Document:

exv10w6

 

Exhibit 10.6

PIONEER SOUTHWEST ENERGY PARTNERS L.P.

INDEMNIFICATION AGREEMENT

     This Agreement (“Agreement”) is made and entered into as of the                      day of
                                        , 2007, by and between Pioneer Southwest Energy Partners L.P., a Delaware
limited partnership (the “Partnership”), and [Name] (“Indemnitee”).

RECITALS

     A. Highly competent and experienced persons are reluctant to serve companies as directors,
executive officers or in other capacities unless they are provided with adequate protection through
insurance and indemnification against claims and actions against them arising out of their service
to and activities on behalf of the company.

     B. The Board of Directors (the “Board”) of Pioneer Natural Resources GP LLC, a Delaware
limited liability company and the general partner of the Partnership (the “General Partner”), has
determined that the inability to attract and retain such persons would be detrimental to the best
interests of the Partnership and its unitholders and that the Partnership should act to assure such
persons that there will be increased certainty of such protection in the future.

     C. The Board has also determined that it is reasonable, prudent and necessary for the
Partnership, in addition to purchasing and maintaining directors’ and officers’ liability insurance
(or otherwise providing for adequate arrangements of self-insurance), contractually to obligate
itself to indemnify such persons to the fullest extent permitted by the Partnership Agreement (as
hereinafter defined) so that they will serve or continue to serve the General Partner and the
Partnership free from undue concern that they will not be adequately protected.

     D. Indemnitee is willing to serve, continue to serve and to take on additional service for or
on behalf of the General Partner and the Partnership on the condition that Indemnitee be so
indemnified to the fullest extent permitted by the Partnership Agreement.

     E. Section 7.7 of the First Amended and Restated Agreement of Limited Partnership of the
Partnership (the “Partnership Agreement”) provides for indemnification of directors and officers.

     F. Indemnitee is an “Indemnitee” as such term is defined in the Partnership Agreement.

     In consideration of the foregoing and the mutual covenants herein contained, and other good
and valuable consideration, the sufficiency and receipt of which are hereby acknowledged, the
parties hereby agree as follows:

 

 

ARTICLE I

Certain Definitions

     As used herein, the following words and terms shall have the following respective meanings
(whether singular or plural):

     “Affiliate” means, with respect to any Person, any other Person that directly or indirectly
through one or more intermediaries controls, is controlled by or is under common control with the
Person in question. As used herein, the term “control” means the possession, direct or indirect,
of the power to direct or cause the direction of the management and policies of a Person, whether
through ownership of Voting Securities, by contract or otherwise.

     “Change of Control” means, and shall be deemed to have occurred upon, one or more of the
following events: (i) any transaction resulting in the Partnership (or its successor or survivor
by way of merger, consolidation, or some other transaction, or a parent or subsidiary thereof)
ceasing to be an Affiliate of Pioneer (or its successor or survivor by way of merger,
consolidation, or some other transaction, or a parent or subsidiary thereof); (ii) the limited
partners of the Partnership approve, in one transaction or a series of transactions, a plan of
complete liquidation of the Partnership; (iii) the sale or other disposition by either the General
Partner or the Partnership of all or substantially all of its assets in one or more transactions to
any Person other than the General Partner or an Affiliate of the General Partner; or (iv) a
transaction resulting in a Person other than Pioneer (or its successor or survivor by way of
merger, consolidation, or some other transaction, or a parent or subsidiary thereof) or an
Affiliate thereof being the general partner of the Partnership (or its successor or survivor by way
of merger, consolidation, or some other transaction, or a parent or subsidiary thereof).

     “Claim” means an actual or threatened claim or request for relief which was, is or may be made
by reason of anything done or not done by Indemnitee in, or by reason of any event or occurrence
related to, Indemnitee’s Status.

     “DLLCA” means the Delaware Limited Liability Company Act.

     “DRULPA” means the Delaware Revised Uniform Limited Partnership Act.

     “Disinterested Director,” with respect to any request by Indemnitee for indemnification
hereunder, means a director of the General Partner who at the time of the vote is not a named
defendant or respondent in the Proceeding in respect of which indemnification is sought by
Indemnitee.

     “Exchange Act” means the Securities Exchange Act of 1934.

     “Expenses” means all attorneys’ fees and disbursements, retainers, accountant’s fees and
disbursements, private investigator fees and disbursements, court costs, transcript costs, fees and
expenses of experts, witness fees and expenses, travel expenses, duplicating costs, printing and
binding costs, telephone charges, postage, delivery service fees and all other disbursements, costs
or expenses of the types customarily incurred in connection with prosecuting, defending (including
affirmative defenses and counterclaims), preparing to prosecute or defend,

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investigating, being or preparing to be a witness in, or participating in or preparing to
participate in (including on appeal) a Proceeding and all interest or finance charges attributable
to any thereof. Should any payments by the Partnership under this Agreement be determined to be
subject to any federal, state or local income or excise tax, “Expenses” shall also include such
amounts as are necessary to place Indemnitee in the same after-tax position (after giving effect to
all applicable taxes) as Indemnitee would have been in had no such tax been determined to apply to
such payments.

     “Independent Counsel” means a law firm, or a member of a law firm, that is experienced in
matters of partnership and limited liability company law and neither contemporaneously is, nor in
the five years theretofore has been, retained to represent: (a) the General Partner, the
Partnership or Indemnitee in any matter material to any such party (other than as Independent
Counsel under this Agreement or similar agreements), (b) any other party to the Proceeding giving
rise to a claim for indemnification hereunder or (c) the beneficial owner, directly or indirectly,
of securities of the General Partner or the Partnership representing 5% or more of the combined
voting power of the General Partner’s or the Partnership’s then outstanding Voting Securities
(other than, in each such case, with respect to matters concerning the rights of Indemnitee under
this Agreement, or of other indemnitees under similar indemnification agreements). Notwithstanding
the foregoing, the term “Independent Counsel” shall not include any person who, under the
applicable standards of professional conduct then prevailing, would have a conflict of interest in
representing either the Partnership or Indemnitee in an action to determine Indemnitee’s rights
under this Agreement.

     “Independent Directors” means the directors on the Board who are eligible to serve on the
Conflicts Committee (as defined in the Partnership Agreement).

     “Person” means any individual, entity or group (within the meaning of Sections 13(d)(3) and
14(d)(2) of the Exchange Act).

     “Pioneer” means Pioneer Natural Resources Company, a Delaware corporation.

     “Potential Change in Control” shall be deemed to have occurred if (i) any Person shall have
announced publicly an intention to effect a Change in Control, or commenced any action that, if
successful, could reasonably be expected to result in the occurrence of a Change in Control; (ii)
the General Partner or the Partnership enters into an agreement, the consummation of which would
constitute a Change in Control; or (iii) any other event occurs which the Board declares to be a
Potential Change of Control.

     “Proceeding” means any threatened, pending or completed action, suit, arbitration,
investigation, inquiry, alternate dispute resolution mechanism, administrative or legislative
hearing, or any other proceeding (including, without limitation, any securities laws action, suit,
arbitration, alternative dispute resolution mechanism, hearing or procedure) whether civil,
criminal, administrative, arbitrative or investigative and whether or not based upon events
occurring, or actions taken, before the date hereof, and any appeal in or related to any such
action, suit, arbitration, investigation, hearing or proceeding and any inquiry or investigation
(including discovery), whether conducted by or in the right of the Partnership or any other

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Person, that Indemnitee in good faith believes could lead to any such action, suit,
arbitration, alternative dispute resolution mechanism, hearing or other proceeding or appeal
thereof.

     “Status” means the status of a person who is, becomes or was a director, officer, employee,
agent or fiduciary of the General Partner or is, becomes or was serving at the request of the
General Partner as a director, officer, partner, member, venturer, proprietor, trustee, employee,
agent, fiduciary or similar functionary of another foreign or domestic corporation, partnership,
limited liability company, joint venture, sole proprietorship, trust, employee benefit plan or
other enterprise. For purposes of this Agreement, the Partnership agrees that Indemnitee’s service
on behalf of or with respect to the Partnership or any Subsidiary of the Partnership shall be
deemed to be at the request of the General Partner.

     “Subsidiary” has the meaning set forth in the Partnership Agreement.

     “Voting Securities” means securities of any class of a Person entitling the holders thereof to
vote in the election of, or to appoint, members of the board of directors or other similar
governing body of the Person and, with respect to the Partnership, means the Common Units (as
defined in the Partnership Agreement).

ARTICLE II

Services by Indemnitee

     Indemnitee is serving as a director of the General Partner. Indemnitee may from time to time
also agree to serve, as the General Partner may request from time to time, in another capacity for
the General Partner or as a director, officer, partner, member, venturer, proprietor, trustee,
employee, agent, fiduciary or similar functionary of another foreign or domestic corporation,
partnership, joint venture, limited liability company, sole proprietorship, trust, employee benefit
plan or other enterprise. Indemnitee and the Partnership each acknowledge that they have entered
into this Agreement as a means of inducing Indemnitee to serve, or continue to serve, the General
Partner in such capacities. Indemnitee may at any time and for any reason resign from such
position or positions (subject to any other contractual obligation or any obligation imposed by
operation of law). Neither the General Partner nor the Partnership shall have any obligation under
this Agreement to continue Indemnitee in any such position or positions.

ARTICLE III

Indemnification

     Section 3.1 General. Subject to the provisions set forth in Article IV, the
Partnership shall indemnify, and advance Expenses to, Indemnitee to the fullest extent permitted by
the Partnership Agreement on the date hereof and to such greater extent as the Partnership
Agreement may hereafter from time to time permit. The other provisions set forth in this Agreement
are provided in addition to and as a means of furtherance and implementation of, and not in
limitation of, the obligations and limitations expressed in this Article III. No requirement,

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condition to or limitation of any right to indemnification or to advancement of Expenses under
this Article III shall in any way limit the rights of Indemnitee under Article VII.

     Section 3.2 Additional Indemnity of the Partnership. Indemnitee shall be entitled to
indemnification pursuant to this Section 3.2 if, by reason of anything done or not done by
Indemnitee in, or by reason of any event or occurrence related to, Indemnitee’s Status, Indemnitee
is, was or becomes, or is threatened to be made, a party to, or witness or other participant in any
Proceeding. Pursuant to this Section 3.2, Indemnitee shall be indemnified against any and all
Expenses, judgments, penalties (including excise or similar taxes), fines and amounts paid in
settlement (including all interest, assessments and other charges paid or payable in connection
with or in respect of any such Expenses, judgments, penalties, fines and amounts paid in
settlement) actually and reasonably incurred by Indemnitee or on Indemnitee’s behalf in connection
with such Proceeding or any Claim, issue or matter therein. Notwithstanding the foregoing, the
obligations of the Partnership under this Section 3.2 shall be subject to the condition that no
determination (which, in any case in which Independent Counsel is involved, shall be in a form of a
written opinion) shall have been made pursuant to Article IV or Article V that Indemnitee would not
be permitted to be indemnified under the Partnership Agreement. Nothing in this Section 3.2 shall
limit the benefits of Section 3.1, Section 3.3 or any other Section hereunder.

