<PAGE> 1
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------
FORM 10-Q
[x] Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1999
or
[ ] Transition Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the transition period from _______ to _______
COMMISSION FILE NO. 0-21411
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COSTILLA ENERGY, INC.
(Exact name of registrant as specified in its charter)
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DELAWARE 75-2658940
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
400 WEST ILLINOIS, SUITE 1000
MIDLAND, TEXAS 79701
(Address of principal executive offices) (Zip code)
(915) 683-3092
(Registrant's telephone number, including area code)
Not applicable
(Former name, former address and former fiscal year, if changed
since last report)
----------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES [X] NO [ ]
NUMBER OF SHARES OF COMMON STOCK OUTSTANDING AS OF MAY 14, 1999 .....14,101,580
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COSTILLA ENERGY, INC.
FORM 10-Q
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
- -------
Consolidated Balance Sheets as of March 31, 1999 (unaudited) and
December 31, 1998........................................................ 3
Consolidated Statements of Operations for the three months
ended March 31, 1999 and 1998 (unaudited)................................ 4
Consolidated Statements of Cash Flows for the three months
ended March 31, 1999 and 1998 (unaudited)................................ 5
Notes to Consolidated Financial Statements (unaudited)..................... 6
Item 2. Management's Discussion and Analysis of Financial
- ------- Condition and Results of Operations...................................... 10
Item 3.
- ------- Quantitative and Qualitative Disclosures About Market Risk................. 16
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K........................................... 17
- -------
Signatures................................................................................... 18
</TABLE>
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
COSTILLA ENERGY, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1999 1998
--------- ------------
ASSETS (UNAUDITED)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 3,254 $ 5,251
Accounts receivable:
Trade, net of allowance of $158 and $180, respectively 2,859 4,547
Oil and gas sales 5,051 5,673
Prepaid and other current assets 1,764 1,821
--------- ---------
Total current assets 12,928 17,292
--------- ---------
PROPERTY, PLANT AND EQUIPMENT, AT COST:
Oil and gas properties, using the successful efforts
method of accounting:
Proved properties 210,978 275,972
Unproved properties 15,717 38,941
Accumulated depletion, depreciation and amortization (107,821) (133,612)
--------- ---------
118,874 181,301
Other property and equipment, net 4,003 4,252
--------- ---------
Total property, plant and equipment 122,877 185,553
--------- ---------
OTHER ASSETS:
Deferred charges 6,233 6,447
Other 1,641 1,662
--------- ---------
Total other assets 7,874 8,109
--------- ---------
$ 143,679 $ 210,954
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Current maturities of long-term debt $ 28,079 $ 40,101
Trade accounts payable 19,368 26,183
Undistributed revenue 2,860 3,419
Deferred revenue 2,880 --
Other current liabilities 10,151 5,923
--------- ---------
Total current liabilities 63,338 75,626
--------- ---------
LONG-TERM DEBT, LESS CURRENT MATURITIES 181,722 181,780
--------- ---------
STOCKHOLDERS' EQUITY (DEFICIT):
Preferred stock, $.10 par value (3,000,000 shares authorized;
50,000 shares outstanding at March 31, 1999 and December 31, 1998 5 5
Common stock, $.10 par value (100,000,000 shares authorized;
13,101,580 shares outstanding at March 31, 1999 and
12,751,930 shares outstanding at December 31, 1998) 1,310 1,275
Additional paid-in capital 93,680 92,715
Retained deficit (196,376) (140,447)
--------- ---------
Total stockholders' equity (deficit) (101,381) (46,452)
--------- ---------
COMMITMENTS AND CONTINGENCIES -- --
--------- ---------
$ 143,679 $ 210,954
========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
3
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COSTILLA ENERGY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
----------------------
1999 1998
-------- --------
<S> <C> <C>
REVENUES:
Oil and gas sales $ 12,764 $ 15,345
Interest and other 11 205
Gain (loss) on sale of assets (2) 337
-------- --------
12,773 15,887
-------- --------
EXPENSES:
Oil and gas production 6,005 6,785
General and administrative 2,920 2,493
Exploration and abandonments 1,119 3,151
Depreciation, depletion and amortization 5,182 6,059
Loss on termination of purchase option 47,488 --
Interest 4,987 4,739
-------- --------
67,701 23,227
-------- --------
Loss before extraordinary item (54,928) (7,340)
Extraordinary loss resulting from early extinguishment of debt -- (299)
-------- --------
NET LOSS $(54,928) $ (7,639)
======== ========
CUMULATIVE PREFERRED STOCK DIVIDEND $ 1,000 $ --
======== ========
LOSS BEFORE EXTRAORDINARY ITEM APPLICABLE TO COMMON EQUITY $(55,928) $ (7,340)
======== ========
NET LOSS APPLICABLE TO COMMON EQUITY $(55,928) $ (7,639)
======== ========
LOSS PER SHARE:
Loss before extraordinary item $ (4.36) $ (0.73)
Extraordinary loss resulting from early extinguishment of debt -- (0.03)
-------- --------
NET LOSS $ (4.36) $ (0.76)
======== ========
WEIGHTED AVERAGE SHARES OUTSTANDING 12,814 10,073
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
4
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COSTILLA ENERGY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
----------------------
1999 1998
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
NET LOSS $(54,928) $ (7,639)
ADJUSTMENTS TO RECONCILE NET LOSS TO NET
CASH PROVIDED BY OPERATING ACTIVITIES:
Depreciation, depletion and amortization 5,182 6,059
Exploration and abandonments 202 194
Amortization of deferred charges 156 97
Loss on termination of purchase option 46,985 --
(Gain)/loss on sale of oil and gas properties 2 (337)
Extraordinary loss resulting from early extinguishment of debt -- 299
Gain on investment transactions -- (5)
-------- --------
(2,401) (1,332)
Changes in operating assets and liabilities:
Decrease (increase) in accounts receivable 1,230 (89)
Decrease (increase) in other assets 78 (410)
Increase (decrease) in accounts payable (6,837) (1,783)
Increase (decrease) in other liabilities 4,227 4,489
Increase (decrease) in deferred revenue 2,880 --
-------- --------
Net cash provided by (used in) operating activities (823) 875
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to oil and gas properties (3,618) (30,768)
Proceeds from sale of oil and gas properties 14,493 2,500
Additions to other property and equipment (27) (198)
-------- --------
Net cash provided by (used in) investing activities 10,848 (28,466)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under long-term debt -- 95,000
Payments of long-term debt (12,022) (62,520)
Purchase of common stock -- (1,841)
Deferred loan and financing costs -- (3,190)
-------- --------
Net cash provided by (used in) financing activities (12,022) 27,449
-------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (1,997) (142)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 5,251 3,615
-------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 3,254 $ 3,473
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
5
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COSTILLA ENERGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999
(UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The interim financial information as of March 31, 1999, and for the
three months ended March 31, 1999 and 1998, is unaudited. Certain information
and footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted in this Form 10-Q pursuant to the rules and regulations of the
Securities and Exchange Commission. However, in the opinion of management, these
interim financial statements include all the necessary adjustments to fairly
present the results of the interim periods and all such adjustments are of a
normal recurring nature. The interim consolidated financial statements should be
read in conjunction with the audited financial statements for the year ended
December 31, 1998.
The Company is an oil and gas exploration and production concern with
properties located principally in the Gulf Coast region, the Rocky Mountain
region and the Permian Basin area of Texas and New Mexico.
2. DERIVATIVE FINANCIAL INSTRUMENTS
The Company utilizes derivative financial instruments to manage
well-defined commodity price and interest rate risks. The Company is exposed to
credit losses in the event of nonperformance by the counterparties to its
commodity hedges and its interest rate swap agreements. The Company only deals
with reputable financial institutions as counterparties and anticipates that
such counterparties will be able to fully satisfy their obligations under the
contracts. The Company does not obtain collateral or other security to support
financial instruments subject to credit risk but monitors the credit standing of
the counterparties.
Commodity Hedges. The Company utilizes swap agreements to hedge the
effect of price changes on future oil and gas production. The objective of its
hedging activities is to achieve more predictable revenues and cash flows. In a
typical swap arrangement, the Company receives the difference between a fixed
price per unit of production and a price based upon a higher agreed to third
party index. However, should the fixed price exceed the agreed third party
index, the Company has to pay the difference. In the past, the Company utilized
option contracts to hedge its production. In this case, if market prices of oil
and gas exceeded the strike price of put options, the options would expire
unexercised, therefore reducing the effective price received for oil and gas
sales by the cost of the related option. If the market prices of oil and gas
exceeded the strike price of call options, the Company would be obligated to pay
the contracting counterparty an amount equal to the contracted volumes times the
difference between the market price and the strike price, therefore reducing the
effective price received for oil and gas sales by the amount paid to the
counterparty.
The following table sets forth the future volumes hedged by year and
the strike prices of the option contracts at March 31, 1999:
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<TABLE>
<CAPTION>
OIL GAS FIXED THRESHOLD
DAILY DAILY PRICE PRICE
VOLUME VOLUME PER PER
(BBLS) (MMBTU) BBL/MMBTU BBL/MMBTU(a)
------ ------- --------- -------------
<S> <C> <C> <C> <C>
Oil:
Apr. 99 5,000 -- $ 15.00 $ 12.00
May 99 - Dec. 99 (c) 2,000 -- $ 15.00 $ 13.50
Jan. 00 - Dec. 00 (c) 2,000 -- $ 16.50 $ 14.00
Gas:
April 99 - Dec. 99 (b) -- 20,000 $ 1.96 N/A
May 99 - Aug. 99 (d) -- 20,000 $ 2.10 N/A
Sept. 99 - Dec. 99 (d) -- 20,000 $ 2.30 N/A
Jan. 00 - Dec. 00 (b) -- 45,000 $ 2.20 N/A
Jan. 01 - Dec. 01 (e) -- 20,000 $ 2.30 N/A
</TABLE>
(a) Any trading day when the NYMEX falls below the threshold price,
the contract provides for no hedge for that day. When the NYMEX is
above the threshold price but below the fixed price, the
Counterparty pays Costilla. If the NYMEX is above the fixed price,
Costilla pays the Counterparty.
(b) In February 1999, the three year fixed price swap contract was
amended for a new period of March 1999 through December 2000
covering 45,000 Mmbtu of gas per day at a fixed price of $2.20 per
Mmbtu. In March 1999 the contract for the period March 1999
through December 1999 was liquidated resulting in cash proceeds to
the Company of $3.2 million. In addition, a new contract was
entered into covering 20,000 Mmbtu of gas per day at a fixed price
of $1.96 per Mmbtu for the period March 1999 through December
1999.
(c) In April 1999, the 5,000 Bbls/day hedge was canceled and replaced
with a hedge for 2,000 Bbls/day.
(d) In April 1999, Costilla sold two calls for 20,000 Mmbtu/day.
(e) In April 1999, a hedge for the year 2001 was added. The purchaser
may elect to cancel and have Costilla cash settle on this option
on the last day of any month from June - September 1999.
Interest Rate Swap Agreements. The Company had an interest rate swap
agreement in place as of December 31, 1998, with a notional amount of $24
million and a fixed rate of 7.5%. The interest rate swap expired in January
1999.
3. LONG TERM DEBT
In August 1997, the Company entered into a credit agreement (the
"Revolving Credit Facility") with Bankers Trust Company, as agent, to refinance
its existing bank indebtedness and to finance a portion of the Ballard
Acquisition purchase price. The Revolving Credit Facility provides for a maximum
availability of $75.0 million, $28 million of which was borrowed at March 31,
1999 against an available borrowing base of $36 million at such date. Borrowings
under the Revolving Credit Facility bear interest, at the Company's option, at a
floating rate which is at or above the Lender's prime rate or above the
applicable Eurodollar rate, depending on the percentage of committed funds which
have been borrowed. Interest is payable quarterly as to base rate loans, and at
the end of the applicable interest period as to Eurodollar loans. The borrowing
base of the Revolving Credit Facility is automatically reduced by 5% each
quarter beginning in August 1999, and payments of principal are required in each
quarter in which the outstanding principal balance is greater than the reduced
borrowing base. The remaining balance is payable on August 28, 2002, the
maturity date of the Revolving Credit Facility. Under the Revolving Credit
Facility, the Company is obligated to pay certain fees to the lender, including
a commitment fee based on the unused portion of the commitment. The Revolving
Credit Facility contains customary restrictive covenants (including restrictions
on the payment of dividends and the incurrence of additional indebtedness) and
requires the Company to maintain (i) a limit on the amount that current
liabilities may exceed current assets and (ii) a ratio of
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EBITDA to interest expense. Borrowings under the Revolving Credit Facility are
secured by substantially all of the assets of the Company.
In October 1996, the Company issued $100 million aggregate principal
amount of 10.25% Senior Notes due October 1, 2006 (the "Notes"). The Notes were
sold at par and interest is payable April 1 and October 1, commencing April 1,
1997. The Notes may not be redeemed prior to October 1, 2001, and thereafter at
a premium reducing to par, plus interest, by maturity. There is no mandatory
redemption of the Notes required prior to maturity. The Notes are general
unsecured senior obligations of the Company and rank equally in right of payment
with all other senior indebtedness of the Company and senior in right of payment
of all existing future subordinated indebtedness of the Company. The Notes are
subject to an Indenture between the Company and a trustee. The Indenture
restricts, among other things, the Company's ability to incur additional
indebtedness, pay dividends or make certain other restricted payments, incur
liens, engage in any sale and leaseback transaction, sell stock of subsidiaries,
apply net proceeds from certain assets sales, merge or consolidate with any
other person, sell, assign, transfer, lease, convey or otherwise dispose of
substantially all of the assets of the company, or enter into certain
transactions with affiliates. Net proceeds from the sale of the Notes of
approximately $96.1 million were used to repay existing indebtedness.
In January 1998, the Company issued an additional $80 million aggregate
principal amount of 10.25% Senior Notes due October 1, 2006 (the " 1998 Notes").
The notes were sold at a premium (102.5%) and interest is payable April 1 and
October 1, commencing April 1, 1998. The 1998 Notes may not be redeemed prior to
October 1, 2001, and thereafter at a premium reducing to par, plus interest, by
maturity. The 1998 Notes are subject to the same terms and conditions as the
Notes. Net proceeds from the sale of the 1998 Notes of approximately $78.8
million were used to substantially repay the Revolving Credit Facility, repay an
additional credit facility and the remainder was used for general corporate
working capital needs.
4. CONVERTIBLE PREFERRED STOCK
On June 3, 1998, the Company closed a private placement of 50,000
shares of its 7% (8% Paid in Kind) Series A Cumulative Convertible Preferred
Stock (the "Preferred Stock") to Enron Capital & Trade Resources Corp. and Joint
Energy Development Investments II Limited Partnership for a purchase price of
$50.0 million (the "Convertible Preferred Stock Offering"). Dividends accrue and
are payable quarterly, commencing September 15, 1998, in cash, or in certain
instances in shares of the Company's Common Stock. The dividend rate is 7% for
dividends paid in cash and 8% for dividends paid in shares of Common Stock. The
holders of the Preferred Stock may, at any time, convert shares of Preferred
Stock into shares of the Company's Common Stock at a conversion price of $12.39
which, subject to certain adjustments, would result in the issuance of 4,035,513
shares of Common Stock upon conversion of the Preferred Stock. The Registrant
may, at its option, redeem the shares of Preferred Stock after June 15, 2001,
subject to certain limitations, for a premium reducing to par on June 15, 2004
and thereafter. Net proceeds from the Convertible Preferred Stock Offering were
$48.0 million, of which $29.0 million was used to repay all but $0.5 million of
the Revolving Credit Facility and the remainder was used for general corporate
purposes.
5. TERMINATION OF PIONEER ACQUISITION
In September 1998, Costilla entered into an agreement with Pioneer
Natural Resources USA, Inc. ("Pioneer") to acquire certain oil and gas
properties (the "Pioneer Acquisition Properties") for $410 million. The sale was
to be effective October 1, 1998 and close in December 1998. As part of this
agreement, Costilla made a $25 million forfeitable deposit plus an additional
$16 million would be paid if the transaction did not close in December 1998. In
December 1998, the previous agreement was terminated and replaced by a new
agreement. Pioneer retained the $25 million deposit and Costilla issued three
million shares of its common stock and relinquished its right to a property
interest. In return, Costilla executed a new agreement to purchase the Pioneer
Acquisition Properties for $294 million. Such new transaction had a closing date
of March 31, 1999, and an effective date of January 1, 1999. This agreement
terminated on March 31, 1999, and Costilla and Pioneer then entered into a new
agreement whereby Costilla would acquire certain of the Pioneer Acquisition
Properties for $250 million. In connection with the new agreement, the Company
issued to Pioneer one million shares of its common
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stock. Even with the new agreement, management believed the probability of
successful completion of the Pioneer acquisition, subsequent to March 31, 1999
was questionable. Therefore, the related costs, none of which are recoverable,
were expensed as of that date. The new agreement terminated by its terms on
April 15, 1999.
The loss on the termination of the Pioneer acquisition consists of the
following:
<TABLE>
<CAPTION>
(in thousands)
--------------
<S> <C>
Cash Deposit $25,000
4.0 million shares of Costilla common stock 13,700
Oil & gas property assigned to Pioneer 3,558
Interest capitalized for acquisition 1,012
Due diligence, legal, accounting and engineering 4,218
-------
Total loss on termination of acquisition $47,488
=======
</TABLE>
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COSTILLA ENERGY, INC.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements in this Form 10-Q constitute "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995 (the "Reform Act"). Such forward-looking statements involve known and
unknown risks, uncertainties, and other factors which may cause the actual
results, performance, or achievements of Costilla to be materially different
from any future results, performance, or achievements expressed or implied by
such forward-looking statements. Such factors include, among others, the
following: the volatility of oil and gas prices, the Company's drilling results
and ability to replace oil and gas reserves, the availability of capital
resources, the reliance upon estimates of proved reserves, operating hazards and
uninsured risks, competition, government regulation, and the ability of the
Company to implement its business strategy, and other factors referenced in the
Company's public filings with the Securities and Exchange Commission.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
GENERAL
Costilla is an independent energy company engaged in the exploration,
acquisition and development of oil and gas properties. From January 1, 1993 to
September 30, 1998, the Company closed nine acquisitions for an aggregate
purchase price of approximately $149.0 million. Two of those transactions
involved acquisitions from Pioneer's predecessor in 1995 and 1996 for a total
purchase price of approximately $85.0 million.
The Company's strategy is to utilize its technical staff and
technological advances to increase its oil and gas reserves, production and cash
flow from operations through an active exploration program and the acquisition
and development of proved reserves. In addition, Costilla continues to evaluate
the acquisition of undeveloped acreage for its exploration efforts. Costilla has
in-house exploration expertise using 3-D seismic technology to identify new
drilling opportunities as well as for the development of acquired properties.
The Company has grown primarily through acquisitions which impacted its
reported financial results in a number of ways. Properties sold by others
frequently have not received focused attention prior to sale. After acquisition,
certain of these properties are in need of maintenance, workovers, recompletions
and other remedial activity not constituting capital expenditures, which
substantially increase lease operating expenses. The increased production and
revenue resulting from these expenditures is predominately realized in periods
subsequent to the period of expense.
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The following table sets forth certain operating data of Costilla for
the periods presented:
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-----------------------
1999 1998
--------- ---------
<S> <C> <C>
OIL AND GAS PRODUCTION:
Oil (Mbbls) 359 544
Gas (Mmcf) 4,783 3,432
MMCFE (1) 6,937 6,695
AVERAGE SALES PRICES (2):
Oil (per Bbbl) $ 10.38 $ 15.37
Gas (per Mcf) 1.89 2.03
COSTS PER MMCFE (1):
Production cost $ 0.87 $ 1.01
Depreciation, depletion and amortization 0.75 0.90
</TABLE>
- ----------
(1) MCFE represents equivalent Mcf of gas. In reference to oil, natural gas
equivalents are determined using the ratio of one barrel of crude oil,
condensate or natural gas liquids to six MCF of natural gas. MMCFE
represents one thousand Mcf of gas equivalent.
(2) Before deduction of production taxes and including any hedging results.
Costilla uses the successful efforts method of accounting for its oil
and gas activities. Costs to acquire mineral interests in oil and gas
properties, to drill and equip exploratory wells that result in proved reserves,
and to drill and equip development wells are capitalized. Costs to drill
exploratory wells that do not result in proved reserves, geological, geophysical
and seismic costs, and costs of carrying and retaining unproved properties are
expensed. Capitalized costs of producing oil and gas properties, after
considering estimated dismantlement and abandonment costs and estimated salvage
values, are depreciated and depleted using the unit-of-production method.
Unproved oil and gas properties that are individually significant are
periodically reviewed for impairment of value, and a loss is recognized at the
time of impairment by providing an impairment allowance. Other unproved
properties are amortized based on the Company's experience of successful
drilling and average holding period.
The Company utilizes put option contracts, costless collars and swaps
to hedge the effect of price changes on a portion of its future oil and gas
production. Premiums paid and amounts receivable under the put option contracts
are amortized and accrued to oil and gas sales, respectively. If market prices
of oil and gas exceed the strike price of put options, the options will expire
unexercised, therefore, reducing the effective price received for oil and gas
sales by the cost of the related option. Conversely, if market prices of oil and
gas decline below the strike price of put options, the options will be
exercised, therefore, increasing the effective price received for oil and gas
sales by the proceeds received from the related option.
A costless collar establishes both a floor price and a ceiling for the
commodity through the simultaneous purchase of a put option contract and the
sale of a call option contract. Since the value of the put option and the call
option offset at the time of their purchase, the collar is costless, therefore
there are no premiums to amortize. If market prices of oil and gas decline below
the strike price of put options, the options will be exercised, therefore
increasing the effective price received for oil and gas sales by the proceeds
received from the related option. Conversely, if market prices of oil and gas
exceed the strike price of call options, the Company is obligated to pay the
counterparty the difference between the market price and the strike price for
the contact volumes, therefore, reducing the effective price received for oil
and gas sales by the amount paid to the counterparty.
Swaps establish a fixed price for the commodity. No premiums are paid
for these price swap contracts and therefore there are no premiums to amortize.
If market prices of oil and gas decline below the swap price, the counterparty
pays the Company the difference between the swap price and the market price for
the contract
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<PAGE> 12
volumes, therefore, increasing the effective price received for oil and gas
sales by the proceeds received under the swaps. Conversely, if market prices of
oil and gas exceed the swap price, the Company is obligated to pay the
counterparty an amount equal to the difference between the market price and the
swap price for the contract volumes, therefore, reducing the effective price
received for oil and gas sales by the amount paid to the counterparty.
The net effect of the Company's commodity hedging activities increased
oil and gas revenues by $1,717,000 for the three month period ended March 31,
1999, and by $1,437,000 for the comparable period in 1998. In August 1998, the
Company entered into fixed price swap contracts for the remainder of 1998 and
for the calendar year 1999 covering 5,000 Bbls of oil per day. The contracts
provided for a price of $16.40 per Bbl from January 1, 1999 through December 31,
1999. The referenced prices were based upon the price at which WTI traded on the
NYMEX. These contracts did not provide a hedge for any trading days during the
period on which the NYMEX price for WTI closed at $13.50 or less per Bbl during
1999. In February 1999, the terms of the 1999 contract were amended to provide
for a fixed price of $15.00 per Bbl covering 5,000 Bbls of oil per day for
February 1999 through December 1999, with no hedge on any trading days during
the period when the NYMEX price for WTI closed at less than $12.00 per Bbl. In
April 1999, this swap was canceled and replaced with another contract for 2,000
Bbls per day which provided for a price of $15.00 per Bbl for the period May
1999 through December 1999 and $16.50 per Bbl for the period January 2000
through December 2000. No hedge will be provided on any days that the NYMEX
price for WTI closes at less than $13.50 during the 1999 period and $14.00
during 2000.
In November 1998, the Company entered into fixed price swap contracts
for a period of three years, beginning January 1, 1999, covering 25,000 Mmbtu of
gas at prices of $2.40 per Mmbtu. The referenced gas price was based upon the
price at which gas trades on the NYMEX. The counterparty had certain rights to
extend the contract for up to 25,000 Mmbtu per day for up to two years through
December 2003 at the above noted price. In February 1999 the three year fixed
price swap contract was amended for a new period of March 1999 through December
2000 covering 45,000 Mmbtu of gas per day at a fixed price of $2.20 per Mmbtu.
In March, 1999, the contract for the period March 1999 through December 1999,
was liquidated resulting in cash proceeds to the Company of $3.2 million. In
addition, a new contract was entered into covering 20,000 Mmbtu of gas per day
at a fixed price of $1.96 per Mmbtu for the period March 1999 through December
1999. The referenced gas prices were based upon the price at which gas trades on
the NYMEX. In April 1999, the Company sold calls for 20,000 Mmbtu per day for
the periods May 1999 through August 1999, at a price of $2.10 per Mmbtu and
September 1999 though December 1999, at a price of $2.30 per Mmbtu. Another swap
was entered into in April for the period January 2001 though December 2001 at a
price of $2.30 per Mmbtu. However, the counterparty may elect to have Costilla
cash settle on this option on the last day of any month from June through
September 1999.
The Company utilized interest rate swap agreements to reduce the
potential impact of increases in interest rates on floating-rate, long term
debt. If market rates of interest experienced during the applicable swap term
are below the rate of interest effectively fixed by the swap agreement, the rate
of interest incurred by the Company will exceed the rate that would have been
experienced under its then outstanding floating-rate indebtedness. The net
effect of the Company's interest rate hedging activities decreased interest
expense by $8,000 for the three months ended March 31, 1999, and increased
interest expense by $3,000 for the comparable period of 1998. The Company had an
interest rate swap agreement in place as of December 31, 1998, with a notional
amount of $24 million and a fixed rate of 7.5%, which expired in January 1999.
RESULTS OF OPERATIONS
Three Months Ended March 31, 1999 Compared to Three Months Ended March 31,
1998
The Company's oil and gas revenues for the three months ended March 31,
1999 were $12,764,000, representing a decrease of $2,581,000 (17%) from revenues
of $15,345,000 in 1998. Lower commodity prices accounted for a decrease in
revenues of $3,213,000, and reduced oil volumes decreased revenues by
$1,919,000. Increased gas production from wells drilled in south Texas partially
offset the decrease in revenues from reduced oil production and lower prices by
$2,551,000. The average oil price per barrel received in 1999 was $10.38
compared
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<PAGE> 13
to $15.37 in 1998, a 32% decrease, and the average gas price received in 1999
was $1.89 compared to $2.03 in 1998, a 7% decrease.
Oil and gas production was 6,937 MMcfe in 1999 compared to 6,695 MMcfe
in 1998, a 4% increase. Actual oil production was down from 544,000 Bbls for the
three months ended March 31, 1998, to 359,000 Bbls for 1999. However, gas
production increased for the same period from 3,432 Mmcf to 4,783 Mmcf.
Oil and gas production costs for the three month period ended March 31,
1999 were $6,005,000 ($0.87 per Mcfe), compared to $6,785,000 in 1998 ($1.01 per
Mcfe), representing a decrease of $780,000 (11%), due principally to lower
production costs on newly completed wells and the sale of certain oil and gas
properties in 1998.
Loss on termination of purchase option relates to the termination of
the Pioneer acquisition. At March 31, 1999, management believed the probability
of successful completion of the acquisition was questionable. The costs, none of
which are recoverable, were expensed as of that date. The $47,488,000 loss
includes a cash payment of $25,000,000, the relinquishment of Costilla's right
to a property interest of $3,558,000, 4,000,000 shares of common stock valued at
$13,700,000 and capitalized interest, legal, accounting, engineering and due
diligence costs of $5,230,000.
General and administrative expenses for the three months ended March
31, 1999 were $2,920,000, representing an increase of $427,000 (17%) from 1998
of $2,493,000. The 1999 period included a one time bank fee of $720,000 which
reduces the normal general and administrative expenses for the period to
$2,200,000, a reduction of $293,000 (12%) from the 1998 period. The Company's
agreement with Ballard Petroleum to reimburse Ballard for certain general and
administrative expenses was terminated effective March 1, 1999 and is expected
to result in a savings of approximately $124,000 per month. Subsequent to March
31, 1999 the Company further reduced its staff and related expenses by
approximately $225,000 monthly, the effect of which will be realized beginning
approximately June 1, 1999.
Exploration and abandonment expense decreased to $1,119,000 for the
three months ended March 31, 1999 compared to $3,151,000 in 1998. Dry hole and
abandonment costs decreased to $373,000 in 1999 from $2,693,000 in 1998. The
Company incurred $500,000 of seismic costs for the three months ended March 31,
1999, compared to $290,000 in the comparable period in 1998. The Company
incurred $246,000 of other geological and geophysical costs during the three
month period ended March 31, 1999 compared to $168,000 for the same period in
1998. The decrease in exploration and abandonments expense was primarily related
to the Company's restricted exploratory drilling activities in 1999 compared to
1998.
Depreciation, depletion and amortization ("D D & A") expense for the
three month period ended March 31, 1999 was $5,182,000 compared to $6,059,000
for 1998, representing a decrease of $877,000 (14%). During the 1999 period, D D
& A on oil and gas production was provided at an average rate of $0.75 per Mcfe
compared to $0.90 per Mcfe for 1998. Of the total decrease, $1,004,000 was due
to the lower DD&A rate. This reduction in the DD&A rate was due to less
remaining basis in the oil and gas assets after the December 31, 1998,
impairment. The total decrease was reduced by DD&A on greater volumes of
$181,000 and higher depreciation and amortization on non oil and gas assets of
$54,000.
Interest expense was $4,987,000 for the three months ended March 31,
1999, compared to $4,739,000 for the comparable period in 1998. The $248,000
(5%) increase was attributable to a higher level of average outstanding
indebtedness. The average amounts of applicable interest-bearing debt in 1999
and 1998 were $217,200,000 and $181,461,000, respectively. The effective
annualized interest rate in 1999 was 9.18%, as compared to 10.45% in 1998.
Results of operations for the three months ended March 31, 1999 include
no extraordinary charges. Results for the comparable period ended March 31,
1998, included an extraordinary charge of $299,000. This extraordinary charge
related to the early extinguishment of a bank credit facility and consisted of
previously capitalized debt issuance costs.
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<PAGE> 14
LIQUIDITY AND CAPITAL RESOURCES
Net Cash Provided By Operating Activities
For the three months ended March 31, 1999, net cash used by operating
activities was $0.8 million, decreasing from net cash provided by operating
activities of $0.9 million for the comparable period in 1998. Cash provided by
operations, before changes in operating assets and liabilities, decreased to a
negative $2.4 million from a negative $1.3 million for the comparable period in
1998 due primarily to lower oil and gas prices.
