA Capacity for gas will be that which is stated in section 2.2.17 (Flow
Assurance Capacity) and the FA Capacity for liquids (condensate and water) will
not be pre-determined, but will be the amount of associated liquids that the
gas flowline is capable of producing at the stated FA Capacity for gas.
	 
	 	(b)	 	In the event the FA Capacity is insufficient to provide the
Satellite Production with flow assurance, the Magnolia Owners and the Producer
will make a good faith effort to unanimously agree on a revised FA Capacity.
Approval by the Magnolia Owners of such revised FA Capacity will not be
unreasonably withheld.

	6.3	 	Production Prioritization

	 	6.3.1	 	Processing Facility Constraints.
	 
	 	 	 	In the event of any interruption or reduction in the Magnolia TLP Capacity,
including but not limited to: (i) a Force Majeure event, (ii) a planned or unplanned
partial or complete shutdown of the Magnolia TLP or any component of the Magnolia
TLP for maintenance, repair, replacement, construction or inspections, (iii) a
constraint in the Oil Export Pipeline or Gas Export Pipeline, (iv) a Magnolia TLP
equipment/facility upset or other such operating problem(s), or (v) the partial
and/or entire loss of the Magnolia TLP resulting from fire, hurricane, explosion, or
other Force Majeure events, the Magnolia TLP Operator (subject to the rights of the
Magnolia Owners under Article 6.2 (Production Processing and Handling Capacity)
hereinabove regarding no obligation to repair or replace the Magnolia TLP or any
component thereof upon partial or entire loss of the Magnolia TLP or any component
thereof resulting from any incident) will make reasonable and prudent efforts to
promptly restore normal operations while maintaining safe and efficient production
handling operations and in a manner facilitating the resumption of normal
operations. During such interruption or temporary reduction in Magnolia TLP
Capacity, the Magnolia Owners, through the Magnolia TLP Operator will allocate the
available Magnolia TLP Capacity to the extent it is safe and practical to do so, in
accordance with the following:

	 	(a)	 	Priority access to available production handling capacity will
be given in the following order: (i) FA Capacity and flow assurance for any
future Magnolia Leases subsea wells, (ii) Magnolia TLP Production; (iii)
Satellite Production which has been contractually granted firm

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	 	 	 	capacity; and (iv) Third Party Production which has been contractually granted firm
capacity. Such lesser allocation of Magnolia TLP Capacity being defined as
“Prorated Firm Capacity”.
	 
	 	(b)	 	If the Prorated Firm Capacity is less than FA Capacity, the
Magnolia TLP Operator will endeavor to provide FA Capacity.

	 	6.3.2	 	Gas Export Pipeline Constraints
	 
	 	 	 	In the event that: (i) Magnolia TLP Capacity cannot be fully utilized as a result of
a transportation capacity constraint (including, but not limited to, inadequate
pipeline capacity and/or pipeline operating conditions) in the Gas Export Pipeline
or other gas pipeline(s) downstream of the Delivery Point (“Downstream Gas
Pipeline”) and (ii) the gas transportation capacity available to all of the Magnolia
Owners, Producer, and Third Parties for their respective share of Magnolia TLP Gas
Production, Satellite Gas Production, and/or Third Party Production is restricted by
the Gas Export Pipeline or Downstream Gas Pipeline(s) constraint, then the Magnolia
TLP Capacity will be allocated to the Parties as follows:

	 	(a)	 	Subject to Article 6.3.1 (Processing Facility Constraints),
each Party will be provided a sufficient amount of Magnolia TLP Capacity to
accommodate such Party’s Gas nomination up to the maximum volume of Gas
production which such Party is allowed to transport by the Gas Export Pipeline.
	 
	 	(b)	 	In the event that transportation capacity in the Gas Export
Pipeline is constrained for one or more (but fewer than all) of the Parties
(the “Gas Constrained Party” or “Gas Constrained Parties”) and the Gas
Constrained Party(ies) cannot provide for the transportation of its full
entitlement share of Magnolia TLP Gas Production and/or Satellite Gas
Production, each of the other Parties (the “Gas Unconstrained Parties”) may
exercise their respective rights under this Agreement and the Magnolia TLP
Operating Agreement, as appropriate to produce volumes of Gas exceeding their
entitlement share. With regard to Satellite Gas Production, the rights
provided in this Article will be subject to the Firm Capacity and Interruptible
Capacity provided for in this Agreement.

	 	6.3.3	 	Oil Export Pipeline Constraints
	 
	 	 	 	In the event that: (i) Magnolia TLP Capacity cannot be fully utilized as a result of
a transportation capacity constraint (including, but not limited to, inadequate
pipeline capacity and/or pipeline operating conditions) in the Oil Export Pipeline
or other oil pipeline(s) downstream of the Delivery Point (“Downstream Oil
Pipeline”) and (ii) the oil transportation capacity available to all of the Magnolia
Owners, Producer, and Third Parties for
their respective share of Magnolia TLP Oil Production, Satellite Oil Production,
and/or Third Party Production is restricted by the Oil Export Pipeline or Downstream
Oil Pipeline(s) constraint, then the Magnolia TLP Capacity will be allocated to the
Parties as follows:

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	 	(a)	 	Subject to Article 6.3.1 (Processing Facility Constraints),
each Party will be provided a sufficient amount of Magnolia TLP Capacity to
accommodate such Party’s Oil nomination up to the maximum volume of Oil
production which such Party is allowed to transport by the Oil Export Pipeline.
	 
	 	(b)	 	In the event that transportation capacity in the Oil Export
Pipeline is constrained for one or more (but fewer than all) of the Parties
(the “Oil Constrained Party” or “Oil Constrained Parties”) and the Oil
Constrained Party(ies) cannot provide for the transportation of its full
entitlement share of Magnolia TLP Oil Production and/or Satellite Oil
Production, each of the other Parties (the “Oil Unconstrained Parties”) may
exercise their respective rights under this Agreement and the Magnolia TLP
Operating Agreement, as appropriate to produce volumes of Oil exceeding their
entitlement share. With regard to Satellite Oil Production, the rights
provided in this Article will be subject to the Firm Capacity and Interruptible
Capacity provided for in this Agreement.

	6.4	 	Production Compatibility

	 	 	The Producer’s access to the types of capacity for production processing and handling on the
Magnolia TLP set forth in this Article VI (Capacity) assumes the operating
parameters/conditions of the Satellite Production System and the Satellite Production
arriving at the Entry Point conform to specifications and characteristics stipulated in
Exhibit “H” (Satellite Production Fluid Limits/Operating Parameters) to this Agreement.
Additionally, the terms and conditions of this Agreement were established and agreed to by
the Parties based on the assumption that the operating parameters/conditions of the
Satellite Production System and the Satellite Production arriving at the Entry Point conform
to such specifications and characteristics.

	 	6.4.1	 	Conforming Fluids
	 
	 	 	 	If Satellite Production conforms to all of the specifications contained in Exhibit
“H” (Satellite Production Fluid Limits/Operating Parameters) to this Agreement, then
any incremental operating costs which may result from handling Satellite Production
on the Magnolia TLP, which are not classified as Satellite Sole Expenses in Exhibit
“E” (Operating & Maintenance Expenses Matrix) to this Agreement or otherwise
designated as costs to be borne solely by the Producer, will be treated as Magnolia
TLP Shared Expenses in Exhibit “E” (Operating & Maintenance Expenses Matrix) to this
Agreement.
	 
	 	6.4.2	 	Non-Conforming Satellite Production
	 
	 	 	 	If Satellite Production does not conform to one or more of the operating parameters
and/or specifications contained in Exhibit “H” (Satellite Production Fluid
Limits/Operating Parameters) (“Non-Conforming Production”) of this Agreement, as
evidenced by at least three (3) fluid samples taken over a period of seven (7)
consecutive Days, and such non-conformance (i) results in incremental

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	 	 	 	Magnolia TLP operating costs, (ii) causes a reduction in the Magnolia TLP Capacity, or (iii)
causes other operational problems on the Magnolia TLP (hereinafter collectively or
individually referred to as a “Satellite Operating Problem”), the Magnolia TLP
Operator may endeavor, but the Magnolia Owners are not obligated, to accept and
handle such Non- Conforming Production until the Satellite Operating Problem has
been rectified by the Producer in accordance with the following:

	 	(a)	 	The Producer is solely responsible for all costs and expenses
incurred by the Magnolia TLP Operator and/or the Magnolia Owners:

	 	(i)	 	resulting from the Satellite Operating Problem
(including, without limitation, deferred production); and/or
	 
	 	(ii)	 	for measures taken to rectify or mitigate the
Satellite Operating Problem, and/or
	 
	 	(iii)	 	which are associated with the Satellite
Operating Problem until such problem has been rectified.

	 	(b)	 	Promptly after identifying the Satellite Operating Problem, but
prior to initiating any measures to rectify such problem which would result in
material expenditures, the Magnolia TLP Operator will provide the Satellite
Operator (with information copy to the Magnolia Owners) with a written proposal
for measures to rectify the Satellite Operating Problem and an estimate of the
associated costs.
	 
	 	(c)	 	The Satellite Operator will have five (5) business Days from
its receipt of the Magnolia TLP Operator’s written proposal submitted pursuant
to Article 6.4.2(b) of this Agreement to approve such proposal in writing
(failure to respond shall be deemed a non-approval). Should the Parties fail
to determine a mutually acceptable technical alternative to mitigate the
incompatibility, the Magnolia TLP Operator has the right to discontinue the
Services set forth in Articles 4.1.1 (Production Handling Services) and 4.1.2
(Satellite Production System Operations) hereinabove.

	 	6.4.3	 	Market Value
	 
	 	 	 	Notwithstanding Article 7.3 (Quality Bank), in the event Satellite Production is
determined to be Non-Conforming Production and such nonconformance results
in a documented reduction in the actual market value of the Non-Satellite
Production, the Producer will compensate the Magnolia Owners for such reduction in
value, only to the extent caused by such non-conformance and not addressed by the
procedures referenced in Article 7.3 (Quality Bank). For purposes of this Article
6.4.3 (Market Value), the non-conformance will be measured/determined prior to
commingling the Satellite Production with Non-Satellite Production.

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	 	 	 	In the event Non-Satellite Production is determined to be Non-Conforming Production
and such nonconformance results in a documented reduction in the actual market value
of the Satellite Gas Production and/or Satellite Oil Production, the Magnolia Owners
will compensate the Producer for such reduction in value, only to the extent caused
by such non-conformance and not addressed by the procedures referenced in Article
7.3 (Quality Bank). For purposes of this Article 6.4.3 (Market Value), the
non-conformance will be measured/determined prior to commingling the Satellite
Production with Non-Satellite Production.

ARTICLE VII — METERING AND ALLOCATION, PERMITS, AND QUALITY BANK

	7.1	 	General Application

	 	 	Satellite Production and Non-Satellite Production will be sampled, metered and allocated in
accordance with the provisions of Exhibit “F” (Metering and Allocation). The Exhibit “F”
(Metering and Allocation) provisions, in their entirety, are (i) subject to and in
accordance with the MMS approved surface commingling application referred to in Article
7.2.1 (Surface Commingling Permit) of this Agreement and any subsequent amendments and/or
waivers thereto, (ii) in accordance with MMS requirements set forth in 30 CFR Part 250
Subpart L and any subsequent amendments and/or waivers thereof and (iii) conditioned upon
approval by the MMS of the surface commingling application discussed in Article 7.2.1
(Surface Commingling Permit) of this Agreement and any subsequent amendments and/or waivers
thereto.

	7.2	 	Permits

	 	7.2.1	 	Surface Commingling Permit
	 
	 	 	 	Satellite Production will not be delivered to the Entry Point and flow across the
Magnolia TLP without first obtaining all required surface commingling permits.
Magnolia TLP Operator shall use reasonable endeavors to seek approval from the MMS
for the surface commingling of Satellite Production with Non-Satellite Production
and shall, upon request, furnish the Producer and the Magnolia Owners copies of the
application and approval. The Producer and Magnolia Owners will cooperate with the
Magnolia TLP Operator to the extent necessary to achieve MMS approval of the
application. The cost of obtaining such permit shall be at the sole expense of
Producer.
	 
	 	7.2.2	 	Other Permits

	 	(a)	 	The Producer is responsible for acquiring all necessary
permits, licenses authorizations and approvals required for the construction
and installation of the Satellite Production System and connection to the
Magnolia TLP (up to the Entry Point) at the sole cost and expense of the
Producer.

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	 	(b)	 	The Magnolia TLP Operator is responsible for acquiring all
necessary permits, licenses, authorizations and approvals required for the
construction and installation of the Receiving Facilities on the Magnolia TLP
at the sole cost and expense of the Producer.
	 
	 	(c)	 	The Producer will obtain, or caused to be obtained, all other
required approvals, permits, consents, orders or other documents, without
limitation, from all appropriate jurisdictional authorities to produce the
Satellite Leases, transport Satellite Production to the Magnolia TLP, and
dispose/transport of Satellite Production from the Magnolia TLP. The Satellite
Operator and the Magnolia TLP Operator will cooperate with each other to the
extent necessary to obtain such permits, licenses, authorizations and
regulatory approvals.
	 
	 	(d)	 	The Magnolia TLP Operator will support the Producer’s
application(s) to the MMS for new pipeline construction to the Magnolia TLP so
long as it has met the Magnolia TLP Operator’s requirements for pipeline
crossings and/or risers.

	 	7.2.3	 	Permit Denials
	 
	 	 	 	The Parties hereby agree to use reasonable endeavors to obtain all agreements and
approvals required from all governmental agencies and Third Parties with regard to
the transportation and processing contemplated by this Agreement. No representation
or warranty is made by the Magnolia TLP Operator or any Party that the necessary
consents and approvals will be obtained, and should MMS or any other necessary
consent or approval be denied, no Party shall have liability to any other Party on
account thereof and this Agreement shall be terminable in accordance with Article X
(Term, Default, Termination and Continuation of Services).

	7.3	 	Quality Bank

	 	 	The Producer and the Magnolia Owners will utilize the procedures in accordance with the
Gravity and Sulfur Bank for the Shell Pipeline Company LP F.E.R.C. Tariff No. S-103,
effective November 1, 2004, as supplemented by Supplement No. 1 to F.E.R.C No. S-103,
effective July 1, 2006, as amended from time to time, to handle oil quality difference
between Magnolia TLP Production, Satellite Production, and, if applicable, Third Party
Production.

ARTICLE VIII — GATHERING AND TRANSPORTATION

	8.1	 	Product Disposition

	 	 	Commencing at the Delivery Point, the Producer will (i) take in kind and remain solely and
separately responsible for the disposition, transportation, and sale of Satellite Production
and (ii) bear all costs and liabilities associated with such disposition,

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	 	 	transportation, and sale. The Magnolia Owners will have no liability for any costs of production
transportation, production processing, and/or associated costs downstream of the Delivery
Point, which are attributable to the Satellite Production and/or allocated to the Producer.

	8.2	 	Product Transportation

	 	 	The Producer will enter into transportation arrangements or agreements with the owners of
the Oil Export Pipeline and/or the Gas Export Pipeline, as appropriate, at its own sole cost
and expense for its share of Satellite Production.

	 	8.2.1	 	The Parties, independently, will be responsible for submitting, or causing to
be submitted, Gas and/or Oil nominations, as applicable, to the transporter(s) of such
product for their individual respective share of the appropriate Satellite Production
and/or Magnolia TLP Production, and for advising the Magnolia TLP Operator of such
nomination. The Parties, independently, will also be responsible for cooperating with
the Magnolia TLP Operator and the transporters of the Gas and/or Oil to keep their
nominations in balance with their respective deliveries on the Gas and/or Oil
transporters’ pipeline system. The Parties will, to the extent possible, work in good
faith to cause the nominations of their respective Gas and/or Oil production to closely
approximate their actual production.
	 
	 	8.2.2	 	To the extent required under this Agreement, the Magnolia TLP Operator will
furnish test and production information to the Parties to adjust nominations; however,
the Magnolia TLP Operator will not be responsible for, and will not be liable for any
damages and/or penalties for any act done or omitted in the Magnolia TLP Operator’s
performance under this Agreement or for errors in judgment, except such as may result
from the Magnolia TLP Operator’s gross negligence or willful misconduct. The Parties
will release, indemnify, defend and hold the Magnolia TLP Operator harmless from any
transporter pipeline scheduling penalties or monthly balancing provisions imposed in
Gas or Oil transportation contracts, associated with, or related to, such Party’s Gas
or Oil production, by the Gas or Oil transporter, as applicable, including, without
limitation, penalties imposed pursuant to its tariff, or which may be caused by
Operational Flow Orders (“OFO’s”), or by unscheduled Gas, or by unauthorized Gas,
except such as may result from the Magnolia TLP Operator’s gross negligence or willful
misconduct.

	8.3	 	Pipeline Penalties

	 	8.3.1	 	As between the Magnolia Owners and the Producer, any penalties assessed by Gas
or Oil transporters attributable to the Satellite Operator’s and/or Producer’s actions
or omissions will be the responsibility of the Producer. As between the Magnolia
Owners and the Producer, any penalties assessed by the Gas or Oil transporters
attributable to the Non-Satellite Production, Magnolia TLP Operator’s (except as
provided in Article 8.3.2) and/or Magnolia Owners’ actions or omissions will be the
responsibility of the Magnolia Owners.