     Section 3.3 Advancement of Expenses. The Partnership shall pay all Expenses
reasonably incurred by, or in the case of retainers to be incurred by, or on behalf of Indemnitee
(or, if applicable, reimburse Indemnitee for any and all Expenses reasonably incurred by Indemnitee
and previously paid by Indemnitee) in connection with any Claim or Proceeding, whether brought by
the Partnership or otherwise, in advance of any determination respecting entitlement to
indemnification pursuant to Article IV (and shall continue to pay such Expenses after such
determination and until it shall ultimately be determined (in a final adjudication by a court from
which there is no further right of appeal or in a final adjudication of an arbitration pursuant to
Section 5.1 if Indemnitee elects to seek such arbitration) that Indemnitee is not entitled to be
indemnified by the Partnership against such Expenses) hereof within 10 days after the receipt by
the Partnership of (a) a written request from Indemnitee requesting such payment or payments from
time to time, whether prior to or after final disposition of such Proceeding, and (b) a written
affirmation from Indemnitee of Indemnitee’s good faith belief that Indemnitee has met the standard
of conduct necessary for Indemnitee to be permitted to be indemnified under the Partnership
Agreement. Any such payment by the Partnership is referred to in this Agreement as an “Expense
Advance.” In connection with any request for an Expense Advance, if requested by the Partnership,
Indemnitee or Indemnitee’s counsel shall also submit an affidavit stating that the Expenses
incurred were, or in the case of retainers to be incurred are, reasonably incurred. Any dispute as
to the reasonableness of any Expense shall not delay an Expense Advance by the Partnership, and the
Partnership agrees that any such dispute shall be resolved only upon the disposition or conclusion
of the underlying Claim against Indemnitee. Indemnitee hereby undertakes and agrees that
Indemnitee will reimburse and repay the Partnership without interest for any Expense Advances to
the extent that it shall ultimately be determined (in a final adjudication by a court from which
there is no further right of appeal or in a final adjudication of an arbitration pursuant to
Section 5.1 if Indemnitee elects to seek such arbitration) that Indemnitee is not entitled to be
indemnified by the Partnership against such Expenses.

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Indemnitee shall not be required to provide collateral or otherwise secure the undertaking and
agreement described in the prior sentence.

     Section 3.4 Indemnification for Additional Expenses. The Partnership shall indemnify
Indemnitee against any and all costs and expenses (of the types described in the definition of
Expenses in Article I) and, if requested by Indemnitee, shall (within two business days of that
request) advance those costs and expenses to Indemnitee, that are incurred by Indemnitee in
connection with any claim asserted against, or action brought by, Indemnitee for (i)
indemnification or an Expense Advance by the Partnership under this Agreement or any other
agreement or provision of the Partnership Agreement now or hereafter in effect relating to any
Claim or Proceeding, (ii) recovery under any directors’ and officers’ liability insurance policies
maintained by the Partnership, or (iii) enforcement of, or claims for breaches of, any provision of
this Agreement, in each of the foregoing situations regardless of whether Indemnitee ultimately is
determined to be entitled to that indemnification, advance expense payment, insurance recovery,
enforcement, or damage claim, as the case may be and regardless of whether the nature of the
proceeding with respect to such matters is judicial, by arbitration, or otherwise.

     Section 3.5 Partial Indemnity. If Indemnitee is entitled under any provision of this
Agreement to indemnification by the Partnership for some or a portion of the Expenses, judgments,
fines, penalties, and amounts paid in settlement of a Claim or Proceeding but not, however, for all
of the total amount thereof, the Partnership shall nevertheless indemnify Indemnitee for the
portion thereof to which Indemnitee is entitled. Moreover, notwithstanding any other provision of
this Agreement, to the extent that Indemnitee has been successful on the merits or otherwise in
defense of any or all Claims or Proceedings, or in defense of any issue or matter therein,
including dismissal without prejudice, Indemnitee shall be indemnified against all Expenses
incurred in connection therewith.

ARTICLE IV

Procedure for Determination of Entitlement

to Indemnification

     Section 4.1 Request by Indemnitee. To obtain indemnification under this Agreement,
Indemnitee shall submit to the Partnership a written request, including therein or therewith such
documentation and information as is reasonably available to Indemnitee and is reasonably necessary
to determine whether and to what extent Indemnitee is entitled to indemnification. The Secretary
of the General Partner shall, promptly upon receipt of such a request for indemnification, advise
the Board in writing that Indemnitee has requested indemnification.

     Section 4.2 Determination of Request. Upon written request by Indemnitee for
indemnification pursuant to the first sentence of Section 4.1 hereof, a determination, if required
by applicable law, with respect to whether Indemnitee is permitted under Article III to be
indemnified shall be made in accordance with the terms of Section 4.5, in the specific case as
follows:

     (a) If a Potential Change in Control or a Change in Control shall have occurred, by
Independent Counsel (selected in accordance with Section 4.3) in a written

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opinion to the Board and Indemnitee, unless Indemnitee shall request that such
determination be made by the Board, or a committee of the Board, in which case by the person
or persons or in the manner provided for in clause (i) or (ii) of paragraph (b) below; or

     (b) If a Potential Change in Control or a Change in Control shall not have occurred,
(i) by the Board by a majority vote of the Disinterested Directors even though less than a
quorum of the Board, or (ii) by a majority vote of a committee solely of two or more
Disinterested Directors designated to act in the matter by a majority vote of all
Disinterested Directors even though less than a quorum of the Board, or (iii) by Independent
Counsel selected by the Board or a committee of the Board by a vote as set forth in clauses
(i) or (ii) of this paragraph (b), or if such vote is not obtainable or such a committee
cannot be established, by a majority vote of all directors, or (iv) if Indemnitee and the
Partnership agree, by the unitholders of the Partnership in a vote that excludes the units
held by directors who are not Disinterested Directors.

If it is so determined that Indemnitee is permitted to be indemnified under Article III, payment to
Indemnitee shall be made within 10 days after such determination. Nothing contained in this
Agreement shall require that any determination be made under this Section 4.2 prior to the
disposition or conclusion of a Claim or Proceeding against Indemnitee; provided, however, that
Expense Advances shall continue to be made by the Partnership pursuant to, and to the extent
required by, the provisions of Article III. Indemnitee shall cooperate with the person or persons
making such determination with respect to Indemnitee’s entitlement to indemnification, including
providing to such person upon reasonable advance request any documentation or information that is
not privileged or otherwise protected from disclosure and that is reasonably available to
Indemnitee and reasonably necessary to such determination. Any costs or expenses (including
attorneys’ fees and disbursements) incurred by Indemnitee in so cooperating with the person or
persons making such determination shall be borne by the Partnership (irrespective of the
determination as to Indemnitee’s entitlement to indemnification), and the Partnership shall
indemnify and hold harmless Indemnitee therefrom.

     Section 4.3 Independent Counsel. If a Potential Change in Control or a Change in
Control shall not have occurred and the determination of entitlement to indemnification is to be
made by Independent Counsel, the Independent Counsel shall be selected by (a) a majority vote of
the Disinterested Directors, even though less than a quorum of the Board or (b) if there are no
Disinterested Directors, by a majority vote of the Board, and the Partnership shall give written
notice to Indemnitee, within 10 days after receipt by the Partnership of Indemnitee’s request for
indemnification, specifying the identity and address of the Independent Counsel so selected. If a
Potential Change in Control or a Change in Control shall have occurred and the determination of
entitlement to indemnification is to be made by Independent Counsel, the Independent Counsel shall
be selected by Indemnitee, and Indemnitee shall give written notice to the Partnership, within 10
days after submission of Indemnitee’s request for indemnification, specifying the identity and
address of the Independent Counsel so selected (unless Indemnitee shall request that such selection
be made by the Disinterested Directors or a committee of the Board, in which event the Partnership
shall give written notice to Indemnitee within 10 days after receipt of Indemnitee’s request for
the Board or a committee of the Disinterested Directors to make such selection, specifying the
identity and address of the Independent Counsel so selected). In either

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event, (i) such notice to Indemnitee or the Partnership, as the case may be, shall be
accompanied by a written affirmation of the Independent Counsel so selected that it satisfies the
requirements of the definition of “Independent Counsel” in Article I and that it agrees to serve in
such capacity and (ii) Indemnitee or the Partnership, as the case may be, may, within seven days
after such written notice of selection shall have been given, deliver to the Partnership or to
Indemnitee, as the case may be, a written objection to such selection. Any objection to the
selection of Independent Counsel pursuant to this Section 4.3 may be asserted only on the ground
that the Independent Counsel so selected does not meet the requirements of the definition of
“Independent Counsel” in Article I, and the objection shall set forth with particularity the
factual basis of such assertion. If such written objection is timely made, the Independent Counsel
so selected may not serve as Independent Counsel unless and until a court of competent jurisdiction
(the “Court”) has determined that such objection is without merit. In the event of a timely
written objection to a choice of Independent Counsel, the party originally selecting the
Independent Counsel shall have seven days to make an alternate selection of Independent Counsel and
to give written notice of such selection to the other party, after which time such other party
shall have five days to make a written objection to such alternate selection. If, within 30 days
after submission of Indemnitee’s request for indemnification pursuant to Section 4.1, no
Independent Counsel shall have been selected and not objected to, either the Partnership or
Indemnitee may petition the Court for resolution of any objection that shall have been made by the
Partnership or Indemnitee to the other’s selection of Independent Counsel and/or for the
appointment as Independent Counsel of a person selected by the Court or by such other person as the
Court shall designate, and the person with respect to whom an objection is so resolved or the
person so appointed shall act as Independent Counsel under Section 4.2. The Partnership shall pay
any and all reasonable fees and expenses incurred by such Independent Counsel in connection with
acting pursuant to Section 4.2, and the Partnership shall pay all reasonable fees and expenses
incident to the procedures of this Section 4.3, regardless of the manner in which such Independent
Counsel was selected or appointed. Upon the due commencement of any judicial proceeding or
arbitration pursuant to Section 5.1, Independent Counsel shall be discharged and relieved of any
further responsibility in such capacity (subject to the applicable standards of professional
conduct then prevailing).

     Section 4.4 Establishment of a Trust. In the event of a Potential Change in Control
or a Change in Control, the Partnership shall, upon written request by Indemnitee, create a trust
for the benefit of Indemnitee (the “Trust”) and from time to time upon written request of
Indemnitee shall fund the Trust in an amount sufficient to satisfy any and all Expenses reasonably
anticipated at the time of each such request to be incurred in connection with investigating,
preparing for, and defending any Claim, and any and all judgments, fines, penalties, and settlement
amounts of any and all Claims from time to time actually paid or claimed, reasonably anticipated,
or proposed to be paid. The amount to be deposited in the Trust pursuant to the foregoing funding
obligation shall be determined by the Independent Counsel (or other person(s) making the
determination of whether Indemnitee is permitted to be indemnified by applicable law). The terms
of the Trust shall provide that, upon a Change in Control, (i) the Trust shall not be revoked or
the principal thereof invaded, without the written consent of Indemnitee; (ii) the trustee of the
Trust shall advance, within ten business days of a request by Indemnitee, any and all Expenses
reasonably incurred to Indemnitee, any required determination concerning the reasonableness of the
Expenses to be made by the Independent Counsel (and Indemnitee hereby agrees to reimburse the Trust
under the circumstances in which Indemnitee would be required to

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reimburse the Partnership for Expenses Advances under Section 3.3 of this Agreement); (iii)
the Trust shall continue to be funded by the Partnership in accordance with the funding obligation
set forth above; (iv) the trustee of the Trust shall promptly pay to Indemnitee all amounts for
which Indemnitee shall be entitled to indemnification pursuant to this Agreement; and (v) all
unexpended funds in the Trust shall revert to the Partnership upon a final determination by the
Independent Counsel or a court of competent jurisdiction, as the case may be, that Indemnitee has
been fully indemnified under the terms of this Agreement. The trustee of the Trust shall be chosen
by Indemnitee and shall be an institution that is not affiliated with Indemnitee. Nothing in this
Section 4.4 shall relieve the Partnership of any of its obligations under this Agreement.