Net Cash Used in Investing Activities
Net cash provided by investing activities for the three months ended
March 31, 1999 was $10.8 million. Approximately $14.5 million was provided by
the sale of oil and gas properties. Cash used in investing activities was
approximately $3.6 million with most of that for exploration and development
activities. For the three months ended March 31, 1998, net cash used in
investing activities was $28.5 million. Approximately $11.8 million was used for
the acquisition of oil and gas properties, with $10.2 million going to Manti
Resources ("Manti Acquisition"), approximately $19.0 million was used for
exploration and development activities, $0.2 million was used for other property
and $2.5 million was provided by sales of oil and gas properties.
Financing Activities
For the three months ended March 31, 1999, the Company used
approximately $12.0 million to repay bank debt. For the three months ended March
31, 1998, the Company incurred $95.0 million of debt, of which approximately
$62.5 million was used to repay certain prior bank debt, $10.2 million was used
for the Manti Acquisition and the remainder was used in connection with its
exploration and development activities. In addition, the Company used
approximately $1.8 million for the purchase of 169,500 shares of its common
stock.
The Company entered into the Revolving Credit Facility in August 1997.
The Revolving Credit Facility provided for a maximum availability of $75.0
million, with a borrowing base at March 31, 1999 of $36.0 million, of which
$28.0 was borrowed at March 31, 1999. The Company borrowed the remaining $8.0
million on April 1, 1999 to partially fund the $9.2 million interest payment to
the Senior Note holders. Borrowings under the Revolving Credit Facility bear
interest, at the Company's option, at a floating rate which is at or above the
lender's prime rate or above the applicable Eurodollar rate, depending on the
percentage of committed funds which have been borrowed. Interest is payable
quarterly as to base rate loans, and at the end of the applicable interest
period as to Eurodollar rate loans. The borrowing base of the Revolving Credit
Facility is automatically reduced by 5% each quarter beginning in September
1999, and payments of principal are required in each such quarter in which the
outstanding principal balance is greater than the reduced borrowing base. The
remaining balance is payable on August 31, 2002, the maturity date of the
Revolving Credit Facility.
In January 1998 the Company issued $80 million of 10.25% Senior Notes
due 2006 (the "Supplemental Notes Offering"). The net proceeds of the
Supplemental Notes Offering were approximately $78.8 million. The Company used
$30.0 million to repay an additional Credit Facility and $32.5 million to repay
all but $0.5 million of the Revolving Credit Facility. In mid-January 1998
approximately $10.0 million of the remaining proceeds were used to fund the
Manti Acquisition.
On June 3, 1998 the Company closed a private placement of 50,000 shares
of its 7% (8% Paid in Kind) Series A Cumulative Convertible Preferred Stock (the
"Preferred Stock") to Enron Capital & Trade Resources Corp. and Joint Energy
Development Investments II Limited Partnership for a purchase price of $50.0
million (the "Convertible Preferred Stock Offering"). Dividends accrue and are
payable quarterly, commencing September 15, 1998, in cash, or in certain
instances in shares of the Company's Common Stock. The dividend rate is 7% for
dividends paid in cash and 8% for dividends paid in shares of Common Stock. The
holders of the Preferred Stock may, at any time, convert shares of Preferred
Stock into shares of the Company's Common Stock at a conversion price of $11.99,
subject to certain adjustments. The Registrant may, at its option, redeem the
shares of Preferred Stock after June 15, 2001, subject to certain limitations,
for a premium reducing to par on June 15, 2004 and
14
<PAGE> 15
thereafter. Net proceeds from the Convertible Preferred Stock Offering were
$48.0 million, of which $29.0 million was used to repay all but $0.5 million of
the Revolving Credit Facility and the remainder for general corporate purposes.
Capital Resources
The Company will have extremely limited capital resources available to
it during 1999. A recent amendment to the Credit Facility requires the Company
to reduce the amount outstanding by $15.0 million during 1999, with $10.2
million of the mandated reduction being due and payable on June 1, 1999.
Additionally, the outstanding balance under the Credit Facility at September
1999 will be payable in amortized quarterly principal payments beginning on
September 30, 1999. The Company will be able to comply with these requirements
only though asset dispositions and efforts to market certain of its oil and gas
properties are currently underway. However, no assurance can be given that the
Company will be successful in marketing oil and gas properties for amounts
sufficient to meet the required repayment schedule. In addition, the Company had
at March 31, 1999 and continues to have throughout the second quarter of 1999 a
substantial working capital deficit, which was $22.3 million at March 31, 1999,
excluding current maturities of long term debt. The Company will have to
substantially reduce its operations to deal with its working capital deficit.
The combination of required repayments under the Credit Facility, uncertainty
with respect to future asset sales and the working capital deficit has caused
the Company's independent accountants to add an explanatory paragraph to the
Auditors Report accompanying the Company's December 31, 1998 financial
statements. No assurance can be given that the Company's anticipated divestiture
program and operational reductions will provide sufficient funds for the Company
to meet its obligations as they become due.
With the loss of the $25 million performance deposit upon failure of
the Pioneer acquisition, the Company presently has no funds available under its
Revolving Credit Facility. In March 1999, the Company sold properties previously
acquired from Ballard Petroleum LLC to Ballard for $14.0 million. From these
proceeds, $12.0 million was applied to the Revolving Credit Facility and the
remainder was used for general purposes.
Capital Expenditures
Due to matters discussed under "Capital Resources" above, the Company
does not anticipate any significant amount of capital expenditures for 1999
until it has been successful in its divestiture strategy and has made or
provided for the required repayments under the Credit Agreement, or has
otherwise obtained an amendment to the Credit Agreement.
Recent Accounting Pronouncements
DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES - In June 1998, the FASB
issued Statement of Financial Accounting Standards No. 133, "Accounting for
Derivative Instruments and Hedging Activities" (SFAS No. 133"). SFAS No. 133
establishes accounting and reporting standards requiring that every derivative
instrument (including certain derivative instruments embedded in other
contracts) be recorded in the balance sheet as either an asset or liability
measured at its fair value. SFAS No. 133 requires that changes in the
derivative's fair value be recognized currently in earnings unless specific
hedge accounting criteria are met. Special accounting for qualifying hedges
allows a derivative's gains and losses to offset related results on the hedged
item in the income statement. Companies must formally document, designate, and
assess the effectiveness of transactions that receive hedge accounting.
SFAS No. 133 is effective for fiscal years beginning after June 15,
1999; however, beginning June 16, 1998, companies may implement the statement as
of the beginning of any fiscal quarter. SFAS No. 133 cannot be applied
retroactively and must be applied to (a) derivative instruments and (b) certain
derivative instruments, embedded in hybrid contracts that were issued, acquired,
or substantively modified after December 31, 1997 (and, at the Company's
election, before January 1, 1998.) The Company has not yet quantified the impact
of adopting
15
<PAGE> 16
SFAS No. 133 on its financial statements and has not determined the timing of or
method of adoption of SFAS No. 133.
YEAR 2000 - The Year 2000 ("Y2K") issue is the result of computerized
systems being written to store and process the year portion of dates from and
after January 1, 2000 in a manner which may result in systems failures. Because
of the importance of occurrence dates in the oil and gas industry, the
consequences of not pursuing Y2K compliance could be significant to the
Company's ability to manage and report operating activities. During 1998, the
Company implemented a program to identify, evaluate and address Y2K risks to
ensure that the Company's Information Technology ("IT") Systems and Non-IT
Systems will be Y2K compliant. As a result, the third-party software vendor for
the Company's integrated oil and gas information system has modified the system
to accurately handle the Y2K Issue. All necessary programming modifications were
tested and updated by February 28, 1999. From a cost viewpoint, these
modifications were included in the routine updates the Company receives from its
third-party software vendor as part of the systems support contract already in
place. The Company has completed a preliminary assessment of all date-sensitive
components related to its Non-IT Systems, which primarily consist of systems
with embedded technology. Based upon this assessment, the Company has determined
that there will be minimal modification required to become Y2K compliant. The
Company will replace or modify all non-compliant Non-IT Systems as necessary.
In addition to its own informational systems, the Company may also be
effected by the Y2K compliance and readiness of third parties with whom the
Company has a material business relationship. The Company has requested that
such third parties, particularly its purchasers of production, advise the
Company concerning their Y2K compliance on or before June 30, 1999.
The Company has begun an analysis of the operational problems and costs
that would be likely to result from the failure by the Company or significant
third parties to complete efforts necessary to achieve Y2K compliance on a
timely basis. A contingency plan has not been developed for dealing with the
most likely worst case scenario, and such scenario has not yet been clearly
identified. However, included among the potential "worst case" problems the
Company could face would be the loss of electricity used to power well pumps and
compressors that would result in wells being shut-in, or the inability of a
third party gathering company or pipeline to accept oil or gas from wells or
gathering lines which could also result in wells being shut-in. A disruption in
production would result in the loss of income and delays of payments for oil and
gas sales. The risk should be minimized by the Company's efforts to communicate
with and evaluate third party compliance. The Company plans to complete such
analysis by June 30, 1999.
The Company presently does not expect to incur significant operational
problems due to the Y2K issue. However, if all Y2K issues are not properly and
timely identified, assessed, remediated and tested, both by the Company and
others, there can be no assurances that the Y2K issue will not materially impact
the Company's results of operations or adversely affect relationships with
customers, vendors, or others. Additionally, there can be no assurance that the
Y2K issues of other entities will not have a material adverse impact on the
Company's systems or results of operations.
SEGMENT REPORTING - In June 1997, the FASB issued Statement of
Accounting Standards No. 131 "Disclosures about Segments of an Enterprise and
Related Information" ("FAS 131") which establishes standards for public business
enterprises for reporting information about operating segments in annual
financial statements and requires that such enterprises report selected
information about operating segments in interim financial reports issued to
shareholders. This statement also established standards for related disclosures
about products and services, geographic areas, and major customers. FAS 131 is
effective for financial statements for years beginning after December 15, 1997.
The Company operates in the one product line of oil and gas production
in limited geographic areas. This information and information about major
customers historically has been disclosed in the Company's annual financial
statements.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The information included in "Quantitative and Qualitative Disclosures
About Market Risk" in Item 7A of Costilla's 1998 Annual Report on Form 10-K is
incorporated herein by reference. Such information includes a description of
Costilla's potential exposure to market risks, including commodity price risk,
interest rate risk and foreign currency risk. As of March 31, 1999, there have
been no material changes in Costilla's market risk exposure from that disclosed
in the 1998 Form 10-K.
16
<PAGE> 17
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Description of Exhibit
------- ----------------------
<S> <C>
*10.1 Purchase and Sale Agreement dated April 1, 1999 by
and between Costilla Energy, Inc. and Pioneer
Natural Resources USA, Inc. and Pioneer Resources
Producing, L.P.
*10.2 Seventh Amendment to Amended and Restated Credit
Agreement dated as of March 9, 1999 between
Bankers Trust Company, as Agent, Union Bank of
California, N.A., as Co-Agent and Costilla Energy,
Inc.
*10.3 Eighth Amendment to Amended and Restated Credit
Agreement dated as of March 31, 1999 between
Bankers Trust Company, as Agent, Union Bank of
California, N.A., as Co-Agent and Costilla Energy,
Inc.
*10.4 Purchase and Sale Agreement dated February 2, 1999
between Costilla Energy, Inc. and Ballard
Petroleum LLC
*27.1 Financial Data Schedule
</TABLE>
*Filed herewith
REPORTS ON FORM 8-K
None.
17
<PAGE> 18
S I G N A T U R E S
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
COSTILLA ENERGY, INC.
Date: May 17, 1999 By: /s/ BOBBY W. PAGE
------------------------------
Bobby W. Page
Senior Vice President
and Chief Financial Officer
<PAGE> 19
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Description of Exhibit
------- ----------------------
<S> <C>
*10.1 Purchase and Sale Agreement dated April 1, 1999 by
and between Costilla Energy, Inc. and Pioneer
Natural Resources USA, Inc. and Pioneer Resources
Producing, L.P.
*10.2 Seventh Amendment to Amended and Restated Credit
Agreement dated as of March 9, 1999 between
Bankers Trust Company, as Agent, Union Bank of
California, N.A., as Co-Agent and Costilla Energy,
Inc.
*10.3 Eighth Amendment to Amended and Restated Credit
Agreement dated as of March 31, 1999 between
Bankers Trust Company, as Agent, Union Bank of
California, N.A., as Co-Agent and Costilla Energy,
Inc.
*10.4 Purchase and Sale Agreement dated February 2, 1999
between Costilla Energy, Inc. and Ballard
Petroleum LLC
*27.1 Financial Data Schedule
</TABLE>
* Filed herewith
<PAGE> 1
EXHIBIT 10.1
EXECUTION COPY
PURCHASE AND SALE AGREEMENT
This Purchase and Sale Agreement is dated April 1, 1999 (the "Execution
Date") and is by and among PIONEER NATURAL RESOURCES USA, INC. ("Pioneer USA"),
PIONEER RESOURCES PRODUCING, L.P. ("Pioneer LP") (collectively, the "Seller")
and COSTILLA ENERGY, INC. ("Costilla") (the "Purchaser").
Reference is made to that Purchase and Sale Agreement dated December
16, 1998, by and among Purchaser and Seller (the "Recent Prior Agreement") in
which Seller agreed to sell and Purchaser agreed to buy certain oil and gas
properties and related interests and rights and which Recent Prior Agreement was
terminated by Seller in accordance with its terms on March 31, 1999.
Reference is made to that certain terminated Purchase and Sale
Agreement dated September 4, 1998, by and between Pioneer USA and Costilla (the
"Prior Agreement"). Pursuant to the Prior Agreement, Pioneer USA agreed to sell
and Costilla agreed to purchase Pioneer USA's interest in certain oil and gas
properties and related interests and rights.
Pioneer USA, Pioneer LP and Costilla previously entered into that
Option to Purchase Agreement dated December 16, 1998 (the "Option Agreement")
which terminated pursuant to its terms.
For good and valuable consideration and for the mutual covenants herein
contained, the Seller and Purchaser hereby agree as follows:
ARTICLE 1. SALE AND PURCHASE
1.1. Effective Time. The effective time and date of the purchase and
sale contemplated hereby shall be 7:00 a.m. January 1, 1999, at the site of the
respective Subject Properties as defined below (the "Effective Time").
1.2. Sale and Purchase. Subject to the terms and conditions herein
contained, at Closing, as defined below, and effective as of the Effective Time,
Seller shall sell, assign, transfer and convey to Purchaser, and Purchaser shall
purchase, accept and receive, the right, title, and interest, if any, of Seller
as of the Effective Time [and, as to 1.2(a) below (the "Sale Interest")] in and
to the following described assets, less and except the Excluded Assets (the
"Assets"):
(a) the oil, gas and mineral leases and leasehold interests
appurtenant to the wells and/or Units described in Exhibit "A"
attached hereto and incorporated herein to the extent and only
to the extent they cover the lands described on Exhibit C
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<PAGE> 2
attached hereto together with Seller's interest in any pooled,
communitized or unitized acreage to the extent and only to the
extent any such interest directly pertains to such wells and
lands and all of the rights appurtenant thereto (the "Subject
Properties") (said interests to include all of the lands
covered by said leases appurtenant to the wells on Exhibit "A"
except in the instance(s) where Seller has retained a well on
or other rights or interests in said leases and leaseholds in
which event Purchaser shall receive the pro-ration acreage
attributable to the affected well(s) listed on Exhibit "A" (or
other minimum spacing unit or acreage applicable) or such
other lands as Purchaser and Seller may agree, said lands to
be described on Exhibit "A" to the Assignment and Bill of
Sale.);
(b) to the extent, and only to the extent, attributable or
allocable to the Subject Properties: (1) all wells (including,
but not limited to, the wells described in Exhibit "A" and all
other oil, gas, injection and water wells whether plugged or
unplugged and whether abandoned or not) ("Wells"), equipment,
gathering pipelines, gas facilities, gathering systems,
gathering, storage, distribution, treating, processing and
disposal facilities and tanks, tools, buildings, and all other
real or tangible personal property and fixtures which, as to
each of the foregoing items, are located on or directly and
solely related to the Subject Properties, including, without
limitation, items of personal property described in Schedules
1, and 2, to Exhibit "A", and specifically including portable
tools, snow vehicles, equipment, inventory, and the vehicles
listed on Schedule 5 to Exhibit "A" (collectively, the
"Rolling Stock") used exclusively on or exclusively
appurtenant to the Subject Properties or the Wells but except
as provided above, excluding personal property not solely
appurtenant to the Wells and personal property temporarily
located on the Subject Properties; (2) all oil, gas, mineral
and other hydrocarbon substances produced, saved and sold on
or after the Effective Time; (3) to the extent the same are
assignable or transferable by Seller, all orders, contracts,
title opinions and documents, abstracts of title, leases,
deeds, unitization agreements, pooling agreements, operating
agreements, division of interest statements, participation
agreements, gas purchase, sale transportation and processing
agreements and all other agreements and instruments; (4) all
surface leasehold and surface fee estates (but only to the
extent overlying and within the boundaries of the lands
comprising the Subject Properties or exclusively appurtenant
to or exclusively held and exclusively used in connection with
the operations of the Subject Properties), easements,
rights-of-way, licenses, authorizations, permits and similar
rights and interests, limited by and subject to the rights,
conditions and restrictions of third parties; (5) to the
extent assignable and limited by and subject to the rights of
third parties, lease files, land files, operating files, well
files, oil and gas sales contract files, gas processing files,
logs, test data, production histories, division order files,
abstracts, title files and materials, and all other books,
files and records (the "Records"), and all rights thereto,
limited by and subject to the rights of third parties; (6) all
other rights, privileges, benefits and powers conferred upon
the owner and holder of interests in the Subject Properties;
(7) all other interests in oil, gas and other minerals of
whatever nature directly appurtenant to the Subject
Properties, including, without limitation, all fee mineral and
royalty interests, reversionary interests, farmout rights and
overriding royalty interests; (8) a
2
<PAGE> 3
license, on Seller's customary terms, to all existing seismic
and geophysical raw data possessed by Seller on the Effective
Time, wholly owned by Seller, to the extent and only to the
extent covering the area directly within the boundaries of the
Subject Properties or within one mile of the Subject
Properties (but only to the extent it does not cross over onto
the boundary of a retained interest of Seller or an Excluded
Asset) and only to the extent permitted by the applicable
agreements and subject to all rights of third parties and all
conditions or restrictions imposed by said third parties.
(c) to the extent and only to the extent necessary for the
ownership, use or development of the Subject Properties and
limited by and subject to the rights of and conditions or
restrictions imposed by third parties and applicable
agreements, the concurrent, nonexclusive right of ingress and
egress with respect to the fee, fee mineral, leasehold and
royalty retained or owned by Seller in the area of the Subject
Properties.
(d) the wells, real or personal property (or mixed property),
interests, assets, facilities or equipment identified on
Exhibit "A", Schedules 1, 2, 3, 4, 5 or 6, which may or may
not be expressly included in the engineering data previously
furnished to Purchaser but which constitute a part of the
Subject Properties and those interests, assets, facilities and
equipment appurtenant to the Subject Properties but which are
identified subsequent to the Execution Date by and placed on
Exhibit "A" or any of the Schedules listed immediately above
prior to Closing by Seller.
(e) the interests described on Exhibit "A-I" attached hereto when
offered by the owners thereof prior to Closing shall be
purchased by Purchaser at Closing for a value proportionate to
the allocated value of Seller's related interest in said
Asset, whether or not such interests are acquired by the
Seller on or prior to Closing, unless such interests are
subject to material defects in title, excluding Permitted
Encumbrances, which have arisen entirely after the Execution
Date, and Purchaser so advises Seller no later than 10
Business Days prior to closing, in which case, at Seller's
sole option, (i) such affected interest shall be excluded from
the Assets or (ii) the value with respect to such interest
shall be reduced by the lesser of the cost to cure said defect
or the said defect value not to exceed the proportionate
allocated value for said interest and such interest shall be
conveyed to Purchaser at Closing as part of the Assets. All
such interests acquired by Purchaser shall be deemed to be a
part of the Sale Interest and subject to the terms of this
Agreement for all purposes and the Purchase Price shall be
increased at Closing by the amount allocated to such acquired
interests.
(f) the undeveloped leasehold identified in Exhibit A and more
fully described on Schedule 4 to Exhibit "A" together with all
contract rights, personal property or other rights directly
related thereto to the extent assignable, and subject to and
limited by the rights of third parties and Related Agreements.
(g) the domestic U.S. mineral interests, royalty and overriding
royalty interests to the extent covering lands outside the
areas, land, counties, or parishes in the states
3
<PAGE> 4
described on Exhibit E, with Seller expressly retaining, among
other things, all right, title and interest in the domestic
U.S. mineral interests, royalty and overriding royalty
interests inside the areas, land, counties, or parishes in the
states described on Exhibit E, (with such retained interests
of Seller referred to as the "Excluded Minerals", with
Excluded Minerals being considered Excluded Assets for
purposes of this Agreement) provided, however, as to such
Excluded Minerals should any land ultimately and specifically
described on an Exhibit "A" to any Assignment and Bill of Sale
delivered to Purchaser by Seller, pursuant to this Agreement
(and an interest in said land is intended to be conveyed
thereby) fall within the description for and conflict with the
description of Excluded Minerals, then as to and only as to
the specific lands described in the said Assignment and Bill
of Sale between Seller and Purchaser, all mineral, royalty and
overriding royalty interests of Seller, if any, to the extent
and only to the extent directly pertaining to and within the
boundaries of said specifically described lands shall not be
considered to be Excluded Minerals and shall be considered to
have been conveyed to Purchaser pursuant to the terms of this
Agreement, and only to the extent assignable, and subject and
limited by the rights of third parties and Related Agreements.
(h) the plants (the "Gas Plants") described on Schedule 6 to
Exhibit A and gathering systems appurtenant thereto to the
extent assignable and subject to and limited by the rights of
third parties and Related Agreements.
(i) the Mesa Offshore Royalty Partnership (MORP) (including the
position of Managing General Partner or similar role) and the
properties or interests affected or burdened by the interest
owned by the MORP and/or included in the Mesa Offshore Trust
(MOT), however, if Seller determines in its sole discretion it
will be unable to convey the MORP or any property or interest
included in the MOT or any affected property or related
interest or partnership interest (including the position of
Managing General Partner or similar role) at Closing, or is
unable to convey the same in a timely manner or without undue
conditions or restrictions (as determined in Seller's sole
discretion) then in such event Seller will advise Purchaser,
the affected Assets will be removed from this Agreement, and
an adjustment in the Purchase Price will be made at Closing by
the allocation for said affected Assets.
1.3. Excluded Assets. Notwithstanding anything in this Agreement
to the contrary, the Assets do not include and Purchaser agrees and
acknowledges that Seller has reserved and retained from the Assets and hereby
reserves and retains unto itself any and all rights, titles and interests in
and to (a) Excluded Minerals, leasehold and other interests pertaining to lands
and leasehold not within the boundaries of the lands comprising the Subject
Properties (b) the right of ingress and egress with respect to the Assets for
the purpose of mining, drilling, exploring, operating, holding, producing and
developing any interest including, without limitation, the oil, gas and mineral
leasehold, fee, fee mineral and royalty interests retained or owned by Seller
for oil, gas, minerals and other hydrocarbon substances, or other lawful
substances, (c) seismic, geologic and geophysical records, information, and
interpretations relating to the Assets, subject to Section 1.2 (b) (8) above
and Section 9.5 (iii), (d) any and all records which consist of previous
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or contemporaneous offers, discussions, or analyses associated with the
purchase, sale or exchange of the Assets or any part thereof, proprietary or
interpretive information, reserve data, internal communications, personnel
information unrelated to the personnel interviewed and evaluated by Purchaser
pursuant to Section 13.19 below, tax information, information covered by a
non-disclosure obligation and information or documents covered by a legal
privilege;(the "Excluded Records") (e) originals or copies of Excluded Records
and copies of records retained by Seller; (f) all claims, rights and causes of
action against third parties, asserted and unasserted, known and unknown
relating to the period prior to the Effective Time relating to the Assets; (g)
to the extent Seller has reserved interests, including deep rights, or to the
extent Seller currently uses or may need to use the following rights for its
operations in the area of the Subject Properties Seller reserves concurrent
interests in any and all applicable easements, rights of way, licenses, permits,
contracts or other rights relating to the reserved interests or interests in the
area; (h) communication equipment, leased or rented equipment or facilities,
office equipment, computer equipment and software; (i) all pipelines, gas
plants, equipment and rights of way owned or operated by Seller or any affiliate
of Seller and which are not solely appurtenant to the Wells or used exclusively
therewith (except the Gas Plants); (j) all oil in storage at the Effective Time;
(k) wells, leases or leasehold interests or other interests described on Exhibit
A or any Schedule thereto, which pursuant to and in accordance with this
Agreement are not included in an Assignment and Bill of Sale or another
conveyancing instrument delivered to Purchaser on or after Closing; (l)
[INTENTIONALLY LEFT BLANK; (m) an overriding royalty equal to an undivided
1/32nd of eight eighths proportionately reduced to the interest conveyed by
Seller pursuant to this Agreement in and to the WARWINK West wells and lands
appurtenant thereto as identified in Exhibit A or Exhibit C to this Agreement;
(n) those properties, wells, oil and gas leases, units, prospects, pipelines,
facilities, lands, equipment, easements, or those other interests described on
Schedule 1.3(n) attached hereto (including all personal property, rights,
interests of or pertaining or appurtenant thereto) even though the same may be
described or referred to on another exhibit or schedule hereto or otherwise
described as an Asset and this Subsection 1.3(n) is intended to exclude from
Assets all of Seller's right, title and interest in or pertaining to the
following fields: (1) Bayou De Fleur, South Field (AKA Goose Bayou Prospect),
(2) Lusk Fields, (3) Huntley North Field, (4) Velrex Field, (5) Hostetter
Fields, (6) Perry Point Field, (7) Levelland Field, and (8) Buchel Field,
regardless of whether such interests are specifically or fully described in this
subsection 1.3(n) or Schedule 1.3(n); and (o) items excluded elsewhere in or
pursuant to this Agreement, (a) through (o), collectively, the "Excluded
Assets").
1.4. Defined Terms.
"Act" means the Securities Act of 1933.
"Adjusted Purchase Price" has the meaning set forth in Section
2.1.
"Affiliate" means, as to any Person each other Person that
directly or indirectly (through one or more intermediaries or
otherwise) controls, is controlled by, or is under common control
with, such Person.
"Agents" means, as to any Person, its employees, contractors,
lenders and consultants.
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"Assets" has the meaning as set forth in Section 1.2.
"Business Day" or "Business Days" means a day or days excluding
Saturdays, Sundays and U.S. Legal Holidays.
"Casualty Loss" has the meaning as set forth in Section 12.3.
"Claims" has the meaning as set forth in Section 9.2.a.
"Closing" means the consummation of the purchase and sale of the
Assets by Purchaser and Seller as contemplated in this Agreement.
"Closing Date" has the meaning as set forth in Section 8.1.
"Code" means the United States Internal Revenue Code of 1986 as
Amended.
"Confidentiality Agreement" has the meaning as set forth in
Section 13.2.
"Days" or "days" means calendar days unless stated otherwise.
"Effective Time" has the meaning as set forth in Section 1.2.
"Environmental Laws" means any and all Laws that relate to: (a)
the prevention of pollution or environmental damages, (b) the
abatement, remediation or elimination of pollution or
environmental damage, (c) the protection of the environment
generally, and/or (d) the protection of Persons or property from
actual or potential exposure (or the effects of exposure) to
pollution or environmental damage; including without limitation,
the Clean Air Act, as amended, the Clean Water Act, as amended,
the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended, the Federal Water Pollution
Control Act, as amended, the Resource Conservation and Recovery
Act of 1976, as amended, the Safe Drinking Water Act, as amended,
the Toxic Substance and Control Act, as amended, the Superfund
Amendments and Reauthorization Act of 1986, as amended the
Hazardous and the Solid Waste Amendments Acts of 1984, as
amended, and the Oil Pollution Act of 1990, as amended.
"Excluded Assets" has the meaning as set forth in Section 1.3.
"Execution Date" means that date on which the Seller and
Purchaser signed this Agreement, which is April 1, 1999.
"Final Accounting" has the meaning as set forth in Section
13.17.B.
"Final Accounting Date" has the meaning as set forth in Section
13.17.B.
"Imbalances" has the meaning as set forth in Section 9.1.
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"Knowledge of Seller [or Purchaser, as the case may be]", or "to
the best of Seller's [or Purchaser's as the case may be]
knowledge and belief" or words of similar import shall mean only
the then existing actual non-privileged knowledge of any
president or vice president (without obligation of further
inquiries) of Seller [or Purchaser, as the case may be], and is
not intended to imply that such party in fact has actual
knowledge of the subject matter to which such terms apply.
"Laws" means laws, statutes, ordinances, permits, decrees,
orders, judgments, rules or regulations (including without
limitation Environmental Laws) which are promulgated, issued or
enacted by a governmental entity (whether federal, state or
local) or tribal authority having appropriate jurisdiction.
"Letter Agreement" has the meaning as set forth in Section 13.2.
"NORM" has the meaning as set forth in Section 9.2.c.
"Notice Period" has the meaning as set forth in Section 9.2.d.
"Party" means Purchaser or Seller.
"Parties" means collectively the Purchaser and Seller.
"Permitted Encumbrances" has the meaning as set forth in Section
3.2.
"Person" means and individual, corporation, partnership,
association, joint stock company, trust or trustee thereof,
estate or executor thereof, unincorporated organization or joint
venture, court or other governmental unit or other agency or
subdivision thereof, or any other legally recognizable entity.
"Gas Plants" has the meaning set forth in Section 1.2(h);
"Preferential Rights" has the meaning set forth in Section 3.4
"Property" is the real property or properties, surface and
subsurface, in which and on which the Assets, or any portion
thereof, are located or pertain and includes the land, if any,
described or referred to in Exhibit "A".
"Property Taxes" has the meaning as set forth in Section 11.1.
"Purchase Price" has the meaning as set forth in Section 2.1.
"Records" has the meaning as set forth in Section 1.2.b.
"Related Agreements" has the meaning as set forth in Section
9.10.
"Representative" and "Representatives" have the same meanings as
set forth in Section 9.2.f.
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"Sale Interest" has the meaning as set forth in Section 1.2.