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	 	8.3.2	 	Any costs or penalties imposed by the Gas Export Pipeline or the Oil Export
Pipeline on the Magnolia TLP Operator as a result of OFO’s, unscheduled Gas,
unauthorized Gas, Gas pipeline imbalances, or Oil pipeline imbalances with
transporters, as described herein, will be borne by each Party, independently, in the
proportion that its nomination, failure to nominate, failure to properly regulate
production volumes, fault, negligence, or liability without fault, caused such
imbalance and/or penalties, except such as may result from the Magnolia TLP Operator’s
gross negligence or willful misconduct.

	8.4	 	Gas Imbalances

	 	 	Producer and the Magnolia Owners will utilize procedures in accordance with Exhibit “G” (Gas
Balancing Procedures) to this Agreement to handle Gas imbalances between the Magnolia Leases
and the Satellite Leases.

ARTICLE IX — SUSPENSION OF OPERATIONS AND FORCE MAJEURE

	9.1	 	Notice

	 	 	A Party which is unable, in whole or in part, to carry out its obligations under this
Agreement due to Force Majeure will promptly give written notice to that effect to the other
Party or Parties stating in reasonable detail the circumstances underlying such Force
Majeure.

	9.2	 	Suspension of Obligation

	 	 	The obligation of the Party giving such notice as provided in Article 9.1, so far as it is
affected by such Force Majeure, will be suspended during the continuance of any liability so
caused, but for no longer period, and such cause will be remedied with all reasonable
diligence. No Party will be liable to the other Party or Parties for failure to perform any
of its obligations under this Agreement, other than the obligation to pay monies due
hereunder, to the extent such performance is hindered, delayed or prevented by Force
Majeure.

	9.3	 	Resolution

	 	 	A Party claiming Force Majeure will: (i) diligently use all reasonable and prudent efforts
to remove the cause, condition, or event or circumstance of such Force Majeure, (ii)
promptly give written notice to the other Party of the termination of such Force Majeure,
(iii) resume performance of any suspended obligation as soon as reasonably possible after
termination of such Force Majeure, and (iv) not be obligated to settle any labor dispute
except on terms acceptable to it in its sole discretion.

	9.4	 	Suspension of Operations

	 	9.4.1	 	The Magnolia TLP Operator reserves and has the right to suspend the Services
set forth in this Agreement during the existence of conditions which render the

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	 	 	 	Magnolia TLP, Third Party Production System, or any downstream facility unsafe, or
during the existence of a Force Majeure condition (but for the Services, only to the
extent that such Force Majeure prevents rendering such Services and subject to the
priorities provided in Article 6.3 (Production Prioritization) affecting the Magnolia
TLP, Third Party Production System, or any downstream facility as further provided in
Article 9.2 (Suspension of Obligation) of this Agreement.
	 
	 	9.4.2	 	The Producer specifically understands that operations and activities on
facilities upstream or downstream of the Magnolia TLP may impact operations on the
Magnolia TLP. Further, at its sole discretion, the Magnolia TLP Operator has the right
to shut down the Magnolia TLP and temporarily discontinue the Services contemplated by
this Agreement for any necessary repairs or changes to the Magnolia TLP, Third Party
Production System or any downstream facility. In such a case neither the Magnolia TLP
Operator nor the Magnolia Owners will have any liability to the Producer for deferred
production, lost production, or any other direct, indirect or consequential damages,
other than as provided in Article 5.7 (Deferred Production Compensation).

	9.5	 	Magnolia TLP Operator’s Right to Shut Down Operations on Magnolia TLP

	 	9.5.1	 	In addition to Section 9.4 (Suspension of Operations), the Magnolia TLP
Operator has the absolute discretion and authority to partially or totally shutdown any
and all operations and activities related to the Magnolia TLP, the Satellite Leases,
Third Party Production System or downstream facilities, and to permanently or
temporarily discontinue the Services related to the same hereunder or under any other
arrangements at any time or from time to time (subject to the cure period for certain
circumstances described below), if in the Magnolia TLP Operator’s sole discretion, such
shutdown is warranted due to one or more of the following:

	 	(a)	 	To ensure the safety of persons, property or the environment; or
	 
	 	(b)	 	To ensure the operational integrity of the Magnolia TLP, the
Satellite Production System, Third Party Production System and/or downstream
facilities; or
	 
	 	(c)	 	Construction or repairs on or to the Magnolia TLP, the
Satellite Production System, Third Party Production System and/or downstream
facilities; or
	 
	 	(d)	 	The existence of a Force Majeure condition (subject to Sections
9.1 (Notice), 9.2 (Suspension of Obligation) and 9.3 (Resolution); or
	 
	 	(e)	 	The termination of this Agreement; or
	 
	 	(f)	 	Producer’s failure to provide proper notice and/or obtain the
review and/or consent to a proposed operation in accordance with the
requirements of this Agreement; or

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	 	(g)	 	Producer’s failure to conduct operations in accordance with
this Agreement; or
	 
	 	(h)	 	Any material breach by the Producer of this Agreement.

	 	9.5.2	 	The Magnolia TLP Operator will notify the Producer in writing in the event of
any of the occurrences listed above. In such cases, the Magnolia Owners have no
liability to the Producer or any Party or Third Party for deferred or lost production
or throughput, deferred or lost revenue, damage to, loss (or loss of use—e.g. paraffin
and/or hydrate damage) of flowlines, wells or reservoirs, or any actual, direct,
indirect or consequential damages arising from such shutdowns. Whenever reasonably
possible, the Magnolia TLP Operator agrees to give the Producer reasonable advance
notice of any scheduled shutdowns of said facilities while this Agreement is in effect.
In the event of the occurrence of one or more of the events listed in subsections (f),
(g) or (h), prior to shutting down the Satellite Production System or discontinuance of
Services, the Magnolia TLP Operator shall give the Producer prior written notice of the
occurrence of such event. In the event the Producer do not cure same within thirty
(30) days after receipt of such written notice, the Magnolia TLP Operator may act (and
the Magnolia Owners shall be fully relieved of any liability for the same) as described
above. However, if the event specified in such notice is of such a nature that it
reasonably cannot be corrected within the thirty (30) day period, and the Producer
begins within said period corrective action and thereafter diligently carries such
corrective action to completion, Magnolia TLP Operator shall defer acting so long as
Producer is carrying out such corrective action in good faith.

ARTICLE X — TERM, DEFAULT, TERMINATION, AND CONTINUATION OF SERVICES

	10.1	 	Term of Agreement

	 	 	As of the Effective Date, this Agreement will continue until terminated pursuant to the
voluntary and involuntary provisions set forth in Articles 10.2 (Default), 10.3 (Termination
by Magnolia Owners), and 10.4 (Termination by Producer).

	10.2	 	Default

	 	 	The occurrence of any of the following events constitutes default (“Default”), giving the
right to terminate this Agreement to Parties other than the Non-Performing Party:

	 	10.2.1	 	The failure of a Party (the “Non-Performing Party”) to pay amounts owed, provide a
required defense, or materially to provide Services as required by this Agreement when
such failure has not been remedied by the Non-Performing Party within (i) fifteen (15)
days for any nonpayment or failure to provide a required defense, and (ii) sixty (60)
days for failure to materially provide the required Services (the “Notice Period”)
following receipt of written notice from one or

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	 	 	 	more of the other Party(ies) describing
the alleged non-performance or non-compliance with particularity and demanding that
such non-performance or noncompliance be cured or remedied; provided, however, that
there is no Default if the failure cannot reasonably be cured within such Notice Period
so long as:

	 	(a)	 	in the case of failure to make payments or provide a required
defense, the Non-Performing Party remedies or cures said failure within the
Notice Period; and
	 
	 	(b)	 	in the case of failure to materially provide the required
Services the Non-Performing Party commences reasonable efforts to remedy or
cure said failure and continues these efforts after the Notice Period and until
the failure has been cured or remedied, and such remedy or cure has been
effected within a reasonable period of time.

	 	10.2.2	 	The entry of a Party into voluntary or involuntary bankruptcy, receivership or
similar protective proceedings; or
	 
	 	10.2.3	 	The material breach of any representation or warranty contained in Article 15.5
(Warranty of Title).

	 	 	In the event of termination for Default, the Non-Performing Party remains liable for all
duties, obligations and liabilities accrued or incurred prior to the termination date.

	10.3	 	Termination by Magnolia Owners

	 	10.3.1	 	The Magnolia Owners, upon their unanimous agreement, have the right to terminate this
Agreement in the following circumstances:

	 	(a)	 	On not less than three (3) months written notice by the
Magnolia TLP Operator to the Satellite Operator, if the MMS issues a decision
disapproving the surface commingling permit application submitted by the
Magnolia TLP Operator pursuant to Article 7.2.1 (Surface Commingling Permit) or
any other necessary permits and the Parties agree in writing that: (i) such
decision shall not be appealed; and (ii) a revised application shall not be
filed; or
	 
	 	(b)	 	On not less than one (1) month written notice by the Magnolia
TLP Operator to the Satellite Operator, if no Satellite Production is delivered
to the Entry Point for any reason, including Force Majeure, for any period of
twelve (12) consecutive calendar months following the Execution Date of this
Agreement (unless an extension is mutually agreed by all Parties).

	 	10.3.2	 	This Agreement terminates on not less than six (6) months written notice by the
Magnolia TLP Operator to the Satellite Operator, if (i) the Magnolia TLP is no longer
economic to operate in the sole judgment of the Magnolia Owners, and (ii) the Magnolia
Owners permanently cease production operations on the Magnolia TLP within the time
period of such notice.

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	 	10.3.3	 	This Agreement terminates on not less than one (1) month written notice by the
Magnolia TLP Operator to the Satellite Operator, if destruction of, major damage to, or
total or constructive loss of the Magnolia TLP occurs and the Magnolia Owners elect in
their sole discretion to not repair or replace the Magnolia TLP for use at the Magnolia
Leases. In such event, the Magnolia Owners have no obligation to replace or repair the
Magnolia TLP. The Magnolia Owners shall retain all causes of action and claims against
any Third Party arising out of such damage or destruction.

	10.4	 	Termination by Producer

	 	10.4.1	 	The Producer has the right to terminate this Agreement in the following
circumstances:

	 	(a)	 	On not less than three (3) months written notice by the
Satellite Operator to the Magnolia TLP Operator, if the MMS issues a decision
disapproving the surface commingling permit application submitted by the
Magnolia TLP Operator pursuant to Article 7.2.1 (Surface Commingling Permit) or
any other necessary permits and the Parties agree in writing that: (i) such
decision shall not be appealed; and (ii) a revised application shall not be
filed; or
	 
	 	(b)	 	On not less than one (1) month written notice by the Satellite
Operator to the Magnolia TLP Operator, if no production handling capacity in
excess of FA Capacity is available for Satellite Production for any reason,
including Force Majeure, for any period of twenty-four (24) consecutive
calendar months following the Execution Date of this Agreement.

	 	10.4.2	 	This Agreement terminates on not less than three (3) months written notice by the
Satellite Operator to the Magnolia TLP Operator, if (i) delivery of Satellite
Production to the Magnolia TLP is not technically feasible or economically justifiable
in the sole judgment of the Producer, and (ii) the Producer will permanently cease
Satellite operations due to Permanent Cessation of Production; provided, however, that
the Satellite operations (excluding abandonment operations) permanently cease within
six (6) months of said notice.
	 
	 	10.4.3	 	This Agreement terminates on not less than one (1) month written notice by the
Satellite Operator to the Magnolia TLP Operator, if Satellite Production permanently
ceases for any reason whatsoever.

	10.5	 	Responsibilities and Obligations at Termination

	 	 	The Parties to this Agreement have the following responsibilities upon termination of this
Agreement and/or Permanent Cessation of Production from the Satellite Leases:

	 	10.5.1	 	The Satellite Operator is responsible for: (i) disconnection of the Satellite
Production System from the Entry Point, (ii) removal of those Satellite Production

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	 	 	 	System components located on the Magnolia TLP, and (iii) all costs, risk and expense
associated with such disconnection and removal. However, the Magnolia Owners, at their
sole discretion may either:

	 	(a)	 	Require Satellite Operator to remove and/or abandon the
Satellite Production System from the Magnolia TLP and remove and/or abandon all
facilities connecting the Satellite Production System to the Magnolia TLP
including (i) the Producer’s pipeline(s) and riser(s) up to the Entry Point
insofar as such facilities are located within five hundred (500) feet of the
Magnolia TLP; (ii) cleanup and paint the area on the Magnolia TLP which is
occupied by components of the Satellite Production System, and (iii) repair and
replace any damages to the Magnolia TLP resulting from the placement of the
Satellite Production System on the Magnolia TLP or the removal of the Satellite
Production System, if deemed necessary by the Magnolia Owners, at the
Producer’s sole cost, risk, expense and liability. (All such work listed in
this paragraph 10.5.1(a) shall be referred to as “Abandonment Work”). In the
event this Agreement terminates pursuant to the provisions of Sections 10.3.2
or 10.3.3, then Producer shall not be required to perform the work described in
10.5.1(a)(i) or 10.5.1 (a)(ii) above.
	 
	 	(b)	 	Agree with Producer on other acceptable way(s) to salvage and
abandon the Satellite Production System.

	 	10.5.2	 	If the Magnolia Owners select Article 10.5.1 (a), Abandonment Work will be completed
by the Satellite Operator within twenty-four (24) months subsequent to the termination
of this Agreement. All Abandonment Work performed by or on behalf of the Producer will
be performed within the time frame required by this Agreement and in compliance with
all applicable Laws.
	 
	 	10.5.3	 	In the event the Satellite Operator fails to perform any or all of Abandonment Work
obligations as specified in this Agreement within the applicable time periods, the
Magnolia TLP Operator may at its election perform such work and invoice the Producer
(or Satellite Operator, on behalf of the Producer) for all actual costs and expenses
associated with the Abandonment Work. However, prior to the Magnolia TLP Operator
performing such Abandonment Work, the Magnolia TLP Operator is required to give the
Satellite Operator written notice of its intent to perform the work (“Abandonment
Notice”). In the event the Satellite Operator does not commence Abandonment Work
within thirty (30) days after receipt of the Abandonment Notice, the Magnolia TLP
Operator has the right to perform Abandonment Work related to the Satellite Production
System without incurring any liability or obligation to the Producer. Accordingly, in
the event the Magnolia TLP Operator conducts the Abandonment Work, the Magnolia TLP
Operator will directly charge and invoice the Producer (or Satellite Operator, on
behalf of the Producer) who is responsible for any costs associated with such
Abandonment Work.

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ARTICLE XI — LIABILITIES AND INDEMNIFICATION

	11.1	 	Liability and Indemnity

	 	11.1.1	 	Definition of Claims. As used in this Agreement, the term “Claims” means any and
all losses, liabilities, damages, punitive damages, obligations, expenses, fines,
penalties, interest, costs, claims, causes of action and judgments for: (i) breaches
of contract; (ii) loss or damage to property, injury to or death of persons, and other
tortious injury; (iii) environmental damage or pollution; and (iv) violations of
applicable Laws or any other legal right or duty actionable at law or equity. The
term “Claims” also includes reasonable attorneys’ fees, court costs, and other
reasonable costs of litigation resulting from the defense of any Claim or cause of
action within the scope of the indemnities in this Agreement.
	 
	 	11.1.2	 	Application of Indemnities

	 	(a)	 	Covered Claims and Parties. All indemnities set forth in this
Agreement extend to the officers, directors, employees, and Affiliates of the Party
indemnified.9 *************************************************************************************

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************************** However, the indemnities set forth in this Agreement do
not extend to any part of an indemnified Claim that (i) is the result of the gross
negligence or willful misconduct of the indemnified Party, or (ii) is the result of
the imposition of punitive damages on the indemnified Party to the extent arising
from the acts of the indemnified Party.
	 
	 	(b)	 	Other Limitations. The indemnities of the indemnifying Party in this
Agreement do not cover or include any amounts that the indemnified Party may legally
recoup from other Parties or Third Parties under applicable joint operating
agreements, insurance or other agreements, or for which the indemnified Party is
reimbursed by any Third Party. The indemnities in this Agreement do not relieve the
Parties to this Agreement from any obligations to Third Parties.

 

			
	9	 	CONFIDENTIAL TREATMENT HAS BEEN REQUESTED BY CALLON
PETROLEUM COMPANY FOR CERTAIN PORTIONS OF THIS DOCUMENT.
CONFIDENTIAL PORTIONS HAVE BEEN FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION. OMITTED PORTIONS ARE
INDICATED IN THIS AGREEMENT WITH “*****”.

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The indemnities of
the Parties in this Agreement do not relieve the indemnified Party from, or extend to
cover, any obligations of the indemnified Party under the terms of any operating
agreement or other cost-sharing arrangement which is applicable to any Claim.

	 	11.1.3	 	Producer’s Indemnity. The Producer shall indemnify, release, defend and hold the
Magnolia Owners harmless from and against any and all Claims caused by, resulting
from, or incidental to:
	 
	 	(a)	 	Producer’s Activities. (i) All activities, acts and omissions of the
Producer and the Magnolia Owners with respect to the installation, hookup,
interconnection, startup, and/or commissioning of the Receiving Facilities (but
excluding all activities with respect to the Receiving Facilities thereafter), (ii)
all of the Producer’s activities, acts and omissions with respect to the Satellite
Production System upstream of the Entry Point, including the activities, acts and
omissions of its contractors, suppliers, subcontractors, lessees, and (iii) the
activities or omissions of any Third Parties present on the Magnolia TLP or the
Satellite Production System under authority of the Producer as provided in Article
3.1.6 (Magnolia TLP Access & Boarding for Producer’s Work) and Exhibit “N” (Platform
Boarding Agreement), in the construction, transportation, installation, operation,
maintenance, repair, replacement, Abandonment Work, inspections of the Magnolia TLP,
ingress and egress to and from the Magnolia TLP, landing helicopters and mooring
vessels, utilization of the Magnolia TLP and other necessary or required activities by
the Producer under this Agreement; provided, however, the foregoing shall not apply to
(i) any Claims in excess of $25 million (per occurrence) for damage to Magnolia
Owners’ property arising out of the initial construction of the Receiving Facilities
as described in Article 3.2 and the riser and umbilical handover as described in
Article 3.1.5, and (ii) any Claims for damage to
Magnolia Owners’ property not arising out of the initial construction of the
Receiving Facilities as described in Article 3.2 and the riser and umbilical
handover as described in Article 3.1.5.
	 