     Section 4.5 Presumptions and Effect of Certain Proceedings.

     (a) Indemnitee shall be presumed to be entitled to indemnification under this Agreement
upon submission of a request for indemnification under Section 4.1, and the Partnership
shall have the burden of proof in overcoming that presumption in reaching a determination
contrary to that presumption. Such presumption shall be used by Independent Counsel (or
other person or persons determining entitlement to indemnification) as a basis for a
determination of entitlement to indemnification unless the Partnership provides information
sufficient to overcome such presumption by clear and convincing evidence or unless the
investigation, review and analysis of Independent Counsel (or such other person or persons)
convinces Independent Counsel by clear and convincing evidence that the presumption should
not apply.

     (b) If the person or persons empowered or selected under Article IV of this Agreement
to determine whether Indemnitee is entitled to indemnification shall not have made a
determination within 60 days after receipt by the Partnership of the request by Indemnitee
therefor, the determination of entitlement to indemnification shall be deemed to have been
made and Indemnitee shall be entitled to such indemnification; provided, however, that such
60-day period may be extended for a reasonable time, not to exceed an additional 30 days, if
the person making the determination with respect to entitlement to indemnification in good
faith requires such additional time for the obtaining or evaluating of documentation and/or
information relating to such determination; and provided, further, that the 60-day
limitation set forth in this Section 4.5(b) shall not apply and such period shall be
extended as necessary (i) if within 30 days after receipt by the Partnership of the request
for indemnification under Section 4.1 Indemnitee and the Partnership have agreed, and the
Board has resolved to submit such determination to the unitholders of the Partnership
pursuant to Section 4.2(b) for their consideration and a special meeting of unitholders is
called within 30 days after such receipt for the purpose of making such determination, such
meeting is held for such purpose within 60 days after having been so called and such
determination is made thereat, or (ii) if the determination of entitlement to
indemnification is to be made by Independent Counsel pursuant to Section 4.2(a) of this
Agreement, in which case the applicable period shall be as set forth in Section 5.1(c).

     (c) The termination of any Proceeding or of any Claim, issue or matter by judgment,
order, settlement (whether with or without court approval) or conviction, or upon a plea of
nolo contendere or its equivalent, shall not (except as otherwise expressly

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provided in this Agreement) by itself adversely affect the rights of Indemnitee to
indemnification or create a presumption that Indemnitee failed to meet any particular
standard of conduct, that Indemnitee had any particular belief, or that a court has
determined that indemnification is not permitted by the Partnership Agreement. Indemnitee
shall be deemed to have been found liable in respect of any Claim, issue or matter only
after Indemnitee shall have been so adjudged by the Court after exhaustion of all appeals
therefrom.

ARTICLE V

Certain Remedies of Indemnitee

     Section 5.1 Indemnitee Entitled to Adjudication in an Appropriate Court. If (a) a
determination is made pursuant to Article IV that Indemnitee is not entitled to indemnification
under this Agreement; (b) there has been any failure by the Partnership to make timely payment or
advancement of any amounts due hereunder (including, without limitation, any Expense Advances); or
(c) the determination of entitlement to indemnification is to be made by Independent Counsel
pursuant to Section 4.2 and such determination shall not have been made and delivered in a written
opinion within 90 days after the latest of (i) such Independent Counsel’s being appointed, (ii) the
overruling by the Court of objections to such counsel’s selection, or (iii) expiration of all
periods for the Partnership or Indemnitee to object to such counsel’s selection, Indemnitee shall
be entitled to commence an action seeking an adjudication in the Court of Indemnitee’s entitlement
to such indemnification or advancements due hereunder, including, without limitation, Expense
Advances. Alternatively, Indemnitee, at Indemnitee’s option, may seek an award in arbitration to
be conducted by a single arbitrator pursuant to the commercial arbitration rules of the American
Arbitration Association. Indemnitee shall commence such action seeking an adjudication or an award
in arbitration within 180 days following the date on which Indemnitee first has the right to
commence such action pursuant to this Section 5.1, or such right shall expire. The Partnership
agrees not to oppose Indemnitee’s right to seek any such adjudication or award in arbitration and
it shall continue to pay Expense Advances pursuant to Section 3.3 until it shall ultimately be
determined (in a final adjudication by a court from which there is no further right of appeal or in
a final adjudication of an arbitration pursuant to this Section 5.1 if Indemnitee elects to seek
such arbitration) that Indemnitee is not entitled to be indemnified by the Partnership against such
Expenses.

     Section 5.2 Adverse Determination Not to Affect any Judicial Proceeding. If a
determination shall have been made pursuant to Article IV that Indemnitee is not entitled to
indemnification under this Agreement, any judicial proceeding or arbitration commenced pursuant to
this Article V shall be conducted in all respects as a de novo trial or arbitration on the merits,
and Indemnitee shall not be prejudiced by reason of such initial adverse determination. In any
judicial proceeding or arbitration commenced pursuant to this Article V, Indemnitee shall be
presumed to be entitled to indemnification under this Agreement and the Partnership shall have the
burden of proof in overcoming such presumption and to show by clear and convincing evidence that
Indemnitee is not entitled to indemnification.

     Section 5.3 Partnership Bound by Determination Favorable to Indemnitee in any Judicial
Proceeding or Arbitration. If a determination shall have been made or deemed to have

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been made pursuant to Article IV that Indemnitee is entitled to indemnification, the
Partnership shall be irrevocably bound by such determination in any judicial proceeding or
arbitration commenced pursuant to this Article V, and shall be precluded from asserting that such
determination has not been made or that the procedure by which such determination was made is not
valid, binding and enforceable.

     Section 5.4 Partnership Bound by the Agreement. The Partnership shall be precluded
from asserting in any judicial proceeding or arbitration commenced pursuant to this Article V that
the procedures and presumptions of this Agreement are not valid, binding and enforceable and shall
stipulate in any such court or before any such arbitrator that the Partnership is bound by all the
provisions of this Agreement.

ARTICLE VI

Contribution

     Section 6.1 Contribution Payment. To the extent the indemnification provided for
under any provision of this Agreement is determined (in the manner hereinabove provided) not to be
permitted under Article III, then in the event Indemnitee was, is, or becomes a party to or witness
or other participant in, or is threatened to be made a party to or witness or other participant in,
a Proceeding by reason of (or arising in part out of) Indemnitee’s Status, the Partnership, in lieu
of indemnifying Indemnitee, shall contribute to the amount of any and all Expenses, judgments,
fines, or penalties assessed against or incurred or paid by Indemnitee on account of such
Proceeding and any and all amounts paid in settlement of that Proceeding (including all interest,
assessments, and other charges paid or payable in connection with or in respect of such Expenses,
judgments, fines, penalties, or amounts paid in settlement) for which such indemnification is not
permitted (“Contribution Amounts”), in such proportion as is appropriate to reflect the relative
fault with respect to the subject matter of the Proceeding giving rise to the Contribution Amounts
of Indemnitee, on the one hand, and of the Partnership and any and all other parties (including
officers and directors of the General Partner other than Indemnitee) who may be at fault with
respect to such matter (collectively, including the Partnership, the “Third Parties”) on the other
hand.

     Section 6.2 Relative Fault. The relative fault of the Third Parties and Indemnitee
shall be determined (i) by reference to the relative fault of Indemnitee as determined by the court
or other governmental agency assessing the Contribution Amounts or (ii) to the extent such court or
other governmental agency does not apportion relative fault, by the Independent Counsel (or such
other party which makes a determination under Article IV) after giving effect to, among other
things, the relative intent, knowledge, access to information, and opportunity to prevent or
correct the subject matter of the Proceedings and other relevant equitable considerations of each
party. The Partnership and Indemnitee agree that it would not be just and equitable if
contribution pursuant to this Section 6.2 were determined by pro rata allocation or by any other
method of allocation which does take account of the equitable considerations referred to in this
Section 6.2.

11

 

ARTICLE VII

Miscellaneous

     Section 7.1 Non-Exclusivity. The rights of Indemnitee to receive indemnification and
advancement of Expenses under this Agreement shall be in addition to, and shall not be deemed
exclusive of, any other rights Indemnitee shall have under the DLLCA, DRULPA or other applicable
law, the certificate of formation and limited liability company agreement of the General Partner,
the certificate of limited partnership of the Partnership and the Partnership Agreement, any other
agreement, vote of members or unitholders or a resolution of directors, or otherwise. No amendment
or alteration of the certificate of formation and limited liability company agreement of the
General Partner, the certificate of limited partnership of the Partnership or the Partnership
Agreement or any provision thereof shall adversely affect Indemnitee’s rights hereunder and such
rights shall be in addition to any rights Indemnitee may have under the certificate of formation
and limited liability company agreement of the General Partner, the certificate of limited
partnership of the Partnership and the Partnership Agreement and the DLLCA, DRULPA or other
applicable law. To the extent that there is a change in the DRULPA or other applicable law
(whether by statute or judicial decision) that allows greater indemnification by agreement than
would be afforded currently under the certificate of limited partnership of the Partnership and the
Partnership Agreement and this Agreement, if permitted by the Partnership Agreement, it is the
intent of the parties hereto that Indemnitee shall enjoy by virtue of this Agreement the greater
benefit so afforded by such change. Any amendment, alteration or repeal of the DLLCA or DRULPA
that adversely affects any right of Indemnitee shall be prospective only and shall not limit or
eliminate any such right with respect to any Proceeding involving any occurrence or alleged
occurrence of any action or omission to act that took place before such amendment or repeal.

     Section 7.2 Insurance and Subrogation.

     (a) To the extent that the Partnership maintains an insurance policy or policies
providing liability insurance for directors, officers, employees, agents or fiduciaries of
the General Partner or the Partnership or for individuals serving at the request of the
General Partner as directors, officers, partners, members, venturers, proprietors, trustees,
employees, agents, fiduciaries or similar functionaries of another foreign or domestic
corporation, partnership, limited liability company, joint venture, sole proprietorship,
trust, employee benefit plan or other enterprise, Indemnitee shall be covered by such policy
or policies in accordance with its or their terms to the maximum extent of the coverage
available for any such director, officer, employee, agent or fiduciary under such policy or
policies.

     (b) In the event of any payment by the Partnership under this Agreement, the
Partnership shall be subrogated to the extent of such payment to all of the rights of
recovery of Indemnitee, who shall execute all papers required and take all action necessary
to secure such rights, including execution of such documents as are necessary to enable the
Partnership to bring suit to enforce such rights.

12

 

     (c) The Partnership shall not be liable under this Agreement to make any payment of
amounts otherwise indemnifiable hereunder if and to the extent that Indemnitee has otherwise
actually received such payment under the Partnership’s certificate of limited partnership,
the Partnership Agreement, or any insurance policy, contract, agreement or otherwise.