"Shares" has the meaning ascribed thereto in the Option
Agreement.
"Subject Properties" has the meaning as set forth in Section
1.2.a.
"Suspense Funds" has the meaning as set forth in Section 9.1.
"Wells" has the meaning as set forth in Section 1.2.b.
ARTICLE 2. CONSIDERATION
2.1. Consideration. As consideration for this Agreement and the
benefits contained herein, at Closing, Purchaser shall pay to Seller Two Hundred
Fifty-Three Million Six Hundred Fifty-Four Thousand Two Hundred Fifty-Five
Dollars $253,654,255 (US$) (the "Purchase Price"), as may be adjusted pursuant
hereto (the "Adjusted Purchase Price"). At Closing, at Seller's sole option,
Seller may accept Costilla convertible preferred stock having a purchase price
of up to Twenty-Five Million Dollars ($25,000,000) on such terms as are
acceptable to Seller and the cash portion of the Purchase Price shall be reduced
by the purchase price of the said Costilla convertible preferred stock.
2.2. Manner of Payment. At Closing, except as provided in the following
Section 2.3, Purchaser shall pay Seller or Seller's designee the Adjusted
Purchase Price by wire transfer of immediately available funds as follows:
Account: Pioneer Natural Resources USA, Inc.
Account No: 1290288845
NationsBank, N.A.
ABA Routing No: 111000012
Attention: Denise Ashford Smith
NationsBank N.A.- Dallas
(214) 209-1261
2.3. Like Kind Exchange Option. Seller and Purchaser hereby agree that
Seller, in lieu of the sale of the Assets to Purchaser for the cash
consideration provided herein, shall have the right at any time prior to Closing
to assign all or a portion of its rights under this Agreement to a qualified
intermediary in order to accomplish the transactions contemplated hereby in a
manner that will comply, either in whole or in part, with the requirements of a
like kind exchange pursuant to Section 1031 of the Internal Revenue Code of
1986, as amended ("Code"). In the event Seller assigns its rights under this
Agreement pursuant to this Section 2.3, Seller agrees to notify Purchaser in
writing of such assignment before Closing. If Seller assigns its rights under
this Agreement, Purchaser agrees to (i) consent to Seller's assignment of its
rights in this Agreement, (ii) deposit the Adjusted Purchase Price with the
qualified escrow or qualified trust account designated by Seller at Closing, and
(iii) take such further actions, at Seller's cost, as are reasonably required to
effectuate the transactions contemplated hereby pursuant to Code Section 1031,
but, in so acting, Purchaser shall have no liability to any Party in connection
with such actions. All risks associated with any like kind exchange and
compliance thereof with applicable
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laws, rules and regulations shall be the sole responsibility of Seller, and
Seller agrees to indemnify and hold Purchaser harmless from and against all
costs, expenses, liabilities and obligations which arise as a result of
Purchaser's agreement contained in this Section 2.3.
2.4 Intentionally Deleted
2.5 ALLOCATIONS. THE PURCHASE PRICE SHALL BE ALLOCATED BY PURCHASER TO
THE ASSETS PROPORTIONATE TO THE PRIOR ALLOCATION PURSUANT TO THE RECENT PRIOR
AGREEMENT AS REDUCED BY THE SAID PRIOR ALLOCATION VALUE FOR THE EXCLUDED ASSETS
DESCRIBED UNDER SUBSECTION 1.3(N) AND SUCH ALLOCATION BEING PROVIDED BY
PURCHASER TO SELLER ON OR BEFORE APRIL 7, 1999.
ARTICLE 3. TITLE
3.1. Title and Due Diligence. Purchaser has performed extensive due
diligence regarding the Assets, including the ownership and title of Seller
thereof, and Purchaser accepts the condition of title to the Assets as of the
Execution Date including all liens and encumbrances.
3.2. Definition of Permitted Encumbrances. As used herein, the term
"Permitted Encumbrances" shall mean the following items, provided none of the
following items shall operate, as of Closing, to increase the working interest
of Seller owned as of the Execution Date for any of the Subject Properties,
without a corresponding increase in the applicable net revenue interest, or
decrease the net revenue interest of Seller owned as of the Execution Date for
any of the Subject Properties:
(a) lessors' royalties, overriding royalties, production payments,
reversionary interests and similar burdens;
(b) division orders and sales contracts;
(c) Preferential rights to purchase or rights of first refusal in
existence on the Execution Date;
(d) rights or requirements to consent to assignments, conveyances,
transfers or other disposals, which rights and/or requirements
are in existence on the Execution Date;
(e) materialman's, mechanic's, repairman's, employee's,
contractor's, operator's, tax, and other similar liens,
assessments or charges arising in the ordinary course of
business for obligations that are not yet due or delinquent,
or if delinquent, that are being contested by Seller or the
affected operator in good faith in the normal course of
business;
(f) rights to consent by, required notices to, filings with, or
other actions by governmental entities in connection with the
sale or conveyance of oil and gas leasehold and fee estates or
interests therein, which consents, notices, filings and/or
other actions are customarily obtained after closing;
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(g) easements, rights-of-way, servitudes, permits, surface leases
and other rights in respect of surface operations affecting
the Assets which in the aggregate are not such as to interfere
materially with the operation or use of any of the Subject
Properties or materially reduce the value thereof;
(h) rights reserved to or vested in any governmental, statutory or
public authority to control or regulate any of the Assets in
any manner, and all applicable laws, rules and orders of any
governmental authority affecting the Assets;
(i) operating agreements, unit agreements, unit operating
agreements, pooling agreements and pooling designations
affecting the Subject Properties which are of public record or
contained in the Records or otherwise available to Purchaser
and all actions taken or operations occurring in the normal
course of business pursuant to such instruments;
(j) title defects that Purchaser may have expressly waived in
writing or which are deemed to have been waived pursuant this
Agreement;
(k) all conveyances, reservations and exceptions of public record
or contained in the Records affecting the Assets which in the
aggregate are not such as to interfere materially with the
operation or use of any of the Subject Properties or
materially reduce the value thereof;
(l) all liens and encumbrances in existence on the Execution Date;
and
(m) all other liens, charges, encumbrances, contracts, agreements,
instruments, obligations, defects and irregularities affecting
the Assets which are not such as to interfere materially with
the operation or use of the affected Subject Properties or
materially reduce the value thereof.
3.3 Environmental and Physical Assessment. Purchaser has performed
extensive due diligence and examinations regarding the Assets and has found the
environmental and physical conditions thereof to be satisfactory and accepts the
conditions of the Assets without the need for further due diligence. Until the
Closing, Purchaser and its Agents shall keep any data or information acquired by
all such examinations and the results of all analyses of such data and
information strictly confidential and not disclose any of the same to any Person
unless otherwise required by law or regulation and then only after written
notice to Seller of the need for disclosure and the identity of all intended
recipients. PURCHASER HEREBY INDEMNIFIES, DEFENDS AND HOLDS SELLER AND ITS
AFFILIATES AND THEIR RESPECTIVE REPRESENTATIVES HARMLESS FROM AND AGAINST ANY
AND ALL CLAIMS OF WHATEVER NATURE FOR OR RELATED TO PERSONAL INJURY, DEATH OR
PROPERTY DAMAGE ARISING OUR OF OR AS A RESULT OF THE ACTIVITIES BY OR ON BEHALF
OF PURCHASER OR ITS AGENTS ON OR RELATED TO THE ASSETS IN CONDUCTING ALL SUCH
ENVIRONMENTAL AND PHYSICAL EXAMINATIONS.
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3.4. Preferential Purchase Rights. Recognizing the brief period between
the Execution Date and the Closing Date, Purchaser agrees to and shall assume
all responsibility and liability regarding preferential purchase rights, rights
of first refusal (collectively, "Preferential Rights") and restrictions on
assignment or consents to assign ("Consents") relating to the Assets and/or any
transfer, assignment or conveyance thereof. Purchaser shall identify Persons
(and their addresses) holding preferential rights to purchase affecting the
Assets and shall send notice of this Agreement to all such Persons offering to
sell to each such Person the Assets for which a Preferential Right is held on
and subject to the terms hereof and for the same allocated value for such Assets
provided to Seller pursuant to Section 2.5 hereof . Purchaser shall be
ultimately responsible for obtaining all waivers , approvals and consents from
each and every applicable Person, including, but not limited to, lessors, joint
interest owners, farmors, sublessors, assignors, grantors, co-parties to Related
Agreements, or other third parties and will provide Seller upon request with
proof of each such waiver, consent or approval and the form of all related
notices. If, after the Execution Date and prior to Closing, any of such Persons
asserting a preferential purchase right notifies Seller that it intends to
consummate the purchase of the Assets to which it holds a preferential purchase
right pursuant to the terms and conditions hereof then such Assets shall be
excluded at Closing from the Assets to be conveyed to Purchaser under this
Agreement and the Purchase Price shall be reduced by the allocated value of such
Assets reflected in Purchaser's allocation under Section 2.5; provided, however,
that if the holder of such preferential right fails to consummate the purchase
of such Assets before, on or within a reasonable time after the Closing Date
(taking into account the notice or acceptance period for the right of
preferential purchase and a reasonable amount of time, as determined by Seller,
to assemble documentation for such separate sale), then Seller shall promptly so
notify Purchaser, and Seller shall sell immediately to Purchaser, and Purchaser
shall purchase from Seller, for a price equal to the allocated value of such
Assets and upon the other terms of this Agreement, the Assets to which the
Preferential Right was asserted. All Assets for which all Preferential Rights
exist shall be sold to Purchaser at Closing pursuant and subject to the
provisions of this Agreement. If one (1) or more of the holders of any
Preferential Rights notifies Seller or Purchaser subsequent to Closing that it
intends to assert its Preferential Right, in the event Seller receives such
notice, Seller shall give notice thereof to Purchaser, and Purchaser shall
satisfy all such Preferential Right obligations of Seller or Purchaser to such
holders including, but not limited to, transferring the affected Assets to the
holder of such rights and PURCHASER SHALL INDEMNIFY, DEFEND, RELEASE AND HOLD
SELLER HARMLESS FROM AND AGAINST ANY AND ALL CLAIMS, LIABILITIES, LOSSES, COSTS
AND EXPENSES (INCLUDING WITHOUT LIMITATION, PIONEER'S INTERNAL EXPENSES AND
COURT COSTS AND REASONABLE ATTORNEY'S FEES) IN CONNECTION THEREWITH. Purchaser
shall be entitled to receive upon satisfaction in full by Purchaser of all the
foregoing obligations all proceeds received from such holders in connection with
such Preferential Rights, exercised after Closing. PURCHASER SHALL INDEMNIFY AND
HOLD HARMLESS SELLER FROM AND AGAINST ANY AND ALL CLAIMS, LIABILITIES, LOSSES,
COSTS AND EXPENSES (INCLUDING, WITHOUT LIMITATION, COURT COSTS AND REASONABLE
ATTORNEYS' FEES) ASSERTED OR INCURRED AT ANY TIME (WHETHER BEFORE, ON OR AFTER
CLOSING) WITH RESPECT TO OR ARISING DIRECTLY OR INDIRECTLY FROM THE CLAIMS OF
ANY PERSON TO A PREFERENTIAL RIGHT OR CONSENT AFFECTING ANY OF THE ASSETS
TRANSFERRED, ASSIGNED OR CONVEYED OR PURPORTEDLY TRANSFERRED, ASSIGNED OR
CONVEYED TO PURCHASER HEREUNDER.
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3.5 Will O Gas Plant. Notwithstanding the other terms of this
Agreement, unless the surface lease for operation of the Will O Gas Plant and
the surface lease for road use and access to the oil and gas leases out of the
Subject Properties that deliver gas to the Will O Gas Plant are renewed or
entered into in substantially the form attached hereto as Exhibit "F-1 and F-2"
on or prior to the Closing Date, the Will O Gas Plant and associated oil and gas
leases, equipment and vehicles (as described on page 3 of 3 on Schedule 6 to
Exhibit "A" and on page 86 and page 154 of Exhibit "A", or elsewhere on Exhibit
"A") shall be removed from this Agreement and not be included in the Closing and
the Purchase Price shall be reduced at Closing by the allocated value for said
interests amounting to $9,126,631.
ARTICLE 4. SELLER'S REPRESENTATIONS AND DISCLAIMERS
Seller represents to Purchaser that:
4.1. Existence. Pioneer Natural Resources USA, Inc. is a Delaware
corporation, duly formed, validly existing and in good standing under the laws
of the State of Delaware. Pioneer Resources Producing L.P. is a limited
partnership duly formed, validly existing and in good standing under the laws of
the State of Delaware.
4.2. Power. Seller has the requisite power and authority to enter into
and perform this Agreement and the transactions contemplated hereby. The
execution, delivery and performance of this Agreement by Seller, and the
transactions contemplated hereby, will not (a) violate any provision of Seller's
Articles of Incorporation or other governing documents, (b) conflict with,
result in a breach of, constitute a default (or an event that with the lapse of
time or notice, or both would constitute a default) under any agreement or
instrument to which Seller is a Party or by which Seller is bound, (c) to the
best knowledge and belief of Seller, violate any judgment, order, ruling, or
decree applicable to Seller and entered or delivered in a proceeding in which
Seller was or is a named Party, or (d) to the best knowledge and belief of
Seller, violate any applicable law, rule or regulation.
4.3. Authorization. The execution, delivery and performance of this
Agreement and the transactions contemplated hereby have been duly and validly
authorized by all requisite action on the part of Seller. This Agreement has
been duly executed and delivered on behalf of Seller, and at the Closing all
documents and instruments required hereunder to be executed and delivered by
Seller shall be duly executed and delivered. This Agreement and such documents
and instruments shall constitute legal, valid and binding obligations of Seller
enforceable in accordance with their terms subject, however, to the effect of
bankruptcy, insolvency, reorganization, moratorium and similar laws from time to
time in effect relating to the rights and remedies of creditors, as well as to
general principles of equity (regardless of whether such enforceability is
considered in a proceeding in equity or at law).
4.4. Brokers. Seller has incurred no obligation or liability,
contingent or otherwise, for brokers' or finders' fees in respect of the matters
provided for in this Agreement which will be the responsibility of Purchaser,
and any such obligation or liability that might exist shall be the sole
obligation of Seller.
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4.5. Foreign Person. Seller is not a "foreign person" within the
meaning of the Code.
4.6. Permits. To the best of Seller's knowledge Seller possesses all
material licenses, permits, certificates, orders, approvals and authorizations
necessary to own the Assets and to carry on its business as now being conducted.
4.7. Compliance with Law. To the best of Seller's knowledge, Seller is
in material compliance with all laws, ordinances, rules, regulations and orders
applicable to the Assets, including, without limitation, all environmental laws,
ordinances, rules, regulations and orders, except to the extent of any
non-compliance that is not reasonably expected to result in a material adverse
affect on the Assets.
4.8. Taxes. All ad valorem, property, production, severance, excise,
and similar taxes and assessments based on or measured by the ownership of
property or the production of hydrocarbons or the receipt of proceeds therefrom
attributable to the Assets that have become due and payable have been properly
and timely paid, except to the extent of any failure that is not reasonably
expected to result in a material adverse effect on the Assets, and except to the
extent that such taxes are due and payable but contested, protested or appealed
by Seller.
4.9. Litigation. To Seller's best knowledge and belief, no litigation,
investigation or other proceeding in which Seller (or its direct predecessor in
title) is a named Party affects any of the Assets whether pending or threatened
in writing which is based upon omissions, events or occurrences prior to the
date of this Agreement, other than as disclosed on Schedule 4.9 attached hereto.
4.10. LIMITATION AND DISCLAIMER OF REPRESENTATIONS AND WARRANTIES. THE
EXPRESS REPRESENTATIONS AND/OR WARRANTIES OF SELLER CONTAINED IN THIS AGREEMENT
ARE EXCLUSIVE AND ARE IN LIEU OF ALL OTHER REPRESENTATIONS AND WARRANTIES,
EXPRESS, IMPLIED, STATUTORY, OR OTHERWISE, AND THE REPRESENTATIONS AND/OR
WARRANTIES CONTAINED HEREIN SHALL TERMINATE IN ALL RESPECTS UPON CLOSING. ANY
ASSIGNMENT AND BILL OF SALE OR OTHER CONVEYANCE EXECUTED AND DELIVERED PURSUANT
HERETO SHALL BE: (a) WITHOUT ANY WARRANTY OR REPRESENTATION OF TITLE, EITHER
EXPRESS, IMPLIED, STATUTORY OR OTHERWISE; (b) WITHOUT ANY EXPRESS, IMPLIED,
STATUTORY OR OTHER WARRANTY OR REPRESENTATION AS TO THE CONDITION, QUANTITY,
QUALITY, FITNESS FOR A PARTICULAR PURPOSE, CONFORMITY TO MODELS OR SAMPLES OF
MATERIALS OR MERCHANTABILITY OF ANY OF THE ASSETS OR THEIR FITNESS FOR ANY
PURPOSE; AND (c) WITHOUT ANY OTHER EXPRESS, IMPLIED, STATUTORY OR OTHER WARRANTY
OR REPRESENTATION WHATSOEVER. AT CLOSING, PURCHASER SHALL HAVE INSPECTED OR
WAIVED ITS RIGHT TO INSPECT THE RECORDS AND THE ASSETS FOR ALL PURPOSES AND
SATISFIED ITSELF AS TO THE PHYSICAL AND ENVIRONMENTAL CONDITION OF THE ASSETS
AND PROPERTY BOTH SURFACE AND SUBSURFACE, INCLUDING BUT NOT LIMITED TO
CONDITIONS SPECIFICALLY RELATED TO THE PRESENCE, RELEASE OR DISPOSAL OF
HAZARDOUS SUBSTANCES. PURCHASER IS RELYING SOLELY UPON ITS OWN INSPECTION OF THE
ASSETS AND PROPERTY, AND,
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PURCHASER SHALL ACCEPT ALL OF THE SAME IN THEIR "AS IS, WHERE IS" CONDITION. IN
ADDITION, EXCEPT AS EXPRESSLY PROVIDED OTHERWISE IN THIS AGREEMENT, SELLER MAKES
NO WARRANTY OR REPRESENTATION, EXPRESS, IMPLIED, STATUTORY OR OTHERWISE, AS TO
THE ACCURACY OR COMPLETENESS OF ANY DATA, REPORTS, RECORDS, PROJECTIONS,
INFORMATION OR MATERIALS NOW, HERETOFORE OR HEREAFTER FURNISHED OR MADE
AVAILABLE TO PURCHASER IN CONNECTION WITH THIS AGREEMENT, INCLUDING, WITHOUT
LIMITATION, ANY DESCRIPTION OF THE ASSETS, PRICING ASSUMPTIONS, OR QUALITY OR
QUANTITY OF HYDROCARBON RESERVES (IF ANY) ATTRIBUTABLE TO THE ASSETS OR THE
ABILITY OR POTENTIAL OF THE ASSETS TO PRODUCE HYDROCARBONS OR THE ENVIRONMENTAL
CONDITION OF THE ASSETS OR PROPERTY OR ANY OTHER MATTERS CONTAINED IN
CONFIDENTIAL INFORMATION OR ANY OTHER MATERIALS FURNISHED OR MADE AVAILABLE TO
PURCHASER BY SELLER OR BY SELLER'S AGENTS OR REPRESENTATIVES. ANY AND ALL SUCH
DATA, RECORDS, REPORTS, PROJECTIONS, INFORMATION AND OTHER MATERIALS FURNISHED
BY SELLER OR BY SELLER'S AGENTS OR REPRESENTATIVES OR OTHERWISE MADE AVAILABLE
TO PURCHASER OR PURCHASER'S REPRESENTATIVES ARE PROVIDED TO OR FOR THE BENEFIT
OF PURCHASER AS A CONVENIENCE, AND SHALL NOT CREATE OR GIVE RISE TO ANY
LIABILITY OF OR AGAINST SELLER OR SELLER'S AGENTS OR REPRESENTATIVES. ANY
RELIANCE ON OR USE OF THE SAME SHALL BE AT PURCHASER'S SOLE RISK.
THE ASSIGNMENTS AND BILLS OF SALE OR OTHER CONVEYANCES TO BE DELIVERED
BY SELLER AT CLOSING SHALL EXPRESSLY SET FORTH THE LIMITATIONS AND DISCLAIMERS
OF REPRESENTATIONS AND WARRANTIES CONTAINED IN THIS PARAGRAPH.
ARTICLE 5. REPRESENTATIONS, WARRANTIES AND COVENANTS OF PURCHASER
Purchaser represents and warrants to and covenants to Seller that:
5.1. Existence. Purchaser is a Delaware corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware.
5.2. Power. Purchaser has the requisite power and authority to enter
into and perform this Agreement and the transactions contemplated hereby. The
execution, delivery and performance of this Agreement by Purchaser, and the
transactions contemplated hereby, will not (a) violate any provision of any
Purchaser's certificate or articles of incorporation or organization, as the
case may be, bylaws, regulations or other governing documents; (b) to the best
knowledge and belief of Purchaser, conflict with, result in a breach of,
constitute a default (or an event that with the lapse of time or notice, or both
would constitute a default) under any agreement or instrument to which Purchaser
is a Party or by which Purchaser is bound, (c) to the best knowledge and belief
of Purchaser, violate any judgment, order, ruling, or decree applicable to
Purchaser and entered or delivered in a proceeding in which Purchaser was or is
a named Party;
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or (d) to the best knowledge and belief of Purchaser, violate any applicable
law, rule or regulation.
5.3. Authorization. The execution, delivery and performance of this
Agreement and the transactions contemplated hereby have been duly and validly
authorized by all requisite action on the part of Purchaser. This Agreement has
been duly executed and delivered on behalf of Purchaser, and at the Closing all
documents and instruments required hereunder to be executed and delivered by
Purchaser shall have been duly executed and delivered. This Agreement and such
documents and instruments shall constitute legal, valid and binding obligations
of Purchaser enforceable in accordance with their terms, subject, however, to
the effect of bankruptcy, insolvency, reorganization, moratorium and similar
laws from time to time in effect relating to the rights and remedies of
creditors, as well as to general principles of equity (regardless of whether
such enforceability is considered in a proceeding in equity or at law).
5.4. Brokers. Purchaser has not incurred any obligation or liability,
contingent or otherwise, for brokers' or finders' fees in respect of the matters
provided for in this Agreement which will be the responsibility of Seller, and
any such obligation or liability that might exist shall be the sole obligation
of Purchaser.
5.5. Investment Intent. Purchaser is acquiring the Assets for
Purchaser's own account for investment, and not with a view to any distribution
thereof within the meaning of the Securities Act of 1933 (the "Act"), and shall
not resell any or all of the Assets except in compliance with all applicable
securities laws.
5.6. Due Diligence. Purchaser represents, warrants and covenants that
it has or will perform prior to Closing sufficient review and due diligence,
including review of file data and inspections, to evaluate the Assets and
Property to Purchaser's complete satisfaction as a prudent and knowledgeable
Purchaser.
5.7. Sophisticated Buyer. The Purchaser is a sophisticated buyer,
knowledgeable in the evaluation and acquisition of oil and gas properties, and
understands that by purchasing oil and gas properties or interests, the
Purchaser may be exposed to risks and liabilities associated with the oil and
gas business. The Purchaser is engaged in the business of exploring for or
production oil and gas or other minerals as an ongoing business. By reason of
this knowledge and experience, the Purchaser will evaluate the merits and risks
of the properties or interests to be purchased from Seller and will form an
opinion based solely upon the Purchaser's knowledge and experience and not upon
any opinion or predictions by Seller, its employees, agents, or representatives.
5.8. Economic Risk. The Purchaser is aware that ownership of any of the
oil and gas properties or interests is highly speculative and subject to
substantial risks, and the Purchaser is capable of bearing the high degree of
economic risk and burdens of any purchase of the Assets from Seller, including,
but not limited to, the possibility of the complete loss of the Purchase Price,
all contributed capital, the loss of all anticipated tax benefits (if any), the
lack of a public market and limited transferability of such interests or
properties;
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5.9. Financing. Purchaser has or will have adequate funding or
financing to pay the Purchase Price at Closing.
5.10. Accredited Investor. Purchaser is an "accredited investor" as
that item is defined in Regulation D promulgated under the Act.
ARTICLE 5A. ADDITIONAL COVENANTS
Seller covenants and agrees that from and after the Execution Date and
until the Closing Date:
5A.1. Maintenance of Assets. Seller will not sell, transfer, assign,
convey or otherwise dispose of any of the Assets subject to Seller's direct
control, other than (a) oil, gas and other hydrocarbons produced, saved and sold
in the ordinary course of business, (b) personal property and equipment which is
replaced with property and equipment of comparable or better value and utility
in the ordinary and routine maintenance and operation of the Subject Properties,
and (c) as required in connection with any exercise of preferential rights or as
otherwise required to satisfy obligations to third parties under contracts
presently existing. In the event Seller after the Execution Date sells, assigns,
conveys or otherwise disposes of any of the Assets subject to Seller's direct
control prior to the Closing Date, other than as provided in (a) through (c)
above, and Seller is unable to cause such Assets to be conveyed to Purchaser at
Closing, then Purchaser shall be entitled to an adjustment of the Purchase Price
at Closing in an amount equal to the higher of the allocated value of the
affected Assets or the value received by Seller for such Assets; provided,
however, that in the event the aggregate allocated value of the affected Assets
sold, assigned, conveyed or otherwise disposed after the Execution Date which
Seller cannot cause to be conveyed to Purchaser at Closing exceeds 20% of the
Purchase Price then Purchaser shall have the option to terminate pursuant to
Section 10.1(a)this Agreement upon written notice to such effect delivered to
Seller prior to Closing.
5A.2. No Encumbrances. Seller will not create any lien, security
interest, or contractual encumbrance on the Assets, the oil or gas attributable
to the Assets, or the proceeds thereof, other than Permitted Encumbrances. To
the extent liens, security interests or contractual encumbrances on the Assets
or any part thereof are created by Seller subsequent to Execution Date, Seller,
at Seller's option shall either (i) deliver to Purchaser releases of same,
including associated financing statements on or before Closing, or (ii)
indemnify, defend and hold harmless Purchaser for the amount outstanding of said
lien, security interest or contractual encumbrance, or (iii) otherwise
contractually protect Purchaser for said amount, provided such contractual
protection is reasonably satisfactory to Purchaser.
5A.3. Operations. Recognizing that Seller has reduced its workforce
substantially in contemplation of an earlier Sale to Purchaser and may not be
able to fully staff or maintain the Subject Properties and/or the Gas Plants in
substantially the same manner as it has heretofore, with respect to any of the
Subject Properties and the Gas Plants operated by Seller, (and as to 5A.3. (b),
(f), (h), and (j) below with regard to Subject Properties not operated by
Seller), Seller will endeavor in good faith until Closing (subject to this
Agreement and the rights of affected parties or third parties under applicable
agreements) to and except in situations involving
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emergencies in which event Seller shall not be bound by this Section 5A.3 to the
extent necessary to deal with said emergency:
(a) cause the Subject Properties and Gas Plants to be developed,
maintained and operated in compliance with applicable laws,
ordinances, rules, regulations and orders and, maintain
insurance now in force with respect to the Subject Properties,
and pay or cause to be paid all costs and expenses in
connection therewith;
(b) not approve the drilling of any new well on the Subject
Properties without the advance written consent of Purchaser,
which consent (which may not be unreasonably withheld) or
non-consent must be given by Purchaser within three (3) days
of the notice from Seller;
(c) not take any action or fail to take any action which is
reasonably expected to result in any termination of the leases
forming a part of the Subject Properties;
(d) perform and comply with all of its obligations under
agreements relating to or affecting the Subject Properties and
Gas Plants;
(e) Intentionally Omitted;
(f) not enter into or assume any contract, agreement or commitment
which is not in the ordinary course of business as heretofore
conducted or which involves payments, receipts or potential
liabilities with respect to any one of the Subject Properties
or Gas Plants of more than $50,000, (net to Seller) excluding
emergency expenditures; and
(g) not resign or otherwise voluntarily relinquish its rights as
operator of any of the Subject Properties or Gas Plants for
which it serves as operator on the date hereof.
(h) not grant any preferential right to purchase or similar right
or agree to require the consent of any Party to the transfer
and assignment of the Assets to Purchaser, subject to existing
contractual obligations;
(i) not enter into any gas sales contract or crude oil sales or
supply contract with respect to the Subject Properties or Gas
Plants which is not terminable without penalty upon notice of
thirty (30) days or less;
(j) not enter into any transaction the effect of which, considered
as a whole, would be to cause Seller's ownership interest in
any of the Subject Properties or Gas Plants to be decreased
from its ownership interest as of the date hereof;
(k) if any approval or consent by any federal, state or local
governmental authority is required to vest title, excluding
Permitted Encumbrances, to any of the Sale Interest or Gas
Plants, in Purchaser at Closing, Seller shall as reasonably
requested in writing by Purchaser, reasonably cooperate with
Purchaser in Purchaser's
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efforts, to obtain all such required approvals or consents
which shall be at Purchaser's sole risk and expense;
(l) through Closing, endeavor to give prompt written notice to
Purchaser of any notice of default (or written threat of
default, whether disputed or denied) received or given by
Seller after the date hereof under any instrument or agreement
affecting the Subject Properties to which Seller is a Party or
by which it or any of the Subject Properties is bound;
(m) to the extent it can do so without violating any third party
agreement and subject to the rights of third parties, exercise
its best efforts to provide (as soon as practicable) Purchaser
with a copy of each material authority for expenditure and
material contract affecting the Subject Properties or Gas
Plants entered into after the Execution Date, provided,
however, that the provision of such matters to Purchaser is
for informational purposes only and that Purchaser shall have
no right to comment upon or object to any such matter that is
otherwise not in violation of this Agreement.
5A.4. Access to Records. Seller will endeavor to provide Purchaser and
its Agents (1) access to the Records located in Seller's Midland, Texas office
at 303 W. Wall, during normal business hours at Seller's Midland office at 303
W. Wall, (2) adequate work space (as determined solely by Seller) at such
offices to review the Records, (3) access to a copy machine, at Purchaser's
cost, at such office, and (4) reasonable access to Seller's personnel who are
located in such Midland office during normal business hours. Seller, at
Purchaser's cost, will assist Purchaser in obtaining access to and the right to
review and copy Records pertaining to the Subject Properties, producing minerals
and Gas Plants not in Seller's possession or control. From and after the
Execution Date through the Closing Date, Seller shall endeavor to not add to or
remove from the Records any contracts, instruments, documents or other materials
except for such additions and removals as are done in the ordinary course of
business with respect to on-going operations.