	 	(b)	 	Producer’s Property. Loss or damage to, or destruction of, the
property and facilities of the Producer and its Affiliates, co-owners, co-venturers,
and partners, and its and their employees, officers, directors, agents,
representatives, and invitees, including the Satellite Production System, Satellite
Production and any other Producer’s property connected to the same, for which the
Producer also releases the indemnified Parties;
	 
	 	(c)	 	Producer’s Contractor Property. Loss or damage to, or destruction
of, the property and facilities of (i) the Producer’s contractors, suppliers,
subcontractors, lessees, and any Third Parties present on the Magnolia TLP or the
Producer’s property under authority of the Producer as provided in Article 3.1.6
(Magnolia TLP Access & Boarding for Producer’s Work) and Exhibit “N” (Platform
Boarding Agreement) (and their contractors), (ii) their parents, affiliates,
co-owners, co-venturers, and partners, and (iii) their employees, officers, directors,
agents, representatives, and invitees;

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	 	(d)	 	Producer’s Employees, Invitees, etc. Personal injury to, or death
of, the employees, officers, directors, agents, representatives, and invitees of the
Producer and its Affiliates, co-owners, co-venturers, and partners;
	 
	 	(e)	 	Producer’s Contractor Employees. Personal injury to, or death of,
employees, officers, directors, agents, representatives, and invitees of (i) the
Producer’s contractors, suppliers, subcontractors, lessees, and any Third Parties
present on the Magnolia TLP or the Producer’s property under authority of the Producer
as provided in Article 3.1.6 (Magnolia TLP Access & Boarding for Producer’s Work) and
Exhibit “N” (Platform Boarding Agreement) (and their contractors), and (ii) their
affiliates, co-owners, co-venturers, and partners;
	 
	 	(f)	 	Producer’s Abandonment Obligations. The Producer’s abandonment,
removal, disposal and restoration obligations, which the Producer shall conduct in a
good and workmanlike manner and in compliance with all applicable Laws, to include but
not necessarily be limited to:

	 	(1)	 	The Producer agrees to assume and pay, perform, fulfill and
discharge all future abandonment, removal, and site clearance costs and
expenses in connection with the abandonment and removal of the Satellite
Production System as may be necessary or proper or required by applicable
Laws;
	 
	 	(2)	 	Any necessary plugging, abandonment, or replugging of
Producer’s wells;
	 
	 	(3)	 	Capping and burying of all associated pipelines located on,
comprising part of, or included with the Satellite Production System;
	 
	 	(4)	 	Removal, disposal, and abandonment of any wastes, equipment,
or fixtures associated with the Satellite Production System;
	 
	 	(5)	 	Removal, abandonment, and disposal of the risers and
umbilical, and all other structures located on or comprising part of the
Satellite Production System, or on the sea floor in the vicinity of the
Satellite Production System and associated therewith, as may be required by
applicable Laws; and
	 
	 	(6)	 	Clean-up or disposal of any Satellite Production System
contaminated by naturally occurring radioactive material (“NORM”) as may be
required by applicable Laws.

	 	(g)	 	The Producer’s gross negligence or willful misconduct, if any.10

 

			
	10	 	CONFIDENTIAL TREATMENT HAS BEEN REQUESTED BY CALLON
PETROLEUM COMPANY FOR CERTAIN PORTIONS OF THIS DOCUMENT.
CONFIDENTIAL PORTIONS HAVE BEEN FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION. OMITTED PORTIONS ARE
INDICATED IN THIS AGREEMENT WITH “*****”.

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	 	11.1.5	 	Environmental Indemnity
	 
	 	(a)	 	Producer’s Environmental Indemnity. The Producer shall indemnify,
release, defend and hold the Magnolia Owners harmless from and against all the
clean-up responses, costs of remediation, control, assessment or compliance, and any
civil fines or penalties, for the following occurrences, events and activities on or
related to the Satellite Production System and the operations conducted by the
Producer while on the Magnolia TLP (including the design, procurement, fabrication,
transportation, installation, hook-up, interconnection, start-up and commissioning of
the Receiving Facilities, but excluding all activities with respect to the Receiving
Facilities thereafter), regardless of whether arising from any sole or concurrent acts
or omissions of Magnolia Owners or the condition of the Magnolia TLP:

	 	(1)	 	Environmental pollution or contamination including pollution
or contamination of the soil, sea, groundwater or air by hydrocarbons, brine,
NORM, or otherwise, emanating from the Satellite Production System upstream of
the Entry Point;
	 
	 	(2)	 	The Producer’s waste disposal onsite or offsite of any
hazardous substances, wastes, materials and products generated by or used in
connection with the ownership or operation of the Satellite Production System;
and
	 
	 	(3)	 	Any of the Producer’s failure to comply with applicable land
use, surface disturbance, licensing or notification requirements; provided,
however, the preceding Producer’s environmental indemnity obligations exclude
and do not include:

	 	(i)    Any civil or criminal fines or penalties that may be levied against
the Magnolia Owners or the Producer by any court or regulatory authority
for any violation of any Laws in connection with the ownership or

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operation of the Magnolia TLP by the
Magnolia Owners, all of which shall remain the responsibility of the
Magnolia Owners; or

(ii) Transportation and disposal offsite from the Magnolia TLP by the
Magnolia Owners of any hazardous substances, wastes, NORM, materials and
products generated by or used in connection with the ownership or
operation of the Magnolia TLP by the Magnolia Owners, all of which shall
remain the responsibility of the Magnolia Owners.

(b)11
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	11	 	CONFIDENTIAL TREATMENT HAS BEEN REQUESTED BY CALLON
PETROLEUM COMPANY FOR CERTAIN PORTIONS OF THIS DOCUMENT.
CONFIDENTIAL PORTIONS HAVE BEEN FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION. OMITTED PORTIONS ARE
INDICATED IN THIS AGREEMENT WITH “*****”.

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	 	11.1.6	 	Notices and Defense of Indemnified Claims

	 	 	 	Each Party shall immediately notify the other Party of any Claim of which it
becomes aware and for which it is entitled to indemnification from the other Party
under this Agreement. The indemnifying Party shall be obligated to defend at the
indemnifying Party’s sole expense any litigation or other administrative or
adversarial proceeding against the indemnified Party relating to any Claim for
which the indemnifying Party has agreed to indemnify and hold the indemnified Party
harmless under this Agreement. However, the indemnified Party shall owe a duty of
cooperation to the indemnifying Party and shall have the right to participate with
the indemnifying Party in the defense of any such Claim at its own expense. Each
Party shall owe a duty of cooperation to the other with respect to any Claim
covered by the terms of this Agreement. The indemnifying Party may not settle any
Claim for other than money damages without the consent of the indemnified Party.

	 	11.1.7	 	Non-Conforming Production

	 	 	 	The Producer will defend, indemnify, release and hold the Magnolia Owners harmless
against all Claims arising from the operation, inspection, maintenance, repair,
replacement, and/or modification of the Magnolia TLP to the extent such Claims are
caused by Non-Conforming Production, except to the extent such Claims are caused by
the gross negligence or willful misconduct of any of the Magnolia Owners.
	 
	 	 	 	To the extent such Claims are caused by the gross negligence or willful misconduct
of any of the Magnolia Owners, the Magnolia Owners will defend, indemnify, release
and hold the Producer harmless against all Claims arising from the operation,
inspection, maintenance, repair, replacement, and/or modification of the Magnolia
TLP to the extent such Claims are caused by Non-Conforming Satellite Production.

	 	11.1.8	 	No Limitations

	 	 	 	The liability of the Parties hereunder is not limited by any amounts of insurance
carried by them.

	 	11.1.9	 	Allocation of Liability Among the Magnolia Owners

	 	 	 	Notwithstanding anything contained in this Article 11.1 (Liability and Indemnity)
to the contrary, as among the Magnolia Owners, including the Magnolia TLP

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	 	 	Operator,
the allocation of responsibility for the liabilities
assumed by the Magnolia Owners in Article 11.1 (Liability and Indemnity) are
governed by the Magnolia TLP Operating Agreement.

	11.2	 	Indemnification With Respect to Warranty of Title

	 	11.2.1	 	Satellite Production
	 
	 	 	 	The Producer will defend, indemnify, release and hold the Magnolia Owners harmless
against all Claims brought by any Person(s) challenging, or claiming an entitlement
to, the ownership of Satellite Production and any royalties or other interests
burdening such ownership.
	 
	 	11.2.2	 	Non-Satellite Production
	 
	 	 	 	The Magnolia Owners will defend, indemnify, release and hold the Producer harmless
against all Claims brought by any Person(s) challenging, or claiming an entitlement
to, the ownership of the Non-Satellite Production and any royalties or other
interests burdening such ownership.

	11.3	 	Waiver of Consequential Damages

	 	 	EACH PARTY: (I) AGREES THAT ONLY ACTUAL DAMAGES SHALL BE RECOVERABLE BY IT AGAINST THE
OTHER PARTIES UNDER THIS AGREEMENT; AND (II) HEREBY WAIVES AND RELEASES THE OTHER PARTIES
FROM ANY RIGHT TO RECOVER SPECIAL, INDIRECT, INCIDENTAL, PUNITIVE, CONSEQUENTIAL,
INCIDENTAL OR EXEMPLARY DAMAGES (WHETHER SUCH DAMAGES ARE CLAIMED UNDER BREACH OF WARRANTY,
BREACH OF CONTRACT, TORT OR ANY OTHER THEORY OR CAUSE OF ACTION AT LAW OR IN EQUITY,
INCLUDING LOST BUSINESS PROFITS, DOWNTIME, CESSATION OR REDUCTION OF PRODUCTION, LOST
THROUGHPUT, JOINT USE OF THE MAGNOLIA TLP BY THE PARTIES AND ANY THIRD PARTIES, AND ANY
BREACH OF THIS AGREEMENT), INCLUDING, WITHOUT LIMITATION, LOSS OF PROFIT OR BUSINESS
INTERRUPTION, DAMAGE TO WELL(S) OR RESERVOIRS, OR LOSS OF WELL(S), FROM OR AGAINST ANY
OTHER PARTY, EXCEPT TO THE EXTENT SUCH PARTY SUFFERS SUCH DAMAGES TO AN UNAFFILIATED
THIRD-PARTY IN CONNECTION WITH A THIRD-PARTY CLAIM FOR WHICH AN INDEMNITY IS EXPRESSLY
PROVIDED HEREUNDER AND IN WHICH EVENT SUCH DAMAGES SHALL BE RECOVERABLE. However, nothing
in this section shall alter the Parties’ rights to payments for deferred production as
expressly provided in this Agreement.

	11.4	 	Individual Obligations

	 	 	Notwithstanding any provisions herein, the rights and liabilities hereunder are several and
not joint or collective, and each Party will be responsible only for its share of the costs
and liabilities incurred as provided hereunder. Except as provided in Article 5.8

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	 	 	(Royalties and Taxes), nothing contained herein will ever be construed as creating a
partnership, joint venture, association or other character of business entity recognizable
in law for any purpose. Each Party will hold all the other Parties harmless from liens and
encumbrances on the Magnolia Leases, Magnolia TLP, Satellite Leases, Receiving Facilities,
and Satellite Production System as a result of its acts, but subject to Section 13.2.

ARTICLE XII — INSURANCE AND BONDS

	12.1	 	Insurance

	 	12.1.1	 	At all times during the term of this Agreement, Producer shall maintain the
insurance described on Exhibit “J” (Insurance Provisions) attached hereto and made a
part hereof, and Producer shall maintain all insurance that may be required under
applicable Laws.
	 
	 	12.1.2	 	Each policy required under Article 12.1.1 above, and each applicable insurance
policy which Producer elects to obtain in connection with its property or the
operations and activities contemplated by this Agreement, shall contain an endorsement
waiving underwriters’ rights of subrogation against Magnolia Owners and shall, with
the exception of Worker’s Compensation expressly include Magnolia Owners as additional
assureds, all as provided in Exhibit “J” (Insurance Provisions). Magnolia Owners
shall not have any liability for the payment of any premiums for such insurance
maintained by Producer hereunder.
	 
	 	12.1.3	 	Both the face value of applicable coverages and any applicable umbrella liability
insurance coverage shall be counted towards meeting the required limits of coverages
provided for by this Article 12.1 and Exhibit “J” (Insurance Provisions). Producer’s
obligation to obtain such insurance coverage is separate and distinct from the other
obligations assumed by Producer hereunder or under applicable Laws. The insurance
policies set forth in Exhibit “J” (Insurance Provisions) shall be endorsed to provide
that the coverage afforded is primary irrespective of the existence of other
applicable insurance.
	 
	 	12.1.4	 	Contemporaneously with execution hereof and from time to time upon request by
Magnolia Owners, Producer shall furnish Magnolia Owners with documentary evidence
showing that such insurance required by this Article 12.1 is in effect. Producer
further agrees that its insurance will not
be canceled for any cause whatsoever or materially changed without thirty (30) days
prior to written notice to Magnolia Owners, and further that any such lapse of
insurance is a material breach of this Agreement.
	 
	 	12.1.5	 	Without limiting Producer’s liability under this Agreement, Producer shall require
all of its contractors to carry all insurance required by Laws and other types of
insurance in amounts and limits normally carried by prudent contractors for the type
of work being performed. All contractors so engaged by Producer may be required to
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	 	 	 	commencing any work on
the Magnolia TLP and any agreement with such contractors shall evidence this
requirement.

	12.2	 	Bonds
	 
	 	 	The Magnolia TLP Operator and the Satellite Operator will obtain and maintain any and all
bonds required to be carried by any applicable Laws. The Magnolia TLP Operator and the
Satellite Operator will require all contractors to obtain and maintain all bonds required
to be carried by any applicable Laws.

ARTICLE XIII — SUCCESSORS AND ASSIGNS

	13.1	 	Successors and Assigns
	 
	 	 	This Agreement is binding upon and inures to the benefit of the Parties and their
respective heirs, successors and assigns. Each Party will incorporate in any assignment or
transfer of its interest in the Magnolia TLP, Satellite Leases or Satellite Production
System a provision that such assignment is subject to this Agreement.

	13.2	 	Assignment

	 	13.2.1	 	Assignment by Producer. The Producer has the right at any time to assign, transfer,
farmout, exchange, sell or otherwise dispose its rights and obligations in the
Satellite Leases and this Agreement in whole or in part (other than the granting of
liens or security interests to secure other obligations or indebtedness of the
Producer) (“Transfer of Interest”) without the prior written consent of the Magnolia
Owners only under the following circumstances:
	 
	 	 	 	(a)   There shall continue to be a single Satellite Operator of the Satellite Leases
and the Satellite Production System;

          (b)12
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	12	 	CONFIDENTIAL TREATMENT HAS BEEN REQUESTED BY CALLON
PETROLEUM COMPANY FOR CERTAIN PORTIONS OF THIS DOCUMENT.
CONFIDENTIAL PORTIONS HAVE BEEN FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION. OMITTED PORTIONS ARE
INDICATED IN THIS AGREEMENT WITH “*****”.

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(c) The Transfer of Interest will be made subject to the rights, duties and
obligations of this Agreement, and any such assignee or transferee will be
obligated to ratify and join this Agreement. Failure to meet both of
the conditions to transfer provided in (a) and (b) above, or the failure of the
assignee or transferee to ratify and join this Agreement, shall render such
Transfer of Interest void. Written notice of the completion of any Transfer of
Interest must be given to the Magnolia TLP Operator within ninety (90) Days of the
completion of such transaction. Any Transfer of Interest will be effective only
upon at least ninety (90) Days written notice to the Magnolia TLP Operator. Each
individual Producer remains responsible for any costs incurred by it, under the
terms of this Agreement prior to the date of notice to the Magnolia TLP Operator in
writing of the Transfer of Interest and the assignee’s or transferee’s acceptance
of the terms of this Agreement.

	 	13.2.2	 	Assignment by Magnolia Owners. The assignment, transfer, farmout, exchange, sale or
other disposition of any ownership in the Magnolia TLP or the Magnolia Leases will be
made subject to the rights, duties and obligations of this Agreement, and any such
assignee or transferee is obligated to ratify and join this Agreement. Written notice
of the completion of any assignment or transfer must be given to the Producer within
ninety (90) Days of the completion of such transaction. The Magnolia Owners (or each
individual Magnolia TLP Owner) remain responsible for the obligations incurred by the
Magnolia Owners, or each such individual Magnolia Owner, under the terms of this
Agreement prior to the date of notice to the Producer in writing of the assignment or
transfer of this Agreement and the assignee’s or transferee’s acceptance of the terms
of this Agreement.