     (d) If Indemnitee is a director of the Company, the Company will advise the Board of
any proposed material reduction in the coverage for Indemnitee to be provided by the
Partnership’s directors’ liability insurance policy and will not effect such a reduction
with respect to Indemnitee without the prior approval of at least 80% of the Independent
Directors of the General Partner.

     (e) If Indemnitee is a director of the Company during the term of this Agreement and if
Indemnitee ceases to be a director of the General Partner for any reason, the Partnership
shall procure a run-off directors’ and officers’ liability insurance policy with respect to
claims arising from facts or events that occurred before the time Indemnitee ceased to be a
director of the General Partner and covering Indemnitee, which policy, without any lapse in
coverage, will provide coverage for a period of six years after the time Indemnitee ceased
to be a director of the General Partner and will provide coverage (including amount and type
of coverage and size of deductibles) that are substantially comparable to the Partnership’s
directors’ and officers’ liability insurance policy that was most protective of Indemnitee
in the 12 months preceding the time Indemnitee ceased to be a director of the General
Partner, provided, however, that:

     (i) this obligation shall be suspended during the period immediately following
the time Indemnitee ceases to be a director of the General Partner if and only so
long as the Partnership has a directors’ and officers’ liability insurance policy in
effect covering Indemnitee for such claims that, if it were a run-off policy, would
meet or exceed the foregoing standards, but in any event this suspension period
shall end when a Change in Control occurs; and

     (ii) no later than the end of the suspension period provided in the preceding
clause (i) (whether because of failure to have a policy meeting the foregoing
standards or because a Change in Control occurs), the Partnership shall procure a
run-off directors’ and officers’ liability insurance policy meeting the foregoing
standards and lasting for the remainder of the six-year period.

     (f) Notwithstanding the preceding clause (e) including the suspension provisions
therein, if Indemnitee ceases to be an officer or a director of the General Partner in
connection with a Change in Control or at or during the one-year period following the
occurrence of a Change in Control, the Partnership shall procure a run-off directors’ and
officers’ liability insurance policy covering Indemnitee and meeting the foregoing standards
in clause (e) and lasting for a six-year period upon the Indemnitee’s ceasing to be an
officer or a director of the General Partner in such circumstances.

     Section 7.3 Self Insurance of the Partnership; Other Arrangements. The parties hereto
recognize that the Partnership may, but except as provided in Section 7.2(d) and Section 7.2(e) is

13

 

not required to, procure or maintain insurance or other similar arrangements, at its expense,
to protect itself and any person, including Indemnitee, who is or was a director, officer,
employee, agent or fiduciary of the General Partner or the Partnership or who is or was serving at
the request of the General Partner as a director, officer, partner, member, venturer, proprietor,
trustee, employee, agent, fiduciary or similar functionary of another foreign or domestic
corporation, partnership, limited liability company, joint venture, sole proprietorship, trust,
employee benefit plan or other enterprise against any expense, liability or loss asserted against
or incurred by such person, in such a capacity or arising out of the person’s status as such a
person, whether or not the Partnership would have the power to indemnify such person against such
expense or liability or loss.

     Except as provided in Section 7.2(d) and Section 7.2(e), in considering the cost and
availability of such insurance, the Partnership (through the exercise of the business judgment of
the General Partner’s directors and officers) may, from time to time, purchase insurance which
provides for certain (i) deductibles, (ii) limits on payments required to be made by the insurer,
or (iii) coverage which may not be as comprehensive as that previously included in insurance
purchased by the Partnership or its predecessors. The purchase of insurance with deductibles,
limits on payments and coverage exclusions, even if in the best interest of the Partnership, may
not be in the best interest of Indemnitee. As to the Partnership, purchasing insurance with
deductibles, limits on payments and coverage exclusions is similar to the Partnership’s practice of
self-insurance in other areas. In order to protect Indemnitee who would otherwise be more fully or
entirely covered under such policies, the Partnership shall, to the maximum extent permitted by the
Partnership Agreement, indemnify and hold Indemnitee harmless to the extent (i) of such
deductibles, (ii) of amounts exceeding payments required to be made by an insurer, or (iii) of
amounts that prior policies of directors’ and officers’ liability insurance held by the Partnership
or its predecessors have provided for payment to Indemnitee, if by reason of Indemnitee’s Status
Indemnitee is or is threatened to be made a party to any Proceeding. The obligation of the
Partnership in the preceding sentence shall be without regard to whether the Partnership would
otherwise be required to indemnify such officer or director under the other provisions of this
Agreement, or under any law, agreement, vote of unitholders or directors or other arrangement.
Without limiting the generality of any provision of this Agreement, the procedures in Article IV
hereof shall, to the extent applicable, be used for determining entitlement to indemnification
under this Section 7.3.

     Section 7.4 Certain Settlement Provisions. The Partnership shall have no obligation
to indemnify Indemnitee under this Agreement for amounts paid in settlement of a Proceeding or
Claim without the Partnership’s prior written consent. The Partnership shall not settle any
Proceeding or Claim in any manner that would impose any fine or other obligation on Indemnitee
without Indemnitee’s prior written consent. Neither the Partnership nor Indemnitee shall
unreasonably withhold their consent to any proposed settlement.

     Section 7.5 Duration of Agreement. This Agreement shall continue for so long as
Indemnitee serves as a director, officer, employee, agent or fiduciary of the General Partner or,
at the request of the General Partner, as a director, officer, partner, member, venturer,
proprietor, trustee, employee, agent, fiduciary or similar functionary of another foreign or
domestic corporation, partnership, limited liability company, joint venture, sole proprietorship,
trust, employee benefit plan or other enterprise, and thereafter shall survive until and terminate
upon

14

 

the later to occur of: (a) the expiration of 20 years after the latest date that Indemnitee
shall have ceased to serve in any such capacity; (b) the final termination of all pending
Proceedings in respect of which Indemnitee is granted rights of indemnification or advancement of
Expenses hereunder and of any proceeding commenced by Indemnitee pursuant to Article V relating
thereto; or (c) the expiration of all statutes of limitation applicable to possible Claims arising
out of Indemnitee’s Status.

     Section 7.6 Notice by Each Party. Indemnitee shall promptly notify the Partnership in
writing upon being served with any summons, citation, subpoena, complaint, indictment, information
or other document or communication relating to any Proceeding or Claim for which Indemnitee may be
entitled to indemnification or advancement of Expenses hereunder; provided, however, that any
failure of Indemnitee to so notify the Partnership shall not adversely affect Indemnitee’s rights
under this Agreement except to the extent the Partnership shall have been materially prejudiced as
a direct result of such failure. The Partnership shall promptly notify Indemnitee in writing as to
the pendency of any Proceeding or Claim that may involve a claim against Indemnitee for which
Indemnitee may be entitled to indemnification or advancement of Expenses hereunder.

     Section 7.7 Amendment. This Agreement may not be modified or amended except by a
written instrument executed by or on behalf of each of the parties hereto.

     Section 7.8 Waivers. The observance of any term of this Agreement may be waived
(either generally or in a particular instance and either retroactively or prospectively) by the
party entitled to enforce such term only by a writing signed by the party against which such waiver
is to be asserted. Unless otherwise expressly provided herein, no delay on the part of any party
hereto in exercising any right, power or privilege hereunder shall operate as a waiver thereof, nor
shall any waiver on the part of any party hereto of any right, power or privilege hereunder operate
as a waiver of any other right, power or privilege hereunder nor shall any single or partial
exercise of any right, power or privilege hereunder preclude any other or further exercise thereof
or the exercise of any other right, power or privilege hereunder.

     Section 7.9 Entire Agreement. This Agreement and the documents expressly referred to
herein constitute the entire agreement between the parties hereto with respect to the matters
covered hereby, and any other prior or contemporaneous oral or written understandings or agreements
with respect to the matters covered hereby are expressly superseded by this Agreement.

     Section 7.10 Severability. If any provision of this Agreement (including any
provision within a single section, paragraph or sentence) or the application of such provision to
any Person or circumstance, shall be judicially declared to be invalid, unenforceable or void, such
decision will not have the effect of invalidating or voiding the remainder of this Agreement or
affect the application of such provision to other Persons or circumstances, it being the intent and
agreement of the parties that this Agreement shall be deemed amended by modifying such provision to
the extent necessary to render it valid, legal and enforceable while preserving its intent, or if
such modification is not possible, by substituting therefor another provision that is valid, legal
and unenforceable and that achieves the same objective. Any such finding of invalidity or

15

 

unenforceability shall not prevent the enforcement of such provision in any other jurisdiction
to the maximum extent permitted by applicable law.

     Section 7.11 Notices. All notices and other communications hereunder shall be in
writing and shall be deemed given upon (a) transmitter’s confirmation of a receipt of a facsimile
transmission if during normal business hours of the recipient, otherwise on the next business day,
(b) confirmed delivery of a standard overnight courier or when delivered by hand or (c) the
expiration of five business days after the date mailed by certified or registered mail (return
receipt requested), postage prepaid, to the parties at the following addresses (or at such other
addresses for a party as shall be specified by like notice):

     If to the Partnership, to it at:

Pioneer Southwest Energy Partners L.P.

c/o Pioneer Natural Resources GP LLC

5205 North O’Connor Blvd.

Suite 200

Irving, Texas 75039-3746

Attn: Secretary

Facsimile: (972) 969-3552

     If to Indemnitee, to Indemnitee at:

[Indemnitee address]

or to such other address or to such other individuals as any party shall have last designated by
notice to the other parties. All notices and other communications given to any party in accordance
with the provisions of this Agreement shall be deemed to have been given when delivered or sent to
the intended recipient thereof in accordance with and as provided in the provisions of this Section
7.11.

     Section 7.12 Governing Law. This Agreement shall be construed in accordance with and
governed by the laws of the State of Delaware without regard to the principles of conflict of laws.

     Section 7.13 Certain Construction Rules.

     (a) The article and section headings contained in this Agreement are for reference
purposes only and shall not affect in any way the meaning or interpretation of this
Agreement. As used in this Agreement, unless otherwise provided to the contrary, (1) all
references to days shall be deemed references to calendar days and (2) any reference to a
“Section” or “Article” shall be deemed to refer to a section or article of this Agreement.
The words “hereof,” “herein” and “hereunder” and words of similar import referring to this
Agreement refer to this Agreement as a whole and not to any particular provision of this
Agreement. Whenever the words “include,” “includes” or “including” are used in this
Agreement, they shall be deemed to be followed by the words “without limitation.” Unless
otherwise specifically provided for herein, the term “or” shall not be

16

 

deemed to be exclusive. Whenever the context may require, any pronoun used in this
Agreement shall include the corresponding masculine, feminine or neuter forms, and the
singular form of nouns, pronouns and verbs shall include the plural and vice versa.

     (b) For purposes of this Agreement, references to “other enterprises” shall include
employee benefit plans; references to “fines” shall include any excise taxes assessed on a
person with respect to any employee benefit plan; references to “serving at the request of
the General Partner” shall include any service as a director, officer, employee or agent of
the General Partner or the Partnership which imposes duties on, or involves services by,
such director, nominee, officer, employee or agent with respect to an employee benefit plan,
its participants or beneficiaries; and a person who acted in good faith and in a manner the
person reasonably believed to be in the interests of the participants and beneficiaries of
an employee benefit plan shall be deemed to have acted in a manner “not opposed to the best
interest of the Partnership” for purposes of this Agreement and the DRULPA.

