Document:

Exhibit 10.7

 

DEVELOPMENT AGREEMENT

 

This Development Agreement (this “Development Agreement”) by and among SandRidge Energy, Inc., a Delaware corporation, with offices at 123 Robert S. Kerr Avenue, Oklahoma City, OK 73102-6406 (“SandRidge Parent”), SandRidge Exploration and Production, LLC, a Delaware limited liability company and wholly owned subsidiary of SandRidge Parent with offices at 123 Robert S. Kerr Avenue, Oklahoma City, OK 73102-6406 (“Assignor” and, together with SandRidge Parent, “SandRidge”) and SandRidge Permian Trust, a statutory trust formed under the laws of the State of Delaware (the “Trust”), is delivered to be effective as of 12:01 a.m., Central Time, April 1, 2011 (the “Effective Time”). All capitalized terms not otherwise defined herein shall have the meanings ascribed to such terms in Article I below.

 

WHEREAS, Assignor and the Trust have entered into that certain Perpetual Overriding Royalty Interest Conveyance (Development) to be effective as of the Effective Time (the “Perpetual Development Conveyance”);

 

WHEREAS, Assignor and Mistmada Oil Company, Inc., an Oklahoma corporation and wholly owned subsidiary of SandRidge Parent (“SandRidge Sub”), have entered into that certain Term Overriding Royalty Interest Conveyance (Development) to be effective as of the Effective Time (the “Term Development Conveyance,” and together with the Perpetual Development Conveyance, collectively the “Conveyances”), which Term Development Conveyance has been assigned as of the Effective Time by SandRidge Sub to the Trust; and

 

WHEREAS, in connection with the Conveyances, SandRidge has agreed to undertake certain obligations with respect to the drilling and completion of Development Wells.

 

NOW, THEREFORE, in consideration of the premises and the covenants hereinafter contained and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and intended to be legally bound hereby, it is agreed as follows:

 

ARTICLE I

DEFINITIONS

 

This Article I defines certain capitalized words, terms and phrases used in this Development Agreement. Certain other capitalized words, terms and phrases used in this Development Agreement are defined elsewhere in this Development Agreement.

 

“Additional Interest” is defined in Section 3.01.

 

“Additional Lease” is defined in Section 3.01.

 

“Adjusted Development Well Amount” means:

 

(a) for each vertical Development Well SandRidge drills or causes to be drilled, an amount equal to the NRI Factor for such well;

 

 

(b) for each of the first ten horizontal Development Wells that SandRidge drills or causes to be drilled, an amount equal to the NRI Factor for such well multiplied by the Cost Factor for such well; and

 

(c) for each horizontal Development Well that SandRidge drills or causes to be drilled following the completion of the first ten horizontal Development Wells that SandRidge drills or causes to be drilled, an amount equal to the NRI Factor for such well multiplied by the CapEx Ratio.

 

The Adjusted Development Well Amount shall be rounded to the nearest ten thousandth (i.e., four decimal places to the right of the decimal point).

 

“Affiliate” means, for any specified Person, another Person that controls, is controlled by, or is under common control with, the specified Person. “Control,” in the preceding sentence, refers to the possession by one Person, directly or indirectly, of the right or power to direct or cause the direction of the management and policies of another Person, whether through the ownership of voting securities, by contract or otherwise.

 

“AMI” means that area described in Exhibit A to this Development Agreement.

 

“Assignee Minerals” means, collectively, the “Assignee Minerals” as defined under each of the Conveyances.

 

“Assignor” is defined in the introductory paragraph to this Development Agreement.

 

“Assignor’s Net Revenue Interest” means the interest, stated as a decimal fraction, in Subject Minerals production from a Development Well attributable to Subject Interests in that Development Well, net of Production Burdens.

 

“Assignor’s Net Share of Minerals” means the share of Subject Minerals from each Development Well that is attributable to Assignor’s Net Revenue Interest in that Development Well determined prior to giving effect to the Conveyances.

 

“CapEx Ratio” means the fraction obtained by dividing (1) the average Drilling Cost per well for the first ten horizontal Development Wells that SandRidge drills or causes to be drilled by (2) the average Drilling Cost per well for the most recent 20 vertical Development Wells (based on each well’s spud date) that SandRidge drilled or caused to be drilled as of the spud date of the first horizontal Development Well that SandRidge drills or causes to be drilled. The CapEx Ratio shall be rounded to the nearest ten thousandth (i.e., four decimal places to the right of the decimal point).

 

“Closing Time” means 12:01 a.m., Central Time, on August 16, 2011.

 

“Conveyances” is defined in the recitals to this Development Agreement.

 

“Cost Factor” means, with respect to a horizontal Development Well, the fraction obtained by dividing (1) the Drilling Cost for such well by (2) the average Drilling Cost per well for the most recent 20 vertical Development Wells (based on each well’s spud date) that SandRidge drilled or caused to be drilled as of the spud date of the first horizontal Development Well that SandRidge drills or causes to be drilled. For example, if SandRidge drills or causes to

 

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be drilled a horizontal Development Well and such well has a Drilling Cost of $2.0 million, and the average Drilling Cost per well for the most recent 20 vertical Development Wells (based on each well’s spud date) that SandRidge drilled or caused to be drilled as of the date the first horizontal Development Well is spud is $0.5 million, then such horizontal Development Well shall have a Cost Factor of 4.0 (i.e., $2.0 million / $0.5 million). The Cost Factor for a horizontal Development Well shall be rounded to the nearest ten thousandth (i.e., four decimal places to the right of the decimal point).

 

“Development Agreement” is defined in the introductory paragraph to this Development Agreement.

 

“Development Well” means any Mineral well located on the Subject Lands that is spud after March 31, 2011 and drilled to, and perforated for completion in, the Target Formation, on or prior to the Drilling Obligation Completion Date, excluding up to five horizontal wells that SandRidge drills or causes to be drilled in accordance with Section 2.06(a) hereof and that SandRidge notifies the Trust in writing do not constitute Development Wells hereunder, but otherwise including horizontal wells drilled to, and perforated for completion in, the Target Formation; provided, any well that was both spud and temporarily abandoned by SandRidge before March 31, 2011 shall not be a Development Well, even if SandRidge re-enters such well for the purpose of working over or recompleting such well or otherwise.

 

“Drilling Cost” means any cost or expense paid or incurred for the drilling, testing, and completion of a Development Well to a point that such well is either (x) equipped to commence production of Minerals, or (y) plugged and abandoned; provided, however, Drilling Costs shall not include liabilities, losses, claims and damages (including any fines and penalties) associated with such activities, and related costs of investigation, litigation, arbitration, administrative proceedings, judgment, award and settlement (including court and arbitration costs and reasonable attorneys’ fees), to the extent attributable to actual or claimed personal injury, illness or death, property damage, environmental damage or contamination, other torts, breach of contract, violation of law (or private rights of action under any law), casualty or condemnation, including costs associated with any blowout or other well control failure.

 

“Drilling Obligation Completion Date” means the date that the Total Drilling Target is reached; provided that the “Drilling Obligation Completion Date” shall not be deemed to have been achieved unless SandRidge Parent shall have delivered to Trustee, within a reasonable time thereafter, (a) a certificate substantially in the form of Exhibit B to this Development Agreement, executed by its Chief Executive Officer, President or any Vice President, certifying that the Total Drilling Target was achieved as of such date and identifying each Development Well and (b) such other documentation as Trustee may reasonably request to establish satisfaction of SandRidge’s drilling obligation hereunder.

 

“Effective Time” is defined in the introductory paragraph to this Development Agreement.

 

“Exchange Acreage” is defined in Section 3.02.

 

“Excluded Assets” means those Mineral wells that are described in Exhibit B to each of the Conveyances.

 

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“Farmout Agreements” means any farmout agreement, participation agreement, exploration agreement, development agreement or any similar agreement.

 

“Gas” means natural gas and all other gaseous hydrocarbons or minerals, including helium, but specifically excluding any Gas Liquids.

 

“Gas Liquids” means those natural gas liquids and other similar liquid hydrocarbons, including ethane, propane, butane and natural gasoline, and mixtures thereof, that are removed from a gas stream by the liquids extraction process of any field facility or gas processing plant and delivered by the facility or plant as natural gas liquids.

 

“Initial Horizontal Wells” is defined in Section 2.05.