ARTICLE XIV – NOTICES

	14.1	 	Giving and Responding to Notices
	 
	 	 	Unless otherwise specifically provided herein to the contrary, all notices, responses,
demands, waivers, consents and other communications required or permitted to be given under
this Agreement will be made in writing, and delivered to the designated representative in
person, by facsimile transmission (followed by a telephone call confirming receipt), by
U.S. mail, by overnight express or courier, in each instance with proof of delivery.
Notices and responses are deemed to have been duly given and to have become effective (i)
upon receipt if delivered in person; (ii) upon receipt if given by facsimile so long as
receipt is confirmed by telephone, (iii) three (3) business Days after having been
delivered to an air courier for overnight delivery; or (iv) upon receipt after

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	 	 	having been
deposited in the U.S. mail, in each instance all fees prepaid. Any such notice shall be
directed to the Party, or its permitted assignee at the address set forth below in this
Article 14.1 (Giving and Responding to Notices). Failure to timely respond to any matter
requiring consent is deemed a negative response to such proposal. The following addresses
will remain effective until such time as a Party
changes its address for notice by giving notice to the other Parties in accordance with
this Article 14.1 (Giving and Responding to Notices).

	 
	 	 	If to Satellite Operator, to:

	 	 	 	Operational Matters:
	 
	 	 	 	Callon Petroleum Operating Company

Attention: Terry M. Stock, Project and Operations Manager

1200 Enclave Pkwy.; Suite 225

Houston, TX 77077

Telephone: (281) 589-5207

Facsimile: (281) 589-5215
	 
	 	 	 	Billing/Invoices:
	 
	 	 	 	Callon Petroleum Operating Company

Invoice Processing

P. O. Box 1287

Natchez, Mississippi 39121

(email: rhinton@callon.com)
	 
	 	 	 	Notices:
	 
	 	 	 	Callon Petroleum Operating Company

Attention: Dee A. Newman, Land Manager

200 North Canal Street, Suite 200

Natchez, Mississippi 39120

Telephone: (601) 446-6260

Facsimile: (601) 446-1434

(email: dnewman@callon.com)

	 	 	If to the Magnolia TLP Operator, to:

	 	 	 	Operational Matters:

	 
	 	 	 	ConocoPhillips Company

Attention: Gulf of Mexico Operations Manager

600 N. Dairy Ashford

Houston, Texas 77079

Telephone: (832) 486-2137

Facsimile: (832) 486-2744

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	 	 	 	Notices:
	 
	 	 	 	ConocoPhillips Company

Attention: Gulf of Mexico Land Manager

600 N. Dairy Ashford

Houston, Texas 77079

Telephone: (832) 486-2265

Facsimile: (832) 486-2691

	 	 	If to the Magnolia Owners, to:

	 	 	 	Notices:
	 
	 	 	 	ConocoPhillips Company

Attention: Gulf of Mexico Land Manager

600 N. Dairy Ashford

Houston, Texas 77079

Telephone: (832) 486-2265

Facsimile: (832) 486-2691

	 
	 	 	 	Devon Energy Production Company, L.P.

Attention: Gulf of Mexico Land Manager

1200 Smith St.

Houston, TX 77002

Telephone: (713) 286-5858

Facsimile: (713) 286-5737

	 	 	If to Producer, to:

	 	 	 	Notices:
	 
	 	 	 	Callon Petroleum Operating Company

Attention: Terry M. Stock, Project and Operations Manager

1200 Enclave Pkwy.; Suite 225

Houston, TX 77077

Telephone: (281) 589-5207

Facsimile: (281) 589-5215

	14.2	 	Content of Notice
	 
	 	 	Any notice which requires a response within a time period will indicate the applicable
response time. Any notice must contain sufficient detail to allow the Parties to
adequately evaluate the scope, timing, costs, etc. of the matter/proposal.

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ARTICLE XV — ADMINISTRATIVE AND MISCELLANEOUS

	15.1	 	Billing Procedures
	 
	 	 	Unless otherwise specifically provided herein, the Magnolia TLP Operator will direct
invoice, in accordance with Exhibit “C” (Accounting Procedures), to the Satellite Operator
on behalf of the Producer, for all costs and expenses that are due from Producer under this
Agreement. Unless otherwise expressly provided in this Agreement, costs payable or
reimbursable by Producer shall be determined in accordance with Exhibit “C” (Accounting
Procedures).
	 
	15.2	 	Disclaimer of Warranties by Magnolia Owners
	 
	 	 	THE MAGNOLIA OWNERS DO NOT MAKE ANY EXPRESS OR IMPLIED WARRANTY OR REPRESENTATION AS TO THE
SUITABILITY, QUALITY, QUANTITY, OR FITNESS OF THE MAGNOLIA TLP, EQUIPMENT, FACILITIES, OR
THE EXISTING MAGNOLIA TLP SYSTEMS REGARDING THE USE OF SAME FOR ANY PARTICULAR PURPOSE. The
Producer acknowledges that it has the right to inspect the Magnolia TLP, its facilities and
systems at any time and shall accept and use the same “AS IS,” “WHERE IS,” and “WITH ALL
FAULTS,” and in their present or future condition and state of repair as of the date of this
Agreement, and regardless of any wear and tear or damage that may occur after the date of
this Agreement. THE PRODUCER EXPRESSLY ASSUMES THE RISK OF ANY DEFAULT IN OR FAILURE OF THE
MAGNOLIA TLP, FACILITIES, EQUIPMENT, SYSTEMS OR PROPERTY SUBJECT TO THIS AGREEMENT AND
HEREBY FULLY RELEASES AND RELIEVES AND AGREES TO INDEMNIFY, DEFEND AND HOLD HARMLESS THE
MAGNOLIA OWNERS WITH RESPECT TO ANY LIABILITY TO THE PRODUCER, OR ANY CONTRACTORS OR ANY
INVITEES OF THE PRODUCER, AS A RESULT THEREOF.
	 
	 	 	To the extent required to be operative, the disclaimers of representations and warranties
contained in this Agreement are conspicuous disclaimers for the purpose of any applicable
Laws. MAGNOLIA OWNERS EXPRESSLY DISCLAIM AND NEGATE AS TO THE MAGNOLIA TLP, FACILITIES,
EQUIPMENT AND SYSTEMS (A) ANY IMPLIED OR EXPRESS WARRANTY OF MERCHANTABILITY, (B) ANY
IMPLIED OR EXPRESS WARRANTY OF FITNESS FOR A PARTICULAR PURPOSE, AND (C) ANY IMPLIED OR
EXPRESS WARRANTY OF CONFORMITY TO MODELS OR SAMPLES OF MATERIALS.
	 
	 	 	The express representations and warranties of the Parties contained in this Agreement are
exclusive and are in lieu of all other representations and warranties, express, implied or
statutory. Except as expressly set forth in this Agreement, the Parties hereto each
disclaim all liability and responsibility for any other representation, warranty, statements
or communications (orally or in writing) to any other Party (including, but not limited to,
any information contained in any opinion, information or advice that may have been provided
to any such Party by any employee, officer, director, agent, consultant, engineer
or engineering firm, trustee, representative, partner, member, beneficiary, stockholder or
contractor of such disclaiming Party or its Affiliates) wherever and however made.

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	 	 	Without limiting the generality of the foregoing, Magnolia Owners make no warranty or
representation, express or implied, with respect to the accuracy, completeness or
materiality of the information, records and data now, heretofore or hereafter made available
to the Producer in connection with the Magnolia TLP, facilities, equipment and systems or
this Agreement, including, without limitation, (i) any description of the Magnolia TLP,
facilities, equipment and systems, (ii) regulatory matters, (iii) the physical, operating,
regulatory compliance, safety or environmental condition of the Magnolia TLP, facilities,
equipment and systems at any time, (iv) potential for use of the Magnolia TLP, facilities,
equipment and systems, (iv) value of the Magnolia TLP, facilities, equipment and systems,
(v) any projections as to events that could or could not occur, or that are likely to occur,
and (vi) any other matters contained in or omitted from any information or material
furnished to Producer by Magnolia Owners. Any and all such data, information and material
furnished by Magnolia Owners is provided as a convenience only and any reliance on or use of
same is at the Producer’s sole risk. The Magnolia Owners and their Affiliates, and their
officers, directors, employees, agents, consultants, trustees or representatives, shall have
no liability to the Producer or its Affiliates, and its officers, directors, employees,
agents, consultants, trustees or representatives, resulting from any use, authorized or
unauthorized, of the information, records and data relating to the Magnolia TLP, facilities,
equipment and systems provided by or on behalf the Producer, and the Producer hereby waives
and releases the Magnolia Owners from same.
	 
	15.3	 	Disclaimer of Warranties by Producer
	 
	 	 	THE PRODUCER DOES NOT MAKE ANY EXPRESS OR IMPLIED WARRANTY OR REPRESENTATION AS TO THE
SUITABILITY, QUALITY, QUANTITY, OR FITNESS OF THE SATELLITE PRODUCTION SYSTEM, EQUIPMENT,
FACILITIES, OR REGARDING THE USE OF SAME FOR ANY PARTICULAR PURPOSE. The Magnolia Owners
acknowledge that they have the right to inspect the Satellite Production System, its
facilities and systems at any time and shall accept and use the same “AS IS,” “WHERE IS,”
and “WITH ALL FAULTS,” and in their present or future condition and state of repair as of
the date of this Agreement, and regardless of any wear and tear or damage that may occur
after the date of this Agreement. THE MAGNOLIA OWNERS EXPRESSLY ASSUME THE RISK OF ANY
DEFAULT IN OR FAILURE OF THE SATELLITE PRODUCTION SYSTEM, FACILITIES, EQUIPMENT, SYSTEMS OR
PROPERTY SUBJECT TO THIS AGREEMENT AND HEREBY FULLY RELEASE AND RELIEVE AND AGREE TO
INDEMNIFY, DEFEND AND HOLD HARMLESS THE PRODUCER WITH RESPECT TO ANY LIABILITY TO THE
MAGNOLIA OWNERS, OR ANY CONTRACTORS OR ANY INVITEES OF THE MAGNOLIA OWNERS, AS A RESULT
THEREOF.
	 
	 	 	To the extent required to be operative, the disclaimers of representations and warranties
contained in this Agreement are conspicuous disclaimers for the purpose of any applicable
Laws. THE PRODUCER EXPRESSLY DISCLAIMS AND NEGATES AS TO THE SATELLITE PRODUCTION SYSTEM,
FACILITIES, EQUIPMENT AND
SYSTEMS (A) ANY IMPLIED OR EXPRESS WARRANTY OF MERCHANTABILITY, (B) ANY IMPLIED OR EXPRESS
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	 	 	FITNESS FOR A PARTICULAR PURPOSE, AND (C) ANY IMPLIED OR EXPRESS WARRANTY OF
CONFORMITY TO MODELS OR SAMPLES OF MATERIALS.
	 
	 	 	The express representations and warranties of the Parties contained in this Agreement are
exclusive and are in lieu of all other representations and warranties, express, implied or
statutory. Except as expressly set forth in this Agreement, the Parties hereto each
disclaim all liability and responsibility for any other representation, warranty, statements
or communications (orally or in writing) to any other Party (including, but not limited to,
any information contained in any opinion, information or advice that may have been provided
to any such Party by any employee, officer, director, agent, consultant, engineer or
engineering firm, trustee, representative, partner, member, beneficiary, stockholder or
contractor of such disclaiming Party or its Affiliates) wherever and however made.
	 
	 	 	Without limiting the generality of the foregoing, the Producer makes no warranty or
representation, express or implied, with respect to the accuracy, completeness or
materiality of the information, records and data now, heretofore or hereafter made available
to the Magnolia Owners in connection with the Satellite Production System, facilities,
equipment and systems or this Agreement, including, without limitation, (i) any description
of the Satellite Production System, facilities, equipment and systems, (ii) regulatory
matters, (iii) the physical, operating, regulatory compliance, safety or environmental
condition of the Satellite Production System, facilities, equipment and systems at any time,
(iv) potential for use of the Satellite Production System, facilities, equipment and
systems, (iv) value of the Satellite Production System, facilities, equipment and systems,
(v) any projections as to events that could or could not occur, or that are likely to occur,
and (vi) any other matters contained in or omitted from any information or material
furnished to Magnolia Owners by Producer. Any and all such data, information and material
furnished by Producer is provided as a convenience only and any reliance on or use of same
is at the Magnolia Owners’ sole risk. The Producer and its Affiliates, and its officers,
directors, employees, agents, consultants, trustees or representatives, shall have no
liability to the Magnolia Owners or their Affiliates, and their officers, directors,
employees, agents, consultants, trustees or representatives, resulting from any use,
authorized or unauthorized, of the information, records and data relating to the Satellite
Production System, facilities, equipment and systems provided by or on behalf the Magnolia
Owners, and the Magnolia Owners hereby waive and release the Producer from same.
	 
	15.4	 	Representations and Warranties
	 
	 	 	Each Party represents and warrants to the other Parties that on and as of the Effective Date
hereof:

	 	15.4.1	 	it is duly formed and validly existing and in good standing under the Laws of its
state or jurisdiction of formation, with power and authority to carry on the business
in which it is engaged and to perform its respective obligations under this Agreement;

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	 	15.4.2	 	the execution and delivery of this Agreement have been duly authorized and approved
by all requisite corporate, limited liability company, partnership or similar action;
	 
	 	15.4.3	 	it has the entire requisite corporate, limited liability company, partnership or
similar power and authority to enter into this Agreement and perform its obligations
hereunder;
	 
	 	15.4.4	 	the execution and delivery of this Agreement does not, and consummation of the
transactions contemplated herein will not, violate any of the provisions of
organizational documents, any agreement pursuant to which it or its property is bound,
to its knowledge, any applicable Laws; and
	 
	 	15.4.5	 	this Agreement is valid, binding and enforceable against it in accordance with its
terms, subject to bankruptcy, moratorium, insolvency and other Laws generally affecting
creditors’ rights and general principles of equity (whether applied in a proceeding in
a court of law or equity).

	15.5	 	Warranty of Title

	 	15.5.1	 	The Producer warrants title to its share of Satellite Production to be handled by the
Magnolia TLP Operator and indemnifies the Magnolia Owners pursuant to Article 11.2.1
(Satellite Production) of this Agreement.
	 
	 	15.5.2	 	Each Magnolia Owner severally warrants title to its share of the Magnolia TLP
Production to be handled on the Magnolia TLP and indemnifies the Producer pursuant to
Article 11.2.2 (Non-Satellite Production) of this Agreement.

	15.6	 	Standard of Performance
	 
	 	 	The Magnolia TLP Operator and the Satellite Operator will conduct all operations in a proper
and workmanlike manner in accordance with methods and practices customarily used in sound
oil and gas field practice and with that degree of diligence reasonable and ordinarily
exercised by an experienced prudent operator engaged in a similar activity under the same or
similar circumstances.
	 
	15.7	 	Producer’s Employees, Consultants, and Contractors
	 
	 	 	The Producer will keep the Magnolia Leases, the Magnolia TLP and all Non-Satellite
Production free from all liens and encumbrances which might arise by reason of the their
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	15.8	 	Magnolia TLP Operator’s Employees, Consultants, and Contractors
	 
	 	 	The Magnolia Owners will keep the Satellite Leases, the Satellite Production and the
Satellite Production System free from all liens and encumbrances which might arise by
reason of the their operations and activities conducted under this Agreement, except as
expressly provided in Article 13.2.1 (b).
	 
	15.9	 	Further Assurances
	 
	 	 	Subject to the terms and conditions set forth in this Agreement, each of the Parties agrees
to use all reasonable efforts to take, or to cause to be taken, all actions, and to do, or
to cause to be done, all things reasonably necessary, proper or advisable under applicable
Laws to consummate and make effective the transactions contemplated by this Agreement. In
case, at any time after the execution of this Agreement, any further action is deemed
necessary or desirable to carry out its purposes, the proper officers, directors, or other
appropriate representatives of the Parties will take or cause to be taken all such
reasonably necessary action.
	 
	15.10	 	Non-Compliance Citations
	 
	 	 	The Producer will be responsible for any non-compliance citations issues by governmental
agencies with respect to the Satellite Production System or the Satellite Leases, and such
citations will be promptly reported to the Magnolia TLP Operator. The Magnolia Owners will
be responsible for any non-compliance citations issued by governmental agencies with respect
to the Magnolia Leases or the Magnolia TLP and such citations will be promptly reported to
the Satellite Operator.
	 
	15.11	 	Dispute Resolution
	 
	 	 	Compliance with this Article 15.11 (Dispute Resolution) shall constitute a condition
precedent to any Party seeking judicial enforcement of any provisions of this Agreement.
Any dispute concerning this Agreement shall be resolved under the mediation procedures of
this Article 15.11 (Dispute Resolution). The Parties will first attempt in good faith to
resolve all disputes by negotiations between management level persons who have authority to
settle the controversy. If either Party believes further negotiations are futile, such
Party may initiate the mediation process by so notifying the other Party in writing. The
other Parties shall then attempt in good faith to resolve the dispute by mediation in
Houston, Texas, employing management level persons with authority to settle the dispute, in
accordance with the International Institute for Conflict Prevention and Resolution Model
Procedure for Mediation of Business Disputes, as such procedure may be modified by agreement
of the Parties. If the dispute has not been resolved pursuant to mediation within sixty
(60) days after initiating the mediation process, the dispute may be addressed in any manner
a Party deems appropriate, but subject to Article 15.15.1 (Confidentiality Provisions). All
negotiations and mediations pursuant to this Article 15.11 (Dispute Resolution) are
confidential and shall be treated as compromise and settlement negotiations for purposes of
applicable rules of evidence. Notwithstanding the provisions of this Article 15.11 (Dispute
Resolution), any Party may seek from the courts any interim, provisional or injunctive
relief that may be necessary to protect the rights or

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	 	 	property of any Party or maintain the
status quo before, during or after the pendency of any mediation or settlement discussions.
The institution and maintenance of any judicial action or proceeding for any such interim,
provisional or injunctive relief shall not constitute a waiver of the right or obligation of
any Party to submit the dispute to
negotiation and mediation as described above, including Claims or disputes arising from the
exercise of such interim, provisional or injunctive relief. The provisions of this Article
15.11 (Dispute Resolution) shall not limit the obligation of a Party to defend, indemnify of
hold harmless the other Parties against court proceedings or other Claims as provided in
Article XI (Liabilities and Indemnification). The cost of the mediation shall be shared 50%
by Magnolia Owners and 50% by Producer.
	 