5A.5. Permissions. Seller will use reasonable efforts, at Purchaser's
cost, to assist Purchaser in obtaining all permissions, approvals, and consents
of federal, state and local governmental authorities and other third parties
required of Seller as may be required to consummate the sale contemplated
hereunder.
ARTICLE 6. SELLER'S CONDITIONS OF CLOSING
Seller's obligation to consummate the transactions provided for herein
is subject only to the satisfaction or waiver by Seller on or before the Closing
Date of the following conditions:
6.1. Representations. The representations and warranties of Purchaser
contained in Article 5 shall be true and correct in all material respects on the
Closing Date as though made on and as of that date.
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6.2. Performance. Purchaser shall have performed in all material
respects the obligations, covenants and agreements hereunder to be performed by
it at or prior to the Closing, including but not limited to payment of the
Purchase Price.
6.3. Officer's Certificate. Purchaser shall have delivered to Seller a
certificate of an executive officer dated the Closing Date, certifying on behalf
of Purchaser that the conditions set forth in Sections 6.1 and 6.2 have been
fulfilled.
6.4. Pending Matters. No suit, action or other proceeding by a third
party or a governmental authority shall be pending or threatened which seeks
substantial damages from Seller in connection with, or seeks to restrain, enjoin
or otherwise prohibit, the consummation of the transactions contemplated by this
Agreement.
ARTICLE 7. PURCHASER'S CONDITIONS OF CLOSING
Purchaser's obligation to consummate the transactions provided for
herein is subject only to the satisfaction or waiver by Purchaser on or before
the Closing Date of the following conditions:
7.1. Intentionally Deleted.
7.2. Officer's Certificate. Seller shall have delivered to Purchaser a
certificate of an executive officer or general partner dated the Closing Date
certifying on behalf of Seller that the representations contained in the first
sentence, and the first sentence only, of each of Section 4.1 through Section
4.5 are true and correct in all material respects on the Closing Date.
7.3. Seller's Performance. Seller shall have performed in all material
respects the obligations in this Agreement to be performed by Seller at Closing
pursuant to Section 8.2.
ARTICLE 8. CLOSING.
8.1. Time and Place of Closing. If the conditions to Closing have been
satisfied or expressly waived by the Party entitled to the benefits thereof, the
consummation of the transactions contemplated hereby ("Closing") shall take
place at Seller's Midland, Texas office located at 303 West Wall on or before
April 15, 1999 at 9:00 a.m., or at such other place and time or in such other
manner agreed upon by Seller and Purchaser ("Closing Date"); provided, that
Seller shall have the right to extend Closing for up to thirty (30) days for any
reason and that any extension by Seller shall not serve to provide Purchaser
rights not otherwise expressly provided herein, nor to extend any rights of
Purchaser contained in this Agreement.
8.2. Closing Obligations. At the Closing, the following events shall
occur, each being a condition precedent to the others and each being deemed to
have occurred simultaneously with the others:
(a) Seller shall execute, acknowledge and deliver to Purchaser
multiple originals of an Assignment and Bill of Sale or a
Conveyance where applicable as indicated herein below in the
form attached hereto as either "B-1" for the Assignment and
Bill of
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Sale or "B-2" for the Conveyance, and Purchaser shall execute,
acknowledge and deliver same to Seller (Seller may require the
parties to execute separate instruments for each state, county
or parish in which the Assets are located to facilitate
recording). For the purposes of this Section 8.2 (a) Seller
shall if requested by Purchaser deliver a Conveyance for any
county or parish in any state in which the sole interest being
conveyed by Seller in that county or parish in that state is a
non-producing interest in the oil, gas or other minerals and
in which county or parish in that state there are not any
other interests that are to be conveyed to Purchaser or any
Excluded Assets, assets or interests owned by or retained by
Seller.
(b) Seller and Purchaser shall execute, acknowledge and deliver
transfer orders or letters in lieu directing all purchasers of
production to make payment to Purchaser of proceeds
attributable to the Sale Interest;
(c) Purchaser shall deliver by wire transfer the Adjusted Purchase
Price;
(d) [INTENTIONALLY DELETED]
(e) Purchaser and Seller shall execute and deliver appropriate
required state or federal lease assignment forms, appropriate
required resignation or change of operator forms and other
instruments and certificates; and
(f) Subject to Section 13.18, Seller shall execute and deliver to
Purchaser appropriate resignation of operator and change of
operator forms.
8.3 Prepared Documents. Pursuant to the Recent Prior Agreement,
the Parties prepared and approved all the documents required
under Subsections 8.2(a), (b), (e) and (f) and the Parties
agree that the form of such documents are acceptable for the
Closing contemplated by this Agreement, as to the Assets
hereunder, subject to signature and date changes, references
to this Agreement and other minor or ministerial alterations.
ARTICLE 9. POST-CLOSING OBLIGATIONS.
9.1. Receipts and Credits; Suspense Funds. Upon Closing and Subject to
the terms hereof, all monies, refunds, proceeds, receipts, credits, receivables,
accounts and income attributable to the Assets (a) for all periods of time from
and after the Effective Time shall be the sole property and entitlement of the
Purchaser, and, to the extent received by Seller, Seller shall fully disclose
and account therefor to Purchaser promptly, and (b) for all periods of time
prior to the Effective Time shall be the sole property and entitlement of Seller
to the extent received by Purchaser or Seller prior to the Final Accounting Date
or allocated to Seller in the Final Accounting, and if received by Purchaser,
Purchaser shall fully disclose and account therefor to Seller promptly.
Purchaser shall pay Seller for Seller's share of hydrocarbons attributable to
the purchased Assets in storage above the pipeline connection or in transit on
the Effective Time at the relevant contract price, net applicable taxes. Seller
and Purchaser recognize that as of the Effective Time there may be over or under
imbalances with respect to gas production attributable
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to the Subject Properties ("Imbalances") and hereby agree that the Subject
Properties will be conveyed specifically subject to Imbalances which exist as of
the Effective Time, with Purchaser, as of Closing, bearing and assuming all
obligations with respect to any overproduction account or liability and
receiving the benefit of and being credited with any underproduction account or
credit; provided, however, that with respect to Subject Properties that are
subject to gas balancing agreements, Purchaser at Closing shall pay Seller an
amount determined by multiplying the net underproduced Imbalance by $1.00/MCF or
Seller at Closing shall pay Purchaser an amount determined by multiplying the
net overproduced imbalances by $1.00/MCF with Purchaser, as of Closing, bearing
and assuming all obligations with respect to any overproduction account or
liability and receiving the benefit of and being credited with any
underproduction account or credit. At Closing, Seller shall deliver to Purchaser
all amounts in Seller's possession due third party owners of interests in the
Subject Properties, and Purchaser agrees that it shall be solely responsible for
the disposition of such funds, the payment thereof to the rightful owners and
the payment, if any, of royalty thereon (the "Suspense Funds").
9.2. Costs and Liabilities; Indemnity.
(a) As used in this Agreement, "Claims", "CLAIMS", "CLAIMS" or
"CLAIMS" shall include costs, expenses, obligations, claims,
demands, causes of action, lawsuits, liabilities, damages,
fines, penalties, debts, losses and judgments of any kind or
character, whether matured or absolute or contingent, accrued
or unaccrued, liquidated or unliquidated, known or unknown,
and all costs, expenses and fees (including, without
limitation, interest, attorneys' fees, costs of experts, court
costs and costs of investigation) incurred in connection
therewith, including, but not limited to claims arising from
or directly or indirectly related to death, personal injury,
property damage, environmental damage or the remediation
thereof, royalty, operating, contractual, suspense and capital
obligations attributable to the Assets or the Property. As
used in this Section 9.2, "Assets" shall include the Suspense
Funds.
(b) Notwithstanding anything in this Agreement to the contrary, it
is the express intent and agreement of Seller and Purchaser
that, if Closing occurs, Purchaser shall accept the Assets and
Property in their "as is, where is" condition, subject to any
and all faults, defects, deficiencies, irregularities and
claims related or attributable in any manner thereto,
including, without limitation, or any other matter affecting
in any respect the title or physical condition of, or the
right to own, use, operate, develop or enjoy, the Assets,
whether known or unknown, liquidated or unliquidated, fixed or
contingent, direct or indirect.
(c) AT, UPON AND AFTER CLOSING AND WITHOUT FURTHER ACTION OR
DOCUMENTATION, PURCHASER (1) SHALL ASSUME, BE RESPONSIBLE FOR
AND COMPLY WITH ALL DUTIES AND OBLIGATIONS, EXPRESS OR
IMPLIED, ARISING AT ANY TIME WITH RESPECT TO THE ASSETS,
INCLUDING, WITHOUT LIMITATION (i) THOSE ARISING UNDER OR BY
VIRTUE OF ANY LEASE, CONTRACT, AGREEMENT, DOCUMENT, PERMIT,
LAW, STATUTE, RULE, REGULATION OR ORDER OF ANY GOVERNMENTAL
AUTHORITY OR COURT (SPECIFICALLY
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INCLUDING, WITHOUT LIMITATION ANY GOVERNMENTAL REQUEST OR
OTHER REQUIREMENT TO PLUG, RE-PLUG OR ABANDON OR RE-ABANDON
ANY WELL OF WHATSOEVER TYPE, STATUS OR CLASSIFICATION, OR TAKE
ANY CLEAN-UP, REMEDIAL OR OTHER ACTION WITH RESPECT TO THE
ASSETS OR PROPERTY, (ii) PREFERENTIAL RIGHTS TO PURCHASE AND
(iii) THIRD PARTY CONSENTS; (2) SHALL ASSUME, BE RESPONSIBLE
FOR AND PAY ALL CLAIMS AFFECTING OR ARISING, DIRECTLY OR
INDIRECTLY, AT ANY TIME IN CONNECTION WITH THE ASSETS,
INCLUDING, WITHOUT LIMITATION, CLAIMS FOR PERSONAL OR PROPERTY
INJURY OR DAMAGE, ENVIRONMENTAL CLEANUP, REMEDIATION, OR
COMPLIANCE, OR FOR ANY OTHER RELIEF, ARISING DIRECTLY OR
INDIRECTLY FROM OR INCIDENT TO, THE USE, OCCUPATION,
OPERATION, MAINTENANCE OR ABANDONMENT OF OR PRODUCTION FROM
THE ASSETS OR CONDITION OF THE ASSETS OR PROPERTY, WHETHER
LATENT OR PATENT, INCLUDING, WITHOUT LIMITATION, CONTAMINATION
OF PROPERTY OR PREMISES WITH NATURALLY OCCURRING RADIOACTIVE
MATERIALS ("NORM"), AND WHETHER OR NOT ARISING SOLELY FROM OR
CONTRIBUTED TO BY THE NEGLIGENCE IN ANY FORM, WHETHER ACTIVE
OR PASSIVE, OR OF ANY KIND OR NATURE, OF SELLER OR ITS
PREDECESSORS IN TITLE OR THEIR RESPECTIVE AFFILIATES, AGENTS,
EMPLOYEES OR CONTRACTORS; AND (3) SHALL DEFEND, INDEMNIFY AND
HOLD SELLER HARMLESS FROM ANY AND ALL CLAIMS ARISING, ASSERTED
OR DUE AT ANY TIME, WHETHER BEFORE, ON OR AFTER THE EFFECTIVE
TIME, IN CONNECTION WITH THE FOREGOING; AND, FURTHER, WITHOUT
LIMITING THE GENERALITY OF THE FOREGOING, PURCHASER WILL
INDEMNIFY, DEFEND AND HOLD HARMLESS SELLER FROM ALL CLAIMS
ARISING AT ANY TIME, WHETHER BEFORE, ON OR AFTER THE EFFECTIVE
TIME, MADE BY ANY PERSON AND ARISING OUT OF OR RESULTING FROM:
- THE OWNERSHIP OR OPERATION OF THE ASSETS BY OR ON BEHALF OF
SELLER OR ITS PREDECESSORS IN TITLE OR ACTS OR OMISSIONS BY OR
ON BEHALF OF SELLER OR ITS PREDECESSORS IN TITLE IN CONNECTION
WITH OR PERTAINING TO THE ASSETS;
- THE OWNERSHIP OR OPERATION OF THE ASSETS BY OR ON BEHALF OF
PURCHASER OR ITS SUCCESSORS IN TITLE OR THE ACTS OR OMISSIONS
BY OR ON BEHALF OF PURCHASER OR ITS SUCCESSORS IN TITLE IN
CONNECTION WITH OR PERTAINING TO THE ASSETS;
- THE ACTS OR OMISSIONS OF THIRD PARTIES RELATING TO THE ASSETS;
- THE REVIEW, INSPECTION AND ASSESSMENT OF THE ASSETS BY
PURCHASER;
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- AN ERROR IN DESCRIBING THE ASSETS;
- RIGHTS AND OBLIGATIONS OF THE PARTIES OR THIRD PARTIES UNDER
RELATED AGREEMENTS;
- FAILURE BY THIRD PARTIES TO APPROVE OR CONSENT TO ANY ASPECT
OF THIS TRANSACTION;
- OBLIGATIONS TO PLUG, RE-PLUG, ABANDON OR RE-ABANDON WELLS,
REMOVE FACILITIES, EQUIPMENT, PIPELINES AND FLOWLINES, CLOSE
PITS AND REMOVE SUMPS, AND RESTORE, CLEAN UP AND/OR REMEDIATE
THE ASSETS OR PROPERTY;
- PAYMENTS, ROYALTIES OR DISBURSEMENTS PAID OR PAYABLE BY SELLER
OR PURCHASER TO THIRD PARTIES WITH REGARD TO THE ASSETS;
- THE PHYSICAL OR ENVIRONMENTAL CONDITION OF OR RELATING TO THE
ASSETS OR PROPERTY OR ANY DISPOSAL SITE (WHETHER ON THE ASSETS
OR PROPERTY OR OFFSITE) CONTAINING MATERIALS OR WASTES FROM
THE OPERATION'S OR ACTIVITIES ON THE PROPERTY OR ASSETS
INCLUDING CLAIMS UNDER ANY LAW OR ENVIRONMENTAL LAW;
- REMEDIATION ACTIVITIES, INCLUDING DAMAGES INCURRED BY BUYER
DURING OR ARISING FROM REMEDIATION ACTIVITIES RELATING TO THE
ASSETS OR PROPERTY;
- INABILITY OR FAILURE TO OBTAIN THE TRANSFER OF A PERMIT OR
AUTHORIZATION OR THE INABILITY TO OBTAIN A PERMIT OR
AUTHORIZATION RELATING TO THE ASSETS.
(d) From and after Closing, any claim for indemnity hereunder
shall be made by written notice, together with a written
description of any claims asserted stating the nature and
basis of such claim and, if ascertainable, the amount thereof.
Purchaser shall have a period of twenty (20) days after
receipt of such notice within which to respond thereto or, in
the case of a claim which requires a shorter time for
response, then within such shorter period as specified by
Seller in such notice (the "Notice Period"). If Purchaser
denies liability hereunder or fails to provide the defense for
any claim, Seller may defend or compromise the claim as it
deems appropriate without prejudice to any of Seller's rights
hereunder, with no right of Purchaser to approve or disapprove
any actions taken in connection therewith by Seller. If
Purchaser accepts liability and responsibility for the defense
of any claim, it shall so notify Seller as soon as is
practicable prior to the expiration of the Notice Period and
undertake the defense or compromise of such claim with counsel
selected by Purchaser and reasonably acceptable to Seller. If
Purchaser
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undertakes the defense or compromise of such claim, Seller
shall be entitled, at its own expense, to participate in such
defense. No compromise or settlement of any claim shall be
made without reasonable notice to Seller, and without the
prior written approval of Seller, unless such compromise or
settlement includes a general and complete release of Seller,
its Affiliates and their respective Representatives in respect
of the matter, with prejudice, and with no express or written
admission of liability on the part of Seller, its Affiliates
and their respective Representatives, and no constraints on
the future conduct of its or their respective businesses.
Purchaser acknowledges that its obligations to indemnify,
defend and hold Seller and its Affiliates harmless under this
Agreement includes obligations to pay the attorneys' fees and
court costs incurred by Seller and its Affiliates in defending
said Claims, regardless of the merits of said Claims.
(e) Seller shall have the right at all times to participate, at
its sole cost, in the preparation for any hearing or trial
related to the indemnities set forth in this Agreement, as
well as the right to appear on its own behalf or to retain
separate counsel to represent it at any such hearing or trial.
(f) EXCEPT FOR SECTION 9.13 HERETO, THE INDEMNITIES PROVIDED IN
THIS AGREEMENT SHALL EXTEND TO SELLER AND ITS AFFILIATES AND
ANY PERSON WHO AT ANY TIME HAS SERVED OR IS SERVING AS A
DIRECTOR, OFFICER, EMPLOYEE, CONSULTANT, INVITEE OR AGENT
THEREOF (EACH A "REPRESENTATIVE" AND COLLECTIVELY
"REPRESENTATIVES"), AND EACH OF THEIR RESPECTIVE HEIRS,
EXECUTORS, SUCCESSORS AND ASSIGNS, AND SHALL APPLY TO ALL
CLAIMS SUBJECT TO INDEMNITY HEREUNDER, INCLUDING THOSE BASED
ON NEGLIGENCE OF ANY NATURE, INCLUDING SOLE NEGLIGENCE, SIMPLE
NEGLIGENCE, CONCURRENT NEGLIGENCE, ACTIVE NEGLIGENCE, PASSIVE
NEGLIGENCE, STRICT LIABILITY OR FAULT OF SELLER (OR ANY OTHER
INDEMNIFIED PARTY) OR ANY OTHER THEORY OF LIABILITY OR FAULT,
WHETHER OF LAW (WHETHER COMMON OR STATUTORY) OR IN EQUITY.;
PROVIDED, HOWEVER, PURCHASER SHALL NOT BE LIABLE FOR OR
INDEMNIFY SELLER FOR ANY CLAIM ASSERTED BY PURCHASER ARISING
DIRECTLY FROM A BREACH OF A MATERIAL TERM OF THIS AGREEMENT BY
SELLER AND FOR WHICH AND ONLY TO THE EXTENT THAT, PURCHASER
HAS OBTAINED AGAINST SELLER A BINDING, FINAL, NON-APPEALABLE
COURT JUDGEMENT. THE INDEMNIFICATION PROVISIONS OF THIS
SECTION 9.2 SHALL BE IN ADDITION TO ANY OTHER INDEMNITY
PROVISIONS CONTAINED IN THIS AGREEMENT, AND IT IS EXPRESSLY
UNDERSTOOD AND AGREED THAT THE TERMS OF THIS SECTION 9.2 SHALL
CONTROL OVER ANY CONFLICTING OR CONTRADICTING TERMS OR
PROVISIONS CONTAINED IN THIS AGREEMENT, AND SHALL SURVIVE
CLOSING.
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9.3. Further Assurances. After Closing, Seller and Purchaser agree to
take such further actions and to execute, acknowledge and deliver all such
further documents that are necessary or useful in carrying out the purposes of
this Agreement or of any document delivered pursuant hereto. The parties will
cooperate at all times after Closing to execute and record correction
instruments to correct scrivener's errors in the preparation of Closing
documents.
9.4. Delivery of Records. As soon as reasonably possible but no later
than thirty (30) days after the Closing Date, Seller shall deliver originals or
copies consistent with this Agreement at Seller's and Purchaser's equally shared
cost, of the Records to Purchaser; provided, that Seller (i) shall exercise its
best efforts to provide Purchaser at Closing or as soon thereafter as is
practicable with all Records necessary to assume and conduct operations of the
Assets, and (ii) shall have the right to retain, as its own, original Records
that pertain to the Excluded Assets and copies (at Seller's and Purchaser's
equally shared cost) of all other Records. No later than thirty (30) days after
Closing, Seller further agrees to assist Purchaser (at Purchaser's cost) in
making an electronic transfer of all Records applicable to the Subject
Properties. Such electronic data to include but is not limited to: Property
Master files, Name and Address files, (owners, purchasers, operators, etc.),
Division of Interest decks for billing and revenue, Oil and Gas Purchaser
Division Order/Property cross-reference, Land Records (Lease, tracts, Critical
Dates, Text file, Ownership, Rentals, Billing), Chart of Accounts, Billing
Category Codes, County and State Code cross-reference, System Code Tables or
Legends (Suspense Codes, Interest Types, Product Codes, etc.) Gas Contract
Records (Master File, Text, Details, Fees, Calendar, etc.), Owner Netting
Information, Production Records (Tank Master, Closing Stock, Production Master,
State Information, etc.), AFE Information, Revenue Suspense and/or Billing
suspense, Owner Net (Share) Revenue and Billing History, Property Gross (8/8)
Revenue and Billing History, Operated Property Production Information (and
Non-Operated if available), Operated Property Production Tax History
Information, Land Records (Rental Payments), Payout Information and Schedules,
1099 Information, Accounts Payable and Revenue information. Seller's obligation
pursuant to this Section 9.4 shall be limited to Seller's present capability to
perform such electronic transfers without disruption or undue inconvenience to
Seller's ongoing business, and further, Seller shall not be required to create,
assemble or develop such electronic files or records.
9.5. Access to Data and Records. Subject to the rights of third parties
and Seller's proprietary rights, Seller shall (i) provide Purchaser and its
Agents with reasonable access to Seller's books and records relating to the
Assets (both paper and electronic) after Closing as necessary for Purchaser, at
Purchaser's cost, to prepare its financial statements, and (ii) assist Purchaser
after Closing, at Purchaser's cost, in acquiring the appropriate licenses,
permits and authorizations to possess and use all or part of the seismic and
geophysical data regarding the Subject Properties, subject to the rights of
third parties and to confidentiality or limited use conditions or other
conditions or restrictions required by Seller or such third parties and,
further, Seller will endeavor in good faith to identify and transfer to
Purchaser a license, on Seller's customary terms, on Seller's proprietary
seismic and geophysical data owned by Seller on the Execution Date regarding the
Subject Properties, on the same terms and conditions as provided in Section
1.2(b)(8).
9.6. PURCHASER'S RELEASE OF SELLER. FROM AND AFTER CLOSING AND WITHOUT
FURTHER DOCUMENTATION, PURCHASER RELEASES AND DISCHARGES SELLER AND SELLERS
AFFILIATES FROM ALL CLAIMS RELATING TO THE ASSETS, THE PROPERTY OR THIS
TRANSACTION, REGARDLESS OF WHEN OR HOW
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THE CLAIM AROSE OR ARISES OR WHETHER THE CLAIM WAS FORESEEABLE OR UNFORESEEABLE.
PURCHASER'S RELEASE OF SELLER AND ITS AFFILIATES INCLUDES CLAIMS RESULTING IN
ANY WAY FROM THE NEGLIGENCE OR STRICT LIABILITY OF SELLER AND ITS AFFILIATES,
WHETHER THE NEGLIGENCE OR STRICT LIABILITY IS ACTIVE PASSIVE, JOINT, CONCURRENT,
OR SOLE. THERE ARE NO EXCEPTIONS TO PURCHASERS RELEASE OF SELLER AND ITS
AFFILIATES, AND THIS RELEASE IS BINDING ON PURCHASER AND ITS SUCCESSORS AND
ASSIGNS. PURCHASER EXPRESSLY WARRANTS AND REPRESENTS AND DOES HEREBY STATE AND
REPRESENT THAT NO PROMISE OR AGREEMENT WHICH IS NOT HEREIN EXPRESSED HAS BEEN
MADE TO PURCHASER IN EXECUTING THIS AGREEMENT OR AGREEING TO THIS RELEASE AND
THAT PURCHASER IS NOT RELYING UPON ANY STATEMENT OR REPRESENTATION OF SELLER OR
ANY AGENT OR AFFILIATE OF SELLER. PURCHASER HAS BEEN REPRESENTED BY LEGAL
COUNSEL AND SAID COUNSEL HAS READ AND EXPLAINED TO PURCHASER THE ENTIRE CONTENTS
OF THIS AGREEMENT AND THIS RELEASE AND EXPLAINED THE LEGAL CONSEQUENCES THEREOF.
9.7. RETROACTIVE EFFECT. PURCHASER ACKNOWLEDGES THAT PURCHASER'S
OBLIGATIONS TO RELEASE, INDEMNIFY, DEFEND, AND HOLD SELLER AND ITS AFFILIATES
HARMLESS APPLY TO MATTERS OCCURRING OR ARISING BEFORE, ON AND AFTER THE
EFFECTIVE TIME TO THE EXTENT PROVIDED IN THIS AGREEMENT.
9.8. INDUCEMENT TO SELLER. PURCHASER ACKNOWLEDGES THAT IT EVALUATED ITS
OBLIGATIONS UNDER THIS ARTICLE BEFORE IT DETERMINED AND SUBMITTED ITS BID FOR
THE ASSETS AND THAT ITS ASSUMPTION OF THESE OBLIGATIONS IS A MATERIAL INDUCEMENT
TO SELLER TO ENTER INTO THIS AGREEMENT WITH AND CLOSE THE SALE TO PURCHASER.
9.9. PURCHASER'S INDEMNITY. EXCEPT FOR SELLER'S INDEMNITY CONTAINED IN
SECTION 9.13 BELOW, IT IS THE INTENT OF PURCHASER AND SELLER THAT SELLER BE
INDEMNIFIED, DEFENDED AND HELD HARMLESS BY PURCHASER IN A MANNER SO THAT SELLER
WILL BE PROTECTED AS IF IT HAS NEVER AT ANY TIME OWNED OR OPERATED THE ASSETS OR
THE PROPERTY OR ANY INTEREST THEREIN OR PERTAINING THERETO, IN WHOLE OR IN PART.
9.10. RELATED AGREEMENTS. WITHOUT FURTHER ACTION OR DOCUMENTATION,
UNLESS SPECIFICALLY PROVIDED OTHERWISE IN THIS AGREEMENT, THE SALE OF THE ASSETS
IS MADE SUBJECT TO ALL OIL, GAS AND MINERAL LEASES, ASSIGNMENTS, SUBLEASES,
FARMOUT AGREEMENTS, JOINT OPERATING AGREEMENTS, POOLING AGREEMENTS, LETTER
AGREEMENTS, EASEMENTS, RIGHTS OF WAY, AND ALL OTHER AGREEMENTS WITH RESPECT TO
OR PERTAINING TO THE ASSETS TO THE EXTENT THEY ARE BINDING ON SELLER OR SELLER'S
AFFILIATES (THE "RELATED AGREEMENTS"). UPON AND AFTER CLOSING, PURCHASER
EXPRESSLY ASSUMES THE OBLIGATIONS AND LIABILITIES OF SELLER OR SELLER'S
AFFILIATES UNDER SUCH AGREEMENTS INSOFAR AS THE OBLIGATIONS AND LIABILITIES
CONCERN OR PERTAIN TO THE ASSETS AND WILL EXECUTE ANY DOCUMENTS NECESSARY TO
EFFECTUATE SUCH ASSUMPTION. THE PARTIES AGREE THAT THIS SECTION 9.10 IS
APPLICABLE TO ALL INSTRUMENTS WHETHER THEY ARE RECORDED OR NOT.
9.11. Litigation. Upon and after Closing, Purchaser shall assume all
obligations of Seller and Seller's Affiliates and be responsible and liable for
all litigation listed on Schedule 9.11 and all matters, costs, judgments, and
expenses related thereto or arising therefrom. Notwithstanding Section 9.2 (c)
above, 9.6, 9.9, and 12.2, upon Closing, Seller shall be responsible and liable
for
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all litigation which has been filed and served on Seller before the Execution
Date to which Purchaser is not a party and Seller is a party and which is not
listed on Schedule 9.11. Seller reserves the right to remove litigation from
Schedule 9.11 on or before Closing.
9.12. Evidence of Compliance. For Seller-operated Assets, Purchaser
shall deliver to Seller on or prior to 120 days after the Closing (1) evidence
of compliance with the rules and regulations dealing with the plugging and
abandoning of wells included in the Assets, including evidence of the
appropriate bond, surety letter, or letter of credit which has been accepted by
the relevant regulatory agency; (2) proof that Purchaser has been approved by
the relevant regulatory agency as operator of the Assets, including all Wells
that are subject to this Agreement; and (3) evidence that Purchaser has obtained
all necessary permits or transfers of permits to operate the Assets. For matters
which Purchaser has been unable to provide the necessary evidence and proof,
Purchaser shall provide Seller with a status report and action plan for
obtaining such required evidence and proof and continue diligently in its
efforts until all such matters have been achieved. Purchaser shall indemnify,
defend and hold harmless Seller and Seller's Representatives from all Claims
arising from or relating to Purchaser's failure to obtain or failure to obtain
in a timely manner the evidence or proof described in this Section 9.12 (1), (2)
and (3) above.
9.13 Seller's Indemnity. Notwithstanding any other provision of this
Article 9, for the period beginning on the Closing Date and ending on the first
anniversary of the Closing Date (the "Seller Indemnity Period") Seller shall
defend, indemnify and hold harmless Purchaser from any and all bona fide third
party claims asserted during the Seller Indemnity Period to the extent, and only
to the extent, directly relating to the mispayment, nonpayment or underpayment
of royalties for the for the Sale Interest applicable to the period of Seller's
ownership of the affected Assets. From and after Closing, any claim for
indemnity arising under this Section 9.13 shall be made by written notice,
together with a written description of any claims asserted stating the nature
and basis of such claim and, if ascertainable, the amount thereof. Seller shall
have a period of twenty (20) days after receipt of such notice within which to
respond thereto or, in the case of a claim which requires a shorter time for
response, then within such shorter period as specified by Purchaser in such
notice (the "Notice Period"). If Seller denies liability hereunder or fails to
provide the defense for any claim, Purchaser may defend or compromise the claim
as it deems appropriate without prejudice to any of Purchaser's rights
hereunder, with no right of Seller to approve or disapprove any actions taken in
connection therewith by Purchaser. If Seller accepts liability and
responsibility for the defense of any claim, it shall so notify Purchaser as
soon as is practicable prior to the expiration of the Notice Period and
undertake the defense or compromise of such claim, with counsel selected by
Seller and reasonably acceptable to Purchaser. If Seller undertakes the defense
or compromise of such claim, Purchaser shall be entitled, at its own expense, to
participate in such defense, no compromise or settlement of any claim shall be
made without reasonable notice to Purchaser, and without the prior written
approval of Purchaser, which approval shall not be unreasonably delayed or
denied.