 

“Mineral(s)” means Oil, Gas and Gas Liquids.

 

“Mortgage” is defined in Section 2.06(b).

 

“NRI Factor” means, with respect to each Development Well, the fraction obtained by dividing Assignor’s Net Revenue Interest for such well by 69.3%. For example, if Assignor’s Net Revenue Interest in a Development Well is 86.6%, the computation would be 86.6% / 69.3% = 1.2496. Therefore, such Development Well would have a NRI Factor of 1.2496. The NRI Factor for each Development Well shall be rounded to the nearest ten thousandth (i.e., four decimal places to the right of the decimal point).

 

“Oil” means crude oil, condensate and other liquid hydrocarbons recovered by field equipment or facilities, excluding Gas Liquids.

 

“Party,” when capitalized, refers to SandRidge Parent, Assignor or the Trust. “Parties,” when capitalized, refers to SandRidge Parent, Assignor and the Trust.

 

“Perpetual Development Conveyance” is defined in the recitals to this Development Agreement.

 

“Person” means any natural person, corporation, partnership, trust, estate or other entity, organization or association.

 

“Production Burdens” means, with respect to any Subject Lands, Subject Interests or Subject Minerals, all royalty interests, overriding royalty interests, production payments, net profits interests and other similar interests that constitute a burden on, are measured by or are payable out of the production of Minerals or the proceeds realized from the sale or other disposition thereof.

 

“Reasonably Prudent Operator Standard” means the standard of conduct of a reasonably prudent oil and gas operator in the AMI under the same or similar circumstances, acting with respect to its own property and disregarding the existence of the Royalty Interests as a burden on such property.

 

“Royalty Interests” means, collectively, the royalty interests created under each of the Conveyances.

 

“SandRidge” is defined in the introductory paragraph to this Development Agreement.

 

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“SandRidge Parent” is defined in the introductory paragraph to this Development Agreement.

 

“SandRidge Sub” is defined in the recitals to this Development Agreement.

 

“Subject Interests” means Assignor’s undivided interests in the Subject Lands as described on Exhibit A to the Conveyances, whether as lessee under leases, as an owner of the Subject Minerals (or the right to extract such Minerals) or otherwise, by virtue of which undivided interests Assignor has the right to conduct exploration, drilling, development and Mineral production operations on the Subject Lands, or to cause such operations to be conducted, or to participate in such operations by paying and bearing all or any part of the costs, risks and liabilities of such operations, to drill, test, complete, equip, operate and produce wells to exploit the Minerals. The “Subject Interests” (a) may be owned by Assignor pursuant to leases, deeds, operating, pooling or unitization agreements, orders or any other instruments, agreements or documents, recorded or unrecorded, (b) include any and all extensions or renewals of leases covering the Subject Lands (or any portion thereof) obtained by Assignor, or any Affiliate thereof, within six (6) months after the expiration or termination of any such lease, and (c) are subject to the Permitted Encumbrances (as defined in each of the Conveyances). For the avoidance of doubt, the “Subject Interests” do not include: (i) Assignor’s interests in the Excluded Assets; (ii) Assignor’s rights to substances other than Minerals; (iii) Assignor’s rights to Minerals (other than Assignee Minerals) under contracts for the purchase, sale, transportation, storage, processing or other handling or disposition of Minerals; (iv) Assignor’s interests in, or rights to Minerals (other than Assignee Minerals) held in pipelines, gathering systems, storage facilities, processing facilities or other equipment or facilities; or (v) any additional or enlarged interests in the Development Wells, Subject Lands or Subject Minerals acquired by Assignor after the Closing Time, except (1) to the extent any such additional or enlarged interest becomes a part of the Subject Interests by amendment to the Conveyances pursuant to Section 3.01 or Section 3.02, (2) as may result from the operation of the terms of the instruments creating the Subject Interests, or (3) as may be reflected in extensions and renewals covered by the preceding sentence.

 

“Subject Lands” means the lands subject to or covered by the oil and gas leases described in Exhibit A to each of the Conveyances, insofar and only insofar as they cover the Target Formation, subject to the exceptions, exclusions and reservations set forth on each such Exhibit A.

 

“Subject Minerals” means all Minerals in and under, and that may be produced, saved and sold from a Development Well, from and after the Effective Time, insofar and only insofar as such Minerals are produced from the Target Formation, subject to the following exclusions: Minerals that are (a) lost in the production, gathering or marketing of Minerals; (b) used (i) in conformity with ordinary and prudent operations on the Subject Lands, including drilling and production operations with respect to a Development Well or (ii) in connection with operations (whether on or off the Subject Lands) for processing or compressing the Subject Minerals; (c) taken by a Third Person to recover costs, or some multiple of costs, paid or incurred by that Third Person under any operating agreement, unit agreement or other agreement in connection with nonconsent operations conducted (or participated in) by that Third Person; and (d) retained by a Third Person for gathering, transportation, processing or marketing services related to the

 

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Subject Minerals in lieu of or in addition to cash payment for such services, to the extent such agreement is permitted under the Conveyances.

 

“Target Formation” means, (i) with respect to PSL Block A36 and University Lands Block 14, the interval between the top of Permian-aged Grayburg or its stratigraphic equivalent at a depth of 4,106’ and the Permian-aged Lower San Andres or its stratigraphic equivalent at a depth of 5,026’ in the Shafter Lake 10#1 located in Section 10, Block A36 (API No. 42-003-38729-0000), (ii) with respect to PSL Block A46 and University Lands Block 13, the interval between the top of Permian-aged Grayburg or its stratigraphic equivalent at a depth of 4,264’ and the Permian-aged Lower San Andres or its stratigraphic equivalent at a depth of 5,009’ in the University 13-46#1 located in Section 13, Block A46 (API No. 42-003-32417-0000), and (iii) with respect to PSL Block A41 and PSL Block A47, the interval between the top of Permian-aged Grayburg or its stratigraphic equivalent at a depth of 4,180’ and the Permian-aged Lower San Andres or its stratigraphic equivalent at a depth of 5,028’ in the Munger Nix #5 located in Section 1, Block A41 (API No. 42-003-32531-0000).

 

“Term Development Conveyance” is defined in the recitals to this Development Agreement.

 

“Third Person” means a Person other than SandRidge or Trustee.

 

“Total Drilling Target” means that number of Development Wells where the cumulative sum of all the Adjusted Development Well Amounts for such Development Wells drilled or caused to be drilled by SandRidge equals 888.

 

“Trust” is defined in the introductory paragraph to this Development Agreement.

 

“Trust Agreement” means the Amended and Restated Trust Agreement of the Trust, dated as of August 16, 2011 (as may be amended from time to time), among SandRidge Parent, the Trustee and The Corporation Trust Company, as Delaware trustee.

 

“Trustee” means The Bank of New York Mellon Trust Company, N.A., a national banking association organized under the laws of the United States of America with its principal place of business in New York, New York, as trustee, acting not in its individual capacity but solely as trustee of the Trust.

 

ARTICLE II

DEVELOPMENT OF THE SUBJECT LANDS

 

Section 2.01 Drilling Program.

 

(a) Obligation to Drill. SandRidge shall, subject to the terms of Section 2.01(b) and the rest of this Article II, drill or cause to be drilled such number of Development Wells that is necessary to achieve the Total Drilling Target on or prior to March 31, 2015.

 

(b) Extension of Obligation to Drill. If SandRidge has not reached the Total Drilling Target by March 31, 2015, SandRidge shall, subject to the terms of this Article II, drill or cause to be drilled such number of Development Wells that is necessary to achieve the Total Drilling Target on or prior to March 31, 2016.

 

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(c) Drilling Standard. SandRidge shall drill or caused to be drilled, at SandRidge’s sole cost and expense, each of the Development Wells in a diligent manner in accordance with the Reasonably Prudent Operator Standard.

 

Section 2.02 Obligation to Complete and Equip. SandRidge shall, at SandRidge’s sole cost and expense, (a) attempt to complete in the Target Formation each Development Well that reasonably appears to SandRidge, acting in accordance with the Reasonably Prudent Operator Standard, to be capable of producing Minerals in quantities sufficient to pay completion, equipping and operating costs, (b) equip for production each Development Well that is successfully completed and, when it is equipped and connected to a gathering line, pipeline or other storage or marketing facility, commence production, and (c) plug and abandon all Development Wells that are unsuccessful to the extent required by applicable law.