	15.12	 	Waivers
	 
	 	 	Neither action taken (including, without limitation, any investigation by or on behalf of a
Party) nor inaction pursuant to this Agreement will be deemed to constitute a waiver of
compliance with any representation, warranty, covenant or agreement contained herein by the
Party not committing such action or inaction. A waiver by any Party of a particular right,
including, without limitation, breach of any provision of this Agreement, will not operate
or be construed as a subsequent waiver of that same right or a waiver of any other right.
	 
	15.13	 	Remedies
	 
	 	 	The rights, obligations, and remedies created by this Agreement are cumulative and in
addition to any other rights, obligations, or remedies otherwise available at Law or in
equity. Nothing herein will be considered an election of remedies.
	 
	15.14	 	No Third Party Beneficiaries
	 
	 	 	Except to the extent a Third Party is expressly given rights herein, any agreement herein
contained, expressed or implied, will be only for the benefit of the Parties and their
respective legal representatives, successors, and assigns, and such agreements or
assumptions will not inure to the benefit of any other Person whomsoever, it being the
intention of the Parties that no Person will be deemed a Third Party beneficiary to this
Agreement except to the extent a Third Party is expressly given rights herein.
	 
	15.15	 	Confidentiality Provisions

	 	15.15.1	 	The Parties agree to keep in secrecy and confidence until the termination of this
Agreement the Confidential Information, save and except:

	 	(a)	 	to their respective Affiliates, subcontractors
and consultants and their respective employees, servants or agents
actively engaged in the operations hereunder to the extent that they
need to know for purposes related to this Agreement, or
	 
	 	(b)	 	if and to the extent it is required or
requested to do so by any Laws, provided that the disclosing Party
will, if permitted to do so, notify

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	 	 	 	the other Parties in writing as
soon as possible upon becoming aware of any such requirement, or
	 
	 	(c)	 	to any bona fide prospective assignee or
transferee of all or any portion of a Party’s interest in the Magnolia
Leases or Satellite Leases (whichever the case may be) provided that
such prospective assignee or transferee has executed a confidentiality
agreement for a term of not less than four (4) years requiring it to
maintain the secrecy and confidentiality of the Confidential
Information.

	 	15.15.2	 	Notwithstanding the foregoing, the provision of confidentiality, use, and disclosure
above will not apply to information:

	 	(a)	 	which was in the public knowledge or literature
at the time of disclosure by any Party hereunder,
	 
	 	(b)	 	which was already in the possession of any
Party at the time of disclosure hereunder without obligation of
confidentiality,
	 
	 	(c)	 	which was or is subsequently developed by any
Party without use of the Confidential Information,
	 
	 	(d)	 	which subsequent to disclosure hereunder and
without fault of the disclosing Party becomes part of the public
knowledge, or
	 
	 	(e)	 	which is disclosed to any Party (without the
obligation of confidentiality) by a Third Party having the legal right
to do so.

	 	15.15.3	 	Any Party who assigns or transfers its interest in this Agreement remains bound by
the confidentiality obligations of this Agreement as to any Confidential Information
obtained throughout the term of this Agreement.
	 
	 	15.15.4	 	All Confidential Information made available to the Parties hereunder will be done so
on an “as is” basis without any warranties, either express or implied, as to the
accuracy, validity, or utility of such information. In no event will any Party be
liable for any damages of whatever nature arising out of, or resulting from, making the
Confidential Information available under this Agreement.

	15.16	 	Commitment of Oil and Gas Reserves
	 
	 	 	Subject to Article X (Term, Default, Termination and Continuation of Services), for the life
of the Satellite Leases, the Producer commits to: (i) deliver all Satellite Production to
the Magnolia TLP for processing, handling, and delivery, except that the Producer reserves
unto itself, its successors and assigns, the right to use quantities of Satellite Production
sufficient to satisfy (a) development and operations of the Satellite Leases including, but
not limited to, additional recovery operations and use of Gas for fuel,

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	 	 	flaring, pigging,
drilling, deepening, reworking, or such other operations and (b) any royalty interest in
Satellite Production that the royalty owner may elect to in-kind.
	 
	15.17	 	Compliance With Laws and Regulations
	 
	 	 	This Agreement and all of the terms and conditions contained herein, and the respective
obligations of and the operations conducted by the Parties, are expressly subject to and
will remain subject to and comply with all valid and applicable Laws. Each of the Parties
hereto agree that they will at all times maintain their respective facilities and leases and
conduct their operations thereon in accordance with all valid and applicable Laws.
	 
	 	 	No Party will suffer a forfeiture or be liable in damages to the other Parties for any
delays or damages or any failure to act, due, occasioned or caused by reason of Laws
respecting the activities or operations covered hereby and delays due to the above causes,
or any of them, will not be deemed to be a breach of or failure to perform under this
Agreement.

	 	15.17.1	 	Applicable Law: THE PROVISIONS OF THIS AGREEMENT AND THE RELATIONSHIP OF THE PARTIES
WILL BE GOVERNED AND INTERPRETED ACCORDING TO THE LAWS OF THE STATE OF LOUISIANA
WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAWS OF ANOTHER JURISDICTION. Subject to
Article 15.11 (Dispute Resolution) to the extent permissible by Laws, Lafayette,
Louisiana shall be the exclusive venue for all proceedings brought by any party
regarding any Claim under this Agreement.
	 
	 	15.17.2	 	Severance of Invalid Provisions: The Parties intend that every provision of this
Agreement, the Exhibits attached hereto, and the documents incorporated herein by
reference be severable. If any term or other provision of this Agreement is found to
be invalid, illegal or incapable of being enforced by any rule of Laws or public
policy, all other conditions and provisions of this Agreement will remain in full force
and effect. The illegality, invalidity or unenforceability of any provisions hereof
will not affect the legality, validity or enforceability of the remainder of this
Agreement. In the case of conflict between the provisions of this Agreement and the
provisions of any applicable Laws, the provisions of the Laws will govern over the
provisions of this Agreement. If, for any reason and for so long as, any clause or
provision of this Agreement is held by a court of competent jurisdiction to be illegal,
invalid, unenforceable or unconscionable under any Laws (or interpretation thereof),
the remainder of this Agreement will not be affected by such illegality or invalidity.
Any such invalid provision will be deemed severed from this Agreement as if this
Agreement had been executed with the invalid provision eliminated. Any term or
provisions of this Agreement that is invalid or unenforceable in any jurisdiction will
be ineffective only as to such jurisdiction and then only to the extent of such
invalidity or unenforceability, without rendering invalid or unenforceable the
remaining terms and provisions of this Agreement or affecting the validity or
enforceability of any terms and provisions of this Agreement in any other

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	 	 	 	jurisdiction.
If any provision of this Agreement is so broad as to be unenforceable, each provision
will be interpreted to be only so broad as is
enforceable. A bankruptcy or similar trustee must accept or, to the extent
permitted by Law, reject this Agreement in its entirety.
	 
	 	15.17.3	 	Fair and Equal Employment: Each of the Parties is an Equal Opportunity Employer. To
the extent that this Agreement may be subject to Executive Order 11246, as amended, the
equal opportunity provisions (41 CFR 60-1) are incorporated herein by reference. If
the Non-Discrimination in the OCS provisions of 30 CFR 270 apply to this Agreement and
the operations conducted under it, the provisions of 30 CFR 270 are also incorporated
by reference. To the extent required by applicable Laws, this Agreement also includes
and is subject to the affirmative action clauses concerning disabled veterans and
veterans of the Vietnam era (41 CFR 60-250) and the affirmative action clauses
concerning employment of the handicapped (41 CFR 60-741), which clauses are
incorporated herein by reference. In performing work under this Agreement, the Parties
agree to comply with (and the Magnolia TLP Operator and the Satellite Operator, as
applicable, will require each independent contractor to comply with) the governmental
requirements set forth in Exhibit “L” (Certification of Non-Segregated Facilities)
attached hereto, pertaining to non-segregated facilities. This Agreement and the
Parties are also subject to any other applicable Laws relating to non-discrimination.
The Magnolia Owners and the Producer do not condone in any way the use of illegal drugs
or controlled substances. The Magnolia TLP Operator and the Satellite Operator, as
applicable, will maintain in effect a drug free workplace policy.

	15.18	 	Construction and Interpretation of this Agreement
	 
	 	 	The construction and interpretation of the terms of this Agreement will be governed by the
following conventions:

	 	15.18.1	 	Heading for Convenience: All references in this Agreement to articles, sections,
subsections and Exhibits hereof will refer to the corresponding article, section,
subsection or exhibit of this Agreement, unless specific reference is made to such
articles, sections, subsection or exhibit of another document or instrument. All
titles or headings to Articles, subarticles or other divisions of this Agreement except
Article II (Definitions and Exhibits) or the Exhibits hereto are only for the
convenience of the Parties and will not be construed to have any effect or meaning with
respect to the other content of such Articles, subarticles or other divisions, such
other content being controlling as to the agreement between the Parties.
	 
	 	 	 	Except as otherwise provided in this Agreement, each reference to an article
of this Agreement will include the entire referenced article including its
sections and subsections. Except as otherwise provided in

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	 	 	 	this Agreement,
each reference to a section in this Agreement will include all of the
section including its subsections. Except as otherwise provided
in this Agreement, each reference to an exhibit in this Agreement will
include all of the exhibit, including sections and subsections.
	 
	 	15.18.2	 	Gender: All personal pronouns used in this Agreement, whether used in the masculine,
feminine, or neuter gender, will include all other genders.
	 
	 	15.18.3	 	Number: Whenever the context requires, reference herein made to the singular will be
understood to include the plural, and the plural will likewise be understood to include
the singular.
	 
	 	15.18.4	 	Independent Representation: Each individual member of the Magnolia Owners and the
Producer declare that they have contributed to the drafting of this Agreement or have
had it reviewed by their counsel before signing it. Each agrees that it has been
purposefully drawn and correctly reflects their understanding of the transaction that
it contemplates. Accordingly, this Agreement, though drawn by one Party, will be
considered for all purposes as prepared through the joint efforts of the Parties, and
will not be construed unfairly and unreasonably and not more strictly against one Party
or another Party as a result of the preparation. Each Party has had the benefit of
independent representation with respect to the subject matter of this Agreement.

	15.19	 	Integrated and Entire Agreement
	 
	 	 	This Agreement, and the Exhibits attached thereto, constitute the entire and final agreement
between the Parties pertaining to the subject matter hereof and as such supersedes all prior
agreements, understandings, negotiations, and discussion, whether oral or written. There
are no representations, warranties, promises, or other agreements, oral or written, between
the Parties in connection with the subject matter hereof, other than those specifically set
forth in this Agreement or in documents delivered pursuant to this Agreement.
	 
	 	 	Upon execution of this Agreement by all of the Parties, this Agreement will supersede and
replace all previous negotiations, understandings, promises, or discussions, whether written
or oral, relative to the subject matter of this Agreement. Each of the Parties acknowledges
that no other Party has made any promise, representation or warranty that is not expressly
stated in this Agreement. This Agreement is entire as to all of the performances to be
rendered under it and breach of any provision will constitute a breach of the entire
Agreement.
	 
	15.20	 	Amendment and Modification
	 
	 	 	Except as otherwise provided in this Agreement, all amendments, supplements, and
modification to this Agreement will be in writing and executed by all of the Parties. This

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	 	 	Agreement will not be modified or changed except by a written amendment signed by all of the
Parties.
	 
	15.21	 	Survivability
	 
	 	 	The provisions, including any obligations associated therewith, relating to the payment of
invoices, audit, abandonment, indemnity, regulatory compliance, representation, warranty,
and confidentiality, will survive the cancellation or termination of this Agreement without
regard to any action taken pursuant to this Agreement, including without limitation, the
execution of any documents affecting an interest in real property or any investigation made
by the Party asserting the breach thereof. Notwithstanding the foregoing, the
indemnification provisions contained in Article XI (Liabilities and Indemnification) will
survive until the later of (i) judicial declaration of the expiration of the applicable
statute of limitations or (ii) all Claims arising hereunder have been concluded.
Accordingly, cancellation or termination of this Agreement will not relieve any Party from
any costs, expenses, or liability accrued or incurred prior to the cancellation or
termination of this Agreement, and the provisions of this Agreement will continue in force
for such additional time as necessary until all Claims have been settled or otherwise
disposed of and a final accounting and settlement has been made under this Agreement.
	 
	15.22	 	Existing Agreements
	 
	 	 	Unless specifically excepted or reserved, and to the extent that they are binding on the
Magnolia Owners, the Producer and the Magnolia Owners agree that this Agreement will be made
subject to (and Producer accept that this Agreement is subject to) any and all valid and
existing reservations, exceptions, limitations, contracts, agreements, licenses, leases,
grants and all other agreements or instruments affecting the Magnolia TLP (i) which are of
record with the MMS or official county/parish records, (ii) of which Producer have actual or
constructive notice or knowledge, including, without limitation, any matter included or
referenced in materials made available to Producer by the Magnolia Owners for its review
prior to the execution of this Agreement, (iii) which are listed in this Article 15.22
(Existing Agreements), or (iv) are referred to in the contracts and agreements listed in
this Article 15.22 (Existing Agreements).
	 
	 	 	       None

ARTICLE XVI – EXECUTION

	16.1	 	Effect
	 
	 	 	Upon its execution by all of the Parties, this Agreement will become effective as of the
Effective Date and will be binding upon and inure to the benefit of the Parties and their
respective legal representatives, successors, and assigns. This Agreement does not benefit
or create any rights in any Person not a Party to this Agreement.
	 

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	16.2	 	Counterparts
	 
	 	 	This Agreement may be executed by signing the original or a counterpart thereof. If this
Agreement is executed in multiple counterparts, each counterpart will be deemed an original
and all counterparts when taken together will constitute but one and the same Agreement with the same effect as if all of the Parties had signed the same instrument.
This Agreement may also be ratified by separate instrument referring to this Agreement and
adopting by reference all the provisions of this Agreement. A ratification will have the
same effect as an execution of the original Agreement.

IN WITNESS WHEREOF, this Agreement is executed by each Party through its duly authorized agent or
representative on the date shown below the respective signature of each, but is effective as of the
Effective Date.

THE MAGNOLIA OWNERS

CONOCOPHILLIPS COMPANY (Magnolia Owner and Magnolia TLP Operator)

	 	 	 	 	 
	By:
	 	 	 	 
	 

	 	 

	 	 
	Name:

	 	David W. Twomey	 	 
	 
	 	 	 	 
	Title:

	 	Attorney-in-Fact	 	 
	 
	 	 	 	 
	Date:

	 	                    , 2007	 	 

DEVON ENERGY PRODUCTION COMPANY, L. P. (Magnolia Owner)

	 	 	 	 	 
	By:
	 	 	 	 
	 

	 	 

	 	 
	Name:

	 	Mark K. Gress	 	 
	 
	 	 	 	 
	Title:

	 	Agent and Attorney-in-Fact	 	 
	 
	 	 	 	 
	Date:

	 	                    , 2007	 	 

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THE PRODUCER

CALLON PETROLEUM OPERATING COMPANY (Producer and Satellite Operator)

	 	 	 	 	 
	By:
	 	 	 	 
	 

	 	 

	 	 
	Name:

	 	Fred L. Callon	 	 
	 
	 	 	 	 
	Title:

	 	President and CEO	 	 
	 
	 	 	 	 
	Date:

	 	                    , 2007	 	 

Page 71exv10w16

 

Exhibit 10.16

EXTERRAN HOLDINGS, INC.

AMENDED AND RESTATED 2007 STOCK INCENTIVE PLAN

I. PURPOSE

     The purpose of the EXTERRAN HOLDINGS, INC. 2007 STOCK INCENTIVE PLAN is to provide a means through
which Exterran Holdings, Inc., a Delaware corporation, and its Affiliates may attract
highly-qualified persons to serve as Directors or to enter the employ of the Company and its
Affiliates and to provide a means whereby those individuals, whose present and potential
contributions to the Company and its Affiliates are of importance, can acquire and maintain stock
ownership, thereby strengthening their concern for the welfare of the Company and its Affiliates. A
further purpose of the Plan is to provide such individuals with additional incentive and reward
opportunities designed to enhance the profitable growth of the Company and its Affiliates.
Accordingly, the Plan provides for the grant of Options, Restricted Stock, Restricted Stock Units,
Stock Appreciation Rights and Performance Awards, or any combination of the foregoing, as is best
suited to the circumstances of the particular Employee or Director as determined by the Committee
in its sole discretion.