ARTICLE 10. TERMINATION
10.1. Right of Termination. This Agreement and the transactions
contemplated hereby may be terminated at the Closing:
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(a) By Purchaser by notice delivered to Seller at Closing if all
conditions described in Article 7 shall not have been met and
such noncompliance shall not have been caused or waived by the
actions or inactions of Purchaser; or
(b) By Seller by notice delivered to Purchaser at Closing if all
conditions described in Article 6 shall not have been met and
such noncompliance shall not have been caused or waived by the
actions or inactions of Seller,
10.2 Automatic Termination Event. This Agreement shall automatically
terminate if Purchaser fails to deliver the Common Shares to Pioneer USA on or
before April 8, 1999, as required by Section 14.1 of this Agreement.
10.3. Effect of Termination. If this Agreement is terminated pursuant
to Section 10.1 or Section 10.2, this Agreement shall become void and of no
further force or effect (except for the provisions of Section 3.3, 3.4, Article
5 (except Section 5.9), Article 10, Article 13 and Article 14, each of which
shall survive such termination and continue in full force and effect). If this
Agreement is terminated by Purchaser pursuant to Section 10.1 (a) above, in the
absence of a default by Purchaser, Purchaser may, at its sole option, seek to
enforce whatever legal or equitable rights and remedies may be appropriate and
applicable, including, without limitation, claims for damages and/or specific
performance of this Agreement. Subject to the first sentence of this Section
10.3, if this Agreement is terminated by Seller pursuant to Section 10.1(b)
above or automatically terminates pursuant to Section 10.2 above, then neither
Purchaser nor Seller shall have any further liability to the other Party or
Parties pursuant to this Agreement and Seller shall be entitled to receive the
Common Shares from Purchaser and thereafter retain the Common Shares as Seller's
sole and exclusive remedy at law or in equity under this Agreement.
Notwithstanding anything to the contrary contained in this Agreement, upon any
termination of this Agreement pursuant to Section 10.1 by Seller or pursuant to
Section 10.2, Seller shall be free immediately to enjoy all rights of ownership
of the Assets and may sell, transfer, encumber or otherwise dispose of the
Assets to any party without any restriction under this Agreement.
ARTICLE 11. TAXES
11.1. Apportionment of Ad Valorem and Property Taxes. All ad valorem
taxes, real property taxes, personal property taxes, and similar obligations
concerning the Assets with respect to the tax period in which the Effective Time
occurs ("Property Taxes") shall be apportioned as of the Effective Time between
Seller and Purchaser. Seller shall file or cause to be filed all required
reports and returns incident to the Property Taxes and shall pay or cause to be
paid to the taxing authorities all Property Taxes relating to the tax period in
which the Effective Time occurs. Purchaser shall pay to Seller Purchaser's pro
rata portion of Property Taxes within thirty (30) days after receipt of Seller's
invoice therefor.
11.2. Sales Taxes. The Purchase Price excludes any sales taxes or other
taxes required to be paid in connection with the sale of property pursuant to
this Agreement. Purchaser shall be liable for all sales, gross receipts, use and
other taxes, conveyance, transfer and recording fees and real estate transfer
stamps or taxes that may be imposed on any transfer of property pursuant to this
Agreement. These taxes shall be collected and remitted under applicable law.
Purchaser shall
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indemnify and hold Seller harmless with respect to the payment of any of these
taxes including any interest or penalties assessed thereon.
11.3. Other Taxes. All taxes (other than income taxes) which are
imposed on or with respect to the production of oil, natural gas or other
hydrocarbons or minerals or the receipt of proceeds therefrom (including but not
limited to severance, production, and excise taxes) shall be apportioned between
the Parties based upon the respective shares of production taken by the Parties.
From and after Closing, Purchaser shall be responsible for paying or withholding
or causing to be paid or withheld all such taxes and for filing all statements,
returns, and documents incident thereto.
11.4. Cooperation. Each Party to this Agreement shall provide the other
Party with reasonable access to all relevant documents, data and other
information which may be required by the other Party for the purpose of
preparing tax returns and responding to any audit by any taxing jurisdiction.
Each Party to this Agreement shall cooperate with all reasonable requests of the
other Party made in connection with contesting the imposition of taxes.
Notwithstanding anything to the contrary in this Agreement, neither Party to
this Agreement shall be required at any time to disclose to the other Party any
tax return or other confidential tax information for a period of at least 12
months.
ARTICLE 12. PHYSICAL CONDITION OF THE ASSETS
12.1. Prior Use of Assets. THE ASSETS AND PROPERTY HAVE BEEN USED FOR
EXPLORATION, DEVELOPMENT, PRODUCTION, STORAGE, AND TRANSPORTATION OF OIL AND GAS
AND RELATED OIL FIELD OPERATIONS. PHYSICAL CHANGES IN THE PROPERTY MAY HAVE
OCCURRED AS A RESULT OF SUCH USES. THE ASSETS OR THE PROPERTY ALSO MAY INCLUDE
BURIED PIPELINES, WASTES AND OTHER EQUIPMENT, WHETHER OR NOT OF A SIMILAR
NATURE, THE LOCATIONS OF WHICH MAY BE HIDDEN OR NOT NOW BE KNOWN OR NOT READILY
APPARENT BY A PHYSICAL INSPECTION OF THE AFFECTED ASSETS. HYDROCARBONS AND OTHER
SUBSTANCES, INCLUDING HAZARDOUS SUBSTANCES, MAY HAVE COME TO BE RELEASED OR
LOCATED ON OR BENEATH THE SURFACE OF THE ASSETS OR THE PROPERTY.
12.2. Assumption of Assets in Present Condition. PURCHASER ACKNOWLEDGES
THAT (i) THE CONSUMMATION OF THIS AGREEMENT AND THE TRANSACTIONS CONTEMPLATED
THEREBY BY PURCHASER SHALL BE SOLELY ON THE BASIS OF ITS OWN INVESTIGATION OF
THE PHYSICAL CONDITION OF THE ASSETS AND PROPERTY, INCLUDING, WITHOUT
LIMITATIONS, SUBSURFACE CONDITION; (ii) THE ASSETS AND PROPERTY HAVE BEEN USED
IN THE MANNER AND FOR THE PURPOSES SET FORTH ABOVE AND THAT PHYSICAL CHANGES TO
THE ASSETS AND THE PROPERTY MAY HAVE OCCURRED AS A RESULT OF SUCH USE; AND (iii)
NORM AND ASBESTOS OR MAN-MADE MATERIAL FIBERS (COLLECTIVELY "MMMF") MAY BE
PRESENT AT SOME LOCATIONS. PURCHASER ACKNOWLEDGES THAT NORM IS A NATURAL
PHENOMENON ASSOCIATED WITH MANY OIL FIELDS IN THE UNITED STATES AND THROUGHOUT
THE WORLD. PURCHASER SHALL MAKE ITS OWN DETERMINATION OF THIS PHENOMENON AND
OTHER
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CONDITIONS. SELLER DISCLAIMS ANY LIABILITY ARISING OUT OF OR IN CONNECTION WITH
ANY PRESENCE OF NORM OR MMMF ON OR AFFECTING THE ASSETS OR THE PROPERTY. IN
ACCORDANCE WITH SECTION 9.2 AND AT CLOSING, PURCHASER SHALL ASSUME THE RISK THAT
THE ASSETS OR THE PROPERTY MAY CONTAIN WASTES OR CONTAMINANTS AND ADVERSE
PHYSICAL CONDITIONS, INCLUDING THE PRESENCE OF PIPELINES, EQUIPMENT AND OTHER
ITEMS OF PERSONAL PROPERTY, TANK BOTTOMS, HEATER TREATER SLUDGE, AND WASTES OR
CONTAMINANTS WHICH MAY NOT HAVE BEEN REVEALED BY PURCHASER'S INVESTIGATION. IN
ACCORDANCE WITH SECTION 9.2 AND AT CLOSING, ALL RESPONSIBILITY AND LIABILITY
RELATED TO DISPOSALS, SPILLS, WASTES, OR CONTAMINATION, OR OTHER ADVERSE
PHYSICAL CONDITIONS ON, BELOW, OR RELATED TO OR AFFECTING THE ASSETS AS WELL AS
THE PROPERTY SHALL BE ASSUMED BY PURCHASER AND PURCHASER SHALL NOT WITHSTANDING
WHEN THE BASIS FOR ANY CLAIM, ACTION, SUIT, JUDGMENT (INCLUDING, WITHOUT
LIMITATION, THOSE FOR DEATH, PERSONAL INJURY OR PROPERTY DAMAGE) SHALL HAVE
OCCURRED, INDEMNIFY, DEFEND AND HOLD SELLER HARMLESS THEREFROM PURSUANT TO
SECTION 9.2.
12.3. Casualty Loss. In the event of any material damage by fire or
other casualty to any of the Assets prior to the Closing ("Casualty Loss"), this
Agreement shall remain in full force and effect, and as to each affected Asset,
Seller shall at its election either collect (and when collected pay over to
Purchaser) or assign to Purchaser any and all insurance claims related to such
damage, and Purchaser shall take title to the affected Asset without reduction
in the Purchase Price.
ARTICLE 13. MISCELLANEOUS
13.1. Governing Law. This Agreement and all instruments executed in
accordance herewith shall be governed by and interpreted in accordance with the
laws of the State of Texas, without regard to conflict of law rules that would
direct application of the laws of another jurisdiction, except to the extent
that it is mandatory that the law of the jurisdiction wherein the Assets are
located shall apply. In the event of any litigation or other proceeding in
connection with this Agreement, the venue for any such proceeding shall be in a
court of competent jurisdiction located in Dallas County, Texas, and the
prevailing Party shall be entitled to recover its reasonable attorney's fees and
costs incurred therein from the other Party, in addition to any damages awarded.
13.2. Entire Agreement. This Agreement, all agreements and instruments
executed in connection herewith at Closing and the Confidentiality Agreement
dated April 15, 1998, between Purchaser and Pioneer USA (the "Confidentiality
Agreement") and the "Letter Agreement" dated September 1, 1998 by and between
the Purchaser and Pioneer USA constitute the entire agreement between the
Parties and supersede all prior agreements, understandings, negotiations and
discussions, whether oral or written, of the Parties. The Letter Agreement and
the Confidentiality Agreement remain in full force and effect. No supplement,
amendment, alteration, or modification, of this Agreement shall be binding
unless executed in writing by the Parties hereto.
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13.3. Waiver. No waiver of any of the provisions of this Agreement
shall be deemed or shall constitute a waiver of any other provisions hereof
(whether or not similar), nor shall such waiver constitute a continuing waiver
unless otherwise expressly provided.
13.4. Captions. The captions in this Agreement are for convenience only
and shall not be considered a part of or affect the construction or
interpretation of any provision of this Agreement.
13.5 Assignability. Except as provided for in Section 14.3 hereof,
Purchaser shall not assign (whether before, at or after Closing) this Agreement
or any of its rights or obligations hereunder without the prior written consent
of the Seller, which may be withheld or conditioned for any or no reason. Any
assignment made without such consent shall be void. Seller shall not assign this
Agreement or any of its rights or obligations hereunder without the prior
written consent of Purchaser, which consent shall not be unreasonably withheld.
Except as otherwise provided herein, this Agreement shall be binding upon and
inure to the benefit of the Parties hereto and their respective permitted
successors and assigns, however, in any event Purchaser shall remain responsible
and liable for the performance of the obligations of Purchaser under this
Agreement. All future conveyances of all or a portion of the Assets shall
expressly recognize and perpetuate the rights and obligations set out in this
Agreement.
13.6. Notices. Any notice provided or permitted to be given under this
Agreement shall be in writing, and may be served by personal delivery or by
registered or certified U.S. mail, addressed to the Party to be notified,
postage prepaid, return receipt requested. Notice deposited in the mail in the
manner hereinabove described shall be deemed to have been given and received on
the date of the delivery as shown on the return receipt. Notice served in any
other manner (including by facsimile delivery) shall be deemed to have been
given and received only if and when actually received by the addressee. For
purposes of notice, the addresses of the Parties shall be as follows:
SELLER:
PIONEER NATURAL RESOURCES USA, INC.
PIONEER RESOURCES PRODUCING L.P.
Attn: Ray Alameddine and W.T. Howard
1400 Williams Square West
5205 North O'Connor Blvd.
Irving, Texas 75039-3746
Telephone: 972/444-9001
Fax: 972/969-3570
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PURCHASER:
COSTILLA ENERGY, INC.
Attn: Clifford N. Hair, Jr.
400 West Illinois, Suite 1000
Midland, Texas 79701
Telephone: 915/686-6030
Fax: 915/686-6083
Each Party shall have the right, upon giving three (3) days prior notice to the
other in the manner hereinabove provided, to change its address for purposes of
notice to any other appropriate street address.
13.7 WAIVER OF CONSUMER RIGHTS . TO THE EXTENT APPLICABLE TO THE ASSETS
OR ANY PORTION THEREOF, PURCHASER HEREBY VOLUNTARILY WAIVES IT'S RIGHTS UNDER
THE TEXAS DECEPTIVE TRADE PRACTICES ACT, SECTION 17.41 ET SEQ., TEX. BUS. & COM.
CODE., A LAW THAT GIVES CONSUMERS SPECIAL RIGHTS AND PROTECTIONS. IN ORDER TO
EVIDENCE ITS ABILITY TO GRANT SUCH WAIVER, PURCHASER HEREBY REPRESENTS AND
WARRANTS TO SELLER THAT IT (i) IS IN THE BUSINESS OF SEEKING OR ACQUIRING, BY
PURCHASE OR LEASE, GOODS OR SERVICES FOR COMMERCIAL OR BUSINESS USE; (ii) HAS
CONSULTED WITH AN ATTORNEY OF PURCHASER'S OWN CHOOSING; (iii) HAS KNOWLEDGE AND
EXPERIENCE IN FINANCIAL, BUSINESS AND OIL AND GAS MATTERS THAT ENABLE IT TO
EVALUATE THE MERITS AND RISKS OF THE TRANSACTIONS CONTEMPLATED HEREBY; (iv) IS
NOT IN A SIGNIFICANTLY DISPARATE BARGAINING POSITION; AND (v) THAT THIS WAIVER
IS A MATERIAL AND INTEGRAL PART OF THIS AGREEMENT AND THE CONSIDERATION THEREOF.
13.8. Expenses. Each Party shall be solely responsible for all expenses
incurred by it in connection with this transaction (including, without
limitation, fees and expenses of its own legal counsel and accountants).
13.9. Severability. The provisions of this Agreement are severable at
Seller's option. If a court of competent jurisdiction finds any part of this
Agreement to be void, invalid, or otherwise unenforceable, then Seller may
decide whether to enforce this Agreement without the void, invalid, or
unenforceable parts or to terminate this Agreement.
13.10. Damages. The Parties waive any rights to special, indirect,
punitive, exemplary, or consequential damages resulting from a breach of this
Agreement.
13.11. No Third Party Beneficiary. This Agreement is not intended to
create, nor shall it be construed to create, any rights in any third party under
doctrines concerning third party beneficiaries.
13.12. Survival. The representations and warranties of the Parties
under this Agreement shall not survive, but shall terminate upon and be
extinguished by, Closing; provided, however,
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that all representations, warranties, disclaimers, releases, waivers, covenants,
agreements and indemnities contained within Sections 1.2, 2.3, 3.3, 3.4, 4.10
and 5.1 through 5.10, and Articles 9, 11, 12, 13 and 14 of this Agreement shall
survive the Closing, further provided, that, notwithstanding anything herein to
the contrary, Purchaser expressly agrees and acknowledges that it shall have no
remedy or recourse against Seller or its Affiliates or any of their respective
Representatives with respect to the condition of the Assets.
13.13. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
13.14. Not to be Construed Against Drafter. Purchaser and Seller
acknowledge that they have read this Agreement, have had the opportunity to
review it with an attorney of their respective choice, and have agreed to all
its terms. Under these circumstances, Purchaser and Seller agree that the rule
of construction that a contract be construed against the drafter shall not be
applied in interpreting this Agreement and that in the event of any ambiguity in
any of the terms or conditions of this Agreement, including any exhibits hereto
and whether or not placed of record, such ambiguity shall not be construed for
or against any Party hereto on the basis that such Party did or did not author
the same.
13.15 Waiver of Jury Trial. SELLER AND PURCHASER DO HEREBY IRREVOCABLY
WAIVE, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY AND ALL RIGHT TO A TRIAL BY
JURY IN ANY ACTION, SUIT OR OTHER LEGAL PROCEEDING BASED UPON, ARISING OUT OF OR
RELATING TO THIS AGREEMENT THE RIGHTS AND OBLIGATIONS UNDER THIS AGREEMENT OR
THE TRANSACTIONS CONTEMPLATED HEREBY.
13.16 Publicity. Seller and Purchaser shall consult with each other
with regard to all publicity and other releases and disclosures to be made prior
to, at or after Closing concerning this Agreement and the transactions
contemplated hereby, which are not otherwise expressly permitted by the
Confidentiality Agreement, and, except as required by applicable law or the
applicable rules or regulations of any governmental body or stock exchange,
neither Party shall make any disclosure or issue any publicity or other release
without the prior written consent of the other Party, which consent shall not be
unreasonably withheld or delayed.
13.17. Accounting.
A. Seller and Purchaser have agreed, for Closing purposes, to a
settlement statement, the "Preliminary Settlement Statement"
attached hereto as Schedule 13.17(A) setting forth the
adjustments to the Purchase Price provided for in or required
by this Agreement including, without limitation, items such as
the Purchase Price, expenses, prepaid items, revenue received,
Property Taxes, excise and energy taxes, copying and recording
fees, to the extent such information is available or estimated
by Seller on or before Closing. The Purchase Price shall be
reduced at Closing by the amount of $3,654,255 as a result of
said Preliminary Settlement Statement. The Purchase Price
shall also be adjusted at Closing as a result of Asset removal
as allowed pursuant to this Agreement with such adjustments to
be
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made based upon the allocated value thereof under Section 2.5.
B. Within 150 days after the Closing, Seller shall prepare, in
accordance with this Agreement and with standard industry and
accounting practices, and deliver to Purchaser, a final
accounting statement showing the proration and calculation of
credits and payment obligations of Purchaser and Seller
hereunder. In connection with the Final Accounting (defined
below), the Purchase Price shall, taking into account
adjustments made at Closing, be (1) increased by (a) the costs
and expenses that are attributable to the Assets for the
period from the Effective Time to the Closing Date that are
paid, incurred or assessed by Seller (including, but not
limited to, Seller's internal cost for administrative overhead
for each well operated by Seller at the rate of $435.00 per
well per month for wells not otherwise subject to an
applicable COPAS overhead rate under an operating agreement
and an amount equal to the applicable COPAS overhead rate less
any non-operator billed overhead amounts that have actually
been received by Seller for wells subject to an applicable
COPAS under an operating agreement), and (b) other amounts due
Seller and contemplated hereby, and (2) reduced by (a)
proceeds received by Seller for hydrocarbons attributable to
the Subject Properties produced after the Effective Time, and
(b) other amounts due Purchaser and contemplated hereby. As
soon as reasonably practicable after receipt thereof,
Purchaser shall deliver to Seller a written report containing
any changes that Purchaser proposes to be made to such
statement. The Parties shall use their best efforts to reach
agreement (the "Final Accounting") on the final accounting
statement on or before the 150th day after the Closing Date
(such date the "Final Accounting Date", whether or not Seller
and Purchaser have agreed on the Final Accounting). Once the
Final Accounting has been agreed to by Purchaser and Seller,
there shall be no further adjustments to the Purchase Price
and Seller shall within thirty (30) days send a check to
Purchaser for the agreed amount owed by Seller or invoice
Purchaser for the amount owed by Purchaser and Purchaser shall
pay Seller the invoice amount within thirty (30) days of the
date of said invoice.
13.18. Operatorship. Seller does not represent to Purchaser that
Purchaser will automatically succeed to the operatorship of any given Subject
Property as to which Seller is currently the operator. Purchaser recognizes and
agrees that Purchaser will be required to comply with applicable operating
agreements, unit operating agreements or other similar contracts relating to any
elections or other selection procedures in order to succeed Seller as operator.
13.19. Seller's Employees. Purchaser will interview and evaluate in
accordance with its normal employment procedures those Persons employed as field
personnel in the capacity of pumper, foreman, operator, technician, mechanic,
superintendent, repairman, utility man, or other similar field classifications
by Seller in connection with the Subject Properties and identified by letter of
even date herewith from Seller to Purchaser who desire to be considered for
employment by Purchaser, and will offer in writing employment to those Persons
for whom Purchaser in its sole discretion determines a need. If Purchaser fails
to offer such employment to all of such Persons, Purchaser shall not, as a
result of such failure, otherwise be in default under this Agreement, but shall
be required to reimburse Seller for severance benefits paid by Seller to each
such Person not offered employment by Purchaser; provided, that such
reimbursement shall not
34
<PAGE> 35
exceed that amount determined by multiplying each such employee's normal weekly
wage by twelve (12). Persons offered employment with Purchaser will be offered
employment at their current work location with compensation and benefits
comparable to those provided to Purchaser's current employees performing similar
tasks, or, if none, with compensation and benefits comparable to those provided
by Seller Such offers shall be made prior to Closing, but shall be contingent
upon the occurrence of Closing and such employment shall not commence until
Closing. If any such Person employed by Purchaser is terminated by Purchaser
within six (6) months of Closing, Purchaser shall pay such Person a severance
benefit equal to the amount determined by multiplying each such employee's
normal weekly wage by ten (10). Purchaser shall have no obligation under this
Section 13.19 with respect to Persons offered employment by Purchaser pursuant
to this Section 13.19 who decline such employment, except that the foregoing
provisions shall apply to the extent that such Person accepts employment with
Purchaser or any of its Affiliates within twelve (12) months of Closing.
13.20. Time of Performance. Time is of the essence in the performance
of all covenants and obligations under this Agreement.
13.21. No Partnership Created. It is not the purpose or intention of
this Agreement to create (and it shall not be construed as creating) a joint
venture, partnership or any type of association, and the Parties are not
authorized to act as agent or principal for each other with respect to any
matter related hereto.
13.22. Express Negligence Rule; Conspicuousness. BUYER ACKNOWLEDGES
THAT THE PROVISIONS IN THIS AGREEMENT THAT ARE SET OUT IN ITALICS, IN BOLD,
UNDERLINE OR CAPITALS (OR ANY COMBINATION THEREOF) SATISFY THE REQUIREMENTS FOR
THE EXPRESS NEGLIGENCE RULE AND/OR ARE CONSPICUOUS.
13.23. [intentionally omitted]
13.24. Filing and Recording. Purchaser will file or record the various
originals of the Assignment and Bill of Sale and other conveyancing documents
promptly after Closing at Purchaser's sole cost. The recording Party will
provide either the original or photocopies of the recorded documents, including
the recording data, to the non-recording Party promptly. If Purchaser fails to
promptly record such documents then Seller may record such documents. Purchaser
will reimburse Seller for the costs of filing, recording, and other reasonable
fees actually incurred by Seller if Seller records or files said documents, such
costs or fees to be used in the Final Accounting Settlement.
13.25. Removal of Signs. Seller may either remove its name and signs
from the Seller operated Assets and Property or require Purchaser to do so for
those Assets that it will operate. If Seller's name or signs remain on the
Property or Assets after Seller ceases to be operator and Purchaser has become
operator, Purchaser must (a) remove any remaining signs and references to Seller
promptly, but no later than the time required by applicable regulations or
forty-five days after Seller ceases to be operator, whichever occurs first, (b)
install signs complying with applicable governmental regulations, including
signs showing Purchaser as operator of the Assets its operates, and (c) notify
Seller of the removal and installation. Seller reserves the right of
35
<PAGE> 36
access to the Assets and Property after its ceases to be operator to remove its
signs and name from all Assets, Wells, facilities, and Property, or to confirm
that Purchaser has done so for the Assets operated by Purchaser. If Seller
removes signs because Purchaser has not done so, Seller will charge its costs to
Purchaser, and Purchaser will pay the invoice within fifteen days of receipt.
13.26. Retention of Originals and Copies. If originals or the
last-remaining copies of any data or records have been provided to Purchaser,
Seller may have access to them at reasonable times and upon reasonable notice
during regular business hours for as long as any Asset is in effect after the
Effective Time (or for twenty-one years in the case of a mineral fee or other
non-leasehold interest or a longer period if required by law or governmental
regulation). Seller may, during this period and at its expense, make copies of
the data and records pursuant to a reasonable request.
13.27. Exhibits. Except for Schedule 1.3(n) and Schedule 13.17.A.
attached to this Agreement, all references herein to specified exhibits and
schedules shall be deemed references to the so specified Exhibits and Schedules
attached to the Recent Prior Agreement or incorporated into the Recent Prior
Agreement in Section 13.27 thereof by reference to the Prior Agreement, which
specified Exhibits and Schedules are incorporated herein by reference.
13.28. No Revivor. This Agreement supersedes all of the terms and
provisions of the Recent Prior Agreement. No reference in this Agreement to
other agreements or documents (including but not limited to the Prior Agreement,
Recent Prior Agreement or the Option Agreement) shall serve to revive or
reinstate such agreements or documents to the extent the same have lapsed,
expired or terminated.
ARTICLE 14. THE COMMON SHARES AND THE SHARES
14.1 Delivery and Registration Obligation. As further consideration to
Pioneer USA, Costilla shall deliver to Pioneer USA on or before April 8, 1999,
one million (1,000,000) shares of the common stock of Costilla Energy, Inc. (the
"Common Shares"). Purchaser shall, as promptly as practicable after the
Execution Date supplement the existing registration statement Form-S-3 (the
"Registration Statement") pursuant to Rule 415 under the Securities Act of 1933,
as amended, and all rules and regulations under such Act (the "Securities Act")
to include the Common Shares with the Shares (as defined in the Option
Agreement). Purchaser shall use its best efforts to (a) have the said supplement
to the Registration Statement declared effective under the Securities Act as
soon as reasonably practicable, but in any event on or prior to April 15, 1999,
and (b) keep the Registration Statement as supplemented continuously effective
under the Securities Act until the date which is 24 months from the effective
date of the Registration Statement.
14.2 Redelivery of Common Shares. If Closing hereunder occurs on or
before April 15, 1999, Seller shall redeliver the Common Shares by tendering the
same to Purchaser at Closing or if Purchaser terminates this Agreement under
Section 10.1(a), Seller shall redeliver the Common Shares by tendering the same
to Purchaser immediately upon receiving Purchaser's notice of termination.
36
<PAGE> 37
14.3 Holding Period. If Closing occurs, Purchaser may prior to May 30,
1999 repurchase the Shares by tendering to Pioneer USA $13,000,000 in cash and
Seller agrees not to sell, assign or otherwise dispose of the Shares prior to
May 30, 1999. If Closing does not occur because of Seller's termination of this
Agreement pursuant to Section 10.1(b) or the automatic termination of this
Agreement under Section 10.2, Purchaser shall not have the right to repurchase
the Shares and Seller may sell, assign or otherwise dispose of the Shares as it
deems appropriate. Notwithstanding Section 13.5 of this Agreement, Purchaser may
assign its rights under this Section 14.3.
EXECUTED as of the date first set forth above.
SELLER:
PIONEER NATURAL RESOURCES USA, INC.
By: /s/ W. T. Howard
----------------
Name: W. T. Howard
Its: Senior Vice President, Land
PIONEER RESOURCES PRODUCING L.P.
By: Pioneer Resources, Inc.
General Partner
By: /s/ W. T. Howard
----------------
Name: W. T. Howard
Its: Vice President
PURCHASER:
COSTILLA ENERGY, INC.
By: /s/ Clifford N. Hair, Jr.
-------------------------
Name: Clifford N. Hair, Jr.
Its: Senior Vice President - Land
37
<PAGE> 1
EXHIBIT 10.2
SEVENTH AMENDMENT TO
AMENDED AND RESTATED CREDIT AGREEMENT
This Seventh Amendment to Amended and Restated Credit Agreement (this
"Amendment") dated as of March 9, 1999 is among COSTILLA ENERGY, INC., a
Delaware corporation (the "Borrower"), the banks named on the signature pages
hereto (together with their respective successors and assigns in such capacity,
the "Banks"), BANKERS TRUST COMPANY, as agent for the Banks (together with its
successors and assigns in such capacity, the "Agent") and UNION BANK OF
CALIFORNIA, N.A., as co-agent for the Banks (together with its successors and
assigns in such capacity, the "Co-Agent").
PRELIMINARY STATEMENT
A. The Borrower and the Bank Group have entered into that certain
Amended and Restated Credit Agreement dated as of August 28, 1997 as amended by
that certain First Amendment to Amended and Restated Credit Agreement dated as
of December 30, 1997, that certain Second Amendment to Amended and Restated
Credit Agreement dated as of January 14, 1998, that certain Third Amendment to
Amended and Restated Credit Agreement dated as of February 26, 1998, that
certain Fourth Amendment to Amended and Restated Credit Agreement dated as of
March 24, 1998, that certain Fifth Amendment to Amended and Restated Credit
Agreement dated as of June 30, 1998 and that certain Sixth Amendment to Amended
and Restated Credit Agreement dated as of November 19, 1998 (as so amended, the
"Credit Agreement").
B. The Borrower and the Bank Group desire to further amend the Credit
Agreement as set forth herein.
NOW THEREFORE, in consideration of the foregoing and the mutual
agreements set forth herein, the parties agree as follows:
Section 1. Definitions. Unless otherwise defined in this Amendment,
each capitalized term used in this Amendment has the meaning assigned to such
term in the Credit Agreement.
Section 2. Amendments. The Credit Agreement is hereby amended as
follows:
a. The second sentence of Section 2.04(a) of the Credit
Agreement is hereby amended in its entirety to read as follows:
"During the period from and after March 9, 1999 until the
Borrowing Base is redetermined in accordance with this Section
the amount of the Borrowing Base shall be $40,000,000;
provided, however, that if the Ballard Sale Properties are
sold, the amount of the Borrowing Base shall be automatically
reduced to $28,000,000 during the period
<PAGE> 2
from the date of such sale until the Borrowing Base is redetermined in
accordance with this Section."
b. Section 6.07 of the Credit Agreement is hereby amended in
its entirety to read as follows:
"Section 6.07. Sales of Properties. The Borrower will
not, and will not permit any of its Subsidiaries to, sell,
transfer, assign, farm-out, lease or otherwise transfer or
dispose of any Properties other than (a) sales of Hydrocarbon
production in the ordinary course of business and sales of
obsolete or worn-out equipment in the ordinary course of
business, (b) sales or transfers of Properties by any of the
Borrower's wholly-owned Subsidiaries to the Borrower or any
such other wholly-owned Subsidiary, (c) the sale of the
Ballard Sale Properties for a cash purchase price of
$14,150,000 (as such purchase price may be adjusted under the
terms of the Ballard 1999 Purchase Agreement); provided, that
at least $12,000,000 of the sales proceeds of such sale is
applied immediately to partially repay the Loans, and (d) any
other sale of Properties sold at fair market value, so long as
the aggregate Net Proceeds for all such sales made under this
subclause (d) during the period between each redetermination
of the Borrowing Base does not exceed $1,000,000."
c. The following defined terms are hereby added to Annex A of
the Credit Agreement in their appropriate alphabetical order:
"Ballard Sale Properties" means the Borrower's Oil
and Gas Properties and other related assets described as the
"Properties" in the Ballard 1999 Purchase Agreement.