 

Section 2.03 Costs and Expenses of Development Wells. All costs and expenses associated with or paid or incurred in connection with the spudding, drilling, testing, completing and equipping for production, operating and/or plugging and abandoning of the Development Wells shall be borne solely by SandRidge, but SandRidge may use any Subject Minerals in such operations without any duty to account to Trustee or the Trust.

 

Section 2.04 Title Due Diligence. Prior to commencing the drilling of any Development Well, SandRidge shall perform such title due diligence and such title curative work as would be performed by an oil and gas operator drilling a well and acting in accordance with the Reasonably Prudent Operator Standard.

 

Section 2.05 Horizontal Wells. SandRidge may not drill horizontal wells to satisfy any portion of its drilling obligation under Section 2.01 unless and until five horizontal wells (the “Initial Horizontal Wells”) have been, after the Closing Time, drilled and completed in the Target Formation in the greater Fuhrman-Mascho field area (whether by, or at the direction of, SandRidge or any other operator, and regardless of whether SandRidge has any interest therein) so that they are capable of commencing production of Minerals. None of any such Initial Horizontal Wells that are drilled or caused to be drilled by SandRidge shall count as Development Wells hereunder. After the Initial Horizontal Wells are drilled and completed, SandRidge may, at its option and in its sole discretion, drill or cause to be drilled horizontal wells that shall be considered Development Wells; provided that such wells satisfy the other requirements of a Development Well.  SandRidge shall notify the Trustee of any well, prior to spudding such well, that it elects to drill or cause to be drilled in the Target Formation in the greater Furman-Mascho field area that constitutes an Initial Horizontal Well; provided that such notification shall not be effective if such well is incapable of commencing production of Minerals.

 

Section 2.06 Wells.

 

(a) Prior to the Drilling Obligation Completion Date, SandRidge shall not, and shall cause its Affiliates not to, drill and/or complete any well to the Target Formation in the AMI, other than (1) Development Wells in furtherance of its drilling obligation in Section 2.01 above, (2) up to five horizontal wells that SandRidge notifies the Trustee in writing (prior to spudding each such well) do not constitute Development Wells hereunder, any or all of which may be

 

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Initial Horizontal Wells and (3) wells that were both spud and temporarily abandoned by SandRidge before March 31, 2011.

 

(b) Assignor hereby covenants and agrees to enter into a Deed of Trust (the “Mortgage”) by which Assignor will grant to the Trust a mortgage lien in and to any of the undeveloped portions of the Subject Interests (including, by amendment to the Mortgage, any Additional Lease, Additional Interest or Exchange Acreage that becomes part of the Subject Interests) located in the AMI in order to secure the performance of SandRidge’s drilling obligation under Section 2.01 above.

 

(c) If SandRidge fails to achieve the Total Drilling Target by March 31, 2016, SandRidge shall be in default of its obligations under this Development Agreement and the Trust shall be entitled to pursue, in its sole discretion, any and all remedies available pursuant to Article III of the Mortgage.

 

(d) Notwithstanding the preceding, the maximum amount recoverable upon a failure by SandRidge to satisfy its obligations under Section 2.01 shall be $294,300,000, and such amount shall automatically be reduced by an amount that is equal to the product of $331,419 multiplied by the cumulative total of all Adjusted Development Well Amounts for all Development Wells drilled or caused to be drilled by SandRidge under this Development Agreement. In addition, upon Assignor’s request and at Assignor’s expense, the lien and security interest evidenced by the Mortgage shall be released as to each Development Well as the same is completed (including completion as a dry hole) in accordance with this Development Agreement.

 

ARTICLE III

AMI AREA

 

Section 3.01 Additional Leases and Additional Interests. In the event that, after the Closing Time and prior to the Drilling Obligation Completion Date, Assignor (a) acquires additional leases covering lands lying within the AMI (each, an “Additional Lease”) or (b) acquires through forced pooling or otherwise by operation of law or pursuant to any applicable contract any rights or interests that increase Assignor’s Net Revenue Interest in any Development Well, whether before or after the drilling of such well (each such increase in Assignor’s Net Revenue Interest, an “Additional Interest”), at Assignor’s option and subject to Section 3.03, Assignor and the Trust shall execute, acknowledge and deliver (i) an instrument that amends the Conveyances so that each such Additional Lease or Additional Interest will be subject to the Royalty Interest and be part of the Subject Interests and Subject Lands, and (ii) an instrument that amends the Mortgage so that each such Additional Lease will be subject to the Mortgage.

 

Section 3.02 Exchange of Subject Lands. At Assignor’s option and subject to Section 3.03, at any time prior to the Drilling Obligation Completion Date, Assignor may cause the Trust to execute, acknowledge and deliver to Assignor a recordable instrument (reasonably acceptable to Assignor) that releases from the Royalty Interest undeveloped portions of the Subject Interests in connection with Assignor’s exchange of such Subject Interests for other undeveloped acreage within the AMI (the “Exchange Acreage”). Concurrently with such release, Assignor and the Trust shall execute, acknowledge and deliver (a) an instrument that amends the

 

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Conveyances so that such Exchange Acreage will be subject to the Royalty Interest and be part of the Subject Interests and Subject Lands, and (b) an instrument that amends the Mortgage so that such Exchange Acreage will be subject to the Mortgage. In no event shall Assignor extend any well into any Exchange Acreage unless and until the Conveyances are amended to include such Exchange Acreage as part of the Subject Interests.

 

Section 3.03 Limitations. In no event may (i) any Additional Lease or Additional Interest be made subject to the Royalty Interest pursuant to Section 3.01 or (ii) any exchange involving Exchange Acreage be effected pursuant to Section 3.02, unless Assignor certifies to the Trust that:

 

(a) the aggregate acreage attributable to all Additional Leases, Additional Interests and Exchange Acreage will not exceed 5% of the Subject Interests as such exist as of the Closing Time;

 

(b) in the case of an Additional Lease only, the reserve profile of such Additional Lease is consistent with reserve profiles of other portions of the Subject Interests;

 

(c) in the case of Exchange Acreage only, the reasonably projected quantity of proved undeveloped reserves attributable to the Exchange Acreage does not significantly differ from the reasonably projected quantity of proved undeveloped reserves attributable to the portion of the Subject Interests to be given in exchange therefor; and

 

(d) the addition of any Additional Leases, Additional interests, or Exchange Acreage, as applicable, to the Conveyances will not cause any adverse federal income tax consequence to any unitholder of the Trust.

 

The Trustee is hereby authorized and directed to rely on any such certification from Assignor, and shall have no authority or responsibility to exercise any discretion in connection with any transaction authorized by this Article III.

 

ARTICLE IV

OTHER PROVISIONS

 

Section 4.01 Successors and Assigns. Subject to the limitation and restrictions on the assignment or delegation by the Parties of their rights and interests under this Development Agreement, all of the covenants and agreements of SandRidge Parent, Assignor and the Trust contained herein shall be deemed to be covenants running with the land and shall be binding upon the successors and assigns of SandRidge Parent’s and Assignor’s interests in the Subject Interests or this Development Agreement and SandRidge Sub’s and the Trust’s interest in the Royalty Interests and shall inure to the benefit of SandRidge Sub and the Trust and their respective successors and permitted assigns. The foregoing notwithstanding, nothing herein is intended to modify or shall have the effect of modifying the restrictions on assignment set forth in the Conveyances regarding assignments, transfer or pooling of SandRidge Parent’s and Assignor’s interests in the Subject Interests; and the preceding sentence shall not be deemed to permit any assignment or other transfer of the interest of SandRidge Parent or Assignor in any of the Subject Interests that is not specifically permitted by the provisions of the Conveyances. Nothing contained in this Development Agreement or in the Conveyances shall in any way limit or restrict the right of the Trust, or the Trust’s respective successors and assigns, to sell, convey,

 

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assign or mortgage the Royalty Interests in whole or in part. If the Trust, or the Trust’s successors and assigns, at any time shall execute a mortgage, pledge or deed of trust covering all or any part of the Royalty Interests as security for any obligation, the mortgagee, the pledgee or the trustee therein named or the holder of the obligation secured thereby shall be entitled, to the extent such mortgage, pledge or deed of trust so provides and upon the occurrence or existence of the event or condition therein stated, if so conditioned, to exercise all of the rights, remedies, powers and privileges herein conferred upon the Trust, and to give or withhold all consents herein required or permitted to be obtained from the Trust.