     Section 7.14 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original and all of which together shall be
deemed to be one and the same instrument, notwithstanding that both parties are not signatories to
the original or same counterpart.

     Section 7.15 Certain Persons Not Entitled to Indemnification. The Partnership shall
not be obligated pursuant to the terms of this Agreement:

     (a) To indemnify Indemnitee if (and to the extent that) a final decision by a court or
arbitration body having jurisdiction in the matter shall determine that such indemnification
is not permitted by the Partnership Agreement; or

     (b) To indemnify Indemnitee for the payment to the Partnership of profits pursuant to
Section 16(b) of the Exchange Act, or Expenses incurred by Indemnitee for Proceedings in
connection with such payment under Section 16(b) of the Exchange Act.

     Section 7.16 Indemnification for Negligence, Gross Negligence, etc. Without limiting
the generality of any other provision hereunder, it is the express intent of this Agreement that
Indemnitee be indemnified and Expenses be advanced regardless of Indemnitee’s acts of negligence or
gross negligence to the extent that indemnification and advancement of Expenses is allowed pursuant
to the terms of this Agreement and under the Partnership Agreement.

     Section 7.17 Mutual Acknowledgments. Both the Partnership and Indemnitee acknowledge
that in certain instances, applicable law (including applicable federal law that may preempt or
override applicable state law) or public policy may prohibit the Partnership from indemnifying the
directors, officers, employees, agents or fiduciaries of the General Partner under this Agreement
or otherwise. For example, the Partnership and Indemnitee acknowledge that the U.S. Securities and
Exchange Commission has taken the position that indemnification of directors, officers and
controlling Persons of the Partnership for liabilities arising under federal securities laws is
against public policy and, therefore, unenforceable. Indemnitee understands and acknowledges that
the Partnership has undertaken or may be required in the future to

17

 

undertake with the Securities and Exchange Commission to submit the question of
indemnification to a court in certain circumstances for a determination of the Partnership’s right
under public policy to indemnify Indemnitee. In addition, the Partnership and Indemnitee
acknowledge that federal law prohibits indemnifications for certain violations of the Employee
Retirement Income Security Act of 1974, as amended.

     Section 7.18 Enforcement. The Partnership agrees that its execution of this Agreement
shall constitute a stipulation by which it shall be irrevocably bound in any court or arbitration
in which a proceeding by Indemnitee for enforcement of Indemnitee’s rights hereunder shall have
been commenced, continued or appealed, that its obligations set forth in this Agreement are unique
and special, and that failure of the Partnership to comply with the provisions of this Agreement
will cause irreparable and irremediable injury to Indemnitee, for which a remedy at law will be
inadequate. As a result, in addition to any other right or remedy Indemnitee may have at law or in
equity with respect to breach of this Agreement, Indemnitee shall be entitled to injunctive or
mandatory relief directing specific performance by the Partnership of its obligations under this
Agreement. The Partnership agrees not to seek, and agrees to waive any requirement for the
securing or posting of, a bond in connection with Indemnitee’s seeking or obtaining such relief.

     Section 7.19 Successors and Assigns. All of the terms and provisions of this Agreement
shall be binding upon, shall inure to the benefit of and shall be enforceable by the parties hereto
and their respective successors, assigns, heirs, executors, administrators, legal representatives.

     Section 7.20 Period of Limitations. No legal action shall be brought and no cause of
action shall be asserted by or on behalf of the Partnership or any affiliate of the Partnership
against Indemnitee or Indemnitee’s spouse, heirs, executors, or personal or legal representatives
after the expiration of one year from the date of accrual of that cause of action, and any claim or
cause of action of the Partnership or its affiliate shall be extinguished and deemed released
unless asserted by the timely filing of a legal action within that one-year period; provided,
however, that for any claim based on Indemnitee’s breach of fiduciary duties to the Partnership or
its unitholders, the period set forth in the preceding sentence shall be three years instead of one
year; and provided, further, that, if any shorter period of limitations is otherwise applicable to
any such cause of action, the shorter period shall govern.

18

 

     IN WITNESS WHEREOF, this Agreement has been duly executed and delivered to be effective as of
the date first above written.

	 	 	 	 	 	 	 
	 	 	PIONEER SOUTHWEST ENERGY PARTNERS L.P.
	 
	 	 	 	 	 	 
	 

	 	By:	 	Pioneer Natural Resources GP LLC, its general partner	 	 
	 
	 	 	 	 	 	 
	 

	 	By:	 	 	 	 
	 

	 	 	 	 

Richard P. Dealy
	 	 
	 

	 	 	 	Executive Vice President, Chief Financial Officer, Treasurer and Director	 	 
	 
	 	 	 	 	 	 
	 	 	INDEMNITEE:
	 
	 	 	 	 	 	 
	 	 	 	 	 
	 

	 	[Name]	 	 	 	 

19exv10w7

 

Exhibit 10.7

OMNIBUS OPERATING AGREEMENT

     This Omnibus Operating Agreement (this “Agreement”) is made and entered
into this ___day of ___, 2007, by and between Pioneer Natural Resources USA,
Inc., a Delaware corporation (“Pioneer USA”), and Pioneer Southwest Energy
Partners USA LLC, a Texas limited liability company (“PSE USA”). Pioneer USA
and PSE USA are sometimes hereinafter referred to individually as a “Party” and
collectively as the “Parties.”

     In consideration of the premises, the covenants set forth herein, and other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the Parties hereby agree as follows:

ARTICLE I

DEFINITIONS

     As used in this Agreement, the following terms shall have the
respective meanings set forth below:

     “AAA” means the American Arbitration Association.

     “Applicable Wellbore” means (a) with respect to a Replacement Well, the
Wellbore in replacement of which such Replacement Well was drilled, as described below
in the definition of “Replacement Well,” and (b) with respect to a Down-Spaced Well,
the previously existing Wellbore associated with such Down-Spaced Well, as described
below in the definition of “Down-Spaced Well.”

     “Down-Spaced Well” means an additional well authorized or permitted by
the Texas Railroad Commission to be drilled and produced from a location within the
same forty (40) acre, quarter-quarter section of land as the bottom hole location of a
Wellbore or Replacement Well which is then completed in and producing from the
interval defined in the Spraberry (Trend Area) special field rules. In no event shall
PSE USA propose a Down-Spaced Well to be drilled, deepened, sidetracked, or completed
to a depth below the deepest perforation producing in the Applicable Wellbore.

     “Existing Production Facility” means any Production Facility currently
handling production from one or more Wellbores.

     “Expanded Production Facility” means an Existing Production Facility
which has been expanded to increase capacity in order to accommodate production from
Pioneer Wells, as more particularly described in Section 6.06.

     “Governmental Body” — any:

	 	(a)	 	nation, state, county, city, town, village, district, or
other jurisdiction of any nature;

 

 

	 	(b)	 	federal, state, local, municipal, foreign, or other
government;
	 
	 	(c)	 	governmental or quasi-governmental authority of any nature
(including any Governmental Body, branch, department, official, or entity
and any court or other tribunal);
	 
	 	(d)	 	multi-national organization or body; or
	 
	 	(e)	 	body exercising, or entitled to exercise, any
administrative, executive, judicial, legislative, police, regulatory, or
taxing authority or power of any nature.

     “New Production Test Equipment” means the test separator(s), production
separator, header, pumps, and lines or such other equipment added at an Existing
Production Facility solely to measure, separate, and allocate/transfer production
to/from the Pioneer Wells, as more particularly described in Section 6.06(a).

     “Omnibus Agreement” means that certain Omnibus Agreement dated ___,
2007, by and among Pioneer Southwest Energy Partners L.P., Pioneer Natural Resources
GP LLC, Pioneer Natural Resources Company, Pioneer USA, and Pioneer Southwest Energy
Partners USA LLC.

     “Person” means an individual, corporation, partnership, joint venture,
trust, limited liability company, unincorporated organization, or any other entity.

     “Pioneer Operating Agreement” has the meaning assigned thereto in Section
2.03.

     “Pioneer Wells” means both (a) wells operated by Pioneer USA, and (b)
wells that Pioneer USA owns a working interest in but does not operate, other than (in
both cases (a) and (b)) the Wellbores, Replacement Wells, and Down-Spaced Wells.

     “Production Facility” means the surface equipment beyond the wellhead
connections, including stock tanks, separators, treaters, pumping equipment, saltwater
disposal wells (excluding salt water disposal facilities jointly owned by Pioneer USA
and third party(ies)), and associated equipment, handling the production from one or
more Wellbores.

     “Replacement Well” means any well drilled at a location within the same
forty (40) acre, quarter-quarter section of land upon which the surface location of a
Wellbore or Down-Spaced Well is physically located or within one hundred feet (100’)
of such surface location in the event such quarter-quarter section cannot be
reasonably determined, and which is drilled in replacement of such Wellbore or
Down-Spaced Well as a result of the temporary or permanent plugging and abandonment of
such Wellbore or Down-Spaced Well due to mechanical failure and not due to depletion
in the then producing perforations. In no event shall PSE USA propose a Replacement
Well to be drilled, deepened, sidetracked, or completed to a depth below the deepest
perforation producing in the Applicable Wellbore immediately prior to the mechanical

Page 2 of 16

 

failure of the Applicable Wellbore. Within the same limitations, a Replacement Well
may also be drilled in replacement of a previously drilled Replacement Well.

     “Rules” means the Commercial Arbitration Rules of the AAA.

     “Third Party Operating Agreement” has the meaning assigned thereto in
Section 2.02.

     “Wellbores” means all of those certain wellbores described in the Omnibus
Agreement.

ARTICLE II

RECITALS

     2.01. Pursuant to the transactions referred to in the Omnibus Agreement, PSE USA
has acquired, or is or will be acquiring, an undivided interest in and to the
Wellbores.

     2.02. With respect to certain Wellbores, operating agreements between Pioneer
USA, as operator, and third parties, as non-operators (the “Third Party Operating
Agreements”), are already in place.

     2.03 With respect to those Wellbores that are not presently subject to a Third
Party Operating Agreement, the Parties are entering into an operating agreement of
even date herewith, with Pioneer USA as operator and PSE USA as non-operator (the
“Pioneer Operating Agreement”).

     2.04. The Parties desire to enter into this Agreement to set forth their
understanding and agreement with respect to certain restrictions and limitations on
the rights of PSE USA and the further rights of the Parties under the Pioneer
Operating Agreement and the Third Party Operating Agreements.

ARTICLE III

TERM

     This Agreement shall remain in effect until the earlier to occur of the
following: (a) the termination of the Pioneer Operating Agreement and all Third Party
Operating Agreements; or (b) the termination of this Agreement by the mutual written
consent of the Parties. In addition, if Pioneer USA resigns as operator under the
Pioneer Operating Agreement or any Third Party Operating Agreement (or is no longer
the operator under any Third Party Operating Agreement for any reason), this Agreement
shall terminate, insofar and only insofar as it applies to any then-existing
Wellbores, Replacement Wells, and Down-Spaced Wells covered by such operating
agreement(s) under which Pioneer USA has resigned as or is no longer operator, when
such resignation or other termination of operatorship becomes effective; however, this
Agreement shall continue in effect insofar as it applies to any subsequently proposed
Replacement Wells or Down-Spaced Wells for the Applicable Wellbores. Notwithstanding
the termination of this Agreement: (a) Pioneer USA shall continue to have the rights
set forth below in Section 6.06 for so long as necessary, in its sole discretion, to
utilize Existing Production Facilities or Expanded Production Facilities for the
delivery and handling of production from Pioneer Wells; (b) PSE

Page 3 of 16

 

USA shall continue to have the right to propose, participate, and/or go non-consent in
Replacement Wells and Down-Spaced Wells indefinitely; and (c) Pioneer USA shall
continue to have the rights set forth below in Section 6.07 indefinitely.