"Ballard 1999 Purchase Agreement" means that certain
Purchase and Sale Agreement dated as of February 2, 1999, by
and between the Borrower and Ballard Petroleum LLC."
Section 3. Ratification. The Borrower hereby ratifies and confirms all
of the Obligations under the Credit Agreement (as amended hereby) and the other
Loan Documents. All references in the Loan Documents to the "Credit Agreement"
shall mean the Credit Agreement as amended hereby and as the same may be
amended, supplemented, restated or otherwise modified and in effect from time to
time in the future.
Section 4. Effectiveness. (a) This Amendment shall become effective in
accordance with the terms of the Credit Agreement subject to the condition
precedent that the Borrower shall have executed, acknowledged and delivered to
the Agent (i) a Mortgage, Deed of Trust, Assignment of Production, Security
Agreement and Financing Statement in form and substance satisfactory to the
Agent covering all of the Borrower's Oil and Gas Properties (and other related
assets) described on Exhibit A attached hereto in sufficient counterparts for
recording in all appropriate counties and (ii) a financing
-2-
<PAGE> 3
statement related thereto to be filed with the Texas Secretary of State. This
Amendment may be executed in separate counterparts, all of which constitute one
and the same instrument.
(b) Nothing in this Amendment, including, without limitation, the
amendment of Section 2.04(a) of the Credit Agreement, shall effect the Bank
Group's right to conduct any pending of future redetermination of the Borrowing
Base in accordance with the terms of the Credit Agreement. In addition,
notwithstanding anything in the Credit Agreement to the contrary, each of the
Banks shall have until March 26, 1999 to approve or object to the Agent's
proposed Pioneer Redetermination of the Borrowing Base.
(c) The execution and delivery of this Amendment by the Bank Group
shall not be deemed a waiver of any current or future Default or Event of
Default under the Credit Agreement or any other Loan Document, and the Bank
Group reserves the right to exercise any right or remedy with respect to any
such Default or Event of Default.
Section 5. Representations and Warranties. The Borrower hereby
represents and warrants to the Bank Group that (a) the execution, delivery and
performance of this Amendment has been duly authorized by all requisite
corporate action on the part of the Borrower, and (b) each of the Credit
Agreement (as amended hereby) and the other Loan Documents to which it is a
party constitutes a valid and legally binding agreement enforceable against the
Borrower in accordance with its terms except, as such enforceability may be
limited by bankruptcy, insolvency, reorganization, moratorium, fraudulent
transfer or other similar laws relating to or affecting the enforcement of
creditors' rights generally and by general principles of equity.
Section 6. Choice of Law. This Amendment shall be governed by, and
construed in accordance with, the laws of the State of New York.
Section 7. Final Agreement. THE CREDIT AGREEMENT (AS AMENDED HEREBY)
AND THE OTHER LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES
AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT
ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO ORAL AGREEMENTS BETWEEN THE
PARTIES.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed by its officers thereunto duly authorized as of the date first above
written.
COSTILLA ENERGY, INC.
By: /s/
-------------------------------
Name:
------------------------------
Title:
-----------------------------
-3-
<PAGE> 4
BANKERS TRUST COMPANY,
as Agent and Bank
By: /s/
-------------------------------
Name:
------------------------------
Title:
-----------------------------
UNION BANK OF CALIFORNIA, N.A.,
as Co-Agent and Bank
By: /s/
-------------------------------
Name:
------------------------------
Title:
-----------------------------
By: /s/
-------------------------------
Name:
------------------------------
Title:
-----------------------------
DEN NORSKE BANK ASA,
as Bank
By: /s/
-------------------------------
Name:
------------------------------
Title:
-----------------------------
By: /s/
-------------------------------
Name:
------------------------------
Title:
-----------------------------
WELLS FARGO BANK (TEXAS), N.A.,
as Bank
By: /s/
-------------------------------
Name:
------------------------------
Title:
-----------------------------
-4-
<PAGE> 5
EXHIBIT A
1. All of the Borrower's Oil and Gas Properties in the SW Speaks Field,
Lavaca County, Texas that are not currently mortgaged to the Agent to
secure the Obligations.
2. All of the Borrower's Oil and Gas Properties in the Bethany Field,
Panola County, Texas that are not currently mortgaged to the Agent to
secure the Obligations.
3. All of the Borrower's Oil and Gas Properties in the Sealy Field, Austin
County, Texas that are not currently mortgaged to the Agent to secure
the Obligations.
4. All of the Borrower's Oil and Gas Properties in the East Linden Field,
Cass County, Texas.
<PAGE> 1
EXHIBIT 10.3
EIGHTH AMENDMENT TO
AMENDED AND RESTATED CREDIT AGREEMENT
This Eighth Amendment to Amended and Restated Credit Agreement (this
"Amendment") dated as of March 31, 1999 is among COSTILLA ENERGY, INC., a
Delaware corporation (the "Borrower"), the banks named on the signature pages
hereto (together with their respective successors and assigns in such capacity,
the "Banks"), BANKERS TRUST COMPANY, as agent for the Banks (together with its
successors and assigns in such capacity, the "Agent") and UNION BANK OF
CALIFORNIA, N.A., as co-agent for the Banks (together with its successors and
assigns in such capacity, the "Co-Agent").
PRELIMINARY STATEMENT
A. The Borrower and the Bank Group have entered into that certain
Amended and Restated Credit Agreement dated as of August 28, 1997 as amended by
that certain First Amendment to Amended and Restated Credit Agreement dated as
of December 30, 1997, that certain Second Amendment to Amended and Restated
Credit Agreement dated as of January 14, 1998, that certain Third Amendment to
Amended and Restated Credit Agreement dated as of February 26, 1998, that
certain Fourth Amendment to Amended and Restated Credit Agreement dated as of
March 24, 1998, that certain Fifth Amendment to Amended and Restated Credit
Agreement dated as of June 30, 1998, that certain Sixth Amendment to Amended and
Restated Credit Agreement dated as of November 19, 1998 and that certain Seventh
Amendment to Amended and Restated Credit Agreement dated as of March 9, 1999 (as
so amended, the "Credit Agreement").
B. The Borrower has requested that the Bank Group (i) increase the
Borrowing Base in order for the Borrower to pay the interest payment due and
payable on the Senior Unsecured Notes on April 1, 1999 and (ii) waive certain
provisions of the Credit Agreement.
C. Subject to the terms and conditions of this Amendment, the Bank
Group is willing to increase the Borrowing Base for the sole purpose of allowing
the Borrower to make the interest payment of $9,225,000 due and payable on the
Senior Unsecured Notes on April 1, 1999 and to grant certain waivers.
D. In order to accomplish the foregoing, the Borrower and the Bank
Group desire to further amend the Credit Agreement as set forth herein.
NOW THEREFORE, in consideration of the foregoing and the mutual
agreements set forth herein, the parties agree as follows:
Section 1. Definitions. Unless otherwise defined in this Amendment,
each capitalized term used in this Amendment has the meaning assigned to such
term in the Credit Agreement.
<PAGE> 2
Section 2. Amendments. The Credit Agreement is hereby amended as
follows:
a. The second sentence of Section 2.04(a) of the Credit Agreement is
hereby amended in its entirety to read as follows:
"During the period from and after March 31, 1999 until the Borrowing
Base is redetermined in accordance with this Section (or otherwise
automatically reduced under Section 2.04(g)) the amount of the
Borrowing Base shall be $36,000,000."
b. Section 2.04(b) of the Credit Agreement is hereby amended in its
entirety to read as follows:
"(b) The Agent will within thirty (30) days after receipt of
the most recent Reserve Report delivered to the Banks under Section
5.10, and such other data and supplemental information as may from time
to time be reasonably requested by the Agent, but in no event later
than March 15 and September 15 of each year commencing September 15,
1999, redetermine the Borrowing Base based on such Reserve Report. The
Agent will redetermine the Borrowing Base in accordance with its normal
and customary oil and gas lending criteria as such exist at that
particular time taking into account all of the assets and liabilities
of the Borrower and its Subsidiaries. The Agent and each Bank, in their
sole discretion, may make adjustments to the rates, volumes and prices
and other assumptions set forth in the Reserve Reports and such other
data and supplemental information. Each redetermination of the
Borrowing Base must satisfy all of the conditions set forth in Section
2.04(f) and must be approved by all of the Banks. Failure of a Bank to
object to a redetermination within 21 days after notice of such
redetermination is given to such Bank by the Agent shall be deemed an
approval of such redetermination by such Bank."
c. Section 2.04 of the Credit Agreement is hereby amended by adding the
following subsection (g) at the end of Section 2.04:
"(g) In addition to the Borrowing Base redeterminations under
Section 2.04(d), on each Scheduled Loan Paydown Date set forth in
Section 2.07(b) the Borrowing Base then in effect shall be reduced by
an amount equal to the Scheduled Paydown Amount due and payable on such
Scheduled Loan Paydown Date under Section 2.07(b)."
d. Section 2.07 of the Credit Agreement is hereby amended in its
entirety to read as follows:
"Section 2.07. Mandatory Repayment of Loans. (a) The Borrower
shall from time to time repay the Loans comprising part of the same
Borrowing in such amounts as shall be necessary so that at all times
the Credit Outstanding shall not be in excess of the Total Commitment.
Except to the extent that repayment is required solely as a result of a
Borrowing Base Deficiency under Section 2.07(c), any repayment required
by this Section 2.07(a) shall be due and payable on the date such
repayment obligation accrues pursuant to the preceding sentence.
-2-
<PAGE> 3
(b) On each of the dates set forth below (each a "Scheduled
Loan Paydown Date") the Borrower shall repay the Loans comprising part
of the same Borrowing in whole or ratably in part in an amount equal to
the "Scheduled Paydown Amount" set forth opposite such Scheduled Loan
Paydown Date:
<TABLE>
<CAPTION>
Scheduled Loan Scheduled
Paydown Date Paydown Amount
------------ --------------
<S> <C>
May 15, 1999 $11,000,000
July 31, 1999 $ 750,000
August 15, 1999 $ 2,500,000
August 31, 1999 $ 750,000
</TABLE>
(c) In addition to any other repayments required under
Sections 2.07(a) or 2.07(b) if a Borrowing Base Deficiency exists, the
Borrower shall from time to time either (i) repay the Loans comprising
part of the same Borrowing in whole or ratably in part in an amount
equal to the Borrowing Base Deficiency, or (ii) provide to the Agent
within thirty (30) days after receipt of notice of the existence of a
Borrowing Base Deficiency from the Agent, Security Documents in form
and substance satisfactory to the Agent, granting, confirming, and
perfecting first and prior Liens in favor of the Agent for the benefit
of the Bank Group covering additional Oil and Gas Properties of the
Borrower not evaluated in the most recent Reserve Report delivered to
the Bank Group and acceptable to the Majority Banks, having a Borrowing
Base value at least equal to such Borrowing Base Deficiency (as
determined by the Majority Banks in the same manner as the Borrowing
Base is determined under Section 2.04) or other collateral acceptable
to the Majority Banks. Any repayment required by this Section 2.07(c)
shall be due and payable in six (6) equal monthly installments, each in
an amount equal to one-sixth (1/6th) of the original amount of such
Borrowing Base Deficiency, commencing on the last day of the calendar
month immediately following such redetermination of the Borrowing Base
and continuing on the same day of each subsequent calendar month.
(d) All outstanding Loans shall be fully due and payable on
the Maturity Date, together with any unpaid interest and fees accrued
thereon.
(e) Each repayment of Loans required by this Section 2.07
shall be accompanied by payment of accrued interest to the date of such
payment on the principal amount paid. In the event of any payment of a
Eurodollar Rate Loan, the Borrower shall be obligated to reimburse the
Banks in respect thereof pursuant to Section 2.13. All principal
payments required by this Section 2.07 shall first be applied to Base
Rate Borrowings, and second to Eurodollar Rate Borrowings."
e. Section 2.08(c) of the Credit Agreement is hereby amended in its
entirety to read as follows:
-3-
<PAGE> 4
"(c) Applicable Margin. As used in this Agreement and the
other Loan Documents, "Applicable Margin" means, as to Loans consisting
of a single Borrowing, a rate per annum determined by reference to the
Type of Loans comprising such Borrowing as follows: such rate per annum
shall be two and one-half percent (2 1/2%) for Base Rate Loans, and
three and one-half percent (3 1/2%) for Eurodollar Rate Loans."
f. Section 4.17 is hereby added to the Credit Agreement immediately
following Section 4.16 to read as follows:
"Section 4.17 Year 2000 Compliance. (a) All devices, systems,
machinery, information technology, computer software and hardware, and
other date sensitive technology (jointly and severally the "Systems")
necessary for the Borrower to carry on its business as presently
conducted and as contemplated to be conducted in the future are Year
2000 Compliant or will be Year 2000 Compliant on or before June 30,
1999. For purposes of these provisions, "Year 2000 Compliant" means
that such Systems are designed to be used prior to, during and after
the Gregorian calendar year 2000 A.D. and will operate during each such
time period without error relating to date data, specifically including
any error relating to, or the product of, the data which represents or
references different centuries or more than one century.
(b) The Borrower has either made, or will make, written
inquiry of each of its material purchasers of its oil and gas, and has
obtained, or will obtain on or before June 30, 1999, in writing
confirmations from all such persons, as to whether such persons have
initiated programs to become Year 2000 Compliant and on the basis of
such confirmations Borrower reasonably believes that all such persons
will be or become so compliant. For purposes hereof, "material
purchasers of oil and gas" refers to those purchasers of oil and gas
from the Borrower who individually purchase 10% or more of the
Borrower's production."
g. Section 5.01 of the Credit Agreement is hereby amended by adding the
following subsections (k) and (l) at the end of Section 5.01 to read as follows:
"(k) As soon as available and in any event within thirty (30)
days after the end of each month:
(i) copies of the unaudited consolidated balance
sheet of the Borrower and its Subsidiaries as of the end of
such month, and unaudited consolidated statements of income,
retained earnings and cash flows of the Borrower and its
Subsidiaries for such month and for the portion of the fiscal
year ending with such month, in each case prepared in
accordance with generally accepted accounting principles and
setting forth in comparative form the figures for the
corresponding period of the preceding fiscal year, all in
reasonable detail;
-4-
<PAGE> 5
(ii) a complete summary of the Borrower's accounts
payable outstanding as of the end of such month that shows in
reasonable detail, the age of all such accounts payable;
(iii) a capital budget of the Borrower and its
Subsidiaries detailing the capital expenditures for such month
and for the portion of the fiscal year ending with such month
and the projected capital expenditures for the remainder of
the fiscal year;
(iv) production reports for the Borrower's Oil and
Gas Properties which reports shall include quantities or
volumes of production or gas throughput which accrued to the
Borrower's accounts for such month and such other information
with respect thereto as the Agent may reasonably request; and
(v) a report setting forth the general and
administrative expenses of the Borrower for such month,
including, a detailed list of payroll expenses and such other
information related thereto as the Agent may reasonably
request.
(l) As soon as practicable and in any event within ten (10)
days after entering into any Derivative, a report describing in
reasonable detail, the terms of such Derivative."
h. Section 5.09 of the Credit Agreement is hereby amended in its
entirety to read as follows:
"Section 5.09. Use of Loans. Except as otherwise expressly
provided for in Section 3 of the Eighth Amendment to this Agreement
dated March 31, 1999, the Borrower will use the proceeds of all Loans
made on or after March 31, 1999 to pay a portion of the costs and
expenses of operating, developing and maintaining the existing Oil and
Gas Properties of the Borrower."
i. Section 5.11 of the Credit Agreement is hereby amended in its
entirety to read as follows:
"Section 5.11. Title. Promptly and in any event within 30 days
after written request therefor by the Agent, the Borrower will provide
the Agent with title opinions reasonably satisfactory to the Agent with
respect to the Borrower's Oil and Gas Properties which are included in
the most recent Reserve Report delivered to the Bank Group and for
which title opinions have not been previously delivered so that the
Agent will have acceptable title opinions on at least eighty percent
(80%) of the value of the Borrower's Oil and Gas Properties included in
such Reserve Report. In addition, on or before June 1, 1999, the
Borrower shall provide the Agent with updated title opinions covering
the Borrower's interest in the Migl-Mitchell #1-#5 Wells, Lavaca
County, Texas, the Garland H. Walker #1 Well, Lavaca County, Texas, the
Zalman #1 Well, Lavaca County, Texas, all of the Scott & Hooper and
D.J. Sullivan Wells, Brooks County, Texas and the T.B. Pruett Gas Unit
#3, Ward County, Texas, which confirm the Agent's first priority lien
on the Borrower's interest in the Oil and Gas Properties related to
such wells and units and are otherwise in form and substance
satisfactory to the Agent."
-5-
<PAGE> 6
j. Section 6.01(b) of the Credit Agreement is hereby amended in its
entirety to read as follows:
"(b) Indebtedness of the Borrower with respect to accounts
payable of the Borrower that have been outstanding for more than ninety
(90) days since the due date; provided that such Indebtedness does not
exceed (i) $10,000,000 at any time prior to September 30, 1999, (ii)
$5,000,000 from September 30, 1999 to March 31, 2000 or (iii) $0 at any
time on or after March 31, 2000;"
k. Section 6.04 of the Credit Agreement is hereby amended in its
entirety to read as follows:
"Section 6.04. Interest Coverage Ratio. The Borrower will not
permit the ratio of (a) EBITDA to (b) Interest Expense, measured as of
the last day of any calendar quarter for the twelve month period then
ended, to be less than 1.00 to 1.00 as of the last day of any calendar
quarter ending on or after March 31, 1999."
l. Section 6.05 of the Credit Agreement is hereby amended in its
entirety to read as follows:
"Section 6.05. Current Ratio. (a) The Borrower will not permit
the amount of (i) its consolidated current liabilities, excluding
current maturities of Indebtedness under this Agreement (and, for
purposes of the calendar quarter ending March 31, 1999, but no
subsequent calendar quarter, the interest payment due and payable on
the Senior Unsecured Notes on April 1, 1999) minus (ii) (A) its
consolidated current assets, plus (B) that portion of any unfunded
available Commitments based on the then effective Borrowing Base that
can be borrowed without causing a "Default" or "Event of Default" to
occur under the Indenture, to exceed $7,000,000, at the end of any
calendar quarter through December 31, 1999.
(b) The Borrower will not permit the ratio of (i) its
consolidated current assets, plus that portion of any unfunded
available Commitments based on the then effective Borrowing Base that
can be borrowed without causing a "Default" or "Event of Default" to
occur under the Indenture, to (ii) its consolidated current
liabilities, excluding current maturities of Indebtedness under this
Agreement, at the end of any calendar quarter ending on or after March
31, 2000 to be less than 1.00 to 1.00."
m. Sections 6.09(c) and 6.09(e) of the Credit Agreement are hereby
deleted in their entirety.
n. Section 9.02(a)(iii) of the Credit Agreement is hereby amended in
its entirety to read as follows:
"(iii) each such assignment to an Eligible Assignee who is not
a member of the Bank Group must be approved by the Agent, which
approval shall not be unreasonably withheld."
-6-
<PAGE> 7
o. The following defined terms are hereby added to Annex A to the
Credit Agreement in their appropriate alphabetical order:
""Scheduled Loan Paydown Date" has the meaning specified in
Section 2.07(b).
"Scheduled Paydown Amount" means, with respect to each
Scheduled Loan Paydown Date, the amount of Loans due and payable on
such Scheduled Loan Paydown Date under Section 2.07(b)."
p. The definition of "Majority Banks" set forth in Annex A to the
Credit Agreement is hereby amended in its entirety to read as follows:
""Majority Banks" means at any time (a) the Agent, regardless
of the amounts held and (b) Banks holding at least ninety-five percent
(95%) of the then aggregate unpaid principal amount of the Loans or, if
no Loans are outstanding, Banks having Commitment Percentages in the
aggregate equal to at least ninety-five percent (95%)."
Section 3. Use of Loan Proceeds. Upon the effectiveness of this
Amendment and subject to the other terms of the Credit Agreement, the Borrowing
Base shall be increased by $8,000,000 (the "Borrowing Base Increase"). The
Borrower covenants and agrees that the proceeds of all Loans resulting from the
Borrowing Base Increase shall be applied to pay a portion of the interest
payment of $9,225,000 that is due and payable on the Senior Unsecured Notes on
April 1, 1999. The Borrower further acknowledges and agrees that a breach of
this Section 3 shall constitute an immediate Event of Default under the Credit
Agreement without any notice, grace period or other action by any member of the
Bank Group.
Section 4. Disproportionate Borrowing. Notwithstanding anything to the
contrary in the Credit Agreement, all parties hereto agree as follows: (a) the
Borrowing of $8,000,000 resulting from the Borrowing Base Increase shall be
funded by the following Banks in the following percentages: Bankers Trust
Company (60%) and Union Bank of California, N.A. (40%) (such Borrowing being
referred to herein as the "Disproportionate Borrowing");
(b) The proceeds of the Disproportionate Borrowing shall be sent by
wire transfer by the Agent directly to the trustee of the Senior Unsecured Notes
for the account of the Borrower and applied in accordance with Section 3 above;
(c) As a result of the Disproportionate Borrowing, the term "Commitment
Percentage" as used in the Credit Agreement is hereby amended to mean, as to any
Bank, a percentage determined pursuant to the following formula: (BL/TL) x
100=CP where BL is the aggregate principal amount of outstanding Loans made by
such Bank, TL is the aggregate principal amount of outstanding Loans made by all
of the Banks (including, in each case, the Disproportionate Borrowing) and CP is
such percentage. By way of example, after giving effect to the Disproportionate
Borrowing, the Commitment Percentage of each Bank shall be as follows: Bankers
Trust Company (42.5%),Union Bank of California, N.A. (28.3334%), Den Norske Bank
ASA (19.4444%) and Wells Fargo Bank (Texas), N.A. (9.7222%).
-7-
<PAGE> 8
Section 5. Limitation on Types of Loans. Notwithstanding anything to
the contrary in the Credit Agreement, on or after March 31, 1999, each Loan made
under the Credit Agreement shall be made as a Base Rate Loan as part of a single
Base Rate Borrowing and the Borrower shall not be entitled to request any
Eurodollar Rate Borrowing or convert any Loan into a Eurodollar Rate Loan on or
after such date nor shall any Bank be obligated to fund any Eurodollar Rate Loan
on or after such date. In addition, notwithstanding anything to the contrary in
the Credit Agreement, on the last day of the Interest Period of each existing
Eurodollar Rate Loan under the Credit Agreement such Eurodollar Rate Loan shall
be automatically converted into a Base Rate Loan. Upon the conversion of all
Eurodollar Rate Loans to Base Rate Loans in accordance with this Section 4, all
references to Eurodollar Rate Loans and Eurodollar Rate Borrowings in the Credit
Agreement shall have no further force and effect.
Section 6. Limited Waiver of Credit Agreement. The Bank Group hereby
waives (a) compliance by the Borrower with Sections 6.04 and 6.05 of the Credit
Agreement for the calendar quarter ending December 31, 1998, (b) compliance by
the Borrower with Section 6.06 of the Credit Agreement through the calendar
quarter ending December 31, 1999, and (c) compliance with Section 6.01 of the
Credit Agreement for the period prior to the date of this Amendment with respect
to accounts payable of the Borrower that have been outstanding for more than
ninety (90) days since the due date, and (d) compliance by the Borrower with
Section 6.09 of the Credit Agreement with respect to the Borrower's capital
contribution to Costilla Redeco in the amount of $6,500,000 that occurred during
the period from August 28, 1997 through March 31, 1999. The foregoing waivers
are limited to the above described matters and time periods and shall not be
construed as a waiver of any provision of the Credit Agreement with respect to
any other matter or as a waiver of any other Default or Event of Default under
the Credit Agreement. The Bank Group reserves the right to exercise any rights
or remedies with respect to any other such current or future Default or Event of
Default under the Credit Agreement.
Section 7. Borrowing Base Increase. THE BORROWING BASE INCREASE SET
FORTH HEREIN SHALL NOT (A) ESTABLISH A COURSE OF DEALING BETWEEN THE BORROWER
AND THE BANK GROUP, (B) BE CONSIDERED A NORMAL AND CUSTOMARY PRACTICE BY ANY
MEMBER OF THE BANK GROUP, (C) OBLIGATE ANY BANK TO INCREASE THE BORROWING BASE
IN THE FUTURE FOR ANY PURPOSE (INCLUDING, WITHOUT LIMITATION, FUNDING PAYMENTS
IN RESPECT OF THE SENIOR UNSECURED NOTES), OR (D) WAIVE OR OTHERWISE AFFECT THE
BANK GROUP'S RIGHT TO REDETERMINE THE BORROWING BASE IN THE FUTURE IN ACCORDANCE
WITH THE TERMS OF THE CREDIT AGREEMENT. THE BORROWER FURTHER ACKNOWLEDGES THAT
THE BORROWING BASE INCREASE IS AN ACCOMMODATION TO THE BORROWER, MADE AT ITS
REQUEST, AND THAT NO SIMILAR ACCOMMODATION IS PRESENTLY CONTEMPLATED OR CAN BE
EXPECTED IN THE FUTURE.
Section 8. Ratification. The Borrower hereby ratifies and confirms all
of the Obligations under the Credit Agreement (as amended hereby) and the other
Loan Documents. All references in the Loan Documents to the "Credit Agreement"
shall mean the Credit Agreement as amended hereby and as the same may be
amended, supplemented, restated or otherwise modified and in effect from time to
time in the future.
-8-
<PAGE> 9
Section 9. Additional Covenants. (a) On or before May 1, 1999, the
Borrower shall establish a lockbox arrangement with the Agent or any other Bank
and take all steps reasonably necessary to cause all of the proceeds payable to
the Borrower with respect to its Hydrocarbon production to be deposited in such
lockbox. The terms of such lockbox arrangement, including, without limitation,
the application and disbursement of funds from such lockbox shall be
satisfactory to the Agent in its sole discretion; provided, however that so long
as no Event of Default exists the Borrower shall have the right to have such
proceeds deposited into an operating account at the Bank where the lockbox is
maintained and the right to use such proceeds for its general corporate
purposes.
(b) On or before May 1, 1999, the Borrower shall deliver to the Agent a
complete list of all Persons (with their addresses, phone numbers and telecopy
numbers) disbursing proceeds to the Borrower with respect to Hydrocarbons
produced from its Oil and Gas Properties, together with undated letters-in-lieu
of transfer orders executed by the Borrower, in form and substance satisfactory
to the Agent and in such number of counterparts as may be reasonably requested
by the Agent. In addition, on the first day of each month beginning June 1, 1999
the Borrower shall deliver to the Agent an updated complete list of all Persons
(with their addresses, phone numbers and telecopy numbers) disbursing proceeds
to the Borrower with respect to Hydrocarbons produced from its Oil and Gas
Properties.
(c) On or before April 15, 1999, the Borrower shall deliver to the
Agent a report or certificate prepared by the Borrower's insurance agent listing
all insurance policies and programs then in effect with respect to the
properties and businesses of the Borrower and each of its Subsidiaries,
specifying for each such policy and program, (i) the amount thereof, (ii) the
risks insured against thereby, (iii) the name of the insurer and each insured
party thereunder and (iv) the policy or other identification number thereof and
confirming compliance with Section 5.04 of the Credit Agreement.
(d) The Borrower acknowledges and agrees that a breach of any of the
covenants set forth in this Section 9 shall constitute an immediate Event of
Default under the Credit Agreement without any notice, grace period or other
action by any member of the Bank Group.
Section 10. Effectiveness. This Amendment shall become effective in
accordance with the terms of the Credit Agreement, subject, however, to the
condition precedent that the Agent shall have received written certification
from the chief financial officer of the Borrower that the Borrower has sent by
wire transfer to the trustee of the Senior Unsecured Notes that portion of the
April 1, 1999 interest payment on the Senior Unsecured Notes that is not being
funded by the Disproportionate Borrowing.
Section 11. Amendment Fee. The Borrower hereby agrees to pay each Bank
an amendment fee in an amount equal to such Bank's Commitment Percentage of
$720,000, which amendment fee shall be due and payable to each Bank on the
earlier of (a) May 15, 1999, (b) the closing of the acquisition of Oil and Gas
Properties by the Borrower from Pioneer Natural Resources USA, Inc. as
contemplated under that certain Purchase and Sale Agreement dated September 4,
1998 (as amended from time to time), or (c) the Obligations owing to such Bank
shall have been paid in full or refinanced.
Section 12. Representations and Warranties. The Borrower hereby
represents and warrants to the Bank Group that (a) the execution, delivery and
performance of this Amendment has been duly authorized by all requisite
corporate action on the part of the Borrower, (b) each of the Credit
-9-
<PAGE> 10
Agreement (as amended hereby) and the other Loan Documents to which it is a
party constitutes a valid and legally binding agreement enforceable against the
Borrower in accordance with its terms except, as such enforceability may be
limited by bankruptcy, insolvency, reorganization, moratorium, fraudulent
transfer or other similar laws relating to or affecting the enforcement of
creditors' rights generally and by general principles of equity, (c) the
representations and warranties by the Borrower contained in the Credit Agreement
as amended hereby and in the other Loan Documents are true and correct on and as
of the date hereof in all material respects as though made as of the date
hereof, (d) no Default or Event of Default exists under the Credit Agreement (as
amended hereby) or any of the other Loan Documents.
Section 13. Choice of Law. This Amendment shall be governed by, and
construed in accordance with, the laws of the State of New York.
Section 14. Final Agreement. THE CREDIT AGREEMENT (AS AMENDED HEREBY)
AND THE OTHER LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES
AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT
ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO ORAL AGREEMENTS BETWEEN THE
PARTIES.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed by its officers thereunto duly authorized as of the date first above
written.
COSTILLA ENERGY, INC.