 

Section 4.02 Governing Law. THIS DEVELOPMENT AGREEMENT SHALL BE CONSTRUED UNDER AND GOVERNED BY THE LAWS OF THE STATE OF TEXAS WITHOUT GIVING EFFECT TO ANY CHOICE OR CONFLICT OF LAW PRINCIPLES THAT WOULD CAUSE THE APPLICATION OF THE LAWS OF ANOTHER JURISDICTION.

 

Section 4.03 Construction of Development Agreement. In construing this Development Agreement, the following principles shall be followed:

 

(a) no consideration shall be given to the captions of the articles, sections, subsections or clauses, which are inserted for convenience in locating the provisions of this Development Agreement and not as an aid in its construction;

 

(b) no consideration shall be given to the fact or presumption that one Party had a greater or lesser hand in drafting this Development Agreement;

 

(c) the word “includes” and its syntactical variants mean “includes, but is not limited to” and corresponding syntactical variant expressions;

 

(d) a defined term has its defined meaning throughout this Development Agreement, regardless of whether it appears before or after the place in this Development Agreement where it is defined;

 

(e) unless the context clearly indicates to the contrary, references to any Party shall be construed to include all permitted successors and assigns of such Party and references to Trustee shall be construed to include all successor and substitute trustees under the Trust Agreement;

 

(f) the plural shall be deemed to include the singular, and vice versa; and

 

(g) each exhibit, attachment and schedule to this Development Agreement is a part of this Development Agreement, but if there is any conflict or inconsistency between the main body of this Development Agreement and any exhibit, attachment or schedule, the provisions of the main body of this Development Agreement shall prevail.

 

Section 4.04 No Waiver. Failure of any Party to require performance of any provision of this Development Agreement shall not affect any Party’s right to require full performance thereof at any time thereafter, and the waiver by any Party of a breach of any provision hereof shall not constitute a waiver of a similar breach in the future or of any other breach or nullify the effectiveness of such provision.

 

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Section 4.05 Relationship of Parties. This Development Agreement does not create a partnership, mining partnership, joint venture or relationship of trust or agency between the Parties.

 

Section 4.06 Further Assurances. Each Party shall execute, acknowledge and deliver to the other Parties all additional instruments and other documents reasonably required to evidence or effect any transaction contemplated by this Development Agreement.

 

Section 4.07 The 12:01 A.M. Convention. Except as otherwise provided in this Development Agreement, each calendar day, month, quarter, and year shall be deemed to begin at 12:01 a.m. Central Time on the stated day or on the first day of the stated month, quarter, or year, and to end at 12:00 a.m. Central Time on the next day or on first day of the next month, quarter or year, respectively.

 

Section 4.08 Counterpart Execution. This Development Agreement may be executed in any number of counterparts with the same effect as if all the Parties had signed the same document. All counterparts shall be construed together and shall constitute one and the same instrument.

 

Section 4.09 Notices. Any and all notices or demands permitted or required to be given under this Development Agreement shall be in writing and shall be validly given or made if (a) personally delivered, (b) delivered and confirmed by facsimile or like instantaneous transmission service, or by Federal Express or other overnight courier delivery service, which shall be effective as of confirmation of receipt by the courier at the address for notice hereinafter stated or (c) deposited in the United States mail, first class, postage prepaid, certified or registered, return receipt requested, addressed as follows:

 

If to the Trust, to:

 

SandRidge Permian Trust

c/o The Bank of New York Mellon Trust Company, N.A.

Institutional Trust Services

919 Congress Avenue, Suite 500

Austin, Texas 78701

Attention: Michael J. Ulrich

Facsimile No.: (512) 479-2253

 

With a copy to:

 

Bracewell & Giuliani LLP

111 Congress Avenue

Suite 2300

Austin, Texas 78701

Attention: Thomas W. Adkins

Facsimile No.: (512) 479-3940

 

If to SandRidge, to:

 

123 Robert S. Kerr Avenue

Oklahoma City, OK 73102-6406

 

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Attention: Philip T. Warman

Facsimile No.: (405) 429-5983

 

With a copy to:

 

Covington & Burling LLP

1201 Pennsylvania Avenue, N.W.

Washington, D.C. 20004

Attention: David H. Engvall

Facsimile No. (202) 778 5307

 

Section 4.10 Limitation of Liability. It is expressly understood and agreed by the Parties that (a) this Development Agreement is executed and delivered by Trustee not individually or personally, but solely as Trustee in the exercise of the powers and authority conferred and vested in it and (b) under no circumstances shall Trustee be liable for the breach or failure of any obligation, representation, warranty or covenant made or undertaken by the Trust under this Development Agreement. It is further expressly understood and agreed by the Parties that neither the Trust nor Trustee, in its capacity as Trustee or individually, shall have any authority over, or responsibility or liability for, the drilling of the Development Wells or any of the other business or commercial activities contemplated by this Development Agreement, all of which are hereby agreed to be the sole responsibility of SandRidge, and SandRidge hereby agrees to and hereby does indemnify and agree to hold harmless each of the Trust and Trustee, in its capacity as Trustee and individually, from and against any and all damages, liabilities, expenses, fines, judgments, amounts paid in settlement, reasonable attorneys fees and costs of investigation, and other expenses reasonably incurred by any of them in connection with or as a result of any of the business or commercial activities contemplated by this Development Agreement or any other matter arising out of this Development Agreement or any such matter. SandRidge further agrees to advance any such attorneys’ fees, costs of investigation and other expenses described above as they are incurred.

 

Section 4.11 Severability. If any provision of this Development Agreement or the application thereof to any Party or circumstance shall be held invalid or unenforceable to any extent, the remainder of this Development Agreement and the application of such provision to the other Parties or circumstances shall not be affected thereby and shall be enforced to the greatest extent permitted by law.

 

Section 4.12 Termination. This Development Agreement shall terminate and be deemed null and void as of and following the Drilling Obligation Completion Date.

 

Section 4.13 Joint and Several Liability. The Parties acknowledge and agree that the obligations of SandRidge contained in this Development Agreement are the joint and several obligations of SandRidge Parent and Assignor.

 

[Remainder of page intentionally left blank.]

 

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IN WITNESS WHEREOF, each Party has caused this Development Agreement to be executed in its name and behalf and delivered on the date or dates stated in the acknowledgment certificates appended to this Development Agreement, to be effective as of the Effective Time.

 

	
 
    	
SandRidge   Energy, Inc.
    
	
 
    	
 
    
	
 
    	
By:
    	
/s/   James D. Bennett
    
	
 
    	
 
    	
Name:   
    	
James   D. Bennett
    
	
 
    	
 
    	
Title:   
    	
Executive   Vice President and Chief Financial Officer
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
SandRidge   Exploration and Production, LLC
    
	
 
    	
 
    	
 
    
	
 
    	
By:
    	
/s/   James D. Bennett
    
	
 
    	
 
    	
Name:   
    	
James   D. Bennett
    
	
 
    	
 
    	
Title:   
    	
Executive   Vice President and Chief Financial Officer
    

 

Signature Page to Development Agreement

 

 

	
 
    	
SandRidge   Permian Trust
    
	
 
    	
 
    	
 
    
	
 
    	
By: The Bank of New York Mellon Trust Company,   N.A., as Trustee
    
	
 
    	
 
    	
 
    
	
 
    	
 By:
    	
/s/   Michael J. Ulrich
    
	
 
    	
 
    	
Name:
    	
Michael   J. Ulrich
    
	
 
    	
 
    	
Title:
    	
Vice   President
    
					

 

Signature Page to Development Agreement

 

 

	
STATE   OF OKLAHOMA
    	
§
    
	
 
    	
§
    
	
COUNTY   OF OKLAHOMA
    	
§
    

 

This instrument was acknowledged before me on August 8, 2011, by James D. Bennett, Executive Vice President and Chief Financial Officer of SandRidge Energy Inc., a Delaware corporation, on behalf of said corporation.