ARTICLE IV

SPECIAL PROVISIONS REGARDING THE PIONEER OPERATING AGREEMENT

       Notwithstanding anything to the contrary contained in the Pioneer
Operating Agreement, the Parties agree as follows:

     4.01. PSE USA shall not have the right to remove Pioneer USA as the operator
under the Pioneer Operating Agreement; however, if Pioneer USA resigns as the
operator, or sells all of its interest in the area covered by the Pioneer Operating
Agreement to a third party, PSE USA shall have the right to vote for the selection of
a successor operator pursuant to the terms and conditions of Article V.B.2 of the
Pioneer Operating Agreement.

     4.02. PSE USA shall have the right, along with Pioneer USA, to propose (subject
to the limitation in the following sentence), participate, and/or go non-consent in
subsequent operations in the Wellbores and the drilling of Replacement Wells and/or
Down-Spaced Wells pursuant to the terms and conditions of Article VI.B of the Pioneer
Operating Agreement; however, if a subsequent operation proposal by PSE USA conflicts
with a subsequent operation proposal by Pioneer USA (regardless of which proposal
preceded the other), PSE USA shall withdraw its proposal in favor of Pioneer USA’s
proposal. PSE USA shall not propose the drilling of a Down-Spaced Well with less than
twenty (20) acre density.

     4.03. With respect to any Replacement Well or Down-Spaced Well for which the
Applicable Wellbore is subject to the Pioneer Operating Agreement:

     (a) PSE USA shall not propose any Replacement Well or Down-Spaced Well to
a depth below the deepest producing perforation in the Applicable Wellbore.

     (b) If Pioneer USA proposes a Replacement Well or Down-Spaced Well to be
both (i) drilled and completed in an objective depth and/or interval that is
deeper than the deepest producing perforation in the Applicable Wellbore, and
(ii) dually completed in or commingled with production from a producing
perforation in the Applicable Wellbore, PSE USA shall have the right to
participate in such proposal.

     (c) If PSE USA participates in the drilling of any Replacement Well or
Down-Spaced Well, then, following the completion of such Replacement Well or
Down-Spaced Well, Pioneer USA shall execute and deliver (or cause to be
executed and delivered) to PSE USA a recordable assignment and bill of sale and
such other documents (comparable to those executed in conjunction with the
Wellbores, and containing a comparable title indemnity) as necessary to convey
to PSE USA an undivided interest in the wellbore of the Replacement Well or
Down-Spaced Well from the surface to the deepest producing perforation in the
Replacement Well or Down-Spaced Well, as the case may be (together with an
easement for operating purposes extending an additional one hundred feet (100’)
in depth), which undivided interest shall be in such amount that the ratio of
PSE USA’s interest to Pioneer USA’s interest is the same in the Replacement
Well or Down-Spaced

Page 4 of 16

 

Well as it is in the Applicable Wellbore. Prior to the spudding of any
Replacement Well or Down-Spaced Well that is proposed under Section 4.03(b) to
be drilled and completed in a deeper objective depth and/or interval than the
deepest producing perforation in the Applicable Wellbore, and in consideration
of the rights to participate in such well and to receive such assignment and
bill of sale, PSE USA shall pay to Pioneer USA its working interest share of
the fair market value of such objective depth and/or interval that is deeper
than the deepest producing perforation in the Applicable Wellbore, as mutually
agreed by Pioneer USA and PSE USA. If the Parties are unable to reach an
agreement on the fair market value of such objective depth and/or interval,
then the Parties shall select an independent appraiser to make such
determination. If the Parties are unable to agree on an independent appraiser,
each Party shall select one independent appraiser, and the two appraisers so
selected shall select a third independent appraiser, who shall make the
determination of fair market value. The independent appraiser’s determination
will be binding on the Parties.

     (d) If no Replacement Well is proposed by Pioneer USA or PSE USA, but
Pioneer USA subsequently drills and completes a well in which PSE USA does not
have the right to participate as a producer or a dry hole at a deeper depth
than the deepest existing perforation in the Applicable Wellbore within the
limited area of land specified in the definitions of “Replacement Well” or
“Down-Spaced Well” in Article I above, and Pioneer USA thereafter proposes a
plugback of such subsequent well as a Replacement Well or Down-Spaced Well, PSE
USA shall have the right to participate in such plugback attempt, subject to a
well cost adjustment to be calculated in a manner consistent with the well cost
adjustment mechanisms set forth in Article VI.B.4(a) or VI.B.4(b) of the
Pioneer Operating Agreement, as applicable. If PSE USA participates in such
plugback attempt, Pioneer USA shall execute and deliver (or cause to be
executed and delivered) to PSE USA a recordable assignment and bill of sale
conveying to PSE USA an undivided interest in the Replacement Well or
Down-Spaced Well from the surface to the deepest producing perforation in such
well (together with an easement for operating purposes extending an additional
one hundred feet (100’) in depth), which undivided interest shall be in such
amount that the ratio of PSE USA’s interest to Pioneer USA’s interest is the
same in the Replacement Well and Down-Spaced Well as it is in the Applicable
Wellbore.

     (e) Following each transaction described in subsection 4.03(c) or (d)
above, the Parties shall amend Exhibit A-1 to the Pioneer Operating Agreement
to reflect the Parties’ respective interests in the Replacement Well or
Down-Spaced Well from the surface to the deepest producing perforation in such
Replacement Well or Down-Spaced Well.

     4.04 Pioneer USA shall have the right to take over Wellbores, Replacement Wells,
and Down-Spaced Wells agreed to be permanently plugged and abandoned by the Parties
for Pioneer USA’s exclusive use. If Pioneer USA elects to exercise such right, it
shall pay PSE USA for its pro-rata share of the value of the salvable material and
equipment, less its pro-rata shares of the estimated costs of salvaging, plugging and
abandoning, and restoring the surface. If, however, such plugging and restoration
costs are higher than the salvage value, PSE USA shall tender its pro-rata share of
such excess to Pioneer USA. If Pioneer USA exercises this right to take over a
Wellbore, Replacement Well, or Down-Spaced Well, PSE USA shall execute and deliver (or
cause to be executed and delivered) to Pioneer USA a recordable assignment and bill of
sale

Page 5 of 16

 

conveying to Pioneer USA all of PSE USA’s interest in such Wellbore, Replacement
Well, or Down-Spaced Well. Pioneer USA shall fully protect, defend, indemnify, and
hold PSE USA harmless from and against all losses, costs, claims, demands, expenses,
damages, liabilities, suits, actions, judgments, and decrees arising out of,
attributable to, or resulting from Pioneer USA’s subsequent operations on and in such
Wellbore, Replacement Well, or Down-Spaced Well.

ARTICLE V

SPECIAL PROVISIONS REGARDING THE THIRD PARTY OPERATING

AGREEMENTS

     Notwithstanding anything to the contrary contained in any Third Party
Operating Agreement, the Parties agree as follows:

     5.01. PSE USA shall never vote to remove Pioneer USA as operator.

     5.02 PSE USA shall have the right (along with other parties to the Third Party
Operating Agreements) to propose, participate, and/or go non-consent in subsequent
operations in the Wellbores and the drilling of Replacement Wells and/or Down-Spaced
Wells, pursuant to the terms of such applicable Third Party Operating Agreement,
subject to the following restrictions:

     (a) If a subsequent operation proposal by PSE USA conflicts with a
subsequent operation proposal by Pioneer USA (regardless of which proposal
preceded the other), PSE USA shall withdraw its proposal in favor of Pioneer
USA’s proposal.

     (b) If a subsequent operation proposal by Pioneer USA conflicts with a
subsequent operation proposal by a third party Non-Operator, PSE USA shall vote
in favor of Pioneer USA’s proposal.

     5.03 With respect to any Replacement Well or Down-Spaced Well for which the
Applicable Wellbore is subject to a Third Party Operating Agreement:

     (a) PSE USA shall not propose any Replacement Well or Down-Spaced Well to
a depth below the deepest producing perforation in the Applicable Wellbore.

     (b) If Pioneer USA or any third party non-operator proposes a Replacement
Well or Down-Spaced Well to be both (i) drilled and completed in an objective
depth and/or interval that is deeper than the deepest producing perforation in
the Applicable Wellbore, and (ii) dually completed in or commingled with
production from a producing perforation in the Applicable Wellbore, then PSE
USA shall have the right to participate in such proposal.

     (c) If PSE USA participates in any proposal to drill a Replacement Well or
Down-Spaced Well, then, following the completion of such Replacement Well or
Down-Spaced Well, the Parties shall prepare and execute (or cause to be
executed) such documents (comparable to those executed in conjunction with the
Wellbores, and containing a comparable title indemnity) as are necessary for
PSE USA to acquire an undivided interest in the wellbore of the Replacement
Well or Down-Spaced Well from

Page 6 of 16

 

the surface to the deepest producing perforation in the Replacement Well
or Down-Spaced Well, as the case may be (together with an easement for
operating purposes extending an additional one hundred feet (100’) in depth),
which undivided interest shall be in such amount that the ratio of PSE USA’s
interest to Pioneer USA’s interest is the same in the Replacement Well and
Down-Spaced Well as it is in the Applicable Wellbore. Prior to the spudding of
any Replacement Well or Down-Spaced Well that is proposed to be drilled and
completed in a deeper objective depth and/or interval than the deepest
producing perforation in the Applicable Wellbore, and in consideration of the
rights to participate in such well and to acquire such interest, PSE USA shall
pay to Pioneer USA its working interest share of the fair market value of such
objective depth and/or interval that is deeper than the deepest producing
perforation in the Applicable Wellbore, as mutually agreed by Pioneer USA and
PSE USA. If the Parties are unable to reach an agreement on the fair market
value of such objective depth and/or interval, then the fair market value shall
be determined by an independent appraiser as described above in Section
4.03(c).

     (d) If no Replacement Well is proposed by any party, but Pioneer USA or
any other party to a Third Party Operating Agreement subsequently drills and
completes a well in which PSE USA does not have the right to participate as a
producer or a dry hole at a deeper depth than the deepest existing perforation
in the Applicable Wellbore within the limited area of land specified in the
definitions of “Replacement Well” or “Down-Spaced Well” in Article I above, and
Pioneer USA or any other party to such Third Party Operating Agreement
thereafter proposes a plugback of such subsequent well as a Replacement Well or
Down-Spaced Well, PSE USA shall have the right to participate in such plugback
attempt, subject to (i) the approval of the other parties to such Third Party
Operating Agreement, (ii) a well cost adjustment to be calculated in a manner
consistent with the well cost adjustment mechanisms set forth in such Third
Party Operating Agreement, as applicable, and (iii) if applicable, recovery of
the nonconsent penalty under such Third Party Operating Agreement. If PSE USA
participates in such plugback attempt, the Parties shall prepare and execute
(or cause to be executed) such documents as are necessary for PSE USA to
acquire an undivided interest in the Replacement Well or Down-Spaced Well from
the surface to the deepest producing perforation in such well (together with an
easement for operating purposes extending an additional one hundred feet (100’)
in depth), which undivided interest shall be in such amount that the ratio of
PSE USA’s interest to Pioneer USA’s interest is the same in the Replacement
Well or Down-Spaced Well as it is in the Applicable Wellbore.