By: /s/
--------------------------------
Name:
-------------------------------
Title:
------------------------------
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<PAGE> 11
BANKERS TRUST COMPANY,
as Agent and Bank
By: /s/
--------------------------------
Name:
-------------------------------
Title:
------------------------------
UNION BANK OF CALIFORNIA, N.A.,
as Co-Agent and Bank
By: /s/
--------------------------------
Name:
-------------------------------
Title:
------------------------------
By: /s/
--------------------------------
Name:
-------------------------------
Title:
------------------------------
DEN NORSKE BANK ASA,
as Bank
By: /s/
--------------------------------
Name:
-------------------------------
Title:
------------------------------
By: /s/
--------------------------------
Name:
-------------------------------
Title:
------------------------------
WELLS FARGO BANK (TEXAS), N.A.,
as Bank
By: /s/
--------------------------------
Name:
-------------------------------
Title:
------------------------------
-11-
<PAGE> 1
EXHIBIT 10.4
PURCHASE AND SALE AGREEMENT
BETWEEN
BALLARD PETROLEUM LLC
AND
COSTILLA ENERGY, INC.
DATED FEBRUARY 2, 1999
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
ARTICLE 1. PURCHASE AND SALE
1.1 The Properties.........................................................................1
ARTICLE 2. CONSIDERATION
2.1 Consideration..........................................................................3
2.2 Adjustments to Purchase Price..........................................................3
2.3 Manner of Payment......................................................................4
2.4 Like Kind Exchange Option..............................................................4
ARTICLE 3. REPRESENTATIONS OF SELLER
3.1 Existence..............................................................................5
3.2 Authorization..........................................................................5
3.3 Power..................................................................................5
3.4 Brokers................................................................................5
3.5 Foreign Person.........................................................................5
3.6 Litigation.............................................................................5
3.7 Liens..................................................................................6
3.8 Third-Party Rights.....................................................................6
3.9 Permits................................................................................6
3.10 Compliance with Law....................................................................6
3.11 Operator Payments......................................................................6
ARTICLE 4. REPRESENTATIONS OF BUYER
4.1 Existence..............................................................................6
4.2 Authorization..........................................................................7
4.3 Power..................................................................................7
4.4 Brokers................................................................................7
4.5 Further Distribution...................................................................7
ARTICLE 5. DISCLAIMER OF CERTAIN WARRANTIES
5.1 Limitation and Disclaimer of Representations and Warranties............................7
ARTICLE 6. CONSENTS; PREFERENTIAL RIGHTS AND RISK OF LOSS
6.1 Consents; Preferential Rights..........................................................8
6.2 Risk of Loss...........................................................................9
ARTICLE 7. COVENANTS OF SELLER
7.1 Access to Records......................................................................9
7.2 Operations.............................................................................9
7.3 Permissions...........................................................................10
</TABLE>
<PAGE> 3
<TABLE>
<S> <C> <C>
ARTICLE 8. COVENANTS OF BUYER
8.1 Return of Data........................................................................10
ARTICLE 9. SELLER'S CONDITIONS OF CLOSING
9.1 Representations.......................................................................11
9.2 Performance...........................................................................11
9.3 Pending Matters.......................................................................11
9.4 Resolution............................................................................11
9.5 Consent and Release of Liens..........................................................11
9.6 Officer's Certificate.................................................................11
9.7 Board Approval........................................................................11
ARTICLE 10. BUYER'S CONDITIONS OF CLOSING
10.1 Representations.......................................................................11
10.2 Performance...........................................................................12
10.3 Pending Matters.......................................................................12
10.4 Resolution............................................................................12
10.5 Officer's Certificate.................................................................12
ARTICLE 11. CLOSING
11.1 Time and Place of Closing.............................................................12
11.2 Closing Obligations...................................................................12
11.3 Further Assurances....................................................................13
ARTICLE 12. ADDITIONAL AGREEMENTS
12.1 Calculation of Adjusted Purchase Price................................................14
12.2 Receipts and Credits..................................................................14
12.3 Records...............................................................................15
12.4 Notices...............................................................................15
12.5 Recording Documents...................................................................16
12.6 Right of Termination..................................................................16
12.7 Sales Taxes...........................................................................16
12.8 Taxes.................................................................................16
ARTICLE 13. ASSUMPTION OF OBLIGATIONS; INDEMNIFICATION
13.1 Definitions...........................................................................16
13.2 Assumption of Contracts...............................................................16
13.3 Imbalances............................................................................17
13.4 Seller's General Indemnity............................................................17
13.5 Buyer's General Indemnity.............................................................17
</TABLE>
<PAGE> 4
<TABLE>
<S> <C> <C>
ARTICLE 14. ARBITRATION
14.1 Selection of Arbitrators..............................................................18
14.2 Determination.........................................................................18
14.3 Decision Binding......................................................................18
ARTICLE 15. PHYSICAL CONDITION OF THE PROPERTIES
15.1 Prior Use of Properties...............................................................18
15.2 Assumption of Properties in Present Condition.........................................19
ARTICLE 16. MISCELLANEOUS
16.1 Amendment.............................................................................19
16.2 Gender................................................................................19
16.3 Entire Agreement......................................................................20
16.4 Successors and Assigns................................................................20
16.5 Survivability.........................................................................20
16.6 Severability..........................................................................20
16.7 Governing Law.........................................................................20
16.8 Assignability.........................................................................20
16.9 Counterparts..........................................................................20
16.10 DPTA Waiver-Waiver of Consumer Rights.................................................20
16.11 Termination...........................................................................21
16.12 Press Release.........................................................................21
16.13 Amended Exhibits......................................................................21
</TABLE>
Exhibit "A" - Schedule of Leases
Exhibit "A-1" - Schedule of Wells
Exhibit "A-1A" - Allocated Values
Exhibit "A-1B" - Candy Draw Field
Exhibit "B" - Assignment and Bill of Sale
Exhibit "C" - Deed
<PAGE> 5
PURCHASE AND SALE AGREEMENT
This Purchase and Sale Agreement ("Agreement") dated as of February 2,
1999, is between BALLARD PETROLEUM LLC, a Montana limited liability company,
whose address is 845 12th Street West, Billings, MT 59102 ("Buyer"), and
Costilla Energy, Inc., a Delaware corporation, whose address is 400 West
Illinois, Suite 1000, Midland, Texas 79701 ("Seller").
WHEREAS, Buyer sold, assigned, transferred and conveyed certain interests to
Seller in consummating the transaction contemplated by a Purchase and Sale
Agreement dated July 2, 1997 by and between the parties ("1997 PSA");
WHEREAS, Buyer desires to enter into an agreement to acquire those interests
and have those interests reassigned to itself, as well as interests Seller
acquired by the terms of the Acquisition and Exploration Agreement effective
July 1, 1997 by and between the parties ("A&E Agreement");
WHEREAS, Seller desires to sell and reassign all those interests it acquired in
consummating the transaction contemplated by the 1997 PSA, together with all
those interests it acquired through the A&E Agreement, except for Seller's
interest in the Candy Draw Field in Campbell County Wyoming ("Candy Draw"), and
Seller further desires to acquire all of Buyer's interest in Candy Draw; and
WHEREAS, Buyer agrees to exchange, transfer and convey its interest in Candy
Draw to Seller.
In consideration of the mutual covenants and agreements contained herein, the
benefits to be derived by each party hereunder, and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
Seller and Buyer agree as follows:
ARTICLE 1. PURCHASE AND SALE
1.1 The Properties. Subject to the terms and conditions of this
Agreement, Seller agrees to sell and convey to Buyer, and Buyer agrees to
purchase from Seller, but effective as of 11:59 p.m. December 31, 1998, at the
location of the respective Properties (the "Effective Time") all of Seller's
right, title, and interest in and to the following, less and except the Excluded
Property (defined below):
(a) All oil, gas and/or other mineral properties, rights and estates
of every kind and nature and wherever located, including, without limitation,
all oil, gas and/or other mineral leases and estates, leasehold estates and
interests, all mineral, royalty, overriding royalty, production payment,
reversionary, net profits, contractual leasehold and other similar rights,
estates and interests described on Exhibit "A" attached hereto (the "Leases")
covering the lands described on Exhibit "A" attached hereto (together with all
other lands covered by the Leases in which Seller owns an interest, the
"Lands"), together with all the property and rights incident thereto,
<PAGE> 6
including all rights in any pooled, unitized or communitized acreage by virtue
of the Properties being a part thereof, all production from the pool or unit
allocated to any such Properties, and all interests in any wells within the pool
or unit associated with the Properties;
(b) All producing, nonproducing, shut-in and abandoned oil and gas
wells, salt water disposal Wells, injection wells, and water wells located on
the Leases or lands pooled or unitized therewith, including, without limitation,
the wells described on Exhibit "A-1" attached hereto, and all personal property,
equipment, fixtures, compressors, pipelines, gathering, disposal,
transportation, storage and treating facilities and other improvements located
on, related to, appurtenant to or used or useful in connection with the Leases
and Lands;
(c) To the extent transferable by Seller, all contracts and
contractual rights and interests, including, without limitation, all farmout and
farmin agreements, operating agreements, production sales and purchase
contracts, saltwater disposal agreements, surface leases, division and transfer
orders, licenses and other contracts or agreements covering or affecting any or
all of the interests described or referred to above (the "Contracts");
(d) To the extent transferable, all easements, rights-of-way, surface
leases, fee estates, licenses, authorizations, permits, and similar rights and
interests applicable to, or used or useful in connection with, any or all of the
above-described interests;
(e) All proprietary data, including without limitation, all
geophysical, seismic, geologic and other technical data and interpretations
thereof, and to the extent transferable, all non-proprietary data and
information covering, relating to or used or useful in connection with any or
all of the above-described interests; provided that Buyer shall grant to Seller
and Seller shall retain and be entitled to a license to possess and use (but not
sell) all of the seismic data attributable to the Properties acquired by through
and under the A&E Agreement or which existed on the date of the 1997 PSA, which
license shall be upon the following additional terms:
(i) the license shall be nonexclusive;
(ii) Seller may use the data for all purposes, including
showing such data to third parties for any reason (other than sale) upon the
terms set forth in clause (vi) below, without Buyer's consent;
(iii) Buyer makes no representation or warranty whatsoever
with respect to the data and any reliance on interpretations derived from such
data shall be at the sole risk of Seller;
(iv) Buyer retains full ownership of the data;
(v) If Seller requires copies of the data, such copies
shall be made at Seller's sole expense; and
-2-
<PAGE> 7
(vi) Seller agrees that the data, and copies thereof, shall
be for Seller's own internal use only, and that such data shall not be sold,
treated or otherwise made available to other parties except on the following
conditions: (A) the data may be made available to a consultant for the purpose
of performing an interpretation for the Seller only, and upon completion of the
interpretation, all data must be returned to the Seller, and (B) Seller shall
have the right to reveal the data and any interpretations thereof to third
parties in an effort to make a bona fide contract with the third party relating
to exploration or drilling operations, but in no case shall the third party be
allowed to copy the data or have it in its possession outside of Seller's office
except for purposes of having the data reprocessed so long as the company
reprocessing the data agrees to keep same confidential.
(f) All oil, condensate, natural gas, natural gas liquids, other gases
(including "CO2") and other minerals produced after the Effective Time
attributable to the Properties;
(g) The Records as defined in Section 12.3; and
(h) All other property of every kind and description, real, personal
or mixed, which Seller acquired as the result of or pursuant to either the 1997
PSA or the A&E Agreement.
Seller specifically excludes from this transaction all of Seller's
interest in the Candy Draw Field described in Exhibit A-1B and the seismic
license(s) described in paragraph (e) above ("Excluded Property").
All of the above real and personal properties, rights, titles, and
interests described in subparagraphs (a) through (h) above, subject to the
limitations and terms expressly set forth herein, but excluding the Excluded
Property, are hereinafter collectively called the "Properties" or, individually,
a "Property".
ARTICLE 2. CONSIDERATION
2.1 Consideration. As consideration for this Agreement and the
transfer of the Properties at Closing Buyer shall (1) assign, transfer and
convey to Seller all of Buyer's interest of every kind and nature in the
Properties described on Exhibit "A-1B;" being Candy Draw Field, (2) except as
otherwise provided in this Agreement, forgo enforcement or collection of any
accrued obligation of Seller to Buyer under the (i) 1997 PSA,(ii) the A&E
Agreement, or (iii) attributable to the Properties, and (3) Buyer shall pay to
Seller at Closing the sum of $14,150,000 (the "Purchase Price"), as may be
adjusted pursuant to this Agreement (the "Adjusted Purchase Price"). Buyer has
allocated the Purchase Price as shown on Exhibit "A-1A".
2.2 Adjustments to Purchase Price. The Purchase Price shall be
adjusted by the following:
(a) The Purchase Price shall be increased by (i) the contract value of
the Seller's
-3-
<PAGE> 8
interest in the oil, gas and other minerals in storage in tanks (above the
pipeline connection if applicable), net of applicable taxes, at the Effective
Time; (ii) any amounts required under this Agreement and (iii) as otherwise
agreed upon by the Seller and Buyer.
(b) The Purchase Price shall be decreased by an amount equal to the
sum of the following amounts (determined without duplication and on an accrual
basis in accordance with generally accepted accounting principles consistently
applied):
(i) The amount of all proceeds received by Seller prior to the
Closing Date attributable to the Properties and that are attributable to the
time after the Effective Time;
(ii) An amount equal to all unpaid, ad valorem, property,
production, severance, and similar taxes and assessments (but not including
income taxes) based upon or measured by the ownership of property or the
production of hydrocarbons or the receipt of proceeds therefrom accruing to the
Seller's interest in the Properties after the effective time of the 1997 PSA and
prior to the Effective Time, which to the extent not actually assessed shall be
computed based upon such taxes assessed against the Seller's interest in the
Properties for the preceding calendar year or, if such taxes are assessed on
other than a calendar year basis, for the tax-related year last ended;
(iii) Any other amounts required under this Agreement and as
otherwise agreed upon by Seller and Buyer.
2.3 Manner of Payment. At Closing, except as provided in the following
Section 2.4, Buyer shall pay Seller or Seller's designee the Adjusted Purchase
Price by wire transfer of immediately available funds as follows:
Account: Costilla Energy, Inc.
Account No. 00-363-266
Banker Trust Company
ABA Routing No: 021001033
Attention: Marco Caputi
(212) 250-6954
2.4. Like Kind Exchange Option. Seller and Buyer hereby agree that
Seller, in lieu of the sale of the Properties to Buyer for the cash
consideration provided herein, shall have the right at any time prior to Closing
to assign all or a portion of its rights under this Agreement to a qualified
intermediary in order to accomplish the transactions contemplated hereby in a
manner that will comply, either in whole or in part, with the requirements of a
like kind exchange pursuant to Section 1031 of the Internal Revenue Code of
1986, as amended ("Code"). In the event Seller assigns its rights under this
Agreement pursuant to this Section 2.4, Seller agrees to notify Buyer in writing
of such assignment before Closing. If Seller assigns its rights under this
Agreement, Buyer agrees to (i) consent to Seller's assignment of its rights in
this Agreement, (ii) deposit the Adjusted Purchase Price with the qualified
escrow or qualified trust account
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designated by Seller at Closing, and (iii) take such further actions, at
Seller's cost, as are reasonably required to effectuate the transactions
contemplated hereby pursuant to Code Section 1031, but in so acting Buyer shall
have no liability to any party in connection with such actions. All risks and
costs associated with any like kind exchange and compliance thereof with
applicable laws, rules and regulations shall be the sole responsibility of
Seller, and Seller agrees to indemnify and hold Buyer harmless from and against
all costs, expenses, liabilities and obligations which arise as a result of
Buyer's agreement contained in this Section 2.4.
ARTICLE 3. REPRESENTATIONS OF SELLER
Seller represents and warrants to Buyer as follows:
3.1 Existence. Seller is a corporation duly organized, validly
existing, and in good standing under the laws of the State of Delaware, and is
duly qualified to do business in each State where its business operations
require such qualification.
3.2 Authorization. Subject to and conditioned upon approval by
Seller's Board of Directors as provided in Section 9.7, Seller has all authority
necessary to enter into this Agreement and to perform all its obligations
hereunder. This Agreement has been duly executed and delivered on Seller's
behalf, and at the Closing all documents and instruments required hereunder to
be executed and delivered by Seller will have been duly executed and delivered.
This Agreement, and all such documents and instruments shall constitute legal,
valid, and binding obligations of Seller enforceable in accordance with their
respective terms.
3.3 Power. Subject to preferential rights and restrictions on
assignment of the type typically found in the oil and gas industry, and to
rights to consent by, required notices to, and filings with or other actions by
governmental entities, Seller's execution, delivery, and performance of this
Agreement and the transactions contemplated hereby will not: (i) violate or
conflict with any provision of its articles of incorporation, bylaws,
regulations, or other governing documents; (ii) to the best of Seller's
knowledge, result in the breach of any term or condition of, or constitute a
default or cause the acceleration of any obligation under any agreement or
instrument to which it is a party or by which it is bound; or (iii) to the best
of Seller's knowledge, violate or conflict with any applicable judgment, decree,
order, permit, law, rule, or regulation.
3.4 Brokers. Seller has incurred no liability, contingent or
otherwise, for broker's or finder's fees in respect of this transaction, for
which Buyer shall have any responsibility, whatsoever.
3.5 Foreign Person. Seller is not a "foreign person" within the
meaning of Sections 1445 and 7701 of the Internal Revenue Code of 1986, as
amended (the "Code") (i.e. Seller is not a nonresident alien, foreign
corporation, foreign partnership, foreign trust, or foreign estate as those
terms are defined in the Code and any regulations promulgated thereunder).
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3.6 Litigation. There is no suit, claim, action, or other proceeding,
pending or, to Seller's best knowledge, threatened, before any court or
governmental agency as of the date of this Agreement that relates to the
Properties. Seller shall promptly notify Buyer of any such proceeding arising
prior to Closing.
3.7 Liens. Except as disclosed on Schedule 3.7 attached hereto,
Seller's interest in the Properties is not subject to any liens, security
interests or mortgage of any kind or nature.
3.8 Third Party Rights. Except as reflected on Exhibit "A-1" attached
hereto, there are no (i) reversionary interests, conversion rights, back-in
interests, royalties, overriding royalties, production payments, claims or other
burdens on or against the Properties' production held by third parties which
were created by Seller without the knowledge of Buyer and outside the scope of
the 1997 PSA and the A&E Agreement and which affect Seller's interests in the
Properties, or (ii) preferential rights of purchase, consent rights or other
rights in third person created by Seller without the knowledge of Buyer and
outside the scope of the 1997 PSA and the A&E Agreement which affect Seller's
interest in the Properties.
3.9 Permits. To the best of Seller's knowledge and belief, Seller
possesses all material licenses, permits, certificates, order, approvals and
authorizations necessary or appropriate to own its interest in the Properties
and to carry on its business as now conducted.
3.10 Compliance with Law. To the best of Seller's knowledge and
belief, Seller is in material compliance with all laws, ordinances, rules,
regulations and orders applicable to its interest in the Properties, including,
without limitation, all ordinances, rules, regulations and orders, and Seller
has not received any notice of any claimed noncompliance therewith. To the best
of Seller's knowledge and belief, Seller is not aware of any facts, conditions
or circumstances in connection with, related to or associated with the
Properties that could reasonably be expected to give rise to any claim or
assertion that Seller, the Properties or the ownership or operation of any
thereof is not in material compliance with any applicable law, rule, regulation,
ordinance, or order of any governmental authority or with any term or conditions
of any applicable permit, license, approval, consent, certificate or other
authorization.
3.11 Operator Payments. Seller has paid all its accrued obligations
and complied with all of its other obligations with respect to those portions of
the Properties operated by operators other than the Seller, or Buyer.
ARTICLE 4. REPRESENTATIONS OF BUYER
Buyer represents and warrants to Seller as follows:
4.1 Existence. Buyer is a limited liability company duly organized,
validly existing, and in good standing under the laws of the State of Montana
and is duly qualified to do business in each State where its business operations
require such qualification.
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4.2 Authorization. Buyer has all authority necessary to enter into
this Agreement and to perform all its obligations hereunder. This Agreement has
been duly executed and delivered on Buyer's behalf, and at the Closing all
documents and instruments required hereunder to be executed and delivered by
Buyer will have been duly executed and delivered. This Agreement and all such
documents and instruments shall constitute legal, valid, and binding obligations
of Buyer enforceable in accordance with their respective terms.
4.3 Power. Buyer's execution, delivery, and performance of this
Agreement and the transactions contemplated hereby will not: (i) violate or
conflict with any provision of its articles of organization, operating
agreement, or other governing documents; (ii) to the best of Buyer's knowledge,
result in the breach of any term or condition of, or constitute a default or
cause the acceleration of any obligation under any agreement or instrument to
which it is a party or by which it is bound; or (iii) to the best of Buyer's
knowledge, violate or conflict with any applicable judgment, decree, order,
permit, law, rule, or regulation.
4.4 Brokers. Buyer has incurred no liability, contingent or otherwise,
for broker's or finder's fees in respect of this transaction, for which Seller
shall have any responsibility whatsoever.
4.5 Further Distribution. Buyer (i) is acquiring an interest in the
Properties for its own account and without a view to the distribution thereof,
within the meaning of the Securities Act of 1933, as amended; and (ii) has such
knowledge and experience in business, financial, and oil and gas matters that it
is capable of evaluation of the merits and risks of entering into and of
carrying out its obligations in connection with the acquisition of an interest
in the Properties in the manner contemplated herein.
ARTICLE 5. DISCLAIMER OF CERTAIN WARRANTIES
5.1 Limitation and Disclaimer of Representations and Warranties. THE
EXPRESS REPRESENTATIONS AND WARRANTIES OF SELLER CONTAINED IN THIS AGREEMENT ARE
EXCLUSIVE AND ARE IN LIEU OF ALL OTHER REPRESENTATIONS AND WARRANTIES, EXPRESS,
IMPLIED, STATUTORY, OR OTHERWISE. THE REPRESENTATIONS AND WARRANTIES CONTAINED
HEREIN SHALL TERMINATE IN ALL RESPECTS AT CLOSING, EXCEPT FOR ARTICLES 3.11,
13.4, 13.5 AND AS OTHERWISE SET FORTH IN THE ASSIGNMENT AND BILL OF SALE AND ANY
DEED DELIVERED AT CLOSING. ANY ASSIGNMENT AND BILL OF SALE OR OTHER CONVEYANCE
EXECUTED AND DELIVERED PURSUANT HERETO SHALL BE: (a) WITHOUT ANY WARRANTY OR
REPRESENTATION OF TITLE, EITHER EXPRESS, IMPLIED, STATUTORY OR OTHERWISE, EXCEPT
THAT SELLER WARRANTS TITLE TO THE PROPERTIES AS TO ANY CLAIMS BROUGHT BY,
THROUGH OR UNDER SELLER BUT NOT OTHERWISE; (b) WITHOUT ANY EXPRESS,
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<PAGE> 12
IMPLIED, STATUTORY OR OTHER WARRANTY OR REPRESENTATION AS TO THE CONDITION,
QUANTITY, QUALITY, FITNESS FOR A PARTICULAR PURPOSE, CONFORMITY TO MODELS OR
SAMPLES OF MATERIALS OR MERCHANTABILITY OF ANY OF THE PROPERTIES OR THEIR
FITNESS FOR ANY PURPOSE; AND (c) WITHOUT ANY OTHER EXPRESS, IMPLIED, STATUTORY
OR OTHER WARRANTY OR REPRESENTATION WHATSOEVER. BY CLOSING BUYER SHALL HAVE
INSPECTED OR WAIVED ITS RIGHT TO INSPECT THE RECORDS AND THE PROPERTIES FOR ALL
PURPOSES AND SATISFIED ITSELF AS TO THE PHYSICAL AND ENVIRONMENTAL CONDITION OF
THE PROPERTIES, BOTH SURFACE AND SUBSURFACE, INCLUDING BUT NOT LIMITED TO
CONDITIONS SPECIFICALLY RELATED TO THE PRESENCE, RELEASE OR DISPOSAL OF
HAZARDOUS SUBSTANCES. BUYER IS RELYING SOLELY UPON ITS OWN INSPECTION OF THE
PROPERTIES, AND, BUYER SHALL ACCEPT ALL OF THE SAME IN THEIR AS IS, WHERE IS
CONDITION. IN ADDITION, SELLER MAKES NO WARRANTY OR REPRESENTATION, EXPRESS,
IMPLIED, STATUTORY OR OTHERWISE, AS TO THE ACCURACY OR COMPLETENESS OF ANY DATA,
REPORTS, RECORDS, PROJECTIONS, INFORMATION OR MATERIALS NOW, HERETOFORE OR
HEREAFTER FURNISHED OR MADE AVAILABLE TO BUYER IN CONNECTION WITH THIS
AGREEMENT, INCLUDING, WITHOUT LIMITATION, ANY DESCRIPTION OF THE PROPERTIES
PRICING ASSUMPTIONS, OR QUALITY OR QUANTITY OF HYDROCARBON RESERVES (IF ANY)
ATTRIBUTABLE TO THE PROPERTIES OR THE ABILITY OR POTENTIAL OF THE PROPERTIES TO
PRODUCE HYDROCARBONS OR THE ENVIRONMENTAL CONDITION OF THE PROPERTIES OR ANY
OTHER MATTERS CONTAINED IN CONFIDENTIAL INFORMATION OR ANY OTHER MATERIALS
FURNISHED OR MADE AVAILABLE TO BUYER BY SELLER OR BY SELLER'S EMPLOYEES, AGENTS
OR REPRESENTATIVES; ANY AND ALL SUCH DATA, RECORDS, REPORTS, PROJECTIONS,
INFORMATION AND OTHER MATERIALS FURNISHED BY SELLER OR BY SELLER'S EMPLOYEES,
AGENTS OR REPRESENTATIVES OR MADE AVAILABLE TO BUYER ARE PROVIDED TO BUYER AS A
CONVENIENCE, AND SHALL NOT CREATE OR GIVE RISE TO ANY LIABILITY OF OR AGAINST
SELLER; AND ANY RELIANCE ON OR USE OF THE SAME SHALL BE AT BUYER'S SOLE RISK.
THE ASSIGNMENTS AND BILLS OF SALE OR OTHER CONVEYANCES TO BE DELIVERED BY SELLER
AT CLOSING SHALL EXPRESSLY SET FORTH THE LIMITATIONS AND DISCLAIMERS OF
REPRESENTATIONS AND WARRANTIES CONTAINED IN THIS PARAGRAPH.
ARTICLE 6. CONSENTS, PREFERENTIAL RIGHTS AND RISK OF LOSS
6.1 Consents; Preferential Rights. Buyer shall notify Seller of the
Leases or Contracts which require a consent to assignment of any of the
Properties, Seller shall make a good faith effort to obtain such consent, or a
waiver of such consent, other than consents of governmental authorities which
are usually obtained in the normal course of business after Closing. Seller
shall not be obligated to incur any expenses to obtain such consent or waiver
and shall not be liable to
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<PAGE> 13
Buyer by reason of any inability or failure to obtain any such waiver or
consent. If there is an inability or failure to obtain any waiver or consent
prior to the Closing, Buyer may either (i) exclude the affected Properties from
the purchase and sale with a reduction in the Purchase Price for such
Properties' allocated value, or (ii) complete the purchase and sale of the
affected Properties without any reduction in the Purchase Price. Notification of
a consent requirement or of a preferential right to purchase may be given by
Buyer to Seller at any time prior to Closing. In this regard, Buyer shall
prepare for Seller, at Buyer's expense, the typewritten notices (along with an
electronic copy of same), in form and content acceptable to Seller, of all
Preferential Rights to Purchase and/or Consents to Assign. If any of the
Properties are subject to a preferential right to purchase and, prior to
Closing, any holder of a preferential right to purchase notifies Seller That it
intends to consummate the purchase of Seller's interest the in the Property to
which its preferential right applies, the affected Properties shall be excluded
from the sale to Buyer under this Agreement, and the Purchase Price shall be
reduced by the Allocated Value of the such Property. If the preferential right
has been waived or if the time for the exercise of such right has not expired
the affected Property shall be conveyed to Buyer at Closing. Thereafter, if the
holder of the preferential right timely and properly exercises its right to
purchase, Buyer shall be obligated to convey the such Property to such third
party and shall receive the purchase price therefor.
6.2 Risk of Loss. If, after the Effective Time and prior to the
Closing, any part of the Properties shall be destroyed or harmed by fire or any
other casualty or cause or shall be taken by condemnation or the exercise of
eminent domain, Buyer shall be entitled to any applicable insurance proceeds (to
the extent actually received by Seller) or condemnation awards.
ARTICLE 7. COVENANTS OF SELLER
Seller covenants and agrees with Buyer as follows:
7.1 Access to Records. Prior to the Closing Date, Seller shall grant
Buyer reasonable access to the Records for the review and copying thereof, at
Buyer's expense, during Seller's normal business hours upon reasonable prior
notification. The Records shall be made available at their present location
together with suitable office facilities for review and copying purposes. Buyer
will use its best efforts to conduct such operations in a manner that will not
disrupt Seller's normal business activities. From and after the date of the
execution of this Agreement through the Closing Date, Seller shall not add to or
remove from the Records any contracts, instruments, documents or other materials
except for such additions and removals as are done in the ordinary course of
business with respect to ongoing operations. Any contracts, instruments,
documents or other materials removed from the Records by Seller during such
period of time will be replaced in the Records by Seller after their use, and
Seller shall advise Buyer of which Records have been removed.
7.2 Operations. From the date of this Agreement until Closing, except
as otherwise approved by Buyer, Seller:
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(a) shall not transfer, sell, hypothecate, encumber, or otherwise
dispose of any of the Properties (other than sale of production in the ordinary
course of business or as required in connection with the exercise of
preferential rights to purchase any of the Properties), or substantially modify
or terminate any Contract or other material agreement;
(b) shall not enter into any production sale, processing, treating or
other agreements affecting the Properties not terminable on no more than thirty
(30) days' notice;
(c) shall promptly notify Buyer of any notice received by Seller
relating to any claims or lawsuits relating to the Properties;
(d) shall not grant any preferential right to purchase or similar
right or agree to require the consent of any party to the transfer and
assignment of Seller's interest in the Properties to Buyer;
(e) shall not enter into any transaction the effect of which,
considered as a whole, would be to cause Seller's ownership interests in any of
the Properties to be altered from its ownership interest as of the Effective
Time;
(f) shall not enter into any settlement of or relinquish any
outstanding receivables which are a part of the Properties (including, without
limitation, the right to receive any retroactive price adjustments, take-or-pay
monies, FERC mandated refunds, accounting adjustments, tax adjustments, and
Minerals Management Service refunds); and
(g) shall give Buyer prompt written notice of any notice of default
(or written threat of default, whether disputed or denied) received or given by
Seller under any instrument or agreement affecting the Properties to which
Seller is a party or which it or any of the Properties is bound.