 

 

	
 
    	
 
    	
/s/   Janis L. Roberts
    
	
 
    	
 
    	
NOTARY   PUBLIC,
    
	
 
    	
 
    	
State   of Oklahoma
    
	
 
    	
 
    	
Janis   L. Roberts
    
	
 
    	
 
    	
(printed   name)
    
	
My   commission expires:
    	
 
    	
 
    
	
May   22, 2012
    	
 
    	
 
    
	
SEAL   or STAMP
    	
 
    	
 
    

 

Acknowledgment Page to Development Agreement

 

 

	
STATE   OF OKLAHOMA
    	
§
    
	
 
    	
§
    
	
COUNTY   OF OKLAHOMA
    	
§
    

 

This instrument was acknowledged before me on August 11, 2011, by James D. Bennett, Executive Vice President and Chief Financial Officer of SandRidge Exploration and Production, LLC, a Delaware limited liability company, on behalf of said limited liability company.

 

 

	
 
    	
 
    	
/s/   Janis L. Roberts
    
	
 
    	
 
    	
NOTARY   PUBLIC,
    
	
 
    	
 
    	
State   of Oklahoma
    
	
 
    	
 
    	
Janis   L. Roberts
    
	
 
    	
 
    	
(printed   name)
    
	
My   commission expires:
    	
 
    	
 
    
	
May   22, 2012
    	
 
    	
 
    
	
SEAL   or STAMP
    	
 
    	
 
    

 

Acknowledgment Page to Development Agreement

 

 

	
STATE   OF TEXAS
    	
§
    
	
 
    	
§
    
	
COUNTY   OF TRAVIS
    	
§
    

 

This instrument was acknowledged before me on August 11, 2011, by Michael J. Ulrich, Vice President of The Bank of New York Mellon Trust Company, N.A., a national banking association organized under the laws of the United States of America, as Trustee of SandRidge Permian Trust, a Delaware statutory trust, on behalf of said national banking association and said trust.

 

 

	
 
    	
 
    	
/s/   Sarah Newell
    
	
 
    	
 
    	
NOTARY   PUBLIC,
    
	
 
    	
 
    	
State   of Texas
    
	
 
    	
 
    	
Sarah   Newell
    
	
 
    	
 
    	
(printed   name)
    
	
My   commission expires:
    	
 
    	
 
    
	
02-16-2014
    	
 
    	
 
    
	
SEAL   or STAMP
    	
 
    	
 
    

 

Acknowledgment Page to Development Agreement

 

 

Exhibit A

 

(Description of AMI)

 

[See attached.]

 

 

Exhibit B

 

[Letterhead of SandRidge Energy, Inc.]

 

[Date]

 

Reference is made to that certain Development Agreement (the “Development Agreement”), by and between SandRidge Energy, Inc. (“SandRidge”), SandRidge Exploration and Production, LLC and SandRidge Permian Trust, a Delaware statutory trust, delivered to be effective as of April 1, 2011. Capitalized terms used but not defined herein have the meaning given them in the Development Agreement.

 

SandRidge hereby certifies to the Trust that SandRidge achieved the Total Drilling Target on [insert date] and, therefore, such date shall be, for all purposes, established as the Drilling Obligation Completion Date.

 

The Development Wells drilled to achieve the Total Drilling Target are listed in the attachment to this letter.

 

Please sign and return an executed copy of this letter to certify that you require no additional documentation to establish SandRidge’s satisfaction of its drilling obligation under the Development Agreement and that [insert date] shall be, for all purposes, established as the Drilling Obligation Completion Date.

 

	
 
    	
 
    	
SandRidge   Energy, Inc.
    
	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
By:
    	
 
    
	
 
    	
 
    	
 
    	
Name:
    
	
 
    	
 
    	
 
    	
Title:
    
	
 
    	
 
    	
 
    	
 
    
	
Acknowledged   and agreed:
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    
	
 SandRidge Permian Trust
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    
	
 By: 
    	
The   Bank of New York Mellon Trust Company, N.A., as Trustee
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
By:
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
Name:
    	
 
    	
 
    	
 
    
	
 
    	
Title:Exhibit 10.8

 

DERIVATIVES AGREEMENT

 

This DERIVATIVES AGREEMENT, delivered as of August 16, 2011, is between SandRidge Energy, Inc., a Delaware corporation (“SandRidge”), and SandRidge Permian Trust, a Delaware statutory trust (the “Trust”) and is delivered to be effective as of 12:01 a.m., Central Time, August 1, 2011, 2011.

 

R E C I T A L S

 

WHEREAS, the Trust is governed by that certain Amended and Restated Trust Agreement by and among SandRidge Energy, Inc., The Corporation Trust Company, as Delaware trustee, and The Bank of New York Mellon Trust Company, N.A., as trustee (the “Trustee”);

 

WHEREAS, SandRidge Exploration and Production, LLC (“SandRidge Sub”), a Delaware limited liability company and a wholly-owned subsidiary of SandRidge, has conveyed (or caused to be conveyed) to the Trust certain royalty interests pursuant to (i) that certain Term Overriding Royalty Interest Conveyance (PDP), (ii) that certain Term Overriding Royalty Interest Conveyance (Development), (iii) that certain Perpetual Overriding Royalty Interest Conveyance (PDP), (iv) that certain Perpetual Overriding Royalty Interest Conveyance (Development) and (v) that certain Assignment of Overriding Royalty Interest, in each case effective as of 12:01 a.m., Central Time, April 1, 2011 (collectively, the “Conveyances”), pursuant to which SandRidge Sub will from time to time distribute cash proceeds to the Trust;

 

WHEREAS, SandRidge has entered into certain commodity derivatives transactions with Morgan Stanley Capital Group Inc.;

 

WHEREAS, SandRidge and the Trust desire to allocate among themselves certain of the economic benefits and costs associated with these transactions;

 

NOW, THEREFORE, in consideration of the premises herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:

 

ARTICLE I
 DEFINITIONS; TERMS GENERALLY

 

Section 1.01 Definitions. As used herein, terms defined above have the meanings given such terms above and the following terms have the following meanings:

 

“Agreement” means this Derivatives Agreement, as the same may be amended, supplemented or otherwise modified from time to time.

 

“Approved Trust Counterparty” means any Person regularly engaged in the hedging of commodities who has (or who has a provider of credit support identified in such Person’s ISDA trade documentation that has) a long term corporate debt rating of A/A2 (or the then-equivalent) by S&P or Moody’s or higher and who is a party to the Collateral Agency Agreement.

 

 

“Bankruptcy Code” has the meaning given in Section 4.07(b).

 

“Business Day” means a day that is not a Saturday, Sunday or other day on which commercial banks in New York City are authorized or required by law to remain closed.

 

“Collateral Agency Agreement” means that certain Collateral Agency Agreement to be entered into by and among Wilmington Trust, National Asssociation as Collateral Agent, the Trust and the other parties thereto, as amended, restated, supplemented, replaced or otherwise modified from time to time.

 

“Confirmations” means the collective reference to each Confirmation attached hereto as Exhibit A.

 

“Counterparty” means Morgan Stanley Capital Group Inc.

 

“Defaulting Party” means, with respect to any Trade on any date of determination, any Person: (a) that is a “Defaulting Party” or an “Affected Party” with respect to such Trade on such date under the applicable Trade Documents (as such terms are defined therein) or (b) in respect of which a “Potential Event of Default” or an “Event of Default” has occurred and is continuing on such date under the applicable Trade Documents (as such terms are defined therein).

 

“Excess Hedged Volumes” has the meaning given in Section 3.02.

 

“Excluded Amount” means any amount payable by one party to another party pursuant to any Trade Documents on account of indemnity or reimbursement obligations (including additional amounts owing in respect of tax gross up obligations), costs, fees, expenses (including attorneys fees) or default interest.

 

“Illegality” has the meaning specified in the applicable Trade Documents; provided that the term “Illegality” when used herein in reference to any Trade will only be deemed to have occurred with respect to such Trade if either (a) the Counterparty is an “Affected Party” (as defined in the applicable Trade Documents) with respect to such Illegality; or (b) both (i) SandRidge is an “Affected Party” (as defined in the applicable Trade Documents) with respect to such Illegality and (ii) the Trust would have been an “Affected Party” (as defined in the applicable Trade Documents) with respect to such Illegality if it were a party to such Trade.

 

“Illegality Termination Payment” means any Termination Payment that becomes due and payable as the result of the termination of any Trade prior to the stated termination date thereof based on the occurrence of an Illegality.

 

“Moody’s” means Moody’s Investors Service, Inc. and any successor thereto that is a nationally recognized rating agency.