II. DEFINITIONS

     The following definitions shall be applicable throughout the Plan unless specifically modified
by any paragraph:

     (a) “Affiliate” means any corporation, partnership, limited liability company or partnership,
association, trust or other organization which, directly or indirectly, controls, is controlled by,
or is under common control with, the Company. For purposes of the preceding sentence, “control”
(including, with correlative meanings, the terms “controlled by” and “under common control with”),
as used with respect to any entity or organization, shall mean the possession, directly or
indirectly, of the power (i) to vote more than 50% of the securities having ordinary voting power
for the election of directors of the controlled entity or organization, or (ii) to direct or cause
the direction of the management and policies of the controlled entity or organization, whether
through the ownership of voting securities or by contract or otherwise.

     (b) “Award” means, individually or collectively, any Options, Restricted Stock, Restricted
Stock Units, Stock Appreciation Rights or Performance Awards granted under the terms of the Plan.

     (c) “Award Notice” means a written notice setting forth the terms of an Award.

     (d) “Board” means the Board of Directors of the Company.

     (e) “Cause” means (i) the commission by a Participant of an act of fraud, embezzlement or
willful breach of a fiduciary duty to the Company or an Affiliate (including the unauthorized
disclosure of confidential or proprietary material information of the Company or an Affiliate),
(ii) a conviction of a Participant (or a plea of nolo contendere in lieu thereof) for a felony or a
crime involving fraud, dishonesty or moral turpitude, (iii) willful failure of a Participant to
follow the written directions of the chief executive officer of the Company or the Board, in the
case of executive officers of the Company; (iv) willful misconduct as an Employee of the Company or
an Affiliate; (v) willful failure of a Participant to render services to the Company or an
Affiliate in accordance with his employment arrangement, which failure amounts to a material
neglect of his duties to the Company or an Affiliate or (vi) substantial dependence, as determined
by the Committee, in its sole discretion, on any drug, immediate precursor or other substance
listed on Schedule IV of the Federal Comprehensive Drug Abuse Prevention and Control

Page 1

 

Act of 1970, as amended. With respect to any Participant residing outside of the United
States, the Committee may revise the definition of “Cause” as appropriate to conform to the laws of
the applicable non-U.S. jurisdiction.

     (f) “Code” means the U.S. Internal Revenue Code of 1986, as amended. References in the Plan to
any section of the Code shall be deemed to include any amendments or successor provisions to such
section and any regulations under such section.

     (g) “Committee” means the Committee defined in Paragraph IV(a) of the Plan.

     (h) “Common Stock” means the common stock, par value $.01 per share, of the Company, or any
security into which such common stock may be changed by reason of any transaction or event of the
type described in Paragraph XII.

     (i) “Company” means Exterran Holdings, Inc., a Delaware corporation, or any successors
thereto.

     (j) “Corporate Change” means:

     (i) The acquisition by any individual, entity or group (within the meaning of Section 13(d)(3)
or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) (a “Person”)
of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of
40% or more of either (A) the then outstanding shares of common stock of the Company (the
“Outstanding Company Common Stock”) or (B) the combined voting power of the then outstanding voting
securities of the Company entitled to vote generally in the election of directors (the “Outstanding
Company Voting Securities”); provided, however, that for purposes of this subsection (i), any
acquisition by any Person pursuant to a transaction which complies with clause (A) of subsection
(iii) of this definition shall not constitute a Corporate Change; or

     (ii) Individuals, who, as of the date hereof, constitute the Board (the “Incumbent Board”)
cease for any reason to constitute at least a majority of the Board; provided, however, that any
individual becoming a director subsequent to the date hereof whose election, or nomination for
election by the Company’s stockholders, was approved by a vote of at least a majority of the
directors then comprising the Incumbent Board shall be considered for purposes of this definition
as though such individual was a member of the Incumbent Board, but excluding, for these purposes,
any such individual whose initial assumption of office occurs as a result of an actual or
threatened election contest with respect to the election or removal of directors or other actual or
threatened solicitation of proxies or consents by or on behalf of a Person other than the Board; or

     (iii) The consummation of a reorganization, merger or consolidation involving the Company or
any of its subsidiaries, or the sale, lease or other disposition of all or substantially all of the
assets of the Company and its subsidiaries, taken as a whole (other than to an entity wholly owned,
directly or indirectly, by the Company) (each, a “Corporate Transaction”), in each case, unless,
following such Corporate Transaction, (A) all or substantially all of the individuals and entities
who were the beneficial owners of the Outstanding Company Common Stock and Outstanding Company
Voting Securities immediately prior to such Corporate Transaction beneficially own, directly or
indirectly, more than 60% of, respectively, the then outstanding shares of common stock and the
combined voting power of the then outstanding voting securities entitled to vote generally in the
election of directors, as the case may be, of the Resulting Corporation in substantially the same
proportions as their ownership, immediately prior to such Corporate Transaction, of the Outstanding
Company Common Stock and the Outstanding Company Voting Securities, as the case may be, and (B) at
least a majority of the members of the board of directors of the Resulting Corporation were members
of the Incumbent Board at the time of the execution of the initial agreement, or of the action of
the Board, providing for such Corporate Transaction. The term

Page 2

 

“Resulting Corporation” means (1) the Company or its successor, or (2) if as a result of a
Corporate Transaction the Company or its successor becomes a subsidiary of another entity, then
such entity or the parent of such entity, as applicable, or (3) in the event of a Corporate
Transaction involving the sale, lease or other disposition of all or substantially all of the
assets of the Company and its subsidiaries, taken as a whole, then the transferee of such assets in
such Corporate Transaction. Notwithstanding the foregoing, neither the sale, lease or other
disposition of assets by the Company or its subsidiaries to Universal Compression Partners, L.P. or
its subsidiaries or their successor nor the sale, lease or other disposition of any interest in
Universal Compression Partners, L.P., its general partner or its subsidiaries or their successors
shall, in and of itself, constitute a Corporate Change for purposes of this Plan.

     (k) “Director” means an individual elected to the Board by the stockholders of the Company or
by the Board under applicable corporate law and who is serving on the Board on the date the Plan is
adopted by the Board, or is subsequently elected to the Board, and is not an Employee.

     (l) “Disability” means any physical or mental condition for which the Participant would be
eligible to receive long-term disability benefits under the Company’s long-term disability plan.
With respect to any Participant residing outside of the United States, the Committee may revise the
definition of “Disability” as appropriate to conform to the laws of the applicable non-U.S.
jurisdiction.

     (m) “Employee” means any person who is an employee of the Company or any Affiliate. If an
entity ceases to be an Affiliate of the Company, a Participant employed by such entity shall be
deemed to have terminated his employment with the Company and its Affiliates and shall cease to be
an Employee under the Plan. For any and all purposes under the Plan, the term “Employee” shall
exclude an individual hired as an independent contractor, leased employee, consultant, or a person
otherwise designated by the Committee, the Company or an Affiliate at the time of hire as not
eligible to participate in or receive benefits under the Plan, even if such ineligible individual
is subsequently determined to be an employee by any governmental or judicial authority. For
purposes of any Award granted to a person residing outside of the United States, the Committee may
revise the definition of “Employee” as appropriate to conform to the laws of the applicable
non-U.S. jurisdiction.

     (n) “Fair Market Value” of a share of Common Stock means, as of any specified date: (i) if the
Common Stock is listed on a national securities exchange or quoted on the National Association of
Securities Dealers, Inc. Automated Quotation System (“NASDAQ”), the closing sales price of a share
of Common Stock on that date, or if no prices are reported on that date, on the last preceding day
on which the Common Stock was traded, as reported by such exchange or NASDAQ, as the case may be;
and (ii) if the Common Stock is not listed on a national securities exchange or quoted on the
NASDAQ, but is traded in the over-the-counter market, the average of the bid and asked prices for a
share of Common Stock on the most recent date on which the Common Stock was publicly traded. In the
event the Common Stock is not publicly traded at the time a determination of its value is required
to be made hereunder, the determination of its Fair Market Value shall be made by the Committee in
such manner as it deems appropriate.

     (o) “Incentive Stock Option” means an Option granted under Paragraph VII of the Plan that is
an incentive stock option within the meaning of Section 422 of the Code.

     (p) “1934 Act” means the U.S. Securities Exchange Act of 1934, as amended.

     (q) “Non-Qualified Option” means an Option granted under Paragraph VII of the Plan that is not
an Incentive Stock Option.

     (r) “Option” means an option to purchase shares of Common Stock granted under Paragraph VII of
the Plan that may be either an Incentive Stock Option or a Non-Qualified Option.

Page 3

 

     (s) “Participant” means an Employee or Director who has been granted an Award under the Plan.

     (t) “Performance Award” means an opportunity for a Participant to earn additional compensation
if certain Performance Measures or other criteria are met, as described in Paragraph XI of the
Plan.

     (u) “Performance Measure” means any performance objective established by the Committee in its
sole discretion, including, but not limited to, one or more of the following:

     (1) the price of a share of Common Stock;

     (2) the Company’s earnings per share;

     (3) the Company’s market share;

     (4) the market share of a business unit of the Company designated by the Committee;

     (5) the Company’s sales;

     (6) the sales of a business unit of the Company designated by the Committee;

     (7) the net income (before or after taxes) of the Company or any business unit of the Company
designated by the Committee;

     (8) the cash flow return on investment, cash value added, and/or working cash flow of the
Company or any business unit of the Company designated by the Committee;

     (9) the earnings before or after interest, leasing expense, taxes, depreciation, distributions
on mandatorily redeemable preferred stock, and/or amortization of the Company or any business unit
of the Company designated by the Committee;

     (10) the economic value added;

     (11) the return on stockholders’ equity achieved by the Company;

     (12) the return on capital employed of the Company or any business unit of the Company
designated by the Committee; or

     (13) the total stockholders’ return achieved by the Company.

A Performance Measure may be subject to adjustment for changes in accounting standards required by
the Financial Accounting Standards Board after the goal is established, for specified significant
items or events, and may be absolute, relative to one or more other companies, or relative to one
or more indexes, and may be contingent upon future performance of the Company or any Affiliate,
division, or department thereof.

     (v) “Plan” means the Exterran Holdings, Inc. Amended and Restated 2007 Stock Incentive Plan,
as amended from time to time.

     (w) “Restricted Stock” means Common Stock subject to certain restrictions, as described in
Paragraph VIII of the Plan.

Page 4

 

     (x) “Restricted Stock Unit” means a promise to deliver a share of Common Stock, or the Fair
Market Value of such share in cash, in the future if certain criteria are met, as described in
Paragraph IX of the Plan.

     (y) “Retirement” means a Termination of Service, other than due to Cause or death, on or after
the Participant attains (i) age 65 or (ii) age 55 and with the written consent of the Committee.
Notwithstanding the foregoing, with respect to a Participant residing outside of the United States,
the Committee may revise the definition of “Retirement” as appropriate to conform to the laws of
the applicable non-U.S. jurisdiction.

     (z) “Stock Appreciation Right” means a right entitling the Participant to the difference
between the Fair Market Value of a share of Common Stock on the date of exercise and the Fair
Market Value of a share of Common Stock on the date of grant, as described in Paragraph X of the
Plan.

     (aa) “Termination of Service” means a Participant’s termination of employment, if an Employee,
or a termination of service, if a Director, as the case may be. A Participant who is both an
Employee and a Director shall not incur a Termination of Service until the Participant terminates
both positions.

III. EFFECTIVE DATE AND DURATION OF THE PLAN

     The Plan, as amended and restated, shall become effective upon the date of its adoption by the
Board. No further Awards may be granted under the Plan after 7 years from the effective date of
the Plan. The Plan shall remain in effect until all Awards granted under the Plan have been
exercised or expired or vested or forfeited.

     The amendments made to the Exterran Holdings, Inc. 2007 Stock Incentive Plan pursuant to this
amendment and restatement shall apply to all Awards granted under the Plan, including Awards made
prior to the effective date of this amendment and restatement.

IV. ADMINISTRATION

     (a) Composition of Committee. The Plan shall be administered by the Compensation Committee of
the Board or such other committee, if any, that may be designated by the Board to administer the
Plan (the “Committee”); provided, however, that any and all members of the Committee shall satisfy
any independence requirements prescribed by any stock exchange on which the Company lists its
Common Stock; provided, further, that Awards may be granted to individuals who are subject to
Section 16(b) of the 1934 Act only if the Committee is comprised solely of two or more
“Non-Employee Directors” as defined in Securities and Exchange Commission Rule 16b-3 (as amended
from time to time, and any successor rule, regulation or statute fulfilling the same or similar
function); provided, further, that any Award intended to qualify for the “performance-based
compensation” exception under Section 162(m) of the Code shall be granted only if the Committee is
comprised solely of two or more “outside directors” within the meaning of Section l62(m) of the
Code and regulations pursuant thereto.

     (b) Powers. Subject to Paragraph IV(d), and the express provisions of the Plan, the Committee
shall have authority, in its discretion, to determine which Employees or Directors shall receive an
Award, the time or times when such Award shall be made, the terms and conditions of an Award, the
type of Award that shall be made, the number of shares subject to an Award and the value of an
Award. In making such determinations, the Committee shall take into account the nature of the
services rendered by the respective Employees or Directors, their present and potential
contribution to the Company’s success and such other factors as the Committee, in its sole
discretion, shall deem relevant.

Page 5

 

     (c) Additional Powers. The Committee shall have such additional powers as are delegated to it
by the other provisions of the Plan. Subject to the express provisions of the Plan, this shall
include the power to construe the Plan and the respective notices provided hereunder, to prescribe
rules and regulations relating to the Plan, and to determine the terms, restrictions and provisions
of the notice relating to each Award, including such terms, restrictions and provisions as shall be
required in the judgment of the Committee to cause designated Options to qualify as Incentive Stock
Options, and to make all other determinations necessary or advisable for administering the Plan.
The Committee may correct any defect or supply any omission or reconcile any inconsistency in the
Plan or in any notice relating to an Award in the manner and to the extent it shall deem expedient
to carry it into effect. Any determination or decision made by the Committee or its delegate
(pursuant to Paragraph IV(d)) under the terms of the Plan shall be made in the sole discretion of
the Committee or such delegate and shall be final and binding on all persons, including the Company
and Participants, but subject to ratification by the Board if the Board so provides.

     (d) Delegation of Powers. Subject to Paragraph IV(a) above, the Committee may delegate to the
Board or to the Chief Executive Officer or one or more other senior officers of the Company the
authority to grant Awards to Employees who are not subject to Section 16(b) of the 1934 Act.
Further, the Committee may delegate to the Governance Committee of the Board the authority to make
non-discretionary (routine) Awards to Directors, including to determine which Director shall
receive an Award, the time or times when such an Award shall be made, the terms and conditions of
such an Award, the type of Award that shall be made to a Director, the number of shares subject to
such an Award, and the value of such an Award; provided, however, that the Committee may not
delegate its authority to grant discretionary (non-routine) awards to Directors. The Committee may
delegate to the Chief Executive Officer or one or more other senior officers of the Company its
administrative functions under this Plan with respect to the Awards. Any delegation described in
this paragraph shall contain such limitations and restrictions as the Committee may provide and
shall comply in all respects with the requirements of applicable law, including the Delaware
General Corporation Law. The Committee may engage or authorize the engagement of a third party
administrator or administrators to carry out administrative functions under the Plan.

     No member of the Committee or officer of the Company or an Affiliate to whom the Committee has
delegated authority in accordance with the provisions of Paragraph IV of this Plan shall be liable
for anything done or omitted to be done by him or her, by any member of the Committee or by any
officer of the Company or Affiliate in connection with the performance of any duties under this
Plan, except for his or her own willful misconduct or as expressly provided by statute.

     (e) Awards Outside of the United States. With respect to any Participant or eligible Employee
who is resident outside of the United States, the Committee may, in its sole discretion, amend or
vary the terms of the Plan in order to conform such terms with the requirements of local law, to
meet the goals and objectives of the Plan, and may, in its sole discretion, establish
administrative rules and procedures to facilitate the operation of the Plan in such non-U.S.
jurisdictions. The Committee may, where it deems appropriate in its sole discretion, establish one
or more sub-plans of the Plan for these purposes.

V. SHARES SUBJECT TO THE PLAN; AWARD LIMITATIONS

     (a) Shares Subject to the Plan. Subject to adjustment as provided in Paragraph XII, the
aggregate number of shares of Common Stock that may be issued under the Plan shall not exceed
4,750,000. The issuance of Common Stock under the Plan shall be counted against the overall number
of shares available for delivery under a fungible reserve approach. Any Shares of Common Stock
issued or reserved for issuance pursuant to Options or Stock Appreciation Rights shall be counted
against the aggregate share limitation of the Plan as one share for every share subject thereto.
Each Share of Common Stock issued pursuant to Restricted Stock or Restricted Stock Units shall be
counted against the aggregate share

Page 6

 

limitation of the Plan as two shares for every share subject thereto. However, (a) if any
Options or other stock-settled Awards are cancelled, expired, forfeited, settled in cash, or
otherwise terminated without issuing the underlying shares of Common Stock to the Participant, such
shares shall remain available for future grant under the Plan, and (b) if issued but unvested
shares of Restricted Stock are forfeited, such shares shall become available for future grant under
the Plan. Shares of Common Stock that are otherwise issuable to the Participant pursuant to an
Award that are withheld to satisfy tax withholding obligations or to pay the exercise price of an
Option shall be counted against the aggregate limitation of the Plan as provided herein and shall
not become available for future grant under the Plan.