     (e) Following each transaction described in subsection 5.03(c) or (d)
above, Pioneer USA shall prepare and circulate to the other parties to the
applicable Third Party Operating Agreement an amended Exhibit “A-1” (or other
applicable exhibit) to such Third Party Operating Agreement to reflect the
respective interests of the Parties and the other parties to such Third Party
Operating Agreement in the Replacement Well or Down-Spaced Well from the
surface to the deepest producing perforation in such Replacement Well or
Down-Spaced Well.

Page 7 of 16

 

ARTICLE VI

SPECIAL PROVISIONS REGARDING BOTH THE PIONEER OPERATING

AGREEMENT AND THE THIRD PARTY OPERATING AGREEMENTS

     Notwithstanding anything to the contrary contained in either the Pioneer
Operating Agreement or any Third Party Operating Agreement, the Parties agree as
follows:

     6.01. PSE USA shall have the right to take its share of production under any
Third Party Operating Agreement in kind pursuant to terms and conditions substantially
similar to those applicable to PSE USA in Article VI.G of the Pioneer Operating
Agreement.

     6.02 Subject to PSE USA’s right to take in kind as set forth above in Section
6.01 and in Article VI.G of the Pioneer Operating Agreement, for so long as Pioneer
USA owns an interest in the Wellbores, Replacement Wells, and/or Down-Spaced Wells,
Pioneer USA shall market all of PSE USA’s production on behalf of PSE USA from such
Wellbores, Replacement Wells, and/or Down-Spaced Wells under the same terms and
conditions as Pioneer USA markets its own production. While this right to market may
include arrangements for processing gas, PSE USA shall be responsible for all
applicable processing fees and charges and shall not share in plant revenues,
discounts, or benefits derived from or attributable to Pioneer USA’s ownership in any
such processing plant or facilities. Pioneer USA shall disburse (or cause to be
disbursed) revenues to PSE USA and the other owners of production, including the
royalty owners. Pioneer USA shall not have any liability to PSE USA for the failure
to timely or properly pay any such disbursements to the other owners of production, or
for any penalties and/or interest resulting therefrom.

     6.03. If a lease is lost due to title failure or by operation of its terms, PSE
USA shall be allowed to participate under the renewal provision but INSOFAR AND ONLY
INSOFAR as to the productive interval or behind-pipe intervals in the existing
Wellbores, Replacement Wells, or Down-Spaced Wells, as the case may be. PSE USA shall
reimburse Pioneer USA for its pro-rata share (being equal to its working interest in
the well affected by the failure, or its weighted working interest, if more than one
well is affected) of the actual leasing costs incurred by Pioneer USA.

     6.04. PSE USA shall neither (a) make any application before a Governmental Body,
including applications regarding spacing, down-spacing, density, special field rules,
or allowables, except as hereinafter provided in this Section 6.04, nor (b) object to
any such application made by Pioneer USA. Further, upon the request of Pioneer USA,
PSE USA will affirmatively waive any objections to any such application by Pioneer
USA. Notwithstanding anything in this paragraph to the contrary, PSE USA shall have
the right to make application before a Governmental Body for exceptions to the
Spraberry (Trend Area) special field rules for down-spacing to no less than twenty
(20) acre density. If revised proration unit plats, Railroad Commission of Texas
Forms P-15, and/or similar filings are needed in Pioneer USA’s sole judgment for any
purpose, Pioneer USA shall prepare such proration unit plats, Railroad Commission of
Texas Forms P-15, and/or similar filings for the Parties and submit same to the
appropriate Governmental Body.

     6.05. Pioneer USA shall tender all lease maintenance payments, if any, on behalf
of PSE USA, subject to reimbursement from PSE USA. Pioneer USA shall retain and
maintain all division of interest and revenue decks, and all well, lease, and contract
files. Pioneer USA shall not have any liability to PSE USA for the failure to timely
or properly tender any such lease maintenance payments, unless such failure results
from the gross negligence or willful misconduct of Pioneer USA.

Page 8 of 16

 

     6.06. Subject to the further terms and conditions set forth below, PSE USA
authorizes Pioneer USA to utilize the Existing Production Facilities as necessary in
Pioneer USA’s sole discretion for separating, storing, handling, compressing,
dehydrating, treating, and delivering oil, gas, and water from Pioneer Wells. Pioneer
USA recognizes, however, that the Existing Production Facilities may be limited by
physical restrictions from accepting some or all of the production from the Pioneer
Wells, such that Pioneer USA may be required to construct its own Production
Facilities.

     (a) If Pioneer USA, as operator of the Existing Production Facilities,
determines, in its sole discretion, that there is sufficient capacity (physical
and contractual) at an Existing Production Facility to accommodate separately
metered production from Pioneer Wells, Pioneer USA is authorized to construct,
maintain, and operate gathering lines to deliver production from the Pioneer
Wells to such Existing Production Facility. If the production from the Pioneer
Wells will not be metered prior to being delivered to the Existing Production
Facility, Pioneer USA shall install New Production Test Equipment to measure
the production from the Pioneer Well(s). Pioneer USA shall pay for one hundred
percent (100%) where no third party owners exist, and its pro-rata share (which
shall include PSE USA’s share) where third party owners exist, of the costs of
connecting the Pioneer Wells to the Existing Production Facility, including all
costs associated with the installation of the New Production Test Equipment.
Pioneer USA shall have no liability to PSE USA if the connection of a Pioneer
Well to an Existing Production Facility requires or results in the temporary
interruption of production delivered from other Wellbores, Replacement Wells,
or Down-Spaced Wells connected to such Existing Production Facility. Further,
Pioneer USA shall bear its proportionate share of the cost of maintaining and
operating each Existing Production Facility, including any New Production Test
Equipment — such proportionate share to be determined by dividing the total
number of Pioneer Wells utilizing the Existing Production Facility by the total
number of all wells utilizing such Existing Production Facility. After
installation, the New Production Test Equipment shall be owned by the
then-current owners and maintained and operated by the then-current operator of
the Existing Production Facility.

     (b) If Pioneer USA determines, in its sole discretion, that there is
insufficient capacity (physical or contractual) at an Existing Production
Facility to handle production from any Pioneer Well, Pioneer USA may elect to
expand an Existing Production Facility to increase its capacity in order to
handle such production. Pioneer USA shall pay for one hundred percent (100%)
where no third party owners exist, and its pro-rata share (which shall include
PSE USA’s share) where third party owners exist, of the expansion costs and the
costs to subsequently connect the Pioneer Wells to the Expanded Production
Facility. Pioneer USA shall have no liability to PSE USA if the expansion of
an Existing Production Facility results in the temporary interruption of
production from other Wellbores, Replacement Wells, or Down-Spaced Wells
connected to such Existing Production Facility. Further, Pioneer USA shall
bear its proportionate share of the cost of maintaining and operating the
Expanded Production Facility — such proportionate share to be determined by
dividing the total number of Pioneer Wells utilizing the Expanded Production
Facility by the total number of all wells utilizing such Expanded Production
Facility. After installation, the Expanded Production Facility shall be owned
by the then-

Page 9 of 16

 

current owners and maintained and operated by the then-current operator of
the applicable Existing Production Facility.

     (c) Nothing herein shall be construed to impart, transfer, or convey any
additional ownership or liability in an Existing Production Facility or
Expanded Production Facility to Pioneer USA.

     6.07 If Pioneer USA resigns as operator under the Pioneer Operating Agreement or
any Third Party Operating Agreement (or is no longer the operator under any Third
Party Operating Agreement for any reason), then any successor operator shall, upon the
request of Pioneer USA, prepare and file with the appropriate Governmental Body such
revised proration unit plats, Railroad Commission of Texas Forms P-15, and/or similar
filings as may be necessary in Pioneer USA’s sole judgment for any purpose.

ARTICLE VII

MISCELLANEOUS PROVISIONS

     7.01. Notices. All notices, requests, or consents provided for or permitted to
be given pursuant to this Agreement must be in writing and must be given by depositing
same in the United States mail, addressed to the Party to be notified, postpaid, and
registered or certified with return receipt requested, or by delivering such notice in
person or by telecopier or telegram to such Party. Notice given by personal delivery
or mail shall be effective upon actual receipt. Notice given by telegram or
telecopier shall be effective upon actual receipt if received during the recipient’s
normal business hours, or at the beginning of the recipient’s next business day after
receipt if not received during the recipient’s normal business hours. All notices to
be sent to a Party pursuant to this Agreement shall be sent to or made to the
attention of such Party at the address set forth below or at such other address as
such Party may stipulate to the other Parties in the manner provided in this Section
7.01.

PIONEER USA:

5205 N. O’Connor Blvd., Suite 200

Irving, Texas 75039

Phone: (972) 444-9001

Fax: (972) 969-3587

Attention: General Counsel

PSE USA:

c/o Pioneer Natural Resources GP LLC

5205 N. O’Connor Blvd., Suite 200

Irving, Texas 75039

Phone: (972) 444-9001

Fax: (972) 969-3587

Attention: General Counsel

     7.02. Additional Properties. If the Parties acquire additional properties that
they desire to be subject to this Agreement, they agree that Pioneer USA shall be the
operator of such

Page 10 of 16

 

properties (unless the properties are subject to an operating agreement under which a
third party is operator and will continue as operator), and agree to make such
amendments to this Agreement (and, if applicable, the Pioneer Operating Agreement) as
are necessary for this Agreement (and, if applicable, the Pioneer Operating Agreement)
to apply to such additional properties.

     7.03. Jurisdiction; Service of Process. Without limiting the Parties’ agreement
to arbitrate in Section 7.17, any action
or proceeding seeking a temporary or
preliminary injunction to enforce any
provision of, or based on any right
arising out of, this Agreement must be
brought against any of the Parties in
the courts of the State of Texas, County
of Dallas, or, if it has or can acquire
jurisdiction, in the United States
District Court for the Northern District
of Texas (Dallas Division), and each of
the Parties consents to the jurisdiction
of such courts (and of the appropriate
appellate courts) for such limited
purpose in any such action or proceeding
and waives any objection to venue laid
therein for such limited purpose.
Process in any action or proceeding
referred to in the preceding sentence
may be served on any Party anywhere in
the world.

     7.04. Further Action. In connection with this Agreement and all transactions contemplated by this
Agreement, each Party agrees to execute and deliver such additional documents and
instruments and to perform such additional acts as may be necessary or appropriate to
effectuate, carry out, and perform all of the terms, provisions, and conditions of
this Agreement and all such transactions.

     7.05. Binding Effect. This Agreement shall be binding upon and inure to the
benefit of the Parties and their heirs, executors,
administrators, successors, legal representatives,
and permitted assigns, as well as any Persons
asserting rights or claims on behalf of any of the
foregoing Persons. Without limiting the preceding
sentence, if Pioneer USA resigns as operator under
the Pioneer Operating Agreement or any Third Party
Operating Agreement (or is no longer the operator
under any Third Party Operating Agreement for any
reason), the Parties shall cause the successor
operator to be subject to and bound by the terms of
this Agreement.