 

“Period End Date” means March 31, June 30, September 30 and December 31 of each calendar year.

 

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“Person” means any natural person, corporation, limited liability company, trust, joint venture, association, company, partnership, governmental authority or other entity.

 

“Quarterly Payment Date” means, with respect to any Quarterly Period, the date that is forty-five (45) days after the last day of such Quarterly Period.

 

“Quarterly Period” means each period from but excluding one Period End Date to and including the next Period End Date.

 

“Replaced Trade” has the meaning given in Section 3.01(b).

 

“Reset” and “Reset Trade” have the meanings given in Section 3.02.

 

“Royalty Interests” means the royalty interests conveyed to the Trust by the Conveyances.

 

“S&P” means Standard & Poor’s Ratings Group, a division of The McGraw-Hill Companies, Inc., and any successor thereto that is a nationally recognized rating agency.

 

“SandRidge Gross Up Amount” means, in relation to any Scheduled Payments or any Illegality Termination Payments required to be made by the Counterparty during any Quarterly Period, an amount equal to the sum of all such Scheduled Payments or Illegality Termination Payments, as the case may be, that were due and payable by the Counterparty but not paid by the Counterparty to SandRidge during such Quarterly Period (a) on account of the exercise of any right of netting or set-off against (i) obligations owed by SandRidge or its affiliates to the Counterparty or its affiliates under agreements or instruments other than the Trade Documents or (ii) any obligation of SandRidge to pay an Excluded Amount pursuant to the Trade Documents; or (b) to the extent that theCounterparty (i) set-off any such Scheduled Payments or Illegality Termination Payments, as the case may be, against any posted collateral held by SandRidge (or any obligation of SandRidge to transfer that posted collateral) or (ii) withheld payment of any such Scheduled Payments or Illegality Termination Payments, as the case may be, up to the value of any posted collateral held by SandRidge.

 

“Scheduled Payment” means, with respect to any Trade, the net payment required to be made by one party thereto to the other party thereto on a “Payment Date” or a “Settlement Payment Date” pursuant to the related Confirmation, without giving effect to the existence of any “Potential Event of Default”, “Event of Default” or the designation of an “Early Termination Date” (as such terms are defined in the applicable Trade Documents) or any right of setoff, counterclaim or defense, and excluding, for the avoidance of doubt: (a) any obligation to transfer cash collateral or other collateral, (b) any Termination Payment and (c) any Excluded Amount.

 

“Termination Payment” means, with respect to any Trade or group of Trades: (a) the net amount which is due and payable by one party thereto to the other party thereto in respect of the early termination of such Trade or group of Trades, as determined pursuant to the applicable Trade Documents (including, for the avoidance of doubt, any unpaid amounts), but (b) without giving effect to any right of set-off and/or right to apply any margin, collateral, guarantees or other credit support delivered or held in connection with such Trade, and (c) excluding any Scheduled Payments (other than unpaid amounts) and any Excluded Amounts.

 

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“Trades” means the collective reference to each transaction evidenced by the Confirmations.

 

“Trade Documents” means the ISDA Master Agreement dated as of February 22, 2008, between SandRidge and Morgan Stanley Capital Group Inc., including the Schedule thereto and each Confirmation entered into thereunder, in each case as in effect on the date hereof.

 

“Transfer” and “Transferred Trade” have the meanings given in Section 3.01(a).

 

“Trust Direct Hedges” means oil and natural gas hedge contracts to which the Trust is a counterparty, including, but not limited to, (i) the hedge contracts specified on Schedule 1 to the Amended and Restated Trust Agreement of the Trust, dated as of August 16, 2011, among SandRidge, the Trustee, and The Corporation Trust Company, as Delaware trustee, (ii) Transferred Trades and (iii) Trust Replacement Trades, in each case as such hedge contracts may be restructured, amended or otherwise modified from time to time.

 

“Trust Gross Up Amount” means, in relation to any Scheduled Payments or any Illegality Termination Payments required to be made by SandRidge during any Quarterly Period, an amount equal to the sum of all such Scheduled Payments or Illegality Termination Payments, as the case may be, that were due and payable by SandRidge but not paid by SandRidge to the Counterparty during such Quarterly Period to the extent that SandRidge (i) set-off any such Scheduled Payments or Illegality Termination Payments, as the case may be, against any posted collateral held by the Counterparty (or any obligation of the Counterparty to transfer that posted collateral) or (ii) withheld payment of any such Scheduled Payments or Illegality Termination Payments, as the case may be, up to the value of any posted collateral held by the Counterparty.

 

“Trust Replacement Trade” has the meaning given in Section 3.01(b).

 

Section 1.02 Terms Generally. The definitions of terms herein shall apply equally to the singular and plural forms of the terms defined. The words “include”, “includes” and “including” shall be deemed to be followed by the phrase “without limitation”. The word “will” shall be construed to have the same meaning and effect as the word “shall”. Unless the context requires otherwise: (a) any reference herein to any law shall be construed as referring to such law as amended, modified, codified or reenacted, in whole or in part, and in effect from time to time; (b) any reference herein to any Person shall be construed to include such Person’s successors and assigns (subject to the restrictions contained in this Agreement); (c) the words “herein”, “hereof” and “hereunder”, and words of similar import, shall be construed to refer to this Agreement in its entirety and not to any particular provision hereof and (d) any reference herein to Sections or Exhibits shall be construed to refer to Sections of, or Exhibits to, this Agreement.

 

ARTICLE II
 PAYMENTS

 

Section 2.01 Payments. On the Quarterly Payment Date for each Quarterly Period, commencing with the Quarterly Period ending September 30, 2011:

 

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(a) SandRidge will pay to the Trust an amount equal to the sum of the following (without duplication): (i) all Scheduled Payments received by SandRidge from the Counterparty under all Trades during such Quarterly Period plus (ii) the SandRidge Gross Up Amount, if any, related to Scheduled Payments required to be made by the Counterparty to SandRidge under all Trades during such Quarterly Period plus (iii) the amount of any Scheduled Payment required to be made by the Counterparty to SandRidge under any Trade during such Quarterly Period that was not received by SandRidge from the Counterparty, but only if SandRidge was a Defaulting Party on the date such Scheduled Payment was required to be made by the Counterparty;

 

(b) the Trust will pay to SandRidge an amount equal to the sum of the following: (i) all Scheduled Payments made by SandRidge to the Counterparty under all Trades during such Quarterly Period plus (ii) the Trust Gross Up Amount, if any, related to Scheduled Payments required to be made by SandRidge to the Counterparty under all Trades during such Quarterly Period, excluding, in the case of both clauses (i) and (ii) of this subsection (b), any Scheduled Payment made by SandRidge to the Counterparty under any Trade with respect to which SandRidge (x) was a Defaulting Party on the date such Scheduled Payment was required to be made by SandRidge and (y) continues to be a Defaulting Party on the Quarterly Payment Date;

 

(c) SandRidge will pay to the Trust an amount equal to the sum of the following: (i) all Illegality Termination Payments received by SandRidge from the Counterparty under all Trades during such Quarterly Period plus (ii) the SandRidge Gross Up Amount, if any, related to Illegality Termination Payments required to be made by the Counterparty to SandRidge under all Trades during such Quarterly Period;

 

(d) the Trust will pay to SandRidge an amount equal to the sum of the following: (i) all Illegality Termination Payments made by SandRidge to the Counterparty under all Trades during such Quarterly Period plus (ii) the Trust Gross Up Amount, if any, related to Illegality Termination Payments required to be made by SandRidge to the Counterparty under all Trades during such Quarterly Period;

 

(e) if any Trade has been terminated prior to its stated termination date other than as the result of the occurrence of an Illegality, then notwithstanding the termination of such Trade, SandRidge will pay to the Trust an amount equal to the sum of each Scheduled Payment that would have become due and payable by the relevant Counterparty to SandRidge during such Quarterly Period if such Trade had not been so terminated; and

 

(f) if any Trade has been terminated prior to its stated termination date other than as the result of the occurrence of an Illegality, then notwithstanding the termination of such Trade, the Trust will pay to SandRidge an amount equal to the sum of each Scheduled Payment that would have become due and payable by SandRidge to the relevant Counterparty during such Quarterly Period if such Trade had not been so terminated.

 

Section 2.02 Netting of Payments Under this Agreement.