     (b) Share and Value Limitation on Individual Awards. The maximum number of shares of Common
Stock that may be issuable under Awards granted to any one individual during any twelve month
period shall not exceed 500,000 shares of Common Stock (subject to adjustment in the
manner as provided in Paragraph XII). In addition, the maximum amount of cash compensation that may
be paid under Awards intended to qualify for the “performance-based compensation” exception under
Section 162(m) of the Code granted to any one individual during any twelve month period may not
exceed $5,000,000. The limitations set forth in this paragraph are intended to permit certain
awards under the Plan to constitute “performance-based” compensation for purposes of Section 162(m)
of the Code.

     (c) Stock Offered. Subject to the limitations set forth in Paragraph V(a), the stock to be
offered pursuant to the grant of an Award may be authorized but unissued Common Stock or Common
Stock previously issued and outstanding and reacquired by the Company. Any of such shares which
remain unissued and which are not subject to outstanding Awards at the termination of the Plan
shall cease to be subject to the Plan but, until termination of the Plan, the Company shall at all
times make available a sufficient number of shares to meet the requirements of the Plan.

     (d) Vesting Restrictions. Notwithstanding any provision of this Plan to the contrary (other
than accelerated vesting in the event of a Participant’s Termination of Service due to death,
Disability or Retirement or due to a Corporate Change), the following additional vesting
restrictions shall be applied to Awards granted under VIII or IX (collectively, “Full Value
Awards”):

	 	(i)	 	Where the vesting or the right to payment of a Full Value Award is based solely
on the Participant’s continued employment with the Company, such Full Value Award shall
have a minimum vesting period of three years from the date of grant with no more than
one-third of such Full Value Award vesting in any twelve month period, and
	 
	 	(ii)	 	Where the vesting or the right to payment of a Full Value Award is based upon
the attainment of one or more Performance Measures, such Full Value Award shall have a
minimum vesting period of one year from the date of grant.

     The Committee may, in its discretion, grant a waiver of these restrictions at the date of
grant or at any time during the vesting period; provided, however, that such waiver does not result
in a violation of Code Section 409A and that the number of shares of Common Stock underlying Full
Value Awards for which waivers have been granted do not exceed in the aggregate 10% of the Common
Stock authorized to be issued under the Plan.

VI. ELIGIBILITY AND GRANT OF AWARDS

     Subject to the delegation of power in Paragraph IV(d), the Committee, in its sole discretion,
may from time to time grant Awards under the Plan as provided herein to any individual who, at the
time of grant, is an Employee or a Director. An Award may be granted on more than one occasion to
the same person, and, subject to the limitations set forth in the Plan. Awards may include
Options, Restricted Stock, Restricted Stock Units, Stock Appreciation Rights, Performance Awards or
any combination

Page 7

 

thereof. The Plan is discretionary in nature, and the grant of Awards by the Committee is
voluntary and occasional. The Committee’s selection of an eligible Employee or Director to receive
an Award in any year or at any time shall not require the Committee to select such Employee or
Director to receive an Award in any other year or at any other time. The selection of an Employee
or Director to receive one type of Award under the Plan does not require the Committee to select
such Employee or Director to receive any other type of Award under the Plan. The Committee shall
consider such factors as it deems pertinent in selecting Participants and in determining the type
and amount of their respective Awards.

VII. STOCK OPTIONS

     (a) Option Types and Option Period. Options may be in the form of Incentive Stock Options
and/or Non-Qualified Options for eligible Employees (as described below), as determined by the
Committee, in its sole discretion. Any Options granted to Directors shall be Non-Qualified
Options. Except as otherwise provided in Subparagraph (c) below or such shorter term as may be
provided in an Award Notice, each Option shall expire 7 years from its date of grant and, unless
provided otherwise in the Award Notice, shall be subject to earlier termination as follows:
Options, to the extent vested as of the date a Participant incurs a Termination of Service, may be
exercised only within three months of such date, unless such Termination of Service results from
(i) death, Retirement or Disability of the Participant, in which case all vested Options held by
such Participant may be exercised by the Participant, the Participant’s legal representative, heir
or devisee, as the case may be, within two years from the date of the Participant’s Termination of
Service, or (ii) Cause, in which event all outstanding vested Options held by such Participant
shall be automatically forfeited unexercised on such termination; provided, however, that
notwithstanding the foregoing, no termination event described in (i) above shall extend the
expiration date of an Option beyond the 7th anniversary of its date of grant or, such shorter
period, if any, as may be provided in the Award Notice.

     (b) Vesting. Subject to the further provisions of the Plan, Options shall vest and become
exercisable in accordance with such vesting schedule as the Committee may establish in its sole
discretion, including vesting upon the satisfaction of one or more Performance Measures. A
Participant may not exercise an Option except to the extent it has become vested. Unless otherwise
provided in the Award Notice, all unvested Options shall automatically become fully vested upon a
Participant’s Termination of Service due to his or her death, Disability or Retirement. Options
that are not vested on a Participant’s Termination of Service shall automatically terminate and be
cancelled unexercised on such date.

     (c) Special Limitations on Incentive Stock Options. An Incentive Stock Option may be granted
only to an Employee of the Company or any parent or subsidiary corporation (as defined in Section
424 of the Code) at the time the Option is granted. To the extent that the aggregate Fair Market
Value (determined at the time the respective Incentive Stock Option is granted) of Common Stock
with respect to which Incentive Stock Options are exercisable for the first time by an individual
during any calendar year under all incentive stock option plans of the Company and its parent and
subsidiary corporations exceeds $100,000, such Incentive Stock Options shall be treated as
Non-Qualified Options. The Committee shall determine, in accordance with applicable provisions of
the Code, any applicable treasury regulations and other administrative pronouncements, which of a
Participant’s Incentive Stock Options will not constitute Incentive Stock Options because of such
limitation and shall notify the Participant of such determination as soon as practicable after such
determination is made. No Incentive Stock Option shall be granted to an individual if, at the time
the Option is granted, such individual owns stock possessing more than 10% of the total combined
voting power of all classes of stock of the Company or of any parent or subsidiary corporation,
within the meaning of Section 422(b)(6) of the Code, unless (i) at the time such Option is granted
the Option price is at least 110% of the Fair Market Value of the Common Stock subject to the
Option and (ii) such Option by its terms is not exercisable after the expiration of five years from
the date of grant. An Incentive Stock Option shall not be transferable

Page 8

 

otherwise than by will or the laws of descent and distribution, and shall be exercisable
during the Participant’s lifetime only by such Participant or the Participant’s guardian or legal
representative.

     (d) Award Notice. Each Option shall be evidenced by an Award Notice in such form and
containing such provisions not inconsistent with the provisions of the Plan and under such terms as
the Committee from time to time shall establish, including, without limitation, provisions to
qualify an Incentive Stock Option under Section 422 of the Code. An Award Notice may provide for
the payment of the Option price, in whole or in part, by cash, a check acceptable to the Company,
the delivery of a number of already-owned shares of Common Stock (plus cash if necessary) having a
Fair Market Value equal to such Option price (provided such shares have been owned for more than
six months by the Participant), a “cashless broker exercise” of the Option through any other
procedures established or approved by the Committee with respect thereto, or any combination of the
foregoing. Further, an Award Notice may provide, in the sole discretion of the Committee, for the
surrender of the right to purchase shares under the Option in return for a payment in cash or
shares of Common Stock or a combination of cash and shares of Common Stock equal in value to the
excess of the Fair Market Value of the shares with respect to which the right to purchase is
surrendered over the Option price therefor, on such terms and conditions as the Committee in its
sole discretion may prescribe. In the case of any such right that is granted in connection with an
Incentive Stock Option, such right shall be exercisable only when the Fair Market Value of the
Common Stock exceeds the price specified therefor in the Option or the portion thereof to be
surrendered. The terms and conditions of the respective Award Notices need not be identical.
Subject to the consent of the Participant, the Committee may, in its sole discretion, amend an
outstanding Award Notice from time to time in any manner that is not inconsistent with the
provisions of the Plan (including, without limitation, an amendment that accelerates the time at
which the Option, or a portion thereof, may be exercisable).

     (e) Option Price and Payment. The price at which a share of Common Stock may be purchased
upon exercise of an Option shall be determined by the Committee but, subject to adjustment as
provided in Paragraph XII, such purchase price shall not be less than the Fair Market Value of a
share of Common Stock on the date such Option is granted. The Option or portion thereof shall be
exercised, and any applicable taxes shall be withheld, in accordance with such procedures as are
established or approved by the Committee.

     (f) Restrictions on Repricing of Options. Except as provided in Paragraph XII, the Committee
may not amend any outstanding Award Notice to lower the exercise price (or cancel and replace any
outstanding Option with Options having a lower exercise price).

     (g) Stockholder Rights and Privileges. The Participant shall be entitled to all the
privileges and rights of a stockholder only with respect to such shares of Common Stock as have
been purchased upon exercise of the Option and registered in the Participant’s name.

     (h) Options in Substitution for Options Granted by Other Employers. Options may be granted
under the Plan from time to time or approved by the Committee or the Board in substitution of
options held by individuals providing services to corporations or other entities who become
Employees or Directors as result of a merger or consolidation or other business transaction with
the Company or any Affiliate.

VIII. RESTRICTED STOCK

     (a) Restrictions to be Established by the Committee. Restricted Stock shall be subject to
restrictions on disposition by the Participant and an obligation of the Participant to forfeit and
surrender the shares to the Company under certain circumstances, and any other restrictions
determined by the

Page 9

 

Committee in its sole discretion on the date of grant; provided, however, that such
restrictions shall lapse upon:

     (i) the attainment of one or more Performance Measures;

     (ii) the Participant’s continued employment with the Company and its Affiliates or continued
service as a Director for a specified period of time;

     (iii) the occurrence of any event or the satisfaction of any other condition specified by the
Committee in its sole discretion; or

     (iv) a combination of any of the foregoing.

     Each grant of Restricted Stock may have different restrictions as established in the sole
discretion of the Committee.

     (b) Other Terms and Conditions. Restricted Stock shall be registered in the name of the
Participant. Unless provided otherwise in an Award Notice, the Participant shall have the right to
receive dividends with respect to Restricted Stock, to vote Restricted Stock, and to enjoy all
other stockholder rights, except that: (i) the Company shall retain custody of the Restricted Stock
until the Restrictions have expired; (ii) the Participant may not sell, transfer, pledge, exchange,
hypothecate or otherwise dispose of the Restricted Stock until the restrictions have expired; and
(iii) a breach of the terms and conditions established by the Committee pursuant to the Restricted
Stock Notice shall cause a forfeiture of the Restricted Stock. If a Participant’s Termination of
Service is due to his or her death or Disability, all Awards of Restricted Stock of such
Participant then outstanding shall immediately vest in full and all restrictions applicable to such
Awards shall terminate as of such date with all performance criteria, if any, applicable to such
Awards deemed met at 100% of target. At the time of grant, the Committee may, in its sole
discretion, establish additional terms, conditions or restrictions relating to the Restricted
Stock. Such additional terms, conditions or restrictions shall be set forth in an Award Notice
delivered in conjunction with the Award.

     (c) Payment for Restricted Stock. The Committee shall determine the amount and form of
payment required from the Participant in exchange for a grant of Restricted Stock, if any, provided
that in the absence of such a determination, a Participant shall not be required to make any
payment for Restricted Stock, except to the extent otherwise required by law.

     (d) Committee’s Discretion to Accelerate Vesting of Restricted Stock. The Committee may, in
its discretion and as of a date determined by the Committee, fully vest any or all of a
Participant’s Restricted Stock and, upon such vesting, all restrictions applicable to such
Restricted Stock shall terminate as of such date. Any action by the Committee pursuant to this
Subparagraph may vary among individual Participants and may vary among the Restricted Stock held by
any individual Participant. Notwithstanding the preceding provisions of this paragraph, the
Committee may not take any action described in this Subparagraph with respect to Restricted Stock
that has been granted to a “covered employee” (within the meaning of Treasury Regulation Section
1.162-27(c)(2)) if such Award has been designed to meet the exception for performance-based
compensation under Section 162(m) of the Code; provided, however, this prohibition shall not apply
to an acceleration pursuant to Paragraph XII or due to death or Disability of the Participant.

     (e) Award Notice. Each grant of Restricted Stock shall be evidenced by an Award Notice in
such form and containing such provisions not inconsistent with the provisions of the Plan and under
such terms as the Committee from time to time shall establish. The terms and provisions of the
respective Award Notices need not be identical. Subject to the consent of the Participant and the
restriction set forth in the

Page 10

 

last sentence of Subparagraph (d) above, the Committee may, in its sole discretion, amend an
outstanding Award Notice from time to time in any manner that is not inconsistent with the
provisions of the Plan.

IX. RESTRICTED STOCK UNITS

     (a) Restrictions to be Established by the Committee. Restricted Stock Units shall be subject
to a restriction on disposition by the Participant and an obligation of the Participant to forfeit
the Restricted Stock Units under certain circumstances, and any other restrictions determined by
the Committee in its sole discretion on the date of grant; provided, however, that such
restrictions shall lapse upon:

     (i) the attainment of one or more Performance Measures;

     (ii) the Participant’s continued employment with the Company and its Affiliates or continued
service as a Director for a specified period of time;

     (iii) the occurrence of any event or the satisfaction of any other condition specified by the
Committee in its sole discretion; or

     (iv) a combination of any of the foregoing.

     Each Award of Restricted Stock Units may have different restrictions as established in the sole
discretion of the Committee.

     (b) Other Terms and Conditions. The Participant shall not be entitled to vote the shares of
Common Stock underlying the Restricted Stock Units or enjoy any other stockholder rights unless and
until the restrictions have lapsed and such shares have been registered in the Participant’s name.
If a Participant’s Termination of Service is due to his or her death or Disability, all Restricted
Stock Units of such Participant then outstanding shall immediately vest in full and all
restrictions applicable to such Restricted Stock Units shall terminate as of such date with all
performance criteria, if any, applicable to such Restricted Stock Units deemed met at 100% of
target. At the time of grant, the Committee may, in its sole discretion, establish additional
terms, conditions or restrictions relating to the Restricted Stock Units. Such additional terms,
conditions or restrictions shall be set forth in an Award Notice delivered in conjunction with the
Award.

     (c) Payment. Upon the lapse of the restrictions described in the Award Notice, the
Participant shall receive as soon as practicable payment equal to the Fair Market Value of the
shares of Common Stock underlying the Restricted Stock Units on the vesting date, less applicable
withholding. Payment shall be in the form of shares of Common Stock, cash, other equity
compensation, or a combination thereof, as determined by the Committee. Any cash payment shall be
made in a lump sum or in installments, as prescribed in the Award Notice. Payment shall be made no
later than 2-1/2 months following the end of the year in which the Restricted Stock Units vest,
unless payment is to be made in installments, in which case such installments shall comply with the
rules under Section 409A of the Code.

     (d) Committee’s Discretion to Accelerate Vesting of Restricted Stock Units. The Committee
may, in its discretion and as of a date determined by the Committee, fully vest any portion or all
of a Participant’s Restricted Stock Units and, upon such vesting, all restrictions applicable to
such Restricted Stock Units shall terminate as of such date. Any action by the Committee pursuant
to this Subparagraph may vary among Participants and may vary among the Restricted Stock Units held
by any Participant. Notwithstanding the preceding provisions of this paragraph, the Committee may
not take any action described in this Subparagraph with respect to Restricted Stock Units that have
been granted to a “covered employee” (within the meaning of Treasury Regulation Section
1.162-27(c)(2)) if such Award has been designed to meet the exception for performance-based
compensation under Section 162(m) of

Page 11

 

the Code; provided, however, this prohibition shall not apply to an acceleration pursuant to
Paragraph XII or due to death or Disability of the Participant.

     (e) Award Notice. Restricted Stock Units shall be evidenced by an Award Notice in such form
and containing such provisions not inconsistent with the provisions of the Plan and under such
terms as the Committee from time to time shall establish. The terms and provisions of the
respective Award Notices need not be identical. Subject to the consent of the Participant and the
restriction set forth in the last sentence of Subparagraph (d) above, the Committee may, in its
sole discretion, amend an outstanding Award Notice from time to time in any manner that is not
inconsistent with the provisions of the Plan.

X. STOCK APPRECIATION RIGHTS

     (a) Restrictions to be Established by the Committee. Stock Appreciation Rights shall be
subject to a restriction on disposition by the Participant and an obligation of the Participant to
forfeit the Stock Appreciation Rights under certain circumstances, and any other restrictions
determined by the Committee in its sole discretion on the date of grant; provided, however, that
such restrictions shall lapse upon:

     (i) the attainment of one or more Performance Measures;

     (ii) the Participant’s continued employment with the Company and its Affiliates or continued
service as a Director for a specified period of time;

     (iii) the occurrence of any event or the satisfaction of any other condition specified by the
Committee in its sole discretion; or

     (iv) a combination of any of the foregoing.

     Each Award of Stock Appreciation Rights may have different restrictions as established in the sole
discretion of the Committee.

     (b) Other Terms and Conditions. If a Participant’s Termination of Service is due to his or
her death or Disability, all Stock Appreciation Rights of such Participant then outstanding shall
immediately vest in full and all restrictions applicable to such Stock Appreciation Rights shall
terminate as of such date with all performance criteria, if any, applicable to such Stock
Appreciation Rights deemed met at 100% of target. At the time of grant, the Committee may, in its
sole discretion, establish additional terms, conditions or restrictions relating to the Stock
Appreciation Rights. Such additional terms, conditions or restrictions shall be set forth in the
Award Notice delivered in conjunction with the Award.