7.3 Permissions. Until Closing, Seller will use reasonable efforts to
obtain all permissions, approvals, and consents of federal, state, and local
governmental authorities and other third parties as may be required to
consummate the sale contemplated hereunder (excluding governmental permissions,
approvals, and consents which are customarily obtained after the consummation of
transactions of the type contemplated hereunder).
ARTICLE 8. COVENANTS OF BUYER
8.1 Return of Data. Buyer agrees that if this Agreement is terminated
for any reason whatsoever, Buyer shall, at Seller's request, promptly return to
Seller all information and data furnished by or on behalf of Seller to Buyer,
its officers, employees, and representatives in connection with this Agreement,
and Buyer shall deliver to Seller all copies, extracts, or excerpts of such
information and data.
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ARTICLE 9. SELLER'S CONDITIONS OF CLOSING
The obligation of Seller to close this transaction shall be subject to
and conditioned upon the following, any one or more of which may be waived by
Seller, in whole or in part:
9.1 Representations. The representations of Buyer under Article 4 of
this Agreement shall be true and accurate in all material respects as of the
date when made and shall be deemed to be made again at and as of the time of the
Closing and shall then be true and accurate in all material respects.
9.2 Performance. Buyer shall have performed and complied with each
covenant, agreement, and condition required by this Agreement to be performed or
complied with by it prior to or at Closing.
9.3 Pending Matters. At Closing, no litigation, proceeding,
investigation, or inquiry shall be pending or threatened to enjoin or prevent
the consummation of the transactions contemplated by this Agreement.
9.4 Resolution. Buyer shall have furnished Seller a certified copy of
resolutions of the board of directors of its manager authorizing the execution
and delivery of this Agreement and delivery of all documents contemplated
herein.
9.5 Consent and Release of Liens. Seller shall have received the
consent of its lenders under that certain Amended and Restated Credit Agreement
dated August 28, 1997 between Seller, Bankers Trust Company, as Agent, and Union
Bank of California, N.A., as Co-Agent, as amended, for the sale of the
Properties and shall have obtained releases of all liens and security interests
held by such lenders burdening the Properties.
9.6 Officer's Certificate. Buyer shall have delivered to Seller a
certificate of an executive officer of Buyer's manager dated the Closing Date,
certifying on behalf of Buyer that the conditions set forth in Section 9.1, 9.2
and 9.3 have been fulfilled.
9.7 Board Approval. On or before Closing, Seller shall have received
approval of its Board of Directors granting their consent to enter into and
consummate this transaction.
ARTICLE 10. BUYER'S CONDITIONS OF CLOSING
The obligation of Buyer to close this transaction shall be subject to
and conditioned upon the following, any one or more of which may be waived by
Buyer, in whole or in part:
10.1 Representations. The representations of Seller under Article 3 of
this Agreement shall be true and accurate in all material respects as of the
date when made and shall be deemed
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<PAGE> 16
to be made again at and as of the time of the Closing and shall then be true and
accurate in all material respects.
10.2 Performance. Seller shall have performed and complied with each
covenant, agreement, and condition required by this Agreement to be performed or
complied with by it prior to or at Closing.
10.3 Pending Matters. At Closing, no suit or action shall have been
instituted or threatened that questions or reasonably appears to portend
subsequent questioning of the validity or legality of this Agreement or the
transactions contemplated by this Agreement.
10.4 Resolution. Seller shall have furnished Buyer a certified copy of
Resolutions of the board of directors of the Seller, dated on or before Closing,
authorizing the execution and delivery of this Agreement and delivery of all
documents contemplated herein.
10.5 Officer's Certificate. Seller shall deliver to Buyer a
certificate of executive officer of Seller, dated the Closing Date, certifying
on behalf of Seller that the conditions set forth in Sections 10.1, 10.2 and
10.3 have been fulfilled.
ARTICLE 11. CLOSING
11.1 Time and Place of Closing. Subject to the conditions stated in
this Agreement, the consummation of the transactions contemplated hereby (the
"Closing") shall occur on or before March 4, 1999 or such other date that the
parties may mutually agree upon and designate in writing (the "Closing Date");
provided, however, that if all of the conditions to Closing set forth in
Articles 9 and 10 have not been satisfied or waived by such date or any extended
date for Closing, the party whose obligations are subject to the conditions that
have not been satisfied or waived shall have the right to extend the date of
Closing for successive periods of up to seven days each until such conditions
shall have been satisfied or waived. The Closing shall be held at Seller's
office in Midland, Texas, or at such other location as may be mutually agreed
upon by Seller and Buyer.
11.2 Closing Obligations.
(a) At Closing, Seller shall deliver to Buyer the following:
(i) Executed Assignments, Bills of Sale and Conveyances of the
Sale interest in the Properties, in the form attached hereto as Exhibit "B" and
executed deeds covering Seller's fee mineral and surface interests in any of the
Properties, in the form attached hereto as Exhibit C; and in sufficient
counterparts for recording in each appropriate filing jurisdiction;
(ii) An initial settlement statement reflecting adjustments to
the Purchase Price as provided in Article 2 above (Seller shall provide Buyer a
copy of the statement at least 3 business days before the Closing Date);
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(iii) Executed releases of the Deeds of Trust, Mortgages and
other security documents listed on Schedule 3.7 hereof and all related financing
statements (the "Releases").
(iv) Letters-in-lieu of transfer orders, directing that all
proceeds of production from the Seller's interest in the Properties which have
theretofore been paid to Seller shall be paid to the account of Buyer as of and
after Effective Time;
(v) Resolutions of the board of directors of the Seller in
compliance with Section 10.4 hereof;
(vi) Possession of the Properties;
(vii) Appropriate executed state and federal lease assignments
on the prescribed form;
(viii) An affidavit that it is not a foreign person; and
(ix) Evidence, in form and substance reasonably satisfactory
to the Buyer, that it has satisfied its representation and warranty contained in
Section 3.11.
(b) At Closing, Buyer shall:
(i) Deliver to Seller the Adjusted Purchase Price by wire
transfer to Seller's account as provided in Section 2.3.
(ii) Execute the Assignments, Bills of Sale and Conveyances
and Deeds delivered by Seller to Buyer at Closing, evidencing Buyer's acceptance
of same;
(iii) Deliver to Seller Resolutions of the Board of Directors
of the manager of Buyer in compliance with Section 9.4 hereof; and
(iv) Deliver to Seller an Assignment and Bill of Sale, in the
form of the Assignment and Bill of Sale attached to this Agreement as Exhibit B,
conveying all of Buyer's right, title and interest in the Candy Draw Field to
Seller.
11.3 Further Assurances. At and after Closing, the parties shall
execute, acknowledge, and deliver any other documents and shall take such other
actions as may be necessary or useful to carry out their obligations under this
Agreement.
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ARTICLE 12. ADDITIONAL AGREEMENTS
12.1 Calculation of Adjusted Purchase Price. Within 90 days after the
Closing, Seller shall prepare, in accordance with this Agreement and with
generally accepted accounting principles consistently applied, and deliver to
Buyer a statement setting forth each adjustment to the Purchase Price required
pursuant to Section 2.2 and showing the calculation of each such adjustment.
Within 30 days after receipt of such statement from Seller, Buyer shall deliver
to Seller a written report containing all changes with explanations and
documentation therefor that Buyer proposes be made to such statement, it being
agreed that Buyer's failure to deliver such report to Seller within such time
period shall constitute acceptance by Buyer of Seller's statement. From and
after the expiration of such 30-day period, no additional changes to the
statement provided by Seller shall be considered by the parties. If Buyer has
timely delivered such written report, the parties shall then undertake to agree
on the items in dispute and the final Adjusted Purchase Price no later than 15
days after the receipt by Seller of Buyer's statement of proposed changes (it
being agreed that any disputes as to adjustments relating to Defects shall be
resolved prior to such time pursuant to the provisions of Article 3). Following
the final determination of the Adjusted Purchase Price pursuant to this Section
13.1, Seller or Buyer, as the case may be, shall make the payment required
within five business days after such final determination. Seller and Buyer will
provide any information reasonably requested by the other in order to prepare
such statement or verify Seller's statement or written report.
12.2 Receipts and Credits.
(a) Subject to the terms hereof and except to the extent same have
already been taken into account as an adjustment to the Purchase Price or except
to the extent same constitutes part of the Properties, all monies, proceeds,
receipts, credits, and income attributable to the Seller's interest in the
Properties:
(i) for the period subsequent to the Effective Time, shall be
the sole property and entitlement of Buyer, and, to the extent received by
Seller, Seller shall fully disclose, account for, and transmit same to Buyer
promptly; and
(ii) for the period prior to the Effective Time, to the extent
not paid to Seller, shall be the sole property and entitlement of Buyer,
provided however, to the extent paid to and received by Seller, shall remain the
property and entitlement of Seller.
(b) Subject to the terms of this Agreement, and subject to the
obligations of Seller under Article 2.2 (b) (ii), and subject the representation
of Seller under Article 3.11, and except to the extent same have already been
taken into account as an adjustment to the Purchase Price or except to the
extent Buyer has forgone enforcement and collection of Seller's accrued
obligations to Buyer as part of the consideration for this Agreement pursuant to
Section 2.1, all costs, expenses, disbursements, obligations, and liabilities
attributable to the Seller's interest in the Properties (EXCEPT FOR PERSONAL
INJURY CLAIMS, UNDERPAYMENTS OF ROYALTIES AND UNDERPAYMENT OF SEVERANCE TAXES
FOR WHICH SELLER IS INDEMNIFYING BUYER IN ARTICLE 13.4):
(i) for the period on and after the effective time of the 1997
PSA and prior to
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the Effective Time, regardless of when due or payable, but only to the extent
not previously paid by Seller, shall be the sole obligation of Buyer and Buyer
shall hold Seller harmless from and against same; and
(ii) for the period subsequent to the Effective Time,
regardless of when due or payable, shall be the sole obligation of Buyer and
Buyer shall promptly pay, or if paid by Seller, promptly reimburse Seller for
and hold Seller harmless from and against same.
12.3 Records. Copies, made at Buyer's expense, of all files, records,
documentation, and data of Seller that Buyer may reasonably request relating to
(or evidencing) Seller's ownership or rights in the Properties or other rights
and interests described herein, including, but not limited to lease files, land
files, well files, production sales agreements files, division order files,
title opinions and abstracts, governmental filings, production reports,
proprietary seismic data, production logs, core sample reports, and land maps,
as such data is assembled and maintained in the normal course of business
(collectively, the "Records"), will be, as soon as is reasonably possible after
Closing, delivered to Buyer's offices, at Buyer's expense. To the extent not
obtained or satisfied as of Closing, Seller agrees to continue to use all
reasonable efforts and to cooperate with Buyer's efforts to obtain for Buyer
access to files, records and data relating to the Property in the possession of
third parties. To the extent Seller may do so without violating third party
agreements, Seller shall provide Buyer with access to all of Seller's seismic
data and information relating to the Properties.
12.4 Notices. All notices hereunder shall be in writing and any
communication or delivery hereunder shall be deemed to have been duly made when
personally delivered to the individual indicated below, or if mailed, when
received by the party charged with such notice and addressed as follows:
BUYER: Ballard Petroleum LLC
845 12th Street West
Billings, Montana 59102
Attention: W.W. Ballard
and Dennis M. Campbell
Telephone: (406) 259-8790
Facsimile: (406) 259-3884
SELLER: Costilla Energy, Inc.
Attn: Clifford N. Hair, Jr.
400 West Illinois, Suite 1000
Midland, Texas 79701
Facsimile: (915) 686-6083
Telephone: (915) 686-6030
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Any party may, by written notice so delivered to the other, change the address
of the individual to which or to whom delivery shall thereafter be made.
12.5 Recording Documents. Buyer shall pay all documentary, filing, and
recording fees incurred in connection with the filing and recording of the
instruments of conveyance. Seller shall pay all fees incurred in connection with
the filing and recording of the Releases.
12.6 Right of Termination. This Agreement and the transactions
contemplated hereby may be terminated at any time at or prior to the Closing by
mutual agreement of Buyer and Seller in writing, or by either party due to the
failure of the other party to meet a material condition to Closing. Upon the
failure of either party to, the other party at its option, may (i) enforce
whatever legal or equitable rights may be appropriate and applicable, or (ii)
terminate this Agreement, thereby waiving all other remedies available to it.
12.7 Sales Taxes. The Purchase Price provided for hereunder excludes
any sales taxes or other taxes in connection with the sale of the Seller's
interest in the Properties pursuant to this Agreement. If a determination is
ever made that a sales tax or other transfer tax applies, Buyer shall pay such
tax as well as any applicable conveyance, transfer, and recording fees, and real
estate transfer stamps or taxes imposed on any transfer of property pursuant to
this Agreement. Buyer shall defend, indemnify, and hold Seller harmless with
respect to the reporting and payment of all such taxes, if any, including any
interest or penalties assessed thereon.
12.8 Taxes. All ad valorem, severance, or other such production or
property tax relating to the period after the effective time of the 1997 PSA and
prior to the Effective Time shall be shared by Seller 60% and Buyer 40%
regardless of when assessed or payable. Any such ad valorem, severance, or other
such production or property tax relating to the period prior to the effective
time of the 1997 PSA and to the period after the Effective Time and beyond shall
be the responsibility of the Buyer. Adjustments to the Purchase Price to account
for such taxes shall be made as provided in Section 2.3, but any such adjustment
shall not affect the parties' obligations under this Section 12.8 if the
adjustments are later determined to have been inaccurate.
ARTICLE 13. ASSUMPTION OF OBLIGATIONS; INDEMNIFICATION
13.1 Definitions. As used in this Agreement, "Losses" means any
liabilities, losses, claims, demands, causes of action, costs and expenses
(including, but not limited to, court costs and reasonable attorneys' fees and
other costs and expenses incident to proceedings or investigations respecting,
or the prosecution or defense of, a claim) of every kind and character
13.2 Assumption of Contracts. The sale of the Properties is and will
be made subject to the Contracts to which the Properties are presently subject.
Buyer shall assume and be
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<PAGE> 21
responsible for all obligations accruing under the Contracts after the Effective
Time and accruing under the contracts prior to the effective time of the 1997
PSA.
13.3 Imbalances. For purposes hereof, an "Imbalance" shall include any
circumstance regarding production taken or marketed from the Seller's interest
in the Properties which Buyer is acquiring pursuant to this Agreement which
could result in (i) a portion of Buyer's interest in such production being sold
without Buyer receiving payment therefor; or (ii) Buyer being obligated to make
payment to any person or entity as a result of such imbalance; or (iii) any
other circumstance by which Buyer would be obligated by virtue of any prepayment
arrangement, take-or-pay agreement, or similar arrangement binding on the
Properties after Closing, to deliver hydrocarbons produced from the Properties
at some future time without then receiving full payment therefor. The Properties
will be conveyed specifically subject to Imbalances which exist as of the
Effective Time, with Buyer bearing and assuming all obligations with respect to
any over production account for liability and receiving the benefit of and being
credited with any under production account or credit. At Closing, Seller shall
deliver to Buyer all amounts in Seller's position due third-party owners of
interest in the Properties, and Buyer agrees that it shall be solely responsible
for the disposition of such funds, the payment thereof to the rightful owners
and the payment, if any, of a royalty or interest thereon.
13.4 SELLER'S GENERAL INDEMNITY. WITH THE EXCEPTION OF CLAIMS, COST
AND EXPENSES AND LIABILITIES ATTRIBUTABLE TO ENVIRONMENTAL CONDITION OF THE
PROPERTIES, SELLER SHALL BE RESPONSIBLE FOR AND DISCHARGE ALL COSTS, EXPENSES
AND LIABILITIES ATTRIBUTABLE TO SELLER'S INTEREST IN THE PROPERTIES RESULTING
FROM PERSONAL INJURY CLAIMS, UNDERPAYMENT OF ROYALTIES AND UNDERPAYMENT OF
SEVERANCE TAXES WHICH ACCRUE OR RELATE TO THE TIME ON OR AFTER THE EFFECTIVE
TIME OF THE 1997 PSA AND PRIOR TO THE EFFECTIVE TIME AND WHICH ARE PRESENTED TO
SELLER BY BUYER, IN WRITING, WITHIN 18 MONTHS AFTER CLOSING. SELLER SHALL SAVE
HARMLESS AND INDEMNIFY BUYER, ITS DIRECTORS, OFFICERS, STOCKHOLDERS AND MEMBERS
FROM ALL LOSS, COSTS, EXPENSE (INCLUDING ATTORNEY'S FEES AND EXPENSES) PENALTIES
AND LIABILITIES FROM SELLER'S FAILURE TO PERFORM SUCH OBLIGATIONS. THIS SECTION
13.4 SHALL NOT APPLY TO THE ACCRUED OBLIGATIONS OF SELLER TO BUYER WHICH BUYER
HAS FORGONE THE ENFORCEMENT AND COLLECTION OF AS PART OF THE CONSIDERATION FOR
THIS AGREEMENT AS PROVIDED IN SECTION 2.1.
13.5 BUYER'S GENERAL INDEMNITY. BUYER SHALL BE RESPONSIBLE FOR AND
DISCHARGE ALL CLAIMS, COSTS, EXPENSES AND LIABILITIES WITH RESPECT TO THE
SELLER'S INTEREST IN THE PROPERTIES (EXCEPT FOR THOSE WHICH SELLER RETAINS IN
ARTICLE 13.4) WHICH ACCRUE OR RELATE TO THE TIMES BEFORE AND AFTER THE EFFECTIVE
TIME INCLUDING (I) ALL COSTS ATTRIBUTABLE TO THE OPERATION OF THE
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<PAGE> 22
PROPERTIES AND (II) ANY ASSERTED LIABILITY ARISING FROM ANY INJURY OR
OCCURRENCE. BUYER SHALL SAVE HARMLESS AND INDEMNIFY SELLER, ITS DIRECTORS,
OFFICERS AND STOCKHOLDERS FROM ALL LOSS, COST, EXPENSE (INCLUDING ATTORNEYS'
FEES AND EXPENSES), PENALTIES AND LIABILITIES FROM BUYER'S FAILURE TO PERFORM
SUCH OBLIGATIONS.
ARTICLE 14. ARBITRATION
14.1 Selection of Arbitrators. Any controversy between the parties
hereto arising under this Agreement and not resolved by agreement shall be
determined by a board of arbitration upon notice of submission given by either
party to the other, which notice shall name a qualified, independent arbitrator.
Within ten (10) days after the receipt of such notice, the other party shall
name a qualified, independent arbitrator, or if it fails to do so, the party
giving notice shall name the second. The two arbitrators so appointed shall name
the third qualified, independent arbitrator with thirty (30) days of the
appointment of the second arbitrator, or if they fail to do so, the arbitrator
may be appointed by the Senior Judge (in service) of the United States District
Court for Colorado. Each party shall pay for the fees and expenses of the
arbitrator it names and shall share equally the fees and expenses of the third
arbitrator. Each party shall pay its experts' fees and expenses.
14.2 Determination. The arbitrators selected to act hereunder shall be
qualified by education and experience to pass on the particular question in
dispute. The arbitrators shall promptly hear and determine (after due notice of
hearing and giving the parties a reasonable opportunity to be heard) the
questions submitted, and shall render their decision within sixty (60) days
after appointment of the third arbitrator. If within said period, a decision is
not rendered by the board, or by a majority thereof, new arbitrators may be
named and shall act hereunder, at the election of either Buyer or Seller, in
like manner as if none had been previously named.
14.3 Decision Binding. The decision of the arbitrators, or the
majority thereof, made in writing shall be final and binding upon the parties
hereto as to the questions submitted, and Buyer and Seller will abide by and
comply with such decision. The prevailing party shall be entitled to recover
reasonable attorneys' fees and expenses.
ARTICLE 15. PHYSICAL CONDITION OF THE PROPERTIES
15.1 Prior Use of Properties. THE PROPERTIES HAVE BEEN USED FOR OIL
AND GAS DRILLING AND PRODUCING OPERATIONS AND RELATED OIL FIELD OPERATIONS,
PHYSICAL CHANGES IN THE LAND MAY HAVE OCCURRED AS A RESULT OF SUCH USES. THE
PROPERTIES ALSO MAY INCLUDE BURIED PIPELINES AND OTHER EQUIPMENT, WHETHER OR NOT
OF A SIMILAR NATURE, THE LOCATIONS OF WHICH MAY NOT NOW BE KNOW BY SELLER OR
READILY APPARENT BY A PHYSICAL INSPECTION OF THE PROPERTY. BUYER
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<PAGE> 23
UNDERSTANDS THAT SELLER DOES NOT HAVE THE REQUISITE INFORMATION WITH WHICH TO
DETERMINE THE EXACT NATURE OR CONDITION OF THE PROPERTIES OR THE EFFECT ANY SUCH
USE HAS HAD ON THE PHYSICAL CONDITION OF THE LANDS BURDENED BY THE PROPERTIES.
15.2 Assumption of Properties in Present Condition. BUYER ACKNOWLEDGES
THAT (i) THE CONSUMMATION OF THIS AGREEMENT BY BUYER SHALL BE ON THE BASIS OF
ITS OWN INVESTIGATION OF THE PHYSICAL CONDITION OF THE PROPERTIES, INCLUDING,
WITHOUT LIMITATIONS, SUBSURFACE CONDITION; (ii) THE PROPERTIES HAVE BEEN USED IN
THE MANNER AND FOR THE PURPOSES SET FORTH ABOVE AND THAT PHYSICAL CHANGES TO THE
PROPERTIES AND THE LAND BURDENED THEREBY MAY HAVE OCCURRED AS A RESULT OF SUCH
USE; AND (iii) NORM AND MAN-MADE MATERIAL FIBERS (MMMF) MAY BE PRESENT AT SOME
LOCATIONS. BUYER ACKNOWLEDGES THAT NORM IS A NATURAL PHENOMENON ASSOCIATED WITH
MANY OIL FIELDS IN THE UNITED STATES AND THROUGHOUT THE WORLD. BUYER SHALL MAKE
ITS OWN DETERMINATION OF THIS PHENOMENON AND OTHER CONDITIONS. SELLER DISCLAIMS
ANY LIABILITY ARISING OUT OF OR IN CONNECTION WITH ANY PRESENCE OF NORM OR MMMF
ON OR AFFECTING THE PROPERTIES. BUYER SHALL ASSUME THE RISK THAT THE PROPERTIES
MAY CONTAIN WASTES OR CONTAMINANTS AND ADVERSE PHYSICAL CONDITIONS, INCLUDING
THE PRESENCE OF PIPELINES, EQUIPMENT AND OTHER ITEMS OF PERSONAL PROPERTY, AND
WASTES OR CONTAMINANTS WHICH MAY NOT HAVE BEEN REVEALED BY BUYER'S
INVESTIGATION. ALL RESPONSIBILITY AND LIABILITY RELATED TO DISPOSALS, SPILLS,
WASTES, OR CONTAMINATION OR OTHER ADVERSE PHYSICAL CONDITIONS ON, BELOW, OR
RELATED TO OR AFFECTING THE PROPERTIES SHALL BE ASSUMED BY BUYER AND BUYER
SHALL, NOTWITHSTANDING WHEN THE BASIS FOR ANY CLAIM, ACTION, SUIT, JUDGMENT
(INCLUDING, WITHOUT LIMITATION, THOSE FOR DEATH, PERSONAL INJURY OR PROPERTY
DAMAGE) SHALL HAVE OCCURRED, INDEMNIFY, DEFEND AND HOLD SELLER HARMLESS
THEREFROM.
ARTICLE 16. MISCELLANEOUS
16.1 Amendment. This Agreement may not be amended nor any rights
hereunder waived except by an instrument in writing signed by the party to be
charged with such amendment or waiver and delivered by such party to the party
claiming the benefit of such amendment or waiver.
16.2 Gender. References made in this Agreement, including use of a
pronoun, shall be deemed to include where applicable, masculine, feminine,
singular or plural, individuals, partnerships, limited liability companies or
corporations. As used in this Agreement, "person" shall mean any natural person,
corporation, partnership, limited liability company, trust, estate, or other
entity.
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<PAGE> 24
16.3 Entire Agreement. This Agreement constitutes the entire
understanding among the parties with respect to the subject matter hereof,
superseding all negotiations, prior discussions, and prior agreements and
understandings relating to such subject matter.
16.4 Successors and Assigns. This Agreement shall be binding upon and
shall inure to the benefit of, the parties hereto and, except as otherwise
prohibited, their respective successors and assigns; and except as otherwise
stated herein, nothing contained in this Agreement, or implied herefrom, is
intended to confer upon any other person or entity any benefits, rights, or
remedies.
16.5 Survivability. Except as otherwise specifically provided in this
Agreement, all indemnification's, covenants, agreements, representations, and
warranties shall survive the execution of the Agreement, the Closing, and the
delivery and recordation of any deeds, assignments, or bills of sale which
convey the Seller's interest in the Properties from Seller to Buyer. Nothing in
this Agreement shall be deemed to affect the special warranty of Seller as
provided in the Assignment delivered pursuant to this Agreement. Said special
warranty shall prevail over any provisions of this Agreement that might
otherwise be considered inconsistent therewith.
16.6 Severability. If a court of competent jurisdiction determines
that any clause or provisions of this Agreement is void, illegal, or
unenforceable, the other clauses and provisions of the Agreement shall remain in
full force and effect and the clauses and provisions which are determined to be
void, illegal, or unenforceable shall be limited so that they shall remain in
effect to the extent permissible by law.
16.7 Governing of Law. This Agreement shall be governed and construed
under the laws of the State of Texas (excluding any conflict of laws provision
that would require the application of any other jurisdiction).
16.8 Assignability. Except as provided in Section 2.4, neither party
hereto shall assign this Agreement or any of its rights or obligations hereunder
without the prior written consent of the other party.
16.9 Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement, and
shall become effective when one or more counterparts have been signed by each
party and delivered to the other party.
16.10 DPTA Waiver-Waiver of Consumer Rights. TO THE EXTENT APPLICABLE
TO THE PROPERTIES OR ANY PORTION THEREOF, BUYER HEREBY WAIVES THE PROVISIONS OF
THE TEXAS DECEPTIVE TRADE PRACTICES-CONSUMER PROTECTION ACT, CHAPTER 17,
SUBCHAPTER E, SECTIONS 17.41 THROUGH 17.63,
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<PAGE> 25
INCLUSIVE (OTHER THAN SECTION 17.555, WHICH IS NOT WAIVED), TEX. BUS. & COM.
CODE, A LAW THAT GIVES CONSUMERS SPECIAL RIGHTS AND PROTECTIONS. AFTER
CONSULTATION WITH AN ATTORNEY OF BUYER'S OWN SELECTION, BUYER VOLUNTARILY
CONSENTS TO THIS WAIVER. IN ORDER TO EVIDENCE ITS ABILITY TO GRANT SUCH WAIVER,
BUYER HEREBY REPRESENTS AND WARRANTS TO SELLER THAT IT (i) IS IN THE BUSINESS OF
SEEKING OR ACQUIRING, BY BUYER OR LEASE, GOODS OR SERVICES FOR COMMERCIAL OR
BUSINESS USE; (ii) IS REPRESENTED BY LEGAL COUNSEL IN SEEKING OR ACQUIRING THE
GOODS OR SERVICES HEREUNDER; (iii) HAS KNOWLEDGE AND EXPERIENCE IN FINANCIAL,
BUSINESS AND OIL AND FAS MATTERS THAT ENABLE IT TO EVALUATE THE MERITS AND RISKS
OF THE TRANSACTIONS CONTEMPLATED HEREBY; (iv) IS NOT IN A SIGNIFICANTLY
DISPARATE BARGAINING POSITION; AND (v) THAT THIS WAIVER IS A MATERIAL AND
INTEGRAL PART OF THIS AGREEMENT AND THE CONSIDERATION THEREOF.
16.11 Termination. Except as otherwise provided in this Agreement, all
of the Seller's and Buyer's rights and obligations under the 1997 PSA and the
A&E Agreement shall terminate if the Closing under this Agreement takes place.
Otherwise, the parties' rights and obligations under the 1997 PSA and the A&E
Agreement shall continue, and nothing contained in this Agreement shall be
deemed to release those rights and obligations.
16.12 Press Release. Neither party shall issue a press release
pertaining to the purchase and sale of the Properties under this Agreement
unless (i) the proposed form of the press release has first been sent to the
other party, and (ii) such other party has first approved the press release,
which approval shall not be unreasonably withheld or delayed.
16.13 Amended Exhibits. Buyer and Seller acknowledge that the Exhibits
attached to this Agreement may contain scriber's errors. Buyer and Seller agree
to use their best efforts to verify the accuracy of the Exhibits and to correct
any errors prior to Closing.
The parties have executed on this Agreement as of the date first above
mentioned,
BALLARD PETROLEUM LLC
By: Ballard and Associates, Inc.
By:
-----------------------------
W. W. Ballard
President
COSTILLA ENERGY, INC.
By:
------------------------------
Clifford N. Hair, Jr.
Senior Vice President - Land
-21-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION FROM THE UNAUDITED
CONSOLIDATED FINANCIAL STATEMENTS OF COSTILLA ENERGY, INC. FOR THE QUARTER ENDED
MARCH 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH 10-Q
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 3,254
<SECURITIES> 0
<RECEIVABLES> 9,527
<ALLOWANCES> 842
<INVENTORY> 0
<CURRENT-ASSETS> 12,928
<PP&E> 233,041
<DEPRECIATION> 110,163
<TOTAL-ASSETS> 143,679
<CURRENT-LIABILITIES> 63,338
<BONDS> 0
0
5
<COMMON> 1,310
<OTHER-SE> (102,696)
<TOTAL-LIABILITY-AND-EQUITY> 143,679
<SALES> 12,764
<TOTAL-REVENUES> 12,773
<CGS> 6,005
<TOTAL-COSTS> 7,124
<OTHER-EXPENSES> 55,590
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,987
<INCOME-PRETAX> (54,928)
<INCOME-TAX> 0
<INCOME-CONTINUING> (54,928)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (54,928)
<EPS-PRIMARY> (4.36)
<EPS-DILUTED> (4.36)
</TABLE>