 

(a) If, on any Quarterly Payment Date, identical amounts would otherwise be payable by each party to the other pursuant to Section 2.01, then, on such date, each party’s obligation to make payment of any such amount will be automatically satisfied and discharged.

 

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(b) If, on any Quarterly Payment Date, the aggregate amount that would otherwise have been payable by one party pursuant to Section 2.01 exceeds the aggregate amount that would otherwise have been payable by the other party, then the party that owes the larger aggregate amount must pay to the other party the excess of the larger aggregate amount over the smaller aggregate amount.

 

Section 2.03 General Conditions. All payments made hereunder shall be made in immediately available funds to the account or accounts from time to time specified by the relevant payee. If any payment hereunder shall be due on a day that is not a Business Day, the date for payment shall be extended to the next succeeding Business Day.  SandRidge shall determine the amounts due to (or from) the Trust under this Agreement, and all such determinations shall (in the absence of manifest error) be final and binding on each party.

 

Section 2.04 Certain Notices. SandRidge shall promptly notify the Trust of the designation of an “Early Termination Date” pursuant to any Trade Document and the termination of any Trade, and shall provide the Trust with any documentation or other information related thereto as the Trust may reasonably request from time to time.

 

ARTICLE III

TRANSFER AND REPLACEMENT OF TRADES; RESETTING OF TRADES

 

Section 3.01 Transferred Trades; Replaced Trades.

 

(a) Subject to Section 3.01(b) below, SandRidge may, at any time and in its sole discretion, assign, novate or otherwise transfer (each, a “Transfer”) any Trade, or any portion of any Trade, to the Trust.  Any such Transfer shall constitute the complete assignment, novation or other transfer of all of SandRidge’s obligations and agreements, and all of SandRidge’s rights, remedies, and powers, under such Trade (or portion thereof).  Any such Transfer of a Trade (or any portion thereof) shall be subject to the conditions set forth in Section 3.01(c) below.  Trades (or portions thereof) that are Transferred to the Trust in accordance with this Section 3.01(a) are referred to herein as “Transferred Trades.”  Each of the Trust and SandRidge shall pay its respective fees and expenses relating to any Transfer of a Trade (or portion thereof), including attorneys’ fees and expenses.

 

(b) In addition, SandRidge may, at any time and in its sole discretion, request the Trust to enter into new commodity derivatives transactions (each, a “Trust Replacement Trade”) to replace all or any portion of the volumes hedged under Trades that have not been assigned, novated or otherwise transferred to the Trust pursuant to Section 3.01(a) above.  The execution of any Trust Replacement Trade shall be subject to the conditions set forth in Section 3.01(c) below.  Trades (or portions thereof) that are replaced with Trust Replacement Trades in accordance with this Section 3.01(b) are referred to herein as “Replaced Trades.”  Replaced Trades may not be assigned, novated or otherwise transferred to the Trust pursuant to Section 3.01(a) above.

 

(c) Any Transfer of a Trade (or any portion thereof), and any entry by the Trust into a Trust Replacement Trade, shall be subject to the conditions that, upon the effectiveness of such proposed Transfer or the execution of such proposed Trust Replacement Trade, as the case

 

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may be, (i) the counterparty to such Transferred Trade or Trust Replacement Trade shall be an Approved Trust Counterparty, (ii) the hedging effects of such Transferred Trade or Trust Replacement Trade shall, in SandRidge’s sole determination, be economically equivalent to the hedging effects of the Transferred Trade or the Replaced Trade, as the case may be, immediately prior to the proposed Transfer or replacement, and (iii) immediately prior to the Transfer of any Trade pursuant to Section 3.01(a) or immediately prior to the entering into a Trust Replacement Trade pursuant to Section 3.01(b), as the case may be, no default, event of default, termination event, early termination event, potential event of default or potential termination event shall have occurred and be continuing and no early termination date shall have been specified or shall have occurred, with respect to such Transferred Trade or Trade replaced with such Trust Replacement Trade, as the case may be.  For the avoidance of doubt, in determining whether such Transferred Trades or Trust Replacement Trades have economically equivalent hedging effects as the existing Trades, the presence or absence of collateral supporting the Trust’s obligations under Transferred Trades or Trust Replacement Trades shall not be considered.  The Trust hereby consents to any Transfer of a Trade, and any entry by the Trust into a Trust Replacement Trade, meeting the foregoing conditions, and the Trust acknowledges that no further review or approval by the Trust shall be required to effect any such Transfer or to execute any such Trust Replacement Trade.  The Trust agrees that it will execute, or cause to be executed, such confirmations, acknowledgements, notices, and other documents requested by SandRidge, or that may otherwise be necessary or desirable, to effect any Transfer of a Trade or enter into any Trust Replacement Trade.  In addition, the written instrument or instruments governing any Transfer and/or any Transferred Trade shall include an acknowledgement by the counterparty to the Transferred Trade that SandRidge is not a party to, nor does SandRidge have any obligations under, the Transferred Trade effective as of and following the time of such Transfer.

 

(d) In connection with any Transferred Trade or Trust Replacement Trade in accordance with this Section 3.01, SandRidge shall provide the Trust with written notice identifying the Trade or portion of a Trade being Transferred or replaced with a Trust Replacement Trade.  In addition, at least five (5) Business Days prior to the anticipated date of any Transfer or any execution of a Trust Replacement Trade, SandRidge shall provide the Trust with substantially complete drafts of all relevant documentation relating to such Transferred Trade or Trust Replacement Trade, including the ISDA master agreement, related schedules, and transaction confirmations.  Upon the effective date of any Transfer or execution of any Trust Replacement Trade, all of the obligations of SandRidge and the Trust under this Agreement with respect to the volumes covered by the Transferred Trade or Replaced Trade will cease, and SandRidge shall deliver to the Trust a revised Exhibit A, reflecting the removal from such Exhibit A of the Confirmations (or portions thereof) covered by the Transferred Trade or the Replaced Trade, as applicable.

 

Section 3.02 Resetting of Trades.  If at any time SandRidge reasonably determines that the remaining volumes of oil and natural gas hedged under the Trades and Trust Direct Hedges exceed projected production of oil and natural gas attributable to the Royalty Interests for the period or periods covered by such Trades and Trust Direct Hedges (such difference, the “Excess Hedged Volumes”), SandRidge may, in its sole discretion, reset, terminate or replace, or otherwise modify, the terms of all or any portion of the Trades in order to eliminate or reduce such Excess Hedged Volumes (any such action, a “Reset”).  SandRidge shall use commercially reasonable efforts to effect any such Reset in a manner that is cash neutral (or

 

7

 

advantageous) to the Trust, but shall have no affirmative duty to reset or otherwise modify any Trades.  In connection with any Reset in accordance with this Section 3.02, SandRidge shall provide the Trust with (i) written notice identifying the Trades or portions thereof being reset and describing the material terms of the Reset, including a summary of the volumes, periods, and prices affected by the Reset, and (ii) copies of any revised or new transaction confirmations evidencing new transactions entered into in conjunction with such Reset (“Reset Trades”).  Upon the effective date of any Reset, SandRidge shall deliver to the Trust a revised Exhibit A, reflecting the replacement of the Confirmations (or portions thereof) affected by the Reset with the transaction confirmations evidencing the Reset Trades.  The Trust agrees that it will execute, or cause to be executed, such acknowledgements, notices, and other documents requested by SandRidge, or that may otherwise be necessary or desirable, to give effect to the foregoing.  For the avoidance of doubt, SandRidge shall have no affirmative duty to undertake any Reset and shall incur no liability in connection with affirmatively undertaking (or failing to undertake) a Reset (other than a failure to use its commercially reasonable efforts in effecting a Reset as expressly set forth in this Section 3.02 or for undertaking a Reset in bad faith).

 

ARTICLE IV
 MISCELLANEOUS

 

Section 4.01 Amendments. Any amendment, modification or waiver in respect of this Agreement will only be effective if in writing (including a writing evidenced by a facsimile transmission) and executed by each of the parties hereto.  Except as set forth in Article III, SandRidge will not make any material amendment to the terms of the Trades without the Trust’s consent.

 

Section 4.02 No Waiver. No failure on the part of any party to exercise and no delay in exercising, and no course of dealing with respect to, any right, power or privilege, or any abandonment or discontinuance of steps to enforce such right, power or privilege, under this Agreement shall operate as a waiver thereof, nor shall any single or partial exercise of any right, power or privilege under this Agreement preclude any other or further exercise thereof or the exercise of any other right, power or privilege.