     (c) Exercise Price and Payment. Subject to adjustment as provided in Paragraph XII, the
exercise price of the Stock Appreciation Rights shall not be less than the Fair Market Value of the
shares of Common Stock underlying the Stock Appreciation Rights on the date of grant. Upon the
lapse of the restrictions described in the Award Notice, the Participant shall be entitled to
exercise his or her Stock Appreciation Rights at any time up until the end of the period specified
in the Award Notice. The Stock Appreciation Rights, or portion thereof, shall be exercised and any
applicable taxes withheld, in accordance with such procedures as are established or approved by the
Committee. Upon exercise of the Stock Appreciation Rights, the Participant shall be entitled to
receive payment in an amount equal to: (i) the difference between the Fair Market Value of the
underlying shares of Common Stock subject to the Stock Appreciation Rights on the date of exercise
and the exercise price; times (ii) the number of shares of Common Stock with respect to which the
Stock Appreciation Rights are exercised; less (iii) any applicable withholding taxes. Payment shall
be made in the form of shares of Common Stock or cash, or a combination thereof, as determined by
the Committee. Cash shall be paid in a lump sum payment and shall be based on the Fair Market Value
of the underlying Common Stock on the exercise date.

Page 12

 

     (d) Committee’s Discretion to Accelerate Vesting of Stock Appreciation Rights. The Committee
may, in its discretion and as of a date determined by the Committee, fully vest any portion or all
of a Participant’s Stock Appreciation Rights and, upon such vesting, all restrictions applicable to
such Stock Appreciation Rights shall terminate as of such date. Any action by the Committee
pursuant to this Subparagraph may vary among Participants and may vary among the Stock Appreciation
Rights held by any Participant. Notwithstanding the preceding provisions of this paragraph, the
Committee may not take any action described in this Subparagraph with respect to any Stock
Appreciation Rights that have been granted to a “covered employee” (within the meaning of Treasury
Regulation Section 1.162-27(c)(2)) if such Award has been designed to meet the exception for
performance-based compensation under Section 162(m) of the Code; provided, however, this
prohibition shall not apply to an acceleration pursuant to Paragraph XII or due to death or
Disability of the Participant.

     (e) Award Notice. Stock Appreciation Rights shall be evidenced by an Award Notice in such
form and containing such provisions not inconsistent with the provisions of the Plan and under such
terms as the Committee from time to time shall establish. The terms and provisions of the
respective Award Notices need not be identical. Subject to the consent of the Participant and the
restriction set forth in the last sentence of Subparagraph (d) above, the Committee may, in its
sole discretion, amend an outstanding Award Notice from time to time in any manner that is not
inconsistent with the provisions of the Plan.

XI. PERFORMANCE AWARDS

     (a) Performance Period. The Committee shall establish, with respect to and at the time of
each Performance Award, the maximum value of the Performance Award and the performance period over
which the performance applicable to the Performance Award shall be measured.

     (b) Performance Measures and Other Criteria. A Performance Award shall be awarded to a
Participant contingent upon future performance of the Company or any Affiliate, or a division or
department of the Company or any Affiliate, during the performance period. With respect to
Performance Awards intended to qualify as performance-based compensation under Section 162(m) of
the Code, the Committee shall establish the Performance Measures applicable to such performance
either (i) prior to the beginning of the performance period or (ii) within 90 days after the
beginning of the performance period if the outcome of the performance targets is substantially
uncertain at the time such targets are established, but not later than the date that 25% of the
performance period has elapsed. The Committee shall provide that the vesting of the Performance
Award will be based upon the Participant’s continued employment with the Company or its Affiliates
or continued service as a Director for a specified period of time and

     (i) the attainment of one or more Performance Measures, or a combination thereof:

     (ii) the occurrence of any event or the satisfaction of any other condition specified by the
Committee in its sole discretion; or

     (iii) a combination of any of the foregoing.

The Committee, in its sole discretion, may also provide for an adjustable Performance Award
value-based upon the level of achievement of Performance Measures.

     (b) Vesting. If a Participant’s Termination of Service is due to his or her death or
Disability, all Performance Awards of such Participant then outstanding shall immediately vest in
full and all restrictions applicable to such Awards shall terminate as of such date with all
performance criteria, if any, applicable to such Awards deemed met at 100% of target.

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     (c) Award Criteria. In determining the value of a Performance Award, the Committee shall take
into account a Participant’s responsibility level, performance, potential, other Awards, total
annual compensation and such other considerations as it deems appropriate. The Committee, in its
sole discretion, may provide for a reduction in the value of a Participant’s Performance Award
during the performance period.

     (d) Payment. Following the end of the performance period, the holder of a Performance Award
shall be entitled to receive payment as soon as practicable of an amount not exceeding the maximum
value of the Performance Award, based on the achievement of the Performance Measures for such
performance period, as determined and certified in writing by the Committee. Payment of a
Performance Award may be made in cash, Common Stock, Options or other equity compensation, or a
combination thereof, as determined by the Committee. Payment shall be made in a lump sum or in
installments as prescribed in the Award Notice. If a Performance Award covering shares of Common
Stock is to be paid in cash, such payment shall be based on the Fair Market Value of a share of
Common Stock on the payment date. Payment shall be made no later than 2-1/2 months following the
end of the year in which the Performance Award vests, unless payment is to be made in installments,
in which case such installments shall comply with the rules under Section 409A of the Code.

     (e) Award Notice. Each Performance Award shall be evidenced by a Award Notice in such form
and containing such provisions not inconsistent with the provisions of the Plan and under such
terms as the Committee from time to time shall establish. The terms and provisions of the
respective Award Notices need not be identical. Subject to the consent of the Participant, the
Committee may, in its sole discretion, amend an outstanding Award Notice from time to time in any
manner that is not inconsistent with the provisions of the Plan.

XII. RECAPITALIZATION OR REORGANIZATION

     (a) No Effect on Right or Power. The existence of the Plan and the Awards granted hereunder
shall not affect in any way the right or power of the Board or the stockholders of the Company to
make or authorize any adjustment, recapitalization, reorganization or other change in the Company’s
or any Affiliate’s capital structure or its business, any merger or consolidation of the Company or
any Affiliate, any issue of debt or equity securities ahead of or affecting Common Stock or the
rights thereof, the dissolution or liquidation of the Company or any Affiliate or any sale, lease,
exchange or other disposition of all or any part of its assets or business or any other corporate
act or proceeding.

     (b) Subdivision or Consolidation of Shares; Stock Dividends. If, and whenever, prior to the
expiration of an Award previously granted, the Company shall effect a subdivision or consolidation
of shares of Common Stock or the payment of a dividend on Common Stock which is paid in the form of
Company stock without receipt of consideration by the Company, the number of shares of Common Stock
with respect to which such Award may thereafter be exercised or satisfied, shall be adjusted as
follows: (i) in the event of an increase in the number of outstanding shares, the number shares of
Common Stock subject to the Award shall be proportionately increased, and the purchase price per
share shall be proportionately reduced; and (ii) in the event of a reduction in the number of
outstanding shares, the number shares of Common Stock subject to the Award shall be proportionately
reduced, and the purchase price per share shall be proportionately increased, other than in the
event of a Company-directed share repurchase program. Any fractional share resulting from such
adjustment shall be rounded up to the next whole share. Such proportionate adjustments will be made
for purposes of making sure that to the extent possible, the fair value of the Awards after the
subdivision, consolidation or dividend is equal to the fair value before the change.

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     (c) Corporate Changes. Except as otherwise specifically provided in an Award Notice,
effective upon a Corporate Change (or at such earlier time as the Committee may provide), all
Options then outstanding shall immediately become exercisable in full, all Restricted Stock shall
vest in full and cease to be subject to any restrictions, all Restricted Stock Units shall vest in
full and cease to be subject to any restrictions, any Stock Appreciation Rights shall immediately
be exercisable in full, and all Awards, the payout of which is subject to Performance Measures,
shall vest in full and become immediately payable at such levels as the Committee in its sole
discretion shall determine. In addition, the Committee, acting in its sole discretion without the
consent or approval of any Participant, may effect one or more of the following alternatives, which
alternatives may vary among individual Participants and which may vary among Awards held by any
individual Participant: (i) require the mandatory surrender to the Company by selected Participants
of some or all of the outstanding Options, stock-settled Restricted Stock Units and stock-settled
Stock Appreciation Rights held by such Participants as of a date, before or after such Corporate
Change, specified by the Committee, in which event the Committee shall thereupon cancel such Awards
and the Company shall pay (or cause to be paid) to each such Participant an amount of cash per
share equal to the excess, if any, of the amount calculated in Subparagraph (d) below (the “Change
of Control Value”) of the shares subject to such Awards over the exercise price(s), if any, under
such Awards for such shares, or (ii) provide that the number and class of shares of Common Stock
covered by such Awards shall be adjusted so that such Awards shall thereafter cover securities of
the surviving or acquiring corporation or other property (including, without limitation, cash) as
determined by the Committee in its sole discretion.

     (d) Change of Control Value. For the purposes of clause (i) in Subparagraph (c) above, the
“Change of Control Value” shall equal the amount determined in clause (i), (ii) or (iii), whichever
is applicable, as follows: (i) the per share price offered to stockholders of the Company in any
such merger, consolidation, sale of assets or dissolution transaction, (ii) the price per share
offered to stockholders of the Company in any tender offer or exchange offer whereby a Corporate
Change takes place, or (iii) if such Corporate Change occurs other than pursuant to a tender or
exchange offer, the fair market value per share of the shares into which such Awards being
surrendered are exercisable or payable, as determined by the Committee as of the date determined by
the Committee to be the date of cancellation and surrender of such Awards. In the event that the
consideration offered to stockholders of the Company in any transaction described in this
Subparagraph (d) or Subparagraph (c) above consists of anything other than cash, the Committee
shall determine the fair cash equivalent of the portion of the consideration offered which is other
than cash.

     (e) Other Changes in the Common Stock. In the event of changes in the outstanding Common
Stock by reason of recapitalization, reorganization, merger, consolidation, combination, stock
split, stock dividend, spin-off, exchange or other relevant changes in capitalization or
distributions to the holders of Common Stock occurring after the date of the grant of any Award and
not otherwise provided for by this Paragraph XII, which would have the effect of diluting or
enlarging the rights of Participants, such Award and any notice evidencing such Award shall be
subject to equitable or proportionate adjustment by the Committee at its sole discretion as to the
number and price of shares of Common Stock or other consideration subject to such Award. In the
event of any such change in the outstanding Common Stock or distribution to the holders of Common
Stock, or upon the occurrence of any other event described in this Paragraph XII, the aggregate
number of shares available under the Plan and the maximum number of shares that may be subject to
Awards granted to any one individual may be appropriately adjusted to the extent, if any,
determined by the Committee, whose determination shall be conclusive. Such proportionate
adjustments will be made for purposes of making sure that to the extent possible, the fair value of
the Awards after the subdivision, consolidation or dividend is equal to the fair value before the
change.

     (f) No Adjustments Unless Otherwise Provided. Except as hereinbefore expressly provided, the
issuance by the Company of shares of stock of any class or securities convertible into shares of
stock of any class, for cash, property, labor or services, upon direct sale, upon the exercise of
rights or warrants to

Page 15

 

subscribe therefor, or upon conversion of shares or obligations of the Company convertible
into such shares or other securities, and in any case whether or not for fair value, shall not
affect, and no adjustment by reason thereof shall be made with respect to, the number of shares of
Common Stock subject to Awards theretofore granted or the purchase price per share, if applicable.

XIII. AMENDMENT AND TERMINATION OF THE PLAN

     The Board in its discretion may terminate the Plan at any time with respect to any shares of
Common Stock for which Awards have not theretofore been granted. The Board shall have the right to
alter or amend the Plan or any part thereof from time to time; provided that no change in the Plan
may be made that would impair the rights of a Participant with respect to any outstanding Award
without the consent of the Participant, and provided, further, that the Board may not, without
approval of the stockholders of the Company (a) amend the Plan to increase the maximum aggregate
number of shares that may be issued under the Plan or change the class of individuals eligible to
receive Awards under the Plan, (b) amend or delete Paragraphs V(d) and VII(f), or (c) amend
Paragraph XII to delete items (a) or (b).

XIV. MISCELLANEOUS

     (a) No Right To An Award. Neither the adoption of the Plan nor any action of the Board or of
the Committee shall be deemed to give any individual any right to be granted an Option, Restricted
Stock, Restricted Stock Units, Stock Appreciation Rights, or a Performance Award, or any other
rights hereunder except as may be evidenced by an Award Notice, and then only to the extent and on
the terms and conditions expressly set forth therein.

     (b) Unfunded Status of Plan. The Plan is intended to constitute an “unfunded” plan for
incentive and deferred compensation purposes, including Section 409A of the Code. The Committee may
authorize the creation of trusts or other arrangements to meet the obligations created under the
Plan to deliver shares of Common Stock or make payments; provided the Committee first determines in
its sole discretion that the structure of such trusts or other arrangements shall not cause any
change in the “unfunded” status of the Plan.

     (c) No Employment/Membership Rights Conferred. Nothing contained in the Plan or any Award
shall (i) confer upon any Employee any right to continued employment with the Company or any
Affiliate or (ii) interfere in any way with the right of the Company or any Affiliate to terminate
his or her employment at any time. Nothing contained in the Plan shall confer upon any Director any
right to service, or interfere in any way with the right of the Company to terminate his or her
service at any time.

     (d) Compliance with Securities Laws. The Company shall not be obligated to issue any shares
of Common Stock pursuant to an Award granted under the Plan at any time when the shares covered by
such Award have not been registered pursuant to applicable U.S. federal, state or non-U.S.
securities laws, or, in the opinion of legal counsel for the Company, the issuance and sale of such
shares is not covered under an applicable exemption from such registration requirements.

     (e) No Fractional Shares. No fractional shares of Common Stock nor cash in lieu of fractional
shares of Common Stock shall be distributed or paid pursuant to an Award. For purposes of the
foregoing, any fractional shares of Common Stock shall be rounded up to the nearest whole share.

     (f) Tax Obligations; Withholding of Shares. Except with respect to non-Employee Directors and
as otherwise provided under the Plan, no later than the date as of which an amount first becomes
includible in a Participant’s taxable income for U.S. federal, state, local or non-U.S. income or
social insurance tax purposes with respect to an Award granted under the Plan, the Participant
shall pay to the

Page 16

 

Company or the Affiliate employing the Participant, or make arrangements satisfactory to the
Company or the Affiliate employing the Participant for the payment of any such income or social
insurance taxes of any kind required by law to be withheld with respect to such taxable amount.
Notwithstanding the foregoing, the Company and its Affiliates may, in its sole discretion, withhold
a sufficient number of shares of Common Stock that are otherwise issuable to the Participant
pursuant to an Award to satisfy any such income or social insurance taxes of any kind required by
law to be withheld, as may be necessary in the opinion of the Company or the Affiliate to satisfy
all obligations for the payment of such taxes. For purposes of the foregoing, the Committee may
establish such rules, regulations and procedures as it deems necessary or appropriate.

     (g) No Restriction on Corporate Action. Nothing contained in the Plan shall be construed to
prevent the Company or an Affiliate from taking any action that is deemed by the Company or such
Affiliate to be appropriate or in its best interest, regardless of whether such action would have
an adverse effect on the Plan or any Award made under the Plan. No Employee, Participant,
representative of an Employee or Participant, or other person shall have any claim against the
Company or any Affiliate as a result of any such action.

     (h) Restrictions on Transfer. An Award (other than an Incentive Stock Option, which shall be
subject to the transfer restrictions set as forth in Paragraph VII(c)) shall not be transferable
otherwise than (i) by will or the laws of descent and distribution, (ii) pursuant to a qualified
domestic relations order as defined by the Code or Title I of the Employee Retirement Income
Security Act of 1974, as amended, or the rules thereunder, or (iii) if vested, with the consent of
the Committee, in its sole discretion provided that any such transfer is permitted under the
applicable securities laws. Notwithstanding the foregoing, Restricted Stock, once vested and free
of any restrictions, may be transferred at will.

     (i) Limitations Period. Any Participant who believes he or she is being denied any benefit or
right under the Plan may file a written claim with the Committee. Any claim must be delivered to
the Committee within forty-five (45) days of the specific event giving rise to the claim. Untimely
claims will not be processed and shall be deemed denied. The Committee, or its designee, will
notify the Participant of its decision in writing as soon as administratively practicable. Claims
not responded to by the Committee in writing within one hundred and twenty (120) days of the date
the written claim is delivered to the Committee shall be deemed denied. The Committee’s decision is
final and conclusive and binding on all persons. No lawsuit relating to the Plan may be filed
before a written claim is filed with the Committee and is denied or deemed denied and any lawsuit
must be filed within one year of such denial or deemed denial or be forever barred.

     (j) Section 409A of the Code. It is intended that any Awards under the Plan satisfy the
requirements of Section 409A of the Code to avoid imposition of applicable taxes thereunder. Thus,
notwithstanding anything in this Plan to the contrary, if any Plan provision or Award under the
Plan would result in the imposition of an applicable tax under Section 409A of the Code and related
regulations and Treasury pronouncements, that Plan provision or Award may be reformed by the
Committee solely to the extent the Committee, in its sole discretion, determines is necessary to
avoid imposition of the applicable tax and no action taken to comply with Section 409A shall be
deemed to adversely affect the Participant’s rights to an Award.

     (k) Governing Law. The Plan shall be governed by, and construed in accordance with, the laws
of the State of Delaware, without regard to its conflicts of laws principles.

Page 17

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