     7.06. Effect of Waiver or Consent. No waiver or consent, express or implied, by any Party to or of any breach or default by
the other Party in the performance by such Party of its obligations hereunder shall be
deemed or construed to be a consent or waiver to or of any other breach or default in
the performance by such Party of the same or any other obligations of such Party
hereunder. Failure on the part of a Party to complain of any act of the other Party or
to declare any Party in default, irrespective of how long such failure continues, shall
not constitute a waiver by such Party of its rights hereunder until the applicable
statute of limitations period has run.

     7.07. Counterparts. This Agreement may be executed in counterparts, each of
which together shall constitute an agreement binding on both Parties, notwithstanding
that both Parties are not signatories to the original or the same counterpart. Each
Party shall become bound by this Agreement immediately upon affixing its signature
hereto.

     7.08. Invalidity of Provisions. If any provision of this Agreement or the application thereof to any Party or
circumstance shall be held invalid or unenforceable to any extent, the remainder of
this Agreement and the application of such provision to the other Party or other

Page 11 of 16

 

circumstances shall not be affected thereby and shall be enforced to the greatest
extent permitted by law.

     7.09. Amendment or Restatements. This Agreement may be amended or restated only
by a written instrument executed by each of the Parties; provided, however, that after
the completion of the initial public offering of units by Pioneer Southwest Energy
Partners L.P., PSE USA may not, without the prior approval of the conflicts committee
of the board of directors of Pioneer Natural Resources GP LLC, or, if there is no such
committee, the independent members of such board of directors, agree to any amendment
or modification of this Agreement that Pioneer Natural Resources GP LLC determines
will adversely affect the holders of such units .

     7.10. Assignment. Neither Party may assign all or any portion of its rights, nor
delegate all nor any portion of its duties, hereunder, unless it continues to remain
liable for the performance of its obligations hereunder, and obtains the prior written
consent of the other Party, which consent shall not be unreasonably withheld;
provided, however, a merger shall not be deemed to be an assignment and a transfer of
the rights and an assumption of the obligations under this Agreement; provided
further, however, that the transfer of all or substantially all of the assets of a
Party shall not be deemed an assignment of such rights or obligations of such Party to
this Agreement if the assignee assumes all of the obligations under this Agreement.
Nothing contained in this Agreement, express or implied, shall confer on any person
other than the Parties or their respective successors and permitted assigns, any
rights, remedies, obligations, or liabilities under or by reason of this Agreement.
If PSE USA makes a permitted conveyance of interests in a Wellbore, Replacement Well,
or Down-Spaced Well, it shall, at Pioneer USA’s request, take such actions as
necessary to bind the assignee of such conveyance to this Agreement.

     7.11. Direct or Indirect Action. Where any provision of this Agreement refers to action to be taken by any Party,
or which such Party is prohibited from taking, such provision shall be applicable
whether such action is taken directly or indirectly by such Party, including actions
taken by or on behalf of any affiliate of such Party.

     7.12. Laws and Regulations. Notwithstanding any provision of this Agreement to the contrary, no Party shall be
required to take any act, or fail to take any act, under this Agreement if the effect
thereof would be to cause such Party to be in violation of any applicable law, statute,
rule or regulation.

     7.13. No Recourse Against Officers, Directors, Managers, or Employees. For the avoidance of doubt, the provisions of this Agreement shall not give rise
to any right of recourse against any officer, director, manager, or employee of any
Party or any officer, director or employee of any affiliate of any Party.

     7.14. Negation of Rights of Third Parties. The provisions of this Agreement are
enforceable solely by the Parties, and
no shareholder, member, or assignee of
any Party shall have the right,
separate and apart from such Party, to
enforce any provision of this
Agreement or to compel any Party to
comply with the terms of this
Agreement.

     7.15. Construction. Unless the context requires otherwise: (a) any pronoun used in this Agreement shall include
the corresponding masculine, feminine or neuter forms, and the singular form of nouns,
pronouns and verbs shall include the plural and vice versa; (b) references to Articles
and Sections refer to Articles and Sections of this Agreement; (c) references to

Page 12 of 16

 

Exhibits refer to the Exhibits attached to this Agreement, each of which is made a
part hereof for all purposes; (d) the terms “include,” “includes,” “including” and
words of like import shall be deemed to be followed by the words “without limitation”;
(e) the terms “hereof,” “herein” and “hereunder” refer to this Agreement as a whole
and not to any particular provision of this Agreement; and (f) references to money
refer to legal currency of the United States of America. The table of contents and
headings contained in this Agreement are for reference purposes only, and shall not
affect in any way the meaning or interpretation of this Agreement.

     7.16. Choice of Law. This Agreement shall be subject to and governed by the laws
of the State of Texas, excluding any conflicts-of-law rule or principle that might
refer the construction or interpretation of this Agreement to the laws of another
state, except that the law of another jurisdiction shall apply to this Agreement
insofar as this Agreement covers or relates to additional properties that become
subject to this Agreement under Section 7.02 above for which it is mandatory that the
law of another jurisdiction, wherein or adjacent to which such part of the Assets are
located, shall apply.

     7.17. Arbitration. Any disputes regarding fair market value under Sections
4.03(c) and 5.03(c) shall be resolved as provided in such sections. Any other claim,
counterclaim, demand, cause of action, dispute, or any other controversy arising out
of or relating in any way to this Agreement or to the subject matter of this Agreement
or to any relationship created thereby (each a “Dispute”) shall be resolved by binding
arbitration. A Dispute must be resolved through arbitration regardless of whether the
Dispute involves claims that this Agreement is unlawful, unenforceable, void, or
voidable, or involves claims sounding in tort, contract, statute, or common law. This
Section 7.17 shall be binding on and shall inure to the benefit of the Parties and
their respective affiliates and subsidiaries. The validity, construction, and
interpretation of this agreement to arbitrate, and all other procedural aspects of the
arbitration conducted pursuant hereto, shall be decided by the arbitral tribunal. Any
arbitration under this Agreement shall be administered by the AAA and conducted in
accordance with the Rules in existence at the time of the arbitration. In resolving
any Dispute, the arbitral tribunal shall refer to the governing law as specified in
Section 7.16 of this Agreement. The arbitral tribunal shall not be empowered to award
exemplary, punitive, indirect, consequential, remote, speculative, treble, multiple,
or special damages, and the Parties and their affiliates and subsidiaries waive any
right they may have to recover such damages from one another. The arbitral tribunal
shall not be empowered to decide any dispute ex aequo et bono or amiable compositeur.
The seat (or legal place) and venue of the arbitration shall be in Dallas, Texas. The
arbitration shall be conducted in the English language. The Dispute shall be decided
by a panel of three neutral arbitrators. The claimant or claimants shall nominate an
arbitrator at the time of service of a request for arbitration. The respondent or
respondents shall nominate an arbitrator at the time of service of the response to
the request for arbitration. If the claimant(s) or respondent(s) fail to appoint an
arbitrator, then that arbitrator shall be appointed in accordance with the Rules. The
two appointed arbitrators shall together agree upon a third arbitrator to recommend to
the AAA to chair the arbitration. If the two party-appointed arbitrators are unable to
agree upon an arbitrator within fifteen (15) days of the respondent’s appointment of
an arbitrator, then the chairman shall be chosen according to the Rules.
Notwithstanding the foregoing, if two or more respondents have interests with regard
to a Dispute that are not completely common, then all arbitrators shall be appointed
in accordance with the Rules and not by nomination or appointment by the Parties. Any
arbitration award may be enforced by the courts sitting in Dallas, Texas, or any other
court of competent

Page 13 of 16

 

subject matter jurisdiction (including any jurisdiction in which a
Party holds or keeps assets). Any action to challenge, vacate, or set aside the award
in whole or in part must be brought in the courts sitting in Dallas, Texas. The
Parties and their affiliates and subsidiaries agree to waive any objections they may
have to personal jurisdiction, venue, or forum non-conveniens for any action brought
to enforce the award in the courts sitting in Dallas, Texas, or any other jurisdiction
where a party against which enforcement of the award is sought holds or keeps assets.

     7.18. Entire Agreement. This Agreement constitutes the entire agreement of the
Parties relating to the matters contained herein, superseding all prior contracts or
agreements, whether oral or written, relating to the matters contained herein. No
representation, promise, inducement, or statement of intention with respect to the
subject matter of this Agreement has been made by either Party which is not embodied
in this Agreement together with the documents, instruments, and writings that are
delivered pursuant hereto, and neither Party shall be bound by or liable for any
alleged representation, promise, inducement, or statement of intention not so set
forth.

     7.19. No Partnership Intended. If, for federal income tax purposes, this
Agreement and the operations hereunder are regarded as a partnership, each Party
elects to be excluded from the application of all of the provisions of Subchapter “K,”
Chapter 1, Subtitle “A,” of the Internal Revenue Code of 1986, as amended (“Code”), as
permitted and authorized by Section 761 of the Code and the regulations promulgated
thereunder. Pioneer USA is authorized and directed to execute on behalf of each Party
such evidence of this election as may be required by the Secretary of the Treasury of
the United States or the Federal Internal Revenue Service, including specifically all
of the returns, statements, and the data required by Treasury Regulation § 1.761.
Should there be any requirement that each Party give further evidence of this
election, each Party shall execute such documents and furnish such other evidence as
may be required by the Federal Internal Revenue Service or as may be necessary to
evidence this election. Neither Party shall give any notices or take any other action
inconsistent with the election made hereby. If any present or future income tax laws
of the state or states in which any Wellbore, Down-Spaced Well, or Replacement Well is
located or any future income tax laws of the United States contain provisions similar
to those in Subchapter “K,” Chapter 1, Subtitle “A,” of the Code, under which an
election similar to that provided by Section 761 of the Code is permitted, each Party
shall make such election as may be permitted or required by such laws. In making the
foregoing election, each party states that the income derived by such party from
operations hereunder can be adequately determined without the computation of
partnership taxable income.

     7.20. Rule Against Perpetuities. It is not the intent of the Parties that any
provision herein violate any applicable law regarding the rule against perpetuities,
and this Agreement shall be construed as not violating such rule to the extent the
same can be construed consistent with the expressed intent of the Parties as set forth
in this Agreement. In the event, however, that any provision of this Agreement is
determined to violate such rule, then such provision shall nevertheless be effective
for the maximum period (but not longer than the maximum period) permitted by such rule
that will result in no such violation. To the extent such maximum period is permitted
to be determined by reference to lives in being, the Parties agree that “lives in
being” shall refer to the lifetime of the last to die of the now living lineal
descendants of the late Joseph

Page 14 of 16

 

P. Kennedy, father of the late John F. Kennedy, the
35th President of the United States of America.

[Signature Page Follows]

Page 15 of 16

 

EXECUTED as of the date hereof.

	 	 	 	 	 
	 	 	Pioneer Natural Resources, USA, Inc.
	 
	 	 	 	 
	 
	 	 	 	 
	 

	 	By:	 	 
	 

	 	 	 	 
	 

	 	Name:	 	 
	 

	 	 	 	 
	 

	 	Title:	 	 
	 

	 	 	 	 
	 
	 	 	 	 
	 
	 	 	 	 
	 	 	Pioneer Southwest Energy Partners USA LLC
	 
	 	 	 	 
	 
	 	 	 	 
	 

	 	By:	 	 
	 

	 	 	 	 
	 

	 	Name:	 	 
	 

	 	 	 	 
	 

	 	Title:	 	 
	 

	 	 	 	 

Page 16 of 16

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