 

Section 4.03 Remedies Cumulative; Non-Exclusive; Etc. All rights, powers, privileges, remedies, and recourses granted in this Agreement or otherwise available at law or equity: (a) shall be cumulative and concurrent; (b) may be pursued separately, successively, or concurrently; (c) may be exercised as often as occasion therefor shall arise, it being agreed that the exercise or failure to exercise or the beginning, or the abandonment, or the delay of any of same, shall in no event be construed as a waiver or release thereof or of any other right, remedy, or recourse and (d) are intended to be, and shall be, nonexclusive.

 

Section 4.04 Successors and Assigns. The provisions of this Agreement shall be binding upon each party and its successors and permitted assigns and shall inure, together with all the rights and remedies hereunder, to the benefit of such party and its respective successors and assigns; provided that no party may assign, transfer or delegate any of its rights or obligations under this Agreement without the prior written consent of the other party, and any such purported assignment, transfer or delegation shall be null and void.

 

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Section 4.05 Severability. Any provision of this Agreement held to be invalid, illegal or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such invalidity, illegality or unenforceability without affecting the validity, legality and enforceability of the remaining provisions hereof or thereof; and the invalidity of a particular provision in a particular jurisdiction shall not invalidate such provision in any other jurisdiction.

 

Section 4.06 Survival; Revival; Restatement. To the extent that any payments made hereunder are subsequently invalidated, declared to be fraudulent or preferential, set aside or required to be repaid to a trustee, debtor in possession, receiver or other Person or entity under any bankruptcy law, common law or equitable cause, then to such extent, the obligations so satisfied shall be revived and continue as if such payment had not been received and the rights, powers and remedies under this Agreement shall continue in full force and effect. In such event, this Agreement shall be automatically reinstated and each party shall take such action as may be reasonably requested by any other party to effect such reinstatement.

 

Section 4.07 Acknowledgments.

 

(a) Each party hereby acknowledges that (i) no party has any fiduciary relationship with or duty to any other party arising out of or in connection with this Agreement; (ii) no joint venture is created hereby or otherwise exists by virtue of the transactions contemplated hereby among the parties hereto; (iii) no other party is acting as a fiduciary or financial or investment advisor for it; (iv) it is not relying upon any representations (whether written or oral) of any other party; (v) no other party has given to it (directly or indirectly through any other Person) any advice, counsel, assurance, guarantee, or representation whatsoever as to the expected or projected success, profitability, return, performance, result, effect, consequence, or benefit (either legal, regulatory, tax, financial, accounting, or otherwise) of this Agreement; (vi) it has made its own investment, hedging, and trading decisions based upon its own judgment and upon any advice from such advisors as it has deemed necessary, and not upon any view expressed by the other party; (vii) all trading decisions have been the result of arm’s length negotiations between the parties; (viii) it has a duty to read the Trade Documents and agrees that it is charged with notice and knowledge of the terms of the Trade Documents; that it has in fact read the Trade Documents and is fully informed and has full notice and knowledge of the terms, conditions and effects thereof and (ix) it is entering into this Agreement with a full understanding of all of the risks hereof (economic and otherwise) and it is capable of assuming and willing to assume (financially and otherwise) those risks.

 

(b) Without limiting the applicability of any other provision of the U.S. Bankruptcy Code as amended (the “Bankruptcy Code”) (including Sections 362, 546, 556, and 560 thereof and the applicable definitions in Section 101 thereof), the parties intend that the transactions contemplated by this Agreement will constitute “forward contracts” or “swap agreements” as defined in Section 101 of the Bankruptcy Code, and that the parties are entitled to the rights under, and protections afforded by, Sections 362, 546, 556, and 560 of the Bankruptcy Code.

 

(c) Each party represents to the other party that it is an “eligible contract participant” within the meaning of the Commodity Exchange Act, Section 1a(12).

 

9

 

Section 4.08 No Agency Relationship, No Assignment of Trades. Each of the parties hereto acknowledges and agrees that no agency relationship is created hereby or otherwise exists by virtue of the transactions contemplated hereby among the parties hereto, it being expressly understood and agreed that SandRidge has entered into the Trades and the Trade Documents related thereto as principal on its own behalf, and SandRidge is not acting as an agent of the Trust with respect to any Trade nor is SandRidge acting in any other capacity on behalf of the Trust, fiduciary or otherwise. Nothing contained herein shall be interpreted to create or operate as an assignment, transfer or novation of any Trade, any Trade Document or any interest or obligation therein or thereunder.

 

Section 4.09 Governing Law. This Agreement shall be governed by, and construed in accordance with, the laws of the State of New York.

 

Section 4.10 Counterparts. This Agreement may be executed in counterparts (and by different parties hereto on different counterparts), each of which shall constitute an original, but all of which when taken together shall constitute a single contract. In making proof of this Agreement, it shall not be necessary to produce or account for any counterpart other than one signed by the party against which enforcement is sought. Delivery of an executed counterpart of a signature page of this Agreement by facsimile shall be effective as delivery of a manually executed counterpart of this Agreement.

 

Section 4.11 ENTIRE AGREEMENT. THIS WRITTEN AGREEMENT REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES AS TO THE SUBJECT MATTER HEREOF AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES HERETO. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.

 

Section 4.12 No Third Party Beneficiaries. This Agreement is solely for the benefit of the parties hereto and no other Person (including any Counterparty or Trust unitholder) shall have any rights, claims, remedies or privileges hereunder against any party hereto for any reason whatsoever. There are no third party beneficiaries.

 

Section 4.13 Limitation of Liability. It is expressly understood and agreed by the parties hereto that (a) this Agreement is executed and delivered for the Trust by The Bank of New York Mellon Trust Company, N.A. (the “Bank”), as Trustee of the Trust, not individually or personally, but solely as Trustee in the exercise of the powers and authority conferred and vested in it as Trustee of the Trust and (b) under no circumstances shall the Bank or Trustee be liable for any liability or obligation of the Trust hereunder.  It is further expressly understood and agreed by the parties hereto that neither the Bank nor the Trustee shall have any authority over, or responsibility or liability for, the transactions contemplated by this Agreement, all of which are hereby agreed to be the sole responsibility of SandRidge and the Trust.

 

Section 4.14 Tax Hedge Designation. Unless otherwise specifically identified, the Trust hereby identifies and designates this Agreement and the economic benefits and costs associated with the underlying commodity derivatives transactions as a hedging transaction for tax purposes under Section 1221(a)(7) of the Internal Revenue Code of 1986, as amended and

 

10

 

Section 1.1221-2 of the Treasury regulations promulgated under the Internal Revenue Code. The transactions being hedged are as follows (in each case by SandRidge attributable to the Trust):

 

the sale of approximately:

2,714 Bbl per day of oil production during the period of August 1, 2011 through December 31, 2011;

3,151 Bbl per day of oil production during 2012;

3,530 Bbl per day of oil production during 2013;

3,867 Bbl per day of oil production during 2014; and

3,373 Bbl per day of oil production during the period January 1, 2015 through March 31, 2015.

 

11

 

IN WITNESS WHEREOF, intending to be legally bound, each of the parties hereto has caused this Agreement to be duly executed as of the date first above written.

 

	
 
    	
SandRidge   Energy, Inc.
    
	
 
    	
 
    	
 
    
	
 
    	
By:
    	
/s/   James D. Bennett
    
	
 
    	
 
    	
Name:
    	
James   D. Bennett
    
	
 
    	
 
    	
Title:
    	
Executive   Vice President and Chief Financial Officer
    

 

[Signature Page to Derivatives Agreement]

 

 

	
 
    	
  SandRidge Permian Trust
    
	
 
    	
 
    
	
 
    	
By: The Bank of New York   Mellon Trust Company, N.A., as Trustee
    
	
 
    	
 
    	
 
    
	
 
    	
    By:
    	
/s/   Michael J. Ulrich
    
	
 
    	
 
    	
Name:
    	
Michael   J. Ulrich
    
	
 
    	
 
    	
Title:
    	
Vice   President
    

 

[Signature Page to Derivatives Agreement]

 

 

EXHIBIT A

 

CONFIRMATIONS

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